Home > neoclassical economics, The Economics Profession > Finding a framework for a New Economics

Finding a framework for a New Economics

from Geoff Davies

The challenge, and reactions to it

Many economists, and more non-economists, agree that economics needs new ideas, given the comprehensive failure of the mainstream to foresee the Global Financial Crisis and its continuing failure to lift the US and Europe out of deep recession or depression.

Few in the mainstream seem to have any idea where to start. Many non-mainstream economists offer ideas, and many of those ideas are important, but not the whole story. Many of the non-mainstream proposals reach back to older ideas (Keynes, the Austrians, etc., often with valuable but incomplete insight) rather than reaching forward to new and more comprehensive approaches. There seems to be little agreement on which things to change, nor on how much the subject needs to change.  

Some react against the excessive, and useless, mathematics of neoclassical economics to reject the possibility of using mathematics at all. Others reject the possibility that economics could ever be a science, no doubt meaning a reductive, Cartesian, clockwork kind of science. I can only agree with the inadequacy of reductionist science, but there is now also holistic systems science, and this should not be rejected out of hand. To me, an experienced Earth scientist, science is the invention and testing of stories. Mathematics is a tool that is useful in the testing stage. Sometimes a simple calculation [1] or a rough estimate can yield important insight into what a story (theory) implies. Sometimes more elaborate mathematics is justified [2], but not if the relevant observations are incomplete or inaccurate. The problem is not mathematics itself, but the inappropriate use of mathematics, especially when it is used to put pseudo-scientific wrapping around non-scientific mumbo-jumbo.

When proposals do appear that might begin to address fundamental problems, many economists seem to recoil, and others seem simply to fail to recognise that the proposals have any relevance. This raises the question of whether many economists would recognise an important new approach if they saw it.

A comprehensive reconception required

Coming from outside the profession, and having spent nearly fifteen years exploring economies and economics, my own assessment is that there are multiple, independent, fundamental problems. The mainstream theory of markets is pre-scientific, and its application is pseudo-science (see more below). Economic accounting, via the GDP, is misguided, misleading, and seriously distorts economies. The special nature of land is ignored (as Henry George argued). The endogenous creation of debt is ignored (as Steve Keen argues). The feedback between credit and land prices, which regularly creates booms and busts, is therefore overlooked. The many possible forms of ownership, and their potentially profound influence on the economy, are hardly noticed, except in the extreme forms of absolute private ownership versus socialist government ownership. Even the nature of money, as a social contract, is widely misunderstood, witness regular calls for a return to the so-called gold standard.

The neoclassical theory of markets is based on such absurd assumptions (no economies of scale, rationality, similar preferences, no social interactions, ability to predict future probabilities, etc.), and its central prediction of equilibrium is so obviously violated, that it can only be called pre-scientific. Ptolemy’s theory of planetary motions gives passable predictions of where planets will be, as did the more ancient systems from which it was refined. Neoclassical theory cannot begin to predict the major economic events, nor even allow that they are possible, and is therefore a useless distraction. Dressing it up in mathematics merely presents it as pseudo-science.

This is a harsh assessment, but one I think is straightforwardly justified. Having sketched out how comprehensive and fundamental the remake of economics must be, we still need to figure out how to proceed. I have argued here in the past that economies can be recognised as complex systems, and that recognition provides a framework within which a proper science of economics can be developed.

What this is, and is not

Some seem to have interpreted this as though I am proposing to establish a new school of thought, rather as one might start a new art movement or religion. Perhaps because it is not their preferred school of thought they are not interested. Others see complexity mentioned and refer me to the people who are using complexity concepts and models to understand various aspects of market behaviour (for example). That is excellent work but I am not doing that either. I am inferring a comprehensive framework for understanding economies and societies, and drawing immediate fundamental conclusions.

So here, in as concise a form as I can put it, is how I think economies can be recognised as complex self-organising systems, using well-established and commonplace observations of their behaviour. This is only a brief summary to highlight the line of the argument. It does not provide much supportive detail, which can be found in my book.

Inferring the new framework

I argue that a broad framework for a new theory of market economies can be arrived at rather readily by combining modern ideas of systems with well-known observations of modern economies. Briefly, there are some readily identifiable sources of instability that are at work all of the time, not just during market crashes when their presence ought to be undeniable. (Examples are given at the end.) There are also stabilising forces, of the kind described by the invisible hand metaphor, though they are far from dominant. Thus the economy has both invisible hands (stabilising) and invisible feet (destabilising) driving its behaviour from the inside.

These characteristics describe a self-organising system, and one that is not close to equilibrium. It is reasonable to argue further that the system is in fact far from equilibrium all of the time. In that case the system is either in a state of deterministic chaos or in a state called complexity. Although the system is sometimes very erratic, mostly it displays recognisable patterns of behaviour, though with continuous fluctuations and occasional large shifts. Such behaviour is characteristic of complexity rather than chaos. By this logic, modern economies can be identified as complex self-organising systems, or complex systems for short.

Implications of the new framework

Fundamental conclusions follow immediately.

A complex system has many possible states that cannot be readily ranked by efficiency or any other criterion, rather than the single global optimum of the near-equilibrium neoclassical theory. This means there is not just one best way to organise an economy. There are many more acceptable ways than there are societies and cultures. It is for each society to organise its economic system to support the kind of society it chooses to be. Thus economies are relegated to their proper place, which is to support the society of which they are a part. Thus also economic and cultural diversity can thrive again.

Living systems are also complex systems. Therefore there is no fundamental reason an economy cannot be made compatible with living systems, so that the natural living world can thrive around it. In contrast, the present system is incompatible with living systems at a fundamental level.

Without a global equilibrium there is no basis for the claim that free markets are the optimal way to organise an economy. The global optimum predicted by neoclassical theory is an unrealistic abstraction. Markets are clearly powerful, but if they cannot be relied on to deliver a useful result then they need to be managed.

To manage a market economy we need to understand it. The guiding principle in seeking such understanding is the same as is used in dealing with living things. Although the moment-to-moment behaviour of a dog or a horse cannot be predicted with certainty, a good trainer works with the character of the animal to manage its behaviour. At present our economies are more like wild horses. They need to be tamed, and harnessed to the urgent demands of humanity’s current precarious situation. Thus we arrive at a vision of markets managed, through incentives, to deliver the things we want.

The framework thus outlined can accommodate many of the issues addressed by the less doctrinaire economists, such as our so-called non-rational behaviour, the herding behaviour and “reflexivity” evident in financial markets, social behaviours like fashion-following, the roles of institutions and social conventions, and so on. Cooperation, which is fundamental to human behaviour and to much of the living world, can stand with competition as being an essential feature of our societies and economies. The economy can encourage compassion and love, rather than crushing them.

Some pre-existing parts of economics will presumably carry over into this framework, but some will not. The neoclassical notion of equilibrium, and its associated free-market optimality, must be abandoned. Neither is the Marxist conception of a managed non-market economy compatible with how a complex system works.

There are other important and fundamental misconceptions or malfunctioning aspects of modern economies that also need to be addressed. For example, the GDP is not a measure of material well being, it is only a measure of activity involving money. The obsession with ever-increasing GDP needs to be abandoned. The banking system, in conjunction with financial markets, currently generates grossly excessive levels of debt, and these are fundamental to the so-called business cycle and its excesses, in the form of crashes and depressions. More stable banking systems are possible.

To properly address the deficiencies of modern economics and economic management we must be willing to address such fundamental issues. But perhaps the central issue, psychologically, is the notion that the economy is never far from equilibrium and can be relied upon to sedately restore itself if perchance any small disturbance should ever come along. This belief underlies the widespread faith in free markets, but it is ideology, not science.

If economists, or some economists, or some people who want to define a new economics, are willing to contemplate such possibilities, then we can begin a constructive debate.

Examples of instabilities in modern economies:

Increasing returns to scale are pervasive, and they allow large firms to grow at the expense of smaller firms, leading to widespread monopoly or oligopoly.

Financial markets are prone to herd behaviour that amplifies trends, often dramatically.

During the 1987 market crash, valuations changed by 30-40% in one day, though there was no change in the physical world: 30% of factories had not been bombed overnight. The change was internal to the markets, an obvious instability.

Wealth tends to aggregate to the already wealthy, an instability in the distribution of wealth. At least seven mechanisms can be identified that promote this instability.

Bibliography

1. Davies, G.F. (2011) The value of simple models, with examples of economic dynamics. Real-world Economics Review, , 106-114, http://www.paecon.net/PAEReview/issue57/Davies57.pdf.

2. Keen, S., A monetary Minsky model of the Great Moderation and the Great Recession. Journal of Economic Behavior & Organization, 2012: p. in press.

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  1. Gavin Mooney
    November 28, 2012 at 9:00 am

    I have had a go at a new framework at a micro level in the context of health but feel the ideas can be expanded outwards and eventually to a macro level in Challenging Health Economics (OUP). I’d love some macro economists to pick up the ideas there and see if they are worth taking further. Their essence is communitarian.

  2. henry1941
    November 28, 2012 at 9:19 am

    A useful background here is “The Corruption of Economics” by Mason Gaffney

  3. Nell
    November 28, 2012 at 10:48 am

    I agree. As an outsider to the discipline (academic in other field), it appears to me, that neoclassical theory, for all its complex mathematical models, actually operates as closed belief system, not a science. Scientific theories change when faced with overwhelming empircal evidence that undermines a world view. This is true of other social sciences, not just hard science. An example is the effect of Chomsky’s challenge to behaviourism in psychology. I am not sure that it is possible to change the discipline of economics from within. If the meltdown of a global financial system is not enough to shift the world view of the majority of academics working in the discipline, what else is?

    • sergio
      November 28, 2012 at 4:21 pm

      I also hoped that only some big event outside economics can change it and bring down the tyranny of free market neoclassical dogma. That big event happened in 2008. Since then I was desperately waiting and looking for some very little change that would take place in economics. Unfortunately, nothing changed. Neoclassicals keep writing how perfect free market is, keeping silence on what is going on in real world. Students keep studying neoclassical textbooks, believing that this IS economics, and our real world works as neoclassical textbooks describe it, and thus keep paying tuition fees to charlatans. Nothing changed. So, I gave up the idea that economics will change from within. Now, I hope that only arrival of extra-terrestrial civilization will change economics. This is not a joke. Heterodox economists can not change economics, protesting students can not do it either. May be politicians bail-outing capitalism? No. Only ETs will change our world view and economics. This hope is more realistic, than any other.
      But, wait there is one more hope. May be we can find some physicist, who could kindly explain mainstream economists that their vision of economics as “physics of society” is wrong. I hope that some physicist could explain neoclassicals the two main differences between physics and economics. One – is that physics discovers laws of nature, but neoclassical economics create those laws for society. Second – is that physics discovers laws of real world, as it is, but neoclassical economics believes that laws of imaginary world can work in reality. I hope that while neoclassicals are completely deaf to any other field of science, they can listen physics, because of their respect to physics through love to mathematics.

      • Steve
        November 28, 2012 at 11:57 pm

        Sergio
        Society never changes until an IDEA is changed, or a policy representing that idea is instituted. I just came back from watching Spielberg’s movie Lincoln which was about the political process of passing the 13th amendment banning slavery. Lincoln’s wisdom was in realizing that the only way to effectively end slavery was to make it the universal law of the land. To not do so would have allowed it to be instituted on the basis of state’s rights. It was an IDEA, a wise idea, whose time had come, and Lincoln’s fighting for its passage was the story.

        Today, the passing, the institutionalization of a citizen’s dividend would be exactly analogous to the banning of bodily slavery by the 13th amendment. Why? Because the current consumer financial paradigm of loan ONLY is enslaving in the same sense that bodily slavery was before the 13th amendment. Slavery after all is slavery, no matter of what
        kind.

        Change the idea (paradigm) and you transform, make constitutional law and you make that transformation permanent. Reform and you at best only inhibit or encourage. Reform in a crisis is too superficial.

  4. Mike Meeropol
    November 28, 2012 at 12:14 pm

    One point I think that is very important in Geoff’s post is that when confronted by efforts to present new frameworks, most of us are put off by the “newness” and never really expend the effort exploring it sufficiently. My case in point is John McDermott’s ECONOMICS IN REAL TIME. I found it really interesting but I am not a micro-economist so I was not in a position to judge if he had succeeded or not. I was really hoping that practitioners of the heterodox schools of economics would take a good look at it and see how it’s chief insight — that the purchase and consumption of commodities actually occur over different time frames rather than at one moment — might be helpful in making economics better at explicating “how the world works …”

    Unless I missed something, there were virtually no reviews and no follow ups — unlike what happened for example when Piero Sraffa’s book PRODUCTION OF COMMODITIES …(etc>) was published. In that case, though the US side of the Atlantic ignored it (or dismissed it), the Cambridge school picked it up and it had influence — enough that Paul Samuelson himself had to deal with it.

    THis is a plea for some folks to take a look at John’s book (truth in advertising, I was a reader for the publisher on the book and am thanked by John in the acknowledgements) and see what might be there of interest.

    • Dave Raithel
      November 29, 2012 at 6:49 pm

      Short initial take only from reviews: Explains those markets where leasing everything not consumed at purchase (I mean ice cream cones) are developing, will develop, etc. May or may not be any more “liberating” than what we live by now…

  5. November 28, 2012 at 12:18 pm

    And a very good introduction might be found in Das Kapital… 8-)
    Some hints that might help are a renewed consideration of the objective (as opposed to subjective…) theory of value,,, An understanding of the «Transformation Problem (beyond Bohm-Bawerk and Paul Sweezy) and, most of all, – and in spite of Parijs assertion – a demonstration that Okishio was both right and wrong in his demonstration that Karl Marx «law of the tendential fall of the rate of profit» was «wrong»… But if you have some prejudice about Karl Marx, you can always go to Keynes and find in there very similar conclusions. Namely that «Not only is the marginal propensity to consume weaker in a wealthy community, but, owing to its accumulation of capital being already larger, the opportunities for further investment are less attractive unless the rate of interest falls at a sufficiently rapid rate». THat a basic conclusion (or effect) from Marx «law of the tendential fall of the rate of profit»… One can also go back to Adam Smith:.«The stock accumulated in them comes in time to be so great, that it can no longer be employed with the ancient profit in that species of industry which is peculiar to them. That industry has its limits like every every other; and the increase of stock, by increasing the competition necessarily reduces the profit., (The Wealth of Nations: 144-5).» ,
    Peace on Earth to people of good will and an open mind…

  6. Dave Raithel
    November 28, 2012 at 1:51 pm

    “It is for each society to organise its economic system to support the kind of society it chooses to be.” But surely, societies may be as inharmonious with one another as much as a society may be far from equilibrium – or rather, its preferred system state? (We have that whole “permanent revolution” vs. “socialism in one country” conundrum….)

    A good read, thanks.

  7. November 28, 2012 at 2:28 pm

    You must read “Les vraies lois de l’Economie” from Pr. Jacques Genereux, available in french and portuguese (but not in english afaik). Published formerly in 2 volumes, then in 2001 in one single volume. All these questions are discussed, from the perspective of 300 years of academic works in economics, with authors from all sides/chapels.
    This book should really be available for everybody under CC BY SA licence, because it contains knowledge obviously needed i) to be able to think any reform of economics without spending a lot of time to reinvent the wheel (i.e. to synthesize many theories proposed in the history of economics), and ii) as a young adult, to be able to understand the nonsense of mainstream economics. Yes, this book is not an academic review full of formula and demonstrations, it is much much better than this because it is aimed to every young adult, with a simple yet precise language and numerous relevant references of academic publications. A masterpiece!

    I know J. Genereux is a member of RWER (or WEA at least), so he might read this post…

    Sincerely,

    • November 29, 2012 at 8:52 pm

      To me, there are no natural laws of economics to speak of.

  8. ezra abrams
    November 28, 2012 at 2:32 pm

    As Feynman said, next time you hear a physicist boasting, ask him what happens when you push water through a pipe – he can’t tell you.

    The point is, should a science like economics be able to predict sudden, sharp changes ? Critical points are notoriously difficult to predict in physics and chemistry; maybe the highly non linear nature of human behavour makes events like 2008 hard to predict

    In any event, is their some sort of rigorous analysis that suggests that 2008 could, or should have been predictable ?

    That some people (D Baker is all i know of) predicted the event is immaterial; there is always someone, who, after the fact , looks good.

    • November 28, 2012 at 8:44 pm

      No, we can’t predict the precise timing of tipping points. But quite a few people, including the Revere Award winners listed on this site, said it would happen *soon*. And their were sound reasons for that expectation.

      More importantly, the neoclassical theory does not even allow the *possibility* of a crash driven by internal forces.

    • Nell
      November 28, 2012 at 9:34 pm

      Dirk Bezemer wrote an article on the topic of predicting the initial financial crash – he listed 4 criteria and came up with 11 names (some of them economists). See also Steve Keen’s site No one saw this coming – balderdash. The criteria were –
      1, provide some account on how they arrived at their conclusions.
      2. went beyond predicting a real estate crisis, also making the link to real-sector recessionary implications, including an analytical account of those links.
      3. the actual prediction must have been made by the analyst and available in the public domain, rather than being asserted by others.
      4. the prediction had to have some timing attached to it.

      So yes economists are capable of making useful predictions based on macro-economic data when they have open minds rather than dogma clouding their analysis. I assume that predictions made in 2006 and 2007 are ‘soon’ enough to satisfy your criteria since the credit crunch started in 2007.

  9. November 28, 2012 at 3:57 pm

    OBVIOUSLY, show US$ price histories inflation-adjusted, see here:

    http://patrick.net/forum/?p=1219038

  10. November 29, 2012 at 5:14 am

    Unfortunately, I think you are proposing a solution without a full and deep understanding of the problem, which is ancient and goes well beyond just neoclassical economics (e.g. including Keynes, Marx and the Austrians).

    • November 29, 2012 at 7:18 am

      Of course it’s ancient, and of course it goes well beyond neoclassical, which is just the dominant paradigm at the moment.

      Lyonwiss without being more specific, your comment is more patronising than useful. Read my book or at least one of my longer posts before you dismiss these ideas out of hand. There *are* some new ideas under the sun you know (and I mean systems, complexity, emergence and such like), that the great names of the past didn’t have at their disposal.

      • November 29, 2012 at 10:13 am

        Geoff, I agree with Lyonwiss to the extent that the “ancient problem” is human nature, and your list of “new ideas” doesn’t include information science (whereby C E Shannon provided the key to how our brains work), nor cybernetics (Wiener’s ‘macro’ form of Shannon’s error correcting logic, which showed how brains can use information to control complex processes like economies). He’s wrong on Keynes, who anticipated this to the extent of seeing markets controlled by [arousal of] animal spirits and government by information (not necessarily honest) about why, whether, how and when to act.

        In David Ruccio’s thread on ‘Market Morality’, I’ve just agreed with Bruce Woytch. He was absolutely right that “Psychological Manipulation” is what marketing is all about. That is why I keep trying to make the point that economics is an INFORMATION system: a human one, not just a physical nor even merely a Geoff Davies’ life’ system. It doesn’t just involve complexity, it involves COMPLEX TRUTH, which must not only compute true but contain no errors or systematic lies.

      • November 29, 2012 at 12:08 pm

        Geoff, exactly. The ideas are only new in details and not new (in fact ancient) in philosophical approach. I don’t believe that economics is about discovering a more complex system of equations e.g. as a prime objective to forecast the economy. This is an inappropriate imitation of physics. The clearest message from chaos theory, nonlinear dynamics etc. is that such an approach is futile, even for a system of many inanimate particles, let alone reflective humans. Economics itself needs to be re-defined in a way which permits conversation between different approaches. Most economists have no hope because they start from established schools, implicitly making many unfounded assumptions, preventing meaningful discourse with others.

      • November 29, 2012 at 11:02 pm

        lyonwiss –
        There’s a widespread misapprehension that physics is about prediction. It’s about understanding. Sometimes, in simply-behaved systems prediction is possible. Some I’m looking for a path to understanding, not prediction per se. However your model had better include the *possibility* of a market crash.

        So I agree with your general message.

      • November 29, 2012 at 11:57 pm

        There are misapprehensions about physics, about prediction and about many things. To most scientists the proof of understanding is prediction. Economists have taken this idea further in trying to forecast the economy and constantly failing. But this does not stop them from doing the same thing over and over, expecting different results. I believe physics is about predictions, but they are not the sort of predictions of economists.

      • November 30, 2012 at 2:55 am

        lyonwiss, my day job has been GEOphysics. We don’t try to predict how the Earth will be in one million years. If there is predicting, it is “predicting” what some future observations (of the past) might yield. In fact most of the observations I used already existed, we just didn’t have models that were consistent with them. So there was no “prediction” at all in my work, but it still greatly improved our understanding.

        Yes “most” physicists may think in terms of predictions, but you don’t have to predict future states of your system to gain understanding. Evidence (not proof) of understanding is, more generally, consistency with observations.

        As you clearly see no significance in what I wrote (your attitude was evident in your first comment), I don’t propose to pursue these exchanges further, but wanted to clarify some points for anyone following this.

  11. sergio
    November 29, 2012 at 7:40 am

    However, I see the problem in that we have beautiful, extremely complex to understand, mathematically sophisticated models of economic growth without clear definition of wealth, value, money, etc. If we can define these fundamental categories we would have completely different growth models, may be not that such sophisticated, easy to understandable, workable and achievable. The problem is that the discussion about these categories has not been taking place since the very origins of economics and even now such discussion is not allowed within mainstream dogma. They consider that we already know what those categories mean, and the problem is only how to calculate them and how to maximize utility, output, profits. Existing approaches (neoclassical economics, including Keynes, Marx and the Austrians) can only deal with capitalism. In the socialist countries all economic theories were completely useless. They are not universal and therefore they are not eternal. They intend to solve temporary problems. However to understand how we act as social beings, all these theories need to be abandoned all together. We need to return to fundamentals and get “full and deep understanding” of the fundamental economic categories. That would make economics true social science, not as it is now, “capitailsmonomics”. We have go back to history, philosophy, sociology, biology. Not pretend that economics is a physics. So far I think, that economics for the last 200 years did not progress at all in understanding who we are, why did we have Industrial Revolution and were we are moving to. Eventually, some technological invention, which would make production costless and effortless will destroy capitalism and bring into existence completely new social system. Only at this point we will understand that all our theories about capitalism is complete rubbish.

    • November 29, 2012 at 12:13 pm

      “Discussion about these categories has not been taking place since the very origins of economics and even now such discussion is not allowed within mainstream dogma”.

      A relatively innocent explanation of this is that qualified teachers don’t like to be taught by their pupils, nor by others without formal qualifications to teach THEIR subject. A more likely one, given the banking frauds and land grabs going on in post-Reformation Britain and yet again now, is that the capitalist theories of capitalism are not innocent rubbish but deliberate obfuscation; sand in our eyes. I don’t think you can say that of Marx’s comparison of M-C-M with honest C-M-C, but there you are, when we come to seeking an alternative, the category
      of ownership has not been defined either – or rather, the “democratic” legal definition flies in the face of the democratic philosopher’s definition. How do you define the meaning of ‘definition’ and the meaning of ‘meaning’? (This last the topic of more than one now – since Shannon and Algol68 – demonstrably misguided book). How do you define what something IS without ultimately referring to the perhaps many things it DOES? “By their fruits you shall know them”.

      I’m ruminating, Sergio: chewing the cud you have given us trying to get all the nourishment out of it! I particularly agree with you that we need “to go back to history, philosophy, sociology, biology”, though if you are wanting a “universal” and “eternal” sociology you will need to root it – like economics – in the abstract theory of communications, whereof it is an application inclusive of many particular (including human) forms.

    • Steve
      November 29, 2012 at 1:35 pm

      Sergio,

      You are on to something with this comment. I have also been pushing for economics’ integration with human wisdom. All of our systems need to be so integrated. The task is discovering and condensing wisdom into the most universal and applicable ideas, values, purposes and experiences and then aligning policies with same. Mankind’s leaders have to grow up out of their adolescence enough to consciously do this. People will follow and begin to grow up also. Wisdom, the higher order level of thinking and acting that integrates whatever it touches is what not only economics requires. All of Man’s systems must be under gird by it. T. S. Elliot’s words apply:

      “We shall not cease from exploration
      And the end of all our exploring
      Will be to arrive where we started
      And know the place for the first time.”

  12. November 29, 2012 at 11:18 am

    davetaylor1, sergio –
    Just to clarify, my very brief summary describes how to arrive at a conceptual FRAMEWORK. It can potentially accommodate many things, including information (fundamental), definitions of money, wealth etc., the psychological manipulation of marketing, etc etc. I certainly didn’t try to be exhaustive in my brief article, nor would I even try.

    How such things are defined, what the relationships among them are, how they might be specified – all that is the work to be done in building a useful understanding of real economies. Specifying them differently will imply different behaviour, and that’s what needs to be explored. The framework is the place to begin. But it’s important because it already implies fundamental things about economies, that I have spelt out in my article.

    This might also pertain to lyonwiss’ comment, though I’m not sure what he implies by saying I’m proposing a “solution”. I’m not proposing a solution, just a productive place to start.

    • November 29, 2012 at 1:03 pm

      Geoff, you are proposing a “solution” for economics, which is to combine systems theory with “well-known observations”. You said, “I argue that a broad framework for a new theory of market economies can be arrived at rather readily by combining modern ideas of systems with well-known observations of modern economies”. Your framework does not differ philosophically from neoclassical economics,,only your mathematics is more sophisticated and also you do not ignore “well-known observations”. Whether your system is in equlibrium or in disequilibrium, or whether it is linear or nonlinear or whether there is a new model of rationality etc. are merely details in a more sophisticated imitation of physics. I consider that your framework is proposed by you as a “solution” to the problem of economics. It is not a specific solution to a specfiic problem. But a general “solution” to develop better economic knowledge, as you see it.

    • November 30, 2012 at 1:05 am

      Fine lyonwiss. You can, if you like, find a grand philosophical category in which a complex system is the same as neoclassical theory (which is a very simple self-organising system). I’m interested in better understanding real economies.

      The behaviour of a complex system is radically different from that of a neoclassical system. That makes a big difference in the real world.

      • November 30, 2012 at 1:48 am

        Sure. In most cases, a complex system includes simple systems as special cases. For example, non-equilibrium theory includes the study of equilibrium for instabilities, strange attractors etc. So it goes beyond simple equilibrium theory and therefore can explain much more. It is your assertion that “That makes a big difference in the real world.” What difference? Does the difference matter in compelling a change in thinking and policy in economics? Many econophysicists have already pursued your line of thinking e.g. McCauley, Roehner, Mantegna, Stanley to name a few. They have had little impact because they do not understand the problem of economics (and occasionally they admit it).

    • November 30, 2012 at 3:14 am

      “So it goes beyond simple equilibrium theory and therefore can explain much more.” Well pardon my loose semantics, but that is what I meant by “That makes a big difference in the real world.” Your statement encapsulates a lot of what my article is about, yet you resolutely deny I’ve said anything useful.

      As I noted in the article, I’m not doing what other complexity people are doing, such as analysing financial markets. I’m drawing more fundamental conclusions. For example, if the system is complex, there’s no basis for the claim that free markets are optimal. I think that’s fairly significant.

      If my thinking hasn’t made much impact on the field (yet), perhaps it’s because so many economists seem to be resistant to allowing new ideas into their heads. Sorry lyonwiss, but you seem to be a prime example.

      • November 30, 2012 at 3:26 am

        Geoff, you last paragraph shows that you have lost your cool and attacking the person for resisting your new ideas is rude. I’m happy to end this conversation as you suggested earlier.

  13. November 29, 2012 at 1:17 pm

    Geoff, I understand and appreciate that you are trying to establish a conceptual framework: indeed I applaud it. What is not obvious is that you have grasped what a framwork is.

    The idea is captured in Shannon’s communication channels, which exist locally insofar as information gets through, and channel information like the structure of a building channels forces. The issue is whether by ‘concepts’ one means the meaning of concepts, or the paths down which neurons guide information to set up (or not) the sensory conditions necessary for one to truly ‘see’ the meaning: to be directed to the right book in the library or, in Shannon’s version, the right definition in a dictionary.

    Mathematicians now tend to think they have mathematised logic, but in Shannon’s sense of it as physically embodied, logic is necessarily prior to mathematics. Likewise with systems. The existence of a system may be RECOGNISED by patterns of numerically quantifiable relationships, but real systems are embodied as logic, where quantification reduces to All, Some, One and None, where a framework true of all is true of some or any. The minimal framework to capture [an information-carrying] process as a ‘thing’ is a circuital space, whereof Euclid showed three points (or the beginning, middle and end
    of the process) are necessary and sufficient to represent One, and the communications framework represented by a Leavitt’s Diamond the minimal representation of everything: not just the early Wheatstone Bridge of electrical theory or the architecture of brains and computers and PID control servos but of the processes flowing through them and any subdivision thereof. The METHOD of steering a ship doesn’t need to change even though its position does.

  14. sergio
    November 29, 2012 at 3:34 pm

    Seems that in economics there are neoclassicals, those who criticize neoclassicals, and those who criticize those who criticize neoclassicals. Economics is not progressing further than criticizing. Yes, we need a framework. Although there are elements of the new framework in the article, they need to be systematized, and kernel of the new framework should be clearly determined. May be the point here is to propose well-defined framework, rather than criticize. But I doubt that the third group has anything constructive to offer at all.

    • November 30, 2012 at 11:04 am

      I can’t see who this is aimed at, Sergio, but in any case you seem to have missed the only important class of critics here: those who criticise mistaken, inadequate or inadequately grounded ideas. We don’t all argue ad hominem.

      Given that your “here” is following my response, yes I am proposing a well-defined framework, in the form of dynamic logic adapted to spatio-temporal dimensionality, evolution, language and purpose rather than static logic based on static relationships between assemblages of dubious quantitative measurements from a purposeless and already dead past.

      In his article I see Geoff, with his geo-physics rather than information science and physical technology background, not proposing such a framework but still trying to imagine one. No way am I criticising him for that, or trying to compete with him. I simply want to help him see what I can see.

      Where we already totally agree, re his answer to Lyoniss at #22, is that science is all about understanding [hence using the right concepts], not prediction. When I’m steering my car, I don’t want to predict where I am going to end up, I decide it; and I steer in real time without numerical precision, just by moving my left or right hand down a bit.

      • November 30, 2012 at 11:20 am

        The test of understanding or the credibility of a theory is prediction. Prediction is implied when you steer your car, not direction or destination, but response to your action.

        A theory gains its credibiliy from prediction, not about the future but about tha gaps in knowledge. For example, by the time Mendeleev published his periodic table in 1869 there were only 63 known chemical elements. Based on the observed structural regularity and existence of gaps in the table, many other elements were predicted to exist. Within 30 years, 21 more elements were discovered, as predicted, and since then 34 more have been discovered.

        All these discoveries have led to new facts and confirmed the basic soundness and usefulness of Mendeleev’s organisation of the periodic table, which obviously passed the scientific test of prediction.

      • November 30, 2012 at 2:28 pm

        I agree with much of what you are saying, but the purpose of science is understanding and the purpose of testing is not so much reassurance as understanding and eliminating any detectable errors (or indeed, as you rightly suggest, gaps). The trouble arises when non-scientists take the testing for the purpose, precise description for the method, and don’t bother to understand what is happening because they have been reassured by illusions of accuracy and “storks bring babies/house prices going up makes you feel richer” type coincidences.

      • November 30, 2012 at 9:23 pm

        The problem with “understanding” is that it is a nebulous, unscientific word. All conflicting economic schools claim that they have a better understanding of economics than all others. That is one of the problems of economics: no effective way of resolving conflicting understandings. Science resolves this by selecting those theories which lead to new knowledge through verifiable predictions. Economists fail at forecasting economies with poor accuracies and economic theories do not lead to new knowledge about economics. A physicist does not read Newton like economists read Keynes, Marx or von Mises. This is evidence that physics has made progress whereas economics has not.

      • November 30, 2012 at 11:52 pm

        On your last point I agree. On your first one, the word ‘understanding’ differentiates Kant’s arguments from Hume’s, and is scientifically definable in the context of Algol68 programming, as a mode of interpretation of the data insofar as the interpreting procedural programs are available. That can be applied at least by analogy to our understanding. I suggest it is no less nebulous than the scientific concept of a gene, which in context may or may not be recessive.

  15. merijnknibbe
    November 29, 2012 at 5:34 pm

    Geoff, a valuable and important contribution. However, you state that:

    “Economic accounting, via the GDP, is misguided, misleading, and seriously distorts economies. The special nature of land is ignored (as Henry George argued). The endogenous creation of debt is ignored (as Steve Keen argues).”

    This is not quite true. According to the official guidelines the modern national accounts (which orginated in a time when neo-classical concepts were less dominant than they are now…) do contain explicit data on the market value of non-produced assets like land and oil and directly enable a deduction from GDP equal to, for instance, the change in the value of the stock of natural gas due to exploitation. The same for money creation: the flow-of-funds are part of the official national accounts guidelines and modern accounts contain data on (net) change in debt of the sectors of the economy and are based on the idea that (income plus change in debt) equals (expenditure on goods and services as well as existing assets)

    • November 30, 2012 at 1:13 am

      Sorry Merijn, I didn’t mean land and debt are ignored in accounting, I meant they’re ignored, or fundamentally misconstrued, in mainstream thinking. They are further examples of “multiple, independent, fundamental problems”, along with using GDP as the main measure.

  16. bruceedmonds
    November 30, 2012 at 8:04 am

    The most fundamental error of neoclassical economics is that they valued theory too much. Surely now is the time to abandon theory and look to where the evidence (qualitative and quantitative) is leading us. Data is often surprising, even though frequently mundane. The trouble with a new theoretical framework is that this (a) matters and (until we know more about what we are studying) (b) we do not know which is the best framework to use.

    Many big advantages in science happened after the input of new data or new ways of measuring the phenomena of concern. Maybe it would be more productive to look for new ways of sampling/measuring socio-economic phenomena, which might suggest more theory.

    • November 30, 2012 at 10:21 am

      Bruce, my experience is that understanding advances through an interplay of observation and theory. I think there are plenty of observations to draw upon to make useful progress.

      A colleague once referred to what he called nuggets – key observations that give you important insights. You can sift through a lot of confusing information and occasionally find a nugget. One of my favourite examples is the 1987 stock market crash – market values dropped 40% in a day although there was no change in the physical, productive economy. This shows that the stock market was driven by internal forces, not by external “fundamentals”. It also shows that the market was clearly out of equilibrium before, during, after, or all the time. Those are key insights that dispose of the quaint “efficient markets hypothesis”.

      The neoclassical stream of economics is not a useful vehicle for generating understanding (what I would call “science” in a general sense). That’s because it has not admitted that observations have any bearing on the theory. Therefore it is not a useful benchmark of how to proceed – either as an example to follow or as an abomination to react against.

      Thus I think we should not reject theory out of hand, just as we should not reject mathematics out of hand, just because the neoclassicists have so abused both.

      Even though the “framework” I have inferred/advocated is called “complexity”, rather simple models are still possible within its scope, as the link in reference [1] above illustrates. It is in fact important to keep models fairly simple (with correspondingly simple maths) while exploring new territory.

      See also my general comment below on what the “framework” implies.

  17. robert r locke
    November 30, 2012 at 10:26 am

    Why should we have to find a framework for a new economics? Why even think that a framework is even necessary? Why not look on economic experence as a series of unpredictable, unique. unespected, historical prooblems that “scientists” help solve. Look on the “scince” not as a framework but as a toolbox of auxiliary sciences (what Germans call Hilfswissenschaften,., mathematics, cybernetics, social institutionization, etc)into which scientiswt dip to help solve specific problems. Creating a framework of economics has in itself become a problem that has to be dealth with for us to prescriptively prognosticate in our solving.

    • November 30, 2012 at 8:39 pm

      Because your toolbox is our framework, Robert. “A rose by any other name would smell as sweet”. You can’t solve problems if you don’t have the conceptual tools needed to recognise and deal with them. The framework problem exists because those specialising in dealing with economic problems are using inappropriate tools. They can’t see our problems, never mind possible solutions using existing tools not in their toolbox, but justify their existence inventing imaginary problems with which to demonstrate their proficiency with the tools they have.

      I imagine your toolbox of auxilliary sciences would be about right in an unspecialised world, Robert, but the reality is that we are limited, our world is specialised, and what specialists need is proficiency with appropriate tools and an up-to-date understanding of those auxilliary to their profession.

      Right now I’m suggesting economists need to become proficient in information and control systems analysis, and in brief, to radically update their background understanding of the four-level specialisation within the architecture of atoms, electronic circuits, human brains, computers, continuous control systems, algorithmic computing languages and types of mathematics – preferably via reflection on the histories of their development.

  18. November 30, 2012 at 10:50 am

    “FRAMEWORK” – general comment.

    One useful thing that has emerged for me in these discussions is that the term “framework” does not work very well here. Evidently it implies “rigidity”, even though a framework has lots of space to be filled in.

    Complex systems do not imply rigidity. They have astronomically-many possible states, depending on their internal interactions. They do exclude some possibilities (such as linear, near-equilibrium behaviour, and perhaps a bureaucratically planned economy) but still leave vast scope for what is possible. The challenge then is to do the work that narrows this scope to what is reasonably likely behaviour.

    The metaphor I use in my book is that modern lightly-regulated markets are like wild horses – powerful, but erratic and unpredictable. They will only serve us if we study their behaviour and learn to tame, harness and guide them.

    Living systems are complex systems, in the technical sense I use here. Living systems are not simply predictable, but a horse has a definite repertoire of behaviour that we can call horse character. It’s recognisably different from dog character and cat character.

    Just as we can usefully understand the behaviour of animals, we ought to be able to usefully understand the behaviour of an economy – to get to know its character. However, first, we have to recognise “the nature of the beast” we are dealing with (that’s my book title). My metaphor for neoclassical theory is a rocking chair (or a rocking horse if you prefer) – it grossly mis-identifies the nature of the beast. Neoclassicists are using their understanding of rocking horses to try to deal with wild horses.

    Robert’s comment came in as I was writing this. One thing we need in the study of real economies, and any living system, is HUMILITY – not something traditional scientists are noted for, I would agree. However I think anyone who understands complexity and chaos will agree we need to know the limits to our knowledge, and always be prepared to be surprised. Perhaps that can make it less objectionable to people like Robert.

    One more thing – just because this kind of system is called “complex” doesn’t mean that model have to be “complicated”. Indeed simple models can, and ought to be, made within the scope of exploring the behaviour of a “complex” (in the technical sense) system. (See my reply to Bruce Edmonds above.)

  19. November 30, 2012 at 12:45 pm

    Geoff, the term ‘framework’ has a long history in Kantian philosophy, which is about the influence of categories (fundamental concepts) on what one can see. I tried above to point out the analogy between a communications network (which isn’t physically rigid) and the structural framework of a building (which is). The Kantian analogy, hoowever, is to the framing of a picture. When Hume (denying God) tried to eliminate causes and purpose from science (replacing them with deterministic mathematical laws), Kant’s response was to recognise these as concepts without which you could not understand what to look for or decide to do. The frame directs your attention to the relevant part of the picture, which within my lifetime has dramatically expanded with Shannon’s accounting for logic and information in physical forms. The point here is that different pictures of economics appear when it is seen through the frames of equilibrium (balance of forces), mathematics (graphical stationary points) and information (channelling of information-carrying physical flows). All three reveal suggestive pictures but the most cursory reflection shows that humans operate far less by imposing physical force on each other than by directing our own and each other’s powers by means of [mis]information.

  20. sergio
    November 30, 2012 at 5:34 pm

    Does neoclassical economics has its framework?
    Does implications of neoclassical economics to different problems consistent each other?
    Is neoclassical economics complete?
    Can neoclassical economics explain categories it uses in analysis (for example money)?
    Does neoclassical economics describe real world?
    What is the applicability of neoclassical economics to solve real world problems?

  21. sergio
    November 30, 2012 at 6:06 pm

    I think we can use word “framework”, only when we clearly define what a New Economics is suppose to explain, understand, solve.

    • November 30, 2012 at 11:16 pm

      At #44, I think most of us agree NC has a framework (or qua Robert, see #41, a toolbox), but doesn’t recognise that it has. It is inconsistent within itself because it tackles aspects of behaviour in which several inconsistent types of thing are happening at the same time, and unlike electrical circuit theory, it hasn’t even attempted to separate the relevant variables. It is by no means complete because it has reduced economics to commerce. It hasn’t attempted to explain its categories, not least because its interpretations of money hide confidence tricks (allowing bankers to make money out of thin air and acquire legal ownership of it via Ponzi finance). So it doesn’t describe the real world, but it is a self-fulfilling prophecy: to the extent that people believe it they are likely to act as economists tell them to. Like a flat map, it can be adequate for local but positively misleading for global commerce, where the shortest way for us to get back where we started may be going on as we are.

      At #45, I agree. First, the New Economics needs to explain economics (people’s household management) rather than global money making (M-C-M). It needs to be based on the understanding of subsidiarity, going even further than Keynes in the separation of local from global
      finance. And the problems which need to be solved are how to ensure everyone has an adequate livelihood together with the satisfaction of being able to earn it by joining others in harmonising parenthood and work enabling nature to regenerate resources for the future. The solution, as I understand it, will involve separation of the concepts of work from employment and incomes from pay; also recognition that money is merely an authorisation of credit, which if used for purchases, indebts the user not to the bank but to the society of which the seller is a member. It then becomes possible to print adequate credit incomes for all, record the debt in bank accounts and write them off insofar as they bank money as traders creditors bank money as they have been justified by the necessary work getting done. Unnecessary holding and spending of money then becomes a personal liability rather than an opportunity for gain, encouraging the redistribution of surplus. The real economy already works more or less this way on trust; the big question for the New Economics is whether ordinary people are still to be considered (and so taught) to be untrustworthy, or the relatively few corrupted by legal, financial and commercial power, who dishonestly demand tribute and conceal their own dishonesty by denigrating and imposing austerity on us?

      • November 30, 2012 at 11:28 pm

        “… and write them off insofar as they bank money as traders or have been justified by the necessary work getting done”. With apologies.

  22. December 1, 2012 at 12:28 am

    A couple more general points.

    Time, temporal – several comments have touched on this, including davetaylor’s advocacy of information theory. My take is simply that a system with instabilities obviously needs to be modelled/understood with time flowing, as for example Steve Keen is doing. In contrast, the neoclassical auctioneer has to suspend time, or to assume the future is predictable so it can effectively be telescoped into the known present (which is nonsense).

    Science, understanding – my take is that science is about finding stories that are useful guides to what we observe. It is a refinement of what we do all the time, refined by having a systematic process of testing against observations. Notice that I haven’t said anything about “facts”, “truth” or “proof”. Science is not about such absolute things.

    So the essence is comparing the implications of your story/theory with observations. The observations may already exist, so science does not have to involve prediction. And Robert, I would not presume to subsume history, but I see this approach as compatible with the study of history.

    “Understanding”, in this view, is having a story that provides useful guidance.

    Those interested my see my longer discussion of this at

    http://betternature.wordpress.com/my-books/otherbooks/economia/neoclassical-scientific/

    Finally, i find much of the discussion at this site reverts to philosophy and methodological debates, rather than getting on with finding better stories. I see it as a symptom of the isolation of economics from disciplines that have been searching for better stories/theories/interpretations, rather than just endlessly milking one abstract story.

    • December 1, 2012 at 4:38 am

      These absurdities would not matter so much if careful testing of predictions and assumptions were a more prominent part of the practice of mainstream economics.The nonsense would gradually be weeded out, as it is in real scientific disciplines.In a discipline that wields so much power and yet has such a traditional disdain for testing predictions and which is positively encouraged, intentionally or otherwise, to ignore the critical importance of assumptions, these deficiencies are disastrous.

      A theory is useful if it can be used to make predictions to a useful level of accuracy.

    • December 1, 2012 at 9:02 am

      “Notice that I haven’t said anything about “facts”, “truth” or “proof”. Science is not about such absolute things”.

      Geoff, this is where, disdaining history and philosophy, you fall into the Humean trap that has allowed economists to tell untrue stories which are useful to the rich in claiming tribute from the poor.

      You need to go back to Bacon’s “The Advancement of Learning”, for an honest explanation of what modern science was intended to be about: taking things to bits to see how they worked, in the hope of generating new trades in which the dispossessed wandering Britain could hopefully find employment.

      Capitalism is a human invention assembled by means of ambiguous euthemisms. It needs to be reverse engineered, its multiple functions separated out and understood by more detailed analysis, a way of achieving all its purposes without some interfering with the others decided on, and the services reassembled truly (as in the uprightness of a wall) so that it will truly achieve its now defined purposes. The story of this needs to be told in an Operator’s Handbook, but that’s technical writing, not science. The Blueprint resulting from this scientific engineering activity needs to be more like a circuit diagram in which iconic symbols enable you to understand most of it a glance, rather than a story. A story is a linear string of [arbitrary] symbols in which the words, equations etc and their juxtapositions have to be decoded before they can be understood, by which time most of us have forgotten how the story started.

      • December 1, 2012 at 10:57 am

        Dave, agree about disdain. It is an extraordinary assertion that science is not about “facts”, “truth” or “proof”. I want to exonerate myself from any accusation of plagiarism for my previous comment posted just above yours (in case no one notices). The comment was copied entirely verbatim, but without attribution, from the link given immediately above it. I was looking for strong rebuttal of that comment (since it contradicts the assertion) to defend credibility, but it is taking a long time to appear.

    • December 2, 2012 at 12:14 am

      davetaylor – well my work is about exposing the “untrue stories” of the rich. At least read the link I provided before flinging such an accusation. I won’t wear that or the “disdain” label.

      I agree with lyonwiss’ characterisation “A theory is useful if it can be used to make predictions to a useful level of accuracy” (except for his resolutely ignoring that my professional work did not involve prediction). Indeed: the criterion is “useful”, not “Truth”. No observation of the world has absolute 100% accuracy, hence no “facts”. Observations come with uncertainty (which I think davetaylor has been noting).

      Newton proposed a useful theory of gravity. Was it the “truth”? Einstein proposed a more useful theory. Did this prove Newton “wrong”? I don’t think so. Can Einstein’s theory be “proven”? Or just shown to be consistent with what we have observed so far, to the level of accuracy we can observe?

      So, davetaylor, the neoclassical story serves the rich and is quite demonstrably inconsistent with what we can observe. I point that out and propose another approach in which consistency with important observations is plausibly attainable. It’s not moral relativism or post-modernism or a Humean trap or whatever you might call it. It’s a careful statement of how we can achieve better understanding and get the wealth that we all help to create shared around more fairly.

  23. Steve
    December 1, 2012 at 12:48 am

    Here is a synopsis of my own philosophy and economic theory put forth in my book entitled: Money and Wisdom: Te Way Out, The Way Home.

    Monetary, Economic Sapient Synthesis Theory (MESST) consists of at least the following:
    1) There is an empirically confirmable flaw in the present accounting discipline which if fixed, completely transforms the consumer financial paradigm and enables the economy to be free flowing and functional for the very first time.
    2) There is a canon, a wisdom to human life and living, and this canon’s deepest, most powerful and most universal condensations are precisely reflective of the what the policies of the transformed character of the economy and the money system could and would be, if the accounting flaw as per above was corrected.
    3) Homo sapiens, wise and discerning man, is correctly labeled, and to label man or inhibit him from being anything less than what his distinguishing characteristic says he is, is mistaken and dangerous to him and to the rest of the planet.
    4) Wisdom is the higher order level of thinking and acting that transforms every mind it actually touches and every human system it is actually applied to.
    5) Wisdom is the appropriate and necessary basis for both self development and human systemic policy if Man is to reach his true potential.
    6) The current financial system currently monopolizes credit, and unfairly and incorrectly usurps the value of technological innovation and its productive capability.
    7) The monopoly on credit that Central Banks, Private Banks and their captured entities the various governments of the world must be broken up and a new consumer financial paradigm be born from that break up.
    8) The accumulated technological innovation and progress built up over time is the inheritance of every human being and is of almost inestimable economic and social value.
    9) Technological innovation is an economic game changer which if not honestly and accurately considered will destroy profit making systems, unless its value is distributed to all.
    10) The philosophy of Alignment is both a noun and a verb.
    11) Alignment, the noun, is a naturally metaphysical human canon whose basics are the human ideas, values, purposes and experiences of Faith as in Confidence, Hope, Love and Grace.
    12) Alignment the verb is the accurate alignment of Aligned ideas as per above, with their temporal universe policy counterparts.
    13) Binding these policies back to the Aligned ideas they are based on and reflective of is honesty and integrity itself.

  24. sergio
    December 1, 2012 at 3:18 am

    As I see, on this blog you are mostly talking about today’s problems of so called “developed” countries. That is the problem. You dont see what is going on outside, in so called “developing” and “transition” countries. And I do understand why you are dissatisfied with mainstream economics.
    If you look closely at outside world I think you could find solutions for your current problems and understand why economics cannot explain why in this real world most of the countries are persistently poor.
    May be put things much simpler – “developed” countries need their own “development economics”. ? May be that could be a framework for a New Economics?

  25. December 1, 2012 at 5:18 pm

    Lyonwiss @ #53: If I sub-consciously owe ‘disdain’ to you, thanks. It is anyway an apt word in both our uses.

    Sergio @ #54: Yes; which is why I am myself very much in the G K Chesterton “Outline of Sanity”/E F Schumacher “Small is Beautiful” tradition.

    Geoff, back to your very interesting discussion of “frameworks” @ #44, from which I was diverted by bed-time and the many interesting follow-ups. Your “wild horses” metaphor is delightful, and certainly relevant to the ethical training of economists. The “rocking-chair” critique of the neo-classicals is likewise telling, insofar as the rocking chair story isn’t a euphemistic way of describing how to grab the goodies and rock away with them, out of reach. And of course I agree with you about [applied] science needing to narrow down the practicable possibilities.

    What I wanted to take up with you is the meaning -as against the measure – of complexity. When I first used the term my reference point was Complex Number (i.e. two-dimensional as against one-dimensional number), which in latitude and longitude from can of course map a three-dimensional surface, quaternion transformations, logical quantification and the dynamic Fourier sine/cosine representation of timescales. It is generally accepted that all other forms of number can be represented as special cases of complex number, but not vice versa.

    Being particularly interested c. 1983 in Shannon’s error correcting logic and how it was implemented in our computer: my insight, discovery (call it what you will) was that the judgement ‘true’ (or Boolean ‘1’) was a short-hand for ‘computes true, with no data errors detected’. This (along with the possibilities ‘computes false’ and/or ‘errors detected’) I refer to as Complex Truth.

    When the Santa Fe crowd used ‘complexity’ as a measure in their mathematisation of chaos theory c. 1985, in effect they reinvented Shannon’s measure of information capacity, but used it in precisely the opposite way. I take it we have in common Waldrop’s book on ‘Complexity’. It is a terrific book, with marvellous lines like “You guys really believe that”? But Shannon lived in the real world where chaotic noise tends to corrupt data, so his aim was to show how this could be recognised and put right. Brian Arthur and his mates have clearly opted for a mathematical world of chaotic interactions in which there is no real data to put right, simulating the development of stable patterns among chaotic interactions in the hope of explaining similar patterns in economic data as evolutionary. [I think this hope is mistaken – and wrote to tell them so – because unlike numbers, energy is directional and subatomic particles polarized, which facts provide the real data of evolution and random motion just occasionally the means of bringing it together). In short, Complexity qua Santa Fe is in practice an excuse for accepting the status quo, the emergence of instruments like derivatives and the search for increasing returns by dangerous positive feedback; Information qua Shannon, evaluated as in Complex Truth, doesn’t accept the status quo, expects elimination of logical ambiguities in the design of things like derivatives, and uses negative feedback to trade off a little surplus power for great improvements in quality.

    I hope you will now understand better why I keep pressing the Information approach and am hesitant about the Santa Fe interpretation of Complexity, despite its extraordinary interest.

    • Steve
      December 1, 2012 at 11:18 pm

      Dave I recently posted this elsewhere:

      Mathematics, being a pure mental science is really just the opposite end of the monist actual reality that includes on the other end, Wisdom, which is the pure intuitive “science” that complements it (mathematics). Math is reductionistic, Wisdom wholistic. Both are absolutely essential and legitimate aspects of the actual one reality and yet there is a hierarchy of mental/psychological/spiritual (not supernaturally religious) reality. Why? Because the nature of Wisdom being in fact wholistic, continually binds it back to Math (science) and so makes it consciously aware of both realities. Math/science being reductionistic in its perspective has no such necessary thrust or inclination. It IS probably true that the best mathematicians have in fact drawn upon the wholistic, intuitive nature of Wisdom in their solutions. And that, I assert, is exactly what is most needed in economic, financial and monetary systemic thinking.

      When Robert Reich says in the video on his Kickstarter sight for his documentary film Inequality For All, “The economy is for us, not us for the economy.” He precisely mirrors
      C. H. Douglas’s statement, “Systems were made for Men, not Men for systems, and the interest of man which is self-development, is above all systems, whether theological, political or economic.” Wisdom, the wholistic crown of Man’s achievement and potential, and the very accurate distinction made in his species designation, homo sapiens, is the inward experiential guide whose universal, secular and empowering condensations of Confidence, Hope, Love and Grace are also the best basis for temporal universe policies in economics, finance and all human systems. As inside, so outside, as above, so below. Keep the “Faith”, baby!

    • December 2, 2012 at 12:54 am

      Yes dave, Mitchell Waldrop’s book was my introduction to complexity, a great read.

      The useage of the term complex in numbers and in systems theory is quite different. They refer to different things. But I don’t see the Santa Fe approach as inconsistent with noisy information, or uncertainty. You can’t do a theory of the universe in one go, you do manageable parts and combine them as you are able and as your progress seems to justify.

      That said, I do think the Santa Fe people tend to look only at rather small bits of the problem, without noticing or commenting on the over-all implications, which is what I’m trying to do. (I see a similar thing in my science – a tendency to stay within one’s specialty, where it’s safe, rather than reach out more broadly and try to integrate findings from different disciplines – and risk being “wrong”.)

      I’m rather amazed that Brian Arthur, having demonstrated “lock-in”, did not point out that the general equilibrium is thereby lost, along with any claim that free markets are best. Likewise increasing returns to scale, the failure to allow time to flow, social (third-party) interactions, etc etc.

      I confess to not following what you write about Shannon and information, it’s technical and unfamiliar. However information flows and channels are implicit in what I write about, and noise and uncertainty can certainly be accommodated in principle. So the information approach may illuminate, but I don’t see it as displacing other approaches.

  26. Peter Shaw
    December 1, 2012 at 7:12 pm

    Dr Davies –
    With respect, I suggest you (and some of your correspondents) may in part be getting a little ahead of yourselves, so making a commonplace error (meaning that I’ve also made it) – that an overtly complex problem must have a complex solution.
    I think that one of your first points (“This raises the question of whether many economists would recognise an important new approach if they saw it.”) is central to the issue. It shows the possibility that there is a simple, fundamental feature of macroeconomics which economists are programmed to not see; they would rate it trivial or a truism instead of an essential condition.
    If such exists, it will be impossible to evaluate within economics, and the needed economic expertise must be applied within the source’s methodology.
    Also, it would place economists in a position similar to scientists before the discovery of the Conservation Laws, so “pre-scientific” may be unfair.
    I don’t discount your features of deterministic chaos, complexity, and concepts borrowed from ecology, etc, but suggest that their time is not yet.

    An analogy may help: Your circulatory system behaves in a simple and predictable way (ask any nurse); unless you’re bleeding. In that case, while periodic transfusions will restore blood volume, your circulatory system will never be in equilibrium, and its behaviour appear complex and obscure.
    The solution is to stop the bleeding and so transform the system; this is obvious if the injury is external, but not at all if internal (ask any paramedic), so viewpoint is crucial for this first step. One cannot deduce the in-control state from out-of-control data.

    Better economometrics (while needed) are arguably not a priority; GDP data already shows clearly that the US economy was and is in an out-of-control state, so the GDP metric is perfectly capable of indicating change to in-control. When control is established, correlations become persistent, and effects easily separable.

    Stabilising features may be necessary, but are not sufficient; ill-chosen ones can be counterproductive (eg in Chernobyl reactor no 4). I suggest inclusion of process-control concepts in your framework.

    My comments are not academic, as I have a candidate condition consistent with the above. How should it be handled?

    Peter Shaw

    • December 2, 2012 at 5:17 pm

      Peter, thanks for this, in particular for your lucid portrayal of the haemorrhaging analogy. At the “framework” as against analogy level you seem to be implying that economics is, like your arterial system or my pumped central heating system, a circuital flow system. This is a very different framework from the ancient and still mainstream “point-in-time” balancing of values (analogically weights, forces, desirability etc): the technical term “equilibrium” strictly applying not to the balancing but to its detection via the balance becoming stationary.

      Your analogy has the advantages over mine that the circulation of the blood is (a) not a stand-alone system but a subsystem of a living body made up of many sub-systems (including the energy distribution system of which it is part, and others which control its flow ); (b) that its pump supplies energy to itself and to lungs, brains and muscular activators twinned for reliability ; (c) that the energy supplied is adjusted and directed in the order of priority at (b) to meet the demands of these different functions for it. How much more intelligent this already seems than the mainstream economic mantra demanding never-ending growth! Growth of what? The monetary equivalent of blood?

      Back to your primary argument that complex problems do not necessarily need complex solutions, my equivalents have been (a) to distinguish COMPLEXITY (i.e. having distinct parts, c.f. separation of variables) from COMPLICATION (i.e. being knotted up, c.f. deployment of J H Newman’s example of a string, the strength of which is neither that of its weakest link nor derived from the continuity of its numerous strands but from the mutual support and friction between discontinuous yet parallel strands. These can up to a point fail individually without materially affecting the string’s strength). (b) “A picture is worth a thousand words”. It is much easier to see the complexity of Leavitt’s Diamond and how applications can be hung on it than it is to describe it in words and disentangle it in from its many applications.

      I agree with Geoff’s assessment, “Coming from outside the profession, and having spent nearly fifteen years [in my case well over thirty years] exploring economies and economics”, that “there are multiple, independent, fundamental problems”. As food for thought as to what may be the root one, may I draw attention to the problems with using infinetely exensible Cartesian coordinates for describing a spherical universe expanding in time, or even for mapping the two-dimensional surface of our spherical Earth. The solution in the latter case is simple: use two-dimensional degrees for measuring one dimension. (whereas latitude is linear, longitude is radial, these together accounting for the three-dimensionality of the Earth). Geoff’s chaotic complexity is equally similarly accounted for. It is generated when the power variable in the logistic equation exceeds 2-1/2: c.f what happens when, having gone half-way round the world, the quickest way to get back to the chaos that we started with is to keep on going as we are.
      n argmentse partsseparation of variables

      • Peter Shaw
        December 3, 2012 at 9:07 pm

        Dave-
        You’re detecting the viewpoint of my different expertise, and the liberating power of such. There will undoubtedly be others. Don’t let them go to your head ;)

  27. December 3, 2012 at 3:04 am

    COMPLEXITY, COMPLICATION and SIMPLICITY.

    I use complexity in its technical sense – a system with many possible quasi-static or homeostatic states, which can undergo transitions between such states, at which time it becomes hypersensitive to tiny disturbances and so is unpredictable in practice.

    Complex, in this technical sense, is not the same as *complicated*. Complex *behaviour* can result from rather simple interactions among simple components, though the interactions will need to be nonlinear.

    A complex system does not necessarily imply that *complicated* models are required to understand it, at least in the early stages of exploring it. A very simple model may demonstrate an important part of its behaviour (see links in article).

    The point of this article is that by recognising we are dealing with a complex system we can break away from the straightjacket of neoclassical, near-equilibrium thinking, which is plainly utterly misleading. For example, with no “general equilibrium” there is no basis at all for thinking free markets bring the system to an optimal state.

    My brief article is not a course in complex systems. That can be found elsewhere.

    My point is to highlight initial, fundamental conclusions, like there is no basis for believing *free* markets are automatically a good thing. That is rather fundamental to the way the world is being run at the moment.

    Without doing a stroke of theory, it shows we’d be a lot better off dropping the free-market myth and just using “common sense” to manage economies.

    To those who feel I have left important things out, well I hardly included anything in. Most of the things you want to explore can be explored in the complexity context (a better word than “framework”). It’s all there to be done. If you want to know more about how *I* think we can proceed, explore my web site and my book.

    Really, stating my point another way, if you start HERE (complexity), you can hope to make useful progress, whereas if you stay THERE (neoclassical) you’re condemned to continue wasting your effort.

    So Peter Shaw, thank you, your metaphor is a useful one, and davetaylor your information channels are undoubtedly important. But they do not address the main point of this brief article.

    • Lyonwiss
      December 3, 2012 at 3:34 am

      Stating my original point in another way: sure, the complexity hammer may be better than the neoclassical hammer. But the problem of economics is just not a bunch of nails.

    • December 3, 2012 at 10:34 am

      Geoff, I’m sorry that – you having written a book on this subject, I – we – have left you feeling defensive. At 76, retired and just wanting to contribute what I can while I still can, I don’t have that problem. From my point of view, “finding a framework” is work in progress, and a blog isn’t progressing if its leading article is to provide the last word as well as the initial focus of discussion. As it is, your very interesting article has generated some very interesting attempts at mutual clarification.

      I’ve been trying to establish rapport with you because it is quite obvious to me that we have sufficient in common – if only I can express myself in a way you can grasp – for you to see (a) that I am not critical but appreciative of your general position and (b) can not so much complement it as clarify it sufficiently for you to be able to see that the [communication of] information systems and the [Santa Fe] complexity approaches are – like the negative and positive feedbacks they are implemented by – mirror images: the one dealing with a lot of data and a bit of noise, the other with a lot of noise generating a bit of stability.

      On our different understandings of ‘complexity’, you evidently didn’t pick up on my discussion of euphemisms. My interpretation is the etymological one, deducing the intended meaning from its Latin origin and the relation between its chosen of parts. It seems to me you are picking up its meaning from the way some people use it. (I have a library science book on ‘Logic’ and ‘Semantics’ making precisely this point). This is like my using ‘gay’ in its original sense and you using it as a euphemism for ‘homosexual’, a word which already exists but like ‘chaos’ has unpleasant connotations.

    • December 3, 2012 at 11:39 am

      dave, it’s not that I feel defensive, nor that I don’t think there have been some useful things said in the discussion, nor that my first word has to be the last word. It’s that most of the discussion seems to me to have missed the point of my article, and to be talking about other things. I just tried to clarify (again) what my article is really about.

      And I said explicitly, I’m using “complexity” in a technical sense, defined by people who use it to describe certain kinds of system behaviour. It is not the colloquial meaning(s). Again, I was clarifying, because this is an obvious source of confusion.

      And thank you for trying to explain to me. I confess I’m still having trouble understanding.

      • December 3, 2012 at 11:58 am

        Yes, Geoff, but as I pointed out somewhere above, their definition corresponds to an existing name: information; and their starting point was in chaos theory.

      • December 3, 2012 at 12:45 pm

        From your link at #51: “Most science during the past several centuries has been of the reductionist kind, in other words it reduces systems to simpler components which can be more easily understood. Unfortunately this approach is not capable of encompassing the essence of living beings. It is therefore quite appropriate to hold reservations about the applicability to people of this kind of science and some of its grander claims”.

        I think here YOU are missing the point. The Humean and indeed Baconian understanding of science doesn’t distinguish between things and concepts and so doesn’t distinguish between generalisation and abstraction: the leaving out of difficult details and the successive leaving out of all details in particular combination of spatio-temporal dimensions: i.e. increasing the degrees of freedom by going to a deeper level of abstraction, so that the same abstraction can apply to many situations and generate many analogous “stories”, some of which may be useful in generating the plot of others. An architect’s characterisation of three dimensional objects by three two-dimensional views is about the information capacity of white paper, not childish outlines of houses.

        The big advances in science have been made by looking at a problem at a lower level of abstraction, not (as in economics) by making largely irrational generalisations. By abstracting everything but distance and mass from the motion of objects, Newton was able to characterise force in terms of mass. Einstein operated entirely at the dimensional level when he showed how space could not be completely abstracted from time; Shannon abstracted meaning from information in order to characterise information capacity, which like Einstein, reassembled dynamic reality and static abstraction much as we characterise a river by its banks.

      • Steve
        December 3, 2012 at 1:49 pm

        Yes, Dave. What this means to me is the difference between the will to freedom for the individual which is what we need economics to be about at least as much as the will to power of the current corporate, financial and political entities within it….which is the dominant intention of current economic theorizing.

      • December 3, 2012 at 2:01 pm

        “The first stage of the process is the perception of a pattern in the world and the description or formulation of this as a hypothesis.This process of perception and formulation is often calledinduction.However despite this formal-sounding name, theperception processis not a rational process.It is a process of cognition that is deeply wired into our brains and has nothing to do with logic”.

        No. This precisely the sort of general ignorance – not yours personally, Geoff – which is why people don’t see the relevance of Shannon. The brain is using parallel logic as against the linear logic used with index words. The parallel logic can be simulated by serial logic, but both forms of logic are carried out (not characterised) in brains as in computers by electrical switching circuits. Those in computers have been programmed to recognise patters just as we learn to. How else do you think scanners recognise the symbols in handwriting?

  28. December 3, 2012 at 3:09 pm

    Start with empiricism at the micro level and let the results dictate hypothetical frameworks up to and including the macro level.

    And speaking of the dearth of empiricism in the present state of economics, just what “well-known observations of modern economies” do we know? The very statement made at the outset, “the comprehensive failure of the mainstream to foresee the Global Financial Crisis” suggests we know little, if anything, of modern economic realities.

    The a posteriori is desperately needed in economics

    • BFWR
      December 3, 2012 at 4:38 pm

      @ E. L. Beck,

      I completely agree with this strategy, and I strongly suggest that the place to look for empirical evidence to enlighten the entire situation/problem of our current crisis is a subset of double entry bookkeeping, that being cost accounting. It is truly ironic that a flaw in this, the seemingly most mundane of disciplines is at the root of all of the imbalance and instability in our economic and money systems. It is equally as amazing that correcting this flaw would actually change the entire psychology of our economy and money system from scarcity to abundance. It would do this by simply changing the current consumer financial paradigm from loan ONLY, to Dividend and loan if desired and found to be creditable. This notion may go against a mountain of economic thinking and study as well as numerous cultural biases and also the entire vested interests of the financial powers that be…..but that changes nothing….if this is where the problem actually lies. Many an “emergent quality” in macro-economics is actually just the failure to discover or failure to actually look at relevant data on the empirical level. Cost accounting’s conventions are 24/7, 365 for every dollar entering or re-entering commerce/the economy. Money is basically accounting, but it’s pooling or scarcity in the hands of individuals has incredibly significant effects….as we see at present.

      • December 3, 2012 at 5:07 pm

        The “Dividend and loan” concept: where could the reader find more information?

      • December 3, 2012 at 5:58 pm

        You could try understanding the difference of understanding on this site betwen Paul Grignon and myself. I disagree with you that money is a micro concept, however. Macro can be stated completely abstractly, and micro empirically aligned with it, but one cannot construct macro from micro because one cannot grasp all the data so micro inveitably proceeds by way of generalisations from part of the evidence. Paul Gr

  29. BFWR
    December 3, 2012 at 5:47 pm

    Here is an excellent synopsis of the monetary and economic thinking behind the concepts:

    http://en.wikipedia.org/wiki/Social_Credit

    • December 3, 2012 at 11:10 pm

      BFWR – Thanks for the link.

  30. BFWR
    December 3, 2012 at 7:45 pm

    What I am saying in my response to E. L. Beck is that even though accounting, and more specifically its subset of cost accounting, is mere summing and subtracting, the fact that the conventions/rules that this enforces, namely a scarcity of total individual incomes in comparison to total prices….is an incredibly significant systemic and macro-economic fact. A fact indeed whose effects cannot be reversed or remedied in any other way than to completely change the entire nature/paradigm of consumer finance.

    If labor costs (wages and salaries) are always only a fraction of all costs, and yet all costs must go into prices then what are the effects of this? Well, scarcity, ENFORCED scarcity of incomes. And this leads ultimately to, and even despite continuous and massive injections of money (not to be mistaken for individual income or purchasing power…because again of the conventions of….cost accounting)…to the destabilization and eventual collapse of the entire economy. And neither is this deeply embedded REALITY remedied by THEORIES like the velocity theory of money’s circulation. (I will be happy to post or reference the specific reasons why this is not a remedy.)

    The only true and effective remedy for a scarcity of income where the actual injection of more money into the economy inevitably stimulates the rules which enforce that scarcity itself is……a direct payment to individuals….which bypasses the very commercial sphere….that again stimulates the rules which cause the problem.

    In other words the NECESSARY remedy of the systemic problem is a monetary policy of Grace, the free monetary gift.

  31. BFWR
    December 3, 2012 at 9:43 pm

    This policy of MONETARY Grace of course is anathema to the business model called Banking. And we all see how powerful a force Banking is today, no? However, as Victor Hugo, I believe it was, said:

  32. December 3, 2012 at 9:44 pm

    Sorry, can’t partake in this in any detail, I’m about to travel for a week.

    Except, Steve, one of the nice things about complex systems is I think they show how “the will to freedom” at the macro-brain level might emerge from deterministic neurons at the micro level.

    And dave, I think your semantics are too rigid and your concept of science does not take proper account of emergence in complex systems. So we disagree.

    And E. L. Beck, micro data cannot *dictate* macro concepts, because the macro concept is a pattern perceived by us, and our perception can suddenly shift to suggest a quite different pattern (Newton v. Einstein again).

    Have fun everyone.

    • December 3, 2012 at 10:49 pm

      G.D. – I am not suggesting micro behavior dictates macro behavior. What I am saying is that empiricism is possible to follow starting at the micro level, almost impossible to follow starting at the macro level. From a purely empirical view, it is easier to follow the micro and if, in the aggregate, the macro does not follow from the micro, we can then start asking why there is a disconnect in the expected effects. This, I would think, starts to allow one to follow micro empirical research into the fringes of the macro and provide a much deeper pursuit of empirical research than starting at the macro.

      And please, step away from those mechanics. Humans are not molecules. Those assumptions are what forced econ off the rails, starting in the 19th century, and prevented econ from forecasting 2008. Studying the most basic of financial data provided far better predictive powers, something I was able to do in 2004, but without a strong time horizon.

    • December 4, 2012 at 9:50 am

      I think what Geoff has just said reveals a crucial ambiguity in our interpretation of the word ‘micro’, ELB. I’ve been applying it to economics but thinking in terms of the emergence of the reality we know from the Big Bang, starting with sub-atomic particles, which ‘micro’ in a much more general sense. So he is wrong about me and emergence, I have been wrong about the significance of chaos theory, you, I think, are dead right about starting from the ‘micro’ level in the mechanical sense, but thus wrong to want to step away from the mechanics!

      What it amounts to is that I am thinking in terms of how frameworks determine the painting technique, size and thus potential content of the picture, Geoff of how random mixing up of information in the framework of our brains can lead to the emergence of a new picture.

      I’m very excited by this, and I hope Geoff and you will be, ELB. It seems to me this is being a very fruitful debate – even a breakthrough -with almost a thousand potential observers to take it up seed the sharing of the insights.

      • December 4, 2012 at 2:50 pm

        Dave – Your point, “a thousand potential observers” I think highlights the growing frustration with the way econ is taught and used today, with so many seeing very useful alternatives.

        However, I’ll remain agnostic on the mechanics. On the one hand I understand such a framework could serve as a roadmap along which one could find useful investigations. On the other, I’ve witnessed all too often those who start on such a path of left-brain thinking with the best of intentions, only to get consumed with the methodology rather than uncovering pertinent and applicable findings.

        The temptation seems to be to use the quantitative framework first, then shoehorn the observations to fit inside one’s favorite theory, rather than allowing the empirical evidence to dictate what theoretical framework fits the evidence (if any, or even the willingness to use a theory if it is not one’s favorite), and provides predictive powers.

  33. Peter Shaw
    December 3, 2012 at 9:46 pm

    Reply to #64 ff
    I read much super stuff in this, but it can only be used effectively within a framework, which is where Geoff started, and to which I briefly return:

    Geoff-
    The variety of ideas above indicates the richness of the vein you’ve struck.
    A major value of a framework is that it highlights gaps in knowledge or thinking. Complexity must have its place, but we don’t yet know if it’s centre-stage or secondary. If you insist it’s central, you risk distorting the framework.
    I have 3 takes on equilibrium so far:
    > Economic equilibrium is impossible (eg Steve Keen);
    > The economy is always far from equilibrium (eg Geoff Davies);
    > Economic equilibrium is axiomatic (estabishment economists).
    There must be more, and all need equal space initially. My own contribution is: Economic equilibrium has not been experienced for four millenia, and we should try it out first.

    I repeat my plea for some process-control theory, as it teaches that well-intentioned intervention can have catastrophically counterproductive results. I’m confident that hindsight of the last century or two will reveal instances.

    • BFWR
      December 3, 2012 at 10:30 pm

      Peter,

      (Caps are merely for emphasis, not shouting)

      Econonomic equillibrium should not be an economic THEORETICAL obsession and here is why. Because it (equillibrium) is only possible if we proactively create the monetarily empirical necessity, i.e. a monetary policy of grace, the free gift….to actually make equillibrium POSSIBLE. In other words, present free market theory is actually NOT free. The system ITSELF has a flaw in it that current theory is missing. This may be an incredibly bitter and almost impossibly difficult intellectual pill for economists to swallow, but I strongly assert it is true. All of the abstraction, complexity, mysteriousness and flailing around for predictability and certainty is not necessarily wrong or not potentially fruitful….for prediction or identification of better investment etc…..but we must not dismiss the possibility, the likelihood, that there is a problem or a factor which is being MISSED.

      Iconoclasm is a good trend, and I respect Steve Keen for his work in that regard, but htere is much unexamined economic orthodoxy lying around all over the place. The idea that free market theory is actually possible with the current rules of cost accounting remaining in effect…is at least one of them.

      I’m a confirmed agnostic, and yet the condensed wisdom of any of the world’s major wisdom traditions are pregnant with meaning and insight for us to apply to ourselves and our systems. In regard to economists and economic theorizing here is a relevant quote:

      But God hath chosen the foolish things of the world to confound the wise; and God hath chosen the weak things of the world to confound the things which are mighty; I Cor. 1: 27

  34. December 3, 2012 at 10:20 pm

    My apologies, BFWR. I jotted a quick response to Mr Beck on my way out to a funeral, but you beat me to it. Well yes, I agree with direct payment to individuals, but you have a choice: the direct payment can be either considered (a) a gift without responsibilities or (b) a credit, the spending of which ultimately indebts one not to the issuer (be that employer, bank or government) or even to the distributor of goods, but to Nature, which can only be repaid by societies helping Nature regenerate what has been used for g. I opt for (b) because, as is becoming all too evident, Nature needs to be repaid.

    Following the line of thought that “love of money is the root of all evil”, the question arises whether money is a gift or a curse – or a thing of no real value which can be interpreted as representing credit, debt or (as in double entry book-keeping, both). When money is considered to have positive value, how the bankers love it! Accept the truth that all money was created as an authorisation of debt and so has negative value, then the interpretation of credit and debt is reversed, those who have acquired more are made aware that they owe more, and few will want to have more of it (or what it can buy) than they need. Nor will anyone pay interest if they can get enough of it freely. A generous credit allowance (the negative equivalent of a Citizen’s Dividend) can be considered necessary for the job of keeping oneself fit not for employment but for work which is necessary or worth doing. Larger expenditures still need to be specifically authorised.

    There is usually more than one way of skinning a cat: this one is a variant on that of Gesell, of whom Keynes says in his General Theory (Ch 23): “I believe that the future will learn more from the spirit of Gesell than from that of Marx”. He criticises it by assuming demand for money, but admits “it is, indeed, possible that means might be found to apply to it on a modest scale”. I agree. Those who authorise
    exceptional credit should not be bankers and politicians in centralised ivory towers but governors, bankers and employers in localities or specialisms small enough for them to know their clientel and to see the need for and satisfactory completion of the expenditure authorised. “Small is Beautiful”.

    This discussion is actually about frameworks rather than pictures to put in the frame, but I hope you agree this picture does “completely change the entire nature/paradigm of consumer finance” via “direct payment to individuals”, if not quite in the way you were expecting.
    The framework is needed to hang the ideas in/on so one can see how they will work out in practice.

    • December 3, 2012 at 10:53 pm

      Dave – “Those who authorise exceptional credit should not be bankers and politicians in centralised ivory towers but governors, bankers and employers in localities or specialisms small enough for them to know their clientel and to see the need for and satisfactory completion of the expenditure authorised. ‘Small is Beautiful’.”

      I agree. Completely. Decentralization of economic structures would be most helpful.

    • Steve
      December 4, 2012 at 6:12 am

      Dave,

      I’m familiar with Gesell and other monetary reformers. They all make their points. However, respectfully I have to say that none of them go quite as deep or actually end up addressing what I believe are the real problems with our economic and monetary systems. Why do I say this? Because they usually deal with a single aspect or symptom of our problems and also seldom do their solutions include both micro-economic and macro-economic mechanisms that are specific and yet general in their effects. Beyond this what I particularly like about the proposals I advocate is that their ideas and also their policies are identical to and go to the very core of what it is to be human. C. H. Douglas described his reforms as “the policies of a philosophy.” They are aligned with ideas which are profoundly human in the very best sense of the word. One of the real problems of economics and for that matter all of modern systems is that generally speaking they are not integrated. They are separate, alienated, compartmentalized and to that degree stupid. Specifically what modernity and modernity’s systems need is integration….with human wisdom. I define wisdom as the higher order level of thinking and acting which integrates every mind it actually touches and every system it is actually applied to. In my book Money and Wisdom: The Way Out, The Way Home and my theory of MESST (Monetary, Economic Sapient Synthesis Theory) that the integration of our economic and monetary system and all of our systems with Wisdom is the direction mankind needs to go to extricate himself from the folly and enslavement of the failed experiment with homo economicus. We are homo sapiens, i. e. wise and discerning man. This accurate species description and designation is no coincidence. Mankind must not be held down any longer by ideas and abstractions which are not universal and hence not adequate, that do not describe him and actually inhibit the empowering qualities which we are all capable of natively.

      To return to modernity’s lack of integration, one of the biggest reasons this fact persists is we either fail/refuse to actually commit to philosophy, or we commit to ideas, abstractions and philosophies that are inadequate. We are hindered by the current fiction that science is an adequate idea to get us where we need to go. Hence the compartmentalization of academia and most of life. Science and technology are wonderful and necessary tools…but they are actually inadequate as philosophies. Man is a self aware evaluating being. Hence he requires a philosophy which has ethics as an integral part of it. To deny this is to deny your own species designation and your own everyday reality. Let us have Wisdom and Wisdom’s POLICIES in the embodiment of its four most condensed, most universal, most powerful and in the non-dogmatic and non-superstitious ideas, values, purposes and experiences of Faith as in Confidence, Hope, Love and Grace. These are adequate and necessary philosophy. These are not your worst Sunday School nightmare 24/7. These, properly understood and actually experienced, are the mature and joyous evolutionary guides we require.

      • December 4, 2012 at 2:38 pm

        Steve – Don’t confuse decentralization as some sort of foil to integration, assuming you are at all. The integration of ideas, of frameworks, could be very useful. With that I take no exception.

        For me, decentralization is of the institutional variety, diversifying such entities (for one example) as banking to the state and local levels, as much as practicality allows. There will be, by necessity, certain levels of centralization of institutions required, but we have traveled so deeply into centralization that the results have been massive, unmanageable, corrupt and ineffective bureaucracies, both with the political and economic.

        One of my main contentions is that as a modern, complex society, it has become simply too large and complex to think it can be effectively managed at a centralized level. We have, over the last 150 years, been heading in the wrong direction as society as increased in complexity. Those who are member of localities, of communities, are in the best position to know what is required for proper functioning.

        That is not to deny citizens (Americans, for one large example) are not ready for self governance, and on the education front we have a long ways to go. Yet, after all, with 150 years of pushing citizens to the sidelines, in the process creating mere individuals pursuing mindless consumption-by-planned-obsolescence, we shouldn’t be surprised that such individuals have lost a large part of their skills at self-governance.

        This is why, for me, a proper approach to empiricism is to start at the micro level.

      • Steve/BFWR
        December 4, 2012 at 6:26 pm

        E.L.,

        Oh yes, decentralization of institutions is an essential aspect of a more humane society. Now it is also true that you need centralized administration of certain functions of society, like for instance the aspect of the money system which would distribute the citizen’s dividend I mention here. Of course the purpose of a citizen’s dividend is essentially a decentralization of the money system itself so its centralized administrative nature is not really a problem. I have had a running battle with some libertarian thinkers on another blog for years about this very thing. Their distaste for government is so great that they cannot countenance a centralized institution at all. I keep telling them that the intention and nature of the policy itself is decentralizing of individual economic empowerment. In other words centralized administration of economic freedom….is still economic freedom.

    • December 4, 2012 at 12:57 pm

      Gesell was the one who ‘got it’ about both money and land. Keynes didn’t ‘get’ the latter.

      • December 5, 2012 at 6:01 am

        Carol, I think you are mistaken about Keynes. It seems to me all his talk about liquidity preference is about land as a form of money. To persuade theorists he had to use theoretical rather than worryingly practical language.

  35. December 3, 2012 at 11:05 pm

    davetaylor1 :
    You could try understanding the difference of understanding on this site betwen Paul Grignon and myself. I disagree with you that money is a micro concept, however. Macro can be stated completely abstractly, and micro empirically aligned with it, but one cannot construct macro from micro because one cannot grasp all the data so micro inveitably proceeds by way of generalisations from part of the evidence. Paul Gr

    Dave – I would think that understanding how people understand money, at the micro level, would be incredibly important, even if that understanding is misinformed. It would start to answer a number of sticking points we are presently facing in the austerity v stimulus debate.

  36. December 4, 2012 at 10:04 am

    Exactly, and thanks for the appreciation. This is why the efforts of James Robertson, Margrit Kennedy, Joseph Huber, Paul Grignon, “The Money Masters” guy etc have been so important, even if blind to negative value/interpretation as against negative use of money (displayed in the title of the well-meaning Positive Money campaign).

  37. December 4, 2012 at 8:35 pm

    These threads are getting hard to follow so here’s what’s relevant to below, dated.

    GD #80 3rd A9:44 pm. Geoff on emergence of freedom from deterministic physics.
    ELB #81 3rd 10:49 pm. EL Beck on empiricism at micro [physical not system] level.
    dt #86 3rd 10:20 pm. Love of money is the root of all evil; variant on Gesell’s solution.
    ELB #91-2 3rd 11.05 pm/ 4th 10.04 am. Importance of focus on how people understand money.
    dt #82 4th 9:50 am Eureka! Geoff’s chaos-theory picture in information theory frame.
    ELB #83 4rd 2:50 pm. On frustration by economic teaching; left-brain thinking and temptation.

    Here we are at cross purposes again, ELB. My first point is more about concise truths being buried in mountains of debris left by other searchers after truth, not to say Machiavellian enemies.

    At your second I’m envisaging my framework as relativistic Cartesian coordinates (i.e. not linear measures but latitudes and N/S longitudes) and the aim is to PRODUCE the road map, which you cannot do with variables in linear time. That is a right-brained (visual) approach even if left-brained sequential thinkers tend to judge it by their own standards. I was trained in SSADM systems analysis, which constructs its “road map” by observing the roads between towns, then the traffic on them and the reasons people give for it (e.g.” it is what Homo Economici do in economic transactions”). But it then tests “the story so far” against the reality, revealing not only all sorts of rare but vital traffic but also that people are not all the same (comprising men and women at different stages of development – from more or less that of children to old folk anywhere between second childhood and the wise folk of their community). The point is, that starting from the coordinate framework we are not shoehorning observations into the favourite theory, but taking the favourite theory as still hypothetical, testing it against the evidence, if necessary changing the hypothesis to one consistent with the evidence, and continuing to test and cross-check with detailed investigation of the origin, changes to and ending of the “traffic”, until the “map” is sufficiently detailed and consistent for the job in hand.

    To sum this up, we need to agree on the definitions of ‘theory’ and ‘model’. My theory is that the economic system is an ‘x’ and what you call a ‘quantitative theory’ is a ‘mathematical model’, which an economic system clearly isn’t. The ‘x’ allows the economy to be considered as at once a continuous process, a circuital flow system, a power distribution system, an information carrying and processing system, a mechanical control system, an information based control servo system (macro) and (most human of all) a set of time-sharing information-based processes: automatically coordinated in computers by the operating system, and in humans by chemical motivation.

    My mathematical model is not quantitative but ordinal and topological: a sort of geometry of rubber bands which can be distorted and stretched to any shape and size without affecting the order of any points marked on them. (Note how a hidden ambiguity of direction of motion remains: such points can be counted in either direction). This is not a theory of economics, but a theory of “framework” completeness in a dynamic logical structure.

    Imagine then a piece of wood with four nails in it and four rubber bands stretched over the four different groups of three nails. It has been shown that no more than four pins are needed (the four colour theorem); there can obviously be bands missing (as when economics is represented as supply and demand, i.e. with distribution of goods and money not otherwise accounted for); and there is no source of motion in it (e.g. Nature and banking are systems exogenous to economics, which may or may not themselves be complete). All the possibilities of my ‘x’ are dynamic systems, with power, information, both or neither passing through them. The ultimate computer analogy has an exogenous operating system which does what the Capitalist system is claimed to do: it harmonises different and multiple uses by “banking” information and time-sharing the energising of different processes.

    From this interesting lines of inquiry emerge. With a framework model of the whole, the difficult question of what’s wrong with capitalism can be replaced by the easier and perhaps less contentious ones of what’s missing or back to front in it?

  38. sergio
    December 5, 2012 at 3:56 pm

    I think that author suggests a new economic thinking, rather than a framework. Framework for new economics will hard to emerge without appropriate new economic thinking. However such new economic thinking is emerging, no matter what obsolete thinking they continue to impose on us in universities. Anyone can have own economic thinking and should not be criticized for that.
    Another problem, as negative experience with neoclassical dogma suggests, is it really necessary again to put economic thinking into a strict framework?
    What pushes to create a framework is a status of economics as a “science”. Of course using quantitative methods is what that suggest us that economics is “science”. This is misleading.
    This “science” is limited to price system and capitalism. It cannot exist in any other social system. No need to foresee the future, just look at socialist countries, where such science simply did not exist.
    Capitalism is only a temporary side effect of technological change, it was brought by Industrial Revolution. It came and it will go. We should be able to be predict next technological change, and be prepared for another side effect it will bring. We need to think beyond price system, beyond capitalism. Economists think is that if they can understand price system they would know how to manage capitalism but tweaking price system has limited effect and more negative consequences. Needless to say, that the cannot even clearly explain what is value, but pretend they know what is a price.
    With advance of technology, price system will become obsolete. People would pay, as much as they value product, similar to donations. Technology will change nature of money, so even they become needless. Technology not only change production, but eventually social relations. And technology will not only destroy capitalism but also will turn existing economic “science” into a dust.

    • BFWR
      December 5, 2012 at 8:37 pm

      Very well said Sergio. Except I think we still have awhile to go with capitalism, or perhaps I should say profit making systems…if we wake up and evolve them toward adequate universal and ethical ideas and policies reflecting Confidence, Hope, Love and Grace. Technological innovation, also being a two edged sword, requires these same ideas and policies.

    • December 7, 2012 at 10:49 pm

      Sergio – “a new economic thinking” is a good description of what I’m doing. I noted earlier (November 30, 2012 at 10:50 am | #45) that “Framework” is perhaps not the best term.

  39. December 5, 2012 at 9:09 pm

    Sergio, before Copernicus the framework for thing about the universe was that the earth was at the centre with the sky rotating about it. Don’t you think Copernus’s framework, with the earth and planets going round the sun and similar events happening at vast differences from a relatively tiny earth, led to a very different way of thinking about the earth despite nothing in what we see having changed? This is the point I’m arguing.

    As you also evidently realise from experience of socialism, it is not true that “there is no alternative” to Capitalism, though in a sense it has been around for thousands of years, though with slaves and land in lieu of powered technology. But see: now I’m offering you a different interpretation of Capitalism from Marx’s: he’s explained and given a name to it in terms of what he has seen, whereas I am explaining it in terms of how he sees it, and how others can see it differently. If he sees a difference between a truck and a car, I see them both used as road vehicles and thus extend my thinking to imagine or include types of road vehicles other than trucks and cars; indeed, if cars were all petrol engined and trucks Diesels, he might be led to remember e.g. steam rollers. I’m trying to illustrate relationships between physical and information science akin to those between ‘nature’ and ‘nurture’. Our genes determine whether we are more likely to observe external appearances or to have insight into what is going on inside “black boxes”, but if the sensory types are not nurtured by being shown the works inside black boxes, and if intuitive types are not nurtured with presented with all the answers and not challenged by the problematic behaviour of unopened black boxes, then neither will learn to see what the other half sees and they need to. nurtured by with ungiven the answerws and not seeing thecauses of behaviour, but our experiences those whose experience nurtures what we see is determined partly by our physical genes determining whther we are more likely toBut peope and partly by what we have managed to learn – from what already know in biology: anature and between physical ; other thanwhich because tructural similarity between business practices in pre-Christian times and those now. the seizure of land nation of thenow I’m back to my four-path framework, for I’m .

    • December 6, 2012 at 7:29 am

      Oh dear! Evidently, when I was called away and cleared the Reply Box before copying in a Word version, a “select all” didn’t select all the unseen rubbish below the box from my first attempt at composing this.

      Since this system doesn’t permit even the writer to correct his mistakes (others do), is there any chance of the editor erasing the rubbish? (Everything after “neither will learn to see what the other half sees and they need to.”) Apologies, anyway, to frustrated readers.

      This is such a pity. Having introduced my characters to Sergio(Copernicus, the four nails and four rubber bands), I woke up feeling like J K Rowling with the Harry Potter stories unravelling before her. These opening chapters in the “story” Geoff would like of economics are the difficult ones, for the reader needs to be introduced to the characters in the framework of their universe: the hell of their neo-classical Muggle world and the magic of Hogwarts. (Definitely Muggins but not quite Hogwash?)

    • sergio
      December 6, 2012 at 7:31 am

      Good point on Copernicus. Neoclassical religion under the mask of “science” is preventing us from further exploration of how society really works, and where it is moving. Their “scientific” modelling-calculation-empiricism-quantification of their marginal world, where “earth is at the center” is taken as given leaves no alternative to capitalism, and their dogma. Of course behind this dogma is purely materialistic motives, that religion is their business and that is the reason why they suppress new economic thinking, naming it as non-scientific. Neoclassical inquisition simply does its job.
      “No alternative to capitalism” = “No alternative to capitalist thinking” = “no alternative to neoclassical economics”. Wrong.
      And as in the case with Copernicus, new technology and invention simply prove that this equation is wrong. The point now is whether it worth to spend someone’s efforts, money to study pseudo-scientific charlatan ideas.

  40. December 7, 2012 at 4:29 pm

    THE STORY OF ECONOMICS

    [NB. Composition of this “work in progress” is a collaborative effort, so do join in the fun Geoff wanted us to have].

    Recap from PREFACE

    As you evidently realise from experience of socialism, Sergio, it is not true that “there is no alternative” to Capitalism. In a sense, though, that has been around for thousands of years, but with slaves and land in lieu of powered technology. But now I want to offer you a different interpretation of Capitalism from Marx’s. He’s explained and given a name to it in terms of what he has seen, whereas I intend to explain it in terms of how he sees it, and how others can see it differently.

    Before Copernicus the framework for thinking about the universe was that the earth was at the centre with the sky rotating about it. Don’t you agree, Sergio, that Copernicus’s framework, with the earth and planets going round the sun and similar events happening at vast differences from a relatively tiny earth, led to a very different way of thinking about the earth despite nothing in what we see having changed? This is the point I want to develop.

    I’m trying to illustrate relationships between physical and information science akin to those between ‘nature’ and ‘nurture’. Our genes determine whether we are more likely to observe external appearances or to have insights into what is going on inside “black boxes”. The ‘observer’ types will not learn to understand insight until black boxes have been opened, and the ‘intuitives’ will not learn to appreciate careful observation until confronted with [their] mistakes. However, science and education take time, so at a given time all the black boxes have not yet been been opened by scientists, and the way each of us learns to interpret observations reflects that.

    There is thus a range of different possible interpretations of economics depending on how many black boxes have been opened and the contents of which ones students have been exposed to. As it happened, electric circuits were not discovered until 1800, decades after Adam Smith, for whom circulation of money, the economy’s “blood”, was a problem (and how rightly!). The dynamics of electric circuits were not sorted by Heaviside until about 1890, decades after Jevons and the neo-classicals modelled economics on Maxwell’s steam engine theory; the face of science (but not economics) was transformed at the beginning of the twentieth century by the revolutionary discoveries of sub-atomic physical structure, relativity, non-Aristotelian logics, quantum theory and carrier radio, but von Neumann’s interpretation of economics as a game ignored all this. Keynes’s explanations in terms of expectations and market corrections had been around a few years before Shannon discovered logic circuits, error correction logic and information theory. There are thus a range of possible interpretations of economics, starting on the one hand with what different people have seen in it at different times, and on the other with science having taken the universe to bits by looking back in time until it contained nothing but the energy radiating from a Big Bang. Whether or not there was a kindly God before that matters to the ETHOS of the economy: is it for Man or “supermen”?

    We now frame and interpret our Universe in the language of our four coordinates of Space and Time, but then these did not yet exist. Time was embedded in the motion of the energy, and strictly speaking Space only extends as far as the energy has got. In short, being in our Universe, with all it contains, is like being inside an expanding balloon, or what is called Hubble’s Bubble, for the astronomist whose great telescope has enabled us to see so far back in time. What has remained to be satisfactorily explained is how this radiating energy we can’t see became the things we can see, including systems of interaction as complicated as those of economies and the internet. The ancient story that a God created it (in stages) the way it is, is actually a great deal more credible than that it happened just like the creation of money (“out of thin air”, or “nothing”, or during the inflation stage of an eternal blowing and bursting of bubbles – this being apparently inconsistent with the facts). The not-so-ancient story of an invisible God demonstrating his existence and loving character through the self-sacrifice, death and otherwise impossible resurrection of a visible man amounts to what scientists called in Einstein’s case a hundred years ago a Critical Experiment in its favour; what many now find not so credible are the recorded testimony of eyewitnesses two thousand years ago. Opening the “black box” of evolution has left much less credible the Argument from Design” for the “creation in stages” story, but having opened the “black box” of programming computers, we can now see that an intelligent God would not bother to design what he could allow to evolve itself. The weakness lies in the unscientific interpretation of Darwin’s theory, which in fact explains the gradual modification of existing species – by processes now elegantly described in Lovelock’s “The Ages of Gaia” – but not how matter and life came into existence in the first place, by fundamental processes still applying to everything, including the evolution of consciousness, science and economics.

    Which brings us to the start of our story, Sergio, and the framework I humorously modelled with an arrangement of four nails and four elastic bands. Serious explanations of these may be found in Arthur M Young’s “The Geometry of Meaning” and the update of W W Sawyer’s “Prelude to Mathematics”. Their arrangement owes much to professional economist Kenneth E Boulding’s “The Image” starting reflection on the differences between iconic (e.g. Chinese) and alphabetic (English) language. The “serious humour” follows amateur economist G K Chesterton on “G F Watt”, “Orthodoxy” and the insanity of not using the visual as well as the verbal side of one’s brain. Proverbially, a picture is worth a thousand words.

    “Mini-essay” chapters to follow (with luck):

    ON NAILS AND ELASTIC BANDS [language, topological groups and evolution]
    ON BRAINS AND BLACK BOXES [the architecture of brains, computers and information systems]
    ON POWER AND SELF-FULFILLING PROPHECIES [the electric circuit analogy]
    ON GOVERNMENT AND CONTROL [the information-based PID servo analogy]
    ON HOUSEHOLDS AND SHOPS [real data and indexing in the relational database analogy]
    ON PARASITES AND VIRUSES [exogenous banking: money shops and launderies]
    WHAT MANKIND’S GOT vs WHAT IT NEEDS [summary and assessment]
    AFTER THE SEPARATION OF DIRECTED VARIABLES [sketching a picture worthy of the frame].

  41. December 7, 2012 at 11:15 pm

    A couple of brief points.

    I don’t use the term “capitalism” because it can mean too many different things. Debating Capitalism vs Socialism is a false dichotomy that gets us nowhere.

    There are many possible ways a market economy can work. In my work, I conclude there’s no reason market incentives cannot be adjusted so it is profitable to support people and nurture the Earth. Humanity’s lot might improve remarkably quickly if we did this.

    At present it is often/mostly profitable to exploit people and trash the Earth. So guess what’s happening? If we just eliminated the many perverse subsidies (e.g. on fossil fuels), we would already be a lot better off.

    There are other things that affect the flow of wealth through the economy (at present disproportionately to the rich). A prime one is the rules attached to “owning”. We already have many variations, we just need to use the good ones more. Another prime one is the way money is issued, by whom, and with what rules attached.

    A general comment on this discussion – it’s good that a vigorous discussion has taken off. However most of it is in ignorance of the rather detailed analysis and synthesis that lies behind my article. Of course I would like you all to read it (it’s in my book). I haven’t joined much in the discussion because I think one needs to appreciate the multiple basic problems, many of which have nothing to do with theories of markets, and which I briefly mentioned in my article.

    So this is a plug for my actual ideas (rather than the various incomplete or inaccurate impressions of them that have appeared in this discussion). This is not to discourage others’ ideas, but after all I am the one who started this. :-)

    I’m still travelling, so I still won’t be joining in much.

    • December 8, 2012 at 9:41 am

      Geoff, speaking for myself, I re-read the section of your article under “A comprehensive reconception required”, and I agree with everything you say in it. We seem to differ primarily in two things.

      (a) you propose starting from chaos theory and ending with intelligible information; I propose starting from noisy information and getting rid of the noise. Your framework is thus the logistics equation, mine is error correcting control logic, or how “invisible hands” actally work.

      (b) you have written your book with Waldrop as fashionable backup; I haven’t written mine not least because I haven’t found an audience: hardly anyone seems to have even heard of Shannon, never mind understood his seminal ideas and their practical significance.

      It follows here that I disagree with you on the use of ‘Capitalism’ and ‘Socialism’. Sure they are noisy, but the answer to that is to define them in a way which strips away the noise.

      Without diagrams I’ve had to make the Leavitt’s Diamond of economics imaginable by describing an amusing arrangement of four nails and four elastic bands. Drawn in single lines this becomes in electrical practice the circuit diagram of a Wheatstone Bridge, in which power is circulated by an internal battery which is also a store of power. In a hot water central heating system the pump is still inside the system but as hot water expands the surplus is “banked” in a header tank, which is also an insurance in the event of leaks. That is the essential difference between the old monarchies (or Russian style socialism) and post-National Debt capitalism. In the one case the Treasury is endogenous and in the other exogenous.

      By capturing the king’s surplus and renting it back to him, the City of London added a shadow economy which by now has its own Leavitt’s diamond, in which circulating money is laundered by changing form into entitlements to ownership, rent and insurance derivatives. Growth of GDP is thus a euphemistic way of demanding that surplus flow into the shadow economy to inflate the shadow economy and its rental incomes.

    • sergio
      December 10, 2012 at 3:51 pm

      Debating Capitalism vs Socialism for the last 150+ years brought us and economics to nowhere. It brought economies, both russian-type socialist and capitalist countries to disaster. The main reason for this is that we mistakenly described market economy as capitalism. The idea which followed from this false vision had led to non-market planned economy. And the latter was mistakenly thought as socialism. What has been completely forgotten in a debate between socialism and capitalism is market. Market was not studied in economics at all. If some think that demand and supply, described in neoclassical dogmatic textbooks is how market actually works, then he/she is wrong. Neoclassical economics is not about market. Free-market ideology is totalitarian dogma, which can say nothing about how market works. So, planned economy and free-market ideology are simply two different ways to same destructive destination. (Similar vision in “Markets in the Name of Socialism: The Left-Wing Origins of Neoliberalism”, Johanna Bockman Stanford)
      Yes, market is not capitalism. And free-market is not market at all. Market is fundamental social institution. We know that neglect of market, as social institution, in planned economies led them to disaster. And at the same ignorance about what is market in mainstream vision has led to what we have in developed countries.
      As you correctly say it “there are many possible ways a market economy can work”.
      Economics should study what it did not do for the last 200 years. It should study markets, as social mechanism and social institution. Such vision of markets is not closed by ideological boundaries, it admits importance of markets and at the same time it is open to non-price, non-profit incentives and solutions.

  42. robert r locke
    December 11, 2012 at 1:26 pm

    My contention is that certain important issues about the effectiveness of economic analysis cannot be discovered by the methods of economic analysis – because these factors are historical in nature and economic method does not deal with them.
    For example: According to “secularization theory” c. 1950, advanced by a host of prominent scholars (Ernst Troeltsch, Bryan Wilson, Thomas Luckmann, Peter L. Berger, Karel Dobbelaere, and others) religious’ influence on all aspects of life –from person habits to social institutions – is in dramatic decline. People have become and are becoming less religious. In the 1960s one sociologist A. F.C Wallace went so far as to predict the death of religion because “it is doubtful if modernity can continue to combine religious tradition with the overwhelming impersonal features of our time: scientific research…, high technology, multinational capitalism, bureaucratic life and so on.” “Governments,” Wallace predicted, “would no longer turn to “priests, ministers, rabbis, and mullahs for expertise…but to economists, physicists, and political scientists.”
    The religious history of the late 20th century shows that the predictions of secularization theorists have been completely wrong. But one looks in vain in this search for a new framework for an explanation as to why people have not turned to economists rather than priests. This colossal failure of social science has to be explained.

    • December 13, 2012 at 7:00 am

      Perhaps Wallace overlooked the fact that economists and physicists at least tend to write in mathematical shorthand, whereas even the Roman Catholic church has realised Latin is not essential to its tradition.

      • robert r locke
        December 13, 2012 at 10:18 am

        Doesn’t matter if physicists and economists speak in a sort of mathematical shorthand. The point is that the venture to create a science of society, upon which the academics so enthusiastically embarked, cc. 1950, had clearly failed by the end of the 20th century, no matter how many frameworks are erected. That failure is why the world is in such a muddle. Its either religion or take a soma pill.

      • December 13, 2012 at 5:58 pm

        Yes, well, I was half joking about the difference between religious language and secular mystification, without going into the serious issue of it not being possible to pass on the human significance of the one in the impoverished language of the other. I don’t deny your point, Robert, nor the significance of historical events like Henry VIII wanting a divorce, but I don’t go along with “the” methods of economic analysis because methods evolve and I’m using SSADM which does take account of history.

        You cover your own tail well, but perhaps the explanation you are seeking for the failure of social science lies partly in logical positive scientific method not being scientific and partly in a reversal of role in Wallace’s diagnosis: it being religious tradition which can no accomodate a modernity which has become so dangerously perverse. In any case, I can’t see how one can have a science of society which doesn’t start from an explanation of the differences between and relationships linking men.

  43. Robert Searle
    December 12, 2012 at 11:21 am

    As far as I am concerned the new ideas for economics already exists. See my evolving project http://www.p2pfoundation.net/Transfinancial_Economics

    • December 13, 2012 at 6:51 am

      Having read this, Robert, I was saddened to find it more like pieces of a jig-saw puzzle(apparently of a wish-list) than an explanation of the schema, circuit diagrams and electronic components used to construct working sub-systems like a radio. Compare it with Adam Smith’s Wealth of Nations, in which Smith evidently understands very well not only international trade and governments but the methods, possibilities and problems of the evolving factory system and the foibles of humans – notably competing shopkeepers, politicians and preachers – when forced to fend for themselves. What I did admire in it – and I admired even more in the Smiths and Mills of the quill pen era – was an expansiveness with words which has always escaped me: as it does now, when I try to write Merijn a semantic analysis of money or translate my picture story of economics into words. We’re none of us perfect, which is why I prefer these “evolving projects” to be ‘ours’, not ‘mine’.

  44. Robert Searle
    December 13, 2012 at 10:18 am

    Yes, Adam Smith, and Mills though belong to the past. They may have some relevance today but let us try, and deal with more modern ideas related to the modern world. And yes, it should be understood that TFE is still “work in progress,” and hopefully, the new changes to it in the near future will make the subject clearer. Moreover, it presents a very different type of economics, and is less easier to comprehend for those totally new to it. Anyway, thank you for your response.

  45. robert r locke
    December 14, 2012 at 7:46 am

    So it requires a new priesthood to interpret it for us. Be careful. I bought into the New Paradigm of economics between 1954-64, when it took over business schools and econommics departments. It made a big impression on historians,too, with the New Economic History. Then, while studying 19th century French industrialization, I noticed that what expert contemporaries (engineers, political economists, technical bureaucrats) said about it was ast vaiance with what the New Economic History said. NEH said believe its ethdds nhogt the congtemporaries. I didnn’t and don’t because I read into the sources, a different kind of proof.

    • December 14, 2012 at 11:32 am

      Can’t work out the sense of your second last sentence, Robert L. If you were on about not reading into the past the way we think now, I agree with you. One almost has to go behind the, then, present to imagine what it was possible for them to have been thinking. When Robert S. asked us to “try and deal with more modern ideas related to the modern world”, things like Al Khorismi’s numbers and Cartesian coordinates came into my mind: still totally relevant but of a significance and with limitations forgotten today. The proverbial “Familiarity breeds contempt”? When we were kids we were still taught Roman numerals and Mediterranean-centred radial mapping to give us some sense of perspective.

      • December 14, 2012 at 12:08 pm

        Re recent argument that double entry book-keeping is at the root of our troubles, I read somewhere recently that negative numbers – never mind ‘imaginary’ ones – only became academically respectable as recently as the 1820’s, through the work of de Morgan. It is not surprising, therefore, that a separate accounting entity was created for the negative side of credit and debt, and that the signs traditionally assigned to them are misleading (This also happened with electricity. Now we know what electrons are, it makes more sense to say atoms are short of them than that they carry negative charge). Anyway, it seems the idea that money may represent negative value (i.e. our expenditure is a measure of how much we owe society rather than a measure of wealth) is still a bit shocking to those who haven’t studied the development of mathematics and have forgotten the story behind the Mosaic First Commandment (about not confusing images with reality, about worshipping the living God, not
        graven images): the Israeli worship of the Golden Calf. Will we never learn?

      • robert r locke
        December 15, 2012 at 9:34 am

        In 1916, a group of German experts (metallurgists, engineers) did a survey of the French steel industry most of which because of the German invasion was behind the front linesin German hands. The German government wanted to use French steel industry for its war effort. The experts report concluded that the French steel industry was technologically backward and outmoded. The tools of the New Economic History led to historians conncluding otherwise. I believed the German experts because of the shortcoming of econometrics.

    • December 14, 2012 at 3:02 pm

      Well, most paradigms, or any new system of thought has it own “priesthood”. That is the way it goes. However, most of the future terminology for the evolving TFE project would probably be borrowed from mainstream economics.

  46. sergio
    June 10, 2013 at 5:16 pm

    Contribution to the debate on framework for a New Economics

    http://www.innovationeconomics.org/

    • davetaylor1
      June 10, 2013 at 10:14 pm

      Not this one. It is still seeking a framework for growth, rather than for sustainability in light of ecological crises and declining availability of fossil fuels.

  47. sergio
    June 19, 2013 at 5:02 am

    Watch out! Neoclassical nonsense is trying to save its life under the different name – Cliometrics.

    http://www.cliometrie.org/en/the-afc/presentation/48-what-is-cliometrics

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