Book Review: David Simpson, The Rediscovery of Classical Economics
David Simpson, The Rediscovery of Classical Economics: Adaption, Complexity and Growth (Cheltenham, UK and Northampton, Mass.: Edward Elgar , 2013), 215
In Simpson’s view, twentieth-century equilibrium economics has distorted the main mission of the profession—to understand the processes of change and complexity in economic life. Contemporary economic theory, Simpson contends, models the economy as a system tending toward equilibrium, a model borrowed from classical (pre-relativity and pre-quantum) physics. Instead, Simpson shows, the economy is dynamic, complex, and never in equilibrium.
The heart of Simpson’s analysis is his engagement with complexity theory. Briefly put, complexity theory posits that the actions of multiple actors give rise to emergent, large-scale structures and processes. Complex systems have five major attributes. They are dynamic and nonlinear; individual agents within such systems learn adaptively over time; agents interact with each other explicitly and directly; macro patterns emerge from a multitude of micro interactions between many agents; and, complex systems evolve through processes of differentiation, selection, and amplification. Thus, in Simpson’s view, the economy has more in common with biological systems than classical physics.
While others, like Brian Arthur, view the economy in much the same way, Simpson makes two important and novel contributions. First, as his title suggests, complexity economics is not new. It was how 19th century economists (at least up to Marshall) thought the economy worked. And the insights of complexity economics bear a striking resemblance to some of the work of the Austrian school. Second, Simpson argues for a renewed embrace of history and context over mathematical formalism. Simpson takes as a telling example the 2008 financial crisis and subsequent near-depression that occurred, despite that most equilibrium economists thought that panics and depressions were things of the past, having been mastered by Keynesianism and the Efficient Market Hypothesis in turn.
This book distills Simpson’s career in economics spanning nearly 40 years. Simpson has served in academia, industry, and government, giving him a unique and broad perspective on the theory and practice of economics. It is perceptive, thought-provoking, and engagingly written. It will be a welcome addition to the libraries of anyone interested in the history of economic thought as well as the roots of our current economic crisis.