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Economics’ missing ontology: the key obstacle to theoretical progress

from Ikonoclast (originally posted as a comment)

The key obstacle to theoretical progress is the fact that economics is both a prescriptive and a descriptive discipline. We have not developed an economic ontologly to deal with this issue.

The real economy is a real system. The natural environment is a real system. The set of legal laws, legal property relations, institutional arrangements, financial rules and calculations which we innovate and use as “rules and score-keeping of the game” are formal systems. How are we to integrate a subject encompassing and utilizing real systems and formal systems? What method can we devise to achieve the integration of such a discipline? These are the fundamental questions for economics. Economics has this foundational ontological problem in that it encompasses two categories of existence, the real and the formal or notional.

The following example illustrates the problem. Physics studies real systems and uses observational and experimental methods to do that. Experiments (other than thought-experiments and virtual simulations) are done in real systems. The formal system of pure physics (the pure mathematics utilizing SI table dimensions, dimensional analysis etc.) is used to formalize hypotheses, make predictions and analyze experimental test results. What we do not see in physics is a humanly created “rule” entering into the real interactions being studied and thus changing their behavior. Humans cannot make a “rule” which alters a Fundamental Law of real systems. We cannot make a rule, legal law, recommendation etcetera which will alter the Laws of Thermodynamics. This indicates that we are talking here, in physics and the hard sciences of standard “upward causation”. 

In economics human agents, in concord or discord, make and unmake legal laws, property relations, institutional arrangements, customs, mores, financial rules and calculation methods. These are rule systems which each human agent may comprehend or fail to comprehend, obey or disobey, enforce or neglect to enforce and so on. The net effect, in a society with some overall order, is that there is a general but not complete adoption of an extensive rule set and this in operation generates the downward causation effect of that formal rule system inducing real agents (humans) to make intended and unintended changes, according to the rules, to real systems (the real economy and real environment). The human rule system causes changes to the real systems through humans acting in their social milieu and environment. This description simply supports, on one side of matters, the institutional view of economics: that institutions, legal laws, customs and mores all matter and all affect and condition economic outcomes. They are no more neutral or natural than money. They are all artifice, as in made by man. Whatever nominal rule or nominal system is made this-wise by humans could always be made otherwise by humans provided the change was not incompatible with a Fundamental Law as in a Fundamental Law of physics, for example.

These deep ontological problems in economics have previously been side-stepped because of their intractability and specifically because economic ontology (like religious and ideological ontology) shades off into moral philosophy and metaphysics, even speculative metaphysics. The applied sciences, say engineering and medicine, do not have this problem to anywhere near the same extent. The ontology of engineering is “settled” by physics. The ontology of medicine is “settled” at the physiological end of the spectrum by physics, chemistry, biochemistry and neuroscience but is still contestable at the other end in psychology and psychiatry. Of course, by “settled” I mean here not absolutely settled but adequately settled to a workable degree (not precluding further knowledge progress) such that the applied sciences have a known arena where discovered scientific laws and developed disciplinary principles and practices operate dependably; this being so because more fundamental existents and their properties, plus the causes which apply and the effects which flow from properties and properties interacting, are known to a dependable and manipulable degree.

Now, side-stepping intractable problems is a pragmatic response which can and does permit progress. At a given state of knowledge we side-step intractable problems if there is a longer, harder way which yet leads to our goal or at least to a goal-approach which satisfices. It is my contention that “conventional” economics has long side-stepped what were once intractable ontological problems at a lower stage of scientific and technical knowledge and that “conventional” economics pragmatically improvised to satisfice; although who gets satisficed and who gets “screwed” (unsatisficed or de-satisficed) is a power question with ideological, moral philosophy, security and military dimensions.

Scientific progress has been accelerating rapidly since the Darwinian and Einsteinian revolutions and has accelerated much more again post WW2, especially with the advanced computers and instruments revolution from the 1980s to the present days. I am referring particularly to the disciplines of complex systems science and information theory, the latter meaning both computer information theory and general information theory. These disciplines have moved the boundary between “empirical ontology” and metaphysical and speculative ontology very considerably. This boundary shift has radical implications for an ontological reappraisal of economics.

It is quite clear that empirical ontologies as well as metaphysical ontologies can be developed; they can be brought into systematized existence and demonstrate practical value. Some ontologies refer to the real, like the Relational System Model of modern physics. Some ontologies are formal like those of computer systems science. In each case the ontology “settles” and defines a set of base existents and their properties plus interactive properties to a given degree of resolution (empirical ontology) or definition (formal ontology) with the goal being ultimately pragmatic; discovery of the real (including the socially real) and manipulation of the real (including the socially real) to human ends.

I don’t think economics as a discipline which encompasses real and formal systems is immune to the need for a “settled” ontology which;

(a) deals with the real (empirical ontology);
(b) deals with the nominal (formal ontology); and
(c) deals with the ontology of interactions and feed-backs between real systems and formal systems.

There is a way, I contend, to fuse empirical ontology and formal ontology. To sketch it very briefly, the method takes a line from Physics Relational System Monism to Complex System Monism incorporating evolution and emergence (in the frame of priority monism) while utilizing the insights from information science. A key deduction in the “logic chain” implied by the priority monist premise is that since all sub-systems in a real monistic system (the cosmos) must also be real then a formal sub-system in the real monistic system is also real. This leads to the seemingly paradoxical assertion that a formal system is a real system. It is indeed a real system but one with special characteristics. Its operations while real-system instantiated are informationally stored and transmitted (in patterns of matter or energy). Data and the capacity for data operations are stored and enacted in physical media, including computer components and human brains as media. A salient point is that the information content (which exists in patterns in media and which is capable of influencing / producing other real patterns and structures) in these systems is more important than the matter or energy content. This might almost hold as a definition of information efficiency. An efficient information system is one where the information content and/or transmission rate is high relative to the matter/energy requirements.

Where this theory leads, in part, is to a workable ontological delineation between “fundamental laws” as in the discovered laws of the hard sciences and humanly generated “rules” as in legal laws, regulations, customs and mores. The human agent (the human being) is the key component in all this of course. As a human agent he/she possesses some autonomy (which as a concept would be need careful and extensive definition), a physical body actuated by servos and servo systems (muscles, nerves etc.) and finally and importantly a brain, which among its other capabilities, encodes and decodes information and the rules that the information as instructions (algorithmic and heuristic) can encode. The human agent may then obey rules or disobey rules with the key proviso than a human cannot obey a rule if that would entail breaking or ignoring a fundamental law of nature discovered, or yet undiscovered, by the hard sciences (physics, chemistry and biology).

Key questions for economics are these. What in “conventional” economics are truly laws? What in economics are “merely” rules? What parts of the moral philosophy presumption for the efficacy of private property as a personal and social good (to use that example) can be related to fundamental laws of nature and what parts can be related to mere prejudicial human prescriptions as human rules? Then, what empirical effects, from effects on the well-being or welfare levels of all social participants (effects especially as differential or unequal effects) to effects on environments and the biosphere can we note from different rules and rule sets and different variants of rules and rule sets for private property and other economic rules and institutions? What factors exogenous to the limited rule inputs we are examining could be affecting the outcomes?

To sum up, I think conventional economics’ bias is to think rather too often that it has found laws (as in fundamental laws) when rather it has “merely” found some axiomatically guaranteed outcomes of its current prescriptive rule set. It studiously ignores its major axiomatically guaranteed outcomes like rising inequality, accelerating occurrences of novel zoonotic diseases and imminent catastrophic climate change.

  1. ghholtham
    June 11, 2020 at 3:36 pm

    I think we can simplify this a bit. Accepting IK’s taxonomy, economics has been concerned exclusively with a formal system. Physical systems underlie and constrain the formal system but do not fully determine what happens in the formal system. Only in very recent decades has it become clear that the operation of the formal system is affecting the physical system, as well as vice versa, and this is creating new constraints on the formal system. These have now begun to be taken into account. They represent an acute empirical rather than theoretical challenge – we all know what is going on ecologically.

    Within the formal system one can look for stable regularities (rules if you like) at different levels of generality. You can speculate about human decision making in the general business of making a living, or decision making in any capitalist economy, or in any corporate body or in a specific corporate body in a specific economy in a specific period. There is a lot of economic literature, theoretical and empirical at all of these levels. Historians entering economics gravitate to the specific, mathematicians to the general, though there are exceptions. Most discussions on this blog ignore the diversity of output and the degree of specialisation that exists within the subject. Far from studiously ignoring it, a lot of careful empirical work on poverty and inequality, for example, has been done by people like the late Tony Atkinson of Oxford University, who also set out many policy prescriptions for amelioration within the current political framework.

    No uncontroversial or robust empirical rule has ever been established at any level of generality. Every empirical regularity (Bowles’ Law, Okun’s Law etc) has broken down eventually. Contrary to Ikonclast’s assertion, most economists don’t think they have discovered any laws at all. A situation of changing epochs when patterns change with changing institutions has been observed. Prominent economic theoreticians have tried to deal with that daunting situation by resorting to extreme abstraction. Their idea is not to produce anything that attempts to be descriptive of an actual situation. They take an entirely hypothetical situation, strip it to its essentials and work out what would happen if everyone in that situation got to a point where they wouldn’t change their behaviour because they had concluded they were doing as well as they could in the circumstances. A large number of these abstract parables have been generated in the literature. Quite a few of them have been good for nothing. Others fulfil the hopes of their authors, namely that real world situations occur occasionally which resemble the parable world just enough that the reactions they explored are illuminating about the real world outcomes. That, of course is never wholly or simply true and to apply the theory takes a lot of intelligent adaptation by the practitioner. Nevertheless a knowledge of a range of the parables is part of the tool kit of a practising economist as well as knowledge of the more down-to earth literature in her own specialism within the subject.

    A cardinal and all-too common fault in economics is the uncritical application of bit of highly abstract “theory” to the real world as if it were a fit. An egregious example of that has been the perversion of macroeconomics in recent decades by so-called real business cycle theory and DSGE models. However note that this has never been uncontroversial and there are as many prominent economists who deplore it as there are ones who propagate it. My own view is the propagation has an ideological basis, always a risk in economics because the subject matter if of high political salience.

    Not many economists are engaged in designing alternative economic systems. One reason is that their difficulty in establishing consensus understanding of existing ones makes them appropriately modest about knowing how alternatives would work out. Lenin for example said socialism was just public ownership and electricity. It turns out he wildly underestimated the difficulties and it is fair to say that has given economics something of a conservative bias. Within the context of the market system, the political centre of gravity shifts. It was conservative in 1980. Now, in the UK I think more economists support the Labour than Conservative party; the overall temper is reformist in the context of the existing broad system with a prevailing belief that the neo-liberal wave went too far and a course correction is required. Economic theory is likely to reflect this with a lag.

    Because Keynes’ famous quote about the importance of ideas is wrong in my experience. Changes in economic fashions follow events and economic “theories” tend to get adopted to justify the new view. The great depression led to Roosevelt and Keynes provided justification. The inflation of the 1970s led to Reagan and Thatcher and then Friedman, Lucas and Sargent became fashionable. Contributors to this blog are right to criticise certain aspects of economics but they also make Keynes’ mistake of giving it too much importance.

    • June 13, 2020 at 11:48 am

      This is indeed as well but more concisely stated as Ikonoclast’s version, but it has the same failing of not thinking outside the capitalist box. As I’ve argued ever since being introduced to information science, economics needs to start again from that: most obviously because an economy comprises humans communicating with each other, but because the point even of physical theory is to communicate the physics.

      A couple of details here I found interesting.

      “Lenin for example said socialism was just public ownership and electricity.” As one of the features of second hand books stores has become the removal of anything controversial, mentioning communism or semitic culture or as is now happening, racialism, it has become almost impossible for anyone without access to a good university library to know exactly what Lenin said about electricity and whether he is thinking of anything more fundamental than money as a fluid flowing through the system. If you can tell us more, I’d like to know.

      “The great depression led to Roosevelt and Keynes provided justification”. You may be wrong here. As I understand from the editor of Keynes’ collected works, D E Moggridge, Keynes spent a great deal of time in America in the early 1930’s discussing practical options with the President’s aides.

  2. Ken Zimmerman
    June 30, 2020 at 4:05 pm

    Ikonoclast, you seem to be discussing a turn. Many disciplines have experienced turns. A turn is often defined as a re-direction or re-working of a discipline to either refocus on new areas, change the way existing areas are considered, or both. The ontological turn broadly relates to a development in several philosophical and academic disciplines that led to an increased focus on being.

    Anthropology as a field has experienced several turns in its history, including the linguistic turn, the reflexive turn, the temporal turn, the affective turn, the literary turn, and the post-human or Anthropocene turn. Anthropology has been moving through an ontological turn since the 1980s. The ontological turn in anthropology is not concerned with anthropological notions of culture, epistemology, nor world views. Instead, the ontological turn generates interest in being in the world and accepts that different world views are not simply different representations of the same world. Historically anthropologists assumed that people have different perspectives and thus see the world in different ways, but the world is still the world. The ontological turn refers to a change in this history, asking anthropologists to consider that differences can be understood as differences in worlds rather than just differences in perspectives on the same world and all these worlds are of equal validity.

    The ontological turn in anthropology suggests that there are alternate realities and other ways of being that exist in parallel with our own. The proponents of this movement claim that this way of framing cultural difference is the first attempt anthropologists have made in taking the beliefs of their interlocutors “seriously” or “literally.” Critics of the ontological turn argue that claims of different worlds tend towards essentialism.

    Of the anthropologists asking that the ontological turn be seriously considered contemplated, Bruno Latour seems to make the clearest most direct statement of the issue. He argues that researchers should not sort entities into the “social” world and the “natural” world. Latour argues that instead of predetermining what things are judged as part of society and what things are judged as part of nature, social scientists (including anthropologists) should view these categories as the results of complex negotiations between people and their world. This resistance to the division between the social and natural is integral to ontological anthropology.

    There is a long list of critics of this proposed turn. Of ontological anthropology. Haidy Geismar claims that in presenting others as having different worlds rather than simply different cultures is just a novel form of essentialism. Essentialism is the notion that people, and things have inherent and unchangeable properties. Further, many critics of ontological anthropology have demonstrated that this framework does not take difference as seriously as it claims to. Specifically, Pierre Charbonnier, Gildas Salmon, and Peter Skafish have brought attention to the fact that many ontological anthropologists have drawn similar conclusions to anthropologists not using ontological frameworks, while also utilizing much of the same theoretical bases in their arguments. However, the ontological anthropologists have responded that many of these critiques are merely attempts to reproduce the status quo. In response to turn towards ontology a “Group for Debates in Anthropological Theory” debate was held on 9 February 2008 in Manchester, on the motion ‘Ontology is just another word for culture’. Speaking for the motion were Michael Carrithers (Durham) and Matei Candea (Cambridge), and against Karen Sykes (Manchester) and Martin Holbraad (University College London). The final vote – 19 in favor, 39 against and 6 abstentions – reflects a general accord that between culture and ontology, ontology might have something to contribute. Marshall Sahlins in the forward to Beyond Nature and Culture (Philippe Descola), echoes this accord in his claim that ontology “offers a radical change in the current anthropological trajectory—a paradigm shift if you will—that would overcome the present analytic disarray by what amounts to a planetary table of the ontological elements and the compounds they produce. ” Sahlins celebrates how anthropology, through this ontological focus, will return to its true focus – the state of being other.

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