The Rediscovery of Classical Economics: Adaptation, Complexity and Growth

225 Pages·2013·1.86 MB·English

by  David Simpson

The Rediscovery of Classical Economics
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NEW THINKING IN POLITICAL ECONOMY
Series Editor: Peter J. Boettke, George Mason University, USA
New Thinking in Political Economy aims to encourage scholarship in the intersec-
tion of the disciplines of politics, philosophy and economics. It has the ambitious
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New Thinking in Political Economy will stimulate new work that combines
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Jesús Huerta de Soto
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The Rediscovery of Classical Economics
Adaptation, Complexity and Growth
David Simpson
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The Rediscovery of
Classical Economics
Adaptation, Complexity and Growth
David Simpson
Formerly Professor of Economics, University of Strathclyde,
Scotland, UK
NEW THINKING IN POLITICAL ECONOMY
In Association with the Institute of Economic Affairs
Edward Elgar
Cheltenham, UK • Northampton, MA, USA
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© David Simpson 2013
All rights reserved. No part of this publication may be reproduced, stored
in a retrieval system or transmitted in any form or by any means, electronic,
mechanical or photocopying, recording, or otherwise without the prior
permission of the publisher.
Published by
Edward Elgar Publishing Limited
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Cheltenham
Glos GL50 2JA
UK
Edward Elgar Publishing, Inc.
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Northampton
Massachusetts 01060
USA
A catalogue record for this book
is available from the British Library
Library of Congress Control Number: 2012952657
This book is available electronically in the ElgarOnline.com
Economics Subject Collection, E-ISBN 978 1 78195 197 2
ISBN 978 1 78195 196 5 (cased)
978 1 78254 508 8 (paperback)
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Contents
Preface vi
1 Introduction 1
2 Human behaviour 13
3 Qualitative change and quantitative growth 28
4 Adaptation, emergence and evolution 51
5 Self-organisation and complexity 71
6 Markets, competition and entrepreneurship 86
7 Specialisation and growth 105
8 Prosperity and recession 131
9 Government 160
10 The rediscovery of classical economics 179
Bibliography 195
Index 206
v
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Preface
A book so long in the making generates many debts of gratitude. Among
those who have provided me with help and encouragement at various
stages of its writing are Fessal Bouaziz, Asa Briggs, Ian Byatt, Phoebe
Clapham, Michael Fry, Gavin Kennedy, Brian Loasby, Alan Peacock,
Colin Robinson, Jim Stretton and John Thomson, as well as an anony-
mous researcher at the Royal Economic Society. There are many others
whom I may have overlooked. I thank them all most warmly for their
individual contributions, moral as well as intellectual. I should also like
to thank my editors, Matt Pitman, Jo Betteridge, Sarah Cook and Jane
Bayliss, as well as the staff of the Reading Room at the National Library
of Scotland.
A special word of thanks must go to Neil Menzies who read some early
drafts and tirelessly prodded me whenever my concentration wavered. I
am particularly grateful to Jim Walker, once my student, now my teacher.
He is living evidence that classical economics really works. Above all, I
am deeply indebted to my wife Judy for her forbearance during so many
absences of mind and for her active support at critical times. Without that
support, this book could not have been written.
Tyninghame, East Lothian
January 2013
vi
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This book is for Judy, who made it possible.
Two roads diverged in a wood, and I,
I took the one less traveled by,
And that has made all the difference.
Robert Frost The Road Not Taken
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1. Introduction
The main concern of economics is thus with human beings who are
impelled, for good and evil, to change and progress . . . [T]he central idea of
economics . . . must be that of living force and movement.
Alfred Marshall1
The purpose of this book is to put forward an alternative to equilibrium
economics, the paradigm that has dominated the mainstream of economic
thought for the best part of a century.2 That alternative is what may be
called classical economics, namely the intellectual tradition that began
with Adam Smith, evolved in the nineteenth century, was continued in the
twentieth century by Marshall and the Austrians amongst others, and is
today represented by theorists of complexity.
The hallmarks of the classical tradition are principally three. The first
is the belief that the growth of the economy, rather than relative prices,
should be the principal object of analysis. Coupled with that belief is
an understanding of the market economy as a collection of processes of
continuing change rather than as a structure, and that the nature of this
change is self-organising and evolutionary. Finally there is a conviction
that economic activity is rooted in human nature and the interaction of
individual human beings. Many people might suppose from the similarity
of the terms ‘classical’ and ‘neoclassical’ that the one school of economic
thought is closely related to the other. In fact, as this book will try to show,
they are more nearly exact opposites.3
We need an alternative to conventional equilibrium economics because
it does not provide us with a good understanding of how the economy
works. Equilibrium theory is essentially a mechanistic metaphor.4 The
progressive refinement of the theory during the twentieth century was
intended to deliver determinacy of solutions together with simplicity of
structural form. This has been achieved in principle, but at the cost of
such drastic simplification of assumptions and the exclusion of so many
important elements of economic activity that the resulting theory has little
correspondence with reality. It is not surprising therefore that it has been
useful neither for prediction nor for explanation.
This is particularly harmful for policy makers. The importance of real
world phenomena that cannot be accommodated within the structure of
1
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