State of Innovation

Patents and Innovation Economics

Walter Williams and Overpopulation

In an article entitled, Overpopulation Hoax, on Lew Rockwell.com, Walter Williams argues that Thomas Malthus was incorrect in his prediction about food and population.  Williams misstates what Malthus said in suggesting that populations will have catastrophic collapses.  What Malthus predicts is that all species’ population will expand to fill the available food sources.  This means that individuals within the species will be on the edge of starvation.  If the population declines from starvation or because of some other cause, then there will be surplus calories available and the population will increase until there are no surplus calories for the species’ population.

Williams Misrepresents Malthus

If there is a positive genetic change (or positive change in the environment), there will be excess calories and the population will increase until there are no surplus calories for the species’ population.  This is true for all living species on Earth for all of history, including humans until about 1800.  Malthus’ ideas underlie all of evolutionary biology.  Even when I was born in 1960 over half the world’s human population was living in the Malthusian Trap (on the edge of starvation).  Today less than 15% of the World’s human population is living in the Malthusian Trap.  Overpopulation is not a hoax, however the catastrophic collapse nonsense of the environmental left, such as Paul Ehrlich predictions are.

Julian Simon Humans are Assets

Williams quotes economist Julian Simon that humans are the ultimate asset.   This is almost true.  Extra human beings being born in North Korea are a liability to the North Koreans, not an asset.  Humans are an asset when they are free to create new technologies and their property rights in those new technologies are protected.  Under those circumstances every additional human has a chance to be an asset.  The only way humans escaped the Malthusian Trap and the only way humans increase their real per capita income is by increasing their level of technology, which means inventing.  For more information about the cause of real per capita increases in wealth see my book Source of Economic Growth.

 

 

PS: Walter Williams is an excellent economist.

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May 31, 2017 Posted by | -Economics, bioeconomics, Blog, Innovation | , , , , | Leave a comment

Is Objectivism Compatible with Austrian Economics?

There have been a number of papers comparing Objectivism to Austrian Economics.  The motivation appears to be Rand’s relationship with Ludwig Von Mises, since both are known for advocating Laissez Faire Economics.  Most of these papers have focused on ethics, particularly whether the subjective theory of value in Austrian Economics (AE) is consistent with Objectivist ethics.  The majority of these papers have argued that AE (at least the Menger-Mises side) and Rand are actually very similar and compatible, but not all including Rand herself.  In order to arrive at these conclusions, the authors have often provided nuanced explanations of what the Austrians or Rand said.  For instance, Richard Johnsson argues:

It seems to be a well-established fact that there are similarities between Rand and Menger, despite the objectivist/subjectivist issue.  Once we concede that something can be intrinsic value, in Moore’s sense, I believe the differences between Austrian subjectivism and Rand’s Objectivism vanish.[i]

Roderick Long concludes in his paper, Praxeology: Who Needs It:

I have argued that the features of Misesian praxeology that Rand found most objectionable—its aprioristic methodology, its value subjectivism, and its claims about motivational psychology—can be reinterpreted in ways that make them congenial to Rand’s philosophical principles while still preserving the essential points that Mises was seeking to make. Hence there is no reason for those of a Randian philosophical bent to deprive themselves of the powerful methodological instrument developed by Mises and his fellow Austrians: praxeology, the a priori science of human action.[ii]

And Ed Younkins argues:

Objectivism’s Aristotelian perspective on the nature of man and the world and on the need to exercise one’s virtues can be viewed as complementary with the praxeology of Austrian economics.[iii]

Objectivists are generally more critical of the Hayek branch of AE.  For instance, David Kelley writes “if a defense of freedom depends on individualism, and individualism presupposes individuals capable of genuine self-direction, Hayek cannot successfully defend freedom.”[iv]  Ed Younkins says this about Hayek, “Hayek is primarily concerned with the nature, scope, limits, use, and abuse of reason in human life. For Hayek, a man’s knowledge of the world and himself is at best limited, incomplete, and uncertain.”[v]

This paper will focus primarily on the similarities and differences of the epistemology of various Austrian Economists (Menger, Mises, Hayek) and Rand.  Rand and the economists will be taken at their word.  Unlike many previous researchers, this paper will argue that the epistemological theories of Austrian Economists are incompatible with Objectivism and inconsistent with the science project of the Enlightenment.

 

Menger

Menger lays out his epistemology in his book Investigations into the Method of Social Sciences.[vi]  Lawrence H. White in the introduction to the book, explains.

Fortunately, Menger draws and even emphasizes a suitable distinction between the “realist-empirical orientation of theoretical research” and the “exact” orientation (p. 59). The search for so-called ,”exact laws” alone is more appropriately considered the task of purely theoretical research in economics. We can make sense of “exact laws” as theoretical propositions which (necessarily) take an “if-then” form: if conditions A and B hold, then condition C must also obtain. Menger rightly insists (pp. 70, 215) that realist-empirical generalizations (e.g., A and B are usually accompanied by C) can by their nature never attain the strictness that necessarily characterizes logical implications. The two sorts of “laws” are on different epistemological planes. So without too much dissent from Menger’s thought we may divide economic theory from economic history where he divided strict theory from what he considered an empirical sort of theory. What is empirical is really historical, and this accounts for its different status from what is deductive.[vii]

Lawrence H. White goes on to explain:

But this is not because, like some economists, he (Menger) sees empiricism or positivism or falsificationism as the only proper method for both social science and natural science. Instead he argues (p. 59 n. 18) that both the search for empirical regularities and the formulation of non-empirical, non-falsifiable (“exact”) theories are methods common to both economics and such natural science fields as chemistry. In viewing theoretical research in every field as having a non-empirical proposition at its core, Menger’s position bears some resemblance to that of modern philosophers of science. [viii]

As a person who has a masters’ degree in physics and a BS in Electrical Engineering and has worked with scientists and engineers his whole life, I am unaware of any so-called theoretical side of chemistry or other natural science that is ‘non-empirical, non-falsifiable (“exact”)’ nor have I ever heard such an idea proposed by others.

Ed Younkins describes Menger’s epistemology as:

Menger distinguishes between the empirical-realistic orientation to theory and the exact orientation to theory (36–44). Whereas the empirical-realistic branch of economics studies the regularities in the succession and coexistence of real phenomena, the exact orientation studies the laws governing ideal economic phenomena. He explains that empirical-realistic theory is concerned with regularities in the coexistence and succession of phenomena discovered by observing actual types and typical relationships of phenomena. Empirical realistic theory is subject to exceptions and to change over time. Theoretical economics in its realistic orientation derives empirical laws that are valid only for the spatial and temporal relationships from which they were observed. Empirical laws can only be alleged to be true within a particular spatiotemporal domain. The realistic orientation can only lead to real types and to the particular. The study of individual or concrete phenomena in time and space is the realm of the historical sciences.[ix]

Younkins and White both seem to agree that according to Menger there is theoretical side of economics that is exact and cannot be tested empirically.  Menger argues there is also an empirical side of economics, which is not exact and subject to change over time.

Menger’s epistemology should be familiar as it is a restatement of the analytic-synthetic distinction.  “Analytic propositions are true by virtue of their meaning, while synthetic propositions are true by how their meaning relates to the world.”[x]  Not surprisingly the origin of this distinction can be found in Kant and comes from his metaphysics, in which he argues there is a noumenal and phenomenal realm.[xi]  The noumenal realm is a realm of pure ideas and phenomenal world is a realm where our senses are engaged.  This logically gives rise to an epistemological analytic-synthetic distinction.

Leonard Peikoff states, “The theory of the analytic-synthetic dichotomy presents men with the following choice: If your statement is proved, it says nothing about that which exists; if it is about existents, it cannot be proved.”  Menger seems to disagree with at least the analytic (theoretical) side.  Menger seems to argue that theoretical laws of economics can be derived by just thinking about them.  Somehow these theoretical laws can tell us something empirical about economics.  Whether that is true or not, it is not consistent with Objectivist epistemology and it is not science.  The philosophy of science is a complex topic especially now days when Karl Popper is supposed to be the foremost philosopher of science and the Copenhagen Interpretation of Quantum Mechanics appears to undermine objectivity and even the law of identity.   However, even these deviations in the philosophy of science do not suggest that science can be divorced from empirical evidence.

 

Mises

Mises’ epistemology is described in his praxeology, which is supposed to be the study of human action.  The Action Axiom is the fundamental starting point of praxeology and it states “that individual human beings act, that is, on the primordial fact that individuals engage in conscious actions toward chosen goals.”[xii]  According to Mises the principles (axioms) “are, like those of logic and mathematics, a priori. They are not subject to verification or falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts.”[xiii]  Mises continues, “A fashionable tendency in contemporary philosophy is to deny the existence of any a priori knowledge. All human knowledge, it is contended, is derived from experience.”[xiv]

According to Long, Rand objected to this idea of a priori knowledge in her marginalia of her copy of Human Action.  “There is no ‘a priori’ knowledge,” Rand insisted in the margins; “[t]here is no knowledge not derived from experience” (Rand 1995a, 113–14).”[xv]

Long argues that Rand’s definition of axioms is the same as Mises’ a priori.  Long admits that Rand ultimately bases her axioms on reality while Mises does not, but relies on Rand’s explanation of an axiom as “a proposition that defeats its opponents by the fact that they have to accept it and use it in the process of any attempt to deny it.”[xvi]

According to praxeology the attempt to deny the action axiom necessarily means that you are acting towards a purpose.  While it might be true that the person arguing against the action axiom is taking action toward a goal, it is not true that a person having a seizure is taking ‘conscious actions toward chosen goals’.  A person in an abusive relationship suffering from ‘battered person syndrome’ is not engage din conscious actions toward chosen goals.  Advocates of praxeology might argue that the abused person feels responsible for the abuse they are suffering and therefore they are working toward the goal of relieving their guilt.  Any impartial observer would say that the abused person’s actions are not working toward relieving their guilt or getting out the abusive relationship.  In economics it is at least an open question whether the idea of unintended consequences fits the action axiom.  In that case the result obtained was not those the person(s) was striving for.

Note, Rand says that an axiom requires a person accept it in any attempt to deny it.  Arguing that person having a seizure is not engaged in conscious actions toward chosen goals, does not mean that they have accepted the action axiom.

Another part of Mises’ action axiom is, human action is necessarily always rational.  According to Mises, “the term ‘rational action’ is therefore pleonastic and must be rejected as such.  When applied to the ultimate ends of action, the terms rational and irrational are inappropriate and meaningless.”[xvii]  Mises further states, “however one twists things, one will never succeed in formulating the notion of ‘irrational’ action whose ‘irrationality’ is not founded upon an arbitrary judgment of value.”[xviii]

This is a clear contradiction between Rand and Mises on an epistemological and ethical level.  This is not a minor disagreement, but goes to the very fundamentals of Mises’ praxeology and Objectivism.  Long however argues that this is not the case.  “Mises of course did not mean that people always pursue the most rationally defensible ends (for Mises there are no such things) or even that, given their ends, people always choose the most rationally defensible means to their ends. In part, what he meant was simply that human action is purposeful.” [xix]  According to Long, when Mises says people always act rational, he means “in a manner appropriate to their situation in the way of actually seeing it that is constitutive of their action. And this is a claim that Rand has no reason to reject”[xx]

Rand defines reason as, “reason integrates man’s perceptions by means of forming abstractions or conceptions, thus raising man’s knowledge from the perceptual level, which he shares with animals, to the conceptual level, which he alone can reach.  The method which reason employs in this process is logic—and logic is the art of non-contradictory identification.”[xxi]  Thus for Rand to act rationally is to act in accordance with reason.  This does not include all purposeful actions.  Hitler acted purposively to kill off the Jews, but this action cannot be considered rational according to Rand.

All the massaging of what Rand and Mises meant cannot reconcile these two radically different positions.  While English was Mises’ second language, his ideas about praxeology were fundamental and Mises never retracted his statements or reinterpreted them and neither did Rand.  An informal review of video lectures by Austrian Economists shows that they take Mises at his word.  It is very dangerous to reinterpret what people are saying.

Mises is clear that praxeology is a type of philosophical rationalism.

“[Praxeology’s] cognition is purely formal and general without reference to the material content and particular features of the actual case. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori.”  Mises, Human Action, p. 32

“All theorems of economics are necessarily valid in every instance in which all the assumptions presupposed are given.” Mises, Human Action, p. 66

“Apart from the fact that these conclusions cannot be “tested” by historical or statistical means, there is no need to test them since their truth has already been established. Historical fact enters into these conclusions only by determining which branch of the theory is applicable in any particular case.”  Murray N. Rothbard https://mises.org/library/praxeology-methodology-austrian-economics.

Philosophical rationalism is defined as “the doctrine that reason alone is a source of knowledge and is independent of experience.”[xxii]  Philosophical rationalism is commonly associated with Descartes and Spinoza.  Here is what Rand said about rationalism.

[Philosophers came to be divided] into two camps: those who claimed that man obtains his knowledge of the world by deducing it exclusively from concepts, which come from inside his head and are not derived from the perception of physical facts (the Rationalists)—and those who claimed that man obtains his knowledge from experience, which was held to mean: by direct perception of immediate facts, with no recourse to concepts (the Empiricists).[xxiii]

Mises’ epistemology is not science.  At a minimum science always requires that concepts (hypothesis) are checked against reality and reality is ultimate determiner of what is true.  William Thomas, Director of Programs at The Atlas Society, argues that Mises was not a philosophical rationalist and shows that some of the concepts Mises uses, such as money, can only be derived from experience.  This is another attempt to massage the words of Mises.  What this shows is that Mises’ praxeology and his ideas about money result in a logical contradiction.  Rand’s response from Atlas Shrugged might be “contradictions do not exist. Whenever you think that you are facing a contradiction, check your premises. You will find that one of them is wrong.”

An interesting point is that Mises’ subjective theory of value is fundamental to his ideas on praxeology.  “Let us note that praxeology does not assume that a person’s choice of values or goals is wise or proper . . . “[xxiv]  “However one twists things, one will never succeed in formulating the notion of ‘irrational’ action whose ‘irrationality’ is not founded upon an arbitrary judgment of value.”[xxv]  As a result, it is impossible to separate the subjective theory of value from Mises praxeology.

George Reisman makes some important point about Mises’ contention that economics (science) should be value-free.

The notion that science and value should be divorced is utterly contradictory. It itself expresses a value judgment in its very utterance. And it is not only self-contradictory, but contradictory of the most cherished principles of science as well. Science itself is built on a foundation of values that all scientists are logically obliged to defend: values such as reason, observation, truth, honesty, integrity, and the freedom of inquiry. In the absence of such values, there could be no science. The leading historical illustration of the truth of these propositions is the case of Galileo and the moral outrage which all lovers of science and truth must feel against those who sought to silence him. [xxvi]

 

Hayek

F.A. Hayek’s epistemological ideas are contained in his ideas on “cultural evolution”.  Hayek was proud of his ideas on cultural evolution and considered them central to his ideas on economics.  “The theory (cultural evolution), of which Hayek himself was proud, is on all accounts central to his economic, social, and political project”[xxvii]

Cultural evolution is the idea that social institutions, such ethics, law, and economic systems are created by a non-rational evolutionary process.  “According to this theory, rules, norms and practices evolve in a process of natural selection operating at the level of the group. Thus, groups that happen to have more efficient rules and practices tend to grow, multiply, and ultimately displace other groups.”[xxviii]

Bruce Caldwell describes cultural evolution as:

The term “cultural evolution” refers to the evolution of a tradition of learnt rules, norms, ethical precepts, and practices, “especially those dealing with several property, honesty, contract, exchange, trade, competition, gain, and privacy” (Hayek 1988:12). This cultural heritage emerged through “a process of winnowing and sifting, directed by the differential advantages gained by groups from practices adopted for some unknown and perhaps purely accidental reasons” (Hayek 1979:155). The traditions and institutions that resulted allowed the development of a vast extended order, one capable of sustaining huge increases in population, an order that would have been considered fantastical to earlier humans existing under more primitive conditions.[xxix]

According to Hayek, no individual is capable of using reason to determine which social institution will end up with the best result beforehand or why a particular set of social norms does work well.  Linda C. Raeder in Humantis makes this point and also points out that David Hume’s ideas entered the mainstream libertarian movement through Hayek.

“The picture of man as a being who, thanks to his reason, can rise above the values of civilization, in order to judge it from the outside . . . is an illusion.”  For Hayek, morals, values, and reason are entirely natural phenomena, evolutionary adaptations which have enabled man to survive and flourish in his particular kind of world.

Perhaps no other area of Burke’s and Hayek’s thought is as congruent as their understanding of the role of reason in human affairs; their views are so close as to suggest that Hayek’s thought on this issue is merely an elaboration, although quite an extensive one, of Burke’s theme. Hayek developed several of Burke’s most crucial insights: 1) the priority of social experience (or “tradition”) over reason; 2) the notion that inherited social institutions embody a “superindividual wisdom”  which transcends that available to the conscious reasoning mind; and 3) the impotence of reason to ‘design’ a viable social order.[xxx]

David Kelley elaborates on this point:

Hayek, by contrast, is a critic of what he calls ―constructive rationalism. His concept of rationalism is somewhat idiosyncratic, and is not equivalent to Rand‘s conception of reason. Nevertheless, it leads him to claim that ―no universally valid system of ethics can ever be known to us, which is obviously not consistent with her view. For Hayek, moral rules have a status lying ―between instinct and reason.

Is Hayek anti-reason?  It’s hard to say, however arguing that reason is fundamentally limited (as opposed to making a mistake) in understanding reality without any real evidence is an attack on reason itself.  Like Hume, Hayek cannot say reason is completely impotent, because what would be the point of writing.  Writing presumes some ability to reason.

Hayek’s case for freedom is based on the limits of reason.  In order for Hayek’s cultural evolution to work, you cannot substitute the decisions of a single leader (or small group) for those of the masses.  To do so undermines the evolutionary process.  As David Kelley explains:

This case for market freedom is essentially negative. Hayek seems to think that if socialist planning were possible, socialism might be the morally ideal system. But the inescapable ignorance of would-be planners excludes that possibility: ―If there were omniscient men, if we could know not only all that affects the attainment of our present wishes but also our future wants and desires, there would be little case for liberty.

Hayek does not think that reason can tell you how or why social institutions, including the law and ethics work.  This is totally inconsistent Rand’s ideas and undermines the very idea of science.

Interestingly, Hayek’s position on ‘the subjective theory or value’ is a fundamental part of his epistemology, just like Mises’.  His cultural evolution requires that we cannot formulate a rational ethics because that would undermine the evolutionary process.  As a result, every ethical system is subjective and therefore so is every law.  The most we can do is put our faith in the process and blindly hope our ethical and legal systems are better than they were in the past because of the evolutionary process of cultural evolution.

 

Economics vs. Philosophy

It is clear that Austrian Economics’ epistemological positions are incompatible with Objectivism and science more generally.  However it is entirely possible that despite this, Austrian Economics has achieved great things in economics.  For instance, David Kelley has shown that John Locke made a number of epistemological errors with respect to perception, in his book The Evidence of the Senses, and yet Locke’s ideas on Natural Rights are still profound and fundamentally sound.

In this case however, when Objectivists and Austrians are talking they are not even speaking the same language.  For instance, when Rand says she is for capitalism, she means “a social system based on the recognition of individual rights, including property rights”[xxxi]  By individual rights, Rand means a moral claim based on man’s nature and discovered using reason.  Austrians do not think that a rational ethics is possible.  As a result to Austrians, capitalism is an economic system that has low levels of governmental interference, based on some utilitarian criteria.  (You cannot live without an ethical system, so most Austrians default to utilitarianism)

When Objectivists talk about property rights, they mean an ethical claim to take action with respect to something, such as land.  This ethical claim is based on a rational, natural rights system.  When Austrians talk about “property rights”, they do not really mean a “right” in any way except a purely arbitrary legal claim.  Austrians argument for “property rights” is a purely utilitarian or historical argument (Hayek) that can be fudged to meet the utilitarian goal or historical precedence.

These differences result in real differences in economic policy.  Menger, for instance, advocated 1) public works constructed by the state such as roads, railways and canals, 2) government established agricultural and vocational training institutions, 3) state intervention to stop clearing of forests on private property in the mountains of Austria when this clearing had serious and bad effects on agriculture, and 4) government intervention to stop child labour.[xxxii]           Hayek was in favor social security, some sort of government provided health care, emergency government assistance for natural disasters, and suggested that manipulating the money supply might be used to alleviate recessions/depressions.[xxxiii]

Even Ludwig Von Mises waffles on economic policies that are inconsistent with capitalism as an Objectivist would define it.

There are certainly cases in which people may consider definite restrictive measures as justified. Regulations concerning fire prevention are restrictive and raise the cost of production. But the curtailment of total output they bring about is the price to be paid for avoidance of greater disaster. The decision about each restrictive measure is to be made on the ground of a meticulous weighing of the costs to be incurred and the prize to be obtained. No reasonable man could possibly question this rule.[xxxiv]

Note that Mises justification for fire regulations is based on utilitarianism, which Rand condemns as “’the greatest good for the greatest number’ is one of the most vicious slogans ever foisted on humanity.”[xxxv]

The Austrians sound a lot more like modern conservatives than capitalists.  When it is a government policy that Austrians are in favor of, they are quite happy to override peoples’ individual rights.  They just want these programs to be run more efficiently.  Austrians make a number of errors in their analysis of the economy also, however there is not time in this paper to take on these issues.

 

Conclusion

Austrians often argue that if you do not support the Austrian school of economics then which school (economists) do your support then, as if this was an election or a smorgasbord with a limited number of choice.  Science is a creative endeavor and we are not limited only the existing choices.

New Growth Economics’ 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.[xxxvi]  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.

[i] Richard C.B. Johnsson, The Journal of Ayn Rand Studies Vol.6 no. 2 Spring 2005 pages 317-335.

Subjectivism, Intricism, and Apriorism,:Rand Among the Austrians, Penn State University Press, http://www.jstor.org/stable/pdf/41560286.pdf.

[ii] Roderick D. Long, “Praxeology: Who Needs It JARS, http://praxeology.net/praxwho-x.pdf

[iii] Edward W. Younkins, The Journal of Ayn Rand Studies Vol.6 no. 2 Spring 2005 pages 337-374, Menger, Mises, Rand, and Beyond, Centenary Symposium, Part II Ayn Rand Among the Austrians, http://quebecoislibre.org/younkins28.pdf

[iv] David Kelley, Rand versus Hayek on Abstraction,  Symposium: Rand and Hayek on Cognition and Trade, Reason Papers Vol. 33, https://reasonpapers.com/pdf/33/rp_33_1.pdf.

[v] Edward W. Younkins, The Road to Objective Economics: Hayek Takes a Wrong Turnhttp://rebirthofreason.com/Articles/Younkins/The_Road_to_Objective_Economics_Hayek_Takes_a_Wrong_Turn.shtml

[vi]https://mises.org/sites/default/files/Investigations%20into%20the%20Method%20of%20the%20Social%20Sciences_5.pdf ,  INVESTIGATIONS INTO THE METHOD OF THE SOCIAL SCIENCES WITH SPECIAL REFERENCE TO ECONOMICS

[vii]https://mises.org/sites/default/files/Investigations%20into%20the%20Method%20of%20the%20Social%20Sciences_5.pdf ,  INVESTIGATIONS INTO THE METHOD OF THE SOCIAL SCIENCES WITH SPECIAL REFERENCE TO ECONOMICS, Introduction, p. xi.

[viii]https://mises.org/sites/default/files/Investigations%20into%20the%20Method%20of%20the%20Social%20Sciences_5.pdf ,  INVESTIGATIONS INTO THE METHOD OF THE SOCIAL SCIENCES WITH SPECIAL REFERENCE TO ECONOMICS, Introduction, p. xiii, Lawrence H. White.

[ix] Edward W. Younkins, The Journal of Ayn Rand Studies Vol.6 no. 2 Spring 2005 pages 337-374, Menger, Mises, Rand, and Beyond, Centenary Symposium, Part II Ayn Rand Among the Austrians, http://quebecoislibre.org/younkins28.pdf

[x] Wikipedia, Analytic–Synthetic Distinction, Accessed  October 21, 2016, https://en.wikipedia.org/wiki/Analytic%E2%80%93synthetic_distinction.

[xi] Kant’s noumenal/phenomenal distinction is restatement of Plato, in which there is a realm of forms (ideas) and the imperfect world we live in.

[xii] Murray N. Rothbard, “Praxeology: The Methodology of Austrian Economics”, https://mises.org/library/praxeology-methodology-austrian-economics

[xiii] Ludwig Von Mises, Human Action, p. 32, https://mises.org/sites/default/files/Human%20Action_3.pdf

[xiv] Ludwig Von Mises, Human Action, p. 32, https://mises.org/sites/default/files/Human%20Action_3.pdf

[xv] Roderick D. Long, “Praxeology: Who Needs It JARS, p. 300, http://praxeology.net/praxwho-x.pdf

[xvi] Galt’s Speech,, For the New Intellectual, 155, http://aynrandlexicon.com/lexicon/axioms.html

[xvii] Ludwig Von Mises, Human Action, 1.I.32, http://www.econlib.org/library/Mises/HmA/msHmA1.html

[xviii] Ludwig Von Mises, Human Action, The Scholar’s Edition, p. 104.& https://mises.org/library/what-do-austrians-mean-rational ,  What Do Austrians Mean by “Rational”?, MISES DAILY ARTICLES, Accessed 6/9/16.

[xix] Roderick D. Long, “Praxeology: Who Needs It JARS, p. 309, http://praxeology.net/praxwho-x.pdf

[xx] Roderick D. Long, “Praxeology: Who Needs It JARS, p. 310, http://praxeology.net/praxwho-x.pdf

[xxi] “Faith and Force: The Destroyers of the Modern World,” Philosophy: Who Needs It, 62, http://aynrandlexicon.com/lexicon/reason.html.

[xxii] Dictionary.com, http://www.dictionary.com/browse/rationalism, accessed October 22, 2016.

[xxiii] “For the New Intellectual,” For the New Intellectual, 30, http://aynrandlexicon.com/lexicon/rationalism_vs_empiricism.html.

[xxiv] Murray N. Rothbard, “Praxeology: The Methodology of Austrian Economics”, https://mises.org/library/praxeology-methodology-austrian-economics

[xxv] Ludwig Von Mises, Human Action, The Scholar’s Edition, p. 104.& https://mises.org/library/what-do-austrians-mean-rational ,  What Do Austrians Mean by “Rational”?, MISES DAILY ARTICLES, Accessed 6/9/16.

[xxvi] George Reisman, Capitalism: A Treatise on Economics, p. 36, http://www.capitalism.net/Capitalism/CAPITALISM_Internet.pdf.

[xxvii] Erik Angner, The History of Hayek’s Theory of Cultural Evolution, p. 3, http://institutoamagi.org/download/Angner-Erik-The-history-of-Hayeks-Theory-of-cultural-Evolution.pdf.

[xxviii] Erik Angner, The History of Hayek’s Theory of Cultural Evolution, p. 3, http://institutoamagi.org/download/Angner-Erik-The-history-of-Hayeks-Theory-of-cultural-Evolution.pdf.

[xxix] Bruce Caldwell , The Emergence of Hayek’s Ideas on Cultural Evolution, p. 6, http://www.gmu.edu/depts/rae/archives/VOL13_1_2000/caldwell.pdf.

[xxx] Linda C. Raeder, The Liberalism/Conservatism Of Edmund Burke and F. A. Hayek: A Critical Comparison, HUMANITAS, Volume X, No. 1, 1997. National Humanities Institute,  http://www.nhinet.org/raeder.htm.

[xxxi] What Is Capitalism?” Capitalism: The Unknown Ideal, 19, http://aynrandlexicon.com/lexicon/capitalism.html.

[xxxii] Social Democracy For The 21st Century: A Realist Alternative To The Modern Left, http://socialdemocracy21stcentury.blogspot.mx/2012/08/rescuing-menger-from-austrians.html, accessed October 23, 2016.

[xxxiii] Nicholas  Wapshott,  Hayek on health care, social safety nets and public housing (quoting from Road to Serfdom) https://sites.google.com/site/wapshottkeyneshayek/hayek-on-health-care-social-safety-nets-and-public-housing  accessed October 23, 2016.

[xxxiv] Ludwig Von Mises, Human Action, The Scholar’s Edition, p. 741, https://mises.org/sites/default/files/Human%20Action_3.pdf.

[xxxv] Textbook of Americanism,” The Ayn Rand Column, 90, http://aynrandlexicon.com/lexicon/utilitarianism.html.

[xxxvi] Calories make a convenient catch all for all human requirements including air, water, micronutrients etc.

May 10, 2017 Posted by | -Economics, bioeconomics, philosophy | , , , , , , | Leave a comment

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