Entrepreneurship, Money and Coordination

Entrepreneurship, Money and Coordination

Hayek’s Theory of Cultural Evolution

New Horizons in Institutional and Evolutionary Economics series

Edited by Jürgen G. Backhaus

Hayek’s theory of cultural evolution has always generated controversy. Interest in Hayek’s theory, and others’ analysis and criticism of it, has been rising of late. This volume urges a reconsideration of Hayeks’ theory of evolution and aims to explore the relevance of Hayek’s theory for its own sake and for evolutionary economics more generally.

Chapter 4: Hayek and the Evolution of Designed Institutions: A Critical Assessment

Christian Schubert

Subjects: economics and finance, austrian economics, evolutionary economics


Christian Schubert INTRODUCTION Friedrich A. v. Hayek’s cognitively based theory of cultural evolution continues to be an important source of inspiration for the attempts of economists to explain processes of institutional development.1 The research is however by and large focused on the evolution of informal institutions that are ‘results of human action but not of human design’ (Ferguson). This is in line with an influential strand of thinking – represented by, in particular, Hume, Smith, and Menger – that views institutions as the spontaneous, undesigned and mostly unforeseen macro products of the dynamic interplay of myriads of individual interactions (Witt 1994). This well-established research focus neglects, however, the fact that at least in modern democratic societies that are governed by a multi-layered political, administrative and judicial governance system, many institutions which play a key role in coordinating economic behavior are a product of conscious and purposeful design. At least within the evolutionary economics camp, the development of these institutions has largely been overlooked. Instead, approaches based on a neoclassical methodology (such as, for example, public choice, public finance, and law and economics) dominate the field. In what follows, designed institutions are defined as those rules of the market game that are (1) intentionally created by a specialized agent or small group of agents, and (2) enforced by the same or a different specialized agent or small group of agents.2 Thus, both legislative and judge-made legal rules fall into this category. While strictly speaking, a large subset of the (genuinely ‘economic’)...

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