Monday, November 15, 2004

Economic Theory and Reality

Many people, lay economists and “credentialed” professors alike, believe that without government interference a free-market would create an libertarian utopia. They state that “the only way a monopoly could exist would be for the entity in question to exert force or violence upon others to prevent such competition. If force is used on a free market, it would be quashed, no matter how big the entity because no matter what size, it is ALWAYS much smaller than the market itself and the super-majority (actually I would go farther and call it 'human nature') is not too happy to have force used against it.” They explain away the fact that this has never been the case in the entire run of human history by stating that “change is ALWAYS occurring and something that was 'true' for a given set of circumstances in the past does not make it true today”.

I understand the general hesitance to accept history as applicable to the present or future situation. It is certainly problematic... I also agree that, in a game theory world, monopoly will be, at most, a temporary phenomenon. However, I look to history to explain why, at least in the past, force and violence have successfully controlled the functioning of the free market. In a game-theory world, with a nice even playing field and an even distribution of resources, then the market would--I think--be able to overcome the tendency toward concentration of power (both to distort the market, and otherwise). But outside the world of theory, there are fundamentally uneven distributions of everything, from intelligence to resources to geography to weather, etc. These cause power to pool, just like water pools in the landscape. Power is the basic ingredient in all human interaction, whether we're dealing with force, with a market, etc. (in fact, one could describe a market as a means of optimizing exchange in an environment of fairly evenly distributed power). So while I'll agree that localized power will ALWAYS be smaller than the totality of "the market", due to this pooling effect, it will often be (and history demonstrates that it always has been) powerful enough to distort or control the market locally. Locally, of course, could be just within the limits of Smallsville, nowhere, or it could be within the confines of the entire Roman Empire (or American Empire...).

As quoted, change in history is ALWAYS occurring. I like to look at it along the lines of a "strange attractor": As change is always occurring, that in itself becomes a constant. Similarly, we seem to keep changing in the same patterns and methods again and again.

My distaste for hierarchy is relatively straight forward: I think that it's pretty inefficient when it grows beyond a certain size. Stratification, division of effort/labor, centralized planning... these phenomena have clear cut benefits. However, as hierarchy grows, it begins to experience an exponential increase in the demand for information processing, as well as an increase in information distortion (Wilson's SNAFU principle). The exact point at which hierarchal organization crosses the threshold of inefficiency will vary, but I contend that it is far lower than most people think. Add to that our genetic optimization to interact in SMALL group environments (most management "scientists" will tell you 8-15 person groups) in combination with infrequent, weak/distant interactions with wider networks (Buchanan's "Small Worlds" theory), and it seems to me that rhizome acts as a more efficient organizing principle.

Economists also contend that their models of hierarchy, monopoly and free market work because all humanity always acts in their own selfish interest: a free market of selfish participants, they say, will maximize utility for all. Unfortunately, it isn’t quite that simple because human psychology and motivation is actually quite complex (I discuss this at length in my book, “A Theory of Power”). Basically, there are two competing influences: the demands of our genes, and the demands of our memes, both interacting with our conscious brain through the harness of what, for sake of simplicity, I will just call our ego. While most economic theorists like to think of human motivation as monolithic and self-interested, I think that the realization that we are controlled by two competing and often opposed mechanisms is critical. For example, memes may influence us to endure pain in for the betterment of society, or to advance socially, while genes may provide a conflicting input to minimize that pain. For a few people, aware of the ontogeny of their own controlling mechanisms, there can be an independent action not controlled by either meme or gene.

So that said, most humans act to maximize the release and level of certain neurochemicals. Past economists have often characterized this as "selfish-interest", but it is important to point out that societal memes (which have evolved to empower society at the expense of the individual's genetic impulses) have co-opted genetic control mechanisms for the benefit of societal structures (increasingly hierarchy). So do humans all act in individual self-interests? NO. Many do, most of the time. Many also act against their 'genetic' self-interest some of the time. Ultimately this comes down to the need to adequately define "self", which is no simple task by itself: Am I my genes? Am I the memes that infest my brain? Am I something else entirely? It is difficult to calculate the economic effect of selfish-action without answering those questions, but the complexity of the answer (again, see “A Theory of Power”) does not fit easily with the two-axis graphs of classical economics.

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