Mind, market and society : network structures in the work of F.A. Hayek

How markets emerge, function, and remain in existence (or are reproduced) are problems that economists have hardly addressed. One of the exceptions is Friedrich Hayek. Between the second half of the 1930s and the early 1960s he formulated a number of ideas about these topics. Historically, these were inspired by his very early work on cognitive psychology, which in the 1950s was one of the sources of neural network models. Among the features that found their way from his cognitive psychology into his market models are the distributed nature of knowledge in a system and its coordination by means of a self organizing process. Systematically, Hayek's ideas on markets and competition are part of his larger research programme in economics. This programme aimed at developing a theory of disequilibrium growth in an intertemporal general equilibrium framework. Hayek's writings do not constitute a systematic theory of dynamic market phenomena. However, they contain a number of insights that have hardly been noticed. With hindsight, we may observe that these ideas are part of what sociologists would call a network model. The main characteristics of such models are described. Some recent applications of sociological network theory to market phenomena, notably by Harrison White and Ronald Burt, are very much in the spirit of Hayek, without being influenced by him. The same is the case within economics, where network approaches are much rarer. The economists Alan Kirman and Robert Gilles have indicated ways to develop network models for understanding markets. Like Hayek's ideas, these are extensions of a general equilibrium approach. An economist who was inspired by Hayek but who does not explicitly present his analysis as a network model is George Richardson. The works mentioned have not been integrated, and together they cover the problems of the emergence, functioning and reproduction of markets in a very gappy way. It is argued that Hayek's later work in evolutionary social theory may be used to make progress. The first appendix summarizes Hayek's cognitive psychology, the second discusses some historical questions related to its influence on the rest of his work.