The Case for Competitive Business
The Evolution of Know How, Discovery & Accumulation, Continuous Innovation
Balanced Balance Sheets, Bankruptcy, Markets & Subsidiarity, Privatisation & Modularisation
Theory of Evolutionary Economics - Emergence Of Everything
Evolutionary History Timeline of Continuity =
13.6bya Big Bang -- 4.3bya Earth -- 2.4mya Apes -- 100,000ya talking -- 10,000ya writing -- 10+ years ago Daniel Whelan!
Empirical Science -
Thermodynamics - Emergence Feedback - Computer Simulation - Molecular Biology - Neuroscience - Evolutionary Psychology - Economic Anthropology - Game Theory - Biological History
Complex Adaptive Systems, Consilience, Universal Darwinism - One whole throbbing shebang & caboodle was evolving, Darwin's process of natural selection - copy - vary - select ... nothing else was going on.
Know How evolved; dispersed, incomplete & tacit, discovered through Empirical Science and accumulated in diverse cultures growing @ 3% pa compound ... nothing else was going on
Know how progressed through Physics, Chemistry, Biology, Physiology. Psychology, Economics ... and Cultural Obsolescence ...
A pre-existing inherited variant with a survival advantage in the local environment will always increase in population frequency as alternative variants die out, this changes the environment which then inevitably feeds back and influences the survival chances of any new variant.
The Evolutionary Economists produced an avalanche of innovative ideas ...
The unleashing of a process of technological & institutional innovation involving the generating & testing of a diversity of ideas which discover & accumulate more survival value for the costs incurred than competing alternatives. The evidence suggests that it could be adaptive efficiency that defines economic efficiency.
Illusion of Outcomes = Rev Paley's watch and the Boeing 747 look like intelligent design
But hold on - miracles of brains & immune systems did not result from arrogant, plausible, deliberate, rational, purposeful, intentional planning of outcomes. We were all ignorant -
The Watch Maker was blind
Delusion of Mind Sets = have no privileged access to 'know how', 'know how' differentially survives
Short necked giraffes died out
The dice were loaded -
synergies of specialisation & scale embedded in moral sentiments = Trade & Money = trust & cooperation
open for business, empirical science & innovation embedded in peer review and bankruptcy = Liberal Democracy = checks & balances, separation of powers, term limits & bills of rights
So many words for dictatorship -
dictator - absolutist, autarch, autocrat, big brother, bigot, despot, die hard, dogmatist, chauvinist, extremist, fascist, fanatic, messiahs, militant, oppressor, overlord, partisan, prejudice, racist, radical, supremacist, sectarian, segregationist, supremo, totalitarian, tyrant, ultraist, uber alles, Xi Thought, zealot ...
Underneath the soap pans in Apapa - we learned all about -
oppressive Bishops, tyrannical Princes, dictatorial Generals and corrupt Bureaucrats = 'rent seeking men of system' and the top down price fixing of macho managers trying to micro manage
national politics was broken by globalisation of markets = ideas did not stop at borders
cultural obsolescence = 'passing the buck' of historical failures to others = 'arrogance ignorance & mythical power' = top down bureaucratic dirigisme & 'one size fits all I know bestry' = discriminatory taxes, subsidies, red tape and all forms of price fixing distorts the price mechanism which balances and coordinates the whole shebang & caboodle
personal responsibility, education & training = 'get it done' by bottom up social networking ... and beer
'it's no use producing crap, John, the customers don't like it'
'looks great, John, but will it catch mice'
'thanks, but it must run on our machines'
'last time I checked happenings were a tad more complicated than joining the UN, WTO, WHO or following the impositions of the Westminster, Brussels, Washington bureaucracies'
The fundamental flaw inbuilt into all top down command & control bureaucracies was ignorance and the physical impossibility of manipulating one whole shebang & caboodle of a nested set of sets of Complex Adaptive Systems, each & every one brim full of complexity, change, conflict & scarcity ... diversity the vital feedstock of natural selection, innovation and synergies of specialisation & scale ... economic growth.
The story of GOSPLAN 'We ordered the vaccines but forgot about the needles'!
Practice of Evolutionary Economics - Balanced Balance Sheets & Profitable Projects
Let's get one thing straight from the start, commercial businesses don't want and can't have certainty ... the 2nd law saw to that ... at best businesses tried to manage known risks as they confronted Frank Knight's uncertainty - unknown uknowns.
1 Science - Adaptive Efficiency - Trial & Error Experiments ... personal responsibility ... at the coal face by Commercial Companies, a process of Natural Selection, copy/vary/select ... adapt or die? ... QED
2 Liberal Democracy - Enabling Environments - Torts ... Honesty ... moral sentiments ... Cooperative, Social Institutions, Liberal Democracy and Commercial Companies ...
3 Markets - Cooperative Synergies - Trade ... Hard Work ... synergies of specialisation & scale ... What's your 'trade'? What do you do better than your competitors?
4 Innovation - Survival Know How - Technology ... Thrift ... investment 3% compound growth of know how ... continuous innovation discovered & accumulated in profitable projects through so bills could be paid, Balance Sheets balanced and bankruptcy avoided ...
Trusted money was a superb tool as a measurement system and unit of account which facilitated trade and was a store of value over time. But fiat money could not be created out of nothing and trust value was essential. 'Money' had to be earned through hard work, honesty & thrift. Successful financial institutions grew in size as the 3-6-3 system allocated savings to investment in profitable projects which generated an income stream. Capital was funded from shareholder subscription, deposit taking & issuing debt.
Money helped economic growth but could not drive economic growth ... the driver of economic growth was the creativity of the human brain driven ultimately the 2nd Law of Thermodynamics
Personal responsibility for synergies of specialisation & scale. Caveat Emptor. Due Diligence. Stick to the knitting, mind your own business, get on with the job ...
Structural Reforms & Productivity Paradox - 'a rose by any other name would smell as sweet' -
The Washington Consensus emerged after the fall of the Berlin wall in 1989 but after the 2008 financial crisis it was rubbished and rebranded as 'Structural Reforms'?
But always remember to paraphrase Winston -
'Market exchange is the worst form of social interaction for discovering & accumulating synergies of specialisation & scale ... apart from all the alternatives which have been tried from time to time'
Structural reforms were focused on Economic Growth thru liberalising labour, product & service markets to encourage innovation, competition, investment & productivity.
Structural Reforms helped to avoid bureaucratic kludge, parasites & predators, tyranny & oppression, bribery & corruption all getting in the way of productivity growth ...
enabling environment -
liberal democratic culture of mutual benefits, fairness of shares,
resentment of cheats in health, education, law enforcement &
defence. The rule of law - no grandiose ego trips and
kleptocratic swamps of bureaucratic kludge. Underpinned by innate & adaptive
Good behaviour - fairness of shares, profit from cooperation
Bad behaviour - resentment of cheats, weed out failures by competition & bankruptcy
privatisation - incentive systems creativity, innovation, susidiarity & modularisation for better mousetraps ... Adam the Smith had learned that better mousetraps inevitably produced inequality 'cos competitors suffered until they produced better better mouse traps ... such was the basics of innovation and economic growth ... monopoly was the problem.
intellectual property rights - the magic of property, hard work, honesty & thrift, patents & first to market but it is the 2nd mouse that gets the cheese
fiscal discipline - you can't create money out of nothing - no free lunches, no lethal debt & tax, borrow & print spirals
free & fair trade - economic growth, compound interest & synergies of specialisation & scale - no costly gluts & queues
low marginal tax rates - after tax returns, bills have to be paid - no poverty & incentive traps. Pacioli Accounting Fundamentals - taxation of commercial businesses must result in higher prices for customers, lower wages for workers & lower returns for investors - lower output and growth Deadweight Burden
interest rates - market prices - no price fixing distortions
exchange rates - market prices - no mercantilist manipulation, imbalances & protectionism
foreign direct investment - torts, trade & technology transfer, equity in profitable projects - open for business
deregulation - remove the
blockages and let the blood flow - no bureaucratic kludge, it must run on our machines
avoid the red tape from oppressive Bishops, tyrannical Princes, dictatorial Generals & corrupt Bureaucrats
Simple rules of thumb; torts, markets, free trade, thrift for rainy days and balanced Balance Sheets - savers & borrowers, assets & liabilities ... and watch out for inevitable parasites & predators ... build diversity & immunity from treachery and avoid creating money out of nothing.
Personal responsibility for synergies of specialisation & scale ... Caveat Emptor ... Due Diligence ... stick to the knitting, mind your own business, get on with the job ...
supply side & aggregate demand - inseparable mutual benefits of done deals
everything depends on everything else - complex adaptive systems
winners & losers interest group politics - synergies of specialisation & scale
politics & inequality - diversity trial & error learning and the innovation funnel
one size can't fit all - diversity different folk at different times in different places with different others ...
measurement difficulty - maths and scientific methodology
distortions - complexity, change, conflict & scarcity
politics & election timing - the business cycle and 3% compound growth
Think innovation & synergies! Marketing Myopia! & Subsidiarity! Supply & demand for penny farthing bicycles!
Much was about 'Regulating Red Tape'? Little was about innovation?
Structural Reforms Alternative Exposition? -
1. more procreative sexual intercourse and fewer abortions, Europe was dying and alarmingly on a relative demographic scale.
2. shrink the social democratic nation state, protect the vulnerable only, as nanny statism was eroding the work ethic, personal responsibility, initiative & resilience.
3. stop undermining traditional family life, and reassert the value of mother, children, father, grandparents, aunties, uncles & cousins.
4. reassert the value of maths, science & language as the centerpieces of social communication systems, and stop this progressive nonsense of wokism and 'everyone wins top student prizes'.
5. decentralise political power thru subsidiarity and extinguish the excessive preference for the French 'dirigisme' model of the over weaning state and centralised power,
6. lower taxes, to reward personal responsibility, self respect, enterprise & initiative.
7. ostracise & confine delusional command & control nonsense to where it belongs - San Francisco?
Wot? the EU and Abenomics 'got' Structural Reforms & Balanced Budgets but never managed to implement structural reforms?
Three pillars of EU Economic Policy - Was the Brussels bureaucracy trying to mandate structural reforms?
EU Policy was focused on Economic Growth thru liberalising labour, product & service markets to encourage innovation, competition, investment & productivity.
Structural Reforms - liberalising ? ... or micromanage Complex Adaptive Systems
Investment - after tax and regulation costs ? ... or public investment
Fiscal Responsibility - debt max 60% of GDP, borrowing max 3% of GDP ? ... or print
state’s budget deficits cannot exceed 3% of GDP and
national debt cannot surpass 60% of GDP
failure to abide by the rules led to a maximum fine of 0.5% of GDP
Sounded unbelievable & incomprehensibly good but look at the happenings ...
The SGP was mangled by member states in Brussels for -
lack of compliance and
perceived favoritism toward certain nations.
And the big and was that Brussels never balanced the books and MMM waxed?
Same with Abenomics in Japan, fiscal and monetary manipulation was easy after winning elections with promises about the future but balancing the books proved impossible and invariably led to tax, borrow, print ... the 3rd arrow in the quiver was never fired?
Structural Reforms 'by passed the blockages and let the blood flow'. But how to remove obstacles & distortions to productive capacity - 'open for business' ... 'weeding out failures' ?
Structural reforms had to be grown & nurtured from the seeds of the enlightenment and the scientific & industrial revolutions.
The WTO failed the iPhone prospered.
Sweat shops forced poor folk to work for peanuts as the planet was ravaged?
But Tim Cooke spent decades building up sustainable quality in his iPhone factory in Zhengzhou with Foxconn. He was not outsourcing to unknown individuals or screwing Uyghurs or anyone else for that matter. The immensely complex supply chain needed serious investment in the motivated individual skills of folk with 'know how' for dexterity, speed & reliability, quality mattered. Folk everywhere needed to put a crumb on the table for the family.
Human capital requires investment. Remember the Hawthorn Experiments?
As Adam the Smith, moral philosopher, said -
'I believe, that the work done by freemen comes cheaper in the end than that performed by slaves'
Capital, skills, goods & services move to sustainable profitable deals. State Subsidies were never sustainable and distorted incentives and knackered quality.
Globalisation lifted many millions out of poverty and gave us huge amounts of in country & out country diversity for synergies of specialisation & scale.
Numerous negative externalities were confronted during the search for the synergies of specialisation & scale.
State subsidies and 'one size fits all' was anathema, evolution and the search for sustainable profitable deals required diversity not cloned equality.
How to measure the evolution from manufacturing to services? How to value the hustle at the water cooler? How to weed out the failures in imaginations? How to control the expansion of government meddling ... budget deficits ... bailouts ... stimulus ... pump priming and 'generous' rescues?
All undermined creative destruction as economic losses were socialised? Destroying the cleansing cathartic effect of defaults and downturns?
Emerging markets where the role of the state tended to decline since the 1970s as top down dictators
got their comeuppance?
Hitler, Stalin, Mao, Ulbricht, Kim Il-sung, Nasser, Ho Chi Minh, Verwoerd, Castro, Galtieri, Milosevic, Saddam Hussein, Gaddafi, Assad ... Al Qaeda, ISIS ... and on to Putin and Xi ...
South America, China and later India pivoted thru Structural Reforms ... but then inevitably there was backsliding as rent seekers, parasite & predators tucked into the stocks? Beneficiaries of government support, including bloated banks, monopolies and zombies, as easy money poured out of banks, as zombies lowered productivity across industries by sucking & hogging resources better used in more dynamic innovative companies?
NB Structural Reforms were vehemently criticised by 50% of the hoi polloi -
markets were inefficient
BUT better than the alternatives of arrogant, arrogant, plausible, deliberate, rational, purposeful, intentional, planning by oppressive Bishops, tyrannical Princes, dictatorial Generals and corrupt Bureaucrats ... bent on picking winners
Chinese Communist Party was an economic super power
BUT one size fits all was not an evolutionary stable strategy ... diversity & innovation
global climate change legislation was AWOL
BUT solutions come from 'know how' ... science & technology
redistribution of wealth was AWOL
BUT the watch maker was blind ... physically impossible to legislate wealth
Bankruptcy - in praise of bankruptcy? Wot?
At the end of the day the Case for Business rested on the alternative to competitive survival and balancing the books ... which was commercial failure and bankruptcy ... the foolproof way to weed out failures.
Why tie up valuable resources in failures?
When the money ran out and bills couldn't be paid it was impossible for business trading to continue ... immunity from treachery, 'caveat emptor' and 'due diligence' had to be baked into the cake ... the dice were loaded in an arms race to confront -
parasites & predators
tyranny & oppression
bribery & corruption
In the short term National Governments found they could tax, borrow & print money and choose to turn businesses into zombies but in the long term the evidence from empirical science prevailed -
'Oxford University researchers have discovered the
densest element yet known to science.
The new element, Governmentium (symbol Gv), has one neutron, 25 assistant neutrons, 88 deputy neutrons and 198 assistant deputy neutrons, giving it an atomic mass of 312. These 312 particles are held together by forces called morons, which are surrounded by vast quantities of lepton-like particles called pillocks.
Since Governmentium has no electrons, it is inert. However, it can be detected, because it impedes every reaction with which it comes into contact.
A tiny amount of Governmentium can cause a reaction that would normally take less than a second, to take anything up to 8 years to complete. Governmentium has a measured half-life of 4 term years.
It does not decay, but instead undergoes a reorganisation in which a portion of the assistant neutrons and deputy neutrons exchange places.
Inexorably Governmentium's mass will actually increase over time, since each reorganisation will cause more morons to become neutrons, forming isodopes. This characteristic of moron promotion leads some scientists to believe that Governmentium is formed whenever morons reach a critical concentration.
This hypothetical quantity is referred to as the critical morass.
When catalysed by money, Governmentium becomes Administratium (symbol Ad), an element that radiates just as much energy as Governmentium, since it has half as many pillocks but twice as many morons. The ubiquitous element Bureaucratium (symbol Bu) is well known and less radio-active but similarly dense'.
'How did you go bankrupt Mr McCawber?' - 'gradually and then suddenly, Sir'
oppressive Bishops who lost their frocks
tyrannical Princes who lost their heads
dictatorial Generals who lost their stripes &
corrupt Bureaucrats who lost their marbles
On 3rd Feb 2020 at the Old Royal Naval Cottage, Greenwich some of the fog of continuous innovation in business was lifted by an unlikely historian toff when Boris spoke on an unlikely subject - fantastical opportunities for Science, Technology, Free & Fair Trade and for commercial business -
The Glorious Revolution of 1688 launched the Industrial Revolution, the 1707 Act of Union and the Scottish Enlightenment of Adam the Smith as Moral Sentiments underpinned wealth creation and led David Ricardo to understand the mathematics of comparative advantage & free trade and led Richard Cobden to activate Parliament and repeal the Corn Laws.
Sovereignty in 2020 cleared some of the kludge from broken parliaments and opened up exciting opportunities for free trade & leadership in the moribund World Trade Organisation. From 1982 the Uruguay Round squashed global poverty & inequality but the benefits were squandered by the abject failure of the Doha Round as backsliding French & USA farmers turned to Mercantilism & protectionism ... and hopeful China cheated.
For America haters, and many were still around, Trump's mantra of 'America first but not America alone', made no sense. But America was a trading nation and a sovereign independent UK must have an umuffled voice & leadership role for the synergies and mutual benefits of global trade ... fantastical opportunities for one and all! ... a social catalyst for a global commonwealth of free trade which 'included in' Europe, America, Japan ... and more.
Leadership based on rising standards, never a bankrupt race to the bottom, rather thriving science based targets for citizens rights, laws of the land, climate change, waste ... and education, health & security second to none ... rather than squalid tariffs, non-tariff barriers, subsidies and state squabbles over who owns tax revenues ...
We had no truck with cherry pickers we plan to grow more & better cherries!
A postsript was included, 'there is a risk that coronavirus will trigger a panic and a desire for market lockdown that go beyond what is medically rational to the point of doing real and unnecessary economic damage'.
Fantstical Opportunities never the doom & gloom of Project Fear?
However on 7th July 2022 Boris was laughed off stage left for scandalous partying & outrageous merriment and abject neglect of the command & control of happenings.
Wot ever happened to the Doha Round?
The Case for Business, the vehicle for speeding up natural selection?
encourage more experiments - don't try to manipulate PC social behaviour
encourage more experiments - don't try to impose political whims
adapt asap - don't try to control fiat money
adapt asap - don't try to control complexity, change, conflict & scarcity
adapt asap - don't try to control energy & climate
Evolution - the only Theory of Change - the only game in town!
did all these 3 worders fit in? -
'surplus or bankruptcy' - 'trade know how but print widgets' - 'free & fair trade' - 'vanity sanity or reality' - 'competition for customers' - 'price fixing/regulation distortions' - 'strategy or tactics' - 'cooperation not compromise' - 'conspiracies & fake noos' - 'investment after tax' - 'privacy hinders interaction' - 'empirical science & liberal democracy inevitably collide' - 'Washington bureaucrats v 10th Amendment', 'authoritarian creep & impeachment' - 'Brussels bureaucrats v. democratic deficits' - 'structural reforms & subsidiarity' - 'Westminster bureaucrats v. polarised parliaments' - 'supreme courts & brexit' - 'China bureaucrats v. USA diversity & innovation' - 'education & compound interest' - 'experimental immune systems'
Animal Spirits = 'flip flopping emotions of fear & excitement'
Adverse Selection = 'would you buy a 2nd hand car from this man' = due diligence, caveat emptor
Moral Hazard = 'if it's free put me down for two please' =
Opportunity Costs = 'there's no such thing as a free lunch' =
Fatal Conceit = 'by the time you've worked it out the numbers have changed' =
Lethal Debt = 'I promise to pay the bearer' = 'I have a government guarantee'
Economics = 'Science of Choice' = 'why did nobody see it coming?'
John F Kennedy = 'I believe that inalienable rights come not from the generosity of the state, but from the hand of God, residing in each and every one of us'.
Evolutionary economists and Matt Ridley hit the nail.
Innovation, hitherto unconnected connections -
'productivity & 'industrial revolutions' processes of self sustaining economic growth, unleashed through discovery & accumulation via the methods of Empirical Science and Cultural Obsolescence?
'social animals' were dwarfs standing on the shoulders of giants as Promethean Individuals gathered together in Cooperative Groups as flip flopping emotions of excitement & fear weeded out failures
'innovative animal spirits' enhanced Wealth Creation through Exchange Trade and Synergies of Specialisation & Scale in goods & services & ideas as incumbents were constantly bypassed by technology upstarts and global competition
'torts, trade & technology' from Trial & Error experiments established successful Custom & Practice, as 'know how' was dispersed, tacit & incomplete and came before explanatory Scientific Theory grew the compounding knowledge base
Barriers were relentlessly erected ... authoritarian creep & crap ! -
'losses loomed large' as emotional bias sought to reduce change, risk & uncertainty via the doom & gloom of 'Project Fear' ... put a sock in your megaphone and get it done?
'bureaucratic kludge' in bureaucracies & monopolies tended to stifle competition & innovation ... but patents & copyrights tended to protect bureaucracies & monopolies
'precautionary principles of better safe than sorry' tended to stifle innovation & diversity as regulation not only increased compliance costs but also by sought to reduce change, risk & uncertainty hindering optimistic opportunity ... unintended consequences?
'intentional planning' & 'picking winners' was a woven webs of guesses and counter productive
'level playing fields' & 'ever closer union' and economies of scale from Nation States tended to stifle innovation with Democratic Deficits as global competition made the world safe for diversity and new policy ideas ... gales of creative destruction exposed protected zombies?
The Nobel Prize winners in Economics always disagreed as the same bits of economic science easily led to different policy implications 'cos of the unfathomables -
flip flopping emotions of excitement & fear
complexity, change, conflict & scarcity and
uncertainty, risk & diversity
The parasites & predators were always around ... the Price Fixers were undeterred ... tax, borrow & print became the easy option and companies became Zombies.
Open for business means 'removing blockages and let the blood flow' by pass
'restraints of trade' and 'restrictive practices'
never ever picking winners, protectionism, free lunches ... the bills must be paid ... who pays the cost of a crap?
The problem - politicians were bad at picking winners but losers were good at picking politicians
The Unilever Innovation Funnel - Diverse Trial & Error Experiments
The essence of the Case for Business is the freedom to avoid bankruptcy by discovering the synergies of specialisation & scale in the production of better mouse traps for Joe Sixpack.
The quest and the focus was on 'better mouse traps' for everyone! The surplus, the profit, after we had paid all the bills, was a post hoc outcome of the Pacioli double entry measurement system ... aka the Unilever Accounts Manual.
'Build a better mousetrap, and the world will beat a path to your door'
We forgot the wag who first coined this aphorism but we never forgot the message.
We recalled our old Unilever Overseas Chairman in Apapa, Derek Holdsworth -
'Sounds marvelous, John, but will it catch mice'?
'and don't forget it's the 2nd mouse that gets the cheese'!
And we remembered Richard Rivers an inspired marketing manager we worked with in the 1980s -
'No use producing crap, John, the customers don't like it'!
And Mike Cowan who refined the adage -
'Always remember we are in business not the snake oil industry'!
Ignorance = 'a woven web of guesses' no one had the knowledge to 'get a grip' & micro manage = Derek Holdsworth / Xenophones
Empirical Science = experimental failure was the way to success (adaptive immune systems) = Mike Cowan / Richard Feynman
Decentralised Markets = experimental failure was the way to success (price mechanisms) = ???? / Adam the Smith
The Fatal Conceit = the calculation problem and the necessity for diversity, the right left brain flip flopping emotions of excitement & fear = Fredrich Hayek / Moral Sentiments
Flawed Business Models - Unprofitable Projects - Unbalanced Balance Sheets - 'Too Complex to Manage' & 'Too Big To Fail'
Flawed Alternatives to Commercial Business - Zombies? - Commoditisation? - Bankruptcy? - Cooperation or Compromise? - Ostracise or Banish? - Influence or Power?
Book 1 The Almighty Dollar
Davos Men & Wall Street Moguls, powerful men manipulating economic outcomes?
Or pulling strings and pushing levers & the fallacy of price fixing?
The 'Spin' or 'Fake Noos' perpetrated by the soothsayers was no match for the economic realities of copy/vary/select of Darwin's 'natural selection'. Discovering & accumulating synergies of specialisation & scale in profitable projects -
'Economics is about how the global economy really works. A story of us all, billions around the globe whose interactions and decisions underpin our fates'
Dharshini David used words in 'The Almighty Dollar' and told of a fun romp around the globe, all about meddlers & price fixers portrayed as parasites & predators who tried to steal rent dollars in a vain attempt to avoid the hard work of wealth creation ... but always such happenings must end up incurring the shocking wasteful costs of gluts or queues and lower economic growth.
NB Annuit Coeptus 'God favours our undertaking' and Novus Ordu Seclorum 'new global order'.
World Trade Organisation started as a 'club of inspired folk with innovative ideas about how to organise Profitable Projects & synergies of specialisation & scale - empirical pragmatism, custom & practice' -
1. Free Trade - no barriers; market prices and supply & demand
2. Fair Trade - no discrimination; locally and internationally
3. Competition - no local and international monopolies
4. Enforcement - transparency & surveillance of national policies & practices & sanctions
5. Structural Reforms - transition to markets
The WTO followed the Doha Round and ended up in the abject failure as folk everywhere tried to Price Fix & Micro Managed Trade to their own advantage in a mire of Political Correctness and Red Tape -
Imbalances - gluts & queues
Distortions - dead weight burdens
The myth of ‘Power’ & ‘Control’ became 'Influence & Distortion' as the WTO once again messed up big
time as Northern Rock
savers & Chinese real estate investors followed their yens for survival
at the coalface.
To understand Evolutionary Economics we have to processes -
Torts, Trade & Technology - synergies of specialisation & scale
Hard Work, Honesty & Thrift - billions of global folk doing billions of global deals
Parasites & Predators - rent seeking Bishops, Princes, Generals & Bureaucrats
$s = measurement system for storing value, measuring value & lubricating trade = global glue
$s printed = outweighed the productive output of the USA, 50% of the $s store was held outside of the USA. Such high external demand makes it impossible to devalue the $?
Texas - 'pile 'em high sell 'em cheap' - Walmart
$s measure Economic Growth = 3% compound growth of 'know how'
$s measure Profitable Projects = discovery & accumulation of Synergies of Specialisation & Scale
Bankruptcy = weeding out failures to make space for growth
Zombies = credit & subsidies from political cycles of bribery & corruption in return for votes = tax, borrow & print
Margin & Speed = no unpaid bills & no bailed out zombies
Supply & Demand = no costly gluts & no costly queues
Opportunity Costs = alternatives forgone
Real Wages = output MV = PT
Taxes = output
Absolute Advantage = synergies of specialisation & scale via work in Pin Factories or total output declines. Specialise in your best niche & trade = skills, aptitude, education, resources, climate, land, labour, capital, technology, trade, torts?
Comparative Advantage = more synergies of specialisation & scale via work in your chosen trade. Specialise in your relatively better niche & trade = skills, aptitude, education, resources, climate, land, labour, capital, technology, trade, torts? Everybody benefits more than interest groups suffer ‘cos total output growth increases. Everybody participates as folk everywhere have different endowments = different opportunity costs.
NB Sustained Innovation pays the bills = total output growth
China – 'cheap sweat shops manufacture Barbie
Dolls' - Confucian Culture & the Legacy of Communism nurtured a hierarchical
bureaucracy and frustrated individual property ownership and innovation. One
country two systems, catch up scale but innovation & specialisation?
$s surpluses accumulate in the Peoples Bank as local Renminbi price fixed = $s stolen from USA innovative companies and Chinese consumers
$s surpluses accumulated went back to the USA as Government Bonds and funded deficits, real estate bubbles and zombie companies and unproductive unprofitable projects.
Mercantilist Gold = real wars? = $s accumulate as paper promises not in production ‘know how’
Trade Imbalances = trade wars? = $s accumulate & valuations are distorted
Fixed Exchange Rates = currency wars? = $s accumulate & Imbalances as costly gluts & queues
Productivity = marketable output per man hour
NB Folk try to fix prices to their own advantage = total output decline
Nigeria – 'teeming millions embroiled in tribal
bribery & corruption' - Population Explosion, Infant Survival & Tribalism.
Importing Indian rice.
$s surpluses from China invested in the New Silk Road infrastructure = ‘control over oil’ via lethal debt
$s surpluses from Unilever invested in Profitable Project equity = 'mutual benefit' via market development
$s surpluses from oil distort and ruin the balanced development of the economy as tribes fight over the spoils. Plenty of dollars but no electricity, dire roads and an absence of manufacturing inputs.
$s for balanced trade = trust & acceptability. Oil revenue down = $s too low. Food imports down = $s too high
State Monopolies = no diversity for copy/vary/select, 'natural selection' of innovations China’s inability to innovate?
Risk & Reward = bribery & corruption as an alternative to hard work, honesty & thrift
Rent Seeking = tribal fiefdom fights Muslims & Christians over rents and tax revenues
Black Market FX = no gluts & queues
NB Lethal Debt & Profitable Equity
India – 'Mumbai cultural diversity &
sophistication and Bangalore information technology' - Population Explosion,
Survival Food & Green Revolutions. Infrastructure needed for
$s from exports (rice) required for essential imports (roads).
Balanced Industrialization = Torts Trade Technology = Hard Work Honesty & Thrift = vote with your feet. But nationalisation, regulation, subsidies & dependency = scourge of Indian Businesses.
Market Prices = determined in global markets, if prices 'fixed' in Nation States = gluts & queues and further inequality result
Subsidies = French Farmers ‘dump’ below cost subsidised food and distort markets
Specialisation = niche technologies in deregulated Bangalore IT = ‘big data’, internet, mobile, cashless payment services = leapfrogging to 3rd IR in services.
Tax Avoidance = no cash = no taxes but value store continues through traditional gold hoarding and $s.
Cultural Gravy Train = Indian CEOs of Adobe (Shantanu Narayen), Alphabet/Google (Sundar Pichai), IBM (Arvind Krishna), Mastercard (Ajay Banga), Microsoft (Satya Nadella), Pepsi (Indra Nooyi), Reckitt Benckiser (Rakesh Karpor, Laxman Narasimhan), Smith & Nephew (Namal Nawana), Unilever (Nitin Paranjpe) ...
NB Authoritarian Socialism, Bureaucracy & Red Tape scourge of Indian Businesses.
Iraq – 'Black Gold $s fund
weapons for tribal civil wars & annexations' - Mercantilist gold OPEC cartel
distorts industrialisation and economic growth.
$s accumuate in oil reserves
Market Prices = $s price of oil determined in global markets with high demand from industrialisation = difficult to price different qualities as price of kerosene influences price of bitumen = haggles = cartels = taxes = futures & derivatives reduce volatility of speculators, rumour and middle men & guessers
Competitive Devaluation = $s valued by trust as other currencies jockey for non existent advantage
Gold Standard = stability & trust and Bretton Woods = $s track record of balanced industrialisation and an independent printer = checks & balances, separation of powers … Dinars do not equal Rupees
Bribery & Corruption = tribal fiefdom fights Sunni & Shea over rents & tax revenues
NB Winner’s Curse Dutch Disease.
Russia – 'iron curtains & Berlin walls'
$s don't accumulate in basket cases
Unbalanced Industrialisation = State sponsored weapons & oil bags of customers for Kalashnikovs & MIGs and American foes
Defence & National Security = legal defensive bullets & illegal offensive bullets ... they are not labeled
Perestroika & Glasnost = too little too late = collapse and enter the oligarchs = store money in London = inequality = no middle class bulge = broken economy = aspirations of back to the USSR = US sanctions
Trade Sanctions = isolation better than war = downward spiral
NB Glasnost & Pereskroka revert to Authoritarianism
Germany – 'from the ashes of hyper inflation and
the devastation of war, like Japan, the Marshall Plan funded a manufacturing
power house, an economic miracle, supercharged by a contrived low Euro FX
$s accumulate in Germany's economic miracle not the French farmer subsidies
Euro FX = imbalances & inequalities = half baked Euro = real incomes the one & only adjustment mechanism for low productivity as Euro value determined by global supply & demand = Germany up Italy & Greece down. $s & gas pour in from Russia into Deutsche Bank and real estate.
Balanced Books = Euro budget has never balanced rules ignored = Borrowing = < 3% GDP and Debt = < 80% GDP
Subsidiarity = 10th Amendment = privatisation = vote with your feet = wages sticky and jobs move from zombies into government bureaucracy funded by debt rather than non-existent taxes ... immigration, urban treks, iron curtains, walls and bribery & corruption as immigrants flock to jobs in Germany leaving skills gaps back home. Good but unskilled welfare destitutes also arrive as things deteriorate back home. Immigrants also grow old.
NB Euro distortions and Democratic Deficits.
City of London – 'comparative advantage at the
touch of a button as global $s converge on the City, a financial centre, a
niche specialisation in finance for trade with a long fraught history of
learning from mistakes' - 1214 Magna carta, 1345 Edward III, 1600 East India
Joint Stock Company, 1637 Tulips, 1720 South Sea Bubble, 1929 Crash, 2008
$s accumulate in liquid funds for investments in global profitable projects
$s accumulate in bubbles
Moral Hazard & Adverse Selection = trust & confidence, stability with asymmetric info = guesses, excitement, fear = cycles = but 3% compound growth in 'know how'
Inflation = too much money = Greenspan 9/11 slashed interest rates & China funded deficits
Deregulation = 1986 opened up competition in ancient specialisations in funding for innovative technology which reduced cost and increased quality – speed, reliability, choice, liquidity, specialisation scale … who you know became what you know open for Joe Sixpack.
Derivatives = creating money out of nothing = value substitutes = CDO & CDS = $s from expectations of real estate price increases that didn’t exist
NB Comparative Advantage in Global Capital funding for Profitable Projects
USA – 'Checks & Balances, Separations of Power &
Supreme Courts' = global trust Almighty $s.
$s accumulate overseas and national 'manipulation' become impossible
Interest Rates = 'data dependent', the humbling of the macho managers as markets beg to differ. QE narcotic = asset prices rise & helicopter drops = inequality = Why bother tax? & print? Why pay borrow? Why save print?
Productivity = GDP measurement problem = know how + entrepreneurs + land + capital + labour + technology + torts + trade + hard work + honesty + thrift. Inflation = excitement. Deflation = fear.
Complex Adaptive Systems = interconnected, intertwined - morally, politically & economically = same one whole happenings
Book 2 Other People's Money
The bills have to be paid. But where was the sustainable income stream?
John Kay outlined a fascinating yarn about lethal debt in 2015 - 'Other People's Money: Masters of the Universe or Servants of the People'.
A flawed business model emerged from arrogant price fixing based on tax, spend & print policy for inflation & rising asset prices -
invest in money itself, government debt, mortgage debt & commodities.
A zero sum game, profit at the expense of others, who were less smart. Rent seeking was a bridge to nowhere ...
The fake money system was a Ponzi scheme where fake profits paid for large bonuses and lower costs of capital. Thieving from other people and future generations.
Balance Sheet valuations became a problem. True and fair was a judgment, nothing necessarily illegal, it could be just a mistake or self delusion. Prudence for a rainy day avoided bankruptcy but there was now a Principle / Agent problem, 'I'll be gone, you'll be gone'.
The Bezzle from embezzlement fraud often involved years which elapsed between the crime and the discovery. During this time The Bezzle gain can be enjoyed by two parties and nobody has lost?
The Febezzle was a mistake but functionally equivalent to the Bezzle. The gain occurred in the interval between the creation and destruction of the delusion. During the interval two people enjoyed the same wealth ... until the bubble burst?
The sequence - loans produced income streams which banks sold to someone else, they passed on the risk at a discount and pocketed the profit now. Securitisation enables marking to market valuations ... if there was a market (LTCM). Or marking to 'model' if there was no market. But the loan was worth something or nothing?
When the bubble burst you discovered the guy you sold the loan to had borrowed money from you to buy your loan! Counterparty risk! The risk had not been passed on after all?
From prudence to recklessness. From fear of bankruptcy to excitement of risk. Caveat emptor and due diligence had been eroded in a frenzy of excitement?
The febezzle was not overt fraud but it was immoral if it was understood ... but it was not understood - 'It is difficult to get a man to understand if his job depends on not understanding'?
Interdependency in a complex adaptive system generates fragility & instability ... unraveling Lehman will take decades as nobody knows who has lost how much to who and when ... and fear (like excitement) was contagious, the whole system became a risk averse zombie?
Not too big to fail but too complexly interconnected to fail?
The evidence of history revealed that social activity quickly became too complex to manage and the management systems routinely collapsed ... however personal responsibility for cooperative synergies continued to create wealth.
Software engineers knew the solutions to systemic complexity lay in simplification, modularity & redundancy to accommodate the inevitable cycles of failure.
Robust biological systems evolve diversity, copying mechanisms and rely on natural selection.
Balance Sheets measured the Weight of the Ox
'In 2008 the measuring scales broke ... but the 'wisdom of
crowds' was at hand to guess the Balance Sheet values?
However what became important was not the pedigree & track record of ox nurturing nor the nutrition system & flow of innovation ... but rather guessing what other people would guess other people would guess!
Complex statistical computer models were developed at great expense which financial advisers then sold at inflated prices to gullible value guessers.
Unfortunately the ox died, preoccupied folk had forgotten to feed it' ����
We slowly started to learn about synergies & trust underneath the soap pans in Apapa ...
Profit was not a dirty word, it was a miraculous surplus for future investment ... the bills had to be paid ... often well before any revenue came back to the coffers ... there was always an 'impossible gap'. Then after the bills had been paid ... the discovery & learning costs of future innovation had to be funded ... without such investment in better mouse traps, revenues inexorably declined and bankruptcy awaited.
'How did you go bankrupt Mr McCawber?' ... 'gradually then quickly, Sir'!
The parasites & predators of the short term were a problem, defensive costs were enormous ... and but mull it all over ... we were in it for the long term and so were our investors in prospective P/Es.
We learned first hand how the Unilever compound growth model worked ... both in the dark under the soap pans and in Lever Brothers, Malawi Ltd ... synergies ... and we guessed that Apple, Microsoft, Amazon, Facebook, Google and Tesla also had to pay their bills ... or go bankrupt?
So we switched off the fake noos from the BBC and shut off the broken bureaucrats in Westminster, Washington and Brussels ... we concurred with the legacy of the the Brits -
'the institutions of liberal democracy were the worst form of governance that had evolved, apart from all the alternatives which had been tried from time to time'
We smelt a rat so we concocted a strategy ...
Us evolutionary economists believed that it was 'know how' itself that evolved so backing all pervading ignorance was a much better bet than blaming others ... especially about the future ... strewth we didn't even agree about the past history?
For sure 'know how' was slippery ... complex, changing, conflicting & scarce ... diverse, dispersed, tacit & incomplete.
We needed a strategy to distinguish between fact & fiction ... between fake noos & reality?
To trust or not to trust, that was the question?
Joint Stock Companies - the case for business (PowerPoint presentation)
The Wealth Machine - a presentation describing how the machine works and why it works ... this material was originally put together for a business appreciation course for first line managers during the 1980s ... still relevant & necessary for business students?
Wealth Creation - some notes on understanding Business, Factories,
Technology & Human Capital (boring Text Book stuff)
The Wealth of Nations was just words about an unworkable & meaningless system, incomprehensible without the prior insights of Adam the Smith in The Theory of Moral Sentiments
The evolutionary evidence in history -
The jsc was the worst form of organisation apart from the alternatives ... inefficiencies were rampant -
hierarchical organisations like the jsc are less efficient than perfectly competitive markets, but perfectly competitive markets don't exist - new institutional economists describe how the jsc exists only because market transaction costs can be prohibitive ... nevertheless competitive Balance Sheets must balance.
managers cannot always be relied upon to act in the interests of the shareholders - the moral hazard and the principal / agent problem ... nevertheless moral pressures are supported by checks & balances and separation of legal powers.
A mix of elements contributed to the success and robustness of the jsc.
The elements did not evolve sequentially but gelled into a coherent whole displaying all the characteristics of a complex system.
The emergence of these elements was not an accident but the result of a selection process from the trial and errors of experiments to secure synergies of specialisation & scale Folk specialised and acquired creative skills and associated in 'clubs' to achieve scale.
The jsc emerged in a modern form in England - some significant landmarks in the evolution of the jsc -
private innovations and funding of clubs from surpluses was always an alternative to the whims of Bishops, Princes, Generals and bureaucratic majorities whenever folk were freed from bureaucratic kludge, parasites & predators, tyranny & oppression, bribery & corruption -
The Scottish Enlightenment - Adam Smith & natural systems of moral sentiments, simplicity & spontaneity of improvements.
Privateers - Sir Francis Drake, Britannia rules the waves and defence from the Spanish Armada.
Private Enclosures - Turnip Townsend and the agricultural revolution of husbandry & cultivation improvements.
Industrial Revolution - Sir Robert Peel and the repeal of the Corn Laws.
Privatisation & Globalisation - Margaret Thatcher, Ronald Reagan and the gains from trade.
Glasnost & Perestroika - Michael Gorbachev and the collapse of the USSR.
Shenzhen - Deng Xiaoping and private farming and Special Economic Zones.
Origins - economic activity grows and prospers when folks co-operate to benefit from synergies associated with scale, specialisation, science, imitation, investment and innovation. Groups of people associating together and sharing resources, in order to pursue a common purpose. They joined a 'club' of their choice.
Historically economic interactions intensified initially in towns and cities and then further intensified in institutions within the cities -
as money replaced payment in kind there were more opportunities to save and accumulate capital
as trade in the cities grew there were opportunities for profit from risky trading ventures, particularly far away and overseas
in England in the 17th century there was an increasing opportunity for free men to choose the form of their co-operative endeavours. The jsc was the result of voluntary co-operation between merchants who copied earlier Italian practice and pooled their resources in return for a pro rata share in any profits. The prizes these merchant sought were - property ownership - limited liability - succession and continuity - legal remedy for debts
in mercantilist times a tempting source of state revenue was the granting of licences to trade as joint stock companies. State sponsorship was common when ventures were unsupportable by taxation - East India Company, Hudson Bay Company, Virginia Company - many of the first companies were privileged state monopolies
1624 Repeal of ‘The 1571 Act of Usury’ - confirming a change of moral attitude to investment returns, rewarding risk taking became legitimate. Risk was uncomfortable and discouraged investment - ‘a glimpse of risk made the crowd shrink’ -
risk associated with saving, why delaying consumption today when tomorrow is unknowable?
risk associated with lending your savings to others, do you trust him?
communities which evolved the new morality started creating more wealth as more people took more risks. Those with the money have no ideas, those with the ideas have no money
those seeking investment opportunities realised that trust was essential not only because of some inner driven ethic but because honesty was seen to be profitable
1773 Securities Exchange - traders started to deal in utility and industrial stocks as future income streams were bought and sold -
risk was reduced as information became more transparent, investment choice started to become an important indication of value
value was enhanced as resources were allocated to the more profitable ventures, private commercial decentralised decisions start to provide an alternative to central taxation
1825 Repeal of ‘The 1720 Bubble Act’ - for 100 years the jsc had been indictable as a common nuisance but now at a stroke regulation could no longer inhibit legitimate creativity and innovation, although, of course, fraud & theft remained illegal -
investment scale increased as savings from larger numbers of smaller folk were mobilised
investment flexibility increased as investments could be freely transferred to others
1834 Legal Entity - opportunities for legal remedies -
companies could sue for the recovery of debts through the courts
companies could be sued for the recovery of debts through the courts, honesty was the best policy
Bankruptcy sifted out the rubbish ... hard work, honesty and thrift became the only sustainable policy.
1844 Board of Trade Registration - a specific act of Parliament was no longer necessary to form a company -
companies could be readily formed by anyone, for any legitimate activity quickly and easily with minimal cost and red tape
profitable trading no longer depended on political influence, vested interests and monopoly power
1856 Limited liability - savings capital could be mobilised to exploit profitable opportunities with a minimised personal risk, innovation took off -
investors liability for debts was limited to the amount of the investment
rewards for choosing profitable investments were correctly going directly to substantial numbers of people who could not prevent others from proving them wrong! Investors had only themselves to blame if they burnt their fingers. A restatement of an old principles of Due Diligence and Caveat Emptor?
1890 Stock markets - business finance became readily available as small packets of risk were freely valued and exchanged -
information flows around the world as folk were able to quickly and flexibly move funds into wealth creating activities
mass participation becomes possible.
1989 Fall of the Berlin Wall and abandonment of Clause 4 - the success of the jsc is more generally accepted -
privatisation is embraced
massive populations in China and India join the globalisation gravy train.
1989 Fall of the Berlin Wall and abandonment of Clause 4 - the success of the jsc is more generally accepted -
'mind your own business'
'we're open for business'
2008 Financial Crisis reinvents the polarised beliefs about business & markets as the nationalised banks are rescued from bankruptcy AND private businesses are instructed to create the jobs ... ?
The line of causation runs from economic survival activities to legal & institutional responses which feedback and influence the survival chances of the business innovations.
There is economic advantage for investors to share the risks involved in competitive business innovations for customers to evaluate. Successful sustainable economic activity must involve surpluses ... synergies ... mutual benefits for everyone within the law ... otherwise bankruptcy.
- Tommy Jeffers Creep & Crap established the case against authoritarian bureaucratic kludge
- The Principle of Subsidiarity was spotted from way back but proved repeatedly to be corruptible as human brains seized the top down virus and invented gods behind every tree and found Darwin's insight to be 'an awful stretcher'
- Crowd Trouble eventually disrupted command & control as everyone was different at different times in different places with different others as they went for longevity in their own way.
Crowd Trouble & Petty Power Politics -
From the get go until the Scottish Enlightenment and the Scientific & Industrial Revolutions almost all folk bar none believed 'know how' came top down from authorities, a god behind every tree but oppressive Bishops, tyrannical Princes, dictatorial Generals and corrupt Bureaucrats had no privileged access to 'know how'.
However happenings were random but there was a pattern ... the 2nd Law of Thermodynamics saw to that.
Perceptions & illusions and interpretations & delusions about such happenings seemed to us to be many & varied ... and different as different folk, at different times, in different places, with different others, had different ideas ... and even the very same different folk seemed to flip flop between excitement & fear on a whim as mood & emotions changed & raged ... 'know how' was slippery -
complex, changing, conflicting & scarce ... and ...
diverse, dispersed, tacit & incomplete ...
Trust was a track record built up over time but destroyed on a whim ... trust was an evolving behavioural trait not a label -
'trust me I'm from the Government, I'm here to help!'
... just didn't cut the mustard.
When the money ran out and bills couldn't be paid it became impossible for commercial business trading to continue ... trust provided some immunity from treachery, but 'caveat emptor' & 'due diligence' had to be baked into the cake ... the dice were loaded in a sort of evolutionary arms race to confront Power & Mandates from above which seemed to delivered nothing but nasties -
parasites & predators
tyranny & oppression
bribery & corruption
Oppressive Bishops, tyrannical Princes, dictatorial Generals and corrupt Bureaucrats had no privileged access to 'know how' ... they hadn't a clue ... 'know how' differentially survived ... such was the power of the powerless
Empirical Science & Competitive Business delivered -
compelling evidence ... so the jury could be convinced
bankrupt failures ... so the bills could be paid
Personal Responsibility in diverse social networks was our only hope to discover & accumulate synergies of specialisation & scale as 'know how' progressed one funeral at a time as Darwin suggested; failures were weeded out -
observation - maths theory - testable hypotheses - experimental validation - peer reviews & citations
checks & balances - separation of powers - term limits - Bills of Rights, UDHR, Amendment 1 (everyone was free to choose without harming others) - Amendment 10 (everyone required lawful protection from harm) - Amendment 14 (subsidiarity, we the people do the choosing)
and evidence came from Scunthorpe -
It seemed to us that if you did a double blind randomised control experiment in Scunthorpe which was repeated in the Antipodes 17½ nights later with the same peer reviewed results ... such was meaningful evidence and not tittle tattle ...
and there was more evidence from personal introspection -
'How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it'.
Everyone was different but everyone could discover & accumulate evidence ... there were no restrictions on learning, there was no privileged access to 'know how' ...
personal contributions - 'do unto others', 'vote with your feet & join a club of your choice' and experiment like mad - inspired by a 'free speech & free association', discover & accumulate synergies of specialisation & scale from hard work, honesty & thrift in the cacophony of happenings, circuses, debacles, fiascos & pandemonium -
anarchic, chaotic, confused, disorderly, disarrayed, disruptive, fanatical, frenzied, haywired, jumbled, messy, muddled, , shambolic, topsy-turvy, tumultuous, turmoil, uproarious ...
so in our ignorance -
'rather than being appalled & troubled when we saw the problems resulting from bad behaviour, we should be astounded & awed by the fantastical opportunities resulting from good behaviour'
Survival came not from messiahs & soothsayers but from torts, trade & innovative technology ... so folk were in a cleft stick ... they were stuck with business cycles!
It was a hit & miss affair, there was always excitement & fear, everybody was guessing, nobody knew what was happening ... no wonder there were ups & downs, 'Kondratieff Waves', booms & busts, as well as runs on banks, stock market crashes, asset bubbles, currency crises, sovereign defaults ... and lynch mobs, riots and crowd trouble ... how many cycles? ... all cavorting in a mad dance one on another, one with another ... crazy bewilderment ... in different folk, with different others, in different places, at different times, at different speeds with different outputs ... as cycles interacted there were amplifications & suppressions, combinations & displacements ... big booms & busts and small booms & busts ... overshoots of euphoric experimental discovery... undershoots of odious experimental failure ... one damn cycle after another ... prices of coffee influenced prices of tea ... and some even suspected the price of potatoes influenced the price of holidays in Benidorm ... prices seemed to be all over the place ... especially after a failure of the rain dances ... and what of the stupendous puzzle of money itself, and credit, and new cowry shells and coin clipping inflation? ... no wonder it all went wrong so often?
Immense complexity, layer after layer, distortion after distortion, impossible to simplify ... but each distortion presented an arbitrage opportunity which tended to push prices to a clearing level like a strange mimic of Le Chatilier's Principle ... and then each discovery added further complexity ... as entropy increased ... oh gawd ...
... but don't get it all wrong ... evolutionary economists were ignorant of an unknowable future but there were discernable patterns, The 2nd Law of Thermodynamics and Euler's 'e' saw to that - as soon as there were stocks there were thieves ... parasites & predators abounded ... defence of stocks and immunity from treachery never ever resulted from creating money out of nothing!
we were fed up with folk, who in their ignorance, arrogantly claimed to know what was best for us all ...
and ... but ... BUT
we were more well fed up with folk, who in their ignorance, naively expected someone ‘up there’ to know what was best for us all ... and take decisions for us, as if absolving us from personal responsibility for a contribution!
Put it another way - evolved social institutions underpinned creative, cooperative synergies of specialisation & scale as the evolution of 'know how' was nurtured and grown. Forget the lousy compromises of the 2-2=0 zero sum games, cooperation was a 2+2=5 positive sum game ... grown & nurtured from evolved moral sentiments the dice were loaded -
moral sentiments - as the golden rule of 'do unto others', 'fairness of shares', 'resentment of cheats'
empirical science - as observation, mathematic theory, testable hypotheses, experimental validation, peer review ...
liberal democracy - as checks & balances - separation of powers - term limits - Bills of Rights
... all required constant nurture & growth and immunity from treachery - the worst form of governance except for the alternatives
torts, trade & technology - as commercial companies were weeded out by bankruptcy
hard work, honesty & thrift - as the 2nd law of thermodynamics constantly eroded order ...
due diligence & caveat emptor - as defence systems in an evolutionary arms race against thieves and bad behaviour
... without growing such institutions -
parasites & predators
tyranny & oppression
bribery & corruption
... became more & more inevitable.
Did moral sentiments & cooperation outcompete conflict & compromise?
Darwin’s enchanting entangled bank was not even a pause for thought as macho men grabbed their fictitious levers of power and built up their grotesque bureaucracies in Westminster, Washington and Brussels ...
disgusting, foul, insidious, growing, overwhelming, parasitic, predatory, revolting, seething, sprawling, stinking, thick, unctuous, useless, vile, viscous ... cesspits of arrogance
A mass of intertwined evil intelligently designed as instruments of command & control of human behaviour with an unstoppable life of its own ... uncontrollable … a sort of vain, arrogance of privileged know how … a deluded figment of power … authoritarian Creep & Crap in progressive tandem …
Thus, in this way, was superimposed, yet another cycle of blatant bribery & corruption which led inexorably to tyranny & oppression and then crowd trouble ... all financed by tax then borrow & then print -
Brussels – unbalanced Balance Sheets – debt limits % - subsidiarity
Washington – suicides to drain the swamp – 10th Amendments
Westminster – broken parliaments – fantastical opportunities - get it done
The Emperor had no clothes. But there was a seemingly unavoidable need in the minds of men to invent problem solving messiahs who did not exist ... first they invented gods then they tried bureaucrats!
Wotever happened to hard wired moral sentiments & the evidence of cooperative trust in the discovery & accumulation of synergies of specialisation & scale?
Were the ‘Better Angels of our nature’ in retreat as Steven Pinker was ‘cancelled’?
The dice were loaded -
immunity from treachery - brains & immune systems evolved tending to control of parasites & predators – social ostracism & biological immune systems tended to exclude bloody aliens from the clubs which became pleasurable social norms. Internalising social norms in institutions & cultures. Within competitive groups.
erosion of the pecking order - monogamy evolved tended to become a pleasurable social norm rather than a constraint on behaviour. Within group leveling practices.
development of technology to win defensive wars - democracies evolved tended to defeat dictatorships and gain reproductive & survival advantages. Between group competition.
Steven suggested that the key to explaining the decline of violence and the increase in cooperation was understanding that the inner demons of the smaller brains inclined us toward violence - fear, revenge, sadism, tribalism - and the better angels of the big brain steered us away - we empathised with others, we bargained rather than plundered.
The ancient 'state of nature' & 'nature v nurture' arguments were redundant; moral sentiments biologically evolved. Positive feedback loops in complex adaptive systems where scientific reasoning pushed at an open door of empathy -
our behaviours were a result of neurophysiologic activity in the brain. There
was no reason to believe there was any magic going on. Smarter people tended to
think more like economists. Human nature was a complex adaptive system with
many components. It comprised mental faculties that lead us to violence, but
it also had faculties that pulled us away from violence, such as empathy,
self-control, and a sense of fairness. It also came equipped with
open-ended combinatorial faculties for language and reasoning, which allowed
us to reflect on our condition and figure out better ways to live our lives.
Morality was not a set of arbitrary regulations dictated and written down in
a book; nor was it the custom of a particular culture (universal human
emotions). It was a consequence of the interchangeability of perspectives
(empathy) and the opportunity the world provided for positive sum games
(synergies). You and I were both better off if we shared our surpluses. People
had feet, they moved to places where opportunities were best, and they soon
invited their friends and relatives to join them.
Liberal Democracy was an imperfect way of steering between the violence of anarchy and the violence of tyranny, with the least violence you can get away with. I don't think it's a triumph, but it's the best option we have found.
The implications of the historical decline of violence were profound, a better understanding of what drove the numbers down can steered us toward doing things that make people better off -
Liberal Democracy promotes -
customary law which trumps violence - few predators, parasites, dictators, sadists, racialists, idealists
global commerce - exchange trade cities is intense not violent - more empathy, moral sentiments, self control, understanding
universal emotions - girls matter gender specialisation - less discrimination
economies of scale - foreigners matter globalisation - less them & us
exponential learning - culture & science to UDHR - evidence trumps anecdote
The prisoner escaped from his dilemma and the tragedy of the commons was averted!
Physical power and theft were replaced by empathy & coalition building where success depended on persuasion & motivation. Folk were much more capable of forming powerful and sustainable coalitions than other primates, due to enhanced longevity, cognitive, linguistic & physical capacities building on cooperative & defensive psychological propensities.
Maybe John Lock's 'State of Nature' was more than a match for Thomas Hobbes's 'Leviathan' but it seemed instinctive moral sentiments had to be complemented by constraints on parasites & predators.
These described a biological evolution of morality, economic institutions & liberal democracy, based not on intelligent design of political philosophy, but on the discovery & accumulation of synergies of specialisation & scale; the historical & biological evidence of our evolution.
Herbert Gintis -
'This scenario has important implications for political theory and social policy, for it suggests that humans are predisposed to seek dominance when this is possible and not excessively costly, but also are predisposed to form coalitions to depose and dispose of pretenders to power. Moreover, humans are much more capable of forming powerful and sustainable coalitions than other primates, due to our enhanced cooperative psychological propensities. This, of course, is a defence of liberal democracy, but it is based not on political philosophy, but rather on the facts of our evolution'.
Adam the Smith -
'How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it'.
End Note - Who spoke up for Business & Empirical Science?
But Mercantilism was still alive and well in 2008? Trade was sooooo good a wheeze that, inevitably, in the absence of checks & balances and separation of powers it was turned into a political football as everyone tried to claim credit for 'winning'?
The Balance Sheets of Trade had to balance, every deal had to be paid for ... otherwise no deal ... a deficit on current account had to be balanced by a surplus on capital account. But when trade imbalances became large in 2008 inevitably problems occurred ... large surpluses of $s from Chinese current account were invested in North American real estate and a 'bubble' followed as night followed day. The Chinese consumers and American businesses lost out on lots of great deals ... the $s would be better spent on Apple software and Tesla batteries?
Blame Games soon turn to hatred as Mary Barton knew ... and it was easy to misunderstand business & Complex Adaptive Systems -
everything depended on everything else - (Darwin's Conjecture)
brains couldn't cope with complexity of multi levels of iterations - (Theory of Mind)
It was hoped that the WTO would be a great manifestation of how profitable projects that needed no supernatural tax funding could create wealth from which everybody mutually benefited.
But the Doha Round became a political football and not a champion of business deals?
Focus on business -
Good politics must be good economics ... otherwise how could such survive? Good economics must be evolutionary economics ... businesses that didn't create wealth went bankrupt and released valuable resources ... what was the alternative ... intelligent design?
Successful business must be good economics ... as productivity and real wages rise with lower business taxes & deregulation to drain the swamp of bribery & corruption and the associated waste
Folk vote with their feet and join clubs of their choice.
Free to choose but not free to harm others.
Richard Dawkins explained about rowing in 'The Selfish Gene, Chapter 3, Immortal Coils' -
Rowers, Genes and Businessmen
One oarsman cannot win the race; eight specialist colleagues are needed. The boat is a cooperative venture. By definition luck, good and bad, strikes at random. Many good oarsmen get into bad company but an oarsmen who is consistently on the losing side is not unlucky, he is a bad oarsmen. On average the best oarsmen tend to be in the winning boat. One of the qualities of a good oarsman is teamwork.
An oarsman ... or gene ... or business man ... or woman ... who cooperates well will tend to have a selection advantage in the population.
Richard Dawkins explained about business in 'The Selfish Gene, Chapter 12, Nice Guys Finish First' - the dice were loaded
Synergy, Genes and Businessmen
What really happens is that the gene pool becomes filled with genes that influence bodies in such a way that they behave 'as if' they made complex, if unconscious, cost/benefit calculations.
Businesses coped by following very simple trial & error rules of thumb where competence was not comprehension ...
discover your product or service that was wanted when sold at a price which cleared markets
bankruptcy sifted out the failures
A simple rule of thumb ... a 'evolutionary game' of 'social tit for tat' ...
FT 15th August 2017 -
'Millennia of evolutionary coding was stronger than any technocratic fiat'
But perhaps -
Bishops, Princes, Generals & Bureaucrats always pushed bureaucratic kludge, parasites & predators, tyranny & oppression, bribery & corruption?
Checks & Balances, Separation of Powers and Torts, Trade & Technology failed to drain the swamp of bureaucratic kludge, parasites & predators, tyranny & oppression, bribery & corruption?
The 10th Amendment (devolution subsidiarity) failed to guarantee independent free choice and failed to stop authoritarian creep & crap ?
'The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people'.
The 14th Amendment (everybody protected) failed to guarantee others were not harmed as 51% screwed 49%?
'No State shall deprive any person of life, liberty, or property without due process of law, nor deny any person the equal protection of the laws'.
The war on egregious terror failed to make the world safe for diversity?
Why do all successful businessmen tend to avoid the Washington, Brussels & Westminster bureaucracies and leave them to the lawyers and parish councilors?
Why do all bureaucracies tend to have a life of their own and fail to balance their books? How do they pay their bills and avoid bankruptcy?
Businesses surely don't wish for handouts, bailouts, subsidies, price fixing, 'certainty' and regulation to 'protect' them from competition ... all underpinned by 'fake news' and 'fake money' from the tax, borrow & print cycle of unsustainable politics ... surely not? ... how can anyone pay their bills with fake money?
Everyone cannot be parasitic & predatory, someone has to produce the stocks for the thieves to steal ... surely?
So, in this way, it was physically impossible to stop innovation and the growth of know how.
How on earth do you encourage folk to vote with their feet and join a club of their choice, stick to the knitting, mind their own business and get on with the job?
Listen to my mate John Faulkner and understand Kewill Systems.
Read a story about business ... about hard work, honesty & thrift under the soap pans in Apapa.
End Note - A project for Dr Pierre Paul Heiser
PhD in Economics Paris 1 Sorbonne
Planning Analysis Anthropological Engineering.
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Ladignac le Long 87500 France
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From: pierre paul Heiser
Sent: 25 October 2019 08:58
Subject: pph to jpb - dynamic histo-economic lesson
I introduced myself to both economic and geo departments of Limoges University.
I have to make a proposal for a course.
So why not an original lesson, because Turchin, for example, never traduced in French.
So something from the beginning of paleology to now, a trip following trajectories, a path dependent journey along evolution to civilization, a non-linear histo-eco analysis with Diamond and Turchin and .... ?
Please, your point of view, and will you name some more authors.
An original proposal for this course could be based on the sketch of a path dependent trajectory through history based entirely on Darwin’s insight of ‘differential survival of inherited variants’, the process of ‘copy/vary/select’, the natural selection of ideas –
The ‘bottom up’ green arrow is well understood paleology as evolution (this is your own expertise base, but I would also suggest the process extends back in time to the ‘big bang’ itself! There is no evidence for any alternative ‘supernatural’ process)
The ‘pinnacle’ of biological evolution at the top of the green arrow is the brain and immune system of Homo Sapiens which has the remarkable capacity to manipulate the environment (opposable thumbs & fingers, language to solicit cooperation with helpers and social cultures for the discovery & accumulation of know how ... Turchin explained it all beautifully)
The challenge for your proposed course is to explain the ‘top down’ red arrow of human intention.
Counter intuitive but ‘simple’ the CONTINUATION of NATURAL SELECTION of brain activity which manipulates the physical environment.
This manipulation CANNOT be explained by arrogant, plausible, deliberate, rational, purposeful, intentional planning of outcomes because sufficient know how about the future does not exist.
The red arrow is perfectly explained in terms of the natural selection of ideas in the brain, DARWINIAN trial & error experiments and the progress of empirical science.
‘a process of technological & institutional innovation involving the generating & testing of a diversity of ideas which discover & accumulate more survival value for the costs incurred than competing alternatives’ – jpb & Open University
‘a pre-existing inherited variant with a survival advantage in the local environment will always increase in population frequency as alternative variants die out, this changes the environment which then inevitably feeds back and influences the survival chances of any new variant’ – Baldwin & niche construction
‘as soon as there are stocks there will be niches for parasites & predators but moral sentiments and cooperative synergies of specialisation & scale load the dice’ – Dawkins & arms races
Steven Pinker (2011) – ‘The Better Angels of Our Nature: Why violence has declined' – moral sentiments underpin progress
Steven Pinker (2018) - 'Enlightenment Now: The Case for Reason, Science, Humanism, and Progress' – progress is secured thru empirical science
Daniel Dennett (2017) - 'From Bacteria to Bach and Back: the Evolution of Minds' – an evolutionary explanation of the journey up and down the arrows.
Craig Venter (2013) - ' Life at the Speed of Light: From the Double Helix to the Dawn of Digital Life' – ultimate evidence at the tip of the red arrow ... the 3-D printing of synthetic life.
End Note - The Nature of Value 2020 Reith Lectures
Mark Carney, Governor of The Bank Of England 2013-2020, went back to basics, his theme -
'how do we get what we value' ... 'doing well by doing good' ... 'more virtue leads to more money' ... 'social good and financial interest must converge long term' ... 'if it doesn't make sense, it doesn't make sense' -
HRH answered her own question-
'Why didn't somebody see it coming?'
'We must respect deeply held differences!'
1. From Moral Sentiments to Markets Sentiments
It all started with Adam the Smith and in Glasgow during the Scottish Enlightenment with an understanding of The Theory of Moral Sentiments & The Wealth of Nations. From an Industrial Revolution to a Sustainable Revolution.
We know the price of everything but the value of nothing valuable life giving water is almost free low utility gold is very expensive.
How do we get what we value?
Values were a beginning - standards of good behaviour mediated by moral sentiments & a bad conscience instincts of 'resentment of cheats'
Value evolved as just desserts in exchange markets instincts of 'fairness of shares' ... 'my kingdom for a horse'
Determined by competing costs of financial capital & value of human capital with associated valuation problems on Balance Sheets
Social Interactions generate synergies of specialisation & scale unavailable to selfish 'laissez faire' goods markets ... 'truck barter & exchange' it is profitable to cooperate
Social Memes are also exchanged as meaning & ideas of social capital
Neoclassical subjective value comes from the eye of the beholder and not from labour and not from state regulation but bum free markets assumptions
State necessary corrective intervention - monopolies - market collapse - market
externalities - irrational decision bias - erosion of institutions & culture
- flattening the value curve we pay the average price but get the extremes
which cannot be priced ...
Parasites & Predators, 'as soon as there are stocks there are thieves'
Milton Friedman freedom to choose but not free to harm others, 'maximise shareholder value conforming to the basic rules of society embedded in law and in ethical custom'
Money Illusion, 'can't buy me love' 'it's the thought that counts'
Moral Sentiments don't erode they blossom synergistically, no State fiat demanded NHS volunteers, the dice are loaded
State Leviathan emerged following public pressure for 'compassionate' outcomes ... 'fairness of shares' and 'resentment of cheats' ... demands for intervention -
Such physical impossibilities became lawful State aspirations.
Markets were blamed for the chaos as parasites & predators ran amok as immunities from treachery were eroded.
Markets can price what society values - Unilever focus on long term sustainability, purpose becomes profitable by taking problems out of broken politics to become opportunities for enterprising business. Unilever's long term sustainability depends on satisfying global customers ... and global customers indicate they wish for free & fair & sustainable trade which does not abuse human rights to choose without harming others.
2. From Credit Crisis to Resilience
Physics envy, the last time I looked happenings were a tad more complicated than that ... 'extraordinary popular delusions and the madness of crowds'
3 lies of finance -
'this time is different'
'markets are always right'
'too big to fail'
In 2008 Washington Consensus reigned supreme. Then from global boom to system bust. The G20 moved from the big print to avoid imminent collapse & catastrophe to promoting selfsustaining cooperative synergies & economic growth thru structural reforms to eliminate flaws and consolidate resilience. The big print avoided Armageddon but was never inflated away and became an easy option for continuing policy, structural reforms were forgotten.
Legitimacy of Central Banks came from system resilience but there were unknown unknowns in an unknowable future -
'if it doesn't make sense, it doesn't make sense' = no need for hard work, honesty & thrift we're on a global roll economic growth
'you can't buck the market' = when fear sets in panic follows, markets cannot clear, so how do you identify bubbles for self correction when folk aren't rational and flip flop between excitement and fear. .
'let them eat cake' = crowd trouble follows exploding lethal debt as financial engineering made it easy and Chinese savings made it cheaper
'rainy day funds' = became investments in what I think that you think what he thinks is the correct value, risk cannot be eliminated
'parasites & predators' = ubiquitous 'as soon as there are stocks there are thieves' immunity from treachery essential
'lethal debt' = became easy credit & usury
So expect cycles, expect panic and expect parasites & predators.
Resilience from synergies of specialisation & scale economic market cooperation -
moral sentiments = social behaviour & social culture (hard work, honesty & thrift)
structural reforms = investments in profitable projects & not lethal debt
reserves = safe failure
immune systems = cyber safety
aligned incentives = long term sustainability
Understood by copy/vary/select process of 'natural selection' -
personal responsibility = social empathy ... good behaviour
diversity = ignorance ... nobody knows ... so keep your options open
innovation = progress ... experiments ... weeding out failures
social trust = stocks of social capital ... vote with your feet & join a club of your choice
responsibility, solidarity, integrity, prudence ...
pay, codes & regulations ... won't cut the mustard
moral sentiments, social culture, custom & practice
Regulation cannot protect from failure when fine print became an excuse for compromise not a principle for cooperative good behaviour.
3. From Covid to Renaissance
Leviathan developed idea of the nanny state's duty to protect folk from violent aggression which has been extended by popular demand to unemployment, ill health, financial stability, privacy, environment & pandemics ... welfare state benefits and NHS ...
The state protection failed so wot next?
As covid struck compassion trumped finance which was put on 'life support' to save lives ... unimpeachable? Folk were deprived of their freedom & livelihoods. The deal obedience for protection? But no protection no deal ... would you buy a 2nd hand car from this man? Trust evaporates as parasites & predators erode 'fairness of shares ' & 'resentment of cheats'.
Covid isn't fair as it targets age, pre-existing conditions, black skins, obesity ... but not young, healthy, white, svelts
Lockdown isn't fair as it targets hospitality workers & computer illiterates ... but not hospital workers & nerds
Lockdown is easy to get into but difficult to get out of.
They are not alternatives, there is no trade of between life and work ... vaccines are needed from hard work asap.
Cost benefit analysis can't work for life QALY -
fatal conceit the calculation problem
everyone is different the aggregation problem
moral sentiments always win and can't be ignored
Lockdown folly -
costs mounted for future taxpayers
inactivity led to health problems
inequality rose - more unfairness more cheats
The genes/memes did their cost/benefit analysis thru trial & error over long long time
village shop ... responsibility, community, solidarity, fairness ... education, don't hug grannie
vaccines & therapeutics ... warp speed; discovery, testing & production
scarce investment resources into education, skills and production productivity ... not redistribution but rather regeneration
those with previous experience SARS worked better
the village shop worked better
Unilever's purpose worked better
But self isolating against climate change is impossible!
The zero sum compromises of the broken state has failed, Cooperation in global companies, positive sum, long term, sustainable production.
Question not the good or bad outcome but rather what is the better way of taking decisions?
4. From Climate Crisis to Real Prosperity
1749 Glasgow Adam Smith and moral sentiments 2021 Glasgow COP26 - think Unilever sustainable growth ... just like resilience
GDP and prices don't value values -
clean living and
... yet ... but it's coming because of the tragedy of the commons demands -
property rights and
Elinor Ostrum cooperative solution
flattening of values we are custodian for the next generation will pay OK Boomer stay woke
Fossil fuels CO2 -
Net zero the answer -
engineering - technological innovations electricity scale
up hydrogen fusion batteries electric cars Tesla
CO2 'R'educing, 'R'eusing and 'R'ecycling & 'R'emoving from the atmosphere
political - net zero consensus 'how dare you!' Unileve
r were making it work! tax rules efficiency
financial - sustainable funds drive anticipators like Unilever share price palm oil and Port Sunlight obey rules we are guests in Nigeria
Economic Growth is a must. Value must reflect values.
Mark Carney identified Unilever and the way forward -
'R'eporting - tracking funds follow purpose. - TCFD
'R'isk management - tipping points out of spreads into palm oil and vegetarian butchers and marine harvest and tissue culture
'R'eturns - deliver values invest in Good Energy PV cells Heat Pumps Beyond Petroleum clean funds all through the market = innovation, investment and profit,
Market to net zero is happening with a virtuous cycle of back to Adam Smith ... will China follow?
Covid has confirmed when there's a will there's a way.
Personal responsibility shareholders determine share price
From problems to opportunity
Get it done! Grasp opportunities! 'Comparative Advantage' and 'Unilever Sustainability'!
Free & fair trade = global sustainability (economic liberalism) maximum cross-border economic exchange (no protectionism) where everyone pursues whatever activity they can do best to secure synergies of specialisation & scale.
Our market research suggested that global customers didn't want production moved in order to circumvent regulations that codify existing democratic preferences -
treat workers fairly (slave labour didn't work)
protect the environment (plastic fishes, city smogs, covid evil didn't work)
bills paid by innovative, efficient production (protectionism, unlevel playing fields didn't work)
Unilever's long term sustainability depended on satisfying global customers! Remove the blockages and let the blood flow.
The Blind Watchmaker was immune from treachery otherwise he wouldn't have survived ... natural selection of 'know how' and the liberal order ... and bankruptcy to weed out the failures ... constructed The Case for Competitive Business.
In the same way birds that didn't build nests and short necked giraffes died out.
The Bard got the explanatory power of evolution right as usual ... way before Darwin's insights in 1859 ... the paragon of animals with moral sentiments, an infinite imagination, and a conscience, 'as if' acting like a god.
Hamlet suggested it was 'as if' man was acting like God but in reality ... ‘dust thou art, and unto dust shalt thou return’ ...
The breakthrough was to focus on personal responsibility for speeding up the efficacy of our own natural individualised survival aids.
Natural selection provided us folk with two gigantic & fantastical tools for our survival and betterment -
our very own individual brain
our very own individual immune system
... look after both of them and use them... both have a spooky capacity to LEARN ... fantastical opportunities!
Stop searching for a one size fits all messiah, each & every one of us has an individual brain and an individual immune system - each immensely complex, changing, conflicting with scarce individual responses to parasites & predators in an evolutionary arms race.
Wotever happened to Structural Reforms? ... our beer glass was half full not half empty ?
back to evolutionary economics