Another View on Capitalism: Complexity Science

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Complexity science and complexity science economics has become a very popular part of scientific thinking.  The general idea is that the individual parts of a system interact and emergent behavior occurs that is often difficult to predict. Eric Beinhocker wrote a book in 2006 entitled "The Origins of Wealth" that focused on complexity science economics*.  In that book he defined complexity science economics as involving: 1) the economy is dynamic and nonlinear, 2) individual agents are modeled with bounded rationality, 3) interactions between economic agents is key in networks, 4) there is no distinction between micro and macro and system behavior is emergent and 5) the system evolves without equilibrium over time.

What does this set of ideas have to do with capitalism and its critique of socialism? In terms of socialism, complexity science is in line with Hayeks critique.  The concepts underlying complexity science that individuals agents knowledge cannot be captured centrally and therefore a socialist economy would be widely inefficiency in providing consumer goods. There does not seem to much new in terms of how complexity science economics provides in terms of a critique of socialism.

In terms of capitalism, Beinhocker writes that "complexity economics view markets as both useful and necessary, it also knocks them off their optimally efficiency pedestal" (pg. 423, 2006).  He first writes that the traditional neoclassical models defense of capitalism via key assumptions like perforce information and price taking is flawed.  He writes that, "market based evolution requires a careful balance between cooperation and competition and governments play a vital role in enabling their societies to strike this balance.  Social technologies such as contract law, consumer protection regulations and worker safety rules and securities law all serve to engender cooperation and trust".  so here we say a clear recognition that neoclassical assumptions don't work and that there is a key role for the cooperation power of government and the state in the complexity view.

Unlike many others, Beinhocker process a clear explanation of what he does see as the role of government in a capitalist society.  He differentiates between two types of government roles: 1) government policies that involve selecting and preferring certain types of private business strategies and industries over others and 2) policies that "shape the fitness function". He would prefer that government do number 2 and not number one.

What does the fitness function mean? He writes that a business is an entire for transferring materials and energy from one state to another that makes a profit.  The economic fitness function is defined as "all value creating economic transformations that are fit for human purpose".  Therefore, we imagine that governments role in the Beinhocker model is in shaping what is and should be valued by society and then letting business and people sort out the best transformative models to get there. Thus, he writes for example that government can set a preference for environmentally sustainable models but not select specifically which businesses should flourish.  Thus, he would favor carbon taxes and emissions trading policies as opposed to industry specific tax breaks.

In the end, Beinhocker has a less a defense of capitalism than a rethinking of what type of capitalist or market based system we should have in place.  Similar to George Will he uses a reference to Hayek and markets as information processing systems.  Unlike Will, he provides a clear idea of the role of government in such a system.






*https://www.amazon.com/Origin-Wealth-Remaking-Economics-Business/dp/1422121038/ref=sr_1_1?dchild=1&keywords=Eric+beinhocker&qid=1602690699&sr=8-1

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