David R. Henderson  

Metaphors for the Economy

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A much more accurate metaphor for the economy is an ecosystem. We are simultaneously independent and interdependent. We can no more fix an economy than we can fix a rainforest or a coral reef. At best, we can leave it alone. Such is not the faith of a "market fundamentalist," but the implication of a tradition informed by evolutionary thinking, the science of complexity and self-organizing systems.
Is the machine a good metaphor for the economy? Absolutely not, says our Econlib Feature Article author Max Borders. Read why.

Note: I've been at my cottage in Canada since July 28. I expected to have internet connectivity sooner but it took a while to find. I'll be posting most days while I'm away.

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COMMENTS (16 to date)
Alex Godofsky writes:

Um, I bet we can fix a rainforest or a coral reef in some cases.

MikeDC writes:

I usually begin my classes with hammering the machine metaphor and setting up a the "economy as a card game" metaphor.

There's a lot of pretty reasonable comparisons there.

* Everyone comes at the game with different strategies and endowments, and even if most people win, some will still lose.
* The role of the house, and chips, are very similar to the role of the government and money in a well functioning market economy.

The biggest problem is that there aren't many positive sum games at all, and positive sum games are what we need to understand to understand an economy. So I first describe zero, and negative sum sorts of games, and then ask folks to try and imagine how a positive sum game might work.

Evan writes:

What's funny is, the reason the economy-as-a-machine metaphor is so popular is that we tend to think that machines are things that are easy to understand and repair. But that seems to be a leftover idea from a simpler age, modern machines are so complex that diagnosing and repairing them is very difficult (though still much simpler than the economy, of course).

If someone insists on using the economy-as-a-machine metaphor we should point out that it isn't an engine with a busted axle. It's that darned laptop of yours that spontaneously bricked itself for no apparent reason and has you and the IT people pulling your hair out desperate to find a fix (which you never do).

michael svehla writes:

Jane Jacobs was on this a long time ago.

Andrew Mudgett writes:

MikeDC, there are certainly some games out there which are (more or less) positive sum. The "Settlers of Catan" board game comes to mind, for instance. I'm sure browsing the shelves of a good gaming store would yield a few more examples.

Alex Godofsky writes:

Settlers is absolutely zero-sum - there's only one winner.

kiwi dave writes:

I recently read "Seeing Like a State" by James Scott -- cannot recommend it too highly. He really shows how spontaneous orders, like forest ecosystems, markets, cities, agricultural communities are highly complex systems, and that "high modernist" attempts to rationalize them through conscious control so often end in disaster. The argument is too well-documented and nuanced to explain comment form, but that's kind of the gist of it.

What it really got me thinking is that (although Scott doesn't say it in so many ways), Hayekian liberalism, Burkean conservatism and (certain strands of) enviromentalism all have key elements in common -- they are fundamentally about protecting spontaneous, complex systems from a blank-slate rationalism, which Scott refers to as "high modernism". This high modernism exists across the political spectrum, from socialist revolutionaries on the left, to centrist technocrats (think Robert Moses and le Corbusier) and corporatists on the right.

Andrew Mudgett writes:

Alex, in that sense pretty much every game is zero sum.

Consider that in a four-player game of Settlers you can end the game with three players having 9 points and one player having 10 points. That still seems pretty positive sum to me, even if the game declares that the person with 10 points wins. It's a bit like saying that because Bill Gates has the most money he 'wins' the economy while everybody else 'loses'.

"Monopoly", on the other hand, is truly zero sum: the winner is the one person who ends up with all the wealth while everybody else goes bankrupt.

Alex Godofsky writes:

Alex, in that sense pretty much every game is zero sum.

Yes they are, by design, and for the same reason that so many people have difficulty perceiving the economy itself as positive-sum.

Emerson White writes:

It's worth mentioning that my educational background is in biology, and I think that this could not be more right. I started my (admittedly amateur) study of economics precisely because I saw how well the tools I learned to study ecology and evolution applied to the study of the economy and how it was just as fascinating as the ecosystems I loved to watch.

Fred Stone writes:

Suppose I said the following: "A much more accurate metaphor for the human body is an ecosystem. We are simultaneously independent and interdependent. We can no more fix a body than we can fix a rainforest or a coral reef. At best, we can leave it alone. Such is not the faith of a "market fundamentalist," but the implication of a tradition informed by evolutionary thinking, the science of complexity and self-organizing systems."

But of course, we can fix bodies. Medical science has proven as such. Whenever someone says "evolutionary," "science of complexity," or "self-organizing systems" I suspect that person is using buzz words with little concrete demonstrable proof behind what they are saying.

Pure rhetoric if you ask me. It doesn't mean that it's false, but it's not an argument of much worth.

Joe Cushing writes:

Except we do fix both rain forests and reefs. Now, we can't completely make them but we can help them along quite a bit. We can plant trees and we can seed coral frags on reefs. We can also stock fishes that are important parts of reefs. Fish stocking is a well known and practical practice. You can't do it with every species but there are many that work well. Fish stocking works so well because most baby fish get eaten in the wild. This causes fish to lay thousands of eggs. If you protect these eggs from being eaten in a holding area, you can effect fish populations in a hurry. The same is being done with turtles.

In a related topic, we re-introduced wolves out west and the natural ecosystem has returned somewhat. Even plant species are strongly affected by wolf introduction because prey animals are more in balance.

steve writes:

I would argue that you can restore an ecosystem somewhat by copying natures previous ecosystems with fish stocking and such, but designed ecosystems like crop fields require constant intervention just to produce minimal diversity.

Much like soviet Russia could produce a lot of steel and cement but couldn't keep shoes in the stores.

Just to stretch the analogy further. The government could restore a gold standard by dictat. Would this help the economy. Well it might, since it was a previously market chosen money I would say it has a better chance then government dictating something like bitcoin.
Just like returning wolves to the west probably has a much better chance of helping then adding lions.

Still none of these examples imply that you can expect government intervention in an economy or an ecosystem to improve on what you would have if you had just left it alone in the first place.

Charlie writes:

"We are simultaneously independent and interdependent."

The author doesn't fully understand the implications of this, if he did he would realize that it is impossible to "leave it alone." He imagines the economy as something we stand outside of and tinker with. In actuality, his view of the economy must simply widen to all the interactions of various forms. Institutions, property rights, legislation, government are not outside the system, but simply parts of a grander ecosystem than the author imagines.

twv writes:

The debate over "is society mechanistic or organistic?" is an old one. The Scottish Enlightenment philosophers were very much engaged with it, and, later, Herbert Spencer extended the organism metaphor on several levels, highlighting concepts of adaptation, moving equilibrium, and growth to complexity in an evolutionary framework.

Interestingly, in Spencer's case, the "society is an organism" model seemed, well, complexly mechanistic, while his "social evolution is 'super-organic'" construction brought out the non-teleological nature of complex systems adaptation better.

Most of Hayek's points that Max Borders relates can be found in Spencer's "Study of Sociology," which begins with many chapters on bias in social science - a subject that tends to receive mainly partisan treatment these days. At least in the blogosphere.

Engagement with Spencer's ideas might help current theorists deal with the complexities of understanding complex phenomenon. For Spencer certainly found himself in a world of complexity, and he adapted to it with a complex (but certainly not "complex enough") explanatory toolkit.

MikeDC writes:

Unfortunately most of my students haven't heard of Settlers of Catan. They readily understand, though, how Blackjack against the house is a negative sum game and Poker with friends is a zero sum game.

I think card games work a lot better than an ecosystem sort of thing, though. An ecosystem is highly evolved to the point that the "actors" in the ecosystem are all unique and each have a specific strategy and role. Ants can't adopt the strategies of lions and vice versa. It easily devolves in the mind into a mercantilist sort of "every animal has a role" thing, in which the government ultimately fights the forces of evolution that are constantly changing the ecosystem and killing off species.

The ecosystem model doesn't work because we're all brainwashed that we're destroying the fragile ecosystem anyway.

In a market economy, though, the actors are much more free to adopt differing strategies. Not everyone gets the same cards, but over an extended series of hands, everyone will get some better hands and some worse ones. Most importantly, there's no "breaking" the card game. It's either a fulfilling game that attracts people, or it's a crummy one that pushes people away (at the extreme, a rigged game in which the house stacks the deck).

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