Dimensions of Value: Land & Water

This post is part of my attempt to grapple with the connection between money and value - especially how money reflects our attempt to put a numeric value on virtually everything. The idea here is to replace one-dimensional value (like money) with a multi-dimensional concept.

In the end, I abandoned this effort in favor of a dynamic model of value (IOUTopia). The task of the "dimensional" view was to avoid the need to trade one kind of value for another, yet this is perhaps the core idea of an "economy". The issue then becomes how to envision how we trade one thing of value for another.

But here are the initial ramblings about "dimension" ...

Land is perhaps the oldest and most recognized form of wealth. A big chunk of land is called "territory" and wars are fought over it.

Land poses a problem for money=debt theory. Land seems to sit outside this equation, even though land can be turned into money by using it as security on a loan. Of course, money can be used to purchase land.

Land seems to be especially real to some people - something that always confused me. Obviously, the value of land is in the eye of the beholder.  A simple case is land purchased from a farmer to "develop" as commercial real estate. The value is not in the land. It's in the opportunity to create income, perhaps. Or maybe just the love of the land itself ...

In some economic theories (such as Marx), land occupies a place of honor like gold or labor - something of fundamental value that all value is built on. In feudal societies, the "land" comes with human beings tied to it, along with rights to the product of their labor. Sometimes the modern nation-state doesn't look much different. We call that kind of nation a "kleptocracy".

Land & water seem to be candidates for "dimensions" of value. Maybe air or a similar "right to pollute", as in "cap and trade" schemes.

I wonder if, at one time, land seemed as free and infinite as we now think of water. Just a place for the buffalo to roam. Now, the world is edging to a water crisis and we are starting to treat "water rights" like property or as part of property rights.

Land, water and air seem to be the simplest and most obvious proxies for the concept of environment and the value of it. In modern terms, we speak of environmental "services".

Material Intelligence

Glen Adamson caught my eye with this Aeon article caught my eye. He expands this view in his book: "Fewer, Better Things ...".

Adamson's views are relevant to this blog in a number of ways:

• The disconnect between value and cost. How the way we manufacture things makes this matter- in detail;
• The man-made world of the "matrix" we live in;
• Insight into the structure of modern society - where "things" come from, who makes them, how they become "ours"

The Creation Myth of Money

(Originally posted in "The Zen of Value")

Discussions about how money originates often start with the assumption that it evolved to facilitate trade and "store value". Otherwise, so the story goes, you and I would simultaneously want something somebody else had (say, you have more fish than you need and I have extra sheep).

There is scant evidence for "cash" arising out of this situation. Evidence for another narrative can be found in human behavior that naturally arises when "cash" is in short supply.

Say, you go fishing and catch 5 nice big salmon. It would not be unusual at all for you to show up at my door and offer me a fresh salmon "for free". On the other hand, we would tacitly understand that this establishes a debt. Perhaps at some point, I'd mow your lawn or give you a basket of berries, or jam from my last berry picking trip. The math doesn't need to work out. If I'm in bad shape and have nothing to give in return, it would not be unusual for the fish to keep appearing at my door (perhaps even more frequently).

Such a system is not "communism", where all goods are held in common, no matter how and by whom they were produced. It's based on sharing, generosity and reciprocity between friends and neighbors. It is embedded in a wider set of customs that add up to encouragement of behaviours that tend to bind he community together while discouraging freeloaders and cheaters. All the great apes seem to behave in this way to some degree.

Bringing the discussion into the 21st century, we see that money is just a standardized form of an "IOU". A dollar bill is an IOU from the Government. If I give you a dollar, the Government owes you one more dollar and me one dollar less. Most of my "dollars" are actually numbers in a bank account, which record an IOU from the bank to me.

If there were no banks and all cash magically vanished, we would instantly go back to an IOU-based economy. This apparently happened in Ireland during a 6 month strike of bank employees. Magically, the economy boomed without "money".

Money based on specie (such as gold) is actually a step backward from the natural system. It quickly converts itself back into an IOU system. Gold certificates (IOU gold) replace actual gold for all but the smallest transactions. Banks naturally step in to the void to "do the math" in a complex web of who owes what to whom. Quite naturally, we evolve into a system where most debts directly or indirectly are owed to or from a bank. Nations establish "central" banks and currency that is, in effect, an IOU from the central bank (the Nation).

Of course, "official" money has a serious drawback. The assumption is that all things traded (or "owed") can be measured in money, which flies in the face of both everyday experience and the way our "great ape" minds work. Value is based on what one individual perceives to be needed at a particular time. Such needs are not subject to the rules of arithmetic. Failure of money as a proxy for value results in all kinds of distortions, including the illusion that

1. The more money you have, the more goods and services of value you will be able to access.
2. If you don't have enough money for food and shelter, you are allowed to die, establishing a rather precise money "value" of a human life.
3. Any given object has the same value to anyone at any time
4. Anything of value has a price

Violation of rule 3 results in the common situation where person A values the same object less than person B, resulting in his willingness to "sell" the object to B. We sometimes forget that the result of this transaction is an increase in total value, while the amount of money in the system remains constant. The increase is a direct consequence of the fact that money is not a proxy for value.

The trouble starts to arise when we separate the role of the "social IOU" from the context of community. Money is an abstract IOU from an imaginary "person" - a debt that no longer contributes to strengthening the social fabric. Our money transitions that buy and sell, hire and work are conducted with strangers or even completely abstract theoretical "persons". 

Or are they? Does it make sense to re-introduce the social aspect of money through things like customer loyalty, "nepotism", referring friends to friends ...

It does appear that, as societies grow larger and more complex, there is a tendency to:

• minimize the value of human effort (driving wages to the bottom)
• ignore "externalities" such as the decrease in common values such as clean air, open space, personal choice etc.

Debt and Money

In a previous post, I wondered about how debt becomes the "civilized" mechanism to form the skeleton of a structure that recognizably similar to the kleptocracies documented in "Thieves of State". The theory is that over time (and a few political revolutions), "Western" societies settle into a way to suck the blood out of the poor "legally", eliminating the need for overt corruption such as bribes and kickbacks. In many of these "democracies", bribery continues to be important in the form of "dark" political contributions that constantly outweigh the desires of the general public. Money itself becomes a corrupting influence. But let's take a look at debt first - especially its connection to "capital" or "wealth" - the material goods of a society.

Especially with the appearance of cryptocurrency, we find people believing the myth of "fiat currency" - the idea that the government can print pieces of paper and convince us all that they are worth something. That's not how money is created in a capitalist system. Money is based on and backed by debt. If you get a loan of $100,000 from a bank, the bank owns a piece of you in exchange for the $100,000 that they create out of thin air. Every dollar is brought into existence by the creation of an equal but opposite debt.

The idea is that the bank will only "lend" you this money if you can convince them that you are able to repay the loan. Ideally, you will put up collateral that the bank will seize if you fail to meet your payments. So the entire system, especially the "money" is based on (a) credible assessment that the borrower can repay (b) value of the collateral. All this came unraveled in 2008, causing trillions of dollars to vanish from the system due to (a) banks creating money and fees for themselves when there was no realistic hope of the loan being repaid and (b) crash of collateral values (houses).

So, if all money is created by debt, where does the money come from to repay the debt? In the big picture, this comes from value added. The borrower somehow creates more value than what he borrowed. For this to happen, the entire economy must "grow" - causing the total value of its assets to constantly increase, or the value of the money must decrease (inflation). In effect, this means that the borrower is repaying the loan with dollars that are worth less than what he borrowed.

It's distressingly easy to game this system. For one thing, the traditional analysis ignores the role of crime, especially international crime and "money laundering". It's common for major players, especially in real estate, to use bankruptcy as part of their business plan. They never intend to repay the loans. Banks create money out of nothing and hand it to the Trumps of the world. Magically, the money slips away, another Trump business declares bankruptcy and Trump buys himself another jet. The bank actually looses only the interest on the loan. The debt vanishes and Trump keeps the jet.

It's also possible for the Trumps of the world to accept "loans" from international criminals - loans that will never be directly repaid, especially when the enterprise in question declares bankruptcy after all that now "clean" money slips away.

Another problem is that money itself becomes a commodity, resulting in what's called "finance capitalism". Money no longer stands for value in the "real economy" or even the credit worthiness of the society. It "floats free" - just numbers in computers. As we have seen, these numbers have a distressing tendency to crash for mysterious reasons. They actually behave like the mythical "fiat currency" because they are actually based on smoke and mirrors. Actually, what happens is that "trust" between the lender and borrower (who may have actually met face to face) is gradually replaced by a mathematical construct of "risk" evaluated by an opaque computer algorithm. Of course, you can't hold an algorithm accountable or toss a computer in jail.

For the "little guy" with a mortgage, car loan and a student loan, this debt is a crushing daily experience. Unlike Trump, he can't walk away from it. Unlike the banks, he is not "too big to fail". All this debt compels him to work - maybe two or three jobs. It is debt that locks him into the existing economic structure. By debt, he is "assimilated". As a citizen, society owes him nothing.

Especially during the 1930's, there were a lot of ideas about how we could solve our social issues by tinkering with the way money was created in the system. "Social Credit" was tried in Alberta but failed partly because the Province didn't have the legal right to print money (and lots of other reasons). In the American colonies, and during their civil war, various attempts were made to create a currency backed by the "goodwill" of the society (government) in general.

The perverse role that debt-based money plays in our economy is outlined from a neo-Marxist point of view in "Killing the Host".

Behind these schemes is the idea that value, like they mythical fiat currency, is created "out of thin air" by human effort. Is it possible to create money that reflects this value? It's amusing to note that many people think that this is the way things work now.

I like the idea of money being created as a byproduct of creating value. For example, a bank could create the money a farmer needs to buy seeds and pay expenses. This would look a lot like the way a loan is currently made, except it's backed by the production of value, not the "collateral" of the farm and buildings. If the farmer fails to create a crop or can't sell it for the planned amount, the loan is only partially repaid or simply written off. The bank loses nothing by not being able to collect the loan since it created the money out of thin air in the first place. If things go as planned, the money created by the loan "stands for" (part of) the value of the crop.

This concept could be applied to any situation where the value is being created, such as construction, infrastructure, and even retail. It could not be used in many situations where the value is not being created, such as real estate which only moves value from one pocket to another.

In theory, the government could simply create the money needed for infrastructure projects - even public health or education. This would eliminate the need for a lot of taxation and public debt.

There is a connection between this idea and the concept that there is an intrinsic, minimum value of human labor. In other words, there should be a living minimum wage. If a business cannot recover the cost of its labor inputs by selling its goods or services, it should not be in business.

Is there value created by simply having a pulse? There must be, after all, a consumer side to the value equation.  We need not assume that every consumer creates as much value as he consumes. This is certainly very far from the case in the current system, where the top 10% consumes the lion's share of the value created by the sweat of the other 90%. There is no obvious reason why the government could not create money to cover the as healthcare and shelter, plus an allowance for incidentals. The logic for this "hand out" is that all citizens are entitled to a share of the value created by society at large, simply by virtue of being citizens. It is the same logic that permits the lowliest panhandler to use the roads, the water, public parks and the clean air.

There would be nothing stopping someone from lending money for a mortgage, except that the money could not be created in the process as it is now. (since no value is created). The lender would need to actually have the money to lend. It is obviously necessary that the old and new system must be compatible and able to run side-by-side - possibly by creating two types of loans or two types of banks. This would probably involve sweeping changes to banking regulations since it is banks that create money in the current system. Banks are incentivized to create as much money as possible since their fees and interest go to their bottom line. This incentive is perverse in the sense that the bank's assets are not at risk.

Definition of what constitutes "creation of value" would be tricky. We see a germ of the alternative banking system in what's called "microloans" in third world economies, where the loan is based on a business plan rather than collateral. Such banks are the darling of the politicians who love "small business". Anyone who has owned a small business knows that banks are not in the business of lending money to people with great ideas (don't believe the ads). They want collateral. "Value-based loans" would look a lot like the loans we see banks giving out in the TV ads but not in reality.

The other type of bank would need to operate the way most people think banks do now: lending money placed on deposit, not printing it.

The idea is that money would ultimately be based on value rather than debt. The individual's connection to society would depend on his ability to create value plus the benefits of being a citizen, not his ability to repay debt.

Intuitively, it would seem that the transition to this system would result in a dramatic reduction in consumer loans - mortgages and car loans, for example. Such loans would only be available on the basis of the "fire sale" collateral value of the asset backing the loan. Ability to repay would be a minor consideration. "Sub-prime" loans would make no sense since the lender's actual assets are being put at risk. We would see much higher down payments on houses and an end to "zero down" car loans. That would deflate the real estate bubble and bring some common sense into the auto industry. Sadly, we would see a lot less money in the system - precisely the money that tends to find its way into the pockets of the very, very rich.

Is it workable? Would it reduce corruption? Would it be more fair and just? My guess is that the idea is not original. Some research is called for. Perhaps it's best to start with a few impertinent questions:

• Is there some reason why the government could not simply create the money needed to fund infrastructure and basic medical care? At present, governments tend to avoid funding their operation by taxes (especially corporate taxes or royalties), so they borrow more and more. An increasing share of revenue goes to service debt - to the banks.
• What would be the case for and against the minimum wage and a basic income?
• How would "value added" banking fit into the existing system?
• How could the central bank increase its balance sheet requirements in a way to phase out the ability of banks to create money?
• Does any of this appear in the platform of any political party?

This post returns to my long-standing concern with money versus value. I have re-posted an entry from an entire blog on this subject here. That blog was concerned with an "impertinent question": What, if any, is the relationship between money and value? After giving that question almost a two-year rest, perhaps it's time to take another look. Coming back in from the "assimilation" and corruption angle leads me to ask if there are toxic effects in society when the two ideas are confused. Coming at the question from the "Christian Skeptic" angle leads me to ask if such confusion can lead to bad personal decisions or what a Zen master would call "unhappiness".

The idea presented here: that creation of money could be tied to creation of value is new to me and, I confess, much in need of clarification.

Backing up a bit, I recall that "impertinent questions", like "imagination pumps" are an important way to shake out unexpected insight by challenging everyday ways of seeing the world.

The Zen of Value - Creation Myth of Money

This was originally posted in its own "Zen of Value" blog but has been moved here for sake of integration and connection. It turns out that I don't have much more to say about the "Zen of Value".

Discussions about how money originates often start with the fable that it evolved to facilitate trade and "store value". Otherwise, so the story goes, you and I would simultaneously want something somebody else had (say, you have more fish than you need and I have extra sheep).

There is scant evidence that "cash" arose out of this situation. This can be seen when "cash" is in short supply or in small groups (families, neighbors) who exchange goods and services without cash, even indignantly refusing cash when it would be perfectly sensible when interacting with a stranger. We also have times, such as the "Dirty 30's" where, for technical reasons, nobody had "money" but everybody had more than they need of some things and/or spare time available to "work". Rough standards might emerge (eggs for field work), but the underlying sentiment was "we're all in this together".

Say, you go fishing and catch 5 nice big salmon. It would not be unusual at all for you to show up at my door and offer me a fresh salmon "for free". On the other hand, we would tacitly understand that this establishes a debt. Perhaps at some point, I'd mow your lawn or give you a basket of berries, or jam from my last berry picking trip. The math doesn't need to work out. If I'm in bad shape and have nothing to give in return, it would not be unusual for the fish to keep appearing at my door (perhaps even more frequently).

Such a system is not "communism", where all goods are held in common, no matter how and by whom they were produced. It's based on sharing, generosity and reciprocity between friends and neighbors. It is embedded in a wider set of customs that add up to encouragement of behaviors that tend to bind he community together while discouraging freeloaders and cheaters. All the great apes seem to behave in this way to some degree.

Bringing the discussion into the 21st century, we see that money is just a standardized form of an "IOU". A dollar bill is an IOU from the Government. If I give you a dollar, the Government owes you one more dollar and me one dollar less. Most of my "dollars" are actually numbers in a bank account, which record an IOU from the bank to me. One function of banks is to make it possible for you and me to consider our IOU's as equivalent even though they are owed by different banks or the government. The other important function of banks is to create money by saddling someone with an equal and opposite debt. They don't have a pile of cash in the vault to lend you - the money they lend is created out of thin air, or, if you like, from the skin off your back.

If there were no banks and all cash magically vanished, we could instantly go back to an IOU-based economy. This apparently happened in Ireland during a 6 month strike of bank employees. Magically, the economy boomed without "money". We would see some difficulties in re-inventing money this way that essentially re-play the problems with its introduction in the first place. For example, saving someone's life or finding a suitable husband for a friend's daughter creates a debt  but not one that can be repaid in any ways subject to monetary calculation. These are not wild exceptions - in practice, everything is like this. Spend some time in a thrift shop or garage sale if you think the price of something is an intrinsic property like it's weight.

Money based on specie (such as gold) is actually a step backward from the natural system. Gold quickly converts itself back into an IOU system. Gold certificates (IOU gold) replace actual gold for all but the smallest transactions. Banks naturally step in to the void to "do the math" in a complex web of who owes what to whom. Quite naturally, we evolve into a system where most debts directly or indirectly are owed to or from a bank. Nations establish "central" banks and currency that is, in effect, an IOU from the central bank (the Nation).

Of course, "official" money has a serious drawback. The assumption is that all things traded (or "owed") can be measured in money. This flies in the face of both everyday experience and the way our "great ape" minds work. Value is based on what one individual perceives to be needed at a particular time. The system works because any two people will have wildly different valuations of any particular object at any given time. Such needs are not subject to the rules of arithmetic. Failure of money as a proxy for value results in all kinds of distortions, including the illusion that

1. The more money you have, the more goods and services of value you will be able to access.
2. If you don't have enough money for food and shelter, you are allowed to die, establishing a rather precise money "value" of a human life (typically poorly estimated as "minimum wage")
3. Any given object has the same value to anyone at any time
4. Anything of value has a price

There is also a hidden assumption that needs to stay hidden for the whole thing to work:

     5. It's all about shuffling debt around -- not the pretty things you buy but how much you borrow 

Violation of rule 3 results in the common situation where person A values the same object less than person B, resulting in his willingness to "sell" the object to B. We sometimes forget that the result of this transaction is an increase in total value, while the amount of money in the system remains constant. The increase is a direct consequence of the fact that money is not a proxy for value. Did I lose you? OK here's an example. I sell you the useless rusty bike that has been hanging in my garage for 10 years. You pay $10. I have more space, you have a bike. $10 IOU moved from you to me. No change in the total amount of "money" in the system. In fact, situations where a transaction results in a decrease of value are usually associated with some kind of crime.

Trouble starts to come up when we separate the role of the "social IOU" from the context of community. Modern money is an abstract IOU from an imaginary "person" - a debt that no longer contributes to strengthening the social fabric. Our money transitions that  buy and sell, hire and work are conducted with strangers or even completely abstract theoretical "persons" such as banks and governments.

Another symptom of value distortion is the mountain of useless crap that fills the homes of all but the poorest citizen. All this garbage cost money at some point but has somehow lost value over time - in fact, when we consider the cost of storing this junk, its value is negative. That snow blower you never use is just like a hamburger that you paid for but can't flush down the toilet. The money we paid for this stuff is still in circulation (it's immortal unless the debt is repaid) but the value has vanished. How can this be? Debt is handed around like a hot potato until repaid. Somebody, somewhere owes somebody the full price of that rusty bike you have hanging in your garage. A powerful metaphor for this situation is thinking of value as slowly evaporating unless it's replenished with constant inflow of money (new debt) which is retired much more slowly than value evaporates, if ever. This is a problem created by money itself - it's not a law of physics that we must sink further and further into debt.

I am surrounded by obscenely bloated houses and streets full of leased new cars. It is debt that makes all this possible. It's not a sign of "prosperity". Lots of money around is mathematically and absolutely equal to lots of debt - to the penny. For me, real prosperity is symbolized by sensible, paid-off houses and practical old cars in good condition.

The idea that debt will actually be repaid has slowly disappeared from Government policy and the financial plans of most citizens. Thus, money-based theories of economics increasingly float free from any grounding in the actual world we live in. Somewhere along the line, the idea of "balancing the budget" (the conservative mantra but never the conservative policy) has become completely unrealistic. From time to time (such as in 2008), trillions of dollars of debt simply vanishes from the system with catastrophic effects on real people. We really just move from one fairy tale version of reality to another but the consequences are quite real (I lost my job in 2008 and never found another).

There is evidence that we are shifting to a new economy that goes under names like "Attention Economy". The idea is that relationships are what's worthwhile - cash transactions are secondary. This can easily take a sinister turn but, as a challenge to "money=value", it's a change in the right direction. But maybe not. If I sit back and listen to marketing efforts with my "man from Mars" hat on, what I hear is "Pay attention: let me sell you more debt".

Later consideration would see money and economics as an example of paradigm - a whole way of speaking about society that "makes sense" to generations. As with many paradigms, challenges are unintelligible.  For example, Donald Trump's recent decision to pull out of the Paris Climate Change accords was justified in economic terms. More jobs. Bad trade deals. For conservatives, this makes perfect sense. How else to talk about policy? For those who think that way and subscribe to the economic paradigm (including the idea that they are somehow disadvantaged because of stagnant wages, lack of jobs) asking about other things (such as the long term survival of the human race) makes no sense. In a more narrow sense, in the economic paradigm, money is seen as real like phogiston and luminous aether. It is the real, tangible medium in which human well being "swims".

Zen of Value, the "V" meme and the "$" Meme of Money

This blog is a "work in progress" related to the current one by a long, flimsy bridge not yet created.

The idea behind "Zen of Value" is that we all have a super computer between our ears, capable of instantly making calculations that are beyond the ability of any traditional computer.

"Value" is a case in point, although when Hofstadter discusses the mind, he basically demonstrates the awesome power of this "meat computer". His career illustrates the fact that exploring the workings of the mind don't have much to do with "AI" after all.

"Value" seems to be one of those things that holds out promise for a formal definition, even a kind of math, that elude most categories. In particular:

1. A lot can be learned from comparing "value" with whatever it is that "money" stands for.
2. Money obeys the rules of arithmetic but value obeys only a subset. In particular, value a and value b can be compared but you can't do "math" on them.
3. Value is subjective and time-sensitive, but this shouldn't prevent us from doing some formal analysis on it. This may be similar to General Relativity, where the equations apply only in an infinitesimal region of curved space and evolve over time. Value is a dynamic concept. Money is too but it evolves slowly and the subjective nature is systematically denied.

The human mind is capable of performing the following "calculation" with the speed of raw perception: Which of objects a or b has more value? What about b and c? The properties of "value" can be illustrated by this simple example.

1. If a is a car and b is a jug of water, normally a>b unless you are dying of thirst
2. Transitivity seems to hold in all situations, but that's worth investigating. Suppose, for example, that a is a car, b is a jug of water and c is a jug of beer. Usually, a>c>b. Whether you value beer over water would depend on the situation, which is analogous to the point on a curved surface at a specific time in relativity.

The "values" blog digs down into the meme of value. What can you say about value? Value is, in some way, almost as fundamental as the meme of "I".

Money, on the other hand (the "$" meme) superficially obeys mathematical principles but these principles break down under close inspection. For example, is an income of $1 million per year "worth" 10% more than an income of $900,000? What about the difference between an income of zero and an income of $10,000? Is a $200,000 car worth 100 times as much as a $2,000 car in good working order? Is a $200,000 car worth the same as 100 $2,000 cars? "Value" is creeping all over the place and undermining a lot of assumptions we make about "money".

A Good Place to Start

"I think, therefore I am". So began Descartes in his attempt to build a comprehensive picture of reality, starting with what he knew for sure. Like many philosophers, he pretended to mimic the newly-discovered certainty of Mathematics.  Descartes was barking up the wrong tree and his "axiom" instantly hit a dead end. Strangely enough, there are more than a few mystics, philosophers and neuroscientists who would doubt even Descarte's "axiom". The "self" may turn out to be an illusion.

In the Universe we happen to inhabit, there is no sure path from "simple" to "complex". We need to start somewhere else. That's good news, since it turns out that we all know a Hell of a lot more than we thought we did. As Descartes realized, it's all uncertain to some degree, but that need not stop us from exploring an uncertain world. After all, we don't have an option.

We learn very little about our minds by comparing them to the "minds" of chimpanzees, cats and frogs. If we assume that our minds are "nothing but" two pounds of meat on our shoulders, we succeed in explaining nothing while ignoring everything we know about our minds from first-hand experience.

I'd like to share with you some ideas that I have found helpful in the hope that you will too. My aim is to be intelligible, not necessarily "right" or "wrong" (that's up to you). This turns out to be a key policy for moving forward. Descartes was preoccupied with certainty. He wanted to find things that were absolutely true. Our goal is much more modest: to talk about the ideas we share, whether they are right or wrong. The most important aspect of ideas is that they are shared [4].

We will be wandering through a maze of connected ideas. Feel free to wander. There is no "start" or "end". My hope is that we will gain some valuable experience by wandering around together. Our journey starts where Descartes' left off: by understanding what Descartes meant (or should have meant) by "I and "think" [5].

Historically speaking, great advances are made not by answering the great questions but by realizing we were asking the wrong questions and we need to replace them by new, more productive lines of thought.  What we need is a way to conduct a dialogue that makes sense to all parties, together with a way to understand our differences, especially those differences that seem so important, heated and intractable.

I have worked on many other blogs. While I will probably update them from time to time, this blog continues and replaces two of them. I'll attempt to cross-link the blogs where that seems preferable to copying posts wholesale from one blog to another.

• Diary of a Christian Skeptic documents the long "spiritual" path I took from an early age to the present in search of answers to the "big questions". I no longer consider Christianity or any particular religion to be of central importance, but, being born in a "Christian" culture, I needed to fight my way through the assumptions of this culture that were woven into the my thought patterns from childhood.
• The Programmable Ape documents my struggle to understand social organizations as living things in their own right, together with the way we are "assimilated" into these organizations, often resulting in surrender of humanity to mechanical rules and non-human goals. The current blog will continue to expand this theme, making such concepts as "assimilation" more precise and useful while adding precision to the "dragon" concept itself." I don't think you can understand human organizations simply by understanding the human beings that make them up. It turns out that this is a special case of the futility of reductionism, of which I will have much to say.
• Zen of Value is a related blog - a "work in progress" that is devoted to the study of one meme: value. The "Mind" is a super computer between our ears that can instantly calculate value. Computers and economists work only with money, which is not the same thing at all.

Notes: (I will try to provide comments and important off-page links at the bottom of the topic, like this, to make it easier to verify the links are all working and to avoid too much clutter in he main text).

[1] A detailed biography is supplied [here]

[2] "Mind" is a central topic, introduced [here]
[3] Deleted
[4] This a radical transformation of the way we think of language. It is certainly not "like" a branch of Mathematics and not mainly concerned with "truth or falsehood" or even conveying "information" in the modern sense. Language events take place in the "Universe of Discourse" described by Hofstadter [here].
[5] Douglas Hofstadter helps us out by shedding a bright light on "I", the most important idea of all which turns out to tell us what "you" means and a lot about the "meaning of meaning".

I warmly welcome your comments. 

Human welfare and the four economies

My thoughts about the four economies have emerged from thinking about money and debt. Some writers, especially Graeber do a great job of sketching what money is (debt) and prying the concept away from "value". Graeber makes dire predictions about the fate of the world based solely on the nature of money. Graeber seems to think that, by the very nature of money, debt expands to choke the "real" economy - a phenomenon he calls "debt deflation".

I think that Graeber's misunderstands the way that money works and its relationship to the other economies we live in, most obviously value (which is constantly being created and destroyed) and information (which mostly grows at an exponential rate, contributing to a growing percentage of the value of everything we buy). However, Graeber's analysis is helpful in pointing out that many transactions involving money and the creation of debt take place entirely in the "money universe" without increasing value. In the big picture, this seems to increase debt relative to value, in effect, reducing the amount of value available to ordinary people. I'm not sure this analysis holds water when you realize that value doesn't obey the same rules as money. We usually acquire debt in order to obtain ownership (directly or indirectly) of something of value (other than money). "Net" value can dramatically change with ownership. The classic example is when the thing of value is a "plant" that can be used to manufacture things of value - value that exceeds the cost of production.

Graeber takes us on the intellectual journey of Marx and explains why things don't work the way Marx thought or even the way Marx wanted things to work. Borrowing money to "make" money is, as he says, a drag on the "real" economy and does little more than manufacture debt. The business of entire "finance" industry is based on the value of money for its own sake, resulting in the byproduct of growing debt floating around in the economy.

An example, dear to Graeber's heart, is real estate. One might argue that changing ownership of a house does not, as a rule, change its value. In practice, real estate prices (not values) tend to inflate and a lot of debt is generated in the process. Banks manufacture money for mortgages. For this reason, Graeber lumps real estate in with Finance as the bad guys. The insurance industry gets tossed in with the others for reasons I won't discuss (FIRE = Finance, Insurance, Real Estate).

I have my doubts about Graeber's analysis of a real estate transition.  Real Estate is a market like any other. The amazing thing about a market is that it matches every buyer who thinks something is worth X with someone who thinks that something is worth getting rid of and is, therefore, it's worth less than X. In other words, the basic mechanism of any market is based on fundamental disagreement over the value of the goods being traded. Both opinions are subject to feedback (what people think other people think things are worth and what other people think about what other people think ...), resulting in a classic example of a chaotic system. You get a mass movement of investment into real estate when people think it can't possibly lose money and massive losses (crash) when real estate does, in fact, lose value.*

Mandelbrot has convincingly argued that markets are inherently chaotic According to this line of thinking, price "inflation" is just part of a truly chaotic pattern, where collapse of "bubbles' is inevitable. Chaos is guaranteed by the "math" underlying the system. If true, this refutes Graeber's thesis, not just about real estate, but about finance, which is the core market that Maldelbrot uses an example. If Mandelbrot is right, the amount of money (and therefore debt) in the "system" can be expected to fluctuate wildly to the degree that a market for money itself exists. That's not what Graeber is predicting and the difference is hardly trivial. Sadly, Mandelbrot and Graeber give us two different pictures of Hell: A long strangulation of the real economy (Graeber) versus an endless sequence of fundamentally unpredictable crashes and booms (Mandelbrot).

The fundamental point of contact between the two theories seems to be in the mind of the "players". Graeber's theory is that debt is non-negotiable, collectable under any circumstance and independent of what people think. If true, this would tend to remove (damp) chaos from the system. In 2008, we learned that some opinions about some forms of debt can change overnight, resulting in the sudden disappearance of trillions of dollars of financial "assets" and the corresponding trillions in debt. I think Mandelbrot is closer to the truth than Graeber. The crash occurs when the "system" suddenly realizes that vast sums of "money" are based on uncollectable debt.

The response of the banking system to the 2008 crash is a separate issue, involving some fancy footwork by the world's central banks. This massively involves the "reserve" system, which doesn't seem to factor into Graeber's story about money (at least in his book on debt). "Reserve" money - what banks owe each other - is not connected to debt. It's more like a way of making sure that there are enough tokens in the right pockets to keep the whole thing running, especially a way of making sure that there is enough "cash" (IOU's from the Government) around to allow depositors to "withdraw" their money (transfer debt from the bank to the government) and pass it around between banks in a more or less frictionless way.

Putting it all together to understand the world we live in would seem to require an understanding of more than money and debt. In fact, it would seem to involve re-evaluating a lot of things. It's not surprising at all to find ourselves retracing the thoughts of Marx on the subject. He thought deeply about money, debt and value. But the role of information was completely ignored in his time and the universe itself seemed to be nothing but a passive store of raw materials. In our time, the universe is fighting back.

Money

Money is created in the modern economy precisely in the amounts of debt people (including governments) are willing to assume. Most people have no idea how "money" works, yet it can control their lives.

The physical form of money is hardly relevant. It may exist purely as information and it is, in a sense, pure information. A dollar is a fact. That fact is that a government (Canada, say) owes the bearer one dollar. That would seem to be a circular statement, except the "fact" is supported by the Government, which is not a figment of anybody's imagination. When a dollar is deposited in the bank, its factual nature changes slightly. Now it is the bank who owes the depositor one dollar.

As information, a dollar is a unit of debt. Somebody owes somebody a dollar. It's the "somebody's" that make it real.

Biology and Value - The "Real Economy"

Value relates to living things and makes no sense in the inanimate world. Value is always relative to a living thing. One animal's mother is another animal's food. Perception of value is not necessary for value to exist, although the domain of perceived value by humans is the case we will discuss here.

As humans, we constantly weigh up the value of things in our environment, creating an economy of made up of all the "stuff" that matters to us. In the value universe of humans, most stuff of value is owned by someone (or, as in the case of the "commons" by society) and the rules whereby ownership is changed are complex and interesting. Money can be involved and usually is, but when goods are exchanged for money, the amount of money in the system remains unchanged but the value can dramatically increase or decrease. One example among many is the purchase of mineral rights.

For example, when I buy a banana from the grocer, a bit of money moves from my hands to his and the ownership of the banana changes from him to me. As food, the banana has value to me. But if nobody buys it, the banana will rot and be without value to the anyone. Laying aside a few details, value is created when I buy a banana, even more obviously, when I pick it from a tree.

The biological forms we perceive and name can be somewhat arbitrary. It's important to identify the form you are talking about to make sense of the relative value. To illustrate this point, internal discipline is a value to a human organization - it contributes to the survival of that organization. However, it may not coincide with the welfare of individuals in the organization - in fact, it may be seen as a negative value by certain individuals. such as soldiers ordered into certain death.


Information

The information economy is increasingly important in the modern world. Information can be created from nothing, duplicated and shared. It is very similar to the "stuff" in the value economy in that its importance is solely in the eye of the beholder. But efforts to apply the concept of ownership to information reveal its slippery nature. If I share information with you, we both have it. In fact, the value of information often seems to grow the more people have it. It obeys its own unique rules.

Life itself is the transmission of information (DNA) to future generations. This all takes place in a physical world where one thing is not as relevant to that transmission as another (value) and the whole process is taking place in the real world, where the laws of physics cannot be circumvented.


Energy and the "Real World"

The entire natural world is all about the exchange of energy in countless forms. These exchanges take place according to rules and patterns of their own, irrespective of human value or even the presence of humans. Biology is a subset of this world, where information becomes important (DNA, evolution, stimulus and response).

"Stuff" - matter - participates in the energy economy. Stuff can be bought and sold as can energy itself, but the financial details do nothing to circumvent the rules of the energy economy, such as the laws of thermodynamics, conservation of matter etc.

We buy and sell energy as part of the "money" economy, often ignoring the physics and biology involved in these transactions. Underlying all such transactions is a loss, due to entropy, of the thing being traded. It's like a sales tax on every money transaction except that in this case, the tax is simply thrown away. "Production" of energy often involves irreversible destruction of value in the form of environmental destruction and other ways that the energy industry regards as "external" costs.

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* Of course, many real estate transactions are not based on such "disagreement". The buyer simply pays a "fair price" for what the seller has and no longer needs. There is something "real" underlying the transaction. This is unlike purely financial trades, where some form of security is being traded.