The End of Certainty in Economics

November 19, 2004

Brian Arthur

Free University of Brussels, July 1994. To appear in the conference volume.

The story of the sciences in the 20th Century is one of a steady loss of certainty. Much of what was real and machine-like and objective and determinate at the start of the century, by mid-century was a phantom, unpredictable, subjective and indeterminate. What had defined science at the start of the century–its power to predict, its clear subject/object distinction–no longer defines it at the end. Science after science has lost its innocence. Science after science has grown up.

What then of economics? Is economics a science? Well yes, I believe so. For sure it is a body of well-reasoned knowledge. Yet until the last few years it has maintained its certainty, it has escaped any loss of innocence. And so we must ask: is its object of study, the economy, inherently free of uncertainties and indeterminacies? Or is economics in the process of losing its innocence and thereby joining the other sciences of this century?

I believe the latter. In fact, there are indications everywhere these days in economics that the discipline is losing its rigid sense of determinism, that the long dominance of positivist thinking is weakening, and that economics is opening itself to a less mechanistic, more organic approach. In this talk I want to show my own version of this loss of certainty. I want to argue that there are major pockets of uncertainty in the economy. I want to show that the clear subject/object distinction in the economics often blurs. I want to show that the economy is not a gigantic machine, but a construct of its agents. These are not “anomalies” to be feared, they are natural properties of the economy, and if we accept them, we will have a stronger, not a weaker science.

In the standard view, which has come down from the enlightenment, the economy is an object. It is complicated but can be viewed mechanistically. Subject and object–agents and the economy they perform in–can be neatly separated. The view I am giving here is different. It says that the economy itself emerges from our subjective beliefs. These subjective beliefs, taken in aggregate, structure the micro economy. They give rise to the character of financial markets. They direct flows of capital and govern strategic behavior and negotiations. They are the DNA of the economy. These subjective beliefs are a-priori or deductively indeterminate in advance. They co-evolve, arise, decay, change, mutually reinforce, and mutually negate. Subject and object can not be neatly separated. And so the economy shows behavior that we can best describe as organic, rather than mechanistic. It is not a well-ordered, gigantic machine. It is organic. At all levels it contains pockets of indeterminacy. It emerges from subjectivity and falls back into subjectivity.

Last Modified: Monday, December 17, 2001


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