CDR: Re: Re: A famine averted...

[Tim May]

At 4:02 PM +0300 10/14/00, Sampo A Syreeni wrote:
>
>On a similar vein, just about every somehow understandable version of free
>market theory is based on the assumption of a steady state market. The
>theory does not include a temporal element. If you want to study those,
>you're bound for such a quagmire of stochastic nonlinear differential
>equations that you would not believe. Hence, the global stability of any
>reasonably realistic model of markets is practically impossible to
>guarantee with current mathematical tools. It is quite possible for such
>systems to behave badly enough to kill most of the participants in the
>market, for instance. Besides, the basic continuity assumptions behind
>mathematical economics practically guarantee that the theory does not take
>such possibilities seriously - I know of no models which take into account
>the discrete, limited number of people participating in the market.

There's a _lot_ of work being done in this area. Some key words:

computational economics, multi-agent systems, Swarm, evolutionary 
game theory, etc.


It may be true that these are not the simple, econometric models 
which textbooks present with nice, neat graphs showing supply and 
demand and computing elasticity, but this is hardly surprising.

In any case, the theory of free markets is a lot more than about 
proving theorems in continuous, steady-state models.


>
>Free market theory, though interesting, useful and absolutely much better
>than most available alternatives simply does not cover it all. It is an
>abstraction which probably should not be attained any more than the
>socialist one.

Saying that there is a "free market theory" is itself pretty 
misleading. There are economic models, there are viewpoints about the 
role of regulation and the advantages of non-interventionist 
policies, and so on.

Those who believe that nominally free markets have certain practical 
and ideological benefits (vis-a-vis price discovery, signalling 
mechanisms, risk/reward, etc.) may adopt the short-hand of saying 
they are "free market theory" advocates. This doesn't mean there is 
some "theory of free markets" which is distinct from economics in 
general.

In a nutshell, treat economic theory as just a common language for 
certain types of analysis. "Elasticity" has its place, but it is only 
a part of the bigger picture. Folks like Hayek and von Mises, and 
entrepreneurs taking advantage of free markets, don't need to solve 
differential equations!

A Korean stall vendor deciding to offer pomegranates for sale doesn't 
need a "theory" of mathematical economics to practice free market 
strategies.

--Tim May
-- 
---------:---------:---------:---------:---------:---------:---------:----
Timothy C. May              | Crypto Anarchy: encryption, digital money,
ComSec 3DES:   831-728-0152 | anonymous networks, digital pseudonyms, zero
W.A.S.T.E.: Corralitos, CA  | knowledge, reputations, information markets,
"Cyphernomicon"             | black markets, collapse of governments.