= scientific approach based on the network behavior of human beings, as related to economic and financial issues
Victor M. Yakovenko:
"The term “econophysics” was introduced by analogy with similar terms, such as astrophysics, geophysics, and biophysics, which describe applications of physics to different fields. Particularly important is the parallel with biophysics, which studies living creatures, which still obey the laws of physics. It should be emphasized that econophysics does not literally apply the laws of physics, such as Newton’s laws or quantum mechanics, to humans, but rather uses mathematical methods developed in statistical physics to study statistical properties of complex economic systems consisting of a large number of humans. So, it may be considered as a branch of applied theory of probabilities. However, statistical physics is distinctly different from mathematical statistics in its focus, methods, and results.
Originating from physics as a quantitative science, econophysics emphasizes quantitative analysis of large amounts of economic and financial data, which became increasingly available with the massive introduction of computers and the Internet. Econophysics distances itself from the verbose, narrative, and ideological style of political economy and is closer to econometrics in its focus. Studying mathematical models of a large number of interacting economic agents, econophysics has much common ground with the agent-based modeling and simulation. Correspondingly, it distances itself from the representative-agent approach of traditional economics, which, by definition, ignores statistical and heterogeneous aspects of the economy." (http://arxiv.org/PS_cache/arxiv/pdf/0709/0709.3662v4.pdf)
The importance of econophysics for Open Money design
"I’ve recently been introduced to the field of econophysics and I’ve read an interesting the review paper on the field. My thoughts on this paper is that it’s very good news for the community currency movement, if understood properly. For a long time when talking about cc, I’ve been using the little thought experiment of asking people to imaging the Buddha, Jesus and Mother Theresa sitting down to play monopoly and to see if the game will have a different outcome. The answer is obviously no, not if they play by the rules. It doesn’t matter how good or evil you are, the rules of monopoly simply require that all the cash end up in one player’s hands, i.e 100% inequity. The econophysics work on the Statistical Mechanics modeling of money takes this intuitive analogy and “proves” quite definitively the fundamental inequity of our current system if you assume that the rules of the game are that money behaves like energy. The good news for community currency arises out of the basic flaw of the paper which is it seems to imply that money is natural system, rather than a created one. If money were an inevitable natural system, then the paper could be seen as an justification of that structural inequity. But since it is a created one, rather it’s an explanation of the the inequity, and thus can point us very clearly in directions of how the monetary system should instead be re-designed."
"What are those directions? Well, we see in the paper the very careful arguments to show how money is conserved. This is crucial to the model because in the model money is energy, and statistical mechanics is built on the law of the conservation of energy. But more importantly their model is about statistical equilibrium of energy states in closed systems. So this gives us a clear indication of where to go: change the monetary paradigm to one where the fundamental model is based on non-equilibrium state energy systemics. Well, we know what non-equilibrium state energy systems are, they are living systems. In living systems what matters fundamentally is not how much energy is accumulated but rather, whether energy can be made to flow in particular complex patterns that themselves are self-sustaining. Even more crucially, life is not about what happens if energy is allowed to dissipate to equilibrium. The name for that process is death! So I think we could even argue that that the modeling they have done is of the death of an economy! Life is not about accumulation of the energy itself, but instead it is about the accumulation of the complex patterns of energy flows. The word for a such patterns is “ecosystem”. In their model money is seen as energy, or the capacity to do work. This actually makes sense for an early stage in the evolution of money. When the main issue is the scarcity of the capacity to get work done, then finding ways to accumulate it is key, and building an economic structure to generate that accumulation makes sense. We now live in a world where our capacity to do work is not at all scarce, it’s over abundant. The big problem is the waste human capacity (think of the structural unemployment) and also the squandering of all that massive capacity in ways that are blatantly destructive (military expenditures) or systemically destructive (climate change). So our task is now to re-gear the fundamental system to not simply accumulate of the capacity to do work, but mostly to accumulate particular patterns of that capacity that are what we call “healthy”. So, how do we do that!? I use a completely different model for money that I think fits the bill, namely that money is a form of language, or more precisely a writing system that encodes information about wealth events. This model transcends and includes the model of money as energy, because in its simplest form, the rules of the writing system can be made to follow the rules of conservation of energy. What I have been calling for and working on with open money (as well as collaborting with Art Brock on his OS-Earth platform) is a meta-currency system that is precisely about making it easy to create these many different writing system (currencies) and their rule-sets, or another way to put that, that precisely enables a the creation of pattern sets for economic flows." (http://eric.harris-braun.com/blog/2008/09/03/id-67)
From an Interview of Paul Cockshott on Econophysics and Socialism, conducted by Gavin Mendel-Gleason:
* You’ve done work recently in Econophysics, can you give a brief introduction to what that is and how it’s relevant to socialists?
I can see that it may seem a bit obscure, but you have to remember that Marx said he was out to discover the laws of motion of capitalism–a sentiment very influenced by physics. What is econophysics? Well in the main it covers any attempt to understand economic phenomena in terms of the conceptual apparatus that physics has developed for the study of systems with a high degree of freedom. As such it borrows heavily from ideas developed in statistical mechanics.
It has originated from two main sources. The mathematicians Farjoun and Machover who studied capitalism as a chaotic system and deduced the emergence of prices which would be proportional to labour values on statistical mechanics grounds. More recently there has been an influx of physics graduates into jobs in the financial sector where they have applied their own conceptual background to economic problems.
Since this latter work is paid for by their employers in the main, it tends to be rather focused on financial markets, but it has created an opening whereby people with a primarily mathematical or physics background have started looking at the economy without the prior ideological formation that they would have gotten from an economics degree. This creates studies that are much more empirical and less ideologically based than what economists tend to turn out.
Its relevance to socialists is that you can use these methods to analyse capitalism and understand why the labour theory of value holds, and why income distribution becomes so skewed.
* Can you briefly describe what you think are important results that we’ve found in this area?
To my mind the important results are:
- That the labour theory of value is basically accurate.
- That any market system has a pretty uneven distribution of income–this would apply even to a system of worker owned firms.
- That the existing system, however, contains an even more uneven distribution of income than would be expected just from the considerations above."