Thursday, June 17, 2010

Passing Thought: Applying Computer Science Theory to Economic Theory

     So I have been reading The Collected Works of F. A. Hayek Volume 1:  The Fatal Conceit - The Errors of Socialism.  Haven't quite finished the first chapter, even but it brought some interesting thoughts that I wanted to write down before I forgot them.

-- Hayek makes a reference back to Adam Smith's discussion of basic supply and demand, "the invisible hand" and all... I got to thinking, maybe one of the reasons our economy does so well at what it does (with pricing serving as an indicator that serves to automatically adjusts supply and demand to prevent overproduction and overconsumption) is essentially a form of information hiding and modularity.

I suppose I should explain those terms.  Information hiding is best explained in terms of functions and arguments.  For a programmer, when you're making use of another programmer's function, your usual concern is what the function returns and what arguments are required in what order.  If you should decide to tool around with this other programmer's code without understanding how and why he programmed it the way he did, you will almost certainly end up with a function that is less efficient - and worse, you may break the function altogether.  Thus, there is a need to prevent the first programmer from changing the second programmer's code.  I won't bore you with the variety of methods how you might go about this in an object-oriented context, but I think you get the concept.

Modularity fits along the same lines -- basically it's the concept of breaking up a program from one big "main" function into a bunch of smaller ones; each usually accomplishing a very simple, easy-to-define task.  Under these circumstances it is much easier to debug a malfunctioning program because you can usually narrow down the function that is problematic and fix it accordingly.

Now, how does this all fit in with economics?  Well in early times, and even today, the consumer rarely knows how a particular product arrived at a given store.  He usually doesn't know how it was manufactured, sometimes he doesn't even know all the contents!  My thought is this: what if this not knowing is part of why our market system works so well?  And if that is so, isn't it all the more reason command economies (such as Socialism/Fascism/Communism/Mercantilism/Absolutism/etc) rarely if ever produce positive results (nevermind trying to get results better than what the market system provides)?

Let me know in the comments what you think of the idea. -- I'll go back to reading.

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