First published in 1982. Routledge is an imprint of Taylor & Francis, an informa company.

Discoverers of “market failures” as well as advocates of the general efficiency of a “true, unhampered market” sometimes seem to disregard the fundamental fact that there is no such thing as a “market as such.” What we call a market is always a system of social interaction characterized by a specific institutional framework, that is, by a set of rules defining certain restrictions on the behavior of the market participants, whether these rules are informal, enforced by private sanctions, or formal, (...) enforced by a particular agency, the “protective state,” in J. M. Buchanan's terminology. (shrink)

The application of evolutionary ideas to socioeconomic systems has been an increasingly prominent theme in the work of Friedrich Hayek, and the motif has become dominant in his recent book. In an earlier issue of this journal, Viktor Vanberg raises two substantive criticisms of Friedrich Hayek' theory of cultural evolution that invoke some important questions concerning use of the evolutionary analogy in social science.

This paper examines the epistemological arguments about markets and planning that emerged in a series of unpublished exchanges between Hayek and Neurath. The exchanges reveal problems for standard accounts of both the socialist calculation debates and logical empiricism. They also raise questions concerning the sources of ignorance and uncertainty in modern economies, and the role of market and non-market organisations in the distribution and coordination of limited knowledge, which remain relevant to contemporary debates in economics. Hayek had argued that Neurath's (...) work exemplified the errors of rationalism that underpinned the socialist project. In response Neurath highlighted assumptions about the limits of reason and predictability that the two theorists shared and attempted to turn those assumptions back against Hayek in a defence of the possibility of socialist planning. The paper critically compares Neurath's and Hayek's criticisms of rationalism and considers how far Neurath is successful in his attempt to employ Hayek's assumptions against Hayek himself. (Published Online April 18 2006) Footnotes1 I would like to thank the staff at the Vienna Circle Institute for their assistance in consulting their copy of the Neurath Nachlass. I owe a debt of gratitude to Thomas Uebel and David Archard for their comments on earlier versions of this paper. I would like to acknowledge the support of the Arts and Humanities Research Board and a Manchester University Hallsworth Fellowship in writing this paper. (shrink)

This essay explores the detailed argument of the Coase Theorem, as found in Ronald Coase’s “The Problem of Social Cost” and subsequently defended by Coase in The Firm, the Market, and the Law. Fascination with the Coase Theorem arises over its apparently unassailable counterintuitive conclusion that the imposition of legal liability has no effect on which of two competing uses of land prevails, and also over the general difficulty in tying down an unqualified statement of the theorem. Instead of entering (...) the debate over what exactly the theorem holds, this article suggests that the core of Coase’s reasoning is flawed and to the extent that any version of the theorem relies upon this reasoning it can be disproved. It is further suggested that a version of the theorem which avoided the need for Coase’s core argument by focusing on “the efficiency thesis” at the expense of “the invariance thesis” would be insufficiently significant to merit the status of a theorem; and that, in any event, Coase’s reasoning does not sustain an efficient outcome. The heart of the essay comprises the allegation of an error made by Coase when he transferred his core argument to the context of economic rents. The essay commences by considering and modelling the nature of the counter-intuitive thrust to the Coase Theorem, which is used to trace the development of Coase’s reasoning, and ultimately to expose the flaw it contains. Ancillary observations are made on the relationship between the Coasean analysis of characteristically legal problems and the conditions of general market equilibrium, and the theoretical status of law-and-economics. (shrink)

Contributions in modern theoretical physics and chemistry on the behavior of nonlinear systems, exemplified by Ilya Prigogine's work on the thermodynamics of open systems, attract growing attention in economics. Our purpose here is to relate the new orientation in the natural sciences to a particular nonorthodox strand of thought within economics. All that is needed for this purpose is some appreciation of the general thrust of the enterprise, which involves a shift of perspective from the determinism of conventional physics to (...) the nonteleological open-endedness, creative, and nondetermined nature of evolutionary processes. (shrink)