00:00 We experiment with artificial capitalism.
00:53 This capitalism obeys laws and exhibits regular behavior.
02:53 Its dynamics resemble long-run profit maximization (MBLP),
03:38 which converges to the Von Neumann (VN) growth model.
04:15 Prices gravitate around theoretical prices.
05:50 Perfect efficiency is not achieved.
06:56 Cycles of decreasing amplitude are observed.
07:34 Strong inequality arises,
09:01 due to advantages in exchange or efficiency.
10:54 Cooperation and clientele networks emerge.
12:14 Capitalism works: it manages to regulate the economy,
13:09 because it acts like a real algorithm.
14:08 But it works poorly: it presents inefficiency, cycles, inequality, dehumanization, etc.
14:26 How does the market manage to resemble MBLP even in the first session?
16:27 Sraffa and VN model the long term,
17:55 while MBLP approximates the entire dynamic.
18:22 Госплан-Gosplán illustrates the difficulty of the allocation problem.
19:27 Our pure capitalism shows great differences compared to real capitalisms.
19:52 A first presentation on the research has been given.
20:36 With this data, we can try to understand the laws of capitalism.
Transcription (verbatim)
00:00 We experiment with artificial capitalism.
The big problem with economics is which is not an experimental science, it can't be experimented with, we can't build an experimental capitalism. So, capitalism is extremely complex.
The same thing happens in other branches of science. Atmospheric gases are also extremely complex. What do physicists do with gases from the atmosphere? They take a flask, put hydrogen in it, at very low density, very high temperature, and analyze what happens with that artificial system.
That couldn't be done in economics until now. We have done it, we have built a artificial capitalism, especially simple, very simplified, like as hydrogen gas at high temperature and low pressure, and we have analyzed what happens. So what happens is quite surprising, to say the least, for not say something else. Here we are; well, that's it.
00:53 This capitalism obeys laws and exhibits regular behavior.
What's happening is this. These are the three semesters, the first, the second, and the third. As you can see, the three behaviors are quite similar, and that's the first striking thing: capitalism obeys laws and behaves regularly. Wheat rises, iron falls. Wheat rises, iron falls. Wheat rises, iron falls. In all three semesters you did something very similar. I didn't tell you to do that. You did it. That means that capitalism can be scientifically analyzed, because it follows regular patterns and laws can be found about it.
Have laws been found about that? Look at the fourth diagram. Wheat rises, iron falls. These equations here are equations that: can be understood as a particular case of the theory of general equilibrium; they can also be understood as an alternative theory to the theory of general equilibrium. Then I'll explain later.
If we take a look at the production of wheat, this is what the equations say: the red line. The blue line is what happened in the first semester; no, sorry, the second semester. The green line is in the first semester. In the second semester they played a lot of sessions, as you can see. You've played half of it. But if you look the behavior, the behavior is very similar. You are a little more efficient than the first semester, you see, less than in the second.
The same with iron. Look. But I didn't tell you to do this, you did it. That means that capitalism can become predictable, or at least it can be analyzed. And that is what you have demonstrated it, because [experimentally] until now there was no evidence, no proof, nor any argument for that.
02:53 Its dynamics resemble long-run profit maximization (MBLP),
What there was more was the red line, and for that the red line is a a rather "heterodox" theory, so to speak. The red line is a particular case of the general equilibrium theory, when it is assumes maximum efficiency, when it is assumed that consumption takes place at infinity. So when long-term profit is maximized [MBLP] behavior has to be the red line. You have been quite like that, quite a bit, more inefficiently, with cycles, etc., etc.
This is on a logarithmic scale. Logarithmic scale you simply calculate, you simply express another scale. Instead of going from one to one you go from 10 to 10, from 5 to goes to 50, from 50 it goes to 500, from 500 it goes to 5000. As you can see, the behavior is very similar. All right.
03:38 which converges to the Von Neumann (VN) growth model.
This is the production. The four sessions, that is, the three semesters and the theory superimposed, and behavior it is very similar: wheat rises, iron falls.
And here in theory it behaves so what is it called? This part here, not this part here, this part from here is quite heterodox, I did that one. It's a generalization of the Von Neumann model. This one here is the Von Neumann model, these are two red lines, aren't they? It's exponential growth. The behavior in your months it tends to behave long term like that exponential growth.
04:15 Prices gravitate around theoretical prices.
Well, let's go a little further. These are the rates of exchange. The theory says that in the first session the wheat has to look like iron in price, then the price has to go up of iron, until finally the price of iron converges to be 15 times the price of wheat. This is what they did in the first semester, the second semester and the third semester. At the end it go to 15, in the end it fluctuated around 15, in the end you were around 15. Ah. And this is superimposed. Is the theory accurate? No, there are clear oscillations about the theory. But the theory does give an average guideline of your behavior.
This is a quote from Adam Smith: "The natural price, therefore, is, as it were, the central price, to which the prices of all commodities are continually gravitating." It is The Wealth of Nations. If you look at the first semester the price did so, as gravitating around what? around 15, which was the equilibrium price. In the second semester the same, around 15. And you, as you lasted less, you began to gravitate, but you only made half a revolution, right? This is the theory. The theory says that there are no revolutions, it goes straight here.
Regulation. Well, I'll skip this, I skip it, I skip it, I skip it, I I skip it.
05:50 Perfect efficiency is not achieved.
Efficiency. Theory is the maximum possible efficiency, there can be no more efficiency. It's here. These are the growth rates of the wheat, in blue, and iron, in orange. In the end there has to be a maximum growth rate 25% at each step. You, well, in the first semester fluctuated around 20%. They are not perfectly efficient, but it does come close to the maximum efficiency. In the second semester, the same around 20%. And in the third semester you started to get close to 20%.
Wheat growth rates. There you have it. superimposed, in red is the theory, in green the first semester, in blue in second, in orange or yellow you. In the end you approached the 25% maximum.
The same goes for iron. Note that it is striking, as the theory says there is to do like this, like this, like this, and all three cases did something let's say oscillating but similar to that.
06:56 Cycles of decreasing amplitude are observed.
Stability, cycles. This is the proportion of wheat and iron. The theory says that it begins with 1, because we started 1000 and 1000, right? goes to 4, then goes up to 19.1666666666 and it stays there. But it is that in the three semesters fluctuated around 19.16666. This is superimposed. This is 19,166. This, Well, I'll skip it, I'll skip it.
07:34 Strong inequality arises,
Inequality. First semester: huge inequality, and that's despite the fact that There was so much inequality in session 11 (you you didn't get to that point), that there was so much inequality that I had to do a redistribution of the wealth, because practically only one could play very limited number of people; the rest could not play. What I did: I took 10% of all the wealth, I took it from the rich, from everyone, and I shared it among all the others.
Despite that in the next class the situation was practically the same: a huge inequality, both in wheat as in iron.
The second semester is the same: a tremendous inequality, tremendous. That is 1 2 3 4 5, over 70, 72% of the top five, of all the wheat and all the iron.
You. You guys are shorter because you've played less. sessions, right? The biggest owner in the end had 26.6% of wheat and the first five They had 86.7% of the wheat. A lot.
These are the Lorenz curves and they are all very similar, If you see. The behavior is very similar in the three semesters. These are the coefficients of Gini. They come out to a ridiculous 0.9. There is no country in the world that has 0.9 or 0.8. It's nonsense. Pure capitalism is tremendously unequal. There you have it. This is your behavior, exceeding 0.9.
09:01 due to advantages in exchange or efficiency.
There is still to be analyze the data, there is a lot of data, a huge amount of data, and I'm not clear why this inequality arises.
So, at some point In this case it seems that inequality comes from the exchanges, it seems that the companies that are from above they get better exchanges and from that's how they manage to grow more. This is the case of the company that won the second semester, the company Ironharvest. The four co-authors were: by the way. And it got a higher return than the possible How is it possible to obtain a return greater than possible? Exchanging and getting bigger trades. If you play alone at most you can get the performance of this blue line in wheat, and this green line in the iron. But it is that they outgrew, uh, outgrew the growth maximum. It had to be through exchanges, in this case.
But the company that won with your semester, the Triorama company, congratulations, they didn't actually get things that way. In fact they started playing extremely badly, because Triorama is the blue line, this one here, and the red line, this one here; and they played worse than the class average, the first sessions. But from here on, from the fourth session, they started to play extremely well, and in fact in wheat they approached maximum efficiency and in iron they exceeded the maximum efficiency. Eh, Here you have it. This, the green line, is the maximum efficiency of both wheat and iron. Triorama in iron exceeded efficiency maximum, from the fourth session, although the wheat was left at the bottom, right? The line yellow and the brown line, or sorry gray, They are the wheat and iron of the rest of the class. Sorry, but Triorama won.
10:54 Cooperation and clientele networks emerge.
Networks. Well, There was everything. There were behaviors very striking in some cases. There were people who had relationships, sometimes they were boyfriends and that's why they shared the thing, other times they were simply classmates. Some specialized in wheat, others specialized in iron, but they did not form a company.
That was the case of Roser and Hector, in the second semester, that came to have an identical efficiency or almost identical to maximum efficiency. Each produced one thing, wheat and iron, they exchanged among themselves, they also exchanged with others. And look, the green line is the maximum efficiency From wheat, look what Roser achieved: practically the same, practically the same, It almost overlaps the line, right? The blue line It is the iron, and the gray line is superimposed to the blue one. This was Hector. Exchanging enters They get almost maximum efficiency.
But there was other types of relationships. This is the tangle that I I'm going to have to unravel line by line with the first semester. You can already imagine the I'm going to throw myself away for months, right? This is wheat, this is iron. This is the second semester. This is going to be very beautiful. This is wheat, This is iron and such.
12:14 Capitalism works: it manages to regulate the economy,
I was hesitating until the final decision on whether or not to do a session today. I decided no, mainly because I was afraid that someone If he had a strange idea, he would do something strange. Let's not tempt the devil, okay? We're done. the game and that's it. I don't look at anyone, I don't look at nobody.
Well, a few considerations. First: Our three simulations worked, that is, they managed to regulate the economy, they managed produce the wheat and iron needed for regulate the economy. They regulated the economy. And this is the reason why we live in a capitalism.
We live in a capitalism because capitalism manages to regulate the economy. Someone might say: well, that's not much merit. That is an incredible merit. Incredible, It's incredible that this is achieved. It's incredible that it you have achieved, because the problem is of impressive difficulty. So, when you put it mathematically you realize realize how difficult it is.
13:09 because it acts like a real algorithm.
How is it possible that you and your classmates from the semester first and second have managed to regulate the economy? That's why we live in a capitalism. It is an important reason.
The reason is that you, acting as entrepreneurs independent and exchange among yourselves, you were imitating the way of acting of the mathematical algorithms that mathematicians we use to solve the problem. That is, when I solve the problem, a tremendous problem arises, brutal. I use some algorithms, where there are some Lagrange multipliers, where there are very complicated things. When you do a market it turns out that you are imitating what they do the algorithms. And how do you make a real algorithm? and since algorithms are a mathematical market, This is how the solution is achieved and this is how it is achieved the solution.
14:08 But it works poorly: it presents inefficiency, cycles, inequality, dehumanization, etc.
The problem is that here there is no get perfect shape. You have already seen that no maximum efficiency is achieved, far from it: There are cycles, there are disproportions, etc. Good. But it works badly. Aha. There's inefficiency, There are cycles, there is inequality, etc.
14:26 How does the market manage to resemble MBLP even in the first session?
Theorists. Now let's get to the thing that, to me, not only me but also Barceló and other people. Well this game was invented in a more primitive by my thesis director, Alfons Barceló, in 1977. Uh. And he did it in a different way. We have modified it so that it could be an experiment, okay?
So what is more surprising is not what I have just told you; what is most surprising is what happened in the. That is, that in the long term the system will eventually behave as the theory says, more or less, let's say that's what I expected. But I didn't expect this and this. And now we'll see what is that?
This is the proportion of wheat and iron. That in the long term the proportion of wheat and iron that you and your colleagues, you managed to achieve it is close to 19.16666 which is what I expected. was going to happen. But I didn't expect that in the first session the proportion of wheat and iron would also resemble maximum efficiency. It's incredible. It's incredible because the maximum efficiency is a long-term mathematical problem, it is a long-term maximization, which is practically impossible to calculate a priori. And you all achieved something very similar.
But the same thing happened with prices, in the long run term 15. But it is that in the first long-term session in the long term, wheat was practically worth the same as iron. So here it was more or less 4 and when in reality the theory says 19,166, here more or less the same when in reality the theory says 15.
That's a mystery, I don't know how to explain it, and I don't know any economic school that can explain it. I've covered them, eh. It's truly amazing.
16:27 Sraffa and VN model the long term,
Let's go with the theories. You can say "Well you couldn't have known what was going on to pass, I don't know what."
This gentleman here is called Piero Sraffa and in his 1960 book he wrote these production processes that may sound familiar. 280 of wheat plus 12 of iron: 575 of wheat; and 120 of wheat plus 8 of iron: 20 of iron. And what Mr. Sraffa calculated with these equations from here? He calculated that the price of iron had which is 15 times that of wheat. Indeed, it is the long-term behavior. Piero Sraffa knew this before you played and before that you were born; and I too, I neither was born. By 1960 he already knew that the solution was 15, and he knew that the maximum efficiency was 25%. Hey, come on.
This guy here is called John von Neumann. John von Neumann developed the theory of this, that is, the theory of long-term behavior of the system, which we have already seen that it resembles. It did not develop the theory of the beginning, that is, but well, he did that and the behavior is similar and such, right? To John von Neumann's.
This page here; yes, I think it was you; I don't know if it was you; It was you who said I couldn't know what was going to happen, right? in the simulations. This is my doctoral thesis and here is the solution to the problem. Yes, I could know what was going to happen. Come on.
17:55 while MBLP approximates the entire dynamic.
These are the equations in a form simplified, in a simplified form, are the equations to be calculated for dynamics. I just put them I put them in six time steps, but actually I; Well, these are matrix equations, this here that this is a matrix, etc., etc. It is a quite complex thing. It has to be solved in reality at least 25 time steps away. Well, There are the equations for you to see. These are the solutions to the equations; we've seen.
18:22 Госплан-Gosplan illustrates the difficulty of the allocation problem.
Well, teaching tool, out with it. Let's go with something striking. I told you that this It is an enormously complicated problem. It is, it is tremendously difficult. Here we set a task alternative (Rebeca is laughing), eh, we put an alternative task. I was sure that nobody was going to get it. In fact, in the second semester I set this assignment and no one got it.
Rebeca did it. It was amazing. When you analyze what Rebeca did, it's more surprising still, because Rebeca in the first session practically achieved maximum efficiency. I don't know how the hell she did it, by chance, I suspect, huh. Yeah, she says so. She got the maximum efficiency, with the first session, the first plays, the first two plays, maximum efficiency. Afterwards she no longer obtained the maximum efficiency. Still, of course, as it started from a very advantageous position of the first two sessions, managed to outperform the rest of the class, with which she achieved the goal she wanted. Very good, Rebeca, very good.
19:27 Our pure capitalism shows great differences compared to real capitalisms.
Good, relationship with the real capitalisms. Well, let's quote this. simply. Uh, our, well silence, please. Our simulations look similar in part to real capitalisms; but we have to be aware that there are also great distances, right? There's the welfare state, etcetera, etcetera, right? We have done a skeletal capitalism, okay? I'll skip it, I'll skip it.
19:52 A first presentation on the research has been given.
And here's the presentation. These Gentlemen here, this is me, the others are 17 of your colleagues who have a presentation at an international conference, eh. I'll try to get as many of you as possible in. onwards. These are the participants.
Well, one more thing. I want to congratulate those of you who have played. You have done very well, some have done especially well. You have done it even better than the first semester, which is surprising because in the first semester they put all. You have distanced yourself a little more, you have not played, those who have played with a smaller number of the class, but well, pretty good, eh, not so good as the second semester but better than the first, right?
20:36 With this data, we can try to understand the laws of capitalism.
So, this data here are gold, because it is literally an experiment with a rarefied, isolated gas, hydrogen at high pressure and low temperature. From there it will actually be able to deduce the laws that the capitalism. We cannot do it from reality, reality is too complex, it's like try to deduce the gas laws from atmosphere: it is impossible. But from from here yes.
Then I want to thank you for your effort, you will really see how it comes out Let's get this started, okay? To get this going.
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