The Use of Knowledge in Santa Fe

Or at least at the Institute (should it be institution?), has not apparently kept up with the economics profession since 1945, if the latest paper by W. Brian Arthur is any guide;

Complexity economics holds that the economy is not....something given and existing but forms from a constantly developing set of institutions, arrangements, and technological innovations. The approach got its start largely at the Santa Fe Institute in the late 1980s...

Not exactly, Herr Doktor.  Here's what F.A. Hayek  said back in 1945--and not in some obscure journal, but in the American Economic Review;

The economic problem of society is thus not merely a problem of how to allocate "given" resources—if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.

Emphases in the above (and also below) by HSIB.  Back to Brian Arthur;

What does this different way of thinking about the economy offer? ....I will argue that this new approach is not just an extension of standard economics,  nor does it consist of adding agent-based behavior to standard models. It is a  different way of seeing the economy.  It gives  a different view, one where actions and strategies constantly evolve, where time becomes important, where structures constantly form and re-form, where phenomena appear that are not visible to standard equilibrium analysis, and where a meso-layer between the micro and the macro becomes important. This view, in other words, gives us a world closer to that of political economy than to neoclassical theory, a world that is organic, evolutionary, and historically-contingent.

There's that claim of complexity economics being new again, but Fritz knew all this (and more, trust me);

...if detailed economic plans could be laid down for fairly long periods in advance and then closely adhered to, so that no further economic decisions of importance would be required, the task of drawing up a comprehensive plan governing all economic activity would be much less formidable.

It is, perhaps, worth stressing that economic problems arise always and only in consequence of change. ....

The continuous flow of goods and services is maintained by constant deliberate adjustments, by new dispositions made every day in the light of circumstances not known the day before, by B stepping in at once when A fails to deliver. Even the large and highly mechanized plant keeps going largely because of an environment upon which it can draw for all sorts of unexpected needs; tiles for its roof, stationery for its forms, and all the thousand and one kinds of equipment in which it cannot be self-contained and which the plans for the operation of the plant require to be readily available in the market. ....

If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them.

(more to come)