Een Rad van Zelfbehoud

Roxane van Iperen schrijft in Eigen Welvaart Eerst dat ‘..omdat binnen die klasse een rad van zelfbehoud draait..’ (p59). De auteur doelt op een geheel van ideeën die leven onder de leden van de socio-economische middenklasse, oftewel de wellness klasse.

De leden daarvan zijn bang om te vallen, omdat wat rechten leken in een liberaal sociaal-politiek klimaat minder vanzelfsprekend bleken en dus minder bescherming boden. Tegelijk willen ze in de klasse verder omhoog en voorbij de top, zoals hun ouders die van hen voorbij streefden en zij hun ouders.

Maar hoewel hun kinderen het recht toekwam om het ook weer beter te hebben dan zij, zoals zij het na de tweede wereldoorlog beter kregen dan hun ouders, is dat niet langer automatisch. De welvaart van de leden van deze klasse wordt aan alle kanten bedreigd door flexibilisering van arbeidscontracten, migratie, emancipatie van allerlei populaties, voortdurende sociale individualisering, globalisering van maakindustrieën en zo voort.

De klasse is aan zichzelf overgeleverd en de leden voelen dat ook en ze treden ertegen op. Dat vertaalt zich in pogingen van de leden om de klassen te beschermen tegen invloeden van buiten. De overheersende mindset is conservatief, omdat een ieder terug verlangt naar de tijd dat die klasse minder onzekerheden kende. De teneur is dat men het gevoel heeft uitgerookt te worden en erin gevangen te zitten.

Dit leidt tot een complex van overtuigingen, die dat moeten verklaren en verweer moet bieden tegen die beklemming, wat Van Iperen ‘een rad van zelfbehoud’ noemt. Deze term resoneert bij mij, vanwege het gevoel van geslotenheid en de zelfverwijzing die eruit spreken. Nu trekken alle leden die zich tekort gedaan voelen ten strijde met alle middelen die ze hebben, strijdig met hun burgerzin of niet. Dat leidt tot soms extreme ideeën en gedrag, wat ze an sich niet nastreven, maar in het kader van die ervaren bedreiging gerechtvaardigd vinden.

Ik ben ervan overtuigd dat zo’n rad ook in allerlei instituten, inclusief religies en politieke partijen en waaronder bedrijven, bestaat. Allerlei betrokkenen vinden zich in een bedrijf door hun waaier aan deels tegenstrijdige belangen. Ook hier is sprake van een gezamenlijk belang dat is terug te voeren op welvaart (utiliteit in bredere zin). De klanten van het bedrijf, de medewerkers, investeerders en de overheid vinden elkaar op dat rad terwijl een ieder de eigen ideeën nastreeft terwijl ze utiliteit zoeken.

Een bedrijf dat stabiel blijft terwijl het simultaan al die uiteenlopende belangen dient wordt zo’n rad: nu een ding op zich. Ik beschouw een bedrijf als ‘self-referencing system’ (zelf-refererend in het Nederlands, mwa). Haar belangrijkste doel is om zichzelf in stand te houden terwijl ze de belangen van de leden van de populatie dient. De populatie beschouwt het bedrijf vooral als instrument voor die eigen belangen.

Daarin is dus een verschil met die sociale klasse, want haar leden blijven zich vooral als individu opstellen (teweer stellen) zonder dat de klasse een eigen identiteit krijgt. Misschien nog in wel in de zin van een groep mensen in een vergelijkbare economisch-sociale positie en profiel, maar niet in de zin dat het zelf als zodanig interacties aangaat om die eigen identiteit te handhaven.

Een bedrijf heeft wel een eigen identiteit, denk maar aan haar ‘brand’. Om die identiteit scharniert aan de ene kant hoe haar leden ermee interacteren, en aan de andere kant waar het bedrijf zichzelf op inricht om zichzelf in stand te houden. Maar vooral is dat een rad waar een ieder elkaar en zichzelf in de gaten houdt en dat als einddoel toenemende welvaart van de leden heeft.

Recognise / suspect a firm

I previously pointed out that a firm is knowable by its behaviour. Stripping it from what is not invariable, what invariably remains is people’s behavior. We recognise it because it is not random, but instead a pattern of behavior that compares to what we know to suspect it is a firm. What is this coherence that we recognise it by?

Depicted in the philosophy of Deleuze (1968) the firm makes and erases differences, or in other words it solves problems and in so doing it creates new problems at once. These kinds of problems are abundant and new ones emerge continually, by mechanisms that Deleuze calls differenciators (sic): creators of new differences.

The perspective of the firm (as a system) can’t really be known by the human observer in a direct sense. What importance it attributes to its interactions and how it exactly goes about solving problems posed to it are particular to it. Such problems and their solutions are represented to people by way of questions and answers respectively.

People observe firms and interact with them by asking them questions in order to get answers. Firms maintain themselves as a self-referencing system, because they continue to solve problems of their population. Solving their problems enables them to fulfil their purpose to stick around. Customers and investors for instance observe that their question is answered under the condition of answering the problems of the employees, the government, and Nature at once.

Solving such a problem introduces others for example office lease, purchase of machines and materials, energy contracts &c. The firm can be known, because it solves multiple often conflicting problems simultaneously and machinically while its single purpose it to last. It is known to an individual by its answering to a particular, conditional question.

We know a firm by its identity, and we know it answers our questions in a machinic way. But our question can be asked without describing what is a firm, because it emerges from their simultaneous answering. This model is falsified with a non-trivial instance of an interaction between a firm and at least one member of a (sub-)population that does not solve a problem for both. Take for example the case where a product is handed out without any kind of payment, an investment without any kind of return, while the firm continues to last.

About testing

Take the hypothesis that today’s weather is the same as tomorrow’s. It is a rule for generating a prediction or an explanation, in this case, a weather phenomenon. The rule works in a mechanical way: it may have stochastic terms, but its execution is unchanging. If todays weather is sunny and dry, this hypothesis predicts that the weather tomorrow is sunny and dry also. In addition it explains that todays weather is rainy and windy, because this is the same as it was yesterday. Predicting and explaining is treated as the same thing, using different data, namely to generate a relation between stages of a phenomenon or between phenomena.

Such a rule reduces the expressed behavior generated by real processes: making use of it we no longer have to wait until tomorrow to know what the weather will be like. We have designed this hypothesis as a shortcut to the behavior of the weather system between days. This is of course advantageous for many including farmers and sunbathers.

If it repeatedly verifies in a test against reality then the hypothesis may be elevated to become a theory, and if it is false at least once it is a falsified theory. In the first case sunbathers and farmers may rely on it for organising their lives, in the last one they have to look for another. Even having generated correct predictions in many tests the hypothesis may turn out to have been false all along and be amended or scrapped. It may be superseded by another theory which generates predictions that are better in some way, or become part of an overarching theory.

A theory that has frequently predicted correctly can strictly speaking not be said to be true or false, because the event that falsifies it may not have presented itself just yet. The explanations or predictions generated by the hypothesis, however, are true or false. The outcomes that the hypothesis generates compare to a sufficient and pre-agreed extent to the behavior of the phenomenon it seeks to predict on previously agreed aspects.

The hypothesis is explicit, because it is not made of the same stuff that the phenomenon that it seeks to predict is made of. The Navier-Stokes theory for example contains equations not water. An hypothesis to generate predictions of the weather is not made of (the constituent components of) weather but words. Those are intended to identify relations between the behavioral patterns of the phenomenon that render it sufficiently recognizable for the human observer to enable comparison with the outcome generated by the hypothesis. Even if represented in a binary system or a software code the objective is to establish a connection between the phenomenon to be predicted and the observer.

This makes at least manifest that words may not be fit to represent the phenomenon and that the hypothesis is man-made and depends on human observation and cognition for assessment of its veritability. An example of the first is that nature does not restrict the number of decimals as it generates behavior of a given natural process, whereas a practical computer may truncate a number simply because the hardware does not accommodate 3 million decimals. Chaos theory teaches that different approaches to computation of the hypothesis and the subject is problematic. Moreover, chaotic effects can take place even in simple deterministic systems – observed and observing. Secondly, the make up of the hypothesis reflects the cognitive domain of the designer of the hypothesis. But that depends on his life experience and world view, not the topic. The designer runs the risk that his world view is tested and not weather phenomena, say. In case the testing involves answering by people then the interpretation of the questions by the interviewee depends on their worldview and thereby not necessarily represent reality. The testing of the hypothesis may result in testing their particular worldviews or the common opinion.

My research topic is the firm. In a previous post I summarised my hypothesis about the nature of the firm as: ‘.. the topic of my thesis is the firm as an emergent phenomenon. I see the firm as an evolutionary developing self-referencing cultural system. It is constituted of a bunch of ideas in the sense of answers that guide people’s thoughts and their behavior. I hypothesise that those ideas constituting it are widespread and do not mention the firm‘. These statements are founded on ontological, epistemological and phenomenological assumptions. Testing it requires a methodology that takes these into account, if not addressing them directly.

Suppose I wish to test this hypothesis in order to progress it to a theory. In my thesis I demonstrate that the hypothesis is internally consistent. This means that the constituent statements are not incoherent according to the definition of Thagard, although they lack the bonus points of evidence. This is provided if it explains a idea range of behavior of the topic than other theories (widening). If the statements of which the hypothesis is made up are explained by other theories or by evidence (deepening).

The hypothesis as such must predict or explain something (in this case the behavior of the firm), as well as but preferably better than others. Evidence that corroborates underlying assumptions make it more coherent as a theory. Going by the above categories of knowledge, first evidence would be welcome for the ontological assumption that the firm is a pattern emerging from a cognitive causal process.

Next the epistemological capability of the hypothesis to ’take the meme’s eye view’ must be tested. The firm is presented as a cognitive entity. This means that it is capable of making its own observations, or in other words to attribute a particular meaning to what it observes independent of the members of its population, people. How does a firm take decisions that the population would not take, albeit that they are taken through people? What interactions does it engage in that individual people would not?

Last, the assumption that a firm is a phenomenon is supported by evidence that the firm is knowable to a human observer because it behaves in a certain way. How can evidence be generated that corroborates that? What kind of observed behavior is specific for a firm and how can it be measured in reality, and what kind of observable behavior does the model predict? The pivot in this question is the nature of the observation and what that means to people.

One source of evidence are past data generated by the business processes of firms on record with them or in public institutions such as the Companies House. Another source is provided by the population of the firm: the people interacting with it, or in fact the ideas they hold in regards to the firm and how it develops. More specific this concerns the way that ideas are selected to become a part of the body of ideas that guides them and thereby generate the firm’s behavior. How is it that particular idea are selected into the memeplex and people feel compelled to adhere to them and others are not and they are eschewed?

The methodology specifies how the hypothesis is verified: what is tested and in what way. It specifies which business data is compared to what input to the hypothesis, to what extent it is quantifiable and where it is limited to qualitative data. The sources of (business) data are identified and selected, and how they are collected and curated for the task in hand. This includes data drawn from databases concerning past decisions and data yielded from interviews. It organises the activities of the testing, starting from collection and treatment of data up until the comparing of the outcomes with the predictions generated with the hypothesis, their interpretation, and an assessment of the viability of the hypothesis and its constituent parts. Standards are set for the categorisation of the generated data as verifying or falsifying (and probably in between). It indicates how the hypothesis is tested and not the world-view of the designer of the hypothesis or the interviewees, or the designers of the structures of the selected data.

The outcome of this procedure answers the question how we can come to be sure of the viability of the hypothesis, or in other words: does it hold water? It might, or it might not, but most likely the outcome is unclear in some respect and additional research is required. I believe that a major task in this project would be for the participants to keep seeing beyond the preconceptions of the current version of liberal capitalism that seems to occupy the minds of many.

Theory and Jobs

An important requirement for successfully completing a PhD study is that the topic is new to the world in some respect. The aspiring scientist seeks to turn a belief or a suspicion into knowledge.

He selects an hypothesis – a bunch of cohering statements – to explain a phenomenon he fancies and then tests it to generate explanations or predictions. What is the same but using different data. This is different from application, which is intentionally, utile and not necessarily true regarding the nature of the topic. The generated explanations are then compared to what is observed in reality and their closeness is assessed. If repeatedly proven to be close then the hypothesis is promoted to a theory.

The scientist-to-be shows how what was not known to be true or untrue before can be known with some certainty, namely approximately and temporarily. What was uncharted territory to the human observer is now charted, minding the caveats.

If there is no such testable hypothesis to predict the phenomenon of his liking he may decide to develop it himself. He observes any number of seemingly related phenomena for which there seems to be no acceptable explanation. He asserts coherent statements, together a hypothesis, that explain the phenomena and their relations. Utilising induction (focus on structure in data) or abduction (focus on explanation), the scientist generates arguments such that the statements he makes are internally consistent (between them), and that their relation to what is already known (theories) is explained.

According to Bertrand Russell philosophy is defined as what is between science and theology. Science is the part that is known beyond suspicion, but how do we attribute meaning to the remaining unknown. He suggests to use the patterns of thought proposed by religion, or developing other patterns making use of philosophy. Philosophy means to speculate in a formal way about unknown phenomena and patterns of thought. Philosophers too aim to chart territory and to add structure where there was none.

My wish was (and is) to inquire into the nature of the firm. That means to investigate what is invariable in the phenomenon. Peeling off everything that is not invariably present in a firm only people, or in fact their behavior, remain. Even individuals come and go, so in fact not they determine the nature of the firm, but really the behavior of people in general. And assuming that that is guided by ideas, then they are the primitive, people acting on their behalf.

Starting from that premises, the topic of my thesis is the firm as an emergent phenomenon. I see the firm as an evolutionary developing self-referencing cultural system. It is constituted of a bunch of ideas in the sense of answers that guide people’s thoughts and their behavior. I hypothesise that those ideas constituting it are widespread and do not mention the firm.

Nothing new at first sight: ideas in this regard have been developed from different scientific disciplines. But all sorts of additional questions arise, e.g. how do ideas that do not have senses cohere into complexes, how is the complex of ideas of, say a multinational firm that is too big to fit into one mind consistently distributed over many people, how are parts of the complex coherently recorded on people’s minds, and how can a firm as such be self-referencing if the argument is not accepted that it is cognitive and autonomous.

The statements in the previous sections are non-anthropocentric, subjective, processual, and they admit the laws of physics, because they are not restricted to the organic. But they are not sufficiently coherent to explain the nature of the firm. I need additional statements from the literature for that, and where unavailable I must develop them. This implies that the nature of this study is in part scientific and in part philosophical. It is also hypothetical, because the desired outcome is an internally consistent framework of new, invented and reinterpreted concepts with well-explained relations to what there is. In other words this is a hypothesis, not a theory. The project serves to develop and compile coherent statements, not to test them to reality.

After some (I thought) well-deserved relaxation I thought it a great idea to develop this hypothesis to a theory by testing it, and then to make use of it professionally. I presented it to business schools and a couple of strategy departments in firms. They thought it too theoretical to include in their curriculum and to their practices. What I believe they meant was that it is formulated in abstract terms. From the start my purpose was for it to keep it general (applicable to every conceivable firm) and not enter an empirical rabbit hole of small n. This is however the more common practice and my approach does not help me to find a job.

Another comment was that it is not sufficiently applicable. This is not the same as to say it is not a tested theory: if it works it works. They argued it does not enable business managers to make practical predictions about their particular businesses and they have a point there. It was never intended to be applicable in that sense. It is made up of statements about the nature of the firm, not a management tool catering for generating a change of behavior of the firm (aka increase its performance). That is a derivative model of this one.

From the beginning I wish to share these ideas with an audience wider than the scientific community, it is in fact how the whole adventure started. That implies that people including customers, shareholders, and management will want to know what to do to anticipate their (professional) futures. In order to be useful in this sense the hypothesis needs to be tested against business reality, and then tools for thought must be derived from it that guide people to think about firms and how to deal with them.

The Ancients about process and change

In this post I discuss some phrases that pivot around the topics process, change, and time, from The History of Western Philosophy by Bertrand Russell (George Allen & Unwin, London, 1961). These topics are interesting in the light of my research that I founded in process ontology. My chosen ontology, what is knowable, is determined by the chosen metaphysics, my assumptions without proof.

Ontological choices are a basis for what you think and do (what you permit yourself), and of particular relevance here, for the theory I develop. They make distinctions from competing ones, and guide your thoughts in some direction, restricting their extension everywhere. Take the assumption that the earth is at the centre of our solar system. Distinct from the heliocentric assumption, it directs our thoughts regarding the movement of celestial bodies. Or take the assumption that people are a primitive, because at a Panglossianistic apex of evolution, and all else is derived, and of derivative importance. This leads to a different view than universal evolution that is indifferent to substrate.

Both initial assumptions tend to unduly allow people an important position, first because they are in a spatial centre, and second because they are the uniquely sophisticated product of evolutionary development, in the chronicle centre as it were. These thoughts are ubiquitous and persistent, and they can be consequential. They are known to go back to the Ancient Greek philosophers in written form and foundational for further thinking.

Another example of such an influential thought is the assumption, very much alive today, that everything is made up of objects and that change is explained from their relations. This is complementary to the thought that process is the pivot and change a primitive. Both strands of thought were developed at the height of Ancient philosophy (the inventive bit according to Russell), but object ontology kept the upper hand for roughly two thousand years (thereby causing a great deal of damage according to Russell).

Anachimander (~546 bc) writes: ‘Into that from which all things take their rise they pass away once more, as is ordained, for they make reparation and satisfaction to one another for their injustice according to the ordering of time‘. This resonates with me, first because it mentions the metaphysical notions of making and erasing differences, and repetition. This description of the entire process of existence as a recursive loop is reminiscent of the Ouroboros. Every outcome (of a step cycle) is necessarily again the beginning of the next one. The meaning of the ‘injustice’, different from its modern understanding) of things is not developed to their full complement: askew from their natural order in time. That is necessarily and causally followed ‘as is ordained’ by the ‘reparation and satisfaction’ of that order. He points out that differences are made and erased at every cycle. New differences again present themselves at every opportunity as long as there is time, what Deleuze (1968) calls differenciation (sic).

The saying πάντα ῥεῖ (panta rhei: everything flows) is attributed to Heraclitus (~540 bc). It is exemplified by the thought that one cannot enter the same river twice. The notion of a river (including its colloquial use) is an abstraction of all the rivers that I can see and where I can take a bath. This notion is of course fortified by the word river to point out this abstraction so as one can mention the word cow to point out the species. Language in this sense tends to objectify phenomena and reinforce linguistically: a river has come to be considered an object instead of a causal process in continual flux defined by change.

Russell writes that: ‘ .. it (the subject matter dpb) is the burning not what burns. ‘What burns’ has disappeared from modern physics‘, when it turned out that matter is exchangeable for energy (p 65). Science seeks what is permanent and it would appear that not the river but the flow is permanent. I wish to mention that this fits with the statement in the Introduction of my PhD thesis that I set out to find a lasting pattern. An ontology that holds that the nature of a river is knowable as an object instead of a flow is bound to generate error. That said this by comparison recent progressive thinking exhibited in physics has not reached every nook and cranny of every obscure scientific discipline.

However, next it has been a source of doubt ever since the Ancients, and he continues to say that: ‘Philosophers, accordingly, have sought with great persistence, for something not subject to the empire of Time. This search begins with Parmenides‘ (p 65). Parmenides (~515 bc), contrary to Heraclitus argues that nothing changes. The unchangeability suggested by Parmenides is the foundation of the notion of indestructibility of substance: ‘A substance was supposed to the persistent subject of varying predicates‘ (p 70). This is a Platonic (aka essentialist) approach also called monism found in many disciplines, including business science. I believe that this is striking, because more than a river, I would consider a business to be in continual flux.

His metaphysics is based on logic and he assumes that words have a constant meaning, which he supposes unquestionable. However Russell writes that: ‘.., no two people who use the same word have just the same thought in their minds‘ (p 68). This statement resonates with me, because individual worldviews differ because of people’s differing life experiences. And in a wider perspective, that the notion of differences as a norm fit reality better than uniqueness. It is, however, distant from Parmenides’ view that nothing changes, as well as from the widely accepted view that it is possible to have identical perceptions of something and to express oneself identically. I believe this is a rare turn of events, especially regarding language, but it is possibly excepted by logic, mathematics and some strands of coding. They are fully symbolic and thereby free of human interpretation: their expression and perception are necessarily identical for different individuals.

According to Empedocles (~494 bc), last the sources of change are Love and Strife. The extent of their presence in substances determines their nature. I associate these conceptualisations respectively with a stable state in phase space that tends to last and attract, and an unstable state in phase space which is bound to repel and end. These counteracting forces are immanent to the observed processes and whether they come to the fore and the extent to which depends on outside influences. This image of naturally conflicting immanent forces is the hallmark of complexity and chaos, and thereby relevant for systems constituted by more than two elements.

This has been a discussion of a few selected phrases from ancient history of what Russell refers to a phase of Ancient Greek philosophy. They were not or hardly pursued during two millennia. Other ideas were selected instead to support the development of philosophy and to direct scientific endeavour. This course of events has moulded our thoughts into patterns beyond change or even discussion. I believe it is important that we are wary of such patterns and the consequences they bear. I believe that the foundational assumptions of some scientific disciplines are weak, because anthropocentric, little connection with modern human neuro-psychological theory, and object orientation. I also believe that some solutions, or at least awareness for the patterns that led to them, have been around for a long time.

The Order of Time

Carlo Rovelli, Penguin Books, ISBN 978-0-141-98496-4

In the universe there is the possibility of time and space. Masses of bodies modify the structure of the possible space and time between them: closer to a mass there is less time. dpb: if this concerns how much time passes, then does this mean that the grain of the structure of time is finer closer to a mass than further removed? And does that mean that closer to a mass more steps are needed compared to farther away? Time is different at every locus: it is relative and it has no unity.

In the laws of physics there is no inherent difference between past and future. Why is the past so different from the future to us? Based on Carnots proposition, Clausius posits that, if everything else remains equal, heat cannot pass from a cold body to a hot one. Rovelli writes: ‘This is the only basic law of physics that distinguishes the past from the future‘. None of the others do so’ Not Newton, Maxwell, Einstein, Heisenberg, Dirac, Schrodinger or elementary particle scientists. But dpb: is this indeed the only asymmetry known to physics? Or the only time related one?

The link between time and heat is fundamental: ‘In every sequence of events that becomes absurd if projected backwards, there is something that is heating up‘ (p 23). This means it is the only irreversible one, all the others are reversible. dpb: Is it inconceivable that irreversible change occurs without something heating up? Chaos theory teaches that deterministic systems can produce irreversible randomness. If such a system reverses its behavior at some point it is likely to deviate from its trajectory back to where the observation started in unpredictable ways, and hence to be irreversible (disorder from order). Another source of irreversibility is complexity, especially life, because what higher level of organization emerges will resist reversal to a previous, less organized state (order from disorder). Take e.g an autopoietic system seeking to maintain its operational closure and its present organization (configuration). It will last longer than expected (Schrodinger).

Clausius formulated the 2nd law, namely dS=>0, implying that heat never passes from cold to hot bodies. But e.g. Popper (1965) argues that heat gets passed from colder to warmer bodies all the time and that entropy is not homogeneous over different locations and is a stochastic parameter. Boltzmann: entropy production is growing disorder into less particular less special situations. dpb: to what is the (decreasing) order attributed when entropy increases? Or in other words: what are these situations and what are their changes? For example: the emergence of an organism increases order of the system in focus but also increases entropy. The point is that entropy by definition defines and scopes the system, because it is a statistical notion extending the system until the energy balance is nil.

Take sunlight for example, a source of low entropic energy, cast on a stone. The atoms that compose the stone are agitated by the high-grade energy of the sunlight. Caused by the agitation the atoms heat up and the temperature of the entire stone rises. The amount of energy carried by the stone increases with what was carried by the sunlight. However, that energy dissipates and becomes less special, aka less capable of work: entropy is produced. At night, when the air cools, the heat carried by the stone (or rather by its agitated atoms) is transferred to the atoms of the air surrounding it. They become agitated and the energy of the atoms in the stone is transferred to the atoms in the air. Entropy is produced and the energy carried in the agitated air atoms is capable of still less work, becoming even less special. From an entropic perspective the system includes the stone, the sun and the air molecules.

dpb: Take the example when the atoms composing a cat are agitated when sunlight is cast on the cat. The cat is a self-referencing (autopoietic) system which is organized such that its body temperature is kept in bounds such that it keeps functioning. The temperature of the entire cat rises, until the cat reacts by taking physiological measures to cool its body sweating through its soles. The molecules in the surrounding soil and air are agitated, heating it. Entropy is produced and the same amount of energy as initially input by the sunlight into the atoms of the cat is capable of ever less work, entering a less special state. The system is constituted of the cat, the sun, the soil and the air molecules. The level of organization increased by the participation of the cat, but the entropy production is roughly the same.

dpb: The state of a system becomes less special when entropy is produced: the system becomes less ordered, aka less organized, and the ignorance of the observer regarding the likelihood of future states increases. The stone and the cat are defined by us as we observe the processes and their relations taking place within their physical boundaries. But they are determined by their organization as a stone and a cat respectively.

dpb: Thus, entropy is produced regardless of the level of organization of the discussed systems. While they produce entropy their organizations don’t change: the organization of the stone and the cat remain the same. What does it mean to say that the level of organization decreases when entropy is produced but the organization of the stone and the cat remain the same? The incoming sun(light) and the atoms composing the air are external to the systems in our focus, but not regarding the production of entropy.

However, the amount of uncertainty regarding the future states – in phase space – of these systems increases. This explains the production of entropy in an existing system. If an organism emerges – appears for the first time – the order of what are (post-hoc) its components increases into their organization as the observed system, but the entropy increases nonetheless. The appearance of organisms does not reverse entropy production!

Increasing (dis)order is on account of the observer. When entropy is maximum all the possible next states are equally special, it is observed, and when minimum, say say a crystal at 0 K, the next state is the same as the current one. The notion of particularity only comes to be if we see things in a blurred and approximate way. dpb: the states become less particular from the perspective of someone taking a blurred view. Does blurred mean that e.g. a person cannot distinguish atoms and the relations between them, or the different kinds of fields such as energy and material? Can there also be a relation between blurring and emergence, because observing an emerged system we are incapable to reduce its behavior at the larger scale to that of its components at the smaller scale? And if so, is this knowable, or in other words: can an observer keep the behavior of the components of any system in focus until the point where they become part of the unity they have emerged into? And is the observer in this case aware of the emerged unity? And if so then is the observer one observer or has he become two observers?

According to Rovelli, blurring means that we are incapable of seeing the microscopic level where there is no difference between past and present, and between cause and effect. An observer is required for that! There is a loss of direction, because there is no intrinsic difference between past and future on the smallest scales.

Time passes more slowly for what moves. dpb: I understand this effect in the same way as (potential) time slows down closer to a mass. The dimensions of the squares (graining) of the grid onto which time is canvassed become smaller on the topology closer to a mass and at high relative speed.

There is no single or absolute time and every point in space has a proper time. ‘Now’ is meaningless, because there is no present anywhere that corresponds to any other. The question of a present in/of the universe is therefore improper. The temporal structure of the universe can be said to be made of partially ordered cones. Each approximate generation roughly followed by another. The structure of space-time is not stratified but scattered, and without common direction (wobbly). There is no universal present.

According to Aristotle time is the measure of change, including thinking of change. dpb: this implies that change is a series of events at which configurations transpose to other configurations, whereby whereby these configurations generate corresponding behavior, and events are observations of these transpositions. According to Newton even if nothing happens, time (of some kind) still passes. Leibniz defends the former idea that time results from counting of events, but the latter has caught on and is the more widely accepted. Until the end of the 19th century every place had its proper time, only later local time was replaced with global time schedules. This interpretation is closer to the notion of relativity of time than the wide spread absolute Newtonian interpretation.

dpb: events are grained or quanted into (or: on) the space-time grid of potential space and time, whereby they occupy space and time. When closer to a mass or moving, the time grid particular to it is finer grained and the thing is therefore observed to move slower. In this view there is no empty space or time, aka space and time only come to be when occupied.

Aristotle maintains that the position of a thing in space and time is identified by what surrounds it. There is no ‘empty’ space or time. dpb: this connects with the idea of a rhizome spanning up its own dimensions plus the ones required to describe it by the observer, but not its behavior at the ‘emerged’ scale (Deleuze and Guattari 1987).

What does it mean when space and time can be void i.e nothing is there as Newton suggests? Not even electromagnetic fields or other things imperceptible to people. Einstein suggest that time and space are like canvasses on which reality (substances) comes to exist as fields. Gravity, one of these fields, through mass determines the topology of space-time a gravitational field. dpb: Time and space are not absolute but relative, suggesting they interpenetratingly depend on neighboring elements. Does it mean that space and time are potential until something occupies them? Do they substantiate from a potential (virtual) to the real under the conditions of the actual, or in other words that they become?

Moving on to consider quantum properties of space and of time, then in addition to situationalized, individualized, localized and independent as previously described, time is also distributed. This leads to the aspects of granularity, indeterminacy, and relativity which further break down our understanding of time. dpb: the entropic direction of time seems problematic, because time would take the direction of every whole system ‘scoped’ by the entropy production, covering many different loci in space time. But every point in space time has develops its particular space and time.

Quantum effects occur at Planck time scales of 10E-44. On smaller scales there is no time (it is meaningless). Also time assumes only special discrete values: most times do not exist. Hence time is not continuous but granular, leapfrogging from one instance to another separated by intermittencies at the Planck scale.

Time is indeterminate: it is not absolute but in a superposition, its present state is unknown. Something may take place before and after something else does. What takes place is resolved at an event of interaction aka observation. The only point where it becomes concrete is in the relation with the ones it interacts with (or is observed by), instead of uniformly for the rest of the universe. In this view, the world is made up of events taking place in a disorderly way, not things. Events are short-lived and processual, and things persist and are object-like.

The notion of the event as the basic unity of reality fits well with how we experience the world, because it is spatially and temporally delimited. Objects in this view are long events. dpb: Can we say that objects are series of events that are long compared to the duration of human life, and perhaps to other things? In this sense time equals happening.

Thus, the idea of presentism, meaning that reality moves from one present to the next, no longer works. The world is not a single linear succession of presents. The opposite idea of eternalism (block universe), that past, present and future are equally real means that change is an illusion realistically can’t be true. The point is that the present develops in a disorderly distributed and indeterminate way. But our grammar isn’t suitable: ‘In the world there is change, there is a temporal structure of relations between events that is anything but illusory’ (p 100).

We do not need the time variable to describe the world, but the variables that describe it, and how they change relative to each other. If a number of these relations are established then we might say when an event takes place: ‘.. what the relations are between these variables’ (p 103). dpb: or in other words these are differences (relations) between two series of differences (variables), aka assemblages. The differences should have the adjective comparable to indicate the potential of correlations between correlations.

Fields become manifest in granular form. The grains are not immersed in space but they form it, the structure of space is granular. Spatiality is the web of interactions between these grains. They exist only during those interactions. The latter are the happening of the world, the development of reality.

‘Time emerges from a world without time, ..’ (p 117). dpb: will this be the link to blurring and approximation Rovelli mentions early on in the text as the insight of Boltzmann?

The conventional view is that time determines energy determines the macro state. An opposing view is that the macro state determines energy determines time, whereby the macro state equals the blurred view of systems and their behavior. Or in other words: time becomes determined because / as an effect of the blurring, namely the incompleteness of the description of the corresponding micro-states. dpb: Rovelli refers to this notion as thermal time, because it corresponds to the probabilistic notion of entropy at the macro scale. In processual terms the macro-state can mean the actual, namely the organization of a system restricting the behavior of its constituent elements (components). Possible names for time caused by blurring cased not by heat: emergence time, organization / order time, identity time?

Measurement of speed and position of a particle are non-commutative. The order of the interactions (measuring) matter causing a primitive form of time to develop. Time developing in changing macro states (thermal, others?) and time developing in changing quantum states (quantum) are very similar. Rovelli suggests that this is the time we know, whereby quantum indeterminacy and the large quantities of particles cause the blurring. Time is ignorance. dpb: Emergence takes place in physical systems at various scales and I hoped that Rovelli would express a stronger link to emergence &c.

dpb: so, again: what is blurring? We, and every physical system, interact with a limited number of other systems. We interact with them through only a limited number of variables (aka correlations, assemblages). The configurations we do not notice seem to be equivalent to us. Thus our – and other physical systems’ – vision of the world is blurred.

Thus, blurring is the pivot of the theory of Boltzmann: entropy is the number of configurations of a system we are not aware of. This can of course vary per observed system as well as per observing system, because what is not visible for one can be visible for another. Blurring is not only mental, because interactions with the micro-systems exist. Entropy is relative to the observer aka the one interacting with the system in hand, like speed a property of the object relative to others.

The entropy of the world depends on its configuration as well as on our (in general physical systems’) blurring of them. This depends on which variables of the world – our part of the world – we interact with.

Thus, the seemingly low entropy in the far past may be a result of the limited set of variables we interacted with and our blurring of them. Our interactions are limited to a small number of macroscopic variables. The microscopic configurations are blurred. Since we are responsible for that, with the supposed low entropy as a result. In this view the arrow of time is not universal but it depends on the physical system doing the viewing, us in this case, from our ‘special corner’ of the universe.

Indexicality refers to words which assume a different meaning depending on their use. dpb: like a variable? Indexing makes the perspective of its use explicit. It is not possible to say anything from outside the world. Existence takes place from within (so as the map is useful if we know our position versus it). Thus, time is not external to us (or any physical system) but we are situated within it, seeing time from the inside.

Any energy goes to thermal energy. Low entropy goes to high: production. Without entropy there is no past and no future. Entropy production is increasing disorder. But evolution of organisms increases order by way of organization while entropy is still produced. dpb: Again: What is the subject of entropy? The relevant one is the change of order in phase space (not real space). Even though there are temporary pockets of order in the grand scheme (e.g of evolution), the very grand scheme is of increasing disorder.

The past leaves traces in the future. CR suggests that this is because of low entropy into the past, because there is nothing else to separate the past from the future. dpb: blind spot. Common causes in the past of current phenomena point at low entropy in the past, because of the increasing improbability of their occurring together? ‘In a state of thermal equilibrium, or in a purely mechanical system, there isn’t a direction to time identified by causality‘ (p 146). dpb: but it isn’t just causality but irreversibility.

Time is related to us. What are we? We are not individual entities, but relational identities. What produces this:1) point of view 2) in connection with the working of our brain, we categorize vis-a-vis other humans (the reflection of us we get back from our kind) 3) memory links our histories through narratives.

The mind can see traces of the past left in the brain. But threading them as an interpretation of the flow of time is an internal process of the mind. It is integral to the mind. The mind constitutes (a representation of) time through the retention of traces on the brain of past events (Husserl).

‘Time opens up our limited access to the world. Time, then, is the form in which we beings whose brains are made up essentially of memory and foresight interact with the world: it is the source of our identity‘ (p 164).

Annotations re An Evolutionary Theory of Economic Change

Nelson, R.R. . Winter, S.G . An Evolutionary Theory of Economic Change . The Belknap Press of Harvard University Press . Cambridge, Mass . 1982 . ISBN 0-674-27228-5

Preface: creative intelligence, technological or other, is autonomous and develops erratically. Its future cannot be known. The terms economic change and economic development are presupposed: what is their meaning? Later on: the unfolding of economic events over time.

Backdrop: doubts about disparities in economic development, long-term ecological viability, and the relation between economic success and fundamental human values, and the stresses related to each.

Introduction

First premise: economic change is relevant and interesting. Second premise: existing economic theory must be reconstructed.

Firms are assumed to be profit oriented (searching for ways to improve it), but not profit maximizers over choice sets. Also this theory does not focus on an industry equilibrium where the non-profitable are driven out until the profitable ones are at their desired size. Firms are not modeled using maximization calculus but as sets of capabilities and decision rules. These change over time as a result of deliberate problem solving as well as because of random events. The market, through a economic equivalent of natural selection, ferrets out the worst performers.

The section Introduction summarizes some complaints with regards to the general equilibrium theory in economics, including rational agents, information, competition, transaction costs, increasing returns &c. It is concluded that these critiques are confirmed by many economists, the authors feel they are members of a crowd.

The authors complain that there is an orthodoxy not just concerning the commitment to values and norms of scientific inquiry but also concerning commonalities in intellectual perspective and scientific approach, and even that there is a narrow set of criteria that serves as an acid test to establish if an expressed point of view is worthy of respect. They concede however, that it is temporary and ever-changing. The authors illustrate: ‘We should note, first of all, that the orthodoxy referred to represents a modern formalization and interpretation of the broader tradition of Western economic thought whose line of intellectual descent can be traced from Smith and Ricardo through Mill, Marshall, and Walras. Further, it is a theoretical orthodoxy, concerned directly with the methods of economic analysis and only indirectly with any specific questions of substance. It is centered in micro-economics although it is pervasive in the discipline’ [Nelson and Winter p 6].

The orthodox views and approaches have their own self-preserving connotative properties: ‘(concerning standard undergraduate textbooks prefiguring the advanced texts) The best of the texts are notably insistent on the scientific value of abstract concepts and formal theorizing, and offer few apologies for the strong simplifications and stark abstractions they employ. Neither do they devote much space to caveats concerning the theory’s predictive reliability in various circumstances. .. Many of the strong simplifying assumptions commonly employed – perfect information, two commodities, static equilibrium, and so on, are emphasized in such texts for reasons having to do with the perceived limitations of the students, and not because the discipline has nothing better to offer‘ [p 7]. And more specifically a drawback of the focus on equilibrium dynamics (and even more when statics DPB) is:’.. , but it is no caricature to remark that that continued reliance on equilibrium analysis, even in its more flexible forms, still leaves the discipline largely blind to phenomena associated with historical change‘ [p 8]. And with regards to the approach to assumed rationality of economic agents in intermediate and advanced textbooks: ‘As theoretical representations of the problems faced by economic actors increase in realistic complexity and recognition of uncertainty regarding values of variables, there is a matching increase in the feats of anticipation and calculation and in the clarity of the stakes imputed to those actors‘ [p8]

Malthus has made the connection between economics and biology, firstly natural selection: ‘Market environments provide a definition of success for business firms, and that definition is closely related to their ability to survive and to grow. Patterns of differential survival and growth in a population of firms can produce change in economic aggregates characterizing that population, even if the corresponding characteristics of individual firms are constant. Supporting our analytical analysis on this sort of evolution by natural selection is a view of ‘organizational genetics’ – the processes by which traits of organizations, including those traits underlying the ability to produce output and make profits, are transmitted through time‘ [p 9]. This hints at a kind of cultural evolution: all kinds of traits of firms are evolved, including those enabling it to make profits &c.

With regards to the teleological trap: ‘It is neither difficult nor implausible to develop models of firm behavior that interweave ‘blind’ and ‘deliberate’ processes. Indeed, in human problem solving itself, both elements are involved and difficult to disentangle‘ [p 11].

Evolutionary Models

The Structure of Orthodox Models

Common denominators of ‘orthodox theory’ are A) a maximization model: 1) something gets maximized 2) there is a set of things that the firm knows how to do 3) the firm’s action is the result of an actionable choice (given constraints and conditions). It attempts to explain the rules of the firm in this way. B) Equilibrium calculus leads to explanations of the choices hence behavior of firms in specific circumstances. The equilibrium provides another equation to the set in order to determine the value of some variable. The suspicion is that this approach is not aimed at the explanation of economic principles and dynamics but at the wish for results from the calculus. The choice and use of mathematical tools have influenced the thinking about economics.

The Structure of Evolutionary Models

‘And we see ‘decision rules’ as very close conceptual relatives of ‘production techniques’, whereas orthodoxy sees these things as very different. Our general terms for all regular and predictable behavioral patterns is ‘routine’. .. In our evolutionary theory, these routines play the role that genes play in biological evolutionary theory‘ [p 14]. Some important features are: persistency, determining the behavior of the firm, heritable, and selectable. I agree with this statement because it is very similar to the Rodin Testament, roughly: once an idea exists, it can be considered done. An idea can be anything. Not everything in business can be described with routines as many things are not routinely. This is accommodated by the idea that some decision rules as well as their outcomes are characterized by stochastic rules. I am not so happy with that expression, because I am always hoping for an explicit model without the use of probabilities. The authors explain that stochastic terms are required to cover for what is not predictable; had they been predictable then they would have been an element of the set of routines.

‘Although the routines that govern behavior at any particular time are, at that time, given data, the characteristics of prevailing routines may be understood by reference to the evolutionary process that has molded them. For the purposes of analyzing that process, we find it convenient to distinguish among three classes of routines‘ [p 16]: 1) activities that cannot be changed at a short notice because of its stock of capital 2) period-by-period augmentation or diminution of the firm’s capital stock 3) firms possess routines which operate to modify aspects of their operating characteristics. Why do we need this classification into three kinds of routines?

‘These routine-guided, routine-changing processes are modeled as ‘searches’ in the following sense. There will be a a characterization of a population of routine modifications or new routines that can be found by search‘ [p 18]. This is the thought that a population of ideas pre-exists; once they are searched and uttered then they can be actioned. How they search is described as: ‘A firm’s search policy will be characterized as determining the possibility the probability distribution of what will be found through search, as a function of a number of variables – for example, a firm’s R&D spending, which in turn may be a function of its size. Firms will be regarded as having certain criteria by which to evaluate proposed changes in routines: in virtually all our models the criterion will be anticipated profit. .. Our concept of search obviously is the counterpart of that of mutation in biological evolutionary theory‘ [p 18]. This requires the assumption that people are capable of anticipating a profit; that they are capable of interpreting the effects of their anticipations on their actions. It is also left implicit why people do that fundamentally: they look for alternative routines to make more profit but why would they essentially do that?

The models in this book are of industries: situations where similar firms interact in a market context characterized by demand and supply curves. To keep clear of short term dynamics (single price on a market in a single period) a temporary equilibrium is assumed. No long-run equilibrium is assumed. The firms have a current operating characteristic, and exist in exogenously determined demand and supply conditions. This configuration determines the profitability. Profitability operates through firm investment rules as a determinant of expansion and contraction off the size of the firm. Through search and selection do firm evolve over time, every state the basis of the next. Operating characteristics of the firm change because of the searches of thát firm. But this is a stochastic process: at every state (not one but) a distribution of possible next states is generated. This method is easily translated to Markov chains. However, the processes in Markov chains are not very by themselves close to economic models.

The Need for an Evolutionary Theory

1 The awkward treatment of economic change by orthodox theory

Economic analysis deals with change. Its adequacy should be measured against its ability to shed light on change in a firm or an industry as a result of exogenous change and its adequacy to clarify innovation. It does not or in an ad-hoc way. Firm and industry behavior after an external shock is not derivable from profit maximizing and equilibrium formalisms of orthodox theory. ‘The most intellectually exciting question on our subject remains. Is it true that the pursuit of private interests produces not chaos but coherence and if so, how is it done?‘ [ Hahn 1970, pp. 11-12 on p 26].

Little progress was made (at he time) to theorize economic change because of the impediments of maximization and equilibrium. Note that those are two obstacles posed here, but others are: perfect markets and rational agents. And the same goes for innovation. In other words: orthodoxy operates better when change is absent. There has not been recognition of the central role and the autonomous character of technological development.

In the last half of the 20th century the central thought was that firms are profit maximizers and the economy (industries) are in a (moving) equilibrium. Technical advance comes from profit oriented investment of firms. By the standard of thee orthodox models profit is now a disequilibrium phenomena, because profits stem from an advantage a firm has over the competition afforded by innovation. In addition innovation is hard to predict: different competitors make different bets and only ex-post is it clear who was wrong and who was right. Profit maximization and static equilibrium does not explain economic growth. This originates in the adherence to orthodox tradition: it had to turn to abstractions and move away from key features of capitalist dynamic such as uncertainty, transience of gains and losses and unpredictabilities of technological advance.

In this vein it is extremely difficult to develop a model for Schumpeterian competition out of the components of maximization and equilibrium. This development risks getting stuck in verbal theorizing instead of formalization. This gap between orthodoxy and Schumpeterian insights had (at the time) not been bridged: business processes of change and innovation were to be over-simplified and the diversity of firm characteristics and hence of their interactions with the industry were obscured.

Diagnosis an Prescription

Main differences and agreements with orthodoxy:

1) Agreement: agents (esp. firms) have objectives, usually profit; profit is the main criterion for their choices. Difference: the choice is perfect and absolute and long term versus the choice is imperfect and as per the status quo at the time. ‘… Carrying out a new plan and acting according to a customary one are things as different as making a road and walking along it‘[ Schumpeter 1934 pp. 79, 85 in p. 31-2]. Change present problems that automaton maximizers are ill-equipped to solve and theories incorporating automaton maximizers are ill-equipped to analyze [paraphrased p 32].

2) Agreement: competition drives decision making in firms in their industries and so it is worthwhile to look for a state where the forces of competition would be in equilibrium and would no longer produce change. Difference: orthodoxy goes much further to introduce equilibrium at an early stage and narrowing down the possible states of the firm: ‘Such models do not explicate the competitive struggle itself, but only the structure of relations among the efficient survivors. .. This theoretical neglect of competitive process constitutes a sort of logical incompleteness, … It is only in equilibrium that the model of optimizing behavior by many individual actors really works. Disequilibrium behavior is not fully specified (unless it is by ad-hoc assumptions. But this means that there is no well-defined dynamic process of which the ‘equilibrium’ is a stationary point: consistency relations, and not zero rates of change, define equilibrium ‘ [p 32]. This is an important sub-conclusion: the design of the theory and the models are static in nature. Static situations are the norm, equilibrium is not a special case (zero change) of a system usually in disequilibrium, but it is the norm and disequilibrium can only be treated as a special case. The models do not explain how equilibrium comes about from disequilibrium, because they can only describe equilibrium situations as per their structure. 3) In conclusion the formalizations based on orthodoxy cannot deliver: ‘Increasingly, orthodoxy builds a rococo palace logical palace on loose empirical sand‘ [p 33].

Allies and Antecedents of Evolutionary Theory

Managerialist thinking diagnosis the problem of orthodox theory as a failure to represent correctly the motives that directly operate on business decisions. These insights are useful for insights into managerial behavior and performance, but they do not explain the problems with orthodoxy as described earlier above.

Behavioralists (Herbert Simon) adress some or all of these issues: bounded rationality because people cannot have complete information and they do not have computational power in some situation to maximize over all possible alternative utilities. Calculations are therefore global and situational, maximization is not absolute. Firms satisfice: their objectives function is limited because they don’t have the complete overview of their utility trade-offs and because they they are coalitions of decision makers associated with the firm. Disagreement with the behavioralists in the search of the authors for an explicit model of industries, instead of the behavior of individual firms. Evolutionary models are simpler but explain the industry compared to behavoralist’s.

Analysts of Firm Organization and Strategy

‘Such strategies differ from firm to firm, in part because of different interpretations of economic opportunities and constraints and in part because different firms are good at different things. In turn, the capabilities of a firm are embedded in its organizational structure, which is better adapted to certain strategies than to others. Thus, strategies at any time are constrained by organization‘ [p 37]. Assuming that organization is self-organization in an autopoietic sense then it is autonomous. Firm capabilities and strategy must logically flow from it. Strategy must logically be a narrative after the fact explaining the way that the business is conducted.

In the evolutionary models higher order decision rules can serve as strategies. Change in strategy or policy can be treated in the same way as change in technique. Connections exist between the firm’s strategy and its appropriate (or is it the other way around: the appropriate strategy to go with the organizational structure?) organizational structure and between the technique it commands and its organizational structure.

Views of the Activist Firm

‘.. to view large firms and relatively concentrated market structures as the typical cases in the ‘interesting’ part of the economy, if not in the economy as a whole. These perspectives converge in an assessment of the larger corporation as a critical feature of the institutional dynamics of modern capitalism, as a relatively autonomous chooser of society’s means and some extent of its effective ends, and as the stimulus for the development of new social institutions for its control and accommodation‘ [p 39]

Schumpeter

This theory is evolutionary in order to be able to be Schumpeterian.

Frank Knight and the Modern Austrians

‘Schumpeter stressed innovation as a deviation from routine behavior, and argued that innovation continually upsets equilibrium‘ [p 41]. Reality brings new opportunity to bear all the time and the economic problem is how to respond to it and make a profit. It is however, impossible to calculate the effects and only afterwards will become clear what was the right thing to do. This theory is a theory about market processes.

Evolutionary Theorists

The article of Alchian Uncertainty, Evolution and Economic Theory of 1950 is an antecedent of this theory: ‘.. this problem had been anticipated by Alchian who emphasized the ‘reproduction by imitating of rules of behavior‘ [ Alchian 1950 pp. 215-6 in p. 42]. Socio-biology is involved via E.O. Wilson 1975. Campbell 1969 argued for a focus on variation and cultural selection retention theory for sociocultural evolution. ‘Our own work may be viewed as a specialized branch of such as theory .. ‘ [p 43].

Classical, Marxian and Neoclassical Antecedents

This theory is consonant with the original ideas of the classical theory as per Smith and John Stuart Mill. Much of the economic theories of Marx are evolutionary and also in other aspects compatible with this theory: capitalist organization of production defines a dynamic evolutionary system and the distribution of firm sizes and profits must be understood in evolutionary terms. But this theory makes no distinction between profits and wages and also do politics not play a role. Lastly the ideas of contradictions and of class have no place in this theory.

Economics comprises two different styles of theorizing: formal and appreciative. In a broad theoretical framework phenomena are observed in a particular framework of appreciation. A theory defines economic variables and their relations and provides a language and a mode of acceptable explanation. Implicitly a theory distinguishes and ranks the elements considered more and less important, complete and sophisticated, respectively. Formal theory is an important source of ideas for invoked in appreciative theory and sharpens its tools. Experimental data that are not accounted for by existing theory are grist for extensions and amendments to them. Appreciative theorizing in a sense follows formal theorizing, because the odds are larger that it is more fruitful where the other is and in that sense the dependency is a constraint.

Heterodox tradition has not made it into mainstream economics because of vested intellectual interests and parochialism [Galbraith . The New Industrial State . 1967]. Conversely the existing theories are flexible and accommodating. However not everything is deemed important or interesting to cater for it; that obviously is a risk for theory development because orthodoxy decides what should be interesting and what not. It occurs that theories are not found interesting the real reason being that the new ideas could only be married to the existing theories implementing large adjustments.

The Foundations of Contemporary Orthodoxy

Systematic understanding of the activities inside firms is not a high ranking subject of interest of economists, but rather industries and national economies &c. The firm is treated as a functional element in the analysis at hand; it is a black box the input and output are gauged at the convenience of the observer. Firms in real life do not do these actions, respond to price changes, or manage productive input combinations or manage financing in isolation, but all of them in parallel. The emphasis in this book is similar, namely on the aggregate (industry, nation), not the individual firm. Different subjects have to be addressed separately in a laboratory firm because it is not logically feasible to observe them simultaneously. The authors keep in mind the events within the firm, having in mind the development of a model for the larger systems.

Orthodox theory treats ‘knowing how to do’ and ‘knowing how to choose’ as different things, namely the ability to choose from a clear set of options and the ability to choose optimally respectively. In this theory they are treated as very similar things: the range of things a firm can do is somewhat uncertain as is the capabilities to choose in a given situation. The parameters are, in that order: objectives > howto > optimal choice >< internal and external conditions. In what sense can business firms have objectives?

1 The Objectives of Business Firms

In the simplest orthodox model the objective is profit or business value and the more the better. Two opposite considerations: the business firm with the number of individuals involved, the diversity of their roles and the complexity of their relations VERSUS individualist utilitarian philosophy underlying neoclassical theory and optimality theorems. ‘In this philosophical framework, economic organization in its entirety is appraised for its effectiveness in satisfying the wants of individuals. ‘A forteriori’, the business firm is viewed as in some sense an instrumentality of individuals, rather than an autonomous entity‘ [p 54]. If Miller’s Mill is the subject of observation than the relation between the interests of the owner and the ‘interests’ of the firm are clear, but this relation becomes strained if the subject is General Mill. I can’t really believe there is a distinction: Miller has many roles to play and some of those can become mixed. In the case of the owner (and the employee and the CEO &c.) of General these roles are specialized and less mixed. But in my view there is no fundamental difference between small firms and large ones.

Managerialists argue that not the – often passive – shareholder’s interests are relevant but the manager’s. The manager’s interest is operational and can be associated with size and growth. Another school defines a firm as a nexus of bargaining between parties to get to a coalition (Cyert & March). ‘Goals’ and ‘Objectives’ of the firm cannot impose a coherent structure on a firm’s actions. In their view the matter cannot be resolved, because that would involve more bargaining than possible in practical terms. Instead the firm remains in a state of quasi-resolution of conflict. Even if top management manages to negotiate a common ground then the interests can be different during the implementation and result in a new round of bargaining such that it is an important factor in the behavior of the firm: objectives such as profit and revenue are useless unless they are made specific as to how to achieve them for all involved (ie associated with the firm).

In reality, firms’ goals can be vague, because even if a main objective is established then the partial objectives may remain unclear, unaligned or not sufficiently specified for their users. If this is true for reality and firms show behavior then it can also be true for the firms of this theory. What is in fact required is a procedure to determine which action is to be taken.

2 Production Set and Organizational Capabilities

In 1 some examples were discussed concerning the motivational aspects of the theory of the firm. There is little theory concerning the capabilities of firms: formally what a firm can do is catered for through production sets: the set Y of production possible for the j-th producer is a production set [Debreu 1959 p34 in p 59]. What is the firms production set? ‘The production possibility is set is a description of the state of the firm’s knowledge about the possibilities of transforming commodities‘ [Arrow & Hahn 1971 p 53 in p 60]. But what is the nature of knowledge? In orthodoxy the connotation is with ‘a way of doing something’ or ’technology’ as in a book with blueprints, the knowledge of scientists and engineers. DPB: I reckon in general it is what people believe to be true and specifically it is what they believe to be true concerning their business environment. If it is related to science or engineering then chances are larger that it is in fact true and not only believed to be so. ‘Implicit in both metaphors (‘blueprinted knowledge and knowledge of engineers and scientists, DPB’, and in other discussions, is that technological knowledge is both articulable and articulated: you can look it up. At least, you could if you had the appropriate training‘ [p 60].