An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
I could have said a pathway to socialism or anything else, but given the worldwide calls for a fairer, more equal society, I thought it time to discuss something provocative. If the moronic elites are going to declare class war on labor, then it is only a matter of time before labor is plunged into more suffering. I don't agree with the somewhat observatory stance taken by the MMT community, rather a more active role should be taken to equip the next generation so that the same mistakes are not repeated.
What has MMT got to do with this? After learning about the MMT definition of supply side inflation, the next logical question is how to fix supply side inflation? Generally the response by the state; in the form of taxes, fines, interest-rates, etc; is to destroy or inhibit the ability of a sub-class of economic agents that are dependent on the inflation causing resource. This approach works fine as long as the economic-agents are not people, that is they are firms.
However, as usual, there is a massive deficiency in economic thought when it comes to dealing with supply side inflation. I think that there is a good reason too. If there was a body of work that could describe fair approaches to handling supply-side inflation, then hypothetically, an economy could be run extremely efficiently. From this efficiency, a level of coordination could be achieved, that would in some way resemble Communism.
Right, so you have discussed how MMT via supply-side inflation is involved, but you need to define a way of dealing with supply-side inflation.
So my opinion is that when talking about supply-side inflation three concepts are needed, (1) The Guardian (2) Constrained-Token. (3) Quota-Determination.
(1) The Guardian.
The Guardian is suppose to represent the distributional structure needed to distribute a rare resource. The personification of the term is meant to indicate the nature of the structure, and it is an essential detail. The reason why, is because the Guardian is the structure that has complete control, granted by the people, to distribute a resource that is needed for the existence of the people.
The arbitrator has the ability to significantly control the masses, by exerting influence over distributional structure. Now to objectively define the characteristics of the Guardian it is necessary to talk about Game Theory.
The Dictator Game would be the standard of measure of the Guardian(won't discuss the game here). Basically, the Guardian would need to be extremely altruistic in nature. Further given its position of power, I would deem the Guardian somewhat irrational, because presented with the opportunity to exploit a massive labor force, it instead does the opposite.
Constructing the Guardian is rather a difficult task. You could randomly attempt to construct an institution that in some why is 'measurably' altruistic. However I think a more robust framework is needed to describe the construction of the Guardian.
IMO there are two factors that need to be considered; (1) The boundaries of the Guardian. (2) The altruistic nature of the Guardian.
The boundaries of the Guardian.
What would prevent two countries that seem to oppose each other going to war? Their definition of 'self'. As the economic networks between two countries( generalizing to two entities), increase and strengthen, then this leads to the two entities becoming more inter-dependent. The definition of self is no longer clearly defined for either economy. Both economies are connected in a way, that severing networks through hostilities would be mutually damaging. This pattern is repeated through out nature, the connection between the arm and the brain, relationships between people, food-chains, etc. This inter-connectedness redefines the meaning of self, such that destroying something that may have once been considered external, is harmful because of the networks that connect the external with self. This natural pattern can be used to construct the Guardian.
The altruistic nature of the Guardian
Firstly a definition of altruism is needed that does not overlap with 'the boundaries of the guardian'. So I will define as follows: Altruism is the probability associated given the case; Of an agent interacting with a second party, the first agent has the ability with minimum risk to exert control to exploit the second party; such that it doesn't.
This would represent a deviation away from optimal behavior. Therefore entities exhibiting this deviation, would for the problem of distributing a rare essential resource, possibly be an essential component of the distribution of said rare resource.
So these two 'natural' properties would be used in constructing the Guardian.
The constrained token would represent an entitlement to an amount of the essential resource. It would function as a separate token system. The issuance would be handled by the token issuer according to a protocol agreed-ed to by the people.
(3) Quota-Determination
Quota-Determination would require a secondary informational system that would measure the wants & desires of the people for the rare resource. Accordingly, it would calculate the appropriate amount of constrained tokens each person would receive.
The Quota Informational System sounds oracle-like, something a bit more practical is needed
The difficulty of the Quota Informational System is that the 'wants and desires' measured by it will equal more than the total amount of resources available, by definition that is why it is a rare resource! So the Quota Informational System will also need to exhibit some 'Guardian-like' behavior in order to apply a 'hair-cut' to want people need & want.
Definition of ideal Quota Determination.
Ideal quota determination will occur when: Everyone first expresses the amount of rare resource that they want & desire and then also express how much they think every other person should receive. The result would be two calculations: (a)The first being the sum of what everyone wants, (b)The second would be the sum of the average of what everyone should receive. There would be an additional factor needed so that the proportion of both calculations would be summed in such a way that would arrive at the total amount of available rare resource. The (b) component of the calculation would be done with the knowledge of calculation (a) outputs.
BTW this type of algorithm doesn't seem to have been analyzed before.. anyone willing?
So the definition of ideal Quota is meant to represent the ideal case, not be actually implemented. I could possibly argue that achieving it is impossible. However, I imagine that initially people would first fall into social categories, and the rare-resource would be divided based upon those social categories.
This still appears to have nothing to do with Communism.
Really? Simple, remove money, and distribute everything according to the Quota system. That's communism right? Everything would be distributed according to notion of "socially necessary". The wants & desires of each person for each resource would be perfectly allocated given the amount of available resource.
Even so, I don't see how it will ever be possible.
Sure, I agree, if anything, I've shown that communism more likely to be impossible. But that's missing the point. The Marxian concept of "Socially Necessary Labor Time" is an poorly defined concept. What is socially necessary? Who decides what is socially necessary? These are two essential questions that need to be understood and answered in order for people to understand the financial system. As said elsewhere, the idea of perfectly socially necessary is the ability to measure the wants & desires of everyone everywhere simultaneously. This is currently reflected in the pricing mechanism. When this occurs resources will be allocated perfectly, and the performance of the economy will be maximized.
Although this doesn't show how to guarantee the creation of communism, it does show via non-violent means a way of achieving socialism.
Also as I have said elsewhere, the quality of prices determines how well resources are allocated. Economic growth is IMO strongly influenced by the pricing mechnasim. But the definition of prices, what they are, where they come from is a poorly defined topic. Hopefully, as demonstrated, the idea of Socially Necessary and Price Structure are indistinguishable.
From this perspective prices aren't determined by the market, they are determined by what people deem socially necessary. This statement should be one of the founding laws of economics.
If you look at the video (may have to several times) and read the transcript, you can see the perhaps embryonic stages of an MMT body of thought on "inflation" or probably 'price setting'. Where the MMT leaders introduce the concept of "ratification" of prices by the currency monopolist as the operative force in allowing the general price level to edge higher over time... forget traditional 'quantity theory' it's done/gone.
Scarcity:
Careful here imo. The rentier class depends on the propoganda of 'scarcity'. Peak Oil, etc.. they depend on having the public believe we are limited. They monopolize a resource and then spin things so that people think TINA (there is no alternative to petro for instance), and the resource is scarce. "Global Warming" may also be in a way supporting their efforts here by discouraging new supply.
We have plenty of resources globally. And there are many alternatives. We should see to it that your 'essential resources' are abundantly available.
Great work. You have obviously been thinking deeply about this.
Plato (424/423 BC – 348/347 BC) advanced a guardian system of government in The Republic. Plato is generally misunderstood as having been the forerunner of both Fascism and Totalitarian Communism. Nothing could be further from the truth. Plato recommended rule by the wise and good, and he put forward a plan to create a class of such people through the eduction they would receive and the way they would live. Instead of being technocrats, they would be the enlightened ones. This is similar to Buddhist ideals embraced by Ashoka (ca. 304–232 BC) and set forth in the The Republic. As emperor, he had this knowledge disseminated as far as the West. There is also a version in the Vedic tradition based on Rama that is called Ram Raj, that is, the rule of Rama. Like Jesus, Rama is taken to be God in human form as an advent of the Avatar. (Sanskrit avatara means "he who descends.")
While ideal government based on the wise may seem like at unattainable, even foolish, ideal to many today, the ancients did not think so. But the facts is that modern society is not only not trying to attain to this ideal, but actually subverting it through perverse institutions.
BTW, Marx & Engels were influenced by anthropologist Lewis Morgan's writing on ancient society, e.g, the Algonquin tribe of New England, who lived an ideal communal life without any notion of private property. They saw class antagonism arising historically after the breakdown of this type of communal tribal social organization dominated by consensus.
Once self-interest and greed are given a blessing culturally, the result is rather predictable. Crass individualism will result in cabals based only on advancing common interests against others in order to gain advantage. This increases competition and undermines cooperation and coordination on a wider scale, creating divisions in society and eventually classes of haves and have-nots, especially as one class garners control of the state's monopoly on violence. This is the antithesis of rule by the wise and good.
Liberal democracies were developed to counter the extreme class divisions arising from feudalism. The principle problems facing the so-called liberal democracies of today, which are really republics captured by elites, arise from a culture that has lost its way and has strayed from its founding ideals as elaborated in the Enlightenment. The educational system is not producing people of wisdom, and the political process is based based on a selection process that selected in many of the worst and few of the best.
While I think that humanity will move on to adopt algorithmic rule when AI becomes mature, in the meantime we need to re-engineer existing institutions to suit the needs of the time rather than allowing them to continue to serve money based on ignoble ideology, perverted norms, and specious reasoning.
For the record, I think that there is a deficiency in Game Theory.
Game Theory talks about scenarios & the optimum decision each player should take. But it doesn't take into account the cost of (arbitrator|guardian|regulator). The fact that there is no word to describe this entity is a telling sign.
I think Warren made a comment recently that "quantity" theory is not necessarily bad, but you have to look at the correct "quantity".
I took that to mean some sort of quantitative measure of NFAs, vice "money supply" like goes in the MVPQ equation from traditional 'quantity theory'...
Shaun: "Game Theory talks about scenarios & the optimum decision each player should take. But it doesn't take into account the cost of (arbitrator|guardian|regulator). The fact that there is no word to describe this entity is a telling sign."
Game theory is about the interaction of a few individuals. Extrapolating it can involve the fallacy of composition, similar to problems affecting micro and macro.
This is a difficulty inherent in methodological individualism.
MV = PQ is an expression of identity. As such, it is a tautology. Its interpretation in causal explanation is what is in question in the quantity theory rather than its syntactical truth (logical necessity) as an expression of identity.
MV E pQ, where M is the quantity of money in a society, V is its velocity of circulation (or the average number of times money changes hands in a year), Q is the quantity of real goods and services created and sold during that year, and P is the average price of those goods. Every transaction in the marketplace is a two- way swap: the seller turns over goods or services valued at a price, and the buyer surrenders cash equal to that price. It must therefore always be true that the total value of cash turned over by buyers equals the value of goods and services received. That value, in turn, is nothing more than the sum of each commodity multiplied by its market price. This is why between the symbols MV and PQ one finds not an equals sign, but an equals sign plus a third line to indicate an identity. The relationship MV E pQ always holds.
Thats what I came up with! The next part is to account for the 'natural' growth in goods and services so that that m & v can be optimized.
I also postulate that for each transaction there is an associated energy loss, which also needs to be accounted for. There is also an amount of energy needed to create and destroy money.
Once these parts are figured out, you would have a reasonably robust model.
16 comments:
A Pathway to Communism
I could have said a pathway to socialism or anything else, but given the worldwide calls for a fairer, more equal society, I thought it time to discuss something provocative. If the moronic elites are going to declare class war on labor, then it is only a matter of time before labor is plunged into more suffering. I don't agree with the somewhat observatory stance taken by the MMT community, rather a more active role should be taken to equip the next generation so that the same mistakes are not repeated.
What has MMT got to do with this?
After learning about the MMT definition of supply side inflation, the next logical question is how to fix supply side inflation? Generally the response by the state; in the form of taxes, fines, interest-rates, etc; is to destroy or inhibit the ability of a sub-class of economic agents that are dependent on the inflation causing resource. This approach works fine as long as the economic-agents are not people, that is they are firms.
However, as usual, there is a massive deficiency in economic thought when it comes to dealing with supply side inflation. I think that there is a good reason too. If there was a body of work that could describe fair approaches to handling supply-side inflation, then hypothetically, an economy could be run extremely efficiently. From this efficiency, a level of coordination could be achieved, that would in some way resemble Communism.
Right, so you have discussed how MMT via supply-side inflation is involved, but you need to define a way of dealing with supply-side inflation.
So my opinion is that when talking about supply-side inflation three concepts are needed, (1) The Guardian (2) Constrained-Token. (3) Quota-Determination.
(1) The Guardian.
The Guardian is suppose to represent the distributional structure needed to distribute a rare resource. The personification of the term is meant to indicate the nature of the structure, and it is an essential detail. The reason why, is because the Guardian is the structure that has complete control, granted by the people, to distribute a resource that is needed for the existence of the people.
The arbitrator has the ability to significantly control the masses, by exerting influence over distributional structure. Now to objectively define the characteristics of the Guardian it is necessary to talk about Game Theory.
The Dictator Game would be the standard of measure of the Guardian(won't discuss the game here). Basically, the Guardian would need to be extremely altruistic in nature. Further given its position of power, I would deem the Guardian somewhat irrational, because presented with the opportunity to exploit a massive labor force, it instead does the opposite.
Constructing the Guardian is rather a difficult task. You could randomly attempt to construct an institution that in some why is 'measurably' altruistic. However I think a more robust framework is needed to describe the construction of the Guardian.
Construction of the Guardian.
IMO there are two factors that need to be considered; (1) The boundaries of the Guardian. (2) The altruistic nature of the Guardian.
The boundaries of the Guardian.
What would prevent two countries that seem to oppose each other going to war? Their definition of 'self'. As the economic networks between two countries( generalizing to two entities), increase and strengthen, then this leads to the two entities becoming more inter-dependent. The definition of self is no longer clearly defined for either economy. Both economies are connected in a way, that severing networks through hostilities would be mutually damaging. This pattern is repeated through out nature, the connection between the arm and the brain, relationships between people, food-chains, etc. This inter-connectedness redefines the meaning of self, such that destroying something that may have once been considered external, is harmful because of the networks that connect the external with self. This natural pattern can be used to construct the Guardian.
The altruistic nature of the Guardian
Firstly a definition of altruism is needed that does not overlap with 'the boundaries of the guardian'. So I will define as follows: Altruism is the probability associated given the case; Of an agent interacting with a second party, the first agent has the ability with minimum risk to exert control to exploit the second party; such that it doesn't.
This would represent a deviation away from optimal behavior. Therefore entities exhibiting this deviation, would for the problem of distributing a rare essential resource, possibly be an essential component of the distribution of said rare resource.
So these two 'natural' properties would be used in constructing the Guardian.
(2) Constrained Token
The constrained token would represent an entitlement to an amount of the essential resource. It would function as a separate token system. The issuance would be handled by the token issuer according to a protocol agreed-ed to by the people.
(3) Quota-Determination
Quota-Determination would require a secondary informational system that would measure the wants & desires of the people for the rare resource. Accordingly, it would calculate the appropriate amount of constrained tokens each person would receive.
The Quota Informational System sounds oracle-like, something a bit more practical is needed
The difficulty of the Quota Informational System is that the 'wants and desires' measured by it will equal more than the total amount of resources available, by definition that is why it is a rare resource! So the Quota Informational System will also need to exhibit some 'Guardian-like' behavior in order to apply a 'hair-cut' to want people need & want.
Definition of ideal Quota Determination.
Ideal quota determination will occur when: Everyone first expresses the amount of rare resource that they want & desire and then also express how much they think every other person should receive. The result would be two calculations: (a)The first being the sum of what everyone wants, (b)The second would be the sum of the average of what everyone should receive. There would be an additional factor needed so that the proportion of both calculations would be summed in such a way that would arrive at the total amount of available rare resource. The (b) component of the calculation would be done with the knowledge of calculation (a) outputs.
Proportional Fair Division
Envy-free Proportional Division
BTW this type of algorithm doesn't seem to have been analyzed before.. anyone willing?
So the definition of ideal Quota is meant to represent the ideal case, not be actually implemented. I could possibly argue that achieving it is impossible. However, I imagine that initially people would first fall into social categories, and the rare-resource would be divided based upon those social categories.
Cont.
This still appears to have nothing to do with Communism.
Really? Simple, remove money, and distribute everything according to the Quota system. That's communism right? Everything would be distributed according to notion of "socially necessary". The wants & desires of each person for each resource would be perfectly allocated given the amount of available resource.
Even so, I don't see how it will ever be possible.
Sure, I agree, if anything, I've shown that communism more likely to be impossible. But that's missing the point. The Marxian concept of "Socially Necessary Labor Time" is an poorly defined concept. What is socially necessary? Who decides what is socially necessary? These are two essential questions that need to be understood and answered in order for people to understand the financial system. As said elsewhere, the idea of perfectly socially necessary is the ability to measure the wants & desires of everyone everywhere simultaneously. This is currently reflected in the pricing mechanism. When this occurs resources will be allocated perfectly, and the performance of the economy will be maximized.
Although this doesn't show how to guarantee the creation of communism, it does show via non-violent means a way of achieving socialism.
Also as I have said elsewhere, the quality of prices determines how well resources are allocated. Economic growth is IMO strongly influenced by the pricing mechnasim. But the definition of prices, what they are, where they come from is a poorly defined topic. Hopefully, as demonstrated, the idea of Socially Necessary and Price Structure are indistinguishable.
From this perspective prices aren't determined by the market, they are determined by what people deem socially necessary. This statement should be one of the founding laws of economics.
Shaun,
very thought provoking stuff.
'Inflation': I tried to start something here
http://mikenormaneconomics.blogspot.com/2011/11/infaltion.html
If you look at the video (may have to several times) and read the transcript, you can see the perhaps embryonic stages of an MMT body of thought on "inflation" or probably 'price setting'. Where the MMT leaders introduce the concept of "ratification" of prices by the currency monopolist as the operative force in allowing the general price level to edge higher over time... forget traditional 'quantity theory' it's done/gone.
Scarcity:
Careful here imo. The rentier class depends on the propoganda of 'scarcity'. Peak Oil, etc.. they depend on having the public believe we are limited. They monopolize a resource and then spin things so that people think TINA (there is no alternative to petro for instance), and the resource is scarce. "Global Warming" may also be in a way supporting their efforts here by discouraging new supply.
We have plenty of resources globally. And there are many alternatives. We should see to it that your 'essential resources' are abundantly available.
Resp,
Yea I watched that video, I think Bill did a good job and had a strong influence in the way I expressed this idea.
Notice 'moronic' ;)
@ Shaun
Great work. You have obviously been thinking deeply about this.
Plato (424/423 BC – 348/347 BC) advanced a guardian system of government in The Republic. Plato is generally misunderstood as having been the forerunner of both Fascism and Totalitarian Communism. Nothing could be further from the truth. Plato recommended rule by the wise and good, and he put forward a plan to create a class of such people through the eduction they would receive and the way they would live. Instead of being technocrats, they would be the enlightened ones. This is similar to Buddhist ideals embraced by Ashoka (ca. 304–232 BC) and set forth in the The Republic. As emperor, he had this knowledge disseminated as far as the West. There is also a version in the Vedic tradition based on Rama that is called Ram Raj, that is, the rule of Rama. Like Jesus, Rama is taken to be God in human form as an advent of the Avatar. (Sanskrit avatara means "he who descends.")
While ideal government based on the wise may seem like at unattainable, even foolish, ideal to many today, the ancients did not think so. But the facts is that modern society is not only not trying to attain to this ideal, but actually subverting it through perverse institutions.
BTW, Marx & Engels were influenced by anthropologist Lewis Morgan's writing on ancient society, e.g, the Algonquin tribe of New England, who lived an ideal communal life without any notion of private property. They saw class antagonism arising historically after the breakdown of this type of communal tribal social organization dominated by consensus.
Once self-interest and greed are given a blessing culturally, the result is rather predictable. Crass individualism will result in cabals based only on advancing common interests against others in order to gain advantage. This increases competition and undermines cooperation and coordination on a wider scale, creating divisions in society and eventually classes of haves and have-nots, especially as one class garners control of the state's monopoly on violence. This is the antithesis of rule by the wise and good.
Liberal democracies were developed to counter the extreme class divisions arising from feudalism. The principle problems facing the so-called liberal democracies of today, which are really republics captured by elites, arise from a culture that has lost its way and has strayed from its founding ideals as elaborated in the Enlightenment. The educational system is not producing people of wisdom, and the political process is based based on a selection process that selected in many of the worst and few of the best.
While I think that humanity will move on to adopt algorithmic rule when AI becomes mature, in the meantime we need to re-engineer existing institutions to suit the needs of the time rather than allowing them to continue to serve money based on ignoble ideology, perverted norms, and specious reasoning.
For the record, I think that there is a deficiency in Game Theory.
Game Theory talks about scenarios & the optimum decision each player should take. But it doesn't take into account the cost of (arbitrator|guardian|regulator). The fact that there is no word to describe this entity is a telling sign.
I also think that MV = PQ is still valid. But its application is problematic. The 'framework' I use certainly incorporates MV = PQ.
Okay,
I might be stating the obvious here, but given the term M in MV=PQ, everyone uses that to describe all 'money-like' things? Not just hard cash.
I saw some comments that might suggest otherwise.
http://mikenormaneconomics.blogspot.com/2011/11/infaltion.html
Shaun,
I think Warren made a comment recently that "quantity" theory is not necessarily bad, but you have to look at the correct "quantity".
I took that to mean some sort of quantitative measure of NFAs, vice "money supply" like goes in the MVPQ equation from traditional 'quantity theory'...
Resp,
Shaun: "Game Theory talks about scenarios & the optimum decision each player should take. But it doesn't take into account the cost of (arbitrator|guardian|regulator). The fact that there is no word to describe this entity is a telling sign."
Game theory is about the interaction of a few individuals. Extrapolating it can involve the fallacy of composition, similar to problems affecting micro and macro.
This is a difficulty inherent in methodological individualism.
MV = PQ is an expression of identity. As such, it is a tautology. Its interpretation in causal explanation is what is in question in the quantity theory rather than its syntactical truth (logical necessity) as an expression of identity.
MV E pQ, where M is the quantity of money in a society, V is its velocity of circulation (or the average number of times money changes hands in a year), Q is the quantity of real goods and services created and sold during that year, and P is the average price of those goods. Every transaction in the marketplace is a two- way swap: the seller turns over goods or services valued at a price, and the buyer surrenders cash equal to that price. It must therefore always be true that the total value of cash turned over by buyers equals the value of goods and services received. That value, in turn, is nothing more than the sum of each commodity multiplied by its market price. This is why between the symbols MV and PQ one finds not an equals sign, but an equals sign plus a third line to indicate an identity. The relationship MV E pQ always holds.
A Layman's Guide to the Keynesian-Monetarist Dispute by Peter D. McClelland
[emphasis added]
Thats what I came up with! The next part is to account for the 'natural' growth in goods and services so that that m & v can be optimized.
I also postulate that for each transaction there is an associated energy loss, which also needs to be accounted for. There is also an amount of energy needed to create and destroy money.
Once these parts are figured out, you would have a reasonably robust model.
Good work.
Energy is the elephant in the room that most economists are ignoring.
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