Rethinking Evolution, Entropy and Economics: a Triadic Conceptual
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A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Herrmann-Pillath, Carsten Working Paper Rethinking evolution, entropy and economics: A triadic conceptual framework for the maximum entropy principle as applied to the growth of knowledge Frankfurt School - Working Paper Series, No. 146 Provided in Cooperation with: Frankfurt School of Finance and Management Suggested Citation: Herrmann-Pillath, Carsten (2010) : Rethinking evolution, entropy and economics: A triadic conceptual framework for the maximum entropy principle as applied to the growth of knowledge, Frankfurt School - Working Paper Series, No. 146, Frankfurt School of Finance & Management, Frankfurt a. M. 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Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Frankfurt School – Working Paper Series No. 146 Rethinking Evolution, Entropy and Economics: A triadic conceptual framework for the Maximum Entropy Principle as applied to the growth of knowledge by Carsten Herrmann-Pillath Sonnemannstr. 9 – 11 60314 Frankfurt am Main, Germany Phone: +49 (0) 69 154 008 0 Fax: +49 (0) 69 154 008 728 Internet: www.frankfurt-school.de Rethinking Evolution, Entropy and Economics Abstract Recently, the maximum entropy principle has been applied to explain the evolution of com- plex 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 eco- nomic 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. Key words: Peirce, Georgescu-Roegen, maximum entropy, maximum power, natural selec- tion, semeiosis, physical inference devices, economic growth, useful work JEL classification: B52, D80, Q57 ISSN: 14369753 Contact: Prof. Dr. Carsten Herrmann-Pillath Academic Director, East-West Centre for Business Studies and Cultural Science Frankfurt School of Finance and Management Sonnemannstraße 9-11 60314 Frankfurt am Main, Germany Email [email protected] Submitted to the Annual Meeting of the Ausschuß für Evolutorische Ökonomik at the Verein für So- cialpolitik , Linz, Austria, July 1-3, 2010 Frankfurt School of Finance & Management 2 Working Paper No. 146 Rethinking Evolution, Entropy and Economics Content 1 Peirce: A neglected source of inspiration for evolutionary economics .................................4 2 Triadism as a unifying conceptual perspective......................................................................5 3 The naturalization of the semeiotic triad ...............................................................................7 4 Semeiotic triads as inference devices ....................................................................................9 5 Autocatalytic cycles as archetypes of inference devices .....................................................13 6 The energetics of semeiosis .................................................................................................16 7 Implications for economic analysis .....................................................................................22 8 Conclusion ...........................................................................................................................25 References ................................................................................................................................26 Frankfurt School of Finance & Management Working Paper No. 146 3 Rethinking Evolution, Entropy and Economics 1 Peirce: A neglected source of inspiration for evolutionary economics Charles Sanders Peirce was one of the most original and influential American thinkers at the turn from the 19th to the 20th century. He co-created American pragmatism and contributed to many different fields, such as logic, mathematics and metaphysics. His thinking was shaped by his profession as a learned scientist (chemistry and geodesy), thus differing in background from most academic philosophers of his times. His philosophy was part and par- cel of the general intellectual scenery, which also fostered the rise of institutionalism in eco- nomics and the creation of the first vintage of evolutionary economics. Yet, his work is strangely neglected in both the history of thought in economics and in modern treatments of evolutionary economics, mainly relegated to a few hints at his impact on the general intellec- tual climate, and on the role of his methodology for institutionalist economists (e.g. Hodgson 1999). References to Peirce mostly concentrate on Peirce’s methodological viewpoints and his philosophy of science, which is seen to be shared by influential institutional economists such as Commons and Ayres (Liebhafsky 1993). However, even in this regard John Dewey certainly is regarded to be the more influential thinker. This relative neglect is also condi- tioned by the sparseness of explicit references to his work by the early evolutionary econo- mists themselves, such as Veblen. But Peirce was also a pundit of capitalism, especially of what he perceived as an undue emphasis on competition. His metaphysical notion of ‘agapeism’ introduced a strong role of altruism into his view of evolution and assigned an almost cosmic role to universal love. This attitude might have distracted even institutional economists from a closer inspection of his other ideas. In this paper, I wish to explore a Peircian perspective on evolutionary economics. My motiva- tion is not to provide an exegesis of Peirce’s voluminous works from the viewpoint of eco- nomics. With ‘Peircian’ I refer to certain central elements in Peirce’s thought which I believe can be of crucial importance to further push the case of evolutionary economics. That is, my reception is selective, and in places even contradicts some more specific opinions of Peirce himself. So, ‘Peircian’ actually refers to extensions and modifications of the original thought. The elements that I specifically consider are: • the theory of signs • the notion of fundamental randomness • the concept of final causality • and naturalism in the theory of mind. I think that these ideas can help to clarify one fundamental issue in evolutionary economics (Metcalfe 2001): How can we conceive of economic evolution as growth of knowledge? In a Peircian view, we can develop a naturalistic conception of knowledge, which means, ulti- mately, that ‘information’ is conceived as a physical category. Based on this, we will be able to establish an unexpected connection between the Peircian approach and a newly emerging field in the analysis of non-equilibrium dynamical systems, namely the Maximum Entropy approach (for a most recent survey, see Kleidon et al. 2010). I will argue that the growth of Frankfurt School of Finance & Management 4 Working Paper No. 146 Rethinking Evolution, Entropy and Economics knowledge is a physical process, hence being subject to physical laws. From this follows, that economic evolution follows physical laws, especially the laws of thermodynamics. So, we travel from Peirce to Georgescu-Roegen. I will argue that a Peircian perspective can help to remedy some flaws in the earlier economic uses of the concept of entropy, especially in the sense of clarifying the relation between information-theoretic and physical uses of the term (thus pursuing a line of thinking originating with Ayres 1994). The backbone of the entire argument is a naturalistic interpretation of evolutionary epistemology, which can be built on Peirce’s theory of signs. I will conclude in demonstrating a fundamental consequence for eco- nomic analysis, which is also of far-reaching practical importance: If the growth of knowl- edge is a physical phenomenon, we cannot argue that