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Where’s the Structure?

from Peter Radford

In its long search for the illusion of equilibrium economics has had to barter away one aspect of reality after another. Driven by its desire to unearth laws that explain the presence of that illusion economists have long ago lost contact with the grittiness of actual economies. They prefer the pristine and simplified sanctuary of their models no matter how reduced the image of an economy those models portray.

Oddly I do not criticize them for this. No, I think I understand the logic of the process that produced the result. I applaud the effort. I salute the intellectual energy that has been absorbed into the project.

It’s the outcome I abhor. Economists are simply caught in a valley which, unfortunately for them, sits in the shadows of reality rather than sitting on a peak casting light on it.

I was thinking thus because I was trying to relate how economics, most of it anyway, ignores uncertainty. As you know this ignorance vexes me more than somewhat, because I see uncertainty as central to human existence. Without some element of uncertainty there would be no need to learn — we would know everything already. It is the absence of knowledge that incites us to search, to innovate, and to arm ourselves against the unknown. It is the very essence of life: problem solving is the distinguishing characteristic of life. It is how we tell that something is alive. The intentional imposition of order on disorder is the central property of all things we consider to be living.

But to impose order we need to take risks. We need to risk that the order we impose has utility in the face of future unknowns. We need to risk that the patterns we think we detect around us are repetitive and can therefore be anticipated. We need to risk that the unknowns are not so significant that they can doom our survival. And so on.

So we need to mitigate and manage that risk.

And one way — perhaps the biggest way — we do that is to introduce structure into our lives.

Structure is manifest around us. Our institutions, cultures, norms, and relationships are all structural buttresses to support life. Each of these explodes, in turn, into a myriad smaller, yet significant, sub-structures.

In a more prosaic domain: the way we conduct business and economic transactions is an activity sitting within a web of structure for exactly the same reason. And, as our economy has grown more complex because of the relentless move from self-sufficiency towards a collective mutual dependency — Smith’s greatest insight is that we create wealth best by dividing tasks into ever smaller bundles so that each can be sold or bought and thus be a source of income — we need to offset the uncertainty created by the mutual dependency by adding ever more structure.

Business cannot take place in the absence of structure. Assets, resources, and skills have to be accumulated that have specific ends in mind. Without structure to ensure the durability if that specificity no one would accumulate them. Relationships need to be formed and relied upon to allow us to buy or sell things we no longer produce ourselves. Structures provide that assurance.

Money is one such structure. We take it for granted, but it is a structure. It is a component of the overall architecture that we call an economy.

So too are the laws governing transacting.

So too are the plans we make in business to define our activities.

So too are the very businesses themselves — they are defined in law, social norms, culture, and other structures in order to perform their roles.

All economic structure can be stylized as an attempt to carve out in time and space a safe zone within which the onslaught of uncertainty is reduced to a manageable proportion. It can never be eliminated. We simply try to fend it off. We can never succeed permanently though, which is why businesses fail despite their best plans.

And, naturally since the economy is a dynamic phenomenon, our safe zones themselves provide uncertainty — they divert the natural world and cause unintended consequences which are a source of future disorder we then have to cope with. The expansion of our knowledge simply adds to our ignorance — we know, increasingly, how little we know.

This general perspective is why I abhor most economics. One of the most important aspects of reality economists have tossed overboard in their pursuit of perfection is the existence of structure. They ignore time and space. Or, rather, they abuse it. They compress it into nothing and thus absolve themselves of the task of explaining structure. They treat transactions with a disdain unbecoming to a science with transacting at its heart. They assume a weightless, frictionless, and certain coincidence of supply and demand that takes place outside of time and space. They ignore all the evidence of the need for structure because structure requires them to step back from their ideal and step within the complications of reality. And those complications, with uncertainty underlying them, are the root cause of structure.

Order itself, of course, implies structure. And, in this case, structure is the transmitter of information. It is the origin of information. It is the end of information. Without structure there is no information for there is no way of telling one thing apart from another.

Yet economists pluck order from nowhere. It just appears. There are no processes, no spaces, no time elapses, no sources of potential disruption. It just appears. The information within the economy is assumed into place. It is dropped in situ all at once. It does not evolve, mutate, alter in any way. It just appears as if by magic. The props necessary for this magic are nowhere accounted for. And if, or when, they are encountered they too are assumed to be in place ready to play their role with their history or origin unquestioned. With reality so determinedly set aside most economics has no need of structure. There is no need of support to hold the edifice together because, well, it just is.

So most economics cannot ever explain why an economy came to be. It cannot provide a history. It cannot account for change. It cannot explain difference. Economies, in the mainstream account, just appear. Most economics posits economies as being born miraculously without gestation, created as if by a divine hand, all magic and no substance.

Then, subsequent to this magical appearance, economists settle down to explain the economy’s operation. But without, let me repeat, having any account of how it arose in the first place. The entire theoretical approach is a tautology.

All because they want to ignore structure and the reasons for structure. Which, in turn, they ignore because they  assume away uncertainty.

Isn’t it odd how one decision — to ignore uncertainty — made long ago has so distorted the discipline? And how utterly irrelevant much of its theorizing is as a consequence.

Bring back structure, and we restore economics to reality.

  1. Liam Allone
    March 6, 2015 at 8:41 am

    Though I agree with the author’s sentiments, I don’t see that a viable solution has been offered. I agree with the assertion that “So most economics cannot ever explain why an economy came to be. It cannot provide a history. It cannot account for change. It cannot explain difference. Economies, in the mainstream account, just appear. Most economics posits economies as being born miraculously without gestation, created as if by a divine hand, all magic and no substance.” And yet, there are two men close to a century put their finger on EXACTLY what is wrong with the model we all blindly accept AND they proposed concrete solutions to deal surgically with the problem. I am reminded of a similar situation in history where Jacques Cartier’s men who were dying of scurvy were “cured” by Indians who boiled pine needles and gave them the broth. And yet for over two more centuries, countless thousands died of scurvy. The solutions I am referring to are social credit and national economy by Clifford Hugh Douglas and Novel Lauriat Professor Fredrick Soddy. Tens of thousands have sung their praises and continue to advocate their solutions. See http://www.socred.org or http://www.economiccures.com for my personal favorite solution – social credit.

  2. blocke
    March 6, 2015 at 11:45 am

    Peter, In Issue 61m 28.09. 2012, I wrote a piece “Reassessing the basis of economics: from Adam Smith to Carl von Clausewitz.” On method I wrote:

    “Admirers of Clausewitz assert that his strategic vision, conceived over 200 years ago, adds explanatory power to the discipline because his assumptions about economic actors differ from those of orthodox economists. His state oriented strategic management thinking is expressed in books and papers such as Clausewitz Strategie denken, Henning Schildgen’s If Clausewitz had been an economist: Economics as an instrument of Power in Clausewitz’s Strategic Management Model (that borrowed heavily from Rasmus Beckmann’s analysis of Clausewitz’s strategic model in a contemporary context (Schildgen, 2010, Beckmann, 2008), and in courses and executives seminars taught at the Harvard Business School and other management education venues.
    Whereas neoclassical economists in the positivist tradition seek through rigorous scientific method to make economic outcomes predictable, Clausewitz reasoned about knowledge in a different way. He lived in a Kantian-Hegelian environment. G.W.F. Hegel, the most influential philosopher of Clausewitz’s mature years, thought dialectically, which means that the purpose of study is to think about things in their own being and dialectical movement. Contradiction does not exist in people’s minds (positivism asserts) but in the real world. But to Hegel everything is contradictory, and if natural scientists think otherwise, it results from a logic that is the logic of the moment, the logic of the simplified world. Dialectical thinkers introduced the logic of time. As Marx explained when commenting on dialectical materialism: “Dialecticians insist that non-contradiction in the formal logic sense [occurs because scientists] fix their categories temporarily, which are often inadequate to apprehend the real world, a world in constant motion that cannot and should not be reduced to categories frozen in time. (Marx, Capital, Vol. 1, Afterword, 5). Clausewitz … unlike classical economists, thought dialectically with respect to causality and the importance of time.
    Disorganized Complexity and the Unknowable
    Consequently, although he addressed simple problems with Newtonian concepts, Christopher Bassford claims that Clausewitz unlike British, French, and American economists also used new tools of mathematical probability calculations to deal with problems of disorganized complexity (Bassford, 2008). His belief that reality is fraught with the unknowable (Ungewissheit), resulted in methods of analysis that were very different from those of orthodox economists. He was careful about simplified model building. As he put it, “The scientific character of [my theory] consists in an attempt to investigate the essence of the phenomenon of war and to indicate the links among the phenomenon and the nature of the component parts. No logical conclusion has been avoided, but whenever the thread becomes too thin I have preferred to break it off and to go back to the relevant phenomena of experience.” (Quoted in Bassford).
    Genius, esprit de corps, and uncertainty
    In the fog of war Clausewitz knew that successful outcomes depend much on the chief executive’s genius and on the skill and esprit de corps of the organization he led. Napoleon was famous for his rhetoric; other great commanders, including Napoleon himself, had charisma. Nobody could predict the appearance of these irrational traits in commanders or define what precisely they are, but they are palpable and at times event-deciders.
    Among those factors that influence the outcome of military conflict, he included the hate intensity of peoples and the talent of command, categories of analysis that could not easily be included in a mathematical decision model. If he conceded that the irrational shaped war’s outcome, Clausewitz did not leave matters there.
    Contingency planning, mission directives
    Commanders in their work had to cope with uncertainty constantly. He attributed it to the “Friktion” that people encounter when operating with incomplete information. To deal with it he developed a system of strategic thinking that permitted the commander to face the complexity of the unexpected and the irregular, not by simplifying as positivists do, but through contingency planning, which promotes the calculation of the incalculable. Louis Pasteur said that accidents can best be confronted by the prepared. Clausewitz observed that a commander can do this preparation because his reflective eye can perceive, from his position, all possible scenarios, carefully examine them, and arrive at an optimal strategic decision. This strategic thinking, in Clausewitz’s words, “Is no more and no less than the search for new ways to clarity” (quoted in “Management,” 2003, 2).
    No amount of strategic thinking could succeed if the army could not carry out its assigned tasks. Organizational capability and strategic thinking went hand in hand. The Prussian General Staff, a nineteenth century phenomenon whose post-Napoleonic reform began in Clausewitz’s time, a reform in which he actively participated, worked constantly to cement its relationship with the army organization to make command and rank and file both think and act together. That was very Clausewitzian. As the army evolved, its masters sought cohesion by giving the field commander and the chief of staff co-responsibility in matters of command decision. Empowered with co-responsibility the chiefs of staff developed the policy of issuing “mission directives” (Auftragstatik) to subordinates instead of detailed orders, which allowed the man on the spot maximum freedom in deciding how to achieve the assigned tasks. A highly decentralized command system meant that tactical and administrative decisions occur at very low echelons of command by officers in which their superiors placed great trust. At lower echelons officer aspirants did their training in a regiment (Clausewitz did), alongside the soldiers; each aspirant learned, as weaponry evolved, how to use all infantry firearms. Personnel rotated officers regularly between general staff and field positions in order to build like thinking between line and staff that the successful implementation of Auftragstatik in war required. The Prussian army introduced war games in its training regimes in the 19th century; in the First World War, whereas the French army left the development of small arms weaponry to the noncombatant staff, in the German the soldiers, who used them in the trenches, participated directly in the design and improvement of their weapons, just as a machine operator in a German factory would be involved in the purchase of the machine he would use; and command also promoted organizational asymmetry in field units, which allowed operations the sort of flexibility that contingent theory and the fog of war demand (Lewis, 1985, Locke, 1999).”

    I put considerable effort into that piece, but you as well as other English speaking economists ignore it just as well as you ignore the anti-positivist thought world that German thinkers created in the 19th century. That is what makes trying to participate in this blog so frustrating.

  3. Liam Allone
    March 6, 2015 at 3:28 pm

    @Blocke: You have hit upon something that I think is very important and I whole-heartedly agree. The concept of time is critical. Douglas in his explanation of Social Credit was always highlighting the importance of economy as a FLOW that occurs over time. If you just take a snapshot of time, it tells a “truth” that is no longer true a second later. Can you imagine the implications of flying to the moon if time and movement was not taken into account? Can you imagine being able to hit a target at distance without taking into account distance, wind and elevation? I think you will like what Douglas has to say about what is wrong with out economy and how to fix it.

  4. March 25, 2015 at 1:21 pm

    Absolutely.economists has deleted the issue of uncertainyt and make it look certain and thus the whole stuff has been distorted

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