Networks and economic history

Since Paul Krugman and others are talking about the role of networks in economic history, let me throw this classic paper by our own Morgan Kelly into the mix (thanks to David O’Donnell for the link to the ungated version).

4 replies on “Networks and economic history”

Re: Coase talks about influence on his 1937 paper


There is another law in relation to networks, that works by a cubic, rather than a square function as Metcalfe does. That is Reed’s law. Reed’s law, has less to do with members included in one group, so much as groups themselves, that were previously un-connected, being connected together. It operates by different mathematics, and it is probably the law that really creates the euphoria, that we observe about social networking etc.

Group to group, or sort of like ‘many to many’.

Many to many, is actually a technical engineer’s term used in the architecture of database systems, . . the most difficult and complex ones, . . . but ones, which potentially lead to great value being discovered.

A good example of cumbersome technology, being applied in a real world context I noticed, was in an episode of Mad Men, where the ‘lunch room’ in the ad agency, being demolished to make way for an IBM 360 machine, dedicated to performing calculations to find out accurate prices for television advertising time slots.

A bit like the way, that airline ticket price calculation started to work at the time too (Aer Lingus, were ahead of their time in that area too, although we didn’t cash in on it). One of the men, who built the first computers in Ireland for the sugar company business calculation of receipts for farmers, moved to Aer Lingus back in the 1960s I think.

Most of the key thinking about databases though was put down in the 1970s by Edgar F. Codd, so it is really quite recent.

RTE broadcast a documentary recently about the Ryanair ticketing system and its early website. You could again see in that case, a sort of Reed Law in motion, and how it removed distance, between people, places and markets. Again, very, very recent stuff, so it’s hard for us to have a perspective on how big this stuff is.

Suffice to say, these big movements in technology, have a habit of showing up first in places such as air travel, where prices of things and large groups are concerned.

Heck, Black Scholes Merton, reached only forty years of age recently, putting it somewhere in the same age category as Edgar F. Codd’s work.

Reed’s law that I mentioned is even more recent, and we still have not fully figured out a fraction of how it works.

By far and a way the best counter point to any of it, . . . I think, is the 1937 Coase paper. It at least tries to offer some explanation, why everything doesn’t just fly apart, and become a zillion small pieces, . . . or to borrow a phrase, many parts loosely joined.

In an interview at Econtalk with Russ Roberts in 2012, Coase himself mentioned:

Oh, well, I was a socialist at that time. I had [?] some influence [?]. I didn’t start with the views I now have, but I was a socialist; my parents voted for the Labour Party, and one important person that we knew was who was Ernest Bevin [?], General Secretary of the Transport and General Worker’s Union, which was the largest union in Britain. So in those early days I was a socialist. And that may have had some effect in leading me to “The Nature of the Firm.” Very likely.

Roberts had asked Coase, if his paper had described an island of socialism, inside a sea of capitalism. The audio recording is available on the Econtalk website, Coase on Externalities, the Firm, and the State of Economics. BOH.

Re: Morgan Kelly’s facinating paper –

The Chinese already had a sound dynamic theory of networks.

‘The Tao

gives birth to the One:

The One gives birth to the two;

gives birth to the three –

The Three gives birth to every living thing.

All things are held in yin, and carry yang:

And they are held together in the ch’i of teeming energy.

[Tao Te Ching, #42]

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