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www.paecon.net from post-autistic economics review, issue no. 10, December, 2001 An Alternative Framework For Economics John Nightingale, (University of New England, Australia) Jason Potts, (University of Queensland, Australia) The award of the Nobel Prize in Economics for Information Economics gives an opportunity to illustrate why this form of economic analysis is a dead end. The theories advanced by the Prize winners, Akerlof, Stiglitz and Spence, are ad hoc auxiliary assumptions tacked onto the neoclassical, and neowalrasian, hard core. The work of these auxiliaries is mainly ex post rationalisation rather than prediction or explanation. Is modern economic theory just a morass of special cases? It is important that some alternative framework be found to allow valid generalisation to once again characterise economic theory, and this time, not fail to provide robust empirical results in the absence of ad hoc auxiliaries. Is there such an alternative? We can report that there is, and that it promises all that is missing from orthodoxy. The autism of orthodoxy stems from its treatment of the human agent, who is mindless and does not interact with other agents. The broad solution then is to develop a framework in which agents carry knowledge and interact with other agents to use and create knowledge. This is the essence of the new evolutionary economics (e.g. Loasby, Knowledge, Institutions and Evolution in Economics, 1999). In The New Evolutionary Microeconomics, Potts (2000) argues that all heterodox thought shares a common ontological foundation in the view that the dynamics of evolving economic systems are in the space of connections. An economy is a complex system of interactions, and the dynamics of an economic system involve change in the connective structure of the system. Three main themes can be found to share this common foundation. The first is the evolutionary economics revived by Nelson and Winter (1982). This builds on Book IV of Marshall’s Principles, and on Schumpeter’s theories of cycles and innovation, creative destruction and greed for monopoly profit. Market capitalism is a restless system of experimentation in pursuit of sustainable rents based on private knowledge. This is fundamentally a neo-Darwinian approach. It has been argued in Nightingale and Laurent (Darwinism and Evolutionary Economics, Edward Elgar, 2001), that social and cultural theory is ultimately swallowed by Darwin’s ‘universal acid’, as Dennett so tellingly put it (Dennett, Darwin’s Dangerous Idea, 1995). Complexity and self-organisation theory is the most recent advance of the neo-Darwinian project (Foster and Metcalfe, Frontiers of Evolutionary Economics, 2001). The second is the New “Old Institutionalism”, which is about how agents with minds construct and use complex systems of rules. Current orthodoxy has largely ignored the cognitive dimension of human behaviour. This strand of course began with Veblen, finding new life in the development of both evolutionary thought and its application to human institutions. American Institutionalism saw the difficulties of Veblen’s imprecision and contradictions, and neglected the biological metaphor introduced by Veblen in favour of a vague developmental notion of institutions as historical determinants of economic outcomes. Current research on Veblen’s themes often ignores his contribution, but continuity of ideas remains clear. Organisational ecology, and other resource and systems based views of the firm, is one such well-defined field on inquiry. Evolutionary psychology is another (L. Cosmides and J. Tooby, (1994) ‘Better than Rational’ AER, 84: 327–32). Both these are converging in the economist’s sphere, seeking explanations of selection processes and system regularities in habits, routines and the causes for organisations’ and other institutions’ persistence as well as entry and exit. The means by which knowledge is conserved as well as transformed and created is at the centre of this program. The third is the complex systems view of economic systems. Methodological Individualism is one of the principles on which modern orthodox economics is based, as an article of faith, and a justification for the reductionism that has bedevilled areas such as macroeconomics. The antithesis of this is an organic approach that can be traced to, among others, the American pragmatist philosopher Charles Sanders Peirce. In essence, the concept of a system rather than some atom within an aggregation of atoms, as the entity of interest, distinguishes the organic approach from MI. Geoff Hodgson’s Economics and Evolution (Polity Press, 1993) has an extended exposition of the importance of this branch of theory. Reductionism, one of the fundamentals of MI, insists on ‘micro foundations’ for any explanation. An organic, systems or hierarchical approach insists that this demand is not only irrelevant but misleading. Such a demand results in attempting to use inappropriate theory, and has long been abandoned in the physical and life sciences (ever heard of a sub-atomic theory of ocean waves?). This range of heterodox economic theories, all of which are close relatives of very orthodox theories in other fields of science, are united against the neowalrasian orthodoxy, even with the ad hoc auxiliaries added by this year’s Nobel prize winning information economists, by a single critical feature. They are all theories of connections between knowledge carriers, be these individuals (in a theory of intra-household decisions), firms (in a theory of market structure), or sectors or national economies (in a theory of macroeconomic performance). They are all dynamic theories of systems evolving endogenously, subject to external shocks, of course. They are theories in which knowledge rather than information is key. They are not Newtonian field theories, in which every point is connected to every other. They can all be subsumed analytically as elements and the connections between them. These dynamic systems theories of evolutionary organisation are all graph theory constructs. In other words, using the language of graph theory, the geometry of elements and connections provides a unifying frame with which to develop these alternative economic theories. This, then shows there is a progressive alternative to autistic neoclassical/neowalrasian economics. The emerging synthesis of evolutionary and self-organizational approaches into a framework of complex systems theory is a solid basis upon which to build. It connects evolutionary biology and evolutionary psychology to evolutionary economics (for a popular science account, see, for example, Stuart Kauffman's At Home in the Universe, 1995). It provides analytic methods in discrete mathematics and multi-agent simulation models. It is the study of the emergence of order, rather than continuous equilibria. It is ontologically well-founded in a growth of knowledge framework where connections are the prime variables in an economic system. Such a unified heterodox synthesis may underpin a broad front of research advances that do not close off alternatives, but open more to scientific development. ___________________ Jason Potts is the author of The New Evolutionary Microeconomics: Complexity, Competence, and Adaptive Behaviour (2000).  John Nightingale is the co-editor of Darwinism and Evolutionary Economics, Edward Elgar, 2001. SUGGESTED CITATION: Jason Potts and John Nightingale (2001) “An Alternative Framework for Economics”, post-autistic economics review : issue no. 10, December, article 3. http://www.btinternet.com/~pae_news/review/issue7.htm