Brian J. Loasby

Knowledge, institutions, and evolution in economics

Foreword Preface Acknowledgements 1. The Problem of Knowledge 2. Selection and Evolution 3. Cognition and Institutions 4. Capabilities 5. Transactions and Governance 6. Economics Organisation 7. Understanding Markets 8. The division of Labour and the Growth of Knowledge Bibliography Index

Equilibrium and evolution : an exploration of connecting principles in economics

Economic theory and economic problems the organization of knowledge economic organization firms markets innovation.

Time, knowledge and evolutionary dynamics: why connections matter

Abstract. Time matters because knowledge changes. Knightian uncertainty excludes correct procedures and proven knowledge, but makes room for imagination and creativity, which drive an evolutionary process. Human cognition relies less on logic than on pattern-making; we impose connecting principles to create patterns and causal linkages between them as representations of phenomena, which are imperfect and often subject to multiple interpretations. Stable patterns provide the necessary baseline for selection. Our personal patterns are supplemented by institutional regularities, and organisations of various kinds help to shape the development of knowledge, which grows by making connections at the various margins of existing knowledge.

The evolution of knowledge: beyond the biological model

Abstract The analysis of the evolution of knowledge is distinguished from standard economics and neoDarwinian biology; it combines purpose with the impossibility of empirical proof. Adam Smith’s psychological theory includes motivation, aesthetics, invention, diffusion, renewed search, the speciation of knowledge and the division of labour. Knightian uncertainty gives rise to both routines and imagination; variation and selection require a baseline. Organisation and institutions, both of which entail selective connections, aid knowledge, and knowledge consists of conjectured connections, open to refutation. Modern biological ideas about cognition provide an appropriate basis for this analysis, but do not encompass it.

Cognition, imagination and institutions in demand creation

Abstract. Formal rationality plays a limited role in human cognition, which originated in the creation of patterns to interpret phenomena and link phenomena with action. The creation of new patterns rests on imagination, not logic, typically stimulated by a perceived inadequacy in established patterns. Internal routines of the brain and external institutions form structures of cognitive capital; the institutions of markets, including money prices, aid the development of consumption capital, which simplifies most choices and provides scope for selective experiment and innovation in creating goods. Such innovation depends on differences between individuals and changes in their circumstances.

A Cognitive Perspective on Entrepreneurship and the Firm

I propose to examine the theme of this Special Issue from the perspective of its treatment and, of especial significance, its lack of treatment within economics. In the course of this examination we shall observe that the concepts of entrepreneurship and the firm are generally kept separate, and attempt to explain why. I shall avoid any discussion of recent work, which is more productively left to my fellow contributors, choosing instead to devote the first half of my contribution to providing an analytical basis for the second half by exploring the problem of knowledge in economic systems, and relating this problem to the evolved nature of human beings and their relationship with their environment. In this exploration I shall rely almost entirely on the work of economists, though much of it was not directed to conventional economic issues.

Closed models and open systems

Rational choice theory relies on premises that are correct and complete; but, in general, neither can be assured. Knowledge is an open system of selected relationships and the adequacy of our representations of phenomena is always subject to Knightian uncertainty. The management of industrial research projects requires the exploration of this uncertainty, with the aid of provisionally closed models. Systems are defined by their elements and their connections, and the incompleteness of connections aids adjustment to external change and also promotes novelty – much of it unsuccessful, for it cannot be rationally generated – through variations in the degree and dimensions of closure. We create knowledge by creating patterns, grouping phenomena by selective (and problematic) criteria of similarity; and coherence between patterns is important for individuals and organizations. Adam Smiths psychological and evolutionary theory of the growth of knowledge, like the epistemology of modern science, rests on human cognition and the intersubjectivity that it makes possible. Genetically based evolution has progressed from the specification of behaviour to an endowment of motivation and the capacity to create patterns, encouraging search and the development of rules and conventions to aid individual thought as well as interactions. Uncertainty is the precondition of imagination; closure in some dimensions allows us to explore in others, and to absorb new ideas within a particular range. In 1861 Carlo Cattaneo argued that development resulted from two characteristics of the human mind: intelligence and will. These characteristics may be represented by selected connections and selected closures, which guide our actions.

The Mind and Method of the Economist: A Critical Appraisal of Major Economists in the Twentieth Century.

This major book comprises amongst other essays critical appraisals of major economists including Alfred Marshall, Joan Robinson, G.B. Richardson, W.J. Baumol, Frank Hahn and Herbert Simon and of Austrian economics and diverse approaches to co-ordination failure in macroeconomics.

Hayek’s Theory of the Mind

Hayek’s theory of cultural evolution has always generated controversy. Interest in Hayek’s theory, and others’ analysis and criticism of it, has been rising of late. This volume urges a reconsideration of Hayeks’ theory of evolution and aims to explore the relevance of Hayek’s theory for its own sake and for evolutionary economics more generally.

Marshall, Schumpeter and evolution

As Stan Metcalfe is the leading exponent of combining Marshallian and Schumpeterian conceptions of the evolution of economic systems, it is appropriate to explore the similarities and differences between Marshalls and Schumpeters work, and in doing so, to draw particularly on major Companions to each and a conference volume, which is explicitly focused on such comparisons, to all of which he has contributed. Economic systems generate and diffuse novelty through the creation and application of knowledge, which is inherently unpredictable but which emerges from diverse forms of organization. This process of selective co-ordination relies on quasi-decomposability – which implies partial equilibrium, and therefore entails multiple failure and sometimes major disruption, both of which should be represented in economic theory and should inform economic policy.