DISCUSSION Reconceptualising Economics A Note on Econophysics Rahul Menon With reference to the survey article, “Econophysics: An Emerging Discipline” (EPW, 11 August 2012), this note critically examines the claim that econophysics provides an alternative to mainstream economics. S inha and Chakrabarti’s “Econophysics: An Emerging Discipline” (EPW, 11 August 2012) provides not only a valuable introduction to an important alternative field of economics, but also gives the reader a comprehensive survey of the latest developments in the field. The authors maintain that econophysics provides a powerful new way of doing economics that stresses the importance of empirical investigation and is a viable alternative to mainstream neoclassical economics, which has been found wanting in the wake of the recent worldwide economic crisis. This note examines the claim that econophysics provides an alternative to mainstream economics. The argument advanced here is that econophysics is alike to mainstream economics in many ways. Alongside this critique, this note will point towards alternate ways of practising economics. economics in that it is purely inductive in nature, laying greater importance on empirical investigation rather than focusing on axiomatic foundations. In the authors’ own words, econophysics “...is marked by a desire to accurately describe real economic phenomena by careful observation and reproducing the empirical features with models inspired by statistical physics” (ibid: 63). The inductive nature of econophysics is said to be its strength, and the greater focus placed on empirical observation distinguishes it from mainstream economics, although no explanation is given as to why the tools of statistical physics inherently provides a more suitable way of explaining economic phenomena based on an inductive method. The authors can perhaps be accused of constructing a straw man when they argue that mainstream economics disregards or pays no close attention to empirical data. Many econometricians would definitely take umbrage at the above assertion! In spite of econophysics’ claims that its inductive method is an improvement over mainstream economics’ deductive method, there are similarities between the two in some important aspects with respect to methodology. Econophysics Rahul Menon (menon.rahul@gmail.com) is a doctoral candidate at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. Economic & Political Weekly EPW october 13, 2012 Econophysics presents itself as an inductive alternative to the purely deductive practice of mainstream neoclassical economics. Mainstream economics builds its elaborate framework and structures upon the foundation of certain key axioms: individual rationality, given tastes and preferences, etc. The authors claim that this deductive method leads to the problem of disregarding empirical data, or reinterpreting data to suit the hypotheses and axioms of individual rationality and efficient markets. The reason for the inability of mainstream economics to properly explain and account for recent happenings and the functioning of markets is due to its “...dogmatic adherence to deriving elegant theorems from ‘reasonable’ axioms, with complete disregard to empirical data” (ibid: 45). Sinha and Chakrabarti maintain that econophysics is different from mainstream vol xlviI no 41 Similarities An important aspect of econophysics is its search for “universal” properties, i e, those properties that “...(do) not depend sensitively on system-specific details that vary from one instance to another” (ibid: 53). According to the authors, most works in the field of econophysics concentrate on trying to “...identify universal features that are independent of system-specific detail...” (ibid: 63). The authors provide a wealth of references and empirical examples to support the validity of this line of investigation. The assumption that there exist stable functional forms with properties that remain unchanged through different social contexts and with the passage of time is not only an assertion that must be treated with caution, but is also a fundamental feature of mainstream economics. Garegnani has pointed out that 75 DISCUSSION the theoretical structure of mainstream economics depends on the existence of functional relationships that are endowed with “...known properties of suficient generality and with persistence over time” (Garegnani 1984: 298-99, see also Garegnani 1983). The search for such unchanging parameters and functional relationships are at the heart of representative agent macroeconomics, a discipline irmly within the ield of mainstream macroeconomics. In response to the Lucas critique, the efforts of mainstream macroeconomics has been to search for “deep” parameters such as tastes and technologies that remain unchanged no matter what the policy environment (Hartley 1997). While Hartley believes that the variables chosen by mainstream macroeconomists are not insensitive to the policy regime, the question remains as to whether the parameters chosen (tastes and technology) ever remain unchanged or can be expected to remain unchanged across differing contexts. Setting aside the question of whether such an assumption is valid or not, the point is that the search for such “universal N EW experiments might also enable us to determine the existence of universal properties. But extending this framework into the study of economics runs into several dificulties. For one, this assumes that the behaviour of the agents under study will be fundamentally the same in a context outside that of the model, merely modiied by external circumstances. This framework overlooks the possibility of economic behaviour being fundamentally altered by the new circumstances engendered by different social contexts. The range of political, social, cultural and historical factors that affect the economic behaviour of agents makes it dificult to expect that functional forms identiied within the conines of a model continue to operate without any modiication across vastly differing contexts. principles” characterises both econophysics as well as mainstream economics. While the latter’s universal principles arise from its axiomatic foundation, econophysics assumes the existence of such universal principles and works to develop a theory to explain the functional form taken by the empirical data on the assumption that this functional form is a relection of an independent universal principle. There is another signiicant area of similarity between the two disciplines. The authors highlight several studies which look at various isolated models of exchange and assert that just as one understands the movement of air molecules by studying an experimental sample, one can use the conclusions drawn from an isolated model to explain the forces that drive the larger system. Such a methodology characterises mainstream economics as well, starting as it does from the rational individual in an attempt to understand society as a whole. Studying the movement of gas molecules in a highly controlled experiment might offer us insights into the behaviour of atmospheric particles. Such controlled The Methodology of Classical Economics The critique of econophysics above may give the appearance of being a critique of the predominant practice of constructing models and deriving conclusions from them. Essays from the Economic and Political Weekly Village Society Edited By SURINDER S JODHKA The idea of the village has occupied an important place in the history of post-Independence India. This volume presents a set of readings which primarily focus on the social, political and cultural aspects of village life. A comprehensive introduction provides a detailed historical analysis of the study of rural India, the changes in rural social life, and the forces shaping life in villages today. 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However, we must keep it in mind that economic models can only point towards economic tendencies rather than rigid laws, tendencies that may be modified by the specific social system concerned. If economics is to have relevance, it must refrain from searching for immutable laws and must study how tendencies derived from abstract modelling interact with and get modified and/or changed by the elements of specific social contexts. Such an open-ended methodology is allowed for by the classical economics of Smith, Ricardo and Marx. The “core” of the surplus theories of the classical economists consisted in taking the real wage (and hence the necessary consumption of the labourers), the technical conditions of production and hence the total product as given, with the surplus (as well as relative prices) estimated as a residual. Taking these variables as “given” enabled the classical economists to study the factors determining changes in these variables separately from those factors affecting others; it did not imply that these variables could not interact and affect each other. According to Garegnani (1984: 297): The multiplicity of...influences and their variability according to circumstances was in fact understood to make it impossible to reconduct them to necessary quantitative relations like those, studied in the ‘core’, between distributive variables and relative prices and between outputs or techniques and the dependent distributive variables and prices. The lack of simultaneous determination should be seen as a strength, for “The more limited scope which the theory of value has in the surplus approach may however give it the greater flexibility which is required by a subject as complex as economics” (ibid: 297). In order to study the precise ways in which economic tendencies and economic variables are modified by the social context, it is imperative that economics learn from other social disciplines like political science, sociology and history in their own languages, rather than trying to interpret social phenomena exclusively in the Economic & Political Weekly EPW october 13, 2012 language of economics. The flexibility of the classical approach to economics makes it imperative that economists fully understand the social context in which economic phenomena operate in order for it to be a truly relevant subject. For example, the discussion of the “subsistence wage” in Ricardo and Marx admitted of a strong social and historical component, rather than being tied to “subsistence” in a purely biological sense. Moreover, the operation of economic agents and economic phenomena tend to radically change the context within which it operates. This was first pointed out by Marx, who wrote: Effects, in their turn, become causes, and the varying accidents of the whole process, which always reproduces its own conditions, take on the form of periodicity (Marx 1977: 593). When economic behaviour affects and is affected by the social system within which it operates, it is perhaps more relevant to focus on the interaction between economic behaviour and the social system, rather than search for universal properties that (by assumption) remain independent of the system in question. Joseph Schumpeter, one of the staunchest critics of Marx, pointed out that one of the strengths of the Marxist method was that Marx attempted to examine “...the actual sequence of those patterns or of the economic process as it goes on, under its own steam, in historic time, producing at every instant that state which will of itself determine the next one” (Schumpeter 2010: 37). Conclusions The search for universal principles does not allow one to fully examine the ways in which agents’ behaviour is affected by and affects the social context in which it operates. This is important because social contexts are vastly different from each other, and comparisons of contexts across time and space are fraught with severe difficulties. The methodology followed by classical economics allows for a more flexible way to analyse the operation of economic tendencies in a complex social system. For economics to be relevant, it is important that it learns from other disciplines in an attempt to fully understand how economic tendencies manifest themselves. Taking into account the fundamental uncertainty and interconnectedness that characterises the contexts within which agents operate, pluralism is vital if the discipline of economics is to be able to contribute to a fuller, richer understanding of the world we live in. References Garegnani, Pierangelo (1983): “The Classical Theory of Wages and the Role of Demand Schedules in the Determination of Relative Prices”, The American Economic Review, 73(2), 309-13. – (1984): “Value and Distribution in the Classical Economists and Marx”, Oxford Economic Papers, 36(2), 291-325. Hartley, James (1997): The Representative Agent in Macroeconomics (London: Routledge). Marx, Karl (1977): Capital, Vol 1 (Moscow: Progress Publishers). Schumpeter, Joseph (2010): Capitalism, Socialism and Democracy (London: Routledge). Sinha, S and B K Chakrabarti (2012): “Econophysics: An Emerging Discipline”, Economic & Political Weekly, 47(32). UNIVERSAL HEALTH COVERAGE February 25, 2012 Universal Health Coverage in India: A Long and Winding Road – Gita Sen Thailand’s Universal Health Coverage Scheme – Viroj Tangcharoensathien, Rapeepong Suphanchaimat, Noppakun Thammatacharee, Walaiporn Patcharanarumol Medicines for All: Unexceptionable Recommendations – S Srinivasan Political Challenges to Universal Access to Healthcare – R Srivatsan, Veena Shatrugna A Limiting Perspective on Universal Coverage – Rama V Baru Human Resources in Health: Timely Recommendations, Some Lacunae and What about Implementation? – George Thomas Gender in the HLEG Report: Missed Opportunity – T K Sundari Ravindran, Manju R Nair In Pursuit of an Effective UHC: Perspectives Lacking Innovation – Padmanabh M Reddy For copies write to: Circulation Manager, Economic and Political Weekly, 320-321, A to Z Industrial Estate, Ganpatrao Kadam Marg, Lower Parel, Mumbai 400 013. email: circulation@epw.in vol xlviI no 41 77