This is Choice-and-Constraint.info, produced by makeinfo version 4.8 from Choice-and-Constraint.texi. Copyright (C) 2004, 2005, 2006 Robert J. Chassell This document discusses the choices and constraints that shape us. Edition 1.51, 25 July 2007 This uses a verbatim license, since it is a statement of my opinions; it is not a manual or help document. Permission is granted to make and distribute verbatim copies of this entire document without royalty provided the copyright notice and this permission notice are preserved on all copies.  File: Choice-and-Constraint.info, Node: Top, Next: In the Beginning, Prev: (dir), Up: (dir) Choice and Constraint ********************* Copyright (C) 2004, 2005, 2006 Robert J. Chassell This document discusses the choices and constraints that shape us. Edition 1.51, 25 July 2007 This uses a verbatim license, since it is a statement of my opinions; it is not a manual or help document. Permission is granted to make and distribute verbatim copies of this entire document without royalty provided the copyright notice and this permission notice are preserved on all copies. Choice is an attribute we infer in others and apply metaphorically to systems that cannot choose. Constraint is an attribute that applies to any system, regardless whether it has choice. * Menu: * In the Beginning:: * Political Necessities:: * Taxes and Regulation:: * Governance:: * Economics:: * Self-Replicating Systems:: * Words:: * Government Actions:: * Words Only:: * What Should Be Done:: * Petals of Cooperation:: * Concept Index:: * About the Author:: --- The Detailed Node Listing --- In the Beginning ... * Arguments Forthcoming:: * Further Efforts:: Political Necessities * Order Law Justice Democracy:: * Liberty and Resources:: * Graceful Winners:: * Periods of Unraveling:: Taxes and Regulation * Tax:: * Needful Government Regulation:: Governance * Developing Extralegal:: * No World Government:: Economics * Tentacle City:: * Pollution Market:: * Middle Ages Accounting:: * Double Entry Book Keeping:: * High Initial:: Tentacle City [a fable] * Large Tents:: * Size:: * New Births:: * Growth:: * Economic Political Implications:: The Nature of Self-Replicating Systems * von Neumann Machines:: * Unbreakable:: * Five Laws:: * Differing Virtues:: * Societies as Von Neumann Machines:: * Species not an Organism:: Von Neumann Machines * von Neumann aspects:: Actions of Government * Cannot Wrongly and Can:: * Disastrous Decisions:: * Global Warming:: * One Basket:: Words Only * Metaphor Influence Judgement:: * Three Traditional Branches of Oratory:: * Understanding Without Proof:: * Science:: * Scales and Structures:: * Certainty Factors:: * certainty factor exercise:: Guttman Scales and the Structures of Social Life * Groups and Rings:: An Exercise Using Certainty Factors * Combining Certainty Factors:: * A Floor Vacuuming Robot:: What Should Be Done? * Civilized Goals:: * Trust:: * Soldier Suspect:: * Judgement Aids:: * Larger Federation:: * Opportunity:: A Larger Federation * Three Chamber Legislature:: * Veto Power:: * Power within Three Chambers:: * Goals:: * Means::  File: Choice-and-Constraint.info, Node: In the Beginning, Next: Political Necessities, Prev: Top, Up: Top 1 In the Beginning ... ********************** How should we think about the choices and constraints that shape us? _Choice is an attribute we infer in others and apply metaphorically to systems that cannot choose. Constraint is an attribute that applies to any system, regardless whether it has choice._ In the next few chapters, I talk about constraints and then the choices. Constraints tell us `what is'. Choices are what we `can do'. This is not the `what is' or `can do' of most political scientists, but the constraints and choices available to us on this planet. Without investigators determining what is and what can be done, we are left in a world of irreality. Consequently, in a changing society, we need to support a fourth branch of oratory, a `determinative' branch, and all that underlies it. (This fourth branch is only a few centuries old and is in addition to Aristotle's traditional three branches.) Since most lack the time, the interest, the skill, or the funding needed to investigate, they must depend on the reports of others. For them to believe, those reports must come from trustworthy sources. Otherwise, people will suffer a hodge-podge of old ideas, dreams, and errors, Of course, we also need institutions of government that do not depend on the virtue of those governed (although virtue helps). Fortunately, old institutions can be and should be continued in the present. (In at least one powerful country, the old institutions need rejigging to handle gerrymandering, although this action goes against the interests of many powers-that-be and is less likely than my other suggestions, which are helpful both to those currently with power and those without.) * Menu: * Arguments Forthcoming:: * Further Efforts::  File: Choice-and-Constraint.info, Node: Arguments Forthcoming, Next: Further Efforts, Prev: In the Beginning, Up: In the Beginning Arguments Forthcoming ===================== In more detail: in the chapter on `Political Necessities', I point out that constraints include the need for security and law as well as the civilized constraints of justice and the importance of `graceful winners' and `graceful losers'. In the following chapters, I note that governments need taxes and the planet needs regulation. Then, after discussing extralegality and other such issues, I back off and talk about the general characteristics of economics and the development of accounting from a very general point of view -- as a form of governance. This leads into the problem induced by the intrinsic failure of any system that excludes `external costs' from its internal accounting. For example, the cost of pollution is often institutionally `external'. One method of dealing with pollution, of internalizing the previously external cost, is simpler for a society and the other more efficient. In every event, we live within systems that replicate themselves with error and error correction. This is what economies and societies are. It helps to understand their general characteristics, described briefly in the chapter on `Self-Replicating Systems'. Next we consider how people understand the actions of their governments. Generally, they think of them in one of three different spirits: "can't do", "wrongly do", and "can do". In a discussion of past mistakes, I mention several grim instances of "can't do" and "wrongly do". Jared Diamond suggests why they occurred. Then I give a contemporary example which many fear is or will be a disaster. In it, we can see all three possible responses: "can't do", "wrongly do", and "can do". Following this, I turn to forms of persuasion. Aristotle spoke of three traditional branches of oratory. Unfortunately, his three branches presume that people understand the world. The consequences of an action may turn out badly, but they will be known. Unfortunately, in a changing world, that is not true. Nowadays, debates' consequences often depend on determining `what is'. So I talk about a fourth `branch of oratory', the `determinative' branch. This is science. Most people do not think of it as a `branch of oratory', but from the point of view of societies, it is. Science is a way of persuading people that one aspect of what they see is more suggestive of reality than another. How people perceive becomes important: so I discuss Guttman Scales, and the parallel four structures of social life. Then I talk about `certainty factors', which a specific mechanism to help make judgements. Then I consider what should be done? What can we do? While I do offer various specific suggestions, more important are criteria and processes for everyone on this planet, everywhere. The last chapter is called the `The Petals of Cooperation'. The petals are the four criteria for making judgements, _protect_, _preserve_, _prepare_, and _provide_. In the flower's image I also discuss, as stem and leaves, the three conditions that enable a just and sustainable society to succeed, _consent_, _freedom_, and _law_. In the inner part, I suggest the five qualities you should seek to create through institutions in otherwise corrupt and dishonest politicians, _reason_, _rigor_, _reality_, _responsibility_, and _honesty_.  File: Choice-and-Constraint.info, Node: Further Efforts, Prev: Arguments Forthcoming, Up: In the Beginning Further Efforts =============== After reading through quickly and briefly, you may wish to go further. My suggestion is that you determine how certain you judge each claim -- perhaps some are weak -- and you evaluate the proposals that are mentioned. For judgement, provide evidence for (or against) each claim. The intent is to exercise `determinative' oratory, as described in the chapter `Words Only'. However, the evidence will mostly, perhaps entirely, be `I hear' or `I know culturally', rather than `I reason', `I observe', or `I experiment'. Informally, the `I hear' evidence will consist simply of cocking one's head and saying to one self, "right!" or "wrong!" or "somewhat suggestive". More formally the evidence will consist of scholarly references, news stories, or interviews. The `I know culturally' evidence requires, I think, a convincing, personal story. It is good practice to specify what you think is the certainty (or uncertainty) of each bit of evidence: whether it be a slight hint, weakly suggestive, suggestive, or highly suggestive, or the contraries. Thus, there is text that says that Abraham Maslow spoke of a hierarchy of needs. The not very important claim is that Maslow really did write. A more important claim about which judgement must be exercised is whether needs actually do form a hierarchy or ordered sequence? Perhaps they do not. Or perhaps the order is different. What is the evidence one way or the other? Perhaps Maslow provided enough evidence himself and an evaluation of each bit of it is not needed; or perhaps it is. Then I claim that my sequence - order, law, justice, democracy - follows Maslow's: _The sequence of order and law provide for survival and security. Justice enables a person and family both to establish a meaningful society and for people and groups to feel properly esteemed. Democracy enables a society to offer survival, security, social, and esteem, even during periods of fairly rapid change._ How suggestive is that claim of mine? How suggestive is the next one, Robert Rotberg's? For evaluation, you can use the `four Ps of politics' as listed in the final chapter - protect, preserve, prepare, and provide. You can use other criteria, too. In each proposal, what is currently uncertain and what should be determined? If the underlying factors are sufficiently uncertain, should the proposal be revised to succeed regardless of outcome? If so, how? For example in the chapter `What Should Be Done?', I suggest that various contemporary nation states should join together to form a larger federation, a `trans-national sovereignty'. I claim that the new state must be perceived by its citizens as legitimate. Is that true? What is the evidence for or against that claim? Will already existing bodies, such as the World Trade Organization, do as well in settling disputes peacefully? Will old fashioned diplomacy? Will my proposal for a third legislative chamber be practical? Will rich countries be more likely to join if they feel safer than otherwise? Is the equivalent of `states rights' or a `veto' necessary, as I suggest? What should the rights be? (I have not suggested any.)  File: Choice-and-Constraint.info, Node: Political Necessities, Next: Taxes and Regulation, Prev: In the Beginning, Up: Top 2 Political Necessities *********************** What do you need to create a civilized society? Most basically, you expect a modicum of justice, not random violence or death. This constraint tells us what a government must do. * Menu: * Order Law Justice Democracy:: * Liberty and Resources:: * Graceful Winners:: * Periods of Unraveling::  File: Choice-and-Constraint.info, Node: Order Law Justice Democracy, Next: Liberty and Resources, Prev: Political Necessities, Up: Political Necessities Order, Law, Justice, Democracy ============================== In everyday life, the sequence of people's political desires is well defined. First of all, people desire *order*. Without order, life is chaotic and people die. For a vivid picture of disorder, imagine gangsters or soldiers fighting, and a bystander killed. For a less horrific image, think of three mimes fighting another three with knives, and a bystander injured. Next comes *law*, so people can predict those who may injure or kill them. Law is not necessarily just. The key is that law provide enough predictability for people to survive. For an image, think of a prosecutor, two guards, someone they picked up, and a bystander who avoids them. Dictatorships usually provide order and law. After coming to believe they will survive, people seek *justice*. As a mental animation, imagine a judge, two guards, and a judged person who goes free. Because much of a sense of justice comes from what people learn as children, slowly changing, traditional societies often provide some degree of justice, even if they are not in any way democratic. Similarly, modern dictatorships sometimes offer justice in a few areas. Justice is an accepted limitation on the arbitrary rights of a ruler. Injustice means that a ruler `has the right to swing his fist' anywhere. Justice means that the ruler's right to swing his fist `stops at the end of the subject's nose'. In traditional or dictatorial societies, the realm of justice may be limited, but many see that realm as better than nothing. However, with changes in technology, traditional forms fail. For example, suppose you live by a river. In pre-industrial times, it is not likely you would be poisoned by the effluent of an upstream tannery that takes two or three hours rowing to reach. By the time the effluent reaches you the river would have diluted and transformed it. But a modern tannery produces much larger quantities of effluent, and it may contain more dangerous chemicals. Thus, under new conditions, new forms of governance become important. Otherwise through death, illness, or an unrecognized weakness, you pay for the cost of the tannery without gaining anything from it. The disadvantage of traditional authority or dictatorship is that it may be inflexible. Perhaps a `benevolent despot' is flexible. Certainly, everyone thinks of themselves as having the makings of a good ruler. And some will be. But what of the second or third generation of rulers? What of the son of a `good king'? The inflexible need to leave. An advantage of *democracy* is that in it people can eject a government without civil war. A new government can change law and provide more justice. Many governments fail to provide order and law. In that case, people group together to provide their own. Clans take on importance. So do villages in which the people who grew up together look suspiciously on outsiders. These solutions help. But they do not scale. You cannot depend on clan connections when you deal with strangers. In a city, you will never experience childhood with everyone, only with a few. One political response to increased scale is to increase hierarchic control (*note Guttman Scales and the Structures of Social Life: Scales and Structures.). Traditional China is an example (*note High Initial and Low Incremental Cost Production: High Initial.): its mandarins and military ordered clans and villages. But China, once a technological leader, failed to adapt to the new technologies of the 18th and 19th centuries. Its government failed. After decades of civil war, a new government came into power in 1949. Over the past 20 years, the new government has shown remarkable flexibility. But the question still remains, supposing it continues, how well will it adapt to conditions two and three generations from now? Or will it freeze conditions? In politics, a hierarchical control system can succeed so long as there is little or no change, or so long as the change is easily foreseen. The main problem comes during the succession. If one group does not gain full control, as in a monarchy or empire, competitors may fight. Such a civil war destroys both order and law. Often in history, a family or clan gained power in a civil war, succeeded for a period, and then its members became excessively corrupt or lazy. These failings enabled a new dynasty to gain sufficient support to enable it to win a civil war and replace the old dynasty. However, even with dynastic change, hierarchical political systems fail to adapt well to change: their very success causes failure. They are similar to the companies that Christensen and Raynor describe in `The Innovator's Solution'(1). A company's management, its ruling group, institutes methods for employees to follow. Middle managers, the equivalent of captains and colonels in an army and of middle level civil servants, learn enough of their company's culture to prevent anyone higher up from learning about many propositions. This filtering prevents those higher up from being overloaded. Consequently, many a successful company or government carries out only actions that fit what the organization has already been doing successfully. Christensen and Raynor suggest ways for a company to avoid losing to a competitor that achieves success by following a process that another business rejects as too small or too inadequate. Essentially, the new way means setting up a new organization within the company that is separate from the old, with different cultural values, different rewards for success, and different goals. As a political system, democracy does the same: it enables an opposition to become the government. The opposition may well have different cultural values, different rewards for success, and different goals from the previous government. When you view an `opposition' as a part of an overall political system, then its step into power is like the elevation of one division, previously small, into the lead of a corporation. As Przeworski said (`http://bostonreview.mit.edu/BR21.2/Przeworski.html'), this means we need _... a clear party system with stable parties, a vigorous opposition ..._ Without them, the overall political system fails. Interestingly, the idea of a flexible political system arose before the notion of a flexible corporation. In the past, the overall economic system was presumed to include many corporations, some of which would die. Flexibility lay in the competitive, free market economic system as a whole, not in its components. The Christensen and Raynor solution enables a component, a corporation, to thrive. Incidentally, Abraham Maslow spoke of a hierarchy of needs: * survival, * security, * social, * esteem, and then, once those are assured, * `self-actualization'. The sequence of order and law provide for survival and security. Justice enables a person and family both to establish a meaningful society and for people and groups to feel properly esteemed. Democracy enables a society to offer survival, security, social, and esteem, even during periods of fairly rapid change. This analysis is optimistic, for it suggests that democracy will survive unless a catastrophe ruins us or a powerful government stops or slows change. (See `http://www.teak.cc/softfree/software-freedom.html#Limits%20to%20Learning'.) In more detail, Robert Rotberg suggests a hierarchy in which his first two items are similar to mine. Then Rotberg speaks about actions a government should do. Next he talks of what people need for them to decide on justice, "a forum for civil society", and finally he speaks of "a method of regulating environmental commons" which in practice means a legislature composed of the various interests, deliberating. Rotberg's paper was for the U. S. Central Intelligence Agency's National Intelligence Council's 2020 project, and called "Nation-State Failure: A Recurring Problem". (See `http://www.cia.gov/nic/PDF_GIF_2020_Support/2003_11_06_papers/panel2_nov6.pdf'.) * Security As Rotberg says, "This the state's primary function. It provides a framework through which all other political goods can be delivered." * Law Rotberg refers to law as "A system of codes and procedures which regulate the interactions of the population and sets the standards for conduct." * Medical and Health care * Schools and Educational Instruction * Critical infrastructure * A money and banking system * A business environment * A forum for civil society * A method of regulating environmental commons ---------- Footnotes ---------- (1) `The Innovator's Solution: Creating and Sustaining Successful Growth', Clayton M. Christensen and Michael E. Raynor, 2003, Harvard Business School Press, ISBN 1578518520  File: Choice-and-Constraint.info, Node: Liberty and Resources, Next: Graceful Winners, Prev: Order Law Justice Democracy, Up: Political Necessities Liberty and Resources ===================== Some years ago an ecologist named Paul Colinvaux(1) advanced the political hypothesis, that, _Liberty_ is almost always associated with groups of people who have more resources than they might expect. With more than expected resources, people feel they have the freedom to focus on `the higher things in life' since they do not feel as constrained as their parents. The `higher things' encompass religion, political idealism, antinomianism in general, and libertinism. This is based an ecological metaphor for human actions. A consequence is that elites feel both liberty and constraint sooner than others. In an agricultural, preindustrial society the poor stay poor. But increased resources, be they from trade or conquering one's neighbors, translate to more slaves or servants for the rich. There are more opportunities for a man (and even occasionally a woman) to concern himself with non-tactical things. Moreover, it becomes feasible for the society to create a few more high status, resource consuming jobs, such as that of assistant chief priest, bishop, or chamberlain. These people do not care to give liberty to others -- certainly not to their slaves or tenant farmers; but they are interested in their own freedoms. However, in the usual course of history, a group more than reduplicates itself. There comes a subsequent generation in which the number of elite children more than match the resources. Each child has fewer material resources. (Incidentally, this is why second and subsequently born boys were forbidden to inherit a part of a landed estate in England.) Similarly, a society can only create a few new high status positions; otherwise the positions become common, and lose their status. As the number of elite children increases, it gets harder and harder to gain a `place'. So it makes sense to be more tactically oriented, more survivalist, less keen on freedoms for others like oneself, more keen on getting ahead. We who live in the advanced industrial societies are in a similar kind of world, except there are vastly more material resources and considerably more status resources. You can gain a respectable position, like that of a vice president, in any of many companies, non-profit organizations, or government bureaucracies. (However, the number of very top positions remains the same -- there is only one Prime Minister or President per country, only one president of the `largest manufacturing corporation'). So the Colinvaux model applies to us as well as to people in the past. Eventually, of course, people get used to the level of resources they have. Consequently, this hypothesis is bad news for the long run of a sustainable society. But the process can take considerable time, perhaps two generations or more. During the transition, people will consider themselves richer or poorer than they expected. And act accordingly. ---------- Footnotes ---------- (1) `The Fates of Nations', Paul Colinvaux, 1980, Simon and Schuster ISBN 0-671-25204-6 hardback  File: Choice-and-Constraint.info, Node: Graceful Winners, Next: Periods of Unraveling, Prev: Liberty and Resources, Up: Political Necessities Graceful Winners, Graceful Losers ================================= For democracy to succeed, losers must be willing to lose -- they must `lose gracefully'. Equally important, winners must not push the losers into subversion -- they must `win gracefully'. In his excellent book on `Democracy and the Market', Adam Przeworski(1) points out that in transitions from tyranny to democracy, democracy succeeds only when the process is not undone. For success, the losers must not subvert the process, but go along with losing. Likewise, the winners must also act gracefully. Otherwise the winners will persuade the losers that they have nothing more to lose. If the losers are bad guys, they will not avoid subversion from the goodness in their hearts. Bad guys will avoid subversion only because they calculate that going along is better for them in the long run. Perhaps they will win next time. Or, in any event, they hope to gain more benefits by being good losers than by fighting. ---------- Footnotes ---------- (1) `Democracy and the Market', Adam Przeworski, 1991, Cambridge University Press, Cambridge, UK, p. 29 ISBN 0-521-42335-X  File: Choice-and-Constraint.info, Node: Periods of Unraveling, Prev: Graceful Winners, Up: Political Necessities Periods of Unraveling ===================== (Much of this section was inspired by `Generations'(1), a book by William Strauss and Neil Howe.) In a `period of awakening', like the 1960s in the U. S. or the 1640s in England, one of two things happen: either `the revolution' loses, as it did in the U. S., or it wins. A `period of unraveling' follows the `period of awakening'. New sets of solutions are proposed, but are never well implemented. Both when the revolution loses and when it wins, the outcomes lead to the adoption of solutions that fail: either the solutions are a repeat and increase of the old solutions with minor tweaks, which was mostly what happened in the U. S.; or the solutions are the implementation of new methods that turn out to fail in practice, as in England under the Commonwealth. Another way to look at the `awakening' of the 1960s is to see it as a failed social revolution: `radical' suggestions were made for solving contemporary problems. In the subsequent period of `unraveling' the Awakeners' suggestions were mostly *not* followed; and when they were followed, the solutions are changed on implementation to ways that are very different than originally proposed. For example, in the 1960s when people talked of cleaning up polluted sites, they did not expect the United States government to spend as many tax payer dollars on litigation as digging. Yet in places that happened. Similarly, the people who opposed incarcerating the mentally ill in state mental hospitals did not intend to move many of the former inmates to prison. And, when space enthusiasts talked of a `shuttle' they were not expecting a design that costs *more* to take a kilogram into orbit than the previous, use-once Saturn launch vehicle. Following the `unraveling' is an ensuing `period of crisis' during which the proponents of one set of solutions win; their solutions are implemented. The losers are defeated. They lose their jobs and positions of authority, and the newspapers and other media are either scared into self-censorship or directly censored. The period following is called a `high' by Strauss and Howe, since everything moves along in a fairly predictable fashion, even though it is heavily criticized at the time. As soon as nostalgia has a chance to operate, the period looks good. In the United States, for example, the 1950s are called a `high', yet at the time, schooling was a problem, race was a problem, the economy was a problem, military preparedness was a problem, conformity was a problem, lack of interest by elite college students in major social issues was a problem ... although better than the preceding depression and war, the period did not appear to be much of a high at the time. Fortunately for the U. S., most `highs' have been more or less benign. But a `high' does not have to be benign; it can simply be inadequate. In the mid-Victorian era, for example, it has been suggested that the United Kingdom went though a muted awakening that led to a muddling through of the subsequent unraveling and crisis -- not a disastrous outcome, but not as successful in the long run as people in that one-time Empire might have wished. One might argue that the U. S. post-Civil War high was also inadequate. The Federal government permitted whites to reimpose local racist rule in the south; it permitted major private corporations to establish near-governmental power over many areas; and when government got directly involved, it permitted private corporations to co-opt the government regulatory agencies. It has been said that it took the 1930s to overcome the mistakes of the 1880s. Moreover, I need not remind you that the response in the 1980s to the 1930s took the United States from being the world's biggest creditor to being its biggest debtor. (And you do not have to be a U. S. nationalist to regret the loss of autonomy caused by debt, merely a democrat, with a small `d'.) ---------- Footnotes ---------- (1) `Generations', William Strauss and Neil Howe, 1991, William Morrow and Co., ISBN 0-688-08133-9  File: Choice-and-Constraint.info, Node: Taxes and Regulation, Next: Governance, Prev: Political Necessities, Up: Top 3 Taxes and Regulation ********************** What a government must do ... * Menu: * Tax:: * Needful Government Regulation::  File: Choice-and-Constraint.info, Node: Tax, Next: Needful Government Regulation, Prev: Taxes and Regulation, Up: Taxes and Regulation Tax, Borrow, Scrimp =================== What else can a government do other than tax, borrow, or scrimp? Governments need to spend money. Does a government have any other source of income than by borrowing or by some form of tax, whether it be an income tax, a value added tax, or an inflation? If a government does not want to fund itself, what other choice does it have than to cut spending, to scrimp? Yes, a government can sell property that it owns. But it cannot do so for long, except in unusual situations, such as the U. S. in the 19th century. And that `unusual situation' did not last. I do not see any other options. As I write in 2004, the U. S. government is borrowing vast sums. Much of its borrowing is funded by the Japanese government, which is purchasing U. S. government bonds with Yen created at virtually no cost to the Japanese. This is a good purchase for the Japanese government, since even if the U. S. dollar falls in value, the Japanese government, having paid almost nothing for its Yen, will continue to own a claim against the U. S. taxpayer. However, there may come a time when enough Americans wish to disown others' claims. When that happens, the U. S. government will not be able to borrow. It will have to raise taxes. As George Washington said in his Farewell Address as the first United States president, _... towards the payment of debts there must be revenue; that to have revenue there must be taxes; that no taxes can be devised which are not more or less inconvenient and unpleasant ..._ (See `http://www.yale.edu/lawweb/avalon/washing.htm'.) The simplest way to raise taxes and at the same time to disown others' claims is to run an inflation. To use old-fashioned language, a government `prints money'. The United States arranged its governing institutions such that no one part of government can run an inflation alone. Instead, the Executive branch of the government must borrow dollars from the Federal Reserve. In turn, the Federal Reserve must be willing to lend those dollars. It will only lend if the Legislative branch is willing to pay interest on the borrowings. The interest can, of course, be paid by borrowings, at least for some years. If all three groups agree, then money can be created readily. As in Japan, the cost of creating money is low. In addition to the paper work, it involves adding zeros to a computer account. This is less expensive than in the old days, when governments had to print on paper. But even then, `printing money' was cheap. It goes without saying that inflations, especially large inflations, tend to destroy an economy. I am leaving that aside. When a government, such as the United States Bush Administration increases spending on the military, on drug payments for the elderly, on farm subsidies, and the like, it either must borrow more or raise taxes. There is no alternative. The Bush Administration cut taxes, so it must borrow more. Indeed, both it and others predict the deficits will go on for years. The deficits do not have the look of Keynesian counter-cyclical deficits, since they persist regardless of the state of the economy. (In the past, some argued that the Bush Administration wanted to reduce overall government spending. It was said that the Administration had to increase military spending, but would cut back on other types of spending. However, its increases in drug payments and farm subsidies have disproved that argument. It is not a `tax and spend' administration, as people have complained about some Democratic administrations, but a `borrow and spend' administration.) While a trusted government can borrow for a long time -- it can borrow so long as its anticipated increase in revenues is larger than its anticipated costs -- there may come a time when anticipated costs rise dramatically, or when the government becomes less trusted. Either problem raises the risk premium for borrowing. An increase in the risk premium raises the cost of borrowing. Such an increase often precipitates a disownment. The terms used to describe such an action vary. A newspaper may say that a central bank stopped maintaining a `currency peg'; or it may say that a government declared a `moratorium' on certain loan payments. Regardless of the language, the action is to disown a promise once made.  File: Choice-and-Constraint.info, Node: Needful Government Regulation, Prev: Tax, Up: Taxes and Regulation Needful Government Regulation ============================= Under the right conditions, competitive, free markets succeed. (In this case the word `succeed' means that competitive, free markets efficiently allocate economic resources; there is no claim that they provide security or justice or other non-economic benefit. Non-economic benefits are not an issue in this discussion.) For competitive, free markets to succeed, the situation is key. Among others, three conditions must be met: * that everyone have full knowledge; * that economic activities never enjoy or suffer externalities, and; * that high initial, low incremental cost production never occur (*note High Initial and Low Incremental Cost Production: High Initial.). Of course, we know that these conditions fail: people do not know everything. Cars and other `goods' release exhausts, which are external `bads'. Moreover, steel and flour mills, oil refineries, railroads, radio broadcast systems, and automobile manufacturing are examples of century-old industries that have high initial and low incremental costs. (It cost Henry Ford a great deal of money to build his Rouge River plant, but once built, it cost relative little to manufacture an additional 100 Ford cars each year, up to a maximum.) Products that are dependent on information, such as medicines, and products that are pure information, such as songs and software, are examples of current goods with high initial and low incremental costs. A government can permit a market to allocate goods when people know of risks, when private and social benefits are the same, and when no industries with decreasing costs exist. But when investors seek corporations with limited liability, when they desire laws of bankruptcy, when negative externalities, like thrown-away paper, litter the landscape, when the steel, automobile, and software industries exist, then governments have a job. There are reasons for governments to regulate economies. And, in theory, governments can do the job, or at least enough of the job to help a little. However, in practice, governments often fail. The people in governments act to promote their interests, or the interests of their associates, rather than the interests of their country. Thus, in the latter 19th century in the U. S., railroad companies used the Interstate Commerce Commission to prevent competition among themselves that they felt was dangerous. In the 20th century, major U. S. food companies `captured' the U. S. agency set up to regulate them. While the food they sold became safer, at the same time, they reduced market competition against themselves. So the issue becomes one of governance: what institutions will enable you, a citizen in conjunction with other citizens, to make sure that your agents do as you wish? This is a traditional `agent/principal' question, except that it is applied between politicians and citizens to rather than between employees and their managements or between civil servants and politicians who are in office. You and others citizens are the `principals': you give the orders. In theory, your `agent' acts on your behalf. For example, you may not know why you are feeling ill; but an agent might: in this case, he would be a medical doctor. So you `go to the doctor'. He knows more than you about medicine. (Indeed, the medical market is enabled by a lack of information on your part and the existence of specialized information on the part of others. If you could treat yourself, you would not need to visit a doctor. Similarly, you do not know about your future health or accidents. Consequently, in the U. S., many people who can afford it purchase health insurance.) If, in your opinion as a `principal', your doctor, your `agent', fails to do his job, you switch to another. If you like him, you continue to visit him. By your actions, you provide your agent with information telling him whether his actions are perceived as beneficial to you, the principal. When you cannot switch -- perhaps your doctor is the only doctor in town -- or when you do not know enough to decide when to switch, your actions as a principal will fail. Then your so-called agent will be free to do as he or she likes. He can shirk. She can maximize her income. He can enhance some other personal goal. For example (to talk about a problem a friend of mine, a nurse, just mentioned), she can help a large company convert a fatal condition to a chronic condition that can be maintained through continuing treatment rather than find a cure that implies a one-time treatment. While saving lives is good, the social cost (and private cost to you) of suffering a chronic condition is worse than the benefit, both public and private, of a cure. But the cost to you and to the public may, depending on institutional motivations, be profitable to some. As the Nobel Prize winning economist, Douglass C. North wrote(1) _... institutions basically alter the price individuals pay ..._ Moreover, it turns out that details matter: if citizens do not learn about the failings of their agents, they will not vote them out of office. This means that citizens, or their other agents such as journalists, must not only pay attention, they must not be cowed. Your other agents must tell you what is really going on. If they are cowed in any way, or if you are cowed, they or you will be poodles, not tigers (see `http://www.teak.cc/softfree/software-freedom.html#Poodle-Teams'). There are more details. As Adam Przeworski says in `A Better Democracy, A Better Economy' (`http://bostonreview.mit.edu/BR21.2/Przeworski.html'), _What's needed ... is a clear party system with stable parties, a vigorous opposition, an effective system of checks and balances, a decent level of information that focuses on general economic performance, and non-electoral mechanisms for control over specific policy realms or particular organs of the government._ Without these features, neither a market nor a command economy will be efficient at allocating economic resources. And without some degree of economic efficiency, neither you nor anyone else will be able to afford security, justice, or beauty. In the present world, for example, the current population is too large to be supported by the old technologies of the past. We could, if we chose, now feed everyone on the planet. But we could not even think of doing that if we were limited to the economic efficiency of a century ago. ---------- Footnotes ---------- (1) `Institutions, Institutional Change, and Economic Performance', Douglass C. North, 1990, Cambridge University Press, pp. 6, 22 ISBN 0-521-39416-3 hardback ISBN 0-521-39734-0 paperback  File: Choice-and-Constraint.info, Node: Governance, Next: Economics, Prev: Taxes and Regulation, Up: Top 4 Governance ************ A good civilization requires good governance. * Menu: * Developing Extralegal:: * No World Government::  File: Choice-and-Constraint.info, Node: Developing Extralegal, Next: No World Government, Prev: Governance, Up: Governance Developing and Extralegal ========================= When thinking of `the' economy, the salient territory is the planet, not your country. Moreover, `the' economy is developing, not developed. In addition, most of the people and money involved are outside the formal law. Put another way, `the' relevant economy is global, developing, and extralegal. It is an old habit among Americans and West Europeans, but misleading, to think of the entity as national, developed, and legal. Legality is helpful. For example, when controlling pollution, consider the circumstances in which the pollution producers live: if the plant is located in a territory with a good legal system, then a government regulated market (*note Pollution Market::) makes sense; but if the plant is located among the corrupt, banning makes sense. And if the plant is located among the highly corrupt, the only way for an outsider to protect health may be war. For me, the first part of my insight about the world economy comes from Edward Hugh (`http://www.livingontheplanet.com/bl/archives/000566.html'), who described _... the economics meme of the decade: stop thinking about the global economy as a series of slightly inter-connected national economies, and think of it as one global _developing_ economy with nation state based market imperfections._ Hugh is right. In more detail, he said, _... instead of seeing the global economy as a collection of individual ... economies with a limited degree of global opening ... we should be seeing the economy as one entity, with a whole series of market imperfections where we find the nation states._ (Hugh attributes this notion to Andy Xie of Morgan Stanley, who wrote of _a global economy_ (`http://www.morganstanley.com/GEFdata/digests/20040415-thu.html'). Although Xie did not write of _a global developing economy_, at least not as far as I could find, Xie does write of the world economy as global. Since most of the world is developing, the implication is that the economy is both global and developing.) The second part of the insight comes from Hernando de Soto, a Peruvian, who noted(1) that _... it is legality that is marginal; extralegality has become the norm._ Put together, these notions tell us that we should look at `the economy' as global, developing, and extralegal. This means that the central bank of the United States, the Federal Reserve, is wrong to focus only on U. S. problems. It means that those who seek the rule of a single law for the whole will fail when they focus on the (relatively speaking, for businesses) reliable, quick, and honest legal systems of countries like the United States (see `http://www.teak.cc/softfree/software-freedom.html#Reliable%20Quick%20Honest%20Legal%20System'). Instead, the Federal Reserve should consider how its actions have planetary influence: if you follow this reasoning, then there is a strong argument that recent economic volatility comes as a consequence of actions made for local reasons that have global effect. For example, it is argued that in the early 1990s, the Federal Reserve kept United States' interest rates low to help American banks recover from governmental mismanagement of Savings and Loan institutions. Consequently, large funds traveled to China, where investors hoped for a higher rate of return. That money inspired a Chinese inflation, which the Chinese government eventually crushed. For several years, this wiped out prospects of high rates of return in China. Therefore, funds traveled back to the United States, where they were invested in stocks and property, helping fuel the asset price inflation or `bubble' of the late 1990s. Moreover, rather than expect businessmen to be able to borrow money from and settle disputes with strangers (the great benefit of a reliable, quick, and honest legal system), investors should remember that most entrepreneurs depend on family, clan, friends, or crooks. Their businesses must remain small. On the one hand, this limitation means that local businesses will lose when competing on an equal footing with existing, large `Western' companies. They can never raise enough money to do otherwise. (Note the constraint that the competition be `on an equal footing'. If the small local company pays no taxes, but the large `Western' company does, the small local company may survive, as did Russian retail operations in 2004.) On the other hand, this limitation also means that the overall market, and the potential for investor's profits, will be smaller than hoped. If you take this view seriously, the conclusion is two-fold: first, within developed countries such as the United States, people who work directly or indirectly for the nation, such as those on the Federal Reserve, should focus on the impact of their actions on the planet, as well as on the country. Since the global impacts may echo back upon them, this focus is in their own long term interest. Second, investors should figure how to support de Soto and his programs for adapting formal law to existing social contracts rather than the reverse. This way, investors will be able to make higher returns in the long run. In the short run, investors should note that without a reliable, quick, and honest legal system, only dictatorial empire provides a mechanism for settling disputes among strangers, as was done for so many millennia among the Chinese. The problem with empire is that its decision makers have no incentive towards fairness. They are neither paid and permanent judges nor randomly chosen juries, but managers who will help themselves, their families, and their friends by finding and accepting the largest bribes possible. (They may not call their sources of extra income "bribes", but see them as rightfully earned high salaries or rightful in some other way.) Such a system favors the already rich, which is another way of saying it harms most businessmen, since most are not as rich as those at the top. But the alternative to empire may be difficult. For example, what if people in business think that only members of their families are part of the group with whom they should be honest. Or people with whom they have, over time, developed a deep relationship, with whom they have a `connection'. In this situation outsiders are not salient at all. It is not a question of disagreement or misunderstanding, but of disregard. This issue has nothing to do with the way one should treat a parent or with criminal law; it is about business dispute resolution: how one business settles a dispute with another, the other being, perhaps, distant and its people strangers. In the United States this is the subject of `tort law'. Hernando de Soto is trying to persuade people that land titles enforced through a reliable, quick, and honest legal system are worth while. He started by asking why capitalism has succeeded in countries such as the United States but failed in most of the world? As he says, _The cities of the Third World and the former communist countries are teeming with entrepreneurs. You cannot walk through a Middle Eastern market, hike up to a Latin American village, or climb into a taxicab in Moscow without someone trying to make a deal with you._ But their talents do not translate into riches. The reason capitalism succeeded in the West, de Soto argues, is that in past centuries, countries such as the United States adapted the formal law to existing, actual social contracts. In the U. S., for example, in the 19th century, white squatters were given legal title to land they settled, rather than evicted. Just as it is possible to ban legal sharing of software, it is possible to make other activities so difficult, like building a house legally or starting a business legally, that people become `extralegal'. (De Soto focuses on real estate and other rivalrous assets, not on readily sharable assets like software or speech.) De Soto argues that an `extralegal' life costs 10 % - 15 % of a person's annual income in bribes and such. It also prevents a businessman from improving his business beyond a certain small point. It stops him from competing with larger, `Western' companies. Without a reliable, quick, and honest legal system, a weak person or organization cannot settle a dispute with a stranger. The courts and police provide the strength. But people seek them only if they perceive them as friendly (or friendly `enough'). In order for everyone to feel safe in approaching them, they must therefore be fair. Otherwise, they are perceived as a tool for one group. Without a good legal system, you must depend on your family, clan, friends, or a criminal gang. For small groups, such help succeeds. But you cannot obtain capital from strangers this way. Bankers who are strangers to you will not lend. They do not know you or know how to track you down if you do not pay. If you default, they cannot find your collateral for the loan. They fear that you will default and they will not be able to recover their money. Successful banks in countries such as Bangladesh often make loans only to groups of women who all live in the same village. These are people who will not run away and who are unlikely to default for social reasons. The problem, as de Soto says, is that _... property law and titles imposed without reference to existing social contracts continually fail: They lack legitimacy._ Indeed, _... it is not your own mind that gives you certain exclusive rights over a specific asset, but other minds thinking about your rights in the same way you do._ ---------- Footnotes ---------- (1) `The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else', by Hernando de Soto, 2000, Basic Books, New York, ISBN 0-465-01614-6, (See `http://www.ild.org.pe/tmoc/cp1-en.htm'.)  File: Choice-and-Constraint.info, Node: No World Government, Prev: Developing Extralegal, Up: Governance No World Government =================== I do not think a `world government' is possible whether or not it would be desirable. But governments covering larger territories are possible now, but only if they provide several sources of power. But first why is the notion of `world government' now dead? Two generations ago, `good government' people (`goo-goos' they were called by their enemies), liberals of all kinds, and others, favored a `world government'. They saw that the United States formed out of previously independent states. In Europe they saw previous enemies coming together to form a common market. By a parallel reasoning, they figured that the United States, the Union of Soviet Socialist Republics, France, and Egypt could all join together in a powerful and unified federation. My father, I remember, told me that the different countries that sent diplomats to the United Nations were no more different than the original thirteen colonies that came together to form the United States. The U. S. had slave states in the south and free states in the north; it had politically powerful men who made their living on agriculture and it had men of commerce. His belief was that if the various parts of the U. S. could come together voluntarily, then in the modern world, everyone could come together. Moreover, he believed this could happen peacefully. Nowadays, people think differently. First, few think the U. S. or China, to take two examples, would both peacefully give up their sovereignty. Secondly, I have not recently heard either modern U. S. Liberals or Democrats favor a world government. Certainly, none have said that they favor a world government under a politician such as George W. Bush. Indeed, a good many Liberals and Democrats in the U. S. argue that the U. S. should not conduct wars abroad, and that the U. S. war in Iraq (in 2004) is a mistake. If implemented, an anti-war policy would prevent the U. S. from taking part in military operations designed to make a `Federated World Government' an effective trans-national sovereign rather than a pretend sovereign. It means that the U. S. could go no further than support a permanent diplomatic conference, a `talking shop'. At the moment, as far as I can see, the only people in the U. S. arguing for governmentally-funded coercive action on a world-wide scale are people on the political right. They are dismissive of non-U. S. influence, which is to say, they are against a new government that reduces U. S. power. Consequently, both the Bush administration in the U. S. and its domestic opposition are against a world government. That tends to kill the notion. But a different proposal pops up: not a world government, but a `coalition of the willing' or a `union of democratic states'. The idea here is to replicate the experiences of the U. S. and the EU in their founding. The goal is to bring together countries that want to join each other, and are willing to surrender some of their sovereignty in the process. I do not think that people in the United States' Bush Administration envisage a new organization that would reduce U. S. sovereignty. They speak of acting unilaterally. But other U. S. Republicans might figure a new form of government would help them. (Some of these people, like James Webb, President Reagan's Secretary of the Navy, have referred to the U. S. invasion of Iraq as _the greatest strategic blunder in modern memory_ (see `http://www.usatoday.com/news/opinion/editorials/2004-02-18-veterans-edit_x.htm'). Others are fearful of the Bush Administration's deficits. Even when deficits profit them in the short term, they look at Federal government deficits that are projected to extend forever, and fear that the country will become weak in a generation or two. They may figure that they should embrace an organization that might help them in the long run.) In *Note A Larger Federation: Larger Federation, we can see a solution that might reduce the chance of serious war.  File: Choice-and-Constraint.info, Node: Economics, Next: Self-Replicating Systems, Prev: Governance, Up: Top 5 Economics *********** Do large fortunes tend to grow? Are competitive, free markets unstable? I explore these questions through an analog: the beginnings of a science fiction story in which you explore an island full of tentacled entities whose ecological rules match those of our business society. Then I discuss early accounting and how double entry bookkeeping served to increase control. But traditional accounting fails under certain circumstances. And if you enjoy a reliable, quick, and honest legal system, then a market for pollutants is better than a ban on them. In any event, we live in a world in which more and more products come from economic processes with a high initial but low incremental cost. This has dramatic implications. * Menu: * Tentacle City:: * Pollution Market:: * Middle Ages Accounting:: * Double Entry Book Keeping:: * High Initial::  File: Choice-and-Constraint.info, Node: Tentacle City, Next: Pollution Market, Prev: Economics, Up: Economics Tentacle City [a fable] ======================= Far away, at a distant time ... You are exploring a strange planet. A hundred tentacled entities live on an island. The other members of the expedition persist on calling these entities `tents'. You came up with a much nicer name, but you have since forgotten it yourself. The `tents' come in all different sizes, from small to very large. As expedition ecologist, you have found that these `tents' eat various resources around them, more during better conditions, less during poorer conditions. They also eat each other; indeed, some find others delicious. (This is endocannibalism, a fairly rare phenomenon on account of the risk of picking up pre-adapted diseases from the eaten entity.) `Tents' can grow bigger or smaller. Like many bacteria or cancer cells, they are potentially immortal. They die by starvation or when they are eaten by another. Unlike humans, they do not have any `natural' age of death. Conditions on the island vary in a quasi-predictable way. There is little to eat during bad seasons and much to eat during good seasons. (You complain about the way language is used since a `good season' is defined as one with lots of food, but no one else pays attention.) Seasons come and go, with considerable but not utter regularity. Seasons vary in their severity; some bad seasons are worse than others. Also, some parts of the island almost always provide lots of food, but other parts are barren even during the best seasons. In some respects, the landscape is not unlike Scotland. You observe that larger `tents' can survive longer without eating than smaller `tents'. And some `tents', regardless of their size, are better at finding food than others. But none can turn bare rock into a feast. New `tents' appear every so often. These `new births' appear in various sizes although most are small. None appear as large as some of the old `tents'. Now for the economics, which in this analog is modelled by ecology. * Menu: * Large Tents:: * Size:: * New Births:: * Growth:: * Economic Political Implications::  File: Choice-and-Constraint.info, Node: Large Tents, Next: Size, Prev: Tentacle City, Up: Tentacle City Will large `tents' will always do better than small `tents'? ------------------------------------------------------------ Let us presume that the `tents' possess a minimum viable metabolic rate plus a metabolic rate based on mass. For a business, a minimum metabolic rate makes sense. To survive, a business must produce a good or service, find customers, and sell to them. Even if the business does not sell any goods or services, perhaps because of a depression -- the equivalent of our tentacled entities' starving during a bad season -- the business must support at least a few people to hold it together. Or else it will vanish. In your studies, you find that a tentacled creature has a minimum viable mass is one kilogram and loses one kilogram per week if it does not eat anything. (Mostly, when starving, a tent hibernates. But it does wake up every so often to see whether conditions have grown better.) In addition, a tent needs one-half kilogram per week for every kilogram it masses at the beginning of that week. If it does not eat this one-half kilogram per week, it loses weight. Met_Rate = 1 + 0.5 * Mass Thus, at the end of one week, a starving tent that starts out at 100 kilograms consumes (1 + 0.5 * 100) = 51kg: the one kilogram that is its minimum metabolic rate plus the one-half kilogram per week for every kilogram is masses initially. Consequently, when it does not eat anything during the week, it ends up weighing 49kg.  File: Choice-and-Constraint.info, Node: Size, Next: New Births, Prev: Large Tents, Up: Tentacle City Does Size Matter? ----------------- You find a colony of 50 `tents' of 100kg each and 50 of 10kg each. They all follow the metabolism rate described above. Bad times occur. This is what happens to the individuals in your colony: mass of each little `tent' mass of each big `tent' --------------------------------------------------------------------------- Week one: 10 100 Week two: 4 49 Week three: 1 23.5 Week four: dead 10.75 At the beginning of week five, you find that all the `little tents' have died, but that 50 `big tents' are still alive. You rediscover the old proverb, that when starving, those with more fat live longer.  File: Choice-and-Constraint.info, Node: New Births, Next: Growth, Prev: Size, Up: Tentacle City New Births ---------- Every so often new `tents' are born. Most start out small, with many one kilogram `children' and a few ten kilogram children. There are no 100kg children. Food turns scarce in yet another season. All the youngsters who mass less than 10kg die of starvation within a month. Fortunately, the bad times are followed by good times. During the period of plenty, children grow larger.  File: Choice-and-Constraint.info, Node: Growth, Next: Economic Political Implications, Prev: New Births, Up: Tentacle City Growth ------ A colleague notes that in times of plenty, after eating enough to grow at their basic metabolic rate, `tents' eat enough to grow at a rate proportional to their mass. The basic metabolic rate requires eating one kilogram plus eating one-half kilogram per week for every kilogram it masses at the beginning of that week. Met_Rate = 1 + 0.5 * Mass The faster growth rate is this rate plus eating enough such that a `tent' can gain 10% of its mass per week by eating 20% of its mass per week. The new equation is Met_Rate = 1 + 0.5 * Mass + 0.2 * Mass (which is simply `Met_Rate = 1 + 0.7 * Mass' ). In other words, it is harder to grow than to survive. (Your colleague is beautiful and you might have fallen in love but for circumstances. Of course, I don't know your sex or your culture, so I don't know whether a romance could occur and if it did, any details. (Indeed, I don't even know your species, although a xenobiologist might infer that your home sun is a K type star from learning that your multi-faceted `bug' eyes are most sensitive at a nearly 800nm wavelength rather than at the 560nm or so wavelength characteristic of human color vision(1).) But times of plenty are followed by times of scarcity. Are smaller `tents' more adaptable than larger `tents'? Are they more able to survive a relative short period of scarcity? Or do big `tents' enjoy so much extra fat that they can survive the downturns better? Worse, what happens when a large `tent' discovers that it can eat a small `tent' and then also eat the smaller entity's former food? At least you and your colleague can theorize together: Suppose a big `tent' can easily eat a much smaller `tent', but has a more difficult time catching and eating a similar sized `tent'. In this case, more or less similar sized `tents' will persist. Few will eat each other. But smaller `tents' will be eaten. The number of smaller `tents' will depend (among other factors) on the birth rate and the time which it takes a larger `tent' to digest a meal. If by some chance or other -- perhaps the `tent' grew up in a fertile valley or it figured out how to eat more efficiently -- one `tent' becomes bigger than all the others, then it can devour everyone else. The other `tents' will die. The only survivors will be those who have not yet been eaten, either because they are too far away or because the larger one has not gotten to them. Either one big `tent' survives, or a few. Small `tents' come into being; but all get eaten eventually. ---------- Footnotes ---------- (1) `World-Building', Stephen L. Gillett, 1996, Science Fiction Writing Series of Writer's Digest Books, ISBN 0-89879-707-1  File: Choice-and-Constraint.info, Node: Economic Political Implications, Prev: Growth, Up: Tentacle City Economic and Political Implications ----------------------------------- Our bug-eyed monsters' fictional expedition is actually an attempt to simulate what happens with corporations in a capitalistic society such as our own. I hope that most of you agree that the `ecological rules' I postulated are more or less accurate representations of the circumstances in which businesses find themselves. * `Tents' must eat some food every week, and more if they are bigger. Businesses have fixed and variable costs. * Small `tents' starve to death in a famine. Weak businesses go bankrupt in downturns. * `Tents' enjoy lots of food during times of plenty. Businesses are more likely to survive in good times than bad. * Some `tents' find that a nearby volcano erupted, and not only did not kill them, but fertilized the soil. Some businesses find themselves in a newly developing industry that offers many opportunities. * Large `tents' can eat smaller ones, but may take some time to digest their food. Bigger businesses can take over smaller businesses, but may take a while to make good use of their acquisitions. (If you do not accept the accuracy of these rules, I would like to hear of `rules' you think are realistic, expressed as descriptions of the circumstances in which these tentacled beings find themselves.) Finally, * You find that your colleague is partially wrong in thinking that all sized `tents' grow at the same rate if they feed enough. Often, small businesses grow faster than big ones, but some big businesses figure out how to grow fast even though they are big. This latter issue is perhaps the most controversial question in politics and economics: I have heard some people argue that big companies can never be as efficient as small companies, because big companies are insufficiently agile. But others say that big companies have more resources, and so can do more. As far as I can see, optimal size depends on circumstance. For example, Christensen and Raynor(1) claim that large companies (*note Order Law Justice Democracy::) do better with what they call `sustainable' technological development, because they can afford the resources. But they also say that small companies do better with `disruptive' innovations. Big companies lack senior managers who have an interest in the initial markets of a `disruptive' innovation because those markets must be small. Worse, a big company that is successful has created a company culture that filters out ideas that might lead to small markets because the company needs big markets. Success can only come to a big company that creates a new part of itself to avoid the processes and values that benefit the big company elsewhere. This action is like a large `tent' budding a new, small `tent' that goes off to discover whether it can find any food growing on a recently weathered lava flow. The political implication of this exercise is that wise anti-trust actions against both monopoly and oligopoly are required (*note Needful Government Regulation::) even when there are few or no `barriers to entry'. A large business or a group of large businesses may keep on growing (*note High Initial and Low Incremental Cost Production: High Initial.). I speak of `wise' action because there are times when sustainable innovation requires the large resources available to a single or to several large companies. But there are other times when one or a few large companies should be broken up into smaller entities so their managers adopt different goals and different processes. Many say `the market will take care of it', but that is not true in all situations. ---------- Footnotes ---------- (1) `The Innovator's Solution: Creating and Sustaining Successful Growth', Clayton M. Christensen and Michael E. Raynor, 2003, Harvard Business School Press, ISBN 1578518520  File: Choice-and-Constraint.info, Node: Pollution Market, Next: Middle Ages Accounting, Prev: Tentacle City, Up: Economics A Market for Pollutants ======================= The Nobel Price winning economist, Douglass C. North(1), made the point that _In a world of uncertainty, no one knows the correct answer to the problems we confront and no one therefore can, in effect, maximize profits. The society that permits the maximum generation of trials will be most likely to solve problems through time ..._ This notion points out how to organize society more effectively. To a friend, I once wrote, On the other hand, a market is more efficient than a ban, but more complex to administer. ... To which my friend asked, _Is the first part "a market is more efficient than a ban" a statement of faith? I would hope so, since it is hardly provable._ I responded in turn by saying, It is not a statement of faith, but I did leave out the arguments for it. Consider the problem posed by people who try to poison me and others by releasing pollutants into the air when they generate electricity. If our government decides that this sort of activity should be reduced, it has two choices: * `Ban polluting emissions.' This means telling a company that its emissions at its smokestack must be less than some value, or else the company will pay a fine. (People often think that a ban means `zero output' of what is banned, but that is not what is meant in practice, which is to reduce an output below a certain level.) A ban also means organizing a policing unit to check smokestack outputs and/or providing outsiders with a legally permitted mechanism to check companies' actions and take them to court if they violate the ban. * `Organize a market' to cause the various companies involved in electricity production to internalize the cost of pollution; and to penalize them for producing pollution. This means deciding on the total amount of the pollutant that will be permitted into the environment and setting up the legal environment that enables people and companies to write contracts regarding the release of this pollutant. Banning is simpler than creating a market. It is simpler administratively and simpler in terms of how people think and perceive (*note Scales and Structures::). A ban is categorical. It is the simplest of the Guttman scales. A market requires thinking in terms of a ratio scale, which is the most complex scale. A market is difficult to create: to succeed, a country needs an administrative system that is not excessively captured by the companies the administration is supposed to regulate (*note Needful Government Regulation::). In addition, it needs a reliable, quick, and honest legal system (see `http://www.teak.cc/softfree/software-freedom.html#Reliable%20Quick%20Honest%20Legal%20System'). Otherwise, the process will become a source for bribes and not do the country any good. Suppose an electric power company owns four power plants, all burning coal: * Two of the power plants are old and can produce 500MW each of electricity and release 100tonnes of ash for every N kwh produced. * One power plant is moderately new and can produce 1000MW of electricity and releases 50tonnes of ash for every N kwh produced. * One power plant is new and can produce 1000MW of electricity and releases 20tonnes of ash for every N kwh produced. The average demand for electricity from these plants is 2250MW; the peak is 2700MW. Consider two ways of paying for the reduction in pollution. Please bear in mind that the consumer, namely you, me, and others, will end up paying. I have an interest in a lower electricity bill! The poorer you are, the greater the interest. The alternatives are: * *Ban* pollution; for example, have a government agency state that the permitted pollution level for each plant be under 40tonnes/N kwh. This means that three plants need to be retrofitted: the two old plants and the middle-aged one. * Create a pollution *market* by having a government agency state a total amount of permitted pollution that (as it happens) leads to exactly the same number of tonnes of pollutant entering the air per year as in the ban. This means that the electricity producer pays some cost when operating the middle-aged plant without having retrofitted it and a considerable cost when operating the old plants without having retrofitted them. The question is, what is the cost to electricity buyers, to gain the same low level of pollution production? The *banning technique* means that three plants will have to be retrofitted. The *market technique* means, most likely, that the middle-aged plant and one of the old plants will be retrofitted. The new plant produces a low level of pollution and will sell its `pollution credits' to the other old plant. And that old plant will be turned off when power demand is below peak. The electricity customer pays less to reach the same level of pollutant output. Generally speaking, the second method, the market technique, costs less for a given level of pollution, presuming a good government. The reason is that different plants are built with different technologies and have different ab-initio pollution outputs and different costs of retrofitting. (As a rule of thumb, for the same reduction in pollution, older plants pollute more and cost more to retrofit than newer plants, per unit of electricity produced. New plants, for example, use different kinds of burner than old plants and build ash collectors into their exhaust systems.) The same argument applies to `intrinsically polluting' operations, such as burning fossil hydro-carbon for fuel. If two plants are equally efficient, then the one burning natural gas will release less carbon dioxide than the one burning coal, per unit of electricity output. So the idea is to tax carbon, to encourage a switch to fuels that use less or no carbon. (I have heard it suggested that in the U. S., an effective `carbon tax' would increase the cost of auto gasoline by 10 or 15 cents per gallon. I have no idea if these numbers are good suggestions, but such numbers are what the controversy is about.) If the contrast is between two 1000MW plants, one burning coal and the other using uranium, the latter will possibly release a catastrophic amount of radiation, but the former will continually release low levels of radiation in excess of what the nuclear plant releases. (There is uranium dust in the ash that comes out of the smokestacks of coal-fired power plants. I have been told that coal-fired power plants in the United States have been exempted from the radiation release regulations that nuclear power plants must follow; otherwise, coal-fired power plants would be shut down on account of their low level radiation releases. An acquaintance, a public health specialist, once told me she researched just how much radiation is released and could not get good figures. I do not know if the problem has been exaggerated by nuclear power plant operators or downplayed by those who own both nuclear and coal-fired plants. As far as I know, natural gas plants do not release radiation; they do not have much if any radon in the gas, and no dust.) The alternative to a carbon tax is to ban fuels that contain carbon, or ban types of fuel. Thus coal might be banned, but natural gas permitted. However, such a ban immediately wastes the sunk investment into coal burning plants and means that natural gas pipelines must be built to areas which have readily available coal. The idea behind a differential tax is that it discourages new investment in the more expensive fuel and encourages more investment in and full use of plants that use the less expensive fuel. Since I want both less pollution and lower electricity bills, I prefer the more efficient method. This is why I favor carbon taxes and other such mechanisms that cause companies to internalize the costs of what economists call `external goods' and to penalize the companies for producing outputs that hurt me and others. It goes without saying that as courts and government agencies become more corrupt, the market method becomes less efficient and the banning method better. If a government and its courts becomes even more corrupt, then nothing can be done, no method is efficient, and we are doomed. ---------- Footnotes ---------- (1) `Institutions, Institutional Change, and Economic Performance', Douglass C. North, 1990, Cambridge University Press, pp. 6, 22 ISBN 0-521-39416-3 hardback ISBN 0-521-39734-0 paperback  File: Choice-and-Constraint.info, Node: Middle Ages Accounting, Next: Double Entry Book Keeping, Prev: Pollution Market, Up: Economics Accounting in the Middle Ages ============================= I am not an accountant, but some years ago I read a history of early accounting(1). What struck me was that the metaphor that led to double entry book keeping was _balance_, and that from an outsider's point of view, it was hard to find profit. All in all, for double entry book keeping, three new ways of thinking must emerge, one of which is balance. A second is that humans can create entities separate from themselves; they must be able to create golems, as it were. A third is that humans must think of time as linear. In the Middle Ages, an enterprise started when a few people took a chance to support it. Perhaps, also a usurer would loan it money. The difference between the investors and the usurer is that the usurer was supposed to be paid regardless of the success of the venture, but only a fixed amount. The investors might lose -- pirates or a government might seize a cargo, or a storm destroy it -- or they might gain hugely. The venture was seen as an entity separate from those who put money into it. This was a key notion. In particular, the owners were not the entity. Another key notion was balance; that idea was possible because no one yet thought in negative numbers. A venture possesses assets, such as the ship to carry the goods, the gold to buy the silk, or the silk itself (or, more prosaically, the silver to purchase the grain). The people who put money into it are either the investors or the usurers. Investors own equity; the usurers are a liability. Thus, the basic accounting equation: _the assets of an enterprise have the same value as the money put in by usurers and investors._ Or, in modern and, for most people, more boring language; assets = liabilities + equity An increase in liabilities means a bigger loan from a usurer who trusts that he will be paid back. The usurer is a creditor, a word that comes from the Latin, `trusts'. An increase in equity means a bigger investment from an owner. Before the invention of negative numbers, the value of the enterprise was seen as a positive number. Consequently, an increase in what the business owned, an increase in it liabilities or equity, was seen as an increase in assets. And indeed, the more put into the business, the more are its assets. People could understand that the value of an enterprise equaled what it owes. The amount owed was a definite debt. The amount received was also definite. Indeed, if everyone were honest, the two had to equal. The metaphor is like that of an old fashioned balance scale: on the right hand side is put the weight of the liabilities and equity, all definite. On the left hand side is put the weight of assets; also definite. Unless someone steals, the two must balance. Moreover, balance continues on a smaller scale. During a venture, it looks as if the overall total of assets for an enterprise does not change. The composition changes, but if there is no theft, balance remains. Suppose you exchange gold for silk. The amount of cargo increases. The venture gains a load of silk. The amount you must pay the seller also increases (from nothing to the value of the shipment). The values of both balance. In modern thought, we would say that as a result of your payment, the value of cash decreases, which is a negative number. At the same time, the value of your cargo increases by a positive amount. And the absolute value of the negative number is equal to the absolute value of the positive number. This way of thinking also works, but it is more abstract than the notion of a definite debt balancing a definite gain. Suppose your voyage is a success. You come home and sell your silk. Now the amount of gold you have increases; but its value equals the value of the silk you must give your buyers. Another balance. Dissolve the venture: everyone receives his money, including the usurer. What is left over goes to the equity investors. The exact value of the enterprise is divided up among those who are owed money from it. Nothing is stolen. Again a balance. Everything balances. A careless Medieval thinker, more used to brigands and predatory barons who steal, may well wonder how profit comes from balance? To understand how profit and loss occur, you must think over time. This is a third key notion. Not only must you think of what you pay for the silk here and now, but you must learn what the merchant paid months ago, and what it cost to ship it. Put another way, rather than think of time as circular, or a spiral, a round of seasons, months, and religious celebrations, you must think of time as linear. You must think of the Christmas last year as being very different from the Christmas of this year, even though both are similar religious celebrations of the birth of your savior. (And which is more important for you, being saved for ever and ever, or a little silk?) ---------- Footnotes ---------- (1) If I remember rightly, the history ended before 1494. That is the year when Luca Pacioli, the `Father of Accounting', published his famous work. Or perhaps I did not read more. I cannot remember the title or author of the history, only that it was published a long time ago. (See `http://acct.tamu.edu/smith/ethics/pacioli.htm'.)  File: Choice-and-Constraint.info, Node: Double Entry Book Keeping, Next: High Initial, Prev: Middle Ages Accounting, Up: Economics Double Entry Book Keeping ========================= In the beginning, double entry book keeping had two purposes: * to provide information, a description of an activity; * to provide an agent-principal mechanism whereby a principal gains more control over an agent (but not much). As an informational tool, double entry book keeping depended on the ability to compare apples and oranges (*note Guttman Scales and the Structures of Social Life: Scales and Structures.) Put another way, a Medieval trader exchanged gold coins for silk. The gold and silk were compared in one way, by their monetary value, but not in others. (It is famously impossible to keep warm with gold, but you can make warm socks with silk.) Double entry book keeping records only the `internal costs' of a business. It does not record `external costs', such as pollution. Such costs are invisible to a business. The only way to make them visible is for a government to force external costs inwards successfully (*note Needful Government Regulation::). When governments are weak, or when pollution is so limited it can be ignored, businesses do not pay for external costs. In effect, they receive a subsidy from the people who suffer. As an agent-principal mechanism, accounting enabled a principal to check whether his agent was doing as previously agreed. In the Middle Ages, the principal was usually an older man or group of men who put up the money for a venture. The agent was usually a relative or a young man hoping to marry a daughter or niece. Because of the familial connection, or because of hope, no one expected the agent to act too corruptly; the goal was to keep his corruption or his stupidity in line.  File: Choice-and-Constraint.info, Node: High Initial, Prev: Double Entry Book Keeping, Up: Economics High Initial, Low Incremental Cost Production ============================================= Contemporary drug development and production is an example of an activity with a high initial cost and a low incremental cost. Law enforcement and war are the same. Interestingly, many years ago, they became government actions. Think of ancient China. It covered an area the size of Europe. The most powerful state beat the others and established a unified government. The initial cost of creating an army was high; but after that, the cost of conquering one more city was low (for the government with the powerful army). In Europe, however, mountain ranges and the like made it too expensive to conquer the whole continent, until modern technology was developed. The Romans, Charlemagne, and Napoleon each conquered only a part. Over the past century, in `private' industry, steel, flour milling, oil refining, railroads, radio broadcasting, and automobile building had the same economics. A century ago, it cost a great deal of money to build a steel works. But once built, it could produce steel at a low incremental cost (up to a maximum). The same with railroads. It cost a great deal to build a railroad from New York to Chicago; but after it was built, the additional cost of running 100 extra trains per year was very little, relatively speaking (up to a maximum that was seldom achieved). That is why, in the 1880s, American railroad companies asked for and the U. S. government created the `Interstate Commerce Commission' to regulate railroads. Previous requests, by less powerful groups, had not brought on U. S. government regulation. The ICC prevented price wars that would overly hurt railroads. As a secondary effect, the ICC also reduced railroad companies' price gouging of others. This very popular political side effect is why many still think of government regulation as an anti-capitalist action. Instead, it is an anti-competitive market action that prevents an oligopoly market from becoming a monopoly -- that prevents an economy with a few separate organizations from being overwhelmed by one. In the U. S., steel, flour milling, and auto manufacturing industries developed into oligopolies. They used oligopolistic pricing techniques to keep prices high enough for them. (I was taught these price setting techniques in university. The methods are legal. Amazingly, during the `electricity crisis' in California a few years ago some laws actually were broken. There was no need. The 1995 ban on long term contracts -- cleverly called `deregulation' -- meant that high prices and high profits could be made legally. Only the most greedy would bother to break the law; yet that happened!) In Europe before the EU, markets were smaller. So monopolies were created instead of oligopolies. The monopoly format was different in different countries: in the UK, `associations' (or whatever the legal phrase was) became important; in Germany, banks. (Chandler describes this in his book `Scale and Scope: The Dynamics of Industrial Capitalism'(1).) In Russia under Lenin, the state took over. No one called the result `capitalism', except for those who referred to it as `state capitalism'. In the Soviet Union, the `leading industrial sectors' included steel, coal, railroads, and electricity. Since education, law, and government were not considered industries, they could not be leading. They had to remain backward: and people stayed ignorant, courts remained unjust, the government corrupt. In the contemporary world, drug development is expensive; but the cost of manufacturing incremental doses is low. On the one hand, you can fund drug development by maintaining a government enforced high price for incremental doses. This high price pays for, among many things, development costs. In the United States, the doses are paid for directly, or very often, by insurance companies or by the taxes (direct or indirect) that pay for non-insured people to go to emergency rooms. And, it goes without saying, some people do not purchase these drugs; instead, they suffer and die. This is the current method in the U. S.. On the second hand, you can impose an `official committee' to decide what to do. This method was used in the Soviet Union. It failed. On the third hand (this is a science fiction reference to a story about relations with aliens who suffer a lack of environmental resources; also, it is a reference to the Christian Trinity; and, of course, it is a reference to the Trinity nuclear bomb test. Nuclear weapons are an example of a high initial cost/low incremental cost weapon): you can fund drug development by having a government tax people and then pay the proceeds to large numbers of independent organizations -- to universities, for example. (In such circumstances, pharmaceutical companies would generate revenue by making and selling drugs, as `generic' drug manufacturers now do.) When funding large numbers of independent organizations, a government needs many different funding agencies. Instead of one or five or ten `official committees', it needs more. With too few `official committees', the process fails. With lots of different `official committees', many different experiments are funded. Some may provide useful drugs. I quoted Douglass C. North earlier. He said that in _... a world of uncertainty, no one knows the correct answer to the problems we confront ..._. This is a key notion. This is why it is useful to encourage research, even if you are a stick-in-the-mud. Moreover, if you do not encourage learning, a necessary basis for research, and if you do not accommodate eccentricity, you will not gain as much as you might from research. As a consequence, you may suffer from a foreigner. Governmental funding is not always needed. In the U. S., Europe, Japan, and in some other parts of the world, we are rich enough that some people can produce a certain kind of high initial cost product at relatively low costs to other funders. Aristotle talked about this form of production. In Aristotle's day, the rich produced plays and government; they depended on slaves. That is why Aristotle said slavery was a good idea until `the shuttle could weave by itself' -- which modern technology enables. More precisely, according to Benjamin Jowett's 1885 translation of `Aristotle's Politics' (http://www.mdx.ac.uk/www/study/xari.htm#1253b23), Aristotle said: _... if every instrument could accomplish its own work, obeying or anticipating the will of others, like the statues of Daedalus, or the tripods of Hephaestus, which, says the poet,_ _of their own accord entered the assembly of the Gods;_ _if, in like manner, the shuttle would weave and the plectrum touch the lyre without a hand to guide them, chief workmen would not want servants, nor masters slaves._ Software is a high initial cost product. Unlike steel factories or drug developments, it can be created by people who are relatively rich -- the practice is called `commons-based peer-production'(2) -- without requiring that others fund the extremely high costs of a steel works or a potential drug's clinical tests. Software enjoys low incremental costs. Around the world, a CD manufactured with information on it, transported and marketed, sells for the local currency equivalent of U. S.$1.50 - U. S.$2.50 in a free and competitive market. A higher price tells us that the country's law enforcement is effective at maintaining a higher price. `Generic drugs' are less expensive than `patented' drugs. They do not have government-enforced high prices and their incremental production cost is low. Many different manufacturing organizations produce them. Generic drugs are not sold in a monopoly or oligopoly capitalism market, but in a competitive, free capitalism market. (Incidentally, I talked of manufacturing additional units of software that is sold on CDs. Note how cheap it is to manufacture additional units of software on a machine you own -- to manufacture additional units when you, to use Marx's phrase, `own the means of production'. Indeed, the cost is so low that we do not use the word `manufacturing'. We use the word copying. But reduplicating -- copying -- is what happens in manufacturing.) There has been a huge change in technology over the past 200 years. In the past, law and war were the best examples of high initial and low incremental cost activities. Now many important activities are like them. Over the next generation, one struggle will be over the kind of pricing that is used for the products of these technologies. ---------- Footnotes ---------- (1) `Scale and Scope: The Dynamics of Industrial Capitalism', Alfred D Chandler Jr, 1990, Harvard University Press, ISBN 0-674-78944-6 (2) `Software Freedom: An Introduction' (see `http://www.teak.cc/softfree/software-freedom.html#Software%20Dangers')  File: Choice-and-Constraint.info, Node: Self-Replicating Systems, Next: Words, Prev: Economics, Up: Top 6 The Nature of Self-Replicating Systems **************************************** Countries, economies, and societies all continue over time; they replicate themselves, more or less. In this sense, they are like species and ecologies. Since it is hard to think dispassionately about one's own society or species, it behooves us to use an analog that illuminates relevant constraints and choices. Von Neumann Machines serve that purpose. A von Neumann Machine is a self-replicating device. *[* _I always think of a von Neumann Machine as a self-replicating device. Von Neumann himself called such a machine a "Universal Constructor". Some people use the phrase to refer to computing machines that use a single storage structure to hold both the set of instructions on how to perform the computation and the data required or generated by the computation. I call this the von Neumann architecture._ (See `http://en.wikipedia.org/wiki/Von_Neumann_machine' and `http://en.wikipedia.org/wiki/Von_Neumann_architecture'.) *]* For any kind of von Neumann machine, a basic question is how big a portion of itself can it reproduce? Can it reproduce itself entirely, or only partly? The reproduced fraction is the system's `closure'. A closed system reproduces all it parts. An open system fails to fabricate some of itself. For an open system to continue, some parts must be imported from outside. A farm or factory need not be fully self-reliant but can be partly open. On the other hand, a complete natural ecology can only be closed. Incomplete closure makes sense when efficiency becomes a concern. Can you afford to do all? Even if possible, the cost of building the first fully closed von Neumann machine may be too much. According to a 1980 NASA study, simple, contemporary bacteria have a complexity of about 10 million bits (see `http://www.zyvex.com/nanotech/selfRepNASA.html'). The NASA study proposed a device to operate on the moon. In that environment, the lunar von Neumann machine might require 10 -- 150 gigabytes of `genome' and even then it might not be fully self-replicating; it might lack `parts closure'. Since humans must build the first von Neumann machine, efficiency and cost are issues. It is no good building a von Neumann machine that makes worse use of your land than existing farms and factories. And you cannot build one you cannot afford. * Menu: * von Neumann Machines:: * Unbreakable:: * Five Laws:: * Differing Virtues:: * Societies as Von Neumann Machines:: * Species not an Organism::  File: Choice-and-Constraint.info, Node: von Neumann Machines, Next: Unbreakable, Prev: Self-Replicating Systems, Up: Self-Replicating Systems Von Neumann Machines ==================== In the late 1940s, John von Neumann first suggested a modern, robotic self-replicator. Moreover, he calculated how much information a self-reproducing entity would require. This meant figuring out what parts a machine needs if it is to reproduce. He estimated that the minimal size of a self-replicator's `blueprints' or `genome' is 25 - 150 kilobytes. By extending von Neumann's notion metaphorically, we can think more readily about societies, economies, ecologies, and the origins of life. Economies, for example, reproduce themselves; in that sense, they are von Neumann machines (*note Societies as Von Neumann Machines::). But people work in economies; economies do not reproduce without human help. As far as I know, there are no general manufacturing robots that can be manufactured purely by self-directed robots using standard, `regular sized' industrial components. My sense, which may be wrong, is that current investors, whether government or private, would have to spend a huge sum to build the first instance of such a manufacturing system. We humans are entities that consume `modules' that are not identical -- some foods taste differently than others. Reproduction from large, non-identical, breakable `components' is difficult. That is what a von Neumann machine that works with `regular sized' components will have to do. For example, it will mine ore that is an ill-defined mixture. Very small, `nano-sized' von Neumann machines are not yet possible to build. If built, these as-yet imaginary, `nanotech self-assemblers' would put together atoms. These are small, identical, unbreakable components (*note Unbreakable::). Molecules are not identical because the atoms of the same kind that make them up may have different weights. For example, carbon atoms come in two different stable weights. Not counting the different weights of oxygen, the carbon dioxide that plants inhale comes in four different weights. Plants prefer the lighter carbon. However, small molecules are often similar, or similar enough, and are made from unbreakable atoms, so they are important. Large molecules may not only weight differently, but fold differently. * Menu: * von Neumann aspects::  File: Choice-and-Constraint.info, Node: von Neumann aspects, Prev: von Neumann Machines, Up: von Neumann Machines Aspects of a von Neumann machine -------------------------------- Like any living entity, a von Neumann machine must *eat*, which means it must gather energy and other inputs. In order to eat and live, a von Neumann machine must be able distinguish useful inputs from poisons; it must be able to *see* (or smell, taste, feel, or hear) potential food. This means the machine not only needs appropriate sensors, but the ability to understand and act upon the information. It needs *eyes*, a *brain*, and *hands*. In a small, `nano' von Neumann machine, thermal motion brings atoms and molecules to a site. Most often, only the appropriate atom or molecule settles in the site. Most others do not fit. (The others that do fit create variations.) Unless you think of the process of `fitting' as a combination of sensing, analysis, and action, you will not consider these entities as having `eyes', `brain', or `hand' at all. However, the process is similar, but more condensed: input that fits is both identified (perhaps wrongly) and accepted by that action. The inputs, whether energy or material, must be transformed to enable the original von Neumann machine to continue and to enable that machine to reproduce. In order to continue, the machine must be able not only to provide itself with enough *food* -- enough energy and materials, it must also be able to *ward off illness* -- to defend itself, and *to heal itself* -- to repair itself. Moreover, the machine must be able to dump materials and energy it no longer uses. It must be able to *excrete*. Some of this excreta will be useless to us. It will be `pollution'. We will want other excreta, manufactured `goods'. This will be what we humans say the machine `produces'. All in all, a von Neumann machine has a minimum of nine different aspects: * Energy and material *inputs*, or `food', * *sensors*, or `eyes, ears, and nose', * *processors*, or `brains', * *effectors*, or `arms', of various types. These are hands that gather materials, perhaps by mining, or are solar collectors that transform light into electricity. Effectors manufacture new systems, repair old systems, defend the machine and its parts, and move materials and energy that is no longer needed out of the machine, as excreta (some of which may be what human harvest). * Effectors need to make use of *internal transport and communications*, a `circulatory system'. Although in some ways, an internal transport and communications system consists simply of different kinds of effectors, people tend to categorize transport and communications differently. * Similarly *manufacturing*, or `metabolism', takes place because of effectors, but people think of a `metabolism' as different. This includes the `metabolism' or manufacturing needed to reproduce. * In order to maintain oneself, or reproduce descendants, `blueprints', or a `genome', or *design data* must be kept. * The *border* may simply be the line dividing the machine from the rest of the universe, a concept, or it may be a `skin' with barriers or other effectors that serve as defense. * Finally, a machine produces *outputs*, including waste heat, and materials. Humans will dislike some outputs, the `pollutants', and will like others, the `economic goods'. A von Neumann machine can reproduce exactly or with errors. Even though errors are common, it is possible to reduce the end number through appropriate `error correction' techniques. Natural selection requires that descendants show variation, either as the result of sex or of reduplication errors. When reproduction is accompanied by error or variation, the set of re-duplicated descendants includes a mix of entities. Of that mix, a few will more tightly reproduce the design of the original manufacturer and others will more loosely reproduce that design. Those descendants that do better in the circumstances in which they find themselves -- which may be different from the original circumstances -- will be more likely to reproduce themselves into another generation, and thus, probabilistically speaking, be more likely to pass on their design data to their descendants. On the one hand, the `error' or `variation' aspect of reproduction is important, since it means that different circumstances are met by von Neumann machines with different capabilities. For natural selection to succeed, new instances with different capabilities must appear. On the other hand, the amount of `error' or `variation' cannot be too great, since circumstances seldom change dramatically and if the `error' or `variation' is too great, too few of the different entities will reproduce. Hence, internal error correction mechanisms must operate. Humans may not want machines with new capabilities. Hence humans may well design machines with very strong internal error correction mechanisms. In addition, humans are not likely to introduce auto-variation mechanisms or sex, and they are likely to produce tests to make sure that newly produced machines are similar to older ones. But without humans around, you may end up with a mechanical ecology like that described in James P. Hogan's 1983 science fiction novel, `Code of the Lifemaker'(1). ---------- Footnotes ---------- (1) `Code of the Lifemaker', 1983, James P. Hogan, Del Rey (1984), ISBN 0345305493, Baen Books (2002), ISBN 0743435265 (see `http://en.wikipedia.org/wiki/Code_of_the_Lifemaker')  File: Choice-and-Constraint.info, Node: Unbreakable, Next: Five Laws, Prev: von Neumann Machines, Up: Self-Replicating Systems Build with Unbreakable Components ================================= Both numbers and, in ordinary life, atoms are unbreakable. They can be combined into large assemblies. But when the assemblies grow very large, they break. We are familiar with unbreakable concepts: the number three is unbreakable. Unlike the wooden hull of a sailing ship or the metal bearings of a car, a number cannot wear out. A sailing ship or car may last for years; but eventually both break. Unless fixed, they cease to work. Computer programs are built from mathematical objects. The components are unbreakable. Moreover, every similar component is exactly identical, not `nearly' identical, as with screws or hard drives. Exact similarity enables developers to create complex entities, with thousands or millions of lines of code. It is much harder to build physical objects out of nearly identical but not quite identical objects. However, as we well know, the components of a computer program can be combined wrongly, or the programmer can insert the wrong components, or leave them out. Or one aspect may unexpectedly influence another. Even when we start with components that are unbreakable, we rapidly create objects that break. Nature does the same. It creates substances that rot. In the kind of circumstances conducive to our kind of life, atoms are unbreakable. Under the conditions we humans live, you cannot add to or split off part of an atom or fission it in two. Moreover, atoms of the same kind are nearly identical. Different isotopes of the same kind weight differently. They move at different speeds at the same temperature, and their spectra are slightly different. However, isotopes are identical. Their differences come from differences in locations and velocities, as well as from the energy and number of their electrons. Living organisms started with atoms a very long time ago. They survived and multiplied in `friendly' environments -- environments without too many strong ultraviolet photons breaking molecules, with enough thermal energy to move components around, with many water molecules, with photons of the right energy or molecules of the right sort for energy transfer and so on. These kinds of environments, while rare in the universe at large, were frequently available on earth. Because atoms were unbreakable, and molecules always break in the same ways, early self-replicators did not have to deal with `worn' or `rotten' parts. The early self-replicators did have to deal with simple molecules, such as carbon dioxide, that were nearly similar to each other, but weigh differently. Fortunately, dealing with these problems was not too hard. Either a molecule was right for its task, or it was not. Only after organisms became more complex did rotten or otherwise inadequate substances become a problem. Such substances are like complex computer programs. They contain the biological equivalent of computer bugs. A rotten substance may contain the wrong atoms, or lack the right ones, or contain atoms ones wrongly combined. Its complexity becomes so large that the unbreakable nature of its components becomes irrelevant. In human societies, sacred postulates are also unbreakable. As Roy Rappaport(1) said in `Ecology, Meaning and Religion', rituals bring into being certain states of affairs. _When authorized persons declare peace in a proper manner, peace is declared whether or not the antagonists are persuaded" to comply._ (Page 189) In addition, Rappaport noted that these states of affairs are judged according to criteria that are provided by rituals. If _a man is properly dubbed to a knighthood and then violates the code of chivalry, ... we do not say that the dubbing was faulty,_ but that the knight is faulty. The state of affairs created by a ritual is judged _by the degree to which it conforms to the stipulations of the ritual._ (Page 189) Laws also are built from unbreakable components, like the admonition not to murder your neighbor. When we say that a man `broke the law', we mean that the man did something wrong, not that the law broke into little pieces, like a smashed stone. In complex organisms, the nature of the unbreakable component may become irrelevant. The same happens as the body of law becomes more complex. For example, this occurs when lawyers circle around the legal definition of `neighbor'. Is the person breaking into your house at night a neighbor or a thief? What rights and obligations do you have towards him? If you kill the intruder, are you doing wrong? Have you murdered your neighbor, or did you defend yourself rightly? The as-yet imaginary, human-made, extremely small self-replicators, the nanotechnological self-assemblers will work with atoms. Incidentally, we do know that `nano von Neumann machines' exist although we cannot yet construct them: we call them `bacteria'. Although the first human-made, nano-sized self-assemblers may have a complexity no larger than a very early proto-bacterium, a complexity of 25 -- 150 kilobytes, I expect them soon to become as complex as more recent bacteria, and perhaps more so. Entities stop becoming more complex, stop becoming more prey to rot, only when the complexity or rot kills enough of them. ---------- Footnotes ---------- (1) `Ecology, Meaning and Religion', by Roy A. Rappaport, 1979, North Atlantic Books, ISBN 0-913028-54-1 paperback  File: Choice-and-Constraint.info, Node: Five Laws, Next: Differing Virtues, Prev: Unbreakable, Up: Self-Replicating Systems Darwin's Five Laws of Evolution =============================== Darwin explained how complex design and function can come to exist without a designer. He described what happens within a system of entities that replicate but with some replication errors and with some error correction. People tend to think of his work as an answer to the old question of where design comes from when there is no specific design entity. For example, in his `Timaeus'(1), Plato introduces the notion of a `craftsman' who creates the universe as we know it. The English language favors this notion by making the usual term for `that which designs' be the word `designer'. This is similar to the construction of `writer' out of `write', of `composer' out of `compose', and `builder' out of `build'. The linguistic convention often works with people. Two hundred years ago, computers were people who computed, not machines. But the linguistic transform failed thousands of years ago when it caused people to think that a `design' needed an entity as a `designer'. It failed even though everyone understood that individuals were different from one another and that some of the differences, but not all, were passed on to children. When Charles Darwin first proposed his hypotheses a century and a half ago, he saw them as one conjoined notion. And he saw them as applying to biology, not anything else. With the supporting evidence he provided, he and others could describe that notion as a theory, Darwin's Theory of Evolution. However, as Ernst Mayr pointed out(2), Darwin's notion has five parts, only one of which was accepted by all the evolutionists of his time: that part was the conclusion that the world is neither constant nor recently created, nor does it pass through cycles which repeat, but that it changes and that entities that live on it change, too. Mayr's distinctions are especially important nowadays, since Darwin's Laws apply both to biology and to other situations in which entities reproduce with variations and then that proliferation is pruned. Darwin's colleagues rejected various components of his theory either because they flew in the face of cultural beliefs, because of lack of conclusive evidence, or because of some combination of factors. However, in the time since Darwin first proposed his hypotheses, all five components have been proved in simulations, observations, and experiments. Hence rather than call Darwin's ideas a theory or group of theories, it is better, more conventional, and more polite to refer to them as natural laws. They are, after all, as well established as Newton's Laws, which we all know, are broken under certain circumstances, but which hold well enough. *Darwin's Five Laws* are: * *Evolution as such* "Evolution as such" comes from the understanding that the world is not constant. It was not recently created; it is not cycling. The world changes. Moreover, the types of entities that live on it also change. (This involves a view of history in which time is linear, a way of thinking that merchants adopted centuries ago. *Note Middle Ages Accounting::.) Not only is the understanding of `evolution as such' important to biology, it is important for those deciding how to build a von Neumann machine. I suspect that humans will not want machines that evolve new capabilities. (Science fiction writers, such as Gregory Benford(3), have written stories of machines that may evolve to kill us.) Leaving aside questions of human design, a change in entities contradicts the `common sense' notion that different animals and plants each has its own `essence'. This notion has been prevalent in Western society since the ancient Greeks. Its implication was that one species could not change to another any more than a triangle could change to a square. You only had to look at a cat and a dog and ask how one could change into the other. Nowadays, we do not think of a cat changing into a dog, but ask about a common ancestor of both, from a time long before cats and dogs appeared. * *Natural selection* "Natural selection" is the understanding that individuals in every generation differ from one another, or, at least that some of them do. In every generation some individuals survive and reproduce better than others. Their genes multiply. This is the key idea: natural reproduction is not perfect. * *Multiplication of species* "Multiplication of species" is the understanding that species either split into or bud off other species. Because different ecological niches provide different ways for an animal or plant to live -- provide different `professions' -- and because blueprints do not copy perfectly, different plants and come to fill different niches, with different shapes and behaviors. In biology, multiplication often occurs after some members of a founder species become isolated from the rest. Those of their descendants who are adapted to the new place are more likely to survive compared to those who are adapted to the old conditions. From the point of view of someone funding the construction of the first von Neumann machine, multiplication provides a reason for extremely strong error correction. * *Gradualism* "Gradualism" is the understanding that changes take place through a gradual change of population rather than the sudden production of new individuals. `Gradual' is a relative word. In discussions of `punctuated equilibria', I have heard people talk of one species replacing another in the `blink of an eye'. What they meant was a time period that is many times as long as written human history. The `blink' might last 100,000 years. In human terms, this is a long time. But in geological terms, 100,000 years is short. Hence the use of the phrase. But to humans, a change over 100,000, or over merely 10,000 years, seems gradual. Put another way, gradualists claim that it is unlikely that starting tomorrow at 9 am, all humans born would possess green skins and lay large, hard shelled eggs. The concept of gradualism as two effects. The first is to point people away from a presumption that concerns a farmer: efficiency. A farmer asks whether one action or other is better for the farmer. But a process that depends on one group of offspring enjoying higher survival and reproductive rates than others is not asking which is better: indeed, a mindless process cannot ask. But humans do ask, and the questions they ask are influenced by their concerns. One purpose of the notion is to prevent people from misapplying ideas of efficiency to a process for which that notion is irrelevant. As second effect of the concept is to counter a belief that change is easy and involves few variables. In practice, a sudden production of new individuals, a `saltation', involves a huge number of changes, most of them in the invisible innards of an individual. Since Darwinian change occurs by accident, we are not likely to see the combination of many changes all at once. On the other hand, a Lamarckian change can involve many variables. That is why human culture changes so quickly. If they are not prevented, as I expect they will be, von Neumann machines could change this way, too. * *Common descent* "Common descent" is the understanding that every group of living entities that we know of on this planet descended from a common ancestor. This understanding does not apply to the lineages of von Neumann machines when they are started by different builders, but it does apply within a lineage. However, no one has yet found regular biological entities on this planet that are not descended from one ancestor. At the time Darwin wrote, many evolutionists thought of animals and plants as being like humans. They asked whether an adult proto-giraffe could stretch its neck to reach higher leaves, and pass on a longer neck to its children, much as human parents pass on a language to their children. This form of change is called Lamarckianism. Human culture is invented by people and passed on by parents to their children. It is Lamarckian. But the looks and actions of animals, at least those without culture of their own, are passed on genetically. A parent's action does not influence the looks and actions of the child. Only changes in the egg change the child. (This understanding, by the way, answers the age-old question, `which came first, the chicken or the egg?' The egg came first, because it contains the part that changed. The egg was laid by a non- or pre-chicken entity; the egg grew up to be a chicken.) Like humans, if provided with a mechanism, von Neumann machines could copy newly gained knowledge to their children, (My hunch is that the notion of common descent will fade; but that people will find the others useful for centuries to come, just as Newton's Laws are useful when considering planets, and Aristotle's useful when moving heavy stones. By the way, speaking in defense of Aristotle, I can tell you from personal experience that heavy stones stop moving when you stop pushing. Worse, dropped stones seek the center of the earth, even if your toe is in the way!) ---------- Footnotes ---------- (1) `Timaeus', translated with notes by Peter Kalkavage, 2001, Focus Publishing, ISBN 1-58510-007-2 (2) `One Long Argument', Ernst Mayr, 1991, Harvard University Press, p. 36 ISBN 0-674-63905-7 hardback ISBN 0-674-63906-5 paperback (3) `In the Ocean of Night', Gregory Benford, originally published in 1977, Aspect, 2004, ISBN 044661159X paperback  File: Choice-and-Constraint.info, Node: Differing Virtues, Next: Societies as Von Neumann Machines, Prev: Five Laws, Up: Self-Replicating Systems Differing Virtues ================= Virtue is always the deciding factor, virtue meaning `most fitted to survive in the environment'. However, the salient virtue changes whether the surroundings are full of the same entity or empty. A plant, animal, human society, or product may reduplicate prolifically so long as it is alone. But it may not survive competition from its own kind. Different circumstances lead to different virtues. In any ecology, a period of non-competitive growth comes first. This period lasts so long as unfilled space remains. For plants and animals, `space' means niches, for businesses, it means markets. For humans it means empty land suitable for colonization. In this period, those that do best reproduce the fastest. But the deciding capability, the `limiting factor', changes when all niches are filled. In a `full' ecology, or `saturated' market, a plant, animal, human society, or product will be able to reproduce only so long as it can survive competition with others of its own kind. Consider the initial human settlement of Europe, Asia, and the Americas. Prolific and peaceful humans ranged widely over an empty territory. They cooperated with each other. But when these people met thugs, they would be killed, unless they learned to kill. `Empty territory' means, of course, `empty' at the level of the ingressing humans' technological and pathological capabilities. As Jared Diamond(1) wrote, the Spanish conquered what is now called `Latin America' in the 1500s. The Spanish had steel and their soldiers knew about deceit and double-dealing. The first European settlers in Massachusetts, the Pilgrims, found that before they arrived in 1621 most of the indigenous people had died. The indigenous peoples had caught disease from the many Europeans who had visited the shores for fishing or from people who caught diseases indirectly from the distant Spanish. European settlers were accustomed to these diseases. Some of their children died from them; but other European children fell ill, recovered, and enjoyed immunity as adults. Put simply, whether it be a plant, an animal, a human society, or a commercial product, an entity may do well so long at it does not have to compete with others of its own kind. But when it does compete, if it cannot handle such competition, it and its kind will die. ---------- Footnotes ---------- (1) `Guns, Germs, and Steel: The Fates of Human Societies', Jared Diamond, 1997, W. W. Norton and Co., ISBN 0-393-03894-2  File: Choice-and-Constraint.info, Node: Societies as Von Neumann Machines, Next: Species not an Organism, Prev: Differing Virtues, Up: Self-Replicating Systems Societies as Von Neumann Machines ================================= Although you can think of von Neumann machines as ecologies or species, human societies fit the criteria, too (*note von Neumann Machines::). On the one hand, this notion is straightforward and obvious; on the other hand, by thinking of societies as von Neumann machines, we can think differently about them than usual. Let us go back to human beginnings: the earliest societies taught their children how to duplicate, more or less, what the elders did, both to support themselves physically, with food, clothing, and shelter, and culturally, with religion, law, and humor. We can think of a society metaphorically as a ship with a crew, a `ship of state', or as an animal, such as a bear, or as an uncle. Likewise, we can think of a society as a complex, self-reproducing machine with sensors, blueprints, energy requirements, and effectors; or in more biological language, with eyes and ears, with a genome, with food requirements, and hands. Moreover, we know that inexact duplication leads to evolution (or extinction). Humans pass on genes through sex; they pass on knowledge and culture through words and actions. Consequently, in a social von Neumann machine, inheritance is both Darwinian and Lamarckian. `Memes' are important as well as `genes'. Ancient societies took a long time to replicate: they reproduced themselves once per generation, with some parts taking longer, such as shelters. They added little from century to century. Mostly, people replaced what was worn out. In the modern world, we do not think merely of reproducing a society, but of adding to it: of adding cultural and built goods to it, and of reducing its bads, such as pollution and injustice. As of 2000, the fastest self-replicating social systems are economies that duplicate their economic output in seven years, a 10% per year growth rate. This sort of number is not exact: along with the goods that are measured to double in seven years come bads, which are often not measured. (For a `conventional' von Neumann machine, such as a robotic factory, the replication goal seems to be for a reproduction time of a few months, a few weeks, or even less. See `http://www.rattlesnake.com/notions/sudden-technology.html'.) A von Neumann machine consists of parts. These can be used to analyze the various parts of an economic and social system: * The central processor, or `brain' In a economic or social system, the `brain' of a von Neumann machine consists of the people who make the decisions that influence the whole society, such as poets and engineers, a few generals, a few of the rich, and some politicians. In science fiction novels, writers have suggested societies in which computers make many or all the decisions. * Sensors, or `eyes, ears, and nose' In society, sensor information, what you see, hear, smell, taste, and touch, is transformed into reports for others. In the past, reports were almost always anecdotal. Sailors and spies, people who loved strangers, told stories about their adventures abroad (see `http://www.rattlesnake.com/notions/xeno-savy.html'). People at home told of the conditions and situations with which they were familiar. Nowadays, some reports come as statistics about production and surveys of people. Collection and presentation can be, although it often is not, designed to reduce the dangers of bias and selection. * Blueprints, or `genome' A society reproduces itself by reproducing its religion, ritual, law, methods of cultivating land, making shelter and clothes, by reproducing its knowledge, habits, and characteristics, as well as by reproducing its physical embodiment, whether people or houses. In the past, much information resided in ritual and tacit knowledge, or else in a mysterious biological inheritance. Nowadays, more is known and more is written explicitly. * Internal transport and communications, the `circulatory system' Paths, roads, railroads, telephones, shipping lanes, and the Internet all make up the `circulatory system' of a modern country. In the past, roads were few and paths perilous. Only shipping was relatively inexpensive and then only over the past 10 millennia. * Manufacturing, or `metabolism' These are ways of making, of building, of growing food. Each era has its own technology. 2000 years ago, drinking vessels were made of bronze. They were called `bronzes'. But as glass making become more widespread, people began to drink from `glasses'. Over the past two centuries, manufacturing technology has changed and changed again. Now, many items cost less to produce than before. Most people like this increase in material wealth, even when it comes with new forms of injustice and new or more imposing pollution. (Often people in a government or ruling circle choose a method that is not so unpleasant for them, but is dreadful for ordinary people. People in a ruling circle, for example, may figure that they will always live in rooms with filtered air, and not care about the air pollution that sickens ordinary people.) Another side effect has to do with conceptions of justice. Not all, but a part of a feeling of justice comes from what people learned as children: the `right way' to act. With changes in technology, the `right way' can become the `wrong way'. Thus, in the past, many people lived in villages. In a village the way to ensure economic and social security is different from the way to ensure it in a city. The patterns of the one do not scale to that of the other (see `http://www.teak.cc/softfree/software-freedom.html#Software%20Dangers'). * Borders, or `skin', the barriers against outsiders At the end of World War I, the victors created several new countries in Eastern Europe. One method -- one that did not always succeed -- was to draw a national border along a linguistic border. Differing languages do present a barrier, as do differing rituals and customs. * Effectors, or `arms', which can build or make In the past, people used fire and wind and human and animal strength. Fire was important to the non-human ecology as well as to humans. Wind power had less impact on society than the human and animal action needed to grow food and make clothing. And neither human nor animal action had