Economy as a Dissipative Structure
Paper presented at the Keihanna Conference May, 28, 1996.
Y. Shiozawa (Osaka City University)
0. In the first part, I propose to introduce, into economics, the notion of “dissipativestructure” and point out some consequences of this analysis. In the second part, I
will discuss one proper feature of economic analysis. It is the question of “boundedrationality” or, in a word more familiar to mathematical scientists that of computingcomplexity. Finally, I will argue that new direction of economics which departs fromthe equilibrium theory as the framework of economic analysis.
1. The theoretical framework of economics has long been that of “equilibrium”. This
notion appeared as early as the first decade of the 19th century whenmathematicians started to formulate economic laws after physical sciences. In thelast quarter of 19th century, French economist Léon Walras presented a new method
for economic analysis. In 20th century, his method called “general equilibriumtheory” became the most powerful research program and most economists of thiscentury wanted to analyze any economic phenomenon in this theoretical economicanalysis.
2. Many protests and contestations have been voiced out against equilibrium theory.
Some argued that it neglects the increasing returns to scale which underlies in thedevelopment of modern industries. Others contested the maximizing principle
which is always supposed in the formulation of economic behaviors, both forconsumers and producers. In 1970’s, many eminent economists criticized the state of
the art of economic science and proposed to abandon a equilibrium analysis. But,
this has not been done, partly for lack of new framework and partly for fear of us
loosing ready made formulae for economic behaviors.
3. New image of systems theory is requested and I think this new image should be thenotion of “dissipative structure”. Professor Prigogine, in his early days of his
research, was interested in non-equilibrium phenomena and remarked to thedissipative structure, which appears both in space and time. The importance ofdissipative structure is evident, if one once knows that any living systems andsubsystems are far from equilibrium but that they are all dissipative structure.
4. Most simple example of dissipative structure is given as the flame of a candle. Oncelid, a candle continues to burn unless all wax is consumed or the oxygen isexhausted. The heat of the flame melts the wax, which climb up into the wick andevaporate as vapor and burn. This is the mechanism how the candle flame
reproduces itself.
5. Dissipative structure sometimes takes the form of stationary state but it is very
different from equilibrium. The latter is sensitive to boundary conditions. In thecase of candle, non-lit candle is normally in equilibrium. The temperature of theflame is equal to the temperature of the flame is very different from the surrounding
air. The speed of candle consumption is determined by the speed of wax which
evaporates into the flame and the speed is in turn determined by the speed of wax
which evaporates into the flame and this speed is in turn determined by structure ofthe flame itself.
6. The concept of dissipative structure is important for economics, because it makes
possible to have new idea how economic system works. In the equilibrium
framework, boundary conditions are imposed as constraints of the system. In thedissipative framework, boundary conditions are not directly relected to the speed of
the consumptions or the extent of employment. It is instead the internal structure
which determines volumes and speeds of economic quantities.
7. Most simple example is the extent of cultivated field. When there is a large surfaceof cultivable field and there is relatively small population, it is easy to see thatwhole surface is not necessarily cultivated. Some part which can be cultivated by thepopulation will be cultivated effectively.
8. Similar situation occurs for the amount of employment. It is not the amount of labor
force which determines the amount of employments, but the activity level of theeconomy as a whole. This activity level is internally determined by something likeeffective demand and so on. Keynes was the first person to realize that, in economy,
it is not the boundary condition or the amount of resources which determines how
much of the resources are used. This is the essence of the Keynes’s theory ofemployment.
9. 50 years have passed after Keynes went to other world. During these years, manyefforts had been made, in vain, to harmonize Keynesian macroeconomic theory with
the neo-classical micro-economics. This is a natural outcome. The micro-economics,
which is based on equilibrium framework, denies the existence of internal structuresuch as dissipative structure. Unless we are emancipated from the framework ofgeneral equilibrium, there will be no breakthrough for a new economics.
10. If the problem is only the existence of internal structure, the economics system canbe characterized as self-organizing system. But, the economy is not only aself-organizing system. Viewed as an ecological system, it is a system whichconstantly brings resources in and cast waste off. Economic activities are based on
the constant flow of energy and materials. So the economy is also a dissipativestructure.
11. Now, I want to bring your attention to a more proper aspect of economic analysis. Itis the question of complexity. Nowadays, the complexity is the topical theme. It isargued in many fields, ranging from abstract dynamical systems analysis to thebrain studies and others. So, you may think my statement strange. Complexity is noproper topic of economic science. It is true. But, in economics it is necessary to
distinguish three layers for complexities. The first layer is the system’s complexity.
Most of the natural and engineering sciences focus their attention to this layer ofthe complexity. The economics is more concerned about the second layer ofcomplexity. It is the question of computing complexity which underlies in any
consideration and decision-making. The third layer is epistemological in its
character. It is the question of complexity which limits our efforts to understand anyobject whatever. So, it is more related to epistemology than to economics andnatural sciences.
12. However may they seem unrelated, al three layers are, in fact, different aspects ofthe came mechanism. A system is complex because its behavior surpasses our abilityof analysis. Epistemological complexity emerges from the limits of our intellect.
Economic agent faces the same situation. He or she tries to find out a best solution
but this maximum problem often requires too long a time of calculation. The only
feasible choice is to find out a shortcut. This is related to the limits of our reasonings

and calculations.
13. The proper difficulty of the economics is that the complexity is the real condition for
the economic agents. This is not true for physical and chemical sciences. In theengineering sciences, maybe the robotics is concerned with the same kind of problem.
In order to make a robot work, it is necessary to install a controlling sub-system
which works in real time. So the designer is required to invent a simple but
workable self-controller. Ethology and human behavioral sciences are allconditioned by this limit of rational calculations, or in another word by boundedrationality.
14. If we consider the boundedness of our rationality, it becomes rather evident that ourbehavior is not directed by a decision made once for all. It is a continuous sequenceof adaptive adjustments, which will be organized according to rough program ofpurpose pursuit. Consequently, the theoretical framework of the economics should
be reorganized as process analysis. Equilibrium analysis has been the obstruction
for the economics to proceed to this old but still new direction.
15. The notion of dissipative structure will be helpful to change the state of arts of theeconomic science. It provides us a new image of self-reproducing systems. It willorient our reasoning to a new direction. On the opposite side, if unbounded
rationality is assumed, then the general equilibrium reasoning will remain
convincing to many economists. So the problems of complexity are related todissipative structure viewpoint in such a way that the two will help each other topromote the new construction of economics.