30 December 2011
From John Nye's review of Richard Pipes' Property and Freedom:
Peter the Great is often saluted for having modernized Russia's culture and economy. But Pipes makes clear that Peter's Westernization was primarily cultural and technological. Although receptive to Western ideas in art, literature, music, and science, Peter did little to adopt the legal institutions so crucial to English success. Rather than improving individual property rights, Peter blurred a variety of existing distinctions and endangered the long-run stability of all reforms through arbitrary confiscation. Peasant agriculture was held back by a law requiring that all holdings must be bequeathed in toto to a single heir. Though intended to stop the devolution of large holdings into small parcels through inheritance, the law had the effect of destroying the working land market that had begun to emerge in Russia.
25 December 2011
From this, rather long, blog post:
Most monetary and fiscal interventions result in a rise in the financial markets, NGDP expectations and economic performance in the short run. Yet,
- we are in the middle of a ‘great stagnation’ and have been for a few decades.
- the frequency of crises seems to have risen dramatically in the last fifty years culminating in the environment since 2008 which is best described as a perpetual crisis.
- each recovery seems to be weaker than the previous one and requires an increased injection of stimulus to achieve results that were easily achieved by a simple rate cut not that long ago.
... Similarly, when a central bank protects incumbent banks against liquidity risk, the banks choose to hold progressively more illiquid portfolios. When central banks provide incumbent banks with cheap funding in times of crisis to prevent failure and creditor losses, the banks choose to take on more leverage. ... Of course, in economic systems when agents actively intend to arbitrage such commitments by central banks, it is simply a form of moral hazard. But such an adaptation can easily occur via the natural selective forces at work in an economy – those who fail to take advantage of the Greenspan/Bernanke put simply go bust or get fired. ...
some of you may raise the following objection: so what if the new state is pathological? Maybe capitalism with its inherent instability is itself pathological. And once the safety nets of the Greenspan/Bernanke put, lender-of-last-resort programs and too-big-to-fail bailouts are put in place why would we need or want to remove them? If we simply medicate the economy ad infinitum, can we not avoid collapse ad infinitum?
This argument however is flawed.
- The ability of economic players to reorganise to maximise the rents extracted from central banking and state commitments far exceeds the the resources available to the state and the central bank. ... as Minsky and many others have documented, the pace of financial innovation over the last half-century has meant that banks and financialised corporates have all the tools they need to circumvent regulations and maximise rent extraction.
- Minsky noted that "A high-investment, high-profit strategy for full employment – even with the underpinning of an active fiscal policy and an aware Federal Reserve system – leads to an increasingly unstable financial system, and an increasingly unstable economic performance. Within a short span of time, the policy problem cycles among preventing a deep depression, getting a stagnant economy moving again, reining in an inflation, and offsetting a credit squeeze or crunch."
...The structural malformation of the economic system due to the application of increasing levels of stimulus to the task of stabilisation means that the economy has lost the ability to generate the endogenous growth and innovation that it could before it was so actively stabilised. The system has now been homogenised and is entirely dependent upon constant stimulus. ...
22 December 2011
From The Collapse of Complex Societies by Joseph A. Tainter (p. 26-8):
Anthropologists have had some difficulty defining the concept 'state.' It is something that seems clearly different from the simplest, acephalous human societies, but specifying or enumerating this difference has proven an elusive goal. Many anthropologists, despite this difficulty, insist that states are a qualitatively different kind of society , so that the transition from tribal to state societies represents the 'Great Divide' (Service 1975) of human history. ...
States are, to begin with, territorially organized. That is to say, membership is at least partly determined by birth or residence in a territory, rather than by real or fictive kin relations. ... The territorial basis both reflects and influences the nature of statehood ...
States contrast with relatively complex tribal societies (e.g., chiefdoms) in a number of ways. In states, a ruling authority monopolizes sovereignty and delegates all power. The ruling class tends to be professional, and is largely divorced from the bonds of kinship. This ruling class supplies the personnel for government, which is a specialized decision-making organization with a monopoly of force, and with the power to draft for war or work, levy and collect taxes, and decree and enforce laws. The government is legitimately constituted, which is to say that a common, society-wide ideology exists that serves in part to validate the political organization of society. And states, of course, are in general larger and more populous than tribal societies, so that social categorization, stratification, and specialization are both possible and necessary ...
States tend to be overwhelmingly concerned with maintammg their territorial integrity. This is, indeed, one of their primary characteristics. States are the only kind of human society that does not ordinarily undergo short-term cycles of formation and dissolution ...
States are internally differentiated ... Occupational specialization is a prime characteristic, and is often reflected in patterns of residence ... By virtue of their territorial extensiveness, states are often differentiated, not only economicaliy, but also culturally and ethnically. Both economic and cultural heterogeneity appear to be functionally related to the centralization and administration that are defining characteristics of states ...
Despite an institutionalized authority structure, an ideological basis, and a monopoly of force, the rulers of states share at least one thing with chiefs and Big Men: the need to establish and constantly reinforce legitimacy. In complex as well as simpler societies, leadership activities and societal resources must be continuously devoted to this purpose. Hierarchy and complexity, as noted, are rare in human history, and where present require constant reinforcement. No societal leader is ever far from the need to validate position and policy, and no hierarchical society can be organized without explicit provision for this need.
Legitimacy is the belief of the populace and the elites that rule is proper and valid, that the political world is as it should be. It pertains to individual rulers, to decisions, to broad policies, to parties, and to entire forms of government. The support that members are willing to extend to a political system is essential for its survival. Decline in support will not necessarily lead to the fall of a regime, for to a certain extent coercion can replace commitment to ensure compliance. Coercion, though, is a costly, ineffective strategy which can never be completely or permanently successful. Even with coercion, decline in popular support below some critical minimum leads infallibly to political failure (Easton 1965b: 220-4). Establishing moral validity is a less costly and more effective approach.
Complex societies are focused on a center, which may not be located physically where it is literally implied, but which is the symbolic source of the framework of society . It is not only the location of legal and governmental institutions, bur is the source of order, and the symbol of moral authority and social continuity . The center partakes of the nature of the sacred. In this sense, every complex society has an official religion (Shils 1975 : 3; Eisenstadt 1978: 37; Apter 1968: 2 18).
The moral authority and sacred aura of the center not only are essential in maintaining complex societies, but were crucial in their emergence. One critical impediment to the development of complexity in stateless societies was the need to integrate many localized, autonomous units, which would each have their own peculiar interests, feuds, and jealousies. A ruler drawn from any one of these units is automatically suspect by the others, who rightly fear favoritism toward his/her natal group and locality, particularly in dispute resolution (Netting 1972: 233-4). This problem has crippled many modern African nations (cf. Easton 1965b: 224). The solution to this structural limitation was to explicitly link leadership in early complex societies to the supern a tural. When a leader is imbued with an aura of sacred neutrality, his identi fi c ation with natal group and territory can be superseded by ritually sanctioned authority which rises above purely local concerns . An early complex society is likely to have an avowedly sacred basis of legitimacy, in which disparate, formerly independent groups are united by an over arching level of shared ideology, symbols, and cosmology (Netting 1972: 233-4; Claessen 1978: 557; Skalnik 1978: 606).
Supernatural sanctions are then a response to the stresses of change from a kin-based society to a class-structured one. They may be necessitated in part by an ineffective concentration of coercive force in emerging complex societies (Webster 1976b: 826). Sacred legitimization provides a binding framework until real vehicles of power have been consolidated. Once this has been achieved the need for religious integration declines, and indeed conflict between secular and sacred authorities may thereafter ensue (see, e.g. , Webb 1 965). Yet as noted, the sacred aura of the center never disappears, not even in contemporary secular governments ( Shils 1975: 3-6). Astute politicians have always exploited this fact. It is a critical element in the maintenance of legitimacy.
Despite the undoubted power of supernatural legitimization, support for leadership must also have a genuine material basis. Easton suggests that legitimacy declines mainly under conditions of what he calls 'output failure' ( 1965b : 230). Output failure occurs where authorities are unab l e to meet the demands of the support population, or do not take anticipatory actions to counter adversities. Outputs can be political (Eisenstadt 1963: 25) or material. Output expectations are continuous, and impose on leadership a never-ending need to mobilize resources to maintain support. The attainment and perpetuation of legitimacy thus require more than the manipulation of ideological symbols. They require the assessment and commitment of real resources, at satisfactory levels, and are a genuine cost that any complex society must bear. Legitimacy is a recurrent factor in the modern study of the nature of complex societies, and is pertinent to understanding their collapse.
16 November 2011
From Elbow Room: The Varieties of Free Will Worth Wanting (1984).
Free-floating rationales (pp. 24-25):
a set of reasons that were appreciated by, thought out by, and rendered explicit by no one. The subtlety and deviousness of this thinking-without-a-thinker is often more than a match for the thinking we thinkers do. ...
explain as little as possible and tell one's field operatives only what they absolutely need to know to perform their roles. Mother Nature is similarly stingy when she apportions comprehension, it appears. When larger "goals" can be achieved by cleverly organized armies of uncomprehending agents, such as ants, the "Need to Know" rule is ruthlessly invoked. ...
Mother Nature abides by the "Need to Know" principle, but we appreciate a contrary principle: our ideal is to be completely savvy, to be able to notice all the reasons that concern us, to be in the dark about nothing of relevance to us, to be the completely and perfectly informed guardians of our own interests. That is what it would be to be able to choose one's course of action always as reason dictated. We often say that "reason dictates" a certain course of action to an actor in a certain circumstance. ... we mean that a certain problem (abstractly considered-that is, whether or not any creature has explicitly expressed and addressed it) has a certain (optimal) solution. The problem is defined by the circumstances and interests of the actor in question. ...
Kant draws our attention to the distinction between merely doing what reason dictates and doing what reason dictates because reason dictates it. One might, in the first instance, just happen to do "the right thing," or be caused by extraneous and irrelevant factors to do the right thing. However fortunate one might be to fall into such a circumstance, this is to be distinguished from the good fortune enjoyed by one who has the marvelous further power to be moved by reasons.
Intermediate between the actor who purely coincidentally "does the right thing" and the actor who is moved by the right reasons to do the right thing is the actor who tends to do the right thing (because the actor was designed to tend to do the right thing), but nevertheless does the right thing (when it does) unwittingly. This intermediate actor, it seems, does not attend to the wise voice of Reason directly, cannot itself actually hear and comprehend Reason's dictates; however, it seems as though the process (or agent) that designed the actor was thus responsive to Reason's dictates.
Diminished Responsibility and the Specter of Creeping Exculpation (pp. 158-164):
Why do we want to punish people who "commit crimes"? ... We can readily identify sorts of harms we would like to see minimized in our society, and we have reason to believe that if we prohibit the causing of these harms, and give force to the prohibition by threatening sanctions, we will thereby I, diminish the frequency of those harms. We believe this institution is at least somewhat effective, and we believe this for good reasons. First, it follows from our conception of rationality that if the members of society are even approximately rational, they will see that it is not at all in their interests to be caught having committed the prohibited deeds, and will hence in general be deterred. And we have plenty of empirical evidence that the citizenry, taken as a whole, is appropriately sensitive to such institutions. Laws (backed by sanctions) do make a difference, and in the desired direction. But we recognize that these desirable effects fall short of the ideal. ...
this system of laws would deter perfectly, because (unlike us) everyone would be so rational. People-all people-would see as plain as the noses on their faces that crime didn't pay, and hence would all abstain from it. Judges and policemen and jailers would be appointed and trained, and would sit around, like the Swiss Army, waiting to be called into action, but rather doubting that it would ever happen in their lifetimes. Why isn't that the situation we find ourselves in? If we're really homo sapiens, the "rational animal," why are our prisons overcrowded and our judges overworked? One reason seems to be that we skimp on our institutions of enforcement, and hence people, being rational indeed, see that under certain conditions crime does pay, or at any rate is likely enough to pay to be worth the risk. The deterrent power of laws is (ideally) a function of people's perception of the likelihood of their being apprehended and the severity of the penalty that might be inflicted. Increasing either factor increases deterrence. ...
Since rapidly diminishing returns would be the result of any further investment in strengthening our enforcement, the optimal institution will be one in which a certain amount of lawbreaking, apprehension, and conviction is "tolerated." That is not to say our present system needs no serious reform, but-runs this argument-it would be irrational to hold out any hope of devising a system of perfect deterrence. So lawbreakers will always be among us; the jailer will never have-should never have an entirely ceremonial position. ...
Deterrence depends on several factors, and one is "publicity": deterrence has a chance to succeed only with people who know the law and understand the conditions and sanctions. There may be individuals, we recognize, who fail to meet these conditions, and hence may commit the prohibited deed because the deterrent effect of the law never reaches to them. That is why a part of the cost of the institution of laws is public education; secret laws are useless as deterrents. The cost-effective way of achieving a suitably high level of knowledge is to combine a sufficiently energetic public information program with a somewhat peremptory (and hence bracing) legal wrinkle: ignorance of the law is no excuse. This latter condition provides a motivation to all to maintain a state of mild inquisitiveness about the law and any new changes in it. ...
There is a tacit requirement that laws be made as straightforward and comprehensible as possible, so that it is not asking too much to suppose people under their jurisdiction can comprehend them, but for some people this is asking too much. These are, paradigmatically, the mentally incompetent and insane. We excuse them from criminal liability because they manifestly do not meet the minimal conditions for deterrability, and the attempt to educate them, to bring them up to the knowledge and comprehension threshold, would be fruitless-or at least too costly. To punish them as if they were responsible citizens would be to undermine the very institution of punishment (which depends on its credibility) by undermining its rationale. It would be as outrageous-as offensive to the rationality of the citizenry at large-for the law to refuse to distinguish these people as nonresponsible, as it would be for the law to maintain its "ignorance is no excuse" rule while passing and enforcing secret laws. So in order to preserve the credibility and defensibility of the system, we add explicit provisions excluding various types of people from legal responsibility.
This has the effect of diminishing the pool of eligible punishees, the genuinely responsible and guilty-as-charged. But we recognize that perhaps the principles used to demarcate this class are crude, and the question arises whether the law's credibility and acceptability (its justice, in short) could be further improved by making finer-grained distinctions. ...
So we must get arbitrary again, and draw the line-exactly where is no more important in this case than it is in the case of setting a legal age for drinking or driving. We must set up some efficiently determinable threshold for legal competence, never for a moment supposing that there couldn't be intuitively persuasive "counterexamples" to whatever line we draw, but declaring in advance that such pleas will not be entertained. We mustn't look too closely at the particular micro-details of the accused's circumstances, but just try to establish (crudely and swiftly) that in general this agent is deterrable, even though he was not deterred on this occasion. ...
We cannot conclude from the fact that a wager was lost that it was irrationally made. So long as the risk was taken in full knowledge of the consequences of the loss, the agent can hardly complain that the sanctions now imposed are unfairly applied to him.
02 November 2011
For the two hundred years from 1750 to 1950, the fastest population growth took place in the world’s most advanced economies. Their rising productivity and improving governance ushered in previously unseen prosperity, and fuels optimism for the future.
But in the next century, the fastest population growth will take place in the world’s least advanced economies and some of its worst-governed countries. A global effort to improve governance and education in those countries, allowing the world to benefit from the human potential of billions of additional people, could again usher in a new stage of global prosperity. But failure to meet this challenge may consign billions of people to live in countries with failing states, brimming with angry and frustrated youth, prone to high levels of violence, and recurrent humanitarian disasters on ever-larger scales. There is still time to build partnerships and make investments to respond to this challenge, but every week, another three million children are born in the poorest countries, and the clock ticks on.Matt Ridley, The Rational Optimist:
The peak is in sight. Even as the population passes seven billion, the growth rate of the world population has halved since the 1960s. The United Nations Population Division issues high, medium and low forecasts. Inevitably the high one (fifteen billion people by 2100) gets more attention than the low one (six billion and falling). But given that the forecasts have generally proved too high for the past few decades, let us imagine for a moment what might happen if that proves true again.
Africa is currently the continent with the highest birth rates, but it also has the fastest economic growth. The past decade has seen Asian-tiger-style growth all across Africa. HIV is in retreat, malaria in decline. When child mortality fell and economic growth boomed like this in Europe, Latin America and Asia, the result was a rapid fall in the birth rate. For fertility to fall, contraception provides the means, but economic growth and public health provide the motive. So the current slow decline in Africa’s birth rate may turn into a plummet.
If that happens, the low UN estimate could prove more accurate with the world population peaking a little above eight billion and falling to a billion less than today by the end of the century.Good things might happen: "agricultural productivity continues to rise", "EU tariff barriers against African produce are lifted and America’s crazy policy of diverting food into motor fuel is reversed", "with more people able to afford fossil fuels, fewer will depend on forests for cooking fuel", "water use grows steadily more efficient with the spread of drip irrigation". So:
It is quite possible that your great grandchildren will not only be fewer in number, but will live in a world with huge nature reserves, vast forests and rich seas.
23 October 2011
...although at ground level OOP is still actually made of loops and conditions, it sure looks different from a programmer's point of view. In case of OOP you have to deal with so called objects (such as a button or a window or a menu or whatever you invent) and these objects have properties, events and methods.
Traditional programming was causal, while OOP is intentional. Traditionally, you would tell the computer something like: "Do this, then that, if the user does that go that way, if (s)he does that other thing go the other way, then enter this loop and continuously check and check and check whether the user has done anything you have plans for, and God forbid (s)he does something unexpected, and so on." Usually, you would have to predict any possible action the user could do and devise a certain response.
In OOP you are not programming in such a causal manner, you are actually setting various purposes or functions to various objects. You say "The purpose of this button over here is to open up that window", "The purpose of this text box is to get some text from the user." And so on. This allows you to create much more complex programs in a more bug-free manner.
A property is how the object looks like. For example, it has a certain color, or a certain text imprinted on it, or has a certain position inside a window and so on. When you change the value of some property, the object miraculously changes its appearance. You're just saying "I want you to be like that", and it becomes like that.
An event is something that can happen to the object. For example a button can be clicked. Or the mouse can go over it. A text can be changed. Etc. You, as a programmer, can say to an object: "If this event ever happens to you, this is how I want you to react."
A method is something that the object can do. While events are things inflicted on objects, methods are the things the objects themselves do. For instance, a text box can undo a text change or can copy the selected text to Clipboard.
What's fun from a philosophical point of view is that this OOP creates a very platonic virtual world. Plato's most famous idea is that everything in the real world, everything that we see and ourselves included, is only a sort of copy of some "archetypal" or ideal object. In the same way, every object OOP deals with is created from a so-called class. A class is the ideal, platonic object. A class consists in a set of properties without a specified value, having empty events and methods. To create a particular virtual object (that you can actually see on screen or with what you can actually do anything) you assign certain values to the ideal object (to the class), and write some code for its events and methods.
The class defines in a sort of abstract manner what all the possible objects of that type could be like. A class doesn't define a particular button, but defines the concept of any button. Translating Plato into OOP language: he believed the true world is the world of classes only, while the world of objects is only apparent (he used the following metaphor: objects are like the shadows of the classes, and we are only seeing these shadows, wrongfully taking them for real). In other words, he believed God was a computer programmer that did the job in a divine Visual Basic.
The philosopher most famous for debunking Plato's vision of the world is Wittgenstein. Wittgenstein's most famous idea is that objects in the real world are not the outcome of some platonic classes, but that they come in "families". A family is a set of real objects that resemble each other from various points of view. For example, the family "chair" is a set of all the objects that we call by that name. But we group together these objects in one single family, not because they share some common essence, but out of historic accidents. For example, in Romanian a toilet seat is called a "toilet chair" (because Romanians read sitting on the toilet more often than the English). To Romanians the toilet seat is part of the "chair" family, while the English have a more restrictive concept of "chair".
For describing his idea, Wittgenstein used the metaphor of a rope: a rope is made of many fibers, but there's no fiber that has the same length as the entire rope. In the same way, object A resembles object B, which resembles object C, and which, in turn, resemble object D, and all these objects may be part of the same family, but nonetheless, object A may not resemble object D in any dramatic manner. In other words, there's no common thread through all the objects called by a certain name - i.e. belonging to a certain family.
I've been wondering how a Wittgensteinian programming language would look like. Suppose the buttons and all the windows you could encounter in this virtual world would not arise from certain classes, but they would belong to a family. I think the virtual world would be much more diverse and fun, and, probably, any programmer's nightmare.
In order to create a new object, you would have to take an existing object and modify it in various ways. But there would not be any predetermined class to tell you in what ways you may modify it - a predetermined concept of "all" objects of that type. I guess such a Wittgensteinian standard would be great for the open source programs.
I've noticed now that someone made an interesting comment that Java can be seen as an example of such a Wittgensteinian language:
It seems to me that this is an important threshold, much more important than the transition from traditional programming to OOP. The reason is that evolution by natural selection works in a Wittgensteinian language. For instance, all living beings form a large Wittgensteinian family created by biological evolution - different species exist because extinction has created gaps in the threads of family resemblances that link living beings one to another, and not because members of a species are instantiations of an abstract class (this was Darwin's main insight, see Dennett 1995, chapter 2 for details). Once a Wittgensteinian programming language is available (e.g. Java), one can develop genuine evolution by natural selection in the virtual world. Java would be the equivalent of DNA.
I'm thinking of the following thing. Right now all programs are the result of intelligent design, i.e. each new program is the result of some human programmer making the changes in order to achieve some desired goal (such that the program serves some desired function). However, with a Wittgensteinian language it is possible in principle to eliminate the programmer entirely, and just let programs evolve under the selection pressure of users' demands. For example, right now many programs collect crash reports and improvement suggestions from users, but actual human programmers need to sift through all these reports and decide what changes to make. An Darwinian alternative to this system would involve an automatic meta-program sift through the reports, operate changes in the program and test the program (the alpha version) against a set of users willing to serve as testers (as it commonly already happens).
Biological evolution provides another important suggestion: the meta-program can be written in the same language as the program. In case of life, DNA is not enough to make a living being, DNA has to be transcribed into the proteins that actually make up the creature by some enzymes - but these enzymes are themselves proteins, and, as such, the information about how to make them is also coded in the DNA. This is a loop. The consequence of this loop is that not only life forms change, but also the mechanism for building life forms can change (and it did change - these are known as the "major transitions in evolution", see Maynard Smith & Szathmáry, Carroll, or Kirschner & Gerhart).
Applied to the virtual world of computer programs, this idea would mean that the program that sifts through user reports and which operates the changes in existing programs developing new versions can itself be written in Java (or in some other Wittgensteinian language), and, as such, can also be subjected to evolution by natural selection. This would thus become a self-contained system for developing better and better (i.e. in line with users' demands) computer programs without any need for human computer programmers.
20 October 2011
From "Session of the All-Russia C.E.C.", 1918:
When I read these references to such enemies in the newspaper of the Left Communists, I ask: what has happened to these people that fragments of book-learning can make them forget reality? Reality tells us that state capitalism would be a step forward. If in a small space of time we could achieve state capitalism in Russia, that would be a victory.
How is it that they cannot see that it is the petty proprietor, small capital, that is our enemy? How can they regard state capitalism as the chief enemy? They ought not to forget that in the transition from capitalism to socialism our chief enemy is the petty bourgeoisie, its habits and customs, its economic position. The petty proprietor fears state capitalism above all, because he has only one desire—to grab, to get as much as possible for himself, to ruin and smash the big landowners, the big exploiters. In this the petty proprietor eagerly supports us.
Here he is more revolutionary than the workers, because he is more embittered and more indignant, and therefore he readily marches forward to smash the bourgeoisie—but not as a socialist does in order, after breaking the resistance of the bourgeoisie, to begin building a socialist economy based on the principles of firm labour discipline, within the framework of a strict organisation, and observing correct methods of control and accounting—but in order, by grabbing as much as possible for himself, to exploit the fruits of victory for himself and for his own ends, without the least concern for general state interests and the interests of the class of working people as a whole.
What is state capitalism under Soviet power? To achieve state capitalism at the present time means putting into effect the accounting and control that the capitalist classes carried out. We see a sample of state capitalism in Germany. We know that Germany has proved superior to us. But if you reflect even slightly on what it would mean if the foundations of such state capitalism were established in Russia, Soviet Russia, everyone who is not out of his senses and has not stuffed his head with fragments of book learning, would have to say that state capitalism would be our salvation.
I said that state capitalism would be our salvation; if we had it in Russia, the transition to full socialism would he easy, would be within our grasp, because state capitalism is something centralised, calculated, controlled and socialised, and that is exactly what we lack: we are threatened by the element of petty-bourgeois slovenliness, which more than anything else has been developed by the whole history of Russia and her economy, and which prevents us from taking the very step on which the success of socialism depends. Allow me to remind you that I had occasion to write my statement about state capitalism some time before the revolution and it is a howling absurdity to try to frighten us with state capitalism.
05 October 2011
The fading of the true Green Revolution — which increased grain yields by 126 percent from 1950 to 1980, but has improved them by only 47 percent in the years since, barely keeping pace with global population growth
Looking forward, we see far fewer blockbuster drugs in the pipeline — perhaps because of the intransigence of the FDA, perhaps because of the fecklessness of today’s biological scientists, and perhaps because of the incredible complexity of human biology. In the next three years, the large pharmaceutical companies will lose approximately one-third of their current revenue stream as patents expire, so, in a perverse yet understandable response, they have begun the wholesale liquidation of the research departments that have borne so little fruit in the last decade and a half.
27 September 2011
I have this Google+ account where I post almost nothing, and yet people keep adding me. That puzzled me until I realized that the cost of adding someone who doesn’t post anything is almost zero because they will not pollute your feed anyway. There is a cost only to add people who keep posting garbage.
As far as interesting people are concerned, the more interesting they are (whatever that means) the more followers they tend to have. Also – up to a certain point – the more interesting posts per day they have the more followers they tend to have (because they increase their chances of being reblogged by others and thus they increase their visibility on the network). However, if they post too many things per day they’re beginning to be annoying and there’s a point beyond which they post so many things that they are all over people’s feeds crowding out other people. Beyond this point people get upset and unfollow them.
The story in a single picture:
17 September 2011
Property is a bundle of rights (check out Wesley Hohfeld).
Property = right to use + right to forbid use by others.
[My comment: this seems insufficient as it doesn’t distinguish ownership from rent.]
Right to exclude is more fundamental than the rest of the rights in the bundle (all the others are conditional on it for their existence).
Property rule: others need your consent in order to use it.
Liability rule: if others use it without your permission they have to compensate (e.g. eminent domain).
Inalienability rule: can't use/sell at all (illegal to sell your kidney, prostitution, voluntary slavery contracts etc.).
Purpose of rights is to organize social behavior efficiently. Corollary of this: We should have the minimum number of rights that are able to achieve this because beyond that minimum we are inflicting unnecessary constraints.
Contracts = algorithms that grant permissions for the use of property.
A system of property rights is working when it facilitates:
- creative destruction (i.e. experimentation)
- growth of businesses
- limits externalities
- minimizes transaction costs
[Question: Doesn’t the minimization of transaction costs cover all the other conditions?]
13 August 2011
Din Omul duplicat:
Gestul pe care l-a facut Tertuliano Maximo Afonso catre el, oarecum pe ascuns, insemna ca ii multumea pentru mesaj, insa, in acelasi timp, parca mai era ceva, un lucru caruia, in lipsa unui termen mai bun, ii vom da denumirea de subgest. ... Cu alte cuvinte, in timp ce gestul principal se arata in mod deschis conciliant, spunand, Ce a fost, a fost, a trecut, subgestul, reticent, nuanta, Da, dar nu de tot. ... Se obisnuieste sa se spuna, de exemplu, despre Cutare, Cutarica sau Cutarescu ca au facut, intr-o anumita situatie, un gest din acesta sau din acela sau din celalalt, o spunem asa, simplu, ca si cum acesta sau acela sau celalalt, intrebare, manifestare a sprijinului sau indemn la prudenta, ar fi expresii turnate dintr-o singura piesa, intrebarea, intotdeauna metodica, sprijinul, intotdeauna neconditionat, indemnul, intotdeauna dezinteresat, cand adevarul intreg, daca vrem cu adevarat sa-l cunoastem, daca nu ne multumim cu literele mari ale mijloacelor de comunicare, cere sa fim atenti la scintilatiile multiple ale subgesturilor care vin in spatele gesturilor, asa cum praful cosmic vine dupa coada cometei, pentru ca aceste subgesturi, ca sa recurgem la o comparatie la indemana tuturor varstelor si gradelor de intelegere, sunt la literele micute dintr-un contract, a caror descifrare da de furca, dar ele se afla acolo. Cu toata modestia pe care o recomanda uzantele si bunul-gust, nu ne-ar surprinde deloc daca, intr-un viitor foarte apropiat, studiul, identificarea si clasificarea subgesturilor ar deveni, fiecare in sine si impreuna, una dintre cele mai fecunde ramuri ale stiintei semiologiei in general. S-au vazut cazuri mai extraordinare ca acesta. (p. 45-46)
Jose Saramago, The Double, p. 39-40
11 July 2011
From The Constitution of Liberty (1960):
As has often been acknowledged by conservative writers, one of the fundamental traits of the conservative attitude is a fear of change, a timid distrust of the new as such, while the liberal position is based on courage and confidence, on a preparedness to let change run its course even if we cannot predict where it will lead. There would not be much to object to if the conservatives merely disliked too rapid change in institutions and public policy; here the case for caution and slow process is indeed strong. But the conservatives are inclined to use the powers of government to prevent change or to limit its rate to whatever appeals to the more timid mind. In looking forward, they lack the faith in the spontaneous forces of adjustment which makes the liberal accept changes without apprehension, even though he does not know how the necessary adaptations will be brought about. It is, indeed, part of the liberal attitude to assume that, especially in the economic field, the self-regulating forces of the market will somehow bring about the required adjustments to new conditions, although no one can foretell how they will do this in a particular instance. There is perhaps no single factor contributing so much to people's frequent reluctance to let the market work as their inability to conceive how some necessary balance, between demand and supply, between exports and imports, or the like, will be brought about without deliberate control. The conservative feels safe and content only if he is assured that some higher wisdom watches and supervises change, only if he knows that some authority is charged with keeping the change "orderly."
This fear of trusting uncontrolled social forces is closely related to two other characteristics of conservatism: its fondness for authority and its lack of understanding of economic forces. Since it distrusts both abstract theories and general principles, it neither understands those spontaneous forces on which a policy of freedom relies nor possesses a basis for formulating principles of policy. Order appears to the conservative as the result of the continuous attention of authority, which, for this purpose, must be allowed to do what is required by the particular circumstances and not be tied to rigid rule. A commitment to principles presupposes an understanding of the general forces by which the efforts of society are co-ordinated, but it is such a theory of society and especially of the economic mechanism that conservatism conspicuously lacks. ...
Let me return, however, to the main point, which is the characteristic complacency of the conservative toward the action of established authority and his prime concern that this authority be not weakened rather than that its power be kept within bounds. This is difficult to reconcile with the preservation of liberty. In general, it can probably be said that the conservative does not object to coercion or arbitrary power so long as it is used for what he regards as the right purposes. He believes that if government is in the hands of decent men, it ought not to be too much restricted by rigid rules. Since he is essentially opportunist and lacks principles, his main hope must be that the wise and the good will rule - not merely by example, as we all must wish, but by authority given to them and enforced by them. Like the socialist, he is less concerned with the problem of how the powers of government should be limited than with that of who wields them; and, like the socialist, he regards himself as entitled to force the value he holds on other people.
When I say that the conservative lacks principles, I do not mean to suggest that he lacks moral conviction. The typical conservative is indeed usually a man of very strong moral convictions. What I mean is that he has no political principles which enable him to work with people whose moral values differ from his own for a political order in which both can obey their convictions. It is the recognition of such principles that permits the coexistence of different sets of values that makes it possible to build a peaceful society with a minimum of force. The acceptance of such principles means that we agree to tolerate much that we dislike. There are many values of the conservative which appeal to me more than those of the socialists; yet for a liberal the importance he personally attaches to specific goals is no sufficient justification for forcing others to serve them. ...
To live and work successfully with others requires more than faithfulness to one's concrete aims. It requires an intellectual commitment to a type of order in which, even on issues which to one are fundamental, others are allowed to pursue different ends. It is for this reason that to the liberal neither moral nor religious ideals are proper objects of coercion, while both conservatives and socialists recognize no such limits. I sometimes feel that the most conspicuous attribute of liberalism that distinguishes it as much from conservatism as from socialism is the view that moral beliefs concerning matters of conduct which do not directly interfere with the protected sphere of other persons do not justify coercion.
In the last resort, the conservative position rests on the belief that in any society there are recognizably superior persons whose inherited standards and values and position ought to be protected and who should have a greater influence on public affairs than others. The liberal, of course, does not deny that there are some superior people - he is not an egalitarian - bet he denies that anyone has authority to decide who these superior people are. While the conservative inclines to defend a particular established hierarchy and wishes authority to protect the status of those whom he values, the liberal feels that no respect for established values can justify the resort to privilege or monopoly or any other coercive power of the state in order to shelter such people against the forces of economic change. Though he is fully aware of the important role that cultural and intellectual elites have played in the evolution of civilization, he also believes that these elites have to prove themselves by their capacity to maintain their position under the same rules that apply to all others.
Closely connected with this is the usual attitude of the conservative to democracy. I have made it clear earlier that I do not regard majority rule as an end but merely as a means, or perhaps even as the least evil of those forms of government from which we have to choose. But I believe that the conservatives deceive themselves when they blame the evils of our time on democracy. The chief evil is unlimited government, and nobody is qualified to wield unlimited power. The powers which modern democracy possesses would be even more intolerable in the hands of some small elite. Admittedly, it was only when power came into the hands of the majority that further limitations of the power of government was thought unnecessary. In this sense democracy and unlimited government are connected. But it is not democracy but unlimited government that is objectionable, and I do not see why the people should not learn to limit the scope of majority rule as well as that of any other form of government. At any rate, the advantages of democracy as a method of peaceful change and of political education seem to be so great compared with those of any other system that I can have no sympathy with the antidemocratic strain of conservatism. It is not who governs but what government is entitled to do that seems to me the essential problem. ...
Though the liberal certainly does not regard all change as progress, he does regard the advance of knowledge as one of the chief aims of human effort and expects from it the gradual solution of such problems and difficulties as we can hope to solve. Without preferring the new merely because it is new, the liberal is aware that it is of the essence of human achievement that it produces something new; and he is prepared to come to terms with new knowledge, whether he likes its immediate effects or not.
Personally, I find that the most objectionable feature of the conservative attitude is its propensity to reject well-substantiated new knowledge because it dislikes some of the consequences which seem to follow from it - or, to put it bluntly, its obscurantism. I will not deny that scientists as much as others are given to fads and fashions and that we have much reason to be cautious in accepting the conclusions that they draw from their latest theories. But the reasons for our reluctance must themselves be rational and must be kept separate from our regret that the new theories upset our cherished beliefs. I can have little patience with those who oppose, for instance, the theory of evolution or what are called "mechanistic" explanations of the phenomena of life because of certain moral consequences which at first seem to follow from these theories, and still less with those who regard it as irrelevant or impious to ask certain questions at all. By refusing to face the facts, the conservative only weakens his own position. Frequently the conclusions which rationalist presumption draws from new scientific insights do not at all follow from them. But only by actively taking part in the elaboration of the consequences of new discoveries do we learn whether or not they fit into our world picture and, if so, how. Should our moral beliefs really prove to be dependent on factual assumptions shown to be incorrect, it would hardly be moral to defend them by refusing to acknowledge facts.
Connected with the conservative distrust if the new and the strange is its hostility to internationalism and its proneness to a strident nationalism. Here is another source of its weakness in the struggle of ideas. It cannot alter the fact that the ideas which are changing our civilization respect no boundaries. But refusal to acquaint one's self with new ideas merely deprives one of the power of effectively countering them when necessary. The growth of ideas is an international process, and only those who fully take part in the discussion will be able to exercise a significant influence. It is no real argument to say that an idea is un-American, or un-German, nor is a mistaken or vicious ideal better for having been conceived by one of our compatriots. ...
There is one respect, however, in which there is justification for saying that the liberal occupies a position midway between the socialist and the conservative: he is as far from the crude rationalism of the socialist, who wants to reconstruct all social institutions according to a pattern prescribed by his individual reason, as from the mysticism to which the conservative so frequently has to resort. What I have described as the liberal position shares with conservatism a distrust of reason to the extent that the liberal is very much aware that we do not know all the answers and that he is not sure that the answers he has are certainly the rights ones or even that we can find all the answers. He also does not disdain to seek assistance from whatever non-rational institutions or habits have proved their worth. The liberal differs from the conservative in his willingness to face this ignorance and to admit how little we know, without claiming the authority of supernatural forces of knowledge where his reason fails him. It has to be admitted that in some respects the liberal is fundamentally a skeptic - but it seems to require a certain degree of diffidence to let others seek their happiness in their own fashion and to adhere consistently to that tolerance which is an essential characteristic of liberalism.
There is no reason why this need mean an absence of religious belief on the part of the liberal. Unlike the rationalism of the French Revolution, true liberalism has no quarrel with religion, and I can only deplore the militant and essentially illiberal antireligionism which animated so much of nineteenth-century Continental liberalism. That this is not essential to liberalism is clearly shown by its English ancestors, the Old Whigs, who, if anything, were much too closely allied with a particular religious belief. What distinguishes the liberal from the conservative here is that, however profound his own spiritual beliefs, he will never regard himself as entitled to impose them on others and that for him the spiritual and the temporal are different sphere which ought not to be confused.
Read the whole essay.
03 July 2011
Dwight Garner writes:
Here’s what you’ll need to play: slips of paper (index cards work well), a handful of pencils or pens and a pile of paperback books. Any sort of book will do, from a Dostoyevsky to a Jennifer Egan, and from diet guides to the Kama Sutra. But we’ve found it’s especially rewarding to use genre books: mysteries, romance novels, science fiction, pulp thrillers, westerns, the cheesier the better. ...
Once you’ve gathered your loved ones at the table — 4 to 10 is optimal — ... here is how the game unfolds. One player, the “picker” for this turn, selects a book from the pile and shows its cover around. Then he or she flips it over and reads aloud the often overwrought publisher-supplied copy on the back cover.
Hearing these descriptions read aloud is among the game’s distinct joys. Here is one example, from the back cover of a paperback titled “Paradise Wild” (1981), by Johanna Lindsey. Try to imagine the following recited in the voice of the fellow who does the husky voice-overs for coming attractions in theaters, or by your slightly tipsy best friend:
“A well-born Boston beauty, Corinne Barrows has traveled halfway around the world in search of Jared Burkett — a dashing rouge and a devil; a honey-tongued charmer who seduced and despoiled her ... and then abandoned the impetuous lady after awakening a need that only he could satisfy. She has found him on the lush and lovely island of Hawaii.” This goes on, but you get the idea.
One reason it’s less fun to play with serious rather than genre novels is that their back covers tend to contain phrases like “sweeping meditation on mortality and loss” rather than “a need that only he could satisfy.”
The other players absorb these words, and then write on their slips of paper what they imagine to be a credible first sentence for Ms. Lindsey’s novel. Essentially, they need to come up with something good — or bad — enough to fool the other players into thinking that this might be the book’s actual first sentence. Players initial their slips of paper and place them upside down in a pile at the center of the table.
Meanwhile the picker — the person who read the back cover aloud — writes the book’s actual first sentence on another slip of paper. He or she collects all the slips, mixing the real first sentence with the fakes, and commences to read each one aloud. Each person votes on what he or she thinks is the real first sentence.
Here’s how score is kept: If someone votes for your bogus sentence, you get a point. If you pick the real first sentence, you get two points. (The picker doesn’t vote in this round.) Now go around the table clockwise. Someone else picks a book, and you repeat the process until a round ends – that is, until each person has had a turn at being the picker. ...
Another excellent variant of the paperback game involves obtaining a poetry anthology and reading, say, the first three lines of a rhyming quatrain out loud. Players then compete to write a fake fourth line. ...
What, by the way, is the actual first sentence of Johanna Lindsey’s “Paradise Wild”? Here goes: “The tall, slender, golden-haired young woman fidgeting by the hall table fastened her startling green eyes on the closed door at the left of the hall.”
via Marius Comper
25 May 2011
There are two answers to the question “Why is science so successful?” The most popular, and probably mistaken, answer is that science has a method for guiding the discovery process. The other answer, associated with Michael Polanyi and Paul Feyerabend, is that the success of science is due to the scientific community having a particular kind of social organization (works according to certain norms).
Willmoore Kendall describes these norms in the following way:
[T]he discussion process works in those situations in which men who are products of the tradition organize themselves for a serious venture in the pursuit of truth ... Such men demonstrably proceed on some such principles as these:
(a) The pursuit of truth is indeed forwarded by the exchange of opinions and ideas among many; helpful suggestions do indeed emerge sometimes from surprising quarters; but one does not leap from these facts to the conclusion that helpful suggestions may come from just anybody.
(b) The man or woman who wishes to exercise the right to be heard has a logically and temporally prior obligation to prepare himself for participation in the exchange, and to prepare himself in the manner defined by the community.
Moreover (c), from the moment he begins to participate in the exchange, he must make manifest, by his behavior, his sense of the duty to act as if the other participants had something to teach him-the duty, in a word, to see to it that the exchange goes forward in an atmosphere of courtesy and mutual self-respect.
Next (d), the entrant must so behave as to show that he understands that scholarly investigation did not begin with his appearance on the scene, that there is a strong presumption that prior investigators have not labored entirely in vain, and that the community is the custodian of-let us not sidestep the mot juste - an orthodoxy, no part of which it is going to set lightly to one side.
(e) That orthodoxy must be understood as concerning first and foremost the frame of reference within which the exchange of ideas and opinions is to go forward. That frame of reference is, to be sure, subject to change, but this is a matter of meeting the arguments that led originally to its adoption, and meeting them in recognition that the ultimate decision, as to whether or not to change it, lies with the community.
(f) The entrant, insofar as he wishes to challenge the orthodoxy, must expect barriers to be placed in his way, and must not be astonished if he is punished, at least in the short term, by what are fashionably called "deprivations"; he must, indeed, recognize that the barriers and the deprivations are a necessary part of the organized procedure by which truth is pursued.
(g) Access to the channels of communication that represent the community's central ritual (the learned journals, that is to say) is something that the entrant wins by performing the obligation to produce a craftsmanlike piece of work.
(h) The ultimate fate of the entrant who disagrees with the orthodoxy but cannot persuade the community to accept his point of view is, quite simply, isolation within or banishment from the community.
[The "Open Society" and Its Fallacies, The American Political Science Review, 54(4), 1960, pp. 972-979]
Lee Smolin describes the norms in the following way:
Science has succeeded because scientists comprise a community that is defined and maintained by adherence to a shared ethic. It is adherence to an ethic, not adherence to any particular fact or theory, that I believe serves as the fundamental corrective within the scientific community.
There are two tenets of this ethic:
1) If an issue can be decided by people of good faith, applying rational argument to publicly available evidence, then it must be regarded as so decided.
2) If, on the other hand, rational argument from the publicly available evidence does not succeed in bringing people of good faith to agreement on an issue, society must allow and even encourage people to draw diverse conclusions.
I believe that science succeeds because scientists adhere, if mperfectly, to these two principles. To see whether this is true, let us look at some of the things these principles require us to do.
* We agree to argue rationally, and in good faith, from shared evidence, to whatever degree of shared conclusions are warranted.
* Each individual scientist is free to develop his or her own conclusions from the evidence. But each scientist is also required to put forward arguments for those conclusions for the consideration of the whole community. These arguments must be rational and based on evidence available to all members. The evidence, the means by which the evidence was obtained, and the logic of the arguments used to deduce conclusions from the evidence must be shared and open to examination by all members.
* The ability of scientists to deduce reliable conclusions from the shared evidence is based on the mastery of tools and procedures developed over many years. They are taught because experience has shown that they often lead to reliable results. Every scientist trained in such a craft is deeply aware of the capacity for error and self-delusion.
* At the same time, each member of the scientific community recognizes that the eventual goal is to establish consensus. A consensus may emerge quickly, or it may take some time. The ultimate judges of scientific work are future members of the community, at a time sufficiently far in the future that they can better evaluate the evidence objectively. While a scientific program may temporarily succeed in gathering adherents, no program, claim, or point of view can succeed in the long run unless it produces sufficient evidence to persuade the skeptics.
* Membership in the community of science is open to any human being. Considerations of status, age, gender, or any other personal characteristic may not play a role in the consideration of a scientist's evidence and arguments, and may not limit a member's access to the means of dissemination of evidence, argument, and information. Entry to the community is, however, based on two criteria. The first is the mastery of at least one of the crafts of a scientific subfield to the point where you can independently produce work judged by other members to be of high quality. The second criterion is allegiance and continued adherence to the shared ethic.
* While orthodoxies may become established temporarily in a given subfield, the community recognizes that contrary opinions and research programs are necessary for the community's continued health.
I would call this kind of community, in which membership is defined by adherence to a code of ethics and the practice of crafts developed to realize them, an ethical community. Science, I would propose, is the purest example we have of such a community.
But it is not sufficient to characterize science as an ethical community, because some ethical communities exist to preserve old knowledge rather than to discover new truths. Religious communities, in many cases, satisfy the criteria for being ethical communities. Indeed, science in its modern form evolved from monasteries and theological schools — ethical communities whose aim was the preservation of religious dogma. So if our characterization of science is to have teeth, we must add some criteria that cleanly distinguish a physics department from a monastery.
To do this, I would like to introduce a second notion, which I call an imaginative community. This is a community whose ethic and organization incorporates a belief in the inevitability of progress and an openness to the future. The openness leaves room, imaginatively and institutionally, for novelty and surprise. Not only is there a belief that the future will be better, there is an understanding that we cannot forecast how that better future will be reached.
Neither a Marxist state nor a fundamentalist religious state is an imaginative community. They may look forward to a better future, but they believe they know exactly how that future will be reached. ... An imaginative community believes that the future will bring surprises, in the form of new discoveries and new crises to be overcome. Rather than placing faith in their present knowledge, its members invest their hopes and expectations for the future in future generations, by passing along to them the ethical precepts and tools of thinking, individual and collective, that will enable them to overcome and take advantage of circumstances that are beyond the present powers of imagination. Good scientists expect that their students will exceed them. ...
The scientific community is thus both an ethical and an imaginative community.
What should be abundantly clear from this description is that controversy is essential for the progress of science. My first principle says that when we are forced to reach a consensus by the evidence, we should do so. But my second principle says that until the evidence forces consensus, we should encourage a wide diversity of viewpoints. This is good for science — a point that Feyerabend made often, and I believe correctly. Science proceeds fastest when there are competing theories. The older, naive view is that theories are put forward one at a time and tested against the data. This fails to take into account the extent to which the theoretical ideas we have influence which experiments we do and how we interpret them. If only one theory is contemplated at a time, we are likely to get stuck in intellectual traps created by that theory. The only way out is if different theories compete to explain the same evidence.
Feyerabend argued that even in cases where there is a widely accepted theory that agrees with all the evidence, it is still necessary to invent competing theories in order for science to progress. This is because experiments that contradict the established view are most likely to be suggested by a competing theory and perhaps would not even have been conceived were there not a competing theory. So competing theories give rise to experimental anomalies as often as the reverse.
Therefore Feyerabend insisted that scientists should never agree, unless they are forced to. When scientists come to agreement too soon, before they are compelled to by the evidence, science is in danger. ...
Science moves forward when we are forced to agree with something unexpected. If we think we know the answer, we will try to make every result fit that preconceived idea. It is controversy that keeps science alive, keeps it moving. In an atmosphere filled with controversy over rival views, sociological forces are not enough to bring people into agreement. So on those rare occasions when we do come to consensus on something, it is because we have no choice. The evidence forces us to do so, even if we don't like it. That is why progress in science is real. ...
While the progress of science relies on the possibility of achieving consensus in the long term, the decisions an individual scientist makes as to what to do, and how to evaluate the evidence, are always based on incomplete information. Science progresses because it is built on an ethic recognizing that in the face of incomplete information we are all equal. No one can predict with certainty whether an approach will lead to definite progress or years of wasted work. All we can do is train students in the crafts that experience has shown to lead most often to reliable conclusions. After that, we must leave them free to follow their own hunches and we must make time to listen to them when they report back. As long as the community continually opens up opportunities for new ideas and points of view and adheres to the ethic that in the end we require consensus based on rational argument from evidence available to all, science will eventually succeed.
The task of forming the community of science will never be finished. It will always be necessary to fight off the dominance of orthodoxy, fashion, age, and status. There will always be temptations to take the easy way, to sign up with the team that seems to be winning rather than try to understand a problem afresh. At its finest, the scientific community takes advantage of our best impulses and desires while protecting us from our worst. The community works in part by harnessing the arrogance and ambition we each in some degree bring to the search. Richard Feynman may have said it best: Science is the organized skepticism in the reliability of expert opinion.
[The Trouble with Physics, chapter 17, “What Is Science?”, pp. 301-307]
23 May 2011
From The Foundations of Modern Austrian Economics edited by Edwin Dolan.
Kirzner, “Equilibrium Versus Market Process”:
In our classrooms we draw the Marshallian cross to depict competitive supply and demand, and then go on to explain how the market is cleared only at the price corresponding to the intersection of the curves. Often the explanation of market price determination proceeds no further—almost implying that the only possible price is the market-clearing price. Sometimes we address the question of how we can be confident that there is any tendency at all for the intersection price to be attained. The discussion is then usually carried on in terms of the Walrasian version of the equilibration process. Suppose, we say, the price happens to be above the intersection level. If so, the amount of the good people are prepared to supply is in the aggregate larger than the total amount people are prepared to buy. There will be unsold inventories, thereby depressing price. On the other hand, if price is below the intersection level, there will be excess demand, “forcing” price up. Thus, we explain, there will be a tendency for price to gravitate toward the equilibrium level at which quantity demanded equals quantity supplied.
Now this explanation has a certain rough-and-ready appeal. However, when price is described as being above or below equilibrium, it is understood that a single price prevails in the market. One uncomfortable question, then, is whether we may assume that a single price emerges before equilibrium is attained. Surely a single price can be postulated only as the result of the process of equilibration itself. At least to this extent, the Walrasian explanation of equilibrium price determination appears to beg the question.
Again, the Walrasian explanation usually assumes perfect competition, where all market participants are price takers. But with only price takers participating, it is not clear how unsold inventories or unmet demand effect price changes. If no one raises or lowers price bids, how do prices rise or fall? (p. 116)
The concept of “economizing” is insufficient for explaining the market process:
Robbins defined economics as dealing with the allocative aspect of human affairs, that is, with the consequences of the circumstance that men economize by engaging in the allocation of limited resources among multiple competing ends. ...
Robbinsian economizing consists in using known available resources in the most efficient manner to achieve given purposes. ... For Robbins, economizing simply means shuffling around available resources in order to secure the most efficient utilization of known inputs in terms of a given hierarchy of ends. It is the interaction in the market of the allocative efforts of numerous economizing individuals that generates all the phenomena that modern economics seeks to explain. ...
The notion of a Robbinsian plan assumes that information is both given and known to the acting individuals. Lacking this information market participants are blocked from Robbinsian activity altogether. ... We lack justification within this framework for stating, for example, that unsold inventories will depress price; we may only say that with excessive price expectations Robbinsian decision makers will generate unsold inventories. As decision makers they do not raise or lower price; they are strictly price takers, allocating against a background of given prices. If all participants are price takers, how then can the market price rise or fall? By what process does this happen, if it happens at all? (p. 118-9)
Entrepreneurship fills the gap:
Mises’s concept of human action embodies an insight about man that is entirely lacking in a world of Robbinsian economizers. This insight recognizes that men are not only calculating agents but are also alert to opportunities. Robbinsian theory only applies after a person is confronted with opportunities; for it does not explain how that person learns about opportunities in the first place. ... [W]hen the prevailing price does not clear the market, market participants realize they should revise their estimates of prices bid or asked in order to avoid repeated disappointment. This alertness is the entrepreneurial element in human action, a concept lacking in analysis carried out in exclusively Robbinsian terms. At the same time that it transforms allocative decision making into a realistic view of human action, entrepreneurship converts the theory of market equilibrium into a theory of market process. ... (p. 119-20)
The producer’s decisions about what product to produce and of what quality are invariably a reflection of what he believes he will be able to sell at a worthwhile price. It is invariably an entrepreneurial choice. The costs he incurs are those that in his estimation he must in order to sell what he produces at the anticipated price. Every improvement in the product is introduced to make it more attractive to consumers, and certainly the product itself is produced for precisely the same reasons. All costs are in the last analysis selling costs. (p. 123)
Robbinsian incentives can be offered in nonmarket contexts. The bureaucrat, employer, or official offers a bonus for greater effort. For entrepreneurial incentives to operate, on the other hand, it is necessary for those who perceive opportunities to gain from noticing them. An outstanding feature of the market system is that it provides these kinds of incentives. ... It would be good to know more about the institutional settings that are most conducive to opportunity discovery. It would be good to apply basic Austrian theory to the theory of speculation and of the formation of expectations with regard to future prices. All this would enrich our understanding of the economics of bureaucracy and of socialism. (p. 124)
Knowledge and expectations as the driving forces of the market process:
Ludwig M. Lachmann, “On the Central Concept of Austrian Economics: Market Process”:
The market process is the outward manifestation of an unending stream of knowledge. ... The pattern of knowledge is continuously changing in society, a process hard to describe.(p. 127)
The stream of knowledge produces ever new disequilibrium situations, and entrepreneurs continually manage to find new price-cost differences to exploit. When one is eliminated by strenuous competition, the stream of knowledge throws up another. Profit is a permanent income from ever-changing sources.
In the first place, how do we determine the true origin of any particular bit of knowledge? When and how do ill-founded surmises and half-baked ideas acquire the status of respectable knowledge? ... Two things we may assert with reasonable confidence. ... we cannot have future knowledge in the present. Also, men sometimes act on the basis of what cannot really be called knowledge. Here we encounter the problem of expectations.
Although old knowledge is continually being superseded by new knowledge, though nobody knows which piece will be obsolete tomorrow, men have to act with regard to the future and make plans based on expectations. Experience teaches us that in an uncertain world different men hold different expectations about the same future event. ... divergent expectations entail incoherent plans (p. 128)
Expectations must be regarded as autonomous, as autonomous as human preferences are. To be sure, they are modified by experience, but we are unable to postulate any particular mode of change. To say that the market gradually produces a consistency among plans is to say that the divergence of expectations, on which the initial incoherence of plans rests, will gradually be turned into convergence. But to reach this conclusion we must deny the autonomous character of expectations. ... If the stream of knowledge is not a function of anything, how can the degree of divergence of expectations, which are but rudimentary forms of incomplete knowledge, be made a function of time?
Unsuccessful plans have to be revised. No doubt planners learn from experience. But what they learn is not known; also different men learn different lessons. (p. 129)
All useful knowledge probably tends to be diffused, but in being applied for various purposes it also may change character, hence the difficulty of identifying it. (p. 127)
Two possible views of the market process:
For one view the market process is propelled by a mechanism of given and known forces of demand and supply. The outcome of the interaction of these forces, namely, equilibrium, is in principle predictable. But outside forces in the form of autonomous changes in demand and supply continually impinge on the system and prevent equilibrium from being reached. The system is ever moving in the direction of an equilibrium, but it never gets there. The competitive action of entrepreneurs tending to wipe out price-cost differences is regarded as “equilibrating”; for in equilibrium no such differences could exist.
The other view, which I happen to hold, regards the distinction between external forces and the internal market mechanism as essentially misleading. Successive stages in the flow of knowledge must be manifest in both. Market action is not independent of expectations, and every expectation is an attempt “to catch a glimpse of future knowledge now.” (p. 129-30)
It might be held, however, that every process must have a direction, and unless we are able to show that every stage of the market process “points” in the direction of equilibrium, no satisfactory theory of the market process is possible. But this is not a convincing view. (p. 130)
The notion of general equilibrium is to be abandoned, but that of individual equilibrium is to be retained at all costs. It is simply tantamount to rational action. Without it we should lose our “sense of direction.” The market process consists of a sequence of individual interactions, each denoting the encounter (and sometimes collision) of a number of plans, which, while coherent individually and reflecting the individual equilibrium of the actor, are incoherent as a group. The process would not go on otherwise. (p. 131)
[T]he divergence of expectations, apart from being an obstacle to equilibrium, has an important positive function in a market economy. It is an anticipatory device. The more extended the range of expectations, the greater the likelihood that somebody will catch a glimpse of things to come and be “right.” Those who take their orientation from the future rather than the present, the “speculators,” permit the future to make its impact on the market process earlier than otherwise. They contrive to inject a glimpse of future knowledge into the emergent market pattern. Of course they may make mistakes for which they will pay. Without divergent expectations and incoherent plans, however, it could not happen at all. (131-2)
The consequences for capital theory:
Kirzner, “The Theory of Capital”:
A man’s future plans depend not only on the aggregate size of his capital stock but also very crucially upon the particular properties of the various goods making up the stock. Goods that can be used in a complementary relationship permit certain plans that a purely physical measure necessarily suppresses. ...
It is misleading to talk of a particular resource as being unambiguously associated with a definite stream of forthcoming output, in the sense that such an output stream flows automatically from the resource itself. Decisions must be made as to how a resource is to be deployed before one can talk of its future contribution to output. Because there are alternative uses for a resource and alternative clusters of complementary inputs with which a resource may be used, it is confusing to see a resource as representing a definite future output flow before the necessary decisions on its behalf have been made. (p. 139)
Lachmann, “On Austrian Capital Theory”:
The capital structure of society is never completely integrated. The competitive nature of the market process entails incoherence of plans and limits the coherence of the resulting order. A tendency toward the integration of the structure does exist. Capital goods that do not fit into any existing combination are useless to their owners, are “not really capital,” and will soon be scrapped. “Holes” in the existing complementarity pattern, on the other hand, must cause price-cost differences and thus call for their elimination. But expectations of early change in the present situation may impede the process of adjustment, and even when this does not happen, the forces of adjustment themselves may be overtaken by other forces. ...
As long as all capital is regarded as homogeneous, managers may respond to a marginal fall in the rate of interest by a marginal act of substitution of capital for labor. But heterogeneity of capital entails a regrouping of the existing capital combination; some capital goods may have to be discarded, others acquired. It is no longer a marginal adjustment that is called for but entrepreneurial choice and decision. ...
In a world of disequilibrium, entrepreneurs continually have to regroup their capital combinations in response to changes of all kinds, present and expected, on the cost side as well as on the market side. A change in the mode of income distribution is merely one special case of a very large class of cases to which the entrepreneur has to give constant attention. No matter whether switching or reswitching is to be undertaken, or any other response to market change, expectations play a part, and the individuality of each firm finds its expression in its own way. (149-50)
The subjectivity of capital value and the inevitability of fluctuations in the rate of overall economic growth:
Lachmann, “Toward a Critique of Macroeconomics”:
[E]very time [the interest rate] changes, so does capital value. True as this may be, the real reason for our inability to measure capital lies in the subjective nature of expectations concerning future income streams. (p. 153)
To opt for the market process against general equilibrium means to accept the implication that a fully coherent price system providing a basis for consistent aggregation can never exist.
We find here another reason why steady growth—uniform motion of that supermacroaggregate, the economic system—has to be regarded as absurd. Equilibrating forces in different markets, even if none is affected by unexpected change, require different time periods to do their work. This is obvious if we contrast agricultural produce markets with those for industrial goods. Steady growth, however, requires all equilibrating forces to operate within the same time period.
But the main argument against steady growth is a necessary consequence of the divergence of expectations. Equilibrium in a production economy requires an equilibrium composition of the capital stock. ... A growing economy is a changing economy. It exists in an uncertain world in which men have to formulate expectations on which to base their plans. Different men will characteristically have different expectations about the same future event, and they cannot all be right. Some expectations will be disappointed, and the plans based upon them will have to be revised. The capital invested will turn out to have been malinvested. But the existence of malinvested capital is incompatible with the equilibrium composition of the capital stock. Hence steady growth is impossible. (p. 155-6)
The role of the stock market:
In a market economy, on the other hand, we have in the stock exchange a center for the consistent daily evaluation of all the more important capital combinations. This, to be sure, is not objective measurement. The measurement of capital is forever beyond our reach. But it is something more than mere subjective evaluation. Stock exchange prices of capital assets reflect a balance of expectations. ... Stock exchange equilibrium is market-day equilibrium. Tomorrow’s set of equilibrium prices will be different from today’s. (154-5)
[T]the stock exchange, a fundamental institution of the market economy, imparts an element of social objectivity to individual stock valuations. This is by no means its only, or even its only significant, function. It facilitates the take-over bid by means of which capital resources get into the hands of those who can promise their owners a higher return. (p. 156)
Perhaps the most important economic function of the stock exchange is the redistribution of wealth by means of the capital gains and losses it engenders in accordance with the market view about the probable success or failure of present multiperiod plans. (p. 157)
14 May 2011
So if you’re a serious Keynesian, you’re for maintaining and even increasing spending when the economy is depressed, even though revenue has plunged; but you’re for fiscal restraint when the economy is booming, even though revenue has increased.
Milton Friedman (1962):
When private expenditures decline for any reason, it is said, governmental expenditures should rise to keep total expenditures stable; conversely, when private expenditures rise, governmental expenditures should decline. Unfortunately, the balance wheel is unbalanced. Each recession, however minor, sends a shudder through politically sensitive legislators and administrators with their ever present fear that perhaps it is the harbinger of another 1929-33. They hasten to enact federal spending programs of one kind or another. Many of the programs do not in fact come into effect until after the recession has passed. Hence, insofar as they do affect total expenditures ... they tend to exacerbate the succeeding expansion rather than to mitigate the recession. The haste with which spending programs are approved is not matched by an equal haste to repeal them or to eliminate others when the recession is passed and expansion is under way. On the contrary, it is then argued that a "healthy" expansion must not be "jeopardized" by cuts in governmental expenditures. The chief harm done by the balance-wheel theory is therefore not that it has failed to offset recessions, which it has, and not that it has introduced an inflationary bias into governmental policy, which it has done too, but that it has continuously fostered an expansion in the range of governmental activities at the federal level and prevented a reduction in the burden of federal taxes. (Capitalism and Freedom, p. 76)