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.