Diane Coyle — Finance, the state and innovation

Yesterday brought the launch of a new and revised edition of Doing Capitalism in the Innovation Economy by William Janeway. Anybody who read the first (2012) edition will recall the theme of the ‘three player game’ – market innovators, speculators and the state – informed by Keynes and Minsky as well as Janeway’s own experience combining an economics PhD with his experience shaping the world of venture capital investment.

The term refers to how the complicated interactions between government, providers of finance and capitalists drive technological innovation and economic growth. The overlapping institutions create an inherently fragile system, the book argues – and also a contingent one. Things can easily turn out differently.... 

Bingo.

The fundamental assumption of a free enterprise system ("capitalism") is that entrepreneurship drives innovation, which accelerates growth and overall prosperity.

Looking at the historical record, this is obviously true. But it is more complicated than that, and a lot things can go wrong if all the gears in the machine are not always in sync. History also shows that they are not as evidence by cycles, where all cycles are a combination of business (economic) and financial factors that are influenced by a number of contingencies in a dynamic environment, including policy and its application.

The Enlightened Economist

Finance, the state and innovation

Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

also

The problem I have with this type of reasoning is that assumes away contingency. Technological innovation land the creation of a consumer society through marketing and advertising lead to the creation of mass markets, which changed the dynamic in a way that models did not anticipate and likely could not have because the new technology that made this possible was emergent and foreseeable in advance.

I don't think that this vitiates Marx and Engels' approach, but rather strengthens the argument for the need for conceptual models that are based on "fuzzy logic" to complement formal modeling based on technically defined analytical concepts and precise measurement to delimit the boundaries of sets.

Contingency implies uncertainty. Uncertainty implies the need to use fuzzy logic rather than the strict formalization that conventional economics as "science" demands. Both are necessary tools, especially as scale increases — which is what the fallacy of composition is about. Macro is not and cannot be scaled up micro analysis.

Of course, what can be formalized usefully should be used. But not everything is capable of being modeled formally in a dynamic way when contingency is involved, and static models are mostly gadgets when cet. par. is assumed.

Michael Roberts Blog
The fallacy of composition and the law of profitability
Michael Roberts

Daniel Little — Social contingency?

Daniel Little on necessity and contingency in social science.

What does it mean to say that the social world is contingent? Several things. First, it means that social changes and patterns are not strongly law governed. Outcomes are the result of intersecting chains of causal mechanisms and stochastic happenings, so there is no sense in which outcomes are predetermined or confidently predictable. Social outcomes are the result of conjunctural causation, with indeterminate conjunctions of causal processes and conditions proceeding from independent background circumstances. And accidents and random events make a difference in the outcomes as well. This is true at a full range of scales, from large happenings like the outbreak of war to the growth of a corporation to the emergence of a new set of values about gay marriage. So historical processes and sequences are contingent, and we need to pay close attention to the path dependency of social happenings. 

Another key kind of contingency has to do with the composition of social entities. In the natural world there are some formations that are necessary. H2O and protein molecules have a specific topology and arrangement that follows strictly from the physical properties of the constituents, and these properties, we would like to assert, are fixed by nature. So it is a necessary fact that H2O molecules all have the same topology -- this topology follows from physical laws. But likewise, large proteins have only a small number of stable geometries as well, given the physical characteristics of the atoms that compose them.

The situation is different for social compounds. They are composed of individuals. But their properties are not fixed by the laws of psychology or any other consistent realm. Rather, there is substantial path dependency in the formation of a particular social formation, and the properties of actual social formations are contingent relative to the properties of the individuals who constitute it.

To say that social phenomena are contingent is not to imply that they are random or unpatterned. In fact, a large part of the task of the social sciences is to identify and explain important social patterns...

Understanding Society
Social contingency?
Daniel Little | Chancellor of the University of Michigan-Dearborn, Professor of Philosophy at UM-Dearborn and Professor of Sociology at UM-Ann Arbor