ModEco - Inspiration - But First, A Little History

ModEco was developed in support of a high school program of independent studies in complex adaptive systems offered to exceptionally gifted students.  In previous years we had looked at gravitational systems, weather systems, and evolutionary systems, and ultimately, before that program closed, we started this project to look at economic systems.  The goal at first (2010-2011) was to design a sustainable economy.  That was a challenge.  The motto was "keep it simple".  We achieved what we called the "Perpetual Motion Machine" (PMM) economy in which all commercial transactions conserved the net worth of all participating agents.  There was no "friction" or "leakage of value" to cause the system to run down.  Our goal in the second year of study (2011-2012) was to (a) enable price negotiations and profit generation, and (b) to design negative feedback mechanisms that maintain sustainability in this less constrained circumstance.  Unfortunately, we failed in this goal.  Sustainability in these 'most simple' complete economic systems appears to be a difficult goal to achieve when profit is allowed.  Regrettably, the program with the student participation is now closed, and I labor on by myself.  :-(


In January of 2012 we (I and my students) discovered that the distribution of wealth in our model economies is similar to the distribution of energy among atoms in an idealized gas.  This lead us to the discovery of Econophysics.  Researching Econophysics, we then discovered Behavioural Economics, Environmental Economics and Ecological Economics.  These are all heterodox (as opposed to orthodox) branches of economic theory that are trying to put a scientific basis under economic theory.  This lead me to attend a "Degrowth" conference in Montreal in June, 2012, with my niece, where I heard men of the stature of William Rees, Charles Hall, and David Suzuki, and I discovered there is yet another science-based heterodox branch of economics going through birth pangs, a branch called Biophysical Economics.  I attended the 4th and 5th Biophyscial Economics conferences in Vermont in October of 2012 and June of 2013.  At these conferences I came to realize that ModEco-based economies are essentially biophysical/economic models, in my mind, at least, and that ModEco seems to stand alone as a unique economic model.


I still have not solved the "negative feedback" issue mentioned above (as of spring 2014).  I have undertaken to add a "linear engine" to ModEco to bring it more into line with Biophysical Economics fundamentals.  This is a small step towards realism.  I am also exploring the role of entropy production in agent-based models as an outgrowth of the ModEco project.  To that end, I am developing EiLab, a laboratory for the study of entropy production.  So, this project proceeds with three parallel lines of investigation.


ModEco and EiLab are WORKS IN PROGRESS.  At the time of writing this historical synopsis, the only sustainable economy which ModEco can demonstrate is one in which all prices are fixed at an intrinsic value determined by metabolic needs (i.e. the time and energy spent by the worker who produced the goods).  It can, of course, demonstrate a variety of non-sustainable economies.  It is my intent to make further modifications, over time, which will produce a sustainable economy in which stochastic price setting and profit taking play a role, and which will be consistent with the physical laws governing the ecosystem in which it is embedded.  But, since February of 2013 my focus has been in trying to understand the driving forces behind a ModEco economy, the forces that cause it to move through its state space away from unstable equilibria (e.g. the PMM sits on one such unstable equilibrium point) and towards stable equilibria.  My STRONG hunch is that the driving force is entropy production.  And so, my attention since then has been on the development of EiLab, and the study of its output.

Inspiration

I confess that I am relatively unschooled in the nuances of economic theory.  Now a retired federal bureaucrat and a retired high school teacher (my wife says I am a failure at retirement), I have time to try to understand ideas that have troubled me in the past, but which I did not have time to consider more deeply.  In the spring of 2010 I chanced upon a  book by Paul Hawken called "The Ecology of Commerce: A Declaration of Sustainability", (Collins Business, 1993), and I found that book to be both refreshing and also very thought-provoking.  


It reminded me of a number of questions that had been in the back of my mind for many years, as follows:

1.     Why does classical economic theory assume that the economy is continually at equilibrium, when it is clear that it is perpetually far from equilibrium?  I say this because it appears to me that an economy is a turbulent system in which new companies and technologies are bursting on the scene and sweeping across the landscape.  Continual innovation and/or continual growth will force the economy to be in constant disequilibrium.   Doesn't this false assumption about equilibrium mean that the basis of all modern economic theory is suspect, at best?  


2.     Why do economists insist that perpetual growth is both necessary and possible, when any knowledge of ecology would tell you that carrying capacity inevitably rules all natural systems, and that unbridled growth inevitably precedes collapse?  Isn't an economy a "natural system", in which rules regarding the conservation of energy and mass play a significant role?  Why does economic theory not talk of energy sources, flows and sinks.  Why does it not consider the issues around the necessities of life for which the value cannot be measured in dollars?  What about the laws of conservation of mass and energy, or production of entropy?  Such laws are fundamental to all existence, yet have no apparent role in economic theory, other than in the business plans of the industries (e.g. electrical energy production and distribution) that are most directly involved.

3.     Why are irreplaceable resources considered to be available in unlimited supply at no cost other than the effort to dig them up?  Words and phrases like exploration, and development, and concepts like "staking claims" on mineral rights seem to imply an endless process.  Why are so many economic costs left out of the discussion?  How do you calculate the price of disappearing glaciers, rain forests or coral reefs?  How do you measure the economic costs of extinctions of species in distant places?  Such issues are labelled "externalities" in economic theory, and are treated as boundary conditions on economic theory.  Should they not be an integral part of the theory?

4.     As most of the world wakes up to the problems in our consumer society, and as discussion of "sustainable development" increases, promising an increased standard of living but based on responsible consumption, is there not a subtly oxymoronic character to that phrase "sustainable development"?  How can "development" be any more sustainable than perpetual growth?  The concept is, of course, based on the use of renewable resources.  However, I have seen estimates that the carrying capacity of the Earth, using only renewable energy resources, is approximately 1.5 billion people (I do not have a reference for this, need to find it).  Are we not then talking, ultimately, about how to collapse our current population and economy to "sustainable" levels, rather than "developing" them?  Wouldn't "controlled collapse" of the world's societies be a more intelligent goal?

5.     I despaired that even our most forward-thinking visionaries do not seem to understand the fundamental characteristics of a "sustainable economy" in a physically constrained world.


I, personally, firmly believe that there are two possible long-term outcomes to this piece of theatre about the evolution of sentience in which we are the leading actors.  In both outcomes, our population stabilizes ultimately at the carrying capacity of this Earth, and our economy becomes sustainable:

 - In the first outcome, we humans, as a species, learn to control our appetites, reign in our inappropriate desires, apply our understanding, knowledge and skills, and plan and work to create a sustainable modern society; OR
 - In the second outcome, nature imposes a sustainable economy upon us through famine, disease, war and economic, social and ecological  collapse.

Having some skills with a computer, I decided to model a MOST SIMPLE economy, an economy just barely above a barter-exchange level of sophistication, in which people produced a single commodity necessary for life, and exchanged it through the medium of cash purchases. By "most simple" I meant very highly abstracted, connected to reality more by analogy than by simulation. My intention was to build in limited resources obeying some laws of conservation (e.g. mass and energy), and thereby implicitly build in a carrying capacity.  My goal was to demonstrate a sustainable economic process, and NOT to simulate any particular feature of real-world economies.

With some understanding of physics and biology, with some knowledge of the formulae used to calculate the "time value of money", and with some experience with profit and loss statements, I decided to first find a mathematical model.  After several attempts ended in failure (due to inconsistent equations) to my surprise and consternation, I took the plunge and started writing code, thinking it must be, after all, pretty simple.  Producers produce food and sell it.  Consumers buy food and eat it.  The waste becomes fertilizer, and the process starts again.  I scheduled two months of hobby time to complete this little project.


To make a long story short, after five months I had ModEco V1.05 (alpha) up and running.  Agents produced food, bought and sold (highly abstracted) goods and services, and became wealthy or died in poverty.  The carrying capacity of the system was observed to be real.  The (highly abstracted) laws of the conservation of mass and energy were functioning well.  Commercial transactions were functioning as expected.  Cash was conserved.  There was one problem, however.  The economy was not sustainable.  That is to say, the economy inevitably collapsed within a few thousand ticks of the ModEco clock, if not a few hundred.  There was one and only one limit point of all trajectories through its state space, and that was the point of total economic and biological collapse.


To me, this seemed to defy logic.  Like a tire with a slow leak, the economy ran down over time and eventually went flat.  After some discussion with my students whom I tutor, we had an epiphany.  In the same way that friction causes a spinning wheel to eventually come to rest, some "economic friction" was similarly causing my economy to deflate and come to rest.  After determining that the only source of such friction might be in the stochastic price fluctuations, we designed a "Perpetual Motion Machine" (PMM) for ModEco, and I implemented a few features that removed such price fluctuations.


And Voila!  Eureka!  The ModEco economy ran to an amazing 20 million ticks, and I finally terminated the run (after a week) to get my computer back.  In February of 2011 my students and I settled into an examination of this PMM.


In summary, inspired by Paul Hawken, the goal in writing ModEco was to create an economic laboratory in which I and my students could design extremely simple economies which (a) obey conservation laws; and (b) are ecologically and economically sustainable.

Last updated:  September 2014