Right Reason

Wonder and Inquiry

 

 

Wonder is the beginning of wisdom.

-Socrates, Theaetetus by Plato

 

The proper place to begin any inquiry is with wonder. Wonder is by far the most innocent and pure place to begin inquiry. When we begin inquiry with either a desire to solve a specific problem or to get a certain answer, our perspective is skewed by those desires. Inquiry can lead us anywhere, paradigms can change, and our priors can, nay will change in the course of inquiry. It is a journey which must be begun with the best mindset possible. When we are wedded with certain solutions and even certain problems, we cannot follow the inquiry where ever it may lead. 

 

The theme goes back to ancient times. Aristotle wrote about wonder as the start of philosophy in The Metaphysics:

For it is clear that this science is not productive also from the earthly history of philosophy. For it was because of wonder that men both now and originally began to philosophize. To begin with, they wondered at those puzzles that were to hand, such as about the affections of the moon and events connected with the sun and starts and about the origin of the universe. And the man is who is puzzled and amazer is thought to be ignorant (hence the lover of stories is, in a way, a lover of wisdom, since a story is comprised of wonders). And so, if men indeed began to philosophize to escape ignorance, it is clear that they pursued science for the sake of knowledge and not for any utility… So it is clear that we seek it for no other use but rather, as we say, as a man is for himself and not for another, so is this science the only one of the sciences that is free (982b).

 

The Origin of Species is a concrete example of wonder as the beginning of inquiry. Charles Darwin’s “theory of descent with modification; through variation and Natural Selection” was a response to his wonder at the orderliness of the biological world. That wonder was one of the clear motivations leading to his enquiry is manifest in the couple of sentences of The Origin of Species:

When on board H.M.S. Beagle, as naturalist, I was much struck with certain facts in the distribution of the organic beings inhabiting South America, and in the geological relations of the present to the past inhabitants of that continent. These facts, as will be seen in the latter chapters of this volume, seemed to throw some light on the origin of species - that mystery of mysteries, as it has been called by one of our greatest philosophers. On my return home, it occurred to me, in 1837, that something might perhaps be made out on this question by patiently accumulating and reflecting on all sorts of facts which could possibly have any bearing on it (Darwin 1876, 1). 

It was not out of a desire to augment man’s capability for domesticating animals nor a desire to justify certain intellectual priors that Charles Darwin set forth on figuring out that mystery of mysteries. Rather it was out of a desire to trace out the orderliness of the natural work - the orderly distribution of species across the planet and the seemingly orderly line of current species to those known only by their fossils - back to their causes that Darwin was stimulated to write. Darwin’s description of his own wonder also goes to show that the way we approach our inquiry influences our stylized facts. 

Charles Darwin even ended The Origin of Species on a note of wonder when he began the final paragraph with the sentence:

It is interest to contemplate a tangled bank, clothed with many plants of many kinds, and birds singing on the bushes, with various insects flitting about, and with worms crawling through the damp earth, and to reflect that these elaborately constructed forms, so different from each other, and dependent on each other in so complex a manner, have all been produced by laws acting upon us (Ibid, 429).

Overall, Darwin’s theory of descent with modification was a response to his wonder at the orderliness of the biological world. The project which he sets out in the book is largely about his own quest to still his own mind, and to answer questions which have their origin from his own wonder at the orderliness of the biological world.

 

That inquiry should begin with wonder is true for economics as it is for any other discipline. When the economist looks out the window, what he sees is an orderly commercial society. Despite disparate interests and selfish propensities, the mammals known as Homo sapiens have managed to work together and to cohere their interactions into something which is colloquially referred to singularly as ‘the economy.’ Across the entire world, human beings have managed to make themselves a part of an orderly division of labor which enables the anonymous cooperation of everyone within that order even though they have no clue that they are in cooperation. 

All of the people in Leonard Reed’s “I, Pencil” have no idea that they are cooperating together in order to produce a pencil, and yet they are. “I, Pencil” is the most powerful stylized fact which economists are faced with. Yes, there is such a thing as involuntary unemployment and yes things do go wrong, but all of that disorder cannot overwhelm the greater order of the market. Pencils get made despite all of the forces trying to disrupt their production. Sometimes more pencils can get produced than are needed and sometimes less pencils can be produced than are needed, but nevertheless there is a concatenate order to their production. A concatenate order which we should wonder at, and that astonishment should be our stimulus for doing economics. 

Giant Anteaters and Sloth Bears: Convergent Evolution in Plain Sight

 

 

The art of Salvador Dalí, an extreme metaphor at a time when only the extreme will do, constitutes a body of prophecy about ourselves unequaled in accuracy since Freud's "Civilization And Its Discontents". Voyeurism, self-disgust, the infantile basis of our fears and longings, and our need to pursue our own psychopathologies as a game — these diseases of the psyche Dali has diagnosed with dismaying accuracy. His paintings not only anticipate the psychic crisis which produced our glaucous paradise, but document the uncertain pleasures of living within it. The great twin leitmotifs of the 20th century — sex and paranoia — preside over his life, as over ours.

- J.G. Ballard

 

 

On a more serious note, to focus on the pet rather than the eccentric artist, the giant anteater (Myrmecophaga tridactyla) is of interest in biology because of its close similarities with another species on the other side of the planet: The sloth bear (Melursus ursinus). Even though the giant anteater wanders Central and South America and the sloth bear India and Sri Lanka, their evolutionary lines have converged to two similar designs. Their similarity is proof that, as Richard Dawkins has said, evolution is the greatest show on Earth. Just looking at the two species betrays that the forms of the two have been selected for under similar circumstances as insect-eating mammals: 

 

 

 

Both also have  an elongated snout which enabled them to be able to reach constrained spaces where their prey may be found.  Both have cycle-shaped claws well adapted for breaking through the strong outer walls of termite mounds. The length of the claws even result in both walking on their knuckles in a shambling fashion. However, whereas the anteater cannot manage much in speed, sloth bears are agile animals that can sprint faster than a human being. Unlike the anteater, sloth bears are even capable climbers. Surprisingly enough, they even share similar shaggy hair even though there is no clear reason why their insectivore diets would lead to such an outcome.

 

The similarity between the two species illustrates the similarities that can emerge within species being chosen under similar situations. The two face similar problems in their lives, and so have had similar traits selected for. Even though the Darwinian vision of branching phylogenies as the basis of evolution across time has undermined the earlier search for laws of form pioneered by anatomists like the under-appreciated Richard Owen, convergent evolution is evidence that when species' forms are selected for under similar circumstances that similar forms will crystallize under those constraints. 

Of Progress and Kleptocracy

 

As society progresses, there is the need for land and stocks of capital to produce make possible the opulence of life which defines the bourgeois world. Within a hunting-gathering band, people can get by just with what they are able to secure for themselves with labor alone. Tools like axes and bows in wide use, but fitting the nomadic lifestyle of hunter-gatherers, these tools are personal items which can be kept on the person of their owners, and there is very little accumulation of tools actually going on.

With accumulation and the ownership of land comes the opportunity for kleptocracy in those societies. The necessity of there being lands and stocks of capital goods for which people are the residual claimants of opens human society to the exploitation of those claims for ill. Such manipulation can come in the form of the idle landowners being able to secure power for themselves within Parliament through the manipulation of rotten boroughs or the mafia extorting protection money from trifling shop owners. Both result in people who are contributing little to others being able to secure power and resources for their own benefit, and both would be impossible in a hunting-gathering society. The progress of society from the conditions of the hunting-gathering band therefore create the conditions in which corruption and kleptocracy can flourish largely because of the existence of settled lands, and valuable stocks of capital goods.

 

However, we should not proceed from that conclusion to a longing for the egalitarian hunting-gathering band. Kleptocratic elements are inevitable in any human society with any material advancement. As such, they should often be accepted simply as part of the  costs of opulence and prosperity rather than as a plague which must be exterminated at any costs. Sometimes it is even refreshing when corruption is clearly corruption rather than as passed for something more pure. Take the Federal government, so many of its employees go on to work for private companies that are able to use the tacit knowledge those new employees have of the Federal government for their own profit. It’s corruption on a massive scale, and it is even more blameworthy because those responsible simply won’t be honest about what they’re doing, but continue to masquerade as benevolent officials. 

Microcosms and the Extended Order: A Coasean Appreciation

 

 

The source of the gain from having a firm is that the organization of a market costs something and that, by forming an organization and allowing the allocation of resources to be determined administratively, these costs are saved.

-Ronald Coase, "Industrial Organization"

 

 

Whenever thinking about Ronald Coase's contributions, especially his theory of the firm, I always tend to associate it with Hayek's distinction between the micro- and macro-cosmos within The Fatal Conceit. For Hayek, even though the extended order, the macro-cosmos, is a complex system which receives its order from cooperation conditioned by abstract signals, that complex system was still constituted by many, often seemingly countless, microcosms of human cooperation.

Rather than receiving the source of their order from impersonal interactions like bidding on a stock market or spot transactions at a convenience store, microcosms receive their order from strategic, repeated interactions between unique individuals, often codified into long-term contracts. The microcosms, which can also be known as organizations, are thus, as Hayek titled a section of a chapter, the “elements of spontaneous orders.” The primary question that Coase tries to tackle in “The Nature of the Firm” is”to discover why a firm emerges at all in a specialized exchange economy” can thus be understood as an analysis as to what makes possible the existence of certain types of microcosms, or if you wish organizations, in society requiring different norms of cooperation than the extended order that nevertheless exist side-by-side to the extended order.¹

 

After all, as Coase explains in the very same article, this is a topic of interest if the impersonal coordination within the macrocosm of Hayek's extended order lead to the most efficient utilization of resources. If this were the case, then why would other forms of social cooperation based on concretely planning the utilization of means of production towards the satisfaction of wants be needed? Have economists not shown that society can function without the need of any omniscient planner simply by the interactions of individuals within the decentralized markets of the extended order. If the extended order truly “works,” then why are there small islands of planning within it that maintain their coherence despite the efficiency of the market process?

Coase explains the emergence and continued existence of these microcosms otherwise known as firms because of the costs of interacting within the extended order. Yes, it can bring about human cooperation across the entire planet, can make possible an intensely specialized division of labor throughout that blue marble, can allocate means of production to satisfying the most urgent wants of consumers, and can bring about peaceful relations among human beings despite nation, race, and creed, but that doesn't mean that the extended order can exist without reference to the microcosms that constitute it. It would be a mistake to think that human cooperation within the extended order, even cooperation restricted to the economic, do-ut-des sphere, is universally atomistic with cooperation being spot transactions between impersonal agents. Instead, the interaction of human beings is also conditioned by other factors within the world that make possible for the emergence and the maintenance of microcosms like a firm.

Among the factors conditioning the evolutionary landscape of economic institutions are the costs Coase identifies with “using the price mechanism.”² Two causes behind these costs include the effort behind searching for the lowest prices available, and the effort that goes into specifying and negotiating a complete contract to dictate the terms of the interaction. The existence of these microcosms within the extended order are thus conditional upon there being costs for a lone individual to simply get by with spot transactions and hammering out contracts with everyone else on their own. Firms are thus a type of social order that has emerged in the course of human beings dealing with a world in which there are costs to participating in the extended order. (One could follow conventional econ jargon and call these “transaction costs,” but I feel myself as it the concept has been drained of all meaning. Transaction costs are used by economists to explain everything and in doing so the concept has become completely amorphous.)

This consideration brings us to Coase's greatest contribution to the study of human society, his analysis that voluntary trades in property rights will result in the optimal allocation of resources for the amelioration of human uneasiness in the world in “The Problem of Social Costs.” Indeed, the Coase Theorem, as those following Stigler tend to call this result, seems to provide an extension of the First Welfare Theorem, which states that a complete market can reach an efficient allocation of resources, to the non-market world as long as there is efficient bargaining. However, there is really no Coase Theorem since “The Problem of Social Costs” is not intended to show that efficient allocations always exist in the world despite the existence of so-called frictions within social interactions. Instead, Coase's purpose was to provide a reason to believe that self interest could, contra Pigou's welfare economics, result in exchanges in property titles that could yield the best state of the world. In addition, Coase's narrative of people bargaining leading to the optimal allocation of resources provides a useful foil to studying real institutions in the real world.

 

Overall, Coase's contributions have helped enlarge our appreciation of how organizations, microcosms within the sea of the greater extended order, have emerged and survived throughout human history. In order to understand the nature of human cooperation, we have to understand it beyond the arena of perfect competition; instead, we must understand its institutional peculiarities in actual societies across the world. To understand how the extended order has grown over the centuries, we have to understand how the organizations that constitute the extended order function, and it is to this study that Ronald Coase has provided us with a monument for the ages in “The Nature of the Firm” and “The Problem of Social Costs” alone.

 

1 Ronald Coase, “The Nature of the Firm” in The Firm, the Market, and the Law (Chicago: Chicago University Press, 1988), 37.

2 Ibid, 38.

The Evenly Rotating Economy and the Societies of the Social Insects

 

 

“In the evenly rotating economy consequently nothing is altered in the allocation of goods for the satisfaction of wants nearer and in remoter periods of the future. No one plans any change because – according to our assumption – the prevailing allocation best serves him and because he does not believe that any possible rearrangement could improve his condition.”

-Ludwig von Mises, Human Action

 

 

 

The evenly rotating economy is one of the most insightful foils as to the working of actual human societies that our conceptual heritage has to offer us. Within the evenly rotating economy, there are no profits to be had. This in turn has the queer result of necessitating that there is no longer uncertainty within the world. By the time that society has reached such a state of perfect foresight, people have made plans for every single changed taste, every single technological improvement, and every single act of God until the world finally dissolves into dust, and Homo sapiens has finally reached the end of its phylogenetic line.

 

What is really interesting about the evenly rotating economy (or at least really interesting for me here) is not that the opportunities for profit have all evaporated with not even a spurious mirage left behind to lead a passerby astray. Nor is it even that, as would be implied by the previous condition, that the world is now completely certain and even human errors already provisioned for. What is really of interest is instead the effect that such a world would have on human interactions.

After all, human interactions are not simply a mechanistic bumping together of n people such as what happens when one person at a cashier's register meets another with a basket of groceries in hand. For better and for worse, human interactions are more often than not more complicated than that. More often than not, they have a strategic dimension by which the two have to play a complicated game of showing intentions, perhaps hiding others, guessing what the other person's intentions are, and deliberating on a strategy Edward O. Wilson notes this aspect in all higher primate societies in his landmark book Sociobiology (Harvard University Presss 1975, pp 517):

In addition to monitoring multiple signals, higher primates evaluate the behavior of many individuals within the society simultaneously. The animal lives in a social field in which it responds to multiple individuals simultaneously, in ways that take differing relationships into account and often entail compromise.

All of this is the game of society, we all want something out of it, and in return we have to provide other people with something they want. It applies to bureaucracies, specialization in a free-market economy, friends, and even to family. The strategic dance, kept alive by the self-regarding maxim of do ut des, is simply the normal mode of human interaction, inherited from our mammalian heritage.

 

However, within the evenly rotating economy, any room for strategic interaction within the economy is assumed away along with uncertainty. After all, every single person within the evenly rotating economy follows a plan of action set by the necessities of profit-maximization. There is nothing that someone will do that someone else cannot figure out. Human interactions are now grammatical in their form, and all interactions transformed into invisible-hand games (more on that later) in which everyone plays the Pareto-efficient strategy (and in those cases Homo behavioralis fails to do, someone else's preordained plan will pick up the slack).

What's curious is that this is a society that doesn't look mammalian, but instead has much more similarities to the societies of the social insects. It is a society based not on strategic interactions in which people have to deliberate about their best tactic in approaching another human being, but rather one in which everyone follows a preset plan with no considerations needed. Everyone is but a worker drone happily, or not so happily (the evenly rotating economy certainly doesn't care one way or another), being provided a plan for its life upon birth. Whether that drone has free will and can deliberate is outside of the question. The outcome of Aristotle's sea battle has been determined ahead of time, and along with it the profit-maximizing reaction to the outcome; choice is emasculated, and fatalism reigns supreme.

 

What mammalian society actually looks like is an outcome of the cooperation of self-regarding units, each being potentially independent, seeking to exploit the gains from the group in order to improve its own welfare, even if that means succeeding at the expense of the group. The nature of cooperation varies from species to species, but cooperation between mammals is in general more often than not rudimentary and difficult to sustain. After all, as long as each individual's can be independent of his society, then each can gain from defecting from the rules of cooperation that benefit the group, even if this unravels cooperation. It is thus the endemic presence of the prisoner's dilemma (or as Samuel Bowles and Herbert Gintis refer to it as in A Cooperative Species: Human Reciprocity and Its Evolution, the altruist's dilemma) within mammalian societies that causes the difficulty of sustaining cooperation within them.

It is only with the evolution of intelligence, and hence the capability for strategic interactions between unique individuals across time, that has made the cooperation of such self-regarding animals possible. These types of interactions are able to combat the corrupting influence of the prisoner's dilemma that decays social cooperation within these societies by allowing for repeated strategic encounters between unique individuals within the society. After all, it takes an intelligent animal to not only be able to tell individuals within her society apart, but also to be able to process the information needed to use strategy. Edward O. Wilson also noted this:

Intelligence is the prerequisite for the most complex societies in the vertebrate style. Individual relationships are personalized, finely graduated, and rapidly changing. There is a premium on the precise expression of mood. Higher primates have extended the basic mammalian tendency away from the elementary sign stimuli and toward the perception of gesalt, that is, toward the simultaneous summation of complex sets of signals. (Sociobiology, pp 516-517)

This evolution culminates in the extremely complex and high strategic society of the most intelligent animal, let alone mammal, to have walked the Earth: H. sapiens, and similarly culminates in the most complicated society ever seen upon the Earth.

 

Moving onto the social insects, their societies, on the other hand, are based upon the cooperation of a large population divided into specialized castes that, are guided towards increasing the reproductive success of the single mating female, the queen. The prisoner's dilemma does not within within this social context because the constituents of the society have been chosen by natural selection to be entirely subservient to the queen. They are not potentially independent, but rather phenotypical extensions of the queen herself. Because of this, there are generally no conflicting interests between the members of the colony, and they all act as but one superorganism striving for its own holistic success within the world.

What is this superorganism, you ask. The superorganism is a community striving towards a single end of increasing the fitness of the whole. Within the phylogeny of the social insects, the superorganism came about with the mutation of a single queen insect and a host of neuter workers around her. With this, a remarkable step was taken in insect social behavior that allowed for cooperation to be exploited as it had never been exploited in natural history since among the polyp colonists of phylum Cnidaria. Now all selective pressures upon the insect society could be isolated upon the queen alone, and so forms of cooperation could be chosen for by natural selection that maximized the queen's fitness alone.

With the queen now the sole member of the social-insect society a player in the further evolution of those societies, cooperation among the neuter castes that surround her could be perfected so as the selective forces continue to choose for a greater cohesiveness within the colony surrounding the queen.¹ This is why the social insects like bees and insects are so ferocious: Individual neuter insects simply have no instincts for self-preservation. Instead, they are the embodiment of altruism in the biological sense of the word, willing to choose self-destruction for the benefits of their community. Thanks to the selective pressures upon the colony being isolated upon the queen, the only reproducing member of that society, an orderly system of cooperation between the members of that colony, all chosen because the increase the queen's own fitness, has emerged in which the prisoner's dilemma plays no characteristic role.

 

This brings us to the greatest similarity between the evenly rotating economy and the insect superoganism: It does not pay to deviate from the set plan of action. Within the superorganism, each constituent part is functioning within a system highly calibrated by millions of years of evolution, and its functioning ensures the Pareto-efficient outcome of that system. Within the evenly rotating economy, every individual, each a clone of that prudent fellow Max U, abides by a single plan, and by virtue of that plan achieves the most satisfactory state of affairs for himself possible.

Both societies are thus societies of cooperation in which everyone is made better off by following the conduct of her caste (certainly the distribution of plans within an evenly rotating economy would have a sort of caste-like nature from the point of view of the impartial spectator), and thus cooperation within both can be modeled as an invisible-hand game:

	A	~A
A	5,5	2,1
~A	3,4	0,0

The Invisible-Hand Game

Within this situation, each player is better off playing A, which we shall assume is either their caste or the plan they follow, than from defecting, and so this is a common-interest game in which the by playing their own best option, each player also contributes to attaining the Pareto-optimal outcome for their society at large. In the end, simply by nature of how the interests are aligned within the two societies, one aligned by natural selection, another by the selective force of profit and loss, all members have the incentive to continue to cooperate according to their roles in the society.

 

In the end, the grand similarity between the society of the social insects and the evenly rotating economy is that the interactions within each can be described by the form of the invisible-hand game. This is of import for the study of human society since it shows that by virtue of a certain mode of cooperation, that mode being capitalism, and by virtue of human beings being sufficiently intelligent to recognize that his own self interest is advanced by following the rules of that mode of cooperation, human society is able to overcome the endemic problem of prisoner's-dilemma interactions within other mammalian societies that promote the decay of social cooperation. Indeed, as human society advances towards the state of the evenly rotating economy, however imperfect those advances may be, it looks like mammalian, and more insect-like.

 

 

 

1 Note that I avoid using the mechanisms of kin selection, and I do so purposefully. Although the theory that insects have evolved eusocial behavior because of their genetic similarities is a appealing theory that can be beautifully mathematically modeled, it hasn't stood up to empirical testing. When W.D. Hamilton first published his piece of kin selection, he was trying to explain the statistically significant presence of eusocial behavior among the genus Hymenoptera though the Haplodiploid hypothesis, but since then the inclusive-fitness theory has had meager empirical success with even the presence of eusocial behavior in Hymenoptera falling beneath statistically significant levels.

Of Law and Choreography

 

Mark what unvary'd laws preserve each state,
Laws wise as Nature, and as fixed as Fate.

-Alexander Pope 

 

The rule of law is a matter of institutions providing predictable constraints to human plans in the future which can form patterns of human action from those individual plans over both time and space. These institutions, inventions of human action, are able to conquer the dark forces of time and ignorance in order to provide those influenced by them certain factors that they can count on in the future. Thus the effect the rule of law has on the creation of patterns of human action brings into play that ubiquitous theme in the study of human society: coordination.

 

Coordination itself is a word that is often thrown around without much thought given to its implications for how we should think about human society, and frame our questions about it. Yes, economics, to take on of the most important disciplines studying human society, is often described as a coordination problem by its practitioners, but that focus on coordination rarely goes much further than talking about how human action is coordinated in dyadic exchange, and rarely is it pushed into an understanding about the understanding of how the ecology of human action, otherwise known as society, is created as a spontaneous, evolutionary order from the intentional actions of individual human beings. As Peter Boettke has noted in a recent post, “Econ 101 is What is Needed Most”: “Human purposes and plans permeate the analysis from start to finish.” Coordination, in turn, is a matter of the synchronization of those human purposes and plans together into a single, non-contradictory pattern of action across all members of society. It is this synchronization across individual plans of action, their intermingling and intermeshing across time, which creates coordination.

Indeed, the social ecology of human society can be poetically described as choreography without a choreographer. There is no omniscient and omnipotent choreographer determining the plans of each individual; rather, each dancer creates his own plans by his own free will, and those plans, especially within the bourgeoisie era, have created perhaps the most spectacular spontaneous order in the universe. There is no choreographer and yet there is still choreography. The primary force facilitating this possibility is that it more often than not serves the best interest of each dancer to maintain the choreography, as Ludwig von Mises would say there is a harmony of interests within the dance. There is no need for a choreographer for each within the grand dancer prefers to be within the order, capable of benefiting from its fruits, than outside of it. Thus harmony ensures made possible by the congruence of interests within it.

 

However, this harmony of interests, which Mises himself confined to an imaginary catallactic order, should not be overstated for the prisoner’s dilemma pervades human interactions within society. Even though it may generally be in everyone’s best interest to continue the dance, there will always be scenarios in which it will be in the best interest of an individual to defect from the dance for her own benefit despite the harm that would do for others. To alleviate the effects of the prisoner’s dilemma, institutions have emerged over the course of history to align the interests of the dancers with the continuation of the choreography. They do this by establishing rules of the game which help form human plans despite human ignorance and avarice, and so aiding to keep the choreography going despite the odds.

From this prospective, the best institutions are those that ensure the harmony of interests and ensure that the choreography is self-supporting. It has also happened that societies with more complex systems of social interaction are able to enjoy greater gains to cooperation (i.e. a higher productivity) because of the fruits of the division of labor. Furthermore, the spread of the habits and institutions that make these complex systems of social cooperation possible by either peaceful diffusion of culture or by belligerent hegemony has helped to ensure their survival.

 

The rule of law is one of the most important institutions that make the coordination of human intentions possible for it is the rule of law that defines the abstract codes of conduct that are enforced throughout society. Without it, the legal proscriptions that regulate criminal and illicit activities are a matter of uncertainty, and as a result people are not certain as to what will the consequences of their future plans will be. This is problematic because when human beings act, they do so in order to attain a better state of the world. Without being able to know the consequences of their actions, and so lacking confidence in the best strategy to attain the most desirable state of the world, people will not have well-formed future patterns of actions.

The coordination of human intentions is not merely a matter of synchronizing present actions, but synchronizing the plans people have for their future conduct. A perfect choreography would then imply perfect certainty as to the future actions of everyone in society; an equilibrium in which there is no incentive for anyone to change their plans for the future and in which everyone has perfectly planned (the use of the pluperfect tense is important since there is no real planning going on within equilibrium, but rather people plan up to it) their actions conditioned on the plans of everyone else. In Human Action, Mises called this perfectly harmonized choreography the evenly rotating economy.

 

The legal system which helps to ensure the rule of law is itself, like all other human institutions, choreography of its own. After all, it is a human institution necessitating the coordination of human behavior towards the end of ensuring that the legal institutions actually support the rule of law, which often they do not (an obvious statement perhaps, but one that deserves restatement for restatement's sake). Beholding this complex choreography of both getting people with their own so-often divergent interests to cooperate to ensure the rule of law, and ensuring that the laws being ensured are just gives proper perspective as to why unjust laws have been so prevalent in human history. Indeed, there are simply so many institutions that have to be gotten right, and so many opportunities for single individuals to undermine the system for their own interests that it takes time and a certain bit of luck for the right system to emerge that can provide both. The just legal system, with the rule of law being understood as a condition for such a thing, must then be capable synchronizing the future actions of its agents, and so create an integrated choreography between them to ensure justice.

For this to happen, the institutions that create that choreography must not victims of uncertainty, but instead must be able to provide rules of the game that people can have confidence in and rely on in creating their plans for the future. The servants of the government of the United States can count on Congress as being the supreme legislative body within the nation until they die, and they can count on the Supreme Court being the supreme judicial body able to provide a counter to any bill passed by Congress that contradicts the Constitution, which itself is a two-hundred-year old piece of paper that people can still treat as the ultimate source of legal justification in America. All of institutions help to provide a human-created path through time and ignorance in order to provide a stable foundation for the operation society in the future. Even though they may certainly always guarantee just outcomes, the Jim-Crow laws being a pertinent example, the American legal institutions do guarantee that there is a sturdy basis for future social interaction in the future.

 

Confidence in planning for the future is a sine qua non of the coordination of human action within society. Without that confidence, there can be no choreography because such an order relies on the dancers knowing where their fellow dancers will be lest mistakes happen and the choreography decays into chaos. The rule of law helps to ensure that those within society can have confidence in the abstract rules that help determine the consequences of future action, and so its existence is vital for the maintenance of spontaneous order within society.

Selection and Self-Organization

 

 

“The opening up of new markets, foreign or domestic, and the organizational development from the craft shop and factory to such concerns as U. S. Steel illustrate the same process of industrial mutation-if I may use that biological term-that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism. “

- Joeseph Schumpeter

 

Πἁντα ῥεῖ. Even though we have no record of Heraclitus ever saying that, πἁντα ῥεῖ - everything flows – has become the maxim of his philosophy - a philosophy in which we can never step in the same river twice or where justice is strife. Even rejecting everything else Heraclitus said, he was able to put into proper perspective something that must always be on our mind when thinking about, well, anything: Everything changes with time, and the passage of time brings along with it change that, poetically indulging in Heraclitus' concept of the unit of opposites, is the great creator and destroyer of all. In order to study complex systems like the economy over time, then we must take into account how they are able to cope with change over time and how by this process they are able to show design-like characteristics. To do this, we cannot rely on self-organization alone, but we must have recourse to the concept of selection

Self-organization is not a sufficient explanatory explaining the harmonization and coordination of complex systems with a changing world. Even if self-organized entities, whether it be cells or firms, can come into existence without selective pressures, they are surrounded and must survive within a changing world. In order to fine-tune those entities to the stresses and difficulties of survival. Selective forces are needed in order to adapt the entities that have self-organized to their environment, and to ensure that the population is dominated by that which can thrive, rather than that which is doomed. Yes, complex structures may very well be able to emerge without a designer via self-organization, like molecular self-assembly, but self-organization does not explain why populations are able to survive over time.

This is especially true for complex systems like the economy that are under the constant tyranny of Heraclitean flux. In biological evolution, the selection process operates very slowly, the holistic character of an organisms adaptations, and the conditions of the environmental ecology that determines the selective pressures upon organisms are relatively constant. Living fossils do exist. The fishes of the order Coelanacath, which had reached its current form just about four hundred millions years ago, which were thought to have gone extinct by biologists since the Late Cretaceous period just about sixty six millions years ago until a specimen was found off the South African coast in 1938.

 

In The Origins of Order, Stuart A. Kauffman argues that the existence of these living fossils like the order Coelanacath is a strong piece of historical evidence that once species gain their form via self-ordering phenomena, that selection cannot do much to alter the self-ordered forms of species, that order exists despite selection not because of it. However, within the market-economy, evolution proceeds at a much more rapid pace with much more demanding selective pressures than for biological evolution. The demands of profit-maximization do not treat living fossils within the economy very well, and even those business practices that date over a century have had to continuously adapt their practices to the demands of the world. As a result, Kauffman's argument that selection cannot do much to upset the form of complex evolutionary wholes is much less persuasive because it requires a relatively constant ecology and a slow pace of selection.

Limiting ourselves here to the social domain of evolution, if self-organization is the only means for the emergence of order, then the self-ordering entities must be able to deal with the problems that will bring and therefore they must be very robust against change. Important to recognize here is that all self-ordered creations must have non-anticipative strategies against the random shocks that time will bring. As a result, the only means by which a complex system can adapt to random changes is by the selection of those self-ordered objects that have “chosen,” a word that is often still must be used metaphorically since even objects self-ordered by a human mind cannot be designed in anticipation of all relevant future problems, After all, without specifying a selective pressure at work, there is no means by which entities that have self-organized will be able to survive over time. There is simply no way of speaking about self-organization and the survival of what has self-organized without invoking the concept of selection over time.

Once self-organized entities come into existence in society and time passes, bringing change along with it, some of those entities will continue to exist while some will dissolve into the dust. Even though change comes and goes, the complex systems that are human societies have generally endured. Moreover, they have generally thrived. This is especially true for market-economies. With that come questions about the adjustment of markets and how the overall health of the market is able to thrive even though so many of the smaller pieces that make up the market will ultimately fail. Markets do not do not adapt to change simply by the existence of self-organized entities like firms and stock markets. They adapt to change by the success of those most able to foresee future conditions and the failure of those incapable of foreseeing future conditions. Profit reigns supreme and, as Ludwig von Mises pointed out in Human Action, the source of all profit is the prediction, by accident or design, “the future constellation of demand and supply.” After all, it is through the competitive process that the firms, to take one example of a self-organized entity in society, most capable of maximizing their profits and thriving through time survive while those firms that are not able to are destroyed. Again, we see that in order to explain complex systems through time, we need to recourse to an explanation that has selection over time baked into it, and which helps make it fuller.

 

Nassim Nicholas Taleb has illumined the process by which complex systems adapt to change in his book Antifragile by arguing that a complex system can only benefit when its consituent parts are able to fail. What he calls the “antifragile” are those things in the world that benefit from variability, like how bones can grow stronger when physically conditioned, and the “fragile” that which does not benefit from variability like a porcelain tea cup, easily broken by the slightest. Taleb argues that a complex system can only benefit from variation if the individual components of that system are themselves fragile, and can be dissolved by change leaving only that which has lasted through the change. Returning to the example of the last paragraph, the health of the markets and their overall antifragility is only made possible by the fragility of individual entrepreneurs. Taleb himself recognized this and recommended in Antifragility that there be a “National Entrepreneur Day” to commemorate the legion sacrifices made by fragile entrepreneurs in order to secure the greater good of an antifragile economy

Like nature, the markets are red in tooth and claw. That which cannot anticipate the future conditions of supply and demand bites the dust while that which can remains and perhaps even prospers. Even though the fragile within the system may be destroyed, the system is benefited by the shocks brought about by variability since the shock has eliminated features within the system that could not stand the flux of change. Of course, no system is infinitely antifragile, so to speak. After all, a large enough shock will be able to completely eliminate a complex system in fell swoop, like an asteroid leading to world-wide, mass extinction, so it would be more sound to say that complex systems are antifragile up to a point. Nevertheless, their antifragility highlights that we cannot explain the adaptation of complex systems like the economy merely with the concept of self-organization; instead, what is needed is a theory that can explain the selective mechanisms by which those systems change. And how they change is by change in the frequency of their constituent parts, whether they are self-organized or not.

 

In the end, self-organization simply cannot be an adequate explanation for the adaptive nature of complex social systems since it cannot take into account the change that is brought upon such systems by the passage of time. We need selection over time for that. Only with the concepts of variation, replication, and selection can we provide an adequate explanation of how complex systems can more than simply endure through time, but can adapt to the environment that they are within.

 

Constitutional Orders as Evolutionarily Stable Strategies

NO Freeman shall be taken or imprisoned, or be disseised of his Freehold, or Liberties, or free Customs, or be outlawed, or exiled, or any other wise destroyed; nor will We not pass upon him, nor [condemn him], but by lawful judgment of his Peers, or by the Law of the Land. We will sell to no man, we will not deny or defer to any man either Justice or Right.

-Magna Carta, Section XXIX

 

Within the Occident and beyond, constitutions have been one of the primary means man has had for shaping the realizations within his society. Within the liberal tradition, they have been motivated desire to create general rules that make possible the limitation of power within society by restricting its use to certain universal rules. By setting in place certain abstract rules by which the game of society, so to speak, is played, constitutions are able to lead to constitutional orders that will certain outcomes in society are made possible.

Key to the success of any constitutional order is the universality of these rules since it is by binding all within the relevant polity to certain patterns of action that a constitution is able to secure certain realizations within society. It is this attempt to ensure the universal adherence of certain patterns of action that leads to the perspective that a constitution is an attempt to create an Evolutionarily Stable Strategy (ESS) of institutions in which no institution deemed undesirable can mutate and proliferate.

Tersely described, an ESS is a set of strategies that, when adopted by the population in question, can fully repel any attempt by a newly mutated strategy to survive within that population. Originally formulated by John Maynard Smith and Richard Price in the 1970’s in order to explain contests between animals, its use can be expanded to any evolutionary system when what is being analyzed is the changing frequency of objects, be they genes or institutions, within it. The ESS of a constitutional order describes a society in which the rules that form that order, by the sake of their universality (and the enforcement of their universality), are able to exclude certain patterns of actions that are conditioned by abstract rules contradictory to the relevant constitution. By understanding a constitutional order in this way, we can further and augment our understanding of the necessity of the universality of the laws within that order since it is only by their capability to fully exclude anything that contradicts those laws that a constitutional order is able to secure certain outcomes.

This brings us to another characteristic of any constitution: It is a rational constructivist technique for trying to bring about realizations within society determined desirable according to the human conception of the good life. Any constitutional thus is an attempt by its authors to bring about social outcomes that are congruent to a liberal society by establishing certain general rules that ensure the exclusion of those outcomes. An example of this would be precluding an outcome like the imprisoning of individuals outside of the authority of the government by obliging the custodian to charge the prisoner with a crime. For the writ of habeas corpus to be able to prevent practices like unlawful detention within the constitutional order, and thus ensure that it is an ESS, then it, along with the institutions that support it, must be a general rule that prescribes a pattern of action (i.e. the police must charge a person with a crime in order to hold her for longer than a given period of time). When such practices mutate within society, so to speak, its liberal nature is preserved because not only are those practices incapable of replacing habeas corpus, but they themselves are quickly extinguished by the universal enforcement of habeas corpus. Indeed, like all of the institutions associated with the Constitutional project, the writ of habeas corpus must be a general rule of action for all within society, and if it is to be a general rule then it, or one of its complementary institutions must be able to secure the extinction, of any practice that contradicts it.

 

Whether human attempts at the constitutional project have actually created ESS's is a question of history that cannot considered here, but I can certainly make certain speculative claims motivated by the ESS and the Heraclitean maxim that everything changes. Certainly the theoretical tool of the ESS provides us with a benchmark by which the efficacy of a constitutional project may be judged by. If a constitutional project is not able to establish an ESS that repels all contradictory practices within its society, then the constitutional project has simply failed to establish universal laws for human conduct across that society, and thus fails at its main goal of creating a government of universal laws, not arbitrary wills.

The greatest threat to the success of any constitution is that they are rational constructivist designs and thus their ability to ensure an ESS is only as good as their designers ability to foresee what those threats would be. Even though the constitutional project may be to establish the conditions for an open society in which the course of evolution may take a path unforeseen by anybody within that society, it itself is an attempt for human reason to man the helm of social evolution in a humble, but entirely real manner. It is an attempt to design and establish by speculative human reason institutions that will help to determine the final outcomes seen in society, and to direct those outcomes as seen fit by speculative human reason. Even while it may not try to determine what the exact outcomes in society, any constitutional project still seeks to guide the outcomes by obligating all within its society to act according to certain patterns of action.

However, social evolution will go on, and the motivators of each constitutional project have to be able to foresee what will threaten their constitution in order to guard against it. Thus the evolutionary stability of any constitutional order over time is threatened by those very same knowledge problems that threaten the realization of any planned outcomes within society. If the designers of the constitution cannot foresee threats to its integrity, then its stability against such threats cannot be guaranteed, and as history brings about more conditions unforeseen by those minds, the evolutionary stability of the order grows ever weaker. As things change within society, be they the underlying ethical ethos of what constitutes the good life or the seismic shift of institutions across history, the capability of the constitutional order to actually be a genuine ESS is weakened.

In the end, all Constitutional projects have a expiration date necessitated by the problem of knowledge. Perhaps that is what we should keep in mind when considering Thomas Jefferson's thought that every generation needs its own revolution. If Constitutional projects are to survive through history, then they must be adapted to conditions unforeseen by their original framers. However, if Constitutional projects are so easily tampered with then what is to ensure that they can survive? That, I suppose, is the catch-22.

Morals and the Rule of Law: Not an Issue of Conscience

 

Hammurabi's Code: One of the first compilations of just rules of conduct in human history.

 

 

A characteristic feature of the law is that it has the capability to bind without consent. Even without even tacitly consenting to the general rules of behavior that law demands, people are expected to obey it. Otherwise it would not be law. This can be troublesome when the laws are seen by a significant minority of the population to contradict basic moral principles.

The law is not a creation of human will. Legal positivists err when they claim that the state may legislate any law that it wills by ignoring that the foundation of what is law is not in what the state enforces, but what are the general rules of conduct that are already obeyed in society. That law has little force unless it conforms to the patterns of behavior and tradition within society is the grain of truth within social-contract theory, but to think these are consciously decided is an error. The rules of behavior are less present-day contracts that are negotiated by the living than the tradition that G.K. Chesterton spoke of as the democracy of the dead. Since laws are not deliberately crafted by the human mind and the products are many evolutionary pressures, there is no guarantee that the laws that will emerge conform to the moral beliefs of everyone that they bind.

 

Perhaps the most famous example of evolutionary law contradicting the moral sentiments of a significant majority was the case of slavery in early 19^th century America. Even though slavery was in complete correspondence with American law. Lord Acton, one of the foremost classical liberals, reflected on this by considering the position of Daniel Webster on the topic in“The Political Causes of the American Revolution”:

Webster justly considered that the real enemies of the Constitution were the abolitionists, not the slave-owners, who threatened to secede. To appeal from the Constitution to a higher law, to denounce as sinful and contrary to natural right an institution expressly recognized by it, is manifestly an assault upon the Union itself. The South have the letter and the spirit of the law in their favour. The consistent abolitionists must be ready to sacrifice the Union to their theory. If the objection of slavery is on moral grounds, paramount to all political rights and interests, abolition is a peremptory duty, to which the Union itself, whose law is opposed to compulsory abolition, must succumb. It was therefore perfectly just to remind Mr. Seward, that in attacking slavery, and denying that it could be tolerated, he was assailing the law to which he owed his seat in Congress. “No man, said Webster, “is at liberty to set up, or affect to set up, his own conscience as above the law, in a matter which respects the rights of others and the obligations, civil, social, and political, due to others from him” (Works, VI, 578)

 

One of the most obvious conclusions that this points to is how important the polity is. States cannot be artificially constructed over multiple cultural groups and be expected to effectively operate. After all, the law that a state ought to protect is very much the product of culture and hence when a state encompasses cultural groups with contradicting traditions, those contradicting traditions can have different general rules of conduct that at fundamentally irreconcilable. One culture will have to triumph. This can either happen through the political means, perhaps a grand compromise can be made or perhaps one cultural group can disfranchise another to ensure that they have no voice to protect their culture, or through war, which Clausewitz labeled politics by another means in his famous treatise. In the United States, it ended in a bloody war that meant the economic ruin of almost half of the country.

 

Another is that conscience is not nor will ever be the supreme law of the land. For one thing, there is nothing to ensure that the consciences of many individuals will actually be in correspondence with moral truth. The entire idea that all human beings have an innate sense of moral right and wrong that will always lead towards discrete outcomes that are in harmony has been clearly contradicted by human experience. We need only consider the accepted practices of infanticide across the ancient Mediterranean, into which Aristotle's treatment of the subject in Book, 7 Chapter XVI of his Politics provides insight, or the gruesome ritual practices of human sacrifice among the Aztecs to see that there is nothing within the human conscience that necessarily leads to outcomes that are considered proper. Even the case of the proliferation of slavery among Europeans in the New World even though they had come from a non-slave-holding culture is testament to how callous large numbers of human beings can be at any given moment.

To thus expect human society to function with human beings simply obeying the voice of their conscience is to ignore that that voice can lead towards contradictory rules of conduct and no society can last long when its constituents are guided by contradictory rules of conduct. If society is to function, then there must be a reigning set of accepted just rules of conduct that individuals must be expected to conform to. The role of law is to ensure that those rules are conformed to. That any individual would be free to free their own actions from the rule of law would mean that law doesn't have the authority to bind them. This in turn leads no method of enforcing rules of just conduct other than through hoping that other people adopt them, which is something that we often take for granted in culturally homogenous nations with a long-reigning law, but something that should not be taken for granted in though. Laws need to be enforced because people need to be able to expect just codes of conduct not 90% or even 95% of the time, but close to 100% of the time that they meet someone. To thus think that law can simply be ignored because of issues of conscience is to ignore the role that law has in ensuring the smooth operation of society. It is the indulgence in the error expressed in the motto: fiat justia et pereat mundi.

 

More will be written on this topic in the next week or two, especially about how to seriously think about reforming the rule of law.

There is No Fair Society

 

 

 

We know what's fair here. How about in society?

 

So many people in politics love to talk about fairness. We hear plenty of talk about fair taxation, about a fair income distribution, about fair opportunities and many other instances of things that ought to be fair. The only thing is that no one would be honest if they really said they could create a clear objective definition of what fairness actually is in society that people agree on.

 

It is easy to pin down what fairness means in games of chance and one can easily identify a criterion of fairness in such games that people would clearly agree are fair. A fair die is one that has an equal chance of landing on either on of it's sides, so in the case of a six-sided die, each had has a 1/6 chance of occurring on each roll of the die. If only it were so easy for human society.

One idea that plenty of people, especially the more well-read, would put forth as a criterion agreement from some original position, perhaps behind a veil of ignorance, about what that state of society will be. This is fine and dandy prima facie as a thought-experiment, but it breaks down the moment we try to apply it to society. For one thing, man inherits his society, he does not make it. Secondly, anyone who actually suggests that people could agree about the constitution of society in any detail whatsoever have yet to comprehend the lesson of Friedrich Hayek's seminal essay “The Use of Knowledge in Society”, let alone his later work.

 

Even assuming that contract from the original position could create a fair society, that society will never be. Criteria of any concept must actually be able to point to real instances in the world and say: “That is X.” Purely formal criteria of squareness can point to a square in reality and say “That is a SQUARE.” Taxonomic criteria about what is a canis familiaris, point to something in reality and say “That is a DOG.” The criteria of fairness that come from the device of an original position, though, cannot point to anything in society and say “That is a FAIR institution.” The reason is that the device of the original position says nothing about what sort of institutions and what kind of society would be agreed upon behind the veil of ignorance. It may be a useful device for thought, but when we consult it about an actual fair society in the world it is silent.

Take taxation, for instance. Fair taxation to many means that the government takes a proportion of income from each person determined by how much of the total wealth of society that person holds. To others it may mean that the government simply divides its revenue needs by the number of tax-payers and sends each an equal bill. To some others, it means that all tax-payers over the course of the year or their lifetime pay the costs of the government's services they enjoy. (The third corresponds to my own impulse of what is fair.) These are wildly different notions of what it means for taxation to be fair and yet there is no way to objectively determine which more closely corresponds to fairness. Each person will have their own gut feeling, so to speak, and they will be at odds. Since the word cannot have an content that can be discussed person-to-person, it is empty of all meaning and all it manages to do is to express the speaker's preference for certain states of society.

 

The reason for this is that our intuitions about what is fair come from moral sentiments that have evolved within the context of a band of people that knew each other intimately and were most likely related by blood. It is within this context, that the notion of fair play can be largely agreed upon by most people, even if they might not be able to explicate what are the exact rules that constitute it. I went into this more in depth in a previous post, but the trouble with fairness is the general problem with applying emotional instincts to today's society. They are sentiments that work very well with the face-to-face interaction of individuals and help to ensure the well-being of each person within that context of cooperation. However, those sentiments do not lend themselves well to cooperation within a global division of labor under the guidance of abstract prices. There is simply no such thing as a fair society since the rules of fairness do not lend themselves to the cooperation of human beings within a great society as they do cooperation within a small band.