Notes

1. The examination of human cognitive limitations and their implications for economics owes much to the pioneering work of Simon (1945). See Hands (2001, esp. pp. 151-155) for a methodologically oriented discussion.

2. The issue of funding of scientific activity is not given top billing here - not because it is not important, but because, at this level of generality, it is a (logically) secondary problem. The (sometimes perverse) effects of particular funding regimes on science itself should be able to be better appreciated once the basic functioning of the knowledge-generating activities are understood, as is illustrated by the brief discussion in the 'applications' section below.

3. It's not a republic, either - contra Polanyi (1962) - except in the loosest meaning of the word. But Polanyi, pointing to science and market as special cases of a general phenomenon of social coordination by mutual adjustment, foreshadows the position taken here.

4. For a clear exposition of Dasgupta and David's work as it relates to 'the economics of scientific knowledge', see Hands (2001, pp. 374-378).

5. Maslow (1966, pp. 15-16), in the context of a discussion of the difficulties confronting a scientist who turns his attention to the investigation of a new domain: 'I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail'. This adage is probably not original to Maslow - one occasionally sees a very similar quote attributed to Mark Twain, but it may well be older than that.

6. This is meant neither in the sense of postulating some 'essence' of science nor as an excuse for dilating about what science should be, but in the sense of attempting to explain and understand an observable social phenomenon.

7. This latter characteristic, treated extensively by Simon (1945, 1957), has been characterized as 'bounded rationality'.

8. Wible (1998, pp. 43-60) contains a short overview of some famous instances of fraud in science. But, rather than looking at the specific institutions of negative feedback, he analyzes the phenomenon in 'economic' terms, by which he means a rational-choice model of optimal individual decision-making under uncertainty.

9. For an extended discussion on the differences (and similarities) between markets and science, see Butos and Boettke (2002). Also, Maki (1999) argues (on generally different grounds to those discussed here) that free market economics does not provide a useful basis for understanding science.

10. See Hands (2001, esp. p. 383). For example, as noted by Hands, some sociological and anthropological literature includes such institutions as gift-giving under the rubric of 'exchange'. The sampling of literature in the economics of science discussed above can be augmented by referring, in addition to Hands (2001), to Sent (1999), Stephan (1996), and Wible (1998).

11. The quoted terms are taken from Walstad (2001). It should be pointed out, however, that Walstad is unusual among the 'scientific market' authors in that he shows a clear sensitivity to the limitations of the analogy.

12. Ziman (2002), summing up his work in a series of papers studying science in terms of notional markets of various sorts, notes that (p. 337) 'in spite of demonstrating the power of economic reasoning in the analysis of certain features of institutional mechanics, this study shows the inadvisability of trying to treat academic science as a social formation whose properties can be characterized entirely in conventional economic terms ... we need a New Economics of Science that is consistent with what would normally be termed the noneconomic dimensions of this particular creature'.

13. Many calls for government subsidy of science, starting with that of Bush (1945), naively specify a 'no strings attached' condition. Dasgupta and David (1994, p. 490), while properly warning against the 'destabilizing and potentially damaging [policy] experiments which may soon be embarked upon in the earnest hope of more fully mobilizing the respective national scientific research communities in the service of national economic security', simply assume from the outset the necessity of government funding. But for a comprehensive rebuttal of the claim that government subsidy or intervention is appropriate or even helpful in science, see Kealey (1996, chapters 8, 9).

14. For a careful discussion of this 'invisible hand' process, see Leonard (2002).

15. In market theory, the conceptual difference between an exchange price and a market price needs to be kept in mind; in science theory the error of failing to recognize the conceptual difference between individual knowledge (even as expressed in a published paper) and scientific knowledge (the outcome of the integration of aspects of some published work into the existing framework) is a common one. Note, however, that our distinction between 'exchange price' (the specific terms of exchange in a particular transaction) and 'market price' (the emergent general appraisal of the going price for a particular good) may cause terminological difficulties for Mises scholars - Mises (1949, p. 245) defines 'market price' to be precisely what is referred to here as 'exchange price', and talks about 'the price structure' (p. 338) as the emergent outcome of the market process.

16. It should be emphasized that the term 'classification' is meant here in the most general sense. It certainly includes taxonomic categorization into well-defined classes, but also refers to more complex discriminations, such as those that are expressed in compact form as scientific theories.

17. Researchers in artificial intelligence - starting with Holland (1980) - have used the term 'learning classifier systems' to refer to their computer implementations of systems capable of adaptation and learning. But note the difference between these and 'adaptive classifying systems': they are dealing with systems whose adaptive capability, as currently implemented, arises because its components are subject to a form of selection, whereas we are talking about systems in which the component interactions result, as a side effect, in a form of structural self-organization that is the basis for the adaptive capability. Nevertheless, there are large areas of compatibility and potential for cross-fertilization between these different approaches, especially since agent-based computational methods would be directly applicable to the simulation of adaptive classifying systems.

18. This is an important point; it distinguishes the approach in this paper from evolutionary social theory - as espoused, for example, by Hull (1988, Chapter 12) -without introducing any considerations that are incompatible with evolutionary theory.

19. For a fuller account, of which the following is a summary, see McQuade and Butos (2005).

20. Although Hayek (1952), which in fact was an elaboration of a student paper written around 1920, has had little direct influence on modern neuroscience, it is largely compatible with mainstream developments from Hebb (1949) to Edelman (1987). And although the theory of connectionism - see, for example, Rummelhart et al. (1986) and Churchland (1992) - has proceeded from Hebb's work without reference to Hayek, there is nothing in Hayek that would appear to be incompatible with that development. Hayek's theory of brain and mind is also one into which Dennett's (1996) elaboration of different 'kinds of minds' would fit comfortably - as, most interestingly, would the work of Lakoff and Johnson (1999), whose analysis of metaphor has led to a theory of the mind in which mental categories and concepts are unavoidably grounded in bodily experience, and shaped by our particular perceptual and motor systems.

21. This identification of social systems (such as market and science) as 'adaptive classifying systems' is completely consistent with the Hayekian characterization of them as 'spontaneous orders'. For example, a perusal of Butos and Koppl (2003) on science as a spontaneous order would reveal the fundamental compatibility of the two designations. The aim in this paper can in fact be characterized as an attempt to inject more specificity and structure into the idea of 'spontaneous order'.

22. This ontological thrust seems to be compatible with the ontology espoused by Lawson (1997) which goes under the rubric of 'critical realism'.

23. In principle, at least - and not without cost (it takes years of training before someone can deal effectively with scientific knowledge). The recognition of this cost, by the way, casts further doubt on the usual claim that scientific knowledge is a 'free good' and therefore will be underfunded and underproduced in a private funding regime - see Kealey (1996, pp. 228-230).

24. This is the phenomenon highlighted by Hayek (1945) in which he describes (pp. 526-527) the price system as 'a mechanism for communicating information ... a kind of machinery for registering change ... a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement'.

25. Describing these institutions as 'framework' is not meant to imply that they are immune to change - indeed, they could not have and did not arrive on the scene in their current form; they are the result of a long process of development. As Hayek (1945, p. 528) puts it: '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.'

26. For a very interesting analysis closely connected to this general phenomenon, see Tulloh and Miller (2002). They develop the idea of 'abstraction boundaries' -packaged interfaces that promote repetitive use by simplifying interaction. Following Lachmann (1971), they term such regularities 'secondary institutions' and describe them as 'the familiar day-to-day institutions of store fronts, standardized contracts, and specific markets toward which people orient their actions'.

27. The abstract structures which embody the system's classification of its environment could quite reasonably be included as elements of the system's map, as has been done in McQuade and Butos (2005). The exposition here puts more emphasis on the classification as a separate feature, partly in order to highlight the differences between the classifications of market and science.

28. The Austrian literature on the impossibility of rational economic calculation under socialism, beginning with Mises (1920), although approaching the issue from a somewhat different direction, could be read as a detailed analysis and confirmation of this claim.

29. See Benson (1989). This development was, of course, brought about via changes within the current legal system (specifically, the Law Merchant) resulting from inputs from merchants participating in that system.

30. For a fuller exposition, see McQuade and Butos (2005).

31. These institutions appear to have taken their current form as recently as the late 1600s, with the advent of the Royal Society and its journal, the Philosophical Transactions - see Merton (1973, pp. 191-203, 460-496), Hull (1988, pp. 323-324), and McQuade and Butos (2003).

32. Characterized by Kuhn (1962) as a 'paradigm' in the sense of the current state of science or of a branch of science, and by Kitcher (1993, pp. 87-89) as 'consensus practice'.

33. This emergence of a reputational assessment in science is the feature of the system that makes the seeking of reputation a significant motivating factor for the individual scientist. For other arguments for the cogency and usefulness of modeling scientists as self-interested reputation-seekers, see Hull (1988, pp. 281, 305-310) and McQuade and Butos (2003). To forestall the usual objection that it is a gross oversimplification to portray scientists as being motivated only by reputation, we quote from that latter paper (pp. 141-142): 'It is, without doubt, a simplification to represent science purely in terms of the pursuit of reputation. But it is an approach analogous to the one economists make in representing firms as profit-seekers. Anyone who has ever been in business knows that the actual motivations of businessmen are much more complex than that, but it is, nonetheless, a suitable abstraction because, whether or not profit is the specific aim, the only firms that survive are those who do, sooner or later, make profits. Similarly with scientists - the only ones who survive as scientists are those who, sooner or later, earn some reputation.' On the other hand, it might be claimed that income is the actual motivating factor, but we would point out that, in science, income is usually a byproduct of reputational assessment.

34. See also the proposal for 'pricing' the paper submission and refereeing process in Riyanto and Yetkiner (2002).

35. A possible example here is the belated recognition of the phenomenon of continental drift.

36. This table is adapted from McQuade and Butos (2005).

37. For a full discussion of the tension between reductionism and holism in the study of complex systems such as the brain, see Hofstadter (1979), particularly 'Ant Fugue' (pp. 310-336). This excerpt, besides being a deep and informative exposition, is a most beautiful and innovative piece of writing, combining as it does clear explanation of a difficult topic, literary and scientific allusion, interesting dialog between characters with definite personalities, rhetorical flourish, self-reference, and winning humor, all packaged in a piece structured as the literary counterpart of a Bach fugue. For good measure, it also contains a detailed description of ant colonies as complex adaptive systems.

38. Contrast this with the picture provided by much of standard economics and, in fact, by any social theorizing in the 'rational choice' style. To the extent that these can be considered as descriptions of social systems rather than mere applications of a particular method, they collapse the levels of abstraction down to two - or actually one, since they treat the properties at one level as simple statistical aggregates of the properties at the other, much as one might do in the theory of gases. This sort of methodological individualism works only by invoking a thorough-going reduction-ism that ignores the complexities and causal efficacies of the structural levels that emerge between the levels of individual and system or acknowledges them only as ad hoc constraints.

39. 'Their Laws and Cloaths were equally/Objects of Mutability;/... They mended by Inconstancy/Faults, which no Prudence could foresee.' (pp. 68-69). See also Hayek (1978, pp. 249-266) and Bianchi (1994). For a masterpiece of academic put-down (set amongst a long, unfriendly, and surprisingly unperceptive commentary), see Smith's (1790, pp. 308-314) comments on Mandeville's 'coarse and rustic eloquence' which 'could never . have occasioned so general an alarm had it not in some respects bordered on the truth'.

40. In markets, the 'vice' of private monopoly is a positive factor in economic expansion - see Schumpeter (1950). And according to Hull (1988, p. 32), 'some of the behavior that appears to be the most improper actually facilitates the manifest goals of science . the existence and ultimate rationality of science can be explained in terms of bias, jealousy, and irrationality'.

41. According to Cheung (1975), 'since the go-between had to walk about in searching and negotiating the contract, payment for his help was politely viewed as compensation to repair his shoes'.

42. See, for example, Mises (1949, pp. 762-764) and Ikeda (1997).

43. Empirical analyses in this area are to be found in Koppl (2002). See also Machlup's (1936) suggestive essay. For a similar treatment from the adaptive systems perspective, of which the following is a paraphrase, see Butos and McQuade (2002, pp. 125-126).

44. The following explanation is largely taken from McQuade and Butos (2003, pp. 142-143).

45. As Merton (1973, p. 443) puts it: ' ... eminent scientists get disproportionately great credit for their contributions to science while relatively unknown scientists tend to get disproportionately little credit for comparable contributions'. He has named the phenomenon 'the Matthew effect', alluding to a famous biblical passage. This flair for description and naming probably overemphasizes the effect, however - a study that puts the issue more in perspective is that of Johnson (1997), who finds that prior reputation (measured as the number of citations per article in the past five years - self-citations not counted) has a 'significant but small' effect in generating citations to later articles.

46. This is an elaboration of a compatible discussion in McQuade and Butos (2005).

47. Unexpected support for this claim comes from the perverse effect of government funding of academic science in Britain, which appears (contrary to stated intent) to have actually reduced the amount of basic research relative to applied research by requiring 'relevance' in their funded projects. See Kealey (1996, p. 322).

48. In the U.S., the private sector contributed about 90% of basic science funding in 1940, but by the mid-1980s the government's share had risen dramatically to about two-thirds - see Kealey (1996, pp. 158-161). In total R&D spending, government sources dominated in the 1950s and 1960s but have been overtaken since the 1980s by the continuing steady increase in funding from private sources. Interestingly, as Kealey (1996, pp. 162, 320-321) points out, the enormous increase in government funding of basic science since 1940 appears to have made no discernable effect on the trend of GDP per capita, i.e., on an (admittedly rough) measure of the general economic well-being of the citizens who paid for it, casting doubt on the common claim that generous funding of academic science is a sure path to national wealth.

49. Hayek (1973, p. 100) has noted this latter concern, pointing out, for example , that 'law as we know it could never have fully developed without such efforts of judges, or even the occasional intervention of a legislator to extricate it from the dead ends into which the gradual evolution may lead it'.

50. There is no doubt that, in order to sharpen these diagnostic tools beyond their current blunt state, we will need to pay a lot more attention to pinning down concepts such as 'manipulation', 'degradation', 'stability', and even 'adaptiveness' itself.

51. When we cite 'adaptability' as a characteristic of a social system, we are not seeking to somehow justify that system's operation according to some normative standard. We are simply making a pattern prediction - that, given the way we think social systems actually work, some arrangements will be able to adapt to unexpected environmental changes better than others. We do not say that this is a good thing or a bad thing; we just say it is. There is no doubt that hierarchical and coercive arrangements can persist for extended lengths of time or that centrally planned and controlled economies can succeed at producing a very limited number of things very well. Such arrangements can persist as long as their environment does not change in such a way as to induce critical stress. But 'corrupting influences' such as Pepsi, blue jeans, rock music, and internet access are rationally feared by the commissars of such arrangements precisely because they are environmental inputs capable of stimulating new transactions and inducing further inputs that put great stress on the existing map.

52. Since, in excluding big player effects, we have abstracted from actually existing systems, what follows is of necessity casual empiricism filtered through a theoretical lens.

53. This concern, admittedly insufficiently researched and therefore largely speculative at this point, would apply to government interaction with markets as well, and if valid would render 'policy prescription' a much more perilous undertaking than it is currently conceived to be.

54. The idea that a business organization has a 'mind' or is usefully viewed as a 'learning system' has recently had much play in the management literature - see, for example, Fulmer (2000). Unfortunately, this literature is of limited scientific value in that it seems to be overly dependent on superficial treatments of currently popular scientific ideas encapsulated in interesting-sounding buzz phrases such as 'systems on the edge of chaos', the 'uncertainty principle', the 'cognitive dimension', and the 'chaotic and uncertain world of the 21st century'. But there is serious work in the sociology of organizations, Sandelands and Stabelin (1987) in particular, that independently anticipates in part the general approach of this paper and adds credence to our expectation that this approach might have quite wide applicability.

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