[ba-unrev-talk] Systems Theories Penetrate Economics
http://www.btinternet.com/~pae_news/review/issue7.htm
Jason Potts and John Nightingale (2001) "An Alternative Framework for Economics"
, post-autistic economics review : issue no. 10, December, article 3. (01)
"An Alternative Framework For Economics
John Nightingale, (University of New England, Australia)
Jason Potts, (University of Queensland, Australia) (02)
"The award of the Nobel Prize in Economics for Information Economics gives an
opportunity
to illustrate why this form of economic analysis is a dead end. The theories
advanced by the
Prize winners, Akerlof, Stiglitz and Spence, are ad hoc auxiliary assumptions
tacked onto
the neoclassical, and neowalrasian, hard core. The work of these auxiliaries is
mainly ex
post rationalisation rather than prediction or explanation. (03)
"Is modern economic theory just a morass of special cases? It is important that
some
alternative framework be found to allow valid generalisation to once again
characterise
economic theory, and this time, not fail to provide robust empirical results in
the absence
of ad hoc auxiliaries. Is there such an alternative? We can report that there
is, and that it
promises all that is missing from orthodoxy. (04)
"The autism of orthodoxy stems from its treatment of the human agent, who is
mindless and
does not interact with other agents. The broad solution then is to develop a
framework in
which agents carry knowledge and interact with other agents to use and create
knowledge.
This is the essence of the new evolutionary economics (e.g. Loasby, Knowledge,
Institutions
and Evolution in Economics, 1999). In The New Evolutionary Microeconomics,
Potts (2000)
argues that all heterodox thought shares a common ontological foundation in the
view that
the dynamics of evolving economic systems are in the space of connections. An
economy
is a complex system of interactions, and the dynamics of an economic system
involve
change in the connective structure of the system. Three main themes can be found
to share
this common foundation. (05)
"The first is the evolutionary economics revived by Nelson and Winter (1982).
This builds on
Book IV of Marshall's Principles, and on Schumpeter's theories of cycles and
innovation,
creative destruction and greed for monopoly profit. Market capitalism is a
restless system
of experimentation in pursuit of sustainable rents based on private knowledge.
This is
fundamentally a neo-Darwinian approach. It has been argued in Nightingale and
Laurent
(Darwinism and Evolutionary Economics, Edward Elgar, 2001), that social and
cultural
theory is ultimately swallowed by Darwin's 'universal acid', as Dennett so
tellingly put it
(Dennett, Darwin's Dangerous Idea, 1995). Complexity and self-organisation
theory is the
most recent advance of the neo-Darwinian project (Foster and Metcalfe, Frontiers
of
Evolutionary Economics, 2001). (06)
"The second is the New "Old Institutionalism", which is about how agents with
minds
construct and use complex systems of rules. Current orthodoxy has largely
ignored the
cognitive dimension of human behaviour. This strand of course began with
Veblen, finding
new life in the development of both evolutionary thought and its application to
human
institutions. American Institutionalism saw the difficulties of Veblen's
imprecision and
contradictions, and neglected the biological metaphor introduced by Veblen in
favour of a
vague developmental notion of institutions as historical determinants of
economic outcomes.
Current research on Veblen's themes often ignores his contribution, but
continuity of ideas
remains clear. Organisational ecology, and other resource and systems based
views of the
firm, is one such well-defined field on inquiry. Evolutionary psychology is
another (L.
Cosmides and J. Tooby, (1994) 'Better than Rational' AER, 84: 327-32). Both
these are
converging in the economist's sphere, seeking explanations of selection
processes and
system regularities in habits, routines and the causes for organisations' and
other institutions' persistence as well as entry and exit. The means by which
knowledge is conserved as well as transformed and created is at the centre of
this program. (07)
"The third is the complex systems view of economic systems. Methodological
Individualism
is one of the principles on which modern orthodox economics is based, as an
article of faith,
and a justification for the reductionism that has bedevilled areas such as
macroeconomics.
The antithesis of this is an organic approach that can be traced to, among
others, the
American pragmatist philosopher Charles Sanders Peirce. In essence, the concept
of a
system rather than some atom within an aggregation of atoms, as the entity of
interest,
distinguishes the organic approach from MI. Geoff Hodgson's Economics and
Evolution
(Polity Press, 1993) has an extended exposition of the importance of this branch
of theory.
Reductionism, one of the fundamentals of MI, insists on 'micro foundations' for
any
explanation. An organic, systems or hierarchical approach insists that this
demand is not
only irrelevant but misleading. Such a demand results in attempting to use
inappropriate
theory, and has long been abandoned in the physical and life sciences (ever
heard of a
sub-atomic theory of ocean waves?). (08)
"This range of heterodox economic theories, all of which are close relatives of
very orthodox
theories in other fields of science, are united against the neowalrasian
orthodoxy, even with
the ad hoc auxiliaries added by this year's Nobel prize winning information
economists, by
a single critical feature. They are all theories of connections between
knowledge carriers,
be these individuals (in a theory of intra-household decisions), firms (in a
theory of market
structure), or sectors or national economies (in a theory of macroeconomic
performance).
They are all dynamic theories of systems evolving endogenously, subject to
external
shocks, of course. They are theories in which knowledge rather than information
is key.
They are not Newtonian field theories, in which every point is connected to
every other.
They can all be subsumed analytically as elements and the connections between
them.
These dynamic systems theories of evolutionary organisation are all graph theory
constructs.
In other words, using the language of graph theory, the geometry of elements and
connections provides a unifying frame with which to develop these alternative
economic theories. (09)
"This, then shows there is a progressive alternative to autistic
neoclassical/neowalrasian
economics. The emerging synthesis of evolutionary and self-organizational
approaches into
a framework of complex systems theory is a solid basis upon which to build. It
connects
evolutionary biology and evolutionary psychology to evolutionary economics (for
a popular
science account, see, for example, Stuart Kauffman's At Home in the Universe,
1995). It
provides analytic methods in discrete mathematics and multi-agent simulation
models. It
is the study of the emergence of order, rather than continuous equilibria. It
is ontologically
well-founded in a growth of knowledge framework where connections are the prime
variables
in an economic system. Such a unified heterodox synthesis may underpin a broad
front of
research advances that do not close off alternatives, but open more to
scientific development.
___________________
"Jason Potts is the author of The New Evolutionary Microeconomics: Complexity,
Competence, and Adaptive
Behaviour (2000). John Nightingale is the co-editor of Darwinism and
Evolutionary Economics, Edward Elgar, 2001." (010)
--
Peter (011)