Right Reason

What is the Point of View of Economics?

 

 

Now anything that has a plurality of parts but is not just the sum of these, like a heap, but exists as a whole beyond its parts invariably has a cause.

-Aristotle, The Metaphysics

 

 

In his review of Gustave de Molinari’s Cours d’économie politique in the Home and Foreign Review 4, Lord Acton gives as good a starting point for the study of economics as I’ve seen elsewhere:

There is… no ground for the pretense that in order to maintain equilibrium between production and demand, we must employ the foresight of an army of administrators and surveyors, whose duty it should be to prescribe what every producer should provide, and consequently how much each consumer should enjoy. Inhabitants of our metropolis see every morning an ample but not excessive provision made for its 3,000,000,000 inhabitants, and this without any previous direction or settled plan; the utmost order and regularity result from the natural law of the supply and demand finding their equilibrium spontaneously; whereas we might look for chaos tenfold more chaotic than that of Balaclava, if the problems were left to the arrangement of administrators or directors of social labour and consumption. 

Here, Lord Acton captures which Lionel Robbins didn’t capture in his often repeated definition in An Essay on the Nature and Significance of Economic Science that economics is "the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.” In his attempt to conceptualize economics solely from the point of view of the economizing agent, Robbins allowed the emergent properties of society as a whole - those properties which cannot be understood in reference to any one acting agent in particular - to slip through his fingers.

 

‘Spontaneous order,’ and ‘emergence’ are deservedly frequently used words in economics. The market order which Lord Acton is pointing out above is indeed a spontaneous order which has emerged through the intertwined interactions of millions of human beings; in the words of Adam Ferguson, it is “the result of human action, but not the execution of any human design.” Strict adherence to Robbins’ definition of economics blinds our eyes to those properties of the market order because they are the outcome of not just one agent’s economizing behavior, but an entire society of economizing agents all interacting with one another. To understand the market order’s spontaneous and emergent qualities, we have to move beyond the point of view of one of the components of the system to the point of view of a spectator of the whole system. 

Indeed, from the point of view of a single economizing agent, the market order isn’t even really that much of an order. The Oxford American Dictionary’s first definition for ‘Order’ is  “the condition in which every part, unit, ect., is in its right place; tidiness (restored some semblance of order).” When we talk about something as an order, we presuppose the ability to perceive the interacting parts of that order, and choreography between those parts which makes that thing a genuine order. The point of view of a single person cannot capture whether every part of an economy is in its right position, and her eyes therefore cannot capture the greater choreography of the market which Lord Acton remarked on when he pointed out how the 3,000,000,000 inhabitants of London were all provided for. The components of the market order all functioned together to meet the demands of that great metropolis from the wheat fields of the Ukraine to the tea plantations of India. Looking at the market order from the point of view of one agent - as much of macroeconomics does with the device of the representative agent and Truman-Story economics - misses that overarching order.

 

There is a reason why common language tends to refer as the nexus of human economic activity as ‘the economy.’ To truly appreciate the wonder that is the economy, and how human beings have managed to create patterns of cooperation extending across the entire globe, we must go beyond the point of view of just a single component of that order, and to the point of view of a God-like spectator who can behold the entire order as a single functional whole. Robbins’ definition of economics as the study of the relationship between limitless ends and scarce means has no room for that overarching spectator, and therefore has no space for the perception of spontaneous order.  

By reducing all valid economic statements to statements about choosing agents, Robbins definition denies any attempt for there to be economic statements about the emergent properties of the market order which transcend the actions of any one agent.  Overall, it denies economics the ability to make statements about the functional order transcending the actions of a single agent, and thereby leaving the spontaneous and emergent qualities of the market order beyond the grasp of economics. On the other hand, starting from Lord Acton’s observation above ensures that economists will be focusing on what the market order is all about: A choreography without a choreographer extending across the entire world. 

What is the Open Society?

 

 

Ages are no more infallible than individuals; every age having held many opinions which subsequent ages have deemed not only false but absurd; and it is as certain that many opinions, now general, will be rejected by future ages, as it is that many, once general, are rejected by the present.

-John Stuart Mill, On Liberty

 

By liberty I mean the assurance that every man shall be protected in doing what he believes his duty against the influence of authority and majorities, custom and opinion.

-Lord Acton, The History of Freedom in Antiquity 

 

The ‘open society’ is a term much used, but tragically little understood. Like too many terms within political philosophy, it is simply used in an emotivistic fashion to signify the author’s approval of something. Originating with Henri Bergson’s writing in the 1930s, the term was make famous by Karl Popper’s two volume project, The Open Society and Its Enemies. The books were a sustained attack on both the political ideas of Plato as well as the historicism of Hegel and Marx, and a powerful argument for the advantages of liberal democracy. The ‘open society’ has thereafter become a banner for liberals and social democrats, but its widespread use has not been beneficial for its clear meaning as a term in conversation. Which leads to the question: What exactly is the ‘open society’?  

Even though Popper ( a founding member of the Mont Pelerin Society) certainly had a favorable opinion of liberal democracy, we must remember that Karl Popper’s concept of an ‘open society’ was epistemological, not political. It is very easy to simply identify the open society with a certain political regime in which democracy flourishes, and people have certain guaranteed rights, but Popper’s point did not have anything directly to do with either of those two points. The open society is a society in which people can make their own opinions about norms and policies, and can act upon those opinions. When Popper quoted Pericles as being a proponent of the open society when he quotes him as saying: “Although only a few may originate a policy, we are all able to judge it”, Popper was noting that Pericles’ notion of Athenian democracy enabled the Athenian to make his own decisions about political decision making, and that was the essential condition making Athens an open society.  

 

What differentiated an open society from a closed society is thereby that, within the open society, individuals would be able to make decisions to change cultural norms. Closed societies, on the other hand, are found in a lack of a distinction between the conventional laws of human society, and the physical laws of the universe. They are constituted by taboos, norms thought to be permanent features of the world just like gravity or the movement of the stars and moon above. Thought to be the creation of gods, of forces of history, or of demigod-like leaders, and the rigidity of these taboos ensures that the society is closed to change. Popper even argued that the existence of taboos within closed societies resulted in people within those societies not being faced with decisions that could be called moral:

There are few problems in this form of life, and nothing equivalent to moral problems. I do not mean to say that a member of a tribe does not sometimes need much heroism and endurance in order to act in accordance with the taboos. What I mean is that he will rarely find himself in the position of doubting how he ought to act. The right way is always determined, though difficulties must be overcome in following it. It is determined by taboos, by magical tribal institutions which can never become objects of critical consideration (Popper 1945, 172). 

Kierkegaard’s assertion that philosophy begins with doubt is quite germane here. Popper writes on what differentiates the open society from that of taboos:

Political decisions may lead to the alteration of taboos, and even of political laws which are no longer taboos. The great difference is the possibility of rational reflection of these matters… And in our own time, many of us make rational decisions concerning the desirability or otherwise of new legislation, and of other institutional changes; that is to say, decisions based upon an estimate of possible consequences, and upon a conscious preference for some of them. We recognize rational personal responsibility.

In what follows, the magical or tribal or collectivist society will also be called the closed society, and the society in which individuals are confronted with personal decisions, the open society (Ibid, 173).

The open society comes to fruition when people can philosophize, in however a crude fashion, and come to make decisions which can have impact upon the conventions of society. Unlike the closed society, the open society can be changed by the opinions of those within it.

 

What defines the open society is therefore an answer to a question which Darwin never broached in On the Origin of Species: What types of systems can evolve? It’s important here to note that Charles Darwin never used the word ‘evolution.’ Instead, he used the phrase ‘descent with modification.’ At the beginning of the final chapter of On the Origin of Species, Darwin described his argument as being “the theory of descent with modification; through variation and Natural Selection.” Questions of evolution are best thought of in terms of ‘descent with modification’ because the term constantly reminds us what we should be thinking about when we think about evolution: The mutability of objects across time because of some source of variation.  

‘Evolution’ is a term used so often and so widely that it loses its ability to really address what we are thinking about when we talk about what it addresses. From being used to refer to the ”theory of descent with modification; through variation and Natural Selection” (e.g. “We should teach evolution, not creationism in schools”) to the notion that certain types of systems in the world which can adapt to change through time (e.g. “Societies evolve throughout history”), ‘evolution’ does little good to exactly specify what we are trying to talk about when we it. ‘Descent with modification’, on the other hand, focuses our attention on what matters: that there are certain systems which can change through succeeding iterations. 

 

 

The closed society is a closed system with no  source of change which can introduce variation into it. The way that societies change is with alterations to norms and institutions. If those norms and institutions are taboos, assumed as permanent features of the world and thereby insulated from criticism, then that society does not have a effective way of adapting to the changing demands of its populations. Within the closed society, there is therefore an identity between the taboos of the present generation with that of the previous generation. However, when people are left to make their own judgments of the desirability of norms and institutions, then there is a source of variation which can then change the society. With a variation in judgements about the desirability of norms and institutions, society can change over time, and descent with variation - that is, evolution - is therefore possible.

The open society is the a society which enables the accumulation of useful social variation which can encourage the flourishing of those within it. What a ‘useful’ variation is must be kept empty here. To think that the human mind can define what social variation is useful from the point of view of society as a whole is to fall victim of the fatal conceit. There is a knowledge problem in recognizing the useful from the harmful since only those who are familiar with the variation in question will by and large have any chance in properly making that call. Even then, many may still make mistakes. And so there must be feedback mechanisms in place whose soundness can be relied upon with no reference to the specific people involved with them. The project of the open society is thus, in short, about figuring out the legal institutions, the formal rules of the game for society at large, which enable the accumulation of useful social variation. 

 

 

 

That Popper harshly criticized the idea of national destiny within The Open Society and Its Enemies fits with all that I have said above. Societies do not follow predetermined courses through history, and the traits that they have at any moment in time cannot be attributed to destiny. Instead, those traits are a consequence of a historically continent series of events, and unique outcomes which resulted in certain variations manifesting themselves within society at large. The open society is simply no guarantee of optimal outcomes. Speaking technically, evolution can get stuck within local maxima within its fitness landscape, and those local maxima can prevent its fitness walk from finding the global maximum; evolution, does not necessarily yield the optimal outcome. Instead, all that the open society can  guarantee us is a fighting chance for that optimal outcome. 

Those institutions and habits which we identify with the optimal outcome cannot simply be assumed as an outcome of history -  along the great forward march of progress - but must be understood as perishable. I thus like to modify the term ‘open society’ with the adjective ‘free’ to identify that society, one protecting the dignity of the individual human person’s free will, as the optimal outcome. Not only is it open, but it is also free; to get there, we must not only insist on having an open society, a society which can accumulate useful variation, but also a society which conforms to classically liberal notions of political ethics. 

 

 

Bibliography

Popper, Karl. The Open Society and Its Enemies Vol. I. Princeton: Princeton University Press, 1966.

Smith and Orwell on Language and Coordination

 

From Adam Smith's "Considerations Concerning the First Formation of Languages":

The assignation of particular names to denote particular objects, that is, the institution of nouns substantive, would probably, be one of the first steps towards the formation of language. Two savages who had never been taught to speak, but who had been bred up remote from the societies of men, would naturally begin to form that language by which they would endeavour to make their mutual wants intelligible to each other, by uttering certain sounds, whenever they mean to denote certain objects.

 

Language is obviously very important for the mutual coordination of human activities. Especially within an abstract extended order, there are very few focal points which can be expressed without the use of complex languages with grammars, and subtleties taking lifetimes to master. The intense level of cooperation within modern societies would be impossible if it weren’t for the coordination facilitated by shared linguistic associations of focal points. George Orwell’s outcry against the abuse of language in “Politics and the English Language” thus takes an ever more critical resonance when we read it in terms of the conditions for preserving mutual coordination in society.

 

If a group of people were ever to meet at a nearby location, they would have to be able to agree on where that location is, and would have to therefore be able to communicate between themselves that they intend to meet there. For that to happen, they would have to share a language with shared associations between words, and places so that when Sally says that she intends to go to Northside Social, Sue knows she means that specific coffee shop in Arlington. Without those shared associations in language, they will not be able to coordinate their activities since they lack the capability to communicate where they intend to be. The breakdown of the ease of mutual coordination that language made possible between two people with the loss of shared associations in language would have even more horrific effects on the overall orderliness of society’s extended order. 

 

Orwell’s “Politics and the English Language” deals with the dire topic of the loss of clear association of words with their intended objects within the world. As he writes in the article: “A man may take to drink because he feels himself to be a failure, and then fail all the more completely because he drinks. It is rather the same thing that is happening to the English language. It becomes ugly and inaccurate because our thoughts are foolish, but the slovenliness of our language makes it easier for us to have foolish thoughts.” The corruption of the English language, whether that is in the repetition of phrases to the point of them becoming meaningless or the regular use of euphemisms, reduces the association between words and things in the world. Such linguistic deterioration thereby reduces people’s capability of mutual coordination, whether in finding their way to a destination or in political dialogue. 

Liberty and the Anglosphere: Reflections on Hannan's _Inventing Liberty_

 

 

The nations, not so blest as thee,

Must, in their turns, to tyrants fall;

While thou shalt flourish great and free,

The dread and envy of them all.

 

In his recent book, Inventing Liberty: How the English-Speaking Peoples Made the Modern World, MEP Daniel Hannan discusses how the ideas of a liberal society emerged within the British isles over a course of hundreds of years, and how their proliferation across the world happened within a distinctly English-speaking context. Hannan argues that it has been the ascendency of the Anglosphere in the past three hundred years, including nations like the United States, Canada, and Australia, which has made possible the similar ascendency of liberal values over that same time period. Hannan argues that it was the culture of common law, of Magna Carta, and of representative government, not intellectual arguments, which made the free and open society possible. As intellectuals discussed (and eventually en masse rejected) the values which cultivated such a society, they were transported to and flowered in British colonies the world over,  even amongst the prisoners shipped to Australia.  

 

The main question, at least for me, which Inventing Liberty brings up is the question of how culture has made liberalism possible. A constant problem facing any order at the level of society at large is: How do people participate within them? As every angsty teenager has recognized, sometimes society can be an impersonal machine in which people can be but cogs, used as means rather than as ends in and of themselves. As Shakespeare wrote: All the world's a stage/ And all the men and women merely players. What guides those players, and forms their collective patterns of behavior into what we know as as society are the institutions and norms of the societies which people find themselves surrounded by. The way that people participate in the social orders they live in is thus often merely a product of the culture they are surrounded by. 

Of course, we all know (and for the most part appreciate) that institutions matter. But there is something quite different between the argument which Hannan is making, and the arguments which many institution-matter theorists make is that Hannan argues, implicitly though, that we cannot simply replicate the institutions of the Anglosphere to non-Anglosphere countries. The necessary jump between Hannan’s main point in Inventing Liberty and an institutions-matter theorist like James Buchanan’s throughout his corpus is that Hannan’s vision is very much historically fatalistic whereas Buchahan looks at the problem from the point of view of social contract theory. For Buchahan, the question what can be done is a very real one, though in Hannan, what can be done is largely just a matter of preserving what is already there. In Hannan's history, institutions are determined by culture, and if a nation does not have the culture to support good institutions, then it is by and large doomed to go without them.

The British character of liberalism and of the commercial society it animates is corroborated by common language. When people are speaking about the core tenet of a liberal market, competition, people, especially in Continental Europe, often speak of “Anglo-Saxon capitalism.” The view that it is that British variety which encourages “dog-eat-dog” competition whereas their more “cooperative” approach cultivated more moral outcomes. The use of such language is so wide that it has gotten its own page of Wikipedia: “The Anglo-Saxon Model.” The culturally English-speaking nature of the modern commercial society is thereby displayed by its identification with a certain cultural group, that of Great Britiain.

 

The question which I am naturally lead to is then: Why Britain? Why did the English-speaking population become the cradle of liberal ideas rather than, say the populations of Holland or Italy? The Dutch certainly went a long way towards the development of liberal ideas, and during the Dutch Golden Age, Amsterdam was a shining light in the world. There, the first modern stock market was established there by the Dutch East India Company in 1602. Levels of religious toleration were high compared to the rest of Europe, especially towards the Jews (though the Catholics suffered due to perceived political loyalties to the Habsburg empire that the Dutch Republic had succeeded from). Daniel Hannan even celebrates Dutch society in “I realised why I like the Dutch so much,” and claims that what he loves about Dutch society is found in the bourgeois values that the Dutch and British both share: “Only recently, though, was I able to put my finger on what I liked so much. It’s this: for centuries, the Dutch made the honest pursuit of self-betterment a supreme virtue.” The bourgeois virtues which Deirdre McCloskey celebrates in her aptly named book, The Bourgeois Virtues, were quickly coming to fruition within Amsterdam, and the Dutch Republic could therefore have seemed to be a viable candidate to be the cradle of liberalism for the Western world. 

That was not to be, though. One of the main reasons was that the Dutch Republic did not have Great Britain’s fortunate geography. Unlike Great Britain, which is an island separated from the Continent, the Netherlands is a low-lying plain, much of it reclaimed from the sea, close to the center of Europe. As such, the influenced of the bourgeois virtues in the Netherlands was vulnerable of being snuffed out by conquest, and that is one of the events which happened following the Dutch Golden Age. Whereas the British were able to survive and compete against the Continental powers by outdoing them on the seas, the Dutch Republic never had such an option, and like the Polish-Lithuanian Commonwealth was unable to assert its independence forever against the encroachments of illberal states very adept at waging war. Unlike those two, Great Britain was in the fateful position of being separated by the sea from the many wars which were waged on the Continent in the early modern period, and was thereby separated from the need of winning those wars, at the cost of its liberal values, in order to ensure its survival.

 

In the end, liberalism wasn’t discovered by the great powers of human reason; rather, it was cultivated in culture until finally being recognized by the mind. It is not a necessary outcome of progress. Rather, it is a historical accident. The ascendency of liberalism is thus not a matter, as it often is depicted to be, of the triumph of human reason over bigotry and superstition. Instead, the ascendency of liberalism is a matter of a historically contingent sequence of unique events in unique places; of infectous habits rather than explicit ideas. The lesson to be appreciated from Daniel Hannan’s Inventing Liberty is that the free and open society is a consequence not of human ideas, but of human history. 

 

The Political Economy of Knowledge in "Breaking Bad"

 

So you do have a plan! Yeah Mr. White! Yeah science!

- Jesse Pinkman

 

The difference between techne and episteme as well as the concerns which come from the in the popular show “Breaking Bad.” 

 

In the first episode of that show, when the two protagonists, Walter White, a brilliant chemist, and Jesse Pinkman, a drug dealer down and out on his luck, first meet to cook meth, Pinkman is dismissive of White’s systematic approach to the process. Pinkman is confident that his well-practice techne is sufficient, and is dismissive of the procedure that White creates to synthesize the meth. Objecting to White’s assertion that they won’t be adding chile pepper to their method, which was his specialty before teaming up with White, Pinkman asserts that cooking meth is art, and that he is an artist. Unimpressed, White responds that it’s all chemistry, all episteme. Once White finishes, though, Pinkman is astonished at the quality of the meth that White created, praising him as a great artist. Once again, White asserts that it’s all science; everything he did could be broken down to episteme, a system of principles, chemistry, which his knowledge of enabled his action. 

 

The differences between the techne, cooking meth, and episteme, synthesizing it, are further emphasized later on in the show during the first episode of the fourth season. In that episode, White is being held hostage by a local meth kingpin, Gus Fring, and White is arguing that he is needed because of his scientific skill. An assistant to Frings’s operation angrily argues that neither White nor his episteme are needed for Fring’s operation, saying: “It’s called a cook, because everything comes down to following a recipe.” White, once again the scientist, retort’s that assertion that everything can be reduced to art by peppering the assistant with questions about what to do given certain scenarios. “What happens when you get a bad barrel of precursor? How would you even know?” “What happens in the summer when the humidity level rises and your product goes cloudy?” An artist working simply off of his craftsmanship would not know the answers to such scenarios, which would ruin the batch of meth he is cooking. Someone working from the systemized knowledge of chemistry like Walter White, though, would be able to deduce the proper responses based on his knowledge of the principles involved.  Whereas techne, cooking, is concrete, and context dependent and thus cannot deal with situations it has no familiarity with, episteme is able to overcome such adversities because it is manipulating the world according to universal if-then statements. 

 

Walter White’s experience in the criminal underworld is illustrative of the the use of episteme in society. Of concern to studying how people cope with knowledge in society is how the episteme is stored and transmitted. In “Breaking Bad,” it is quickly apparent to those who meet him that White is a man who has innate access (by that I mean he doesn’t need reference to books or the internet) to knowledge about chemistry that no one else around him does. Those who decide to work with him can thus incorporate his knowledge of chemistry into their business models by having him be in charge of their meth production and by having White advise on such concerns. In addition, since White’s episteme is so unique, there are no close substitutes to him, and so whereas a lesser chemist may have been a disposable asset, White is essential because without White the organization wouldn’t be capable of producing meth of the purity he ensures. 

 

Thanks to Walter White, his business partners are able to act as if they had his knowledge of the general principles of chemistry. Within those associations, White is the store, so to speak, of that episteme, and cooperation with him is the means by which his episteme is transmitted in society. As long as White’s knowledge is unrivaled, White was able to create a sustainable specialization for himself within the criminal underworld of methamphetamine as a source of episteme, and is able to trade that knowledge for what he wants, be it money or security, with others. All-in-all, a division of labor is created which enables those ignorant of the principles of chemistry to benefit from it through cooperation with Walter White.  

 

The story of Walter White in “Breaking Bad” is also illustrative to why episteme alone cannot generate economic growth and material prosperity. With his episteme, Walter White is able to synthesize meth which is, by the end of the series, demanded across the world and makes him no small fortune., that he is in a position to provide as-if access to that knowledge to others is a matter of institutions and trade. When a meth head on the street is able to get an unparalleled high with the use of White’s special blue meth, they are able to act as if they had knowledge of how to create meth of that purity themselves. The precondition for this is a division of labor in which those meth heads are able to cooperate, though indirectly, with White in order to have access to his episteme. A division of labor, in turn, has preconditions of its own if it is exist, and there are rules of the game that have to be set to ensure that self-regarding cooperation is possible such as punishing transgressors and negotiating contracts. Since the meth trade goes on in the black market, institutions evolve within it, independent of the courts, which ensure the operation of this business and the division of labor which supports it. This division of labor, in turn, allows for White to be able to offer his episteme to society, or at least to those on the black market. 

 

  That people across society would put their episteme to use in order to satisfy the wants of other people in an impersonal division of labor, though, is itself that needs explaining. It seems obvious to us that people would use the episteme they have about certain topics in the division of labor in order to exploit their knowledge to gain a money income. When someone watches “Breaking Bad,” the ethical question which comes to mind is why is White using his knowledge of chemistry in the criminal underworld to get money not why is White using his knowledge of chemistry to get money. That White would also be alert to the opportunity of using his knowledge to sell specialized products to others is itself something not universal to human nature. Simple entrepreneurship may be, everyone may be an entrepreneur in a loose connotation of the world when acting as to better their situations, but not everyone is even aware of the opportunities to be an entrepreneur on the market. For Walter White to specialize as a meth synthesizer and for a division of labor to emerge with that as one of it’s important nodes, then White would have had to be alert (and willing) to that opportunity for specialization. Such a frame of mind is something that economics, whose basic organon is to explain all human behavior as instances of the maximization of an objective, well-defined function with only income and prices as its arguments, cannot explain. 

 

“Breaking Bad” is thus a distinctly bourgeois story. Walter White is neither using his knowledge of chemistry to get favors from a local prince nor is he using that knowledge in hope for seeing God in the geometry of creation as part of a perceived journey towards ultimate salvation. Both of those are very real possibilities,  Su Song (1020- 1101) built an immensely complicated water clock for the Han emperor in the 1090s that served the bureaucratic purposes of managing the Chinese state and Roger Bacon (1214-1294) was a Franciscan monk who pursued empirical research of the world throughout his life to better man’s understanding of God’s creation. Walter White created meth so pure that is purity became a mark of his work and sold it on the black market in order to get enough money to support his family after he receive a diagnosis of terminal lung cancer. Three different premises for the use of episteme in society, and only one corresponds to a scenario where there could emerge a society-wide division of labor that enables anybody who has enough cash to act as-if she knows White’s knowledge about chemistry. The profit-maximization in terms of money and income that explains so much of modern society is behavior which happens in context of a bourgeois society, and the emergence of that bourgeois society over history has involved phenomena not amendable to analysis simply in terms of indifference curves and budget constraints.

 

Others in society are able to benefit from the episteme of a few specific experts by cooperating in a division of labor which provides them as-if access to that knowledge. Within the grand system of human cooperation that is the market, someone is able to enjoy the benefits of a Coca Cola as if he had the knowledge of how to create it by buying it from a convenience store. Through self-regarding trade, the episteme of one is made available to another, and thus the knowledge of a few is made to service the many. The creation of this grand system must be understood within both institutional and cultural contexts that enable to emergence and continuation of the division of labor. Institutions are important because not all strategies of action are compatible with its maintenance, and if strategies that deny others their property titles are able to proliferate in society, then the division of labor will break down. Culture, all of whose aspects cannot be broken down as institutions understood as rules of the game, enables the enlargement of the division of labor by making people more alert to entrepreneurial opportunities on the market. 

Uncertainty and the Gun

 

 

"You were wrong for years, right for a moment, losing small, winning big, so vastly more successful than the other way around (actually the other way would be bust)."

-Nassim Nicholas Taleb, Antifragile

 

 

 “Do not play with guns!” “Do not point a gun at something you’re not willing to destroy!” These are common maxims of handling firearms. Simply, easy to comprehend, yet capable of savings thousands of lives across the world each year if they were fully heeded.

The injunction is also one that serves as a proper paragon for acting within an uncertain world. It depends neither on exact knowledge of either the changes of there being a round in the chamber nor knowledge of the payoffs involved. Instead, it relies on the recognition that, even though most events would may very well have inconsequential results, a single devastating outcome is possible. Therefore, uncertain about whether the gun is loaded, we ought to avoid playing with it to avoid this catastrophic event.

Most orthodox decision theorists would go about the problem simply by using the statistical device of expected value. With this perspective, one should play with the gun if and only if the expected benefits exceed the expected costs, with the expectation function being the payoff, whether that is the cost or benefit, multiplied by its chance of happening. This statement can be simply stated as:

i) E[B]-E[C]= b.p_b-b.p_c>0

To get the command not to play with the gun, one can easily assign a cost of negative infinity to the costs of dying to provide, under any situation – no matter how sure we are that the gun is unloaded, to never play with a gun.

From a practical perspective, this is clearly not a sound maneuver since there are worse things than dying, especially dying from a gun-shot wound. One can lose everything, have everyone one loves executed and then be hung, drawn and quartered. That is surely worse than being killed by the gun. Even killing a loved one instead of dying oneself from the action may very well be a worse outcome.

However, since we have assigned the payoff to dying from the gun as negative infinity, we are unable to make any outcome worse within the model; ergo, dying as a result from playing with the gun is not infinitely negative. It is some other number.

I’m confident most orthodox decision theorists would here make that cost low enough so as to overwhelm the expected payoff of playing with the gun, and so yield the reasonable answer prima facie not to play with the gun. This may be something fully in line with how most philosophers do decision theory, but there is an ad-hoc aspect to that solution that does not settle well with me.

After all, a theory that can explain everything explains nothing. If we go about fine tuning the parameters of (i) in any way necessary to get the desired outcome, then we aren’t actually saying that much. In addition, these concerns are heightened by the use of equations like (i) to not only explain normative behavior, but positive behavior in the world. (I) can just easily say that a person’s actions reflect that they estimated the expected benefits of her actions to be more than the expected costs of her actions as they can say that a person ought to act only if she expects the expected benefits to overwhelm the expected costs. So which one is it?

In addition, most decision theorists are cheating here. They're cheating because they're basing their method for how they go about fine tuning the parameters of (I) to get what they believe ex ante to be the proper course of action. That's neither a helpful nor an insightful theory; to the contrary, it is simply at best a post-hoc rationalization, and intellectual masturbation at worst. The decision theorist already knows, without needing the framework of (i), not to play with the gun, but what leads to that decision. I would wager it is because he understands that playing with the gun involves small rewards, the fun of playing with the gun, at the risk of horrific injury.

This judgment is much more in line with the rule-based heuristic above of avoiding situations with low payoffs and high rewards. Rather than being concerned about the expected benefit of playing with the gun, the decision theorist, without even realizing it, prima facie looks at the distribution of the payoffs involved and realizes that there in a very undesirable outcome within the distribution that ought to guide his concern. Then, rather than basing his statement for why not to play with the gun based on that distribution of payoffs, he then goes, and uses a calculated average in order to justify it. The decision theorist is thus cheating

Within a world of uncertainty, such as when we simply do not know if the gun is loaded and any guess as to the probability is simply making a figure up, we should act so as to put ourselves in the position to gain from the uncertainty. It’s not because we know that the expected payoff to playing with the gun is negative that we ought to play with the gun. Instead, it is that, even though we do not know the odds of the gun being loaded, we recognize a situation in which there are there are drastically undesirable outcomes that may be smothered away by the expecations functions of (i).

Knowing that all it takes for one of those violent outcomes to be realized is a single te with that intuition in mind we avoid the gun. No calculations of costs and benefits necessary, just recognition of the distribution of the payoffs, which we can infer from a rather elementary familiarity with firearms and human anatomy. Even if the expected payoff of playing with the gun were sufficiently high that expected-value theory would recommend playing with it (imagine a billionaire offering millions for someone to play), we know that the expected value hides a catastrophe (and its all fun and millions until someone gets shot in the head). Being right even a hundred times when playing with a gun and then being wrong on the next is much, much worse than not playing at all.

 

Recognizing the involved distribution of payoffs allows us to act so as to avoid those catastrophes. We don’t understand the world, it is simply opaque to us, and to prosper in this environment, we should act so as to benefit from that uncertainty. To state that we should never play with guns because even a positive expected value from the act hides a catastrophe is to act so as to take advantage of the uncertainty to aid our survival. It doesn’t matter that we think we know the odds of the gun being unloaded because we may be wrong, and so rather than that “may be wrong” perhaps emerging from the dark cloud of uncertainty, like one of Pacific Rim's kaiju, to destroy us, we use that uncertainty to guide us along a better course of action.  

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.

Genes, Memes, and Culture

 

 

“Lastly, habit in the individual would ultimately play a very important part in guiding the conduct of each member; for the social instinct, together with sympathy, is, like any other instinct, greatly strengthened by habit, and so consequently would be obedience to the wishes and judgment of the community.”

-Charles Darwin, The Descent of Man

 

 

Culture exists, and with it a “meme-pool”, so to speak, analytically independent of any one human being. One of the most important features of this meme-pool is a set of general rules and common practices pervading the society superseding any one person within it. It could even be said that these habits are memes that invade the minds of those that are surrounded by them, and program, so to speak, to follow the behavioral specifications that are constituted by that meme. It is no wonder that Charles Darwin noted in The Descent of Man that the human being was more an animal of habit than one of reason (a theme Friedrich Hayek picked up on in the first volume of Law, Legislation, and Liberty). After all, most actions within human life do no find their motivation in rational calculation à la Thornstein Veblen's caricature of the lightning rod calculator. Even when most of us do deliberate, the deliberation is not between the whole range of possible options, but between what we normally choose from (and perhaps that new ethnic restaurant if we're feeling daring).

 We are not only creatures of habit because of an inner anxiety that makes us cleave to what is the norm which has yet to not placate us, even when that satisfaction is lukewarm at best. Instead, it is within our very genetic programming to adopt the habits of our surrounding society and to stick to them. It makes sense from a purely evolutionary point of view that such behavior would be selected for because those ancestral hominids (let's not discount the possibility actual cultural evolution, to differentiate between the simple existence of culture and its adaptation across time, may have happened with other species of Homo) who adopted the local culture would have a survival edge over those who did not.

 

After all, culture does not simply exist for no reason. The practices that dominate within a culture did not simply randomly assume a position of dominance; rather, it was by their adoption in lieu of others and their ability to out compete them for places within minds that they become dominant. Culture, once understood as something more than human artistry, is a record of what solutions have solved problems in the past (think of tradition as problem-solving). Whether it is the clothing culture being a record of what has served people well in the past for protecting themselves against their surroundings or a food culture being a record of what has served well for nutrition, culture points the way for well-serving practices. Those who do not conform to the local culture and insist on reinventing the wheel (or more accurately for the case in point: rediscovering the best hunting techniques) will be unable to learn from culture. Since culture is a record of previous best-practices, the democracy of the dead to cite G.K. Chesterton, those who are most apt to learn from it are those who will, on average, thrive. Ergo, the human propensity to conform plays the very important role within human society of ensuring that most people within that society will adopt what has emerged as the best-practices within it, and thereby be able to thrive.We are left with the co-evolution of the possibility of cultural evolution with the natural selection of the most reproductively successful hominids. Natural selection has selected our genes so that we are, by our very biological disposition, easily programed by the memes of the surrounding culture. In addition, the prevalence of coordination games that rely on conventions as solutions in advanced patterns of cooperation mean that for Homo sapiens to be a truly cooperative animal, she has to quickly be able to pick up on the surrounding cultural practices that constitute those solutions. Even the possibility of human cooperation in complicated networks of exchanges is conditioned upon the human capability of playing the conventional equilibrium informed by culture to countless coordination games in her interactions with her neighbors.

It is quite amazing that the biological dispositions of an ape chosen for by natural selection could, due to certain dispositions selected for, harness culture and with that advanced forms of cooperation to remake the world in its image.

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.

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.