Some Issues

from Peter Radford

First:

I have finally arrived at the point where I can give orthodox simple economics its due. It is a triumph. A system of thought well conceived, brilliantly executed, coherent, consistent, and pretty much complete. Bravo. I love it.

As long as we are trying to examine economies consisting of one or two prescient households, a couple of firms of exquisite accounting excellence, one or two products that are easily substituted for one another, as long as there is no uncertainty, no relevant time, and as long as these various actors can calculate everything at warp speed, we know everything we need to know about economics. The game is over.

As I say: well done everyone.

These unbelievably simple little economies, I assume, must exist somewhere. And wherever they do we can explain them easily.

Where they don’t is another matter.

Orthodox economics is simple economics. Simple.

Second:

Unfortunately the overwhelming number of possible economies are more complex. Orthodoxy simple theory tells us little in these cases. What it does is to try to simplify life back downwards and crunch it into the simple space it explains well. It acts as a kind of perennial first guess. It is a stab at understanding, nothing more. In the absence of a fully worked through complex economics it is all we have.

Complex economics is the future and is made possible by the development of technologies and ideas – some decades old – that allow us to get beyond simple economics. It will allow us to substitute more well thought through ideas for those rough guesses we have inherited from the simple work thus far accomplished.

Third:

No. Slathering scads of formalism all over the place does not constitute complex economics. It quite often simply hides the lack of a complicated narrative underneath.

Fourth:

I am also trying to get beyond – although clearly I haven’t yet succeeded – using the words orthodox and heterodox. What was orthodox is now heterodox and vice versa. Thus the words have little enduring relevance. Which is why I now prefer simple and complex.

Yes, I realize that those two new words can be muddled up too. But they aren’t yet. So they will have to do.

Fifth:

Structure matters. So do institutions. So does time.  Any economics that takes for granted its context isn’t worth much. It remains too simple for the real world.

Sixth:

Information is all. All is information. Economies translate matter, energy, and information into stuff we need or want. The great cycle of creativity that sits squarely at the center of an economy is the constant shuffling about of information. We infuse matter with order courtesy of the information we have at hand and the input of energy. This process is the most important aspect of an economy. We then consume, which is the disordering aspect of the cycle. Disordered matter doesn’t disappear. It loses its use value. We call it depreciation, dissipation, dissolution, and so on. It doesn’t matter what we call it. Humans order and disorder their surroundings. They create and consume.

Labor is energy and information. Capital is matter and information. Land is energy and matter. A simple production function thus creates confusion. A complex production function would not.

This sounds kind of thermodynamic. That’s better than simple because simple ignores energy, matter, and information. It ignores the cycle. It contains no process and sits outside of time. It has no direction. It has no purpose.

Seventh:

Simple sits on top of, and presumes, the cycle of creativity. Hence its inability to relate well to the environment, to real world production, to innovation, and to a host of other activities embedded in the structures, institutions, cultures, and networks that provide the basis of an economy.

Simple takes the world for granted, which is why it gets flummoxed so often by growth, change, or other phenomena that exist in time.

Complex will be an improvement on this determined ignorance.

Eighth:

Economies appear to accrete information through time. They get more complex. This appears related to the division of labor. Whether they are the same phenomenon is another matter. Simple economics cannot account for the accretion of information. Complex economics can. Which is why complex economics helps us understand growth and possible alternatives to growth.

Ninth:

Complex economies are in a constant state of becoming. They never arrive. They contain within them both the consequences of the past and the construction of the future. They have paths constrained by history. They are always in flux. Complex economics will interpret and embrace this flux. Simple economics cannot.

Tenth:

So we move on.