Interview

Theory, Culture & Society

0(0) 1–18
An Interview with ! The Author(s) 2016
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DOI: 10.1177/0263276415623063
tcs.sagepub.com
Scott Lash and Bogdan Dragos
Goldsmiths, University of London

Abstract
In this interview, Philip Mirowski, a foremost economic historian and philosopher of
economic thought, discusses his research into the history of economics along with its
complex relationship to the natural sciences and the recent rise of neoliberalism. The
conversation starts by focusing on his early work on the birth of neoclassical eco-
nomics as an imitation of modern physics via energetic metaphors. We also discuss
the subsequent impact of the computer metaphor and its influence on post-Second
World War economic theory. Some of the most important aspects of the informa-
tional turn in economics are discussed, such as the understanding of the market
processes as a form of computation and the shift from a concern with the nature of
the individual agent to the institutional framework of markets. This inevitably leads us
to Mirowski’s recent work, where he takes the informational turn in economics to its
ultimate conclusions, arguing for an algorithmic understanding of markets. He calls
this a theory of markomata, or a computational evolutionary economics. Finally, the
discussion addresses the interdependencies between the general understanding of
markets as superior information processors, the rise of neoliberalism and the recent
financial crisis.

Keywords
algorithms, economics, energy, information, markets, metaphors, neoliberalism,
physics

Philip Mirowski’s work is difficult to classify as it stands at the cross-

roads between the history of science, economics and politics. Throughout
his writings he consistently draws from a diversity of philosophical, eco-
nomic and scientific traditions. This interview attempts to provide a brief
overview of Mirowski’s complex intellectual trajectory.
His interest in the complex relationship between economic thought
and the natural sciences dates back to a 1984 article entitled Physics
and the ‘marginalist revolution’. Subsequently, in the context of More
Heat than Light (1989), he argues that the economic orthodoxy was

Corresponding author: Scott Lash. Email: s.lash@gold.ac.uk

Extra material: http://theoryculturesociety.org/

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2 Theory, Culture & Society 0(0)

born by imitating the framework of 19th century physics. Neoclassical

economists utilized the framework of the energetics of the time, leading
them to model utility as potential energy, but without really understand-
ing all of the consequences of such a move. As he argues in this interview,
economists have never come to terms with the initial origin of their
theories, something that haunts the profession to this day. Moreover,
this was by no means an isolated incident. He identifies another major
turning point in the 20th century, when economics gradually transitions
from the reliance on energetic metaphors to the adoption of the language
of information and the framework of cybernetics and the theory of com-
putation. In Machine Dreams (2002), he provides an extensive account of
the impact of cybernetics and information theory on post World War II
economics. That is to say, the advent of the computer in the 20th century
engendered a gradual transformation of economic theory. From the early
days of Operations Research and Game Theory to contemporary experi-
mental economics, cyborgs have been slowly, but surely, entering the
mainstream of economic theory. In this new paradigm, the economic
agent starts to resemble a computer and the market becomes something
akin to a giant information processor. While the informational turn
apparently reinforces the economic orthodoxy, it also has the potential
to undermine most of this tradition. As Mirowski argues, a computa-
tional view of markets reduces the importance of the cognitive capacities
of economic agents while emphasizing the institutional framework of
markets. Thus, rather than remaining fixated on maximizing agents,
economics can now embark on a novel research program, the under-
standing of the wide diversity of market forms (Mirowski, 2007).
Nevertheless, this informational turn also has broader socio-political
implications, particularly in the context of the rise of neoliberalism.
Mirowski, similar to Foucault, understands neoliberalism as a system
of knowledge/power, or as he puts it: “a set of epistemic commitments”
(Mirowski, 2009). The idea of the computational superiority of the
market is not confined to the world of academia and think tanks. As
Mirowski argues in Never Let a Serious Crisis Go to Waste (2013), while
neoliberalism started as a thought collective it is now a deeply ingrained
socio-political and cultural movement. This perhaps accounts for its
surprising resilience even in the face of major shocks such as the recent
financial crisis.

TCS: In the beginning of More Heat than Light (1989) you go to great
lengths to explain the concept of energy and you argue that ‘neoclassical
economic theory boldly copied the reigning physical theories in the
1870s’. Could you talk about the relationship between the energetic
metaphor and the transition from classical political economy to neoclas-
sical economics?

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Lash and Dragos 3

PM: I think most people understand that there was some kind of epi-
stemic break between the classical economists and the neoclassical econo-
mists. Although it is also interesting that the term ‘neoclassical’ is
sometimes used to evoke much more of a continuity between Adam
Smith or David Ricardo and neoclassical economists than is warranted.
However, I think most people understand that there’s a really substantive
break consisting of some obvious sharp turns, such as moving from a
stress on the centrality of production to a primacy of exchange, the ele-
vation of equilibrium over tendency laws, and the shift from a largely
narrative based structure to an obviously mathematical structure.
Moreover, there was a limiting of ambitions, from a classical political
economy that talked about large historical movements through time to a
neoclassical economics praising statics as if that was some sort of
advance in precision.
I thought no one had bothered to try to explain all these things in a
remotely satisfactory fashion and it seemed pretty clear, from my having
done a fair amount of history of natural science when I was a graduate
student, that a lot of this had to do with imitating the natural sciences.
The thing that surprised even me was that the more I looked into it, the
more it became clear that the main players actually openly admitted
mimicking physics. The main players were people like Jevons, Walras,
Edgeworth (but not the Austrians, which is significant as they get thrown
in with the marginalist revolution but actually aren’t a coherent part of
that world). A crucial point in clarifying the history is that they were not
very imaginative about how to create this new economics they so fer-
vently wanted, so they ended up pretty much copying energy physics of
the later 19th century. The other thing that I would point out is that they
didn’t pull that option out of thin air. Energy physics was a cultural
phenomenon in the late 19th century, something that crossed language
communities and spread across nations as the ‘Energetics Movement’. In
its most basic form, this was a belief that these new laws of energy
recently enunciated (conservation, optimization, and the like) promised
to give us great insight into humanity generally, and how the mind works
and so forth. So here are these people aware of a time in which this grand
cultural movement is happening. In this context, it’s not weird or
implausible for them to access that intellectual movement and maybe
imitate some of its mathematics. I think this is clearly the explanation
of the origins of neoclassical economics, which also explains a lot of its
curious peccadillos as well.
That thesis seemed to lend insight to some age-old questions: Why do
people think economics is successful as a science? Why does economics
believe it enjoys a privileged status amongst the social sciences? The
answer could be that it has a lot to do with the imitation of science,
precisely because for a relatively general populace, appearances count
for a lot. The similarities jump out at you, if you have a basic

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4 Theory, Culture & Society 0(0)

acquaintance with physics. At least in the 19th century, the early neo-
classicals made what are recognizably similar moves. They claim they
possess laws, they use similar mathematics (the calculus), they claim
they have access to some kind of scientific empiricism. So a lot of this
is just status by emulation more than anything else. Now that doesn’t
mean that it’s the only thing that was going on back then, and in fact that
complaint coloured a lot of the pushback that I got against the book.

TCS: Throughout the book, you present us with a very compelling argu-
ment for the crucial influence of physics in the development of economic
theory. Do mainstream economists recognize this narrative and, if not,
how can we explain their lack of awareness?

PM: Let’s take a recent example of a popular contemporary economist

blogger, insisting that economists don’t suffer from physics envy.1
Instead of looking at the history, or the technical issues involved, he
just blurts out some random impressions: economists make more
money than physicists (I cannot make this stuff up); an economist can
talk about how much progress physicists are likely to make, and get
taken seriously, but not vice versa (ditto); economic theorists, tradition-
ally, have been free from the constraints of empirical validation (note the
total innocence of the history of empiricism in economics); and that
equilibrium means something different in economics than in physics.
The level of arrogance combined with parochial ignorance is pretty stun-
ning, but not unusual. He has no conception of the historical track
record of the disciplines of economics and physics evolving through
time, with earlier points of interaction being masked by later develop-
ments, and further waves of strange action at a distance. The result
would therefore never appear to contemporaries as strict identity.
Economists with a tad more sophistication may admit something hap-
pened in the 1870s, but they go on to insist that a century and a half of
further development has produced a set of doctrines that doesn’t neces-
sarily have anything to do with that heritage. So in a weird sort of way, the
more sophisticated modern line is that intellectual origins don’t matter to
contemporary doctrines. Your average modern economist thinks history
has entirely been banished by the activities of subsequent generations.
Actually, I would argue against that; it is more plausible to think that
it’s a path-dependent process. Neoclassical economists can’t entirely wish
away their origins, and there are a number of times where I try to point
that out in the book: for example, the eccentric ways in which the early
neoclassicals are totally confused about how to deal with production.
Moreover, I think the physics origins really instantiates the central meta-
phor of a market as if it were a kind of machine that takes stuff from a
place it’s not supposed to be and puts it in a place that it deserves to be.
That leads to this whole idea of allocation as a special phenomenon, which

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Lash and Dragos 5

captures the essence of economics. That’s the way the first three gener-
ations of neoclassical economists think, in terms of movement in a com-
modity space. So for them, trade (exchange) is motion in a commodity
space. All of these points comprise a deep inheritance of the early appro-
priation from physics that is really hard to get away from.

TCS: Finally, does this mean that neoclassical economics should pay
more attention to its own history and its epistemic presuppositions?

PM: My intention has been not to focus on the motives or conceptual

integrity of any one thinker, which is the way a lot of history is written.
Rather, I wanted to explain what they have in common and why they
could recognize each other as part of the same project back when there
was yet no stable orthodoxy congealed around the optimization of util-
ity. But more importantly, I highlight that the appropriators said they
were doing it too. I find it just amazing when people like Robert Solow
(in Bender and Schorske, 1997: 74) actually say that they don’t believe
that’s really true, that they imitated physics. This issue can easily be
settled by simply looking at the evidence, which others and I have pro-
vided (De Marchi, 1993); so there must be something else going on here.
I have eventually come round to the position that orthodox econo-
mists cannot take a long hard look at their own history, because they
have proven incapable of situating themselves in their own sequential
images of how markets and societies work. In other words, the denial
of intellectual history is not simply Orwellian, it is a structural conse-
quence of the theories they hold dear. Reflexivity is their wolfsbane.
For instance, who really needs economists in Walrasian general equilib-
rium, or in the modern economics of information? This tension is slowly
building to a head in the modern profession, and I have begun to write
about it in my most recent work.

TCS: In a more recent book, Machine Dreams: Economics Becomes a

Cyborg Science (2002), you have focused on the impact of a different
metaphor, that of the computer. Here you look at the influence of cyber-
netics and computer science on post-Second World War economic
theory. Could you talk about the process that took you from More
Heat to Machine Dreams, from energy to the computer?

PM: I knew even when I was still writing the first book that something
really odd happened in the Second World War that had changed the
orthodoxy once again. Now, the first temptation was to notice that a
lot of the most influential people were actually trained as natural scien-
tists, such as Kenneth Arrow, Gerard Debreu, Tjalling Koopmans or
Leonid Hurwicz. When you look at their backgrounds, you can interpret
it as another wave of natural scientists coming over into economics. But

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6 Theory, Culture & Society 0(0)

actually the more I looked into it, the more interesting the story became.
Yes, it happened that a lot of the reasons these people could come into
economics with little prior preparation was because the existing simplistic
mathematical models were really easy for them, mostly another heritage
of the initial physics appropriation. But over time what happens is that
they got caught up, in particular in the United States, with what a lot of
the natural scientists were doing during the war.
Part of the story I stumbled upon is that Operations Research becomes
one more mediation through which economics becomes inflected with
natural science themes after the Second World War. The economists
themselves in that era aren’t terribly imaginative, and they aren’t respon-
sible for inventing most of it, instead appropriating much of it from John
von Neumann, David Blackwell, John Nash and a whole host of others.
Another curious aspect of the influence of Operations Research is that it
was bound up with the early development of both electronic computers
but also programming at RAND. Linear programming, statistical opti-
mization, matrix methods, formal logic, information theory, and a whole
raft of techniques were imported into economics at that stage.
Familiarity with early digital computers gave economists a head start
relative to many other disciplines.
Game theory stood as another good example, in that the military and
the economists were all initially enthusiastic about Von Neumann’s ver-
sion of game theory, thinking it would constitute a science of conflict.
Further, the famous Arrow-Debreu existence proofs were a direct con-
sequence of early exposure to Nash game theory. Nash equilibrium then
comes to represent an anti-Von Neumann approach to solving games.
But it’s apparent that the people who are involved in early Operations
Research back away from game theory very quickly, as does the military,
interestingly enough. Consequently, this whole fascination with game
theory in economics really takes another generation to incubate; it
doesn’t really take root in microeconomics until the 1960s and 1970s.
Long story short, because the computer is increasingly important in
many of the areas in which economists are interested, they become inad-
vertently recruited into this whole trend of the intellectual development
of the computer. This ranges from cybernetics as a theory of certain
kinds of human/automaton metaphors, to the incorporation of stochas-
tic models in decision theory, to the actual use of computers in econo-
metrics and simulation, which happens earlier than in some of the other
social sciences. In many ways, the use of the computer obviously jump
starts econometric empiricism, which is also one of their many post-war
inventions.
What Machine Dreams does is to try to tell the story of how these
20th-century sciences slowly transform what the orthodoxy means in
economics. I argue that their increasing commitment to a vision of the
computer after the Second World War slowly changes their image of

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Lash and Dragos 7

what the market is, and that’s actually situated at the heart of the matter.
What I mean by this is that, once you change your metaphor of what the
market consists of, then everything else changes. There is a sense in which
neoclassical economics began to lose its quiddity as ‘the study of the
allocation of scarce resources to given ends’. The interpretation of
trade as motion in a commodity space is going to change, the interpret-
ation of what it means to be a human being is also going to change, and
so on. Thus in Machine Dreams I stumbled on this suppressed epistemic
rupture, namely, that in their quest to imitate what they thought was the
most up-to-date science, they end up inadvertently swapping metaphors.
This in turn bequeaths us, at least in part, the shape of the orthodoxy
that we have today. But economics is not alone in this respect, and I
don’t think anyone has done a good job describing this trend, even in the
history of science. I think now it’s uncontroversial to say it doesn’t
matter what natural science you look at, in its modern instantiation, it
pretty much has a computational flavor to it. So computation has chan-
ged the ways in which some of the very basic concepts are framed in all
the sciences.
However, this also explains some of the reactions to More Heat than
Light. There were people commenting that they didn’t recognize this
ancient ‘physics’ doctrine anymore; that modern neoclassicism doesn’t
look like the models of Jevons or Walras. As I show in Machine Dreams,
there has been an element of truth to that, as the post-war orthodoxy
actually looks somewhat different from the 19th-century version. No one
believes in Energetics any longer; but a lot of people seem to conflate the
mind with a computer. I think one role of the historian is to identify
precisely these shifts, these ruptures, namely that big cultural ideas often
change in important ways that aren’t always conscious, but ultimately
transform an entire discipline.

TCS: In your recent lectures at INET, in collaboration with Edward Nik-

Khah, you develop a history of the relationships between information
and economic theory. This is a very original attempt to write an alter-
native narrative of the history of economic theory in the 20th century.
Why does information become such a crucial notion in modern eco-
nomics after the Second World War?

PM: This is the book coming out from Oxford University Press called
The Knowledge We Have Lost in Information (2016). It follows on from
the series of lectures we did at INET, where we focus on what we think
are some of the main determinants of the shape of orthodox economics in
the later 20th century. In a nutshell, we take off from the notion of
information, which was already present in Machine Dreams, except
now we’re actually trying to follow the various transmutations of the
economics of information from their origins in the 1930s and 1940s all

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8 Theory, Culture & Society 0(0)

the way up to the present. In comparison, I would say that Machine

Dreams kind of stops in the 1990s, more or less.
The central insight is that markets in the current orthodoxy no
longer resemble those implicit in the early phase of neoclassical eco-
nomics. Markets are re-imagined in dramatic ways, and the most dra-
matic is the rise to pre-eminence of the idea of a market as an
information processor. In other words, the supposed virtue of markets
has shifted from the mechanical task of bringing about superior ‘allo-
cations’ to the epistemic task of serving as the primary mechanism for
the validation of truth. Certainly there was some recognition of that in
passing in Machine Dreams, but I have now come to think it has pro-
ceeded to dominate the evolution of the whole of microeconomics. I
keep insisting that almost all natural sciences are now sciences of infor-
mation in one form or another (biology, physics, etc.). Accepting the
metaphor of information processing totally transforms the nature of
what counts as orthodoxy there, and in economics. We would even
argue now that one of the reasons game theory becomes acceptable
in the 1970s in a way it was not in the 1940s is because it gets incor-
porated in this central thematic of information processing. Likewise,
the fascination with so-called ‘behavioral economics’ is just an acknow-
ledgement that it has recently become one of the ten commandments of
orthodoxy that people are just more stupid than the market. We also
argue that the most important development in this transformation is
working out the issues of information in the rise of market design,
experimental economics and the market microstructure literature.

TCS: In your lectures2 you also identify a cultural and political ten-
dency underpinning the marriage of information and economics.
Economists who made extensive use of the notion of information in
their work, such as Friedrich Hayek, Ronald Coase, Vernon Smith,
George Stigler and Gary Becker, were all members of the Mont
Pelèrin Society that acted as the catalyst for neoliberal thinking.
Could you elaborate on the importance of neoliberalism for the infor-
mational turn in economics?

PM: What is interesting about the informational turn in economics is

that it’s partly due to wider trends in the natural sciences, but it’s also
partly attributable to a political phenomenon. What I would like to
highlight is that you can’t understand the spread of the idea of a
market as an information processor without understanding the concomi-
tant rise of neoliberalism. That movement originates within the political/
cultural group centred around Hayek and the Mont Pelèrin Society
(Mirowski and Plehwe, 2009). In a sense, the market as an information
processor was the neoliberals’ central argument against socialism. That
is, if socialism is about the ambition to plan and shape the economy,

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Lash and Dragos 9

neoliberals retort that markets know more than any single human being,
and therefore anyone attempting to plan the economy is deeply misled,
and so consequently, socialism can’t work. What’s interesting about this
doctrine is that it has basically become orthodox wisdom in the modern
economics profession, even though this idea was situated at the fringe in
the 1940s and 1950s. What we do in the forthcoming book The
Knowledge We Have Lost in Information and in the INET lectures is to
start off from Hayek and the Socialist Calculation Controversy. We trace
how the image of the market changes from Ludwig von Mises’ notion
that without markets you can’t calculate to Hayek’s notion that basically
without markets you can’t think, which is a much more dramatic state-
ment than anything found in the earlier classical liberal doctrine.
The next stage of the narrative notices that many people in the United
States who thought of themselves as ‘market socialists’ felt that they were
impelled to answer and refute this whole nascent neoliberal movement. It
just so happens that those people tended also to be the very same people
who brought the new sciences into economics after the Second World
War: members of the Cowles Commission, by and large. In fact, every-
one in the Cowles Commission during its Chicago period regarded them-
selves as refuting Hayek. It turns out these were many of the same
economists often credited with the genesis of the orthodox economics
of information – hence the neoliberal sting in the tail.
I don’t think many people are currently aware of that; but we’ve got
evidence showing that, for example, Leonid Hurwicz actually studied
with Hayek for a brief time, and explicitly said that he was trying to
refute him. Jacob Marshak was another key player, and he was one of
the early participants in the Socialist Calculation Controversy. Then we
can just go down the list – Kenneth Arrow, Herbert Simon, Stan Reiter,
and later Joseph Stiglitz and George Akerlof – and it’s truly amazing the
extent to which they formulate knowledge as an economic entity. So this
is a hidden history of 20th-century orthodox microeconomics, namely,
that it’s a bitter fight over this metaphor of market information. What
does it really mean to think of markets as information processors?
Basically, what happens after the 1980s is that the pro- and anti-socialists
begin to converge.

TCS: Perhaps one of the most interesting aspects of your recent work is
that you highlight the shift from a concern with the nature of the indi-
vidual agent to the institutional framework of markets. In other words,
what happens to the utility maximizing agent in a world where we focus
more and more on market design and market structure?

PM: The crucial point to recognize is that if markets have really come to
resemble these superior information processors, then the putative abil-
ities of agents become less and less important for the analysis. This is true

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10 Theory, Culture & Society 0(0)

for Hayek, and for modern neoclassical economists as well. Agents can
therefore become lumbered with all sorts of cognitive deficiencies, which
constitutes the rise of the so-called ‘behavioural economics’ that everyone
praises to the skies as a breakthrough in the history of neoclassical eco-
nomics. We instead approach it as an epiphenomenon of the increasing
contempt for the agent, and a growing anti-humanist stance, which is the
flip side of market as information processor metaphor. It also reflects the
general contempt for the masses (and democracy) inherent in neoliberal
political economy. A further trend we notice is that the ontology of
information slowly changes from being thought of as a thing to a kind
of statistical inference, and now as some sort of a computation (which
has serious implications for how a market is going to be modelled in the
future).
Nevertheless, what is of paramount importance is that the informa-
tion revolution changes the self-image of what economists are, and
what they claim to be able to do. In a sense, if economists are special-
ists in information processing, they can claim to possess the capacity to
be able to build boutique specialized markets from scratch. This turns
out to be something really new; and it is called ‘market design’. There is
no instance of any similar pretensions prior to the 1980s, and it has all
kinds of further implications for the evolution of the discipline. For one
thing, it’s great for economists to have a new way to sell themselves so
that they become part of the new commercialized science in the neo-
liberal university, because what they’re selling now is their engineering
expertise in building market structures. This underpins their general
contempt for the humanistic disciplines, with their hapless lack of
things to sell to the private sector. Then there’s another consequence,
which is even scarier. Namely, there abides an intellectual question as
to why economists should be able to build markets for clients at all,
when in fact most markets, at least in neoclassical theory, oper-
ate entirely according to the same monolithic principles. The danger
here is that by selling themselves as engineers, economists open up the
conceptual possibility that markets don’t all operate the same ‘in the
wild’ – something one observes in experimental economics and in the
so-called market microstructure literature – and that markets are there-
fore better understood as an ecology. But I don’t think orthodox
economists see themselves as entertaining this seriously, because many
market designers don’t comprehend that if you undermine the very
notion of the monolithic perfect market, you undermine almost every
aspect of neoliberal political doctrine, and you certainly undermine
formal neoclassical economics. So here we are, living in this weird
situation, poised again on the cusp of a massive intellectual
contretemps.
Alvin Roth has this interesting paper (2002) where he says that he
didn’t learn very much about building markets from theoretical game

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Lash and Dragos 11

theory, but took his cues from the anomalies. That’s a really important
statement, and I don’t think people understand its consequences very
clearly. If different market structures produce different effects, and if
economists have less and less regard for the cognitive abilities of the
agent, then this means that all the vaunted claims to ‘welfare superiority’
of markets are off. You can see how politically dangerous this might be,
and I am not aware of anyone in the profession having thought this
through with any sophistication. If any claims to welfare have become
groundless, because it’s a dog eat dog world with the air filled with lies
and deceit, then this poses serious challenge to the orthodoxy. In fact,
markets can be promoted as ways to manage and limit the cognitive flaws
[of the agent]; some market designers claim the ability to force agents to
‘tell the truth’, whatever that means in modern theory. This raises the
issue whether ‘markets’ are epistemically omnipotent or just imperfect
prostheses.
Moreover, I think these developments are also dangerous for neo-
liberalism; because how can the ‘market’ as a whole be a superior
information processor if it’s made up of all these individual subcompo-
nent wonky information processors, constantly misinterpreting events?
So the whole system actually is evolving in a direction that could poten-
tially undermine the bulk of its intellectual legitimacy; and Edward and
I thought that was a fun story to tell. Market design might even erode
the supposed centrality of prices to the economic system. In simple
neoclassical theory, everything was collapsed into price, whereas now,
in the brave new world of market design, economists should be con-
cerned with all the possible component functions of the market outside
of price discovery, especially ones notoriously ignored in the past.
For instance, consider questions such as recording of trade data and
dissemination of information. What is the size and the boundary of the
market? Who knows what when? How is information conveyed? How
do different market formats interact? How are property rights assigned
when they characterize alternative formats of a particular market? I mean
it’s amazing how much intellectual space is opened up. Again it ventures
far from the previous neoclassical orthodoxy, and people just do not
realize the extent to which this is happening. But this is me as a historian
speaking.

TCS: In Machine Dreams and in other recent papers (2007, 2010) you
argue for an algorithmic understanding of markets. You call this a theory
of markomata, or a computational evolutionary economics. This account
seems to gravitate around Vernon Smith’s experimental economics and
Gode and Sunder’s research program on zero intelligence agents. Could
you give us a brief introduction on these topics and their potential for a
novel understanding of markets?

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12 Theory, Culture & Society 0(0)

PM: Vernon Smith is a very important figure in modern history as he is

one of the pioneers of experimental economics; and he was also a
member of the Mount Pelèrin Society, and it shows up in his work.
When people think about experimental economics they think it’s about
finding out how people really behave, but for Vernon Smith it is dif-
ferent. He actually doesn’t believe in any of those refutations of so-
called ‘rationality’ or of other neoclassical presumptions by experimen-
talists, and he explicitly says so. This is because he subscribes to the
neoliberal precept that the market is smarter than everybody, however
dumb they may be. This is why it is OK to use undergraduates for these
experiments, because it doesn’t matter what they know or don’t know.
It’s the market that produces the results; to this end, he coins what he
calls the ‘Hayek hypothesis’, that basically, certain kinds of markets
will produce a neoclassical equilibrium result no matter what. He
allows some qualifications to this, which are not important for current
purposes.
Vernon Smith exemplifies the attempt to marry modern market
design with neoliberal doctrine, using computers as the primary tool.
I’m not saying I endorse his program, but one needs to have a working
understanding of it to grasp the significance of a secondary literature
following up on it by Dan Gode and Shyam Sunder. What they seem to
be saying is that if we believe Smith, we should want to know what it is
precisely that causes this convergence to standard neoclassical equilib-
rium in the face of mentally challenged agents. So they have this bril-
liant idea that they would set up one version of the Smithian market
experiment with students, and another set-up populated by zero-intelli-
gence agents (which are basically random number generators). The first
thing they found out is that both experimental set-ups give pretty much
the same result, so essentially, what people think and do doesn’t matter
to the outcome. This captures the essential anti-humanist stance of
modern economics. They then looked into this symmetry in greater
detail to try to figure out what about the computer algorithm caused
this. Their answer basically comes down to a set of rules about how
certain bidders and askers are pushed out of market participation as the
process continues. The other causal factor is the imposition of budget
constraints which operate as boundary conditions, such that simply
imposing a budget constraint on these otherwise zero-intelligence tra-
ders is almost enough to produce these supposed ‘Hayakian’ results. So
in a way, they took the neoliberal story that Vernon Smith proposed
and they recast it into a story that turns neoliberalism on its head.
Namely, Gode and Sunder demonstrate that markets produce their
regularities because of their particular rules and algorithmic structures;
markets are not themselves magic, but are limited information devices;
and this has not proven to be a popular position in the economics
profession. It is threatening because orthodox economists still want to

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Lash and Dragos 13

hold on to this idea that markets in some sense are astounding because
they give people what they want. Gode and Sunder say that it doesn’t
much matter what people want or don’t want, that it doesn’t much
matter what those people think or don’t think. Pretty much everything
that we take to be natural regularities in markets is an artifact of their
actual algorithmic design.

TCS: Another important consequence of adopting an algorithmic under-

standing of market structures, and you mention this in several instances,
is that they are more computationally expensive as they become more
complicated. In what sense can it be said that market algorithms evolve?

PM: Once we concede markets are actually algorithmic structures, and

that they differ tremendously in structure and output, then it is natural to
ask why we have the distribution and ecology of markets that we cur-
rently inhabit. The first place to look is to examine the distribution of
markets in terms of their computational capacities and their computa-
tional complexities. Some neglected economic history suggests the vast
bulk of existing markets are of rather low computational capacity and
low complexities (think of posted price formats in supermarkets, or vend-
ing machines). Some markets support greater complexity, but they are
generally of more recent provenance, and far less prevalent (modern art
auctions or stock markets).
I think what that suggests is that markets of increasing complexity
need highly specialized support groups to make them work at all,
because they are so complicated. They are more expensive to operate,
but also computationally awkward, whereas, as you would expect in
evolution, simple markets spread more widely because they are rela-
tively uncomplicated, and are robust to a wider array of participants.
Nevertheless, orthodox economists get this backward, and get far more
excited about the most complex market forms. Moreover, I think
people tend to conceptualize complexity in terms of technology, but
that’s not the intellectual crux of the problem. The key to classification
turns out to be the algorithmic structure of the market, which is an
analytically valid way to gauge the increased complexity; and yet, I
don’t see people entertaining that. This, by the way, is not at all the
same as some version of technological determinism. People often write
as though that’s the only important dimension along which markets
change. What little neoclassical economic history – cliometrics, mostly
– has been conducted on the long view of markets tends to focus on
issues such as the effect of the telegraph on markets, or else predicating
evolution on ‘trust’ in small social groups. But this reflects a pure
technological determinism that takes your eye off the actual evolution
of algorithmic structures of markets.

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14 Theory, Culture & Society 0(0)

TCS: You state repeatedly that your computational evolutionary theory

of markets still needs a ‘natural history of markets’. Why is this an
essential part of the puzzle for a revival of economic theory?

PM: If we accept Gode and Sunder’s results, this means that markets
don’t all do the same thing, and therefore must occupy different niches.
Vernon Smith doesn’t push that consequence of his own experiments; he
doesn’t manage to go there even though it’s an obvious implication.
Economists seem almost as bored with economic history as with the
history of their own doctrines. This lack of curiosity can also be traced
to the physics origins of neoclassical economics. They neglect the obser-
vation that ‘the market’ has not been a monolithic phenomenon perdur-
ing through time, revolving like some grand celestial mechanism, but
instead a conglomerate of changing structures. Probably this happens
because different markets are better suited for different situations. So
the revival of a serious economics should imagine at any juncture there
being an ecology of markets, with maybe some markets working better
with smarter people, maybe others working better with people who
devote little attention to them. Some scholars make the argument that
posted-price markets are more robust to the kind of agents they encoun-
ter, which is possibly why they are the most common type of market we
deal with in everyday life.
This opens up the possibility of an entirely different kind of economics,
where you’re not any longer even searching for the ‘laws of the market’.
In this approach, there are no laws of the market in the same sense that
there’s no single ‘law’ of biological entities. The parallels are revealing.
We humans are convinced we are so special, the pinnacle of evolution,
but actually the terrestrial sphere is mostly populated by beetles and
bacteria in terms of biomass. In the parallel case of markets we are
talking of forms consisting of very simple rules, which seem to be histor-
ically far more common than the elaborate algorithms at the pinnacles of
finance. This suggests a very different configuration of economics
research competencies than currently exists. It would be comprised of a
natural history of market forms, combined with population statistics of
their evolution; and a mathematical theoretical component deriving from
computer science, and not the residual fascination with calculus and
deterministic dynamics left over from the origins of the neoclassical
school.

TCS: More recently you have also addressed the issue of the recent
financial crisis and neoliberalism. What insight can we gain by looking
at the rules and algorithmic structures of financial markets? Does an
algorithm and evolutionary perspective allow us to shed light onto the
recent failures of certain derivatives markets?

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Lash and Dragos 15

PM: I have been working lately on some explanations for the crisis that
one doesn’t encounter very often in the popular press. In fact, you are
more likely to find it in the legal literature rather than economics jour-
nals. It has to do with the role of collateral in the rise of shadow banking,
and the way it is integrated into the repo market, which has a very special
market structure. Repos are derivatives instruments, which are essen-
tially fake sales coupled to repurchases. They are really loans, but are
effectively treated legally as sales, and for a long time have been situated
outside of the normal purview of the standard banking regulatory struc-
ture. In fact, you can argue that the repo market and how collateral is
handled has made all the difference to the precipitation of the 2008 crisis
(Gabor, 2013).
In the case of repos, you get the impression that collateral is built in,
because you supposedly sell an asset (high-quality, frequently sovereign
bonds) and then buy it back (repurchase), usually overnight. But actually
that is not true. As Annelise Riles (2011) points out, there is no such
thing as complete collateralization, and I think everyone needs to really
take that seriously. It costs money to keep track of collateral and it costs
money to claim it back, etc. These are not simple ‘transactions costs’, but
built-in consequences of the rules of transaction and clearing and bank-
ruptcy. But as soon as banks started to get involved in the repo market, it
became clear that it wasn’t just a costs centre, but that you could turn it
into a profit centre. Simply put, collateral can be reused over and over
(rehypothecated is the term of art), separate from the original repo, and
then it becomes very hard to claim it back. Effectively, at any point in
time no one knows where the collateral actually is any more. I mean there
are organizations and structures in place that try to keep track of it, but
the truth of the matter is that nobody really knows where the collateral
rests. Part of the problem in the crisis was that there were collateral
calls on the Lehman Brothers repo just prior to the collapse, and
they couldn’t find it. Something that seems on the surface just a techni-
cality, not important or just a minor side issue to the act of lending, turns
out to be one of its central aspects, causing vulnerabilities in the entire
system. This illustrates how the understanding of market formats and
algorithms can illuminate something as large as macroeconomic collapse.
It’s also possibly central to the recent European sovereign debt crisis;
and here’s why. Everyone wanted good quality collateral on the
Continent, but there were not enough German bonds to sustain the
amount of repo that was going on in European shadow banking. The
ECB took it upon itself to do a number of things to unify Europe’s
financial markets, so consequently it allowed for the treatment of the
sovereign debt of all Eurozone member countries as effectively the
same, for collateral purposes. Collateral became doubly evanescent.
This is one of the reasons why the whole international shadow banking
sector might have collapsed in 2011. That’s why the ECB was so willing

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16 Theory, Culture & Society 0(0)

to prop up Greek debt at that early juncture, that is to say, to sustain the
whole system. The reason that they’re not so willing to do so in 2015 is
that the ECB has pulled back from the earlier rules; almost nobody uses
Greek debt anymore as collateral for repo, and so a default now wouldn’t
be quite as destructive to the system as it would have been in 2011. I’m
surprised that almost nobody tells this story (Daniela Gabor is the hon-
ourable exception) – that it isn’t merely that some banks ‘got into trou-
ble’ though over-lending, but rather that the whole financial system
depends upon minor aspects of rules and practices within particular
markets.
Shadow banking is predicated on the neoliberal notion that borrowers
and lenders can be trusted to police the rules of their own market con-
structs. Right up to the crash, the whole system was predicated upon a
lie, which is that if any part of the system runs into trouble, there exists a
subset of actors who can pull out by being first in the bankruptcy queue
to claim their collateral, and thus not be harmed. The crude way of
saying this is that crucial deformation of financial markets for the last
two decades has been the consequence of legal expansion of the safe
harbor principle. Certain classes of creditors, such as repo or other
derivatives holders, are permitted to change the rules so that they
don’t have to go to bankruptcy courts to supposedly claim back whatever
can be claimed from certain failures of their counterparties. The effect of
that has been to render the entire system more fragile. This whole idea
that you can protect yourself and everyone else be damned seems to work
when everything is working fine – the collateral works fine, the counter-
parties follow through, etc. It is only when the real crisis hits that you
begin to see the fundamental falsity of the theory that lies behind these
structures, and it’s the foundational neoliberal idea that the market
knows more than any of its participants. So, for example, if a particular
creditor and debtor get together and make a side arrangement to hide the
extent of the debtor’s leverage, that’s fine. Markets will reveal all that
needs to be revealed. Something like that is reputedly efficient because the
market is the greatest information processor known to mankind. In
many ways, this is the world that the economic orthodoxy has helped
create.

TCS: It is interesting that you refer to this world that economic ortho-
doxy has helped to create, as it goes beyond the structure of certain
derivatives markets and tells us something about society more broadly.
This is also evident in your description of neoliberalism in that it extends
towards much more than just an economic theory. In your book The
Road to Mont Pele`rin (2009) you talk about the neoliberal thought col-
lective and you describe this as a wider cultural phenomenon that tran-
scends politics, philosophy or economics.

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Lash and Dragos 17

PM: I just want to be clear that I don’t think that many people fritter
away their free time reading Hayek, Becker, Buchanan or Friedman. But
the historian Jennifer Burns has this wonderful insight when she
describes Ayn Rand as ‘the ultimate gateway drug to life on the right’
(Burns, 2009). I think that’s exactly right, namely that a certain picture of
the world is learned at a very early age, usually by teenagers reading
fiction or watching movies or going online. Some of them might go on
and learn a little bit more about politics and economics, but in a weird
sort of way that is unnecessary. Because the current culture gives them
just enough to behave in ways that the neoliberals describe as being the
ideal entrepreneur of the self, confusing freedom with imaginary lack of
constraint, and so on and so forth. No one has to read Foucault. Just
watch The Apprentice, or spend a little time on Facebook. So it’s weird
that there is this sort of cultural gateway drug that allows you to kind of
buy into this stuff without actually understanding it very well. I would
argue that even people who may say they are sympathetic to neoliberal-
ism don’t understand it very well. It’s not necessary, though, because you
there’s just enough of this stuff around that they can pick it up as a
worldview that denies the existence of ideology.

Notes
1. See: http://noahpinionblog.blogspot.com/2015/05/economists-dont-have-phy
sics-envy.html
2. See: https://www.youtube.com/playlist?list¼PLmtuEaMvhDZbLdt6L9Pz1o
qhUwbY3bkQT

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De Marchi N (ed.) (1993) Non-natural Social Science: Reflecting on the
Enterprise of More Heat than Light. Durham: Duke University Press.
Gabor D (2013) Shadow interconnectedness: The political economy of
(European) shadow banking. Available at: SSRN: http://ssrn.com/
abstract=2326645 (accessed September 2015).
Mirowski P (1984) Physics and the ‘marginalist revolution’. Cambridge Journal
of Economics 8(4): 361–179.
Mirowski P (1989) More Heat than Light: Economics as Social Physics, Physics
as Nature’s Economics. Cambridge: Cambridge University Press.
Mirowski P (ed.) (1994) Natural Images in Economic Thought: Markets Read in
Tooth and Claw. Cambridge: Cambridge University Press.
Mirowski P (2002) Machine Dreams: Economics Becomes a Cyborg Science.
Cambridge and New York: Cambridge University Press.

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18 Theory, Culture & Society 0(0)

Mirowski P (2007) Markets come to bits: Evolution, computation and marko-

mata in economic science. Journal of Economic Behavior & Organization
63(2): 209–242.
Mirowski P (2010) Inherent vice: Minsky, markomata, and the tendency of
markets to undermine themselves. Journal of Institutional Economics 6(4):
415–443.
Mirowski P (2013) Never Let a Serious Crisis Go to Waste: How Neoliberalism
Survived the Financial Meltdown. New York: Verso Books.
Mirowski P and Nik-Khah E (2016) The Knowledge We Have Lost in
Information. Oxford: Oxford University Press.
Mirowski P and Plehwe D (eds) (2009) The Making of the Neoliberal Thought
Collective. Cambridge, MA: Harvard University Press.
Riles A (2011) Collateral Knowledge: Legal Reasoning in the Global Financial
Markets. Chicago: University of Chicago Press.
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Cambridge University Press.

Philip Mirowski is Carl Koch Chair of Economics and The History and
Philosophy of Science, and fellow of the Reilly Center, University of
Notre Dame. His books include, as author, Machine Dreams (2002),
The Effortless Economy of Science? (2004), Science Mart (2011) and
Never Let a Serious Crisis Go to Waste (2013); and, as editor,
Agreement on Demand (2006), The Road from Mont Pelerin (2009). He
has also worked on history and analysis of the commercialization of
science, a computational complexity approach to the crisis, and a history
of the Bank of Sweden Prize in Economics, sometimes called the Nobel.
He was awarded the Ludwig Fleck Prize from 4S in 2006, and has been
visiting professor at Yale, Oxford, New York, Duke, Paris, the
University of Technology-Sydney and the University of Amsterdam.

Scott Lash is Professor and Research Director at the Centre for Cultural
Studies at Goldsmiths, University of London. His recent books include
Critique of Information (2002), Global Culture Industry (2007) and
Intensive Culture (2010). His books have been translated into 15 lan-
guages. He has directed a series of large-scale research projects on tech-
nological media from 1996 to present. He is currently running a project
on the Chinese city, in regard to which he has learned Mandarin. This
research has been published under the title China Constructing Capitalism
(2014).

Bogdan Dragos recently received a PhD from the Centre for Cultural
Studies at Goldsmiths, University of London. His research interests
include the history of financial markets, the impact of technological
innovation and the recent rise of high frequency trading.

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