An economy from an algorithmic perspective

As I have argued, ( Devine 2018, and Chap 11 Devine 2020) an economy, like an ecology, can be seen as a computational system that exists in a highly improbable state, distant from equilibrium.  The simplest economy can be seen as a nested system of replicating families of autonomous hunter gatherers, which themselves are a systems of replicating cells.

At the fundamental level, the families are the economic agents that form a replicating system, reproducing until they reach the carrying capacity of the system. At the carrying capacity, like the bacterial system, the hunter gatherer economy is maximally ordered, distant from the decayed equilibrium state that would eventuate if all participants died and their bodies decomposed.

But the difference between an economy and an ecology is that cognitive, rather than selection processes and instinctive actions determine computational behaviour.  This allows the economy to be seen to consist of three distinct forms of computational routines.

  1. The first, like an organism in an ecology,  is the instinctive set of routines that sustain the human body embodied embodied in the stored energy of the food and minerals which provide the computational resources to digest food and fight disease etc., necessary for survival.
  2. The second are the cognitive routines of human agents, either as individuals, or agents as amalgamated units such as tribes. These are the codified routines, analogous to the routines of evolutionary economics, and emerge by trial and error, learned rules of thumb or intelligent processes.  The last of these can, from a computational perspective, be deemed to be equivalent to artificial intelligence.
  3. But the number of bits capturing the cognitive routines is miniscule relative to the third form of computation, the routines embodied in the laws driving natural processes. 
The economy is driven by the second types of routine, the cognitive routines, that call the subroutines implementing natural laws such as, “plant seed”, “till soil” or “smelt iron”.  The number of bits in the routines that grow the plant, or smelt the iron is massive, compared with the few bits in the cognitive routines that call these real-world routines.

The sees an economy from a whole systems perspective where resources and environmental constraints are endogenous. What might be seen as an economic equilibrium from a neoclassical viewpoint, here is seen as a living non-equilibrium system.  Natural laws, triggered by the cognitive actions of human agents can be envisaged as real-world computational processes that maintain order.  These processes separate order from disorder, and eject waste as heat, sweat, carbon dioxide, water, excrement, corpses and other degraded structures such as carbon dioxide.  This allows the collection of economic agents to be sustained in a homeostatic state, distant from the ultimate decayed state that eventuates once energy sources dry up. In contrast to the neo-classical equilibrium point of view, if an economy in a homeostatic stable configuration is disturbed, it may not return to its earlier state once the disturbance is removed. Oil prices go up, oil prices drop but the economy moves to another state.
One can explore the emergence of typical advanced economy by a narrative that tracks the information flows in and out of the system through hypothetical stages of development.  Just as evolutionary processes can generate an ecology from simple replicating units, so to with an economy  starting from a simple hunter-gatherer family. Over many generations of trial and error, the hunter gatherer family, learns to cooperate through trade, amalgamate to form ordered structures, such as tribes, firms, cities and nations.  These ordered replicating structures, as for an ecology, are more efficient as computational resources are shared. Innovation, further increases order, leading to tools that amplify human labour, better off-setting death and decay. Similarly, dwellings and clothes increase resource efficiency and increase the range of the fundamental agents.

Initially, order is crystallised in the form of the carrying capacity of the families, but, over many generations, due to selection processes and agent behaviour highly ordered and connected structures, as seen in a first world economy, emerge.  However in so doing the economy becomes more resource dependent. This order in a sophisticated economy is analogous to the order in a rich ecology (see ), which, because of interdependency and shared resources, is further from equilibrium. The order can be expressed by the complex flow diagram that maps the algorithms capturing human behaviours, as they initiate real-world computations.

Hidalgo and Hausmann and Hidalgo (2015)  argue that Singapore, as an economy, is much more effective than Pakistan, as Singapore, is like a central processor controlling a large computational trade network. This is consistent with the viewpoint here that these intricate networks are highly ordered computational structures driving the economy further from equilibrium than less connected structures.

While a simple economy utilises natural energy which ultimately comes from the sun, a sophisticated economy is further from equilibrium and currently cannot survive without the fossil fuels needed to make and drive the tools and equipment that amplifies human labour.  In the long run, unless renewable energy sources (including nuclear) are used, resource and environmental constraints are likely to constrain the economy. The rise of atmospheric carbon dioxide disturbs the balance of the economy and, from the algorithmic perspective, is seen as a failure to effectively eliminate waste from the system threatening its viability.

GDP, which is a measure of the value of trade, i.e. resource flows, it is a consequence of an ordered economy, not the driver of one.  Nevertheless, one would expect there to be a rough correlation between increased GDP due to more efficient use of resources (or due to accessing new resources) and the consequential increase of order. A more sophisticated economy will have a higher GDP because increased trade, with the creation of interconnected networks, utilises stored energy better. But when an increasing GDP does not correspond to an increase in order and economic effectiveness, a correction may be needed. MORE