A 'third culture' in economics? An essay on Smith, Confucius and the rise of China

China's rise drives a growing impact of China on economics. So far, this mainly works via the force of example, but there is also an emerging role of Chinese thinking in economics. This paper raises the question how far Chinese perspectives can affect certain foundational principles in economics, such as the assumptions on individualism and self-interest allegedly originating in Adam Smith. I embark on sketching a 'third culture' in economics, employing a notion from cross-cultural communication theory, which starts out from the observation that the Chinese model was already influential during the European enlightenment, especially on physiocracy, suggesting a particular conceptualization of the relation between good government and a liberal market economy. I relate this observation with the current revisionist view on China's economic history which has revealed the strong role of markets in the context of informal institutions, and thereby explains the strong performance of the Chinese economy in pre-industrial times. I sketch the cultural legacy of this pattern for traditional Chinese conceptions of social interaction and behavior, which are still strong in rural society until today. These different strands of argument are woven together in a comparison between Confucian thinking and Adam Smith, especially with regard to the 'Theory of Moral Sentiments', which ends up in identifying a number of conceptual family resemblances between the two. I conclude with sketching a 'third culture' in economics in which moral aspects of economic action loom large, as well as contextualized thinking in economic policies. --Confucianism,Adam Smith,physiocracy,collectivism and individualism,social relations in China,morality,economy of Imperial China

The evolutionary approach to entropy: Reconciling Georgescu-Roegen's natural philosophy with the maximum entropy framework

In Georgescu-Roegen's classical, though controversial discussion of entropy in relation to economics, the dualism of mechanical and subjective time plays a pivotal role. I argue that this fundamental distinction also inheres modern approaches to maximum entropy. Following Searle, I introduce the ontological dualism of observer independent and observer relative facts, and show that the notion of entropy also manifests this dualism, in the sense of the contextuality of measurements in experimental settings. Extending on the notion of observer relativity, I argue that the MaxEnt principle can be generalized into a framework of analyzing the evolution of (biological, technological etc.) functions under natural selection, if functions are equated with inference devices. Then, observer relativity is function relativity. In hierarchical evolutionary systems, this corresponds to the Maximum Entropy Production Principle, in the sense that functional evolution approximates gradients of maximum dissipation of energy. Against this background, the Georgescu-Roegen dualism of time translates into the dualism of observer independent entropy, which is the object of MEPP, and observer relative entropy, which is the object of MaxEnt. Both are two aspects under which evolution in general and economic evolution in particular can be analyzed. --Georgescu-Roegen,maximum entropy,observer relativity,time,hierarchical evolutionary systems,natural selection,physical concepts of information

Making sense of institutional change in China: The cultural dimension of economic growth and modernization

Building on a new model of institutions proposed by Aoki and the systemic approach to economic civilizations outlined by Kuran, this paper attempts an analysis of the cultural foundations of recent Chinese economic development. I argue that the cultural impact needs to be conceived as a creative process that involves linguistic entities and other public social items in order to provide integrative meaning to economic interactions and identities to different agents involved. I focus on three phenomena that stand at the center of economic culture in China, networks, localism and modernism. I eschew the standard dualism of individualism vs. collectivism in favour of a more detailed view on the self in social relationships. The Chinese pattern of social relations, guanxi, is also a constituent of localism, i.e. a peculiar arrangement and resulting dynamics of central-local interactions in governing the economy. Localism is balanced by culturalist controls of the center, which in contemporary China builds on the worldview of modernism. Thus, economic modernization is a cultural phenomenon on its own sake. I summarize these interactions in a process analysis based on Aoki's framework. --Aoki,culture and the economy,emics/etics,guanxi,relational collectivism,central/local government relations,culturalism,population quality,consumerism

Naturalizing institutions: Evolutionary principles and application on the case of money

In recent extensions of the Darwinian paradigm into economics, the replicator-interactor duality looms large. I propose a strictly naturalistic approach to this duality in the context of the theory of institutions, which means that its use is seen as being always and necessarily dependent on identifying a physical realization. I introduce a general framework for the analysis of institutions, which synthesizes Searle's and Aoki's theories, especially with regard to the role of public representations (signs) in the coordination of actions, and the function of cognitive processes that underly rule-following as a behavioral disposition. This allows to conceive institutions as causal circuits that connect the population-level dynamics of interactions with cognitive phenomena on the individual level. Those cognitive phenomena ultimately root in neuronal structures. So, I draw on a critical restatement of the concept of the meme by Aunger to propose a new conceptualization of the replicator in the context of institutions, namely, the replicator is a causal conjunction between signs and neuronal structures which undergirds the dispositions that generate rule-following actions. Signs, in turn, are outcomes of population-level interactions. I apply this framework on the case of money, analyzing the emotions that go along with the use of money, and presenting a stylized account of the emergence of money in terms of the naturalized Searle-Aoki model. In this view, money is a neuronally anchored metaphor for emotions relating with social exchange and reciprocity. Money as a meme is physically realized in a replicator which is a causal conjunction of money artefacts and money emotions. --Generalized Darwinism,institutions,replicator/interactor,Searle,Aoki,naturalism,memes,emotions,money

Rethinking evolution, entropy and economics: A triadic conceptual framework for the maximum entropy principle as applied to the growth of knowledge

Recently, the maximum entropy principle has been applied to explain the evolution of complex non-equilibrium systems, such as the Earth system. I argue that it can also be fruitfully deployed to reconsider the classical treatment of entropy in economics by Georgescu-Roegen, if the growth of knowledge is seen as a physical process. Relying on central categories of Peirce's theory of signs, I follow the lines of a naturalistic evolutionary epistemology. In this framework, the three principles of Maximum Entropy (Jaynes), Maximum Power (Lotka) and Maximum Entropy Production can be arranged in a way such that evolution can be conceived as a process that manifests the physical tendency to maximize information generation and information capacity. This implies that the growth of knowledge is the dual of the process of entropy production. This theory matches with recent empirical research showing that economic growth can be tracked by measures of the throughput of useful work, mediated by the thermodynamic efficiency of the conversion of exergy into useful work. --Peirce,Georgescu-Roegen,maximum entropy,maximum power,natural selection,semeiosis,physical inference devices,economic growth,useful work

Revisiting the Gaia hypothesis: Maximum Entropy, Kauffman's 'Fourth Law' and physiosemeiosis

Recently, Kleidon suggested a restatement of the Gaia hypothesis based on Maximum Entropy approaches to the Earth system. Refuting conceptions of Gaia as a homeostatic system, Gaia is seen as a non-equilibrium thermodynamic system which continuously moves away from equilibrium, driven by maximum entropy production which materializes in hierarchically coupled mechanisms of energetic flows via dissipation and physical work. I propose to relate this view with Kauffman's 'Fourth Law of Thermodynamics', which I interprete as a proposition about the accumulation of information in evolutionary processes. Then, beyond its use in the Kleidon model, the concept of physical work is expanded to including work directed at the capacity to work: I offer a twofold specification of Kauffman's concept of an 'autonomous agent', one as a 'self-referential heat engine', and the other in terms of physiosemeiosis, which is a naturalized application of Peirce's theory of signs emerging from recent biosemiotic research. I argue that the conjunction of these three theoretical sources, Maximum Entropy, Kauffman's Fourth Law, and physiosemeiosis, allows to show that the Kleidon restatement of the Gaia hypothesis is equivalent to the proposition that the biosphere is a system of generating, processing and storing information, thus directly treating information as a physical phenomenon. I substantiate this argument by proposing a more detailed analysis of the notion of hierarchy in the Kleidon model. In this view, there is a fundamental ontological continuity between the biological processes and the human economy, as both are seen as information processing and entropy producing systems. As with other previous transitions in evolution, the human economy leverages the mechanisms by which Gaia moves further away from equilibrium. This implies that information and natural resources or energy are not substitutes, i.e. the knowledge economy continues to build on the same physical principles as the biosphere, with energy and information being two aspects of the same underlying physical process. --Gaia,non-equilibrium systems,Fourth Law,work,Peirce,triadism,hierarchy,economic growth

The naturalistic turn in economics: implications for the theory of finance

Economics is increasingly adopting the methodological standards and procedures of the natural sciences. The paper analyzes this 'naturalistic turn' from the philosophical perspective on naturalism, and I discuss the implications for the field of finance. The theory of finance is an interesting case in point for the methodological issues, as it manifests a paradigmatic tension between the pure theory of finance and Behavioral Finance. I distinguish between three kinds of naturalism: mark I, the reduction of behavior on psychoneural phenomena, mark II, the transfer of patterns of causal explanations from the natural sciences to the social sciences, mark III, the enrichment of the ontology from observer-independent to observer-relative facts. Building an integrated naturalistic paradigm from these three ingredients, I show that naturalism in economics will only be completed by a simultaneous linguistic turn, with language being analyzed from the naturalistic viewpoint. I relate this proposition with recent results of research into finance, especially connecting Behavioral Finance with the sociology of finance. --Naturalism,causation in economics,neuroeconomics,behavioral finance,social ontology,sociology of finance

Strange notes on modern statistics and traditional popular religion in China: Further reflections on the importance of sinology for social science as applied on China

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Kulturelle Hybridisierung und Wirtschaftstransformation in China

In many analyses of the Chinese so-called economic miracle, cultural factors loom large. This paper offers a brief overview of recent economic approaches to culture and puts these into an analytical framework that highlights the dynamic and creative aspects of culture. I argue that China is a model case for the role of cultural hybridization in economic change. Culture is conceived as an arrangement of non-cultural elements into a meaningful pattern. With regard to this pattern, abstract categories can be defined which allow for the identification of stable cultural features in the longer run. The paper was prepared for a GTZ workshop on the impact of culture on economic development and institutional change (Kultur, institutioneller Wandel und Wachstum), held on January 28, 2009 at GTZ Eschborn. --cultural determinants of growth,cultural hybridization,guanxi,localism