Division Of Labor, Transaction And Economic Order

Economic order is a special sample of emergent property in complex adaptive system (CAS). This paper make use of CAS theory of Complexity Science to explain economic order, and place individual action, firm ,industry and market in an uniform analytic framework. To do this, we expect to apply an attempt of resolution to some predicament in New-Classical Economics.Different with Methodology of mainstream paradigm of the strong- reductionism, static equilibrium, determinism, constructive rationalism, our analysis is based on the methodology of wholeness and weak-reductionism, dynamic evolution and non-determinism - spontaneous order, in accordance with the logic of division of labor, transaction and economic order to understand economic system and economic phenomenon. Wholeness and weak-reductionism means to recognize that any economic phenomena can be reduced into its indecomposable minimum level, but not necessarily into the level of individual actors; wholeness mean that we recognize so-called "emerging" phenomenon in economic system., that is, the common phenomenon of"being stem from nothing"and"more stem from fewer"in firm and industrial agglomeration which is cooperation residual in team-production and increasing returns in economic system. When we observe economic phenomena by using scientific methods, we must be aware of ourselves as a smallest reduction level being placed in economic system. As element, we try to understand wholeness and emergent property on levels in economic system。On the contrary, observer is outside of the object we are observing in scientific study, and grasping the wholeness is as subsidiary awareness in our mind. So, to reduce is becoming its primary tasks.The second character of the methodology we uphold is dynamic evolution. Skills, routine, formal institutions in economic system, and any "solution" agent adopted to against the uncertainty of environment, are the products of continuous adaptive action. Environment include natural environment such as natural resources, and social environment such as Karl Popper'so-called world 2 and world 3, that is , the interaction of numerous agents constitute"mutual environment". Risks and uncertainties in economic system stem from not only nature but also our selves, our specialization, division of labor and complicated transaction system. Adaptation is a dynamic process. The process to general equilibrium of New Classical Economics should be placed in the central position in stage of whole economic analysis. The concept of Dynamic evolution can also be used to explain the long-term economic changes.With the introduction of time variable, increasing returns and the non-ergodic economic evolution will lead to being"locked-in"and non-convergence of economic development. Therefore the adaptive process of economic system that tends to optimum needs some degree of seemingly non-optimizing "disturbance" in order to break away from the state that long-term stay in a "shallow adaptive basin" which is only local maximum value ".The third character of the methodology we uphold is the concept of no-determinism and Spontaneous Order. Through understanding Kal Popper's Comparison between could and clock, we can understand the difference between economic system as one kind of complex phenomenon and other things as simple one. To make an accurate prediction to the form changes of cloud is difficult. Large quantities of agents take action according to their own well-known local knowledge, specific state of the macro-consequences of the process can not be accurately forecast. To this Hayek argue that we can only make"principle explanation"and pattern-prediction to social phenomenon as complex phenomenon.The fundamental reason why economic system can not be accurately predicted lies in nonlinear character of CAS .We can understand the microscopic mechanism that character of the non-linear of CAS works though observation to the emergent property characterized by increasing return phenomenon take place in firm level as well as industry level. As element of minimum level in economic system, we are able to observe and understand the conscious behavior of individual in system easily, but difficultly to observe and understand the consequences of interaction in numerous individual which is beyond personal sense. An untended result for observers as the wholeness features of economic system emerge from complex system, economists call this as "invisible hand", "Menger doubt" or "spontaneous order." Spontaneous order in economy is only a special case in that of all kinds of CAS. So, a natural inference is that trying to comprehensively intervene, even construct a rational economic order is beyond our rationality limit. Economic order is not one of the topics in the research agenda of Neoclassical Economics, not even more the central topic. The studies for economic order found in classical works of Classical Economics, such as that of Adam.Smith and Karl.Menger , New Institutional Economics, Comparative Institutional Analysis, Evolutionary Economics, and in some literatures of studying specialization, division of labor and organizations in Neoclassical Economics. In addition, it also found in the studies of CAS by Santa Fe Institute in the United States and in the studies to economic system by employing General System Theory which Originated in Europe school of GST.Employed the theory of emergent property of CAS, we observe the complex phenomenon in economic system and grasp the essence of the system. According to John H. Holland(1995),any CAS includes 7 elements or mechanism, they are aggregation, tagging, nonlinear, flows, diversity, internal model(or schema), building block. So, we can also build its counterparts in economic system. In economic system, aggregation is characterized by family, firm and industrial cluster and so on; tagging is characterized by names, trademarks, company names and , product manual so on; flows is characterized by information flows, product flows and capital and capital goods flows and so on; building block is characterized by the primary element of any thing we cognizance and understand about such as color, volume ,quality, movement, threat and so on; diversity is characterized by the diversity of agents , the diversity of firm, the diversity of knowledge and information, the diversity of kills and routines held by firm; nonlinear is characterized by product of team-production and increasing return in industry and whole economy; internal model is characterized by kills and routines held by individual and firm.The economic system equipped with aforementioned seven basic elements and mechanism demonstrates the functions and characters are as follows: to learn based on following simple rules; hierarchical structure; information transmission and communication. Given uncertainties inside and outside the system and the diversity of elements, economic system constantly revised schema to adapt to the changing environment, and this is learning process of economic system as CAS. Economic order display the continuity and stability and predictability in economic life. a general abstract order is concerned, the order is that such a situation or state, in which there are numerous elements and they have close relationship for each other, so only though understanding situations of fragment of space or time of the whole can we make expectations correctly. Market order is that agents are able to be coherence in expectations by following rules and accept the guidance of price system(Hayek, 2000a).Why? it is the networks of division of labor , transaction system and price mechanism that lead order.Division of labor , exchange and civilization coexist and growing up together. The most importance of division of labor and exchange to the wealth of nations was emphasized by Adam Smith(1776),but The work that attach the most importance to human evolution and the progress of civilization was finished by Haim.Ofek(2001). Early abstract art cultivate and elevate the abstracting ability ; use and preservation of fire induced emergence of commercial exchange for the first time, as well as the ability of speech and evolution of human brain. Since then the evolution of civilization has being benefited from the non-personification and nominal commercial exchange, those districts with higher transaction efficiency can support a high degree of specialization and division of labor, and became the most prosperous economies economy.The division of labor is essentially division of knowledge.High-Phenotype-plastic human brain has being prepared for the division of knowledge. "Isotropic" knowledge structure has being broken by the division of knowledge. An anisotropic knowledge structure has formed. In this structure, each of the agents in economic system"knows more and more about less and less". Exchange system form countless asymmetric fragments of knowledge into knowledge structure by series or/and parallel connection the capacity of t his structure is far beyond the volume of any individual human mind and its rational capacity.Transaction is institutional arrangements that causes , promotes, and supports to the division of labor. Early exchange taken place in relatives induced early division of labor, Standardized, regular and large-scale and non-personification transaction supports and promotes deepening of the division of labor. Transaction costs were re-interpreted of expenditure of resources supporting the division of labor. Roundabout production means preparation of more and more know ledges, which led to expenditure of resources. We call this expenditure learning costs. In our framework, Endogenous transaction costs, external transaction costs, learning costs and the costs of production consisted of all the costs of modern economy, the first three of which can be called the "coordination costs." However, any "cost" concepts being used to describe and understand phenomena in economic system are perspective of reductionism on the perspective system theory, there is no "cost", "income" and "maximize". At the end of Neo-classical economics paradigm, new institutional economics(NIE) has opened up a new domain or institutional and organization analysis. In the limitations of NIE, the complexity theory, specially , CAS theory, provides a set of new means of interpretation.Emergent property in economic system is a "Translation" to "spontaneous order theory" in economics in term of complexity Science. After systematic review of the thoughts of spontaneous order in economics, we employed the theory of self-organization of complexity science , especially ,the emergent property theory, hierarchical structure theory, and information and communication theory , to explain economic order.Seven characteristics and mechanisms of CAS theory are used in explaining economic system satisfyingly. In particular, we make use of CAS theory, to explain the famous Hayek's thoughts of spontaneous order.What the inferences and application in public policy of our economic order theory is as follows.Firstly, the economic system is a complex adaptive system, which has a fundamental characteristic that large number of economic agents (individuals and firm) interact and form spontaneous order based on following a set of simple rules In such complex systems. Based on strong-reductionism and the hypothesis of simple linear causal relationship, conditional theory does not explain complex economic phenomena, nor as the basis of accurate. To such complex phenomenon, we can only take place of"pattern prediction"(Hayek,1967).Secondly, division of labor and hierarchical structure is shortcut to order in economic system , Division of labor and transaction are vitally important to our civilization, that is ,division of labor and transaction themselves are civilization. By decreasing transaction costs and improving the efficiency of transaction, we can promote and deepen the division of labor, so as to advance economic order (to a higher level).Transactions are always deal of rights, so defining and protecting rights effectively benefit to promote the efficiency of transaction.Thirdly, it is the pre-condition that economic agents follow the general rule to lead to spontaneous order. The general rule is more about memories by countless generations in the process of adaptive action; it guides the economic agents'action in the form of "ban" and commandments. General rule is abstract; it does not give any specific advices to economic agent to guide his economic action. Therefore, the Government in economic system can only abide by the three major negative values - peace, justice and freedom.