This edition follows on from the previous month, where economic thought was traced to its current pursuit of abstraction and mathematics. The attraction of the latter can be found in its ability to give formal expression to objects of thought and forces not visible to the physical senses. However, such things as prices, values, and motivations can be modelled not just algebraically but also pictorially and metaphorically such that they can evolve as the situation they describe develops.
The theme we have devised is ‘imaginary numbers’, meaning not just the mathematical concept1 but to contrast its actual usefulness with ‘real numbers’ which by reflection can also include an element of fancy. This is to suggest that there is not any absolute opposition between imagination and numbers, and that we need to be very clear what role we ascribe to numbers in economics and what expectations we can realistically have of them. We must be careful not to let the inner consistency of mathematics, for example, race ahead of or occlude the ‘clunkier’ nature of real life.
The articles chosen take their cue from Sign of the Time which features a paper on the role of imagination when used by entrepreneurs and how research into this can aid in the re-orientation of economic theory. The author, Saras D. Sarasvathy (Isidore Horween Research Associate Professor of Business Administration at the Darden School of Business, University of Virginia) calls for a focus upon the real motivations of those driving economic change and a more pluralistic focus on their success or failure.
In the Archive, Rudolf Steiner outlines the descriptive method as applied to economics. The use of statistics is also covered, placing it within a restricted context of substantiating economic theory rather than determining it.
The first Feature reproduces a discussion of his book. The Romantic Economist, by Richard Bronk, (Visiting Fellow of European Political Economy, London School of Economics). Emphasis is placed on the role of imagination within economics and how the Romantic Movement could aid in re-enlivening the fixed models and assumptions of mainstream economic theory.
The second Feature also includes a discussion of a book by its author. The Blank Swan by Elie Ayache, who graduated from Ecole Polytechnique in 1987, traded options in open outcry markets until 1995, and co-founded ITO 33, a derivative pricing technology firm in 1998, takes as its starting point the critique of the financial crises by Nassim Nicholas Taleb in his popular book, The Black Swan. The thoughts behind the role of probability and risk are rigorously pursued to their ends, which are proposed to undermine themselves, and applied to the use of models to aid the pricing of derivatives. Although Ayache’s conclusion ends with the market of written derivatives one can question whether this stops short and perhaps one could see the market as the site of interaction between individual economic actors, with price indicating the point where two personal world views obtain momentary congruence. In this situation imagination, in the context of the motivations and assumptions of the individuals involved, can get a foot in the door.
The AE-exchange page includes a post to the Gang8 mailing list, which is devoted to Creditary Economics, by Gunnar Tómasson (a financial consultant and former senior staff member (1966–1989) of the International Monetary Fund). In this the role of imagination and intuition in both science and economics is reviewed with the page being completed by a post on descriptive methodology by Daniel Osmer.
Finally Victor’s View looks at modern economists’ propensity towards, even dependency upon, mathematics in their pursuit of abstraction.
(1) So how can we square a number and get a negative result? Because we “imagine” that we can … and it turns out that such a number, which may seem impossible, is actually useful and can solve real problems.