Cactus Club September 1998

Cycle IV:Part 2

9 September 1998..............a fragile process

Quoting from CHAOS by James Gleick------------"Weather forecasting was the beginning but hardly the end of the business of using computers to model complex systems. The same techniques served many kinds of physical scientists and social scientists hoping to make predictions about everything from the small-scale fluid flows that concerned propeller designers to the vast financial flows that concerned economists. Indeed, by the seventies and eighties, economic forecasting by computer bore a real resemblance to global weather forecasting. The models would churn through complicated, somewhat arbitrary webs of equations, meant to turn measurements of initial conditions--atmospheric pressure or money supply--into a simulation of future trends. The programmers hoped the results were not too greatly distorted by the many unavoidable simplifying assumptions. If a model did anything too obviously bizarre--flooded the Sahara or tripled interest rates--the programmers would revise the equations to bring the output back in line with expectations. In practice econometric models proved dismally blind to what the future would bring, but many people who should have known better acted as though they believed in the results. Forecasts of economic growth or unemployment were put forward with an implied precision of two or three decimal places. Govermments and financial institutions paid for such predictions and acted on them, perhaps out of necessity or for want of anything better. Presumably they knew that such variables as "consumer optimism" were not as nicely measurable as "humidity" and that the perfect differential equations had not yet been written for the movement of politics and fashion. But few realized how fragile was the very process of modeling flows on computers, even when the data was reasonably trustworthy and the laws were purely physical, as in weather forecasting." Questions: Why is the process of modeling flows on computers "fragile" and why did only a few realize this fact? What can social scientists and politicians learn from weather forecasters? (PD)

12 September 1998................not a machine

Quoting from COMPLEXITY by M. Mitchell Waldrop------------"To Arthur, thinking of all the myriad forms of life on Earth, this was a revelation. At a molecular level, every living cell was astonishingly alike. The basic mechanisms were universal. And yet a tiny, almost undetectable mutation in the genetic blueprint might be enough to produce an enormous change in the organism as a whole. A few molecular shifts here and there might be enough to make the difference between brown eyes and blue, between a gymnast and a sumo wrestler, between good health and sickle cell anemia. A few more molecular shifts, accumulating over millions of years through natural selection, might make the difference betgween a human and a chimpanzee, between a fig tree and a cactus, between an amoeba and a whale. In the biological world, Artuhur realized, small chance events are magnified, exploited, built upon. One tiny accident can change everything. Life develops. It has a history. Maybe, he thought, maybe that's why this biological world seems so spontaneous, organic and---well, alive. Come to think of it, maybe that was also why the economists' imaginary world of perfect equilibrium had always struck him as static, machinelike, and dead. Nothing much could ever happen there, tiny chance imbalances in the market were supposed to die away as quickly as they occurred. Arthur couldn't imagine anything less like the real economy, where new products, technologies, and markets were constantly arising and old ones were constantly dying off. The real economy was not a machine but a kind of living system, with all the spontaneity and complexity that Judson was showing him in the world of molecular biology. Arthur had no idea yet how to use that insight." Questions: What implications does this insight have for social engineers and politicians? Are mainstream economists and economics professors out of touch with reality? Can we predict the consequences of ANY intervention in current global financial problems? (PD)

15 September 1998..........conservatism vs. creativity

Quoting from CHAOS, MANAGEMENT AND ECONOMICS by David Parker and Ralph Stacey (one of the required textbooks for Principles of Socionomics)-----------"The new science invites planners and free marketeers alike to reconsider that old conundrum - the relationship between freedom of choice and constraints. On the old view, successful organisations and economies were those which achieved a predictable equilibrium adaptation to their environments. Then members of such a system only had a choice in so far as environmental constraints were loose. The new science tells us that creative systems are far from equilibrium. They operate where they are not adapted to otheir environments and successful futures are therefore not constrained by those environments. The relevant system and its environment co-evolve in a manner determined by the interaction betweeen them. Consequently, the members of a system have free choice of actions, but the price they pay is that they cannot know the long-term outcomes of those actions. Therefore, they cannot know whether the outcomes will prove desirable or not. The trade-off seems to be this: a firm or an economy can be made stable by constraining it with rules, regulations and plans and the result will be certain stagnation. The alternative is to free the firm or economy so that it relies on self-organising interaction, learning and market processes; then creativity becomes possible. But the specific outcome is unknowable." Questions: Does this analysis also apply to society in general? Is there an inherent conflict between conservatism and creativity? What is the price of economic and social progress? (PD)

21 September 1998..............response to 15 September 1998

Conservatism and creativity are indeed at odds, much to the detriment of the "traditional" organization, not to mention the interventionist economy. I refer not to today's political conservatism, but to any concerted effort to impose stasis upon a system. I recently completed an article for an engineering magazine about what's known as the "Not Invented Here" syndrome (NIH), which is the refusal by an individual or organization to make use of advances developed by others.

The article details some of the different forms NIH takes besides the stereotypical scenario of the arrogant engineer who cannot acknowledge that others might do something better than him. One of the forms of NIH I discuss in the article is that of standards and procedures in organizations, which can make innovation difficult or impossible. Standards, for example, can result in red tape that makes it too difficult to use new technology that has not been included in the quickly outdated standard. An instance of this in my own manufacturing firm recently was a manager's refusal of a request by my group for permission to use a newly developed process computer; his sole reason for the refusal was because it wasn't in the standard. Procedures, meanwhile, can result in workers who "check their brains at the door," and don't see innovation -- for example, thinking of more efficient or faster ways of doing their work -- as part of their function. This is not to say standards and procedures are always bad. But they must be carefully crafted, and maintained with diligence, in order to avoid the negative impacts they can have on innovation. In the same way, constraints or regulations in the economy must be carefully weighed before they are promulgated. And if a company's entrenched regulations have a tendency to become outmoded and therefore a hindrance, the like tendencies of the legal restrictions of the interventionist economy are many, many times worse.

This should be a factor in the debate over such restrictions. Companies and organizations are under ever-increasing pressure to innovate. We'll soon see wholesale changes in both structure and management that will facilitate this process. And call me an optimist, but I believe that perhaps one day we'll see the same action in our government. (JV)

23 September science and natural science

Quoting from "Social Science and Natural Science" by Ludwig von Mises in AUSTRIAN ECONOMICS: A Reader, edited by Richard M. Ebeling-------------"Physicists consider the objects of their study from without. They have no knowledge of what is going on in the interior, in the "soul" of a falling stone. But they have the opportunity to observe the falling of the stone in experiments and thereby to discover what they call the laws of falling. From the results of such experimental knowledge they build up their theories proceeding from the special to the more general, from the concrete to the more abstract. Economics deals with human actions, not as it is sometimes said, with commodities, economic quantities or prices. We do not have the power to experiment with human actions. But we have, being human ourselves, a knowledge of what goes on within acting men. We know something about the meaning which acting men attach to their actions. We know why men wish to change the conditions of their lives. We know something about that uneasiness which is the ultimate incentive of the changes which they bring about. A perfectly satisfied man or a man who although unsatisfied did not see any means of improvement would not act at all. Thus the economist is, as Cairnes says, at the outset of his researches already in possession of the ultimate principles governing the phenomena which form the subject of his study, whereas mankind has no direct knowledge of ultimate physical principles. Herein lies the radical difference between the social sciences (moral sciences, Geisteswissenschaften) and the natural sciences. What makes natural science possible is the power to experiment; what makes social science possible is the power to grasp or to comprehend the meaning of human action." Question: Does the use of mathematics help or hinder the development and application of economic analysis? (PD)

24 September economics education

Quoting from BIONOMICS by Michael Rothschild (one of the required textbooks for Principles of Socionomics)---------------"Unable to explain the awesome complexities of real economic life as experienced by workers and businesspeople, where history matters and change is constant but largely unpredictable, Western economists have barricaded themselves inside their obtuse mathematical models. Now equipped with immensely powerful supercomputers, top academic economists put their energies into making the descendants of Alfred Marshall's model ever more complicated instead of proposing truly different, and more revealing, models of reality. As Lester Thurow, a well-known American economist and dean of MIT's Sloan School of Management, has written, 'If Newton and his contemporaries had behaved as the economics profession is now behaving and had access to the modern computer, it is likely that the law of gravity would never have been discovered.'

Although his point is correct, Thurow's reference to Newton is symptomatic of the basic problem. Western economists stilll think that physics equals science. Most still conceive of the economy as if it were the stabe clockwork mechanism of the heavens described by Newton. Adherents of Marxist ideology are no better off. If it can be compared to anything, Marx's belief in spasmodic change through class conflict is an unwitting economic version of Cuvier's catastrophism.

Both Marxist and Western economics were established before Darwin published THE ORIGIN OF SPECIES. To date, neither side has ever seriously considered evolutionary biology as the paradigm for an entirely new kind of economic thinking. Consequently, neither side has yet resolved the central dilemma of how the economy changes." Question: For those of you who have studied economics, from Principles to PhD., do you consider this a valid criticism of a typical economics education.? (PD)

26 September 1998...........response to 23 & 24 September 1998

Cactus Club dialogue item 23 September, 1998, presents Ludwig von Mises' well-known argument that social science is something other than natural science. PD then poses the question whether mathematics helps or hinders the development and application of economic analysis. I can hear Mises protesting the question all the way from his grave. Mises contends that social "knowledge" is exclusively derived by introspection, not to be tested by dispassionate or impersonal observation in the manner of the natural sciences.The conclusions of the "social scientist," according to Mises, cannot be tested for consistency with reality by any means known to man. Inasmuch as Mises' "proper" social conclusions would not, indeed, could not be subjected to falsification, they must remain matters of opinion or interpretation to be judged only by abstract reasoning and subsequent history as it unfolds. It is only in the "quality" of such endeavors that the conclusions can be properly questioned. Such qualifications are the exclusive province of the noble scholar. Accordingly, social knowledge must belong to an aristocracy else it can not be considered knowledge.

If Mises is correct that social science is a matter of moral reckoning somehow "known" only in the obscure recesses of the aristocratic mind, then PD's question is irrelevant because mathematics is merely the language of numbers. Mathematics is useful in discourse only in the context of the natural sciences where relationships can be quantified and ratios formed (i.e., rationalized). This mental feat requires measurement and measurement requires systematic observation. The possibility of observation depends on non-contradictory identification of specific events by anyone in possession of his senses to reckon with coherent relationships between entities as they can be seen, felt, heard, smelled or tasted. A further possibility of measurement is counting up sets of related entities. Any additional quantification of properties of the entities is always desirable but not always possible with the means at hand. The means of observation are limited to ordinary human sense organs diligently employed according to operational rules that may engage instruments for amplification of the information if such are available and proven to have fidelity to the senses. Since observation, by definition, is within the grasp of any human beholder, it is essentially a democratic activity. It is also the only check on arbitrary opinion regardless of eloquence or symbolic logic. The Missouri sentiment is most appropriate here, namely, "Sir, you may well be right, but please show me." This sentiment may seem impertinent to the righteously convinced, but it is nevertheless worthy and timely on all natural occasions, social and otherwise. Such observation is always a test of the authenticity of authority, and judgment should be reserved until the experiment is completed. In this sense, all knowledge is experimental, Mises to the contrary notwithstanding. When it comes to learning, a seed of doubt is worth more than a world of righteous indignation. In case of doubt, test with the senses. Until this test can be accomplished, skepticism is in order. Since such testing can never be fully finished, all knowledge remains tentative such that arrogance never has cause to supersede humility. By the same token, aristocracy has no legitimate claim to moral superiority over democracy.

This is not to say that the social insights and rhetoric of Mises and other classical economists are without merit in the annals of social science. To the contrary, the hypotheses of the Austrians are a gift of simple and powerful suggestions of the nature of social order. Indeed, but for Mises expositions and speculations, many of us might never have considered, let alone recognized, the existence of a humane social order evolving under the aegis of natural forces at work. Yet, the job is unfinished. Indeed, it has barely begun. It is most curious how Mises aristocratic sense of science could have led to his elegant outline of laissez faire with economic democracy as its outcome. It is in this context that PD's question is relevant to the study of economics. But his question begs an antecedent one regarding the basis of a natural science of society. The method of science, heretofore most clearly demonstrated by physicists who deal with only the simplest of natural phenomena, is applicable to all natural phenomena including human interaction. Complexity in the phenomena only escalates the degree of difficulty in the application of the method. It does not excuse abandonment of the method, which is mankind's only means of learning reliably about the world and coping with arbitrary opinion. This brings me to PD's related dialogue item of 24 September on economic education. Rothchild's and Thurow's views are cited in regard to Newton's world machine idea and its effect on the progress of science. There is a good deal of truth in their apprehension of both positive and negative influences. Many would-be social scientists envy the physicist who they think can boil down all theories of natural phenomena to a mechanistic system of clockworks. While it is true that the mechanistic shortcut suffices for dealing with many physical problems at least tentatively, it is also true that physicists have been forced to abandon such models in order to advance their knowledge of the universe in general. Quantum theory is a case in point. Thus, the mechanistically-oriented social scientist misapprehends the experience of physics and thereby undertakes a perilous course to the study of his chosen field of phenomena. If the reduction of all observable matters to fit Newtonian system is a failure even in physics where it has achieved heroic recognition, such reductionism will be even more ill-advised in other fields of inquiry in which connections among events are somewhat more tenuous and obscure. The discovery of order in the world would seem to be in the nature of learning and the advancement of human understanding, i.e., knowledge. A fallacy of formal education in many circles is that all order, to qualify as such, must be reduced to a mechanically deterministic kind of order. In most cases, this approach will throw out the baby with the bathwater. In the social studies, it leads to the situation where order among humans can only be understood in terms of puppets animated by long strings attached to a yoke manipulated by some superhuman authority. The possibility of spontaneous order evolving among entities of equal moral standing remains invisible to the devotees of the world machine driven by some supreme engineer at the throttle. This mechanistic educational paradigm is highly cherished by politics, the sole purpose of which is to ordain such authority and perpetuate it in the minds of men. Nowhere else can such authority exist in the real world because the supernatural is strictly a figment of the imagination. Thus, the political paradigm is a pure deception maintained by schoolhouse indoctrination in beliefs in the great mechanic in the sky. Down here on earth, it is merely business as usual, albeit crippled by the deceptions and superstitions that linger from misguided education. (AL)

27 September 1998..............second thoughts

After sending my Cactus Club comments to you yesterday, I had some second thoughts on the mathematics question you posed. So I went back to your excellent review of the Austrian school position in JOS No.1 to regain my bearings. Clearly, if market prices exist, economic calculation using mathematics (finance, costing, etc.) is feasible and valid for private, competitive, entrepreneurial ventures. I suppose this is in the domain of microeconomics where experimentation occurs on a regular basis. Presumably, Mises would have agreed that such ventures facilitated by a laissez faire macroeconomic system represent "controlled social experiments" (although he never did so in my personal encounters with him back in 1960-62). Such experiments fit the description of scientific endeavor relying on deliberate testing of extrapolations of theories, then to observe the consequences for purposes of corroboration or falsification. There is no moral problem with this kind of experimentation as long as it is entirely willful and voluntary, i.e., it is contractual, maintaining the integrity of property (no fraud, subterfuge, blackmail, intimidation, usurpation, theft, violence, etc.). All this means is that true entrepreneural ventures occur only among individual human beings of equal moral standing. The idea of scientific investigation on a macroeconomic scale tormented Mises. No doubt he reacted to the reductionistic physicists of his time like his own famous brother Richard, the renowned NAZI aerodynamicist. Believing as he did that the logical positivists had a lock on science (a monopoly of natural science) which would become inhumane if applied as they advocated in the social domain, he invented an alternative "science" which he called "praxeology" to ensure against such reductionistic encroachments into his field of study. In so doing, he would forsake natural science as he understood it and all science as I understand it. Mises abhorred the idea of controlled experiments in the social domain. He objected on moral grounds based on the usurpations of human rights he found in the proposals of his positivist adversaries. However, he might have argued against them more effectively on more practical grounds. Had he done so, he would have avoided abandoning natural science or conceding it to the positivists. Simply put, he might have pointed out that controlled experiments with the economic system are no more possible than are controlled experiments in astronomy. Astronomy is not only a science but it is the mother of mathematical invention. How so? Astronomers have no hope of manipulating the subjects of their studies. They must be content to take the phenomena as they are, or as they come, and concentrate on perfecting their observations at "arms" length. Ever since Johannes Kepler in the Seventeenth Century, astronomers have modeled the motions of the celestial objects they could observe in mathematical terms. Macroeconomists, to behave like true scientists, must take a page from the astronomers if only to avoid the problem of indeterminacy. If they manipulate their subjects by political means (public policy), they spoil their observations by corrupting the subjects with regimentations that are mere human contrivances imported by stealth or force into the economy. Then, their observations will be of phenomena which are not native to the economic environment. In fact, much of what they will observe will have been contrived behavior instead of the natural, authentic expressions of genuine human beings equipped to act on their own recognizance. So for economics to be a natural science, it must take a laissez faire (arms length, hands off) approach in common with all the other sciences in order to avoid self-fulfilling prophesy. I have no doubt that this laissez faire approach to economic science will eventually corroborate the core theory of laissez faire capitalism as advocated by the Austrians. To date, only Rothchild's "Bionomics" comes close to such an effort as far as I know. Perhaps you know of others. Economics and all the social studies have a special disciplinary problem not so imminent in the other fields of science. Politics (the art of conquest) is no doubt an intimate aspect of human psychology and it is such an obviously traditional human temptation that it stands as a natural obstacle to the development of a natural science of society. This will be true as long as political phenomena are commingled with social phenomena. In order to deal with this problem, politics must be carefully differentiated as a natural phenomenon in its own right, separate and distinct from social affairs. Politics is a zero-sum game in which one wins at the expense of the losers. Society is not a game at all but a way of human life in which all may win to some degree. Since conquest of people (politics) is utterly alien to spontaneous association, I think of politics as a social pathology. Then I can see social science is like hygiene, the study of social health. Political science then becomes the study of social pathology. So, to use an analogy, political science is to social science as pathology is to medicine. It seems to me that socionomics has been chartered to fit the hygienic role. Congratulations!

Note: My last effort omitted an important connection in the development of authentic social science. I hasten to make the following acknowledgement in the interest of bringing Spencer Heath's landmark work in "Socionomy" into a discussion that initially focussed somewhat narrowly on economics but ended up encompassing the whole of social science. I said: "Economics and all the social studies have a special disciplinary problem not so imminent in the other fields of science. Politics (the art of conquest) is no doubt an intimate aspect of human psychology and it is such an obviously traditional human temptation that it stands as a natural obstacle to the development of a natural science of society. This will be true as long as political phenomena are commingled with social phenomena. In order to deal with this problem, politics must be carefully differentiated as a natural phenomenon in its own right, separate and distinct from social affairs." This insight is due to Spencer Heath and is merely my interpretation of his CITADEL, MARKET AND ALTAR. In addition, when I said earlier in the same piece: "I have no doubt that this laissez faire approach to economic science will eventually corroborate the core theory of laissez faire capitalism as advocated by the Austrians. To date, only Rothchild's "Bionomics" comes close to such an effort as far as I know. Perhaps you know of others." I should have cited Heath as well because his "Socionomy" is the finest example of the laissez faire method of scientific inquiry that I know. Might I also suggest that CITADEL, MARKET AND ALTAR be added to the TCSR reading list. Thereby, others may come to know and appreciate this important work. (AL)

29 September 1998...........freedom, power, and semantics

Quoting from TOWARDS A FREE SOCIETY by Gary Wolfram-------------"Often times liberty or freedom is confused with power. Bastiat made the point in THE LAW that liberty is not the same as power. He used the example of education. The power to receive an education can be given by the state, but from whom does the state get this power? The only way the state can provide you with an education is to get the resources away from other uses. This it can only accomplish by taking from someone. Hayek writes about the confusion that people like John Dewey and John R. Commons create when they argue that liberty is a freedom from obstacles. Liberty is really a freedom from coercion. If you define liberty as a freedom from obstacles, then it comes very close to arguing that liberty is wealth. The more wealth you have the more types of obstacles you can overcome, and thus the more liberty you have. This leads to the conclusion that you can increase liberty by taking from the wealthy and distributing this wealth among the less wealthy. But this is really saying that persons can be coerced into doing things they otherwise wouldn't do, e.g., to give up their property to those who wish to redistribute it." Comment: Here we once again use Professor Wolfram's book to make the transition from real economics to social harmony. Question: How important is a generally understood and precise definition of terms such as liberty, freedom, coercion, power, property and rights to the development of socionomic understanding? (PD)