I have an essay coming out in Bloomberg tonight which looks at the fascinating article I recently mentioned by Nick Hanauer and Eric Beinhocker. I've also posted some further discussion over at Medium on one particular aspect of their article -- the notion that capitalism is best understood as an evolutionary process for finding solutions to human problems. It's messy, wasteful, chaotic, and that's precisely why it works -- by allowing a parallel exploration by many minds of the huge space of possible solutions to human problems. Capitalism is an algorithm in much the way evolution is an algorithm (or at least is LIKE an algorithm).
This is the good side of capitalism and accounts for the "invisible hand" effect through options exploration. Like nature, it is highly effective but also ruthlessly efficient. Basically, it is the "law of the jungle" transposed to human affairs and given the veneer of respectability through the rule of law. It is the powerful that write the laws and in a capitalistic society, wealth is power. Hence, laws are used to influence the process by favoring powerful interests. They disrupts the disruptive aspect of capitalism that underlies its efficiency and effectiveness.
Thus far, it has not been possible to design a social and political system whose economic infrastructure is capitalistic without in some important ways interfering with the natural process of evolution upon which capitalism rests theoretically. Without the rule of law, the rule of the jungle applies and the rule of the jungle is inimical to human society. But when the rule of law it introduced, so is political power and social status that manifests as class structure and power structure.
The question, then, is whether there is a way to harness the power of options exploration without either reverting to the law of the jungle, or creating situations in which the natural process of evolution is thwarted by interests. This is the subject of much social and political theory.
The Physics of Finance
Capitalism is an algorithm?Mark Buchanan
22 comments:
"that's precisely why it works -- by allowing a parallel exploration by many minds of the huge space of possible solutions to human problems"
does it really do that though?
Hunter gatherers had lots of options. They gave up some of those for the greater predictability and efficiency of agriculture. Capitalism, at least according to Smith, was to take this process to its logical conclusion. The only thing "creative" about capitalism is that it seems to be an effective system for creating surpluses controlled by a few. These surpluses then afford a small class of men the leisure to pursue pure science or apply themselves to mechanical experimentation. That's more or less the story of the industrial revolution.
It seems to me that we're way ahead on the efficiency front and just need to take more advantage of our "leisure potential." This will include of course a more efficient/effective distribution of the surplus.
Theoretically.
It's modeled on nature. Probably no accident that Darwin and capitalism are contemporaneous.
It only works if the basis of the model is humans as intelligent animals competing individually for reproductive opportunities and territory (private property) under the law that the "strongest" (most meritorious) prevails.
That, of course, is much too simplistic a model from the historical perspective. History shows humans to be differentiated from other animal species not only in individual capacities like intelligence but also culturally, which gives rise to institutions, as well as a level of reflexivity far beyond the capability of other animals. Humans are able to develop complex adaptive systems on levels that other animals cannot. This changes the trajectory of nature.
"Natural processes" are different in humans from other species in that human nature is far different, "nature" being defined here not as an essence, but rather in terms of potential, both that which has already been manifested as the endowment of history and also the ability to learn from experience and to project visions of possibility into the future that change the course of history.
Therefore, as Marx observed in terms of the Hegelian dialectic, capitalism is a "moment" in history that will be superseded by the next moment. However, like Hegel, Marx seems to have believed that there will be a final moment in history when full potential is reached. Hegel saw that as the Prussian state and Marx as communism. Fukuyama thinks so too, in believing that capitalism as an organizing principle is 'the end of history." Neoliberalism assumes this also. History belies that.
Historical time is a series of moments and when that process includes humanity, nature takes on new meaning. There is no reason to think that there is an end to human ingenuity, and there is also good reason to think that complex adaptive systems in which emergence occurs create greater and greater challenges that must be overcome.
This piece takes a somewhat narrow and anti-social look at capitalism in my view. One problem is that the creative "solutions" that capitalism is especially good at generating are solutions to problem of satisfying individual consumption desires. It is not very good at solving the problems of building of building and sustaining communities, fostering deep human relationships, or preserving forms of human excellence that require patience, discernment and a long view. Indeed capitalism seems to lead to a continuous destruction of many forms of human social life and tends to replace genuine community by a mad narcissistic scramble for individual pleasures. It promotes the instrumentation of all human relationships as mere commercial exchanges or networking tools for self-gratification. Life under capitalism turns us all into users.
...by allowing a parallel exploration by many minds of the huge space of possible solutions to human problems.
Relatively few minds were involved in finding solutions to problems, if we are referring to technological advances. Collaborative efforts are far more efficient than what we have seen throughout history: the waste of human lives and potential.
"what we have seen throughout history: the waste of human lives and potential."
exactly what I was thinking of. Capitalism can be very wasteful in that respect.
Darwin and capitalism are contemporaneous
Malthus proposed that in nature food supplies increased arithmetically while populations increased geometrically. Is this so? Even in nature?It seems that Darwin and most of the privileged classes of England took Malthus' conjecture as received wisdom. It is a notion that has always been taken as an article of faith by the well-off since it appeared. It is highly questionable if it was ever true for human communities, given our unique capacity to alter nature to serve our purposes. Archaeological evidence doesn't even support the seemingly very plausible idea that humans turned to agriculture because of the food/population ratio. It seems that a number of early agricultural communities (with small populations) were surrounded by an abundance of food resources, but chose an agricultural lifestyle. Why? Religious/artistic/ceremonial reasons, apparently.
I'm very skeptical about broad generalizations regarding "capitalism." All that can really be said is that there was a certain combination of factors that resulted in the industrial revolution happening in Great Britain. Which of these factors was the key? Was it the Bank of England finance model? Was it the joint-stock company (ala East India Corporation)? Something about the English people themselves? A unique unfolding of the historical dialectic in the case of Britain?
If such a key factor (or small set of them) can be found is it transferable to other peoples/nations/historical situations? Again, it is usually assumed that such keys exist and are known and are transferable. Parliament in 17th century England was extremely corrupt. They worked at the behest of "interested men" and were powerful enough to push the king around. They created the Bank of England and gave extraordinary privileges to the East India Company. Was this the "creative factor" that led to the industrial revolution? Is corruption itself creative or just certain types? Or maybe a half-comprehended anglo-centric ideology has led to the wide application of economic methods that may have been merely accidental or attendant factors in the "success of capitalism."
One one hand, I think we see the emergence of just so stories that ground classical liberalism in individualism and individual initiative, for example, Adam Smith's story of the emergence of economics from barter and John Locke's story of private property emerging from individual use and improvement, and other the other, the cultural and institutional milieu of England at the time of the transition from feudalism to capitalism. Actually, the ideas seem to have arisen first in France, the French being the intellectuals they are, but it was the practical English that actualized the ideas and turned the new thinking into an empire that ruled a significant portion of the world.
It seems to me that the liberal narrative was one of the cultural artifacts underlying the rise of modern capitalism, but it was actually the institutions, such as David mentions, that were the actual drivers historically.
We are still telling the same or similar stories while the institutions have become even more significant in that they have become much more powerful.
Neoliberalism, neo-imperialism and neocolonialism have replaced classical liberalism, imperialism and colonialism as the British empire was replaced by the American. Now the story is that democracy underlies capitalism and the growth it has produced, although the reality is plutocratic oligarchy is the dominant political institution. Class structure is as deeply embedded as ever, but it a way that disguises it as the result of "merit" based on "hard work."
"Is Capitalism an algorithm?"
Yes.
In a closed system, every transaction loop in capitalism that earns a net profit MUST be accompanied by a net transfer of funds from one sector (consumers) to another sector (business).
Zero-sum. This is simple closed-system arithmetic. Try to come up with a transaction loop that proves otherwise.
This is sustainable only as long as there is sufficient savings (discretionary) held by consumers to fund the process.
The bulk of savings that is discretionary is held by businesses or the shareholders that receive the distributions.
The rich get rich by spending less than they earn. This occurs cycle over cycle, so the net flow is always (naturally) to the top of the income spectrum.
That is the algorithm. It is irrefutable as long as the non-government earns a profit in the aggregate.
So it's unsustainable…credit is not a net add for those that are wondering. See MMT.
I'll leave the reader to determine the source of funds that must be added.
In aggregate, business earns a net profit each budget cycle. This is a fact. Businesses take in more dollars of revenue and depreciated investment than the investment including operating expense each budget cycle.
Unsustainable without deficits that match the demand for funds. Accounting doesn't produce dollars.
I know, sounds like gibberish.
"It seems to me that we're way ahead on the efficiency front and just need to take more advantage of our "leisure potential." - David
This will require the government giving us more money to spend.
Efficiency means fewer workers to produce the same or greater output.
If we work half the hours will our wages double?
Let's take a look through history for the answer…
Under classical liberalism, there is no government other than to protect life, liberty and property and to defend the nation. Moreover, government does not create money but borrows from the private sector.
As you point out, Paul, this cannot work in a closed system and that's why capitalism has been associated not with democracy but imperialism and colonialism. It requires an open system and cheap resources.
However, like Hegel, Marx seems to have believed that there will be a final moment in history when full potential is reached. Hegel saw that as the Prussian state and Marx as communism.
Hegel never said any such thing - while repeatedly stating the opposite, that history continues and that any philosophy, including his, is at best the comprehension of its own and preceding times. Not really fair to Marx either.
Hegel and Marx may not have said so explicitly, but the impression that Hegel gives is that absolute knowledge as concrete universal is achieved through his method of inquiry and Marx gives the impression that achievement of communism is the final stage of economic development hence social development.
Both of these can be viewed as endpoints in that neither Hegel or Marx speculated on succeeding moments in the historical process, and they presented the unfolding of the dialectic in terms of necessity.
Or at least that is the way many historians of thought read them, in contrast to the conception of unlimited progress based on increasing complexity in the future.
For both Hegel and Marx the purpose of historical development is realization of freedom. For Hegel this is realized in the liberal state through self-determination, and for Marx in transcending the state, hence the withering away of state.
In this sense they were both utopians who differed over the nature of utopia and its realization. On could say that they were both a bit full of themselves and their writing styles were somewhat bombastic. But they were great thinkers nevertheless and the depth and breadth of their undertakings impressive, if one takes them with a grain of salt.
Neoliberals also believe that the purpose of history is achieved through the concrete realization of freedom. They identify the political aspect of freedom as democracy and economic aspects of freedom as capitalism. This is a necessary relationship in that capitalism necessarily entails democracy and vice versa. This is the reason that neoliberalism and neoconservatism are jointed at the hip and form the basis of US policy.
"Probably no accident that Darwin and capitalism are contemporaneous."
No shit! LOL ;)
"Neoliberals also believe that the purpose of history is achieved through the concrete realization of freedom"
Right both sides are over-the-top libertarians... this was/is/continues to be the main problem...
for this to work we have to be made able to view ourselves as subject to one another but this view of 'subjection' is incompatible with libertarianism...
libertarianism is all about "ME" not "WE"...
hence they go all around saying "we're out of money!" as to them, "WE" are 'out of everything', as their is no "WE" with these people...
rsp,
Matt, that's the Anglo tradition built on Smith and Locke that emphasizes individualism. This became the basis of classical liberalism, and classical liberalism morphed into neoliberalism as the confluence of capitalism and "democracy," actually republicanism as representative democracy. This confluence is "meritocracy, " in which privilege is supposedly bestowed by merit rather than either heredity or power. This is driven by pursuit of self-interest and competition. Individuals may cooperate but always in terms of self-interest.
The Continental tradition is quite different. Hegel was thinking in terms of the ancient Greek polis as the locus of freedom under law not by a hereditary monarch or tyrant that seized power but rather as determined by the citizens of the polis themselves. Hegel saw himself and the culmination of the tradition of Socrates, Plato and Aristotle who had emphasized reason as the basis of knowledge. Since man is a rational animal, his end, or good, is the perfection of reason. Hegel saw his philosophy as achieving that end as an explanation. Subsequent history would be bringing that realization to the rest of humanity. There is speculation that this notion influenced Hitler in a twisted way, at least indirectly, although there is no suggestion of this in Hegel. But certainly Hegel's notion of the state is anti-libertarian.
Marx's conception of human freedom was social as well as individual. His innovation was in turning the ancient Greek rationalism of Socrates, Plato and Aristotle that Hegel took to what he saw as its logical and historical conclusion into materialism, e.g., of Leucippus and Democritus. Marx's doctoral thesis in philosophy was entitled, The Difference Between the Democritean and Epicurean Philosophy of Nature. Marx was a libertarian of the left who saw individual freedom realized collectively through cooperation rather than pursuit of self-interest and competition.
BTW, here are a couple of interesting posts I found following a comment of Tom Brown at MR.
Economics is neither physics nor computer science
How money transfers information
the impression that Hegel gives is that absolute knowledge as concrete universal is achieved through his method of inquiry This & most of the rest is OK. I would agree with Hegel here - that he was on the right road with this. Contrary to a great deal of subsequent philosophizing. Analytic philosophy was basically a great leap backwards. (Which was Hegel's view.)
Or at least that is the way many historians of thought read them, in contrast to the conception of unlimited progress based on increasing complexity in the future. Read - in the past tense. The idea that Hegel (or Fichte) could be contrasted to "unlimited progress based on increasing complexity in the future" rather than as the leading apostles of this view is untenable. The "progress" view is absolutely crucial to their philosophy. The old view of Hegel saying there was a visible, present endpoint is rightly now called a myth caused by bad and tendentious scholarship. It's refuted everywhere in Hegel.
We read Hegel differently then. That's OK. There are always conflicting interpretations of the thinkers of the past.
To elaborate on my view:
Even Darwin did not incorporate what came to be the contemporary view of unlimited progress. This stems more from Herbert Spencer, from whom Social Darwinism also stems. It's too bad it was given Darwin's name, since it is not Darwin. Russell criticized Spencer for ignorance of the Second Law.
Hegel and Marx saw progress unfolding in terms of their worldviews as these views became widespread, fulfilling human potential for freedom. They took opposing stances toward this. The metaphor for Hegel's view is the Athenian polis, and the metaphor for Marx's view is the so-called primitive tribe. These metaphors are developed through history and culminate in their respective views, which they see as actualizing human freedom in the world.
Hegel's view is the view that freedom is possible only in the Enlightenment state under self-determination. For Hegel, freedom was the freedom to choose the laws rather than freedom from law, and for him it was only in terms of the state that rights spread to the many. Hegel's historical dialectic is the spread of the rule of the people rather than despotic rule of the one (monarchy, tyranny) or of the few (feudalism). But it remains in terms of the Enlightenment state in which the fundamental right is the right to property, in which the abstract notion of "right" is concretized in ownership and control under the institution of law.
Fukuyama's view that democratic capitalism is the end of history is compatible with Hegel's view of the role of the modern state in realizing the good for the individual in the good society.
This is the concrete universal that realizes freedom in this world, not in an abstract universal, for which he criticizes oriental mysticism, specifically Krishna in the Bhagavad Gita and Jalaluddin Rumi at the close of the Phenomenology.
Marx took over essentially the same historical dialectic and stood it on its head, putting matter (economic infrastructure) ahead of mind (grand ideas of great men) and foresaw the withering away of a need for the state in governance. He saw self-determination in terms of consensual governance rather than hierarchal governance through state institutions.
A big difference between Hegel and Marx is that Hegel was a person of the establishment and he saw the basis of his view already largely actualized in the Enlightenment state. Marx was a revolutionary, so the working out of his worldview required first a profound historical change.
Marx focused on the change and left unclear the details of further unfolding subsequent to the revolution. His view was that one the foundation was laid, the rest of the building would follow.
The cornerstone was denial of the individual's right to property that underlay classical liberalism built on Locke's political theory, holding that this was antithetical to achieving individual freedom collectively in that land and capital accumulation would result in power elites and control, just as ever.
Neither Hegel or Marx were concerned with history beyond the attainment of human freedom as they projected within the context of their respective views.
Contemporary views of progress are pretty much ordered along these lines with conservative authoritarian types aligned basically with Hegel, which can be seen as the thrust of neoconservatism, for instance, linking representative democracy under the control of elites and capitalism as the way to progress in the process of globalization.
Libertarians of the right and left align with the Marxist view of the withering away of the hierarchical state, but in different ways. But they agree about decentralization of authority and non-hierarchical non-institutional governance, preferring consensual-voluntary and contextual-adaptive but in different ways.
I don't think any living scholar of German Idealism reads them the way I am criticizing - as being compatible with an end of progress. It's just wrong and always was. No dispute with much of what you say, but the contemporary progress view has not materially changed as far as I can see since then. The Idea thinks slowly. :-) IMHO you (& many modern philosophers) systematically postdate developments - you would probably say the opposite. Lenin's observation that evolutionary ideas, (opposing a naive realist/materialist view of development) - appeared first in pure thought, then in social science, then in natural science - Hegel, Marx, Darwin - was once better known.
Finally, Hegel put forms of absolute spirit - art, religion and philosophy - above the state, as truer freedoms than political ones.
I don't think any living scholar of German Idealism reads them the way I am criticizing - as being compatible with an end of progress. It's just wrong and always was. No dispute with much of what you say, but the contemporary progress view has not materially changed as far as I can see since then. The Idea thinks slowly. :-) IMHO you (& many modern philosophers) systematically postdate developments - you would probably say the opposite. Lenin's observation that evolutionary ideas, (opposing a naive realist/materialist view of development) - appeared first in pure thought, then in social science, then in natural science - Hegel, Marx, Darwin - was once better known.
Finally, Hegel put forms of absolute spirit - art, religion and philosophy - above the state, as truer freedoms than political ones.
Hegel equates metaphysics with logic. The unfolding of the historical dialectic is the concretization of that metaphysic of necessity. The logic-metaphysic is eternal (truth), while the historical dialectic occurs in time concretizing the abstract universal in experience. The study of this is phenomenology of spirit, which concludes itself in the realization in time of the truth of the logic-metaphysic not only in thought but also history. The endpoint for Hegel is realization of the nature of freedom as the realization and actualization of necessity that is not imposed from without or above but from within. This is actualized in freedom of individuals in the Enlightenment state. Human progress is the unfolding of the Absolute Idea in concrete terms in history through the dialectic whose basis is in the science of logic. Reality is ultimately rational.
Of course, Hegel did not see this endpoint as the end of progress in the sense of nothing new will happen, e.g. though technological innovation. But he considered that the Truth was realized in human history though the dialectical development of history. Once individuals are free through self-determination and understand why they are free in this sense, rather than some ersatz freedom like caprice, then where is there to go in the unfolding of the logic other than in phenomena within the realization of Truth that has been achieved historically as endpoint. Of course, there would be progress in the sense of this realization being actualized globally, which would take some time. Some contemporary Hegelians would no doubt say that this is what is happening in globalization under Western neoliberal aegis.
Progress is generally conceived as forward-looking. Hegel was not a visionary. He was a rationalizer explaining phenomena in the tradition of Socrates's description of philosophy as reflection on experience. His Phenomenology is historical in the sense of interpreting what has taken place,
Marx, on the other hand, was a visionary because he had to be. He did not think that Hegel got right about the endpoint in terms of the state as the locus of individual freedom under self-determined law that unites freedom and necessity in the way Hegel thought. So another moment would be required — the withering away of the state. But there would also be an intervening moment if his program were enacted — the period of the dictatorship of the proletariat that would dismantle the economy structure responsible for class structure and therefore the potential for exploitation of one class by another.
continued
continuation
However, Marx did agree that the endpoint is individual freedom, but in a community in which equal rights prevail, rather than in a state establishing equal rights.
While Hegel was a classical liberal in making right dependent on property ownership as fundamental, Marx was a libertarian of the left who held that as long as rights are based on property, the potential for class control exists. He described how power elites arise in a monetary production economy, and how the majority — workers — can never be free in a system that treats them as commodities.
The endpoint, individual freedom in a community of equals, which is the real import of the Enlightenment thinking, is only possible in the future through the abolition of the property right as fundamental, thereby undermining the foundation of class difference. Only when there are no class differences that enable one class to oppose others is individual freedom attainable. Achieving this is the end in view and when it is achieved the endpoint has been reached and further progress will be material progress within that socio-economic structure.
Both Hegel and Marx thought that there was an endpoint in individual freedom beyond which no further development of freedom could be envisioned since all would be free. Progress would lie in unfolding the potential of that state of individual freedom in a community of equals in terms of rights. But they were not concerned with technological innovation as progress rather than the unfolding of freedom. The former is late 19th century and 20th century view, and former an 18th and early to mid-10th century view.
The contemporary view of progress is chiefly technological innovation. But as for are social progress goes, the democratic-captitalistic (neoliberal) view is that progress lies in globalization as bringing democratic capitalism to the entire world under a new world order whose basis is Western liberalism, although more in the Lockean tradition of classical liberalism under neoliberalism. There is no strongly competing view that is operative now since the dissolution of communism as a competing ideal in the tradition of Marx.
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