Short works

Books : reviews

W. Brian Arthur, Steven N. Durlauf, David A. Lane.
The Economy as an Evolving Complex System II.
Perseus Books. 1997

A new view of the economy as an evolving, complex system has been pioneered at the Santa Fe Institute over the last ten years. This volume is a collection of articles that shape and define this view—a view of the economy as emerging from the interactions of individual agents whose behavior constantly evolves, whose strategies and actions are always adapting.

The traditional framework in economics portrays economic activity within an equilibrium steady state. The interacting agents in the economy are typically homogeneous, solve well-defined problems using perfect rationality, and act within given legal and social structures. The complexity approach, by contrast, sees economic activity as continually changing—continually in process. The interacting agents are typically heterogeneous, they must cognitively interpret the problems they face, and together they create the structures—markets, legal and social institutions, price patterns, expectations—to which they individually react. Such structures may never settle down. Agents may forever adapt and explore and evolve their behaviors within structures that continually emerge and change and disappear—structures these behaviors co-create. This complexity approach does not replace the equilibrium one—it complements it.

The papers collected here originated at a recent conference at the Santa Fe Institute, which was called to follow up the well-known 1987 SFI conference organized by Philip Anderson, Kenneth Arrow, and David Pines. They survey the new study of complexity and the economy. They apply this approach to real economic problems and they show the extent to which the initial vision of the 1987 conference has come to fruition.

The Economy as an Evolving Complex System II will fascinate economists of all types.

W. Brian Arthur.
The Nature of Technology: what it is and how it evolves.
Penguin. 2009

rating : 2 : great stuff
review : 22 June 2011

This slim but densely-packed important book is a joy to read. Technology is a crucial feature of our lives, and the genesis of certain individual artefacts are well-studied, yet technology as a whole is little studied. Arthur sets out to discover just what technology is, and how it changes.

He gives three definitions of technology, covering three different scales (p28): technology-singular, a means to fulfil a human purpose, where the means is a device, method or process; technology-plural, an assemblage of practices and components; and technology-general, the entire collection of devices and engineering practices available to a culture. The book is about examining these definitions, and examining how technology changes at each of these scales.

Technology does not exist in isolation from the physical world: it crucially comprises artefacts that harness natural phenomena. Those phenomena themselves need technology in order to be harnessed, particularly the more "advanced" ones.

p22. Technology builds out not just from combination of what exists already but from the constant capturing and harnessing of natural phenomena. At the very start of technological time, we directly picked up and used phenomena: the heat of fire, the sharpness of flaked obsidian, the momentum of stone in motion. All that we have achieved since comes from harnessing these and other phenomena, and combining the pieces that result.

He considers mainly physical phenomena in the natural world. He later touches on, but not in much depth, more abstract phenomena of mathematics, information, and computation.

Once technology has started, it can bootstrap by combining components in many ways, to fulfil more and more human purposes (some of which are themselves created by technology). And as we get more technologies, we can combine them in more ways. Soon the potential combinations outnumber the base components.

p25. Modern technology is not just a collection of more or less independent means of production. Rather it is becoming an open language for the creation of structures and functions in the economy. Slowly, at a pace measured in decades, we are shifting from technologies that produced fixed physical outputs to technologies whose main character is that they can be combined and configured endlessly for fresh purposes.

Once combinations outnumber components, we are in the realm of infrastructure, where the technology can be used in ways never intended, or foreseen, by its inventors.

p31. A technology embodies a sequence of operations; we can call this its "software." And these operations require physical equipment to execute them; we can call this the technology's "hardware." If we emphasize the "software" we see a process or method. If we emphasize the "hardware," we see a physical device.

I am going to stop including quotations at this point. The whole book is so rich with ideas and illustrations that I would end up quoting a large proportion of it. Just read the whole thing.

The trip through technology-singular, -plural, and -general is fascinating, and should be required reading for anyone with an interest in living in modern society. Towards the end, where Arthur is considering technology-general, and how its ever-changing nature generates a necessarily ever-changing economy, is particularly important today, when governments seem to be hell-bent on restoring some non-existent equilibrium state after the recent economic collapse. His description of "deep craft", and why technologies cluster in geographical locations, is important for people interested in "technology transfer" (short answer: it's really difficult). And his comments on the need for a fundamental science base to provide the seeds of the next generation technology and deep craft are a crucial message for today's short-termist, make everything have a return in the next quarter, policy makers (not that they will listen).

W. Brian Arthur.
Complexity and the Economy.
OUP. 2015

Economics is currently undergoing its most profound change since the 1870s. Instead of seeing the economy as a well-ordered machine, rational, in equilibrium, and in the end relatively lifeless, now economists are beginning to see it as a complex evolving system, imperfect, perpetually constructing itself anew, and brimming with vitality. This new vision helps answer questions economics couldn’t answer before. Why does the stock market show moods and a psychology? Why do high-tech markets tend to lock in to the dominance of one or two very large players? How do economies form, and how do they continually alter in structure over time? In the 1980s and 1990s, economist and complexity theorist W. Brian Arthur led a small team at the Santa Fe institute to explore questions like these and thereby pioneered this new approach—complexity economics.

As Arthur explains it, standard economics sees people in the economy as facing perfectly well-defined problems using perfect deductive reasoning and arriving at equilibrium outcomes; but complexity economics sees people as trying to make sense of the situations they face, exploring choices using whatever actions or strategies they have at hand. The resulting economy is not a perfectly ordered and rational system but an ecology of actions, forecasts, and strategies that are always changing and adapting to each other.

In this book, Arthur collects many of his pioneering articles on this new theory. The papers, beautifully written, were among the first to use evolutionary computation, agent-based modeling, and cognitive psychology. They cover topics as disparate as how markets form out of forecasts and beliefs; how technology evolves over the long span of time; why systems and bureaucracies get more complicated as they evolve; and how financial meltdowns can be foreseen and prevented in the future.