Preface
This book aims to explain briefly the essential features of the founding theories of economics and compare them with later theories developed to address inconsistencies in outcomes.
The earlier stages of this book are focused on the economic ideas and theories developed mainly between the 1930s and 1950s, because their emergence bred what were effectively new branches of economics. Over time, these economic theories have been gradually updated, but this updating has not necessarily addressed their theoretical difficulties. Roughly speaking, the updates converged towards behavioral science without eliminating the essential problems behind the theories. The idea of bounded rationality was a typical concern of these revisions. With universal rationality, then the core of the theory remained. The ideas of systems science were therefore increasingly less associated with this revisionist economic theory. However, even as these updates were being proposed, the world was dramatically changing. To use my favorite phrase, a car is no longer a car, but an adaptive cruising system, an air fighter is no longer an air fighter in the sense that stability is no longer part of its structural design. The control of modern vehicles is becoming further removed from human input. This also applies to the market. The revisionist approach therefore does not fully describe the essential transformations emerging in the world.For these reasons, I have preferred in this book to describe an alternative analytical framework in the interdisciplinary field of socio-econophysics and sociodynamics. It targets a set of branching or critical points separating the previous framework from the new one. Arthur (2009) used the term “re-domaining” when he referred to technological innovations. Here, we are trying to re-domain economic theories to fit a new social system.
Major technological innovations not only accompany economic and market changes but also alter their meaning. In particular, the evolution of trading technology has changed the meaning of the phrase “invisible hand”. At the end of the last century, the advent of socio-econophysics was decisive in the emergence of a new economic science. This coincided with a change in the economy and the market, which begged a re-domaining of economic science. For the future, many scientists outside traditional economics are now joining together to develop new ideas such as power law distribution and network analysis. However, the more diverse the backgrounds of economic scientists, the fewer common views they will share, potentially expanding economic terminologies. This book may help to mitigate any conflicts.To achieve this, I believed that it was important to position and select the classical and essential topics in economic science. The behavioral interpretations in the standard approach rather twisted the economic view to fit a very limited range of interests. In any retrospection of classical doctrines, even a short one, the ideas of production, consumption, distribution, and the market must be included. Without these, no discussion of economic theory is possible. Unfortunately, in the 1980s, such a synthesis suddenly disappeared from standard economics teaching, so I am attempting here to resurrect this view. I am convinced that economic science needs the theory of production and consumption as its first stage.
Incidentally, at this point it may be appropriate to explain my personal views on “economics”. In Japanese, the word “economics” retains an explicit meaning of a core of morality. In ancient China, there was some metaphysical thought that underestimated personal business activities because of morality. According to Yao and Shun, for instance: “If a sage were content simply with eating plain food and drinking water, then it would make no sense to perform acts of charity for the people”.
In Japan, however, the meaning of economics and business activities was connected to the Analects of Confucius for many years, which eventually led to a very specific construction of business morality. The most influential mover in this was Miura Baien, a doctor of Chinese medicine, who systematically represented his economic doctrine in his book Kagen at the end of the eighteenth century. Interestingly, he not only argued his norm of economic morality but also was well known as a scholar who successfully formulated the idea of excess demand to establish price equilibrium.[1] In his view, economic policy measures should be concentrated on the theory of enlightened rule and succor of the people. Profits must not be monopolized, but should be socially distributed among the people by the earners themselves, not by either central or local government. Here the accumulation of monetary wealth became simply a tool to achieve public welfare. This idea was then applied to capitalism by Viscount Eiichi Shibusawa (1840-1931) during Japan’s industrial revolution, also known as the Meiji Restoration. Shibusawa examined an inquiry by Zigong, a disciple of Confucius, who asked “Providing charity for people widely and thereby relieving them—should that be considered an act of benevolence?” The master replied that “acts of charity and relief for others are the works of all ages, or at least should be undertaken by a ruler who governs a country with justice and benevolence”. In his conscious comparison with AdamSmith, therefore, Shibusawa derived from this Confucian answer that the leadership of a country cannot afford to overlook the importance of industry and profit-making. Summing up, he called his synthesis “harmony between ethics and economy”.[2] In this book, I suggest interpreting Shibusawa’s idea as a coordination between Homo socialis and Homo economicus, according to Dirk Helbing.[3] This is an advanced insight, and the reason why Shibusawa is called “a father of Japanese capitalism”.
From the beginning of Japanese capitalism, then, an effort was made to integrate Homo socialis and Homo economicus side by side to manage capitalism. This is the reason why this book does not adopt a one-sided view on Homo economicus alone.I should also refer to the direct motivation behind this book. The idea of it was born when I was staying at ETH Zurich, i.e., Eidgenossische Technische Hochschule Zurich, recently. I was invited to the institute SOMS, i.e., Sociology, in particular of Modeling and Simulation, by Dirk Helbing in February 2010, August 2011, and March 2012, and also visited the department D-MTEC, i.e., Department of Management, Technology, and Economics, at the instigation of Frank Schweitzer in February to March 2012. Without useful discussions with Dirk and Frank, I would never have written this book, so I am grateful to them both for their hospitality. Needless to say, I am also indebted to many other colleagues, too many to name here, but who will be thanked in specific chapters.
I spent much space on dedications to my professors and colleagues in my previous book (Aruka 2011). Here I would also like to express my gratitude to two other organizations. First, the Japan Association for Evolutionary Economics (JAFEE), where I am currently vice president, and where I continue to be encouraged to study and develop my ideas. Second, and equally, I continue to be enlightened by the Society for Economic Science with Heterogeneous Interacting Agents (ESHIA), where I am a directorial board member. I would like to express my gratitude to all my colleagues at both organizations.
At Springer, I am much indebted to my editors, specifically, Editorial director in charge of Business, Economics, and Statistics, New York, and Editors of Springer Japan. They were kind enough to arrange not only my own book but also the monograph series titled Evolutionary Economics and Social Complexity Science. Without their assistance, this book would not have been published. In particular, Editorial director, New York, decided on the book title: Evolutionary Foundation of Economic Science. His decision is a genuine honor for me.
At my Hakoneyama-Hermitage, Yuji Aruka, PhD in economics
Kanagawa Prefecture, Japan
August 2013[4]