When complex systems evolve over time the paths they take is contingent on historical accidents

An Evolutionist Speaks Out About Economists' Pretensions About Science
from Adam Smith's Lost Legacy by Gavin Kennedy
Massimo Pigliucci, professor in the departments of Ecology and Evolution, Stony Brook, NY, contributes an important piece of work in the Blog, Rationallyspeakingout.org (‘a site devoted to positive scepticism') (HERE):

“Economics learns a thing or two from evolutionary biology”

“Economics is supposed to be a solid discipline, founded on complex mathematical models (and we all know math is really, really difficult). They even give Nobel prizes to economists, for crying out loud! And yet, economics has always had to fight off the same reputation of being a “soft” science that has plagued sociology, psychology, and to some extent even some of the biological sciences, like ecology and evolutionary biology. Indeed, like practitioners in those other fields of inquiry, some economists admit of being guilty of “physics envy,” that is, of using the physical sciences as the model for what their field ought to be like. Turns out even the assumption that a good science should be modeled on physics is “flawed,” to use Greenspan’s apt phrase.

“A recent article by Chelsea Wald in Science (12 December 2008) puts things in perspective by asking how it is possible that so many smart people in the financial sector made irrational decisions over a period of years, despite clear data showing there was a problem, and eventually leading to a worldwide economic crisis that is at the least poking at, if not shaking, the foundations of capitalism itself. Part of the answer is to be found in the persistent idea in economics that “markets” work because people are rational agents who act in their own self-interest and have perfect, instantaneous access to relevant information about the businesses they are considering investing in. Economists are not stupid, and they know very well that perfect rationality, complete information and instant access are all light years away from the reality of how markets operate. And in fact recent models have relaxed these assumptions to some extent. But it is so much more tractable to model things that way! After all, physicists do it too: remember those problems in Physics 101 that started “consider a spherical cow…”?

“Perhaps not surprisingly, there is another science that has been inspiring economists for some time now: evolutionary biology. The old “efficient markets hypothesis” underlying classical models is being replaced by the “adaptive markets hypothesis,” where Adam Smith’s invisible hand becomes more directly analogous to natural selection.” [...]

“There is another lesson to be learned from evolutionary biology that will not make economists, or the public at large, particularly happy: when complex systems evolve over time the paths they take is contingent on historical accidents (as opposed to being deterministic, like the laws of macro-physics, outside quantum mechanics). Sociologists, psychologists, ecologists and evolutionary biologists will readily tell their economic colleagues that it is certainly possible to explain past events (the extinction of the dinosaurs, the dot-com bubble) by the use of sufficiently complex causal-historical models. What seems to be out of reach, however, is precisely what economists want most: predicting the future, the hallmark of “good” science.”

“The moral of the story is that all of the above is not a failure of economics, sociology, psychology, ecology or evolutionary biology. It is the predictable outcome of the fact that these sciences deal with complex, historical systems, unlike much (though not all) of physics. The real assumption we need to get rid of is the highly persistent and pernicious one that physics is the golden standard by which all other sciences ought to be measured. Now if we only could convince federal funding agencies of that...”

Comment: What a breath of fresh air from Professor Massimo Pigliucci! [...]

Among economists, we have bought the unscientific myth that if we spend a century creating beautiful mathematical models of an imaginary economy, without people in all their complexity and unpredictability, and our competence is judged by our understanding of the model, but not the reality of real economies!

We are a ‘hard’ science and much ‘superior’ to ‘wishy-washy sociology, psychology and history, even though it is well-known that humans are not ‘well behaved’ like physical objects. We are not like wooden pieces on a chess board, as Adam Smith put it.

It is worrying too that just as more economists begin to realise that “the old 'efficient markets hypothesis' underlying classical models is being replaced by the 'adaptive markets hypothesis,' into which realisation, the oldest nonsense in modern economics (invented as a mass myth from the 1950s), is being re-introduced into the latter, under the guise that the metaphor of “Adam Smith’s invisible hand”, such that it is to be regarded as “more directly analogous to natural selection.”

Please spare us from this spurious nonsense; it’s bad enough that the proponents of the so-called scientific basis of economics have got away with their claims that the mystical disembodied body part was the ‘most important idea’ of modern economics, which is something that they never got from the texts of Adam Smith (see my paper: 'Adam Smith and the Invisible Hand: from metaphor to myth’, 2008 and downloadable from the homer page of Lost Legacy).

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Giovanni Battista Vico (1668-1744) spent most of his professional life as Professor of Rhetoric at the University of Naples... Timothy Costelloe

The reduction of all facts to the ostensibly paradigmatic form of mathematical knowledge is a form of "conceit," Vico maintains, which arises from the fact that "man makes himself the measure of all things" (Element I, §120, p.60) and that "whenever men can form no idea of distant and unknown things, they judge them by what is familiar and at hand" (Element II, §122, p.60). Recognizing this limitation, Vico argues, is at once to grasp that phenomena can only be known via their origins, or per caussas (through causes). [...]

Since history itself, in Vico's view, is the manifestation of Providence in the world, the transition from one stage to the next and the steady ascendance of reason over imagination represent a gradual progress of civilization, a qualitative improvement from simpler to more complex forms of social organization. Vico characterizes this movement as a "necessity of nature" ("Idea of the Work," §34, p.21) which means that, with the passage of time, human beings and societies tend increasingly towards realizing their full potential. From rude beginnings undirected passion is transformed into virtue, the bestial state of early society is subordinated to the rule of law, and philosophy replaces sentiments of religion.

"Out of ferocity, avarice, and ambition, the three vices which run throughout the human race," Vico says, "legislation creates the military, merchant, and governing classes, and thus the strength, riches, and wisdom of commonwealths. Out of these three great vices, which could certainly destroy all mankind on the face of the earth, it makes civil happiness" (Element VII, §132, p.62). In addition, the transition from poetic to rational consciousness enables reflective individuals-the philosopher, that is, in the shape of Vico-to recover the body of universal history from the particularity of apparently random events. This is a fact attested to by the form and content of The New Science itself. Timothy Costelloe http://plato.stanford.edu/entries/vico/#3