Contents

1 Historical Reviews Around Evolving Ideas of the Invisible Hand......... 1

1.1 Modern Technology and the Rise of the Service Economy........... 1

1.1.1 The Classical Production Scheme...........................................

1.1.2 A New Production Scheme in View of the Dominance

of the Service Economy......................................................................................... 4

1.2 The Doctrines of Political Economy in the Anglo-Saxon

Tradition.......................................................................................................... 7

1.3 The Constant Measure of Value and a Nave Reasoning

of Technology.................................................................................................. 9

1.4 Removal of Ordinary Life from the ‘Invisible Hand’

of Lionel Robbins.......................................................................................... 10

1.5 The ‘Invisible Hand’ in the Game Theoretic Approach

and the Limit of Computability.................................................................... 12

1.6 TheInvisibleHandintheSelf-OrganizationoftheMarket................... 13

1.7 Invisible Hands and Market Failures.................................................. 14

1.7.1 The Trade-Off Between the Real Economy and the Financial Economy, and the Differential

EffectsonEach....................................................................................................... 15

1.8 SomeMythsofModernEconomies........................................................ 16

1.8.1 IsMoreLiquidityBetter?......................................................... 17

1.8.2 Are Financial Markets Efficient?.......................................... 18

1.8.3 IsEconomicsanEquilibriumSystem?...................................... 20

1.9 HarmonyBetween HomoEconomicus and HomoSocialis...............

1.9.1 Dirk Helbing’s View on Harmony in Society....................... 23

1.10 The Mozi School: Impartial and Heterogeneous

Interacting Agents........................................................................................ 25

1.11 Human Interactions: A Macroscopic Microeconomic

Feedback Loop.............................................................................................. 27

1.11.1 Economics of a Master Equation and Fluctuations.............. 30

References.................................................................................................... 31

2 The Historic Design of the Demand Law and Its Reconstruction....... 35

2.1 Some Criticisms of a Utility Function for the Design

OfHouseholdDemand.................................................................................... 35

2.1.1 Consumption As a Compromise Between

Self-regarding and Other-Regarding Interests.................................................... 35

2.1.2 The Discrete Choice Model of Different Modes.................. 37

2.1.3 Some Generalizations on Random Terms,

Heterogeneities, and Social Interaction............................................................... 40

2.1.4 SomeEssentialDifferencesBetweenFrames........................... 43

2.2 Analytical Examination of the Demand Law..................................... 45

2.2.1 A Makeshift Idea of Compensated Demand and Income.. 45

2.2.2 Design of the Demand Law and a New Form....................... 46

2.2.3 A Numerical Derivation of a Demand Function................... 48

2.2.4 The Demand Law as Solved by Hildenbrand (1994)............ 49

2.3 ReconstructingDemandTheory........................................................... 51

2.3.1 Self-organizing Patterns of Consumption............................. 52

2.3.2 An Empirical Analysis of Patterns of Consumption............ 55

2.4 The Results of Statistical Verification...............................................

2.4.1 The Obtained Distributions of Eigenvalues.......................... 57

2.4.2 Comparison Between Alternative Seasonal Adjustments.. 58

2.5 Some Implications Derived from Statistical Tests............................ 61

2.5.1 MainFindings......................................................................... 61

2.5.2 FurtherFindings.................................................................... 62

References.................................................................................................... 63

3 Network Analysis of Production and Its Renewal..................................... 65

3.1 Changes in the Concept of Price over the Last Century..................... 65

3.1.1 Shift in Trading Methods and the

Environmental Niche........................................................................................... 66

3.1.2 Classical Steps Towards Equilibrium................................... 66

3.1.3 Application of a Genetic Algorithm to the Economic

System................................................................................................................... 67

3.1.4 Significance of the Standard Commodity,

in the Context of the Genetic Algorithm.............................................................. 68

3.2 The Historical Background to Network Thinking

in Economic Theory..................................................................................... 74

3.2.1 TheRecyclingofProduction.................................................... 75

3.2.2 ThevonNeumannEconomy.................................................... 77

3.2.3 Von Neumann’s Original Formulation................................. 77

3.2.4 Classical Truncation Rules of Choice of Techniques.......... 78

3.2.5 Adaptive Plans in the von Neumann Economy.................... 78

3.2.6 The Market Mechanism as a Genetic Algorithm................. 79

3.2.7 A System’s Eigenvector to Measure the

Profitability of the Fictitious ProcessesZCommodities.....................................

3.2.8 MinimumSpanningTreesoftheIndustrialNetwork............. 80

3.3 An Essential Characteristic of the Joint-Production System......... 81

3.3.1 An Acyclic Network of Production....................................... 81

3.3.2 CriticismoftheTraditionalApproach...................................... 85

3.4 An Empirical Study Using Input-Output Tables................................ 88

3.4.1 The First Step Towards Empirical Input-Output

Analysis............................................................................................................... 88

3.4.2 A Further Consideration for Empirical Studies

of the Inter-Industrial Network............................................................................. 95

References..................................................................................................... 98

4 Matching Mechanism Differences Between Classical

and Financial Markets............................................................................. 101

4.1 Reconsidering the Law of Supply and Demand

in the Free Market....................................................................................... 102

4.1.1 The Classical Auction with Complete

Ignorance of Others’Preferences....................................................................... 102

4.1.2 AuctionsintheFinancialMarket........................................... 105

4.2 The U-Mart System and Historical Background.............................. 111

4.2.1 The U-Mart System Approach to the Futures

Stock Market....................................................................................................... 111

4.2.2 Historical Background to the Tokyo Stock Market.......... 112

4.3 The Matching Mechanisms in the U-Mart Experiment................... 114

4.3.1 The Shapes and Performances of the Market

Mechanism.........................................................................................................

4.3.2 Zero-IntelligenceTestsintheU-MartSystem........................ 116

4.4 Similarities of Trading Strategies Between SF Spread

and Random Strategy.................................................................................. 120

4.4.1 ArbitrageiEqualizationBetweenMarkets............................. 120

4.4.2 The Performance of the Random Agents

in U-Mart ver. 4’s Simulation........................................................................... 125

References.................................................................................................. 130

5 The Evolution of the Market and Its Growing Complexity................... 131

5.1 Practical and Logical Time in High-Frequency Trading

(HFT): A Re-domaining of the Trading System......................................... 131

5.1.1 Caveats on HFT from the European Securities

and Markets Authority........................................................................................ 132

5.1.2 The Re-domaining of the Market Caused

by the HTF System............................................................................................ 135

5.1.3 A Historical Example: A Flash Crash................................. 135

5.1.4 How a Flash Crash Happened............................................. 140

5.2 A Stealth Market............................................................................... 142

5.2.1 The Invisible Organization of Finance............................... 142

5.3 Some Instances of Technological Innovations

in the Complex Market Economy.............................................................. 145

5.3.1 Redundancies and the Depth of Logic

Contained in a Complex System........................................................................ 145

5.3.2 Innovation and Techno-Culture........................................... 146

5.3.3 A Creative Coincidence Connected with

Hayabusa’s Return and JAXA’s Evolution................................

5.3.4 An Assessment of the Hayabusa Mission........................... 149

5.4 KeyIdeasfortheNewEconomics......................................................... 153

5.4.1 TheEconomicsoftheMasterEquationandFluctuations.. 153

5.4.2 AGeneralUrnProcess........................................................... 155

5.4.3 Pitman’s Chinese Restaurant Process................................. 158

References................................................................................................... 159

6 The Complexities Generated by the Movement

of the Market Economy............................................................................. 161

6.1 ABriefSummaryoftheEfficientMarketHypothesis............................ 161

6.1.1 Disengagements from the Efficient Market Hypothesis.... 161

6.2 Moving Away from the Social Philosophy Around

the Gaussian Distribution........................................................................... 165

6.2.1 The Historical Penetration of the Gaussian

Distribution and Galton’s Ideas......................................................................... 165

6.3 Heavy Tail Distributions with Heavier Randomness....................... 170

6.3.1 HazardRates......................................................................... 172

6.3.2 An Alternative Derivation in View of

Memoryless Processes........................................................................................ 176

6.3.3 Some Empirical Findings in the Market........................... 177

6.4 Alternative Interpretation: Trader Dynamics to Generate

FinancialComplexity................................................................................... 178

6.4.1 RulestoBeSpecified.............................................................. 181

6.4.2 Complexities in a Dealing Model of an Iterated

Finite Automaton............................................................................................... 190

References................................................................................................... 194

A AvatamsakaStochasticProcess..................................................................... 195

A.1 Interactions in Traditional Game Theory and Their Problems........... 195

A.1.1 A Two-Person Game of Heterogeneous

Interaction: Avatamsaka Game......................................................................... 196

A.1.2 Dilemmas Geometrically Depicted: Tanimoto’s

Diagram.............................................................................................................. 197

A.2 Avatamsaka Stochastic Process Under a Given Payoff Matrix.......... 199

A.2.1 Avatamsaka Stochastic Process Under Various

Payoff Matrices.................................................................................................. 200

B The JAVA Program of URandom Strategy................................................ 203

C An Elementary Derivation of the One-Dimensional Central

Limit Theorem from the Random Walk................................................. 207

C.1 The Derivation of the Density Function of the Normal

Distribution........................................................................................ 209

C.2 A Heuristic Finding in the Random Walk............................................ 213

References.................................................................................................. 213

Name Index........................................................................................................ 215

SubjectIndex...................................................................................................... 217