Economics’ missing ontology: the key obstacle to theoretical progress

by
Editor
My articles My siteMy booksMy videos
Follow on:Twitter

from Ikonoclast (originally posted as a comment)

The key obstacle to theoretical progress is the fact that economics is both a prescriptive and a descriptive discipline. We have not developed an economic ontologly to deal with this issue.

The real economy is a real system. The natural environment is a real system. The set of legal laws, legal property relations, institutional arrangements, financial rules and calculations which we innovate and use as “rules and score-keeping of the game” are formal systems. How are we to integrate a subject encompassing and utilizing real systems and formal systems? What method can we devise to achieve the integration of such a discipline? These are the fundamental questions for economics. Economics has this foundational ontological problem in that it encompasses two categories of existence, the real and the formal or notional.

The following example illustrates the problem. Physics studies real systems and uses observational and experimental methods to do that. Experiments (other than thought-experiments and virtual simulations) are done in real systems. The formal system of pure physics (the pure mathematics utilizing SI table dimensions, dimensional analysis etc.) is used to formalize hypotheses, make predictions and analyze experimental test results. What we do not see in physics is a humanly created “rule” entering into the real interactions being studied and thus changing their behavior. Humans cannot make a “rule” which alters a Fundamental Law of real systems. We cannot make a rule, legal law, recommendation etcetera which will alter the Laws of Thermodynamics. This indicates that we are talking here, in physics and the hard sciences of standard “upward causation”. 

In economics human agents, in concord or discord, make and unmake legal laws, property relations, institutional arrangements, customs, mores, financial rules and calculation methods. These are rule systems which each human agent may comprehend or fail to comprehend, obey or disobey, enforce or neglect to enforce and so on. The net effect, in a society with some overall order, is that there is a general but not complete adoption of an extensive rule set and this in operation generates the downward causation effect of that formal rule system inducing real agents (humans) to make intended and unintended changes, according to the rules, to real systems (the real economy and real environment). The human rule system causes changes to the real systems through humans acting in their social milieu and environment. This description simply supports, on one side of matters, the institutional view of economics: that institutions, legal laws, customs and mores all matter and all affect and condition economic outcomes. They are no more neutral or natural than money. They are all artifice, as in made by man. Whatever nominal rule or nominal system is made this-wise by humans could always be made otherwise by humans provided the change was not incompatible with a Fundamental Law as in a Fundamental Law of physics, for example.

These deep ontological problems in economics have previously been side-stepped because of their intractability and specifically because economic ontology (like religious and ideological ontology) shades off into moral philosophy and metaphysics, even speculative metaphysics. The applied sciences, say engineering and medicine, do not have this problem to anywhere near the same extent. The ontology of engineering is “settled” by physics. The ontology of medicine is “settled” at the physiological end of the spectrum by physics, chemistry, biochemistry and neuroscience but is still contestable at the other end in psychology and psychiatry. Of course, by “settled” I mean here not absolutely settled but adequately settled to a workable degree (not precluding further knowledge progress) such that the applied sciences have a known arena where discovered scientific laws and developed disciplinary principles and practices operate dependably; this being so because more fundamental existents and their properties, plus the causes which apply and the effects which flow from properties and properties interacting, are known to a dependable and manipulable degree.

Now, side-stepping intractable problems is a pragmatic response which can and does permit progress. At a given state of knowledge we side-step intractable problems if there is a longer, harder way which yet leads to our goal or at least to a goal-approach which satisfices. It is my contention that “conventional” economics has long side-stepped what were once intractable ontological problems at a lower stage of scientific and technical knowledge and that “conventional” economics pragmatically improvised to satisfice; although who gets satisficed and who gets “screwed” (unsatisficed or de-satisficed) is a power question with ideological, moral philosophy, security and military dimensions.

Scientific progress has been accelerating rapidly since the Darwinian and Einsteinian revolutions and has accelerated much more again post WW2, especially with the advanced computers and instruments revolution from the 1980s to the present days. I am referring particularly to the disciplines of complex systems science and information theory, the latter meaning both computer information theory and general information theory. These disciplines have moved the boundary between “empirical ontology” and metaphysical and speculative ontology very considerably. This boundary shift has radical implications for an ontological reappraisal of economics.

It is quite clear that empirical ontologies as well as metaphysical ontologies can be developed; they can be brought into systematized existence and demonstrate practical value. Some ontologies refer to the real, like the Relational System Model of modern physics. Some ontologies are formal like those of computer systems science. In each case the ontology “settles” and defines a set of base existents and their properties plus interactive properties to a given degree of resolution (empirical ontology) or definition (formal ontology) with the goal being ultimately pragmatic; discovery of the real (including the socially real) and manipulation of the real (including the socially real) to human ends.

I don’t think economics as a discipline which encompasses real and formal systems is immune to the need for a “settled” ontology which;

(a) deals with the real (empirical ontology);
(b) deals with the nominal (formal ontology); and
(c) deals with the ontology of interactions and feed-backs between real systems and formal systems.

There is a way, I contend, to fuse empirical ontology and formal ontology. To sketch it very briefly, the method takes a line from Physics Relational System Monism to Complex System Monism incorporating evolution and emergence (in the frame of priority monism) while utilizing the insights from information science. A key deduction in the “logic chain” implied by the priority monist premise is that since all sub-systems in a real monistic system (the cosmos) must also be real then a formal sub-system in the real monistic system is also real. This leads to the seemingly paradoxical assertion that a formal system is a real system. It is indeed a real system but one with special characteristics. Its operations while real-system instantiated are informationally stored and transmitted (in patterns of matter or energy). Data and the capacity for data operations are stored and enacted in physical media, including computer components and human brains as media. A salient point is that the information content (which exists in patterns in media and which is capable of influencing / producing other real patterns and structures) in these systems is more important than the matter or energy content. This might almost hold as a definition of information efficiency. An efficient information system is one where the information content and/or transmission rate is high relative to the matter/energy requirements.

Where this theory leads, in part, is to a workable ontological delineation between “fundamental laws” as in the discovered laws of the hard sciences and humanly generated “rules” as in legal laws, regulations, customs and mores. The human agent (the human being) is the key component in all this of course. As a human agent he/she possesses some autonomy (which as a concept would be need careful and extensive definition), a physical body actuated by servos and servo systems (muscles, nerves etc.) and finally and importantly a brain, which among its other capabilities, encodes and decodes information and the rules that the information as instructions (algorithmic and heuristic) can encode. The human agent may then obey rules or disobey rules with the key proviso than a human cannot obey a rule if that would entail breaking or ignoring a fundamental law of nature discovered, or yet undiscovered, by the hard sciences (physics, chemistry and biology).

Key questions for economics are these. What in “conventional” economics are truly laws? What in economics are “merely” rules? What parts of the moral philosophy presumption for the efficacy of private property as a personal and social good (to use that example) can be related to fundamental laws of nature and what parts can be related to mere prejudicial human prescriptions as human rules? Then, what empirical effects, from effects on the well-being or welfare levels of all social participants (effects especially as differential or unequal effects) to effects on environments and the biosphere can we note from different rules and rule sets and different variants of rules and rule sets for private property and other economic rules and institutions? What factors exogenous to the limited rule inputs we are examining could be affecting the outcomes?

To sum up, I think conventional economics’ bias is to think rather too often that it has found laws (as in fundamental laws) when rather it has “merely” found some axiomatically guaranteed outcomes of its current prescriptive rule set. It studiously ignores its major axiomatically guaranteed outcomes like rising inequality, accelerating occurrences of novel zoonotic diseases and imminent catastrophic climate change.