Category: Economics, Finance, and Political Economy

THE NECESSARY PROPERTIES OF ECONOMIC COOPERATION

(draft of the correction of a priorism in economics, politics and ethics.) (important)

Exchanges are unique. Every one. Marginalism alone renders all exchanges unique – even before we consider the uneven distribution of resources and ability, and the vagaries of nature, and the shifting wants and signals of human beings.

As such, each exchange is unique, and even aggregate measures of inputs, operations and outputs in similar exchanges are dependent upon Patterns of Sustainable Specialization and Trade; which while sticky, are no guarantee of future exchanges under similar conditions. Constancy is an illusion. Businesses continuously adjust to conditions. So, no relations are constant in economics, even if in the aggregate, in short time periods, they appear so.

If no relations are constant in economics, that means that we cannot organize production on the assumption of constant relations. This criticism stands alone, even prior to either the problem of calculation without money and prices, or the problem of incentives independent of rewards.

However, we cannot organize any form of production under the assumption of constant relations without the incentives of multitudinous individuals to produce.

This is the correct criticism of the socialist method of production.

1) calculation

2) inconstancy of relations

3) impossibility of organization

4) impossibility of incentives.

The reason capitalists and executives of all kinds cost more than labor and are rewarded more than labor, is because labor has little to no value in production; and what value it has in production, constantly decreases with mechanization. So, the problem remains how to organize labor whether human, computational or mechanical.

And while we might argue that middle management has very little value in the organization of labor, organizing the production of goods using labor, using prices and payments as rules, limits and incentives, is the highest contribution to the value of the goods, since the alignment of incentives – what we call ‘execution’ : organizing humans into production – is the art.

And that is the scarcity that the market rewards.

THE PROBLEM OF THE A PRIORI ARGUMENT

If there are no constant relations in economics, but mathematics is the logic of constant relations, and further we attempt to use mathematics to justify intervention in the market for goods and services, then doing is logically impossible. The logical of constant relations, entirely dependent upon constant categories, cannot be used to describe economic conditions and apply them to the future. All we can do with mathematics is mine the recent data for descriptions of what has happened in the existing patterns of sustainable specialization and trade.

So, if the socialist method of production was impossible, and measurement of the economy at all but the aggregate level is impossible, and measurement at the aggregate level does not capture changes in human, social and moral capital, then it becomes very difficult to suggest that governments can do much except (a) limited trade policy, (b) limited industrial policy, and (c) limited education and health policy (d) defend the rule of law and the common law (e) provide a means for the resolution of disputes.

Thus, the prior generations argued that we must both not supplant the market means of dynamically organizing unique instances of production, nor interfere with it, and that we may only rely upon deduction and guesswork, and simply leave the market alone.

However, this is either mistaken – or it is ill said. We can deduce almost nothing of consequence from human action.

First, we can however, TEST any set of statements to determine whether they are rational and what incentives that they produce. But we cannot deduce much of anything at all – we can only test statements and hypotheses to determine likely human action.

Second, when we understand that the problem of production is not labor, nor resources, but ORGANIZING production, what we can do is increasingly expand the means by which groups can cooperate on disparate means.

The most effective way to assist groups in cooperating on means, even if they have disparate or even irreconcilable ends, which we cannot choose between because of the inability to forecast into a kaleidic future, other than value inferences we obtain from existing patterns of specialization and trade, is to suppress all risks OTHER than those of forecasting.

Namely, the suppression of ‘discounts’. Then more discounts we suppress, the more human action that must be pressed into the market for goods and services, entirely upon the price, quality and distribution of those goods in time. (And independent of schemes.)

So, if we understand that the production we organize, is the ability for others to frictionlessly organize production, in a world of constant invention and change, it is not entirely true that we can take little action. It is not the production of goods and services that we assist in producing with our governments, but it is the rules by which we dynamically organize production by the suppression of all discounts, everywhere, such than the only possible actions that remain, are to take risks on one’s forecast of the future within one’s patterns of specialization and trade.

RATHER THAN THE A PRIORI ERROR – WE STATE THIS INSTEAD:

Economics then, consists of:

The near universal human ability to test rationality of incentives.

The near universal human desire to seek discounts.

The use of organized violence to suppress all discounts.

The resulting pressure of all human action into the market.

The construction of institutions to suppress discounting.

The use of empirical measures to gain short term insight into the patterns of trade.

The use of such information to inform participants in the ongoing adjustment of such patterns.

Institutions required are:

1) Articulated Property Rights and Obligations.

2) The common law.

3) An independent Judiciary.

4) Universal standing so that any individual can seek restitution from any other individual for taking discounts, no matter what the accused’s function in society.

5) A body of people with the ability to construct contracts on behalf of larger groups, to produce goods that the market cannot organize to produce because of arbitrariness of the choices, or the openness of such contractual investments to free riding, privatization, and socialization or other discounts.

6) A means for the collection of dividends and choosing between the expenditure on further investments and distribution of proceeds to shareholders.

We do not need much government. What government we do need, need not be a monopoly. What investments we need need not be decided by majority rule – a monopoly. And those services and goods we need, need not be provided by a monopoly bureaucracy.

Even if it may be true that the INITIAL CONSTRUCTION of property rights requires the imposition of a monopoly of those rights, and a total prohibition on discounts, that is the limit of such a monopoly. Which is why corporations of separate interests in creating such a system is superior to monopoly of interests in creating such a system, since no member of such a polycentric order would tolerate the usurpation of his rights by another.

Such a government is a government of unbreakable rules which we call ‘laws’, not a government of people with capacity for decision making, or coercion, or the ability to make laws.

And our defense against that monopoly government and all forms of abuse, is the training of a near-priesthood called judges who adjudicate differences according to private property rights, and the voluntary agreements that we enter into, and the prohibitions against free riding on the goods produced by those agreements we chose NOT to enter into.

And to construct as such, that those judges possess only the incentives to use those laws in the fulfillment of their roles.

We can reduce all of this to the simple assertion, that no man can know the future sufficiently to force others to obey his direction on the use of their minds, bodies, time and property. However, it is quite possible for each of us to judge incentives and for men with training to judge whether property rights were respected or not.

That is all we need.