Tuesday, February 04, 2014

Karl Popper's Three Worlds and "The Market"

Introduction

Talking about "the market" in a more generalized way – that is, one which includes all of the living world and nonconsensual interactions that occur between humans and between species – requires increased semantic clarity. In order to achieve this increased clarity Karl Popper's three worlds can be used as a model. After introducing a terminology that parallels that of Popper its potential utility is discussed.


Three Worlds, Three Markets

English: Karl Popper in 1990.
English: Karl Popper in 1990. (Photo credit: Wikipedia)
In discussing "the market" it is difficult to transmit a number of different meanings that depend on the context, e.g., one that is consensual vs. nonconsensual or one that is human versus one that is inter-species. These different meanings are reminiscent of Popper's three worlds, and his concepts are used to introduce a parallel analog relating to markets.

Firstly, there is the market that is composed of the physical world. As Popper says, in describing world 1:
There is, first, the world that consists of physical bodies: of stones and of stars; of plants and of animals; but also of radiation, and of other forms of physical energy. I will call this physical world ‘world 1’. (1978, 143)
This market consists of all of the interactions, physical and/or chemical, that occur in the physical world. These interactions, as far as we know, are not guided by conjectural knowledge. This physical market is called "market 1".

Market 1 can be subdivided into the living and non-living, as Popper suggests:
If we so wish, we can subdivide the physical world 1 into the world of non-living physical objects and into the world of living things, of biological objects; though the distinction is not sharp. (1978, 143)
Secondly, there is the market of conjectural knowledge. This description might be thought to augment Popper's world 2, which he described as follows:
There is, secondly, the mental or psychological world, the world of our feelings of pain and of pleasure, of our thoughts, of our decisions, of our perceptions and our observations; in other words, the world of mental or psychological states or processes, or of subjective experiences. I will call it ‘world 2’. (1978, 143)
Popper's view is expanded to include the conjectural knowledge encoded in DNA or any similar, yet-to-be-discovered encoding system. This market is called "market 2".

Again, market 2 can be subdivided following Popper's prescription:
World 2 could be subdivided in various ways. We can distinguish, if we wish, fully conscious experiences from dreams, or from subconscious experiences. Or we can distinguish human consciousness from animal consciousness. (1978, 143)
Thirdly, there is the market of expressed knowledge. This market consists of the actions taken based on the conjectural knowledge of market 2. Popper describes world 3 as follows:
By world 3 I mean the world of the products of the human mind, such as languages; tales and stories and religious myths; scientific conjectures or theories, and mathematical constructions; songs and symphonies; paintings and sculptures. But also aeroplanes and airports and other feats of engineering. (1978, 144)
In striking contrast to his descriptions of worlds 1 and 2, Popper includes only "the products of the human mind" (emphasis added). Omitting the non-human expressed knowledge of plants and animals, including everything from the behavior of the E. coli bacterium (Cziko, 1995, 120) to the engineering feats of the Great Sequoias and honey bees, clearly damages the consistency of the discussion if nothing else. As Popper might agree, these expressions of world 2 cannot be criticized without becoming objects in world 3, where criticism is based on evolutionary fit. Notably, this form of criticism also affects world 2 as Popper framed it, culling those living systems whose conjectural knowledge is not up to the task.

With the addition of these non-human components this market is called "market 3". Clearly, the human component of market 3 is where business plans are exposed to the criticisms of consumers, with the result that the objects that appear in market 1 will be created and the conjectural knowledge of market 2 will be modified.

Popper suggests some subdivisions to world 3:

It would be easy to distinguish a number of different worlds within what I call world 3. We could distinguish the world of science from the world of fiction; and the world of music and the world of art from the world of engineering. (1978, 144)
Market 3 contains some additional markets – the markets of successful and unsuccessful expressed knowledge, and the markets of voluntarily and involuntarily expressed knowledge. These distinctions are blurred and the two sets definitely overlap.


Conclusion

Where does the forgoing discussion get us? Most importantly, it enables us to talk about society in a non-religious way that unifies it with the rest of the living world. With it we become aware of a wider range of questions that are rarely even asked. Why is killing animals or plants acceptable while killing humans is not? Why is the killing of some humans supported or even demanded? Why is the enslaving of animals widely practiced while enslaving humans is considered barbarous? Would a super-human species treat us more like we treat animals or more like we treat each other?

Without an ability to explore these questions in a value-free manner we cannot identify man's position in the universe and investigate what environment is most conducive to his flourishing. Hopefully, we will also be able to discern the difference between conjectural knowledge that is universally applicable and that which is dependent on time and place.


Bibliography

Cziko, G. (1995). Without Miracles: Universal Selection Theory and the Second Darwinian Revolution. Cambridge, MA: The MIT Press.
Popper, K. R. (1978), "Three Worlds", In The Tanner Lecture on Human Values (Delivered at The University of Michigan on April 7, 1978). (pp. 143-167). Retrieved November 26, 2013 from http://www.tannerlectures.utah.edu/lectures/documents/popper80.pdf.
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Tuesday, November 05, 2013

The Errors of Galambos

A number of years ago (six and a half, as of this writing) I wrote this article for posting in a Yahoo! forum devoted to Volitional Science.  I post it here, at this time, for historical reasons and to make it available to Galambos's students who may not be members of that forum.

The Errors of Galambos

Introduction

For a number of years I have thought about Galambos's ideas while reading more from other sources - primarily Austrian economics (which Galambos mentioned favorably, except in the context of epistemology).  Some of what I read served to support what Galambos said and some clashed with it.  In re-evaluating Galambos's ideas I came to the conclusion that he had made errors - in fact, significant errors - and that this forum is the place in which to discuss them.

Although I believe that Galambos made significant errors, my understanding of the world has certainly been enhanced by his teachings, and I believe that he may have long-term significance, assuming that his ideas are ever published or referenced in other publications.

Error #1 - The Definition of Property

The definition of property is constrained in that it applies only to "volitional beings," having been modified from applying only to "man" (SIAA, pg. 21).  Galambos was queried a number of times as to the test which could be applied to determine membership in this class, and he answered it simply by suggesting that a being could be blocked in its path and its choice to turn one way or another would indicate that it exhibited "volition."  Interestingly, if one blocks a plant and gives it the time, it will choose another route, but Galambos never discussed the killing of plants as problematic.

My view is that property is an attribute of all life, and that the cell wall is the first fence (it is possible that others will extend the concept into the realm of bio-chemistry or even chemistry, but we shall see that such an extension does not meaningfully impact the ideas I will express).  Each living thing values its own property as its existence and procreation depend on it.  Expanding our view to non-volitional beings makes the definition truly universal.

Why did Galambos not include plants?  I believe it is because the entire food chain then becomes one of property acquisition through destruction (he would have called it plunder) - a conclusion unacceptable to someone building a morality upon property.  Viewing all property in a positive light means that some living things must be excluded from the definition or we will have to admit that our entire existence is based upon the destruction of this positive value.

Error #2 - The Enshrinement of Property as the Central Concept in an Absolute Morality

If the definition of property is to be expanded as suggested above, what happens to an absolute morality based upon property?  My view is that it crumbles, and we must accept the fact that an absolute morality, if it exists, cannot be based upon property.  Von Mises clearly comes down on the negative side of the question - there is no absolute system of values (_Theory and History_, pg. 36) - and I mostly agree.  The only sense in which I may disagree is that there may be an objective (or absolute) system for man, but it is unknowable, just as the objective universe is unknowable.  However, through market action (the employment of the scientific method in daily life), we may approximate an implementation of this morality.  I believe that this implementation would be much as Galambos described.

The central concept of life is value - the relative subjective attraction to something ("something" is meant to cover the complete range of concepts which Galambos included in property).  Values are not rational (although not irrational, either) - one does not decide to like something or dislike it (Bernard de Mandeville, Fable of the Bees (Liberty Fund, 1988), Introduction, pg. lxxix).  Values alone, without constraint, would produce an unthinkable range of actions.  People would take what they wanted and civilization would be impossible.  It is the cost of achieving values which constrains action, and which brings about rational behavior through the act of choice.  If the apparent costs exceed the expected benefits, the action will not be taken (of course, people make mistakes in their estimations of either or both).  Costs come in at least 2 flavors - psychological, as in doing something which violates one's personal belief system (conscience) or the belief system of respected individuals; and material, as in jail time, shunning, fines or, in a free society, restitution.

If one is able to transfer the cost of achieving values to others, he generally does.  I call this latter behavior "political."  Political behavior exists at all levels of society and can be extremely destructive - no one in this forum needs to be made aware of that fact.  The basic point is that it is merely an avenue that may be chosen to achieve values - more income for the farmer, more hiking destinations for the environmentalists, more countries that have governments like ours that can be identified as great accomplishments.  The groups involved in this behavior generally perceive that they cannot achieve their values through market action or that the cost of doing so would be too great, and choose the lower-cost political approach.  As long as this option is available it will be chosen - by your family, your friends, your customers, your employer, etc.  Calling them "immoral" is more likely to alienate them and label us as "out of touch" or "looney" than to change their behavior.

Note that the killing of animals and plants for food, or the imprisonment of animals as pets, draught animals and food factories produces a net value.  We do these things because the only value the subject being provides is in the use we make of it - even as a "friend."  Our fellow human beings have been shown to produce greater value as friends and workers than as food or slaves.  For that reason and that reason alone cannibalism is non-existent and slavery appears primarily only in cases where immigration law makes it economic.

In the final analysis, the concept of morality is made unnecessary by market action.  Over time market action, acting through a discovery process (Hayek's words), will produce the institutions of property protection.  Whether or not they will match any pre-conceived morality is questionable.  In fact, I believe it is an internal contradiction to proclaim a market-regulated morality as both Galambos and Rothbard did.  What we can predict is that the institutions will reflect the values of their customers.

As a final aside, individuals are free to maintain any morality that they choose - Christian, Islamic, Utilitarian, etc.  However, it is the market where the benefits and costs of adherence to these ideals will be valued.

Error #3 - "There is no such a thing as a small interference with property!"

Sure there is!  If your neighbor's kid uses your pool without permission will civilization fall?  If a close friend is late for lunch or, god forbid, forgets it, do you banish him from the moral island?  If someone who provides you great value - say a customer or a teacher - treats you shabbily, do you end all contact?  Of course not!  You evaluate the situation (not necessarily by putting it in a spreadsheet) as to what you will gain by concealing or denying your displeasure against the loss incurred by speaking out or simply terminating the relationship.  This fact explains why "great" people can do the most horrible things and still retain the loyalty of those around them.  The more value they provide their associates the more they are willing to put up with abuse (Kay Nolte Smith, an objectivist author, wrote Elegy for a Soprano, an interesting novel on the subject).

Error #4 - The Protection of Primary Property is Antecedent to the Protection of Secondary Property

Galambos took what he perceived as an injustice (the lack of credit for his first-stage optimization work) and elevated it to the central problem of mankind.  That primary property protection is of value cannot be denied.  There is hardly a day that goes by in which a major story does not appear (Verizon vs. Vonage comes to mind) concerning intellectual property.  At the same time that the market is pursuing solutions to the problem there are also antagonists on the left (Richard Stallman of the Free Software Foundation for instance) and even within the libertarian community - just look at the diatribes against it by Stephan Kinsella on the Ludwig von Mises Institute blog (http://www.mises.org/blog) or read his paper, "Against Intellectual Property" (http://www.mises.org/journals/jls/15_2/15_2_1.pdf).

To expand on the libertarian intellectual property issue, they largely have a problem with it because a) intellectual property is not scarce in the economic - that is "rivalrous" (more than one person may use it at a time) - sense and b) property has moral implications which include the "right" to destroy someone in defense of it (they feel uneasy about the idea of killing someone who has, for example, recited a poem without permission of the author).  My response to "a" is that economics might be better served by orienting itself to value - a well-established Austrian concept - rather than scarcity.  To "b" I say that defense may incur costs and that killing with impunity is not part of any market system I expect to exist.

In any case it is clearly more difficult to protect primary property than secondary or primordial property, and it will only be protected when its protection can be supported by the institutions which are already successful in more mundane spheres (for instance a company which registers land titles may expand to register innovation titles).

Error #5 - Intellectuals Do Not Like Capitalism Because It Does Not Make Them Millionaires

This item is not a 100% error, as I believe it is half right (but maybe not the more important half).  Einstein described the "economic anarchy of capitalist society" as "the real source of the evil" ("Why Socialism?" in Ideas and Opinions, Albert Einstein (Bonanza Books, 1954), pg. 156).  F.A. Hayek wrote extensively on the idea that the spontaneous order we find ourselves in is the "result of human action but not of human design" (The Fatal Conceit: The Errors of Socialism, The Collected Works of F.A. Hayek - Volume I, W.W. Bartley, Editor (University of Chicago, 1989)).  Einstein's complaint is one that is shared by many intellectuals - that without specific design the market will not reflect the values they cherish (which may include things like income equality and free health care) and that human intervention will provide superior results.  These complaints are voiced primarily as declarations of "market failure" (the "digital divide" and the lack of "universal" health care come to mind) and generally lead to political pressure to rectify the "problem."  Possibly, making them millionaires would undermine these views, but my guess is that they would just be a new class of movie stars, and we all know their views, with a few exceptions, on markets.

I have learned in discussing the free society with people of, shall we say, "interventionist" leanings that the one thing that must be made clear is that market outcomes are not predictable and could be distasteful to them.  I believe that it has been a mistake of "capitalists" to claim that any specific reduction in state intervention (like California's "de-regulation" of the utilities) will produce lower prices.  It is entirely possible that the intervention has previously created a below-market price (as in flood insurance) and the reduction will produce higher prices which will impact the consumer negatively.  What I do believe is that the more free the market, the more prices will reflect the values of consumers.

Conclusion

There are other errors that are implied by those listed above, but the readers of this forum are certainly able to work them out for themselves.  I will be happy to respond to questions as time permits.

There is a history to all of this, and a lot of it consists of observing Galambos and arguing or discussing ideas with other FEI students.  What a shock it was to find out that other well-intentioned and intelligent people who heard what I heard disagreed with me on points that I thought were made so perfectly clear.  Agreement even on what was coercive seemed to be beyond possibility with some individuals, and it made me wonder if there was any hope of planet-wide agreement - in a generation or ever.  That led me to completely embrace Galambos's statements about self-interest - that primary property and freedom would never be embraced other than if it was in the self-interest of its consumers.  Such a market system could not be governed by a higher morality as that would imply a priesthood exempt from market forces.  So, in that process Galambos's strategy for success eliminated his concept of morality - or any extra-market value system - from my mind.

Galambos's contributions, if ever recognized outside the diminishing circle of his students, will be primarily in his strategy of building the free society as opposed to fighting for it, and in the independency tests that could provide a foundation for a primary property industry.  In the context of building such a society credit and insurance (possibly to be credited to Piet Bos) will certainly play major roles.  The connection between credit and cooperation may be made by the astute (FEI-educated) reader in Robert Axelrod's The Evolution of Cooperation which Dr. Thomas J. McQuade gave to me many years ago.

Galambos was an important person to everyone who knew him - however slightly.  His personality was so powerful and overwhelming that it made clear thinking difficult and opposition unthinkable.  I would not give up those years (1975-1982) for anything and count as friends a number of people I met at FEI.  My intent is certainly not to destroy Galambos, but to attempt to rectify error and suggest new ways of thinking which can lead to a society which is close, if not identical, to the one he described.

Brian J. Gladish
2007 April 22
Carlsbad, California
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Tuesday, October 29, 2013

My Project


When one does something like what I'm doing – posting articles that aspire to be scholarly – one has to wonder, why?  After all, to say that I have a small readership is probably to exaggerate on the high side. I suspect that I even have an anti-audience – people, primarily academics, who avoid reading things I write because they have not been written by an academic or been peer-reviewed. Robert Higgs – who I have met, and who seems like a nice guy – has scoffed at authors who write on the Internet because they do not have a scholarly outlet that will publish them. Steve Horwitz has declined to respond to criticisms from people who have not had those criticisms subjected to the same academic standards of publication that his work has, and Peter Boettke has made it clear that not being in academia means it is unlikely, if not impossible, that you can add to economics, either in theory or application.

Of course, they don't know the years of tortuous thinking I have gone through to try to resolve the fundamental questions I write about; but even if they did they wouldn't have any reason to pay any more attention. Lots of people beat their heads against walls trying to figure something out, without success, and there is no reason to believe that I'm any different. And besides, I doubt that many of them even believe that the issues I worry over are unresolved or, if unresolved, merit much thought.

One possibility is that I am writing for myself, but in the sense that just isn't so. I really hate writing – thinking is a lot more fun. Writing is just the laborious process of trying to organize your thoughts in such a way that others can make sense of them. I already know what I think and am quite content with my understanding of the world. Putting it down takes time away from doing more thinking.

Of course, I really am writing for myself, because there is no other basis for action. I'm writing because I hope that someone will someday stumble on these ideas, and they will make a difference – that I will have added in some small, enduring measure to the knowledge of mankind. If the arguments I make are less-than-robust, I hope for someone who can take and fashion from them arguments that leave their greatest opponents defenseless. In that case I hope for a great composer to make a symphony from my folk tunes. If the arguments are robust, but the number of references lacking and the consideration of other points of view academically inadequate, I hope for a young person that has the time and energy to fill the gaps.

Although I must say that I feel frustration at the lack of an academic audience, I do not think of it as a conspiracy. The academics I mentioned are honorable and have no ax to grind in my case. It is simply the way of the world coupled with the fact that I came to what I think are interesting conclusions so late in life. After years of being a thought consumer it is difficult, if not impossible, to become recognized as a thought producer.
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Monday, October 28, 2013

In Support of Methodological Monism

The appeal of methodological monism – as Popper put it, "the view that all theoretical or generalizing sciences make use of the same method, whether they are natural or social sciences" (1957, 130) – seems undeniable (think Occam's Razor), and it has a number of supporters.1 On the other hand, some in the social sciences – notably members of the Austrian school of economics – suggest methodological dualism or, in the case of Bruce Caldwell (Caldwell, 1982), even methodological pluralism. It appears that these different camps are difficult to reconcile, and to this point no resolution has been found.

English: Karl Popper in 1990.
English: Karl Popper in 1990. (Photo credit: Wikipedia)
When difficulties of this sort arise – where there exist multiple views, all seemingly reasonable, yet
irreconcilable – it is possible that a solution may be found in appealing to a higher level of abstraction. In this case we look to Karl R. Popper's formalization of the scientific method in the following schema (Popper, 1972, 119):
P1 → TT → EE → P2
Where P1 is the initial problem state, TT is a tentative solution or theory, EE is the error-elimination process applied to the theory, and P2 represents the new problem state that has been generated by the process. This concise representation is simply that of a Darwinian or evolutionary approach to knowledge.


In this discussion our focus is on the error-elimination step. If one thinks of Popper's formulation as "the method", the error-elimination step may be modified as circumstances warrant without altering that method. Popper also referred to this step as "attempted elimination through critical discussion" (1999, 13-4). To acquire new knowledge, we always use this method, substituting the appropriate critical component.2 With this understanding we may actually suggest that Bruce Caldwell is a methodological monist, as he specifically states that his reason for supporting methodological pluralism is that theories require different forms of criticism (Caldwell, 1982, 1-2).

English: Ludwig von Mises in his library
English: Ludwig von Mises in his library (Photo credit: Wikipedia)
Ludwig von Mises, a strong advocate of methodological dualism (1969, 1-2),3 presents a slightly more difficult case. His dualism differentiated the method in the social sciences from that of the physical sciences by asserting that its axioms were a priori true,4 and that criticisms of the logic used to deduce its theorems were the best method of refuting them. A clarification of Mises's approach (Smith, 1996),
 explicity identifying and defending its axioms as synthetic rather than analytic, has tied it more closely to the real world. This clarification has increased the credibility of the approach even though tentative theories, in Popper's view, need no justification. To illustrate Mises's emphasis on criticism we offer the following quote:
Man is not infallible. He searches for truth – that is, for the most adequate comprehension of reality as far as the structure of his mind and reason makes it accessible to him. Man can never become omniscient. He can never be absolutely certain that his inquiries were not misled and that what he considers as certain truth is not error. All that man can do is submit all his theories again and again to the most critical reexamination. This means for the economist to trace back all theorems to their unquestionable and certain ultimate basis, the category of human action, and to test by the most careful scrutiny all assumptions and inferences leading from this bases to the theorem under examination. It cannot be contended that this procedure is a guarantee against error. But it is undoubtedly the most effective method of avoiding error. (Mises, 1966, 68)
The critical component in the method is composed of the examination of premises and validation of logic.

When viewed in this more abstract light, Mises's method fits Popper's formulation and does not contradict methodological monism. This fact is comforting as we suspect that the idea that there is only one fundamental method of obtaining knowledge is itself an a priori truth.

In a previous post we suggested that Mises was incorrect in claiming that economics was a subject unconnected with any other science, linking the action axiom with Popper's suggestion that "all life is problem solving" and to the science of biology. Here we have claimed that Mises's method fully complies with the scientific method as formulated by Popper, and that it is only the use of an appropriately different approach to error elimination or criticism that differentiates it from the physical sciences. If we have succeeded in our project it seems clear that economic methodology, as described and practiced by Ludwig von Mises, is scientific, and that the resulting discipline of economics is science.

Footnotes

1 See (Blaug, 1992, 42-47), (Wilson, 1998), and (Cziko, 1995).
2 I am grateful to Rafe Champion for bringing this point home.
3 For Mises's discussion of his method see (2003), (1966, 1-142), (1969) and (2006). For discussions by others, see (Boettke, 1998), (Boettke, 2012), (Kirzner, 2001, 69-92), and (Selgin, 1990, 11-18),
4 Mises recognized the observational, i.e. synthetic, component of his axiom (Kirzner, 2001, 88-9).

Bibliography

Blaug, M. (1992). The Methodology of Economics: Or how economists explain (2nd ed.). Cambridge: Cambridge University Press.

Boettke, P. J. (1998). Ludwig von Mises. In J. Davis, D. W. Hands, & U. Mäki (Eds.), The Handbook of Economic Methodology (pp. 534-40). Aldershot: Edward Elgar Publishing. Retrieved October 24, 2013, from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1531088

Boettke, P. J. (2012). Was Mises Right? In P. J. Boettke, Living Economics: Yesterday, today, and tomorrow (pp. 192-212). Oakland, California: The Independent Institute.

Caldwell, B. (1982). Beyond Positivism: Economic Methodology in the Twentieth Century. London: George Allen & Unwin.

Cziko, G. (1995). Without Miracles: Universal Selection Theory and the Second Darwinian Revolution. Cambridge, MA: The MIT Press.

Kirzner, I. M. (2001). Ludwig von Mises. Wilmington, Delaware: ISI Books.

Mises, L. v. (1966). Human Action: A treatise on economics (3rd ed.). Chicago: Henry Regnery.

Mises, L. v. (1969). Theory and History: An interpretation of social and economic evolution. New Rochelle, New York: Arlington House.

Mises, L. v. (2003). Epistemological Problems of Economics (3rd ed.). Auburn, Alabama: Ludwig von Mises Institute.

Mises, L. v. (2006). The Ultimate Foundation of Economic Science: An essay on method (2nd ed.). Indianapolis, Indiana: Liberty Fund.

Popper, K. R. (1957). The Poverty of Historicism. Boston: The Beacon Press.

Popper, K. R. (1972). Epistemology Without a Knowing Subject. In K. R. Popper, Objective Knowledge: An Evolutionary Approach (pp. 106-52). Oxford: Oxford University Press.

Popper, K. R. (1999). The logic and evolution of scientific theory. In K. R. Popper, All Life is Problem Solving (pp. 3-22). London: Routledge.

Selgin, G. A. (1990). Praxeology and Understanding: An analysis of the controversy in Austrian economics. Auburn, Alabama: Ludwig von Mises Institute.

Smith, B. (1996, Spring). In Defense of Extreme (Fallibilistic) Apriorism. Journal of Libertarian Studies, 12(1), 179-192.

Wilson, E. O. (1998). Consilience: The Unity of Knowledge. New York: Alfred A. Knopf.
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Tuesday, July 09, 2013

Does Legal Polycentrism Have a Circularity Problem?

Recently, Michael Wiebe wrote a paper criticizing legal polycentrism, the view that multiple competing protection agencies would offer results superior to that of a government monopoly.  In the abstract, Wiebe states:
To show that competition between protection agencies would have beneficial  consequences, polycentrists often cite results from price theory about market competition.  But there is a circularity problem here: markets presuppose a legal framework; hence before polycentrists can employ price theoretic arguments about market competition, they must first show that the legal requirements of markets are satisfied, that is, that property rights and contracts are enforced.
The implication is that property rights and contracts are not respected unless there is a legal entity -- one assumes, the government -- to enforce them.  It also seems to imply that prices cannot be set without this legal entity, meaning that money cannot exist without it.  This latter implication contradicts Menger's theory of the origin of money.  Of course, there are people who dispute Menger's view, but one suspects that Wiebe is not one of them.  Just as money comes into being prior to legal frameworks, so does respect for property rights and contracts.

One can imagine the first traders, crossing mountains with desirable goods from their home villages to be traded for items to be returned to and traded in those same villages.  These traders must have been confident of their ability to protect themselves and their property, either personally or with the help of more skilled defenders hired for the purpose.  They also must have had some idea of acceptable behavior, each one pursuing his own idea of legality.  There was no one that assured them that their property rights were going to be respected or their contracts enforced unless it was through their own resources.  Participants in black markets face the same challenges, each having his own idea of appropriate behavior.  These are examples of individual-based legality -- maximal legal polycentrism.

Interestingly, it seems to be more the lack of property rights and contract enforcement that brings protection agencies to the fore.  For instance, Eugen Weber's "The Western Tradition" contains the assertion that the Catholic Church began to supplant Roman officials as judges in property cases, because the latter were so corrupt.  Realizing that the police cannot protect them or their property, many neighborhoods have organized supplemental Neighborhood Watch programs.  Private arbitration is frequently part of contracts in order to avoid the risks of courtrooms where juries are generally ignorant of contract law or dismissive of property rights.  And as to the enforcement of the contracts between protection agencies and their clients, there is always the risk of violent overthrow by customers if withholding payment or changing suppliers is not an option.

The idea that informal institutions do not scale up is belied by eBay's feedback system, which rewards and punishes both buyers and sellers on an international scale.  Admittedly, there are problems with identifying those who, after defrauding buyers or sellers, close their accounts and then open new ones under different names.  eBay, of course, relies on governments to police these issues as they hold the monopoly of enforcement.  The credit reporting companies are also a large-scale reputation monitoring system that has clearly grown to supply a history of behavior to supplement the limited ability of one person to evaluate another in a single interaction (Robert Axelrod's The Evolution of Cooperation documents the increased advantage of cooperation in the prisoner's dilemma game when future interactions are expected, which credit reporting companies support by maintaining a history of interactions that is supplied to future,  currently anonymous, users.).  Even if the ability to scale up informal institutions was limited in the past, who can doubt that there are entrepreneurs ready to step in with modern technology to accomplish the task?

The fact is that polycentrism already exists and has existed on many levels.  We have the example in ancient times of the Roman state operating side-by-side with the Catholic church.  Gangs have their own rules operating within a hierarchy of jurisdictions, setting their own prices for illicit goods while existing outside the legal framework.  Inmates in prison establish illicit "hustles" in order to live better without any legal framework to protect them.  Money and trade evolved in POW camps where rules evolved subsequently to remedy "problems."  Lastly, on the nation-state level we see governments with different laws who, while not controlling common territory, do resolve problems of fugitives and differences in law, generally without violence.

Near the end of the essay, Wiebe advises the abandoning of the idea of privatization and then refers to the problem of organizing violence in society.  We may ask a question similar to Hayek's: The question is not of planning for protection but who shall plan?  Who shall organize the violence?  The central planner or the consumer by purchasing or refusing to purchase?  As the state disintegrates and expresses less and less interest in the protection of property rights and contract enforcement, individuals will have no choice but to plan for themselves.  At that point the situation may be saved by existing companies expanding their protective services or new companies with fresh approaches and technology.  At that point, whether there is an evolution into a new freer society or a reversion to another statist nightmare depends on the resources available to those who are committed to avoiding the latter.

In Wiebe's defense, it is clear that a society that has no respect for property rights or contract will not directly evolve a peaceful and private marketplace for security.  No such market system would spring into existence from a state of nature.  It is for this reason that no classical liberal or libertarian feels the need to respond to assertions that Somalia is a libertarian paradise.  An evolution in our knowledge -- the comprehension of the value of property and contract -- is required.

Also, there is no proof possible that such a market system would be stable.  It is possible that if humanity evolved a market system for protection it would devolve into despotic chaos, but that is no worse than the current situation (Robert LeFevre said it best [paraphrasing] -- "Don't worry, if you get rid of government and it isn't working, be sure that there will plenty of people ready to start one up again!").  If, however, as von Mises frequently suggested, the great majority of people value peace and prosperity, we might expect an evolutionary process in which the prey have more resources for protection than the predators have for looting.  If this situation comes to pass, stability can appear.

Finally, Wiebe states that his contention that there is a circularity problem does not constitute an impossibility proof.  He does seem to believe that there are statements about markets that must be proved in order to take conjectures about them seriously.  This justificationist approach does an injustice to market processes that are evolutionary and require no argument.  After all, if legal polycentrism comes into existence in a free society, it will not be because it has been imposed, but because it has arisen through those processes.  Libertarians who argue market outcomes through logic are displaying a lack of imagination and failing to realize that having a hammer does not turn every problem into a nail.Enhanced by Zemanta

Saturday, March 23, 2013

Ludwig von Mises, the Action Axiom, and Biology

Introduction

In the pursuit of science little can be said to be of greater importance than the epistemology employed.  In this regard the epistemology of the Austrian School of economic thought has been roundly criticized and rejected by mainstream economists.1  This reaction was primarily due to Ludwig von Mises's firm stand on apriorism and the claim that praxeology, of which economics was the most developed discipline, was a new science, unconnected to previously acquired knowledge (Mises, 1966, 1-10).

English: Ludwig von Mises in his library
English: Ludwig von Mises in his library (Photo credit: Wikipedia)
Much of the Austrian literature on epistemology since Mises's exposition2 has been to explain and defend, ever more loudly and vociferously, apriorism and the apodictic certainty of conclusions derived from Mises's action axiom.  A notable exception to that literature is Barry Smith's tract on fallible apriorism (1996), which elaborated and extended Rothbard's thesis (1957) by showing that a priori knowledge, although independent of observation, is derived from observation and, hence, is synthetic a priori knowledge.

With Smith's introduction of fallibilism into Mises's system, some of the distance between it and Karl Popper's concept of conjectural knowledge was reduced.  This reconciliation has been visible in a number of efforts that attempt to bring Mises's approach into the methodological housing of Popper and other philosophers of science, notably Imre Lakatos.3  More on that in another post; but, at this moment we have another issue to address — Mises's claim that economics, and its encompassing science, praxeology, are new sciences unconnected with previous knowledge.  This claim did not sit well with those who believe all knowledge to be connected and do not have an anthropocentric view of the universe.

The Origins of Action

Mises went to great lengths to deny that human action is in any way related to action in our evolutionary ancestors, even stating that "The newborn child is not an acting being," and that "Beings of human descent who either from birth or from acquired defects are unchangeably unfit for any action... are practically not human" (1966, 14).  To do so seems to strike at the very notion that we have evolved from species that have less flexibility than we, and from whom we do not stand apart in the universe.  In this context Mises formulated what has become known as the action axiom — man acts, aiming at the improvement of his situation relative to his values (1966, 13-14).

English: Karl Popper in 1990.
English: Karl Popper in 1990. (Photo credit: Wikipedia)
In an address given in 1967, Karl Popper made a more general statement — that "Animals, and even plants, are problem-solvers" (1972, 145).  The idea was later stated more simply as "All life is problem solving" (1999, 100).  By this statement he meant that each life form represented, either anatomically or behaviorally, a hypothetical solution to the problem of its environment. Darwinian evolution supplied the criticism or falsification of that hypothesis.

At this point we must ask, "what problem is being solved?"  The answer lies in the action axiom — the problem of improving the situation, or survivability, of the organism.  Each organism acts, in the way it understands, to improve its situation.3  It appears that Popper's statement stands as a powerful axiom — possibly the basic axiom of biology — in support of Mises's more specific one and reveals biology as the epistemological basis of economics.  In fact economics is not separated from all of the other sciences, but is an outgrowth of biology.

This conclusion would most likely suit Edward O. Wilson who said "It is in biology and psychology that economists and other social scientists will find the premises needed to fashion more predictive models, just as it was in physics and chemistry that researchers found premises that upgraded biology" (1998, 206); however, Wilson did not expect the basic premise to come from a philosopher or support the Austrian methodological approach.

We do not argue here that economics has that much to learn from biology, although Wilson certainly believes it does.  Economics is clearly a human science — the most fundamental theorems depend on activities that are observable only in humans.  What we do argue is that biology supplies an axiom that is fundamental to all life that strengthens Mises's action axiom, supporting it with what Rothbard would have called a "law of reality rather than a law of thought" (1957).

At this point we must question why Hayek did not see this connection.  He knew, and was friends with, both Mises and Popper, as well as having a deep understanding of their work.  He also came from a family of biologists.  His father was a serious botanist as well as being a doctor, and Hayek helped him with botanical work and attended society meetings (Ebenstein, 2001).  At this point we can only speculate, but he may have seen Mises's and Popper's works as irreconcilable and never even contemplated a reconciliation of their views.  Perhaps he was reluctant to start down a path that could have resulted in the loss of one or both of his closest intellectual associates.  In any case, it is unfortunate that a person of his stature did not complete Mises's work by linking economics with the rest of knowledge.

Conclusion

With the modification of Mises's viewpoint on action yet another objection to the epistemology of the Austrian School can be overcome.  This modification is hardly a blow to Mises's overall system as it supports, rather than rejects, his action axiom.  At the same time it ties economics more closely to the sciences, a goal that we can only believe Mises would have supported.

1 See (Blaug, 1980, 81-2) and (Samuelson, 1964, 736).
2 Mises wrote extensively on methodology and epistemology, producing a volume of essays in 1933 that was later translated into English (Mises, 1960) and his final published book (Mises, 1962).
3 See (Champion, 2013), (Di Iorio, 2008) and (Rizzo, 1983).
4 This is not to say that there is some super-human intelligence in operation, but that natural processes have been evolutionarily selected that make the organism's choices the most likely to succeed.

Bibliography

Blaug, M. (1992). The Methodology of Economics: Or how economists explain (2nd ed.). Cambridge: Cambridge University Press.

Champion, R. (2013, March 11). The Common Ground of Parsons, Mises and Popper in the 1930s: The Action Frame of Reference, Praxeology and Situational Analysis. Retrieved from the Rathouse: the philosophy site of rafe champion: http://www.the-rathouse.com/EvenMoreAustrianProgram/Convergence.html

Di Iorio, F. (2008). Apriorism and Fallibilism: Mises and Popper on the Explanation of Action and Social Phenomena. Nuova Civiltà delle Macchine(2). Retrieved March 11, 2013, from http://www.imtlucca.it/whats_new/_seminars_docs/000195-Di_Iorio_MISES_and_POPPER.pdf

Ebenstein, A. (2001). Friedrich Hayek: A Biography. New York: Palgrave for St. Martin's Press.

Mises, L. v. (1960). Epistemological Problems of Economics. (G. Reisman, Trans.) Princeton: D. Van Nostrand Co., Inc.

Mises, L. v. (1962). The Ultimate Foundation of Economic Science: An Essay on Method. Princeton: D. Van Nostrand Co., Inc.

Mises, L. v. (1966). Human Action: A Treatise on Economics (3rd revised ed.). Chicago: Henry Regnery.

Popper, K.R. (1972). Epistemology Without a Knowing Subject. In K.R. Popper, Objective Knowledge: An Evolutionary Approach (pp. 106-52). Oxford: Oxford University Press.

Rothbard, M.N. (1957). In Defense of 'Extreme Apriorism'.Southern Economic Journal(23), 315-20.

Rizzo, M. J. (1983). Mises and Lakatos: A Reformulation of Austrian Methodology. In I. M. Kirzner (Ed.), Method, Process, and Austrian Economics: Essays in Honor of Ludwig von Mises. New York: Lexington Books. Retrieved March 11, 2013, from http://mises.org/books/methodprocess.pdf

Samuelson, P.A. (1964, September). Theory and Realism: A Reply. The American Economic Review, 54(5), 736-9. Retrieved from http://www.jstor.org/stable/1818572

Smith, B. (1996, Spring). In Defense of Extreme (Fallibilistic) Apriorism. Journal of Libertarian Studies, 12(1), 179-192.

Wilson, E. O. (1998). Consilience: The Unity of Knowledge. New York: Alfred A. Knopf.

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Friday, August 31, 2012

The Myth of a (Classical) Liberal or Libertarian Utopia

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In reading online articles and blogs it is common to find references to a "libertarian utopia."  These references are both supportive and derisive, distorting what I will claim is the idea of true liberalism.  Hayek is even referenced in this Freeman article bemoaning the fact that "we lack a liberal Utopia."  The problem with this phrase first became clear to me when I read the following words:
Contemporary socialists  "light" totalitarians in mindset and vocabulary  go wrong when they imagine that liberals are busily planning the perfect society, the best that is possible in the world, but of opposite sign to their own. [emphasis in original]1
The reality is that there is no liberal Utopia.  Liberalism and its modern-day progeny, libertarianism, are processes rather than destinations.  In the same sense that the scientific process leads to the discovery of laws of nature, liberalism leads to the discovery of that society that best conforms to human values.  Such a society defies planning, as planning implements the values of a small elite.  It also stifles the wide-ranging experimentation  through trial and error  that is necessary to discover the institutions and businesses that are necessary in building a society that supports human values.

Of course, one may wonder, "What are human values?"  I tend to think, as did Ludwig von Mises, that most people prefer prosperity over poverty, freedom over slavery, and life over death.  There are, and always will be, predators who prey on those who live peacefully and productively.  The latter will use freedom to create the cost-effective defenses that maximize the cost of predatory behavior, eventually discarding the unwieldy blunt instrument of the state.

What is needed then is a total commitment to the free market and its concomitant competition as discovery procedure by which society progresses.  There can be no fear of unacceptable outcomes, as outcomes will reflect human values.  Yes, in some areas of the world those outcomes might be repulsive to modern westerners, but eventual progress in those regions is not going to be accelerated by murdering, threatening, or lecturing the population.

What is most important is to embrace the idea that liberalism  the free (or freed) market  is the platform upon which progress depends.  The end state defies prior description, but we can have confidence that it will conform to human values.

*In the body of the post an unmodified reference to "liberal" is a reference to "classical liberal."
1Revel, Jean-François, Last Exit to Utopia, (2009 New York, Encounter Books), 54.
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