Brett Rants

An Economics History

I've been 'Reading Economics', lately.
Enough that it makes sense to document the journey...


Agent Based Models

Programmer first.
Economist second.

A year ago, I wasn't Reading Economics. I had no desire to spend an hour or so, each and every day, reading books, journal articles, and/or websites that related to economic theory. It happened quite by accident. I became interested in Agent Based Models (ABM) as they relate to computer programming. (If economics is the minor interest, programming is the major.) And it turns out that markets are often modelled as ABM's. So, this is that start. Programming led me to Agent Based Models. And ABM's led me to economics. Simple, really.

Joel Mokyr

The first name in economics.

It would have been easy to give up on economics if there hadn't been something about it that captured my interest right off. And for me, that was the Industrial Revolution. Why? How? And what can we learn from it to apply to the present. So, the first mini-area of inquiry was into the Causes of the Industrial Revolution. This just so happens to be an area in which Joel Mokyr shines. And his was the first name in the discipline that I bothered to learn. Go Joel! What he wrote wet my appetite enough that six months later, I'm still reading strong...

A Farewell to Alms by Gregory Clark

Perhaps the reason I decided to start this reading list.

It's been a few months since I read this truly wonderful book, so my recollections are a bit hazy. Certainly, after this remove of time, I can't say I remember distinctly the arguments being made concerning the causes of the Industrial Revolution. (Yes, it's true. My memory sucks. And hence, another reason to compile such a list as this.) So, whatever, don't remember his main thesis. What I do remember is his wonderful charts, graphs, and step by step logical walk thru explaining the depths of the pre-revolution Malthusian trap in which the vast bulk of humanity (from say 5,000BC to 1,750AD) had spent their existence. Yes, armies had gotten stronger. The lavish lifestyle of the upper class had gotten ever more swankier and laden with trinkets. But the working man? His life sucked. And the depth of that suckitude was more or less constant for all of recorded history. Eh, even I have a hard time believing that last. So, let's just say, in A farewell to Alms, Gregory Clark put together a wonderfully detailed and convincing technical argument. My hat is off.

History of Economic Thought by Landreth & Colander

It does seem to go on...

I write this as I read. I certainly enjoyed the first half of the book more than the second. But as an overall history, chronicling the evolution of the ideas (and learning them thus, on the way), it may be hard to find a better volume. I read the first chapter from many a book between finding this fine tome and finishing Alms: many. So, just the fact that I continue to read this book chapter after chapter speaks to it's quality. For a good overview of the leading figures in economic thought (or at least, a good overview of the leading figures in early economic thought if one only considers the first half), this is a book I can heartily recommend.

And since in the long run, that's not the type of review I, myself, would find useful, let me say that the concept of Orthodox (conventional) vs Heterodox (unconventional) thought is an important theme throughout the book: i.e. as a science matures, there is an inevitable transition from Orthodox (mainstream) to Heterodox (cutting edge) thought, which in turns becomes Orthodox.

Against Method by Paul Feyerabend

An anarchist's call to scientific arms.

I read this concurrently to Landreth & Colander. AM picks up on the idea of Heterodoxy (the value thereof, not that Paul -- can I call you Paul -- ever named it as such), coming at the idea from another direction. In my opinion, Against Method is the Anarchist's Method; but like I said, those are my words, not so much Paul's. I don't actually know if Paul ever uses the world 'Anarchist'. Anyway, the thesis of the book is that all theories should be valued (and/or evaluated, even the most patently absurd ones), on the basis of the insight they afford (it being a given that all theories provide insight of one sort or another). So, the book is sort of like the Multiculturalist Manifesto of the intellectual (or more specifically scientific) world.

Or if that is still unclear, to be more right, first one must be willing to be more wrong.

Now go out there and make some intellectual blunders!

Eulogy: I only skimmed this work at best, so perhaps I should lay off writing (and/or starting to write) reviews prior to being completed with the work. (He said, not even being done reading this book, still.) Basically, this is a skimmer, not even economics. All the same, Anarchy of Thought, who would have thought such an idea would resonate so strongly with me?


The Theory of the Leisure Class by Thorstein Veblen

Resoundly rejected by those at their leisure.

Ah, I so much wanted to like this book, was so looking forward to it. After reading Landreth & Colander, I was very much looking forward to delving into Veblen's work. Alas, I shall not do this directly. Economics, this is not. Much Ado About Nothing... or perhaps, more accurately, at this remove in time, it is neither insightful, concise, nor overly readable. More of a pop-sociology social critique than anything else. So, moving on...


History of Economic Analysis (1954)
Joseph A. Schumpeter

A work in progress (for both of us).

Funny. Witty. Aware.
Schumpeter is fun to read.
But ironically, I'm pausing at 100 pages in (at the start of chapter 2) and putting this tome is on hold. Perhaps Schumpeter is too smart for his own good... or wants to come across as a bit too brilliant and therefore dazzles (me, at least) to excess... to the point of bewilderment.
No doubt, more comments on this one will come at a later time after I've delved further.

But, no. The beginning of a History of Economic Analysis was the best part. Being Schumpeter's Grand Opus (and a complete critique of man's ascent) the work veered off into subtopics and concerns that held no particular interest to me. And then, there is Schumpeter's propensity to say such things as 'too long to elaborate here' or 'the reader must figure the rest out for themselves', which to my mind, sort of defeats the purpose of reading another's monograph in the first place.

So, 180 out of 1321 pages read. The first section was the best. Having read the next entry concurrently (and thus why it is on this list next), it is unlikely that I shall specifically hunt out any more of Schumpeter's work.


Capitalism, Socialism, & Democracy (1943)
Joseph A. Schumpeter

An attempt to beat Marx at his own game.

After reading only the first chapter of a History of Economic Analysis by Joseph A. Schumptere, I come to admire him enough to want to read more of his work. This book is a bit more accessible, but perhaps only a bit.

Schumpeter's comments are measured and logical when it comes to the capitalism/communism debate. It certainly feels like he is trying to be fair, as he grants the other side (communism) much and praises Marx where praise is due (or so, where praise is due according to Schumpeter).

In all, however, the books is fairly poorly written, as it assumes an almost intimate knowledge of Schumpeter's point of view. That is, it is a given that he and the reader on the same ideological page, so much so, that further clarification (or any clarification for that matter) isn't needed; and therefore, it's not provided. Also, the writing tends to be quite fractured, as he uses 'this' and 'that' as ambiguous pointers throughout.

The one sentence abstract:
Capitalism, Socialism, & Democracy (1943) by Joseph A. Schumpeter: Take a front seat and ride along as a great mind wanders amidst the social contract (of law, ethics, management, and money), elucidating key points from an economical perspective.

Of course, at one point, Schumpeter puts forth that socialism (it's coming, can't stop that, whether one likes that fact or not) requires more legislation, but happily, this will be accomplished with fewer lawyers: quite the daydream to be sure (unless one renames lawyers, bureaucrats). Anyway, the more I read, the less I concentrated on Schumpeter's dream and focused more on my own: a free market composed of small scale enterprises (limited by regulation/law) and a government whose sole purpose is to focus on (and enforce) The Moral Good.

To this end, I am more than happy to propose:
I skipped a few (long winded) chapters towards the end that related to a rational proof of democracy, which is of little interest to me: rational proofs being so easy to cut off at the knees by simply discrediting or merely disagreeing with one small assumption (say that governments exist to enforce The Moral Good, a debatable proposition to be sure).

Finally, the final section (where I am now; and thus, expect to write no further on this), Capitalism, Socialism, & Democracy degrades into a history of socialism. I suppose the word 'degrades', says it all. Schumpeter may know his stuff, but not everything he knows is of great interest to me.


Theory & History (1957)
Ludwig von Mises

How many careers were built upon discrediting Marx?

It's a formal proof, very logical and ordered. At times, even harsh in its rationality. And, of course, not the sort of thing that I can write (or write very often). But Mises' train of thought is laid out for all to see and easy to follow. Unfortunately, vast tracks of this tome are devoted to disproving all things Marxian (in a meticulous, step by step, 'Systematically Completeness', to borrow a phrase from Schumpeter, sort of way). But since Marx was wrong (come on, this is Mises, here, and even I know, his reputation precedes him), why even bother? (But then, perhaps this is his reputation and all that there is to it?)

And with that said, I will simply leave you to ponder the depths to which Quantum Mechanics shook the world. Mises devotes (perhaps) a chapter to the metaphysical problems forthwith. Whereas, later writers (I offer myself up as a generic example) have completely come to grips with the split (of the atom, probabilistic cross futures, and what not); and so, do not dwell on it directly at all (it is understood... or merely swept away as being unimportant, but whatever). Been there, done that.

In a nutshell, Theory & History is mostly about metaphysics (or philosophy, if you like) so, I only got through 217 of 404 pages (until I realized it wasn't building a base for economics, but that the psycho-babble subtext was what the book was going to be all about. That said, I'm going to have to skim these books over faster in the future. Reading on a phone has changed my habits. In days of yore, I might have breezed through this book in a single sitting. But I've stopped doing that as much (speed/skim reading), as I do not find electronic readers to be as conducive to this sort of thing as I found paper bound books to be. Alas, I must adapt.


The Coase Theorem: A Study in Economic Epistemology (1992)
Gary North

Ironically, North references Mises' Theory & History (the last book I read), making it sound better than it was... like maybe I'd missed something by skipping the second half. But, whatever. Turns out, I skimmed North's book, as well.

I liked how North started at the heart of the matter by de-constructing the nature of science: very refreshing. I was impressed with this section enough to reflect: Perhaps any great tract will start with epistemology, move through methodology, and only then grace us with a harmonious resolution - a new addition to the collective knowledge.

Unfortunately, this first part was the best North had to give. The main thrust of the book is that the Coase Theorem doesn't hold... like ever. And, well, I think it does, so North and I had a bit of a disagreement over that and I found it increasingly hard to take him seriously as the book progressed.

In a nutshell, The Coase Theorem reduces to an analysis of total costs and the equilibrium reached thereby: in that, whichever side of a transaction pays a cost, the other side ultimately pays it as well, so it doesn't matter from an equilibrium reaching standpoint who initially pays the cost (e.g. tax the buyer or tax the seller, the seller is going to pass the cost on to the buyer, so ultimately the buyer pays the tax either way and the end price is not effected).

North never really seems to understand that The Coase Theorem is about equilibrium... nor does seem to realize that sin can be expressed as a cost (or perceived cost, if you like) of either Eternal Damnation or Everlasting Bliss or some mix between the two. Costs don't have to be paid for in cash, which is one of the reasons The Coase Theorem is used in the realm of pollution often enough. So, really, much of North's disagreement with The Coase Theorem comes down to his not being creative enough in his own application of it.

However, there was one aspect that came to light while reading North's book that I found very interesting; and I don't actually know if North himself has considered it; certainly in my skimming, I didn't see him make note of it; but his words set the thought in motion in my own mind, so perhaps it was there underneath it all... and perhaps it wasn't.

Whatever the case, The Coase Theorem doesn't hold if there are transaction costs. And there are always transaction costs. But if these are small and insignificant, I for one am more than happy to look the other way. But in certain situations, all that might matter are the transaction costs (say, the cost of going to Hell for all Eternity, not that North is all Fire & Brimstone, but you catch the drift). Given enough friction, difficulty in enforcing ones rights, costs of hiring an attorney, or whatever, and The Coase Theorem falls apart (or simply doesn't hold, depending upon how generous you want to be).

But that's all old news. The new twist (new to me, anyway) that North's words brought to light was What happens when the transaction costs are lopsided? If there are Natural Rights (as in, if there are Moral Rights) and if one does not observe those Moral Rights, then one direction in an exchange might have a moral cost and the other, not; that there might exist one-way or Directionally Dependent Transaction Costs in which it is not practically possible for a transaction to be reversed (because, you know, it might be difficult for us mortals to wash away the taint of sin). Anyway, my words, not North's; but I think it's close to the heart of what North was driving at. And given the foregoing (and a few moments of further reflection), I concluded that transactions that have directionally dependent costs are so common that in many markets, they may be considered the norm. For example, when I buy something, I buy retail; but when I sell the same item, I sell it wholesale (or really on the used market, which is even less than wholesale). It's not a question of whether I could open a store and sell retail, but that opening a store to sell a single item at retail would cost me even more than simply selling the item at a steep discount (or even just throwing it away or donating it to charity). And given that most of the transactions I engage in follow this pattern (all my stock purchases are discounted against me, whether I buy or sell, I take a hit; and I am legally bared from entering all of the professional markets, legal and medical transactions must necessarily be uni-directional due to my lack of credentials), it becomes clear that not only do zero transaction costs almost never hold (not in the real world, anyway), but that almost all of these transactions are Directionally Dependent. And I find the implications of non-reversible and/or Directionally Dependent transactions to be of great intellectual interest.

Thus, if I were to solve North's Christian Economics for him, I would hone in on the idea of Non-Reversible Directionally Dependent Transactions. And though, it would seem that this idea is so obvious (and existence so widespread in the world economy) it is inconceivably it hasn't been studied in depth. But if not, Directionally Dependent Transactions would be a great topic for further thought.

Anyway, having just skimmed his work, my best guess as to North's intended thesis is as follows. So, yeah. For a book I didn't hardly but skim after the first few chapters, I'd say it had an impact. Directionally Dependent Transaction Costs: I'm going to have to look into that one...


The Problem of Social Cost
The Journal of Law & Economics (October 1960)
R.H. Coase

The Coase Theorem: Given Zero Transaction Costs and Well Defined Rights, the Equilibrium Point that will be reached after Market Operations will the same regardless of who starts with the rights.
As the assumptions made in the above statement of The Coase Theorem never hold in the Real World, The Coase Theorem is a Theoretical Construct and nothing more.
In light of the above, there are two ideas, which I would like to explore further.

First, if the application of law is capricious and unknown (as from an outsiders perspective, I would contend), who benefits? Well, if both parties to a lawsuit know the outcome in advance, they would both be best served by negotiating a settlement in advance, and this would bypass the courts, weakening the court's power in the world. So, I would propose that shaky laws and ill defined enforcement benefit the courts and the lawyers. That is to say, the social structure, which both enacts and enforces the law, has the most to gain by a crappy legal system. Thus, there is no reason to believe the system will change (in any way but for the worse) if left to its own devices, as the legal system has a vested interest in not working.

Second, since I believe a social structure in which The Coase Theorem holds (all other things being equal) is preferable by its very nature to a social structure in which The Coase Theorem does not hold, deviance from The Coase Ideal provides a handy measure of the distance of the actual from this ideal:


Let the Coase Ratio equal the lessor of:

CR = T1/T2, or
CR = T2/T2

Where T1 & T2 are the Transaction Costs, Equilibrium Points, or like minded measurements given in which direction the trade (or rights) are made.

Then, CR will yield a number between 1.0 -> 0.0 with 1.0 being at the Theoretical Coase Ideal and numbers closer to 0.0 being further and further away.

And as long as we're making up metrics. I believe a good metric for Communism would be the extent of government control of the economy (a dubious concept, open to abuse, but whatever). And at a starting pitch, I'd go with:

United States of America would rate a 30% on the Communist Index as 30% of the GDP is devoted to maintaining the government.

While, old Soviet Russia would rate a 50% on the Communist Index because although 100% of it's output was presumably under government control, I hear tell up to half of all transactions took place on the black market.

And that's all I have to say about that... for the moment, at least.


The Nature of the Firm
Economica (November, 1937)
R.H. Coase

The gist being of the article being: If they did not already exist, Firms would arise organically as the internal transaction costs they offer are more cost efficient (to the Firm and hence the customers of the Firm) than any alternatives available on the open market.

A Firm is a structure. Structures are dependent upon (and arise from within) the given legal, social, and cultural environments. Given a greenfield condition with no existing form, it's hardly conclusive that Firms would inevitably arise. (Thus, I disagree with Coase on this.)

Rather, it is my take that firms owe there existence more to the vestige of a Slave Market Mentality, where money is a requirement for the Common Man's continued existence (to pay for food, rent, clothing, etc.); but this flow of money is restricted wherever possible by Robber Barons; thus, the disenfranchised Common Man is forced to work for the Robber Barons who control the Source of these Money Flows should the economically disenfranchised commoners desire the necessities (and/or luxuries) of life.

So, basically, my perception is that Firms are an expression of Power; that this Power derives from the Control of a Monetary Source (say a patent, copyright, or other legal enrichment); and it is not through freewill that folks sell their labour to the highest bidder, but through a lack of other options.

But, whatever (my thoughts mixed with Coase's):


The General Theory of Employment
The Quarterly Journal of Economics (February, 1937)
J.M Keynes

In which Keynes responds to criticisms/reviews of a previous article in the same Journal

The only thing worth mentioning (as the discussion goes right over my head at the current moment) is Keynes method of engaging his reviewers by assuming that they are all on the same team, looking to advance science, discover the inner workings of the universe, and that sort of thing. That Keynes believes he is right, goes without saying; but it's more like, 'I think Truth can be found in this direction, see there, over the hills, I can take the first few steps, I'm sure in time, the community can manage the rest.' Clever guy that Keynes.


The Nobel Prize in Economics (a review)

Being a proxy for the most important (recent) contributions to the science of economics.

There is a Nobel Prize in Economics, you know. And on their site (nobelprize.org), there is a write-ups for each award. Some thoughts:
Being more than a wee bit arrogant, I thought about doing a year by year critique/refutation of The Prize, but at some point that would be forced... and over my head in many instances (many of the prizes being awarded for the application of mathematical formulas, which I will confess not valuing, to the point, I would never devote the time needed to fully understand them). So, instead of a year by year, blow by blow, list of complaints, let me offer these two (presumably not very controversial nor adversarial) observances:


Joseph A. Schumpeter (1939)
Business Cycles
A Theoretical, Historical and Statistical
Analysis of the Capitalist Process


Schumpeter: a light in the dark.

There is something about Schumpeter that I find oddly compelling. Is he a good writer or a bad one? Either way, I find myself pulled in... though, not always in the direction he is going; but rather, where my mind will wander of its own accord... or of its own accord while distracted the rest is distracted by Schumpeter's heady influence. For you see, Schumpeter tends to support his arguments (i.e. his abstract mentel models) in excruciating detail, taking great pains to counter the counters to the counters of his counters and so on and so forth near ad infinitum: and let's just say, the unwinding of which, can lead one either far astray or much further down the rabbit hole then they ever intended to go.

So, that said, shall we start with a scatter-shot of ideas? His? Mine? Who knows at this point? Feel free to blame me for the bad and praise Schumpeter for the good.


On Economic Models Models are not of real world; rather, of the essence of one. And one of the more interesting aspects of models concerns how The Model itself changes over time (via changes in understanding, no doubt, but in and of itself what the model represents would mutate as society evolves and technology advances through stationary waves and feedback cycles; the supply and demand curve shall never stall still). So, we move towards both equilibrium and understanding in staccato spurts and jumps. In such an mental endeavour, statistics are useless (his words, I do believe). And with that as the lead in, I found it easy to skip the chapter on math... and therein set the tone for skipping the rest of the book: the part on historical analysis.

Entrepreneurial Summary
To know an economic system (in the ideal state) means being able to build the whole from the parts... and the parts from the whole; but this will only provide a cross sectional snapshot: a cross-sectional snapshot that changes in time and that must by it's nature contain within it the impetus for it's own evolution (or at least, that is the hope if the model is to have any predictive power).

Cycles: The Impetus of Evolution
Since change often ferments from within, the whole endeavour begs the question: can there be external factors of change? If there are no external factors, then the model is deterministic. However, even allowing for external factors (war, earthquakes, The Zombie Apocalypse, and so on), one can constrain their importance by simply reframing these unpredictable external factors as noise that tests the system's ability to adapt, which is obviously internal to the model society's or system's ability to adapt. For example, I do not believe it is possible to predict with any degree of certainty when the Gates of Hell will open and The Zombie Apocalypse will commence, but it is clearly a matter of State (as in the state of the system, the state of being) to what extent the system is ready for such an eventuality. Or if you like, it is a certainty that the future will bring disasters, the exact nature of which cannot be known in advance, but one thing we can know is our level of preparedness, which in turn may, in fact, be all we need to predict the probably outcome (given a probably distribution of disasters).

Zombies
Schumpeter does not mention them (not once) in all his writing. Eh, he was a great man in other ways...

Entrepreneurs: A Working Definition
Entrepreneurs are those who seek profits. Seek and ye shall find. Lo, for the prophet Brett thus spoke, if ye shall buy low and thereafter sell high the difference in sum shall hereafter be known by the name of profit. So, an entrepreneur seeks these profits. And they earn the name entrepreneur (as opposed to business men or mere seekers of rent) because individual avenues of profit tend towards zero over time (due to others entering the market, equilibrium theory, and all that); and therefore, the entire thing is a creative/destructive proocess (one cannot 'entrepreneur' in the same way twice). Or if that is unclear, profit is not a long-term proposition, but by the nature of a free market a transitory phenomenon. Thus, one could also define an entrepreneur as one who transforms the nature of the market (how and what is sold). This is the most useful definition of an entrepreneur I've ever come across.

So, if that's still not clear, the difference between being an entrepreneur and working for oneself is that if an entrepreneur hires someone else to take their place, they still make money, whereas the self employed individual would not (and in many cases would have to spend more on the outside labour then they were paying themselves). Thus, to recap, after the enterprise is going, the entrepreneur can walk away and still make money; and that's why other folks are willing to buy their enterprises.


Outline of the U.S. Economy (2012 Edition)
Bureau of United States Information Programs
United States Department of State

Propoganda never tasted so good.

Astonishly bland, superbly reasonably, it's hard to find either fault or favour with anything within... or, on the other hand, it's sort of surprising (maybe even inspirational) as to what passes as reasonable. I feel like saying something about hypocrisy, but that doesn't really cover it. It's more like trying to come to grips with a fractured belief system as one's belief in said system becomes ever more fractured.

For a document so measured, it still has it's biases, which I listed out and then cut from this entry, for they really don't matter. Suffice to say, what is interesting (to me at least) is that point in the discussion where folks disagree and the debate turns lively. It was fun to notice where I felt the debate was subtly bypassed in this document... and on that, I will say nothing more.

Beyond that, I enjoyed seeing what the government decided to put together, you know, the official version of history and the economy. After all, isn't the (implicit) point of reading such a document to see how one's own ideas compare with the official version.


The General Theory of Employment, Interest, and Money
John Maynard Keynes (February 1936)

I only got a few pages into this. You see, here in the 21st Century, we have things we like to call illustrations, figures, and graphs. Between Keynes and Schumpeter, I'm perhaps through with trying to read a book like this that tries to describe in a thousand ill formed words what could easily be expressed by a simple graph or illustration... perhaps I should make a note of that for myself in my own writing...


FINAL

As in the last entry

I have been reading economics for a good nine months, now. No master, to be sure, but I would be better served if the finite effort I am able to expend on this subject matter were better focused. Thus, as I read new works, I will no longer be updating this page. Instead, should I ever start a BrettCash section of my website, future entries of this sort (or entries of a better sort) will likely be found there...


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Not so much a rant.
But I do believe,
it would be premature
to start an Economics section on my website.
Not just yet, anyway...


But then,
now,
a few months later,
and perhaps that time has finally come...


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