Neoclassical economic theory, using general equilibrium analysis, seeks to answer questions about economies in which Adam Smith's invisible hand has accomplished its task. However, neoclassical theory has little to say about how the invisible hand accomplishes its task or if that task is ever completed. In contrast, the focus of this dissertation is on the workings of the invisible hand. It outlines a self-organisation approach to evolutionary economics. The dissertation demonstrates that the study of economic processes as a self-organising system provides insights into the fundamental economic question: how do decentralised choices interact and get coordinated?
The central thesis of the dissertation has two parts:
(i) Insights provided by evolutionary economists such as Thorstein Veblen, Joseph Schumpeter, Friedrich Hayek and their followers can be integrated to construct a theory of economic processes that is more complete than any one approach taken individually.
(ii) The concept of self-organisation provides a core principle around which a coherent framework for the analysis of economic processes can be developed.
The dissertation develops a conceptual model of socio-economic self-organisation that addresses this thesis. The model is termed conceptual to distinguish it from the formal deductive models of neoclassical theory and econometrics. It is a model in the sense that it is a simplified representation of reality.
While the philosophical foundations of neoclassical economic theory lie with logical empiricism and the hypothetico-deductive method, the conceptual model of socioeconomic self-organisation is based on a critical realist perspective. Critical realism suggests that part of the task of economic theory is to illuminate the structures, mechanism and tendencies that give rise to economic phenomena of interest. It is implicit that such phenomena are processes or associated with processes.
An understanding of the fundamentals of self-organising systems comes from complexity theory. These insights are used as the basis for describing the structure and mechanisms in socio-economic systems. Complexity theory also provides a general, that is to say non-biological, interpretation of the concept of evolution.
Further insights about the nature of evolutionary economic processes are gained from the works of Thorstein Veblen, Joseph Schumpeter and Friedrich Hayek. The conceptual model of socio-economic self-organisation integrates ideas from these three leading evolutionary theorists.
The conceptual model provides a stylised description of evolutionary socio-economic processes and economic coordination. The model is developed in terms of the structural elements of the system and the interaction of these elements. The model has two parts. First, a description of social evolution as a self-organising system is provided. The self-organising social system is the framework in which economic coordination takes place. The structural elements of the social system are social institutions, purposeful organisations and the social knowledge base. The development of the model involves a detailed examination of the structural elements and the way in which they interact to form a self-organising system.
Second, the process of economic coordination is described in terms of economic institutions, markets, and economic organisations, firms, and their interaction. Processes of economic coordination are distinguished from states of equilibrium in neoclassical theory. An important difference is that while the concept of equilibrium is dualistic, there are degrees of coordination. It is argued that markets and firms are complementary, rather than alternative, modes of economic coordination. The examination of markets as economic institutions integrates aspects of the works of two contemporary evolutionary theorists, Stan Metcalfe and Ulrich Witt. The discussion of firms and their role in economic self-organisation draws on a well-established theory from organisational psychology.
The dissertation contains an empirical section that employs, in a novel way, a recently developed regression technique based on fuzzy set theory. The novelty lies in the application of the technique to the analysis of time series data. Fuzzy regression is used to estimate a logistic diffusion representation of a self-organising process in the Australian financial sector. The empirical findings support the earlier theoretical analysis.
The conceptual model of socio-economic self-organisation provides a coherent framework for examining processes of economic coordination and development set in historical time. In addition, the model is a framework for discussing economic evolution that does not rely on the use of biological analogies.