economic ontology

/ / , , , , , , , , , /

Ontology, Framing, and All That Jazz

The collection of papers edited by Uskali Mäki and published in 2001 under the title: “The Economic World View, Studies in the Ontology of Economics” seems to be quite pertinent given the reaction to my recent comments on complexity.  It is a wonderfully rich source of thought about what, exactly, economics is, which is something that seems to confound a great number of people.  Quite often I get the sense that some critics are upset with economics because it isn’t physics, or chemistry, or, more controversially, biology.  No it isn’t.  Nor are they economics.  Hopefully we all agree on that.  Nor is it history or any other thing.  It is economics.  Which is something that has coalesced around certain ideas over the last couple of hundred years.  Quite what it is, though, remains a work in progress.

Economics is way more complex than the “natural” sciences simply because it involves us and our confounded intentionality, controversy, whimsy, and so on.  Physicist have it easy: atoms don’t “think”.  Which is why those economists who try to nail people down as if they are atoms do what they do.  It simplifies what is otherwise an enormous fog.  I happen to think they oversimplify, but I don’t criticize them for trying.

Buried in Mäki’s own contribution, which is rather cheekily entitled “The way the world works”, is an illuminating comment from Ronald Coase who, as you know, is one of my favorite economists.  Coase let’s us know that he sees the relentless fixation on economics as being a theory of choice as harmful because it detracts from other significant features of real economies:

“This preoccupation of economists with the logic of choice … has nonetheless had, in my view, serious adverse effects on economics itself.  One result of this divorce of the theory from its subject matter has been that the entities whose decisions economists are engaged in analyzing have not been made the subject of study and in consequence lack any substance.  The consumer is not a human being but a consistent set of preferences.  The firm to an economist … ‘is effectively defined as a cost curve and a demand curve’ .  Exchange takes place without any specification of its institutional setting.  We have consumers without humanity, firms without organization, and even exchange without markets.”  — Coase, 1988, “The Firm, the Market, and the Law”.

Narrowing economics down to being a theory of choice fits within the tradition of what I have called, at my peril apparently, the war on scarcity.  It allows for the excessive formalization I and many others decry.  It makes economics into a kind of applied mathematics which satisfies the sort of economist who might have started out early in in life studying mathematics, physics and so on, but leaves aside other perspectives that reveal insights intractable to that approach.

The existence of scarcity is a primordial condition of humanity.  The battle for subsistence in a landscape that presented few opportunities for prosperity was the basis of existence for millennia.  It created the illusion of stability.  Yet within each of those periods there was a low level but relentless improvement taking place.  Invention or innovation was slowly allowing our ancestors to cope better with scarcity.  In other words despite the illusion of stasis it was becoming possible to tame nature.  We were winning the battle with scarcity.

Eventually, of course, it was possible for the economy, whatever we decide that is, to escape from the social and ethical limits put on it through those millennia.  There is even a good argument to be made that it was entirely due to the steady erosion of scarcity that society became affluent enough to turn its attention to costly activities such as religion, politics, and state building.  What appeals to me about economics is that it is the study of how that affluence is created and distributed.  Or, rather, that’s my basic point of view.  And in order to get at answers to those questions we need to think about what an economy is. Which is where I wander into thinking about information and so on.

Which returns me to the Mäki article.  Information is something economists talk about a great deal.  It is usually in the context of communication rather than structure or learning in the way that Hidalgo sees information.  To my mind this is excessively narrow, but it is the way in which economists devoted their early attention to information.  Mäki quotes Richardson, another of my favorite thinkers on economics, as being critical of how restrictive this focus on communication has become:

“if we are led to study the informational aspects of social systems only in terms of a rigid conceptual framework borrowed from physics, we shall certainly obtain a distorted picture.  Prices, for example, and particularly the current values of prices, assume from this point of view an undeserved prominence, because it is in terms of them that a quasi-physical signaling mechanism can be elaborated and given mathematical expression.”  Richardson, 1960, “Information and Investment”

Richardson’s belief is that looking at an economy is such a limited and almost mechanical way leaves too much out.  I agree.  Which is why I think we need to look for an expression of reality that better accommodates itself to the task of economics.

But that brings us back to deciding what task[s] that is.

To reveal my hand a little more, two articles in the Mäki book stand out to me: “Economics without mechanism” by John Dupre; and Jack Vromen’s”Ontological commitments of evolutionary economics”.  The latter, in particular, is worthy of further discussion as we all ponder what economics is.

Before I came across the Mäki collection I was influenced by Tony Lawson’s “Economics and Reality”.  So I will end this little grab bag of thought with a longish quote from Lawson as he gets to grips with the issues of economics:

“Economics, then, in a more obvious way than natural science perhaps, is necessarily historical-geographical.  In addition, if by virtue of their dependency upon human agency, social structures must continually be reproduced, it follows that economics is concerned with inherently dynamic matters.  The terminology of process is thus fundamental to social science.  By this I do not mean … merely a sequence of events.  Rather, process denotes here the genesis, reproduction, and decline of some structure mechanism or thing, the formation, reformation and decay of some entity in time.  Clearly, if society is intrinsically dynamic, social science must be alert, and its methods tailored to, this condition.  Furthermore, the dependence of social structure upon human agency also entails an inescapable hermeneutic moment in social science, one that … may be of greater consequences than any similar or comparable moment in natural science.  In addition, the impossibility of engineering, and the absence of spontaneously occurring, closed social systems, necessitates a reliance upon non-predictive, purely explanatory, criteria of theory development and assessment in the social sciences.“

One last thing, the introduction in Robert Ayres terrific book “Information, Entropy, and Progress: A New Evolutionary Paradigm” sets up the terms and concepts nicely for anyone who wants to follow Lawson’s path.  It’s always worth remembering that the paths we tread are well-worn, and that, more often or not, our revelations are humdrum in the context of the entire conversation that is economics.  The classic along this path, of course, is Georgescu-Roegen’s “The Entropy Law and the Economic Process”.  But that’s for another day.

 

 

/ / , , , , /

Basics

For a variety of reasons I pulled Olivier Blanchard’s macroeconomics textbook off my shelf yesterday — I have the fifth edition which dates back to 2007. Or at least that’s how he begins his opening paragraph, he says he’s writing in mid-2007. So it would be easy to plunge into the book and start to look for evidence that Blanchard’s version of economics led us all to expect or predict the crisis that unfolded only a year later.

But that’s no what caught my eye. No I was interested in another aspect of the book: it has no introduction to what an economy is.

I find that strange. Very strange.

This is supposed to be a textbook about macroeconomics. The subject matter of macroeconomics is the economy, or, rather, aspects of the economy, but there’s no attempt to describe the economy. Instead it plunges in as if we all know what an economy is and that it is uncontroversial. It begins thus:

“When macroeconomists study an economy, they first look at three variables:

  • Output — The level of production of the economy as a whole — and its rate of growth

  • The unemployment rate — The proportion of workers in the economy who are not employed and are looking for jobs

  • The inflation rate –the rate at which the average price of the goods in the economy is increasing over time”

So when macroeconomists study an economy they dive right in and study some variables. Do those variables describe what an economy is? They are clearly important, but why these three?

I realize these first few paragraphs are just to introduce a student to the journey, so I went further to look what happened in the more detailed sections. A few pages on we get to read a description of those three key variables. Here’s the start of the ‘output’ description:

“Economists studying economic activity in the nineteenth century of during the Great Depression had no measure of aggregate activity (aggregate is the word macroeconomists use for total) on which to rely. They had to put together bits and pieces of information, such as the shipments of iron ore, or sales at some department stores, to try to infer what was happening to the economy as a whole.”

Blanchard then goes on to describe the accounting system that measures GDP.

But GDP is not the economy. It is a measure of some aspects of an economy. GDP provides grist for the analytical mill, but is far from being a description of what an economy is. It is roughly akin to a corporate income statement — it tries to measure what went on in a particular period, but it omits tons of interesting stuff and misses entirely anything akin to a balance sheet.

I won’t belabor the point further: economics, when it is taught, ought to begin with a discussion of what an economy is. This is especially important for students who are not going to delve much further and who will, thus, miss the detailed elaborations that Blanchard et al presumably give later on.

Economies are people doing stuff: stuff we all do. They are not time-series, accounting conventions, lines on charts, or equations in models. They are people going about ordinary life. How that activity then gets expressed — some of it — in the collective we call a market is something to talk about. Why is some activity in that collective and not in another collective such as a family? And so on.

The problem with diving straight into macro variables such as output, unemployment rates, and inflation is that it elides any contention in our arriving at the importance of those variables. It elides the conversation about what to count and what not to count. It avoids the entire discussion about the richness and diversity of real economies, about their complexity, about their inherent uncertainty, and thus about our need for humility in our study of them. Plunging in is an expression of the hubris of economists who want the world to imagine that we have a deeper understanding than we do.

It is an avoidance of reality. Students would do well to confront that reality early on. It makes what follows both more interesting, contextual, and human.

Blanchard, of course is not alone. His book is excellent — if you are in his camp of economists. It’s just that it begins in the middle and not the beginning. It describes only part of the journey. It’s rather like having a map where the cartographer omitted to tell you what it’s a map of. Instead the cartographer simply lets you know there will be roads, rivers, and mountains each of which will be discussed at length. They are what cartographers like to put on maps. That’s true. But it always helpful to know what place the map is of.

Isn’t it?