A Philosophical Look at Keynes and Hayek: Semiotic Paths to Complexity 9781527545694

Table of contents :
Table of Contents
Preface
Acknowledgments
Introduction: Another Look at the Semiotic Paths of Keynes and Hayek
1 Key Philosophical Issues
2 Keynes on Interpretation and Representation
3 Hayek on the Knowledge Problem
4 The Semiotic Actor: A Keynesian Approach
5 Change as a Semiotic Process: A Hayekian Perspective
6 Markets, Institutions and Policy (De)Sign
7 When Signs become Politics and Policies
8 Keynes and Hayek: Semiotic Trajectories
Conclusion: Towards an Epistemology of Complexity in Economics
Bibliography
Index

Citation preview

A Philosophical Look at Keynes and Hayek

A Philosophical Look at Keynes and Hayek: Semiotic Paths to Complexity By

Maria Alejandra Madi

A Philosophical Look at Keynes and Hayek: Semiotic Paths to Complexity By Maria Alejandra Madi This book first published 2020 Cambridge Scholars Publishing Lady Stephenson Library, Newcastle upon Tyne, NE6 2PA, UK British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Copyright © 2020 by Maria Alejandra Madi All rights for this book reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner. ISBN (10): 1-5275-4569-5 ISBN (13): 978-1-5275-4569-4

TABLE OF CONTENTS

Preface ....................................................................................................... vii Acknowledgments ...................................................................................... ix Introduction ................................................................................................ xi Another Look at the Semiotic Paths of Keynes and Hayek A semiotic approach to economics ..................................................... xiii The book .............................................................................................. xv Chapter One ................................................................................................. 1 Key Philosophical Issues Semiotic chains and the variety of interpretants .................................... 1 Semiotics and reality .............................................................................. 4 Against a deterministic world-view ....................................................... 8 The contextual character of meaning and interpretation ...................... 11 Chapter Two .............................................................................................. 17 Keynes on Interpretation and Representation Direct and indirect knowledge ............................................................. 18 Realism and social sciences ................................................................. 20 Signs, money and the instability of capitalism..................................... 25 Chapter Three ............................................................................................ 35 Hayek on the Knowledge Problem Dispersed knowledge and market coordination ................................... 35 The empirical factor ............................................................................. 39 Signs, market prices and the spontaneous order .................................. 43 Chapter Four .............................................................................................. 49 The Semiotic Actor: A Keynesian Approach Emotions and human behaviour........................................................... 50 On changing beliefs ............................................................................. 54 Uncertainty and conventional judgment .............................................. 57

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Chapter Five .............................................................................................. 61 Change as a Semiotic Process: A Hayekian Perspective Cognition and bounded rationality ....................................................... 61 Market evolution and complexity ........................................................ 64 Spontaneity and fallibilism .................................................................. 69 Chapter Six ................................................................................................ 75 Markets, Institutions and Policy (De)Sign Keynes on the flaws of capitalism ....................................................... 76 Keynes on policy (de)sign as a vision .................................................. 80 Hayek on the threats to Western civilization ....................................... 83 Hayek on policy (de)sign as a fiction................................................... 90 Chapter Seven............................................................................................ 97 When Signs become Politics and Policies Keynes on discretionary policies and regulation.................................. 98 Hayek on the “unholy marriage” and free banking ............................ 102 Chapter Eight ........................................................................................... 111 Keynes and Hayek: Semiotic Trajectories The ongoing debate ............................................................................ 111 Semiosis, interpretations and representations .................................... 113 Semiotic mediations, time and change ............................................... 115 (De)signing the future ........................................................................ 118 Conclusion ............................................................................................... 121 Towards an Epistemology of Complexity in Economics The roots to complexity ..................................................................... 121 The ontological and epistemic interconnections ................................ 125 What do Hayek and Keynes add to our understanding of complexity in economics? ........................................................ 129 Bibliography ............................................................................................ 133 Index ........................................................................................................ 145

PREFACE

Both Keynes and Hayek have been revived in the wake of the latest global financial crisis and are still alive in contemporary debates. This book calls for a new look at the contributions of John Maynard Keynes and Friedrich von Hayek to economic theory under the semiotic approach of Charles S. Peirce. In the context of Peirce’s classification of sciences, semiotics enhances an original attempt to open up new ontological, epistemological and axiological perspectives regarding the influential contributions of Keynes and Hayek to the economic theory of a complex real world. Both thinkers warned that the understanding of the complexity of economic phenomena demands not only purely deductive reasoning, but also other methods of inquiry along with the study of other fields of knowledge – such as History, Philosophy and Psychology. Among the deep global social and cultural challenges, the crisis in epistemology is characterized by a radical questioning of the whole matrix of economic knowledge. As Edward Fullbrook highlights in his recent book Narrative Fixation in Economics (2016), the Cartesian view of human reality has deeply shaped the way in which neoclassical economics theorizes about the economic and social existence. Indeed, neoclassical economics has reinforced the relevance of the Cartesian method of inquiry that moved the so-called scientific (true) knowledge out of the general flux of experience. Taking into account the evolution of economics as a science in the 20th and 21st centuries, the need for a deep epistemological “turn” is a must. In this attempt, this book looks at different semiotic paths to complexity considering two well-known thinkers. In recent research, there has been an increased interest in semiotic approaches to social sciences. As a matter of fact, the revival of the contribution of classical pragmatism has enhanced the revision of the epistemological foundations of scientific knowledge. In the 19th century, Charles Sanders Peirce proposed the understanding of logic as semiotics – one of the normative sciences in his philosophical architecture. His semiotic approach rejects the theorization of knowledge under models of strict rationality since the most important thing in the process of knowledge is “how to question what we know and how to reconstruct what we know to match the changing world”. Under this evolutionary

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perspective, semiotics is the science of signification, representation, reference and meaning. Peirce´s theory of signs turned out to shape a new epistemological framework that favours the fallibilist standpoint. The semiotics of Charles S. Peirce, considered in the context of his philosophical approach, can contribute to the re-examination of the economic theories of Keynes and Hayek. It is expected than the selected topics can result in significant progress with regard both to important epistemological problems within the discipline of economics and the renewal of the bond between philosophy and economics. The complexity of the social and economic policy problems of the 21st century call for a revision, in a non-trivial way, of our conceptual outlooks in economics in a context where the evolution of globalization has contributed to unprecedented social, political, and environmental challenges. Dealing with economic problems using a semiotic approach requires an ability to go beyond our received ideas and conceptualizations of economic problems to redefine them in new interdisciplinary contexts. The combination of the philosophical background of Charles S. Peirce with the influential economic ideas of John Maynard Keynes and Friedrich Hayek permits this interdisciplinary dialogue that may help in developing new methodological frameworks. This book fits in well with such an end, preparing the reader for engaging in current relevant real-world debates.

ACKNOWLEDGMENTS

To the World Economics Association that provides a global and pluralistic space for the discussion of economic thinking and policy-making. To Prof. Ivo Assad Ibri, his lectures and writings opened up new perspectives to (re)think the epistemology of economics in the context of the philosophical contributions of Charles S. Peirce. To the anonymous reviewers whose recommendations favoured the development of some of links between semiotics and economics.

INTRODUCTION ANOTHER LOOK AT THE SEMIOTIC PATHS OF KEYNES AND HAYEK

This book offers a new look at the contributions of Keynes and Hayek. It attempts to show the specific links between principles of theories, philosophical claims and policy thinking. In this sense, the book unavoidably brings up issues of a "meta-theory" in Economics. While this meta-theoretical attempt is concerned with the investigation, analysis, or description of the economic theory itself, this theory refers to the body of generalizations and principles related to Economics as a field of knowledge. Against the objectivistic philosophical assumptions which underlie contemporary research in economics, the book proposes an interpretive alternative to the reading of the works of Keynes and Hayek that favours a semiotic view of knowledge as an interpretive process. Considering their legacies, Wapshott (2011) highlights that Keynes´ ideas were ascendant in the post-war era since his proposal fostered spending to overcome the 1930 great Depression. However, by the mid1970s, Hayek's ideas spread in the attempt to reduce government intervention and the dangerous menace of economic planning. Despite their differences, there is a consensus that Keynes and Hayek introduced innovative reflections. John Maynard Keynes was born in Cambridge, England, in 1883. Keynes began his studies at King's College in 1902, where he was affected by the analytical tradition of the English philosopher George Moore. After 1907, Keynes became a member of the "Bloomsbury Group" connected with English intellectuals. In the course of economics established by Alfred Marshall, he became a lecturer at Cambridge. Two years later, Keynes became editor of the' Economic Journal' and his first book, Indian Currency and Finance, was released in 1913. During the Great Depression, Keynes's ideas on counter-cyclical public spending got great support. At that time, he participated in a group called the "Cambridge Circus" that had included well-known economists such as Joan Robinson and Richard Kahn. In the period between 1911 and 1945, Keynes was engaged in British and in international political affairs (Madi 2017).

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Born in 1899, in Vienna, Austria, Friedrich von Hayek became a legal British citizen in 1938. He served in the Austro-Hungarian Army's artillery regiment in 1917 and battled on the Italian frontier. He followed an academic career in the post-war period after finishing his studies at the University of Vienna. In the 1930s, he was selected as the Tooke Professor of Economic Science and Statistics at the London School of Economics (LSE) and took part in a debate with John Maynard Keynes from Cambridge. After leaving the LSE, he taught at the University of Chicago and Freiburg. In 1974, Hayek was honoured with the Nobel Prize in Economics together with the Swedish economist Gunnar Myrdal (Madi 2017). The objective of a semiotic analysis is the development of meaning, interpretation - a process including symbol grounding to reality. Thus, semiotics does not separate the process of research from the process of representation of the world of experience. Evoking multi-disciplinary associations, semiotics is concerned with both the theory and practice of interpreting economic, cultural, and behavioural sign systems. In this sense, semiotics helps one to think analytically about the implications of economic thinking for the broader culture in which it is produced and disseminated. The word paths has been chosen to take into account the remarkable wealth of the trajectories of John Maynard Keynes and Friedrich Hayek. However, the term paths, in the plural, also suggests that the semiotic paths are neither single nor linear. The book highlights the diversity of the semiotic paths followed by Keynes and Hayek to attain the perception of the problems of the capitalist economy that are intrinsically complex, open and changing. The word paths, then, does not apply here only to the conceptual developments of Keynes and Hayek, but also to the paths of the ever-changing realm of the economic object. Through the expression “semiotic paths”, we acknowledge the constant re-shaping of economic research where the conduct of a semiotic analysis may: x Establish the main signs to be decoded as a system of signs or values that assigns meanings to the elements that belong to it. To decode a system is to figure out its meanings, as in interpreting the role of money. x Determine what the sign means in the context of different theoretical approaches. x Establish a set of signs (prices, money, etc.) related to the main sign system which we are going to decode, that is to say, the representation of the capitalist market.

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x Point out the interconnections between related signs within a sign system. x Consider the overall context (historical, cultural, and political) in which the main signs appear.

A semiotic approach to economics In the last decades, economics, instead of being considered a social science, has been associated with formalism and positivism. Against this trend, this book proposes a dialogue between economics and semiotics. In the 19th century, Charles S. Peirce (1839—1914) considered semiotics, as a general sign theory, that is necessarily philosophical in orientation. Looking back, in 1690, John Locke acknowledged that the real role of semiotics is to ascertain the way knowledge is acquired, increased and communicated. Peirce's contribution highlights open and constantly growing signs. These triadic relations are an essential characteristic of his studies where semiotics is understood as the study of the relationship between sign, object, and interpretant that can trigger an infinite semiosis. Indeed, as Fabrichessi and Marietti (2006) claimed, semiotics as philosophy and philosophy as semiotics emerge from a reading of Peirce´s papers. Semiotics, for Peirce, is philosophy in the sense that it also refers to modes of being, knowledge and human action. And philosophy is semiotics since it involves reflection on a potentially infinite series of sign manifestations. Indeed, his philosophy represents the interplay between logic and realism and his epistemology is authentically semiotic because of the consciousness that truth is subject to the modes of being. In other words, his analysis of the foundations of logical thought is carried out in a semiotic way. In the same perspective, Nathan Houser (2016b) considers that philosophical thinking could benefit by embracing semiotic realism and by applying semiotic analysis to philosophical problems. As Peirce brought into question the meaning of human and social beliefs, his semiotic theory avoids the Cartesian restriction of individuals' inner privacy. In fact, Peirce´s contribution is compatible with a theory that applies to social groups and organizations and therefore, a combination of semiotics with philosophy could lead to a richer assessment and comprehension of economic investigations. Drawing on Peirce's contributions, the book calls for a reflection on the role of semiotics in economics. How to understand economic relations according to processes of meaning-making? How can symbolic relations generate new meanings (interpretations) in the capitalist market? Special attention is paid to the economic representations discourse and the way

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economics is related to culture. What is interesting to note in most complex systems is that social life moves into a symbolic method of organization where beliefs are open to changes and affect the material world. Following Peirce, semiotics takes part in the enterprise of understanding the economic ideas and practices that constitute the society in which we live. Despite its relevance, semiotics has only sporadically discussed economics. In 1968, Ferruccio Rossi-Landi´s book entitled Language as Work and Trade anticipated problems that are now considered central to the development of present-day capitalism. He highlighted the role of communication and ‘immaterial work' in the economic analysis. In particular, communication plays a dominant role in the process of market exchange into which human life is integrated, and in the economic discourse that overwhelms the Western culture with discussions about the public deficit, debts, credit, inflation and deflation, uncertainty and free markets (Petrilli and Ponzio, 2005). In addition to the contributions of Rossi Landi, more recent studies of Bruno Latour, Michel Callon and Donald MacKenzie have focused on the sociology of finance. They have investigated the "performativity" of the economic discourse and the interconnections between economics and business, especially in the building of financial markets. Moreover, semiotics has also important links with the Foucaultian works on biopolitics and governmentality. Some other works have emphasized the role of discourse, market power, and the political economy of the sign, such as those of Gilles Deleuze and Felix Guattari. Finally, Bob Jessop (2004) developed a distinctive approach in the social sciences that combines critical semiotic analysis with an evolutionary and institutional approach to political economy. The recognition of the semiotic dimensions of political economy enhances the exploration of the constitutive role of semiosis in economic and political activities, economic and political institutions, and social order more generally. However, this approach in economic and political inquiry does not neglect the articulation of the semiosis with the materialities of economics within wider social formations in the context of “economic imaginaries” (representations) that identify and privilege some economic activities and turn them into objects of observation and governance. Following Fairclough (2003), Jessop argues that the “economic imaginaries” refer to the semiotic moment of a network of social practices in a given social field, institutional order, or wider social formation. Thus, the economic imaginaries re-articulate a particular conception of the economy and its extra-economic conditions of existence. Since these

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imaginaries can exclude aspects that are crucial to the general performance of the economic and extra-economic relations, such exclusions restrict, for instance, the effectiveness of planning, governance, and economic predictions. A key concern is that there are competing economic representations, each one with particular drivers and outcomes in the material world.

The book This book aims to outline the different semiotic paths in their economic thinking and analysis. That will not lead to the "right" answers, but it could lead to a more advanced understanding of how Keynes and Hayek built the paths to inquiry in Economics. The book highlights x The methods of inquiry and the economic representations since Keynes and Hayek brought into question the challenges to modelling the real economy. x The links between the evolution of the capitalist market and human beliefs and behaviour. x The analysis of the interrelations between culture, institutions and policy-making. x The epistemology of the complexity of economic systems. Their contributions help cast a better light on how semiotics may enhance the interpretative potential of real-world economic issues. Among the relevant questions at stake are: What can humans know and how do humans come to know? Can humans ever know anything with absolute certainty? How do social sciences differ from the natural sciences? In which sense can the economic discourse predict or build the future? What sorts of events, processes, or conditions cause others? Which is the nature of our ignorance or limited knowledge about the future? Which is the role of the market in shaping human behaviour? How does economic ideology influence the evolution of institutions? How does the human mind relate to its context? What sorts of states are just? What are the best forms of society and government? The use of semiotics in Economics is an endeavour that implies decoding the hidden meaning of the signs of economic processes. Following Peirce, we believe that human existence develops in the universe of signs, the interpretation of which conditions the actions of individuals, groups, and society. In short, a new look at the works of Keynes and Hayek, under a semiotic approach, refers to signs, objects, a

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variety of interpretants, indexical signs, symbols, arguments, semiotic chains, concepts of Firstness, Secondness, and Thirdness, among others (Lungu, 2016). Using the viewpoint of the Peircean semiotics, the theories of Keynes and Hayek can be considered systems of signs where culture and economics could be articulated in the same general framework. This semiotic approach is meant to complement other perspectives.

CHAPTER ONE KEY PHILOSOPHICAL ISSUES

The semiotic theory of C. S. Peirce is an attempt to explain the cognitive process of acquiring scientific knowledge as a pattern of communicative activity in which the partners in dialogue are, indifferently, members of a community or sequential states of a single person's mind. In linking the acquisition of knowledge to the structure of communication, Peirce highlighted that logical inference and the analysis of signs are interrelated. For Peirce this knowledge-communication process involves a relationship between "objects" and "signs", including, prices, money, legislation, etc. Peirce stressed the existence of a deep relationship between knowledge and semiotics. Semiotics is about mediation, that is to say, it integrates the concept of the representation through something called a sign. Representations of real-life issues are not the outcome of deterministic processes, but rather of interactions that involve randomness since not everything, in reality, is subject to the law. Peircean semiotics recognized that knowledge is context-dependent and he incorporated logic in a much broader theory of signs that also accommodates every possible perception, feeling, or intuition. He established semiotics as logic of vagueness (Nadin, 1980). Peirce's concepts of indeterminacy and “openendedness” in interpretation and inquiry may be understood as the possibility of representations of actual phenomenal processes in the world of experience. Therefore, the "reconstitution" of reality from the representation refers to possible meanings in a true pluralistic approach. What is outstanding about Peirce's logic is the recognition of multiple universes of contexts and discourses and how they relate to the real world.

Semiotic chains and the variety of interpretants In the analysis of the semiotic chains, two statements elaborated by Peirce are extremely relevant: "Symbols grow" and "We only think with signs" (Peirce 1995). Indeed, semiotics, as an investigation about meaning and communication, refers to a way of seeing the world of experiences, and of

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understanding the impacts of culture on human behaviour and decisionmaking. In this perspective, the key concepts refer to the three modal categories of triadic thinking where the process of mediation cannot be separated from the phenomenological experience. In semiotics, the evolutionary process of interpretation of experience involves intelligibility and meaning (Silveira, 2007). In other words, the observation of logical relations intrinsic to phenomena occurs in an evolutionary process of signification and representation. Moreover, the interpretation of signs in the temporal flow feeds the extension of the mediations (Houser 2016). In the light of a semiotic perspective, knowledge involves intelligibility, interpretation, and signification, in a process in which the sign is inserted in the universe of experience. First of all, let´s define what is a sign. According to Peirce: A sign, or represent, is that which, under a certain aspect or mode, represents something to someone. It directs itself to someone, that is, it creates in the mind of that person an equivalent sign, or perhaps a more developed sign. To the sign thus created I call the interpretant of the first sign. The sign represents something, its object. It represents this object not in all respects, but in reference to a type of idea which I have sometimes called the basis of the representamen (Peirce 1995, 46).

In the semiotic process, the object outside the sign raises an idea through a reaction of the mind. The sign denotes a perceptible object, imaginable or even unimaginable and must represent something else called its object and refer to it. According to the author, the sign may have more than one object and such objects may each be a singular thing existing and known: (...) which is believed to have previously existed or is expected to come into existence, or a set of such things, or a known quality, relation or fact whose singular Object may be a set or a whole of parts, or may have another mode of being, such as some permissible act whose being does not prevent its denial of being equally allowed, or something of a general nature desired, demanded, or invariably found in certain general circumstances (Peirce 1995, 48)

The "interpretant" of the sign is the effect of the sign on the interpreter. For Peirce, this effect can be of three different kinds: it can be logical, emotional, or energetic. The interpreter is, in the first case, a usual thought, in the second an emotion, in the third, an action. In this triad, the emotional interpretant has the nature of a feeling; the energetic interpretant involves the interaction of opposites in the external world with the subject

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of semiosis; and the logical interpretant is a general concept, that is, it has the nature of a concept (Silveira 2007, 53-54). Thus, for the philosopher, the universe of phenomena can be grasped as a fabric of possibilities and needs, of feelings, actions, and thoughts (CP 8.314-15). The interpretants have also relevant implications for a theory of knowledge in which the sign is being considered. Moreover, the interpretants can be considered as immediate, dynamic and final. The dynamic interpretant of the sign is the interpretant that the sign itself determines - it is the meaning of the sign or, in other words, the interpretative power of the sign. In turn, the dynamic interpretant refers to the various interpretations of the sign that occur (Silveira 2007, 49). Finally, the final interpretant refers to the interpretative tendency of the sign over time that determines a habit of conduct. Its goal is the effective interaction with the dynamic object of the sign. However, there is no guarantee that it will be possible to achieve a single interpretation and that it will be definitive. In the context of logical interpretations, the relations of representation correspond to genuine triadic relations (Santaella 2000, 65). In a genuine semiosis, Peirce (1995) said that only the symbol has the power to represent the generality of law or habits. These symbols, as a genuinely triadic logical relation, are in themselves mediations. The interactive process of semiosis is continuous and feeds the extension of infinite mediations in an evolutionary process of signification and representation (CP 4.237). From this perspective, representations, while being signs, result from a process of realistic and non-deterministic interpretation. In other words, the system of signs is always grounded in some context (Colapietro 2014). Against the obsession of semioticians with taxonomies, Peirce reflected on the logic of meaning that shows its intrinsic vulnerability to causation and contingency, as well as its openness to further causal implications. Indeed, semiotics and realism are articulated. While the immediate object concerns the object as contained in the sign to which it refers, the dynamic object refers to the object only attainable by collateral experience and it maintains a relation of exteriority with the sign. There is a homology between sign and dynamic object that cannot be contingent. In showing the links between semiotics and realism Ibri (2017) affirms that realism feeds on regularities based on a phenomenological approach to ensure a homology between the general forms of signs and dynamic objects. From the pragmatic point of view, the continuity of such homology over time makes logical interpreters (and scientific beliefs) efficient guides of conduct. Semiotics is forward-looking. Indeed, the epistemological condition of the sign is its processing characteristic.

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Indeed, Peirce addressed the philosophical relevance of the continuity and states that “continuity governs the whole domain of experience” (CP 7.566). At the core of our argument, there is a rejection of the Cartesian reductionist-deterministic understanding of reality (Nadin 2010). The economy is a system of signs and representations. Following a semiotic approach to economics is about developing methods of analysis and interpretation of signs which give meaning to the economy in proposing representations. As Max Fisch (1951) said, Peirce's realistic semiotics can probably be seen as one of the most radical attacks on the Cartesian narrative and the idea of a unified science that has overwhelmed what is called western civilization. A comprehensive semiotic analysis of complex phenomena, as those defining the relation between economics and culture, enhances the continuous re-examination of the real world. As a result, the interpretation of the signs means the building of meaning as an instance of the semiotic process. As human beings have incomplete knowledge about the world, semeiotic mechanisms make plausible the constitution of frames in a continuous process of reconfiguration of both knowledge and strategies for processing new information. Peirce emphasized that the sign has an inferential nature: we continuously test our hypotheses, discard those which are inappropriate, and construct better ones in choices, decisions, or actions (Nadin 1993). Moreover, the significance of thought relies on its reference to the future. As semiotics is connected with real-life issues, the significance and the meaning of a sign can be quite varied. In truth, Peirce´s approach allows room for re-interpretation since there is the belief that meanings do evolve. In one of his famous letters to Lady Welby, Peirce writes: It has never been in my power to study anything— mathematics, chemistry, comparative anatomy, psychology, phonetics, economics, the history of science, whist, men and women, wine, metrology—except as a study of semiotics (Peirce 1953, 32).

Semiotics and reality While working in economics as a specific field of knowledge, the adoption of a semiotic perspective attempts to make explicit the signs that are rooted in a set of cultural norms and conventions. The study of signs has to do with an alternative approach to scientific knowledge that does not rely on the dichotomy of object-subject. A semiotic approach to economics can create a new mindset for the interpretation of economic phenomena

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(Băileúteanu and Lungu 2013). There is a generally admitted definition of sign originated from Peirce: 'A sign is an object which stands for another to some mind' (Peirce 1991, 141). As we may understand through these definitions, everything is a sign as long as it is engaged in the sign-relation or semiotic relation. This implies that a sign itself does not create the semiotic relation; on the contrary, the semiotic relation makes something into a sign. There are three elements of the sign relation: representamen or sign, its object, and its interpretant. In a triadic relation, meaning is produced by the action of 'interpreting' with the sign. Considering the phenomenological categories of Peirce, 'Firstness' may be related to certain qualities of feeling; the second category of elements of phenomena comprises the actual individual facts and the third category consists of thought (Ibri 2017). Human beings are always on the way to signifying what they perceived and through the communication of signs in a semiotic process. To Peirce, the human knowledge about reality is acquired through an inferential process in which signs and their objects are related According to his ontology, the reality is not confined to the universe of existent objects, habits, social norms or cultural conventions, but the reality also includes the principle of chance that is a driver of “uberty” and change. As of 1897, the clue-question in Peirce’s philosophy is the rejection of necessary reasoning. In the Harvard Lectures on Pragmatism, he addresses this with “It is the reasoning of mathematics” (EP 2: 205). Peirce was aware that necessary reasoning (deductive reasoning) is strong in security, but weak in “uberty”, that is to say, in the ability to yield new knowledge and information, which according to him also belongs to the tasks of reasoning. In his words Whereas necessary reasoning (deduction) is strong in security, its nonnecessary counterparts (abduction in particular) are strong in uberty, in the advancement of human knowledge (EP 2:463).

Peirce not only questioned the foundations of necessary reasoning – attached to the neoclassical theory in economics since Walras, but he used the principle of indeterminism as the basis of his argument against the doctrine of “necessitarianism”. From the point of view of economic relations, the adoption of necessary reasoning rejects the dialogue with reality. Such necessary reasoning would not take into account a realism that would affirm the general nature of the possibilities of the object, which in turn would shape the nature of economic theories to be adopted. Given the nature of the complex object of Economics as a science, which

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exhibits an immense multiplicity of variables and is subject to a high degree of accidentalities, coincidences cannot be taken as causalities. In this sense, a deterministic approach does not seem to account for economic phenomena. For the doctrine of necessitarianism, the principles of the uniformity of nature and of universal causality perform at least two crucial functions. First, they ensure the universal applicability of scientific reasoning in order that science can provide an exhaustive understanding of reality. Second, these axioms are not ad hoc assumptions made by scientists but rather a priori conditions underlying rational thought. Although Peirce agrees that the existence of laws is required of any intelligible world, the evidence of regularity in nature disclosed by science in the 19th century did not suffice to prove necessitarianism. In his attack on "The Doctrine of Necessity", he offers four arguments for believing in real Chance: 1. The general prevalence of growth, which seems to be opposed to the conservation of energy. 2. The variety of the universe, which is Chance, and is manifestly inexplicable. 3. Law, which requires to be explained, and like everything which is to be explained must be explained by something else, that is, by non-law or real Chance. 4. Feeling, for which room cannot be found if the conservation of energy is maintained (CP 6.613).

In the context of this dispute over axioms and philosophical foundations of the scientific thinking in the 19th century, Peirce was a pioneer in identifying the role of Chance. Recalling Peirce’s words “What is Chance? Chance does play a part in the real world, apart from what we may know or be ignorant of” (CP 6.602). According to Peirce, the doctrine of absolute Chance (the view that Chance is part of the universe) implies that laws of nature are abrogated. Causality, the traditional pillar of metaphysics, was challenged as the past does not determine exactly what will happen in the future. As of 1866, in the Lowell Lectures, we can find the first steps towards the concept of indeterminism. Peirce analyses the role of induction and addresses the following question: does reliance on statistical methods presuppose or imply determinism? According to Hacking (1990, 61), while Peirce did not defend indeterminism explicitly in these lectures, he had already denied the merits of determinism as a scientific theory and recognized indeterminism as a coherent scientific option.

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In his attempt, it is Peirce's case against John Stuart Mill that opens up the path to the doctrine of indeterminism. Peirce rejected Mill's general claim that the uniformity of nature can be justified by induction. It is worth remembering that while Mill admits the existence of 'accidental relations' and is aware of the probabilistic character of scientific results (Mill 1973, 275), he wants to show that determinism can explain the accidental relations and 'irregularities' by reference to the “necessitarian” view of Chance. Against Mill, Peirce states that there are many more irregularities, or accidental relations, than uniformities, or regularities, in nature that do not allow us to accept the empirical defence of Mill’s principle of uniformity in the universe (W l: 417). And Peirce adds that in relation to the empirical evidence, for every scientific generalization there are residual phenomena that the law fails to explain, and thus no truly universal law has ever been found (W l: 420). Indeed, Peirce is concerned to show that the existence of Chance is not incompatible with the existence of laws (W 1:421). One of Peirce's main concerns was to articulate "the world's ways of being" with "the ways of discovering the ways of being in the world" in order to oppose nominalist philosophies. Therefore, the definition and demarcation of real needs to be a starting point in this discussion. Generality is, indeed, an indispensable ingredient of reality; for mere individual existence or actuality without any regularity whatever is a nullity. (CP 5.431) That which any true proposition asserts is real, in the sense of being as it is regardless of what you or I may think about it. (CP 5.432)

In 1903, Peirce made a sharp distinction between the real and the fictional. And he says: For the fictive is that whose characters depend upon what characters somebody attributes to it; and the story is, of course, the mere creation of the poet's thought. Nevertheless, once he has imagined Scherherazade and made her young, beautiful, and endowed with a gift of spinning stories, it becomes a real fact that so he has imagined her, which fact he cannot destroy by pretending or thinking that he imagined her to be otherwise. (CP 5.152)

In short, the fictional is not real because it depends on what characters a human mind attributes to it. What are the merits of this perspective? First, the signs are produced in the relationship of human actions and the material world. Second, the capitalist market is a combination of the material

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Chapter One

properties and the social meaning of signs influenced by cultural contexts (Eco 1976). Third, the interconnections between signs can be considered building blocks in theoretical representations. Regarding economics, a semiotic approach brought into question the boundaries of the economic nature of these problems. About these boundaries, Donella Meadows (2010) says that an academic discipline's boundary rarely coincides with the right boundary for thinking about a problem. Nonetheless, to find the right way to think about each new issue, we need mental flexibility.

Against a deterministic world-view The debate about the relevance of determinism as a world view of laws of nature is one of the features of the 19th century. On the one hand, Laplace believes in the assumption of necessitarianism. On the other hand, C.S. Peirce rejects the doctrine of necessity and Darwin's natural selection, and proposed the conceptualization of chance as an ontological principle in the context of his philosophical realistic indeterminism where the laws of nature themselves changed with time. In The Taming of Chance, Hacking said: Peirce denied determinism. He also doubted that the world is a determinate given. He laboured in a community seeking to establish the true values of Babbage's constants of nature; he said there aren't any, over and above those numbers upon which we increasingly settle. He explained inductive learning and reasoning in terms of merely statistical stability. At the level of technique, he made the first self-conscious use of randomization in the design of experiments: that is, he used the law-like character of artificial chances in order to pose sharper questions and to elicit more informative answers. He provided one of the standard rationalia for statistical inference — one that, named after other and later workers, is still with us. He had an objective, frequentist approach to probability, but pioneered a measure of the subjective weight of evidence (the log odds). In epistemology and metaphysics, his pragmatic conception of reality made truth a matter of what we find out in the long run. But above all, he conceived of a universe that is irreducibly stochastic. (Hacking 1990, 200-1)

The philosopher rejected the legacy of Cartesian rationalism focused on the cogito. He did not subscribe to a static metaphysics (of essences), but rather preferred a dynamic ontology in which being, and temporality converge in an ongoing process of disclosure of possibilities. Most importantly, human life is not a solitary venture, but it is formed in the

Key Philosophical Issues

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context of human interactions where people are connected with communication, dialogue, and contestation. It is worth noting that Peirce´s semiotics, understood as logic, avoids a psychologist approach to the theory of knowledge. Indeed, in the 20th century, different “paradigms” in psychology have been related to different views of knowledge (Hjørland 2011). While behaviourism has been mainly related to empiricism (and to logical positivism) cognitivism has been mainly related to rationalism, and the “discursive” view is mainly related to historicism and pragmatism. Behaviourism dominated until about 1971, after which cognitivism become much stronger despite the growth of emerging views in psychology from about 1990 that regard the mind and psychological processes as cultural and social by nature. The behavioural view made the following programmatic statements: psychology is a pure objective, experimental science, psychology belongs to the natural sciences, the theoretical goals of psychology are prediction and control of behaviour, in principle, the behaviourist does not acknowledge a distinction between human beings and animals, psychology can be conducted in terms of stimulus and response, stimulus can be predicted from behaviour, and behaviour from stimulus. Cognitivism is interested in the inner mechanisms of human thought and the processes of knowing - in contrast to the the advocates of behaviourism who neglect the inner mental processes. Considering the human mind as a computer, this approach describes the mental functions as information processing models and uses quantitative, positivist research methods. In the 1990s, the social turn, also known as “the discursive turn”, highlighted the idea that human psychology and functions like perception, thinking, memory and emotion are seen as cultural and social developments. In this view, the study of the human mind requires the study of the society and the culture in which it functions. In the late 1860s, Peirce generalized the Kantian notion of "representation" (W 1:257) in the cognitive process and directed his philosophical attack against all types of Cartesian intuitionism which postulates the existence of immediate (and thus non-semiotic) cognition. One of the most significant contributions to semiotic theory made by Peirce is his conception of scientific epistemology as the study of the logic of signs. For Peirce, human cognition, including sensory perception, emotions, feelings, as well as inferential reasoning, involves "signs" linked to each other in an endless series of interpretative chains. In his words: I use the word "Sign" in the widest sense for any medium for the communication or extension of a Form (or feature). Being medium, it is

10

Chapter One determined by something, called its Object, and determines something, called its Interpretant or Interpretand ... In order that a Form may be extended or communicated, it is necessary that it should have been really embodied in a Subject independently of the communication; and it is necessary that there should be another Subject in which the same Form is embodied only in consequence of the communication. The Form (and the Form is the Object of the Sign), as it really determines the former Subject, is quite independent of the sign. (EP 2:477) These signs that are grounded in an external reality have a mediation role between the world of experience and the world that is represented by the human minds (CP 1.532).

Indeed, as Peirce warned, we have no control over the dynamic object. Since the semiosis is an interactive and continuous process, then the interpretation may continuously change according to the changes of the dynamic object. Recalling Peirce´s words We must distinguish between the Immediate Object--i.e., the Object as represented in the Sign--and ... the Dynamical Object, which, from the nature of things, the Sign cannot express, which it can only indicate and leave the interpreter to find out by collateral experience. (EP 2:498)

The sign is an example of "mediation" conceived of as a generalized category. The sign relation necessarily involves three elements associated with the semiotic process: the sign itself, the dynamic object and the interpretant. In short, the sign itself (representamen) is a vehicle of communication and the interpretant refers to the meaning of the sign. Peirce founded his semiotic philosophy on the notion of the mediation by signs. What he adds to our understanding of systems of thought is that they are not linear. Semiotic thinking involves a dynamic set of interactions and feedback in the flow of time. The relationships between elements in the system are important in understanding how the system as well as the component parts will behave. In the semiotic process, Peirce warned that feelings come first in both a hierarchical and a chronological sense. Moreover, according to the three Peircean categories, thoughts are considered to be between feelings and actions. In other words, thinking is itself between feelings (as qualities) and actions. General representation, mediation, thinking, synthesis and cognition are in the third category way of being and involve time flow. In the context of phenomenology, the temporal course of experience is translated into the acquisition of Thirdness that brings the experience of thought, of the mediation between the first and the second (CP 7.527). The generality

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of Thirdness involves the representation of particulars, that is, the insertion of facts in the universe of intelligibility that presents a dynamic of evolutionary learning in time (Ibri 2017). In what sense does human behaviour refer to representational competencies? What is the role of knowledge of the symbol systems? Keynes and Hayek were aware of the functions of signs regarding relevant economic representations. Against the homo economicus, they both highlighted that economic agents are surrounded by signs in everyday life, and they developed explanations that underly the psychological and cognitive processes that affect behaviour and change in social life. Understanding which signs influence behaviour is a critical first step. Another crucial feature of the Peircean semiotics is that the cognitive process is based on a relational view of reality where dyadic and triadic relations are, respectively, instances of the categories of secondness and thirdness. Semiosis is a typical example of triadic relations that involve temporality. Temporality indicates the presence of time relations and the irreversibility of time. Peirce correlates the three related item of the semiosis, the representamen, its object and its interpretant, with the three dimensions of time. Present time corresponds to the representamen, past time to the object, and future time to the interpretant (Fernández 2009). Indeed, semiosis is a forward-looking process. Peirce conceives time as an existential analogue of the logical flow from premises to conclusion. He regards this as a generalized evolutionary development of the semiotic flow from object to interpretant. The idea of time must be employed in arriving at the conception of logical consecution; but once the idea is obtained, the time-element may be omitted, thus leaving the logical sequence free from time. This done time appears as an existential analogue of the logical flow (CP 1.491). For Peirce, time is that diversity of existence whereby that which is existentially a subject is enabled to receive contrary determinations in existence. The philosopher approaches the mystery of time from the vantage point of logic as semiotics. Consequently, there cannot be semiosis without time. If we join Peirce’s dictum that man is a sign, we may come close to identifying temporality and the semiotic realm in which we are immersed.

The contextual character of meaning and interpretation In more general terms, Peirce's semiotics enhances an epistemic approach to human and social phenomena. His semiotic tools, especially his notions of indexical signs, symbols, and chain-like semiosis, enhance analytical

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distinctions in sign operation and structure that have proved powerful for research into social, economic, and cultural phenomena as a starting point for analysis. Semiotics provides a key to the understanding of the different levels and domains that constitute material human life. Indeed, human interactions, under Secondness, are considered from different perspectives -economic, social or cultural. Through the examination of the relationship between cultural processes and the theoretical discourse about them, it becomes clear how the members of a society are constantly interpreting their social interaction and historical experience by constructing interpretive models or accounts that represent, in a limited way, the practices and conventions of the culture. According to Peirce, the cognitive process can only occur in interaction with the world of experience. The human mind works with representations of the world that are tied to Thirdness, the thinking that occurs. And human decisions are not seen as objective, or mechanical, but as part of a communicative process. Peirce's insistence on the full reality of Thirdness provides the economist with a means of avoiding naive empiricism that systematically reduces economic phenomena to "verificationist" instances of economic actions. Indeed, Peirce rejected all forms of Cartesian introspection and argued that thinking requires signs to convey the information about the object. Peirce's realistic semiotics enables us to grasp the foundations of social normativity within different institutional settings by showing how semiosis plays a normative role for human beings in a context where linguistic and non-linguistic signs can be included. This contrasts with the focus on language that characterizes the Saussurean semiotic and structuralist thought (Márkus 1984, 113). Moreover, signs have a material dimension that supports the connection between life's normativity and material reality. A sign is a representamen within a specific social and cultural system. Underlying human relations in different institutional settings, some signs are part of semiotic processes with a triadic dimension ("Representamen-Object-Interpretant"). Peirce´s realistic semiotics refers to an understanding of the culturar process where signs are intrinsically normative. In this setting, both the concepts of ‘representamen' and ‘interpretant' refer to an ‘object', that is to say, to a real object in the world. The referents for such normativity are cultural ‘objects' such as values, beliefs, norms, laws. Following Peirce, the meaning of both individual and collective behaviours and actions has a contextual nature. Moreover, the outcomes are not teleologically oriented but deduced from the dynamics of human society evolution. In truth,

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semiosis is an open-ended process in which each moment of interpretation alters the field for subsequent interpretations. This approach requires the use of a philosophy of knowledge that distinguishes natural sciences from social sciences since they require two different implementations of the logic of the inquiry. While natural sciences point to technically exploitable knowledge for an instrumental activity, social sciences refer to a kind of knowledge that is communicable, and thus, this knowledge supports the interactions between individuals mediated by symbols. Against the neoclassical paradigm of economic thought, Keynes and Hayek were concerned with the foundations of the idea of economics as a social science of wealth, which pre-supposes the existence of institutions (Dufourt 1995). Therefore, semiotics and human temporality are intimately connected. Indeed, time is a fundamental problem of philosophy and the cognitive and social sciences. Economic change is a related relevant issue. Change as a semiotic problem requires a new conceptual understanding of the markets as social and cultural units in evolution. A key issue to retain is that markets undergo change in different ways: transformation of production processes, investment and consumption patterns, business strategies, and policy-making goals through historical time. Moreover, social norms change as well. And the interpretations of the sign systems of economic relations are overwhelmed by feelings, cognition, change, expectations, and foresight. Against naturalist and rationalist approaches, the semiotic mediation deals with signs and signification, and it can only occur in the course of social life. The relevant assumption is that markets are open systems, that is to say, evolution has an unpredictable and nonteleological nature. The transformations in the capitalist system and Western societies have revealed that the so-called process of modernization enhances the modifications of values and ideas. Therefore, the apprehension of the meaning of economic relations considers how the economy relates to institutions and culture in a given society. Culture is a sign system that consists of a variety of signs, objects and interpretants. More precisely, the complexity of the cultural dimension of social life is related to a system of signs that the members of a society share. In this line of thought, the semiotic analysis of institutions refers to a triadic point of view, considering that meaning should change consistently with changes in context. This wider approach understands cultural norms and patterns of behaviour as well as the interplay between actors in a system to address complex challenges. When applied to economic institutions, a semiotic approach can help in understanding how

Chapter One

14

the evolution of institutions is related to the dynamics of an existing system of signs. Moreover, relevant related questions refer to the boundaries of economic knowledge and the problem of change in the capitalist economies. Under a semiotic approach, the conceptualization of “institution” refers to a semiotic process of interpretation and representation. The term “cultural semiotics” has been used since Ernst Cassirer described certain kinds of sign systems as “symbolic forms” and claimed that the symbolic forms of a society constitute its culture. According to Cassirer (1923), cultural semiotics has two tasks: • •

the study of sign systems in a culture concerning is the definition of their role in the culture, the study of cultures as sign systems regarding the impacts on the experiences of individuals that belong to a specific culture.

Each sign process includes at least a sign, an interpreter, and a message which is conveyed to the interpreter by the sign. The interpreter’s response, which amounts to construing a message in perceiving the sign, is called an interpretant. Within society, individuals are regularly connected by sign processes. Moreover, the institutions that exist in each society are characteristic of their social culture. Though it is often just called the “study of signs,” semiotics is the study of sign processes and sign users as well. From a semiotic perspective, in addition to the material dimension of social life, signs function as codes of a society (concepts, values, for instance) which connect with the interpretant in a conventional nature (Posner 1988). Besides, the dynamics of business create new codes, new signs or new usages of them. Mass media and advertising are also becoming increasingly important as producers of signs and they are competing with traditional institutions such as universities, churches, governments. The semiotic characteristics of institutions contribute decisively to changes in codes within specific areas of daily life by means of affecting different aspects of how people live, such as clothing, leisure activities, sports practice, gestures, and speech. At the material level, capitalist societies have developed the concept of “property” that refers to the power of disposition over things. In this context, money may be considered as a symbolic representation of property. The most important function of money is to enable the market exchange of power of disposition at any time. In this context, the stability of money has deep and relevant implications on the distribution of wealth

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and power. Indeed, the representation of power is closely connected with specific signs that can be used to interpret the society, economy, and the beliefs of a particular culture (Siefkis 2010). In this line of thought, semiotics can consider the evolution of power relations both as sign process and as social phenomena shaping human relations in the flow of time.

CHAPTER TWO KEYNES ON INTERPRETATION AND REPRESENTATION

Interpretation and representation are crucial actions in a semiotic process. In a Peircean approach, our understanding of the world is not a direct sensory one, but it is mediated by signs that have meanings and become a source of knowledge about the world. In other words, semiotics is a branch of human sciences that involves the phenomena of cognition on the world of experiences. The study of this science of signification and representation interconnects with the study of economics that aims to study how the phenomena of cognition and communication affect the decision-making process in the markets. A semiotic and realistic approach cannot be dissociated from experience, since thought and experience are associated. John Maynard Keynes warned that the understanding of the economic phenomena demands not only purely deductive reasoning, but also other methods of inquiry along with the study of other fields of knowledge – such as History and Philosophy. Today, Keynes could certainly criticise those economists whose beliefs ultimately privilege the adoption of a nominalist bias that prevents dialogue between the economic theories and the economic reality, both in academic research and in policy-making. Indeed, the dialogue between economic theories and economic reality is complex. Considering this background, the main questions at stake are: • •

How does his theory deal with the economic real world? In which sense does scientific knowledge presuppose the world of experiences?

The contributions of Keynes bring into question the meaning of the main signs of the capitalist system. In this sense, the challenge for a semiotic approach here will be to establish the connections between these signs and the system of signs that refer to economic theories. In a semiotic approach to economics, money as a sign has a specific representation within a sign system. To the British economist, no market

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Chapter Two

coordination can guarantee a level of aggregate spending that is compatible with full employment since money is not neutral and affects the evolution of the capitalist markets. In other words, what Keynes addresses is that the study of the business cycles should consider the role of the interpretation of money as a powerful sign within capitalist markets.

Direct and indirect knowledge Economics as a moral science uses introspection and value of judgment. In 1938, in a letter to Harrod, Keynes wrote: “I also want to emphasise strongly the point about economics being a moral science. I mentioned before that it deals with motives, expectations, psychological uncertainties. One has to be constantly on guard against treating the material as constant and homogeneous” (Keynes 1938, 300). This means that intuition and values always play a relevant role in the art of economic modeling (Togati, 1998). Moreover, it is important to select the relatively constant psychological factors to make limited generalizations about human behaviour. This is the basis for Keynes’s fundamental economic thinking as well as for his views on society in general. Aware of the many epistemological difficulties, Keynes stressed the amalgam of logic and intuition and the wide knowledge of facts required for economic interpretation (CW X, 186). In the late 1930s, John Maynard Keynes and other economists objected to this recent “mathematizing” approach. In 1939, Keynes, as editor of the Economic Journal, wrote a negative review of Tinbergen’s book A Method and its Application to Investment Activity. This book presented statistical testing of business cycle theories based on the application of the method of multiple regression and mathematical framing in the form of a specified model. At the core of Keynes’ concern lay the question of methodology. At the 5th European Meeting of the Econometric Society, in 1935, Jan Tinbergen presented the paper ‘A mathematical theory of business cycle policy’ that followed the Econometric Society’s guidelines. His causal explanation of the business cycle began with a priori economic-theoretical considerations about explanatory variables and then he proceeded to test a model. Based on criticism of Marshall’s work and legacy, a new generation of American and European economists developed the mathematical economics of Walras and Pareto. As a result of this trend, the Econometric Society was founded in 1930. The constitutional assembly was held in Cleveland, Ohio, during the annual joint meeting of the American Economic Association and the American Statistical Association. The Norwegian economist Ragnar Frisch played an important

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role in the Econometric Society that was founded to enhance studies based on the theoretical-quantitative and the empirical-quantitative approach to economic problems. In this way, the founding fathers believed that economic thinking could be as rigorous as the one that dominates the natural sciences. In the book review, Keynes wrote: Am I right in thinking that the method of multiple correlation analysis essentially depends on the economist having furnished, not merely a list of the significant causes, which is correct so far as it goes, but a complete list? For example, suppose three factors are taken into account, it is not enough that these should be in fact vera causa; there must be no other significant factor. If there is a further factor, not taken account of, then the method is not able to discover the relative quantitative importance of the first three. If so, this means that the method is only applicable where the economist is able to provide beforehand a correct and indubitably complete analysis of the significant factors. The method is one neither of discovery nor of criticism. It is a means of giving quantitative precision to what, in qualitative terms, we know already as the result of a complete theoretical analysis. (Keynes 1939, 560)

In this paragraph, it is clear that Keynes doubted the use of inductive methods of generalization and statistical inference to build economic theories because of the peculiarity of the economic systems characterized by a low degree of homogeneity, a high degree of complexity, the lack of stability through time. Indeed, on behalf of the peculiarities of the economic systems, Keynes highlighted that econometrics turns out to be a method not of testing or discovery, but of measurement of selected variables. In A Treatise on Probability (1921), Keynes considered that direct knowledge refers to a faculty of recognition of similarities and differences within a mass of facts by developing a kind of “insight”. Years later, in The General Theory, he invoked the role of “practical intuition.” Against the hegemony of positivism, the British economist highlights that ‘theory’ is the result of intuition and indirect knowledge of a problem. Moreover, in the essay My Early Beliefs, he associated this intuitive power with direct inspection of objects of experience. Therefore, Keynes presented a theory of knowledge that strongly relies on his notion of intuitive insight. Knowledge can be obtained directly, as the result of contemplating the objects of experience and indirectly through the developing of arguments. Indeed, in knowledge, because of this direct element, logic can never be made purely mechanical, that is to

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Chapter Two

say, logical deductive rules are not enough. In 1930, while writing a review of Frank Ramsey’s work, Keynes affirms: Thus he was led to consider ’human logic’ as distinguished from ‘formal logic’. Formal logic is concerned with nothing but the rules of consistent thought. But in addition to this we have certain ‘useful mental habits’ for handling the material with which we are supplied by our perceptions and by our memory and perhaps in other ways, and so arriving at or towards truth; and the analysis of such habits is also a sort of logic. The application of these ideas to the logic of probability is very fruitful.” (CW X, 338)

What is relevant for Keynes is not formal, mechanical logic, but ‘human logic’. In this respect, he writes: The gradual perfection of the formal treatment [of logic] at the hands of himself [Russell], of Wittgenstein and of Ramsey had been, however, gradually to empty it of content and to reduce it more and more to mere dry bones, until finally it seemed to exclude not only all experience, but most of the principles, usually reckoned logical, of reasonable thought (CW X, 338).

It is relevant to emphasize that, to Keynes, there is a bridge between direct and indirect knowledge, and it is the latter that refers to the representative element, i.e., the concept and the proposition. The theories cannot be the result of empirical methods as their target is to check whether the theoretical insights are right or not. He also speaks about a methodical pluralism of the moral sciences “in which theory and fact, intuitive imagination and practical judgment, are blended in a manner comfortable to the human intellect” (CW X, 335). Economics is a way of thinking, a branch of logic. However, in his opinion, good economists are scarce because they do not practise ‘vigilant observation’ in an adequate way to build their representations.

Realism and social sciences According to Jaques Sapir (2007), the issue of realism is not the opposition between a "factual" world and a "theoretical" one, between reality and the abstract. Moreover, Tony Lawson and Uskali Mäki share a common interest in analysing the ontological assumptions made in the modelling strategies used by economists (Lawson 1996 and 2003; Mäki 1989 and1998). When Lawson stressed the relevance of an ontological realism, he stated that the existence of things is independent of what we think about them. In the same perspective, Mäki suggests the existence of

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things is independent of recognition (Craig 1998, 105). In this line of thought, the distinction between events and processes has relevant implications in terms of a semiotic approach to economics since all knowledge involves a mediated access to reality. As social sciences are not exact, therefore searching for exactness is an unrealistic error. Regarding statistics, Keynes stated that its object is not prediction, but testing the relevance and validity of the model. In his words: The method is one neither of discovery nor of criticism. It is a means of giving quantitative precision to what, in qualitative terms, we know already as the result of a complete theoretical analysis” (CW XIV, 308).

As Anna Carabelli (1988) stated, Keynes rejected certainty, perfect knowledge and universal causation. That is why he stressed the role of “sufficient instead of necessary conditions”. Considering this scenario: what are the influences and consequences of Keynes´s theory of knowledge based on sufficient reasons? A related question is the role of determinism in science that refers to Laplace´s philosophical argument. Laplace (1814) argued that all occurrences in nature, both on a large and small scale, are a necessary consequence of the laws of nature. In his view, current events are related to previous ones by a causal connection. He proposed the axiom known as the sufficient reason principle that applies to all actions. For Laplace, determinism seems to be intimately linked with causation. It is ultimately based on a principle which he calls the principle of sufficient reason: "a thing cannot come to existence without a cause which produces it." The principle of sufficient reason plays an important role in the work of Leibniz who preceded Laplace in arguing for determinism on metaphysical grounds. Leibniz takes this principle to be one of the two principles on which reason is founded (the other being the principle of contradiction) (Leibniz 1710, 421). Leibniz' principle of sufficient reason states that for everything that happens there must be a reason which determines why it is thus and not otherwise. Laplace uses the word "cause" instead of "reason". These words could have equivalent meanings, but it is important to note that in Laplace, a cause is productive of the event that it brings about, it is an efficient cause in the sense of Aristotle, whereas Leibniz' principle of sufficient reason has more to do with final causation. Thus, there is an important distinction: whereas Leibniz' principle of sufficient reason says that for everything that occurs there must be a reason why it is thus and not otherwise, Laplace's principle of sufficient reason says that for everything there must be a cause

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that brings it about. In this sense, Laplace's principle of sufficient reason is closer to that of Spinoza: like Laplace, and in contrast with Leibniz, Spinoza does not involve final causation in his discussion of the principle of sufficient reason (Melamed and Lin 2010). Thus, the argument that Laplace provides for his determinism is based on an interpretation of the principle of sufficient reason. Laplace thinks that perfect prediction is ultimately possible if based on the mathematical analysis, which implies that ultimately, there are fundamental laws of nature, of a mathematical form, which always has a unique solution for any given initial conditions. Condorcet was an important intellectual influence on Laplace who was almost certainly influenced by Condorcet's determinism (Hahn 2005, 50-51). The context of Condorcet's statement is a discussion about the distinction between necessary and contingent laws of nature According to him, although many laws of nature are contingent, there is no contingency in the phenomena, which all follow necessarily from the laws of nature. In this philosophical setting, the law of continuity played a role in the general argument for determinism. The most familiar formulation of the law of continuity is the statement that "nature makes no leaps", that all transitions in nature are gradual, and that nothing can change from one state to another without passing through all the intermediary stages (Leibniz 1765, 50). Therefore, the state of the universe at a certain instant continuously determines subsequent states, through infinitesimal steps, and in this way, one can say that the state of the universe is the cause of the state at the next instant. This is the reasoning behind Laplace's claim that the principle of sufficient reason implies that the state of the universe is the cause of the state at the next instant. Therefore, there is no such rigorous exclusion of discontinuities. Against the principles of determinism and necessary reasons, Keynes proposed a reconceptualization of the boundaries of rational knowledge regarding economic issues to explore the different levels of complexities in economics. In his Treatise on Probability (1921), he affirms that there may well be very different laws of connection between complexes that could not be specified in terms of laws that link individual parts. Moreover, philosophical (and economic) problems were suggested to him by the world, and not by what philosophers had said about the world. Lawson (2003) observed that Keynes was interested in ontology, which is the study of the structure of reality. His ontological realism underlies the theoretical approach since the existence of a world is independent of every mind. In Lawson´s analysis, Keynes adheres to the view that the economy

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has a constant inner structure and analyses the nature of social reality as well as the mutability of reality. To Keynes, the capitalist economic process is understood as a noncoordinated process of decentralized decisions affected by psychological factors (Winslow 2003). Another aspect of his realism is the rejection of the epistemic assumption of perfect information. Indeed, the limitations of the cognitive capabilities refer to ontological issues concerning the uncertain future. The British economist takes for granted that an independent reality exists and that truth or falsehood do not depend on our knowledge. His realism rejects the contributions of transcendental philosophies, philosophies of consciousness, and positivist theories of science. He not only escaped from the rationalist epistemology of Descartes but also from the anti-metaphysical theory of science promulgated by logical empiricists. He also rejected the consideration of subjective accounts in the process of generating a realistic economic knowledge. In his ontological approach to economics, concepts are not subjective forms since they do not originate in subjective processes. Second, concepts are not transcendental but historical entities. Third, concepts are not units of language, that is to say, a concept is not a word, a lexical concept, or a linguistic sign, but concepts are grounded in everyday experience. Fourth, concepts are subjected to fallibilism since making errors is part of the rational scientific enterprise. It is worth remembering that, after 1874, English philosophy was deeply influenced by Hegel and idealism became highly influential. In Cambridge, the philosopher McTaggart was the leading exponent of Hegelian idealism up to 1903 when G. E Moore published The Refutation of Idealism and Principia Ethica. Moore, along with Russel, led the reaction against utilitarian naturalism and Hegelian idealism. In Oxford, the attack on idealism led by L. T. Hobhouse restored empiricism and the shift from the metaphysics of Green and Bosanquet (Carbtree and Thirwall 1980). In this scenario, Keynes criticized the ideas of Moore, a philosopher who was respected as an exponent of common-sense philosophy and a precursor of ordinary-language philosophy. In a famous passage of My Early Beliefs, Keynes wrote: Moore had a nightmare once in which he could not distinguish propositions for tables. But even when he was awake, he could not distinguish love and beauty and truth from the furniture. They took on the same definition of outline, the same stable, solid, objective qualities and common-sense reality (CW X, 444).

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Although he rejected any kind of nominalism Moore´s Principia had significant influence on his ideas on human action and ethics. First, Moore broke with the ethics of utilitarianism. Second, the philosopher highlighted the role of consequences of actions. As an outcome of this approach, Keynes turned out to be interested in the boundaries of rationality and probability (Crabtree 1980). While exact calculation and precision can be applied in many areas of the physical and natural science, Keynes considered that it is doubtful in most social sciences, especially in most areas of economics, such as finance and business. Against Tinbergen, who believed that it would be possible to approach economics as if it was physics, Keynes, in his Treatise of Probability, emphasized that there are certain classes of phenomena, in which, though it is impossible to predict what will happen in each case, there is nevertheless a regularity of occurrence if the phenomena are to be considered together in successive sets. Indeed, the complete or exact knowledge of the actual values of the relevant quantities is neither usual nor necessary (Keynes 1936, 37). He condemned the attempt to build a quantitative science to deal with a non-homogeneous set of output of goods and services that cannot be measured, strictly speaking, except in certain special cases. As Keynes warned in his analysis about the dynamics of the uncertain real-world monetary economies, understanding of the economic phenomena demands not only purely deductive reasoning, but also other methods of inquiry along with the study of other fields of knowledge, such as History and Philosophy. In the Essays in Biography, he highlighted the rare combination of gifts that the economist must have: He must reach a high standard in several different directions and must combine talents not often found together. He must be mathematician, historian, statesman, philosopher – in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician (CW X, 173-4).

Today, Keynes’s criticism could certainly be addressed to those economists whose beliefs ultimately privilege the deductive method of inquiry in Economics. Due to these beliefs, mainstream economists favour the adoption of a nominalist approach where concepts are not anchored in the real-world economic phenomena. And as a consequence, the current

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challenge in Economics is that the dialogue between economic theories and the economic reality turns out to be abandoned not only in academic research but also in the policy making process. This dialogue is complex and should be considered in any attempt to build realistic economic theories, as Keynes warned. Indeed, the changing environment of realworld markets through time, that is irreversible, refers to a certain degree of ontological indeterminacy that should be considered in realistic economic theories and in the study of economics.

Signs, money and the instability of capitalism Stanley Jevons, Alfred Marshall and Knut Wicksell held that the capitalist economy contained self-correcting forces that rendered business depressions temporary (Raico 2008). In The General Theory, John Maynard Keynes discarded the orthodox perspective of his predecessors and contemporaries and, therefore, he was considered a “heretic" who rejected the idea of a self-adjusting economic system that can achieve its full potential since aggregate demand is normally insufficient to produce full-employment. According to the British economist, changes in prices, wages, and interest rates do not tend to generate the full-employment equilibrium as proposed by the standard economic theory. Keynes’s theoretical approach rejected the classical theory that implies that a market-based economy is inherently self-regulating. In accordance with the doctrine of laissez-faire, free markets would automatically provide full employment. His criticism was oriented to the Say’s Law of the markets: the expression “supply creates its own demand” means that all income will be spent. Therefore, this Law rejects the possibility of a general crisis in a free market economy where the neutrality of money and the price flexibility adjustment enhances full employment. In this theoretical framework, lower levels of consumption necessarily mean higher levels of saving that reduce interest rates enough to induce firms to finance investments (Chick 1983). Thus, the interest rates are a key mechanism that maintains the equilibrium of saving and investment at the full employment level. As the classical economists believed in the efficient adjustment of supply and demand in the free markets, full employment could mainly be constrained by the rigidities in the labour market, such as labour regulation, wage bargaining, labour market segmentation and discrimination. In short, in the classical framework, those frictions, imposed by employers, trade unions or governments, were considered the main causes of unemployment (Pigou 1933). Against this background, The General Theory was intended to introduce the

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conceptualization of non-voluntary unemployment in the context of a monetary theory of production. Money is at the center Keynes´s semiotic codes. Money is a sign and the meaning of money (the sign) can be understood through the behaviour of traders in the financial markets. So, if we consider the Keynesian theoretical system as a semiotic one, then we should focus on how traders behave within the markets. In the middle of the 1930s, John Maynard Keynes’s contribution on monetary theory was the turning point in the understanding of the persistent unemployment observed in the capitalist system. In other words, Keynes highlighted the situation when people would want to find a job but businessmen are not hiring workers. Indeed, Keynes shifted the study of unemployment from the dynamics of the labor market to focus on the context of uncertainty where businessmen have to make decisions about capital accumulation. His conclusion is that at any one time it is highly unlikely that the economy will be operating at full capacity. The nature of the capitalist system as a monetary economy explains a deep social problem: involuntary unemployment. Money is the ultimate purpose of an entrepreneurial economy overwhelmed by speculative decisions. Keynes' understanding of money as a store of value, that is to say, as an asset, is essential to apprehend his theory of effective demand and the roots of employment. In this sense, because of the uncertainty about the future, businessmen could postpone spending decisions and search for alternatives of wealth management. Thus, there arises a tension between the pursuit of increasing individual wealth and the expansion of employment in the capitalist system. The British economist focuses on the analysis of the instability of the levels of aggregate demand. Effective demand is an economic principle that suggests consumer needs and desires must be accompanied by purchasing power (money) to be considered effective in discussions of supply and demand for the determination of price. Effective demand in macro-economics is regarded as synonymous with aggregate demand. Aggregate demand is the total demand for final goods and services in the economy (Y) at a given time and price level. It is the amount of goods and services in the economy that will be purchased at all possible price levels. This is the demand for the gross domestic product of a country when inventory levels are static. It is often called effective demand. Keynes relates effective demand to the labour market. He explains that the relation between real wages and the disutility of labour is not like classical thinking. In the labour market, the real wage is an endogenous variable. He argues that there exists involuntary unemployment differentiating it from the classical perspective. Classical thinking argues

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that there exists voluntary unemployment. Keynes, in his explanation of the principle of effective demand, ties the level of employment to the decisions of entrepreneurs. He argues that the behaviour of entrepreneurs regarding future yields is what determines the volume of employment. In explaining the principle of effective demand further, Keynes relates it to the aggregate framework in which two factors play a role. These two factors are aggregate supply and aggregate demand. However, aggregate supply and aggregate demand are not independent. They are affected by two aspects of capitalist expectations. Expectations are related to (i) production costs and yields and (ii) spending. In his explanation of capitalist expectations in relation to effective demand and production, Keynes underlines short-term expectations, degree of utilization of capacity and determination of the level of employment plus profit. The British economist understood the relevance of the conceptualization of effective demand through the link between unemployment and money in a monetary economy based on entrepreneurs’ decisions, uncertainty and expectations in a line of time. And expectations about the future of the economy which is uncertain have an impact in decision-making processes about production and investment. The degree of confidence about the future depends on the belief of the society about the future of the economy. The degree of confidence may change over time and this change calls for a re-definition of the entrepreneurs’ expectations so as to facilitate decision-making. This can affect the aggregate demand. Decisions about investment are decentralized to the entrepreneurs. Regardless of uncertainties, the entrepreneur has to make decisions instantly before knowing what is going to happen. That is why decisions have a lot of uncertainties overwhelming the decisionmaking process. Relating the idea of effective demand to the labour market, Keynes views it as a result of decisions in terms of wealth in general and there is an investment process as part of this wealth process. Therefore, all markets do not have the same hierarchy in the capitalist system. And the labour market is not the most important in the capitalist order but the relationship between money to production and money to investment. Sometimes, capitalists decide to increase investment and production which has impacts on the labour market. The results in terms of employment are subordinated to wealth decisions that are supremely hierarchical. These decisions could be associated with social wealth and individual wealth. In trying to understand the nature of capitalism in the concept of effective demand, Keynes explains in chapters 12 and 15 that the marginal

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efficiency of the capital rate of return and liquidity preference, respectively, are overwhelmed by uncertainty about the future in the financial market. This leads to new wealth in the primary market or old wealth in the secondary market and impacts of the expectations of speculators, and speculators influencing the future of investment. Entrepreneurs have to make decisions related to production. And decisions about investment involve the marginal efficiency of capital, liquidity preference, dynamics of capital market and dynamics of interest. That is why Keynes says that decisions about production are not as complex as decisions related to investment. Decisions about investment are much more complex and are for long-term investment, unlike decisions related to production which are short-term. In accordance with the notion of effective demand, Keynes emphasizes the importance of spending. He states that the level of spending determines the level of income. There is a need to think in terms of decisions about spending in association with consumption and investment. Since decisions about investment are fulfilling expectations about production, then we have the determination of income that is equal to the expectations of entrepreneurs. So, the decisions about consumption and investment are determining the full aggregate demand of the economy. However, it is important to look at factors affecting employment such as the rate of investment and role of technology in terms of aggregate demand. That is why Keynes in The General Theory, Chapter 11 says that sometimes you cannot rely only on the level of investment because we need to think in terms of the link between the creation of income and the creation of employment that satisfy the needs of society. The quality of spending, not only the quantity of it, is also relevant when we think in terms of the evolution of employment. The policy implications of effective demand in The General Theory have always been attached to aggregate demand, but it should be noted that they are also attached to regulations of domestic market and international order. Keynes believed in the existence of a relationship between nominal wages and the level of employment and nexus mediated by the “effective demand” concept. Thus, the volume of employment is not determined by the marginal disutility of labour measured in terms of real wages, except in so far as the supply of labour available at a given real wage sets a maximum level to employment. The propensity to consume and the rate of new investment determine between them the volume of employment, and the volume of employment is uniquely related to a given level of real wages, which is the other way round.

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If the propensity to consume and the rate of new investment result in a deficient effective demand, the actual level of employment will fall short of the supply of labour potentially available at the existing real wage, and the real wage will be greater than the marginal disutility of the equilibrium level of employment. To explain the paradox of poverty in the midst of plenty based on the above analysis, the mere existence of an insufficient effective demand may bring the increase in employment to a standstill before a level of full employment has been reached. The insufficiency of effective demand will inhibit the process of production in spite of the fact that the marginal product of labour still exceeds in value the marginal disutility of employment. Indeed, his explanation addresses the concept that the capitalist economy is not self-regulated - as classical economists held. In the famous book The General Theory, his approach enhances a more fruitful apprehension of the real-world economics where money is non-neutral, that is to say, can affect the levels of spending, output and employment. What Keynes adds to our understanding about real-word economics is that capitalist economies show levels of income below the full employment, i.e. productive potential. This is associated with the role that money plays. Money is the ultimate purpose of an entrepreneurial economy. Money is a store of value, that is to say, an asset. This is crucial for the apprehension of the roots of employment. The amount of profits serves as an indexical sign as to whether an enterprise is meeting the previous expectations. Behind expected profits, there is a set of prices that may be considered signs in the market process which influence the decision-making toward investment. In Chapter 17 of The General Theory, Keynes applied the conventional judgement approach to the liquidity preference theory of asset prices and concluded that conventional behaviour and liquidity preference are closely linked in a monetary economy of production. The level of investment depends on the relationship between the demand price and the supply price of capital assets. The two key building blocks of his model are the “two-price system”: a price system for current output and one price system for asset prices. The demand price of capital assets (Pd) is the price that entrepreneurs are willing to pay for acquiring new or existing (old) capital assets. The supply price of capital assets (Ps) is the replacement cost of new capital assets. The demand price of investment could be defined as the maximum price that the entrepreneur will pay for an additional unit of new or existing (old) capital assets. This price refers to the present value of the flow of expected returns, discounted at the appropriate interest rate, which

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is strongly influenced by expectations about the future actions of central banks. Expectations about the costs and revenues determine a flow of net expected returns during the maturation of capital assets. Given this set of expectations, Pd is the maximum price that the capitalist may pay for an additional unit of capital assets- new or existing (old). On the other hand, the supply price of investment, Ps, is related to the production of new capital assets. Given a set of expectations, Ps represents the minimum price that would lead to producing a new additional unit of capital assets. The relationship between the demand price and the supply price of capital assets depends on: the state of expectations of borrowers and lenders; the state of expectations of financial market participants; the views about normal/acceptable/proper funding structures; the cost of production of investment goods and mark-up over cost (Wray and Tymoigne 2008). Beyond the current and asset prices, as indexical signs of the current and expected business environments, Keynes assesses that the primary driver of economic expansion should be located in the demand side. In his General Theory, this idea is at the heart of the “Principle of Effective Demand”. The theory of effective demand is crucial to explore the causes of unemployment and the determination of income in an entrepreneurial economy. To explain involuntary unemployment, Keynes focuses on the expectations associated with investment decisions in a monetary economy where uncertainty about the future pervades the decision-making process. He argues that employers decide about the amount of labour that they would hire based on expected profits. In other words, the level of employment is determined by the entrepreneurs’ decisions. In this sense, because of the uncertainty about the future, businessmen could postpone spending decisions and search for alternatives of wealth management. Investment decisions are based on conventions. In any specific conjuncture, the average opinion of entrepreneurs about future profits shapes a convention. This is based on a precarious set of expectations about the future evolution of aggregate demand, that is to say consumption, investment and exports, for example. Since it is a sign, money affects the signification of phenomena and the decision-making. Indeed, Keynes was aware of how the financial strategies around long-run investment and profits vary over time. And he put emphasis on how these strategies impact upon the dynamics of value creation and business models across economies and societies. Considering that financial and business practices enhance the redistribution and reallocation of power and wealth this chapter addresses, from a Keynesian point of view, the concept that the changes observed in business fostered economic instability and social vulnerabilities. In fact, Keynes casts light

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on the fundamental links between business models and money in contemporary capitalism that enhances a new interpretation about the relations between finance, business models and labour as evolving forms. Under a Keynesian approach to economic dynamics, investment decisions must be analyzed in a context of capitalist speculative finance where capital accumulation is the main objective of investors. On behalf of the concern about the distributive consequences of the financial phenomena, Keynes deepened his understanding of the behaviour of different social groups that resulted from capital concentration and the expansion of organized financial markets. In The General Theory, Keynes reinforces the analysis of the modifications in the structure of the capitalist class to explain the differences between entrepreneurs and investors in terms of their effects on capital accumulation. Thus, in chapter 12, he establishes the difference between the old and the new business models. Taking into account the new business model, the decisions about what amount and where to invest are no more an irrevocable commitment for investors and managers. Indeed, in the new business model, investors decide the volume of investment, but investment is not irrevocable since liquidity is the target. As Keynes says, through the separation of ownership and management and the growth of capital markets, new drivers and threats should be considered in the theory of investment. Within the institutional set up dominated by stock markets, investors and managers do not assume an irrevocable commitment with the business they own. In the last decades, the burgeoning emphasis on short-term performance, and the move to portfolio managers had a profound impact on mutual fund investment investors’ strategies, most obviously in soaring portfolio turnover. As a result, short-term speculation became the order of the day while the Stock Exchange turned out to be a benchmark for future investments. Though they are primarily made to facilitate transfers of old investments between one individual and another and the companies within the private equity portfolios are not publicly traded, the daily revaluations of the Stock Exchange have exerted a decisive influence on the rate of current investment. The Stock Exchange's regular revaluations mainly aimed at facilitating the transfer of old assets between individuals and enterprises have a deep impact on the current rate of investment. Indeed, the value of some classes of assets is influenced by the average expectation of speculative traders as revealed in the evolution of the price of shares. As a consequence, investments that are fixed for society turn out to be liquid for traders and other professional investors in the capital markets.

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What Keynes adds to our understanding of the dynamics of the capitalist system is that the dominance of a culture based on short-term speculation instead of long-term investment has major implications that influence the levels of spending, income and employment. The outcome of this kind of culture is the focus on liquidity of investment. As Keynes warned, the liquidity of investment has an anti-social nature because of the predominance of speculation over enterprise. Indeed, the speculative trend threatens the evolution of investment trends and the way businesses are managed. The advance of the role of investors in business has increased the potential conflicts between short-run and long run decisions as the speculative expectations of investors must be accomplished. Growing “liquidity” is incompatible with society claims concerning employment and income equality. When investors demand short-term results and companies respond accordingly, there is a heavy pressure to re-dimension the level of investments and expenditure on research & development to achieve the profit targets. The reduction of the workforce is a related outcome. According to Keynes, the interactions between the business environment and business instability are particularly influenced by the dynamics of contemporary finance, mostly based upon conventions whose precariousness could dampen the rhythm of investment. In his view, the expansion of capital markets reinforces the potential conflicts of interest between business strategies that favour short-run and long-run decisions putting pressure on business stability. As a matter of fact, the business environment could change, and new elements might affect investment decisions and value creation. In other words, under a semiotic approach, what Keynes adds to the understanding of business and institutional changes is that the evolution of business relies on the social behaviour towards money. This affects the way the decisions about investments are made, how companies operate and what kind of employment standards are predominant. Remembering his advice, when a country's growth becomes a by-product of a casino's operations, social interests are probably neglected. As John Maynard Keynes pointed out in the 1930s the improvement of the organization of investment markets increases the risk of the predominance of speculation. Under his approach, investment decisions are based on the existence of a monetary economy based on credit relations, organized markets of financial assets, speculation and uncertainty. In this economy, there is a set of interrelated balance sheets and cash flows between the income-producing system and the financial structure that is crucial to affect the valuation of the stock of capital assets

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and the pace of investment. Considering Keynes’ words, we can certainly say that at the heart of his argument is the understanding that the economic process involves social relations driven by profit expectations in the context where the future is uncertain. With high uncertain expectations about the future, the expansion of productive capacity and innovations would be postponed as entrepreneurs would prefer to maintain their wealth in more liquid assets. As a result, the increase in liquidity preference could lead to a continuous collapse of the expected returns on capital goods and disturb the evolution of the levels of investment and innovation. In this setting, economic growth is influenced by knowledge, behaviour, skills, policies, the legal framework, and the regulatory agenda. In other words, cultural, economic and institutional features overwhelm the entrepreneurship environment. Keynes stresses that we need information which cannot be conveyed through monetary prices since decisions are embedded in multi-dimensional informational spaces (Sapir 2007). As a result of policy challenges, governments have hard decisions to deal with. Faced with the choice between adopting austerity programs and supporting investors’ portfolios, many governments have disappointed their citizens. Keynes, as a realist economist, analysed how the flight to liquidity created a crisis at the centre of economic thinking and policy making. From his point of view, money relevance comes from its social relevance. What Keynes adds to our understanding of the capitalist system is that instability and unemployment are inherent features of the decentralized market process in a monetary economy, that is to say, the capitalist system does not show the tendency to auto-regulation to achieve full employment. In short, in Keynes’s work, “money” represents a conceptual and, more generally, a semantic momentum in the evolution of the description of the society based on the influence of greed. Keynes considers the epistemological status of the psychological side of the money demand. Therefore, economic knowledge about the drivers of economic growth also relies on the understanding of human desires and behaviour. Therefore, economic knowledge demands the understanding of social beliefs.

CHAPTER THREE HAYEK ON THE KNOWLEDGE PROBLEM

Hayek was aware of the need for a deep epistemological “turn” in Economics to face both the theoretical and methodological challenges that result from the Cartesian narrative. Looking back, Descartes reinforced the analytical-synthetic process of reasoning. Following the deductive method of pure inquiry, human knowledge grows through a rigorous chain of ideas. As a consequence of the Cartesian approach to science, the application of deductive reasoning creates a chain of ideas and, in this attempt, true knowledge can be obtained. The Austrian economist was aware of the limitations of knowledge and the possibility of making a prediction that is to say, to search for measurable knowledge. He rejected the Cartesian theorization of knowledge within a foundational model of rationality, complete order, and truth that has characterized various rationalist epistemologies. To Hayek, a realistic approach to Economics should enhance the comprehension and understanding of the market signs. Moreover, the ongoing dialogue between market signs and human behaviour should be considered in any attempt to build this into a realistic approach.

Dispersed knowledge and market coordination Following the Austrian tradition, Hayek believed that human action is not very amenable to statistical analysis, which implies a preference for a verbal, non-mathematical approach. In his lecture The Trend of Economic Thinking, Hayek addressed the isolation of the contemporary economist: The position of the economist in the intellectual life of our time is unlike that of the practitioners of any other branch of knowledge. Questions for whose solution his special knowledge is relevant are probably more frequently encountered than questions related to any other science. Yet, in large measure, this knowledge is disregarded and in many respects public opinion even seems to move in a contrary direction. Thus the economist appears to be hopelessly out of tune with his time, giving unpractical advice to which his public is not disposed to listen and having no influence upon contemporary events. Why is this? (Hayek 1933a, 13).

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In his opinion, economic analysis has never been the product of an intense urge to reconstruct a world which gives rise to profound dissatisfaction. Indeed, economics seems to have been mainly developed as the outcome of the investigation and refutation of proposals aimed at facing the undesirable effects of the existing system. Hayek rejected the methodological individualism used by social sciences for those who advocate logical empiricism. He was critical of the 'pure logic of choice' (or 'economic calculus') to explain economic facts. Against logical empiricists that highlight the role of fact at a particular place and time in the accounts of explanation, his belief highlights that a theory should indicate the general characteristics of events or a range of phenomena to be expected. In his view, the best generic or structural `explanation of the principle' in the field of social sciences is probably the general theory of prices as represented, for example, by the Walrasian or Paretian system of equations. These systems show merely the principle of coherence between the prices of the various types of commodities of which the system is composed. The set of equations shows merely the form of a system of relationships including a noteworthy attack on explanations which assume direct causal relations between social aggregates. However, Hayek also rejected the idea that the explanatory task of economics can be fulfilled by a 'theory of rational behaviour' or 'science of choice' or 'theory of action'. In his approach to social sciences, causal explanations of individual actions or behaviour are misleading since economic explanations must provide laws, theories, or interpretations of individual actions, behaviour or psychology. Therefore, his interest in the analysis of individual thought is related to the identification of different patterns of social relationships. Because the real world is too complex to be understood, perfect information and complete knowledge of the objective facts cannot be taken for granted. In the Presidential address delivered before the London Economic Club, on November 10, 1936, Hayek explored the subject in The Knowledge Problem a few months after the publications of Keynes’s General Theory. This moment was a decisive moment of change in his research because of the discovery of the approach related to the utilization of dispersed knowledge. This turns out to be the basis not only of his economic but also of his political views. Regarding the knowledge problem and its relevance in economics and epistemology, Hayek’s elaboration of the difficulty of aggregating diffuse private knowledge is an example of the difficulty of coordinating individual plans and choices in a context of dispersed, private, subjective

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knowledge. Prices communicate some of this private knowledge and serve as knowledge surrogates (Kiesling 2014). The knowledge problem and the economic problem are interrelated. Hayek says in his “The Knowledge Problem”: 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. (Hayek 1945, 524)

The economic problem of society goes beyond allocating scarce resources and it relies on how to make decisions and secure the best use of resources in a changing context where the market is considered a decentralized system of knowledge. As nobody can have knowledge as a whole. Hayek´s concern was about the division of knowledge, that is to say, the conditions in which people acquire the necessary knowledge, and the process by which they will acquire it. He highlighted how the spontaneous interaction of several people who have only bits of knowledge brings about a state of affairs in which subjective data of the different persons correspond to the objective facts. This correspondence is at the core of Hayek´s problem of knowledge. In short, there is a learning problem in the market system because of the limited cognitive knowledge of decentralized agents. Hayek emphasized the role and coordination of local knowledge as central to understanding complex social processes. He formulated a critique of the role of rational social control that overwhelmed post Enlightenment Western social thought. As he took into account the market coordination problem as the central problem of economics as a social science, the main question at stake is: What sort of knowledge is relevant in this coordination process? To answer this question, Hayek focused on the role of local knowledge, that is to say, the relevant knowledge of people that depends on local conditions and special circumstances to make successful plans. The understanding that the price mechanism acts to communicate information and to coordinate the decentralized actions of different individuals turned out to have a deep influence on Hayek´s approach to the methodology of social sciences. In this respect, in his book The CounterRevolution of Science: Studies on the Abuse of Reason, he says: While in (the social sciences) it is the attitudes of individuals which are the familiar elements and by combination of which we try to reproduce the

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Chapter Three complex phenomena, the result of individual actions, which are much less known—a procedure which often leads to the discovery of principles of structural coherence of the complex phenomena which had not (and perhaps could not) be established by direct observation—the physical sciences necessarily begin with the complex phenomena and work backwards to infer the elements from which they are composed.... While the method of the natural sciences is in this sense analytic, the method of the social sciences is better described as compositive or synthetic. It is the so-called wholes, the groups of elements which are structurally connected, which we learn to single out from the totality of observed phenomena only as a result of our systematic fitting together of the elements with familiar properties, and which we build up or reconstruct from the known properties of the elements. (Hayek 1952a, 39)

Hayek provided two interesting contributions to challenge “scientism”, defined as the imitation of the method of natural sciences applied to social sciences. This implies a sharp criticism of the positivistic notion of “objective science”. First, in the early 1940s, in the "Scientism and the Study of Society" series, he was concerned with the logical character of economics and wished to show the errors to which the moral scientist is led by emulating the methods of the natural sciences. In his view, a natural scientific explanation begins with the observation of ordinary experience to attain general explanations (Hayek 1942a, 82). On the other hand, the moral sciences are concerned with agents’ subjectivity and people’s actions in the context of inter-subjective interaction. Although the moral sciences do not aim to explain individual actions in detail, the concern with action has important logical implications. According to Hayek, because human beings have concepts as a “mental structure”, knowledge and beliefs are similarly structured. Let us recall Hayek´s words: “to recognize something as mind is to recognize it as something similar to our own mind, and the possibility of recognizing mind is limited to what is similar to our own mind.” (1943, 139) Second, his post-World War II work in cognitive psychology, The Sensory Order (1952), offers a theory of the generation of knowledge which can provide a useful analogy for understanding the generation of market-level knowledge. Hayek revealed his interest in a neuropsychological discussion of the mind and made occasional remarks on the nature of communication (Lourenço 2015). He stressed that the “symbols”, when perceived by the interlocutors, will “occupy in their mental order a position analogous to that which they occupy in his own; and which, in consequence, will have for those other persons a meaning similar to that which it possesses for him” (Hayek 1952). Successful

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communication seems to be explained by there being a corresponding placement of shared events in each mind’s order: •

•

As communication is a consequence of shared events occupying “analogous positions” in the present mental order, there should be some relation of similarity over subjective positions before intersubjective agreement. The account and definition of mind imply that differences in the mental order are associated with some difference in the central nervous system of the subjects.

The picture that emerges is that of an individual mind that depends on interactions with the environment but that is independent of other minds. There is a trend to the emergence of an inter-subjective agreement because of a similarity over subjective positions. The nature of social phenomena is such that they "are accessible to us only because we can understand what other people tell us and can be understood only by interpreting other people's intentions and plans. They are not physical facts, but the elements from which we reproduce them are always familiar categories of our own mind." (Hayek 1937a, 75). Looking back, Hayek (1945, 80) considered that a complete explanation requires two kinds of knowledge: theoretical and empirical. Nevertheless, he stressed that in social sciences, the research of complex phenomena enhances the adoption of a progressive scientific knowledge that should be open to the systematic exploration of the possibilities of change. Considering the explanatory picture in economics, his conceptualization of human cognition brings into question the sequence between cause and effect to address the complex evolution of social life. Indeed, in social sciences, a proper scientific method should not aim to provide unrealistic and scientific objective predictions between causes and effects but should identify, even with a fallibilist standpoint, the most likely patterns of development (Caldwell 2004).

The empirical factor On an intellectual level, Hayek even identifies his own style of thinking with Friedrich Wieser because of the role of intuition, in contrast to Lionel Robbins or Böhm-Bawerk who privileged pure economic analysis. In Hayek´s view, the hypotheses in economic theory must necessarily refer to everyday experience and they cannot neglect the role played by economic institutions in real life. In The Sensory Order (1952), he pointed out the

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relevance of the role of building hypotheses in the process of perception. The encounter of the organism´s mind with the environment establishes neuronal linkages and stimuli that determine the content of the sensory experience. Moreover, all knowledge can be subject to revision by virtue of sensory order-altering encounters with the environment. The relevance of the relationship among subjective experience, the external world and the process of knowledge, was further explored years later, when Hayek (1967) developed his studies on complex phenomena. The formulation of new questions presupposes that we have formed some provisional hypothesis or theory about the events to explain regularities and differences that can be noticed in real life. According to Hayek (1967), systematic observation can start only after problems have arisen after our senses have re-cognized some regularity or recurring pattern. Although our minds notice regularities in diversity, our senses identify new patterns that cause surprise and questioning. Throughout his life, Hayek worked on the topic of economic explanation, developing the details of the explanatory strategy, logical character, and substantive content of economics. For instance, his essay Degrees of Explanation (1955) is largely concerned with exploring the logical status and explanatory strategy of economics. We can address relevant observations regarding Hayek´s epistemic realism as follows: • • •

•

The explanatory strategy in economics has a contingent character. The explanatory strategy in economics begins with a question raising pattern (problem) observed in the real-world experience. The empirical character of the explanatory strategy is founded upon direct observation of the phenomena in the contingent unfolding of the unique course of history. The explanations of these phenomena are open-ended and irreducible to logic or formal construction of causal explanations or even physical predictions or categories (such as in the physical sciences).

In his words, realism in economics refers to an open-ended process where explanations depend upon the observations of new environmental conditions. The identification of the difference between a theoretical description of a pattern and a pattern of prediction is of great importance in the study of the complex phenomena of life, mind, and society. In this scenario, economics is considered an exercise in pure logic, but an empirical science that deals with complex phenomena.

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In order to enlarge our interpretation of Hayek´s realistic approach to economics, the relevant question is: What was the landscape of the contemporary philosophical debates in his time? In the early 1920s, the analysis about “sensory order” shows that Hayek was familiar with the writings of many of the German language Neoplatonist philosophers and psychologists. However, Hayek rejected the explanatory programs in psychology and political economy. In the years immediately after the war, he followed the discussions of the University of Vienna about Marxism and psycho-analysis. He considered both doctrines as unrealistic and unscientific because they defined their statements as necessarily true and irrefutable and they can say nothing about real life. Hayek was also familiar with the anti-metaphysical arguments of Moritz Schlick and Ludwig Wittgenstein: while Schlick´s theory of knowledge criticizes Kant's notion of synthetic a priori knowledge and identifies all empirical knowledge as hypothetical knowledge, Wittgenstein's Tractatus identifies all knowledge that tells us something about the world as contingent knowledge. Moreover, Friedrich Wieser's explanatory strategy that insisted on the empirical nature of the method of economic theory had a deep influence on the intellectual achievements of the second generation of the Austrian School, such as on Hayek (Arena 2010). In his tribute to Friedrich von Wieser, written upon his death in 1926, Hayek recalled the relevance of his approach that emphasized the context created by explanatory problems. In this sense, the choice of methodologies cannot be divorced from the treatment of concrete problems, that is to say, the theoretical analysis yields an appropriate method. In other words, the nature of the object certainly conditions the epistemology of social economics. Weiser addressed the relevance of institutions and the unity of money, the market and production, to highlight the existence of power and inequality in economics. He also rejected the methodological individualism in economics. Indeed, his conceptualization of the economic individuals differed from the atomistic and utilitarian view. Individual behaviours are constrained and influenced by institutional patterns (Arena, 2010). Moreover, in the mid-1930s, Hayek was also familiar with the discussions of the Carnap Circle, through Felix Kauffman and Otto Neurath. The group of logicians led by Rudolf Carnap at the University of Vienna responded to the crisis of scientific rationality through the philosophy of consciousness. Inspired by the philosophical writings of August Comte and Ernst Mach, Carnap (1937) rejected the contributions of Kant and Hegel and dismissed, as metaphysical, the idea that reality is

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somehow constituted by a subject. In his view, the primary point of access into reality is the physical world. Indeed, this anti-subjectivism was a rupture from the theory of knowledge that dominates philosophical discourse in the 18th and 19th centuries. The advocates of logical positivism believe in the objectivity of scientific reason and, reject the German idealism from Kant to Fichte, refuse to reduce the objectivity and normativity of sciences to ideal forms of subjectivity or pre-logical structures of lived experience. Against the epistemological relevance of the subject, logical positivism transforms the theory of knowledge into an objectivist theory of science that has its own conditions of validity and standards of corroboration. This theory of science is characterized by a historicism since it excludes time. For instance, Carnap’s syntactical rules and Popper’s rules of method are unchanging features of the logic of science. Although Carnap advanced over the phenomenological and neo-Kantian projects by recognizing the need for an anti-subjectivist theory of science, he proposed a totalizing logical analysis of language. However, Karl Popper (1959) rejected that scientific unifying trend. In the “Introduction” to The Logic of Scientific Discovery, he associated the anti-historicism of Carnap to a formalistic path further away from the actuality of science. Against Carnap, Popper observed that the theory of science cannot validate itself as epistemology if it cannot explain the advancement and growth of science. In other words, theoretical claims about the world need to be tested, corroborated or falsified by the appropriate scientific procedures. Indeed, Popper shifts from the logic of scientific language to the logic of scientific method.1 Considering this background, we can say that Hayek rejected not only metaphysical transcendentalism but alto a conceptualization of science as methodology. Moreover, the understanding of Hayek´s epistemological contribution still requires a reference to its connection with Mises. Despite being Mises' student and disciple, Hayek never accepted Mises “a priori” approach to the logical status of economic explanation. Hayek criticized Mises´s neo-Kantian epistemological tradition and his epistemological project of transcendental idealism. In Hayek´s famous 1937 paper Economics and Knowledge, and throughout the rest of his career, he identified the theoretical constructions of the marginalist school of economics as pure and tautological logic incapable of providing realistic explanations for the allocation of resources

 1

In A Nice Derangement of Epistemes: Post-Positivism in the Study of Science from Quine to Latour, John Zammito (2004) explains that Popper’s proceduralism dissolves the logical scientific discovery into a methodology, that is to say, an activity based on mechanical rules.

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and the business cycles. Both this paper as well as his famous essay The Use of Knowledge in Society highlight the imperfect and dispersed character of human knowledge at the centre of the problems of market coordination and fluctuations. Against the extreme rationalism of Ludwig von Mises, Hayek rejected the idea that the whole theory of the market is an a priori system since the pattern observed in the market cannot be the product of a (single) human mind and producer. The social order refers to an information process where only the market can coordinate effectively the decentralized decisions. In the real word, according to Hayek, individual knowledge is necessarily limited, imperfect, dispersed, and always changing in an open-ended fashion. Indeed, the ability to learn in the social context of changing relative prices and shared rules of conduct is at the core of explanatory issues in economics. The empirical factor is associated with a real world that is open to change. Therefore, Hayek´s realistic approach to economics considers the existence of an empirical element in our experience. Therefore, contingent causes cannot be apprehended within any logical construction. Indeed, the empirical factor not only enhances a reflection on information embodied in the environment of the market process but also related to epistemological issues that refer to the acquisition and development of fallible knowledge.

Signs, market prices and the spontaneous order In Hayek´s view, prices are signs which serve as guides to action and they are forward-looking. Indeed, market prices perform a semiotic function in communicating knowledge. Moreover, the market as a system of the utilization of knowledge is the basis not only of his economic but of his political views. Indeed, his vision of the market is different from mainstream economics that associates the market as the locus where atomistic agents produce optimal equilibrium outcomes. Against this atomistic approach, Hayek´s “spontaneous order” refers to patterns of coordination arising within systems that are not deliberate constructions or “made orders” (Hayek 2014). As examples of constructed orders, Hayek highlighted bureaucracies and corporations whose patterns of intentional actions depend on participants pursuing their own goals. However, in the spontaneous orders such as law, custom, language, and society, any coordination of actions arises independently of participants’ intentions. Indeed, the spontaneous order is primarily understood as a communication network where the exchange of signs and patterns of feedback enhance the success of the independently chosen individual plans

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within a system of rules. In a context of dispersed knowledge, prices, as signs, convey free available information in a way that can be interpreted and, therefore, the semiotic process facilitates the successful achieving of individual purposes. The semiotic process in this information-rich environment is a complex process of discovery that is subordinated to specific organizational goals. There is no teleology behind this process, what means that relies on openness to the unknown (Wilson 1989). The individual and the systemic levels of analysis are considered in the complex process of market coordination. Within the market order, where goods and services can be exchanged at money prices, prices are signs that convey information that fosters the coordination of production decisions throughout the economy. Indeed, prices are signs which facilitate the cooperation since these signs enhance the simplification of what participants need to know to make decisions. Influenced by Weiser, Hayek´s conceptualization of the market is different from the Walrasian one. While Léon Walras first considered a scheme of a market economy based on a generalized barter process, the influence of Weiser on Hayek´s view of the spontaneous order as an institutional process is clear. Therefore, the market process is influenced by the institutional set-up where institutions and rules emerge from human actions and they exert constraints on individual behaviour (Arena 2010). Considering that the fundamental problem in economics, for Hayek, is that of coordinating the plans of many independent individuals, the main question at stake is: How coordination can be achieved through the markets? In the essay The Use of Knowledge in Society, Hayek presented the market as a price system where multiple minds engage in cooperative behaviour to create, produce, and exchange. He established a relationship between knowledge and human interactions where, • • • •

Everybody has a kind of knowledge that is frequently tacit and conditioned by time and place. Everyone has access to a local knowledge that is useful to make decisions and evaluate the outcomes of previous plans. Indirect knowledge is provided by one person to another via market prices in order to build their plans accordingly. The information contained in the price system is sufficient to organize the interaction between distinct market participants.

This process leads to the division of labour and knowledge associated with economic growth in a context where cooperation must take place to enhance the production of consumer goods. The starting point of Hayek´s

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analysis of the markets is that no one can totally unveil the complexity of the world. As men have incomplete and fragmented knowledge, the complex phenomenon of the market will never be fully known. However, through a process of experimentation, a human being can examine the facts and select the rules of behaviour that offer solutions to recurring problems in a complex world. Considering human behaviour in the economic order, Hayek developed the idea of cultural evolution as a process of social learning where the products of civilization are the outcomes of unintentional trials and errors. As society becomes more complex, its survival depends on the selection of rules that reaffirm the primacy of the economic order where market competition is preserved. In this process, the role of the government is to ensure the logical foundation of a free society (Hayek 1937a and 1973). As a matter of fact, in the economic order, as a spontaneous one, the principle of competition is a pillar of Hayek’s theoretical construction. It is the principle that leads to efficient coordination and generation of wealth in a free society.2 Indeed, prices are signs that support an extensive social division of labour in a context of individual freedom. Without certain institutions and practices, the economic process that brings about the coordination of plans of consumers and producers would not take place. Indeed, the efficient allocation of resources is a process that relies on private property incentives, relative prices and profit and loss accounting. It is worth noting that, for Hayek, the problem of market coordination is not associated with the problem of equilibrium. Equilibrium, by definition, is a state of affairs in which no agent within the system has any incentive to change. In this state of affairs, the situation would lead individuals to a state of rest where all plans were coordinated and resources were used most efficiently.3 In his articles Economics and Knowledge and The Use of Knowledge in Society, Hayek inquired how economic agents come to learn in the market process where the price signals represent the key institutional guide to



2 In his view, the price mechanism is the arbiter of economic competition. Hayek´s 1946 lectures on "The Meaning of Competition" provide a critique of both perfect competition and monopoly capitalism as representation of the market. Later, in the 1968 lectures on "Competition as a Discovery Procedure", he highlighted the relevance of the coordination paradigm. 3 Hayek theoretically criticized the socialist program proposed by the Lange conditions. These conditions hold that a) prices would be set to marginal cost, and thus the full opportunity cost of production would be reflected in the price and b) production would be at the minimum point on the firm’s average cost curve -and thus the least-cost technologies would be employed.

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learning. Prices are related to incentives, as taught by the traditional neoclassical theory, but also prices serve an informational role that is always context-dependent. A competitive environment provides individuals with the incentive to be as innovative as possible. The growth of wealth is stimulated if governments do not interfere with individuals’ freedom. Indeed, as knowledge is decentralized, it cannot be used by any government to effectively plan the organization of society. In addition to the informational problem, governmental interventions prevent private action and the result will be general impoverishment. In truth, Hayek emphasized that welfare state policies were, per se, enemies of the classical liberal notion of freedom. In The Ghosts of Hayek in Orthodox Microeconomics: Markets as Information Processors, Edward Nik-Khah and Philip Mirowski (2019) address the “deep impact” of Hayek’s legacy about the nature and importance of information which have been investigated by Friedrich Hayek. They argue that there are three phases to Hayek’s view on information. In the first phase, during the 1940s, Hayek challenged the practicality of central economic planning on informational grounds. With regard to the socialist calculation controversy, Hayek argues that knowledge is dispersed and, therefore, planning faces huge epistemological difficulties. At that time, he proposed to reconceive the market as a mechanism for communicating information. In the second phase, Hayek’s views on information and knowledge considered the market’s role in making dispersed knowledge accessible for calculation. Importantly, Hayek’s view on unintended rationality leads to the human limited knowledge while the market provides ultimate truth. In The Sensory Order (1952), Hayek suggested the association between the cognitive mind and sets of hierarchies of classifier systems that were opaque to the thinker. He began to explore variations on tacit knowledge and inverted the Freudian conceptualization of the unconscious. For Hayek, rationality was largely unconscious: the types of knowledge that mattered most were inarticulate and largely inaccessible to the thinking agent. Therefore, the successful rules that worked the best were settled through a sort of evolutionary learning and selection at the individual level. In his cognitive conception, the formation of a new conceptual abstraction and the learning process, as he wrote in his Primacy of the Abstract, do not seem to be the outcome of a conscious process, not of a deliberate aim, “but always a discovery of something which already guides its operation” (Hayek 1978, 46).

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Finally, during the third phase, Hayek replaced the term knowledge with the term information in The Fatal Conceit. Hayek´s main concern was: How do individuals come to learn the information that is necessary to make possible the coordination of their plans with others? Indeed, Hayek offered a new perspective on markets and prices. In his view, the fundamental process of a market economy is price formation and the interpretation of prices as signs efficiently summarizes the result of the competition between buyers and sellers. Indeed, the prices of the various goods and factors of production are signs that convey the information required by all decentralized economic actors who have different partial information. This system achieves the complex task of production and distribution through a process of voluntary exchanges where coordination is effectively achieved without coercion. In his view, the markets need effective rules to protect individual freedom, that is to say, the freedom of every human being as an individual. His criticism reaches the interventions of the government since, despite the targets the government interventions produce social injustices and market inefficiencies. The free market is recognized as the basis of equality among people. The Austrian economist replaced the conception of the economy as a domain of autonomous rules and laws by a concept of "economic order" where price competition and the stability of the value of money are considered signs of freedom. Indeed, it is the government that creates instability in the price system by affecting the interpretation of changing prices (signs) and provoking a misallocation of capital in the flow of time.

CHAPTER FOUR THE SEMIOTIC ACTOR: A KEYNESIAN APPROACH

A semiotic actor is a mixture of feelings, emotions, actions, thoughts and habits. An economic agent as a semiotic actor gives meaning to the signs it receives from the environment. Peirce’s dynamic relation of the interpretant, object and the sign that is being interpreted offers a model of cognition that is based on the dynamism of meaning-making, which provides a foundation for decision-making. Regarding economics, the semiotic actor is immersed in a context, the surrounding external world where he is able to get information. Economic representations frequently fail to acknowledge how the cultural nature of norms provides institutions with normativity; how emotions can affect individuals’ actions; and how changing beliefs can be drivers of social change. Against the Enlightenment’s narrative, Keynes and Hayek also brought into question the boundaries concept of rationality in human behaviour. Within their analysis of the markets, a related question is the relationship that exists between the economic actors and their contexts and how this relationship affects decisions since human actions are dependent upon the ability to interpret a complex set of cultural messages and conventions. In other words, the understanding of the context in which a sign is communicated enables people to comprehend its meaning, and hence make decisions. Indeed, the modern tradition of thought treats the human being as essentially a thinking being, that is to say, a conscious subject who develops knowledge through deductive reasoning. However, against a human-centred view, contemporary scientific research explores the semiotic paths to explain the meaning in terms of systems of signs. To Peirce, we think only in signs and the whole function of thought (semiosis) is to produce habits of action. What he also highlights is that symbols grow, in other words, they come into being by development out of other signs. Keynes rejected the full rationality of the homo economicus that relies on the assumption of decision-making based on economic calculus. He

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considered conventional expectations to be the primary guide for economic behaviour in conditions of uncertainty. While basing his view of belief formation on probable reasoning, he offered fruitful insights into thinking about the conceptualization of the semiotic actors in the capitalist markets. The outcomes of the decision-making process are overwhelmed by beliefs that refer to the processes of interpretation, communication, and action. In an attempt to build a semiotic approach to economic relations, the relevant questions are: • • •

What do people have to know in order to make decisions? How does an individual consider social signs in their actions? What is the role of psychological motivations in human actions? What is the role of perceptions and feelings? Can the emergence of the main social institutions be explained by the motives and aims of individuals? What is the role of human knowledge?

Emotions and human behaviour Keynes constantly emphasized the importance of psychological factors in human decision-making, and how these factors could change the analysis of economic issues. In the book entitled A Treatise on Probability, Keynes (1921) stresses the necessity of explicitly considering psychology to improve probability theory. By the same token, in The General Theory, ideas like animal spirits, money illusion, conventions, and uncertainty suggest that the behavioural assumptions of classical economics do not conform to how people actually behave. In this respect, George Akerlof (2002, 411), for example, noted the “role of psychological and sociological factors, such as cognitive bias, reciprocity, fairness, herding, and social status”. And Anna Carabelli (1988), also highlighted the role of beliefs, opinions, motives and human agency. Considering the links between psychological factors and economic relations and decisions, Keynes´s appeal to psychology in economic thinking enhanced a critique of the conceptualization of the homo economicus. As a result, his contribution fostered a more extended understanding of people´s expectations and decisions. Indeed, according to John Davis (1994), Keynes’s philosophical thinking on judgment and intuition turned out to be followed by the study of individual expectations. Moreover, the focus on the understanding of the role of conventions added new relevant issues in his theoretical approach to market economies where

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the interpretation of signs and the decision-making process are contextdependent. In The General Theory, rational behaviour as a principal concern in the analysis of individual judgment was supplanted by a preoccupation with the effects of inter-dependence and uncertainty. As uncertainty is inherent in all entrepreneurs’ decisions, Keynes relied on the concepts of credibility and degree of confidence on a conventional judgment that is historically built within the markets. In his attempt to reshape the world order in the 1940s, Keynes pointed out the need of a “wide measure of agreement”, that is to say, the need to create new conventions based on trust. Trust is a conventional concept related to the level of confidence in the business environment, that is to say, in the legal, regulatory, macroeconomic and political settings that shape the evolution of the markets. In a specific historical setting, the average opinion of entrepreneurs on future scenarios shapes a precarious convention on the future performance of aggregate demand. Conventions are influenced by a set of factors which include access to finance, knowledge, and information, public policies, besides the legal framework and the regulatory agenda. In other words, cultural and institutional factors overwhelm the business environment. As uncertainty is present in all decisions, Keynes relied on the concepts of credibility and degree of confidence in a conventional judgment that is historically built within the markets. In a specific historical setting, the average opinion on future scenarios shapes a convention based on a precarious set of expectations about the behaviour of aggregate demand (consumption, investment, net exports, for example). Keynes explained that the incentive for long-run expanding productive capacity is highly dependent on the state of confidence about the business environment. In his view, the level of trust in conventions has a social nature and impacts upon the path of entrepreneurial development. Trust is a conventional concept related to the level of confidence in the business environment, that is to say, in the legal, regulatory, macro-economic and political setting that shape the evolution of the markets. In The General Theory, Chapter 12, Keynes focused the analysis on the long-term expectations associated with his investment theory. In his view, the state of long-term expectations depends on the most likely forecast and the state of confidence with which it is made since both affect the marginal efficiency of capital. The expansion of capital markets reinforces the potential conflict of interest between business strategies that favour short-run profits and longrun decisions that expand the investment levels. Indeed, the interactions between long-run expectations and economic stability are particularly

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influenced by a convention, which is mostly based upon precarious information about the future. According to Wesley Pech and Marcelo Milan (2009) Keynes saw a convention as a form of heuristic that is used to develop habits in decision-making. For instance, when describing the behaviour of professional investors in the stock market, Keynes made an analogy in his General Theory by comparing this market with a beauty contest where the winner cannot be the prettiest, but the one that the average opinion expects the average opinion to be.

This conflict puts pressure on business stability. In accordance with a semiotic approach, the uncertain dimensions of business are related to cultural and social factors. In other words, the trustworthiness in business conventions is embedded in cultural and social practices. The outcomes of the stock markets foster the investors´ speculative behaviour that enhances instability and reduces the volume of investment. With uncertainty, economic agents rely on a series of conventional behavior and of judgment based on other people’s opinions as useful guides to action (Crotty, 1994). Keynes emphasized some actions as being conventional: “ (1) We assume that the present is a much more serviceable guide to the future than a candid examination of past experiences would show it to have been hitherto. In other words we largely ignore the prospect of future changes about the actual character of which we know nothing. (2) We assume that the existing state of opinion as expressed in prices and the character of existing output is based on a correct summing up of future prospects, so that we can accept it as such unless and until something new and relevant comes in to the picture. (3) Knowing that our own individual judgment is worthless, we endeavour to fall back on the judgment of the rest of the world which is perhaps better informed. That is, we endeavour to conform with the behaviour of the majority on average. The psychology of a society of individuals each of whom is endeavouring to copy the others leads to what we may strictly term a conventional judgment.” (Keynes 1937, 114)

Keynes’s treatment of concept of conventions is explicitly founded in terms of how psychological propensities and attitudes operate across different individuals, but he did not offer an explicit conceptualization of the term “convention” (Davis 2003). Taking into account this background, what is the role of the psychological foundations of these habits of judgment? Among others, James Tobin, Sheila Dow, John Davis, and Anna Carabelli claim the role of psychological and subjective influences on individual judgment since economics deals with motives, expectations,

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and psychological changes in times of uncertainty. As Pech and Milan (2009) state, the reference to psychological laws, propensities and motives are extensively used in The General Theory, when Keynes examined both the drivers of consumption and investment and the mechanisms of stabilization of the economic system. Indeed, Keynes highlighted the psychological nature of the propensity to consume, the expectations of future asset yields. The understanding of human behaviour in the markets is at the core of this theoretical attempt since psychological factors are relevant in his macro-economic theory (Keynes 1937, 215). However, he emphasised that the interpretation of the principles of behaviour cannot rely on a hypothesis of a calculable future. Against a conceptualization of capitalist economic relations within the logic of necessity, he considered hypothetical psychological propensities to address the conditions of systemic stability. Keynes was well acquainted with psychology and psychoanalysis, and it was also this awareness that allowed them to go, in their theoretical formulations, well beyond a narrow conception of homo economicus. He revealed a deep interest in human nature and emotions that led to criticism of Moore’s focus on the rationality of human nature, instead of considering emotions and feelings. It is relevant to notice that Keynes called on the contributions of Freud on psycho-analysis for support of his approach to human nature. As most members of the Bloomsbury circle, Keynes was influenced by Freud´s ideas (Raico 2008). In particular, he was interested in the implications of the significance of the desire for money, which in his understanding constituted "the central ethical problem of modern society" (O'Donnell 1989, 377). Moreover, Keynes introduced in The General Theory the expression “animal spirits” to highlight the spontaneous urge to action that plays a crucial role in explaining the instability of investment decisions. Indeed, businessmen engage in economic activities not just out of a strict economic calculation. The most important result of these findings, therefore, is that investment is not based on rational decision-making. Investment fluctuations augment the possibility of unemployment and stagnation, pointing to the necessity of a different source of aggregate demand to fill the gap to stabilize output and employment, as Keynes remarked. In the context of a semiotic analysis, what is relevant to be stressed is the role of feelings in Keynes´s thinking. His insights on human nature can be associated with his belief that the main obstacle to full employment is not technical but relies on some dimensions of human behaviour.

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Keynes´s belief was that modern capitalism lacks any sense of solidarity and public spirit. In this respect, he says: (..) it seems clearer every day that the moral problem of our age is concerned with the love of money, with the habitual appeal of the money motive in nine-tenths of the activities of life, with the universal striving after individual economic security as the prime object of endeavour, with the social approbation of money as the measure of constructive success, with the social appeal to the hoarding instinct as the foundation of the necessary provision for the family and for the future" (CW IX, 268–29).

In his opinion, as the capitalistic system is based on the money motive, the politically urgent and morally legitimate aim is the "euthanasia of the rentier" (Raico 2008). As a result, the control of the imbalances in the crucial sphere of the circulation of money will enable a capitalist system to move towards full employment.

On changing beliefs Recalling the expression “in the long run we are all dead” that originally comes from A Tract on Monetary Reform, Keynes pointed out the temporary nature of the systems of beliefs. Systems of belief are those aspects of reality that human beings use to interpret, communicate and act. Regarding the role of beliefs, it is interesting to highlight the similarities between Keynes and Peirce. Since the process of semiosis is interactive and continuous, Peirce understood that beliefs may change (CP 4.237). With this perspective, beliefs are never aprioristic but a result of a process of interpretation that is non-deterministic. Settled beliefs remain unchanged until they are disturbed by doubt. Systems of belief can be understood as signs or triadic relations that are rooted in social principles and involve an evolutionary process of interpretation of the experience that involves intelligibility and meaning. As a semiotic process of thought and representation, it is ultimately embedded in the concrete and practical relationships that constitute the world and it is future-oriented. Beliefs refer to cognitive experiences. In this line of philosophical development, systems of beliefs refer to a generalization of habits within society (CP 5.417). However, habit-changing involves a cognitive process and it is not fully predictable since steady habits many be dominant (CP 1.107). According to Houser (2016a), Peirce attributed minds to institutions and social groups in behalf of his belief that they are “greater persons”, that is to say, living communities with collective personalities. Social

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institutions can be considered to be minded institutions that are reservoirs of social habits, that is to say, of social beliefs related to cultural practices (customs, language, religion, artworks, and artifacts) that support and maintain a civilization. Besides, social minds are relational networks.1 We can say that institutions, as systems of belief, convey the generality of the habits of behaviour. Since the process of semiosis is interactive and continuous, beliefs may change (CP 4.237). In this perspective, beliefs are never aprioristic but a result of a process of interpretation that is nondeterministic. Beliefs, as habits of behaviour that refer to cognitive experiences, are regular. In this line of philosophical development, systems of beliefs refer to a generalization of habits within society (CP 5.417). According to Peirce, “Habits only come about by reiteration” (CP 5.487). However, habits of behaviour endure for some time until individuals meet with some challenge in the operation of the environment that may foster their dissolution. The role of chance in breaking habits is decisive in evolution. In his approach, the reality of chance, such as diversity, irregularity, and asymmetry that are immediately present in the facts of experience, rejects the doctrine of necessitarianism in social life. Since new habits may emerge and they may gradually become more generalized, the evolution of systems of belief exhibits a degree of freedom. Let us recall Peirce's words: “Remark, reader, at this point, that Chance, whether it be absolute or not, is not the mere creature of our ignorance. It is that diversity and variety of things and events which law does not prevent. Such is that real Chance upon which the kinetical theory of gases, and the doctrines of political economy, depend” (CP 6.612). In this setting, the plasticity of minds to face changing external drivers allows for the development of new beliefs; this plasticity requires “a new observational means” in order to draw attention to new relations between new facts (CP 1.109). What Peirce highlights is that deliberate transformation of habits within institutions requires “uberty”: first in assessing the changes on the outer world and second in developing new habits (EP 2, 463). Peirce clarifies that “uberty” is a crucial feature of reasoning that presents a certain degree of looseness and, therefore, it copes with spontaneous developments.

 1

In this respect, among social psychologists, George Herbert Mead believed that the social mind has an essential role in the emergence and functioning of individual human minds and the development of self-conceptions is a result of these interactions. Houser (2016a) notes that similarities between Meade and Peirce should be developed in further research. Besides, Houser points to the potential dialogue between cognitive science and Peirce.

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In line with the philosophical contribution of Charles S. Peirce, Keynes was aware that a deep study of social wealth should consider the overwhelming role of economic institutions as powerful social institutions that embrace systems of belief. Keynes's contemporary relevance relies on his concern with actual life where economic institutions are sustained by beliefs. According to this approach, we can say that social interrelations foster semiotic systems. The Peircean doubt-belief process might be considered in the Keynesian analysis of change. Settled beliefs (behavioural habits) remain unchanged until being disturbed by the doubt that results from inadequate responses to expectations or disturbances. Systems of belief can be understood as signs or triadic relations that are rooted in social principles. These signs involve an evolutionary process of interpretation of the experience that involves intelligibility and meaning. This semiotic process of thought and representation is ultimately embedded in the concrete and practical relationships that constitute the world. It is always future-oriented. In other words, systems of belief are those aspects of reality that human beings use to interpret, communicate and act. In this perspective, there is a dynamic interplay between norms as signs in collective life. Keynes has the merit of rejecting the mechanistic and adaptive perspective of economic evolution where systems of belief, as habits, show only inertia. As a result, this approach to institutions as systems of belief presupposes that uncertainty overwhelms social dynamics. This uncertainty is not only epistemological, but rather ontological. In this perspective, the presence of ontological uncertainty gives rise to discontinuities between the past and the future that add some degree of indeterminacy to the evolution of systems of belief within economic, social and political contexts. However, the Keynesian view points out that the changing beliefs involve a cognitive process and it is not fully predictable. Besides the weight of inertia, changing beliefs requires new interpretations and, therefore, the possibility of error. Indeed, the Keynesian perspective opens up a conceptualization of evolutionary beliefs where the constraints of reality lead to revising erroneous propositions and producing new interpretations, beliefs, decisions, actions through the flow of time. In accordance with a semiotic approach, Keynes´s ideas refer to a compromise between systems of belief and human conduct that is open to transformation within the economic systems. Indeed, the evolution of economic relations is a social process, not an individual one. Moreover, as a cultural creation and system of beliefs, economic institutions evolve over time.

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Uncertainty and conventional judgment As a realist and an economist, Keynes stressed the role of time. He highlighted the relevance of the ex-ante / ex-post divide in the perceptions of economic agents. Moreover, the passage of time is relevant because of the delay between decision and effects. In this scenario, money links the past and the future (Japir 2003). Indeed, one of the most relevant changes in economic thinking provoked by Keynes is related to the role of time and its implications for the understanding of the dynamics of the capitalist system (Madsen, 2017). The British economist was careful to avoid common sense notions of time and the writing reflects the contemporary deeper philosophical considerations about the existence of time. The intellectual atmosphere of the second half of the 19th century undoubtedly had a profound impact on his intellectual development. According to Allan Gruchy (1949), Keynes’ approach to economic studies stems from a new philosophical stream that rejected the Newtonian “atomic hypothesis,” which identified the economic system as a static order composed of essentially independent parts. Keynes abandoned the Newtonian view and adhered to a new antiNewtonian one: We are faced at every turn with the problems of Organic Unity, of Discreteness, of Discontinuity – the whole is not equal to the sum of its parts, comparisons of quality fail us, small changes produce large effects, the assumptions of a uniform and homogenous continuum are not satisfied (CW X: 28).

In this line of argument, the general idea of organic unity has a farreaching impact in terms of thinking about the overall functioning of the state and economy. According to Madsen (2017), Keynes´s early reflection on metaphysics and time was primarily inspired by John McTaggart (1908) who introduced the classical dichotomy that is still central to current philosophy regarding time logic, namely, the A-theory and the B-theory. According to the dynamical approach (the A-theory) the relevant notions are past, present, and future. Moreover, time is understood as a set of instants (or durations) ordered by a before-after relation in the static view of time (the B-theory). In the A-theory, time belongs to events and there is real change. In the B-theory, time is seen as external to the observer and there is no change. It is worth noting that McTaggart, as well as George Moore (1897), put in question the reality of time, that is they wondered whether past, present, or future may exist.

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Against these ideas, Keynes perceived time as something consecutive and uniform that could be set as a sequence. Indeed, he associated time with change and change requires a dynamic conceptualization of time. From a philosophical standpoint, Keynes’s scientific method is realistic, as he was interested in the problem of time and change. After the publication of The General Theory, he continued to challenge the assumptions of classical economics models and launched the foundation of a practical theory of the future based on conventions. This convention, as Keynes said: […] being based on so flimsy a foundation, it is subject to sudden and violent changes. The practice of calmness and immobility, of certainty and security, suddenly breaks down. New hopes will, without warning, take charge of human conduct. The forces of disillusion may suddenly impose a new conventional basis of valuation. All these pretty, polite techniques, made for a well-panelled Board Room and a nicely regulated market, are liable to collapse. At all times the vague panic fears and equally vague and reasoned hopes are not really lulled, and lie but a little way below the surface (Keynes 1937, 214-215).

This quote shows that Keynes emphasized a dynamic perspective on time by making a clear distinction between past, present, and future conditions. In this approach the role of uncertainty towards the future uncertainty was a relevant feature of Keynes’s view of the world. Some relevant issues arise about the nature of uncertainty and its effects on decision-making and actions. In the early 1920s, Keynes explicitly acknowledges that not all circumstances in ordinary life can be "numerically measured”. With this line of thought, Keynes (1921) defines probability as a rational belief, and he regards its numerical value as a measure of a definite rational expectation. In other words, the probability relation is associated with the categories of knowledge, ignorance, and rational belief. This new logical relation, that overwhelms the distinction between probable and uncertain events, is mainly articulated in epistemic terms within a discussion about the conditions of knowledge. In 1937, he says: By "uncertain" knowledge, let me explain, I do not mean merely to distinguish what is known for certain from what is only probable. The game of roulette is not subject, in this sense, to uncertainty: nor the prospect of a victory bond being drawn… Even the weather is only moderately uncertain. The sense in which I am using the term is that in which the prospect of a European war is uncertain, or the price of copper and the rate of interest twenty years hence, or the obsolescence of a new

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invention, or the position of private wealth owners in the social system in 1970. About these matters there is no scientific basis on which to form any calculable probability whatever. We simply do not know. Nevertheless, the necessity for action and for decision compels us as practical men to do our best to overlook this awkward fact and to behave exactly as we should if we had behind us a good Benthamite calculation of a series of prospective advantages and disadvantages, each multiplied by its appropriate probability, waiting to be summed (Keynes 1937, 213-214).

Keynes is clearly working with four categories of events, and he highlighted that some of them are not susceptible to probabilistic knowledge (Vasudevan 2018). In his approach, he pays attention to the psychological factors that affect expectations in a business environment where uncertainty about the future pervades the decision-making process. Indeed, since the early sections of The General Theory, the relationship between human decisions and the future is crucial to the analysis. The notion of expectations unites the present and the future: expectations have a direct influence on levels of employment as much as they have a direct effect on determining the level of the marginal efficiency of capital. Those expectations are based on beliefs that are only weakly grounded. This tradition enhances a more fruitful apprehension of the real world where the outcomes of the decisions of entrepreneurs and investors are not submitted to stochastic behaviour, that is to say, the outcomes are not predictable. Considering the outcomes of the 1930 great crisis and the unsatisfactory contribution of classical economic theory based on a “realexchange economy”, Keynes clearly distinguished his theoretical proposal based on the conceptualization of a monetary theory of production: The theory which I desiderate would deal, in contradistinction to this (a real-exchange economy), with an economy in which money plays a part of its own and affects motives and decisions and is, in short one of the operative factors in the situation, so that the course of events cannot be predicted, either in the long period or in the short, without a knowledge of the behaviour of money between the first state and the last (Keynes 1933, 123).

Money is the link between the present and the future. The role of expectations is crucial in Keynes´s analysis. The principle of uncertainty is based on the idea that the past is irrevocable, and the future is unknown. Money has a non-neutral nature, and yet, it affects spending and portfolio decisions since money and uncertainty affect the levels of production and investment. Therefore, the very nature of a monetary economy of

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production is the cause of business instability. In view of the uncertainty about the future, business people may postpone spending decisions and search for alternatives to wealth management. According to Nadin (1993), research on the state of confidence should be based on semiotics as a process of interpretation and understanding. As a complex emotional and cognitive state, confidence can be shaped by the economic environment that is mediated via signs. Keynes´s analysis is a case of ‘semiosis’ determining the ‘state of confidence’. Taking into account the financial markets, traders actively engage in a communication process where perceptions affect their decision-making and related outcomes. When their perceptions suddenly change, this affects anticipations and actions. Keynes rejected automatic iterations of conduct and confirms the forward-looking nature of human behaviour. In particular, he showed how traders translate inference-making into decisions and new actions. Their behaviour, based on an index, operates as a driver of change. An index has a “path-finder” function, as Dona West (2019) highlights. As a sign, an index communicates to the semiotic actor how to proceed from one interpretation to another and from the unexpected outcomes to new premises. It is through the interpretation of index, that economic actors can make a revision of habits within inter-subjective contexts.



CHAPTER FIVE CHANGE AS A SEMIOTIC PROCESS: A HAYEKIAN PERSPECTIVE

Hayek opposed empiricist approaches to economics that assign priority to mere observation as the source of knowledge. Second, he addressed the problem of time and decision-making in economics. Hayek grounded his explanation on an evolutionary learning process where individuals eventually act rationally. Third, their real-world views refer to a world of experiences where novelty is always present in the flow of time. This understanding reinforces the importance of formulating economic theories that consider the objects of inquiry in an evolutionary process. Moreover, this perspective has relevant implications for the theoretical approach to time in economics. In the history of economic thinking, the problem of time has been a relevant and controversial issue. From the 19th century onwards, differences in the approach to time in economics overwhelmed the different theoretical attempts of the neoclassical and German historical schools where there is an opposition between logical and historical time. On one side, neoclassical economics favours the use of logical time in economic models and invokes the principle of ergodicity to explain the trend to stability as required by the “natural” laws of economics. On the other side, the German historical school makes historical time central to the understanding of the development of capitalism. Being serious about time in economics is at the core of a realistic approach to social sciences. Hayek considered the role of historical time and they consider that real time matters for the understanding of the decision-making of individuals, enterprises, and social and political organisations.

Cognition and bounded rationality To Hayek, cognition and bounded rationality are intertwined in a process where information is filtered and communicated. He was aware of the complexities of individual psychology and he focused on the interrelations

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between mental activity and the content of knowledge considering that the spontaneous order exists independently of the motivations or intentions of those participating within it. Indeed, his model refers to the representation of the functioning of an impersonal system. Against the methodological individualist approach of neoclassical economics, Hayek emphasized that price formation is part of a continuous information process where competition makes the system change in the flow of time. The fact that minds are things which learn in a social context is a main assumption in his epistemological approach Following the advocates of liberalism emerging from the Scottish Enlightenment, Hayek thought that human beings are not utility maximizers, that is to say, he did not believe in the representation of the homo economicus. For Hayek, humans have limited knowledge, make errors and are influenced by the institutional environment in which they live. That is why spontaneous ordering processes are communication procedures that enable people to overcome their very narrow and partial knowledge (Kukathas 1990). In this tradition, it is not the individual actors that are best described as “rational,” but the processes within which they operate. Hayek´s conceptualization of the market as a process of communication includes rules and practices that result from unintended consequences of various human actors who pursue their purposes and plans. His approach to the study of human action leads to a focus on three issues: • • •

the limits of human reason arising from the inarticulate nature of much human knowledge; the institutional arrangements that evolve to enable humans to make use of dispersed and tacit knowledge; and the processes that hamper or foster the evolution of such institutions.

In line with the Scottish liberal tradition, Hayek´s interest in the spontaneous-order tries to find out how social and economic institutions, like market prices, arise as the unintended consequences of human action. Current and past social institutions have emerged and evolved historically as spontaneous orders and they have served to coordinate human actors’ diverse plans. The operations of such institutions enable human beings to overcome their limited individual knowledge. The generation of the market is based on human actions rooted in consensual interactions

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between individuals concerned with the exchange of goods that depend upon systems of property rights and rules of law. According to his model of evolutionary processes or “organized complexity”, rationality turns out to be learned (Hayek 1967). Indeed, the habits of monetary and instrumental calculation are encouraging within the market process. Besides, shared values encourage cooperation between people, such as the acceptance and appreciation of commercial values of trading and selling. Hayek insisted that “rational” analysis, prediction, and decision-making in economic theory are restricted by the finitude of what any actor knows at any moment in any given situation. The individual decision-making process relates to a social process based on local knowledge within a social process of communication. We can say that, according to Hayek´s analysis, the main problem of the social and economic order can be considered with a semiotic approach. The process of communication in a context where human knowledge is partial, fragmentary, and often incorrect requires interpretation of signs. This process of communication allows people to learn from each other. Through such a learning process people discover progressively “rational” ways of doing things. In his understanding, the nature of social phenomena is such that it involves human intentions and plans that are not physical facts, but categories of the human mind. In the middle 1940s, Hayek clarified that the relevant knowledge that enhances social coordination has an inherently contextual nature, that is to say, this knowledge is conditioned by time and place. He argued that the price system overcomes the decentralized, context-dependent and tacit nature of human knowledge. Following the tradition of Adam Smith and Carl Menger, he recognized that the anonymity of modern society required the coordination of social behaviour by the use of norms, rules, and institutions. By serving as coordinate axis, social institutions reduce the knowledge needed to execute plans and, therefore, enhance the ability to execute those plans successfully. In a later work, he added that much of the relevant knowledge might be tacit and therefore not even potentially articulable. However, in the market competition process, prices can be considered as proxies for tacit and objective knowledge (Horowitz 2001). When actors make decisions related to goods and services in the market, they are communicating their knowledge and preferences through action. In the late 1980s, he argued that even the capacity for reason itself is a product of cultural institutions. In this context of communication, price fluctuations provide indirect access to other people’s knowledge and allow the “semiotic” actors to

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coordinate their behaviour without the need for centralized direction. People are social products. His analysis of the market as a process is based on his interpretations of the limits, imperfections, and dispersion of knowledge. The problem knowledge is the point of departure for his contribution to the social sciences. In the market process, the processes of learning and communication rely on the dynamics of decentralized information. Hayek´s conceptualization of the mind as a classifier and interpreter of sensory data, rather than just a passive receptor, can be broadly accepted as an accurate picture of the semiotic process. At the heart of Hayek’s epistemology is the fallibilist standpoint. The process of belief revision is an aspect of economic and social evolution where changes and the failure of expectations enhance the re-arrangement of the existing mental order. In the book entitled The Knowledge We Have Lost in Information (2017), Philip Mirowski and Edward Nik-Khah analyse Hayek’s views on the market as an “omnipotent processor of information”. For them the market as an information processor is tasked with the epistemic challenge of “serving as the primary mechanism for the validation of truth”. Regarding the links between mental activities and cognition, Hayek´s book The Sensory Order, written in the early 1950s, is considered to be ahead of its time. Its basic framework for understanding how the mind works has been recently connected to the outcomes of neuroscience research.

Market evolution and complexity From a liberal standpoint, Hayek considered the dispersion of knowledge as a natural state and the effect of a natural law of social evolution. The problem of evolution was discussed in Hayek’s analysis of the role of complexity in the logical character and explanatory strategy of economics. In the Introduction to Hayek's The Theory of Complex Phenomena, Mihnea Moldoveanu (1967) points out that this book is a far-sighted attempt to illuminate a topic that is currently increasingly important: the epistemology of complexity. It is worth noting that Hayek finished the paper two years before the ideas of Edward Lorenz about chaos theory were published. Lorenz's research focused on patterns of behaviour and showed that some dynamical systems (such as the non-linear) exhibit the highly sensitive dependence of their long-run dynamics on their initial conditions, that is to say, in those systems, there are regions of the systemic parameters that exhibit 'transition to chaos'.

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Considering the epistemology of complexity, Hayek warns that the study of complex phenomena involves a difficult methodological choice between testing and understanding of the relationships among the independent variables. In the case of complex phenomena, the scientist should first develop the theoretical assumptions and, then, the methodological criteria of “falsificationism” should be relaxed in the context of an epistemology of complexity. Underlying this claim, there is a call for a reflection on the ontology and the nature of the objects of research of different scientific fields. As mentioned before, Hayek´s conceptualization of the market system considers the process of coordination of decentralized individual plans where freedom is the source of order. In this scenario, individual minds, despite their limited knowledge, can make judgments and decisions. In this scenario, decentralized knowledge ensures that the individual knowledge of the particular circumstances of time and place will be promptly used. Hayek believed that this knowledge is temporary because, as society increases in both scale and complexity through the flow of time, the market process aggregates new information that can be accessible to everyone. Indeed, as the market process is always in evolution, its outcomes are not predictable. As Hayek stressed that the economic problems arise due to the consequences of changes and adaption to change. In this setting, evolution and learning are inter-twined, that is to say, the problem of evolution relies on his cognitive theory. And Boland (1978) clarifies that Hayek´s explanation relies on a dynamic concept of knowledge in which learning is real time (irreversible). From the 1960s, Hayek’s development of evolutionary ideas was a crucial phase in his thinking (Caldwell 2003; Hodgson 1991).1 Hayek (1973, 23) highlighted the selection ‘of institutions and practices’ when he considers ‘the twin conceptions of evolution and the spontaneous formation of an order’. Indeed, Hayek’s theory of cultural evolution emphasizes a selection process where cultural evolution refers to the evolution of institutions and traditions. As Hayek (1988, 25) said: “Cultural evolution operates largely through group selection”. In other words, different institutions compete with one

 1 Caldwell and Hogdson had a dispute concerning Hayek’s adoption of evolutionary ideas. To Hogdson, Hayek did not do enough to recognize the distinctive contribution of Charles Darwin to evolutionary theory. Instead Hayek gave relatively much more emphasis to the continuity of evolutionary thinkers from Mandeville to the Scottish School in the 18th century. Accordingly, for Hayek, Darwin cannot be considered the first systematic thinker of an evolutionary theory in the social domain.

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another and the more efficient ones will survive. Nevertheless, as the outcomes of this process are not predictable, there is not a teleological explanation for cultural evolution. Furthermore, in his analysis of the social phenomena, the evolution of human societies starts with a historic view of mental and societal developments. Indeed, his cognitive theory plays a relevant role in explaining how institutions, traditions, and the behaviour which is correlated with them, cannot be inherited but only learnt through education and experience. In this line of thought, the focus on 'rationality' and 'selfishness' of the rational choice theory are not important in his explanation. Hayek emphasises the role of everyday experience and highlights the role of other causal explanatory elements in a social context, such as: • • •

The imitation of patterns of behaviour; The changes in understanding that contribute to rethinking plans; The acceptance or exclusion of individuals and groups on behalf of behaviour patterns.

His interest in the study of the recurrence of patterns of behaviour is crucial to understand the conceptualization of complex systems as coherent structures where a complex pattern has produced properties which self-maintain the structure. Regarding the characterization of systems, let us see how he distinguishes simplicity from complexity. First, Hayek emphasizes that it is misleading to use as a reference a minimum number of distinct variables which a model must have to reproduce the characteristic patterns of complex structures. In Hayek´s perspective, complexity is a property of a structure and it is related to the 'emergence' of 'new' patterns of behaviour, independent of the particular values of the individual data, so long as the general structure is preserved. Second, Hayek (1967) also rejects the approach to complex systems that privileges whether the structures are 'open' or 'closed' systems since there are no closed systems within the universe. Third, he stressed that the range of phenomena compatible with a complex theory will be wide and the possibility of testing it small. Indeed, the scientific advance toward complex phenomena will enhance a decrease in the degree of “falsifiability”, using the Popperian term. This happens because the application of such a complex theory to a situation requires data with certain general properties that cannot be taken for granted. As a result, such a complex theory will enable us to make predictions on unknown, hypothetical future events.

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Regarding the use of statistics in the understanding of complex phenomena, Hayek stressed the challenges of the statistical practices: •

•

•

The applicability of statistics eliminates complexity because it requires no information on how the different elements with varied attributes are related and ignores the structure into which the different elements are organized. The statistical methods treat the individual elements as systematically not connected and disregards the relevance of the relative position of different elements in a structure. The main underlying assumption is that information on the numerical frequencies of the different elements of a complex structure is enough to explain the phenomena. The applicability of statistics is irrelevant to the solution of complex problems where the economist needs to consider the relations between individual elements with different attributes.

To Hayek, the aim of a theory of social phenomena is to build a theory about complex structures. In this attempt, no amount of statistical information can be used to build this theory since the statistical techniques say nothing about the structure. Indeed, Hayek pointed out that the emphasis of the objective knowledge, related to statistics in economic thought and research, has neglected the boundaries imposed upon the applicability of theoretical knowledge. The theory of complex phenomena is at the heart of Hayek´s contribution to evolutionary and cognitive theories. Indeed, complexity, evolution and knowledge are inter-twined. His theory of evolution only describes a range of possibilities, that is to say, this theory does not aim to ascertain all the facts which will contribute to determining particular outcomes. In short, while the theory deals with pattern-building forces, it cannot predict what new forms and particular circumstances will determine the selection of the types that will survive. Similar limitations can be applied to the theories of social structures that deal with theoretical explanations of the phenomena of mind and society. It is an illusion the attempt to discover by observation regular connections between individual observable events since these events depend on multiple actual circumstances that we cannot even ascertain, predict or control. According to Hayek, although economic theory can describe the kinds of patterns that depend on certain general conditions, it can rarely if ever derive any predictions from specific phenomena. What Hayek warns is that in studies of complex phenomena the prediction of a

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general kind of pattern does not depend on the knowledge of particular circumstances that have determined its attributes, that is to say, the set of particular facts which brought it about at a particular time. Taking into account this background, we can analyse Hayek´s ideas under a semiotic approach to institutions where social interrelations foster semiotic systems. Individual patterns of behaviour of individual minds depend on direct learning from experience of the institutions they belong to. Over generations of human experience, different social institutions have evolved through a process of trial and error, contributing to the preservation and advancement of culture. In line with this evolutionary perspective, Hayek questioned the role of universal determinism in science since he was sceptical about obtaining a full explanation of the causes of social phenomena. In addition to this observation, he questioned the existence of various kinds of relativism and evolutionary ethics. His approach highlights that our civilization is the result of a long process of evolution where values continue to change. In this scenario, current values are part of a particular cultural tradition in the history of human civilization. His theory of evolution is articulated with an understanding of the methodology of economics as a complex science in which what a theory can explain is certain patterns or orders. The understanding of the general mechanism which produces patterns of a certain kind may provide important guides to action in a context where knowledge is limited. Regarding the relation between patterns and laws, Hayek considered that the scientific definition of 'law' has been frequently associated with two connected phenomena according to the principle of causality. Elsewhere, he points out that the conceptualization of “law” as a description of the relation between cause and effect, has little application to the theory of complex phenomena. This conclusion has relevant implications for the analysis of a complex structure: •

• •

While the discovery of “laws” is a characteristic of the theories of simple phenomena, complex phenomena are not associated with a single “law”. In a theory of simple phenomena, the discovery of regularities in two-variable relations is probably a result of inductivism. A “law” would be valid only for one particular and constant set of values of all the other parameters of a system of equations describing a complex structure. In this case, the dependence of one

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variable on the other can be called a “law” and describes the relation of cause and effect. However, if the values of the parameters are continuously variable, an infinite number of particular “laws” can arise.

The social phenomena, as complex ones, do not obey a particular 'law'. Therefore, the emphasis on the relations between a simple dependence of one magnitude upon another in the context of a necessary sequence is hardly applicable in social sciences. Moreover, the study of the evolution of social phenomena should be based on the complexity “turn”.

Spontaneity and fallibilism Hayek introduces the passage of time in economic analysis: with the existence of time comes change, and with change comes new and different knowledge. In his view, formal economic analysis cannot convey any knowledge about what happens in the real world. Formal equilibrium analysis in economics essentially consists of a tautology where propositions cannot say anything about causation in the real world. Tautologies are those series of propositions which are necessarily true because they are merely transformations of the assumptions from which we start, and which constitute the main content of equilibrium analysis. In the 1930s and the 1940s, Hayek brought into question the explanatory relevance of the intertemporal relational valuation construction he had introduced into economics in 1928. From the 1960s and 1970s, Hayek's concern about the problematic explanatory relevance of the intertemporal equilibrium construction was shared by a wide circle of economists and philosophers. The equilibrium construction, where the market is a process of coordination and adjusting of plans, helps to identify the repeated pattern of the deep order within resource use coordination. The repeated pattern within an extended society with dispersed knowledge refers both to freely adjusting prices and to an essential mechanism for coordinating social action through a coupled network of divided labour and knowledge. A first function of the equilibrium analysis explains a type of order towards which the process of economics appears to progress without ever reaching it. However, “it does not deal with the social process at all and it is no more than a useful preliminary to the study of the main problem" of market coordination (Hayek 1945, 530). A second function is to identify the systematic relationships between plans, goods, and production processes in the social order displaying economic coordination. Hayek stresses that this function

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is not to explain individual actions but to distinguish types of elements that are relevant to build different patterns of social relationships. Indeed, Hayek’s concern did not rely on the state of equilibrium but on the process, which tends to bring about equilibrium. His rejection of the mechanistic character of the Walrasian and the neoclassical analysis was founded on the underlying conceptualization of equilibrium. This was against an equilibrium analysis that tries to turn economics into a branch of pure logic with a set of self-evident propositions with internal consistency, like mathematics or geometry. In the general equilibrium scenario, the interrelations among planned actions decided upon at the same moment and in consideration of the same set of circumstances (the so-called data), can be deduced from assumptions about knowledge, tastes, and preferences. A general equilibrium analysis involves deductive thinking: the propositions are necessarily a priori valid. Besides, it relies on the pure logic of choice that is based on axioms that refer to a type of human action characterized by perfect knowledge. In Hayek´s view, pure deductive method and perfect knowledge cannot be the foundations of a realistic dynamic theory. As a matter of fact, Hayek favours a context-dependent analysis where knowledge is limited. Considering a competitive system, equilibrium exists if the actions of all members of society at a period of time correspond to the respective individual plans originally conceived. According to Hayek, all propositions of equilibrium analysis are about relations between actions. In the equilibrium of perfect competition, the allocation of resources requires a correspondence between the underlying conditions of tastes, technology and resource endowments (known as underlying variables) and the evolution of prices and profit-loss accounting (the induced variables). In other words, if anticipations prove to be correct, the underlying variables and the induced variables are in perfect alignment and thus there are no coordination problems. Any change in knowledge that leads a person to alter his plan, disrupts the whole equilibrium relations. Indeed, external events (data) can prevent the execution of those plans. Moreover, once equilibrium exists at a period of time, it will continue since the external data correspond to the common expectations of all the members of society. If a state of equilibrium lasts while the anticipations prove correct, a tendency toward equilibrium exists. This is an empirical proposition, that is to say, an assertion in principle capable of verification. The main question at stake is: How are people supposed to acquire the relevant knowledge in real life through time?

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For Hayek, the market economy is an information-gathering process where available resources are used to achieve individual aims. The fact that knowledge is limited and dispersed among all members of society makes the market process a process of discovery unfolding through time. Following the tradition of Böhm-Bawerk's capital theory, Menger´s views on economic activity and the perspective on time of Ludwig Lachmann, Hayek understood that the passage of time cannot be excluded from a meaningful equilibrium theory since actions must necessarily take place successively in time. The Austrian economist considered that the passage of time is essential to give the concept of equilibrium any meaning. In his view, this has been neglected by many economists who do not consider time in an equilibrium analysis. Indeed, the relevant theoretical problem in economic analysis is the process of changing market circumstances that require adaptations on the part of individuals. For him, economics is a discipline that should pay attention both to changes and trends. In line with this perspective, Hayek adopted an evolutionary approach and underlined that economic and social phenomena cannot be addressed by methods of knowledge like mathematics.2 And he argued that, although perfect knowledge is a defining characteristic of equilibrium, it cannot be an assumption out of equilibrium. That is why the conceptualization of equilibrium is not adequate in a representation of the dynamics of the economic order. Hayek rejected the assumption about the constancy of the objective data as a necessary condition to economic analysis. First, successive changes never come to an end. Second, as changes occur all the time, it is the regularity of patterns in the world that makes prediction possible. Fourth, human beings have limited knowledge In the attempt to push his theoretical investigation beyond the limits of traditional equilibrium, Hayek states in The Pretense of Knowledge that he favours a more dynamic approach to money and business cycles after following the discussions held by the Swedes and Frank Knight on foresight and anticipations. Hayek increasingly incorporated complexity perspectives into his views and started thinking about society and the economy as non-equilibrium systems (Rosser 2012). In this new scenario, foresight and anticipations require a semiotic process of interpretation since understanding within a context is a process which cannot be reduced to data. One relevant assumption about agent behaviour is that the

 2

Hayek believed that the Walrasian model was one of the best expressions of modernity since it assumed, from the philosophical point of view, that the world could be unveiled by the power of reason and the use of a good method.

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information disseminated through the functioning of the price system is accessible to all market participants. In this context, individual behaviour refers to the capacity to perceive the new knowledge that the market spreads. Underlying the analysis about the meaning of equilibrium and the passage of time, Hayek developed the idea of the market process as a learning one, since the acquisition of information through market transactions amounts to an accumulation of knowledge. Hayek argues that the dynamics of the competitive markets reflect a real learning process where trial and error leads to the adjustment of a multitude of individual decisions without pre-established coordination. Indeed, the Hayekian market process attaches deep importance to the element of surprise that underlies the conceptualization of the competitive process as a discovery one (Kirzner 1985). Individual patterns of behaviour, including patterns of thought, beliefs, and habits, depend on their learning from experience, considering the institutional set up where they participate. In the flow of time, human knowledge increases, shapes cultures and preserves civilizations. Over generations of human experience, different social institutions have been created throughout a process of trials and errors that contribute to the preservation and advancement of successful spontaneous orders. In Hayek´s perspective, human reasoning and beliefs are embedded in social relationships. Indeed, the passage of time overwhelms the process of revising beliefs after disappointed expectations. What Hayek highlights is that the process of belief revision is always tentative, incomplete, error-prone, so too are the models (explanations) drawn therefrom (Scheall 2015). His analysis relies on the epistemological principle of fallibilism. To Hayek, human knowledge about reality must be acquired through inferential processes in which signs and their objects come in relation. According to his view, economic reality is not confined to the universe of existent objects and beliefs, in the form of social norms or cultural conventions, but economic reality is open to transformation As Telles (2018) states, Hayek rejected the role of reason given by false individualism that assumed the necessary relevant knowledge as simply given to agents, as in the case of perfect knowledge in equilibrium theory. The Cartesian rationalism of false individualism prevented the appreciation of coordination processes created by human action, but not by total rational human design. Hayek´s individualism internalizes the uncertainty, fallibility, and limitation of human knowledge, being able to recognize the social character of reasoning (Hayek 1937 and 1946). His

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fundamental epistemological conception of fallible knowledge can be understood first and foremost as a philosophical and epistemic divergence between the traditions of true individualism and false individualism. Following the Scottish Enlightenment, Hayek´s fallibilism of true individualism appreciates the limited role of reason.

CHAPTER SIX MARKETS, INSTITUTIONS AND POLICY (DE)SIGN    Taking into account the evolution of Western Civilization after the Second World War, the different contributions of Keynes and Hayek enhance a semiotic analysis on the complexity of the social interactions among individuals and the state in the context of the overall transformations of the Bretton Woods period. Both thinkers questioned the ideas of classical liberalism and the challenges to the role of the technocracies on their attempt to understand the relationship between economics and culture. Considering this background, the key questions that will guide this chapter are: • • • •

How do cultural signs affect human behaviour? How does cultural change originate? Which meanings and values do the contributions of Keynes and Hayek highlight? How does a given institutional arrangement provide for social aims? How do Keynes and Hayek differ in their interpretation of the drivers of institutional evolution?

Considering the relevance of the debate on the role of policy design in building the institutional set up for social and economic change, a semiotic approach is here considered to contribute to the understanding of the close connections between power relations and policy design. The conceptualization of power relations involved in this discussion can be analysed considering power in its aspect as sign process and in its aspect as a social phenomenon that shapes human relations. Indeed, the conceptualization of the “social” depends on the ideological background, and this definition in turn has implications for the economic policy recommendations.

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Hayek and Keynes restated the debate on the outcomes of the practices of governments that continue to operate in a top-down manner, and society. Indeed, they engage in a meaningful dialogue about the role of policy design and the delivery of public services. In the last decades, the emergence of the neoliberal policy agenda has reflected the supremacy of the competitive economic order, the criticism of the interventionism of governments. In this setting, there has been a controversy around the role of “engineering economics”, “social engineering”, “market design”, “social design” or “policy design”. Social design is a forward-looking concept. According to the multi-disciplinary work edited by Boland and Collopy (2004), design aims to create “more desirable futures”. Simon (1996) defined design as “the human endeavour of converting actual situations into preferred ones”. Looking back at the ideas of Keynes and Hayek, their contributions on economics and social philosophy enhance a rich debate about the challenges and outcomes of policy design. For the present purposes, if we take for granted the significance of this connection, the relevant question is: What is the role of policy (de)sign in the understanding of Hayek and Keynes?

Keynes on the flaws of capitalism Looking back, in the context of the 1930 Great Depression, Keynes (1936) called attention to the fact that the capitalist system has endogenous mechanisms capable of destabilizing the levels of spending, income and employment. Indeed, as he warned, the interactions between the business environment and market instability are particularly influenced by dynamics of contemporary finance – mostly based upon conventions whose precariousness could dampen the rhythm of investment. In his view, the expansion of capital markets reinforces the increased risk of speculation and the potential conflicts of interest between short-run and long-run business strategies and puts pressure on market stability. Keynes looked forward to "the euthanasia" of the "functionless investor", that is to say, the rentier. Against the orthodox dogma that argues that business cycles and financial crises result from misguided economic policies, particularly over-spending by governments, Keynes´s contribution highlights the active role of money and the destabilizing effects of speculative practices on business cycles. Classical economists understand that financial crises are monetary phenomena that result from the wrong policy actions of the treasuries and central banks. According to them, at the root of a financial

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crisis, the central bank keeps lowering interest rates and increasing the supply of credit to stimulate the income level. This approach emphasizes the distortions caused by the wrong monetary policy on the interest rate equilibrium level (natural rate). Expressing concerns about the 1930s political and business environment and its effects on the levels of income and employment, Keynes´s proposals aimed to promote economic and social transformations. Even after the First World War, Keynes warned against the Versailles Treaty's disastrous consequences and the ongoing changes in the composition and ideas of the European working class. He also criticized the 19th century advocacy of laissez-faire (free market) economics in his 1926 essay titled The End of Laissez-faire. In the fragile international order that followed the First World War, Keynes believed that Say's Law was no longer valid because it postulated the capitalist system as entirely self-regulating and spontaneous. Indeed, the Keynesian analysis of Say's Law was a radical critique of the theory of economic equilibrium where economic growth is a “natural” process. For Keynes, the drivers of economic growth and wealth depend on the decisions of businessmen to spend money. Against the classical economists, Keynes believed that the “financial prudence” of governments or even the "abstinence" of people prevent economic growth since there is not an adjusting equilibrium mechanism at work that guarantees that the amount saved will be invested by others. He considered that higher levels of savings mean less spending and, therefore, this could throw the economy into a recession/depression. Indeed, the level of investment does not depend on the propensity to save but rather on the expectations about the prospective private and public spending. In this respect, Keynes noted that the wealth of nations is not built up out of the voluntary abstinence of individuals, but it depends on the strength of enterprise. According to Hardt and Negri (1994), the Keynesian manifesto of conservative political thinking enhances the theoretical understanding of capitalism as an unstable system always in imminent danger of falling into a state of stagnation. Against the Smithian invisible hand, Keynes promoted a belief in a fundamentally flawed, non-self-correcting market economy, continually in need of government intervention. He makes a decisive contribution to the new definition of the state, an interventionist state to stabilize the economy. As Keynes declares in The General Theory, he expects the State to assume an increasing responsibility for directly organizing investments. In other words, he refers to this process as "the socialization of investment" and, years later, proposed the creation of a National Investment Board that might directly influence most of the total

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levels of investment (Seccareccia 1994, 377). This proposal certainly did represent a reaction against tradition and dogmatic beliefs to address the systemic imbalances. In this respect, Keynes was merely proposing new measures to safeguard the future of capitalism. As Hardt and Negri (1994) pointed out, the British economist was perhaps the most penetrating theorist of capitalist reconstruction, of the new form of the capitalist state that emerged in reaction to the revolutionary working-class impact of 1917. Mainly concerned with the challenges of policy-making after the Great Depression, Keynes arrived at a theory that focused on the dependence of employment, production, and investment upon the dynamics and performance of the financial markets. He pointed out the relevance of the conceptualization of money as an asset and of wealth management. In the historical setting of England´s loss of hegemony, his ideas reflected the possibility of shaping the economy by the exercise of political power. Considering the political nature of economic decisions and the challenges of achieving full employment, Keynes discusses the boundaries of the exercise of political power, that is to say, of the State interventions to expand the level of spending in the capitalist economy. Keynes’s proposals about the management of the economic system can be connected with his social philosophy. It is worth recalling his early reflections on ethics and politics that stem from the British philosopher George Moore (1897) and that were shared by most of the Bloomsbury Group. Regarding Moore´s Principia, Keynes recalled: We accepted Moore's religion, so to speak, and discarded his morals. Indeed, in our opinion, one of the greatest advantages of his religion, was that it made morals unnecessary – meaning by “religion” one´s attitude towards oneself and the ultimate and by “morals” one´s attitude towards the outside world and the intermediate (CW X, 436).

The members of the Bloomsbury Group were descendants of the British intellectual aristocracy of the 19th century who, for the most part, had abandoned traditional religion but retained an outward moral and social ethic (Shone, 1980). They were a civilizing faction of the ruling class since as Keynes said We entirely repudiated a personal liability on us to obey general rules. We claimed the right to judge every individual case on its merits, and the wisdom, experience and self-control to do so successfully [...] We repudiated entirely customary morals, conventions and traditional wisdom. We were, that is to say, in the strict sense of the term, immoralists (CW X, 436).

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The group members believed in a political action directed towards systematic reform. They consider the British ruling class short-sighted. Williams (1980) clearly states that the members of the Bloomsbury Group were “eccentric” but its social conscience was real and, he clarifies the meaning of social conscience: […] is the precise formulation of a particular social position in which a fraction of upper class, breaking from its dominant majority, relates to a lower class as matter of conscience: not in solidarity, nor in affiliation but as an extension of what are still felt as personal or small-group obligations, at once against the cruelty and stupidity of the system and towards its otherwise relatively helpless victims (Williams 1980, 50).

The Bloomsbury´s ideas against imperialism and militarism were ahead of its times and can be considered as a reaction against a worldview where the "harmony of interests" assumed by Adam Smith and Claude-Frédéric Bastiat neglected conflicts in real life. In their attempt to defend the classical values of bourgeois enlightenment of rationality, tolerance, and freedom, they were opposing a whole class and a system beyond them. Indeed, social consciousness and social concerns are key expressions to understanding the meaning and values sustained by the development of the liberal thought of this group of friends. At the core of their philosophy, there was the sovereignty of the free and civilised individual whose autonomy should be protected by forms of public concern. In other words, public policies should be oriented to reform and amend a social order which “through stupidity or anachronism now threatened the existence and their indefinite and generalised reproduction” (Williams, 1980: 67) According to Hardt and Negri (1994), Keynes was aware of the inequalities in social relations since the levels of employment are highly dependent on the decisions about wealth management. Moreover, at the core of his analysis of the 1930 Great Depression was the recognition of a changed relationship between the economic forces at play in the national and international scenarios where there was a restructuring of capital's hegemony and the "rules of the game" (Keynes, 1933). In the tradition of John Locke, Adam Smith, and Thomas Jefferson, Keynes believed in the benefits of a free society. As Raico (2012, 150) notes, Keynes used to consider himself a liberal and a supporter of the British Liberal Party. In the attempt to actively plan the economic activities and supervise them, the state could enhance gradual changes in the business environments that also include changes in the rules of the game that affect decision-making. According to O´Donnel (1989, 299): “At the bottom, Keynes's prescription was that the state should act as the

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guardian, supervisor, and promoter of civilized society”. As late as 1944, while commenting on The Road to Serfdom, he questioned the line of Hayek´s argument since Keynes believed that planning could be effective from a purely economic point of view. It is well known that, after the Second World War, the Keynesian school of thought triumphed among economists in the academy and in policy making.

Keynes on policy (de)sign as a vision Keynes rejected any mechanistic conceptualization of the economic lifeworld and he came to a view on what causes the indeterminacy of a society’s evolution. As opposed to the classical economists that defend the free market system, Keynes advocated that government policies and actions could play a fundamental role in shaping a business environment to favour investment decisions. His contributions about how the capitalist economy works and, in particular, how economic policy may be thought of as a result of the ideas of economic science. Keynes suggests that beliefs are a key-driver of economic change. The main question that Keynes raised is whether those beliefs might foster higher levels of well-being in social life. His vision highlights the overwhelming role of economic institutions as powerful social institutions that embrace systems of belief that should sustain practices and values. As Paul Davidson (2015) recalled, at the 1944 Bretton Woods conference, Keynes – as the chief representative of the United Kingdom delegation - rejected the classical view of free capital mobility, free exchange rate markets and global self-regulation of trade and finance. Keynes provided an alternative analysis and policy proposal oriented to achieve global full employment and fast economic growth. The “Keynes Plan” would permit the persistent trade imbalances to be resolved. To improve the design of the international payments system, Keynes recommended combining a fixed adjustable exchange rate system with a mechanism for providing liquidity. This proposal also refers to the establishment of a supranational central bank and a new international payment system oriented • • •

to avoid the lack of demand because of global growth imbalances, to provide global liquidity in order to correct international trade imbalances, to support domestic decisions about capital controls across national borders

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Indeed, this solution would require the United States to accept a major responsibility in the world order. However, the US delegation led by White provided an alternative plan where the International Monetary Fund (IMF) and the World Bank would provide, respectively, short-term and long-term loans. Keynes looked forward to the future of the 1950s and 1960 and elaborated a vision of a more equitable world. In this vision, while capital yields will refer to the compensation for supervision and risks, interest, or the elimination of interest would mean the euthanasia of the rentier and this could open up new perspectives on the employment of money. In this new scenario, the guiding influence of the State may grow as the socialization of investment may secure job creation up to the full employment level. Government interventions through monetary and fiscal policies may affect the economic performance and enhance a transition to a new economic scenario. Keynes suggested a reconsideration of the understanding of the relations among individuals, society and governments within the market where new conventions may shape human behaviour in a different path. In spite of thinking that economists are generally unable to make rational forecasts, Keynes's first commitment aims to remove the uncertainty of the future. Before the publication of The General Theory, Keynes had written the essay Economic Possibilities for our Grandchildren -published in 1930. Regarding the vision of an alternative future, this essay raises relevant questions: What can we reasonably expect the level of our economic life to be a hundred years hence, specifically 2030? What are the economic possibilities for our grandchildren? Back in the 1930s, Keynes predicted that living standards in "progressive countries" would be between four and eight times higher and this would leave people far more time to enjoy the good things in life. Also, he predicted that the working week would be drastically cut, to perhaps 15 hours a week, with people choosing to have far more leisure as their material needs were satisfied. His hope was a world of needs being met, and encourages people to start preparing for this: I look forward, therefore, in days not so very remote, to the greatest change which has ever occurred in the material environment of life for human beings in the aggregate. But, of course, it will all happen gradually, not as a catastrophe. Indeed, it has already begun…. The critical difference will be realised when this condition has become so general that the nature of one's duty to one's neighbour is changed. For it will remain reasonable to be economically purposive for others, after it has ceased to be reasonable for oneself (CW X, 221).

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Keynes longed for a "New Jerusalem" where cultural and social changes might confirm Joseph Salerno's (1992) argument that Keynes was a millennialist —and in this sense, he defended a future utopia (O'Donnell, 1989, 288–94). In other words, Keynes´s vision requires a gradually redesign of the social and economic system. This attempt will be overwhelmed by a gradual change in the system of beliefs and values. Behind his vision is the belief that the government can implement a rationalist social engineering that is interconnected with the idea of rationalism in politics. Indeed, in economic questions, the right solution will involve rationalism in politics justified by aprioristic principles supported by the authority of reason (Oakeshott 1991). The rationalist perspective in politics spread the belief that human actions can be delivered adequately through guidelines of explicit rules designed by a “rational” bureaucracy. This belief relies on a theoretical model of how society ought to behave in a context of freedom. Then, modern rationalism in politics believes in the power of reason to deliberately aim at controlling and directing economic forces in the interests of economic stability and social justice. As Keynes declared, "Nor is it true that selfinterest generally is enlightened; more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these" (CW X, 288). As a cultural creation and system of beliefs, economic institutions evolve over time. According to this line of thought, Keynes´s thinking about the future as a vision refers to a social process, not an individual one. His optimism about increasing standards of living is also associated with the outcomes of the evolution of technological progress that would guarantee decent levels of consumption for everyone. In this scenario, livelihoods may be increasingly oriented by non-economic interests. It is worth noting that, within this evolutionary perspective, there is an aesthetic drive of evolution. As a matter of fact, the arts played a central role in his vision where "the common man" can be led to feel himself "finer, more gifted, more splendid, more carefree" (Moggridge 1974, 34– 35). Indeed, in accordance with the Bloomsbury ideas, Keynes´s attitude towards economics refers to building a civilised world. Influenced by Moore, he rejected all the utilitarian basis of ethics (Carbree and Thirwall, 1980, 105) In 1936, his good friend Beatrice Webb said: "Keynes is not serious about economic problems …The only serious cult with him is aesthetics" (1985, 371). In the same line of thought, Robert Skidelsky (1983 and 2010) notes that despite Keynes´s concern about the illness of capitalism, unemployment, wealth and income inequality, the idea of social justice

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was not elaborated in his works. As a social reformer, what he proposed was the ideal of a good life for all: “economics was the handmaiden of civilisation rather than the handmaiden of social justice” (Crabtree and Thirlwall 1980, 106).

Hayek on the threats to Western civilization Considering the economy as one of the dimensions of the exercise of political power, Hayek´s economic thought takes into account the institutional set up and the outcomes of the government intervention that could limit the competitive market conditions. Against the planning of national growth as a rational construction, he was an active advocate of the liberal-type relationships based on the idea of freedom. In his view, the liberal social order is the result of multiple unintended actions of free individuals who act within the limits of the set of rights that are elements of a sign system. The main advantage of this competitive order, in Hayek’s view, is that rational agents respond to price signals which convey the relevant information available in the markets for the purpose of economic decision-making. In his view, a price market system efficiently solves the fundamental problem in economics: the coordination of the plans of many independent individuals. To face the institutional challenges of the capitalist societies in the 20th century and rebuild the foundations of constitutional governments, Frederic von Hayek restated the relevance of concepts and ideas proposed by the classical liberal philosophy. In the 1960s, his book The Constitution of Liberty concludes with a large section on the problems of contemporary economic and social policy, including social insurance, rent control, and monetary policy. Years later, Hayek began working on what would become Law, Legislation, and Liberty (1973-1979) that focuses on the logical character of economics and the implications of economic theory for the design of social, commercial, and political institutions. In the late 1980s, his The Fatal Conceit (1988) summarizes large parts of a half-century of research. Hayek mainly discussed the re-definition of the legitimacy of the state and stressed the need to defeat the growing state intrusion in a democratic framework. Besides, he privileged the analysis of the values that shape the interrelations of individuals in a free society. As Kukathas (2012) recalls, Hayek started his intellectual life as an economist but turned his attention to political philosophy late in his career. Through his life, his thought developed in a more libertarian direction. Indeed, he defended a philosophy of liberalism as an antidote to the development of totalitarian

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regimes. Although he retained some role for the government, he became more skeptical about the role of the government in the provision of public goods because the political process was infected by particular interests. This critique overwhelmed a seminar directed by Hayek, Lionel Robbins, and Arnold Plant, offered in 1932–33, and his course at the London School in 1933–34 that was titled "The Problems of a Collectivist Economy” (Moggridge 2004). We can say that Hayek´s contribution turned out to build a discourse on liberalism. Hayek’s theoretical efforts were designed to show, as the result of the outcomes of the Bretton Woods period, that the challenges to capitalist society could be overcome by political and institutional reforms. Hayek replaced the conception of the economy as a domain of autonomous rules and laws by a concept of "economic order" where the principles of competition and of stable value of money are underlined. As a result, monopolization is the result of failed political strategies and inadequate forms of institutionalization, no government can effectively plan the future path of the economy and central banks do not have the relevant information to correctly manage the money supply (Madi 2015). Indeed, the government monopoly power of issuing money is also condemned by him. Moreover, it is not the capitalist system that is responsible for the emergence of social problems. For Hayek, the survival of the capitalist system depends on political innovations. In his neoliberal discourse, there is nothing wrong with the dynamics of capitalism but with its institutions that are opened to political changes. His contribution to monetary theory stimulates a far-reaching debate on the role of the government in monetary management and the effects of alternative policies in regulating the issuance of money. Since the early 1930s Hayek had been concerned about the role of money in the theory of production (Hayek 1931). Influenced by Eugene BöhmBawerk’s theory of capital, Hayek deeply examined the effects of monetary policy on the process of capital accumulation. As regards investment decisions, Hayek considered that an inflationary credit expansion by the central bank can lead to capital misallocation over time caused by artificially low interest rates. After the Second World War, Hayek discussed the redefinition of the legitimacy of the state and stressed the need to defeat the growing state intrusion in a democratic framework. Besides, he privileged the analysis of the values that shape the interrelations of individuals in a free society. In his view, central banks do not have the relevant information to correctly manage the money supply. In the 1970s, Hayek (1976) proposed the abolition of the government’s monopoly over the issue of fiat money to

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prevent price instability. His defense of a complete privatization of money supply stemmed from his disappointment with central banks’ management, which, in his opinion, had been highly influenced by politics. He warned that political interference over monetary policy and price stability is incompatible with social cohesion. At that time, his proposal of institutional reform relied on a denationalization of money in the framework of a free market monetary regime where only those currencies that have a stable purchasing power would survive. In accordance with his understanding, the unemployment and inflation challenges were not compellingly innate to the logic of capitalism but of a contingent historical nature. For Hayek, the history of capitalism is an economic-institutional history. For this reason, he built the understanding of the economic process in institutional terms and rejected the conceptualization of the economy as an autonomous domain. In his approach, the domain of freedom (the market) presupposes the legitimate domain of government intervention. Thus, the economic process and its institutional set up are not only articulated but also support each other. He claimed that his goal was to explain how the economic process works without attempting to explain its results or to predict its course. In this respect, he criticized what he called “prophetic economic discourses” that believe in an eschatological end – such as the discourse of Marx (Hayek 1995). For the author, the best example of the “road to serfdom” was the economic path traced by an omnipotent reason that understands society as a rational machine or an economic order that could be built by the deliberation of rational individuals. His criticism of the arbitrary interventions related to the governments in the economic order (Hayek 1944). In the aftermath of the Second World War, Hayek discussed the redefinition of the legitimacy of the government and stressed the need to defeat the growing government intrusion in a democratic context. His point of departure was the institutional decay in modern capitalist societies and the need to rebuild the foundations of economic and political freedom by means of the strengthening of constitutional governments. Taking into account the connection between economic and political freedom, the Austrian economist discussed the challenges to social, economic and political development in a constitutional order. In support of the superiority of the economic outcomes of the free competitive order over the arbitrary interventions of the government, Hayek pointed out the need to restrain the power of the governments in the international settlement. In other words, Hayek insisted that markets are embedded in a host of other social and political institutions and he associated the weight of the

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government with the menace of arbitrary interventions. In his book The Constitution of Liberty (1960), there is an analysis of the limits of human cognition to highlight that no government can know enough to plan the future of a society. Indeed, the government’s true role is more modest: to create general and equally applied laws that constitute the matrix in which the spontaneous interactions of individuals can occur in the economic order. Hayek’s main concern was to show that the reconciliation of individuality and community depends on individual freedom. Indeed, his analysis takes into account the values that shape the interrelations between individuals in a free society. In this attempt, the concept of the common good is a social construction based on values, such as the inviolability of the person, individual freedom and justice. In other words, the economic order is considered to be the best form of organization for contemporary societies and the legitimacy of the government should be based on its limited power. A key guiding political principle for his liberal perspective is the recognition of the limits of human rationality and knowledge. Against the belief in scientism, Hayek does not believe that any people might successfully design a top-down, one-size-fits-all solution, for other people. In this sense, he rejected the rationalist and constructivist approach that attempts to shape attitudes, behaviour, and expectations. In his view, this approach was linked to a theory of bureaucratic culture where expert knowledge is used to build and regulate the social world. Indeed, Hayek showed scepticism about the ability of human beings to use legislation to improve income distribution, increase employment levels and guarantee financial stability outcomes. However, Hayek did not advocate a market system based on "laissez faire". His classical liberalism, referred today by the term libertarianism, considers that the state should protect rights to property in the attempt to promote economic growth. Following the Scottish tradition, the spontaneous order is the only process that can enhance a more prosperous society. Indeed, Hayek’s real concern was with freedom and rules. According to the spontaneous order approach, the competitive forces of markets and the evolution of culture generate the best economic and institutional solutions through a learning process that relies on feedback mechanisms to overcome the failures and to select the actual needs of people. Considering the discussions about alternative economic organizations, Hayek actively participated in the debate launched by Ludwig von Mises about the possibility of economic calculation under socialism that took place between the two world wars (Mises [1920] 1935). According to

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Mises, socialist planners cannot determine the efficient use of resources since market prices for capital goods do not exist without private property. Therefore, planners will have no guide to determine what and how to produce goods and services. Whereas socialists had long seen the market as anarchic, Mises’s argument showed how the market process gave rise to a rational economic order where actors make use of prices to guide their decisions. Hayek pointed out that government interventions in the market cannot cope with the knowledge required to understand the complexity of social phenomena. Only the market process enables the extension of human actions since market prices perform a semiotic function in communicating the decentralized knowledge required to make articulate decisions. His contributions to the controversy around the “socialist calculation” debate resulted in the publication of Collectivist Economic Planning in 1935. Years later, in the 1944 book The Road to Serfdom, Hayek warned about the misleading promise of greater freedom that had been spread by the socialist propaganda and central planning (Törrönen 2003). In the argumentation of The Road to Serfdom, Hayek identified the trend to totalitarianism as a dangerous illusion of those who believe in central planning. In his view, this dangerous illusion relies on the belief that socialism is compatible with a free society. Indeed, Hayek explores the erroneous beliefs that made people turn from the correct road of liberalism and that are at the core of the most dangerous enemies in Western societies. Among the erroneous beliefs: socialism does not destroy our freedom; freedom has been invented by man; economic planning leads to social justice; totalitarian societies are not the creations of dictators, and social engineering can build a better world than the anonymous forces of the market. Therefore, there is no alternative to the spontaneous order; otherwise people will never experience freedom. Indeed, freedom and equality are basic values in liberal societies. While freedom is possible only when a competitive system prevails, deliberate state planning leads to dictatorship. Looking back, Hayek considered that economic growth and individual freedom were at the centre of the birth of free entrepreneurship and capitalism in the late 17th century. In his view, the contemporary attempt to direct social forces to chosen goals neglects the modern liberal enlightenment tradition that believes in a kind of progress that is not guaranteed by the state, but by the market, the price system and competition (O´Brien and Penna 1998). Progress relies on decentralized decisions of individuals looking at changing market prices that reflect underlying scarcities in the context of the rule of law.

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The rule of law is the foundation of the spontaneous order: "A government of laws, not of men" is a well-known liberal expression associated with Hayek. In his perspective, market regulation and legislation might prevent innovation since regulators and legislators are backward-looking. Market regulation inserts uncertainty into market relations and, as a result, individual planning turns out to become difficult for economic agents. Moreover, certain types of legislation can encourage misaligned incentives and some regulations can be the result of special interests to favour big businesses. In this respect, in the late 1970s, Hayek highlighted the undesirable consequences that result from governmental actions aimed to avoid the failure of big businesses. In contrast to absolutist and collectivist ideologies, liberalism is characterized by the insistence on rules in political and economic life (Hayek 1973). From a semiotic perspective, Hayek produced a binary discourse where the world is founded on a clear moral value opposition between the good and the evil. Among the oppositions, he highlights: (i) the antagonism between the anonymous competitive market forces and centralized economic planning; (ii) the antagonism between individual freedom as the public good and the arbitrary moral rules dictated by a bureaucracy of the state. The basic oppositions are the antagonisms between competition (freedom) and central planning (equality), and between economic progress and the destruction of the capitalist system. The Road to Serfdom shows that the free market functions well and enables the emergence of a spontaneous culture and spontaneous order in the absence of interventions in the rules of the game. Freedom in the market economy is founded on the actors' adaptation to, and compliance with, economic conventions (Hayek 1944). His binary discourse sheds light on how his argumentation derives its strength from the existence of an “enemy”. Hayek emphasises that the enemy is ubiquitous since it has invaded people´s beliefs with the seeds of a totalitarian society. Indeed, the contrast between the "we" and the "enemy” overwhelms the semiotic structure of The Road to Serfdom where non-logical interpretants are considered. Hayek often quoted Hume to support the idea that the rules of morality are not conclusions of our reason. In contrast with the tradition of English utilitarianism, Kant was the first to understand that the value of “freedom” requires an internal commitment towards general ends with a view to acting morally, the so called “kingdom of ends” or “moral commonwealth.” According to Kant´s categorical imperative, individuals should act following that maxim. For Kant, one person can only be “free” if he/she conforms to a “necessary law” of pure moral reason. Taking into

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account this background, Hayek wanted to restore personal freedom as the most consequential “end” which the people should consider in their actions within the spontaneous order (Zywicki 2003) It is important to note that Hayek criticized the conceptualization of social justice as both misguided and dangerous. In his view, it is wrong to use the concept of “justice” with something like an impersonal market process, since justice is an attribute of human conduct. According to the notion of the rule of law that advocates that all people should be treated equally under the law, the observation of different people´s attributes naturally leads to different outcomes. Conversely, the only way to get similar outcomes for different people is to treat them differently. Therefore, the attempt to build an “egalitarian” society goes against the rule of law. Even if we were to accept the desirability of some form of income redistribution, the underlying presumption is that our knowledge is not limited to determining which acts are in fact meritorious. From Hayek´s perspective, the extension of free markets, while leading to income inequality, simultaneously increases the total size of income to be shared and thereby benefits mankind as a whole. Regarding social justice, Hayek emphasized the benefits that arise from the spontaneous order as an efficient process. In his The Road to Serfdom, Hayek advocates 'the substitution of direct regulation by authority' in situations where market competition cannot be made effective. He also advocates government involvement to provide services in situations where great advantage to society would be forthcoming, but where no profit would come to those providing the service if done so privately. Nevertheless, in The Road to Serfdom, Hayek argued that in a society that had reached the general level of wealth that US and Great Britain had achieved, the state should provide to everybody some minimum levels of basic needs with the aim to preserve health and working capacity. Contrary to the rules of 19th century 'laissez-faire', he was, at least in 1944, in favour of organizing some form of a social safety net of food, shelter, clothing and health care (Ramson 1996). He also allows for government assistance to old age insurance and the victims of natural disasters. Moreover, he supports regulatory protection against monopolies, environmental pollution, and resource depletion. By the 1970s, his concern relied on the coalitions of organized interests that would use demands for social justice to accomplish their own interests and ends. Hayek focused on the role of rules of just conduct governing the growth in wealth and welfare (Lebar 2014). Against the target of pursuing particular goals, these systems of rules are evolutionary systems of casual interpersonal norms that survived a process of natural selection and made

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possible cooperation and wealth-creation. These rules of conduct that emerge spontaneously and govern social interactions differ from the legislation that is a product of the wills of legislators. Therefore, the effective rules of just conduct are neither objects of rationality, nor objects of deliberation. However, there is no assurance about which rules will be recognized and endorsed as just in the trial-and-error process of determination of norms. In this process, the successful rules that govern the social order will be internalized by individuals in liberal societies.

Hayek on policy (de)sign as a fiction As of the 1970s, Hayek condemned the role of the economists in promoting the engineering of social change through macro-economic modelling. In his view, for the Keynesian income expenditure model to work, the economist must know the aggregate level of current consumption, investment, and public spending, as well as the full employment level of output and the multiplier effect. As each step of the analysis presupposes that the detailed knowledge of economic life is available and that the outcomes of each policy intervention will be precise effects on economic activity, he believed that the Keynesian macroeconomic policy was mistaken. In the case of such a complex phenomenon as the market, Hayek believed that neither macro-economic nor micro-economic approaches, although they are alternative methods of dealing with the market, can gather all the factual information that is required to provide a full explanation of the economic phenomena. In his view, the macroeconomics attempts, such as the Keynesian attempt, by reference to aggregates or averages statistically available, give an unsatisfactory and sometimes misleading theoretical explanation of causal connections since this explanation asserts empirically observed correlations with no justification for the belief that they will always occur. Alternatively, the micro-economics approach - which he prefers- relies on the construction of models which cope with the problem by diminishing the number of independent variables “to the minimum required to form a structure which is capable of producing all the kinds of movements or changes of which a market system is capable” (Hayek 1976, 80). Against what the economists call “given data,” Hayek thought it was a “fiction” to suppose that economists can be “social engineers”. In truth, Hayek was one of the strongest critics of this Keynesian transformation of the discipline of economics. Hayek believed that economists do not have to play the role of political leaders or groups but

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they must continue to point out that to persist in this direction will lead to disaster, since political interference over monetary policy and price stability is incompatible with social cohesion. Against Keynes, Hayek rejected the approach to rationalism politics because the construction of a free society cannot be imposed on people in accordance to some preconceived scheme. In short, his critique of Keynesian economics relies on the arbitrary interventions of governments in the economic order because of the limited knowledge of the bureaucratic apparatus. In his view, despite the negative outcomes of inflation, the adoption of discretionary policies, such as income or monetary policies to defeat a high unemployment level, turns out to negatively affect the structure of relative prices and the investment of capital. In the long run, the “Keynesian” attempts lead to the destruction of the market economy. The evolution of the market economy interests him only in a very general, abstract sense. This order which has progressively grown beyond the organisations of the family, the horde, the clan and the tribe, the principalities and even the empire or national state, and has produced at least the beginning of a world society, is based on the adoption - without and often against the desire of political authority - of rules which came to prevail because the groups who observed them were more successful; and it had existed and grown in extent long before men were aware of its existence or understood its operation (Hayek 1984, 367).

The market order, in Hayek's words, does not stay unchanged as it is, but it is subject to evolution and therefore has a history. The economic argument for the rejection of any kind of “social engineering” is related to Hayek´s theory of human nature and cognition. Indeed, the knowledge problem is at the core of his rejection of any kind of social engineering. Markets, in short, help to solve “the knowledge problem.” In his classic 1945 essay The Use of Knowledge in Society, he asked a very simple question: What problem must we solve if we want to build a rational economic order? He points out that if we had all the relevant information about preferences, endowments, and technology, the problem would simply be a question of logic and it would be solved by itself. In this scenario, a central planner would allocate resources and goods in the most efficient way. All of the problems for constructing a rational economic order arise precisely because we do not have such information. Instead, in the real world, knowledge is dispersed among millions of people. Each person has a bit of localized knowledge, or what Hayek calls “knowledge of the

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particular circumstances of time and place.” In the real world, it is also the case that some people are mistaken about what they think they know. The question that must be solved in constructing a rational economic order in such a world is: How can we use the knowledge that is dispersed among millions of fallible market agents to achieve some level of social coordination and cooperation? Human intellectual capacities are flawed and cannot ensure that any person or group of people create a large-scale and long-lasting socio-economic order. In the case of such a complex phenomenon as the market, as Hayek wrote in The Road to Serfdom: […] any attempt to control prices or quantities of particular commodities deprives competition of its power of bringing about an effective coordination of individual efforts, because price changes then cease to register all the relevant changes in circumstances and no longer provide a reliable guide for the individual’s actions (Hayek 1944, 27).

Hayek´s thoughts seem to be influenced by the liberalism rooted in Scottish Enlightenment that highlighted a different conception of both the task of the social sciences and the most desirable economic and political order. The Scottish variant of liberalism recognizes human fallibility and the subjective, tacit, and context-specific nature of much of our knowledge. This approach also recognizes the inherently social nature of human beings. However, in the spontaneous-order tradition, the Scottish advocates of liberalism argue that the social world has emerged as unintended consequences of human action. In other words, the social world arises from “human action but not human design.” Considering the capitalist market, it is considered as a set of institutions that facilitates the attempts at social coordination through a learning process where decentralized communication occurs. Following Carl Menger, the founder of the Austrian School, Hayek pointed out that many beneficial social institutions have emerged gradually and spontaneously throughout human history. Language, money, the division of labour, trade and the moral traditions that support a market system have not been created by the conscious intent of any individual participant. Indeed, Hayek believed in experimentation and change which are driving forces in both competitive markets and cultural evolution. As the best example of the irreducible complexity of social phenomena, Hayek considers that a market can coordinate the action of a wide range of individuals without any single mind having a full set of information about the system. As a result of this coordination, an order emerges without central design or control. In Hayek´s understanding, the market as an emergent self-organisation process is facilitated by

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institutional development and change. The concept of self-organisation refers to the historical outcome of trial and error that resulted in the protection of freedom and property rights in market-oriented economies. It is worth remembering that the limitations of human cognition prevent people from adequately engaging with the complexities of contemporary economies. In this respect, Hayek recalls the pretence of knowledge that underlies the attempts of “social engineering”. Against “rational constructivism”, Hayek condemned the attempt to build a topdown order through planning multiple individual actions. Indeed, Hayek stresses the differences between the spontaneous order and the constructed order. Government bureaucracies, for example, are constructed orders, which he defined as relatively simple, with moderate degrees of complexity, that have been intentionally ordered to serve particular interests. The different conceptualizations of the spontaneous order and the constructed order call on a reflection of the “scientistic” attitude which treats economics like physics. Hayek explores the reasons why economics is different from physics and other natural sciences. First, in economics there is a large number of variables that are not measurable. Second, while economists can produce general predictions, unlike physicists they cannot generate precise results. Economics and other social sciences deal with complex structures that cannot be reduced, summarized or averaged way. The nature of the complex structures refers to the relationships between the individual elements, and this cannot be reduced without losing critical information. A key question of the irreducible complexity is that our knowledge of economic variables has limits. The third difference relies on the fact that the information necessary to test detailed economic predictions is impossible to gather. For fields involving complex phenomena with many variables, the real problem is gathering a large number of facts needed to test the theory. Therefore, there are limits to making predictions since the scientific method in economics is not a recipe that can be mechanically applied to all situations. Hayek called “scientism” the idea that the purported methods of the natural sciences are equally applicable to social phenomena. In economics, it results from the insistence of economists to imitate the methods and results of natural sciences. He warned that economic scientism is very dangerous because trends of arbitrary behaviour can arise. That is the case when the economist, who claims that he is able to solve a complex social problem, dictates the lives of other men as a result of a centralized and tyrannical approach. This economist that believes in social engineering avoids the free flow of decentralized interactions that actually produce emergent solutions to complex problems.

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Indeed, the attempt at social design will lead to the destruction of a civilization. Against Keynes, Hayek condemned the attempt to master complexity and uncertainty from above, and highlighted the role of the trial and error process in the markets to develop the best practices and institutions: We make constant use of formulas, symbols, and rules whose meaning we do not understand, and through the use of which we avail ourselves of the assistance of knowledge which individually we do not possess. We have developed these practices and institutions by building upon habits and institutions which have proved successful in their own sphere and which have in turn become the foundation of the civilization we have built up. (Hayek 2014, 101)

Hayek associated the knowledge problem with the incapacity to plan and direct an economy where the institutions emerge from within the structure of our shared experience. Institutions are chosen in an ever-evolving process of discovery and learning where human freedom prevails. This knowledge problem is a huge obstacle to rational policymaking since unintended consequences, that were not part of the original intention, may arise in the attempt to plan or direct the complex adaptive system that is the economy. In the 1930s, Hayek’s showed how a certain type of planning, mainly the central planning of the economy, would lead to disastrous economic results and to restrictions on political and personal freedoms. These ideas appeared in his 1939 pamphlet “Freedom and the Economic System” and they were further developed in his famous 1944 book, The Road to Serfdom. Some decades later, the 1970s inflationary experience was considered by Hayek to be an example of the dangers of scientism when the economists try to use social (macroeconomics) engineering to defeat inflation. Hayek rejected the policy-induced interventions adopted in the US to defeat inflation. When the inflationary pressures emerged in the late 1960s, the US government imposed an income tax surcharge to reduce the levels of aggregate demand. Nevertheless, it had no effect and inflation turned into stagflation. In Hayek´s perspective, governments should avoid discretionary policies aimed at managing the business cycle. The knowledge problem is at the heart of Hayek´s concerns about policy-induced interventions, like planning, that are based on knowledge possessed by different individuals. Against the attempts of the so-called rational bureaucracies and central planners in the economic system, Hayek believed that the most efficient system is the one that makes use of existing decentralized knowledge. In this setting, a general system of rules

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may provide the institutional framework that best enables individuals to utilize their knowledge to carry out their own plans in a system of individual initiative. Hayek’s contribution stresses the importance of the institutional setting for the effective work of the spontaneous order. In his work The Constitution of Liberty, he explores the set of complementary social institutions in a democratic polity. These institutions refer to a system of well-defined and enforced property rights that are constitutionally protected and operate under the rule of law. This basic insight has inspired the approach to the new institutional economics associated with the work of Douglas North, Ronald Coase and Oliver Williamson, as well as the experimental work of Vernon Smith. In short, Hayek’s main contribution to the liberal tradition was to emphasize the epistemic limits to design a market system from above. Hayek’s answer was that a market system with freely adjusting marketdetermined prices is, when embedded within an appropriate institutional structure, an efficient mechanism for coordinating human action. As Hayek highlighted, a free market economy is an adaptive complex system. Soon after a change occurs, a price adjustment process starts and the market participants turn out to adjust their behaviour to the new signs (prices). In this scenario, the relevant information is communicated to all the participants and they can overcome their limited knowledge. We can say that the process of price adjustment is a very semiotic process where interpretation and meaning grow ad infinitum (Santaella 1992). As individuals have bits of local (and sometimes tacit) knowledge, the signs of markets provide information on which market participants can base their price-determined and price-determining actions. Although wrong decisions are constantly made, these errors can be corrected due to the workings of the market mechanism. The spontaneous order, as a self-regulating market system, helps to coordinate decentralized actions in a context of dispersed knowledge. With regard to the welfare state, Hayek claimed that the destructive effects of inflation originate mainly from a state-organised social security system that becomes an increasing burden for the taxpayer and for the state budget. Moreover, the resistance of trade unions to wage flexibility will foster further inflationary pressures. However, Hayek acknowledged the need to discover the adequate limits of the public policy interventions to dimension the effects of externalities and public goods as wealth and the density of population increase. In Law, Legislation and Liberty, Hayek wrote about the social effects of pollution, for instance. And he concluded that public goods

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could be provided by governments in their attempt to deal with negative externalities. Moreover, a free society government should ensure that all protection against severe deprivation in the form of uniform minimum income is provided outside the market. He also favoured government support for the costs of general education, mainly in the first stages by assistance in developing one’s capacities. Here, Hayek appealed to morals standards and obligations since he understood that it is a moral duty to assist those who cannot help themselves in an organized community. He also clarified that this duty does not lead to a restriction of freedom since it should not interfere with the basic rules of just conduct that generate the market order. Indeed, everyone can benefit from the market order, although not always equally At last, Friedrich Hayek´s conception of the common good refers to a social construction based on values, such as the inviolability of the person, individual freedom, justice, that shape the interrelations of individuals in society. Remembering Hayek´s contribution, Linda Raeder (2006, 136) states “[…] he has shown that the reconciliation of individuality and community; of creative exploration and social stability; of individual rights and common good, does lie within our grasp.”

CHAPTER SEVEN WHEN SIGNS BECOME POLITICS AND POLICIES    Major economic crises generally result at an economic policy turning point since they challenge the credibility of standard economics. Classical economic thinking gradually gave way to Keynesian demand management after the 1929 stock market crash and Great Depression. Moreover, the stagflation in the 1970s led to neoliberal policies focused on market deregulation. Nowadays, the policy debate still refers to those arguments that took place in 1929 and 1970 concerning fiscal austerity versus stimulus measures for expanding demand. In the last decade, the outcomes of the global financial crisis stimulated a re-examination of the ideas of Keynes and Hayek in search of alternative answers to the questions of what caused the crisis and how national governments may get out of it. On behalf of the economic and social outcomes of the crisis, deep discussions around free market vs. regulation; monetary policy vs. fiscal policy, austerity vs. growth have emerged. The current economic debate in contemporaneous capitalist economies has been followed by a reconsideration of the scope and role of political power in shaping economic relations. Economic institutions, as systems of rules, are relevant elements in any attempt to build a semiotics approach to social sciences. Considering the interrelations between semiotics and culture, it is worth noting that both Keynes and Hayek´s thoughts were based on the assumption that the economic process is socially organized in a specific institutional set up. In line with this perspective, it is worth noting that Keynes and Hayek´s contributions addressed the crisis of the institutions of liberal capitalism of the last decades of the 19th century. Indeed, their contributions do not favour non-realistic economic theories, but take into account an institutional approach where change and evolution are part of the realworld. Although Keynes and Hayek elaborated different world views, each work can be conceived as a relevant analysis of Western culture after the 1930s. This culture happened to be shaped by different powerful forces

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that include economic knowledge and institutions. Their contributions highlighted the conceptualization of the economy as a socially institutionalized and historically specific system and brought into question the relevance of “economic calculation” to address economic relations. As we already said, Keynes and Hayek can be seen as two economists whose philosophical frameworks integrated a semiotic interplay. In different styles, they outlined the conditions for a semiotic approach to governance in contemporary culture. Indeed, a semiotic approach to Keynes and Hayek opens up different insights into the relationship between the price market system and government interventions. Indeed, the analysis of their works enhances the discussion about the meaning of monetary policies and regulation in modern societies where markets, power and policy issues are inter-twined at the centre of the current economic and political debates. While Hayek insisted that welfare state policies are, per se, inimical to the classical liberal notion of freedom, a capitalist market system of social exchange is justified primarily because it protects individual freedom, that is to say, freedom to the life of every human being as an individual. This system, its advocates claim, achieves the complex task of production and distribution through a process of voluntary exchanges and coordination is effectively achieved without coercion. Hayek wrote several articles in the 1940s that aimed to criticized and attack the economics of Keynes and the Keynesians. And he did so again in between the 1950s and the 1980s. Indeed, the main question at stake is: Can governments design policies that produce growth and greater equality among their citizens? This chapter intends to call for a reflection about the debate on policy-making that influenced the evolution of economic theory and practice after the Second World War. The Keynesian view was in favour of granting freedom to the authorities to use their discretion in formulating monetary (and fiscal) policy, since the capitalist economy is inherently unstable and unpredictable. The anti-interventionist view argued, on the contrary, that what a developed, capitalistic, market-oriented economy needed is a government of rules.

Keynes on discretionary policies and regulation One of the main ideas of Keynes’s contributions to policy making is that governments should intervene in the market economy to reduce the level of involuntary unemployment and promote economic growth. Through anti-cyclical policies, for example, governments could dampen the effects of insufficient aggregate demand. Besides, national governments could

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play a decisive role in shaping a business environment that could reduce uncertainty and favour investment decisions. Taking into account the outcomes of the Great Depression, Keynes highlighted the urgency to refocus the economic policy agenda since investment, employment and finance cannot be left to the free markets. He was deeply involved in the questions of reparations after the First World War and in the Bretton Woods Conference after the Second World War. From a Keynesian perspective, the scope of policies that could stimulate economic growth should be conceived with an international perspective. In his view, global growth depends on the design of institutions that could favour international liquidity. Indeed, he addresses the need for global action with coordination and coherence among the objectives and practices of multilateral institutions. In his attempt to reshape the world order in the middle 1940s, Keynes pointed out the need for an international currency system that might only work through a “wide measure of agreement”, that is to say, by creating a new international “convention”. At his time, this convention would rely on multiple needs: an international currency, a stable exchange rate system, redistribution of international reserves, stabilizing mechanisms, sources of liquidity, besides a central institution to aid and support other international institutions related to the planning and regulation of the world economic life. By 1946, Keynes was at the core of the design of the world capitalist system, proposing a new monetary order (Davidson 2015). As uncertainty is inherent in all economic decisions, Keynes´s global proposal relied on the concepts of credibility and degree of confidence. More generally, the solution to enhance financial stability has to address international imbalances. His proposal fostered new convention-conducing institutions that could shape financial regulation towards economic growth. At the global level, he proposed the creation of an international currency that was called Bancor. Keynes was aware that the dynamics of the domestic exchange rates are overwhelmed by arbitrage and speculation. The instability of domestic currencies, as a result of changes in market opinions, is not independent of the international liquidity that fluctuates and threatens the sustainability of the domestic exchange rate regimes. As a consequence, a successful policy oriented to economic growth also depends on the access to international financial resources. However, financial crises may also reveal the random behaviour of investors. Indeed, exchange rate crises may also occur in a context of uncertainty where decisions to balance risks and yields are not submitted to stochastic behaviour, that is to say, they are not predictable.

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In the 1930s, Keynes warned about the inability of Central Banks to affect business expectations because of the “liquidity trap”. Indeed, Central Bank practices, the investment-finance-funding conditions and the management of the interest rate policy are context-dependent in the flow of time. As Keynes emphasized, the tensions between money as a public good, issued by central banks, and money as a private good, created by banks, overwhelmed the actions of the Central Banks. Looking back, Keynes’ attempt to reshape the world order in the 1940s pointed out the need of global changes founded on the creation of new conventions, such as the creation of international stabilizing institutions and mechanisms to plan and regulate the world economic life. The role of expectations and strategies is crucial in Keynes´s theoretical contribution to the stabilization of the economy. The principle of uncertainty is based on the idea that the past is irrevocable and the future cannot be fully predicted. Regarding the challenges to economic policies oriented to growth, the Keynesian approach to the transmission mechanism of monetary policy is based on the existence of a monetary economy whose foundations are credit relations, organized markets of financial assets, speculation and uncertainty. In a monetary economy, according to Keynes, money, as the institution that founds the exchange system, is a link between the present and the future. Rejecting the theoretical duality “real versus monetary” in the analysis of the capitalist economy, Keynes withdrew the active role of money and its destabilizing effects. On behalf of his concern about the distributive consequences of the non-neutrality of money, Keynes highlighted the role of organized capital markets where “liquidity” is the target. What he adds to our understanding is that domestic financial instability refers to uncertain expectations that affect the evolution of asset prices, and therefore, impact the levels of investment, production and employment. In this economy, money means the representation of wealth and it is the link between the present and the future. Money has a non-neutral nature, and yet it affects spending decisions. Money cannot be considered only as a medium of exchange, because money demand, for its reserve function of value, is unstable as a result of uncertainty about the future and speculation. In short, uncertainty, noncoordinated decisions and the instability of money demand are crucial in Keynes´s approach to policy-making (Davidson, 1978). The speculative nature of money demand is an obstacle to increasing the levels of production and employment. The capitalist economy is inherently unstable since it does not present the tendency to self-regulation to achieve full employment (Keynes 1936).

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Robert Skidelsky (2010) claims that at the core of Keynes´s thinking there is an opposition to acting strictly on principles or rules: he developed a managerial philosophy of ad hoc intervention. In this respect, the theory of effective demand, as presented in The General Theory, was designed as an instrument for forecasting and prediction: if aggregate demand falls, deflationary tendencies may deepen unemployment social concerns, and therefore anti-cyclic policies should be adopted (Hardt and Negri 1994). The main question at stake is this: Is Keynes's predilection for government "discretionary" interventions compatible with his liberal standpoint? As Hardt and Negri (1994) state, the crisis post-1929 represented a moment of decisive importance in the emergence of the contemporary state. As the 1930 Great Depression had destroyed the conventions about the future, Keynes' first concern was to create a new conventional belief that could overcome the fear of the future and redefine investment risks. In this attempt the role of the state tuned out to be decisive. In other words, the state becomes a key driver of economic growth. That is why Keynes fostered the use of social engineering. In his essay The End of LaissezFaire, the British economist clarifies the relevance of a new agenda that should avoid what the individuals are already doing but it should include new practical initiatives to face the economic challenges of the 20th century. One of Keynes’s main contributions to policy making, as opposed to those economists that defend the free markets, is that government policies and actions could play a fundamental role in a monetary economy to shape a business environment that could reduce uncertainty and favour investment decisions. It is worth noting that without financial regulation, the transformations in global governance increasingly subordinate the dynamics of investment, consumption, production and employment to the financial commitments of investors (Minsky 1975). In truth, the Keynesian pattern of regulation aims to remove the obstacles to enhance further capital accumulation within the landmark of national capitalisms after the Second World War. However, given the global imbalances, most national governments find it difficult to design solutions without coherent and democratic international cooperation. In this scenario, Keynes was aware that the systemic tensions within capitalism might be deepened by economic downturns and the implementation of austerity programs. In truth, the kind of macroeconomic adjustment that privileges fiscal austerity and real wage flexibility can be costly, both socially and politically. The apprehension of this political and social reality is decisive to enhance government

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responses that could privilege the formulation of investment policies. This attempt, as Keynes really knows, is crucial to refocus the goals of economic policy for the benefit of future generations.

Hayek on the “unholy marriage” and free banking According to Hayek, the main public policy question is: What is the policy effect on the communication of dispersed knowledge through changing relative prices? In his 1974 Nobel Prize lecture, The Pretense of Knowledge, Hayek argued that the Keynesian recommendations to defeat unemployment turn out to create patterns of resource employment that cannot be maintained without price instability and the disorganization of the economic activity. Aware of the price stability challenges, Hayek strongly highlighted the dangers that arise from monetary financing of public spending. Although employment and price stability are not necessarily in conflict, priority should be given to monetary stability. Considering this background, Hayek’s recommendation for policy making is the dissolution of “the unholy marriage” between monetary and fiscal policy, which, in his opinion, had formally consecrated the victory of “Keynesian” economics after the Second World War. The contribution by the Austrian economist Friedrich von Hayek to monetary theory stimulates a far-reaching debate on the role of the government in monetary management and the effects of alternative policies in regulating the issuance of money. Since the early 1930s Hayek had been concerned about the role of money in the theory of production. Influenced by Eugene Böhm-Bawerk’s theory of capital, Hayek carefully examined the effects of monetary policy on the process of capital accumulation. With regard to investment decisions, Hayek considered that an inflationary credit expansion by the central bank can lead to capital misallocation over time caused by artificially low interest rates. The axle of the Austrian economist Friedrich Hayek’s monetary theory contribution stimulates further discussion about the role of money in the context of the general theory of equilibrium and the challenges for macro-economic stability. As a matter of fact, Hayek searched for systematic elaboration of the Austrian theories of capital, money, business cycles and comparative monetary institutions. In addition, Hayek attempted to systematically expand the Austrian theories of capital and business cycles in the 1930s and 1940s. One definite contribution of his theory of capital and money is the emphasis on the study of the effects of monetary changes in relative prices of

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commodities in the context of industrial fluctuations. From the early 1930s, Hayek’s book Prices and Production was concerned about the theory of production in which the existence of money leaves production and the relative prices of goods undisturbed, as money is usually defined as the generally accepted medium of exchange. The Austrian economist, whose first book published in 1933 was titled Monetary Theory and the Trade Cycle, certainly recognized that money is intimately involved in crises because changes in the money supply affect credit conditions. He actively participated in the debates over production, interest theory and anticipations with Frank Knight, Keynes and the Cambridge economists. Hayek highlighted the dangers of a prolonged low-interest-rate regime in distorting how the various factors of production in the economy are allocated, something that the Austrians call the structure of production. He criticizes further lowering of the interest rate (active monetary policy) or any other attempts (for example, deficit spending or expansionary fiscal policy) to stimulate demand. He rejected expansionary fiscal and monetary policies during an economic downturn. Following the Austrian tradition, Hayek highlighted the relation between money, relative prices and production considering time issues. Indeed, his theory of capital and money studies the effects of monetary changes on relative prices of commodities in the context of industrial fluctuations. For Hayek, the existence of money leaves production and the relative prices of goods undisturbed as money is simply considered as a medium of exchange. In his theoretical approach, the explanation of the causes which make investment more or less attractive can only be reached by closely analyzing the factors determining the relative prices of capital goods in the different stages of production. Changes in the relation between saving and investment not only affect the monetary purchases of consumers and entrepreneurs but also influence the relative prices and the structure of production. To expand the productive capacity, entrepreneurs can use borrowed money to purchase capital goods if money is obtainable at a rate of interest lower than the rate of yield on existing capital. This process will continue until the price of capital goods is so increased that the rate of yield is lowered to equal the rate of interest. Considering investment decisions, Hayek assessed that the central bank's inflationary credit expansion business cycles can lead to capital misallocation over time caused by an artificial monetary policy that maintains interest rates at a low level. Influenced by Eugene Böhm-Bawerk’s theory of capital, Hayek studied the effects of monetary policy on the process of capitalization. To

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increase productive capacity, investors can use borrowed money to buy capital goods if the interest rate is lower than the rate of yield on existing capital. However, in view Hayek estimated that expansionary monetary and credit policies could lead to misallocation of capital over time. Indeed, he never renounced showing the links between the capital theory and monetary economics.1 Hayek rejected the quantity theoretic approach to monetary theory since it neglects those changes in the structure of relative prices caused by monetary changes and the consequent misallocation of resources. What is important is the interpretation of relative prices by entrepreneurs. In the context of an expansionary monetary policy, the interpretation of changing relative prices is likely to lead to mistaken investments. Concurrent with his rejection of aggregate goals of monetary policy, he considers the rate of interest an inappropriate policy tool since it should be determined by the market, in competitive banking conditions, as close as possible to the balance of savings and investment. His monetary theory raises a far-reaching debate on the role of the government in monetary management and the effects of alternative policies in regulating money. The fundamental problem in economics, for Hayek, is that of coordinating the plans of many independent individuals. The main advantage of the competitive market order is that rational individuals respond to price signals that convey the relevant information available in the markets, for the purpose of economic calculus. In his view, competition, through the price market system, leads to such coordination. He proposed the redefinition of the state´s legitimacy and stressed the need to defeat the growing state intrusion in a democratic context. Besides, he privileged the analysis of the values that shape the interrelations of individuals in a free society, such as the inviolability of human beings, individual freedom and justice. Hayek stated that employment and price stability are not necessarily in conflict. However, priority should be addressed to monetary stability. Aware of the price stability challenges, he strongly highlighted the dangers that arise from monetary financing of public debt. He recommended the dissolution of “the unholy marriage” between the monetary and the fiscal policy that, in his opinion, had formally consecrated the victory of ‘Keynesian’ economics after the Second World War (Madi 2015). Moreover, in the context of the Bretton Woods period, his critique of the Keynesian recommendations to promote the expansion of aggregate

 1

His 1939 essay "Profits, Interest and Investment", and his 1942 essay "The Ricardo Effect" included the basics of his monetary theory.

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demand focuses on erroneous beliefs that do not respect the free economic order. Indeed, Hayek condemned the Keynesian argument that government deficits can reduce unemployment. In his view, as we already highlighted, priority should be given to monetary stability. A stable price level is, in principle, of central importance in ensuring that the three famous microeconomic functions which money provides are allowed to operate with maximum efficiency. Aware of the price stability challenges, he strongly emphasized the dangers that arise from monetary financing of public spending in order to overcome unemployment. In other words, the Austrian economist did not believe that anti-cyclical government spending could mitigate any slackening of economic activity. Instead, in his opinion, what the Keynesian policy produces is a distribution of employment which can only be maintained for some time by a rate of inflation which would rapidly lead to a disorganization of all economic activity. As a matter of fact, Hayek focused his attention on the role of new flows of money on the structure of relative prices and the consequent misallocation of resources. In particular, his concern relies on the misdirection of investments. For Hayek, it is highly undesirable in any circumstances that funds for government spending should be provided by the creation of additional money. On behalf of the government monopoly of money, central banks accommodate the financial 'needs' of government by keeping the interest rates low and, as a result central banks give their policies an inflationist bias. However, in his view, the use of money supply as an instrument for achieving particular ends turns out to destroy the equilibrating operation of the price mechanism and provoke major business fluctuations in a context of “unlimited democracy” in which government has the power to confer special material benefits on selected groups. As of the 1970s, in the book Denationalisation of Money - the Argument Refined, Hayek clearly expressed his discontent with the history of the government management of money, mainly because of the orientation of Keynesian ministers of finance. […] Ministers of finance were told by economists that running a deficit was a meritorious act, and even that, so long as there were unemployed resources, extra government expenditure cost the people nothing, any effective bar to a rapid increase in government expenditure was destroyed (Hayek 1976, 118).

Indeed, his defence of complete privatization of the money supply stemmed from his disappointment with central banks’ management that

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had been greatly influenced by politics. In his view, political interference over monetary policy is incompatible with social cohesion. Considering the abuse of power, he suggested depriving not only the government monopoly of issuing fiat money but also the government power of making any money 'legal tender' for all existing debts. Hayek advocated the complete privatisation of money supply, as revealed by the views expressed in The Constitution of Liberty, in the 1960s, and those views presented in Denationalisation of Money, as of the 1970s. In short, there is a conflict between the two goals of economic policy: budgetary monetary financing and the regulation of a stable currency. Major inflations are caused by monetary expansion oriented to face the financial needs of governments. Therefore, the popularity of Keynesian economics is founded on a wrong understanding of the functioning of the market economy. It is highly undesirable in any circumstances that funds for government spending should be provided by the creation of additional money. The process of budgetary monetary financing is a self-accelerating process since this style of finance (the Keynesian style) turns out to create new expectations of further inflation. And he emphatically warned: If we are to preserve a functioning market economy (and with it individual freedom), nothing can be more urgent than that we dissolve the unholy marriage between monetary and fiscal policy, long clandestine but formally consecrated with the victory of 'Keynesian' economics (Hayek 1976, 117).

The use of money supply as an instrument for achieving particular ends turns out to destroy the equilibrating operation of the price mechanism and provoke major business fluctuations in a context of “unlimited democracy” in which government has the power to confer special material benefits on groups. Hayek noted that the process of budgetary monetary financing is a self-accelerating process since this style of finance (the Keynesian style) turns out to create new expectations of further bounty. In his words: “One (process) which even men who genuinely wish to avoid it find it impossible to stop” (Hayek 1976, 119). The Austrian economist aimed to rebuild the foundations of constitutional governments to face the contemporary institutional decay in modern societies. As of the 1970s, in the book Denationalisation of Money, Hayek proposed the abolition of the government monopoly over the issue of fiat money in order to prevent price instability. In fact, his defence of the complete privatization of money supply was founded on his disappointment with central banks’ management that, in his opinion, had been highly influenced by party politics. Expressing concerns about the

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fragile contemporary institutional set up where government’s actions have deep deleterious effects on social cohesion, the Austrian economist pointed out that political interference over monetary policy and price stability are inherently incompatible. Hayek’s proposal of institutional reform relied on the denationalisation of money in the context of a free market monetary regime. When in equilibrium, the competitive market forces determine the free-floating exchange rates between competing bank currencies. In this settlement, only bank currencies guarantee that a stable purchasing power will survive. In the 1974 Nobel Prize speech, The Pretense of Knowledge, Hayek argued that the Keynesian recommendations to cure unemployment turn out to create patterns of resource employment that cannot be maintained without price instability and the disorganization of economic activity. He emphatically condemned the mistakes of Keynesian policies. As of the 1970s, the Austrian economist stressed that political interference over monetary policy is incompatible with economic freedom. Aware of the overall transformations after the Second World War, he identified the contemporary threats to individual freedom. Assessing the practical superiority of the free market dynamics over governments’ discretionary interventions, Hayek believed that no government can know enough to effectively plan the future path of the economy and society. Moreover, central banks do not have the relevant information to correctly manage the money supply. As a result, central banks have disturbed the competitive mechanism of the market. His concern about the tendency of unlimited governments to grow indefinitely relies on the threat to the future of capitalist civilization. The ultimate objective of the denationalisation of money advocated by Hayek was related to monetary policy independence from political interference. The basic idea is that the possibility of banks issuing different currencies would open the way to market competition. Banks could issue non-interest-bearing certificates and deposit accounts on the basis of their own distinct registered trade mark and the currencies of different banks would be traded at variable exchange rates. In Denationalisation of Money, Hayek underlines that the main advantage of the economic order is that prices will convey to the individuals the relevant information to make decisions to adjust their activities in face of the competition of currencies. Hayek stressed that there are four kinds of uses of money that would chiefly affect the choice among available kinds of currency: i) for cash purchases of commodities and services, ii) for holding reserves for future needs; iii) in contracts for deferred payments, and iv) as a unit of account, especially in keeping

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books. He was critical of the mistake of thinking on different 'functions' of money instead of ‘uses’. In his opinion, these “uses” are, in effect, consequences of the basic function of money as a medium of exchange. Only in exceptional conditions, such as a rapid depreciation of the medium of exchange, can these ‘uses’, which are otherwise interdependent, come to be separated from the function of money as a medium of exchange. In these conditions, the stability of the value of money as a unit of account is the most desirable of all the uses (Hayek 1976, 67). Competition and profit maximisation would lead to market equilibrium where only the banks that pay a competitive return on liabilities to their clients could survive. Since currency corresponds to non-interest-bearing certificates, the crucial requirement is the maintenance of the value of the currency. Within Hayek's theoretical framework, the market forces would determine the relative values of the different competing currencies. In other words, the exchange rates between the competing currencies would float freely. So, in equilibrium, only currencies guaranteeing a stable purchasing power would exist. People would not want to hold on to the currency of an issuer that was expected to depreciate relative to one that was expected to hold its value in terms of purchasing power over goods and services. The marginal costs of producing and issuing a currency (notes and coin) are rather low (close to zero) and the nominal rate of interest would be driven (close) to zero. Banks that failed to build up stability for the value of their currencies would lose customers and be driven out of financial business. Therefore, in the long run, a successful choice between alternative currencies depends on the stability of the value of the currency in terms of commodities. Aware that some prices always change on a free market, in Denationalisation of Money, Hayek proposed the idea of setting a standard set of wholesale prices of commodities as the standard of value in which people would prefer to have their currencies kept constant. As a result, currencies whose value was based on that standard might fluctuate relatively more against others (Hayek 1976, 76). In other words, it would be the decisive factor that would create a general standard for a value stable in terms of commodities since this feature would make realistic economic calculation effective, or would even make capital and cost accounting possible. Despite the rejection of Friedman’s monetary rule, Hayek said he was in complete agreement with Friedman on the inevitability of inflation in the existing political and financial institutions. For Hayek, money is not a tool of policy that can achieve particular foreseeable results by control of its quantity. Indeed, Hayek rejects Professor Friedman's proposal of a

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legal limit on the rate at which the central bank, as the monopolistic issuer of money, was to be allowed to increase the quantity in circulation in order to maintain price stability. The Austrian economist underlined that a stable price level and a high and stable level of employment neither require a constant total quantity of money nor changes of the total quantity of money at a constant rate. Indeed, only the market can discover this 'optimal quantity of money' that can be provided only “by selling and buying at a fixed price the collection of commodities the aggregate price of which we wish to keep stable” (Hayek 1976, 81). Indeed, he also deeply rejected Friedman's proposal about monetary management. It is worth noting that Hayek was internationalist in outlook. His contributions to international economics are focused on the problems of the monetary standard because of his concern that governments may abuse their power over the management of the money supply to attain short-term policy goals. His ideas enhance the expansion of an international system of " 'free banking' where banks rely on their own reserves and have the right to issue money. In his view, bank currencies must be left free as well as the exchange rates between bank currencies. In fact, in the late 1970s, he was expecting that the spread of free banking would take the form of a stabilizing mechanism founded on some price index whose composition would be determined by several banks. Years later, he suggested that freely created money would probably involve pegging the price of some commodity or group of commodities even if this was not a legal requirement. Therefore, the process of market competition would encourage banks to keep constant the value of their currencies in terms of some commodity or basket of commodities. In this scenario, Hayek recommended that the function of the central banks as lender of last resort should be abolished since it is considered to be a source of market instability in the 20th century. In short, Hayek underlined that, without radical changes in the political and institutional framework, the inflationary process will lead to the destruction of the capitalist civilization. Indeed, his proposal concerning money is part of a much more far-reaching reform agenda (Caldwell 2003). He proposed two distinct although complementary reforms in the economic and the political order: the proposal of the monetary system may be possible only with a limited government and a limitation of government may require the end of its monopoly of issuing money.

CHAPTER EIGHT KEYNES AND HAYEK: SEMIOTIC TRAJECTORIES

The ongoing debate The contributions of F.A. Hayek and J. M Keynes to the epistemology of economics suggests that, at their times, they both showed dissatisfaction with the methodology of economics and its approach to human behaviour and decision-making. Their inquiry into the complexity of economic problems brought into question the boundaries of economics and the relevance of philosophy. In this attempt, they were aware of the multiple interactions within economic relations and they both rejected a verificationist standpoint. Both thinkers highlighted the cultural dimensions of social life and focused on the changes in the system of beliefs in the flow of time. The picture that emerges from the current analysis is that of two inquirers who, disappointed with the results of the mode of theorizing Economics, enhanced new modes of thinking. Under a semiotic approach to economics, all perception, cognition, information, knowledge, and thought itself happen through the mediating action of signs, a process he called “semiosis.” This book proposed a new look at the works of J. M. Keynes and F. A. Hayek considering the semiotic trajectories of these two contemporary authors that decisively contributed to the renewal of the theoretical premises and policy practices of the political economy in the 20th century. Both were concerned about the boundaries of Economics as an autonomous discipline, its connection with the understanding of modern society, the evolution and the philosophical foundations of capitalism. While Keynes saw the economy as a mechanism to be decoded and controlled, he believed that cultural refinement and technical progress could be mutually reinforcing. For Hayek, the economy should be left to its own self-organizing dynamics. Indeed, Keynes and Hayek provide two answers to the challenges of the capitalist system in the last century. One answer is that markets are understood as information-processing machines that cannot be designed by human beings but are influenced by rules and institutions. Keynes, on the

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other hand, believed that engineering economists can design markets, to find ways of designing markets differently. Beyond markets, there is an entrepreneurial economy which depends on credit and which is historically shaped by different kinds of money. The fundamental difference between Hayek and Keynes is that for the former the capitalist competitive market is a process of spontaneous selection, whereas for the latter the capitalist market can be socially designed and built. In Hayek´s view the exchange relations involve an information-communication process that is an unintentional creation of the functioning of the market. In Keynes´s perspective, the relations of exchange are created by design. While the process of discovery related to competitive markets can cope with Hayek´s problem of limited and dispersed knowledge, Keynes considered it necessary to shape institutions that are able to regulate human behaviour. According to the British economist, the representations that people make are based on conventions that are habit oriented. Indeed, throughout their long and productive intellectual careers. Hayek and Keynes developed a number of core insights into the nature of social and political reality. From differentiated perspectives, two major interpretations stand out very clearly: Keynes's overall picture of possibilities of capitalist social design, and Hayek's verdict against social engineering. It is on the basis of The General Theory that Keynes built a picture of "managerial capitalism". His superior insight into the functioning of a monetary theory of production enabled him to develop a policy-making framework to promote the further expansionary potential of capitalism. In Keynes´s picture of the flaws of the market economy it becomes evident that non–economic factors should be considered to address the challenges of the capitalist civilization. On the other hand, Hayek's assertion of the failures of a centrally planned economy is based on his understanding of now the dispersed knowledge is articulated in the discovery process of competition within the capitalist market. In his approach, non-economic factors also play a relevant role in supporting his thesis about the threat of government interventions on individual freedom and the destruction of the market order. Despite their different world views and approaches to economics, Keynes and Hayek wanted to reconsider: • •

the proper dimensions of economic relations, the formulation of cognitive and behavioural theories of economic agents in the markets,

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the conceptualization of rationality as a priori norm and of equilibrium in markets, the epistemic foundations of the understanding of social and economic phenomena in the flow of time, the connection between the theoretical complexity of economic relations and the policy making challenges, the effects of the 1930 Great Depression on the outcomes of liberal capitalism and the problem of institutional change.

Indeed, the trajectories of Keynes and Hayek call for a reflection on the lessons for economic analysis and policy-making. Both of them brought into question the economic research of their time and its impact on the practical analysis of economic policy. Keynes and Hayek examined the shortcomings of analytical models, questioned traditional ideas and methods. They both solicited input from social sciences such as psychology, philosophy and history to enrich the policy discussions. Both authors proposed epistemological changes, from a non-reductionist perspective, and opened up new perspectives to re-think the problem of economic change, the challenges to evolution and the political dimension of this process.

Semiosis, interpretations and representations Different interpretations and representations about money and prices will be considered in this chapter. Interpretation and representation are crucial actions of the human condition. Under the Peircean semiotic approach, our understanding of the world is not a direct sensory one, but it is mediated by signs. The signs have meanings and become a source of knowledge about the world, while the resulting knowledge-making activity is known as representation and plays a relevant role in the cognitive process. The contributions of Keynes and Hayek put in question the relevance of the meanings of the main signs for decision-making in the capitalist system. In this sense, the challenge for a semiotic approach here will be to establish the connections between these signs and the system of signs that refer to their theories. In a semiotic approach to economics, prices and money are signs within different representations of the sign systems. According to Hayek, the market process provides relevant information to decisions that enhances economic growth. Without this knowledge, market coordination will not happen. With this perspective governments distort market prices, and therefore, distort the process of decision-making and capital allocation. To Keynes, no market coordination can guarantee a

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level of aggregate spending that is compatible with full employment. As the dynamics of the capitalist market is unstable, that is to say, its performance involves booms and busts, governments can manage aggregate demand through policy tools to stabilize the levels of output and employment. How to understand the economic relations in the capitalist market as a system of signs? Hayek and Keynes moved beyond economics to address questions regarding the foundation of all social sciences. They elaborated important ideas of methodological dualism: one approach to the hard sciences and another for the social sciences. They defended the epistemological status of the economic propositions and faced the problem of realism and determinism. Overall, their conceptualization about the capitalist market is articulated with their approach to social philosophy. Regarding economic knowledge, their scientific theories, with their own principles and rules, are systems of signs that guide the interpretation of the economic phenomena. Keynes and Hayek thought systemically about problems of the capitalist markets and considered the boundaries of the economic nature of these problems. In line with the Peircean perspective, Keynes and Hayek believe that universal laws fail to explain the capitalist dynamics. In accordance with a semiotic perspective, their contributions highlight that new signs are produced in the relationship of human actions and the material world. Second, the capitalist market is a combination of the material properties and the social meaning of signs influenced by changing cultural contexts. It is undeniable that the attempt of Keynes and Hayek to explain the cognitive process of acquiring scientific knowledge is part of a communicative social activity. Indeed, the link between the acquisition of knowledge and the social process of communication occurs in a specific context. In this respect, both thinkers considered the deep interrelations between the role of logical inference and the analysis of signs in the development of economic knowledge. Among the class of phenomena that function as signs, Keynes and Hayek, respectively, highlighted money and prices. While working in economics as a specific field of knowledge, the adoption of a semiotic perspective attempts to make explicit the signs that are rooted in a set of cultural norms and conventions. Their approach to economic knowledge does not rely on the dichotomy of object-subject. To Peirce (1995), human knowledge about reality is acquired through an inferential process in which signs and their objects are related. Human beings are always in the

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process of signifying what they perceived through the communication of signs in a semiotic process. According to their realistic approaches, reality is not confined to the universe of existent objects, habits, social norms or cultural conventions, but reality also includes the principle of change. Indeed, both thinkers question the foundations of necessary reasoning – attached to the neoclassical theory in economics since Walras. From the point of view of economic relations, Keynes and Hayek understood that the adoption of necessary reasoning in economics rejects the dialogue with reality. Such necessary reasoning would not take into account a realism that would affirm the general nature of the possibilities of the object, which in turn would shape the nature of economic theories to be adopted. Given the nature of the complex object of economics as a science, which exhibits an immense multiplicity of variables and is subject to a high degree of accidentalities, coincidences cannot be taken as causalities. In this sense, a deterministic approach does not seem to account for economic phenomena. In the context of this dispute over axioms and foundations of scientific thinking in the 20th century, Keynes and Hayek bring into question the role of causality as the traditional pillar of metaphysics. Indeed, they challenged the idea that the past determines exactly what will happen in the future. This conceptualization of time rejects a deterministic view of economic phenomena since there are accidental relations and 'irregularities' in realworld relations that need to be included in economic theories. Moreover, in the attempt to consider the boundaries of the complex nature of economic problems, they both re-build the foundations of different approaches to economic knowledge. It is undoubtedly that their scientific theories can be considered as systems of signs that guide, in different ways, the interpretation of the economic phenomena and the policy agenda.

Semiotic mediations, time and change The global financial crisis of 2008 called into question the assumptions of neoclassical theory and revived the debate over the credentials of economics as a predictive science. However, even after the crisis denounced the distance between reality and mainstream economic theory, the economists of this dominant perspective have insisted on the validity of ergodic axioms for the elaboration of new deterministic models. Although economics as a modern science turned out to be an autonomous field of knowledge in the 18th century, the presence of

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determinism as the ontological presupposition about economic and social reality has continued to be observed right up until the present day. Causal explanations, in the Humean sense as a constant conjunction view of causation, are nowadays inappropriate to the study of the open-ended process of economic change. Instead, a semiotic approach, that rejects the determinism of natural laws and the primacy of the Newtonian time, abandons the conceptualization of absolute laws since real economic relations cannot be understood in a strict sequence of cause and effect. The contributions of Keynes and Hayek on the changing nature of economic relations enhance the relevance of the conceptualization of business cycles in a world view where the beliefs are viewed as key drivers of change. Assessing that the appropriate place of semiotics in a realist philosophy of economics requires the consideration of how signs can play an important role in enhancing different economic decisions. The point to remember about the semiosis is that it is a non-linear process that enhances an active process of informational transformation. Peirce maintained that what we know is based on what we believe that is nurtured by information. As the American philosopher adds, belief is a habit of mind that endures until it meets with some surprise that begins its dissolution. In accordance with the Peircean legacy, Keynes and Hayek rejected the Cartesian rationalism focused on the cogito. Instead, they proposed an understanding of human beings as social ones that are influenced by the contexts to which they belong. As a result, both economists avoid a pure rationalist approach to the theory of knowledge and also favoured the role of perception and emotion in the cultural and social process of "mediation". What Keynes and Hayek enhance an understanding of human thinking, decision–making and actions as complex processes. That is why we consider that their contributions are in line with a semiotic thinking which refers to systems of thought made up of a dynamic set of interacting components that continuously produce feedback in the flow of time. Moreover, as Peirce highlighted, thoughts are interposed between feelings and actions. The role of mediation, characteristic of the cognitive process, is to know the objects of the world of appearances. As a cognitive experience, Thirdness refers to habits, that is to say, to the regular patterns of economic phenomena Recalling the main questions at stake: In what sense does human behaviour refer to representational competencies? What is the role of the knowledge of the symbol systems? Keynes and Hayek were aware of the functions of signs regarding the construction of relevant economic representations. Against the homo

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economicus, they both stressed that economic agents are surrounded by signs in everyday life, and both thinkers develop ideas that consider the cognitive processes that affect behavioural change in social life. Understanding which signs influence behaviour is a critical first step. In accordance with Peircean semiotics, both thinkers and Hayek understand that the cognitive process is based on a relational view of reality, in which temporality indicates the presence of time relations, the irreversibility of time and the forward-looking nature of the cognitive process. In this sense, both thinkers present an evolutionary approach to economics. The need to overcome the economic vision centred on rational homo economicus enhances a more fruitful understanding of the role of rationality and human behaviour concerning real-world complexities. Regarding economics, the semiotic actor is immersed in a context, the external world surrounding him, where he is able to get information. Economic representations frequently fail to acknowledge how the cultural nature of norms provides institutions with normativity; how emotions can affect individuals’ actions; and how changing beliefs can be drivers of social change. Indeed, Keynes´s ideas may shed some light on the relation between economic evolution and the set of beliefs. Systems of belief involve an evolutionary process of interpretation of the experience that involves intelligibility and meaning. This semiotic process of thought and representation is ultimately embedded in the real world of experience. In other words, systems of belief are those aspects of reality that human beings use to interpret, communicate and act in an ever-changing environment. While Keynes based his view of the process of belief formation on probable reasoning, Hayek grounded his explanation on a learning evolutionary process where individuals turn out to act rationally. Their real-world views refer to a world of experiences where novelty is always present in the flow of time. This understanding reinforces the importance of formulating economic theories that consider the objects of inquiry in an evolutionary process. Moreover, this perspective has relevant implications for the theoretical approach to prediction in economics. Finally, both thinkers question the traditional emphasis of economic thinking and practice on the predictions about unknown complex future events. Economic thinking is not a linear process that enhances a mechanistic view of the real world, and beliefs can be considered as habits of mind that endure until they meet with some surprise that begins their dissolution. Following Keynes and Hayek, this idea is crucial to a realistic approach to the decision-making process in economics.

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(De) signing the future In the last decades there has been broad recognition that the operation of self-regulated markets has not generated sustainable economic and social development. While the recent global crisis revealed sources of financial fragility, the labour market has become a key variable in macro-economic programs based on austerity. Indeed, considering the different semiotic paths of Hayek and Keynes, the private/public dichotomy is at the core of the understanding of the current interrelations between the nation-states, the markets and society. The main questions at stake are: How do Keynes and Hayek deal with the public/ private dichotomy? What are the political, social and economic implications of their interpretations of public and private as indexical social signs? Acknowledging the flaws of the capitalist markets, Keynes justified the attempt of social (de)sign as government interventions to reduce market instability, to promote growth and job creation. However, Hayek considered government interventions as the most important source of constrained individual liberties in a capitalist economy. The question Hayek faced was how governments could base their actions on economic freedom within liberal democracies that rely on rules aimed at facilitating a peaceful discovery and implementation of the public good. As Mirowski and Nik-Khah (2019) argued, a key difference between classical liberal economists and neoliberal economists is that the latter no longer deem markets to be a spontaneous “order”. Despite Hayek´s recommendations, neoliberals have, since at least the 1980s, been in the business of social (de)sign. Although Keynes and Hayek elaborated different world views, each work can be conceived as a relevant analysis of Western culture after the 1930s that enhances a semiotic analysis of the complexity of the social interactions among individuals and the state in the context of the overall transformations of the Bretton Woods period. Both thinkers call into question the ideas of classical liberalism and the challenges to the role of the technocracies in their attempt to understand the relationship between economics and culture. Indeed, the analysis of their contributions stimulates the discussion about the meaning of monetary policies and regulation in modern societies where markets, power and policy issues are inter-twined at the centre of the current economic and political debates. While Hayek insisted that welfare state policies are, per se, inimical to the classical liberal notion of freedom. And a capitalist market system of social exchange is justified

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primarily because it protects individual freedom, that is to say, freedom for the life of every human being as an individual. This system, its advocates claim, achieves the complex task of production and distribution through a process of voluntary exchanges and coordination is effectively achieved without coercion. Hayek attacked the economics of Keynes and the Keynesians. Considering the relevance of the role of policy design in building the institutional set up for social and economic change, a semiotic approach helps in understanding the close connections between power relations and policy design. Power relations involve a sign process that refers to a social phenomenon that shapes human relations. However, the contributions of Keynes and Hayek made clear that the conceptualization of the “social” depends on the ideological background, and this definition in turn has implications in the economic policy recommendations. That is why their ideas foster an ongoing dialogue about the role of policy design and the delivery of public services. After the Second World War, the discourse of modernity and development managed to generate a symbolic order, focused on concepts such as state-nation and territory. Under a semiotic perspective this process gave rise to different relations between the public and the private regarding the processes of reproduction and changes of social codes. Susan Gal (2002) argues that when the public/private distinction is studied as a communicative phenomenon, i.e. as a result of semiotic processes, it reveals the complexity of the creation of different specific public and private meanings in different historical periods and social structures. In a semiotic framework, the cultural differences in the meaning between the categories of public and private as distinctive institutions or practices result from socio-historical processes. However, the categories of public and private are signs overwhelmed by ideologies that have political, social and economic implications. Indeed the distinction of public and private is constitutive of liberal political thought, where private and public are separate spheres with opposed interests. At the centre of the controversies about the dichotomy of private and public in economic thinking, there are semiotic interconnections between liberal democracies, the public good, and the private interest. Following Gal (2002), we can say that the debate between Keynes and Hayek is basically a debate between two systems: the market system and the budget system.

CONCLUSION TOWARDS AN EPISTEMOLOGY OF COMPLEXITY IN ECONOMICS    The ideas developed in the book aim at the understanding of the nature of the semiotic processes of interpretation, meaning and communication within economic research. These final considerations do not wonder who was right and who was wrong by comparing predictions with actual outcomes. However, by evaluating their analytical arguments and assumptions we might be able to draw conclusions with regard to the relevance of theoretical approaches towards the construction of an approach to complexity in Economics. Recognising the complexity of economic relations implies that greater attention should be paid to social interactions, unintended consequences, and decisions under uncertainty. In fact, both Keynes and Hayek refuted the epistemic approach related to logical positivism. They also call into question the role of evidence in economics since the “data” rarely applies to social phenomena. Indeed, many social phenomena cannot be evaluated by “verification” because of their complex nature that relies on interconnectedness, complex causality chains and change. Social complex phenomena are also a function of people's beliefs, implementation of rules or the emergence of cultural artefacts.

The roots to complexity From a realistic point of view, regular patterns and changes overwhelmed economic relations. In this respect, Peirce's ontological categories reproduce these principles very well, namely, Firstness (chance), Secondness (existence), and Thirdness (law). On the one hand, in economic relations, there is factual diversity, and, on the other, there are relations of order among phenomena. This approach has relevant implications for the treatment of time and decision-making in Economics. In Peirce's philosophy, there is no real time without the reality of the law, that is, the objectivity of time requires a certain form of regularity.

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However, uncertainty is a key issue in Economics given that its objects of inquiry cannot be treated as a crystallized but evolving reality. Thus, the development of the ontological connections that adequately underpin uncertainty as a logical category relies on the understanding of uncertainty as an essential component of the reality of economic relations. An important implication is that the uncertainty in decision-making is not only epistemological, but rather ontological. Let us remember Peirce's words: Remark, reader, at this point, that Chance, whether it be absolute or not, is not the mere creature of our ignorance. It is that diversity and variety of things and events which law does not prevent. Such is that real Chance upon which the kinetical theory of gases, and the doctrines of political economy, depend (CP 6.612).

In fact, as Peirce points out that the process of change gives rise to discontinuities between the past and the future that add some degree of indeterminacy to the evolution of economic relations. The changes in the environment and behaviour in time, which is irreversible, points to a certain degree of indeterminacy of the economic phenomena where patterns of behaviour are time-varying and interrelated within an economic, social and political context. Such indeterminacy renders innocuous the procedure often used by economists who build and use economic models where both ontological indeterminism and epistemological indeterminism are not considered. The cohabitation of regular patterns and changes in economic relations has relevant implications for a realistic theory of decision-making and actions in an evolutionary approach. Within a semiotic approach, general representation, mediation, thought, synthesis and cognition involve the flow of time (CP 7.527). The role of mediation, characteristic of the cognitive process, is to know the objects of the world of appearances. As a cognitive experience, Thirdness refers to habit, law, regularities present in the inner world of the phenomenon. The generality of Thirdness involves the representation of individuals, that is, the insertion of facts into the universe of intelligibility that presents a dynamic of evolutionary learning through time (Ibri 2017). Besides, the cohabitation of regular patterns and changes in economic relations also has important implications regarding a fallibilist epistemology of economics. In fact, any theoreticalmethodological approach should be based on an ontology that is essentially related to it. Although the ontology, in fact, subordinates the theoretical-methodological approach, the two plans of investigation are simultaneous and interrelated.

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In the context of this philosophical thought, fallibilism is the doctrine that asserts that our knowledge is never absolute. The acceptance of a certain degree of indeterminacy in economic relations reinforces the importance of formulating an economic theory that considers its object in a dynamic and evolutionary process. In this way, the attributes of an economic theory founded on a semiotic approach enable a dialogue between this theory and the complex phenomena that it intends to explain. Regular patterns and changes in economic relations are ways of being that would interweave, thus, the reality of the objects of research in Economics. Such objects cannot be treated as a crystallized reality as they are in a state of permanent evolution. Therefore, the world of experience is considered in the reflection about the ontological indeterminacy of the objects of inquiry of Economics that would condition, through its own nature, the possible structure of a realistic theory that considers the dynamism of economic relations. In this context, the ontological substrate of the epistemological fallibilism considers: x x x

The understanding of chance and change as real ingredients of the facts of experience; The inter-weaving of regular patterns of economic phenomena and of changes in the context of an evolutionary perspective; The effects of the passage of time.

From the scientific point of view, the representation of reality is defined by embodiments of a semiotic process of inference and interpretation (CP 1.141). Peirce argues that it is on the basis of the regularity in the behaviour of objects that we can construct concepts. Thus, to construct concepts we must point out the complexity of actual economic relations through a semiotic process of mediation (CP 1.328). According to Edgard Morin, complex thinking is not the opposite of simplified thinking, but it rejects specialization and reductionism in science. It involves the interpretation of economic relations with a systemic approach while reconsidering the boundaries between economics and other disciplines. Both were aware that the study of the economic relations could benefit from insights from other scientific disciplines and the dilution of disciplinary boundaries. In Hayek, his concept of spontaneous order is analogous to conceptualizations currently found in theories of complexity, such as an emergent order, self-organizing system. In the 1980s, a group of scientists created the Santa Fe Institute to foster the development of the science of complex systems, namely

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complexity science. According to John Holland, complex systems are constituted by many different parts that interact in various ways. Their relations follow nonlinear relationship between the local system components and the aggregate patterns. Moreover, the aggregate of the parts does not equal the sum of their characteristics or actions. Michel Waldrop´s book Complexity: the Emerging Science at the Edge of Order and Chaos notes that complexity theory proposes that selforganization is a natural property of non-linear systems where there is uncertainty. He argues that in complex systems there is the spontaneous emergence of an order, without the need to resort to any external force to give rise to it or explain it. Such complex systems are self-organized since their elements spontaneously organize themselves as a result of a living process of adaptation, reaction, and innovation. Thus, complexity can be considered as the science that seeks to understand, from an evolutionary perspective, the characteristics of the interactive process between independent agents where there is cooperation and competition at the biological, economic, social and political levels. Both the natural world and human societies are understood as complex adaptive systems that share certain crucial properties. For Waldrop, such complex systems somehow find a way to balance order and chaos since there is a permanent tension between stability and change. Complex adaptive systems are those with multiple independent elements that adapt or react to the pattern of behaviour created by their elements. According to his analysis, the first key issue to consider is the lack of homogeneity between the elements of the system that differ in terms of the characterization of agents (attributes, rules of behaviour, cognitive rules, strategies, learning capacity) and the environment where patterns of interaction occur. The second key issue refers to conceptualization of the adaptive nature of an agent’s behaviour in interaction with their environment. Other key issues are related to the property of novelty (change) and the concept of ‘emergence’ that describes how macro-level properties emerge from local dynamics while the sum is different from the system's parts. From an epistemological point of view, it is noteworthy that the Santa Fe Institute's conception of science emphasizes that scientific thinking refers to the ability to interpret, understand and explain (Waldrop 1992, 255). On the other hand, complexity theory highlights the conceptualization of an epistemology that questions the boundaries between the social and natural sciences.

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The ontological and epistemic interconnections Here it is not possible to sketch the main lines of Peirce´s philosophical system in detail. I will only attempt to review a few Peircean conceptions relevant to our discussion. In the Peircean philosophical system, the categories are both phenomenological and ontological. Prima facie, the intention of his analysis of the three categories is to inventory reality. Peirce holds that 'metaphysics is founded in phenomenology but goes beyond it'; or, as he states, the 'list of categories' is applicable to the modes of being (CP 1.300). His categories reproduce the real principles of the mode of being very well, namely, Firstness (chance), Secondness (existence), and Thirdness (law). Following the contributions of the Scholastics, Peirce reserves the term existence for the mode of being of actual objects. Influenced by Duns Scotus, the American philosopher adopts the scholastic concept of reality: an object that has permanence is something real and exists independently of the thought that represents it. Moreover, reality involves alterity, that is, it involves reaction as pure Secondness. However, Peirce's conception of reality cannot be confined to Secondness. The real mode of Chance ordains a general pattern of events, which no amount of individual variation can disrupt. For Peirce, Chance falls under the category of Firstness (CP 6.32). It is pure possibility and, therefore, unconditional. The reality of absolute Chance contradicts the doctrine of necessitarianism by denying the universality of deterministic laws, that is to say, the idea that all events are governed by absolute laws (Hacking 1990, 69). According to Peirce, the ontological principle of Law (real Thirdness) relates to necessary determining constraints while the principle of Chance refers to the absence of them. Thus, from the metaphysical point of view, Chance and Law, as modes of being that intertwine the reality of the world that appears to us, are potentially expressed as necessity and possibility. In the context of the doctrine of tychism (CP 6.602), Peirce claims that although laws require explanations, possibilities do not. Peirce conceived a world in transformation where Laws are simultaneously evolving besides the permanent action of Chance. Chance as an ontological principle is a way of being linked to diversity, irregularity and asymmetry that are immediately present in the facts of experience. The principle of Chance is central to understanding the ontological indeterminism in Peirce’s metaphysics. In designing a real world where Chance and Law coexist, Peirce was a pioneer in identifying

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the logical place of this cohabitation, respectively, the simultaneous principles of spontaneity and order (CP 1.161). The vector of becoming is a key piece of Peircean realist evolutionism. According to him, real Thirdness, founded on a semiotic process, refers to habits which ontological substrate considers: i) the recognition of Chance as a real feature of experience; ii) the evolutionary interweaving of Chance and Law through time; iv) the concept of time as a continuum; iv) the principle of the continuity of the properties of individuals (their predicates) from the past to the future. The Peircean approach to the infinite semiosis grasp the world of experience as a fabric of possibilities and needs, of feelings, actions and thoughts. Indeed, semiotics, as a science of signification and meaning turns out to shape a new epistemological framework. As already highlighted, Peirce shows how philosophy could benefit by embracing semiotic realism and applying semiotic analysis to philosophical problems (Houser 2016). In fact, semiotics and realism are articulated. While the immediate object relates the object as contained in the sign to which it refers, the dynamic object refers to the object only attainable by collateral experience and which maintains a relation of exteriority with the sign. Under this perspective, the homology between the sign and the dynamic object cannot be contingent. In showing the links between semiotics and realism, Ibri (2017) affirms that the realism of Peirce feeds on regularities based on a phenomenological approach to ensure a homology between the general forms of the signs and the dynamic objects. From the pragmatist point of view, the continuity of such homology over time makes the logical interpreters (and scientific beliefs) efficient guides of conduct. Peirce would agree about the precedence and relevance of an ontological approach to the philosophy of social sciences. In a Peircean perspective, knowledge is oriented to the future. Regarding the evolution of a realistic philosophy of social sciences, we can say that Peirce anticipated some ideas, namely the role of the double face of indeterminism. Indeed, he clarified the role of both ontological and epistemological indeterminism in order to assess the epistemic and ontological unity at the heart of his realistic approach. In fact, the theoretical-methodological approach is based on an ontology that is essentially related to it. Although the ontology, in fact, subordinates the theoretical-methodological approach, the two plans of investigation are simultaneous and interrelated.

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While the world should be lawful in order to be intelligible, in a chaotic universe - with absence of all regularity - knowledge would not be possible. The cohabitation of law and chance has relevant implications for a realistic approach to social sciences where the ontological indeterminism is interrelated with an epistemological indeterminism. In fact, the ontological indeterminism of social relations corresponds to a real-world view that presents accidentalities and is opened to transformation. The presence of chance gives rise to discontinuities between the past and the future that add some degree of indeterminacy to the evolution where patterns of behaviour are complex, time-varying, and interrelated within an economic, social and political context. According to Peirce, general representation, mediation, thought, synthesis and cognition are under the mode of being of the third category and involve the flow of time (CP 7.527). The role of mediation, characteristic of the cognitive process, is to know the objects of the world of appearances. As a cognitive experience, Thirdness refers to habit, law, regularities present in the inner world of the phenomenon. From the scientific point of view, reality is defined by embodiments of a semiotic process of inference and interpretation (CP 1.141). Peirce argues that it is on the basis of the regularity in the behavior of objects that we can construct concepts. Thus, to construct concepts we must find in the factual objects what they have in common through a process of mediation under the third category (CP 1.328). In this way, the realistic theoretical treatment of the objects of inquiry in social sciences must show their dynamics, historical and evolutionary circumstantiality. The theoretical principles must, therefore, be compatible with the inherent properties of the dynamic character of their objects of inquiry as the only possible way of illuminating the central aspects of its semiotic and pragmatist character of the philosophy of social sciences. Moreover, Peirce opposes the triad materialism-monism-determinism that characterizes other philosophies based on Cartesian ideas and proposes a realistic philosophy which is based on the triad materialismmonism-indeterminism. His philosophical indeterminism corresponds to a worldview where the evolution of experiences is not submitted to absolute laws. In this philosophical context, fallibilism is the doctrine that expresses the epistemological aspect of this ontological indeterminism. Fallibilism is the doctrine that addresses that our knowledge is never absolute and, therefore, its acceptance reinforces the relevance of an approach to social sciences within a dynamic, evolutionary and historical process since they cannot be treated as a crystallized reality. Indeed, this line of philosophical development, of a non-deterministic character, involves a phenomenology

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in which the phenomena support the development of knowledge that is mainly forward looking. Under a semiotic and pragmatist approach, the knowledge related to complexity in economics should have a predictive character. In fact, the development of this process of knowledge must converge to a knowledge that has an anticipatory character. According to Peirce, real laws allow to think about the predictive capacity of social sciences since concepts are fed by the regularities of social relations through time. Thus, regarding the philosophy of social sciences, to admit a realistic theory would imply assuming for it a pragmatist nature, that is, a reasonable power of prediction of the future course of social relations. Having considered this background, economic theories are built on representations of economic experiences. However, all representations must pass the test of meeting the otherness of experience. Indeed, reality is a system of relations that imply existence. In other words, reality is revealed in existence as fact, as a phenomenon. Thus, the real is not what we think of it, it is not a creation of the human mind (Ibri 2017). From an ontological point of view, realistic theories are built by constitutive achievements through a process of inference and interpretation. In this attempt, it can be said that the phenomenology of economic relations is a pillar for an ontology of economics in the framework of realistic theories about the behaviour of those economic relations as dynamic and evolutionary objects. In truth, from this ontological point of view, the economic reality has foundations in the phenomenology of economic relations. The real set of economic relations are not strictly causal and governed by a system of laws because the idea of a real world governed by laws is a mere assumption, it’s not real. As a matter of fact, the ontological indeterminism of economic relations corresponds to a world view where the economic facts could present deviations from the so-called economic laws, or even where the world of economic experiences has elements of chance that are responsible for such deviations. In other words, the presence of chance and uncertainty make room for discontinuities between the past and the future that add a certain degree of indeterminacy to the evolution of economic relations. Thus, as the ontological indeterminism makes room for chance as a possibility not regular through time, the principle of chance has relevant implications for a realistic theoretical approach to the study of economic decisions and actions through the flow of time (Ibri 2017). As a result, the acceptance of a certain degree of indeterminacy in economic phenomena reinforces the importance of formulating economic

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theories that consider the changing features of their objects of research in their historical and evolutionary circumstances. In this way, realism in Economics should enhance a dialogue between theories and the complex economic phenomena that they intend to explain. As a result, the principles of economic theories should therefore be compatible with the properties inherent in the dynamic nature of the economic objects, as the only possible way to illuminate central features of the real world. Considering this philosophical background, the ontological and the epistemological approaches to realism in economics are interrelated. While rejecting the fundamental hypothesis of nominalism, ontological realism addresses the problem that economic relations cannot be seized under a Newtonian deterministic world view as if all economic relations were governed by absolute laws. Indeed, uncertainty is a key issue in the ontology of economics since economic relations cannot be treated as crystallized, but in evolution through time. As a result, the concept of uncertainty has deep consequences for developing an epistemology of complexity in Economics that copes with the dynamic and evolving nature of the set of real economic relations.

What do Hayek and Keynes add to our understanding of complexity in economics? What Hayek and Keynes add to our understanding on complexity in economics is that the plurality and heterogeneity of the economic and social world lead to many various combinations of events that can build different trajectories. In the light of this perspective, their goal was to understand the underlying characteristics of regular patterns and the variabilities that could make patterns change over time. That is why, with their interest in business cycles, both Keynes and Hayek rejected the pretence of absolute certainty since real economic relations are not strictly causal and governed by a system of absolute laws. In fact, the ontology indeterminacy of economic relations corresponds to a real-world view where the world of economic experiences that does not present only regularities, Therefore, the principle of ontological indeterminism opens space for change in economic relations, since the emergence of change is not regular in time, and, therefore, it discards any ordered or causal sequence. In short, Hayek and Keynes both experienced and offered relevant contributions to realistic theoretical explanations of the need for an epistemological “turn”.

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More specifically, the book has demonstrated the strength of themes already well-established in the tradition of Keynes and Hayek and that can be associated to complexity such as: • • • •

•

•

Their studies about the capitalist system shed light on non-linearity and patterns of inter-connection. They highlighted the exploratory nature of economic research. Both pay attention to cognition and behaviour in a social context of uncertainties, limited knowledge and bounded rationality. As complex phenomena are difficult to study and monitor through the use of data, both Keynes and Hayek identified the limitations of quantitative models and the difficulty in making predictions. Both of them agree that economic representations are exploratory since the modelling of real-world phenomena cannot be anchored in empirical data. Both authors consider that exploratory models are helpful to understand hypothetical scenarios.

The different semiotic trajectories and theoretical contributions of Keynes and Hayek, reconsidered within a semiotic approach, contribute to a better understanding of the pluralist dimension of complexity in economics. As a result of their different semiotic paths, both thinkers provide innovative perspectives to grasp what complex economic systems are, how they evolve, and how economists should study them. Indeed, they developed powerful approaches by shedding light on how complex social and economic phenomena are. Indeed, both of them studied new phenomena and presented new ideas in the attempt to make a paradigm shift in the social sciences that replace the homo economicus and individualistic explanations. Their treatment of complexity in economics suggests that, besides actors and actions, there are institutions that overwhelmed economic relations that adapt and change in the flow of time. Economic agents react to changes but also create new perceptions of what they want and how to behave in the context they belong to (Cairney 2012). Consequently, the interpretive dimension of complexity aims to understand how agents interpret, adapt to and influence their decision-making environment. Such accounts would recognise the importance of social signs that emerge from the interactions between large numbers of people and institutions. Moreover, both thinkers help us to take the links between the social and natural sciences more seriously in order to question the appropriate methodologies in economics. With the complexity theory there is scope

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for a more meaningful conversation between these sciences. In the attempt to avoid both teleological and deterministic perspectives, their explanations consider the relevance of historical time and of institutions in economic analysis. To sum up, following Keynes and Hayek, a realistic theoretical treatment of the economic phenomena as complex ones must show their dynamics, in addition to the circumstances of their evolutionary development. In this sense, this line of philosophical thought, of a nondeterministic character, involves the understanding of the changing properties of the economic relations. In this sense, the epistemology of complexity stimulates the rethinking of the boundaries of economics as a discipline. In this attempt, the aim is to make theoretical and practical progress toward an interdisciplinary research program where philosophy, semiotics and economics could help building new interpretations, theoretical representations and solutions for overcoming real-world economic and social challenges.

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INDEX

Aesthetics 82 Agent 11, 37-38, 43, 45-46, 49, 52, 57, 71-72, 83, 88, 92, 112, 117, 124, 130 Atomistic 41, 43 Austrian School 35, 41, 92, 102103 Bank(s) 100, 104, 107-109 Central bank(s) 30, 76-77, 80, 84-85, 100, 102-103, 105107, 109 Free banking 102, 109 Bloomsbury Group xi, 53, 78, 79, 82 Böhm-Bawerk, Eugen 39, 71, 84, 102-103 Bureaucracy 82, 88 Business environment 30, 32, 51, 59, 76-77, 79-80, 99, 101 Calculation 24, 46, 53, 63, 86-87, 98, 108 Capitalism xiv, 25, 27, 31, 45, 54, 61, 76-78, 82, 84-85, 87, 97, 101, 111-113 Capitalist 27, 30-31, 78, 107, 109, 112, 114 Economy xii, 14, 23, 25, 29, 53, 78, 80, 83, 97, 98, 100, 118 Flaws 76, 118 Market xii, xiii, xv, 7, 18, 50, 92, 98, 112, 114, 118 Society 14, 83-85 System 13, 17, 26-27, 32-33, 54, 57, 76-77, 84, 88, 99, 111, 113, 130 Carnap, Rudolf 41-42 Carnap Circle 41 Descartes, René 23, 35

Cartesian vii, xiii, 4, 8-9, 12, 35, 72, 116, 127 Cogito 8, 116 Cassirer, Ernst 14 Century 17th 87 18th 65n, 115 19th vii, xiii, 6, 8, 57, 61, 77-78, 89, 97 20th 9, 83, 101, 109, 111, 115 21th viii Causal explanation 18, 36, 40, 66, 116 Chance 6, 7, 8, 55, 121-123, 125128 Principle of chance 5, 125, 128 Change xiv, 5, 10-11, 13-14, 30, 32, 36, 37, 39, 43, 45, 49, 55-58, 60-62, 64-66, 69-71, 75, 77, 7982, 84, 90, 92-93, 95, 97, 99100, 102-104, 109, 111, 113, 115, 116-117, 119, 121-124, 129-130 Civilization 4, 45, 55, 68, 72, 75, 83, 94, 107, 109, 112 Cognition 9, 10, 13, 17, 39, 49, 61, 64, 86, 91, 93, 111, 122, 127, 130 Bias 50 Capabilities 23 Cognitivism 9 Conception 46 Direct knowledge 19 Dispersed knowledge 35-36, 43-44, 46, 62, 69, 71, 91, 92, 95, 102, 112 Experience 54-55, 116, 122, 127 Indirect knowledge 18-20, 44

146 Mind 46 Recognition xiv, 1, 19, 21, 79, 86, 118, 126 Rules 124 Theory 65-67, 112 Common good 86, 96 Community 1, 8, 86, 96 Competition 45, 47, 62-63, 70, 84, 87-89, 92, 104, 107-109, 112, 124 Complexity vii-viii, xv, 13, 19, 45, 63-67, 69, 71, 75, 87, 92-94, 111, 113, 118-119, 121, 123124, 128-131 Conflict 32, 51-52, 76, 79, 102, 104, 106 Consumption 13, 25, 28, 30, 51, 53, 82, 90, 101 Contemporary finance 32, 76 Context-dependent 1, 46, 51, 63, 70, 100 Convention 4-5, 12, 14, 29-30, 32, 49-52, 57-58, 72, 76, 78, 81, 88, 99-101, 112, 114-115 Cultural evolution 45, 65-66, 92 Currency 85, 99, 107-109 Decision-making 2, 17, 27, 29-30, 49-53, 58-61, 63, 79, 83, 111, 113, 116-117, 121-122, 130 Deficit xiv, 105 Spending 103 Depression 25, 77 Great Depression xi, 76, 78-79, 97, 99, 101, 113 Dictatorship 87 Discipline viii, 8, 71, 90, 111, 123, 131 Discovery 19, 21, 36, 38, 42n, 44, 46, 68, 71-72, 94, 112, 118 Econometrics 19 Economics Keynesian 91, 102, 104, 106 Knowledge vii, 14, 23, 33, 88, 114-115 Theory vii-viii, xi, 5, 17-19, 25, 39, 41, 53, 59, 61, 63, 67,

Index 83, 97, 98, 115, 117, 123, 128, 129 Economic policy viii, 75-76, 80, 90, 97, 99-100, 102, 106, 113, 119 Discretionary policy 91, 94, 98, 101, 107 Economic policy viii, 75-76, 80, 90, 97-99, 106, 111, 113, 119 Fiscal policy 81, 97, 98, 102104, 106 Monetary policy 77, 83-85, 91, 97-98, 100, 102-104, 106107, 118 Policy design 75, 76, 119 Effective demand 26-30, 101 Emotions 2, 9, 49-50, 53, 116, 117 Entrepreneurial economy 26, 29, 30, 112 Entrepreneurs 27-31, 33, 51, 59, 103, 104 Epistemology 23, 36, 41-42, 64-65, 111, 121-122, 124, 129, 131 Epistemic 11, 13, 40, 58, 64, 73, 95, 113, 121, 125, 126 Equality 32, 47, 87, 88, 98 Equilibrium 25, 29, 43, 45, 69-72, 77, 102, 107-108 Ethics 24, 53, 68, 78, 82 Existence vii, xiv-xv, 1-2, 6-7, 9, 11, 13, 20-22, 57, 79, 121, 125, 128 Expectations 13, 18, 27-30, 32-33, 50-53, 56, 58-59, 64, 70, 72, 77, 86, 100, 106 Experience vii, 2-4, 10, 12, 14, 17, 19, 20, 23, 38, 39, 42-43, 52, 54-56, 66, 68, 72, 78, 87, 94, 116-117, 122-123, 125-129 World of xii, 1, 10, 12, 17, 40, 61, 117, 123, 126 Exports 30, 57 Explanatory strategy 40-41, 64 Fallibilism 23, 69, 72-73, 123, 127 Fiction 90 Fictional 7

A Philosophical Look at Keynes and Hayek Firstness xvi, 5, 121, 125 Freedom 45-47, 55, 65, 79, 82-83, 85-89, 93, 94, 96, 98, 104, 106107, 112, 118-119 Free market xiv, 25, 47, 77, 85, 8889, 97, 99, 101, 107-108 Economy 25, 95 System 80 Future xv, 4, 6, 11, 23-24, 26-28, 30, 33, 52, 54, 56-60, 66, 76, 78, 81-82, 86, 100-102, 107, 115, 117-118, 122, 126-128 Calculable future 53 Global vii, 80, 97, 99-101, 115, 118 Globalization viii Government xi, xv, 14, 25, 33, 4547, 76-77, 80-89, 91, 93-94, 9698, 101-102, 104-107, 109, 112114, 118 Constitutional governments 83, 85, 106 Spending 103, 105-106 Groups xiii, xv, 31, 54, 66, 90-91, 105-106 Growth 6, 9, 31-33, 44, 46, 77, 80, 83, 86-87, 89, 97-101, 113, 118 Habits 3, 5, 20, 49, 52, 54-56, 60, 63, 72, 94, 112, 115, 116-117, 122, 126-127 Hayek, Friedrich Economic policy 75-76, 80, 8396, 97-98, 102-109 Epistemology of complexity 121, 123, 129-131 Knowledge 35-47 Semiotic process 61-73, 111119 Human behaviour xv, 2, 11, 18, 35, 45, 49-50, 53, 60, 75, 81, 111112, 116-117 Human reason 21, 62, 63, 71n, 7273, 82, 88 Index 60, 109 Indexical signs xvi, 11, 29, 30, 118 Individual(s) xiii, xv, 13-14, 31, 37, 41, 44-47, 49-50, 52, 55, 61, 63,

147

66, 71-72, 75, 77, 81-88, 90, 92, 94, 95-96, 101, 104, 107, 117118, 122, 126 Individual freedom 45, 47, 86, 8788, 96, 98, 104, 106-107, 112, 119 Inflation xiv, 85, 91, 94-95, 105106, 108 Inflationary 84, 94-95, 102-103, 109 Information 4-5, 9, 12, 23, 33, 3637, 43-44, 46-47, 49, 51-52, 6162, 64-65, 67, 71-72, 83-84, 9093, 95, 104, 107, 111-113, 116117 Informational problem 46 Instability 25-26, 30, 32-33, 47, 5253, 60, 99-100 Market 76, 109, 118 Price 85, 102, 106-107 Financial 100 Institution(s) xiv-xv, 13-14, 24, 41, 44-45, 49, 54-56, 62-63, 65-66, 68, 75, 82-85, 92, 94-95, 97100, 102, 108, 111-112, 117, 119, 130-131 Economic 13, 39, 56, 62, 80, 82, 97 Political xiv, 83, 85 Social 50, 55-56, 62-63, 68, 72, 80, 92, 95 Interest rate 25, 29, 77, 84, 100, 102-105 International xi, 28, 77, 79-80, 85, 99-101, 109 Currency 99 Economics 109 Global imbalances 101 Imbalances 99 Liquidity 99 Payment system 80, 109 Trade imbalances 80 Interpretant xiii, 2-3, 5, 10-12, 14, 49 Interpretants xvi, 1, 3, 13, 88

148 Interventions xi, 46, 47, 77-78, 81, 83, 85-88, 90-91, 94-95, 98, 101, 107, 112, 118 Investment 13, 25, 27-33, 51-53, 59, 76-78, 80-81, 84, 90-91, 99105 Jevons, Stanley 25 Keynes, John Maynard Keynesian economics 91, 102, 104, 106 Knowledge 17-33 Human behaviour 49-54, 56-60 Economic policy 75-82, 90-91, 94, 97-107 Semiotics 111-119 Epistemology of complexity 121, 129-131 Knowledge Problem 35, 36-37, 91, 94 Tacit 46, 62-63, 92, 95 Psychology 38 Laplace, Pierre-Simon 8, 21-22 Law(s) 1, 3, 6-7, 12, 36, 43, 47, 55, 61, 68-69, 84, 86-89, 95, 114, 116, 121-122, 125-127, 129 Economic laws 128 Laws of nature 6, 8, 21, 22, 64 Psychological law 53 Rules of Law 63 Lawson, Tony 20, 22 Leibniz, Gottfried Wilhelm 21-22 Liberalism 62, 83-84, 87-88, 92, 118 Classical 46, 62, 75, 86, 118 Liberal 62, 64, 79, 83, 86, 8788, 90, 92, 95, 97-98, 101, 113, 118, 119 Neoliberal 76, 84, 97, 118 Libertarian 83 Libertarianism 86 Logic vii, xiii, 1, 3, 9, 11, 13, 1820, 36, 40, 42, 53, 57, 70, 85, 91 Logical relations 2-3 Long-term Expectations 51 Investment 28, 32

Index Loans 81 Mäki, Uskali 20 Market xii-xv, 7, 13-14, 17-18, 2533, 35, 37-38, 41, 43-47, 49-53, 58, 60, 62, 63-65, 69, 71-72, 7578, 80-81, 83, 85-101, 104, 106109, 111-114, 118-119 Economy 25, 44, 50, 71, 77, 88, 91, 93, 98, 106, 112 Flaws 77, 112 Mechanism 46, 64, 95, 107 Opinions 99 Order 44, 96, 112, 118 Participants 95 Prices 43-44, 47, 62, 83, 87, 95, 98, 113 Signs 35 System 13, 37, 43, 65, 80, 86, 92, 95, 98, 104, 118, 119 Marshall, Alfred xi, 18, 25 Mathematics 4, 5, 70, 71 Measure 8, 24, 28, 35, 51, 54, 58, 78, 97, 99 Measurement 19 Measurable 93 Mechanism 4, 9, 25, 37, 45, 53, 68, 69, 76, 77, 80, 86, 99-100, 105106, 109, 111 Methodology 18, 37, 42, 68, 111 Mill, John Stuart 7 Money xii, 14, 18, 25-27, 29, 3133, 41, 44, 53, 54, 57, 59, 71, 76-78, 81, 84-85, 92, 100, 102109, 112-114 Money as sign xii, 1, 17-18, 2526, 30, 47, 50, 113 Monopoly 45, 84, 89, 105-106, 109 Moore, George xi, 23-24, 53, 57, 78, 82 Natural sciences xv, 9, 13, 19, 24, 38, 93, 124, 130 Newtonian 57, 116, 129 Anti-Newtonian 57 Ontology 5, 8, 22, 65, 122, 126, 128-129

A Philosophical Look at Keynes and Hayek Ontological vii, 8, 20, 22-23, 25, 56, 116, 121-123, 125129 Paradigm 9, 13, 45, 130 Pareto, Wilfredo 18 Past 6, 11, 24, 52, 56-59, 62, 100, 115, 122, 126-128 Pattern 1, 13, 36, 39, 40-41, 43, 6671, 101-102, 107, 116, 121-125 Behaviour 13, 64, 66, 72, 122, 124, 127 Interconnection 130 Regular 122, 129 Phenomena vii, 2-7, 11-12, 15, 17, 22, 24, 30-31, 36, 38-40, 63, 6569, 71, 76, 87, 90, 92, 93, 113116, 121-123, 128-131 Peirce, Charles Sanders vii-viii, xiii-xv, 1-12, 49, 51-55, 55n, 56, 114, 116, 122-123, 125-128 Policy 25, 28, 33, 46, 51, 83-84, 9091, 94-95, 97-106, 108-109, 111-115 Policy design 75-76, 118-119 Policy-making xv, 13, 17-18, 78-80, 98 Politics 78, 82, 85, 91, 97, 106 Popper, Karl 42 Popperian term 66 Pragmatism vii, 9 Present xiv, 11, 24, 29, 39, 5152, 55, 57-59, 61, 76, 100, 116-117, 122, 125, 127-129 Price(s) 25-26, 29-31, 33, 3637, 43-47, 52, 58, 62-63, 6970, 72, 83, 85, 87, 91-92, 95, 98, 102, 104-107, 109, 113-114 Asset 29-30, 100 Instability 85, 102, 106-107 Market 43-44, 47, 62, 83, 87, 95, 98, 113 Price as sign xii, 1, 43-45, 47, 95 Relative price(s) 43, 45, 91, 102-105

149

Signals 45, 83, 104 Stability 85, 91, 102, 104-105, 107, 109 Private 31, 36-37, 45-46, 59, 77, 87, 100, 118-119 Probability 8, 20, 24, 50, 58-59 Production, monetary theory of 26, 29, 59-60, 84, 102-103, 112 Psychological 9, 11, 18, 23, 33, 50, 52-53, 59 Public 31, 35, 51, 79, 95, 102, 119 Debt/deficit xiv, 104 Good(s) 84, 88, 95, 100, 118119 Private/public dichotomy 118119 Services 76, 119 Spending xi, 77, 90, 102, 105 Rational 62-63, 82 Agents 83 Behaviour 36, 51 Belief 58 Bounded rationality 61, 130 Bureaucracies 82, 94 Choice 66 Constructivism 83, 93 Economic order 85, 87, 91-92 Homo economicus 117 Human design 72 Individuals 85, 104 Knowledge 22 Policy making 94 Social control 37 Thought 6 Ramsey, Frank 20 Real xv, 1, 6-7, 12, 26, 28, 39-40, 55, 57, 59, 70, 72, 79, 86, 93, 100-101, 116, 121, 123, 125126, 128 Unrealistic 41, 58, 61 Realist 33,57, 126 Realistic semiotics 12, 35, 4243 Reality vii, xii, 1, 4-8, 10-12, 17, 20-23, 25, 41-42, 54-57,

150 72, 101, 112, 114-117, 121123, 125, 127-128 Realistic 3-4, 8, 12, 17, 23, 25 Realism xii, 3, 5, 20, 22-23, 40, 114-116, 126, 129 Real-world viii, xv, 24, 29, 46, 61, 117, 127, 129-131 Real world vii, 1, 4, 6, 17, 36, 43, 59, 69, 91-92, 117, 125, 128-129 Recession 77 Regulation 25, 28, 88-89, 97-99, 101, 106, 118 Auto-regulation 33 Self-regulation 80, 100 Relations 4, 7, 10, 11, 31-32, 36, 39, 55, 67-70, 81, 88, 100, 103, 112, 115, 117, 119, 128 Accidental 7, 115 Dyadic 11 Economic xiii, xv, 13, 50, 53, 56, 97, 98, 111-116, 121123, 128-131 Human 7, 12, 15, 75, 119 Interrelations xv, 32-33, 56, 61, 68, 70, 83-84, 86, 96-97, 104, 114, 118 Logical 2-3, 58 Power 75, 119 Social 33, 36, 70, 72, 79, 127128 Symbolic xiii, 5 Triadic xiii, 3, 5, 11, 54, 56 Representamen 2, 5, 10-12 Say’s Law 25, 77 Scientism 38, 86, 93, 94 Secondness xvi, 11-12, 121, 125 Self-organization 124 Social sciences vii, xiv-xv, 13, 2021, 24, 36, 38-39, 61, 64, 69, 92-93, 97, 113-114, 126-128, 130 Sufficient reason 21-22 Semiotics vii-viii, xi-xvi, 1-5, 9-15, 17, 26, 43, 53, 56, 68, 75, 88,

Index 97-98, 111, 114, 116-119, 126128, 130-131 Actor 49-50, 60, 63, 117, 130131 Approach vii, xiii, xv-xvi, 4, 8, 13-14, 17, 21, 32, 50, 52, 56, 63, 68, 75, 97, 98, 111, 113, 116, 119, 121, 123, 130 Mediation 13, 115 Paths vii, xii, xv, 49, 118, 130 Process 2, 4-5, 10, 12, 14, 17, 44, 54, 56, 60-61, 64, 71, 95, 115, 117, 119, 121, 123, 126-127 Semiosis xiii, xiv, 3, 10-13, 49, 54-55, 60, 111, 113, 116, 126 Sign, elements of 5, 10, 83 Serfdom 80, 85, 87-89, 92, 94, Short-term 27-28, 31-32, 81, 109 Social Engineering 76, 82, 87, 90-91, 93, 101, 112 Justice 47, 82-83, 87, 89 Normativity 12 Science(s) vii, xiii-xv, 13, 2021, 24, 36-39, 61, 64, 69, 92-93, 97, 113-114, 126128, 130 Turn 9 Wealth 27, 45, 56 Socialization 77, 81 Society xiv-xv, 9, 12-15, 18, 27-28, 31-33, 37, 40, 43, 45-46, 52-55, 63, 65, 67, 69-71, 76, 79-89, 91, 96, 104, 107, 111, 118 Speculation 31-32, 76, 99, 100 Spontaneity 69, 126 Spontaneous order 37, 43-45, 53, 55, 62, 65, 72, 77, 86-90, 92-93, 95, 112, 124, 118, 123 Stability 8, 14, 19, 32, 51-53, 61, 82, 96, 102, 104-105, 108, 124 Market stability 76, 109 Price stability 85, 91, 102, 104105, 107, 109

A Philosophical Look at Keynes and Hayek Financial stability 86, 99 State, nation-state 57, 75, 77-79, 81, 83-84, 86-89, 91, 95, 101, 104, 118-119 Welfare State 46, 95, 98, 118 Symbols xii, xvi, 1, 3, 11, 13, 24, 38, 49, 94, 116 Symbolic xiii-xiv, 14, 119, Systems of belief 54-56, 80, 82, 111, 117 Thirdness xvi, 10-12, 116, 121-122, 125-127 Time 11, 19, 25, 27, 30, 42, 56-58, 61, 65, 69-71, 82, 84, 102-104, 115-117, 121-122, 126-129 Historical 13, 61, 131 Flow 10, 15, 47, 56, 61-62, 65, 72, 100, 111, 113, 116-117, 122, 127-128, 130 Passage 57, 69, 71, 72, 123 Problem of 13, 58, 61 Period 70 Real 61, 65 Reality of 57 Tinbergen, Jan 18, 24

151

Triadic thinking 2 Trust 51 Uncertainty xiv, 26-28, 30, 32, 5053, 56-60, 72, 81, 88, 94, 99101, 121-122, 124, 128-129 Unemployment 25-27, 30, 33, 53, 82, 85, 91, 98, 101-102, 105, 107 Unholy marriage 102, 104, 106 Utilitarianism 24, 88 Value xii, 8, 12-14, 18, 24, 26, 58, 63, 66, 75, 79, 80, 82-83, 86-88, 96, 104 Economic 24, 29, 31, 109 Present 29 Store 26 Money 47, 84, 108-109 Creation 30, 32 Numeral 58, 64, 68-69 Vision 80-82 Waldrop, Michael 124 Walras, Léon 5, 18, 44, 115 Walrasian model 36, 44, 70, 71n, 91 Wicksell, Knut 25