Evangelical Control Theory

CSGnet Archive CSG2004
21

[From Rick Marken (2004.05.20.0830)]

Bill Powers (92004.05.20.0711 MST)

Rick Marken (2004.05.19.2130) --

This is how TCP's model worked as well. He assumed that P would change
to make up for leakage. This was his autoinflation.

Are you sure that's the same? TCP said that if there is leakage, the price
P will increase; your model of the GNP controller says that if there is
leakage, the quantity of goods Q will increase.

It may have been a silly thing to do, but my model is nothing more than an
attempt to implement TCP's closed loop description of the economy using
control agents that make the things happen that TCP describes analytically.
For example, my model includes an agent -- the composite manager -- that
raises prices when leakage reduces income to the composite producer. So in
my model, as in TCP's, leakage leads to an increase in P (autoinflation) and
a decrease in Q relative what could have been produced if there were no
leakage. This result is shown in Table 1. In TCP's analysis, there is no
explanation of _why_ autoinflation occurs; in my implementation the "why" of
autoinflation is explained by the existence of an agent that actively
adjusts prices in order to keep income equal to expenditure.

Price can be freely
manipulated, but production of goods costs money and can't simply be
increased without increasing costs. Since your model doesn't keep track of
costs it allows quantity of production to be raised as freely as prices,
but is that realistic?

If production is increased the cost of that production (PQ') is
automatically increased and must be paid for by the composite producer. The
composite manager is controlling for keeping the composite producer's income
matching production expenses. So the model does keep track of production
costs. It cannot raise production of Q freely because the composite manager
is there making sure that what is spent for production doesn't exceed what
is taken in as income. Indeed, it is this constraint that leads the
composite producer/controller to _reduce_ production of Q when there is
leakage, since neither Q nor P can be raised freely.

But it doesn't contain any relationship saying that the quantity of goods
produced depends on the prevailing wage, the number of workers willing to
work at that wage, and the productivity of the workers.

True. I should put these in explicitly. Right now they are as invisible as
the market forces that determine the costs of goods and labor. They are not
in there, however, because they were not part of TCP's circular flow model
(Figure 1) that I was implementing using control agents.

But that money has to be repaid -- it's not just printed and given away.
And the borrower must repay not only the principal, but a little more, the
interest. Where in your model, or in TCP's analysis, is the provision for
repaying the money that providentially shows up, not to mention the interest?

If it wasn't in TCP's analysis it isn't in my model. Again, my model (for
better or worse) is simply an implementation, using control agents, of TCP's
analysis.

I don't know how your model handles this, but TCP's analysis simply added
whatever amount of money was lost by leakage, from an unnamed source.

My model does the same.

Since
this money didn't cost anyone anything, its effect should simply have been
to cancel the effect of leakage, restoring the circular flow to exactly the
level that would have existed if there had been no leakage. He asserted
that the producer raised the price to make up for leakage, thus causing
autoinflation

Right. And that's exactly what my model does, because it's an implementation
of his analysis.

the modeling helped me understand that the effect of leakage on growth rate
was assumed rather than derived.

As is the failure of leakage to affect growth rate in your model.

Exactly. My model is an implementation of TCP's analysis.

It is simply not realistic to use Q' as an
independent means of counteracting changes in price or leakage, the way you
have done in your model.

OK. But this is simply the way TCP's analysis worked. But I think it is
realistic. When there is leakage, production of Q is reduced as a means of
making up for lack of income. This would account for the observed fact that
the amount of goods and services that _could_ be produced by an economy is
almost always greater than the amount that is actually produced.

My highest-level objection to your model is that I simply don't believe
that there is any GNP-controlling entity.

I think of the GNP controller as a _virtual_ controller. There is no entity
controlling GNP. The GNP controller represents a large group of individuals,
each controlling for getting their reference amount of goods and services
measured (perceived) in terms of current dollars. But I'm not married to
this idea. I like your suggestion of having consumers that control Q and PQ
separately. Changing the H. economicus model in this way would be striking
out on my own, in a sense, since the model was originally developed simply
as an implementation of TCP's circular flow analysis using control agents. I
will get to it as soon as possible.

Best regards

Rick

PS. I saw the bumps/dents display only as bumps. And I went back and forth
on the shading quite a bit.

···

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

22

From[Bill Williams 19 May 2004 10:00 PM CST]

[From Bill Powers (2004.05.19.1708 MST)]

Rick Marken (2004.05.19.1020)--

Bill Powers makes a number of comments, most of which I think that I would
agree with other than the assumption that there is anything that corresponds
to his dad's notion of leakages. And, he makes a methodological proposal
that, it would be preferable to aproach economic analysis from the
standpoint that begins of bare ground. In which no _a priori_ assumtions
are either made or allowed. At least this is the way that I would read his
argument that it would be preferable to begin with a first principles type
exercise in which nothing is taken on faith.

Or as he says,

. The latter would be preferable,

in that it doesn't depend on anyone's reputation or beliefs, and can be
recreated from first principles. With that kind of model, its correctness
doesn't depend on who thought it up.

I have no objection to such an approach. It is, in my own understanding, of
the way that I have considered economics all along. If there is an
imputation that I think that who thinks something up has anything
necessarily to do with whether or not it is correct or not it is mistaken.

However, there is nothing in such an approach that necessarily requires that
one refer to this or that economist as an asshole or a tax cheat. Not that
this or that economists might or might not be more or less aptly
characterized as an asshole or a tax cheat. However, if such a
characterization is made carelessly, and in ignorance, then the accusation
may have some very unfortunate consequences. And, whatever one might say
about the economics profession as a whole, there have been a small number
who have carried on a very up hill struggle against a ferocious orthodoxy.
Not that the work of these heterodox economists is free from deficiency.
Not at all. However, an approach that lumps the whole of the profession
into one benighted, malicious, elitist conspiracy involves some rather
obvious difficulties. One of which is the difficulty of imposing upon ones
self the task recreating from scratch, in intellectual isolation the whole
history of the effort to understand how the economy functions.

As I have repeated said, modeling the economy from the standpoint of a first
principles approach has the potentiality of creating, or at least clarifying
an understanding of how the economy functions. However, there is nothing in
such an aspiration that requires the use of terms such as asshole, or
accusations about tax cheats. Nor, does such an approach necessarily
require discarding, or ignoring every understanding that has been ever
achieved regarding how the economy functions.

Nor is there any justification for Bill Powers to claim that I have never
made any contribution to efforts to apply control theory to problems
involving human behavior or at least economic behavior. But, I've known
Bill Powers now for quite some time and I recognize that when he gets caught
up in an argument he sometimes says things that he knows are not true. I
still find this an incontinent trait, but it doesn't really bother me that
much anymore. It is more or less like the weather, in winter there is snow
and sleet, and in summer it is hot and muggy. I could do without getting
caught up in the ghost dance that Bill Powers carries on with in his
struggle with his memory of his dad. I would really rather that this
struggle would go away. But, I don't expect that it will. And, by a
practical application of control theory I have found that I can cope with
the problems that Bill Powers struggle of love and hate with his dad and the
way all this gets wrapped up in his struggle with economics without myself
becoming all that emotionally entrained in this struggle that has
comparatively very little to do with me. Control theory, can indeed be used
in very practical ways to cope with such disturbances. It doesn't work
perfectly-- not at least when I am the one applying it, but it does work
pretty well. I make mistakes myself, as when I recently thought Ray Bennett
was attributing the disruption and unproductive character of recent
discussions on the CSGnet exclusively to me.

But, Bill Powers has a point. Who thinks something up doesn't have anything
to do with whether the idea is correct or not. However, Bill may not have
kept this principle in mind when he began to think about economics. From my
standpoint, it has been Bill's assumption that his dad had it right ( see
the tape from Boston where Bill is defending his dad's work ) that has
prevented him from understanding the Keynesian system.

From my point of view, if I am to participate on the CSGnet I have a choice.

When Bill Powers makes a completely absurd charge that Keynes chapter in the
General Theory is an intellectual dodge to justify a tax cheat scheme, I
can ignore it. In which case it may appear that I am complicit in the sense
that silence implies consent. Or, I can oppose such an attack. For
whatever reasons, good, bad or somewhat indifferent, I have chosen to oppose
Bill Powers when he has made these attacks upon Keynes. Since I am not
myself a Keynesian, I don't actually have that much emotional involvement.
It is more a matter of my irritation as a result of being confronted by, as
Bill Powers might phrase it, such "shocking stupidity." It really is in
quite a stark contrast to the quality of the work that Bill usually does.

Bill Williams

23

From[Bill Williams 19 May 2004 12:10 PM CST]

Evangelical Control Theory

[From Rick Marken (2004.05.19.2100)]

> Bill Williams (19 May 2004 7:20 PM CST)

>> Me:

>> I think this because, like all other
>> behavioral scientists, they never talk about possible _controlled
>> variables_.

> You say "like all other
> behavioral scientists, they never talk about possible _controled
> variables_." However, I had a professor who discussed at length the
> question of the conrol of behavior in what he called difficult
> circumstances. He was for this reason a critic of behaviorism.

Controlled variables are controlled _by_ behavior (actions). Your
professor was not talking about controlled variables as we understand
them in PCT. I believe that you will not be able to find an economist
who talks about _controlled variables_. But if you do, let me know.

You are into your magical mind reading again. How could you possiblty known
what my professor was talking about.

> OK. Here is a suspecific criticism. There is no possiblity of a
> leakage of
> the sort that Bill Powers' dad supposed was happening in the macro, or
> aggreegate economy. In the macro context income equals expenditure.

If that's true then all it means is that there is no leakage in the
model. To make the model consistent with reality all that is needed is
to set the leakage term to zero. The model simply says that leakage
_could be_ non-zero. But I don't really see why you say there is no
possibility of leakage.

I know that-- that being that you don't see it.

If everyone stuffed a portion of their income

into a mattress and left it there, this money would not be used for
expenditure.

But, this is precisely what people do all the time. They hold onto their
money all of the time. There is never a time when people aren't holding onto
their money.

So aggregate income would be greater than aggregate

expenditure.

CAn not happen. You aren't paying attention to what takes place in a
transaction.

Thus may not happen in reality but it is a _possibility_.

Again, it is not a possiblity because of the nature of a transaction. Don't
start from some off hand notion of what appears to you be the case. Start
from a conception of a transaction. tHen it should be clear that the idea of
leakages is confused.

> this
> must have been what I noticed in you paper-- that the explaination
> depended
> upon a difference between sales and purchases or income and
> expenditure.

Sales and purchases must indeed match. If $x of goods and services is
sold then $x was used to purchase it. I think you wrote this out as S
= P, where S is the amount sold (in $) and P is the amount spent to
purchase what was sold (also in $). These is no question that S = P and
it does so in my model. If PQ goods and services are sold then PQ
dollars goes from the purchaser to the seller.

The situation is not the same with income and expenditure. Aggregate
income can be more or less than aggregate expenditure because the
aggregate consumer need not expend all its income.

Sorry. You are thinking about the consumer in a micro sense. This is why I
keep telling you that you don't understand the meaning of an aggreegate
economic analysis.

The consumer can put

some income in a mattress, for example.

> Why don't you consider my explaination why leakages are always zero ?

I have considered it and rejected it for the reasons given above and
below.

These aren't really reaasons.

Here is your explanation of why leakages are always zero:

> If you start from first principles and a definition of a transaction
> between two parties, then it should be apparent that sales are equal to
> purchases. Add up sales and add up purchases and you get total sales
> equal
> to total purchases. This rules out explalinations of aggreegate
> econmic
> phenomena by the process that Bill Powers' dad thought was opperative.

First, you don't even have to do an aggregate analysis to see that
sales must equal purchases. A sale _is_ a purchase from the
perspective of the buyer.

And, the seller too.

A purchase _is_ a sale from the perspective

of the seller. If I sell something for S dollars, then the purchaser
has spent P dollars on it and S = P. The goods and services available
for purchase in any time interval, GNP, have not yet been sold. The
income consumers have received in the same time period to make these
purchases, I, has not yet been used for purchasing.

Assume that aggregate income, I, equals the dollar value of the goods
and services available for purchase, GNP. So I = GNP. It is perfectly
possible to use less that all of I to purchase the goods and services
that are for sale.

You are approaching this in a sequential way, and thus getting things
confused.

So the I that is used to purchase GNP can be less

than GNP, in which case all of GNP is not purchased.

No, this is an impoosiblity.

The goods and

services that are not purchased are called inventory. For the goods and
services that are purchased, S = P holds, with S = I - k (k being
unspent income) and P being the portion of GNP that is purchased, so P
= S = I - k. The constant k is, of course, leakage.

No. this is all fouled up.

It's certainly

possible for k to be 0, but it is certainly not necessary.

This is a good example of why you don't understand Keynes.

Try out Bruun with this argument.

Bill Williams

24

From[ Bill Williams 19 May 2004 12:19 PM CST]

[From Rick Marken (2004.05.19.2130)]

I don't know what you mean by bookkeeping.

And, Well I know it.

Bill Williams

25

From[Bill Williams 19 May 2004 12:40 PM CST]

[From Rick Marken (2004.05.20.0830)]

> Bill Powers (92004.05.20.0711 MST)

>>Rick Marken (2004.05.19.2130) --

TCP's analysis simply added

> whatever amount of money was lost by leakage, from an unnamed source.

How wonderful !!!!!

Billl Williams

26

[From Rick Marken (2004.05.20.1140)]

Bill Williams (19 May 2004 12:10 PM CST) --

Sales and purchases must indeed match. If $x of goods and services is
sold then $x was used to purchase it. I think you wrote this out as S
= P, where S is the amount sold (in $) and P is the amount spent to
purchase what was sold (also in $). These is no question that S = P and
it does so in my model. If PQ goods and services are sold then PQ
dollars goes from the purchaser to the seller.

The situation is not the same with income and expenditure. Aggregate
income can be more or less than aggregate expenditure because the
aggregate consumer need not expend all its income.

Sorry. You are thinking about the consumer in a micro sense. This is why I
keep telling you that you don't understand the meaning of an aggreegate
economic analysis.

Sorry. This does not explain what is wrong with the idea that income can
exceed expenditure, at both the individual and aggregate level. If you want
someone to understand why income and expenditure must be equal then you
should explain why that is the case. Just continuously telling a person that
they don't understand something doesn't help the person understand it.

Assume that aggregate income, I, equals the dollar value of the goods
and services available for purchase, GNP. So I = GNP. It is perfectly
possible to use less that all of I to purchase the goods and services
that are for sale.

You are approaching this in a sequential way, and thus getting things
confused.

If you don't explain what is "confused" about this then how can I possibly
see that it _is_ confused.

So the I that is used to purchase GNP can be less
than GNP, in which case all of GNP is not purchased.

No, this is an impoosiblity.

It may be an impoosiblity but it is certainly not an impossibility. Say that
an economy consists of 100 people and one product, widgets. The 100 people
are paid $10 per person to produce 1000 widgets per week. So aggregate
weekly income (which in this example is equivalent to GNP since GNP is a
measure of the cost of producing goods and services in a particular time
period) is $1000. Say that the widgets are sold for 1$ a piece and that each
person buys just 9 widgets each. So aggregate expenditure is $900. So I =
$1000 and E = $900. So aggregate income is greater than aggregate
expenditure. Moreover, individual income ($10) is greater than individual
expenditure ($9). This all happens, by the way, with the dollar value of the
widgets sold (S = $900) equal to the dollar value of the widgets purchased
(P= $900). So S = P while I > E.

The goods and
services that are not purchased are called inventory. For the goods and
services that are purchased, S = P holds, with S = I - k (k being
unspent income) and P being the portion of GNP that is purchased, so P
= S = I - k. The constant k is, of course, leakage.

No. this is all fouled up.

Again, this would be more convincing (and informative) if you explained the
foul up.

Regards

Rick

···

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

27

[From Bill Powers (2004.05.20.1412 MST)]

Bill Williams 19 May 2004 10:00 PM CST--

However, there is nothing in such an approach that necessarily requires that
one refer to this or that economist as an asshole or a tax cheat.

I have done neither. I have never, to my present recollection, called any
economist an asshole (though I did, correctly I believe, refer to Mises as
an old fascist), and I never accused anyone of being a tax cheat. I did say
that Keynes'definition of user costs sounded like an attempt to reduce
income for tax purposes, which is a perfectly common practice and is not
considered cheating. In my opinion it's an imaginary expense, I trust you
are not castigating me for having an opinion.

... whatever one might say about the economics profession as a whole,
there have been a small number who have carried on a very up hill struggle
against a ferocious orthodoxy.

Revolutionaries also tend to be ferocious; if you're not for them, you're
against them. This makes it difficult to offer alternative ideas to
revolutionaries even when the ideas are just as opposed to orthodoxy.

Not that the work of these heterodox economists is free from deficiency.
Not at all. However, an approach that lumps the whole of the profession
into one benighted, malicious, elitist conspiracy involves some rather
obvious difficulties.

Let's not blow a few rather restrained criticisms up into a different
malicious elitist conspiracy.

  One of which is the difficulty of imposing upon ones
self the task recreating from scratch, in intellectual isolation the whole
history of the effort to understand how the economy functions.

I wouldn't say that I have lived in intellectual isolation. My reading has
been limited and present access to libraries is also limited, so in a
practical sense recreating a system from scratch is probably the best thing
I can do. Anyway, it's not necessary to reconstruct the whole history of
the economics effort: all that's necessary is to get the model right. If
the right variables are included in the model, terminology can always be
adjusted to fit what has gone before.

As I have repeated said, modeling the economy from the standpoint of a first
principles approach has the potentiality of creating, or at least clarifying
an understanding of how the economy functions. However, there is nothing in
such an aspiration that requires the use of terms such as asshole, or
accusations about tax cheats.

Correct. But isn't it almost time to get over that misinterpretation?

  Nor, does such an approach necessarily require discarding, or ignoring
every understanding that has been ever achieved regarding how the economy
functions.

That's different. Actually, what could be a stronger validation of previous
understandings than to have the same ideas developed from scratch without
reference to the previous work? I much prefer to work from scratch when
that is possible, although some degree of borrowing is inevitable no matter
what theory is under examination.

Even the most radical revolutionaries develop their own jargon, their own
conventions about how to represent the system, their own set of ideas that
are taken as unquestionable, and their own sets of heroes. This always
means that there is a protected set of assumptions which nobody examines,
either because they are agreed to be self-evident, or because they were
first said by someone who is agreed to be above criticism. Working from
scratch to the extent that is actually possible, one is at least not
subject to those influences.

Nor is there any justification for Bill Powers to claim that I have never
made any contribution to efforts to apply control theory to problems
involving human behavior or at least economic behavior.

I would be astonished to discover that I had ever said any such thing. The
problem is that you suffer from a severe case of insult inflation, as if
you were intolerant of any degree of criticism whatsoever, but felt it
necessary to make the criticism seem to others heinous enough to warrant a
full-fledged counterattack.

But, I've known Bill Powers now for quite some time and I recognize that
when he gets caught up in an argument he sometimes says things that he
knows are not true.

No, Bill, you say I said things that I know are not true, which is quite
different from what I actually said. You used this technique in reporting
to the world that Rick Marken proposed that we put child molesters in
charge of law enforcement. If Rick denied, correctly, that he ever said
such a thing, you would accuse him of having said things he knows are not
true and of now trying to wiggle out of it. What you accuse me of saying
and knowing is not true is not what I said, in fact. What you said I said
is not true, but I never said it. You are very poor at accurate quotation
of what people say.

I still find this an incontinent trait, but it doesn't really bother me that
much anymore.

It's amazing how much time you devote to criticizing me for something that
doesn't bother you.

And, by a practical application of control theory I have found that I
can cope with the problems that Bill Powers struggle of love and hate with
his dad ...

This amateur psychologizing may make you feel better but it has little to
do with me. From remarks you have dropped I can't help wondering how much
all this has to do with _your_ father.

From my standpoint, it has been Bill's assumption that his dad had it
right ( see the tape from Boston where Bill is defending his dad's work )
that has
prevented him from understanding the Keynesian system.

You seem to assume that if I object to a misinterpretation or a
misrepresentation of what my father said, I support what he actually said.
It doesn't seem to be part of your world view to insist that a person be
treated fairly even if you don't agree with him, or that if you criticize a
person, it should be for what he did or said instead of something he never
did and never said.. For me those are separate matters -- whether TCP said
what you report him as saying (not having read his book), and whether what
he did say is acceptable. I think you grossly misrepresent him, yet in many
of the same matters I simply don't agree with his approach or his opinions.
I can therefore say you are wrong about him, without turning myself into a
supporter of his actual ideas.

There are some things in his book that I find reasonable, and others I do
not. On the whole I don't think he took us a very long way toward a
workable theory of economics, but he did do a few laudable things, such as
pay attention to data rather than arguing from abstract principles.

From my point of view, if I am to participate on the CSGnet I have a choice.
When Bill Powers makes a completely absurd charge that Keynes chapter in the
General Theory is an intellectual dodge to justify a tax cheat scheme, I
can ignore it.

No you can't. The evidence is that you keep returning to probe this sore
tooth and have been totally unsuccessful at ignoring it. I disapprove of
accounting methods that rely on things that didn't happen, and suspect that
they may have been invented to reduce tax liabilities, but since this is
done all the time it can hardly be called tax cheating -- especially if the
IRS or the Inland Revenue allow it. Your exaggeration reveals your opinion
of it, not mine. I see no place for things that did not happen in a model
of what does happen, so whether I approve of it as a social matter is
irrelevant; it is of no use for modeling (except, as I have said
repeatedly, as an aspect of a psychological model of the entrepreneur)..

It is more a matter of my irritation as a result of being confronted by, as
Bill Powers might phrase it, such "shocking stupidity." It really is in
quite a stark contrast to the quality of the work that Bill usually does.

I have a vague recollection of the phrase "shocking stupidity," but doubt
very strongly that you are presenting it in context. Is this something like
your interpretation of Rick's "bitch" comment about Michelle, which he did
not actually make? (He said, "If I were to call Michelle ..." whatever it
was, a sentence construction that seems to be over your head.)

Sorry, I'm getting a bit resentful here, and had better drop this.

Bill P.

28

From{Bill Williams 20 May 2004 7:30 PM CST]

[From Bill Powers (2004.05.20.1412 MST)]

Bill Williams 19 May 2004 10:00 PM CST--

You say,

Sorry, I'm getting a bit resentful here, and had better drop this.

I am sorry too. On reflection I could have chosen to reply to your recent
post in a different manner. Perhaps I should have. However, rather than
just as you say, "dropping this" meaning as I understand it the unfortunate
side of our dispute, perhaps we could come to something of an understanding
that might make both of our lives more productive?

Without asking you to change your opinion regarding Keynes, would it be
possible for you in the future to avoid make derogatory remarks concerning
Keynes?

I don't hold much of any hope that you are going to see the point of the
Keynes ian system. I expect that when you actually do the modeling the
result will be consistent with Keynes' position. However, outside the
context of continuing our dispute, I don't see that there is anything to be
gained by my pestering you about this issue.

On the other side, I would just as soon not listen to more reflections
concerning your dad's achievements and the Leakages thesis. I suppose I can
put up with it, tiresome as I find it, but as long as you don't use your
dad's preconceptions as a staging area for an attack upon Keynes, I don't
regard this as such a critical issue.

My postings have not been fueled by as you seem to think, or at least said,
malice. Rather as I perceive it, I have managed to perceive the issues
involved with a measure of detachment. Not, of course that I am completely
dis-interested, or I wouldn't be posting to the CSGnet. However, it is
possible to generate a volume of trash-talk without actually being all that
emotionally caught up in what is being posted. And, once you become engaged
in this the exercise can be a lot of fun.

However, I have comparatively very little interest in continuing an argument
about issues concerning which we are unlikely to come to an agreement. It
isn't at all that I feel any reason to retract what I have said. And, I
genuinely have difficulty understanding how it is possible for you to say
that you genuinely believe some of the things that you have said. If it
seems necessary I am prepared to go on with the dispute in the belief that
the arguments that I have presented are valid arguments and that what I have
said happens to be true, or at least truer than what you have said.

However, perhaps by now I have long since made my point. I could have
chosen to make my point the way in the way that Bruce Nevin, or Martin
Taylor typically approach a discussion that is on the verge of becoming a
dispute with a positive feedback loop

Perhaps sometime in the future I might adopt their approach. There is, I
think a lot to recommend it However, for now and between the two of us, I
am gong to stick to a policy of -- Don't touch Keynes.

And, I won't push Keynes.

I think we have collaborated in demonstrating that there isn't much, in a
net sense, to be gained-- either by you attacking Keynes, or in my pushing
his conception.

The modeling will prove what it is going to prove.

Bill Williams

regret anything I said, but perhaps now was a bad time to have said stuff
about a conflict about which I have my doubts that we will ever come to
any substantial agreement.

29

[From Bill Powers (2004.05.20.2045 MST)]

Bill Williams (2004.05.20) --

I think we have collaborated in demonstrating that there isn't much, in a
net sense, to be gained-- either by you attacking Keynes, or in my pushing
his conception.

The modeling will prove what it is going to prove

That sounds like a way to get somewhere.

Best,

Bill P.

30

[Martin Taylor 2004.05.20.23.15]

I hope you don't mind me horning in on an apparently private
discussion, but I think I can see why each of Rick and Bill can't see
the other's point.

[From Rick Marken (2004.05.20.1140)]

> Bill Williams (19 May 2004 12:10 PM CST) --

So the I that is used to purchase GNP can be less
than GNP, in which case all of GNP is not purchased.

No, this is an impoosiblity.

It may be an impoosiblity but it is certainly not an impossibility. Say that
an economy consists of 100 people and one product, widgets. The 100 people
are paid $10 per person to produce 1000 widgets per week. So aggregate
weekly income (which in this example is equivalent to GNP since GNP is a
measure of the cost of producing goods and services in a particular time
period) is $1000. Say that the widgets are sold for 1$ a piece and that each
person buys just 9 widgets each. So aggregate expenditure is $900. So I =
$1000 and E = $900. So aggregate income is greater than aggregate
expenditure. Moreover, individual income ($10) is greater than individual
expenditure ($9). This all happens, by the way, with the dollar value of the
widgets sold (S = $900) equal to the dollar value of the widgets purchased
(P= $900). So S = P while I > E.

Rick, this works only if you separate the economy into two
components. If it's all one monolithic block, you have to add in the
$1000 of expenditure by the guy who paid the workers and the $900 of
income by the guy (presumably the same) who sold the widgets. Then
the aggreegate expenditure becomes $1900, and the aggregate income
becomes $1900. Or am I missing something in your example.

Bill, As we discussed some months ago, don't you necessarily have to
partition the economy before you can say ANYTHING about flows? If you
just have one box in your boxes and arrows diagram, you can have all
sorts of arrows looping out of and into it, but they don't actually
do anything, so you might just as well have the one box. To say
anything productive, you've got to have two boxes. Rick's talking
about one of them, with an arrow that leads in and a _different_
arrow that leads out.

Sorry to intrude. I hope this helps somehow.

Martin

31

From[Bill Williams 20 May 2004 9:00 PM CST]

[From Rick Marken (2004.05.20.1140)]

> Bill Williams (19 May 2004 12:10 PM CST) --

> Sorry. You are thinking about the consumer in a micro sense. This is

why I

> keep telling you that you don't understand the meaning of an aggreegate
> economic analysis.

Sorry. This does not explain what is wrong with the idea that income can
exceed expenditure, at both the individual and aggregate level.

Sorry, I should have said, "Defined according to the way the National Income
accounts are set up, Income is the same thing as expenditure. It isn't up
to
me, this is the way the data is collected. Sales are equal to purchases and
income is equal to expenditure.

If you want
someone to understand why income and expenditure must be equal then you
should explain why that is the case.

I am not sure that I have much of an interest whether you understand this or
not..
By the time I see students they all, more or less seem to understand this,
somehow
they acquire an understanding.

Just continuously telling a person that
they don't understand something doesn't help the person understand it.

No, it evidently doesn't. But, it may inform them.

>> Assume that aggregate income, I, equals the dollar value of the goods
>> and services available for purchase, GNP. So I = GNP. It is perfectly
>> possible to use less that all of I to purchase the goods and services
>> that are for sale.

No, it is not. You are, again, not thinking in agreegate terms.

>
> You are approaching this in a sequential way, and thus getting things
> confused.

If you don't explain what is "confused" about this then how can I possibly
see that it _is_ confused.

Lots of people have acquired an understanding of this stuff without my
intervetntion. Sometimes when a student doesn't understand, it is not
the teacher's fault. I think you are a bad student. You would rather
argue
with me than put forth the effort to learn economic theory.

>> So the I that is used to purchase GNP can be less
>> than GNP, in which case all of GNP is not purchased.
>
> No, this is an impoosiblity.

It may be an impoosiblity but it is certainly not an impossibility.

You and Bill Powers are so easy. When I ran the spell checker it,
of course, tagged "impoosiblity" but I liked how it sounded so I
left it as "impoosiblity."

Say that

an economy consists of 100 people and one product, widgets. The 100 people
are paid $10 per person to produce 1000 widgets per week. So aggregate
weekly income (which in this example is equivalent to GNP since GNP is a
measure of the cost of producing goods and services in a particular time
period) is $1000. Say that the widgets are sold for 1$ a piece and that

each

person buys just 9 widgets each. So aggregate expenditure is $900. So I =
$1000 and E = $900. So aggregate income is greater than aggregate
expenditure.

Not so. You are again using a sequential, micro context for you argument.
You really should try and stufy this stuff rather than argue with me.

Moreover, individual income ($10) is greater than individual

expenditure ($9). This all happens, by the way, with the dollar value of

the

widgets sold (S = $900) equal to the dollar value of the widgets purchased
(P= $900). So S = P while I > E.

>> The goods and
>> services that are not purchased are called inventory. For the goods and
>> services that are purchased, S = P holds, with S = I - k (k being
>> unspent income) and P being the portion of GNP that is purchased, so P
>> = S = I - k. The constant k is, of course, leakage.
>
> No. this is all fouled up.

Again, this would be more convincing (and informative) if you explained

the

foul up.

You have this backward. It is not up to me to be convincing. You are
putting your
self in the position of judging a system a thought which you don't
understand.
I don't have any obligation to teach you how the system works. For that
matter
I don't have any obligation to pay any attention to what you are attempting
to
do.

So, just knock it off.

I told you quite some time ago that I have no interest in your attempt to do
economic modeling. If you want to do economic modeling I suggest that you
take coursework in economics. If the coursework doesn't work, then I would
suggest to stop trying to do economic model. However, I would suggest now
that for whatever reason, you do not appear to have an aptitude for
economics.

You obviously aren't learning anything from me and I am of the opinion that
further discussion would be a waste of both our times.

Bill Williams

32

From[Bill Williams 20 May 2004 10:40 PM CST]

[Martin Taylor 2004.05.20.23.15]

I hope you don't mind me horning in on an apparently
private discussion,

Since the discussion is being conducted on the CSGnet it is in a sense in a
free fire zone.

but I think I can see why each of Rick and Bill can't see

the other's point.

I think I see Rick's point, the difficulty arises when Rick thinks that his
is a Macro or aggreegate arguement-- which it isn't.

>[From Rick Marken (2004.05.20.1140)]
>
> > Bill Williams (19 May 2004 12:10 PM CST) --
>
>>> So the I that is used to purchase GNP can be less
>>> than GNP, in which case all of GNP is not purchased.
>>
>> No, this is an impoosiblity.
>
>It may be an impoosiblity but it is certainly not an impossibility. Say

that

>an economy consists of 100 people and one product, widgets. The 100

people

>are paid $10 per person to produce 1000 widgets per week. So aggregate
>weekly income (which in this example is equivalent to GNP since GNP is a
>measure of the cost of producing goods and services in a particular time
>period) is $1000. Say that the widgets are sold for 1$ a piece and that

each

>person buys just 9 widgets each. So aggregate expenditure is $900. So I =
>$1000 and E = $900. So aggregate income is greater than aggregate
>expenditure. Moreover, individual income ($10) is greater than individual
>expenditure ($9). This all happens, by the way, with the dollar value of

the

>widgets sold (S = $900) equal to the dollar value of the widgets

purchased

>(P= $900). So S = P while I > E.

Rick, this works only if you separate the economy into two
components. If it's all one monolithic block, you have to add in the
$1000 of expenditure by the guy who paid the workers and the $900 of
income by the guy (presumably the same) who sold the widgets. Then
the aggreegate expenditure becomes $1900, and the aggregate income
becomes $1900. Or am I missing something in your example.

Bill, As we discussed some months ago, don't you necessarily have to
partition the economy before you can say ANYTHING about flows?

They aren't really as you say "flows." No flow ever moves with an infinite
velocity-- which the transaction in effect does.

If you

just have one box in your boxes and arrows diagram, you can have all
sorts of arrows looping out of and into it, but they don't actually
do anything,

Not in a physical sense. And, this is where the misconceptions may start.
On the balance sheet, however, they do actually count for something.

so you might just as well have the one box.

That is the meaning of the term aggreegate, it is all in as you say one box.
The Bruun has a diagram in it somewhere that makes this point.

To say
anything productive, you've got to have two boxes.

Then you would have a two sector, rather than an aggreegate analysis.

Rick's talking

about one of them, with an arrow that leads in and a _different_
arrow that leads out.

Yes, I think that this is what Rick is doing. Rick is talking about two
boxes, and this seems to be how he can get a difference between income and
expenditure.

Sorry to intrude. I hope this helps somehow.

There is a sense in which it does help. However, an aggregate analysis ( a
balance sheet for one box ) does have its uses. When a bank creates money
the money circulates in one big box. There isn't anywhere else for it to go.
. Now, you can do an aggregate analysis using as many sectors as you wish,
as long as you maintain the aggregate equations-- that is total sales are
equal to total purchases, or income is equal to expenditure. But, that
would require first understanding of the aggregate relationships-- which
Rick doesn't get.

So, it isn't that Rick and I are like the blind men and the elephant.
Rather I am sighted and know that while to a blind man an elephant feels
like four tree, and a big and a small snake. I know by sight that it is all
one critter. Rick thinks an elephant is four trees and two snakes.

Bill Williams

33

[From Bill Powers (2004.05.21.0837 MST)]

Martin Taylor 2004.05.20.23.15--

I hope you don't mind me horning in on an apparently private
discussion, but I think I can see why each of Rick and Bill can't see
the other's point.

You had me confused for a moment -- there is a Bill W. and a Bill P., each
arguing somewhat with Rick.

Thanks for your clarification -- it finally got Bill W. to come out of the
citadel for a moment and explain that there is a difference between a
_totally_ aggregated view of the economy (only one component) and a
_partially_ aggreggated view (two components). I have been thinking of an
aggregate model as any model that deals with units larger than one
individual, so there is a whole spectrum of "aggregateness." Perhaps the
word "composite" could be used for partially-aggregated views, to avoid
this confusion.

In a totally aggregated view, nothing goes into the system and nothing
comes out, except perhaps raw materials in and waste out, so of course all
the books have to balance inside the system. This is a useful point of
view, which I used in building the econ004 model to make sure I had not
dropped anything through the cracks (at first I had -- the total amount of
money kept gradually increasing and I couldn't find out why. It turned out
to be due to using a "greater-than" test instead of a "greater than or
equal" test with integer arithmetic.). The total amount of money in the
system (producer + consumer) has to remain constant at all times (one of
the unsolved problems, since it means the economy can't grow, or so it
seems at the moment).The total goods in inventory always equals the total
produced minus the total used up or depreciated. So the books balance for
all material goods and for all money at all times when we consider producer
and consumer together.

However, that kind of check is like a check to see that the units have come
out right, or a check to see that energy or momentum is properly conserved.
It doesn't provide an analysis of the system of the kind needed for a
simulation. In simulating any real system, the first step is to analyze it
into functional components, each one of which can be defined in terms of
input and output variables and internal processes that make the outputs
functions of the inputs. In econ004, this is done in three main steps.

The first step is simply to disaggregate the total system into a composite
producer and composite consumer, and then write out the relationships
between them. The consumer receives money from the producer; the money is
taken at some rate from the producer's cash reserve and simultaneously
added to the consumer's cash reserve. This is done in return for the
consumer's labor in producing goods which appear in the producer's
inventory at some rate. The ratio (rate of production of goods) divided by
(rate of money payments to consumer) can be called productivity, although
another measure which includes the number of workers and the average wage
per unit time becomes, in further developments, more useful.

At the same time that wages are being received at some rate, the consumer
transfers money from the consumer's cash reserve at (in general) some other
rate into the producer's cash reserve while a quantity of goods is
transferred from the producer's inventory into the consumer's inventory.
The ratio (rate of money-transfer to producer) divided by (rate of
goods-transfer to consumer) is called the momentary Price of the goods.
"Goods" is short for "goods and services." There is a constraint here that
no more goods can be transferred than exist in inventory at any given moment.

The second step of disaggregation then comes up: we have to disaggregate
the consumer even further, because there are two highly-distinguishable
components with different properties: those consumers who receive money for
work done, and those who receive money without doing work (like me). These
are called wage consumers and capital-income consumers. Wage consumers are
involved in production and production costs, capital-income consumers
contribute to neither, though the producer must receive enough income to
pay both (as well as maintaining the capital equipment used for production,
but that isn't in the model yet).

The third stage of disaggregation comes when we analyze the composite
producer and composite consumer into a combination of physical components
and behavioral control systems that operate those components. The composite
producer is made of a physical Plant and several Manager control systems;
the composite consumer is made of a physical Household and several Consumer
control systems (slightly different for Wage and Capital-Income consumers).
This third stage of disaggregation is where we finally find the engine that
makes the economy run. The engine of the economy consists of the
intentions, desires, and goals of the living control systems who operate
the economy, and the efforts they put forth to achieve them. The Plant and
the Household, the goods and the money, are only the means of control.

This process of disaggregation has to continue to make the model more
realistic. Aside from adding big missing components like Banks, perhaps
financial markets, and Government, we have to investigate levels of
control. The household consumer controls for both long and short term,
higher-order and lower-order, needs for inventories of goods and services;
the plant manager controls for both long and short-term corporate needs,
which in turn will prove to the the reference levels of higher-level
managers, directors, and owners -- the owners being, by and large, a
special subset of capital-income consumers that probably has to be
disaggregated from the general class of capital-income consumers because
they have special controlling effects on the Plant policies that managers
are obliged to adopt and implement. It may well turn out that the best
picture of the Plant and the managerial control systems that operate it is
a social hierarchy with arbitrary invented levels of control, while the
best picture of the Household and consumer control systems who operate it
is a natural hierarchy of control -- our 11 familiar levels.

Finally, further stages of disaggregation are possible and feasible (my
tests of multiple control systems presented at last year's meeting
demonstrated the feasibility). We can split goods and services into a whole
array rather than just a single type, each with its own production
parameters and prices, and each with its own perceptual weighting in the
consumers of various types. I doubt that we will be going much farther than
that degree of disaggregation, because the complexity of the model would
begin to approach the complexity of the real system, making the return on
the investment of modeling effort, and effort to understand what the model
is doing, rather small. Filling in the details will occupy, no doubt, more
than one MEL (man-equivalent lifetime).

Best,

Bill P.

It's a pity that Bill Williams refuses to pass on what he knows for the
good of PCT modeling efforts because he wants everyone to go through the
same education in economics (both the good and the bad, apparently) that he
had. I have no such reticence and do not require anyone to repeat my
education in engineering, physics, and (modestly) mathematics, however, so
I don't mind explaining what I think I know. This might make progress in
modeling the economic system somewhat lopsided, as we are likely to find
out only by accident what problems exist between the PCT and economics
communities, as was the case with the term "aggregate." We can only do the
best we can.

Best,

Bill P.

34

[From Rick Marken (2004.05.21.0950)]

Martin Taylor (2004.05.20.23.15)--

Rick Marken (2004.05.20.1140)

Say that
an economy consists of 100 people and one product, widgets. The 100 people
are paid $10 per person to produce 1000 widgets per week. So aggregate
weekly income (which in this example is equivalent to GNP since GNP is a
measure of the cost of producing goods and services in a particular time
period) is $1000. Say that the widgets are sold for 1$ a piece and that each
person buys just 9 widgets each. So aggregate expenditure is $900. So I =
$1000 and E = $900. So aggregate income is greater than aggregate
expenditure. Moreover, individual income ($10) is greater than individual
expenditure ($9). This all happens, by the way, with the dollar value of the
widgets sold (S = $900) equal to the dollar value of the widgets purchased
(P= $900). So S = P while I > E.

Rick, this works only if you separate the economy into two
components.

Of course. I am talking about transactions, which involve an interaction
between at least two components. There have to be at least two components
for there to be an interaction between them.

If it's all one monolithic block, you have to add in the
$1000 of expenditure by the guy who paid the workers and the $900 of
income by the guy (presumably the same) who sold the widgets.

I don't understand what "all one monolithic block" means. If there is just
one "block" then there is no expenditure because expenditure involves
transferring money from one "block" to another. There is also no income
because income also involves the transfer of money from one "block" to
another. This is true even if the "block" is interacting with itself. In
this case, the components of the interaction are functional roles of the
"block". The "block", in the role of employer, say, gives money to itself
(as income) in the role of employee. Similarly, the "block", in the role of
employee, gives money back to itself (as purchase) in the role of employer.
If "it's all one monolithic block" then there is no expenditure or income.
So there is nothing to add because there were no transactions.

At the individual level, economic transactions can occur simultaneously or
sequentially. For example, my employer might transfer funds to my account at
the same time I happen to be buying groceries, so the income transaction
occurs at the same time as the expenditure transaction. More often at the
individual level these transactions occur sequentially.

At the aggregate level, I assume that economic transactions always occur
simultaneously: income is being received (by both the aggregate producer and
consumer) _while_ expenditures are being made (by both the aggregate
producer and consumer). That is, the aggregate producer is transferring
money to itself, as aggregate consumer (which is income for the aggregate
consumer and expenditure for the aggregate producer) _while_ the aggregate
consumer is transferring money back to itself, as aggregate producer (which
is income for the aggregate producer and expenditure for the aggregate
consumer) as payment for what was produced. This is how my closed loop model
of an economy works.

The example I gave above simply shows that it is possible for income, I, to
exceed expenditure, E, in both the individual and aggregate case. Treating
income and expenditure as " one monolithic block" (whatever that is) shows
only that I must be equal to E when they are both non-existent (zero)
because income and expenditure don't exist in a monolith.

Regards

Rick

···

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

35

From[Bill Williams 21 May 2004 11:50 AM CST]

[From Bill Powers (2004.05.21.0837 MST)]

Martin Taylor 2004.05.20.23.15--

Reading through Bill Powers' description of his approach, so far, to
modeling the economy I don't see of substance that I would object to.
However, I think the use of the term "desegregation" may be a bit
misleading. One of Powers' goals is the creation of an encompassing, or
integrated or, aggregate model of the economic process. Ordinarily, in
econo-speak, when referring to what Powers describes as "desegregation"
would be described as "sectors." Powers is using a verb to describe moving
from one big box in which all the economic agents are treated without
distinctions, to a "multi-sector" analysis in which agents are assigned to
particular boxes based on some trait-- such as ownership of capital or not
capital owning, or worker or management. The multi sector analysis retains
an aspect of the macro or aggregate context in this sense. If money flows
out of one box in a multi-sector macro analysis it flows into some other
sector-- so the total money doesn't change-- not when all the sectors
accounts are added up.

Nothing I said in the above makes any substantive point. The only point I
am making is that I think it imay be confusing to describe the analytical
division of an economy into sectors as a process of "desegregation" when
the intent to is create an aggregate model of the economy.

Bill Williams

36

From[Bill Williams 21 May 2004 12:20 PM CST]

[From Rick Marken (2004.05.21.0950)]

> Martin Taylor (2004.05.20.23.15)--

>> Rick Marken (2004.05.20.1140)

. Treating

income and expenditure as " one monolithic block" (whatever that is) shows
only that I must be equal to E when they are both non-existent (zero)
because income and expenditure don't exist in a monolith.

Rick seems to be disinclined to allow the operation of addition in economic
analysis. When sales and purchases are added up for all of the economic
agents in an economy the result is an aggregate number for the economy as a
unit. You can call it a "monolith" if you wish, however, "encompassing"
better term, because the analysis assumes that all sales and purchases are
conducted within a context that appears on the balance sheet being
constructed.

Therefore, by definition of a transaction, sales are going to be equal to
purchases, income is going to equal expenditure. Or, if there is a sector
analysis in an aggregate context, there may be an "imbalance" between
sectors such that one sector sells more to another section than it buys from
that sector-- however, when the two sectors balance sheets are combined the
result will be an equation of income and expenditure.

Rick, continues upon insisting upon a misconception that was an element of
his presentation in Boston. This isn't an aggregate analysis.

Bill Williams

37

From[Bill Williams 21 May 2004 12:50 PM CST]

From[Bill Williams 21 May 2004 11:50 AM CST]

> [From Bill Powers (2004.05.21.0837 MST)]
>
> Martin Taylor 2004.05.20.23.15--

A correction. In my posting repeated below, substitute
"disaggregation" for "desegretation."

>
Reading through Bill Powers' description of his approach, so far, to
modeling the economy I don't see of substance that I would object to.
However, I think the use of the term "desegregation" may be a bit
misleading. One of Powers' goals is the creation of an encompassing, or
integrated or, aggregate model of the economic process. Ordinarily, in
econo-speak, when referring to what Powers describes as "desegregation"
would be described as "sectors." Powers is using a verb to describe

moving

from one big box in which all the economic agents are treated without
distinctions, to a "multi-sector" analysis in which agents are assigned to
particular boxes based on some trait-- such as ownership of capital or not
capital owning, or worker or management. The multi sector analysis

retains

···

an aspect of the macro or aggregate context in this sense. If money flows
out of one box in a multi-sector macro analysis it flows into some other
sector-- so the total money doesn't change-- not when all the sectors
accounts are added up.

Nothing I said in the above makes any substantive point. The only point I
am making is that I think it imay be confusing to describe the analytical
division of an economy into sectors as a process of "desegregation" when
the intent to is create an aggregate model of the economy.

Bill Williams

38

[From Rick Marken (2004.05.21.1100)]

Bill Williams (21 May 2004 12:20 PM CST]

When sales and purchases are added up for all of the economic
agents in an economy the result is an aggregate number for the economy as a
unit.

I've already agreed that S = P at both the aggregate and individual level as
long as you define S as the dollar value received by the seller and define P
as the dollar value paid by the purchaser. The number you would get if you
added S and P for any transaction or for the aggregate of all transactions
in an economy would be S+P or 2S or 2P, all of which are equivalent.

Therefore, by definition of a transaction, sales are going to be equal to
purchases, income is going to equal expenditure.

I still don't follow why income would equal expenditure, even at the
aggregate level. This would be true, I think, only if you define income as
equivalent to S (money received by a seller) and expenditure as equivalent
to P (money paid by a purchaser). Is this what you are saying?

Regards

Rick

···

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

39

[From Bill Powers (2004.05.21.1218 MST)]

Rick Marken (2004.05.21.1100)--

I still don't follow why income would equal expenditure, even at the
aggregate level. This would be true, I think, only if you define income as
equivalent to S (money received by a seller) and expenditure as equivalent
to P (money paid by a purchaser). Is this what you are saying?

You're right: what you are calling a transaction involves the transfer of
money or goods from one entity to another. But that is not how Bill W. uses
the word "aggregate". In his usage there is are separate buyers and sellers
with their own accounts. There is only one entity, and a transaction would
move money from one account back into the same account. Ditto for goods:
goods are moved from one inventory back into the same inventory (as far as
accounting procedures are concerned at the aggregate level).

There's no point in complaining about this usage or saying it's wrong.
Economists got there first and they can define their terms any way they
want. I think we can say "composite" instead of "aggregate" when we want to
mean that more than one person is included in a model entity.

Best,

Bill P.

40

[From Bill Powers (2004.05.21.1234 MST)]

Bill Williams 21 May 2004 11:50 AM CST--

Reading through Bill Powers' description of his approach, so far, to
modeling the economy I don't see of substance that I would object to.
However, I think the use of the term ["deaggregation"] may be a bit
misleading.
Powers is using a verb to describe moving from one big box in which all
the economic agents are treated without distinctions, to a "multi-sector"
analysis in which agents are assigned to particular boxes based on some
trait-- such as ownership of capital or not capital owning, or worker or
management.

Correct.

I think it imay be confusing to describe the analytical division of an
economy into sectors as a process of ["disaggregation"] when
the intent to is create an aggregate model of the economy.

_My_ intent is to create a model that works reasonably like the real
system, or to create a model that can be adjusted to behave like different
kinds of real systems. If anyone wants to add up all the transactions into
one number (such as GNP) that's OK with me, but it's not why I'm building
the model.

Best,

Bill P.