from Peter Radford

There are many billions of people in the world. There are tens, if not hundreds, of business firms. There are hundreds, if not thousands, of government and quasi government agencies. And there are a multitude of other organizations scattered about the global economy. All these are actors on the economic stage. They generate an incalculable number of relationships built around their multiplicity of desires, needs, and resource endowments. They barter. They exchange. They self-employ. They employ others. They sell. They buy. They consume. Some produce for their own consumption. Some produce for others. Some make their income as rentiers. Others work. They all change through time as they adapt to and interact with each other. They all learn. 

Each potential way of arranging this massively large network of relationships is a state of the economy. It is a single outcome of one arrangement. There are a near infinite set of such potential outcomes. The vast majority of these states of the economy are unstable: they do not contain an arrangement of economic affairs that satisfies everyone within the network. This instability impels change and a move towards a new state. Given the intractability of the calculation involved it is near certain that this new state will be unstable also. And so the economy evolves. Never arriving at a satisfactory state.

It is this narrative that places the system of economic understanding we know as neoclassical economics within an extremely small locus within the entire state pace of states of the economy. The conditions that the system requires enable it to apply to such a small set of states of the economy that it has negligible explanatory power other than to allow us to compile a list of exceptions to it.

Those exceptions are more interesting because they relate to a more disordered economy and thus match better against the instability of the vast majority of all states of the economy. By theorizing about the exceptions, each individually, and then in various combinations, we can expand the sphere within state space that our ideas have some chance of explaining.

We can expand further by adding components of other economic theory systems. If we recognize that none are complete, and that none could possibly explain every single potential state of the economy we can turn the futility of our current divided domain into a more constructive discussion: what are the elements of each theory that extend our understanding deeper into state space? Are there hidden meta-ideas that unite one or two of our theories such they, together, provide an explanation for a wider set of states that either do individually?

This is, of course a fool’s errand.

Economists tend to be dogmatic and well entrenched within their own preferred theory’s position. This limitation prevents progress and inhibits the value that the domain of economics adds to the sum of all knowledge.

This limitation becomes clearest in times of turbulence: those moment of greater instability as the economy makes its way through state space. Then it becomes more obvious that the real economy is located some distance from the zone within state space that economists have chosen, thus far, to explore.

Perhaps they all need to get out and about a bit more often.

  1. Garrett Connelly
    April 8, 2015 at 4:49 pm

    Very good, thank you. A new word for me that is describes this direction is autopoitic. Found in “Degrowth … A vocabulary for a new era … Edited by Giacomo D’Alisa, Federico Demaria and Giorgos Kallis

  2. Paul Schächterle
    April 8, 2015 at 5:32 pm

    I would argue that the set of states to which “neoclassical theory” applies is the empty set.

    I would also argue that neoclassical theory provides not a single element that extends our understanding of the economy. On the contrary neoclassical theory points towards “explanations” that are clearly false and misleading (and often even logically inconsistent).

    So I would not bet on any helpful hidden meta-idea to be found in neoclassical theory. To look for those is indeed a fool’s errand — for reasons that lie in the neoclassical theory itself, not in the economists’ being dogmatic and entrenched in theoretic positions.

  3. April 8, 2015 at 8:52 pm

    It would be very interesting and potentially transformative to read the comments after all your readers here at Real-World Economics Review were asked to describe their concept, features and specifics on “best available economic system/theory”. By best, meaning the economic system carrying the greatest potential related to increased health and well-being for the greatest number of human beings around the Earth.

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