Cactus Club March 1998

Cycle II: Part 2

5 March 1998............chaos theory and society

Quoting from CHAOS by James Gleick-----------"As the revolution in chaos runs its course, the best physicists find themselves returning without embarrrassment to phenomena on a human scale. They study not just galaxies but clouds. They carry out profitable computer research not just on Crays but on Macintoshes. The premier journals print articles on the strange dynamics of a ball bouncing on a table side by side with articles on quantum physics. The simplest systems are now seen to create extraordinarily difficult problems of predictability. Yet order arises spontaneously in those systems--chaos and order together. Only a new kind of science could begin to cross the great gulf between knowledge of what one thing does--one water molecule, one cell of heart tissue, one neuron--and what millions of them do." Question: Does chaos theory apply to social systems or is it only applicable to situations that don't involve human beings?(PD)

7 March 1998.............complexity and society

Quoting from COMPLEXITY by M. Mitchell Waldrop-----------"The signs were everywhere. Arthur couldn't quite put the feeling into words. Nobody could, so far as he could tell. But somehow, he could sense that all these questions were really the same question. Somehow, the old categories of science were beginning to dissolve. Somehow, a new unified science was out there waiting to be born. It would be a rigorous science, thoroughly grounded in natural law. But instead of being a quest for the ultimate particles, it would be about flux, change, and the forming and dissolving of patterns. Instead of ignoring everything that wasn't uniform and predicable, it would have a place for individuality and the accidents of history. Instead of being about simplicity, it would be about-- well, complexity." Question: Does the study of complexity and natural law apply to civilizations, society, and culture as well as to physical relationships?(PD)

10 March 1998..............chaos, complexity, and effective policies

Quoting from CHAOS, MANAGEMENT, AND ECONOMICS by David Parker and Ralph Stacey-----------"The new science is called non-linear dynamics, or complexity theory, and the aspect of this new science which has attracted the most attention is called chaos theory. It is perhaps unfortunate that the new science should have come to be so identified with the term 'chaos' because, in its popular meaning, that word connotes absolute and total muddle, complete mayhem and randomness. This is not, however, what scientists mean by the term. For them, chaos is an intricate mixture of order and disorder, regularity and irregularity: patterns of behaviour which are irregular but are nevertheless recognisable as broad categories of behaviour, or archetypes, within which there is endless individual variety. You only have to watch the clouds for a short while to understand what scientists mean by chaotic behaviour.The ubiquity of such chaos in human affairs is intuitively recognised in popular sayings such as: 'History always repeats itself but never in the same way twice.' The purpose of this HOBART PAPER is to explore that intuitive recognition, and to examine how the new science of complexity and chaos might give us a deeper insight into how human organisations and economies function. We can certainly do with all the new insights we can get, bearing in mind how difficult managers seem to find it to design and sustain creative organisations and how much difficulty governments have in carrying out effective economic and social policies." Question: What is the difference between chaos theory and complexity theory and how can either one help to design more effective organizations?(PD)

11 March 1998...............What is "Austrian" economics?

Quoting from Excerpts from Individualism and the Philosophy of the Social Sciences by Murray N. Rothbard in AUSTRIAN ECONOMICS: A Reader edited by Richard M. Ebeling-----------"During the 1870's and 1880's, classical economics was supplanted by the neoclassicl school. In this period the praxeological method was carried on and further developed by the Austrian school, founded by Carl Menger of the University of Vienna and continued by his two most eminent disciples, Eugen von Bohm-Bawerk and Friedrich von Wieser. It was on the basis of their work that Bohm-Bawerk's student, Ludwig von Mises, later founded praxeology as a self-conscious and articulated methodology. As it was outside the increasingly popular intellectual fashion of positivism and mathematics, however, the Austrain school has been greatly neglected in recent years and dismissed as an unsound approximation of the positivist-mathematical theory of the Lausanne school, founded by Leon Walras of Lausanne and continued by the Italian economist and sociologist Vilfedo Pareto." Question: What is "Austrian" economics and "praxeology" and why is it that so few of today's economics students could answer this question?(PD)

12 March 1998.............Austrian economics in relation to socionomics

To learn more about one of the three components of what socionomists call REAL economics, please read THE AUSTRIAN SCHOOL by Jeffrey Tucker. The other two components are complexity theory and bionomics. REAL economics interacts holistically with evolutionary psychology and natural law/natural rights social philosophy to form socionomics. We call this REAL economics to differentiate it from the traditional Keynesian and market failure schools of economic thought which call for an active or positive response to social problems like unemployment and monopoly while generally ignoring the natural facts of spontaneous order. Questions: Would a social engineer need to study REAL economics? Do you regard unemployment and monopoly as "social" problems? (PD)

16 March 1998............Ludwig von Mises

To learn more about Ludwig von Mises and his contributions to Austrian economics, click here. (PD)

19 March 1998.................Newton, Darwin, and economics

Quoting from BIONOMICS by Michael Rothschild-------------"Between them, Newton and Darwin had constructed two fundamental and fundamentally different systems of scientific thought. Newton's universe was stationary, cycling without change through all eternity, perfectly knowable and completely predictable. In Darwin's world, history mattered. The shape of the future depended on the outcome of past events. No elegant equations could predict the future of even a single organism, because chance itself is inherent in life. Newton and Darwin erected two utterly different conceptions of nature: one for lifeless objects, the other for living things; one for stability, the other for change.______ Today, little more than a century after Darwin's death, most people--scientists and nonscientists alike--still have not accepted the notion that Darwinian thought is just as valid as Newtonian thought. After all, it is the THEORY of evolution as opposed to the LAW of gravity._______But even after Darwin came along, economists, like most nonbiologists, never fully appreciated the significance of evolutionary thought. As a result, today's economics remains wedded to the classical Newtonian paradigm._____If economics were just a branch of philosophy, its mechanistic outlook would not matter, but basic ideas about how the economy works directly affect the lives of millions". Questions: Is classical economics Newtonian, Darwinian, both, or none of the above? How about neo-classical economics? Keynesian economics? Austrian economics? (PD)

20 March 1998................cooperation vs. competition

Austrian economics is probably neither Darwinian nor Newtonian. It is certainly true that neo-classical theory tends to the Newtonian side, with its emphasis on equilibrium and attempts to formalize the paradigm. Austrian economics, while generally in spirit with the neo-classical economists with regard to the efficiency of markets, is more concerned with the dynamics of the system. Once one intervenes in a market, what happens next? How does the market process work is a more important question than what are equilibrium conditions.

Hayek argues in The Fatal Conceit that Darwin really got his basic ideas of progressive evolution from economists. One of the main things I got from The Fatal Conceit was that social orders evolve, with the successful ones outlasting the unsuccessful. It is probably the case that we are viewing this today with the collapse of the planned economies of Eastern Europe and their swift evolution to marketet-based systems. It is in this sense that Austrian economics is Darwinian.

However, markets are inherently cooperative. By calling them Darwinian, one can easily mischaracterize the relationship of the individuals to one another in a market process. Most of what we do in life is cooperative in the broad sense rather than competitive. (GW)

22 March, scandals, property, and government

Quoting from TOWARDS A FREE SOCIETY: An Introduction to Markets and the Political System by Gary Wolfram------------"Bastiat pointed out for us that there are a number of results that are inevitable once people allow their government to engage in the practice of taking from one person and giving to another. The first is that it becomes very important who makes the laws, and to be able to influence those persons to make laws favorable to you or unfavorable to your competitors._____As Bastiat noted in 1850, it is not the legislator who is at fault, it is the system. Scandals will continue and will get larger as government's role in influencing outcomes and taking property expands, no matter who the legislators or the Congressmen, or the bureaucrats are.________Reflect upon these words of Bastiat and how relevant they are to today's political environment, although written in another century on another continent: 'As long as it is admitted that the law may be diverted from its true purpose--that it may violate property instead of protecting it--then everyone will want to participate in making the law, either to protect himself against plunder or to use it for plunder. Political questions will always be prejudicial, dominant, and all absorbing.' " Questions: What is property? Is it possible to "own" property without law? Doesn't government have the right and the responsibility to control property for the benefit of society? (PD)

24 March 1998............Austrian economics and reality

What sets Austrian Economics apart from what is called economics in today's colleges and universities?

I view the Austrian school as the true successor to classical economics. In the classical school, the evolutionary nature of the market was understood. Yet mechanistic errors held sway; e.g., the view of money as an entity "separate" from the market, or the view of prices as inherent and intrinsic values. The Austrian school did not depart from the early ideas of markets and Darwinian processes (that name being somewhat laughable itself in this particular application, since Darwin studied economics to arrive at his theory of evolution). It simply pursued the correct ends of proper theories of value, of money, and of human action.

For what is common to true economics is the undeniable reality that economics is quite simply a study of human action. It is here that the neoclassical and Keynesian schools depart from reality and substitute erroneous theories instead. They substitute statistics and equations for true market activity, or hold as the prime economic actor the government.

One of the participant of my Bionomics course termed the errors of these schools as "engineerism," referring to the belief that economic activity could be properly reduced to a set of equations, as can mechanical systems and fluid dynamics.

As an engineer myself, I can understand the attraction of this elusive goal. But I fail to understand the belief that such a goal could ever be reached. Good engineers realize that even the best analyses of mechanical systems often fall short, since they always rely on information about the materials used that can never be perfect -- that's why we apply what we call "factors of safety" in our designs, which are nothing more than multipliers included to guard against such imperfect knowledge and the failures to which it otherwise might lead. Yet economists, who deal not with ostensibly homogeneous materials, but with people, whose thoughts and pursuits and actions are each different, still want to believe economic activity can be reduced to a set of equations, and that all we lack are the right equations! Such hubris would be comical, if it weren't so commonplace.

This is not to say that economic models of the neoclassical school cannot be of service. Properly understood and properly applied, they can indeed help us understand what would otherwise be overwhelmingly complex realities. It is only when the models become for their users the reality, and reality is denied when it doesn't conform to the model, that we see the economic suffering and loss of liberty the neoclassical and Keynesian schools can cause.

As an engineer working in industry, the Austrian school offers me not only an intellectually honest means of seeing "the big picture," but an understanding of the little picture as well. On a daily basis, I see Schumpeter's theory of creative destruction at work, and my company reaps the profits of the productivity increases such activity -- the constant improvements in our equipment, instruments, and processes -- creates. To understand the concepts in Mises's *Human Action* is to understand the marketplace that is the ultimate arbiter of our success or failure. And to study Austrian economics is to truly pursue the truth of the market world. (JV)