Brian Arthur is a fellow at Stanford University's Center for Advanced Studies in Behavioral Sciences, an important founder of complexity science, and a veteran of the Santa Fe Institute. The pioneer of the study of positive feedback mechanism formed his own new economic thinking based on the "law of increasing returns". He was awarded the Schumpeter Prize in 1990.
The Nature of Technology
Author: Brian Arthur
Translators: Cao Dongming, Wang Jian
Publisher: Zhanlu Culture 丨Zhejiang People's Publishing House, June 2018
Complex Economics
Translator: Jia Yongmin
Publisher: Zhanlu Culture 丨Zhejiang People's Publishing House, May 2018
The name Brian Arthur is no stranger to Chinese readers, and as early as 1997, he had translated his book "Complexity: Science Born on the Edge of Order and Chaos", which for a time aroused widespread concern in the intellectual community.
Brian Arthur was born rebellious. He could have stayed in the base camp of mainstream economics, but his observations and conversations around the world had already made him deeply suspicious of the traditional way of thinking in economics.
Although economic assumptions such as the "rational man hypothesis" and "diminishing marginal benefits" are still the golden rules in many university textbooks today, the explanatory power of traditional economics is pale in the face of the digital age dominated by the Internet, cloud computing, big data and artificial intelligence, and in the face of the global financial tsunami caused by the subprime mortgage crisis. How exactly will new technologies affect the economy? How do policymakers face unavoidable uncertainty? The complex economic framework that Arthur began to build thirty years ago offers a new way of thinking.
Think of economic phenomena as ecosystems
Beijing News: You once lived in an era when the laissez-faire model dominated the market. Since when did you question traditional economic theory?
Arthur: When I was a student, I spent most of my time studying systems engineering or math, but I was fascinated by economics. At that time, in the economics class at the University of California, Berkeley, professors were saying that economics is the study of static and stable equilibrium, which made me feel strange and confused about it.
For example, we know that English originated in an island nation in Europe, but is now the most common language in the world. The consequent phenomenon is that the more English speakers in the world, more and more english speakers will be forced to start learning English in order to communicate. This is obviously very different from what is said in economics textbooks about equilibrium. When I asked the university professors about this question, none of them could give me a satisfactory answer. This question was buried in my heart and became the starting point for my research.
I must point out that in the 1980s and 1990s, some economists had already begun to study the phenomenon of increasing returns. This was a completely new theory at the time, and economists realized that the results of increasing returns could go in this direction, or they could go in the exact opposite direction. I published my first paper on increasing returns in 1983, but I realized that I needed to slow down all my research and not rush to hasty conclusions. It was around this time that I formally parted ways with traditional economic theory.
Beijing News: What is the biggest difference between complex economics and traditional economics?
ARTHUR: On the one hand, complex economics argues that non-equilibrium is the norm and reality of the economy. Economic systems have never been able to reach equilibrium. Traditional or classical economics looks at economic phenomena in a physical way of thinking, thinking that it oscillates back and forth in equilibrium. Complex economics is closer to biology, viewing economic phenomena as an ecological circle, and the emergence of a new species will inevitably have a chain of effects on other species, a affects b, b affects c, and interlocks.
Ten years later, I published a paper in The Journal of Science, "Complexity and Economics," when the editors of Science wanted me to give a name to this new approach, and the term "complex economics" first appeared in 1998. I don't know if the name is appropriate, maybe it would be more appropriate to call it "non-equilibrium economics.".
Beijing News: The economic crisis that swept the world in 2008 not only broke the financial bubble on Wall Street, but also posed a serious challenge to traditional economic theory. Some scholars believe that this economic crisis is a turning point in the development of economics. So, how does complex economics view the economic crisis of 2008?
ARTHUR: From the perspective of complex economics, there are two very different answers. On the one hand, complex economics focuses on how changes in one factor affect other factors and even the system as a whole. The 2008 financial crisis began with one or two banks that went bankrupt due to excessive real estate lending, then gradually affected other ordinary credit unrelated to the real estate industry, and finally spread to the entire financial system. The imbalance caused by this domino effect is the difference between complex economics and traditional economics.
On the other hand, the financial systems of Western countries collapsed in 2008, and it was also between 2008 and 2010 that a series of self-examinations and revisions began within the economic community. Conceptual changes are proceeding slowly, but so far the Western world has not fully embraced complex economics.
China seems to be more receptive to the idea of complex economics than the West, which may benefit from traditional Chinese philosophy. The "harmony" or "equilibrium" sought in Chinese works such as the I Ching is constantly changing and flowing, not a static or static phenomenon in Western concepts, such as the equilibrium achieved while riding a bicycle. The "harmony" of the Western population refers more to the surface of the water without a ripple, or to the cobwebs that are laid out. This may be difficult for Westerners to understand.
China is a living example of complex economics
Beijing News: Some academics believe that complex economics is very suitable for explaining China's economic growth miracle in the past 30 years. An executive in China's securities industry put it bluntly: "China is a living sample of complex economics." Much of China's economic miracle stems from local competition to explore and experiment with different approaches. Do you agree with that?
ARTHUR: I didn't think of that before, but I agree with that. Complex economics examines how policymakers make decisions in the face of economic uncertainty.
The Chinese economy is characterized by its ability to adapt to changing external environments, in my words, the biological or ecological model of the economy. Species and ecosystems choose different survival and development strategies over time, many of which are initially unconscious, trying to determine which strategies work. The rapid development of China's economy has also brought many problems to itself, but it is very adaptable and constantly adjusts its strategy, which is consistent with the economic phenomena I have observed over the years.
Beijing News: Eric Schmidt, the former chairman of Google, once said, "Our Java was developed according to Brian Arthur's ideas." "Positive feedback effects and increasing returns are important contributions to the field of economics. How are they reflected in the high-tech industry?
ARTHUR: As I mentioned earlier, I officially started this research in 1998. Various new technologies, such as computers, also emerged in that era. In fact, the theory of increasing returns applies to all high-tech industries. This means that the more a leading company like Google is in the market, the more popular its brand becomes, and the company will also invest more money in its next product.
Silicon Valley and other high-tech industries in the United States are dynamically developing, and the market tends to make a certain company dominate the industry. Microsoft, for example, used to sell copies of Windows on discs to develop new Windows systems, which generally cost nearly $2 billion, but it costs very little to copy the system to the next disc. As a result, Microsoft's unit production costs continue to decline as production volumes increase. The same applies to Internet companies that have risen in China in recent years, such as Alibaba and Tencent.
The economy is somehow born out of technology
Beijing News: Many members of the Santa Fe Institute, including you, are interdisciplinary experts. In addition to complex economics, you yourself have a fairly in-depth study of the development and history of technology. Why does an economist have such a deep interest in technology? What is the economic and technological link?
ARTHUR: I've spent a lot of time in development economics, and one of the things I've observed is that in the 1970s, India, Bangladesh and other regions were still lagging behind in economic development and the technological level was in its infancy. As technology continued to improve, these countries became richer, and the same observation applied to China of that era. So I started to think about the question: How exactly did the economy come about? University textbooks tell us that the economy is the market, prices, labor, and so on, and that technology and the economy are competitive relationships. But I came to realize that the conventional wisdom was wrong, and that in fact the economy was somehow born out of technology.
So I started studying how the economy was born out of technology. I think that every technology we know, the initial stage of development is fairly simple, and then it becomes more and more complex, and its order of magnitude will be much more complex. I started thinking, what is technology? Will technology evolve? This is also the main content of the book "The Nature of Technology".
Beijing News: Complex economics emphasizes the importance of algorithms when studying the evolution of economic systems. What do you think of the era led by artificial intelligence? Will the emergence of new technologies also create unanticipated problems?
Arthur: In today's globalized market, most products have complex supply chains, and one of the problems that AI is trying to solve is how to use algorithms to automate complex programs. On the bright side, this greatly facilitates our lives, but on the other hand, the rise of artificial intelligence is bound to cause a large number of employees to lose their jobs. There are many in the West who already have deep concerns about the future led by AI.
The invasion of personal privacy in the digital age is another issue that worries me.
Written by/Beijing News reporter Li Yongbo