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Two Views on Social Stability: An Unsettled QuestionAuthor(s): Jack Birner and Ragip EgeSource: American Journal of Economics and Sociology, Vol. 58, No. 4 (Oct., 1999), pp. 749-780Published by: American Journal of Economics and Sociology, Inc.Stable URL: http://www.jstor.org/stable/3488006Accessed: 02/11/2010 11:35

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Two Views on Social Stability:

An Unsettled Question

By JACK BIRNER and RAGIP EGE

ABSTRACT. Emil Durkheim published The Division of Labour in Society as part of his strategy to create a place for sociology as a science independent from economics. The book describes how social cohesion and cooperation evolve spontaneously in the course of the process of the division of labour. Friedrich Hayek developed a theory of markets and competition which was later extended into a theory of society, in which spontaneous evolution is a central element. The main force behind this process is competition and the evolution of coordination. Both authors address the problem of social stability. Hayek rejects Durkheim's analysis as construc- tivistic, but his criticism is unjustified. Further analysis reveals many similarities between the two authors' theories of societal evolution. A striking point of convergence is that Hayek's theory of markets is a network theory, and that sociological network theory is directly inspired by Durkheim's work. The main differences are Hayek's emphasis on the division of knowledge and on coordination as the fundamental stabilizing forces as opposed to Durkheim's stress on the division of labour and cooperation. The network approach, together with an elaboration of Hayek's psychology, offer perspectives for integrating coordination and cooperation into a unified theory of social stability.

* Jack Birner is Professor of Economics at Maastricht University and the Labora-

tory of Cognitive Science at the University of Trento. His publications include

Hayek, Co-ordination and Evolution: His Legacy in Philosophy, Politics, Econom-

ics, and the History of Ideas, co-editor with Rudy van Zijp, Routledge, 1994; and

"Cambridge Histories True and False," in C. Marcuzzo, L. Pasinetti and A. Roncaglia

(eds.), The Economics ofJoan Robinson, Routledge, 1996. Ragip Ege is Professor of

Economics at BETA, Universit6 Louis Pasteur, Strasbourg, France. Ege has published articles about Friedrich A. Hayek and Karl Marx in Revue Economique and

Revue dEconomie Politique. Recently he has co-authored with R. dos Santos

Fereira, "Le Temps et la conception du capitalisme chez Marx," in the 1998 volume

of Revue dEconomique Politique.

American Journal of Economics and Sociology, Vol. 58, No. 4 (October, 1999). C 1999 American Journal of Economics and Sociology, Inc.

750 American Journal of Economics and Sociology

Introduction

THE QUIP ABOUT ECONOMISTS showing that something works and sociologists showing why it doesn't is usually passed off as just a joke. But like so many jokes, it contains a kernel of truth. A methodologist might point out that it captures the idea that sociologists think of themselves as offering a more general theory of society than economists do. Tolerant sociologists leave a place for economic explanations where they are applicable and true. At the same time they claim their theories to be more general than economics in that they specify the special conditions under which economic explanations are true, while also providing an explanation of what happens outside the domain of validity of economics. In the Popperian and Polish traditions in the philosophy of science this is known as the correspondence principle.1

Establishing a correspondence relation would be an accurate description of the aim of Emil Durkheim when he published his first book in 1893, La division du travail social [Tbhe division of labour in society]. Its content and method are direct consequences of Durkheim's problem situation. This is defined by his objective of placing sociology on the map as a scientific discipline in its own right. In order to create this intellectual space, Durkheim meets sociology's nearest rival, classical political economy, in the doctrine that constitutes its cornerstone, the division of labor. He does so by saying that the most important consequence of the division of labor is not efficiency, but solidarity. Given the intellectual situation in the "moral sciences" at the end of last century, this compels Durkheim to define his position vis-A-vis Adam Smith. According to The Tbeory of Moral Sentiments, what makes a civil society possible is sympathy, the human capability of imagining the others' position. Sympathy is based on the similarity of human beings. However, the division of labor, which is the subject of The Wealth of Nations, presupposes that humans are different from each other. This is an internal contradiction in Smith's thought, and for Durkheim its solution constitutes the birthright of sociology. However, the fact that he explicitly seeks to create a place for a new social science that is independent from economics does not mean that he denies that economics has its merits. On the contrary:

Social Stability 751

C'est aux 6conomistes que revient le m6rite d'avoir les premiers signale le caractere spontane de la vie sociale, d'avoir montre que la contrainte ne peut que la faire devier de sa direction naturelle et que, normalement, elle r6sulte, non darangements exterieurs et imposes, mais d'une libre elaboration interne (DTS, p. 380). [Credit is due the economists for first having seen the spontaneous character of social life, and having shown that constraint could only make it deviate from its natural direction and that, normally, it results not in arrangements which are external and imposed, but in a free internal elaboration. (Durkheim 1964, p. 386)].2

Despite this generous recognition, Durkheim skillfully maneuvers into the position of secondaryfactors the mechanisms that "the economists" (except for Smith and Spencer he is never explicit who they are) think are sufficient to explain social stability and harmony. The whole of Book II of DTS is devoted to a systematic analysis to "the causes and conditions" of the division of labor. By causes Durkheim means the sufficient conditions, and by (secondary) conditions the necessary conditions. This reveals a rather modern approach to causality. But for Durkheim the main function of the distinction is methodological and strategic: it serves to define his own position with respect to economics. All that he finds of value in economics is relegated to the domain of necessary conditions, while his own explanatory factors constitute the sufficient conditions. Thus, he obtains what he regards as an incorporation of the economic theory of the division of labor and of the emergence of modern society into his own theory.

On the casual observer modern society leaves an impression of a confusing complex of millions of actions of disconnected individuals, each of whom is motivated by his own goals, rather than a relatively harmoni- ously evolving and stable whole of coordinated behaviors. The scientific object of Durkheim's investigation in DTS is the explanation of social stability. He is fascinated by the capacity of the industrialized society of his time to grow without a central organizing institution to keep it from falling apart. Durkheim's analysis is inspired by the search for the conditions for the surprising stability of society in the face of its apparently anarchic structure.

Not only is modern society highly stable, it also harbours mechanisms that enable its members to benefit from its possibilities for self-deployment whose scope and level are unmatched in human history. One of Durkheim's great merits is that he has given expression to this sense of


wonder about the fact that a social structure that has not been rationally and deliberately organized does not fall apart.

We find the same sense of wonder and the same fascination at industrial society's capacity for self-organization and stability in the work of the economist and social theoretician Friedrich Hayek. From the late 1920s to the early '40s Hayek's main occupation was to find an explanation for the lack of coordination and the economic instability that characterizes business cycles. Gradually his interest moved to the greater question of the stability of society as a whole, and to the problem of how to preserve the freedom of the individual. His most important publications in this field are The Constitution of Liberty (1960) and Law, Legislation and Liberty (LLL), published in three volumes in 1973, 1976, and 1979. The similarities between Hayek and Durkheim do not stop here. They both share a more "practical" concern: the intellectual, moral and social crisis that they detect in their contemporary society. Durkheim speaks of the state of legal and moral anomy in which the economy finds itself (see, for instance, DTS, p. II): conflicts and economic crises, due to the lack of rules within certain professional groups. The theme that inspires Hayek's work from The Road to Serfdom (1944) to his very last book, The Fatal Conceit (1988), is his sense of alarm at the intellectual hubris that makes modern humans think they can organize the complex processes that characterize the evolution of social institutions according to their desires. Hayek fears that this attitude may destroy everything that has been achieved in the domain of freedom of the individual. As to the question of how to solve the social problems they analyze, both authors share the conviction that a-possibly violent- solution imposed from the outside would not work.3 There are many more similarities between Durkheim and Hayek, as we hope to make clear.

The same sense of wonder about the stability of society, which is the root of political economy and sociology, inspired Adam Smith to develop the idea of the invisible hand. Both Durkheim and Hayek declare themselves to be the intellectual heirs of the Scottish philosopher, although they emphasize different aspects of his thought. This is closely related to the different intellectual traditions in which the two authors place themselves. The tradition to which Durkheim belongs emphasizes the role of law in society, while Hayek's lineage pays particular attention to the competitive market. The difference can be formulated as that between cooperation and coordination. Our point of departure in this article is that the similarities


and differences between sociologist Durkheim's and economist Hayek's theories of social stability justify our choosing them as representatives of alternative explanations of social stability. Our goal is to give an answer to the questions of what each has to contribute, how these contributions are related, and how we may use them to make progress in the explanation of social stability.

II

The Division of Labor and Social Cohesion

DURKHEIM TRIES TO MAKE the characteristics of modern industrial society clear by contrasting it with earlier, more primitive forms of social organization. This is more of a methodological device than a real historical analysis. His "segmentary society" is a fiction or conceptual artifact that allows him to define the institutions and mechanisms of modern society, rather than a truthful descriptive account. In Durkheim's conjectural history, the most primitive state of society is the horde. It is characterized by a type of cohesion that is due to similarity:

Si Ion essaye de constituer par la pensee le type ideal d'une soci&t6 dont la cohesion resulterait exclusivement des ressemblances, on devra la concevoir comme une masse absolument homogene dont les parties ne se distingueraient pas les unes des autres, et par consequent ne seraient pas arrangees entre elles, qui, en un mot, serait depourvue et de toute forme definie et de toute organisation. Ce serait le vrai protoplasme social, le germe d'ou seraient sortis tous les types sociaux. Nous proposons d'appeler horde l'aggregat ainsi caracterise (DTS, p. 149). [If we try to construct intellectually the ideal type of a society whose cohesion was exclusively the result of resemblances, we should have to conceive it as an absolutely homogeneous mass whose parts were not distinguished from one another. Consequently they would have no arrangement; in short it would be devoid of all definite form and all organization. It would be the veritable social protoplasm, the germ whence would arise all social types. We propose to call the aggregate thus characterized, horde. (p. 174)].

Primitive society is a repetition of identical aggregates of hordes. Its structure is, in terms that we borrow from Herbert Simon, maximally redundant.4 The next step in the development of society is the clan: a horde that has ceased to be independent and has become the element of a more extended ("plus etendu") group: segmentary society. Clan chiefs are the only form of social authority in this structure, marking the begin- ning of a diversification. Still, in these "inferior societies," the only form of


solidarity is that which derives from similarity. This type of society is no longer purely hypothetical. Drawing on Fustel de Coulanges, Durkheim gives the examples of Australian aborigines, Indian tribes, etc. In such societies, religion is all-pervasive. Because in a small society everybody is faced with the same conditions of existence, the collective environment is essentially concrete. Individual experiences are the same and have as their objects (the same) specific things. The collective character is well-defined.

Durkheim's segmentary society is ruled by "droit r6pressif." Repressive law punishes those acts that offend the collective convictions and that are an infringement on the rules and values that are shared by the community as a whole. So, repressive law is the rule in those societies in which criminal acts need not be explicitly codified. Its rules are firmly rooted in the collective memory that each individual carries with him. In such a society there is no room for individual variations. Each segment is the bearer of the same strong feelings, the same traditional values, and the same social rules the infraction of which justifies the severest form of punishment.

Since the segments are autarchic, there is no need (or incentive) for exchange between them. The solidarity in this society is solidarity by likeness ("par similitudes"), which Durkheim calls mechanical solidarity. This society is characterized by "communism":

Le communisme, en effet, est le produit necessaire de cette cohesion speciale qui absorbe l'individu dans le groupe, la partie dans le tout. La propriet6 n'est en definitive que l'extension de la personne sur les choses. La donc oP la personnalit6 collective est la seule qui existe, la propriete elle-meme ne peut manquer d'etre collective. Elle ne pourra devenir individuelle que quand l'individu, se degageant de la masse, sera devenu, lui aussi, un etre personnel et distinct, non pas seulement en tant qu'organisme, mais en tant que facteur de la vie sociale (DWS, pp. 154-55). [Communism, in effect, is the necessary product of this special cohesion which absorbs the individual in the group, the part in the whole. Property is definitive only of the extension of the person over things. Where the collective personality is the only one existent, property also must be collective. It will become individual only when the individual, disengaging himself from the mass, shall become a being personal and distinct, not only as an organism but also as a factor in social life. (p. 179)].

There is no possibility for individual personality to develop in a society where collective conscience rules supreme.

As we observed above, in Durkheim's discussion of the necessary


conditions for the division of labor to progress we find the more typically economic factors, such as the need for individuals to develop their individual traits, innovation, and, most fundamentally, rationality. This last factor appears in the form of an explanation of the development of rational thought. Individuals become more independent from the groups to which they belong when the members of a society increase in number. When societies become more voluminous, i.e., when their physical and hence their social density increases, this collective conscience changes. It is forced to elevate itself above local differences and to cope with space and distance; hence it has to become more abstract. It is thus that abstract concepts arise (DTS, p. 272). For Durkheim, the more general collective conscience becomes, the more room it leaves for individual variations (DTS, p. 275). Since collective conscience is almost entirely a product of the past (so, of tradition), its role diminishes as segmentary society is left behind. Within the extended group there is more individual liberty (DTS, p. 284). When society becomes dispersed over a larger area it has to become more abstract:

[elile est elle-meme oblig&e de s'e1ever au-dessus de toute les diversites locales, de dominer davantage lespace et, par consequent, de devenir plus abstraite. Car il n'y a gubre que des choses g6nerales que puissent ktre communes a tous ces milieux divers. Ce nest plus tel animal, mais telle espece; telle source, mais les sources; telle forkt, mais la forkt in abstracto (DTS, p. 272). [the common conscience "is itself obliged to rise above all local diversities, to dominate more space, and consequently to become more abstract. For not many general things can be common to all these divers environments. It is no longer such animal, but such a species; not this source, but such sources; not this forest, but forest in abstracto" (p. 287)].

This also explains the increasing rationalization of society: Cela seul est rationnel ce qui est universel. Ce qui deroute lentendement, c'est le

particulier et le concret. Nous ne pensons bien que le general. Par consequent, plus la conscience commune est proche des choses particulibres, plus elle en porte exactement lempreinte, plus aussi elle est inintelligible (DTS, p. 275). [This alone is rational which is universal. What baffles understanding is the particular and the concrete. Only the general is thought well of. Consequently, the nearer the common conscience is to particular things, the more it bears their imprint, the more unintel- ligible it also is. (p. 289-290)].

Once rational thought has emerged, there is no way of keeping it in check. This is a mixed benefit, as instinct always has a more compelling force than reason: "Parce qu'elle devient plus rationnelle, la conscience


collective devient donc moins imperative, et, pour cette raison encore, elle gene moins le libre developpement des varietes individuelles" (DTs, p. 276). ["Because it becomes more rational, the collective conscience becomes less imperative, and for this very reason, it wields less restraint over the free development of individual varieties." (p. 290-291)]. However, the main force of collective consciousness derives not so much from the fact that it is shared by contemporaries as from the fact that it is a product of the past which took a long time to develop.

L'autorit6 de la conscience collective est donc faite en grande partie de l'autorite de la tradition. Nous allons voir que celle-ci se diminue n6cessairement a measure que le type segmentaire s'efface (DTS, p. 277) [The authority of collective conscience is, then, in large part composed of the authority of tradition. We shall see that the latter necessarily diminishes as the segmental type is effaced (p. 291)].

As society becomes more open and mobile, tradition loses its sway. For instance, the more advanced a society, the less the aged are held in reverence. It is from the young that change is to be expected, provided they have dissociated themselves from the erroneous practices of the past.

Modern society is characterized "non par une repetition de segments similaires et homogenes, mais par un systeme d'organes differents dont chacun a un role special, et qui sont formes eux-memes de parties differ- enciees" (157) ["not by a repetition of similar, homogeneous segments, but by a system of different organs each of which has a special role, and which are themselves formed of differentiated parts" (p. 181)]. Industrial society rests on an advanced division of labor, a degree of specialization and differentiation which is inconceivable in segmentary society. The elements of which modern society consists no longer exist side by side as the links of a chain, but show a more complicated, hierarchic pattern that is defined by the logical requirements of their function. They are "coordonnes et subordonnes les uns aux autres autour d'un meme organe central" (157) ["co-ordinated and subordinated one to another around the same central organ" (p. 181)]. However, individuals are not passively subjugated to the moral prescriptions of collective conscience, as they were in primitive society, where they were interchangeable and where mechanical solidarity cemented the social bonds. The type of cohesion which rules in modern society is organic solidarity. Durkheim agrees with Spencer that social harmony derives from the division of labor, but criticizes him (in ch. LVII) for thinking that industrial solidarity is characterized by spontaneity-so


that there is no need for a repressive apparatus-and for thinking that the only link among individuals is that of absolutely free exchange and hence competition. But neither is it true that self-interest is the only basis of social stability (DTS, pp. 180-81). The growing number and complexity of legal rules that develop as society progresses is sufficient to make this clear. Nevertheless, Durkheim observes that the idea of a social contract in the sense of Rousseau is also hard to defend. More specifically, repressive law cedes more and more to restitutive law, which aims not at punishing infractions of a generally valid moral code, but serves as a means for redress so as to put things back into the order that they should have been (DTS, p. 79). The situations to which restitutive laws apply are usually very specific, so that most members of society remain in complete ignorance about these legal rules. As the division of labor advances, so does the technicality of the legal rules. The increasing complexity of social relationships in modern society has necessitated an ever more complex system of laws to manage them. This does not mean that judges can decide arbi- trarily; they remain bound by the rules that are generally accepted in society.

Like Comte, Durkheim believes that what is really spontaneous is society itself. Neither the division of labor nor competition can be considered as spontaneous phenomena in the true sense of the word. Admittedly, when the organic division of labor emerges, it solidifies the social bonds. But that does not mean that it creates them. "Cette interaction en suppose une autre qu'elle remplace" (DTS, p. 262) ["this integration supposes another which it replaces" (p. 278)]. And further on we read:

Les organismes plus complexes se forment par la repetition d'organismes plus simples, semblables entre eux, qui ne se differencient qu'une fois associes. En un mot lassociation et la cooperation sont deux faits distincts, et si le second, quand il est developpe, reagit sur le premier et le transforme, si les societes humaines deviennent de plus en plus des groupes de cooperateurs, la dualite des deux phenomenes ne s'evanouit pas pour autant (DTS, pp. 262-63). [more complex organisms are formed by the repetition of more simple, similar organisms which are differentiated only if once associated. In short, association and co-operation are two distinct facts, and if the second, when developed, reacts on the first and transforms it, if human society become groups of co-operators, the duality of the two phenomena does not vanish for all that (p. 278-279)].

Specialization and differentiation take place on the basis of association. For Durkheim, the social whole always precedes the individual parts. See

758 AmericanJournal of Economics and Sociology

for example DTS, p. 264, where he writes: "La vie collective n'est pas nee de la vie individuelle, mais c'est, au contraire, la seconde qui est nee de la premiere" ["Collective life is not born from individual life, but it is, on the contrary, the second which is born from the first" (p. 279)].

Comte believes that the division of labor, if pushed too far, will result in the disintegration of society. Individuals who specialize in ever more narrowly defined and abstract tasks will retire into their own private and solitary universes. Here, the division of labor becomes a centrifugal force that makes society fall apart into isolated atoms. A different unifying principle is needed to counterbalance this disintegrating force. The gov- ernment or the state must intervene:

I1 est clair, en effet, que le seul moyen reel d'empkcher une telle dispersion consiste a 6riger cette indispensable reaction en une nouvelle fonction speciale, susceptible d'intervenir convenablement dans laccomplissement habituel de toutes les diverses fonctions de 1'6conomie sociale, pour y rappeler sans cesse la pens6e de lensemble et le sentiment de la solidarite commune (Durkheim quoting Comte, DTS, p. 349). [It is clear, in effect, that the only real means of preventing such a dispersion consists in this indispensable reaction in a new and special function, susceptible of fittingly intervening in the habitual accomplishment of all diverse functions of social economy, so as to recall to them unceasingly the feeling of unity and the sentiment of common solidarity (p. 358-359)].

According to Comte, the solidarity that is produced by the division of labor is more fragile than the cohesion of a society that rests on the principle of likeness or homogeneity. For this reason he advocates the conscious intervention of the state in creating solidarity, and, in "Note sur la definition du socialisme" (Durkheim 1893), socialism. Whereas Durkheim shares the idea that there must be rules, he does not share Comte's pessimism. Durkheim thinks Comte's pessimism is based on his failure to recognize the real nature and the power of organic solidarity. The malfunctions and anomalies of modern society are not so much due to the disappearance of the pervasiveness of the common goals of segmentary society as to the slowness with which individuals adopt the rules and regulations that are necessary for a peaceful and harmonious coexistence of functions that have become separated by the division of labor. The highly efficient mechanisms that created cohesion in traditional society have been destroyed by the progress of specialisation in modern society and a new equilibrium has not yet been found:


Des changements profonds se sont produits, et en tres peu de temps, dans la structure de nos societes; elles se sont affranchies du type segmentaire avec une rapidite et dans des proportions dont on ne trouve pas un exemple dans ihistoire. Par suite, la morale qui correspond a ce type social a regress6, mais sans que lautre se developpat assez vite pour remplir le terrain que la premiere laissait vide de nos consciences (DTS, p. 405) [Profound changes have been produced in the structure of our societies in a very short time; they have been freed from the segmental type with a rapidity and in proportions such as have never before been seen in history. Accordingly, the morality which corresponds to this social type has regressed, but without another developing quickly enough to fill the ground that the first left vacant in our consciences (p. 408)].

Hence the crises and anomalies to which Durkheim devotes the third and last book of DTS. Durkheim repeatedly and explicitly mentions that the system of rules which serve to avoid malfunctions and anomies in modern society must be the product of a spontaneous process, lest it create instability: "la vie sociale, partout ou) elle est normale, est spontanee; et si elle est anormale, elle ne peut pas durer" (180) ["social life, wherever is normal, is spontaneous, and if it is abnormal, it cannot endure" (p. 202- 203)]. This is a very important point in his thought. He also argues that rules that do not suit the individuals in their specific situations and which are imposed from above create the anomaly of the "division du travail contrainte." As we have seen, Durkheim opposes the idea that competition alone can lead to a stable institutional framework.

Competition has a centrifugal effect on society if it occurs in a situation in which there is no social cohesion; only in conditions of solidarity does it contribute to social stability. This conclusion serves to further emphasize the difference with the economic theory according to which cooperation emerges as a consequence of competition:

Puisque la concurrence ne peut pas avoir determine ce rapprochement, il faut bien qu'il ait pr6existe; il faut que les individus entre lesquels la lutte s'engage soient deja solidaires et le sentent, c'est-a-dire appartiennent a la meme societe (DTS, pp. 259-60). [Since competition cannot have determined this conciliation, it must have existed before. The individuals among whom the struggle is waged must already be solidary and feel so. That is to say, they must belong to the same society (p. 276)].

But despite the fact that he thinks he has incorporated economics in his own theory, he gives no description of the institution which, according to Smith, determines the extent of the division of labor: the market.6 That is understandable since even economists rarely offer an analysis of the


functioning of markets. Among the few exceptions is Friedrich Hayek, to a discussion of whose work we now turn.

III

Equilibrium, Markets, and Coordination

HAYEK REJECTS THE STANDARD NocL~ssicAL AAYsis of markets because it is static and tautological. Static, because it provides a classification of various types of markets that are defined in terms of static conditions, such as the number of sellers or purchasers and the shape of the demand and supply curves. Tau- tological, because it makes a number of assumptions that deprive its models of empirical content. As far as this latter aspect is concemed, Hayek singles out the assumptions of perfect competition and perfect information. The neoclassical assumption of perfect competition describes a situation in which goods and sellers or producers are completely homogeneous and the price is given. This characterizes the absence of any competition. The assumption of perfect information is one of the conditions of market equilibrium. Here Hayek's criticism is that equilibrium is defined as the state in which all buyers and sellers have perfect information.

The concept of equilibrium is central to Hayek's alternative explanation of the way in which markets work.7 The basic unit of analysis is the planning individual. The idea of a plan logically presupposes time. Hayek defines equilibrium as the correspondence between the expectations on which each individual bases his or her plans and the informational input which serves as feedback. The individual applies the "pure logic of choice" to his or her own preferences and his or her perception of the environment when planning his or her behavior. An economic system is composed of a multitude of such perceiving, planning, and utility-maximizing individuals who interact and communicate with each other. The system is in equilibrium if the plans of all individuals are compatible with one another. Markets are the social institutions in which individuals exchange goods and services using their prices as guidelines. The interaction on markets creates a communication structure that transmits price information effi- ciently and rapidly since individuals' fields of perception are partially overlapping. Competition is a crucial element in the spreading of information; it consists of a process in which individuals actively seek to discover new and so far untried opportunities. Hayek emphasizes the role


of learning and knowledge by saying that the division of knowledge and its coordination are more fundamental than the division of labor. Markets are social institutions that have arisen and survived in an evolutionary process because they responded to the need for coordinating dispersed knowledge. They create the high degree of availability of knowledge to everyone that characterizes developed economies.8 Their functioning re- lies on an efficient communication structure.

The inclusion of the structure of communication in the analytical framework is very unusual in economics,9 and has a number of far-reaching consequences. One is that it highlights the importance of an agent's position for the acquisition of the knowledge which is necessary for the economic system to show a tendency to an equilibrium: "the relevant knowledge which he must possess in order that equilibrium may prevail is the knowledge which he is bound to acquire in view of the position in which he originally is, and the plans which he then makes" (Hayek 1937, p. 53). This introduces the element of what we may call position- constrained learning. The passage just quoted continues:

It is certainly not all the knowledge which, if he acquired it by accident, would be useful to him and lead to a change in his plan. We may therefore very well have a position of equilibrium only because some people have no chance of learning about facts which, if they knew them, would induce them to alter their plans. Or, in other words, it is only relative to the knowledge which a person is bound to acquire in the course of the attempt to carry out his original plan that an equilibrium is likely to be reached (Hayek, 1937, p. 53).

Another factor that we find here is path-dependency. Hayek also discusses the amount of knowledge which would be needed in a decentralized system in order that it may reach the same equilibrium that an omniscient dictator would impose as "a sort of optimum position" (Hayek 1937, p. 53)10:

One condition [for the decentralized system equilibrium to coincide with that of the centralized dictator-economy) would probably be that each of the alternative uses of any sort of resources is known to the owner of some such resources actually used for another purpose and that in this way all the different uses of these resources are connected, either directly or indirectly (ibid.).

The note to this sentence elaborates: That it is not necessary, as one might think, that every possible use of any kind of

resources should be known to at least one among the owners of each group of such resources which are used for one particular purpose is due to the fact that the alternatives known to the owners of the resources in particular uses are reflected in


the prices of these resources. In this way it may be a sufficient distribution of knowledge of the alternative uses, m, n, of . . . y, z, of a commodity, if A, who uses the quantity of these resources in his possession for m, knows of n, and B, who uses his for n, knows of m, while C, who uses his for o, knows of n, etc., until we get to L, who uses his for z, but knows only of y.11

As we have observed, Hayeks criticism of traditional equilibrium theory is that it is circular: "Correct foresight is ... not, as it has sometimes been understood, a precondition which must exist in order that equilibrium may be arrived at. It is rather the defining characteristic of a state of equilibrium" (1937, p. 42).12 This criticism may be reformulated as follows: The assumption of correct foresight implies that individuals have full access to all available knowledge about the future. In other words, there are no gaps or other imperfections in the intertemporal communication structure. For their current exchange relationships the assumption of perfect information implies a similar perfection of the present communication structure. Nei- ther is the case in reality. So, the perfect information assumption relegates the standard neoclassical analysis at the most to the status of a limiting case, or an idealizing model without empirical content. On the other hand, markets and competition are considered to be crucial elements in creating an efficient structure of communication. Neoclassical analysis has little or nothing to say about this. Hayek does: "The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all" (1945, p. 86). However, Hayek does not see that this defines a research problem rather than a solution (which he presents in the form of the price system). To mention one problem, the speed with which the information is transferred obviously matters. If the local information spreads slowly, there may be no tendency towards equilibrium.

The acquisition of implicit knowledge and experience by means of personal contacts is another element that is introduced with the communication structure. Hayek speaks of "a body of very important but unor- ganized knowledge" (1945, p. 80) which is not scientific. "We need to remember only how much we have to learn in any occupation after we have completed our theoretical training, how big a part of our working life we spend learning particular jobs, and how valuable an asset in all walks


of life is knowledge of people, of local conditions, and of special circumstances" (Hayek, 1945, p. 80).

A great merit of Hayek's analysis of markets is that he has called attention to the crucial role of an economy's interaction and communication structure. In fact, Hayek's explanation is one of the earliest instances of a network analysis of markets, whose explanatory factors include connectivity,13 the strength and frequency of interactions, the development of personal relationships, and the transmission of information. It is one of the curious facts of intellectual history that until recently Hayek's type of analysis of markets was only taken further by one economist, G. B. Richardson,14 and that this work, too, failed to produce a research tradition. Network analyses of markets by economists first began to reappear, uninfluenced by either Hayek or Richardson, with the work of Alan Kirman and Rob Gilles.15 Network analysis is a much more flourishing research tradition in sociology. The most important applications of network models to markets and competition can be found in the work of Mark Granovetter, Harrison White, and Ronald Burt.16 Although very similar in spirit to Hayek's approach, these sociologists do not refer to it either. This is apparently an instance of disconnected intellectual networks. What can be the reason for this lack of influence on economics of network analysis by sociologists and economists?

The hypothesis that seems to arise from our previous analysis is the following. Sociological network analysis is directly inspired by Durkheim. He introduced an approach that is different from that of economics. Network analysis has inherited this difference. This would explain why it has failed to create an analytical tradition in economics. In order to examine the validity of this idea we propose a comparison between Durkheim's social theory in DTS and Hayek's theory of society. But, we will first devote a couple of paragraphs to showing how Hayek's economic theory developed into a theory of society.

IV

Social Institutions as Coordinating Devices

THE CENTRAL PROBLEM of Hayek's analytical economics is the explanation of the lack of coordination which causes disequilibrium growth. The problem arises because individuals only perceive their direct economic environ-


ment. Prices are part of this environment. The monetary system has a dynamics of its own which permits the amount and the division of means of exchange in society to diverge from the barter ratio between goods that reflect the conditions of real scarcities. Whenever this divergence occurs, the decisions to consume, save and invest, which are necessarily based on the only prices that can be perceived, viz. money prices, are mistaken. When the real conditions have revealed the mistakes, it is too late to put things right immediately, and the result are business cycles (i.e., disequilibrium growth). Like the market, the monetary system has evolved spontaneously as a solution to the need to enter into exchange relationships with ever more distant economic units. In that sense it is a solution to the problem of social complexity. However, this particular solution has its cost: economic fluctuations.

Here we have in a nutshell the three elements that Hayek generalized gradually into a theory of society:

1. the basic problem of an economy (society) is the problem of coordination;

2. individuals have only limited knowledge; one consequence is that the economy (society) as a whole appears to them as a phenomenon of such a degree of complexity that individuals by themselves will never be able to oversee, to understand all the detail of, nor to coordinate all the individual transactions with others that make up an economy (a society);

3. markets (social institutions) are solutions to the problem of social complexity that have spontaneously developed in an evolutionary process.

It is with respect to the economic system that Hayek first expresses his sense of wonder at the fact that the millions of interactions between individuals do not result in total chaos; instead, what we usually observe is a relatively stable set of repeated interactions that occur according to some set of rules that are shared by most.'7 The facts that human knowledge is so severely limited and that the spontaneously evolved social institutions have apparently mastered the complex problem of social coordination leads Hayek to defend non-interventionism and liberalism. He contrasts this with the tradition which he calls "constructivism" and which he identifies with the tradition of Cartesian rationalism and the


French School of Engineers. He accuses it of seeing only one solution to social complexity, conscious intervention and regulation. Prominent representatives of this tradition are Saint Simon and Comte.

In Hayek's social philosophy, history plays a role that is very similar to that in Durkheim's. He introduces the "tribal society," not as a description of a real historical past, but as an analytical device to lend contrast to his analysis of what makes modem society work. He also develops an evolutionary theory of society which culminates in his theory of cultural evolution. It may be considered to be the scientific underpinning of the contrast between the mechanisms that rule the tribal and the open societies. Hayek develops his evolutionary theory in, for example, "Notes on the Evolution of Systems of Rules of Conduct" (1967), Law, Legislation and Liberty, and his last book, The Fatal Conceit (FC, 1988). There are three kinds of evolution in human affairs: genetic evolution, which produces instincts and instinctive behavior; the evolution of rational thought; and cultural evolution. Culture occupies an intermediate position between instinct and rational thought, not only in the course of the development of the species, but also logically and psychologically. This is Hayek's rudi- mentary explanation of the emergence of rational thought.18 Instinctive behavior is sufficient for the coordination of the actions of individuals within small primitive groups, the members of which have common perceptions and objectives. On the other hand, within the developed and "abstract" society (or, which is the same, the "extended order"), which is too complex to be fully understood by the human mind, coordination is ensured by abstract rules that have developed gradually. These rules govern private property, honesty, contracts, exchange, commerce, competition, profit, and the protection of privacy. So, they have very much the same function as solidarity does in Durkheim. Those rules are transferred by tradition, learning, and imitation (FC, p. 12). There is a continuous tension between the rules governing individual behavior and those governing the functioning of social institutions. The formation of abstract systems and institutions of coordination have forced individuals to change their natural or instinctive reactions (ibid., p. 13). The fact that their behavior is still largely ruled by the instincts of the tribal society and has not kept pace with the development of the abstract society explains why they try to oppose these systems. "Disliking these constraints so much, we hardly can be said to have selected them; rather these constraints selected


us: they enable us to survive" (p. 14). The institutions that emerge are the result of certain individuals stumbling upon solutions to particular problems in a process of competition. Indeed, competition as a process of discovery is part of every evolutionary process (p. 19).

For understanding Hayek's development from a technical economist to a philosopher of society, "Individualism: True and False" (IT, 1945) is an important article. It is also one of the few places where he refers to Durkheim, two reasons for paying attention to it. In ITE Hayek works out the consequences of the theory of society of the Scottish Enlightenment and its individualist methodology.

This argument is directed against the properly collectivist theories of society which pretend to be able directly to comprehend social wholes like society, etc., as entities sui generis which exist independently of the individuals which compose them (I7T, p. 6).

This has to be distinguished from the so-called individualism of the Cartesian school, which is usually referred to as rationalism. This is why Hayek calls the true individualism of the Scottish Enlightenment anti- rationalism.

The antirationalistic approach, which regards man not as a highly rational and intelligent but as a very irrational and fallible being, whose individual errors are corrected only in the course of a social process, and which aims to make the best of a very imperfect material, is probably the most characteristic feature of English individualism (ITE, pp. 8-9).19

This insight is due to Mandeville. The main differences between the pseudo-individualism of the rationalistic or engineering tradition on the one hand and the true individualism of the Scots are that "true individualism is the only theory which can claim to make the formation of spontaneous social products intelligible," and which "believes ... that, if left free, men will often achieve more than individual human reason could design or foresee" (pp. 10-11). This has consequences for political philosophy:

The great concern of the great individualist writers was indeed to find a set of institutions by which man could be induced, by his own choice and from the motives which determined his ordinary conduct, to contribute as much as possible to the need of all others ... (1f, pp. 12-13).

Hayek emphasizes the anti-rationalistic character of this philosophy, which is


a view which in general rates rather low the place which reason plays in human affairs, which contends that man has achieved what he has in spite of the fact that he is only partly guided by reason, and that his individual reason is very limited and imperfect ... One might even say that the former is the product of an acute consciousness of the limitations of the individual mind which induces an attitude of humility toward the impersonal and anonymous social process by which individuals help to create things greater than they know ... (ITE, p. 8).

The great discovery of the classical economists is that many of the institutions on which human achievements rest have arisen and are

functioning without a designing and directing mind. . . and that the spontaneous collaboration of free men often creates things which are greater than their individual minds can ever fully comprehend (ITF, p. 7).

V

The Relationship between Sociology and Economics Revisited

WE HAVE OBSERVED THAT Smith is an intellectual ancestor that Hayek and

Durkheim both share. Hayek would not have been happy with this common heritage. In ITE (as well as in other publications, the most important of which here is The Counterrevolution of Science) he criticizes "rationalist constructivism," the tradition that he identifies with Descartes and Comte. He presents this tradition as diametrically opposed to the ideas of the Scottish Enlightenment. The fact that Durkheim explicitly recognizes his intellectual debt to Comte may explain why Hayek condemns him as a constructivist: "It is in the insistence on social 'solidarity' that the constructivist approach to sociology of Auguste Comte, Emil Durkheim and Leon Duguit shows itself most clearly" (LLLII, p. 11, n. 9). Hayek demonstrates a fundamental mistrust of the idea of cooperation and an almost dogmatic emphasis on the efficiency of coordination as the binding principle in society. Compare, for instance, the following passage in The Fatal Con- ceit.20

One revealing remark of how poorly the ordering principle of the market is understood is the common notion that 'cooperation is better than competition'. Cooperation, like solidarity, presupposes a large measure of agreement on ends as well as on methods employed in their pursuit. It makes sense in a small group whose members share particular habits, knowledge and beliefs about possibilities. It makes hardly any sense when the problem is to adapt to unknown circumstances; yet it is this adaptation to the unknown on which the coordination of efforts in the extended order rests (FC, p. 19).


Hayek refuses to understand by "cooperation" anything but a conscious, deliberate, and intentional act of solidarity. As such, cooperation can only take place in the small face-to-face tribal group with its shared goals. However, what Durkheim has in mind when he speaks of cooperation is not the behavior of individuals who, one day, decide to get together and agree on common objectives. On the contrary. What he means are the various forms of interaction and complementarity between the "functions" which emerge with the increasing division of labor in society. The individuals are no more than the holders or performers of these functions, and through their relationships with other individuals the various specialized social organs will be in touch with other organs in society. It would be entirely justified to apply Ferguson's expression "the result of human actions but not of human design," one of Hayek's favourite quotations, to the durkheimian process of the emergence of cooperation. We have already seen that Durkheim's idea of cooperation is much subtler than Hayek thinks. For instance, Durkheim is very critical of Spencer's thesis that every society consists of cooperation. To this he opposes Comte's idea that cooperation does not give rise to society; on the contrary, it presupposes its existence.21

We have taken Hayek as a representative of an economic approach to social institutions and social stability in which coordination is a central element. However, the distance between his analysis and Durkheim's, whom we have chosen as a representative of the sociological approach in which cooperation is crucial, seems to exist more in Hayek's subjective opinion than in his analysis. The conclusion appears to be either that Hayek has not read Durkheim very well (or not at all), or that he read him but forgot the argument. The phrase to the extent that Durkheim is a constructivist, which we quoted above, is a note to a passage stating that the Great Society has nothing to do with solidarity in the "true" sense of conscious unitedness in the pursuit of common goals. Durkheim says the exact opposite. Hayek's injustice with regard to Durkheim is compounded in LLLJII, where he accuses Durkheim of being the originator of confusing altruistic with moral. Yet Durkheim's strategy for creating a social science independent from economics starts with his taking issue with exactly this idea. Ironically, what Hayek presents as criticism is more like a restatement of Durkheim's ideas, couched in Hayek's language.22


VI

Cooperation versus Coordination?

HOWEVER, THIS IS A MATITER OF INTELLECTUAL HISTORY. Here we are more interested in the question of whether there exist fundamental differences between sociology and economics as represented by Durkheim and Hayek. We have seen how according to Durkheim the division of labor in society, accompanied by restitutive law as the observable expression of a growing social cohesion or solidarity, goes hand in hand with the development of individual personality. This is only possible in a society which provides the material and spiritual conditions for individuals to distinguish themselves from the collective. The form of society that gives individuals the space for developing their own personal characters is a society that has learned, in a manner of speaking, not to severely punish those who dare take their distance from the collective values.23 Here, the visions of Durkheim and Hayek are very close indeed. Hayek's Great Society is only possible if there is a framework that allows individuals to diverge from the prescriptions of accepted morality and learn to pursue their own individual objectives, without having to justify them. The market order, or catallaxy, constitutes such a framework:

The Great Society arose through the discovery that men can live together in peace and mutually benefiting each other without agreeing on particular aims which they severally pursue. The discovery that by substituting abstract rules of conduct for obligatory concrete ends made it possible to extend the order of peace beyond the small groups pursuing the same ends, because it enabled each individual to gain from the skill and knowledge of others whom he need not even know and whose aims could be wholly different from his own (LLLII, p. 109).24

The continuity of the market order which makes this peaceful coexistence and the stability of the Great Society possible presupposes the belief by its members in the existence and beneficial effects of spontaneous coordination mechanisms that have not been consciously planned or programmed. At the very least, it presupposes their willingness not to tamper with them. Here lies the vulnerability of the market order. Like Durkheim, Hayek argues that since this social organization form is such a recent discovery, the individual values are still more adapted to the environment of the primitive group. The risk that threatens the market order is "the revival of the organizational thinking of the tribe" (LLLII, p. 134), where consciously imposed concrete rules were the norm. In order to


preserve the catallaxy, its members must learn to renounce the sort of solidarity that is the result of the adoption of common goals. Hayek condemns socialism as a reassertion of "that tribal ethics whose gradual weakening has made an approach to the Great Society possible" (ibid.).

According to Durkheim, individual personality develops as the division of labor and restitutive law occupy an ever more important place in society. According to Hayek, its development goes together with the extension of the market and competition in an evolutionary process.25 Durkheim finds the unity that characterized segmentary society back, in a more stable and more deeply rooted form, in the cooperation between the many different functions which is the essence of the division of labor and the social cohesion that results from the recognition of the mutual depen- dence in modern society. For Hayek, the coordination of individual actions that is achieved by markets and competition, together with the "minimal justice" of the application of abstract rules of behavior are sufficient conditions for the cohesion that allows individuals to pursue their personal goals, provided they respect this spontaneous order.

So, for Durkheim solidarity comes about through cooperation, whereas according to Hayek at least a minimal form of cohesion is the result of coordination.

VII

Collective versus Individual?

THIS DOES NOT APPEAR to be the only difference. Hayek's methodology is generally identified with individualism and Durkheim's with collectivism. For example, his definition of a social fact presupposes the existence of a collective conscience,26 whereas for Hayek a social fact is based on individual expectations and perceptions. However, for Hayek rules and indeed rationality are fundamentally social phenomena-this is the mes- sage of, for instance, Tlh27-and for Durkheim the collective conscience must be internalized by the individuals of whom society consists; they must feel that they belong to the same society (DTS, p. 260). Also, when Durkheim speaks of the mechanical causes and forces that make men live more closely together, he mentions consanguinity, sharing the same land, the cult of ancestors, and having in common the same habits (p. 262). Perhaps with the exception of the first two, all of these factors are mental


and attitudinal rather than physical or objective. These are the factors on the basis of which groups form, and only after groups have formed does cooperation evolve. So on the matter of the (social) part-whole relationship the two authors are much closer to one another than they appear to be. The point of contact lies in what Hayek calls the primacy of the abstract, which is mirrored by Durkheim's explanation of the emergence of abstract thought and rationality.

VIII

The Division of Knowledge

AN ASPECT IN WHICH HAYEK seems to differ from Durkheim is in his theory of the distribution of knowledge and its coordination:

Far more important than this moral attitude [of caring for oneself and one's family], which might be regarded as changeable, is an undisputed intellectual fact which nobody can hope to alter and which by itself is a sufficient basis for the conclusions which the individualist philosophers drew. This is the constitutional limitation of man's knowledge and interests, the fact that he cannot know more than a tiny part of the whole society and therefore all that can enter into his motives are the immediate effects which his actions will have in the sphere he knows (ITh, p. 14).

Is this where Hayek's true originality with respect to Durkheim lies? The next passage creates the impression that Hayek himself thinks so:

All the possible differences in men's moral attitudes amount to little, so far as their significance for social organization is concerned, compared with the fact that all man's mind can effectively comprehend are the facts of the narrow circle of which he is the center; that, whether he is completely selfish or the most perfect altruist, the human needs for which he can effectively care are an almost negligible fraction of the needs of all members of society (ibid.).

The division of knowledge as such is not discussed by Durkheim. However, it is obvious that with increasing specialization there takes place a fragmentation and localization of knowledge. For Durkheim the growth of knowledge, both in the sense of local, possibly tacit knowledge, and in the sense of explicit and scientific knowledge, is a consequence of the division of labor. He only needs to explain the initial "jump" in the level of knowledge which sets the process of diversification of the social structure in motion, i.e., the higher intelligence that turns a particular individual into a leader within the horde. This, however, seems to belong to the domain of necessary conditions that allow the effects of a greater social density or


volume to start creating the division of labor. For Hayek, too, the division of labor and the localization of knowledge develop together in what would now be called a process of co-evolution. This does not seem to distinguish him from Durkheim. Hayek's originality lies in the way in which he links the existence of dispersed knowledge and the problem of its coordination with the concept of equilibrium, which is the subject of "Economics and Knowledge." This shows a way forward that promises to add something substantial to Durkheim's analysis without justifying Hayek's harsh judg- ment (which we may read as an implicit reply to Durkheim's claim that sociology is more general than economics) "that, however grateful we all must be for some of the descriptive work of the sociologists, for which, however, perhaps anthropologists and historians would have been equally qualified, there seems to me still to exist no more justification for a theoretical discipline of sociology than there would be for a theoretical discipline of naturology apart from the theoretical disciplines dealing with particular classes of natural or social phenomena" (LLLIII, p. 173).

Ix

Psychology

BEFORE INDICATING HOW this "cognitive" part of Hayek's research program may be developed further, we have to dwell upon a part of his work that has remained relatively unknown. We mean his theoretical psychology, which, in fact, was his earliest contribution to science. In 1920, when he was still a student, Hayek wrote an analysis of the mechanism by which the human brain transforms sensory perceptions into knowledge about the world. Using the latest results in brain research and the psychology of perception, he constructed a theory that was ahead of its time. So much so, that when he published an extended version of the manuscript in 1952, under the title The Sensory Order. An Inquiry into the Foundations of Theoretical Psychology, it was as much ignored as Donald Hebb's The Organization of Behaviorthree years earlier, which contains a theory that is very similar to Hayek's.28 We have mentioned earlier that perceptions play a crucial role in Hayek's economics. It is therefore surprising that he did not use, or even refer to, his earlier psychological analysis of human perception. Indeed, like his friend the philosopher Karl Popper, he explicitly rejects psychological analysis in social science explanations.


Nothing compels us to take over this anti-psychologism. Indeed, in his analytical economics Hayek himself seems less dogmatic than in his methodology. In Price Expectations, Monetary Disturbances and Malin- vestments, he declares himself "in complete agreement with [Myrdal] when he stresses the great importance of this element [expectations] in the further development of the theory of industrial fluctuations" (1933, pp. 155-56). This seems to imply that he did not exclude psychological explanations from the domain of economics. By a complicated series of transformations in his thought,29 a number of elements of his psychological theory ended up as ideas central ideas in his methodology and theory of society. Among the former are subjectivism, i.e., the principle that the facts of the social sciences are the opinions of the agents; the compositive method, according to which all social phenomena have to be recon- structed from these social facts; and the idea that an important difference between the social and the natural sciences is that in the former the scientist is equipped with a mind that obeys the same principles as the minds of his objects of study. The most important ideas in his social theory that were inspired by his psychology include that of social institutions as self-organizing systems; the market system as a structure of distributed knowledge; and social institutions as containing the implicit knowledge of earlier generations (and hence being path-dependent). From the idea that the facts of social sciences are the products of human minds, together with the idea that no entity can explain anything that is more complex than itself (another of the philosophical consequences of Hayek's psychology), follows the core of Hayek's theory about the limits to human understanding of social phenomena, and hence to the possibility of intervention.

We mention these facts about Hayek's psychology for two reasons. First, because Hayek, in a process of intellectual development that is very different from Durkheim's, arrives at a number of conclusions that are very similar to Durkheim's. Second, because Hayek's work harbours an as yet unexplored potential for improving our understanding of social processes. To this we turn next.


X

Minds, Networks, and the Reintegration of Sociology and Economics

WE HAVE SHOWN ABOVE how Hayek generalized into a theory of social institutions a number of ideas that are central to his economic theory. Curiously enough, he failed to do so with what we may rightfully call the central element of his economics, the concept of equilibrium. Hayek (like Durkheim) is a moral scientist in the sense of Mill in that he considers social institutions as owing their existence to the perceptions, expectations, and ideas of individuals (Durkheim speaks of the collective conscience). Hayek defines economic equilibrium as the compatibility of the perceptions and expectations on which individuals base their economic plans. To explain social stability, this equilibrium concept can be extended straightforwardly to include all perceptions and expectations, not just those that concern economic matters. Hayek never makes this extension, although it seems a natural way to link his theory of society with, for example, the sociological tradition of symbolic interactionism, which has as central concept the definition of the situation. The advantages of this extension of the equilibrium concept become clear when we include the role of the structure of communication. In order for a set of social institutions to be stable, it is necessary that the individuals who populate the social framework continue to have perceptions and expectations (from now on we will use the word ideas) that are sufficiently compatible or congruous. In order for that to be the case, they need to calibrate these ideas. This can only take place when they can communicate with one another, which presupposes a structure of communication. Their location in that structure and the number, the type, and the intensity of their contacts or ties with other individuals influence this calibration process. Including these factors in the analysis allows us to increase its explanatory power and empirical content.

Above, we have referred to the work of the network sociologist Harri- son White. White studies the emergence and stability of different types of market relationships (White 1988, 1993). More specifically, he studies the market of products that are purchased by industry. These markets are established and remain in existence (White speaks of these markets re- producing themselves) only if the structure of relationships among sup- pliers and purchasers is such that their perception of the situation is


sufficiently congruent. Otherwise, a market will disappear. Thus, these markets exist by virtue of the mutual compatibility of the perceptions of the market parties. White limits his analysis to the congruence of the perception of the cost and utility functions of the market parties. As in Hayek's case, this seems an unnecessary restriction. Indeed, including the perception of more than these traditionally economic factors offers the perspective of enriching the analysis with elements that allow us to include both cooperation and coordination.30

A further extension of Hayek's equilibrium concept builds upon his cognitive psychology and his theory of cultural evolution. It is the idea that mental models and their evolution have to be included in the explanation of social phenomena. While social institutions are the result of mental models, these mental models have evolved in interaction with a particular institutional environment. This enables us to subject to further examination Durkheim's claim that cooperation is more fundamental than coordination. A natural point of departure would be the analysis of the effects of competition. We remind the reader of Durkheim's comment that whether or not competition has the beneficial effects that for instance Hayek ascribes to it (viz. that by discovering knowledge it enhances coordination) depends on the presence or absence of social cohesion. This is a claim that can be tested empirically. But a more general type of analysis must address the question of which explanatory factors are fundamental. Economic theories ultimately invoke rationality. It is not entirely clear what the fundamental factors in sociological theories are. In the recent tradition of "explanatory sociology," for instance, utility maximization is taken over from economics to explain social phenomena. In his network analysis of competition, Burt emphasizes the social structure as an explanatory factor.31 He speaks of "[clausation resid[ing] in the intersection of relations" (1992, p. 192), which he contrasts with the "debilitating alternative of using [individual] attributes as an ersatz explanation" (ibid., p. 193). However, entrepreneurial behavior in Burt's analysis is driven by the perception to "turn a profit," which seems to presuppose a maximizing principle. Even Durkheim, despite his efforts to maximize his distance from economics, in the end invokes a maximization principle. He does so when he discusses the division of labour as a result of the struggle for life: "La division du travail est donc un resultat de la lutte pour la vie . . . (DTS, p. 253)." ["The division of labor is, then, a result of the struggle for existence ...."]. Every


specialization has as a result the increase or amelioration of production (DTS, p. 255). It is difficult to understand why efficiency would lead to specialization if its advantages were not noticed by at least some individuals. So, Durkheim at this point introduces efficiency by the back door so to speak. This, in turn, leads us back to utility: "pour que la vie se maintienne, il faut toujours que la reparation soit proportionnee 'a la depense.. ." (p. 255) ["but for life to be maintained, reparation must be proportionate to the expenditure" (272)]. In fact, this is the Friedman- Alchian evolutionary argument for utility maximization (Alchian 1950). This strongly suggests that cost-benefit considerations are more than necessary conditions. So it seems that the question about the relationship between economics and sociology that was raised by Durkheim has not yet found a definitive answer. A recent suggestion that there may be more than one fundamental drive motivating human behavior deserves further investigation. It is due to'Hermann-Pillath, who distinguishes an egoistic and an altruistic element.32 This theory seems to presuppose a type of modular structure of the human mind that can also be found, for instance, in the work of Jackendoff (Jackendoff 1989). This suggests that the study of mental structures, either in terms of modules or models, may be a necessary ingredient for answering Durkheim's question about the relationship between economics and sociology. Hayek has pointed to the direction in which we may look: a study of minds connected by networks. Nothing in Durkheim's thought is inconsistent with that.33

Notes

1. Compare Popper 1972, ch. 5; Krajewski 1977; Birner 1994. 2. Except when stated otherwise, in the case of Durkheim page references preceded

by DTSare to Durkheim 1893 (1994). References to Hayek's three volumes 1973-79 will be given as LLLI, II, or III. All translations from DTS are taken from Durkheim 1964. In the sequel we will only give the page references.

3. Compare for example Durkheim, DTS, p. III: "si le vaincu peut se resigner pour un temps a une subordination qu'il est contraint de subir, il ne la consent pas, et, par consequent, elle ne saurait constituer un equilibre stable. Des treves imposees par la violence ne sont jamais que provisoires et ne pacifient pas les esprits" ["if the conquered, for a time, must suffer subordination under compulsion, they do not consent to it, and consequently this cannot constitute a stable equilibrium. Truces, arrived at after violence, are never anything but provisional, and satisfy no one"; pp. 2-3]; and Hayek LLLII, p. 136: "the attempt to secure to each what he is thought to deserve, by imposing upon all a


system of common concrete ends towards which their efforts are directed by authority, as socialism aims to do, would be a retrograde step...."

4. Simon 1968. 5. Durkheim adds that this explains why we find primitive societies so difficult to

understand. 6. Or perhaps because of the fact that Durkheim thought his theory to be more

general. In that case, one may suppose that he found the analysis of markets in political economy satisfactory.

7. It would be an exaggeration to speak of Hayek's theory of markets, since he never produced a fully-fledged and coherent explanation. However, his work of the 1930s and '40s contains the most important elements for such a theory (compare Birner 1999). Hayek's most important publications dealing with markets and competition are Hayek 1937, 1945, 1946, 1947, and 1968.

8. A natural extension of Hayek's ideas on this issue would be to say that this general availability of knowledge, together with a constructivist philosophy, has led neoclassical economists to construct their highly idealized theory of markets. Indeed, the only economy to which standard neoclassical perfect competition models approximately apply is the now almost completely defunct centrally planned socialist or communist system.

9. Hayek is the first economist to do so (1937). 10. Hayek does not explain what he means by optimum, but the text makes it clear

that it is a situation in which no relevant knowledge is left unused so that no individual has a motive to change his plan-an indirect way to express a Pareto optimum.

11. Compare Desai (1994) for a discussion of the revolutionary character of Hayek's posing the problem of the division of knowledge.

12. Compare also Hayek: "The statement that, if people know everything, they are in equilibrium is true simply because that is how we define equilibrium" (1937: 46).

13. Desai is the only one to notice this aspect of Hayek's analysis of markets. Cp Desai 1994: 41.

14. Cp Richardson 1960 and 1972. Richardson's sources of inspiration are Hayek and Marshall.

15. Cp Kirman 1983, 1985, 1991; Gilles 1990 and later published work. 16. Cp for instance Granovetter 1982, 1985; White 1988; Burt 1992. Among econo-

mists, the best known of these is Granovetter, and his work, too, failed to give rise to an economic network tradition.

17. Cp Hayek 1937 and 1945. 18. Unlike Durkheim, Hayek never formulates a theory of the development of rational

thought. On this compare Birner 1995, 1999. 19. This is very similar to Popper's approach to social science. Watkins has coined the

fortunate term "negative utilitarianism" for this. 20. Given the fact that Hayek did not himself complete the book, it has to be cited

with caution. However, what Hayek says here is consistent with his neglect of the


incentives on cooperation in earlier work, a neglect for which he has been criticized by, for instance, Witt 1994, Shearmur 1994, and Bianchi 1994.

21. "[Lla cooperation, bien loin d'avoir pu produire la societe, en suppose necessaire- ment le prealable 6tablissement spontan6" (DTS, p. 262). ["co-operation, far from having produced society, necessarily supposes, as preamble, its spontaneous existence."-p. 278].

22. For a more extended discussion of this issue in intellectual history cp Birner and Ege 1999.

23. Cp Bianchi 1994. 24. This can be read as an accurate summary of Durkheim's theory of the division of

labor. 25. Cp Ege 1995. 26. Cp Les r&gles de la methode sociologique. "Est fait social toute maniere de faire,

fix6e ou non, susceptible d'exercer sur lindividu une contrainte exterieure; ou bien encore, qui est generale dans l'etendue d'une societe donnee tout en ayant une existence propre, ind6pendente de ses manifestations propres" (p. 14, italics deleted). [In our translation: "Social facts are all types of behaviour, whether or not laid down in rules, that are capable of acting as an external constraint on the individual; or alternatively, that are general everywhere in a particular society while having an existence of their own, independent from their specific manifestations"].

27. Cp I7T, p. 15, where Hayek presents the market (order) as a social trial-and-error process, where Reason with a capital R exists only by virtue of many individuals contributing their specific knowledge to society in an unplanned manner.

28. Both became stimuli to the development of neural network models and the re-introduction of the study of mental processes into psychology that now dominates research. The publication of Hebb's book almost made Hayek give up the project of publishing his own. For a discussion of Hayek's psychology and its (paradoxical) place in the whole of his work (to which the text below refers briefly), cp Birner 1999a.

29. For which the reader may want to consult Birner 1999a. 30. Richardson (1960) is an early attempt to include both these factors. Cp also Birner

1999. 31. Burt 1992. This analysis can be considered as an extension and a formalization of

a type of competition that was analyzed by Mises and Hayek. Cp Birner 1996. 32. The idea is of course much older. One finds it, for instance, in Menger. Compare

Birner 1990. 33. Hayek's social theory was strongly influenced by his neural-network model of the

mind; cp. Birner 1996 and 1999a. In Durkheim, too, we find references to physiological psychology (of Wundt), though they have a different function and seem to play a marginal role in the development of his thought (DWS, pp. 322-3). Making comparisons with biology is a tradition that goes at least back to Comte and Spencer. However, like Hayek, Durkheim does not succumb to the temptation of an organicistic theory of society.


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