Emergence versus neoclassical reductions in economics

ABSTRACT

Many epistemic anomalies of the neoclassical research programme originate from its ontologically reductionist meta-axioms, which predicate how economic macro-systems are constituted from their micro-entities and how the latter behave – namely atomistic aggregativity, normative equilibration and global instrumental rationality. This paper explores the metaphysical foundations of the premise of emergence and argues that it can be a remedy to the ills of neoclassical reductions, and a foundational epistemic principle in a progressive systemic research programme in economics, which would bridge existing streams of ‘heterodox’ economic theory.

KEYWORDS:

• Neoclassical research programme
• atomistic aggregativity
• normative equilibration
• emergence
• reduction
• supervenience
• downward causation
• complexity
• co-evolution

JEL CLASSIFICATION:

• B13
• B41
• B50
• B52
• B59

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes on contributor

George Chorafakis is an economist and economic geographer holding a PhD from the University of Cambridge (UK). He is currently a senior research fellow at the Centre of Planning and Economic Research in Athens (Greece) under an EU Marie Skłodowska-Curieindividual research fellowship. He has also previously been a research fellow at the Department of Economics, University of Barcelona(Spain), where part of the research for this paper was conducted. His current research interests include the epistemology of economics,complexity and network sciences, evolutionary economics and econophysics.

Notes

1 Inter alia, Veblen (1898); Kaldor (1972); Robinson (1974); Sen (1977); Georgescu-Roegen (1979); Mirowski (1989); Kirman (1989); Ormerod (1994); Blaug (1998); Keen (2001); Ackerman (2002); Lawson (2003).

2 Emergentism in the modern era is associated with the work of Lewes (1875), preceded by Mill (1843), and Bain (1870), and followed by a generation of British emergentists (Alexander, 1920; Morgan, 1923; and Broad, 1925), as well as the idiosyncratic work of Hartmann (1940) in the Continental post-Kantian tradition. In the influential work of Morgan (1923), in particular, it blends with the Darwinian theory of evolution (‘emergent evolution’), while in the work of Broad (1925) it makes inroads to analytic philosophy (Blitz, 1992).

3 A mereological (‘parthood’) relation, a form of ontological dependence, is the subject-matter of the domain of ontology known as mereology, whose origins are traced back to Aristotle’s Μετὰ τὰ Φυσικά. Contemporary mereology was established as a formal branch of philosophy in Edmund Husserl’s third Logical Investigation On the Theory of Parts and Wholes (Husserl, 1901), and received its name and a highly formalist formulation by Stanisław Leśniewski, a founding member of the Lvov-Warsaw School of Logic.

4 J.S. Mill (1843: III.6§1) alludes to the same principle as follows: ‘All organised bodies are composed of parts, similar to those composing inorganic nature, and which have even themselves existed in an inorganic state; but the phenomena of life, which result from the juxtaposition of those parts in a certain manner, bear no analogy to any of the effects which would be produced by the action of the component substances considered as mere physical agents. To whatever degree we might imagine our knowledge of the properties of the several ingredients of a living body to be extended and perfected, it is certain that no mere summing up of the separate actions of those elements will ever amount to the action of the living body itself.’

5 Wimsatt (2000) defines aggregativity as the invariance of a property of a whole under (i) inter-substitution, i.e. rearrangement of its constituent parts; (ii) size scaling, i.e. addition or subtraction of similar constituent parts; (iii) decomposition and re-aggregation of constituent parts; and (iv) linearity, i.e. no cooperative or inhibitory interactions among constituent parts.

6 Monism is the metaphysical premise that the natural world is constituted by a single ‘substance’, contrary – for instance – to Cartesian ‘substance dualism’ (‘mental’ versus ‘material’ substance). Most ontological monisms of relevance to the philosophy of science are materialist or neutral, but there are, of course, idealist monisms of the transcendental kind.

7 i.e. the principle that physical states have purely physical causes (Kim, 1993).

8 The relationship between supervenience and reduction is a source of debate in analytical philosophy, as it leads many to think that (mereological) supervenience is a form of ontological reduction: Sarkar (1992), for instance, calls ontological reduction ‘constitutive’ and subsumes under this term mereological supervenience; Silberstein (2002, p. 83) also considers mereological supervenience to be a form of ontological reduction. In this paper I treat mereological supervenience as a weak form of ontological reduction, but, following McLaughlin & Bennett (2005: §3.3), I recognise that in general supervenience and reduction are distinct concepts.

9 The models that followed, as Silberstein (2002, p. 85) observes, are in one way or another either modifications or refutations of the standard Nagelian model. These include: Kemeny and Oppenheim (1956), Schaffner (1967), Nickles (1973), and Wimsatt (1976).

10 A bridge law is a well-defined biconditional between nomically coextensive predicates of the reduced and reducing theories.

11 ‘ … the thesis defended in this paper [is] that science is a unity, that all empirical statements can be expressed in a single language, all states of affairs are of one kind and are known by the same method.’ (Carnap, 1934, p. 32)

12 ‘J’entends par physique sociale la science qui a pour objet propre l’étude des phénomènes sociaux, considérés dans le même esprit que les phénomènes astronomiques, physiques, chimiques et physiologiques, c’est-à-dire assujettis à des lois naturelles invariables, dont la découverte est le but spécial de ses recherches.’ (Compte, 1819-1826: Opuscules de Philosophie Sociale).

13 A structural property is an aggregate property of a composite entity, which results from the relational – as opposed to intrinsic – properties of its parts. By O’Connor & Wong’s (2005, p. 663) formal definition, ‘a property S is structural if and only if proper parts of particulars having S have properties not identical with S and jointly stand in relation R, and this state of affairs is the particular’s having S.’

14 Emergent properties are downward causal in the sense that ‘they have powers to influence and control the direction of the lower-level processes from which they emerge’ (Kim, 1999, p. 6). To complete this definition, we should draw the Aristotelian distinction between formal and effective causation: the former ensues from the structural properties of a complex object, while the latter necessitates its ontological autonomy and is related to its emergent properties. In this context, only effective downward causation is a proper condition of emergence. Downward causation is discussed from a critical perspective, inter alia, in Emmeche, Køppe, and Stjernfelt (2000); Hulswit (2005); and Craver and Bechtel (2006), who go as far as to deny inter-level causation when constitutive relationships between levels are involved.

15 This corresponds to condition (iii) in O’Connor’s (1994) definition, which distinguishes emergent from structural properties.

16 In logic and the theory of computation a decision problem with an infinite set of inputs is undecidable if it is impossible to construct an effective method (e.g. an algorithm) that always derives the correct answer to the problem.

17 For a similar approach see Arnsperger and Varoufakis (2006).

18 The term Methodologischer Individualismus was coined by M. Weber’s student, J. Schumpeter (1908). It first appears in English in Schumpeter (1909), where it is claimed that

[it] is useful to emphasize the individualistic character of the methods of pure theory. Almost every modern writer starts with wants and their satisfaction and takes utility more or less exclusively as the basis of his analysis … [This] modus procedendi … unavoidably implies considering individuals as independent units or agencies; for only individuals can feel wants (ibid., p. 214),

and also that ‘the term methodological individualism describes a mode of scientific procedure which naturally leads to no misconception of economic phenomena’ (ibid., p. 231). The term has since been used in a multiplicity of ways, often inconsistent with Schumpeter’s concept.

19 J.S. Mill (1844: V.38) asserts that political economy ‘does not treat of the whole of man’s nature as modified by the social state, nor of the whole conduct of man in society. It is concerned with him solely as a being who desires to possess wealth, and who is capable of judging of the comparative efficacy of means for obtaining that end.’

20 Menger (1883, p. 196) claims that his opponents aimed at understanding economic phenomena ‘from the point of view of the ‘national economy’ fiction’, and asserts that the goal of economic research should instead be ‘the explanation of the complicated phenomena of human economy in their present-day social form through the efforts and relationships of the individual economies connected by their commerce with each other.’ Here the term ‘individual economies’ is used in the sense of ‘individual economic agents’.

21 A mereological decomposition statement is that society is nothing but a sum of atomistic units, as in the notorious Thatcherite dictum ‘[…] there is no such thing as society. There are individual men and women, and there are families.’

22 This is consistent with Arrow’s (1994, p. 4) view that ‘the failure to give an individualistic explanation of price formation has proved to be surprisingly hard to cure’.

23 The theory assumes that the economic agents’ information sets contain full knowledge of the true structure of the economic model, including other agents’ decision rules and the true values of deterministic variables, and the realised values and probability distributions of all exogenous random variables.

24 A stochastic process is ergodic if its time average converges to its ensemble average (i.e. its expectation value). In practical terms, this entails that some aspects of the probability distribution of the stochastic process (such as its first moment) can be inferred from any of its realisations over a ‘sufficiently long’ time interval.

25 This precept has been most explicitly advocated by Laplace (1825). The fictitious intelligence that conducts the necessary calculations for such a prediction at a universal scale, Laplace’s demon, bears considerable similarities to Maxwell’s demon in thermodynamics, and the Walrasian auctioneer in economics. Today it is understood that the computational requirements of Laplace’s demon render the Laplacian conjecture nomologically impossible. The Walrasian demon is nomologically possible but only under very restrictive and unrealistic behavioural assumptions about the ‘atomic particles’, i.e. the economic agents. However, the intertemporal Walrasian auctioneer has much higher computational requirements and as a result neo-Walrasian general equilibrium models too often prove to be non-computable (Richter & Wong, 1999; Velupillai, 2009).

26 See, inter alia, Edgeworth (1881).

27 A system is closed (or isolated in thermodynamic terms) when it does not exchange matter or energy with its environment (for a generic and more formal definition of open and closed systems see Bunge, 1979). It should be noted that system closure is defined very differently, in terms of ‘event regularities’, in the ‘critical realist’ literature (on this point see Fleetwood, 2017).

28 A system is conservative when it conserves quantities such as mechanical energy and angular momentum and preserves the volume of its phase space. It is time-reversal invariant when it is governed by laws that would apply in the same way even if time ran in the opposite direction. An interaction is linear when it complies with the superposition principle, which entails additivity and first-degree homogeneity, and can thus have a vector representation.

29 An n-body system is generally non-integrable, i.e. it has no analytical solutions (except in 2- and some special cases of 3-body systems). Non-integrable Hamiltonian systems exhibit deterministic chaos, which makes their macro-behaviour similar to stochastic, but are ergodic in large parts of their phase space (Frigg, 2012).

30 As Mirowski (1989) has masterly demonstrated, there is no meaningful ‘conserved quantity’ in neoclassical economics similar to energy in Hamiltonian mechanics, as ‘utility’ and ‘value’ fail to fulfil this role.

31 A micro-state of a system is a point in the system’s multidimensional phase space that represents its micro-configuration (i.e. the canonical coordinates of its particles) at a specific moment in time. A macro-state of a system is defined by the system’s macro-properties (i.e. its state variables). A statistical ensemble, introduced by Gibbs (1902), is a collection of virtual copies of a system corresponding to its every possible macro-state, that defines a probability distribution over the system’s micro-states, and hence over its phase space.

32 Attractor is an invariant set of the state space of a dynamical system, towards which neighbouring states of the system converge in the course of time. It can be a fixed point (point attractor), a limit cycle that corresponds to stable oscillations (periodic attractor), a hypertorus that corresponds to compound oscillations (quasi-periodic attractor) or a set of fractal dimension corresponding to deterministic chaos (strange attractor). A system may have multiple attractors.

33 Living organisms, and biotic systems at large, are always open and never reach (chemical or thermodynamic) equilibrium as long as they are alive – they maintain a steady state, which is distinct from equilibrium (von Bertalanffy, 1968, p. 39).

34 Dissipative systems are non-conservative open dynamical systems, which exchange energy and matter with their environment. During their time evolution, their state-space volume contracts into an attractor of lower dimensionality, contrary to conservative systems, which preserve their state-space volume. The quantitative study of dissipative systems is the subject-matter of non-equilibrium statistical mechanics.

35 Phase transitions occur when small changes in the parameters of the system cause a qualitative change in its aggregate properties (Durlauf, 2001). The point at which a dynamical system undergoes a phase transition is a criticality. An ordinary criticality is obtained by exogenously varying the control parameters of the system, while a self-organised criticality results from its endogenous dynamics, in which case the criticality is attractor of the system.

36 Wolfram (1984) identifies four ‘universal classes’ of systems dynamics according to the qualitative nature of their attractors: those that correspond to finite-state automata with point attractors; push-down automata with periodical or quasi-periodical attractors; linear-bounded automata with strange attractors and chaotic dynamics; and Turing machines with undecidable dynamics, which are algorithmically incomputable.

37 In a biological context selection is the process that determines the survival and reproductive success of individuals by favouring some traits over others at the population level. Variation infuses new traits in populations: recombination or crossover, the reciprocal exchange of genetic material between chromosomes in the process of meiosis, is the most common source of variation; mutation is a rarer and random source of variation. Retention (or inheritance) is the process of transmission of genetic material from individuals to their offsprings, whereby variations become cumulative and cause macro-evolution and speciation.

38 Veblen (1898), a pioneer of the ERP, scorned his contemporary mainstream economists ‘for being still content to occupy themselves with repairing a structure and doctrines and maxims resting on natural rights, utilitarianism, an administrative expediency’; perceived the economy as ‘an open and evolving system, … embedded in a broader set of social, cultural, political, and power relationships’ (Hodgson, 2000); and regarded ‘the notion of individual agents as utility-maximising … as inadequate or erroneous’ (Hodgson, 2000).

39 The principle of satisficing assumes that economic agents conduct search until an aspiration level of utility, i.e. a pay-off threshold, is reached, beyond which the search process is over (Simon, 1956). It is a suboptimal alternative to global utility maximisation, but its suboptimality is mitigated when the real costs of obtaining and processing complete information are taken into consideration.

40 Alchian (1950, p. 211) conceives the economic system as ‘an adoptive mechanism which chooses among exploratory actions generated by the adaptive pursuit of ‘success’ or ‘profits’’, and considers that population-wide selection dynamics rather than optimising individual choices determine the survival of economic agents and the shape of economic organisations and systems (Moe, 1984). Nelson and Winter (1982) develop several seminal models of technological change on the assumptions that firm behaviour follows a limited number of path-dependent, adaptive decision rules or ‘routines’, and economic growth is an open-ended disequilibrium process driven by technological change which comes about through the evolutionary selection of ‘fit’ routines.

41 Other forms of symbiosis are parasitism (beneficial to one agent and detrimental to the other), commensalism (beneficial to one agent and neutral to the other), and amensalism (detrimental to one agent and neutral to the other).

42 Bunge (1979) proposes a more generic, formal definition of level structure and rejects the use of the word ‘hierarchy’ when referring to ‘level order’ as, in his view, it implies a dominance relation. In this paper, ‘hierarchy’ is used in the sense of stratification in layers of increasing complexity without any connotations of dominance.

43 Procedural rationality is behaviour resulting from ‘appropriate deliberation’, while substantive rationality is instrumental behaviour that is ‘appropriate to the achievement of given goals within the limits imposed by given conditions and constraints’ (Simon, 1976, pp. 130–131). Bounded rationality is a type of rational behaviour constrained by incomplete, localised information, the real-world computational capacities of the agents, and time (Simon, 1991).

44 This term is due to Holland (1996, p. 11).

45 see Jones, Hesterly, and Borgatti (1997); Miles and Snow (1992); Podolny and Page (1998).

46 As Weintraub (1977, p. 5) observes, ‘since Keynes’s analysis seemed to require a disequilibrium theory, or a time-intrinsic general equilibrium structure, and since even static general equilibrium analysis was immensely difficult, there was no sound microeconomic system that, when aggregated, yielded Keynesian insights. There was only the negative but useful result that neoclassical value theory was inconsistent with Keynes’s General Theory’.

47 The term is attributed to Samuelson (1948), but the ground for this construct is prepared in the early work of Hicks (1936, 1937), and its climax is reached in Modigliani (1944).

48 The Keynesian research programme makes no explicit assumptions about underlying behavioural laws: animal spirits, rather than rational calculations, and ‘human logic’ conditioned by ‘mental habits’ rather than formal logic (Winslow, 1986) implicitly determine the behaviour of individual economic agents, including entrepreneurs’ investment decisions; it lays on implicitly organicist metaphysical premises (Winslow, 1986), which are incompatible with atomistic aggregativity; it assumes an economic environment of irreducible uncertainty, which is at odds with perfect foresight, the quantifiable uncertainty of rational expectations, and the ergodic hypothesis; and by assuming non-clearing labour markets it predicates a disequilibrium theory incompatible with ex ante equilibration.

49 Inter alia, Schulz (2003); Aoki and Yoshikawa (2007); Abergel et al. (2017).

50 Retroduction is the principal method of scientific explanation in transcendental realism. Bhaskar (1975), contends that empirical event regularities (‘constant conjunctions of events’) are neither sufficient nor necessary conditions for a scientific law, and that the latter is independent from the patterns of events it generates. Transcendental realist ‘laws’ are conditionals ‘designating the activity of generative mechanisms and structures independently of any particular sequence or pattern of events’ (Bhaskar, 1975, p. 14).

51 Confusingly, Epstein (2011) claims that the main instrument of the generative method, agent-based modelling, is incompatible with classical emergentism. The emergence advocated by classical emergentists is, however, of the ontological type, while the generative method is a method of scientific explanation without a priori metaphysical commitments.

52 The under-determination argument is generally used against retroductive and abductive approaches to scientific explanation (Douven, 2008), and is also at odds with multiple realisability.

Additional information

Funding

This work was supported by H2020 Marie Skłodowska-Curie Actions [Grant Number 799942].