Saturday, November 12, 2011

At the Zoo with Nicholas Werle

"The major theoretical insight of Keynes’ General Theory is that aggregate quantities describing the state of an economy as a whole are irreducible to arithmetic summations of individual decisions." -- Nicholas Werle [PDF]

And a bit more from Nicholas Werle:

This essay proposes a novel reading of Keynes’ General Theory, tracing its intellectual roots back to nineteenth century physics in order to understand the complex relationship between individuals and macroeconomics’ aggregate quantities. During the 1800s, statistical mechanics and thermodynamics emerged as complementary theories of matter on different scales. While the former uses robust statistical methods to characterize the interactions of vast numbers of particles and the latter describes the behavior of matter in bulk, the two theories are irreducible to each other in just the same way Keynes’ macroeconomics is irreducible to his account of individual psychology. This reading is buoyed by Keynes’ earlier Treatise on Probability, which develops a subtle epistemology of probabilistic and statistical laws, working on the exact physical theories in question. The Treatise shows how statistical laws link the particulate-level mechanics of a complex system to an emergent dynamics, logically independent from any theory of those fine-grained interactions. As a result, neoclassical attempts to produce a macroeconomics with microfoundations are inherently contradictory.

1 comment:

LiminalHack said...

Thermodynamics is an essential part of future economics. As yet its in its infancy but will get an increasing amount of attention.

BY the time this crisis is over (lets say in 20 or 30 years time) it'll be the new mainstresm