Society

Economics And The Evolution Of Economic Webs

The reigning theory in economics is competitive general equilibrium, showing that, given all possible pre-stated "dated and contingent goods" and a probability distribution over future events, markets can form a price vector such that markets are always clear. It is a beautiful theorem.

But over the past 50,000 years the diversity of goods in the global economy has increased from perhaps 1,000 to 10 billion, or more. In my last post, I pointed out that an economy is a collectively autocatalytic set, where some products carry out, or "catalyze," the production capacities to transform other input goods to output goods. I noted that the global economy is supracritical, creating an increasing diversity of goods, while Alberta Canada is subcritical, creating oil, wheat, timber and beef for export.

Economists do not seem to recognize the fundamental difference between supracritical and subcritical economies. The former have an economic web that internally generates jobs for its members. The latter typically rely on exports to a global commodity market.

The growth of the economic web has seen the emergence of ever un-pre-statable new goods and production capacities. An example runs from the invention of the computer to the mainframe to personal computers to word processing to sharing files on the Web to selling on the Web to content on the Web and browsers to Facebook.

Giuseppe Longo and I have argued that no laws of motion and their integration — given initial and boundary conditions — entails the evolution of the biosphere. Nor does any such law entail the detailed evolution of the economic web, from subcritical 50,000 years ago to supracritical globally today. This means that economic theory cannot have a mathematically entailing set of "laws of motion" of the evolving economic web.

Because there can be, Longo and I claim, no laws that entail the detailed becoming of the exploding economic web, competitive general equilibrium is a wonderful framework, but almost a non-starter. We cannot pre-state all possible dated contingent goods. Nor can we have even a probability distribution over the ever un-pre-statable novel goods and production functions. We do not know the sample space to construct a probability measure. The theorem does not hold.

Because of this, economists, with their bent for mathematical theory, have tended to ignore the explosion of the economic web, surely the most important driver of economic growth. One approach? A careful economic history of the evolving web to reveal the "anatomy of enablement" that enables each specific new good or production capacity to emerge. From this, statistical theory and policy may follow.

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