Wednesday, May 27, 2009

A brief primer on money

In a barter based economic system, there are generally two quite difficult problems to solve. These problems are generally known as something along the lines of "coincidence of wants" and "store of value".

Coincidence of wants is the n^2 problem. Briefly, in a barter economy there are O(n^2) exchange rates where n is the number of goods in the economy. If one of those goods is used as money (everything is traded into and out of that good), the number of exchange rates drops to O(n). This tends to reduce the problem of market thinness where markets function poorly due to a lack of participants.

Store of value is just that - people generally want to store the "value" of the stuff they create, both through time and space. It is difficult for a dairy farmer to sell 1000 gallons of milk a year from now, across the country. It is much easier to sell the milk locally and travel across the country at the appropriate time and to the appropriate place with cash in hand.

To solve both of these problems, money should generally be small, durable, value dense (both in terms of volume and weight) and resistant to inflation.

Monday, May 25, 2009

On Power: Politics and Legitimacy

One interesting thing about politics is that there are political theories which closely "identify" with the types of power I identified earlier.

Generally speaking, conservatism identifies with military power, classical liberalism identifies with economic power and progressivism identifies with intellectual power.

What does identify mean? There are three parts. Forms of power that are blow the form that the political ideology identifies with are considered illegitimate. They are not to be used. There are generally a few exceptions - lower level power is legitimately used when it is used to counteract another use of that same type of power. For classical liberals, most recognize self defense as a valid use of military power (force) - both individually and nationally. Most progressives think it is morally just to donate to charity.

In general, the political ideologies see the fruit of the power they align with to be the core strength of society. Conservatives look to the strength of the military as a key sign of national greatness. Classical liberals look at economic output as the indicator of strength. Progressives generally see intellectual output as well as the compliance of society to the directives of the smartest as the true strength of society.

Lastly, forms of power above the one identified with by an ideology are seen to be too flimsy to be relied upon. Conservatives tend towards mercantilism because they see the military aspect of trade whereas progressives tend towards mercantilism out of a tactical alliance with unions. Intellectual power is generally not even considered real by either conservatives of classical liberals.

Thursday, May 21, 2009

On Power: Types

This is the first in a series of posts about the way I understand power works.

First off, a definition - power is the ability to influence the behavior of other people. Essentially, it is the ability to get people to do what you want them to do.

Historically, there have been three sorts of power, which I'm going to call military, economic and intellectual.

Military power is the power to coerce - it is the power to get people to do something by threatening them with harm if they don't comply.
Economic power is the power to cajole - it is the power to get people to do something by enticing them with benefits if they comply.
Intellectual power is the power to convince - it is the power to get people to do something by convincing them that said action is in their best interest.

Military power is the most stable form of power. All animals, whether they live in societies or not use military power to get what they want. Even in modern human society, military power is prevalent.

One of the interesting things about military power is that it acts as a sort of base for the other two sorts of power. In order for economic or intellectual power to form in any sort of concerted manner, there has to be sufficient military power for a level of stability to develop.

Economic power is the power to cajole. It is the power to get people to do something by offering them a reward if they do it. Economic power always co-exists with military power to some extent. In a war band, the relationships between members can be thought of as a sort of informal economic power. To expand on the point, most people, when they think of economics, think of what I'm going to call formal economic power - the trading of goods for money or vise versa. Informal economic power is generally contained within inter-personal relationships, making it difficult to analyze; this does not make it any less real. Imagine it as a network of favors, debts and constructive alliances between people which are rarely explicitly spoken of, but are very real none the less.

Economic power has become immense of late for very good reasons. In a situation where the exercise of military power is strongly curtailed, economic power becomes ascendant, simply because the exercise of economic power is always positive sum. Additionally, as wealth - the currency of economic power - accretes, generally a part of it ends up being capital, which increases the efficiency with which economic power is generated. This ends up being a virtuous cycle, whereby economic power in a system increases at an exponential rate.

This presents a problem, however - a large amount of economic power in the form of wealth is easily capturable via military power. As the amount of wealth grows, the more desirable a target it becomes for predations from the militarily powerful.

Intellectual power is the power to convince. Intellectual power is the power to get people to do something by convincing them that doing that thing is actually in their own best interest. Intellectual power has also always co-existed with military and economic power. In the old days, it was almost exclusively restricted to religion. Indeed, there is a reason why religious systems that incorporated a solid set of ethics out competed religious systems that didn't - ethics is essentially primitive form of game theory - and it works. If people lived for thousands or even hundreds of years, perhaps ethics wouldn't be such a big deal. However, given the current relatively short life time most people enjoy, ethics has historically been quite important - allowing people to converge quickly towards Nash equilibrium strategies.

One of the interesting consequences of this is that most times, when people attempt to use intellectual power, they use the language of ethics. A classic example is A Theory of Justice which. as Mencius Moldbug points out, has absolutely nothing to do with the correct application of the law. Other examples abound - finding more is left as an exercise to the reader.

Intellectual power depends on a stable economic system. Without a stable economic system, there is generally no surplus from which people seeking economic power can take a cut. Generally it is quite difficult to think of complex theories of human interaction while mining coal or harvesting wheat. This means that intellectual power is also indirectly dependent on a stable military power base.

While I only identify three methods of gaining power, I freely admit that there might be some that I have yet to discover (or that simply do not exist without the requisite technological advances). If other forms of power do exist, though, they should be readily discoverable: people who can get others to do their bidding tend not to stay in the shadows for too long.