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Austrian Economics and Aristotle

Austrian Economics is always claiming a strong connection to the Philosophy of Aristotle.  The Austrians main connection to Aristotle is the idea of apriorism.  In philosophy apriorism is defined as the philosophical doctrine that there may be genuine knowledge independent of experience.  This apriorism shows up particularly in Menger and Mises.  In Mises case it is clearly related to his ideas on praxeology.  In Menger’s case this comes from his epistemology in which he states there is an exact theoretical side of science and an inexact empirical side of science.  The question is whether the Austrians’ claim to following Aristotle’s ideas or being neo-Aristotelian has any validity.

One of the most defining points of Aristotle’s philosophy was his disagreement with Plato’s “Theory of Forms.”  Plato argued that we cannot trust our senses and the world they perceive is at best a vague, shadowy version of the real world.  For more see Plato’s Allegory of the Cave.  According to Plato if you see a red ball there is a perfect version of red and a perfect version of a ball in the “real world” and we are seeing some sort of distorted versions of these.  Plato’s real world is often represented as being up in the sky, sort of a heaven.  Since we cannot trust our senses, Plato’s answer is that we must just think about what has to be true and that will lead us to the truth.  This is known as rationalism.

Aristotle rejected Plato’s ideas and said we could trust our senses.  In order to verify (and integrate) that our conclusions from our senses are valid Aristotle created rules of thought or logic.  It is important to remember that to Aristotle these conclusions were always based on (tested against) the real world evidence.  In other words, logic was useful in reasoning about the world, but the ultimate proof was reality.  This makes him diametrically opposed to Plato’s rationalism.

There is a famous painting entitled The School of Athens by Raphael in which Plato is pointing to the sky and Aristotle has his hand out pointing to the world before us that illustrates the differences between Aristotle and Plato.  Aristotle’s epistemology is based in this world, where Plato thinks that the real world is somewhere else.

How did Austrians ever get the idea that apriorism is consistent with Aristotle?  A search of Aristotle on the Internet Encyclopedia of Philosophy of Philosophy and the Stanford Encyclopedia of Philosophy does not show any mentions of apriorism or apriori.  An informal search of academic papers and books finds only a couple of mentions of Aristotle and apriorism, except by Austrians (Austrian/Objectivists).  Both argue that apriorism is inconsistent with Aristotle’s philosophy.  One book says that Aristotle the empiricist exposes the vanity of armchair natural scientists and it is clear that Aristotle lies on the side of empiricism not apriorism.[1]

This idea that apriorism is consistent with Aristotle appears to come from Aristotle’s concept of axioms.  Aristotle had one axiom, the principle of non-contradiction according the Stanford Encyclopedia of Philosophy.  The explanation (justification) of this axiom sounds similar to the Austrians apriorism.

“Before embarking on this study of substance, however, Aristotle goes on in Book Γ to argue that first philosophy, the most general of the sciences, must also address the most fundamental principles—the common axioms—that are used in all reasoning. Thus, first philosophy must also concern itself with the principle of non-contradiction (PNC): the principle that “the same attribute cannot at the same time belong and not belong to the same subject and in the same respect” (1005b19). This, Aristotle says, is the most certain of all principles, and it is not just a hypothesis. It cannot, however, be proved, since it is employed, implicitly, in all proofs, no matter what the subject matter. It is a first principle, and hence is not derived from anything more basic.

What, then, can the science of first philosophy say about the PNC? It cannot offer a proof of the PNC, since the PNC is presupposed by any proof one might offer—any purported proof of the PNC would therefore be circular.”[2]

 

This axiom was expanded to three axioms, the law of identity, the law of the non-contradiction, and the law of the excluded middle.  It seems to me that the other two laws follow from the law of identity.

This sounds similar to how Austrians justify their apriorism, however the Austrians extend the idea to state:

(a) that the fundamental axioms and premises of economics are absolutely true;

(b) that the theorems and conclusions deduced by the laws of logic from these postulates are therefore absolutely true;

(c) that there is consequently no need for empirical “testing,” either of the premises or the conclusions; and

(d) that the deduced theorems could not be tested even if it were desirable.[3]

While this was written by Murray Rothbard it is the logical conclusion of Menger’s “theoretical science.”  These ideas are diametrically opposed to those of Aristotle.  Austrian Economics is not Aristotelian, not science and not consistent with Objectivism.

econgrowth.smallI have pointed to an economic theory that is consistent with Aristotle, science, and Objectivism.  Part of my insight came from  “New Growth Economics”, whose  central point is that wealth is created by the human mind.  This should be exciting to Objectivists, because that sounds very much like Ayn Rand.  It also points to an objective basis for economics.  Every human needs to acquire and consume a minimum number of calories or they die.  This provides an objective standard that is very similar to Rand’s standard for her ethics.  It also ties economics to biology, particularly human biology, just like Rand tied her ethics to biology.

Inventions are the result of applying man’s reasoning power to the objective problems of life.  The way we become wealthier is by increasing our level of technology.  I explain this in more detail in my book, Source of Economic Growth; in my Savvy Street article, entitled ‘Inventing at the Intersection of Biology and Economics’; and in my 2015 & 2016 talks at Atlas Summit.

All species are biologically designed to spend most of their existence on the edge of starvation.  The fact that human beings, starting around 1800, were the first species to permanently escape this condition, needs a profound answer based on man’s unique nature, his ability to reason.

 

[1] Walter E. Wehrle, The Myth of Aristotle’s Development and the Betrayal of Metaphysics

[2] Aristotle’s Metaphysics http://plato.stanford.edu/entries/aristotle-metaphysics/#FundPrinAxio

[3] Murray N. Rothbard,” In Defense of “Extreme Apriorism”, https://bastiat.mises.org/sites/default/files/Defense%20of%20Extreme%20Apriorism,%20In_6.pdf, accessed November 25, 2016.

November 26, 2016 Posted by | -Economics, bioeconomics, Blog, philosophy | , , , , , | 1 Comment

Economics as it Should Be

I gave a talk at Atlas Summit on ‘Economics, Evolution, and Rand’s Meta-Ethics’ and one person asked me how my ideas would alter economics.  In my talks and in my book Source of Economic Growth, I suggest that economics needs to be rethought from the ground up based on my findings.  Here are some of the ways economics needs to be changed in order to make it a science.econgrowth.small

 

1) Fundamental Questions of Economics

No school of economics is even asking the right questions.  I have written another post on point (Intellectual Capitalism: Part 1), so I will not repeat all of it here.

Every science is defined by the questions it asks.  According to a sampling of websites three of the major questions economics asks are:

1) What goods will be produced?

2) How will the goods be produced?

3) For whom are the goods produced?

All of these questions are inherently collectivist and in a truly capitalist country (i.e., one that protects Natural Rights) all of these questions lead to very boring answers.  In addition, none of these questions are scientific questions (Just another example of how economics is not a science).

The single most important question in economics is:

What is the source of real per capita increases in wealth?

This immediately leads to the second most important question in economics today which is: What caused the Industrial Revolution?  Both of these questions have empirical and objective answers.

The answer to the first question is inventions and this leads to a number of other important questions, such as how do we measure the rate of technological change?, what things influence the rate of technological change?, why does Singapore appear to have a faster growth rate than Hong Kong despite a lower economic freedom index?, are inventions subject to diminishing returns?, etc.

 

2) Definition of Economics

Since economics is asking the wrong questions, the definition of economics is incorrect.  Here is my suggested definition of economics vs. standard definitions.  Note that I have a whole chapter on this subject in my book Source of Economic Growth.

Standard Definitions

Economics is a science which studies human behavior as a relationship between ends and scarce means which have alternative uses.

The science that deals with the production, distribution, and consumption of goods and services, or the material welfare of humankind.

 

My Definition

Economics is the study of how man obtains those things he needs to live.

 

3) Cause and Effect in Economics

Classical, Neo-Classical, and Austrian economics emphasize manufacturing and trade, while Keynesian economics emphasizes consumption as the driver of economics and all of them are wrong.  The chain of cause and effect in economics is shown in the chart below.

EconomicCauseEffect

When man applies his reason to the problems of survival he invents.  Production, which is really about reproduction or replication, is not the driver in economics as the questions from mainstream economics imply.  Trade is also not the driver and in fact the Manufacturing and Trade steps are not absolutely necessary.  Keynesian economics focuses on consumption, so it is on the far wrong side of the cause and effect chain.

Because Classical, Neo-Classical, and Austrian economics emphasizes the effects instead of the causes in economics they waste an huge amount of time on supply and demand curves.  Every supply and demand curve should come with two caveats: 1) demand does not create supply and 2) this chart assumes a technologically stagnant world.  If demand could create supply then Keynesians would be right.  What a supply and demand chart shows is how much people would be willing to sell of their present stock at various prices, it does not show that anyone will produce anything.

 

4) Economics is not a Social Science its Foundations are in Biology and Evolution

Economics is not a social science, it is a real science based on the biological facts of human existence.  Specifically that humans have to obtain a certain number of calories (calories here substitute well for all our needs, including oxygen, water, etc.) per day or we die.  This gives us a physical definition of profit and loss.  Modern economics treats the whole subject as if it was merely a game.  Venezuela, North Korea, China, and the USSR prove that it is not.

For more information see Economics, Evolution, and Rand’s Meta-Ethics (Intellectual Capitalism: Fundamentals Part 2)

The fact that profit and loss have real physical definitions means that economics is a real empirical science.  Neoclassical economics pretends to be an empirical science but too often they create mathematical models in which none of the variables are measurable.  That is not science.

 

5) Perfect Competition

Perfect competition is an inherently flawed concept that has no place in economics.  All conclusions based on perfect competition are wrong, including the whole monopoly power and anti-trust analysis.  Perfect competition should be laid to rest and only discussed as a historical example of how absurd economics once was.  I have a large section analyzing perfect competition in my book Source of Economic Growth.

Competition is not the source of our wealth.  One of the narratives of economics is that competition drives down profit margins and that is how we become wealthy.  This is left over from the nonsense of perfect competition.  While it is true that we do not want the government to setup rules that provide an advantage for one market participate over another and that these rules hurt the economy, it does not follow that competition creates wealth.  The wealthiest countries in the world are those in which a larger percentage of people create unique products and services that have little or no direct competition.  The goal is for everyone to be producing unique high value items, not 300 million or even 100 million people all producing me too products.

 

6) Property Rights/Ethics

There has been a movement to eliminate ethics from economics and this runs through all schools of economics.  The justification for this is that science is devoid of ethical considerations.  This is not true and the best example of what happens when scientists divorce themselves of ethics is Anthropomorphic Global Warming.  All science has an ethics that at least includes the rules of: 1) you must report the data accurately, and 2) you must follow the data to its logical conclusions.  Some sciences such as medicine have additional ethical constraints.  In medicine it is not ethical for the doctor to give the patient poison or prescribe poison just to see what happens or undertake surgery just to see how the human body reacts.  Similarly, economics must not prescribe economic poison.  Economics is ethically constrained to policies that promote life.

This attempt by economics to divorce itself from ethics not only means that economics defaults to a utilitarian based ethics, it also means that economists have no idea what property rights are.  Property rights cannot be justified on utilitarian grounds.  The utilitarian benefits of ‘property rights’ are the effect not the cause.  Because of this confusion economists will go around saying that taxing medallions are property rights or FCC licenses or slavery in the South.  It also means that when they combine their flawed ideas on ‘property rights’ with the nonsense of perfect competition they start talking about true property rights as giving monopoly power.  This leads to all sorts of nonsense including the idea that patents and copyrights are monopolies.

Property rights are based in ethics and cannot be divorced from ethics.  Property rights are the recognition that someone created something of value.  When economics attempts to redefine property rights, it commits both a scientific error and an ethical error.  The scientific error is the result of ignoring definitions and reality.  Words have meaning and when economists say property rights are any legally enforceable control over an object it is like a biologist saying a mammal is any warm blooded animal (birds are warm blooded).  The definition of a mammal is based in reality and is not arbitrary and the definition of property rights are based in reality.  Ignoring reality is not science.

Ethically when economists attempt to redefine property rights they are advocating fraud or theft, by advocating that a creator’s creation be taken from him and given to someone else without the creator’s consent.

It is a sad fact that most economists have no idea what property rights are, however they are in good company.  Lawyers, free market advocates, and even Objectivists do not have a firm grounding in what property rights are or how they come about.  Historically, the study of property rights peaked around the time of the Homestead Act of 1862 and was dead when Hoover said the airwaves belong to the public.

Adam Mossoff is one of the few academics trying to advance the theoretical foundations of property rights.  Studying the nature of property rights is part of economics and is completely neglected by all modern schools of economics.

 

7) Regulation and Opportunity Costs (An Application)

Regulation is usually analyzed on its effectiveness and based on its opportunity costs.  For instance, if we mandate that all cars have airbags, this means that the cost of all cars will increase but the cars will be safer.  This means that people will put off buying newer. safer cars and when they do buy a new car they will likely be forced to buy a smaller car that is less safe.

Another example is that if we force houses to meet building codes, builders will have to spend more time complying with these rules and will not be able to make certain tradeoffs.  The supposed advantage is safety, but the opportunity costs is that housing is more expensive which means consumers have to drive cars that are not as safe or eat food of lower quality or have fewer children or spend less on education.

This analysis is flawed, because the largest opportunity cost of regulation is the lost inventions.  The main justification for regulations is safety.  However, because regulations such building codes and the FDA lock us into a technological stagnant (or retarded) market, in the long run we are less safe and these regulated product cost more.  In the case of the FDA I am sure that what minor benefits we obtain in safety are wiped out within a year or two by the lost technological advances.  However there have been no empirical studies on point to my knowledge.  In fact, studies looking at this issue would be excellent research project in economics.

 

8) Immigration (An Application)

Does immigration lower wages or not?  Economists argue both side of this argument and point to differing empirical evidence to support their positions.  The reason for this confusion is that economists do not understand that inventions are the source of real per capita increases in wealth.  I will show how my system of economics resolves this debate and why there appears to be conflicting empirical data.

We will start with the simplest case first.  If we have a country where the overwhelming majority of people are living in the Malthusian Trap (i.e., the edge of starvation, subsistence living) then if more people move into that country people’s wages will not go down, but people will starve to death.[1]  With this information let’s examine the two extreme cases: a technologically stagnant country and a technologically dynamic country.  In a technologically stagnant country the total GDP is flat to declining slowly.  If immigrants increase the population of this country they will not and cannot increase its GDP, so real per capita incomes will decrease and therefore wages will decline.  This is similar to the country in the Malthusian Trap.

When a country is technologically dynamic then its real per capita GDP is increasing.  Immigrants in this case can contribute to the country’s increasing level of technology and therefore the wealth of the country.  In that case each new person that is open to using their mind is an asset and only makes the country wealthier.  A pretty good measure of how technologically dynamic a country is its economic freedom index.

No countries on Earth today are fully optimized to increase their level of technology and only a few are absolutely technologically stagnant.  Some of the more technologically dynamic  countries

include Singapore and Honk Kong.  As Peter Thiel has pointed out the rate that the U.S. creates new technologies outside the information technology area has slowed significantly.  Countries that are close to being technologically stagnant include Venezuela and North Korea and many African countries

Since economists do not control for how technologically dynamic the economy (or part of the economy) was that they used in their studies of whether immigrants increase or decrease wages, it is not surprising they got differing results even if they did everything else right in their studies.

 

Conclusion

My proposed school of economics, Intellectual Capitalism, is profoundly different than Neo-Classical, Austrian, Keynesian or any other school of economics.

 

For more on Intellectual Capitalism see:

My Book Source of Economic Growth

These Articles:

Intellectual Capitalism: Philosophy

Intellectual Capitalism: Fundamentals Part 1

Economics, Evolution, and Rand’s Meta-Ethics (Intellectual Capitalism: Fundamentals Part 2)

Talk:

The Source of Economic Growth

[1] Note this assumes that this country is technologically stagnant, which is likely if most people are living in the Malthusian Trap.  s

July 25, 2016 Posted by | -Economics, bioeconomics, Intellectual Capitalism, News | , | 1 Comment

Economics, Evolution, and Rand’s Meta-Ethics (Intellectual Capitalism: Fundamentals Part 2)

This post is serving a dual purpose of being my outline for my talk at Atlas Summit 2016 and to explain my ideas on Intellectual Capitalism.

 

The most important question in economics is: What is the source of real per capita increases in wealth?  In my talk at Atlas Summit 2015, I examined how many prominent economists throughout history have answered this question.  I finished this survey with the latest research in this area which is known as “New Growth Economics.”  I explained where I thought these economists had gone off track and where they were inconsistent with Ayn Rand’s ideas.  I concluded with an outline of a science of economics that I think is consistent with Objectivism, natural rights, and the founding principles of the United States.

econgrowth.smallIn this talk I am going to investigate this question from a bioeconomics point of view.  Bioeconomics or thermoeconomics (aka biophysical economics) attempts to tie economics to biology and thermodynamics.  In other words its goal is to provide a physical as opposed to a sociological basis for economics.  This area of study has been around since the 1920s and has never been accepted as part of mainstream economics for good reason.  In most cases the research in this area has been an endless way of restating or proving the ideas of Thomas Malthus, a favorite of the environmentalist movement.  The famous physicists Edwin Schrodinger, of the Schrodinger wave equation in quantum mechanics, waded into this area and developed some interesting ideas about life and entropy.  However, it turned out that a number of his ideas were based on an unsound position about entropy or the second law of thermodynamics.

Despite this I think there is some useful information to be gleaned from this work and the goal of providing a physical basis for economics.  Most of the economics profession disagrees, however there was a lady from Russia who thought that ethics was based in reality, specifically the biological reality of man and what is necessary to sustain his life, despite the scorn of most philosophers.  Rand showed that ethics was not arbitrary whim, but derived from the nature of man.

I am going to do something unusual, I am going to state some of the most important claims of this talk upfront.

  1. If man did not invent, then the study of economics would be the same as the study of human evolution.
  2. Inventions are the equivalent of genetic changes from an evolutionary point of view.
  3. Rand’s metaethics and biological evolution are aligned.

I bet that you think that some of these claims are bit far out.  However, I think you will have to admit that if I can show that these are true then they have profound consequences.

Rand’s analysis of ethics starts with the understanding that man is a living organism and he has some things in common with all living organisms and some things that differ.

“An organism’s life depends on two factors: the material or fuel which it needs from the outside, from its physical background, and the action of its own body, the action of using that fuel properly. What standard determines what is proper in this context? The standard is the organism’s life, or: that which is required for the organism’s survival.”

The Virtue of Selfishness, “The Objectivist Ethics.”

 

“If an organism fails in the basic functions required by its nature … [it] dies.”

The Virtue of Selfishness, “The Objectivist Ethics.”

Rand’s ability to build an ethics on biological reality is a profound accomplishment and a big reason why Objectivism became so important to me.  Ethics is about what we should do.  It’s a code of action.  Economics as I define it is about how we accomplish this: that is how we survive.  As Rand points out for most organisms their code of actions is hardwired in their genetics.  “How” to accomplish these goals is also hardwired.

“A plant has no choice of action: the goals it pursues are automatic … determined by its nature.”

The Virtue of Selfishness, “The Objectivist Ethics.”

This is what I mean by metaethics, it is the ethics of non-volitional beings.

Rand’s metaethics is aligned with the fundamentals of biological evolution.  Evolution is built on two or three very simple observations: 1) a selection mechanism, commonly called natural selection, and 2) a change mechanism, which includes sexual reproduction and asexual genetic changes.  Rand’s point that if an organism fails it dies which is another way of stating that there is a selection mechanism.  The idea of a selection mechanism is an inevitable result of the nature of life and its fundamental alternative, death.  The “goal” of life is not competition (selection of the fittest) despite the natural selection component of evolution.  By “goal” I mean the natural direction the process will take.  In the case of life and evolution, the goal is to maximize the amount of energy converted into life.

What determines if an organism or a species survives is its automatic code or DNA that determines both what it should do and how it should do it.[1]  For instance a plant values water and it grows roots into the soil to obtain water.  Both the value and how to achieve the value are “hardwired” by its DNA.  This shows that Rand’s metaethics hints at the idea of a genetic code that is changeable biologically.

The unique nature of man is that he is a rational animal according to Rand and Aristotle.[2]  This means that man does not have an automatic code of values or automatic knowledge, in other words he does not have an instinct.  This provides the advantage of being able to obtain new knowledge and react to different situations in unique ways but it also means that we have to define our own code of values and acquire knowledge.

Biology provides support for Rand and Aristotle.  Human (homo sapiens sapiens) brains use 25% of the bodies total caloric intake, despite the fact that they are only 2% of the total weight.  This is significantly more than other animals.  Mammals’ brains only use 2%-10% of their total caloric intake.[3] Those calories and that brain do not provide any immediate evolutionary advantage, they do not allow humans to run faster, or give them stronger jaws to tear flesh, or a hard shell to protect them from predators. However, the ability to reason allows humans to create all these things and more.

It turns out for all those dieters out there that it does not matter whether we think hard with our brains or just leave them in idle. This means the brain has very high fixed costs, but very low marginal costs. It seems like something that a venture capitalist might invest in.

All organisms have a certain minimum number of calories they need to obtain to stay alive.  This resting rate of burning calories we can consider to be entropy.  Entropy was originally a concept from thermodynamics. One dictionary definition of entropy is that it is a measure of thermal energy per unit temperature that is not available for useful work.  Here we are just using entropy to denote that every living being consumes energy that is not available for the organism to do useful work.  We could just say that life requires energy without probably any loss of meaning. Failure to overcome this entropy results in the death of that organism.  Life requires a profit meaning we have to produce more than the amount of energy than we consume.  A loss is when we spend more energy than we have obtained.  This provides us a biological definition of profit and loss and shows that consistent losses result in biological death, just like consistent financial losses result in the financial death of an organization.

On a species level (except humans), life attempts to overcome entropy by adaptations that make it more successful at acquiring useful energy.  The more successful the species is at acquiring useful energy, the greater its population (and territory) will become, which will increase its chances of having offspring and useful adaptations.  However, it will mean that the individuals in the species will also eventually begin to compete with each other for the resources that provide the energy to overcome the entropy.  Because of population increases and using up the available energy, the species will be back at the point at which the calories it acquires are just on the edge of starvation, otherwise known as the Malthusian trap.  Then, another adaptation of that species or another species will result in excess free energy, an increase in the population of that adapted species, and the process will repeat.

Humans have a low genetic diversity especially for a species with our population and geographic territory.[4]  This would appear to be inconsistent with biological evolution, however it is important to remember that humans adapt the environment to their needs, while other organism adapt to the environment.  The way humans adapt the environment is by creating things to solve problems and these are called inventions.  An invention is a unique combination of elements that solves an objective problem.  Thus the invention of how to make (preserve) fire solves the objective problems of cooking and providing warmth.  Humans do not wait for genetic changes they create inventions that allow them to change the environment.  This means that inventions function like genetic changes for humans.  Our inventions allow us to create a great diversity of beings that can survive in dry hot deserts, wet tropical forests, and frigid arctic conditions.  A human with a club and fur skin is a different species (organism) from a non-biological evolution point of view than a man with a high power rifle and wearing synthetic fibers who raises cows, chickens, and grows wheat.

When humans created a new invention our population increased and many times our territory also increased.  The two biggest historical examples are the Agricultural Revolution and the Industrial Revolution.  After the Agricultural Revolution the population and geographical territory of humans expanded rapidly.  The Agricultural Revolution was really a group of inventions.  Unfortunately, the Agricultural Revolution did not result in humans escaping the Malthusian Trap (living on the edge of starvation).  This was because the surplus energy provided by agriculture was taken up by the increase in human population, which is the same thing that happens to organisms with successful genetic mutations.

How did we escape the Malthusian Trap then?  We had to create inventions at a rate that gave us a profit that exceeded the rate at which human population expanded.  This happened during the Industrial Revolution for the first time in history.  Since the beginning of the Industrial Revolution the percentage of people escaping the Malthusian Trap has continued to increase despite an explosion in our population.  Something happened at the beginning of the Industrial Revolution that had never occurred in human history: we started inventing at an unprecedented rate.  The question is why that occurred?  Before the Industrial Revolution, around 1800, inventions occurred roughly at a rate that was proportional to our population, however this is not what happened in the Industrial Revolution.  The explosion of inventions was fairly isolated to a small population in a relatively small geographic area, specifically the people of Great Britain and the United States.  The reason this occurred is that this was the first time in human history that large groups of people had access to property rights in their inventions (i.e., patents).

An interesting question is whether other organisms could evolve biologically fast enough to escape the Malthusian Trap?  The answer is no, because organisms modify themselves (adapt to the environment) and to escape Malthusian Trap it is necessary to modify the environment.  An organism that was highly effective at modifying itself would just become so successful that it would destroy its inputs (consume all its resources).

Would it be possible, as some environmentalists suggest, that once we escaped the Malthusian Trap we could just stop inventing and stay at our present level of wealth?  No, because of entropy or diminishing returns.  The classical economists argued that diminishing returns were due to the lower quality of inputs overtime.  For instance, once it was found that coal was useful the initial coal could be picked up off the ground and used relatively near where it was found.  Over time people had to start mining the coal and transporting it over longer distances.  As they dug into the ground water would collect in their mines and that had to be removed.  The easy to mine coal was used up first.  This problem is related to the randomness conception of “entropy.”[5]  The coal is not uniformly spread throughout the world.

The result is that our output (wealth) will decline over time if we do not continue to invent.  The second law of thermodynamics says that we cannot create a perpetual motion machine.  When environmentalists offer the solution of sustainability they are attempting to build a perpetual motion machine.

Sustainability is not Sustainable

They are trying to create a system in which the quality of the inputs never decreases.  The environmentalists are correct that we create waste (low value outputs) and we will not be able to forever use the same processes without running into problems.  However the solution is not to stop inventing and freeze our technology, but to continue to create new technologies at a rapid rate.  This has the following implications for economics:

  1. The per capita wealth of a technologically stagnant people will be stagnant or declining.

      2  The only way to increase real per capita incomes sustainably is to increase our level of technology.

  1. The only way to increase our level technology in the long run is to create new inventions.

The first statement has a perfect analogue in evolution, if you replace technology with genetic changes and per capita wealth with increasing population: a species that does not evolve will have a stagnant or declining population.  The best human example of this that I know of is the Dark Ages.  The level of European technology declined.  For instance, the process of creating concrete was lost.  The Romans had a mechanical reaper for corn, which was lost until Cyrus McCormick invented a new (commercially practical) reaper in 1837, and numerous construction techniques, such as those used to build the Pantheon were also lost.  As a result Europe’s population decreased and so did its population density.  Another, example is Easter Island around 1600, where the islanders cut down all the trees and lost the top soil to farm and without the tall trees they were no longer able to fish.  Because the Easter Island Polynesians were technologically stagnant their inputs declined until they could not longer support their population.  It is estimated that their population fell from a peak of 15,000 to 10,000 down around 2,000.  Farmland is another example where the output declines overtime without new technologies.

This leads to the question of whether inventions are subject to diminishing returns.  I discuss this is great detail in my book Source of Economic Growth.  Here I will just cover some of the most basic points.  An invention is a unique combination of elements (things, components) that provide an objective result.  Every invention can be a component (element) of another invention.  As a result, every invention opens up a number of potential inventions.  The number of potential inventions expands combinatorially as new inventions are created.

However, this is just potential inventions.  Studies have shown that narrow areas of technology often appear to be subject to diminishing returns over time.  Meaning the next invention is more expensive or provides less performance gain or both.  For instance, vacuum tubes were limited in their switching speed and how small they could be made.  The cost and performance of military jets is another example.  There was a chart created by an undersecretary of the Army, Norman Augustine, showing that in the not too distant future a single jet fighter would cost the entire GDP of the U.S.  The physical speed of vehicles also seems to have peaked.

Generally, these technology bottlenecks have been solved by cross over technologies.  For instance, vacuum tubes were replaced with discrete transistors, which were replaced by integrated circuits.  Ray Kurzweil, futurist and prolific inventor, has shown that despite the limitations of individual areas of technology, computing power has been growing at a relatively uniform rate since Babbage created the mechanical computer around 1822.

The cost performance limitations of jet fighters have been overcome by electronics and UAVs.  Electronics have allowed old airframes to be upgraded significantly in performance, without the cost of building better or even new airframes.

There is no macro evidence that inventions are subject to diminishing returns.

 

Conclusion

I have approached the question of “What is the source of real per capita increases in wealth?” from both a New Growth and Bioeconomics point of view and they both provide the same answer, inventions.  This is consistent with Rand who points out that man’s mind is the ultimate source of all human wealth.  Inventions are just the application of man’s mind to the problems of life.

Inventions are the evolutionary equivalent of genetic changes.  Manufacturing (reproduction) and distribution are the evolutionary equivalent of reproduction and territory expansion of new biological organisms.

Profit and loss have a real physical meaning.  They are not just an arbitrary way of keeping score in a parlor game as both the left and to some extend the economics profession treats them.  Those people who advocate making profits illegal are advocating death, literally.

Sustainability is not Sustainable because of entropy.  However, if peoples’ natural rights are protected and their rights to their inventions are secured, then technology can grow much faster than entropy.

This research shows that Rand’s criticisms of economics were spot on and the whole of economics needs to be rethought in light of these insights.

 

 

 

 

[1] As Rand explains it “by an automatic knowledge and an automatic code of values.” The Virtue of Selfishness, “The Objectivist Ethics.”

[2] Rational means the ability to reason.  Reason is volitional and people can choose to not exercise their ability to reason.

[3] Suzana Herculano-Houze,  Scaling of Brain Metabolism with a Fixed Energy Budget per Neuron: Implications for Neuronal Activity, Plasticity and Evolution. http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0017514, accessed February 20, 2016.  Also see http://www.human-memory.net/brain.html access 2/20/16.

[4] Greater genetic diversity found among the great apes than among humans, Department of Experimental and Health Sciences, https://www.upf.edu/cexs/news/genetica.html, accessed 2/21/16.

[5] My investigation of this issue has shown me that out present conception of entropy and the second law of thermodynamics has some inconsistencies.  The easiest problem to understand with entropy (2nd law) is that it only applies to an isolated system.  However an isolated system is one that in which there is no gravity.  Such a system does not exists.

February 29, 2016 Posted by | bioeconomics, Intellectual Capitalism | , , | 7 Comments

Dale Halling – Economics, Evolution, and Rand’s Meta-Ethics: Atlas Summit 2016

D of the DK Halling authors of the Hank Rangar series has been selected to give talk on Economics, Evolution, and Rand’s Meta-Ethics.  This year’s Atlas Summit will be held in Las Vegas July 11-13 just proceeding FreedomFest at the same location.  Here is the description of my talk:

A scientific, Objectivist school of economics would start with the very nature of man as does Rand’s ethics. From an evolutionary and economic point of view the unique feature of man is that while all other organisms adapted to their environment, man adapts his environment to his needs. This shows that inventions are the evolutionary equivalent of positive genetic changes. It also shows that the key resource in economics is man’s mind. The relationship between Rand’s meta-ethics, evolution, and economics will be examined.

Presently my talk is scheduled for Tuesday, July 12 from 4:00–5:00 PM, however this is subject to change.  I have been told that I can invite anyone to my talk and they can hear my talk for free, although they will not be able to see the other fine talks at Atlas Summit.

AtlasSocietyNote that right now there is a $100 discount for early registration and this also gives you access to FreedomFest.

I hope to see many of you there.

February 8, 2016 Posted by | bioeconomics, Innovation, News | Leave a comment