The Economy as Complex System From a Cartesian to a Hegelian Perspective or Contribution to a Physicalist Analysis of the Economy Communication to the International Symposium on «Eurhythmy, Complexity and Rationality In an Interdisciplinary Perspective» School of Sciences – Lisbon University 1st and 2nd June 2015
Guilherme da Fonseca-Statter
1. Summary In this very brief communication, I will start by clarifying some basic ideas on the notion of emergent behaviour both in physical systems as well as in complex organic systems. After that I will move on to a very brief consideration of methodology, followed by a very brief historical synopsis of the evolution of human society (and its economic subsystem) in its permanent interaction with Nature. In this context I will refer in particular the complex historical and cumulative process of transformation of matter, as well as brief reference to the notion of economic surplus. We will then look into two examples of graphical superficial representations of economic flows and of what I call here «zones» of emergency of complexity. We shall also consider the well known effects of the Newtonian paradigm on the conventional approach to economics and will then present a simulation model of the functioning of the economic subsystem under capitalism. Finally we propose to look into a short description and the graphical representation of a model developed using simulation techniques similar to those used in «Agents Based Modeling». It should also be noted that this communication takes notice of all the current and ongoing wonders in the realm of «digital economy», new «technological challenges» and the myriads of «start-up companies», all of them so full of promise in terms of future economic growth and technological employment opportunities. The issue being discussed here is of a more profound and long term nature than what seems to transpire from the reading of current events media. 2. The notion of emergentism Because of the dynamic or historical character of organic systems in general and the economic subsystem in particular, the first notion to clarify is the term «emergency». In the context of this communication we use this term to signify something that comes to pass in the evolution of a dynamic process and as a result of implicit rules on the behaviour of the component parts of a system. From a historical and epistemological point of view the term «emergentism» appears to be due to the English philosopher George Henry Lewes 1. In the field of physical sciences the notion of emergentism seems to be associated with the impossibility of deducting the characteristics of a chemical compound starting from the individual characteristics of its separate elements. The typical case cited in the literature is almost always water, whose chemical characteristics can not be deduced from the 1 In more recent times the idea of emergentism has received strong support on the part of authors
such as Stuart Kaufman, a professor of biology, physics and astronomy. He is also the leader of the Institute for Biocomplexity and Informatics (IBI) which conducts leading-edge interdisciplinary research in systems biology. See his paper «Beyond Reductionism: Reinventing the Sacred», available at http://edge.org/conversation/beyond-reductionism-reinventing-the-sacred
chemical characteristics of oxygen and hydrogen. But the notion of emergentism is also relevant when one considers the evolutionary behaviour of complex systems, organic or not. In this context it will be said then that the notion of emergentism also refers to the notion already discussed by Friedrich Engels (from his reading of Hegel) in its formulation of the «second law of dialectics». Physical scientists speak here of a «phase transition» to refer to the process by which water in the liquid state, when subject to heating, eventually goes through a gradual transition into the gaseous state. On the other hand, the adoption of the principle of emergentism also contains within itself, or rather calls for, the opposing idea of physicalist reductionism which claims that, from the individual characteristics of each of the component parts of a system, it is possible to deduct the behaviour of the whole. And yet it is possible to argue that it is exactly what a Cartesian (or a Newtonian) perspective in the social sciences will tell us, namely that it is possible to deduce the behaviour of society as a whole starting from the behaviour of individuals. It is as simple (or as complex...) as that. In the context of this short paper we could then consider two types of emergentism: first, that one which results from the characteristics of the individual component parts whose aggregation brings out new behavioural features and, on the other hand, the one resulting from the dynamic development of different tendencies and their possible contradictions, inherent in the operating logic of a system 2. 3. Some basic definitions Considering that there is not one specific definition, of what is a complex system, that is generally accept by all the researchers involved in complexity studies, it is perhaps best if we start by stating the definition we intend to adopt when using the expression «complex system». Paraphrasing the «Advances in Complex Systems Journal» we shall then agree that a complex system is a system composed of a usually large number of elements that interact in usually strong and diverse ways. To settle then on that basic idea it will be said that we consider complexity to be a defining characteristic that is common to all entities with multiple and diverse interacting component parts, this interaction being implemented through multiple connections and through a variety of mechanisms and processes, and we consider that the study of these connections, methods and processes is one of the objectives of the theory of complex systems. It is furthermore assumed here that the discipline of complexity science is also the study of phenomena that emerge from the activity of any collection of interacting parts, as well as an attempt to identify the various causes and their eventual hierarchy, as well as all the intervening factors that interfere in the behaviour of that whole. It is therefore considered that the entity or object of study «economic subsystem of human society» is an organic hyper-complex system, which has been occupying an increasing geographical space as well as an evolutionary and cumulative history, and that it is also a system that incorporates several feedback (and causality) circuits which force the emergence of complex systemic behaviours It is also assumed that conventional social science (and «economics» is an applied social science...) does not seem able to explain the emergence of systemic behaviour Continuing with some fundamental ideas, we consider that the capitalist system is, for the time being, one more stage in the historical development of the «economic subsystem» that supports the ongoing life experience of the human species and that this same subsystem is not necessarily the end of history. Next in the analysis of the operating logic of that said subsystem, one must not confuse the clothing that covers the human body with the skin and the skin with the set of muscles, bones and other tissues that make up the human body. Lastly, and to complete the metaphor, we should not confuse financial «garments» with the body of the economy... But in the meantime, of course, we should 2 From a research point of view we could talk of a «bottom-up» versus a «top-down» approach.
bear in mind that there is an interaction between the «clothes» and the «body»... To use «hot woollen garments» under the sun in the Sahara, could easily lead to the death of a human organism. On the other hand, and beyond the elementary formalism 3 expressing the non-linearity of the behaviour of complex systems, we still have to consider the fact that there is causality in both directions, from the whole to the parts and from the parts to the whole. With regard to considerations about methodology, we must confine ourselves here to remember that while methodological individualism assumes that all component parts are equivalent and behave in a similar way, methodological holism assumes that the whole is more than the aggregation of parts, and in particular, that these parts are heterogeneous and (in the case of human social systems) have motivations (or constraints) often distinct and/or divergent. On the other hand, in the specific case of the «economic subsystem», although many of its parts have specific systemic functions that apply (or are relevant) to the overall system logic, some system parts of a particular type are themselves partial and reduced replica of the whole system... We refer here to the case of those parts of the global «economic subsystem» that constitute themselves into «self-centred» national fractions and as such are like partial and smaller replicas of the «economic subsystem» as a whole. There is however a radical difference, that should be emphasized here, between the whole global economic subsystem and its systemic replicas which constitute national fractions of the overall system. While these national fractions (or sub-sub-systems) can interact (and do interact) with each other (in the form of exports and imports of matter, energy and information), the global entire system has no way of exporting to extra planetary markets any economic surpluses that it goes on producing. In other words all the annual surpluses produced by the global system must flow back into the system 4. Naturally this fact has serious implications of a systemic order, both in terms of a positive interpretation as well as in terms of possible normative interventions. An example of a systemic implication is the recent case of the «Greek crisis», where one could say that «it is not possible “cure” the situation of Greece, without first “curing” the European Union». 4. A very brief historical synopsis With regard to the historical evolution of our «economic subsystem», and even if this view could be said to «suffer» from an Eurocentric perspective, let's now consider a very brief historical synopsis the evolution of the various political and economic subsystems under which the various local fractions of the human species have organized themselves since the dawn of humanity until we the emergence of what some sociologists call the worldsystem. All this in the manner of very, very large strokes upon a rough canvass... Starting with primitive clans, since the dawn of humanity that this biological species has been constantly expanding. Always depending on the concrete environmental conditions, mankind has gone from many isolated tribes to the formation empires. From the breakdown of these empires, mainly due tax and logistical issues, various forms of feudalisms were to ensue or, in some instances, the formation of some local city-states. In the case of Europe, with the revival of trade, also came the revival of the arts and sciences, the formation of the first nation-states and, eventually, mercantilism. From then on came to emerge the capitalist system and its consolidation and expansion around the globe. With the institutionalization of the profit motive and the acceleration of the process of accumulation, also came to emerge some first attempts at understanding the intrinsic logic behind the economic subsystem, resulting in the appearance of first «inquiries», leaflets and books on «political economy», as well as some first proposals of a normative nature intent on overcoming some of the systems' contradictions and the social upheavals 3 That elementary formalism may be expressed as «F (ax) ≠ aF(x)» as well as F(x+y) ≠ F(x) + F(y). 4 This has been happening in the form of accumulation of capital and an expanding population.
resulting there from. Meanwhile, with the end of the Boer Wars in South Africa and the integration of the gold mines of the Transvaal in the world-economy centred on the «City of London», the socalled «world-system» went through a phase-transition, changing from a situation of an open (and expanding) system to a situation of a closed system restricted to the geographical limits of our planet. In my perspective 5, ever since then, the system has been in a sort of «animated coma» and in a relative and recurring self-phaging condition. In the mean time, the demographic expansion of the world-system, now on a worldwide scale, has contributed to the emergence of recurring conflicts of a new military nature which, by causing the massive destruction of existing physical structures, allowed the recreation of «new» areas of expansion, profitable investment opportunities 6 and capital accumulation. On the other hand, and even if we continue from an Eurocentric point of view, when looking at the dynamic of the system as a whole and the dynamic of each of its component parts, we will have to consider not only the perspective of the local development of each of various regional subsystems 7, but also the confronting situations in which they were to find themselves as they were seeking to expand. In this historical process of global integration, there were among all component parts of the overall system, basically three types of exchanges: matter, energy and information. In fact, over time, human populations, animals, plants and knowledge crossed geographies to settle in other areas, making it now possible to identify several poles of attraction for these flows of matter, energy and information, with all of these flows originating areas of greater demographic density and, in some cases, higher concentration of material wealth. And so, over the past millennia, the various political subsystems, dispersed across the planet, were gradually integrated into the current global economic subsystem (until recently centred on western Europe) and which supports the existence of human society as a whole. 5. The idea of systemic expansion Meanwhile it is important to consider (and to reflect upon the fact) that the human species is the only biological species that, in its interaction with «mother Nature», has had the drive and/or the capability to produce more than what has been strictly necessary for its reproduction at the same level of comfort (or welfare) that was prevailing at the time of production of that surplus. 8 We therefore assume that any human society, that had been living in relative isolation, had always been faced with the problem of what to do with the surplus produced. Until the advent and dominance of the capitalist regime, the decision on the fate of the productive surplus belonged in the realm of a collective authority (the chief, the king, the lord or an «assembly of notables»). This surplus used to be used in the construction of monuments to gods and kings, as well as fortresses, roads and irrigation systems. It just so happens that with the advent and dominance of the capitalist system, this decision has become a predominantly private matter of «merchants». Competition between "merchants" leads to accelerated production of surpluses whose use is now no longer the construction of fortresses, monuments and physical infrastructures more or less useful to the community, but rather the accumulation of wealth, in and for itself, irrespective of its form or physical expression. It should be noted, in passing, that the 5 See my book «South Africa and the World-system; From the Boer Wars to Globalization» (2001) 6 Entering here in the dubious area of «normative» versus «positive» reasoning, it still is important to distinguish between actual «profitable investment opportunities» and mere «financial speculation». 7 From the Mayas, the Aztecas or the Incas in the Americas, through the Ashanti or the Hausa in Africa, to China and India, the Middle East and Europe, there were many examples of local polities that have had a self-centred local development, long before being integrated into the current global world-system. 8 Other biological species (beavers, squirrels...) seem able to accumulate beyond their immediate biological needs, but only to the extent of being able to survive into a new reproduction cycle.
problem of what should be the fate of the surpluses being produced by the economic subsystem, used to be one of the fundamental problems studied by the «ancient» discipline of Political Economy. When we consider that human society, in its permanent interaction with nature, has applied and continues to apply energy to transform matter in order to produce goods and services deemed adequate for human consumption, this aspect must be stressed with all the emphasis possible. Again we should bear in mind that, basically for security and safety reasons in relation to future uncertainties, the human species always could and did produce, in each annual cycle, more than was strictly necessary for its consumption in the same annual cycle. With the population growth and the increasing human inventiveness, that production of goods and services has been increasingly efficient, this increased efficiency in production, for the same expenditure of energy, being translated into more and more «goods and services». It is therefore important to stress the notion of a «global economic surplus» (of the entire human species) in its interaction with nature. As noted before, our biological species, homo sapiens sapiens, has the behavioural peculiarity of producing more, on regular basis, than what is needed, strictly speaking, for their own reproduction at the same level of comfort and well being as before. One should thus limit oneself here to underline the false banality that throughout its millennia of history, human society, in all of its more or less isolated instances, has decided to use those surpluses in the form of houses, fortresses, palaces, monuments, aqueducts and irrigation systems, roads, etc., etc. From all this came to emerge, much closer to our own times, the idea of Progress, today deemed to be a commonplace idea but which, just a couple of centuries ago, many did consider as a revolutionary idea. 6. Scientific inquiry and social perception We must now consider the problem of scientific inquiry and social perception of economic dynamics, around us and of which we are part, more or less conditioned and mediated by the social, political and economic literature. In this regard, I start by drawing attention to one particular intellectual barrier that is placed between us and a perception of reality, through the common graphical representations of the visible surface flows of the global economy in its operation. This barrier tends to obscure any eventual intrinsic system logic and dynamic that is thus hidden from view. In this regard it may be said that such is the attention paid to the study and accounting of visible flows and volumes of goods and services and their counterparts that, in the end, remain to be explained those causes or reasons for such flows and their volumes, but especially from where, from which «hidden forces» spring forth the increases in productivity and accumulation, and why this happens with more strength or intensity in some parts of the world than in others. I am also referring here to some emerging phenomena (at the systems' level), that result from some very simple rules and motives that are consensually assigned to individual agents. From some eventual primeval will of «being the greatest», to the easily observed current need «to be richer than others»... Or still the permanent need of each economic agent for continuous growth, even if to the point of swallowing or subduing other agents, so that each individual agent is not swallowed or subdued itself. Later we will come back to this question of the motivations and very simple rules that can be defined about the behaviour of individual agents, that come to emerge (always the question of emergentism), phenomena that are specific to an higher analytical level in the hierarchy of aggregation of the various parts in relation to the whole. Another mental barrier, this one of a much more effective nature, is the representation of visible surface economic flows for each one of the national instances or fractions of our global economic subsystem9 with that graphic representation being always accompanied 9 These graphic representations are supposed to represent the economic flows at the macro level for
by some descriptive explanation, but always at the level of the national fractions of the global economic subsystem. It is in this context, that looks at a national economy as a consolidated system that communicates with other systems, that conventional economists often classify the economy as an open system, when strictly speaking, the global economy in which everything takes place, is a closed system, limited to the «frontiers» of the planet. And this is also why, that it is at the global level, that we must then consider the question of the system's governance and the various motivations of the distinct types of economic agents. It must also be pointed out that it is at the visible level of the «national» economies that the non-linearity of systemic behaviour of the whole is concealed. This is due to the fact that the surpluses (in whatever form they take) of all national sub-subsystems, are always considered to be «only« entries to and from other national «sub-sub-systems». But, as I was once told by a professor from the Sorbonne University, «the problem is that they all want the same». Meaning by that, that all the countries want to export (at least «just a little bit») more than import from others10. 7. The totality and the emergence of patterns and equilibria Meanwhile, and with regard to the issue of cybernetics or governance of a system in permanent evolution (in search of an utopian balance?...), one problem that has been raised by economists and other social scientists, as well as by scholars of the sciences of complexity, in what concerns the economic subsystem, is to seek to clarify the emergence of patterns and some kind of order from the chaos of uncoordinated activities of millions of supposedly isolated economic agents. In any case, in this respect we find in the literature the traditional «explanations» of a socalled «invisible hand» and/or an «invisible auctioneer» that would somehow be responsible for a decentralized mechanism of coordination of economic activities. If one considers an explanation, endowed with some degree of scientificity, the problem here has been not so much the invisibility of these «coordination mechanisms» but the proliferation of conspicuous counter examples (although sometimes «hidden in plain sight»). Such will be the case of the «visible hand» of monopolies and cartels in key economic sectors that always have emerged and continue to emerge 11. In terms of a tentative scientific understanding we should then have to distinguish and consider separately the inner logic and structure of the system in itself, as well as the set of rules (and automatisms) that are assumed to be governing its operation. We would then find various types of economic agents, acting within the system, with each type having specific motivations and following a certain number of «rules of the game» imposed upon them by the structure and inner logic of the system. It just so happens that under capitalism, one of the basic or fundamental «rules of the game» is the so-called «principle of utility maximization» which, translated into common parlance, simply means that each one of the economic agents is expected (postulated) to be seeking to maximize his/her own well-being or personal benefit. In other words, and until now, the perspective that is systematically adopted by the neoclassical school in economic theory, whose paradigm is the one that is taught in all universities around the world, considers that, in the words of Mrs. Margaret Thatcher, «there is no such thing as each national instance, and as a result there is always a «door» or «window» for the input and output flows with the «rest of the world». 10 All of this coming to result, first of all, in an almost impossible global accounting balance between the the national «sub-sub-systems» - the global balance of payments should be about zero - and, on the other side, the intrinsic, enormous and (apparently) growing need for the permanent global system expansion, with the ecological consequences that led Prof. Kenneth Boulding to state something like «anyone who believes in indefinite growth in a finite planet is either mad or an economist». 11 There is nothing new about this. In his book «The Visible Hand: The Managerial Revolution in American Business» (1977), Alfred Chandler discusses this question with enough detail.
society. There are individual men and women» 12. The aggregated totality of all these supposedly isolated individuals, then we would call a «Cartesian totality», in which the rule of linearity in the relationship between «cause» and «effect» is supposed to prevail. On the opposing perspective, if we consider or recognize the existence of human society as a supra-organic entity, one in which all individual humans turn out to be, in one way or another, «indoctrinated» in this or that culture or way of life 13, then we will have to adopt a specific approach for the study and understanding of that societal entity. We should then start from its totality, a so-called «Hegelian totality», and there we will find that the rule of non-linearity, in the multiple relationships between «causes» and «effects», is the one that prevails. Only then can we come to identify and understand some emerging phenomena such as the case of the recurrent pattern of oscillation of a «systemic rate of profit». A topic to be discussed later in this communication. 8. Zones of emergency of complexity phenomena When looking at «zones of emergency» of complexity phenomena in the realm of our economic subsystem, it is important to distinguish between two layers of ongoing historical development. The top, more visible layer, is that one usually represented by graphical representations to be found in text books and scientific papers. The lower, less visible layer, is that one which plays the determinant role in the overall dynamic of the system. The point is that there is emergence of complexity phenomena in both layers, although we concentrate here on the evolution of bottom layer, that of the fundamental interaction of humankind with Nature in the transformation of matter to satisfy human needs. However, there is one particular perspective of that superficial layer deserves a brief specific reference. This is the perspective of technological evolution and the path dependency engendered by this or that new invention taking the lead and gaining overall acceptance in the marketplace. One good example that illustrates this situation is that of VHS versus Betamax video technology. Be that as it may, if we are to look at any representation (even though a very schematic one) of the various and multiple processes and flows that ultimately constitute the functioning of the economic subsystem in its interactions with Nature (with all of this happening in the context of a determinate population seeking to satisfy its needs), we will see that on all those connections, linking the various parts of the subsystem, there are mechanisms of negative and positive feedback. At the outset is practically impossible to explain in detail and with some measure of rigour all the many side effects of these feedback mechanisms. And this happens to the extent that it is precisely in these interconnections and articulations of multiple activities that characterize the economic subsystem, that many opportunities arise for the emergency of complexity phenomena. 14 In this context I will then call those system areas of connections and articulations, «zones of complexity emergency». Leaving aside the question of the free will of each individual economic agent 15 it is then in this context that one can say that it is not so much on the individual behaviour of individual economic agents, but in the multiple connections of networks between these agents that 12 «And, you know, there is no such thing as society. There are individual men and women, and there are families. And no government can do anything except through people, and people must look to themselves first». Prime minister Margaret Thatcher, talking to Women's Own magazine, October 31 1987 - http://www.margaretthatcher.org/document/106689 13 This does not imply the existence of a «metaphysical collective soul» of any sort... 14 If one is allowed here a metaphor from the realm of mammalian physiology, with everything else running on a regular basis («ceteris paribus», as would say a conventional economist ...), it is precisely in the joints of the various parts of the skeleton that end by emerging signs of «local» wear and tear and where then emerge various phenomena of pain and some conscious attempts to adapt to changing circumstances. 15 In itself also a very complex issue, not to be discussed at length in a short paper of this nature...
lies the emergence and complexity of new type of phenomena. First of all, because all these networks of linkages between economic agents have peculiar spatial and institutional configurations that are constantly changing. On the other hand, each worker, manager or owner of capital is constantly looking not just partners offering «better conditions», but also and especially new ways of doing things, new markets, new opportunities. Changing slightly the tone in this regard, in a way it could be argued that from the free will of each individual agent there arises the emergence of a certain form of collective determinism. Meanwhile, let us notice that from this permanent human creativity and its implementation in new and more effective ways of interacting with Nature, comes a permanent and continuing relative devaluation of all that was previously accumulated. Then we also have to consider the side effects that result from money intermediation in the processes of valuation of economic activities, accounting (registration) and facilitation of trade. If one considers that the creation of money is dependent on a undetermined number of various and different agents decisions, and if one further considers that money plays (at least) those three systemic functions just referred to, it normal to come to the banal conclusion that there is a permanent oscillation between what Adam Smith would call «market prices» and «natural prices» for all goods ans services available in any market. This intermediation of money thus introduces distortions both in its role as a facilitator of exchanges, as well as in its role as a measuring device and in its role as an accounting instrument of economic quantities. In this regard it is interesting to make a very brief reference to a notorious «transformation problem» (of «values» into «production prices») 16 which has occupied many economists and mathematicians, always looking for an algorithm that would provide some kind of an «explanation» of that transformation 17. This effort reminds me of a so-called «Problem of Three Bodies» (also known as «Poincaré problem») of celestial Newtonian mechanics which, or so it seems and because of the chaotic nature of the Universe, has no possible linear solution. On the other hand there is, on the part of the system, a permanent «blind» movement in search of some kind of equilibrium, the result being a consistently unstable equilibrium, like that of a bicycle in motion. All of this resulting from the logical contradiction between two systemic macro-functions which are, on the one hand, the «drive for accumulation» and, on the other hand, the «consumption of any surplus» meanwhile produced. Very briefly, and in other words, that annually produced surplus is either consumed (by the classes that appropriate it) or it is accumulated... In this regard, and apart from the systemic need for continued expansion, one should also consider the ecological problem of the physical limits of the planet we live on. 9. Newtonian mechanics and the neoclassical economics paradigm Returning briefly to the problem of methodology that should to be followed in the study of the economic subsystem it is important to remember that since Léon Walras and William Jevons imported into the discipline of Political Economy the physical paradigm of Newtonian mechanics, neoclassical economists have assumed that «their» laws of economics had some kind of universal application, meaning by that that they did not have to consider specific circumstances of (historical) Time and (geographical) Space 18. However it turns out that in the case of our «economic subsystem», the «particles» involved do have memory, they do learn behaviours and they may take decisions regarding their connections and transactions with other «particles». From this dynamic modification of a multitude of connections between the various agents comes to result 16 See my book «Os Erros de Marx e as Asneiras dos Outros», as well as my article «O Problema da Transformação» in Vértice, Nº 157 17 Elsewhere I have termed this effort as «the holy grail for a magic algorithm». 18 It is no coincidence that Alfred Marshall later dropped the name «Political Economy» and adopted instead the name of «Economics», as in «Physics»...
different systemic configurations in a permanent evolution. Another effect resulting from the adoption of the Newtonian paradigm to explain economic phenomena, is that such a paradigm makes it more difficult, if not impossible, the understanding of emergent phenomena, when passing from the study and understanding of the behaviour of individual elementary «particles» to the study of non linear effects resulting from the aggregation of these «particles» and the multiple and different types of interactions, that in its turn result from the coexistence of different types of elementary «particles». From the adoption of the Newtonian paradigm, also came to result some subtle and more refined theoretical aberrations such as that of the so-called «praxeology» approach19, developed by the so-called Austrian School, in radical contrast to the adoption by the Historical and Institutionalist schools, which explicitly take into account the human and social character of any economic activity. 10. The «genetic code» of capitalism If we envisage the economic subsystem as an organic system in constant evolution, it is important that we try to identify the «genetic logic» of its operation in a manner not too dissimilar to that of the search for the genetic code studied in biology. Therefore, and thinking in terms of a possible exercise in computer programming of the motivations of the various types of players involved in the economic process, it is now necessary to draw attention to the fundamental motivation of our economic subsystem. So fundamental is it, and yet it can be said to be «hidden in plain sight». In fact, the maximization of individual well-being by each economic decision maker, the «utility function» (in the words of mainstream economists), as well as its variation, the maximization of profit by business managers, constitute a sort of DNA of the economic subsystem under capitalism. This relentless pursuit of improvements of his/her material well being, on the part of each individual economic agent, has resulted in a remarkable growth in the size, as well as in the complexity of the economic subsystem as a whole. The problem is that, as it often happens with other biological entities in Nature, what is good for each individual is not necessarily good for the same biological community of which each individual is a part 20. Hence the need to deepen the study of the socio-economic reality, down below the level of phenomenological appearances that conventional, main stream, theory accustomed us to. Meanwhile, over the past three decades, with the development of computer programming techniques, came the emergence of a new area of study, or scientific discipline, variously referred to as «Agents Based Computational Economics» or simply as «Computational Economics»21, which proposes to study the behaviour of the different economic systems through the simulation22 of motivations of individual agents, as well as the constraints imposed by the environment in which they make their decisions. On the other hand, using ideas and operational concepts developed by many scientists as
19 This theoretical approach assumes that the only «truly human activity» is the work of entrepreneurs, which would be the ones to introduce any disruption in an economy in a constantly balanced rotation («evenly rotating economy» is the actual expression used in English). All other economic agents are supposed to react «mechanically» to the impulses coming from the environment. The fundamental limitation of this approach is not to take into account the emergence of any new phenomena which naturally result from an historical (dynamic ...) evolution of the system. 20 The case of the female praying mantis, that often needs to devour the male after copulation in order to ensure reproduction of the species, is a good and often cited example of this. 21 See for example, http://comp-econ.org/ 22 That simulation being coded by means of computer algorithms and «agents» definitions of the kind being popularized and used in de development of «computer games».
Thomas Schelling23, Nigel Gilbert24, Joshua Epstein and Robert Axtell 25 (among others ...) it is well established (to the scientists involved this is even a banality...) that is sufficient to codify some basic rules (relatively few) but in an integrated manner and that minimally reproduces the observed behaviour of certain types of agents, so that one becomes able to study some emerging phenomena of which, until then, there would be only some signs from base empirical observation, but without a proper understanding of the possible multiple causes and collateral and interlocking effects. In this regard it should also be noted that in here we end up having a convergence of the logic of whole (even if only implied) and that of the individual parts (which logic comprises premises of methodological individualism), from which convergence eventually results, in the case under consideration here, the emerging phenomenon of recurring fluctuations in the rate of profit. In this case, the logical assumptions of the neoclassical paradigm, postulated and empirically observed on the behaviour of individual agents (the maximization of «utility» and the «profit motive»!...), instead of being expressed through systems of linear equations have be written in a computer programming language, and this allows for a more effective modelling and simulation of eventually emerging phenomena. 11. The hypothesis of a rudimentary analytical model In 1979, and to solve a problem I stumbled upon in a chapter of the book by Ronald Meek, «Economics, Ideology and Other Essays» (where the author declared himself unable to satisfactorily solve the said problem 26), I had the occasion of developing a first algorithm which I then executed on a computer. The purpose was the study of multiple relationships between some different analytical categories that are supposed to characterize the inner logic of the economic subsystem under capitalism. We will then have to consider the following relevant variables that correspond to so many other analytical categories usually studied under what we will then designate as «Marxian ontology of the capitalist system». To facilitate the reading of the table resulting from a first simulation run, we will then have the following relevant variables to be considered. Capital C, as «Total Productive Capacity Used» in the system, small c as «constant capital» («machinery» and/or «stored-up labor»), v, as «variable capital» or all of «current human labor» used, s, as added or surplus value, e, as the surplus value ratio (the ratio between what is paid to the aggregate of people and what they produce in excess), and finally r, as the systemic rate of profit. We were in 1979 and the program was then written using a computer language then in common use for the development of business applications (RPG.II). 12. The resulting table from the first run This is then the resulting table from that first computer run, which was presented by me to the 3rd Congress of the Portuguese Association of Informatics in 1983. It should be noted how the number of employees grows up to a certain point (row 26), from which unemployment sets in and starts growing. This happens a number of iterations after the systemic profit rate has itself reached its ceiling (row 11) and then started falling. 23 Scheliling, Thomas (1971) «Dynamic Models of Segregation» - Journal of Mathematical Sociology. Vol. 59, No. 2, Papers and Proceedings of the Eighty-first Annual Meeting of the American Economic Association (May, 1969), pp. 488-493. 24 Gilbert, Nigel; Doran, Jim, eds. (1994). Simulating societies: The computer simulation of social phenomena. London: UCL Press 25 Epstein, Joshua M. E Axtell, Robert (1996). Growing Artificial Societies: Social Science From the Bottom Up. MIT/Brookings Institution. Ver também http://www.agent-based-models.com/blog/ 26 «This problem obviously cries out for mathematical treatment (which the present writer is not equipped to provide)».
It should also be noted this (very) rudimentary model does not consider demographic movements, such as natural growth and migrations, which, in any case, only make sense for national fractions of the economic subsystem. It should finally be stated that this run assumed a flow-back rate (of the surplus back into the system in the form of «new productive investment») of 10%, with an impact of 5% on aggregate productivity, as well as a constant «number of working hours per day, per employee». Transcript of a table with the trend for the profit rate fall prepared in May-June 1979 between Kitwe and Lusaka (Zambia), from a mathematical exercise found in Ronald Meek, «Economics and Ideology and Other Essays - Studies in the Development of Economic Thought», pages 129-1421 - Chapman and Hall Ltd, London 1967
Initial Capital
Proportions between C and V
Organic Composition of Capital
Absolute Amounts
New Surplus Value
Number of Workers
Rate of Surplus Value
Rate of Profit
Constant
Variable
K
12.000
1,00
5,00
0,20
2.000
10.000
10.000
2.000
1,00
83,33%
1
13.000
1,10
4,54
0,24
2.536
10.465
12.585
2.305
1,20
96,81%
2
14.259
1,21
4,12
0,29
3.237
11.021
15.729
2.675
1,43
110,31%
3
15.832
1,33
3,74
0,36
4.154
11.680
19.550
3.123
1,67
123,48%
4
17.787
1,46
3,40
0,43
5.344
12.444
24.156
3.660
1,94
135,81%
5
20.203
1,60
3,09
0,52
6.893
13.312
29.768
4.308
2,24
146,34%
6
23.180
1,76
2,80
0,63
8.946
14.232
36.598
5.083
2,57
157,89%
7
26.840
1,93
2,54
0,76
11.588
15.250
44.790
6.004
2,94
166,88%
8
31.319
2,12
2,30
0,92
15.022
16.298
54.562
7.086
3,35
174,21%
9
36.775
2,33
2,09
1,11
19.386
17.389
65.811
8.320
3,78
178,96%
10
43.356
2,56
1,90
1,35
24.886
18.470
78.740
9.721
4,26
181,61%
11
51.230
2,81
1,72
1,63
31.778
19.451
93.639
11.309
4,81
182,78%
12
60.594
3,09
1,56
1,98
40.266
20.328
109.982
13.031
5,41
181,51%
13
71.592
3,39
1,41
2,40
50.562
21.030
128.120
14.915
6,09
178,96%
14
84.404
3,72
1,28
2,91
62.797
21.608
147.202
16.881
6,81
174.40%
15
99.124
4,09
1,16
3,53
77.223
21.902
166.908
18.881
7,62
168.38%
16
115.815
4,49
1,05
4,28
93.863
21.950
187.100
20.905
8,52
161.55%
17
134.525
4,93
0,95
5,19
112.789
21.734
207.046
22.878
9,53
153.91%
18
155.230
5,42
0,86
6,30
133.972
21.257
225.923
24.718
10,63
145.54%
19
177.822
5,96
0,78
7,64
157.243
20.579
243.251
26.383
11,82
136.79%
20
202.147
6,55
0,70
9,36
182.627
19.517
259.303
27.882
13,29
128.27%
21
228.077
7,20
0,63
11,43
209.729
18.351
272.939
29.129
14,87
119.67%
22
255.371
7,92
0,57
13,89
238.226
17.145
283.645
30.079
16,54
111.07%
23
283.736
8,71
0,51
17,08
268.042
15.695
292.045
30.774
18,61
102.93%
24
312.941
9,58
0,46
20,83
298.599
14.338
297.352
31.169
20,74
95.02%
25
342.676
10,53
0,41
25,68
329.831
12.842
300.388
31.323
23,39
87.66%
26
372.715
11,58
0,37
31,30
361.831
11.540
300.360
31.190
26,03
80.59%
27
402.751
12,73
0,33
38,58
392.580
10.177
298.213
30.839
29.30
74.04%
28
432.572
14,00
0,30
46,07
423.500
9.075
293.425
30.250
32.33
67.83%
29
461.915
15,40
0,27
57,04
453.961
7.959
286.821
29.478
36.04
62.09%
30
490.597
16,94
0,24
70,59
483.739
6.853
278.707
28.556
40.67
56.81%
31
518.468
18,63
0,21
88,72
512.698
5.779
269.421
27.520
46.62
51.96%
32
545.410
20,49
0,19
107,84
540.403
5.011
258.729
26.374
51.63
47.44%
33
571.283
22,53
0,17
132,54
567.013
4.278
247.392
25.167
57.83
43.30%
34
596.022
24,78
0,15
165,21
592.440
3 586
235.494
23.908
65.67
39.51%
35
619.571
27,25
0,13
209,60
616.640
2.942
225.348
22.629
75.92
36.05%
36
641.906
29,97
0,11
272,50
639.560
2.347
211.053
21.340
89.92
32,88%
37
663.011
32,96
0,10
329,52
661.013
2.006
198.545
20.055
98.98
29.95%
38
682.866
36,25
0,09
402,82
681.174
1.691
186.219
18.791
110.12
27.27%
39
701.488
39.87
0,08
498,28
700.077
1.405
174.185
17.559
123.98
24.83%
40
718.907
43,85
0,07
626,34
717.781
1.146
162.544
16369
141,84
22,61%
This table could naturally be presented in a graphic form with several curves representing the dynamic evolution of each one of those relevant variables. Later in the paper a graphic is presented where the two crucial variables of the system are indicated: the recurrent oscillation of the rate of systemic profit and the historical increase (but with bouts of severe stagnation and crises of temporary decline) of the overall level of employment. As may happen with other various scientific disciplines, it should also be noted that in this exercise we take into account some analytical categories that are not explicitly considered (or are not visible) in conventional accounts of neoclassical economists, including the analytical categories «constant capital» and «variable capital». In this regard, but taking into account the relevant ontological and epistemological differences, it could be argued that to assume the non-existence, in the economic reality, of entities that correspond to analytical categories such as these is, in a sense, like assuming that the only conceivable geometry is Euclidean geometry. On the other hand, to assume the non existence of such entities (or analytical categories) such as «variable capital» and «constant capital», has the consequence of assuming that it is not possible to conceive the notion of economic surplus, although this quite visible but, in a way, «hidden in plain sight». 13. The notorious Okishio theorem It is in this context that we should now refer to, and briefly, discuss the «Okishio Theorem» and its apparent and inescapable contradiction with what I call here «Marx's Theorem», meaning by that the law of falling tendency of the rate of profit. In this regard I will limit myself here to quote two sources of relatively easy access. «Okishio's theorem is a theorem formulated by Japanese economist Nobuo Okishio. It has had a major impact on debates about Marx's theory of value. Intuitively, it can be understood as saying that if one capitalist raises his profits by introducing a new technique that cuts his costs, the collective or general rate of profit in society – for all capitalists – goes up. Okishio (1961) establishes this theorem under the assumption that the real wage – the price of the commodity basket which workers consume – remains constant. Thus, the theorem isolates the effect of "pure" innovation from any consequent changes in the wage. (Wikipedia). «However, the Okishio theorem (Okishio 1961) is generally thought to have refuted this law on logical grounds, in a manner "so devastating that it deprives all arguments (pro and contra) ... of their relevance"» (Parijs, 1980:927) It seems that, regarding the emergent behaviour of the systemic rate of profit, we have here a kind of scientific duel between Karl Marx and Nobuo Okishio. The first author claims that that the rate of profit tends to decline, while the second author states that, on the contrary, the rate of profit tend to grow. Having taken notice of this Okishio theorem already in the 1990's, and with the realization that in my initial algorithm the rate of profit began by growing and then, after reaching a certain point, stagnated and started then to go down, I decided to further investigate the 27 Parijs, Philippe van - «The Falling Rate of Profit Theory of Crisis: A Rational Reconstruction by Way of Obituary», Review of Radical Political Economics, 12 no. 1 (Spring 1980) 1-16. e
whole subject. This is how, in the context of the doctoral program in complexity sciences 28 and with the precious help of a fellow doctoral student (also an expert in the newest computer programming techniques), I came to develop a new version of the previous algorithm, this time including the possibility of introducing alternative values for some of those relevant variables involved, in particularly the flow back rate of the economic surplus produced (but not consumed) and reintroduced into the system in the form of productive investment in any goods and services, as well as the impact of this systemic flow back on the total aggregate productivity and its impact on the overall level of employment. It is still continues to be a very rudimentary simulation model although during my final work I have suggested the possibility and the need to move towards a model developed on the basis of fully fledged «Agents Based Modelling» techniques. In other words, with multiple distinct classes of agents, with various different second-order motivations, where the basic motivation (the maximization of «utility» and/or «profit») remains a first-order motivation, common to all agents. The following graphic is the representation of a simulation of the evolution of the two main and most relevant system variables (the rate of profit and the general level of employment) with 220 iterations after a certain (but it could be any one) initial situation.
The lighter grey line represents the recurrent oscillation of the systemic profit rate, over a period of approximately two centuries. The black line represents the overall growth in employment, also corresponding to historical economic growth and expansion of capital, but also the recurrent crises of severe unemployment. As noted before, this is only and still a very rudimentary skeleton of a simulation of the global economic subsystem behaviour over time but, as J.M. Keynes would probably say, «it is preferable to be vaguely right than to be precisely wrong being»... It is also important to draw attention to the historical necessity of «systemic governance» to undertake, at certain critical phases, some large-scale destruction of parts of what had been produced and accumulated before29, so as to recreate new «system expansion areas». Moreover, and this is not taken into account in this crude model, we could also consider the issue of population growth. In other words, demographic growth beyond the «number of workers usable by the system», a situation where one should also be considering the growing 28 ISCTE-Lisbon University Institute... http://complexsystemsstudies.eu/ 29 The destruction of previously existing capital...
number of people looking for buyers for their «labor force». In this regard it may suffice to remember that the population of the planet over the last two centuries has grown from approximately 1 billion to about 7,000,000,000 today!... At this juncture and if I may me allowed a consideration of a personal nature, if this solution to a problem that used to be considered the fundamental problem of the entire discipline of Political Economy, is not a logical, rational and comprehensive solution and which, furthermore, fits the empirically observed reality, casual readers will excuse me if I state that I do not know what a scientific explanation of social phenomena is. Be that as it may, for any of those readers which may have a more technical bent or some curiosity concerning how those multiple interconnections (linking the many variables involved) are established, and how they influence each other in a dynamic manner, a chart is provided where the programmed interactions are shown. The algorithm that originated from that chart (drawn only as an auxiliary tool to facilitate the actual programming), was coded using a Java type language. 14. Some additional important remarks A - It should be noted that all the «accounting» of profit rates and increased «social wealth» (or the expansion of Capital) has been elaborated in terms of «required time units of working time on the part of society as a whole». In other words, «the sum total of billions of hours of work performed by each one and all of individual “undifferentiated” workers30 in the course of each annual cycle». B - In the case of the profit rate and the rate of surplus value (the notorious «exploitation rate»...), those being ratios, the related units of measurement that one chooses to use for any of the amounts involved (the overall amount of systemic profit 31 and the amount of the surplus product produced which is reintroduced into the system), are irrelevant. These could be expressed in «ounces of gold», «kilograms of silver» or any fiat currency such as dollars or Euros. As suggested in the previous note what really matters is the expenditure of a certain amount of human energy in its interaction with Nature, with this expenditure of human energy being spread over a certain number of units of time and with a greater or lesser degree of efficiency and effectiveness.
30 Labourers, administrative employees, scientists, brick layers, miners, teachers, nurses, engineers, accountants, professors, managers, fishermen, pilots, farmers, drivers... 31 This is the amount of «systemic profit», that in a derived (or secondary) analytical moment, is divided amongst the various classes of economic agents involved in the overall process, in the form of interest, rents, dividends (or profits in a restricted sense) and taxes.
15. Some concluding remarks To conclude we will then draw attention to the idea that to move from a Cartesian perspective (in which the whole of society is regarded as being solely the aggregated sum of a number of homogeneous agents), to a Hegelian perspective (in which society is regarded as an integrated sum of heterogeneous agents), one needs to adopt some new techniques for the definition of diverse agents behaviours. What experts in «ABM-Agents Based Modelling» (who have been programming these types of scenarios on a routine basis) tell us, is that it is sufficient to define and program some (few) rules of behaviour for different classes of agents, usually quite simple rules, as well as the programming of some learning algorithms 32, in order to build robust simulation models, capable of reflecting some critical aspects of, in our case, socio-economic reality. Continuing with the hypothesis of socio-economic ABM simulation models, we would most probably come to observe that, from the bounded rationality of individual agents (of a «Cartesian» type) there will ultimately emerge some complex and non linear behaviour of an «Hegelian» whole. It is in this context that one should underline the fact that, even if we consider the non-linearity of some aspects of the (neoclassical) marginalist approach, the prevailing neoclassical paradigm generally assumes the linearity of economic processes. On the other hand, as we have seen, starting from the basic motivation of economic agents (the pursuit of maximum individual benefit and/or business profit), there emerges (among other phenomena) the oscillating behaviour of the systemic rate of profit. In all of this, the vector time is of crucial importance and as a result, after a number of cycles (or iterations), the overall behaviour of the system is an emerging phenomenon that results from the agents' decisions, which in their turn have been changed as a result, or as a response, to changes in the system itself33. What we see in this emerging phenomena is equivalent to the phenomenon of «phase transition», familiar to all physical scientists. This in turn corresponds to the so-called «second law of dialectics», already formulated by Friedrich Engels, in the spirit of Hegelian philosophy. Also, from the oscillating behaviour of the systemic rate of profit come to emerge several nonlinear side effects, with multiple ramifications, from the realm of financial decisions, of local and/or global scope, to the realm of class struggles and for supremacy in political power. To conclude, without an «Hegelian» perspective and a rational and comprehensive understanding of the inner logic of our economic subsystem behaviour, we are limited to use solutions based on empirical experience and observations, in a manner similar to that used by Roman Empire engineers, for the construction of bridges and aqueducts, without yet knowing the minutiae of any theory of gravitation, then still to be invented or discovered.
32These algorithms would then enable those «agents» to actually change their behaviour when encountering changed circumstances in their virtual environments. 33 «If pressed, most would roughly say that the behaviour of complex wholes is nothing more that the laws governing the behaviours of the parts and their interactions.»
16. Bibliography Bertalanffy, Ludwig von General Systems Theory, George Braziller, Inc. Nova Iorque, 2006 Cullenberg, Stephen
The Falling Rate of Profit, Recasting the Marxian Debate, Pluto Press, London, 1994
Engels, Friedrich
Dialectics of Nature, Wellred Books, London 2012. An electronic version is also available at http://www.marxists.org/archive/marx/works/1883/don/index.htm
Epstein, Joshua M. E and Axtell, Robert
Growing Artificial Societies: Social Science From the Bottom Up. MIT/Brookings Institution, 1996 Ver também http://www.agent-based-models.com/blog/
Chalmers, David
Strong and Weak Emergence Available at http://consc.net/papers/emergence.pdf
Edmonds, Bruce
Simulation and Complexity - how they can relate. In Feldmann, V. and Mühlfeld, K. (eds.) Virtual Worlds of Precision - computer-based simulations in the sciences and social sciences. Lit Verlag, 5-32, Berlin 2005.
Gilbert, Nigel and Doran, Jim, eds.
Simulating societies: The computer simulation of social phenomena. London: UCL Press, 1994
Georgescu-Roegen, Nicholas
La Ley de la Entropia y el Proceso Económico, Fundación Argentaria – Visor Distribuciones, Madrid, 1996
Meek, Ronald L.
Economics and Ideology and Other Essays, Chapman and Hall Ltd London, 1967
Parijs, P. van
The Falling Rate of Profit Theory of Crisis: A rational reconstruction by way of obituary, Review of Radical Political Economics 12:1, 1980
Okishio, Nobuo
Essays on Political Economy (Collected Papers), Verlag Peter Lang, Frankfurt am Main, 1993
Rosser Jr., J. Barkley
On the Complexities of Complex Economic Dynamics, Journal of Economic Perspectives, Fall 1999, vol. 13, no. 4, pp. 169-192
Schelling, Thomas
«Dynamic Models of Segregation» - Journal of Mathematical Sociology. Vol. 59, No. 2, Papers and Proceedings of the Eighty-first Annual Meeting of the American Economic Association (May, 1969), pp. 488-493.
Tesfatsion, Leigh
Agent-Based Computational Modeling and Macreconomics Available at http://ideas.repec.org/p/isu/genres/12402.html
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