Home > Uncategorized > The algorithms of wealth accumulation

The algorithms of wealth accumulation

from Ikonoclast  (originally a comment)

Capitalism is already an algorithmically determined system on the financial economy / financial accounts side and it has been so at least since the 1850s. The axioms and algorithms of private property, income, finance and national accounting determine the vectors of wealth/money flows and the depositories of wealth/money stocks, all as denominated in the numéraire. This is not to devalue the thesis of machina-economicus. Indeed it magnifies the importance of the thesis.

Humans are and can become many things. One thing they can become is rational (and heartless) calculators and here I mean NOT the consumers at all, who are existentially and hedonistically motivated, but the producers and purveyors of capitalism. It is this group which implements the algorithms of wealth accumulation for themselves and the blandishments and enticements for (over) consumption by the consumers.

The human brain can be inculcated into being a calculator employing instruments of calculation. Those with the wealth, leisure and developed intelligence – often from inherited wealth but not always – to become educated and sit, research, think and calculate are those who can run and benefit from the algorithmically determined financial system. The advent of AI, as their machina-economicus proxies, will simply multiply their power. As Marx pointed out, remember that capitalists engage in intra-class competition as well. Expect the rise of new styles of capitalist. We have already seen this with the rise of hi-tech capitalists but this process will intensify. The field of competition will become more and more “cyber” for want of a better word.

Without human revolutionary change coming up from the base of the system, the concentration of capital will accelerate, ultimately producing cyber- and crypto- trillionaires who will need few, if any, human functionaries but will rather employ and deploy, bots, drones and ai “crawlers” in system nets. Imagine “1984” blended with “The Matrix”. The physical world will look like 1984, vast slums, ruined hinterlands and sacrifice zones governed from gated secure-wealth communities in metropoles and trillionaire tech-hermit bunker-bug-out mansion complexes in remote areas. The control systems will “look like” the matrix, albeit not with human consciouness but with machine pseudo-consciousness used to manipulate and control the real humans proles left in the “1984”-like catabolic and collapsing landscape of decaying built environment and collapsing climate and ecosystems.

It’s worth looking at this very interesting document in this context.

“Upside-Down Markets: Profits, Inflation and Equity Valuation in Fiscal Policy Regimes” by JESSE LIVERMORE” (pseudonym).


It deals with what could transpire from nominal growth targeting. Here is an excerpt.

“Unfortunately, monetary policy is limited in what it can accomplish as a form of stimulus. It therefore offers a weak foundation for upside-down markets. We can celebrate economic problems (sic) as catalysts for interest rate cuts, but the cuts won’t usually avert the problems, at least not in full. They may buoy stock prices through portfolio preference channels, but the damage to fundamentals will tend to outweigh the buoyancy.

Fiscal policy is an entirely different matter. If deployed in sufficient quantities, it can achieve any nominal level of spending or income that it wants. When policymakers commit to using it alongside monetary policy to achieve desired economic outcomes, markets have solid reasons to turn upside-down.

To illustrate with a concrete example, imagine a policy regime in which U.S. congressional lawmakers, acting with the support of the Federal Reserve (“Fed”), set a 5% nominal growth target for the U.S. economy. They pledge to do “whatever it takes” from a fiscal perspective to reach that target, including driving up the inflation rate, if the economy’s real growth rate fails to keep up. Suppose that under this policy regime, the economy gets hit with a contagious, lethal, incurable virus that forces everyone to aggressively socially distance, not just for several months, but forever. The emergence of such a virus would obviously be terrible news for humanity. But would it be terrible news for stock prices?

The virus would force the economy to undertake a permanent reorganization away from activities that involve close human contact and towards activities that are compatible with social distancing. Economically, the reorganization would be excruciating, bringing about enormous levels of unemployment and bankruptcy. But remember that Congress is in-play. To reach its promised 5% nominal growth target, it would inject massive amounts of fiscal stimulus into the economy—whatever amount is needed to ensure that this year’s spending exceeds last year’s spending by the targeted 5%. To support the effort, the Fed would cut interest rates to zero, or maybe even below zero, provoking a buying frenzy among investors seeking to escape the guaranteed losses of cash positions.

The interest rate cuts, possibly into negative territory, would make stocks more attractive relative to cash and bonds. Additionally, the massive issuance of new government securities to fund the spending would shrink the relative supply of equity in the system, making stocks more scarce as growth-linked assets. Finally, the virus would give corporations financial cover to cut unnecessary labor expenses, allowing them to capitalize on any untapped sources of productivity that might be embedded in their operations. This action, which takes income away from households, would normally come back to hurt the corporate sector in the form of declining demand and declining revenue. But if the government is using fiscal policy to achieve a nominal growth target, then there won’t be any income or revenue declines in aggregate. The government will inject whatever amount of fiscal stimulus it needs to inject in order to keep aggregate incomes and revenues growing on target, accepting inflation as a substitute for real growth where necessary.

If you are a diversified equity investor in this scenario, you will end up with a windfall on all fronts. Your equity holdings will be more attractive from a relative yield perspective, more scarce from a supply perspective, and more profitable from an earnings perspective. The bad news won’t just be good news, it will be fantastic news, as twisted as that might sound.

It may seem strange to think that stocks could benefit from bad news, but other asset classes that offer insured income streams, such as government bonds, behave that way. If the government is effectively insuring the income streams of the aggregate corporate sector, why shouldn’t a diversified portfolio of stocks behave in the same way?

To be clear, the upside-down situation that I’ve described here is not the situation that we’re currently in. From a policy perspective, legislators and central bankers have not implemented a nominal growth targeting regime, and the policy hawks that would normally serve as obstacles to such a regime have not yet been run out of town. But people on both sides of the aisle are increasingly coming to realize that fiscal policy is the “cheat code” of economics. If you’re willing to tolerate inflation risk, you can use it to achieve any nominal outcome that you want.

As people become more aware of this fact, they’re going to increasingly challenge traditional approaches, demanding that fiscal policy be used to safeguard expansions and eliminate downturns. Upside-down markets will then become the norm.”

My comment is that if nations go down this path, without other changes, it will strengthen the position of shareholding capitalists even further and aid the rise of the techno-cyber-crypto capitalists. Yet, like many on the left, I advocate this very fiscal stimulus. The document goes on to explain how the flows of fiscal stimulus, in the current system, will always end up in the mega-capitalists’ pockets, expanding their balance sheets, increasing their wealth ad infinitum except for planetary limits. It’s a “trickle up” system in its current conformation. Without other measures, the concentration of the ownership of capital will increase continuously. Without a revolutionary expunging of capitalists and capitalist power, this future cannot be avoided. It’s already programmed for this destination. New modules of more and more effective AI guidance towards this destination are being added continually. The masses have to take over the system or crash it. That’s what kidnapped captives have to do.

  1. October 28, 2020 at 9:55 pm

    Nice to see all this truth-telling ! I’ve been trying to explain that money is not wealth in my previous ten books !. But it still is the conceptual prison which many still live , even after realizing the cryptos are just as worthless as fiats ! See my article coming on Wall Street International ,www.wsimag.com ” FIXING THE MONEY MEME ” , Hazel Henderson

    • Charlie
      October 29, 2020 at 1:41 am

      Truth teller … Truth teller how dare you …. ( i began reading you in the early ’80s, ) Peace spending and the cutting of military spending might still save us, but no ! Sigh

  2. Ken Zimmerman
    December 3, 2020 at 12:54 pm

    We toss around lots of high sounding and supposedly precise terms here. Like algorithmically determined, axioms, private property, income, etc. Which supposedly everyone understands. Which is of course not the case. Neither is it the case that such terms in common use as determined, rational, money flows, and even wealth. These all have a history. And over those histories their use and ‘meaning’ has varied not only among individuals in a situation but also among the situations of people’s lives. We cannot, must not assume we can create so called ahistorical ‘accurate’ definitions to save us from the need for human judgements in each situation and with each problem we encounter in these situations.

    There is a simple dictum in describing the performance of becoming rich. Take whatever you can from the nonhuman world that gives you advantages, whatever they might be. Second, take whatever you can from other humans that gives you an advantage, whatever they might be. But rich, like everything in human life is situational. 400 years ago, Venice merchants were rich though they possessed as little as $5,000. I possess that much today. And I am not rich?

    You could argue that 15th and 16th century Italian merchants invented ‘machine economics’ since it was one of their number who brought double entry accounting from China to Italy. That became important in the shaping of the meaning spread about wealth in Europe, the UK and eventually the US. But in other times it was royal titles, large manor estates, or piracy that defined what wealth is and how to get it. But before this could happen in any circumstance humans had to decide that individual wealth was both morally acceptable and beneficial for society. Humans create arrays of relational and situational meaning to order their lives. Otherwise humans would be adrift in a sea of nothingness. At base humans are constructors of rules for what the world is, what humans are, and how all of them fit together. So far, every instance of such work has collapsed. Only to be replaced with other attempts at the same target. Humans are the original ‘one trick pony.’ This is their one trick.
    You should understand that the human brain is communal. Humans can be smart, intelligent only in communal settings because in those settings the brain is involved in the community interactions that allow humans to make judgements and take actions about the situations in which they view themselves as involved. Which of course do not exist until human communities define them. This ongoing circle is the sum total of human experience. This means that the ‘calculative’ human is a creation that humans invent for some situations and then solidify in social institutions. But the institutions are carried forward only by the continuing involvement and choices of the humans involved. They do not exist outside this web. Humans thus do not calculate, judge, be rational. They do all these things as part of one or more groups made up of both humans and nonhumans. And the groups themselves must be continually renewed to continue to exist. This can include institutions that can define humans as wealth accumulators, competitors, or capitalists. In other words, the institutions allow those activities as moral and socially beneficial. Thus, these are roles in which humans may legitimately choose to engage. And since they evolve with time and circumstances, roles considered for example ‘criminal,’ ‘immoral,’ or ‘socially destructive’ may be reconstructed as norm following, moral, and socially beneficial. Such changes may occur in as little as 1-2 generations. As we have seen in the US over the last 50 years. Human society and culture – durable but flexible. Human survival strategy in a nutshell.

    At the same time humans invent ‘theories’ to explain such institutions and legal/moral codes to explain their place in and the part of each player in their societies. To describe acceptable limits and to diagnose problems and their solutions. This makes current situations with inequality in wealth, power, and status a delicate problem with which to deal. Each such situation is a cooperative/coercive creation of all involved. Which, as many historians have pointed out means such situations as slavery, economic oppression, and racial discrimination all involved actors play a part in creating the situation. For example, the American historian, Eugene Genovese in his book, Roll, Jordan, Roll: The World the Slaves Made (1974), examined the society of the slaves. Genovese placed paternalism at the center of the master-slave relationship. Both masters and slaves embraced paternalism but for different reasons and with varying notions of what paternalism meant. For the slaveowners, paternalism allowed them to think of themselves as benevolent and to justify their appropriation of their slaves’ labor. Paternalist ideology, they believed, also gave the institution of slavery a more benign face and helped deflate the increasingly strong abolitionist critique of the institution. Slaves, on the other hand, recognized that paternalist ideology could be twisted to suit their own ends by providing them with improved living and working conditions. Slaves struggled mightily to convert the benevolent “gifts” or “privileges” bestowed upon them by their masters into customary rights that masters would not violate. The reciprocity of paternalism could work to the slaves’ advantage by allowing them to demand more humane treatment from their masters. Religion is an important theme in Roll, Jordan, Roll and other studies. Genovese noted that Evangelicals recognized slavery as the root of Southern ills and sought some reforms, but from the early decades of the 19th century, they abandoned arguing for abolition or substantial change of the system. Genovese’s contention is that after 1830, southern Christianity became part of social control of the slaves. He also argues that the slaves’ religion was not conducive to millenarianism or a revolutionary political tradition. Rather, it helped them survive and resist. As I said, humans’ ways of life are complex and always relational. The Trump/Trump disciples is the current unequal community of interest to many social scientists. As well as public health officials, defenders of democracy, and efficient/effective government advocates.

    All this is of course the purview of social scientists. Not to second guess humans but to lay out for all to see the work humans perform. But following on with the comments above, this is relational as well. With its meaning and performance evolving with time and involvement.
    In closing allow me to be somewhat more specific. First, when you write about “an algorithmically determined system on the financial economy / financial accounts side” it seems you are using some sort of mathematical determinism. But there are many versions of such determinism. Which are you deploying here? Based on the context, I judge it is one of the less flattering to human independence versions. For example, the version that claims that societies’ level of development is reflected in their mathematics, with European and American mathematics at the apex. Ultimately this is a genetic determinism, as mathematical forms are assumed to reflect the genetic development of those who create and hold such forms. This version of determinism also falters in that not only are all forms of mathematics cultural value, but also are the notions about good vs. bad mathematics cultural values. A view more current is ‘local’ determinants (determinism), fallibility and contingency. Here we see mathematics as under the purview of a ‘decentred’ mathematics and mathematician—the result of an ongoing discourse which is open to redefinition and which is constantly in process. Or is your focus mechanical determinism? Everything is a ‘machine’ functioning according to precise mathematical laws will do just what these laws prescribe. There is no uncertainty about what the components will do. Since the whole universe functions according to precise laws, the course of the world is determined. For each event there is a fixed preceding and consequent event. Moreover, these laws will not change, said Descartes, because the eternal invariableness of God’s is established by his perfection. That there is an established destiny is as certain as three times three is nine, declared Leibniz. Mathematics describes this destiny, for everything in nature is determined by number, motion, and force. Including human history? And lest we forget, there is what I call ridiculous determinism. As exemplified by this from Feigl and Sellars, the validity of mathematics derives from the stipulations which determine the meaning of the mathematical concepts, and that the propositions of mathematics are therefore essentially “true by definition.” (H. Feigl and L. Sellars 1949, 225) And finally, we are faced with the ideas put forward by Pierre Duhem, W. V. O. Quine and Ludwig Wittgenstein who argue that our ways of knowing about the world are riddled with indeterminacies. Which is to say that there is no set of procedures sufficiently powerful to determine which knowledge claims are absolutely true and certain, nor is there a certain way of grounding such claims. There are uncertainties inherent in all our ways of knowing that have to be bridged by a variety of practical and social strategies.

    Historically you are correct that most major changes for a society begin from what I call the below. The non-elites. Either through more practical education for the elites or through failure of elites to leave their elite bubbles. But the future you describe is not likely. Long before the situation you describe of “cyber- and crypto- trillionaires” was reached the rules and values that keep the biological and institutional members of society working together would no longer be believed in or adhered to most of the population. With this would come not only various forms of physical violence but also mass anger and anomie (hopelessness). Societies can be amazingly resilient. But in such situations as this they can fly apart quite quickly. If the Trillionaires you mention want to survive such upheaval they need to do whatever they can to preserve the existing society. On top of this difficulty, societies that do not have a common core of sharing work and rewards acceptable to most societal members are even more susceptible to collapse.

  3. December 3, 2020 at 2:20 pm

    “We cannot, must not assume we can create so called ahistorical ‘accurate’ definitions to save us from the need for human judgements in each situation and with each problem we encounter in these situations”.

    An interesting exposition, Ken, even though I don’t agree with its tendency. What we can do (and in physics, where being scientific is easier, do do) is to COMMIT ourselves to definitions which work, so that as you imply we can act instinctively, but when we hedonistically judge by appearances we are confronted with our previous commitment and have to decide which one we are going to act on. Physics has had to separate time out from motion, and social “science” needs to separate out representations from events. Since Christ taught us to love each other as ourselves what you see as judaic or legal morality has been redefined as ethics (commitment to an attitude of mind rather than commands and prohibitions by rulers). That advance was sadly reversed in practice at the Reformation and in theory by Hume.

    You might enjoy exploring ‘common sense’ and Jungian ‘archetypes’.

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