If Broken Symmetry has a theme, then it is applying systems theory to economic data. In this context, "systems theory" should be understood as an attempt to render insights from Hayek, Coase, McGregor, Williamson, North, and Ellickson susceptible to quantitative measurement and analysis. Systems theory is an umbrella term for physics models of networks and dynamical systems that are used to understand how interconnected flows can end up in stable or unstable local equilibria, spontaneously synchronize, and generally evolve over time in feedback loops. Douglas McGregor was an early proponent of systems theory at MIT in the 1950s and 60s.
Here are some of the basic hypotheses about human behavior that might be associated with systems theory:
- Individuals have preferences for goods that can be measured in units of flow (quantity consumed/produced per unit time).
- Individuals seek to optimize the fit between their flow preferences and available flow using available information about past and present available flow.
These together suggest that individuals can be modeled as a nexus of flows of cash and other goods. In turn, the interconnected streams of these flows lead to additional hypotheses about the behavior of the integrated system of flows.
- Feedback loops in flow among individuals can result in more spatially and temporally stable preferences by synchronization of flow.
- A nexus of synchronized flows may be a firm or a market depending on the structure of interconnections. (I.e., the ability to synchronize flow over time determines what structures will persist.)
- Firms that synchronize with higher-bandwidth can operate at lower cost, sell at higher margin, or both.
- Firms with scale-free architecture are the most cost-efficient, but also the most susceptible to catastrophic failure.
- (Perhaps most surprisingly) Under certain circumstances, individual preferences will spontaneously synchronize through market price signals.
There is an evolutionary mechanism at work here in that the nexus of flows that constitutes a firm is in competition with other nexuses of flows for additional flow. Over time, some network structures will survive better. And the success or failure of a particular network will, of course, have an impact on how the preferences of individuals within it will evolve over time. There are deep connections between systems theory and the evolutionary theory of psychologists like Mihaly Csikszentmihalyi and sociologists like Donald T. Campbell. But the kind of data and scale of the models used by systems theory is more traditionally associated with economics.
Much of systems theory has been anticipated by New Institutional Economics, and in some cases sociology and psychology. The work from Haidt and Ehrenreich on hive psychology and collective joy, for example, is consistent within broad contours of the physics models of self-organized synchronization. Robert H. Frank's work on positional goods can be understood in terms of the sustainability of certain integrated flow structures over long times. In general, Thomas Schelling seems to have had these sorts of models in mind in his writing, although he tended to focus on the potentially destructive outcomes after long periods of repeated interactions.