From Bill Williams 19 February 2004 4:30 PM CST]
[From Rick Marken (2004.02.19.0855)]
Kenny Kitzke (2004.02.18)--
Kenny, I think you and Rick may mean much different things by the
terms "open" and "closed."
You say that you
> ... see no evidence that economies are closed loop systems.
Rick, however, sees the whole economic process in terms as he say,
> that the economy is a closed loop system.
Beyond this difference Rick has some rather strange notions about
the economy. Rick for instance says,
The simplest "economy" is, thus, an individual control system:
The difficulty with this notion of an "individual control system"
is that there is no actual thing that corresponds to an what
Rick is calling an individual. Human beings exist only in
association, or in groups. So, beginning an analysis of the
economic process with an analysis of a mythical "individual"
only confuses the question.
Rick is plodding down the usual, or as he sneering says, the
conventional economic mythological path with an explanation
of how exchange starts from the division of labor, the
specialization of production and so forth. As he says of Smith,
This is where barter, markets and money comes in.
Rick's explain is the one that has appeared in very standard
economic texts for more than a century, or two. But, it doesn't
have much, if anything to do with the actual development of
the economy as a historical process.
What Rick in borrowing from the standard account fails to disclose
is that there never was such as thing as the mythological
individual which plays so prominent a role in this narrative.
Really as a narrative it has much less to do with what actually
took place in the history of economic development than my fable
"Running Naked in the Forest" has to do with CSG.
But, despite this Rick claims that,
If every individual control system produced everything it wanted for
itself then the study of economics would be equivalent to the study of
individual control organization. And it would be clear that an economy
- a single individual - is a closed loop system.
But, this isn't actually clear at all. What an economy would be for
_per impossible_ an isolated totally alone "single individual" is
purely a matter of mythological imputation. We don't have the slightest
idea of what such an arrangement would be like. As best I can determine
human experience is both individualized and socialized. What Rick is
repeating is a legend developed in the 17th and 18th centuries when
the idea of society as a secular, naturalistic process was just getting
started. This account is the one developed in various versions by
Locke, Hobbes, Smith, and many others were attempting to make sense
of human nature, history and culture.
Rick says, that in contrast to this state of human development
in which there were _only_ individuals, that
we now live in a complex organization of individual control systems
individual devotes much of its time to the production of specialized
products that are collected together and made available to all
individuals via markets.
The difficulty here is that human beings have always lived in as
Rick says, "complex organizations." "Specialization" has always
been a part of human society. Rick has adopted the ordinary fable
of economics, and given it a small twist by introducing into it,
a change which replaces Bentham's economic man by one that is
closer to a control theory conception. This is as Rick describes
....my big picture view of the economy as a closed loop system.
It however, not Rick's big picture-- rather it a conception that
has been commonplace in economic mythology since the commercial
revolution following the decline of mercantilism.
Rick goes on to introduce a conception of "demand" And, he
The economy, like an individual control system, seems to
produce the reference amount of input.
Since there is no record of an economy made up of an "individual
control system" the comparison Rick is making is a mythological
comparison. And, in an elementary economics text book, it is
routinely pointed out that there is a fundamental difference
between what people would like to have or to consume and what
they have the funds to purchase. There is thus a difference
between demand for an input-- in Rick's sense, and an "Economic"
demand that can be put into effect by actually purchasing an
I think the analysis of the investment/growth relationship also
demonstrates the closed loop nature of the economy. In an open loop
system, increased investment would drive increased growth as a one way,
In the passage above it isn't at all clear what Rick is talking about.
He goes on to say that,
...the data show that the effect of investment on
growth is limited by demand (the reference for how much of what is
produced will be consumed).
Here Rick is introducing lots of concepts without defining what these
concepts mean. Given the innovative character of this discussion, it
can not be assumed that the terms have a meaning that is remotely
in correspondence with the what the words usually mean. (This was
also one of the distinctive features of Bill Powers' dad's approach
to economic theorizing.)
But, Rick proceeds without pausing to provide specification of what
the terms mean, to say that,
The aggregate producer invests to drive
production in order to meet the reference for what is produced.
Actually, it is ordinarily assumed that producers "invest" to make
a profit. Whether they supply production to meet a reference for
what is to be produced-- when viewed from the standpoint of the
consumer is beside the point.
Smith, Adam Smith made this clear, when he pointed out that it is
not from the public spiritedness of the baker, the butcher or the
candle maker that we are provided with goods, but rather as a
result of their self-interest. Rick's account of a market capitalist
system is markedly at odds with the understanding of this sort of
society-- an understanding which is common, rare as this is, between
academics and the business economy. Our is a system that is, it
is said, and correctly I think, driven by the profit motive. And
if it needs to be pointed out, profits are measured, not in terms
of "production to meet a reference" but by the difference between
money expenses and money proceeds. As Marx pointed out,
capitalist transactions consist of an " M-C-M " sequence. Money
is transformed into commodities, so that commodities can be
transformed into money. See Steve Keen's 2OO1 discussion in
_Debunking Economics: The Naked Emperor of the Social Sciences_
in the section p. 193-6. "The Circuit of Capital"
When Marken presents what he describes as his "closed loop
model" of the economy, however, the profit motive is to
my astonishment entirely absent. Somehow, the capitalists
seem to have, and there is certainly no explanation of how
this has taken place, been a transformation in the hearts of
the capitalists so that in Rick's system the capitalists
produce rather than for profit, instead to meet the "reference
amount of input" as desired in the perceptions of the consumers.
And, this is what Rick has claimed has been the achievement made
possible by applying control theory to the difficulties of
economic theory. This is an achievement that surpasses those of
all the economists in recorded history combined.
All I can say in admiration is "How wonderful."