Economics (Re: Letter to the Editor)

[from Tracy B. Harms (2008-10-21 11:33 Pacific)]

As I have seen various and continuing disparagements of economics
posted to this forum it has brought to mind how much I appreciate
economics. I find economics a truly interesting field of study. No,
that's not strong enough; in my view it's not merely interesting, it's
inspiring.

The emergence of economics is among the great occurances in the
history of science. It was the first field of study to deal with
distributed complex systems. Economics stands out for including
purpose within explanatory theory, so I categorize it among the
behavioral sciences.

It's hard to choose how to respond as I see others indicate their
disdain toward economics.

Many here are easily able to sharply criticise psychology without
dismissing the idea that psychology is a science. I'd enjoy seeing a
similar attitude toward the difficulties that are internal to
economics, but I haven't.

Tracy

···

On Mon, Oct 20, 2008 at 9:58 PM, Richard Marken <rsmarken@gmail.com> wrote:

[From Rick Marken (2008.10.20.2200)]
... This, despite the fact that economic theory says that
higher taxes are bad for the economy. In real sciences, theories that
predict the opposite of what is observed are rejected. Not so in
economics, where the observations are rejected if they don't match the
theories. ...

[From Bill Powers (2008.10.21.1307 MDT)]

Tracy B. Harms (2008-10-21 11:33 Pacific) --

As I have seen various and continuing disparagements of economics
posted to this forum it has brought to mind how much I appreciate
economics. I find economics a truly interesting field of study. No,
that's not strong enough; in my view it's not merely interesting, it's
inspiring.

As a field of study it may be both interesting and inspiring, but my
view of specific economic theories is not as enthusiastic as yours.
However, now that I know you think highly of it, I will watch my
rhetoric more closely. I have no desire to insult you; you don't
deserve it. I will try to disagree without being disagreeable, as
someone has said lately.

Perhaps a constructive way to deal with economics would be for both
of us to collaborate on constructing a model, especially now that you
have so obligingly become an interpreter between our two languages. I
don't know how far we can get, but just trying to do it should bring
out any points of disagreement in a context where we can both
maintain some degree of objectivity. We shouldn't have too much
trouble agreeing on at least the principles of PCT!

If you're agreeable to that proposal, would you like to make the first move?

Best,

Bill P.

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[Martin Taylor 2008.10.21.16.58]

[from Tracy B. Harms (2008-10-21 11:33 Pacific)]

As I have seen various and continuing disparagements of economics
posted to this forum it has brought to mind how much I appreciate
economics. I find economics a truly interesting field of study. No,
that's not strong enough; in my view it's not merely interesting, it's
inspiring.
  
Given your mathematical bent, you might be interested in a completely different approach to economics, from an information-theoretic viewpoint, by one Samuel Bagno in 1955. I used it in my bachelor's essay the next year. I still think its arguments are valid. They explore the bounds of economic possibility in a closed economy, and do seem to model a lot that has happened in the last half-century since it ws written. Look at <http://www.mmtaylor.net/Economics/index.html> for a facsimile I uploaded with permission of the copyright holder. I tried to get a friend who was a graduate student in economics to look at it seriously in 1957, but he wasn't interested, as it was unrelated to the kind of economics he was studying (and to any economic theory of which we hear anything nowadays).

Two conclusions from Bagno's work: if inflation stays below some optimum probably around 4%, look out for a declining economy, and government deficits also should average around 4% of GDP in the long term if the economy is to be stable (those 4% numbers are very approximate).

Martin

[From Rick Marken (2008.10.21.1615)]

Martin Taylor (2008.10.21.16.58) to Tracy --

Given your mathematical bent, you might be interested in a completely
different approach to economics, from an information-theoretic viewpoint, by
one Samuel Bagno in 1955. I used it in my bachelor's essay the next year. I
still think its arguments are valid.

How could that be? Since an economy is a collection of people and
since people are not information processors (they are, as you know,
perception controllers) then how could Bagno's arguments be valid.
They might be inspiring or interesting. But valid? No. Not unless
people are actually information processing systems, whcih, I believe,
we have ruled out with numerous experimental demonstrations.

Best

Rick

···

--
Richard S. Marken PhD
rsmarken@gmail.com

[From Fred Nickols (2008.10.21.1618 MST)]

Wait just a minute! Are you saying that processing information is not part of controlling perceptions? When I "crunch" numbers, I'm not processing information? When I "read" your post, I'm not processing information?

···

--
Regards,

Fred Nickols
Managing Partner
Distance Consulting Company, LLC
nickols@att.net
www.nickols.us

"Assistance at A Distance"
  
-------------- Original message ----------------------
From: Richard Marken <rsmarken@GMAIL.COM>

[From Rick Marken (2008.10.21.1615)]

> Martin Taylor (2008.10.21.16.58) to Tracy --

> Given your mathematical bent, you might be interested in a completely
> different approach to economics, from an information-theoretic viewpoint, by
> one Samuel Bagno in 1955. I used it in my bachelor's essay the next year. I
> still think its arguments are valid.

How could that be? Since an economy is a collection of people and
since people are not information processors (they are, as you know,
perception controllers) then how could Bagno's arguments be valid.
They might be inspiring or interesting. But valid? No. Not unless
people are actually information processing systems, whcih, I believe,
we have ruled out with numerous experimental demonstrations.

Best

Rick
--
Richard S. Marken PhD
rsmarken@gmail.com

[From Rick Marken (2008.10.21.1640)]

Fred Nickols (2008.10.21.1618 MST)--

Wait just a minute! Are you saying that processing information is not part of
controlling perceptions? When I "crunch" numbers, I'm not processing information?
When I "read" your post, I'm not processing information?

Not in the sense in which "information processing" theory says you are
doing it. Info processing is a particular model of human behavior;
it's a computer model that sees people as computers; input comes in
through the senses (rather than the keyboard or mouse); it is then
processes by programs and, eventually, there is an output, in the form
of muscle or glandular activity rather than screen display or print
out. Information processing is that basic model of cognitive
psychology; it's an open-loop causal model of behavior. Control is not
part of the model. So, no, I don't think you are processing
information in this sense when you read my posts. I think you are
doing what PCT says you are doing: controlling information;
information in the form of perceptions or imaginations. It's control
all the way down;-)

Best

Rick

···

---
Richard S. Marken PhD
rsmarken@gmail.com

[Martin Taylor 2008.10.21.23.17]

[From Rick Marken (2008.10.21.1640)]

Fred Nickols (2008.10.21.1618 MST)--
Wait just a minute! Are you saying that processing information is not part of
controlling perceptions? When I "crunch" numbers, I'm not processing information?
When I "read" your post, I'm not processing information?
Not in the sense in which "information processing" theory says you are
doing it. Info processing is a particular model of human behavior;
it's a computer model that sees people as computers; input comes in
through the senses (rather than the keyboard or mouse); it is then
processes by programs and, eventually, there is an output, in the form
of muscle or glandular activity rather than screen display or print
out.

I’m not going to argue with Rick on this one yet again, partly because
I don’t have time, and previous rounds of discussion on it have left me
rather discouraged. I only mentioned Bagno’s work now because I thought
Tracy might be interested.

Rick’s misinformation on information and information processing has
been a difference between us since I first joined CSGnet in 1992.
Simple direct proofs had no effect on Rick then, and I don’t suppose
they would now. I suspect he doesn’t have the necessary background.
Certainly the things he has said about “information” in the context of
"information theory"have been wildly off the mark.

Suffice it to say that (a) Bagno’s economic theory says nothing about
human psychology, which makes Rick’s comment irrelevant, (b)
information processing is not a model of human behaviour, and © every
single channel in the control systems in Fred’s brain is an information
processor, as is the environment through which each control system’s
feedback circuit is completed. Information processing is as fundamental
to PCT as is neural circuitry, perhaps more so.

As the politicians say: “Don’t believe him. Believe me.”

As for Bagno, his arguments constrain ANY economic theory, whether it
be PCT-based or throughly conventional, whether it be money-based or a
study of barter behaviour. Those constraints do lead to some
predictions, and to a large extent 50 years of events since his
publication have tended to bear those predictions out, despite that
they refer to a closed economy, and the only truly closed economy
nowadays is the entire world.

Until I get back from the UK in late November, I hope I can restrain
myself from engaging in any discussion on this topic, and just maybe
from further comment on CSGnet. So far, such attempts at self-restraint
have proved rather futile :slight_smile:

Martin

[From Rick Marken (2008.10.21.2145)]

Martin Taylor (2008.10.21.23.17) --

I'm not going to argue with Rick on this one yet again

Aw, come on. It's been so long;-)

Rick's misinformation on information and information processing has been a
difference between us since I first joined CSGnet in 1992. Simple direct
proofs had no effect on Rick then, and I don't suppose they would now.

Probably not. But it's so much fun to watch.

I suspect he doesn't have the necessary background.

Would that be a background in logarithms?

Certainly the things he
has said about "information" in the context of "information theory"have been
wildly off the mark.

Wildly?

Suffice it to say that (a) Bagno's economic theory says nothing about human
psychology, which makes Rick's comment irrelevant,

Not really. I could just change it to:

"How could that be? Since an economy is a collection of people then
how could Bagno's arguments be valid if it says nothing about how people
work?."

(b) information processing is not a model of human behaviour

Actually, it is. Google it: human information processing. Some of the
big names are Newell, Simon, Miller, Attneave, Garner, Neisser and
Norman.

, and (c) every single channel
in the control systems in Fred's brain is an information processor,

I suppose you could say that. I prefer to look at them as functions,
like p = f(e).

as is
the environment through which each control system's feedback circuit is
completed.

Here's where I get off.

Information processing is as fundamental to PCT as is neural
circuitry, perhaps more so.

As for Bagno, his arguments constrain ANY economic theory, whether it be
PCT-based or throughly conventional, whether it be money-based or a study of
barter behaviour. Those constraints do lead to some predictions, and to a
large extent 50 years of events since his publication have tended to bear
those predictions out, despite that they refer to a closed economy, and the
only truly closed economy nowadays is the entire world.

Until I get back from the UK in late November, I hope I can restrain myself
from engaging in any discussion on this topic, and just maybe from further
comment on CSGnet. So far, such attempts at self-restraint have proved
rather futile :slight_smile:

That would be like Kenny trying to restrain himself from responding to
my blasphemies;-)

Best

Rick

···

--
Richard S. Marken PhD
rsmarken@gmail.com

(Gavin Ritz 2008.10.22.19.53NZT
[From Rick Marken (2008.10.21.2145)]

Martin Taylor (2008.10.21.23.17) --

Actually Rick is correct information theory (or communication theory)
Has nothing at all to do with psychology least of all PCT. The best book
ever written for beginners on this is by John Pierce, An Introduction to
Information Theory- a friend of Claude Shannon). A brilliant piece of work
with simple math, encoding, entropy, noisy channels, and links to physics
and how Claude Shannon put this all together.

The confusion comes in with the cybernetics people (Wiener, Beer, etc) who
tried to use it to explain human and managerial communication, and it failed
miserably. It's just a terrible model cybernetics, how it as any following
beats me.

Not sure how there are any proofs relating to information theory and human
communication.

I'm not going to argue with Rick on this one yet again

Aw, come on. It's been so long;-)

Rick's misinformation on information and information processing has been a
difference between us since I first joined CSGnet in 1992. Simple direct
proofs had no effect on Rick then, and I don't suppose they would now.

Probably not. But it's so much fun to watch.

I suspect he doesn't have the necessary background.

Would that be a background in logarithms?

Certainly the things he
has said about "information" in the context of "information theory"have

been

wildly off the mark.

Wildly?

Suffice it to say that (a) Bagno's economic theory says nothing about

human

psychology, which makes Rick's comment irrelevant,

Not really. I could just change it to:

"How could that be? Since an economy is a collection of people then
how could Bagno's arguments be valid if it says nothing about how people
work?."

(b) information processing is not a model of human behaviour

Actually, it is. Google it: human information processing. Some of the
big names are Newell, Simon, Miller, Attneave, Garner, Neisser and
Norman.

, and (c) every single channel
in the control systems in Fred's brain is an information processor,

I suppose you could say that. I prefer to look at them as functions,
like p = f(e).

as is
the environment through which each control system's feedback circuit is
completed.

Here's where I get off.

Information processing is as fundamental to PCT as is neural
circuitry, perhaps more so.

As for Bagno, his arguments constrain ANY economic theory, whether it be
PCT-based or throughly conventional, whether it be money-based or a study

of

barter behaviour. Those constraints do lead to some predictions, and to a
large extent 50 years of events since his publication have tended to bear
those predictions out, despite that they refer to a closed economy, and

the

only truly closed economy nowadays is the entire world.

Until I get back from the UK in late November, I hope I can restrain

myself

from engaging in any discussion on this topic, and just maybe from further
comment on CSGnet. So far, such attempts at self-restraint have proved
rather futile :slight_smile:

That would be like Kenny trying to restrain himself from responding to
my blasphemies;-)

Best

Rick

···

--
Richard S. Marken PhD
rsmarken@gmail.com

[From Bruce Abbott (2008.10.22.7:30 EST)]

Rick Marken (2008.10.21.2145) --

I thought you'd find this quote from an article
(http://www.reuters.com/article/reutersComService4/idUSTRE49K6IY20081021?pag
eNumber=1&virtualBrandChannel=0&sp=true ) by Jack Kemp relevant:

"Unfortunately, fundamentals are not constant over time - changing with cost
structures, industry concentration, firm behavior and technology. As a
result not just actual prices but the range of feasible ones changes over
time. Crucially there are feedback loops from actual and forecast prices to
decisions about production and consumption, and therefore future prices."

"Forecasts therefore have to be dynamic and are sensitive to assumptions
about feedback and behavioral change."

Bruce

[Martin Taylor 2008.10.22.09.32]

[From Rick Marken (2008.10.21.2145)]
Martin Taylor (2008.10.21.23.17) --

Suffice it to say that (a) Bagno's economic theory says nothing about human
psychology, which makes Rick's comment irrelevant,

Not really. I could just change it to:
"How could that be? Since an economy is a collection of people then
how could Bagno's arguments be valid if it says nothing about how people
work?."

Try reading Bagno’s paper (or my own take on it from 1956, found at the
same URL ), and
find out. Do you need to know how people work in order to discover that
two negative feedback loops can combine to make one positive feedback
loop?
Information processing (even in its communication theory use) is an
important part of human behaviour, not a model of it. You mention
Garner, who was my own professor, and who asked me to be one of the
readers of his book “Uncertainty and Structure as Psychological
Concepts” before it was published. Gavin (Gavin Ritz
2008.10.22.19.53NZT) is wrong, too, when he says but this argument will have to await my return. He should note, though,
that communication theory is an application of information theory, not
its equivalent. And beyond that, Shannon’s argument is usually
misunderstood in its communication theory application.
You are so right :slight_smile:
But I’m not engaging in the argument, which would be much lengthier
than this.
Martin

···

http://www.mmtaylor.net/Economics/index.html


(b) information processing is not a model of human behaviour
Actually, it is. Google it: human information processing. Some of the
big names are Newell, Simon, Miller, Attneave, Garner, Neisser and
Norman.
"information theory (or communication theory)
Has nothing at all to do with psychology least of all PCT"
Until I get back from the UK in late November, I hope I can restrain myself
from engaging in any discussion on this topic, and just maybe from further
comment on CSGnet. So far, such attempts at self-restraint have proved
rather futile :-)
That would be like Kenny trying to restrain himself from responding to
my blasphemies;-)

[From Bill Powers (2008.10.22.0655 MDT)]

Martin Taylor 2008.10.21.23.17 --

As you no doubt could have predicted, an information-processing model
of the economy doesn't appeal to me, but if Bagno's model can
calculate significant quantities in the behavior of a system, it
should be able to do so for the kind of model I have in mind. So that
could be interesting -- or at least it might give you some reason to
be interested in the kind of model I have in mind. I don't know the
direction of Tracy's interests; perhaps he will be more amenable to
your approach than to mine.

My idea begins with modeling the transactions that take place between
human beings in an economy. For example, if a buyer buys something
from a seller, a quantity of goods (or some effect of performing a
service) moves from the seller's possession to the buyer's, and at
the same time, a quantity of money moves from the buyer's reserves to
the seller's. The seller's inventory of goods or available
service-time decreases, the buyer's increases. The seller's reserve
of buying power increases, the buyer's decreases. Whatever other
features of the economy one adds, they must always satisfy those
relationships, or whatever version of them we can agree exists.

Then we can ask where the buyer's money comes from. The two main
sources of the money in an individual's reserve are, I believe, wage
income and capital income. Whatever sources we put on the list, we
must account for the income, which will be an expense for some other
entity, coming out of that entity's money reserve. We must also ask
where the purchased goods and services go. The goods are used up or
depreciate at various rates, and the services perform some function.
Both goods and services have to be obtained at some rate, which means
that purchases have to be made at some rate, which means that income
must be received at some rate.

Wage income come from working to produce the goods and services that
are sold and bought. Capital income arises from financial
interactions I'm not prepared to deal with yet.

So a picture begins to form of a dynamic system, and it is only a
short step to adding the dynamo that drives it: human wants and
needs. Without those there is no economic system, because nobody will
buy anything, and nothing will need to be produced. In a PCT model of
the economy, the human agent is behind all that happens. There is no
need for an "invisible hand," because the hand is always perfectly
visible. It's yours and mine.

That's how I would go about building a model of the economy. First we
include all the simple obvious stuff; then we simply keep adding more
features as the need for them becomes obvious. Large parts of the
economy are of a very simple nature, and until we've dealt with them
satisfactorily there's no way to see what comes next. As each obvious
feature is added, more things become obvious. When relationships
multiply and loops within loops develop, we can't reason about them
in our heads or with words alone, but we have the techniques of
simulation to show us what the consequences will be.

I know that this plodding bottom-up approach isn't everyone's cup of
tea. But it's mine, and it does seem to lead, eventually, to workable
models and interesting places. I have no objection to other
approaches, but this is the way my brain works best, and the only way
I really understand.

Best,

Bill P.

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[Martin Taylor 2008.10.22.09.51]

[From Bill Powers (2008.10.22.0655 MDT)]

Martin Taylor 2008.10.21.23.17 --

As you no doubt could have predicted, an information-processing model of the economy doesn't appeal to me, but if Bagno's model can calculate significant quantities in the behavior of a system, it should be able to do so for the kind of model I have in mind. ...

My idea begins with modeling the transactions that take place between human beings in an economy. For example, if a buyer buys something from a seller, a quantity of goods (or some effect of performing a service) moves from the seller's possession to the buyer's, and at the same time, a quantity of money moves from the buyer's reserves to the seller's. The seller's inventory of goods or available service-time decreases, the buyer's increases. The seller's reserve of buying power increases, the buyer's decreases. Whatever other features of the economy one adds, they must always satisfy those relationships, or whatever version of them we can agree exists.

Your approach seems quite compatible with Bagno's, although his starting point is different. He starts with the notion that what we create is structure -- the organization of raw materials (or of ideas) -- and structure is what we pay for in the transaction you describe, even if it is only that raw materials have been separated from the rock in which they lay.

What he adds to your basic transaction account is that physical things deteriorate. The structure that is added to the raw materials by the manufacturing process (or the scientist's or philosopher's thought processes) gets lost over time, so they become less suited to their purpose for the buyer and thus would be worth less money to the buyer in the future. Similarly, the buyer and seller are both increasingly uncertain as to what money will buy as they imagine further into the future. The argument proceeds from there.

I can't do justice to his work and still be quick. Don't trust my skimming summary to be accurate. If you read it and find it uninteresting, fine. But as an engineer, I suspect you will not find it uninteresting.

Martin

[From Fred Nickols (2008.10.22.0804)]

Just for the heck of it I googled Bagno and Economics. Turned up a book he wrote titled "The Angel and the Wheat: Communication Theory and Economics," published in 1965. Six copies are available on www.abebooks.com.

···

--
Regards,

Fred Nickols
Managing Partner
Distance Consulting Company, LLC
nickols@att.net
www.nickols.us

"Assistance at A Distance"
  
-------------- Original message ----------------------
From: Martin Taylor <mmt-csg@MMTAYLOR.NET>

[Martin Taylor 2008.10.21.16.58]
> [from Tracy B. Harms (2008-10-21 11:33 Pacific)]
>
> As I have seen various and continuing disparagements of economics
> posted to this forum it has brought to mind how much I appreciate
> economics. I find economics a truly interesting field of study. No,
> that's not strong enough; in my view it's not merely interesting, it's
> inspiring.
>

Given your mathematical bent, you might be interested in a completely
different approach to economics, from an information-theoretic
viewpoint, by one Samuel Bagno in 1955. I used it in my bachelor's essay
the next year. I still think its arguments are valid. They explore the
bounds of economic possibility in a closed economy, and do seem to model
a lot that has happened in the last half-century since it ws written.
Look at <http://www.mmtaylor.net/Economics/index.html> for a facsimile I
uploaded with permission of the copyright holder. I tried to get a
friend who was a graduate student in economics to look at it seriously
in 1957, but he wasn't interested, as it was unrelated to the kind of
economics he was studying (and to any economic theory of which we hear
anything nowadays).

Two conclusions from Bagno's work: if inflation stays below some optimum
probably around 4%, look out for a declining economy, and government
deficits also should average around 4% of GDP in the long term if the
economy is to be stable (those 4% numbers are very approximate).

Martin

[From Bill Powers (2008.10.22.At 10:01 AM 10/22/2008 -0400, you wrote:

[Martin Taylor 2008.10.22.09.MDT)]

Your approach seems quite compatible with Bagno's ...

What he adds to your basic transaction account is that physical
things deteriorate. The structure that is added to the raw materials
by the manufacturing process (or the scientist's or philosopher's
thought processes) gets lost over time, so they become less suited
to their purpose for the buyer and thus would be worth less money to
the buyer in the future

This gets into the higher levels of the human controllers -- their
perceptions of the future and their subjective uncertainties. It also
introduces the financial superstructure built on top of the basic
processes. I will eventually get to that level, but first we have to
decide who the controllers are and what they are controlling.

Similarly, the buyer and seller are both increasingly uncertain as
to what money will buy as they imagine further into the future. The
argument proceeds from there.

The vast majority of people in the economic system hardly ever
imagine (in any systematic way) what money will buy in the far
future. Some, of course, do so professionally and in great detail,
but most people simply spend all that they get and try to save a
little Just In Case. Maybe that's where Keynes (and others) got the
idea that people want as much of any good as they can buy.

However, with a model one can give the elements any properties one
wishes and see what the consequences are.

In my model, things deteriorate and are used up, too (depreciation
and consumption).

Best,

Bill P.

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[from Tracy B. Harms (2008-10-22 11:09 Pacific)]

Bill

I agree that "first we have to decide who the controllers are and what
they are controlling" and am receptive to "this plodding bottom-up
approach" you sketch:

My idea begins with modeling the transactions that take place between human beings in an economy.
...
Without [human wants and needs] there is no economic system, because nobody will buy anything,
and nothing will need to be produced. In a PCT model of the economy, the human agent is behind all
that happens.

I'm taken aback by your next sentence, however:

There is no need for an "invisible hand," because the hand is always perfectly visible. It's yours and mine.

The label "invisible hand" denotes systematic large-scale effects that
result from small-scale, locally-oriented accomplishment. Adam Smith
was saying that people, managing their own productive affairs the best
they can (with their only reference for improvement being personal
gain), contribute unintentionally toward the broad economic well-being
of their community. I agree that the human agency behind this pattern
is apparent, but I think it deserves to be stressed that insofar as it
is apparent it is because of advances in distributed-system science,
for which Adam Smith was an important early contributor.

Bah; I'm out of time already. All I can mention is that the economics
I find most compelling keeps a relatively close connection to the
actions of individuals. This is in contrast with economics that
favors "macroeconomic" modeling. Your inclinations fit the
microeconomic emphasis I favor.

Tracy

[From Bill Powers (2008.10.22.1251 MDT)]

Tracy B. Harms (2008-10-22 11:09 Pacific)]--

I'm taken aback by your next sentence, however:

> There is no need for an "invisible hand," because the hand is
always perfectly visible. It's yours and mine.

The label "invisible hand" denotes systematic large-scale effects that
result from small-scale, locally-oriented accomplishment. Adam Smith
was saying that people, managing their own productive affairs the best
they can (with their only reference for improvement being personal
gain), contribute unintentionally toward the broad economic well-being
of their community. I agree that the human agency behind this pattern
is apparent, but I think it deserves to be stressed that insofar as it
is apparent it is because of advances in distributed-system science,
for which Adam Smith was an important early contributor.

Here's an example of what I mean. In my first try at an economics
model (version 5 or so) I gave some of the individual actors specific
goals. The consumers wanted a specific level of goods on hand and a
specific amount of money in reserve. The producers wanted inventories
to remain constant at some level (as well as a stable amount of cash
reserve), since an increasing inventory meant unsold goods and a
decreasing inventory meant producing more than was being sold. The
means of controlling inventory that I gave the managers was to alter prices.

That alone created a "law of supply and demand," because prices were
adjusted until the wages being paid to the workers and the dividends
being paid to investors and owners were just enough for those
consumers to purchase all the goods being made. The controlled
variable, however, was not supply or demand, or selling all the goods
being made, but simply a constant inventory level. The effect of
controlling for that reference condition was to create an apparent
law of supply and demand.

I didn't try to bring in wage negotiations or capital expenses or any
of the other factors that influence the system. Just plodding along.
But some interesting properties emerged from the model, which is how
I think most of the principles of economics should emerge. If there
are "systematic large-scale effects," they are created from even more
systematic small-scale effects. Just as in the crowd program, the
large patterns result from the interactions of simple individual
control systems.

By the way, I don't think that individuals "managing their own
productive affairs the best they can (with their only reference for
improvement being personal gain)", make particularly good teachers or
parents or public officials or stockbrokers. Unless, of course, their
personal reference levels stem from the knowledge that the best way
to improve your own position in society is to make sure that
everybody's position is improved.

However, we don't need to argue about such things, because we can
give the individuals in the model any characteristics we want (and
can program), and see what the effect is. If the model operates on
the basis of the assumptions you put into it, you can hardly argue
with what it does.

Best,

Bill P.

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