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Those lumps matter

from Peter Radford

I feel bad for anyone who ventures into the social sciences.  Society is, after all, a devilishly complex subject.  Pull on any one string and you can convince yourself that you have understood it only to realize the next day that you missed the entire story.  It’s a maze: enter at your own risk.

Of course the flip side is that you can never be entirely wrong either.  Just about any half-baked idea has a smidgeon of truth hidden within it.

Take a look at mainstream economics.  It’s about as nutty as can be, based as it is upon axiomatic foundations that bring gales of laughter to anyone seriously interested in depicting or comprehending reality.  But we have whole academic departments filled with very clever people who cringe disbelievingly at the ridicule outsiders hurl at them.  What do those silly outsiders know?  Aren’t they impressed by the elegance of it all?  The intellectual rigor is stunning.  It takes a lot of raw brainpower to keep the discipline aloft midair whilst pretending to be rooted firmly on the ground.

One outsider I admire — Daniel Dennett — uses the words “sky hook” to describe an idea that is used to support an intellectual edifice in place without proper foundation. The idea is to create the illusion of a solid foundation, and to start the argument above, rather actually on, the ground.  The history of ideas is littered with sky hooks.  Economics is full of them.

“As If” is a sky hook. 

If something looks a tad complex, perhaps too intractable for the standard math or, perhaps, ideologically inconvenient, then economists argue that it behaves “as if ” it were simple.  So they blithely sweep aside complexity and discuss the simplicity.  “As if ” arguments can be found in several key corners lurking to disguise the dismissal of swathes of reality that might fog up the pristine vision economists want to impose on the landscape.

For instance: we all now that the economy is a bit more complicated than the simple combination of a few producers and a few consumers interacting as equals in some information flooded space.  For one thing geography matters.  Distance is a reality.  So is the resource endowment of this side of the mountain as opposed to the other side.

Distance had its day in economics, it helped spur the original thinking around marginality.  The distance from market implies a cost curve for the logistics of travel and moving goods.  The rest is history.  Nowadays employees are valued at their marginal productivity, as if it is possible to calculate such a quantity.  How, exactly, does a corporation of a few thousand people extract such fine information from the web of its activities?  Arbitrarily. So much for the theory.  But it sounds really good.  And it is a wonderful simplification.  So economists love it.  It helps maintain the integrity of their math.  That it doesn’t reflect reality is neither here nor there.  Businesses are assumed to act “as if” they could calculate marginal productivity.  It fits better with the models.

Most of economics strikes me this way.

Structure is another example of something economists leave aside.  The economy is inherently lumpy.  Those lumps matter.  The economic landscape is littered with various types of organization.  That organization doesn’t always fall neatly into the two bucket system of economics.  You cannot collapse all the nuances of organization into a binary choice.  The problem with this lumpiness is that it needs explanation.  Why does the real world seem to be full of exceptions to the super simple binary world posited in economics?  It seems to me that the simplicity of a market — as discussed in economics — is the exception and not the rule.

It’s impossible to reflect reality with “representative” anythings if everything is unique.

The irony is that the most eager of free-market advocates acknowledge the inherent complexity of the real world.  Indeed, the most ardent of them deploy complexity as the most obvious and devastating element undermining the concept of “central planning”.  How on earth could anyone one gather all that information, process it, and come up with the most efficient solution to whatever question is being posed?

Well, no one could.

The economy has a computational problem.  It cannot be computed.  There are too many variables.  There is too much information, too many inconsistencies, illogical oddities, and inescapable contradictions.  No one could possibly get the “right” answer to that mess.  Whatever the right answer is.

But here’s the sky hook: that intractable problem, the one that no one could possibly solve, the one where all that information is simply impossible to collate into a coherent whole, well, what do you know?  The market can fix that!

The impossible becomes possible.

Magically.

The “as if” sleight of hand brings order to that disorder.

You see, it’s like this: all those lumps and impenetrable bumps, all those knots and twists all get smoothed out if you squint hard enough and imagine that the roiling perpetual motion and change of the real world is actually a manifestation of some flat land perfectly manicured and ordered.  You just have to imagine it.  There’s order in there somewhere if only you squint hard enough.  It’s disorder imagines “as if” it were order.

Once you manage to understand that, once you use your imagination, all becomes clear.

Not only this, but you can also believe that anyone introducing lumps back into that nice flat land is disrupting everything.  They are making the flat land uneven.  They are being inefficient.  They aren’t introducing reality.  Heavens no!  They are messing things up.  They are getting in the way of the inexorable forces of flatness.

I live in the mountains of Vermont.  They aren’t very big mountains because they’ve been around too long.  They have a history which is part of the explanation for them.  I have some very large rocks sitting on the land out back.  The glaciers put them there.  They’re called erratics.  They aren’t some glitch on an otherwise flat landscape.  They are the landscape.  So are the streams and ponds they sit next to.  I don’t have to erase all the topography to get an understanding of the Vermont landscape.  To flatten it is to erase it.

So it is with economics.

The landscape of an economy is inherently lumpy.  Power relations.  Social ties. Geography. Culture.  Knowledge concentrations. Technology. Networks of various forms. And amongst it all: organization.  These are the things that determine the economic order.

The economy is anything but an arbitrarily defined binary landscape with producers and consumers, or market and governments, or supply and demand.  Nor is it static.  Nor is it inexorably determined.  It has evolved, and still is evolving, within a context.  It is, to channel David Bohm, in a constant state of becoming.

We organize in order to overcome our lack of certainty.  We offset the computation problem by breaking it up and organizing the bits.  We create as much local order as we can by asserting control over small parts of the whole.  We flood energy into the spaces we control to bind things together.  We create pockets within which to operate insulated from the wider world.  We create rules and institutions to act as structure to channel work.

And by doing so we extract what we can from the disorder around us.  We substitute our own imperfect but more orderly reality for the uncertainty we find.

We create lumps.

Yes, lumps matter.

They are what economists need to study.  Why are there lumps?

Don’t talk to me about the flatland.  We don’t live there.

  1. Craig
    October 25, 2018 at 7:40 pm

    What is the beingness of “a constant state of becoming”? It is the continually interactive and integrative process-state of discovering and resolving truths in opposites AKA Wisdom, AND INCLUDING the pinnacle concept of Wisdom know as grace, which is itself also the above state of beingness applied to whatever one is examining in the temporal universe or one’s own. For instance monetarily and economically it is grace as in Monetary Free Gifting, and financially it is grace as in Debt UNburdening as opposed to continual and ever increasing Debt/Burdening. Individually it is grace as in love in action-process-behavior, i.e. graciousness.

    Resolve the conflicting complexities and smooth out the lumps with the various aspects of the universal solvent of the concept of grace….and then keep on applying that “constant (integrative) state of becoming”.

  2. Frank Salter
    October 26, 2018 at 8:24 am

    There are two completely separate aspects of reality. Economics conflates the two.

    The decisions and actions of people are one aspect. They may change arbitrarily — peace to war is an extreme example. These decisions are essentially unpredictable.

    However, all actions affecting physical reality are able to be described mathematically. It is the physical reality which is being described. Science continues to demonstrate of truth of this statement.

    Economics will continue to be mired in misunderstanding as long as this conflation continues. The rest is up to you!

  3. October 26, 2018 at 10:56 am

    Here I entirely agree with Frank, though the algebraic formulae in his mathematical descriptions may be topological (merely ordering) or otherwise not quantitatively resolvable.

    From what he is saying here, Craig, like Ken on reality being constructed (as against transformed) by culture, appears to have avoided the conflation by opting for the human decision aspect. If by grace he means parental love physically manifest in the energy of the Big Bang, perhaps he just needs to clarify what he says, or perhaps his own thoughts.

    However, the problem Frank so clearly states apparently goes back a long way: to dispute over Descartes highlighting mind alongside matter. Locke opted to highlight the matter and Hume the mind. Hume, to the great detriment of economics, portrayed morality as a matter of aristocratic minds rather than God’s grace.

    To get back then, finally, to Peter Radford’s musings, his “as if” flattening the earth is a pictureque way of portraying the now academically dominant Humean reduction of Frank’s lucid analysis to its decision-making aspect. I agree with that, but wonder if his concluding that we “create lumps” is going too far the Lockean way. Being many, what we do is create communication channels, and in doing so find ourselves standing at cross-roads where we have to make decisions. I think we are all agree that right now mankind is at a crucial one.

    Craig, if you are really looking for wisdom you should study G K Chesterton’s “Orthodoxy”:

    “[T]he circle is perfect and infinite in its nature … But the cross, though it has at its heart a collision and a contradiiction, can extend its four arms forever without altering its shape. Because it has a paradox at its centre it can grow without changing. The circle returns upon itself and is bound. The cross opens its arms to the four winds; it is a signpost for free travellers”.

    So even Chesterton was free to make mistakes, as when he derides the image of “a serpent with its tail in his mouth. …The eternity of the material fatalists, the eternity of the eastern pessimists, the eternity of the supercilious theosophists and higher scientists of today is, indeed, very well presented [sic] by a serpent eating its tail, a degraded animal who destroys even himself”. Carried away here by his own rhetoric, he fails to see this “unsatisfactory meal” as symbolic also of the localisation and stability we all need. Lumpiness “as well as” networking?

  4. October 26, 2018 at 8:30 pm

    “It has evolved, and still is evolving, within a context. It is, to channel David Bohm, in a constant state of becoming.”

    Indeed and the context is an all-encompassing accounting system in which every economic activity is recorded. It never “is” because for an intended continuity to reign, the expenditures made, fully depend on (non-linear) later incoming returns. (Post) Keynesian economics with its determinate supply function, and supposedly solid Y = C + I point of departure, no longer is applicable. And neither is any form of math beyond the simple arithmetic of cost accounting.

    • October 27, 2018 at 3:27 pm

      John, re your last sentence and my first, are then algebraic variables, [network] graphs and topology not forms of mathematics? Are not clock numbers (in quarter hours defined by right angles) constantly becoming even if the clock is topological (elastic in size and speed of rotation)? I’m not disagreeing with you about what’s needed, just inviting you to broaden your understanding of mathematics.

      For fun, here’s a topological way of way of representing “still is evolving, within a context”. Let 1 represent all there is, which initially is nothing. No time has passed, so our topological clock is at time zero. When the first quarter has passed, the 1 still represents all that has so far evolved. When the second quarter has passed, our elastic ‘1’ can still represent “all there is”, but this is now in the context of a past, where there was less than the 1 there now is. Let us call that 0.1. We can carry on through the successive quarters adding 0.1 to our 1, but at the end of the hour the quarters are reset to zero and the digit representing the addition in subsequent quarters has, as it was after the first quarter, shifted right. The net result is an arabic-type numerical representation using digits 0-3 instead of 0-9. One can imagine completion of a further quarter, but the clockspeed being elastic we cannot say how long that future will be so, we have no way of reading off what will happen that we can’t already see happening. What we can say is that the initial 1 representing everything is greater than all the the rest of the digits put together, these representing “lumps” of matter that have evolved from the initial energy of the Big Bang, and which now “channel” it.

      • October 28, 2018 at 4:01 pm

        We’re talking past one another Dave. Your “still is evolving, within a context” is about applied topology, mine concerns a purposeful human-made system. The reality of the first has to do with that of a self-contained logical analysis situs, existing in time; while the reality of the second doesn’t come into being until a purpose, existing outside of the analyzed structure, becomes achieved over time.

        In terms of that purpose, all activities on the supply side are like trial balloons, unreal and valueless unless demanded. And for that realization process to happen and kept track of, no other forms of math but the simple arithmetic used in accounting is required. A broadening of my understanding of mathematics is redundant to depict the economic process, as an amalgamation of realizable activities. If not, given my set of first principles, can you tell me what’s missing?

        Because it’s essentially impossible to arrive at a systematic purpose from a revealed systemic structure, the modus operandi you seem to be promulgating can only be described as a bluff. Unless of course you hold our economy to be purposelessly meandering through time.

      • October 29, 2018 at 12:30 am

        John, thanks for the reference to “analysis situs”, a term which I hadn’t heard before and find to be Leibnitz feeling his way to topology, and to calculus seen as a dynamic form of logic. Very interesting indeed. We really are talking past each other if you are only trying to “depict the economic process”. There is no bluff in what I am saying; I was simply trying out a way of showing that if evolution happens at all, the structure of the evolutionary process doesn’t change when one get to the evolution of economic systems. One starts simple and ends up with a complex logical type, the new capabilities of which enable progress in previously unattainable directions. As it happens, I am prepared to believe existence does have a purpose (the old biblical story of there being a Creator who is a father figure being born out in the as near as we can get to a history of the life, death and resurrection of Christ). That is however irrelevant to the point that an autonomous process doesn’t have to have a purpose to develop systematically: consider a river meandering down to the sea.

        What simple arithmetic doesn’t take account of is the difference between the beginning of an epoch, its present, past and future, the communication channels built up in the past and the effect of mistakes and lies on the future. I don’t know your first principles, so I cannot tell you what’s missing, but people are present in economies and absent “from an amalgamation of realisable activities”. You cannot explain people with arithmetic but my Wheatstone Bridge/Leavitt Diamond communication structure provides a visual shorthand for brain architecture and the evolution of personality differences as well as the human functions of an economic system, which with the introduction of paper money morphed into a monetary rather than economic PID control system. With too much positive feedback since the 1970’s this morphed this again into a simple system with “a systematic purpose”, making money: Aristotle’s chrematism. You perhaps need to see boarded up shopping centres and positive feedback stripping the bandwidth off an amplifier to appreciate the significance of that.

        I like your word “promulgating”, but what I am trying to “make more widely known” is the post-1800 communications science that specialised economists seem barely aware of, never mind not understanding its relevance. Personally, after working with development of multi-user computers and distributed internet databases, the possibility of replacing a single-purpose, centrally controlled type of economy with a personal-purpose, self-controlled one seems to me obvious, and insofar as money is not centrally controlled it is already happening. But doubtless there are none so deaf as those who don’t want to hear!

    • Craig
      October 27, 2018 at 8:43 pm

      John,

      You are quite correct in pointing out the importance of cost accounting which economists have virtually no knowledge of and especially have no knowledge of its significance. They rely upon fallacies like the quantity theory of money and the velocity of its circulation. They forget that all money actually re-circulating within the economy is business REVENUE which must be expensed against gross profit before any of it becomes anyone’s actual individual income, and then against all other expenses before net profit is determined. Gross profit might be 30% while net profit might actually be 3% or less. The velocity of money has absolutely nothing to do with increasing total INDIVIDUAL income and is actually merely a measure of the ability for enterprise to meet their expenses and still profit, and the velocity of money has been dropping for many years.

      The way to increase total individual income is to take rational, universally beneficial, ethical and unobtrusive control of the point of final retail sale with a digital 50% discount/rebate monetary policy that enables people’s purchasing power and business’s potential revenue to double and also to transform modern economy’s chronic problem of inflation into beneficial price deflation.

      • October 28, 2018 at 9:45 am

        It seems to me that, by not defining your terms, you are missing most of the story here, Craig. What most people think of (wrongly) as “the economy” includes not only business but usurious money-lenders, bookmakers and speculators gambling with other people’s money. As Aristotle defined the terms, that is not economics but chrematism, and the amount of money circulating in that is about twenty times as much as circulates in the real economy. The real economy being dependent on the chrematists for money and as a whole paying interest as well as repayments to it, this contributes but a tiny fraction of the money circulating in chrematism, where the faster the money circulates, the higher are the incomes of the “1%” who are banking and bookmaking. The net drain of borrowed money from real business may be negligible in terms of chrematic circulation (the point of the “disappeared” Citigroup report) total, but it has been a lot in terms of the real economy, leading to bankrupt businesses off-loading their unrepayable “debts” to their customers, who are now not only suffering “austerity” and being forced into debt but being deprived of their houses. Perhaps you have not noticed emptying roads and decaying infrastructure indicating just how dramatic has been the reduction in monetary circulation within the real economy?

      • Craig
        October 29, 2018 at 3:49 am

        Dave,

        Wisdomics-Gracenomics (and any other truly insightful and sane economic theory) …would not allow private banks to create money/credit any more because the the publicly administered national banking system at the behest of the new monetary authority/central bank would now be the only entities doing that. Hence there would be nearly no speculation by the national banking system and any used for those purposes by private banks with already distributed and saved money that did not pan out would be entirely the responsibility of the investors, never be able to be used to extort bail outs and would never rise to the systemic point of being :too big to fail”.

        Publicly administered banking can do all of the good things and more that private banking can do and not do all of the things that private banks have historically repeatedly done that is destructive, dominating and inhumane.

  5. October 29, 2018 at 1:25 pm

    “It’s impossible to reflect reality with “representative” anythings if everything is unique.” This is correct. All relationships are unique, but in a complex way. So, there are patterns in relationships, including patterns in societies. But they are complex patterns. Determinant within limits. Patterned but not precisely predictable. This is called complexity. It’s how most things work. This video from YouTube explains this, and is worth viewing, https://youtu.be/aAJkLh76QnM. Before the 1990s most social scientists did not consider complexity in their studies. Now more and more are doing so. As the video points out complexity gives humans back their freedom in knowing they can influence what happens with even the biggest things encountered. We’re no longer stuck inside Newton’s cold determinism. Something economists would do well to learn.

    • October 29, 2018 at 9:44 pm

      With the economic structure inherently being a social entity, as any of its participants’ motives to get of bed in the morning is to produce output for others and not for oneself; the impossibility to reflect economic reality with “representative” anythings ought to be utterly incontestable.

      But is the realization of economic reality indeed complex? Yes, but in a very different way than e.g. complexity economics imagines. Set prices embody costs and profits. Seen in the aggregate, costs determine costs and profits determine profits (on the retail level after having been passed on down to that level). So there are two streams of interlocking determinants involved and hence an implied complexity. But this process has nothing to do with relationships being unique, nor with complexity economics where the initial set of systemic conditions are still assumed to be determinate.

      Instead, radical uncertainty about realization reigns; because we are free to either hoard our cost and profit incomes (which are to be resolved systemic debts already), or direct them to enter an independent financial circuit (where they do _not_ all of a sudden turn into free-and-clear economic assets). And the decision to do so is systematic, not systemic! Perceived utility, or the realization of economic output, originates from outside the system. Within the system, the simplicity of accounting reigns: either returns cover set prices, within the time limit set by its creditors, or they don’t. It’s essential though, from the perspective of the economy’s end purpose, to keep its pluses and minuses straight.

      • October 31, 2018 at 6:49 am

        John, allow me to suggest a similar perspective. Prices are only indicative of what profits are possible, and what costs may have to be paid to get those profits. These are in the words of Aubrey McClendon, one of the founders of Chesapeake Energy just scribblings on a piece of paper or computer screen. It’s how these scribblings are created that determine who gets rich and who gets screwed. Accounting, like science in general attempts to make things that are inherently messy and uncertain, seem orderly and certain. Accounting with the right moral sentiments behind it seeks fairness and justice in creating an orderly company or even an entire sector of economic actions. Without these sentiments accounting becomes an efficient way to pick winners and losers, to cheat and corrupt, e.g., Enron. And accounting has many sisters. These include MBA graduate programs, financial investors top to bottom, the US Congress, many religious leaders, and more than one US President. When they speak the words competition, free markets, efficiency, we should hear oligopoly, rigged, and greed. This is the kind of messiness that is complexity. Your remarks seem to agree. One of the key aspects of complexity is nonlinearity. What comes out of the system often is not what goes into it. Somewhere in the bowels of the system relationships change the output from the system from one instance to another. To see this happen we need to examine the system from the inside out. Difficult to do both because one can become corrupted along the way, and because it is backbreaking work for a social scientist.

      • November 1, 2018 at 2:38 pm

        Not so sure our perspectives are indeed similar, Ken. Yours seem to be in line with the generally held-onto maxim of an existing inverse proportionality between costs and profits; i.e. the lower the costs, the higher the profits and vice versa. This can easily be disproven by the reductio ad absurdum thought experiment of a single capitalist owning the entire production capacity. After cost+ prices are set, how do the profits in the returns materialize?

        Isn’t it much more logical to maintain that, through the demand function as engine of an unencumbered continuity, cost incomes determine costs and profit incomes determine profits?

        Furthermore you remarks seem to confound the almost infinite complexity of society with the relative simplicity of a purposeful human-made system. With the latter a subset of the former, there is no development of incomputable residuals; as its totality in exchange-value nets to zero before, as use-value, being passed on to the set.

        While I’m in full agreement with you on the graft associated with the economy’s financialization of accounts, it doesn’t make for a complexity of the thesis. Instead my argument is that such activity forms the economy’s antithesis. For more see the introduction to Epiconomics, downloadable from my website.

      • November 2, 2018 at 6:47 am

        John, my position is economic arrangements and interactions are complex. No relationships exist in all situations, and the results of relationships are unstable, with even instability unstable. So, it’s obvious relationships between costs and profits are unstable. Even the notions of profits and costs are changeable. As I noted with companies like Enron and Chesapeake. If you prefer, use the term flexible to describe all economic relationships and actions. Your fall back on the economic phrase “demand function” changes note of this. Humans invented and thus can and do reinvent this (and all other economic terms) based on the situations and understandings at hand. This blog demonstrates this often both in the postings and the in the criticisms of mainstream economics and economists.

        You say there are no incomputable residuals in economic actions. I suggest you look again. The entire process of creating a commodity, establishing ways to buy/sell that commodity and reaching agreement on the price for this transaction is one long string of knowledge not explicitly recognized but used, estimates of not just how to make the arrangements but of their expected impacts, guesses about who/what benefits, suffers and why, and shooting in the dark to find some sort of mathematical basis to justify all this. And during this work the actors hide most of this uncertainty behind screens of “technical” terms and so-called economic theory (with the theory often misunderstood or misapplied, or both). Getting the answer for making a deal does not mean anyone involved knows how the answer came to be. Denying the complexity of economic relationships will not end that complexity. It will merely allow the defenders of the status quo to pretend they have all the answers and place the rest of us in the position of breaking their iron grip while millions suffer the consequences

      • November 3, 2018 at 4:51 pm

        Ken, we’ve got a failure to communicate. I’ve shown you a way to look at the economy from an objective perspective. It’s a logical development from a stated set of assumptions. Yet, without a stated set of assumptions of your own, you insist to remain trapped within the subject of study being analyzed. Why? Apparently you either don’t believe it’s possible to look at the whole from the outside in, or don’t consider it advantageous. Am I barking up the wrong tree?

        The key to its conclusion is an at all times reigning indeterminacy; not an instability, nor a flexibility of determinate costs and profits. And while it is complex, hanging one’s hat on that particular attribute as the explanation of all that is wrong with economics is trying to construct a bridge that leads to nowhere. Falling far short of the need to convict orthodoxy of willful misdoings, it will merely be shrugged off as indeed the mainstream has always been able to do. Instead a methodology needs to be found that goes beyond simply trying to convince; and which I believe to have found the key to.

        As this thread posited from the beginning: the reality of the economy [as a going concern] is to always be in a state of becoming. In other words, it not only is inherently dynamic and non-linear, but statically indeterminate as well. And indeed my “demand function”, as the only determinant of all supply, upsets the strongly held beliefs of economists and pundits alike that supply, as statically observed, is yet valuable in its own right and at least applicable as a point of departure. I’ve never been shown to be missing something essential, nor to have made a logical error by holding the counter view. Cost accountants, as I’ve been told, would have no difficulty either with the principle of demand determining the value of supply; even though this makes all activities on the supply side indeterminate, or out on a limb.

        One more thing, show me a minimum capital value, below which it cannot sink, and I will defer my stance on economic residuals.

      • November 4, 2018 at 8:52 am

        John, if you’ll enlighten me as to when something is made objective? Whatever your answer it’s a part of human culture, a creation of humans. Humans made it objective. As an historian and anthropologist my job is to the reveal, as best I can this work by humans. Outside and inside are two more notions humans invented, along with objective, logic, mathematics, and science. Do economists misuse these constructions? Depends on one’s comparative perspective. In terms of some textbooks in mathematics and science, economists are scoundrels who abuse both. This is certainly the case when economists are graded by pragmatists. And there is no shortage of economists who consider other economists imbecilic. This is all part of complex likelihood. Complex systems are not indeterminate, but rather determinate within limits that reveal themselves as the system functions. Thus, they are somewhat but not fully predictable. There are many who will gladly voluntary to “convict” economic orthodoxy(s) of willful war crimes, if not worse. As social scientists it’s our job to report this combat and track its origins and consequences. If we get involved, then we’re just one more pro or con proclaiming the faith that will lead us all to salvation. Since you recognize and accept that economic actions are dynamic, emerging and nonlinear, you also accept this includes all theories of economic actions put forward by economists and others, and your “demand function.” So long as you keep all the parts consistent with one another things tend to run smoothly. But all such models (theories) fail eventually. Simply because they no longer perform as designed. As the theories roll by, we still don’t have a definitive answer on whether supply determines demand or demand determines supply. Even if we did, the answer is not fixed. Changing as circumstances change.

      • November 5, 2018 at 3:33 pm

        Ken:

        The economic structure is indeterminate, because even though its purpose is to provide a certain standard of living to all (axiomatic), powerful substructures supported by law have tended to arise that make such an outcome, always within the constraint of already developed capabilities of course, impossible to achieve; hence a radical uncertainty is abound.

        As natural human beings we aren’t born within an economy and thereby forced into subjectivity. Even though virtually all of us make a living within it, we consume its final output exogenously _in addition_ to non-economic provisions and benefits; and all in terms of having use-values, thereby complementing our standard of living (axiomatic again). An observation, regarding an economy, made from the latter position is objective. Because the whole can now be brought into perspective, it has become possible to identify why the economy isn’t performing as it should; which in all cases is a non-resolution of costed economic output.

        Creditors, supported by law, force debtors to direct economically obtained income into the pockets of the former; with neither of them nor the underlying law perceiving that this income needs to be _resolved_ in terms of final output, in order to dynamically and non-linearly fulfill the economy’s end purpose and thus provide for its continuity in an unencumbered way. As no other income is available to do so in its place, the extent of a proportional non-fulfillment of final output equates to the loans being made that aren’t repayable under any circumstances; with other components of this non-resolution being outside the scope of this missive.

        Since for loan agreements to be valid in general, both the lenders and borrowers must at least in principle be able to honour the terms of the contract that they have entered into*; adjudicated “economic law” holding only borrowers to this stipulation, while ignorantly absolving lenders for their misdeed of making this impossible, is unjust and needs to be repealed. This would set the stage for a debt jubilee and economic revival. The next step to take would be a return to at least the progressive taxation measures of the ’40s, ’50s, and early ’60s.

        Wouldn’t you agree that the above concise outline demonstrates the power of being able to look at the economy objectively; while at the same time identifying the fatal shortcoming of complexity theory, as the elements of the latter are yet determinate in time?
        But also is there anything I haven’t already implied before on this forum?
        Instead of identifying themselves as social scientists, wouldn’t society be better off if economists identified themselves as macro-accountants, and restrict their work to that field of study?

        *Cf. John Rawls “A Theory of Justice”, rev. ed. pg. 153

      • November 6, 2018 at 2:14 pm

        John, I’ll go over your points one by one.
        First, economic arrangements (institutions, system, whatever you prefer) are complex (chaotic, or your word, indeterminate) because how the arrangements affect one another, and the results of those relationships is uncertain. Setting a purpose for one economic arrangement or for hundreds of them is a fine thing to do. Planners do it. But that does not assure in any way that the purpose will be met. Or, even that the results may be different or even radically different than planned for or expected. Your example is a good one. If we set the purpose of “all” economic arrangements as to provide an agreed-on standard of living for all actors, what you call superstructures and the single person, then obviously the USA efforts are a failure. Unless “agreed-on” standard of living is set to abject poverty for some and incredible wealth for others.

        Second, every human person is born into a society, created around certain notions about the nature of humans, the reasons for human life, etc. (culture). Beginning around 7,000 years ago humans invented economics as part of culture, and thus society. Humans and the societies they are born into are co-determinate and mutually supporting. But in most instances humans only pay close attention to “their” society when there is some threat to it. Or it fails the individual in some way. Thus, humans can’t observe their society and thus their economy from the outside, since they are inside it from the start of their lives. With hard work and comprehensive methods social scientists and historians can overcome this limitation to some extent. This is one of the more difficult impediments to their work. Also, it sometimes results in social scientists and historians becoming alienated from the fellow member of their society. And even the best of these researchers will admit that they will never be capable of seeing or reviewing all the arrangements that make up society or the economy. And those who try mostly don’t agree on the findings. Even within specialties like economic history or economic sociology, practitioners debate results routinely and sometimes vigorously.

        Sticking to the laws of debt and debtor, for a moment, I point out that laws also define when income (however the law defines that) can’t be diverted from debtor to lender. These provisions, like those granting the right to perform such diversion have changed significantly over the last few hundred years and will continue to change. Plus, the law in other areas allows the debtor to sue lenders for a long list of grievances. In other words, defining debt, debtor, lender, and transfer protocols is complex, changing, and subject to a long list of uncertainties. And I can tell you from experience that if lenders cheat debtors, debtors make every effort in some (finding out which is an interesting study) situations to cheat leaders, up to and including changing identities, threats of various sorts, and forging payments. This is certainly not “outside the scope” of economic studies. The results of studying economic arrangements will be outlandish and useless if it is.

        Per Adam Smith the “good” person will if able honor the terms of loans made. But it seems too obvious to point out that many humans are not good. Others may want to be good but find being bad necessary. Still others may never intend to repay the loan (e.g., Donald Trump). That’s why criminal laws exist. And, thugs that make collections.

        Your point about debt jubilees is a good one. These have been around about 7,000 years. They benefit just about every person, farm, business, government, etc. involved in debts. They also tend to revitalize society and the economy, thus assuring their major aim, that taxes are paid in full and on time. The bottom line and all that’s clearly important about progressive taxation is that it forces the rich to pay more taxes and the poor to pay less. Like debt jubilees that is good for all economic arrangements and helps even the rich. But we don’t need to be able to consider the economy in total or objectively (whichever meaning of that you pick) to do either of these things, or to recognize and report their results. If we sit around arguing about what objectivity is or how to do it, or where the edges of economic arrangements are, we won’t be doing these things, however. The focus, as you suggest ought to be on improving societal welfare, whether it’s called economic or not. Any division is arbitrary after all.

      • November 7, 2018 at 3:36 pm

        Ken, economic arrangements are all accounted for in terms of a unit of account, and there is nothing complex, chaotic, uncertain, or mysterious about accounting. Debit entries, i.e. systemic debts, either become resolved by incoming credits, or they won’t; which, because of starting out from a negative position, in a worse case scenario means a crash _of the booked values_, due to ignorance of how the system works, only. The physical means of production, labour, and commodities all remain unaffected. And so, after cleansing the system from fictitious “capital”, it could be up and running again likely within days.

        The reality of my economic structure supported from a stated set of assumptions comprises solely those booked entries, with its actuations being systematic and not systemic; yours is one of arrangements and relationships between physical agents that are producing and exchanging positive depletable values within an all encompassing society. How do you define or delineate an economic crash from a perspective that without an exogeneity to fall back on is is incomplete? It seems, we’ve been talking at cross purposes. Since you simply reasserted your position and neither showed my set of first principles to be wrong nor my logic to be faulty I guess we’ll have to agree to disagree, at least for the moment.

      • November 8, 2018 at 9:59 am

        John, all well and good if everyone agrees with your assumptions. The GAAP and IAS work hard to create accounting principles that keep the work of accounting within clear guidelines. And they fail. I’m a forensic Anthropologist. One of my specialties is the work on accounting in major legal cases. I’ve testified over 100 times. The first thing accounting is, its’s a battle. Each party to a case designs the accounting to enhance their position. Accounts are just letters and identifying numbers in a ledger until someone(s) populates them. My job is to trace the history of how each account in each situation is populated with data. Populating is more art than science and is guided by the motives of those who populate the accounts. For example, balance sheets. Sort of basic accounting. The regulated company pushes as much to the expense side as possible, with the intent of showing that an increase in its rates is necessary. Many of the entries cannot be reversed as the track to find their origins is difficult and complex. What does legitimately belong in expense accounts? Public corporations prize flexibility so they often move entries from one side of balance sheets to the other to enhance either profits or the value of their stock. Privately held companies are all about stability and minimizing tax liability. So, they fix their books to reduce taxable income. Few years ago, the Germans, being German invented the most detailed and thus complex cost accounting system in the world, SAP SE. It can track the cost of every part down to nails and screws of any structure. But it’s too difficult to explain to be used in courts. Accounting is filled with traps and mine fields, from CWIP vs. AFUDC to depreciation to all that’s not in the ledgers (e.g., social equity and risk, environmental risks, political contributions). As to the financial crisis of 2007-2008, first the financialization of most transactions set it up. Then greedy financial players, with no fear of consequences invented mostly worthless (in dollars) financial artifacts, bribed regulators, and sold them for billions mostly borrowed without permission from millions of depositors. Leaving these depositors and the legitimate loans they helped create on the hook when the “financial players” bailed. You seem stuck on “first principles” and “logic.” I deal with what people do.

      • November 8, 2018 at 5:46 pm

        Ken, the battle you talk about is sourced in people’s general misconception about the nature of capital. They are motivated by the mistaken idea that it’s a depletable wealth. On the other hand it doesn’t take much pressing to convince them that without a return it’s worthless. Yet all of this falls by the wayside in the common vernacular, when capital and its accumulation is talked about. It’s just too obvious what it “must” be; and yes. even to accountants who cannot think in aggregate terms either. And of course court cases too are adjudicated from micro level evidence.

        Capital is a feasibly to be resolved debt. If it’s unresolvable into living standard maintenance or enhancement it’s fictitious. This logically rolls out of my assumptions and as such it’s a negative. It’s just too damn counter intuitive to be taken seriously. That’s my battle, and so far it’s been a losing one. My hope though is that one day soon it will be recognized how much fictitious capital is floating about; and, because on the micro level being indistinguishable from the real thing, to the detriment of a debt-ridden society as a whole. Then my approach ought to come into it’s own. Any help out there to make it more complete?

      • November 10, 2018 at 10:32 am

        John, you don’t go far enough. Capital is the things capitalists invent to play their games of “making profits.” But this is not a slight, as every aspect of culture is similarly invented, made up to give humans a home. But capitalists have shown themselves proficient in convincing those humans who are not capitalists (which is most of them) to play with capitalist’s toys and the games that are played with them. In doing that capitalists have often made the lives of their fellow humans more miserable and poorer.

      • Craig
        November 5, 2018 at 6:27 pm

        John,

        Rawls’ insight is precisely the correct one regarding economists and economic theory. It has fallen into almost entirely mere abstraction to the detriment of their/its ability to actually look at exchange/the economy and its most basic factors, namely cost and money. As I have said here numerous times economists can get their PhD in economics and never have to take so much as an elementary course in accounting. Accounting is the most basic record of every transaction in the economy. Hence it is also its most basic integrative infrastructure. Thirdly it is digital in nature (equal amounts of debits and credits sum to zero) as are the debt based money and pricing systems and so a digital policy at the summing and ending point of the economic process…..is tremendously powerful and effective.

        Have you read anything by the cost accountant and early efficiency expert C. H. Douglas whose cost accounting analysis of the economic system and A + B Theorem was an international movement before WW II? I take his dual policies and innovate and extend them based on a study of the signatures of paradigm changes and the basic philosophical concept they express

        Economists are like zen novitiates who must mentally break through and de-construct their entire mindset/economic discipline from abstract and alienated from their own consciousness to recognizing their own consciousness and being able to maintain that awareness and relate with it as they live their lives.

        Direct looking has been dropped out of economics for the most part, and everything is filtered through the mistaken legitimacy of the business model of private finance to hold a virtual monopoly on the creation and form of money and its distribution via the paradigm of Debt Only…..when Monetary Gifting integrated into the digital debt based money and pricing systems will slay the two most chronic problems of modern economies in one fell swoop.

      • Craig
        November 5, 2018 at 8:36 pm

        Paradoxically economists, when they mentally examine the economy, they are also stuck operating almost entirely on two mental integrations below the level of paradigm perception/paradigm change.

        Ascending, these levels are:

        Theory- mentally gathering and analyzing research and data

        Philosophy- mentally organizing concepts

        Paradigm Perception/Paradigm Change-mentally analyzing and integrating lower levels of analysis so as to isolate the essential concept/currently reigning paradigm and then using the signatures of imminent paradigm change/actual paradigm change to decipher the new paradigm

      • Craig
        November 7, 2018 at 6:48 pm

        John and Ken,

        This is a macro-economic blog. Why don’t we discuss the the macro-economic insights to be garnered from double entry bookkeeping regarding the scarcity ratio between total available to spend individual incomes and total systemic costs and hence prices? Also, the macro-economic and policy significances to be gathered from the fact that the money, pricing and accounting systems are all digital in nature, that is, equal amounts of debits and credits, prices and money and money and debt sum to zero?

        John, you are apparently a cost accountant. Are you aware of the cost accounting convention that all costs must go into price?

      • November 8, 2018 at 10:03 am

        Craig, macroeconomics is something a group or groups of people invent. Follow the inventions. Craig, “all costs my go to price.” Is that average price, marginal price, or transitive price. Got to pick one. And then you’ll have to defend your choice.

      • Craig
        November 8, 2018 at 4:40 pm

        Ken, The answer is final retail price because that is the terminal end of ALL costs, of the entire legitimate economic process and hence the terminal expression point for all forms of inflation. The ending point for any process is also an ultimately powerful point for policy expression and effect, and that is when and where the paradigm changing policy of the discount/rebate is implemented. Whatever occurs before it is largely irrelevant so far as policy effect is concerned.

        It is of course also true that accounting is complex and can be gamed…..that’s why the new growth area in the new paradigm will be forensic accounting in order to ferret it out and hence increasingly stabilize the incredibly stabilized system wrought by the philosophy and policies of Wisdomics-Gracenomics.

        Thank god, you’ll pardon the expression, for guys like you and Bill Black.

      • November 10, 2018 at 10:37 am

        Craig, an old saying amongst haberdashers, “never pay retail.” Aside from the dealing in prices that goes on constantly, making retail price a fluid value, often political or social position can change the price one pays for any commodity. Pricing, and all the process of buying and selling, are pragmatic, rather than paradigmatic. Usually the result of cultural rules of thumb and prejudices more than any “rational” computation. Accounting is complex, but that’s not why it can be “gamed.” It can be gamed and is gamed because it is a human creation, full of inconsistencies and uncertainties. Like all other aspects of culture, buying and selling is made stable “after the fact.” Human buy/sell based on shortcuts and estimates and then give the process policy and paradigmatic stability after the deal is closed. Look at all the big mergers over the last five years to see this process in action. You might call the rough-cut rules and guesses used by humans in buying and selling wisdom. But I would not.

      • Craig
        November 11, 2018 at 6:19 am

        The ending point of retail sale and the abundantly high percentage of the discount/rebate policy render all that you have said in your last post….irrelevant. Why? Because no enterprise can withstand opting out of the policy because to do so is to commit economic suicide due to the fact that net profit margins are almost exclusively of single digit size. Put that together with the fact that doubling everyone’s earned income means doubling every enterprise’s potential sales and you’ve got not only “an offer/policy that no one can rationally refuse, but also the better alternative and problem resolving alternative to raising prices in a monetarily austere system.

        Oh, yeah, yeah you’ll need to craft rules and regulations to accompany the dividend and discount/rebate policies just like every other system that has ever been put together because not everyone is rational and ethical, but if they align with the concept behind the new paradigm the result will be mutually beneficial and more ethically effective than the present system that is based on the tawdry ethics of power, profit and domination.

        Philosophy and direct observation are lacking in economics. It’s time they were applied.

  6. Craig
    November 1, 2018 at 7:57 pm

    That I can see, all present theories expressed here fall within the current monetary, financial and economic paradigm of Debt Only and so keep its orthodoxies, complexities and increasingly destabilizing problems in effect.

    When the concept of the new paradigm, Direct and Reciprocal Monetary Gifting, is recognized and strategically implemented at the point of retail sale and private profit making finance is additionally recognized as a parasitic and illegitimate business model being both pre-production and increasingly necessary post retail sale….all of the problems of the old paradigm precipitate out, individual and systemic realities are inverted and transformed and every agent benefits.

    The new paradigm is elegant and simple but not simplistic because it goes to the heart of our monetary and economic problems, and every paradigm change is absurd for most right up until it’s recognized as the new great truth and resolving methodology. Paradigm perception is the destroyer of theories and 99% of the battle won. It’s time to progressively seize upon it.

  7. November 11, 2018 at 3:48 pm

    In response to Ken:

    Au contraire mon ami, I’m going as far as it’s humanly possible to go. It’s far from obvious to me by which metric you can claim to go “farther” than I. While I certainly agree with the sentiment expressed in your post, my reasoning involves inferences from general principles; i.e. it’s deductive and consequently true until a contradiction shows it to be false. Yours is inductive, i.e. you’re trying to reach a general conclusion from particular facts. Problem is, you will need infinite time for convincing any non-believer of the truth of your facts. Until then, orthodoxy can validly claim it will take a superior theory to beat theirs.

    We don’t have the luxury of waiting forever. Orthodoxy needs to be dispelled the sooner the better, and I believe to have found fatal contradictions in their theory. But even if some highbrow philosopher can show these aren’t contradictions as such; my theory has far fewer assumptions, with non being unrealistic, and thus in any case is more generally applicable. It’s not a matter of everyone needing to agree with those assumptions of mine, but for someone to find them faulty; either as self-contradictory, irrelevant, or incomplete in the face of another theory.

    The games you say capitalists play are limited by the possibilities and parameters of the system. And while expectations may hold up the inevitable for a while, their “proficiency” is about as real as Wiley Coyote’s ability to run off a cliff.

    • November 12, 2018 at 10:13 am

      John, you are going as far as humanly possible. You’re just now acknowledging how you do it, or how humans tend to do it. Reality is a process. How does this process work to create reality? Michele Callon, a French sociologist whom I admire has made what I consider to be a workable effort to describe the process. Callon describes it as a process of translation and identifies four moments in this process. These moments constitute the different phases of a general process called translation, during which the identity of actors, the possibility of interaction and the margins of maneuver are negotiated and delimited. This process applies equally to the study of society by social scientists and the creation of society by those who inhabit it. Historical study and making history follow a similar process, only limited to the past. The four moments are. 1) creating a problem to solve or study. A question(s) to answer. Which actors and events are indispensable, and which are not? 2) what motivates the actors to act as they do and the events to occur as they do? What makes them interested to do what they do? 3) transform a question(s) into a series of statements which are more certain. Callon uses the term enrolment to designation this movement. It designates the device by which a set of interrelated roles is defined and attributed to actors who accept them. Enrolment is achieved by interessement (translated from the French as incentive). Interessement achieves enrolment if it is successful. To describe enrolment is thus to describe the group of multilateral negotiations, trials of strength and tricks that accompany the interessements and enable them to succeed. 4) finally, who are the spokespersons for the reality being studied or created, and whom do they represent? In simpler terms we follow the process of reality creation to study that creation.

      • November 12, 2018 at 7:23 pm

        Ken:

        If reality is indeed a process, something we both agree on, then Y=C+I in time cannot be real. In other words, Keynesian economics is fiction. And Keynes’ famous dictum about Hayak and his ending up in bedlam, I’m afraid is no more than a case of the pot calling the kettle black. Instead, C=I with the intermediary of Y over time has at least the possibility of representing reality. Unfortunately this potential point of departure would require a rewrite of the entire economics oeuvre. That this is too monumental a task for a single person to undertake ought to be clear.

      • Craig
        November 12, 2018 at 8:47 pm

        Remedy the problems surrounding Y = C + I, the presently obvious monopoly paradigm of Debt Only and the equally historically obvious scarcity of aggregate individual free and available individual income that has attended it….with a universal dividend and 50% discount/rebate policies I have suggested here implemented specifically at the point of retail sale….and every other economic factor can align with and adapt to the new paradigm….exactly as has happened with every other paradigm change.

      • November 13, 2018 at 7:53 am

        John and Craig, as I think be agree, creating reality is a process. Ongoing and never completed. It isn’t about switching one paradigm for another, but of proposing changes, speaking out for them, finding allies in that support, and then making changes gradually over many years. Adam Smith published “The Wealth of Nation” (WN) in 1776. It gathered and explained notions about economic actions and actors that had been around in Europe for over 100 years. Europe did not change in 1777 after the book’s publication. Or, in 1787, or 1797, or in 1807. But by 1817 changes were underway. By the middle of the 19th century capitalism was the major organizing framework for most European nations. And by 1875 the replacement of Smith’s quiet capitalism by industrial capitalism was well along. What we need today in one or perhaps several detailed books, podcasts, websites, etc. to get that ball rolling. Then the process of advocacy, finding allies, driving home the changes needed, and then implementing those changes will follow. What gets this started cannot be a mind-numbing economic paper of any sort. It must be structured and worded like Smith’s WN so it’s generally accessible to most American citizens. This is less a part for an economist than an historian or perhaps journalist. The sooner we get this going, the sooner we can save the nation and ourselves.

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