Agent based simulations visualize Adam Smith's invisible hand by solving Friedrich Hayek's Economic Calculus

TL;DR

This paper uses agent-based computer simulations to visualize how division of labor and environmental heterogeneity create synergistic economic interactions, supporting classical theories of invisible market forces.

Contribution

It demonstrates how emergent social synergies from division of labor can be modeled and visualized in a virtual economy, providing insights into complex market dynamics.

Findings

Synergies arise in heterogeneous environments with complementary activities.

Homogeneous environments eliminate benefits of division of labor.

Synchronization among agents enhances economic output.

Abstract

Inspired by Adam Smith and Friedrich Hayek, many economists have postulated the existence of invisible forces that drive economic markets. These market forces interact in complex ways making it difficult to visualize or understand the interactions in every detail. Here I show how these forces can transcend a zero-sum game and become a win-win business interaction, thanks to emergent social synergies triggered by division of labor. Computer simulations with the model Sociodynamica show here the detailed dynamics underlying this phenomenon in a simple virtual economy. In these simulations, independent agents act in an economy exploiting and trading two different goods in a heterogeneous environment. All and each of the various forces and individuals were tracked continuously, allowing to unveil a synergistic effect on economic output produced by the division of labor between agents. Running simulations in a homogeneous environment, for example, eliminated all benefits of division of labor. The simulations showed that the synergies unleashed by division of labor arise if: Economies work in a heterogeneous environment; agents engage in complementary activities whose optimization processes diverge; agents have means to synchronize their activities. This insight, although trivial if viewed a posteriori, improve our understanding of the source and nature of synergies in real economic markets and might render economic and natural sciences more consilient.