PCT Economics

[From Bill Powers (970330.0400 MST)]

My father's book on economics is an interesting analysis, but it doesn't
deal with the question of why there is economics in the first place. Old
Adam Smith tried to give an answer to this question; it was basically a
psychological answer, not what any modern economist would recognize as an
"economic" answer. PCT economics would follow similar lines, I think: not
looking for abstract economic principles so much as trying to understand
what people want and how they go about getting it.

Adam Smith tried to visualize what it is to be a buyer and a seller, and to
imagine what motivates each. He saw the motive on each side of a transation
as pretty much the same thing: to get as much as possible while giving as
little as possible. But that way of putting it presupposes that it is never
possible to get "enough" of anything (more true in his day than ours). From
the seller's standpoint, if the buyer has "enough" of a product, there is no
way to attract the buyer away from another seller by making the product
better or lowering its price. From the buyer's point of view, if a seller
can realise "enough" profit by selling all he wishes to produce, there is no
way to bring pressure on the seller to lower prices or improve quality. The
basic supply-and-demand relationship depends on people wanting more than
they have, or something other than what they have, on both sides of the
transaction. The driving force behind economics, as traditionally
understood, is chronic error produced by scarcity.

Of course nobody wants to live in a state of chronic error; it is human
nature to try to bring all errors to zero if one can. But it is also human
nature to enjoy creating and learning, to set new goals and achieve them
just, as it were, for the sake of the way it feels to do this. What is
"work" when driven by necessity is "play' when driven by curiosity or the
joy of living. Science was created primarily by people of leisure, not
simply as a means of avoiding starvation. Many great works of art and
literature have been created by people who went hungry -- or crazy -- in
order to create them. Many of the most economically successful people have
undertaken the most ambitious projects and built the largest empires while
themselves being in a position to live out their lives in complete idleness
and luxury, if that were all they wanted.

So, economists to the contrary, economic principles do not seem very basic
in determining how an economy works. Nobody works for the sake of working;
nobody produces cars or haircuts for the sake of producing cars or haircuts.
Nobody makes money just to possess piles of money -- no normal body, at
least. If we want to understand economics, we have to try to understand what
people want, and what they want it for.

I think that PCT economics will be much simpler than "economic economics."
When you try to understand economic interactions as they have emerged in
history, you are looking at something that by its nature has to be complex;
there are billions of people, and every possible interaction is probably
ocurring every day. You can try to codify and classify these interactions,
and try to discover general rules that cover them, but that approach will
never reveal why those interactions are occurring: it will never make sense
of them.

Only when we understand how economic phenomena emerge from the properties of
individuals will we understand why such things as the law of supply and
demand exist, or seem to exist. Such empirical rules are not handed down
from Heaven; they are natural consequences of human nature. When we
understand _why_ they exist, we will also see how, if we should so desire,
they can be changed -- if they can be changed. We can already see that the
law of supply and demand can easily be changed, simply by making sure that
all people have enough of what they want and need. And maybe, seeing that,
we might actually get some leads on how to accomplish such a seemingly
impossible state of affairs.

···

---------------------------------
All the foregoing came out when I started writing, instead of what I woke up
thinking, which was a topic much farther along in this potential discussion.
I woke up wondering how much money a person would have to have in a bank or
in investments, at prevailing wages and costs, so that working for money
would never be necessary. This was one of those self-cancelling thoughts,
because on its heels came the thought that of course there can be no general
answer to this question: if everyone had the required amount of money, the
entire system would collapse because hardly anybody would be working (at
least under traditional assumptions). In order for me to think about having
enough money to avoid working at anything I wouldn't do anyway, it is
absolutely necessary that there be rather large numbers of others who have
no hope of having this much money, so that they _must_ work in order to
live, and thus provide me with all the products I would buy with my unearned
income.

I am, of course, in exactly this position, being retired and living off
capital income such as Social Security and pensions. With the crisis in
Social Security just over the horizon, this little problem is preying on a
lot of minds. It's more or less understood that people do get too old to
work at the jobs they used to have, and that as a civilized society we must
allow them to have incomes of some sort. But even if we did away with Social
Security and all people saved enough on which to retire in reasonable
comfort, the money they received would still have to come from capital
income, which in the end is produced by people who are still working at
jobs. And it's simply impossible for ALL people to live on capital income.
Isn't it?

Before taxes, about 60 percent of the composite producer's income goes to
providing capital income for owners, renters, investors, pensioners, etc.,
and 40 percent goes to wages for those who actually do the producing,
managing, maintenance, and expansion. So the people who get the wages
provide enough goods and services for all the people, including those with
capital income, to buy. This is interesting, especially considering that
this ratio has changed little for 100 years. Redistribution of income
through not-for-profit institutions and taxes reverses the ratio to 40:60,
which also tells us something -- that the raw ratio is not supportable in a
country where we do not allow very many people to starve to death. But the
raw ratio shows us that it is, indeed, possible for 60 percent of the income
received by the aggregate consumer to be unearned, even though this turns
out to require some adjustments.

To me, the question is not how much unearned income there can be, but how we
arrived at this state of balance. According to PCT, it was arrived at
through people interacting with other people to get what they want, and not
because there are "economic laws" that operate independently of human
nature. It occurred to me that if I were not too old to work, yet received a
rather large and comfortable amount of capital income without working, I
would take very seriously anything that threatened to reduce my capital
income. This would be especially true if, instead of being able to work at
whatever I pleased, or nothing at all, I were forced to take any job that
was on offer, at any wage that was offered, under any working conditions
that prevailed, just to live. The fact that in order for me to continue
receiving my capital income, many others must -- MUST -- be in exactly that
position might not weigh as heavily with me as it might if I and my family
were not personally affected.

In fact, I think my politics might be seriously influenced. I might, for
example, be alarmed at any suggestion that the minimum wage be increased by
any significant amount. If the composite producer is forced to spend more
for wages, that would require reducing the amount of income distributed as
capital income to people like me. With more money in the hands of poor
people, production would have to shift toward downscale goods and services,
leaving fewer upscale products for me to buy, or increasing their prices.
Clearly, it would be Them against Me: whatever they gained, I would lose.

Obviously, lots of grist here for the PCT mill. Lots of opportunities to go
up a level, asking what we would have up here if we got what we want down
there. If we start thinking of economic phenomena as outcomes instead of
causes, we can start looking at some basic human interactions that arise
simply because people are control systems. I think that could lead to a
science of economics that is considerably less dismal than the present one.

Best,

Bill P.

[Martin Taylor 970330 10:00]

Bill Powers (970330.0400 MST)

Bill, Do you get up in the middle of the night because these ideas
ferment so much they blow a hole in your sleep?

···

--------------

I wasn't intending to join the economics discussion yet, since I have
been beginning to prepare a set of Web pages about my thoughts in that
area. But Bill's posting is so much on the mark, it inspired me to hope
that a long message would not go amiss. What follows is a preliminary
draft of the text of four Web pages about a PCT economics. I started
them as a contribution to an off-line discussion I've been having
with Mike Macree, but the ideas have been germinating much longer.

Although they are about PCT economics, I've tried to avoid using PCT
technical language except where it seems necessary. My hope is that
other people will come to understand, because I agree with Bill that
if we get it right, it may provide a way out of the increasingly
disastrous consequences of the politicians and public following the
principles of conventional economics. The pages cover the following points
raised by Bill.

Adam Smith tried to visualize what it is to be a buyer and a seller, and to
imagine what motivates each. He saw the motive on each side of a transation
as pretty much the same thing: to get as much as possible while giving as
little as possible. But that way of putting it presupposes that it is never
possible to get "enough" of anything (more true in his day than ours). From
the seller's standpoint, if the buyer has "enough" of a product, there is no
way to attract the buyer away from another seller by making the product
better or lowering its price. ...

... But it is also human
nature to enjoy creating and learning, to set new goals and achieve them
just, as it were, for the sake of the way it feels to do this. What is
"work" when driven by necessity is "play' when driven by curiosity or the
joy of living.

...If we start thinking of economic phenomena as outcomes instead of
causes, we can start looking at some basic human interactions that arise
simply because people are control systems. I think that could lead to a
science of economics that is considerably less dismal than the present one.

Later pages are intended to address some of the other issues raised by
Bill, but they are not written, and comment on these four may help me
to make them and the unwritten ones better.

Martin

----These pages are not yet available on the Web and may never be------

1. How is money created?

At first glance, it is obvious what money is. It's a unit of value that
allows goods and services to be traded more easily than can be done by
direct barter. On examination, that simple statement hides some
important issues.

Let's consider the situation in an economy without money. If I want a
haircut, I have to find Sam, who not only can perform the job, but also
wants something I can do or can give. If I don't have any such thing,
and can not perform any service Sam wants, I don't get my haircut.

But suppose I find out that Sam would like a fancy set of buttons, which
I don't have, but I know that Joe down the street has some, and Joe's
lawn needs cutting. I say to Sam that I can get the buttons, but he will
have to wait until I have mown Joe's lawn, which I can do, and I think
Joe will trade the mowing job for buttons. Sam may trust me, that I will
choose to mow Joe's lawn, and that Joe will trade the buttons for the
mowing job, and that I will then give Sam the buttons. Sam and I can
agree that this is OK, and Sam cuts my hair. Some time later, I arrange
with Joe to cut his lawn, get the buttons and give them to Sam. All is
now square.

Suppose now that Sam wants to get some steak from Bill the Butcher. Bill
wants buttons. Sam says that's a fine trade, but he hasn't at the moment
got buttons, but will be getting them from me. Bill trusts Sam, as Sam
trusts me, and they make the trade, based on the fact that I owe Sam
some buttons, and Bill perceives that debt as being good.

In this scenario, all that passes between me, Sam, and Bill is words
(a promise of buttons to come) in one direction, and goods or services in
the other direction. The promise of buttons has performed the function
of money. In fact, it is money, even though there are no physical coins
or paper involved. I could have given Sam a piece of paper on which I
had drawn the buttons I expected to get from Joe, and Sam could have
given that paper to Bill. Bill may have known that Sam got it from me,
in which case he could come to me for the buttons. Or he may not, in
which case he might not know where the buttons would come from.

Whether Bill knows where the buttons are, and who wrote the paper, is
immaterial, if Bill doesn't really want buttons. What Bill really wants
may be cattle feed, but he knows a farmer who wants buttons. Provided
the farmer trusts Bill not to give him a false debt, Bill can tell the
farmer that he is owed buttons, or can pass on the piece of paper. So
long as the person to whom the paper is passed can trust that it is
worth buttons, it can be passed from hand to hand, permitting the trade
of goods and services, even if I keep procrastinating and delay mowing
Joe's lawn.

What happens when I do finally mow Joe's lawn? I get the buttons from
Joe, and pay them to Sam--or try to do so. But Sam says that the debt is
no longer owed to him. It is owed to Bill the Butcher. I go to Bill, but
he has traded it to the farmer. Finally, I give the farmer the buttons
and retrieve my debt (which may or may not be on a piece of paper). I
tear up the piece of paper,if there was one, since it now refers to a
non-existent debt.

What happens now, if the farmer wants to acquire some fertilizer? He
hasn't got a piece of debt-paper or a promise of buttons. He has to find
something he has or can get that Fred the fertilizer producer wants.
Suppose that Fred can't settle on anything he wants right at that
moment. The farmer can still trade, if he promises to give the producer
something of value equivalent to the fertilizer, later. He may write
another piece of paper that has a picture of a bag of fertilizer on it.
And Fred can use that just as Sam used my picture of buttons. It is new
money, and can be used until the farmer pays off the debt.

Now suppose that before I pay off my debt of buttons, Fred wants
something (not buttons) from Joe. In this case, the farmer has given
Fred the paper with buttons drawn on it, not a new paper with a bag of
fertilizer on it. What does Joe do? Does he accept the button paper,
which he doesn't want as he already has buttons? Or does he ask Fred to
give him something else for what Fred wants? If Fred offers something
else that Fred doesn't have at the moment, but expects to be able to
get, they have made new money. Fred can still trade his button promise
for Ethel's milk, while Joe can trade Fred's new fertilizer promise for
a haircut from Sam.

The point of all this is to show that money is debt that is not paid
off, and that to pay off the debt is to reduce the possibilities of
further trade. To repudiate a debt, as is done in bankruptcy
proceedings, is also to reduce the possibility of further trade, and
moreover, it reduces the trust (see the end of page 2) of future
traders in the value of the money.

If one set of fancy buttons is worth one haircut, one promise of
a future set of fancy buttons becomes of less value than one present
haircut. If someone who is asked to hold that promise believes that the
originator of the promise may just possibly not pay off, the chance of
that failure has to be subtracted from the perceived value of the thing
promised.

------------------------
2. The Value of Money

Money has value, but only in the context of the goods and services for
which it can be traded. The physical manifestation of money may be coin
or pieces of paper. They have value, too, but the value of a physical
manifestation is independent of the value of the money it represents. A
coin, for example, may be used to enhance a piece of jewellery or to
hold down some paper against a mild breeze; varicolored paper money may
be used as wallpaper. But a "dollar" has no intrinsic value. Just as the
value of a piece of steak to Bill the butcher is lower than it is to
hungry Sam the hairdresser, so the value of a dollar to a millionaire is
usually less than it is to someone on welfare.

This last statement is not always true. If the millionaire has almost
enough money to be able to trade for some goods or services, each extra
dollar might be very valuable. Without it, the millionaire is unable to
do or get something he wants very much; with it, he can satisfy this
great desire. To get the necessary dollar, the millionaire might trade
something that under normal circumstances would seem to be of great
value. The dollar at that moment has this great value, but usually it
has a very small value to the millionaire. Sometimes the reverse can
happen. A dollar may sometimes have very small value to someone on
welfare, if at that moment they are feeling well fed, warm, and with
someone they love.

The key to value is control. An item can have value because in itself it
satisfies some want (in the terms of Perceptual Control Theory, its
acquisition reduces the error in some perceptual control system) or
because it gives the person freedom to control better a variety of
things, quite possibly undetermined at the time the person acquires
the item. A haircut may have the former kind of value: the person had hair
longer than desired, and the haircut reduced the hair's length to what
its owner wanted. Health and strength have the second kind of value,
since a strong healthy person can do more different things than can a
sickly, weak person. Money also has the second kind of value, in that
the possessor of much money can trade it for a variety of goods and
services unobtainable by a poor person. The value of money is in the
control it promises for the future--it is, in the strictest sense,
imaginary; one can imagine what one might be able to do with the
money but not without it.

Trust is the important component of money--trust that at some future
date the money will be as usable to acquire goods or services as it is
now. How is trust developed? Normally it is by experience: that Sam has
in the past kept his word, that other people have accepted my pieces of
paper with buttons, fertilizer bags, and what-not as being acceptable
substitutes for the real thing, even if they didn't really want the
thing depicted. I could trust that they would accept the pieces of paper
because they could trust that other people would accept them as well.

If Sam is going to wait a long time before using the promise of buttons
that I say I will give him, the greater the chance that I will have
repudiated the debt. If he is going to use it very soon, then he can
take the promise almost at its face value, as being worth almost as much
as a set of buttons in his hand. If he expects not to use it for some
time, he should ask for more buttons in the set, or for something else
of value in addition to the promise of buttons. This is inflation, and
it is built into the very concept of money.
---------------------

3. Trades and Value

Under what circumstances will a trade occur? Let's consider the trade
between Sam, who has buttons (or a promise of them) and wants steak, and
Bill, who has steak but wants buttons. Are buttons more valuable than
steak? If so, Sam should not want to trade, but Bill will be
enthusiastic. Is steak more valuable than buttons? If so, then Bill
should not want to trade. Are they equally valuable? If so, why would
either want to trade?

For Sam and Bill to trade buttons for steak, buttons cannot be more
valuable than steak, buttons cannot be less valuable than steak, and
buttons cannot be equally valuable. But trades do occur, so something is
wrong with the argument.

What is wrong with the argument is that buttons can be more valuable
than steak to Bill the Butcher, who has lots of meat, while at the same
time steak is more valuable than buttons to Sam, whose clothes hang
together pretty well but who has a hungry family to feed. Value cannot
be a property of a thing that might be traded. It is a perception held
by a person. The value of an item can change over time, even if the
thing itself doesn't change. To the person with growing hair, the value
of getting a haircut increases over time since the last haircut, but to
the person providing the haircut, the value of providing the haircut is
very little affected by how long it was since the customer last had one
(though that might affect how much the haircutter could charge for the
service).

Since the value of a thing to be traded is a perception in the mind of
the trader, it is quite reasonable for Sam to perceive that giving
buttons and getting steak increases the total value of his possessions,
while at the same time Bill perceives that giving steak and getting
buttons increases his overall value. What this means is that the value
of goods or services cannot be measured according to any fixed standard.
In particular, value cannot be equated to money, at least not in any
standardized way that is valid for all people at any one moment. If the
value of items could be equated to money, there would be no trading at
all, since in each trade both partners would be giving up the same value
as they get.
------------------------------

4. Trading implies conflict

If value relates to a measure of control, and is also a perception, it
follows that what a person is perceiving relates to how the person
perceives their ability to control their own circumstances. That is an
aspect of imagination, of self-perception, and may well be available
only to humans and their close relatives. The person perceives how their
life would be changed by making a trade; every trade involves giving
away something that has value (reducing the person's ability to
control), and getting something that has value (enhancing the person't
ability to control).

It is a reasonable assumption that better control is always desirable
(that we have a reference to perceive ourselves as being in perfect
control, but never can achieve it). If, in controlling any perceptual
variable, we reduce our perceived ability to control other variables, we
have a conflict. Conflict is therefore intrinsically involved in any
trade, and the making of the trade is the resolution of the conflict.

One can feel the conflict involved in trade every time one ponders
whether a desirable item is worth the price asked. It doesn't matter
whether the item took 300 hours to make, if its value to you is less
than $10. Nor does it matter that the cost of making the item may have
been a few cents if it is a rare postage stamp for which the owner is
asking $10,000. The conflict is within you, as to whether the control
you gain by the trade is worth the control you lose (or may lose) by it.
You may accept or reject the trade immediately if the difference is
large one way or the other, or you may dither over it for a long time if
you perceive your loss of future control from using the money is nearly
the same as the gain from acquiring the item or service.

Conflict can be resolved in two ways. One way is that one of the two
conflicting control systems overwhelms the other. The perceptual error
in one of the conflicting control systems goes down to near zero, while
the perceptual error in the other one is maintained or even increased.
This is the only way conflict can be reduced if both conflicting systems
act through the same medium (such as money). If I spend all my money on
steak, I cannot spend it on travel.

But there is another way conflict can be resolved, which is to recognize
that the two conflicting control systems are acting in support of some
higher level goal or goals, and those higher goals may not be in
conflict; they may be satisfiable in other ways. It has been said that
"Money can't buy happiness" but it helps. Money is one way to effect
control, at least control involving the actions of other people, but
there are other ways. People do things for love, as well as for money.
--------------

That's all there is so far, for which you may be truly thankful, this
Easter Sunday.

Happy Easter to all those who celebrate such occasions.

Martin

[From Bill Powers (970330 MST)]

Martin Taylor 970330 10:00 --

Bill, Do you get up in the middle of the night because these ideas
ferment so much they blow a hole in your sleep?

That's it. It's also a cure for insomnia -- if I can't sleep, I just get up
and start doing something useful until I'm too sleepy to do it any more.
Then I go back to bed, and usually end up with about as many hours of sleep
as I need. A technique open mostly to those without gainful employment.

Seems to me that you must do the same thing!

Actually, I had "put in a request" for some ideas on how to apply PCT in
areas of importance, as an antidote to the MCT/PCT discussion. One never
knows when or in what form the request will be granted. Or if. Thanks, by
the way, for your help in trying to roll that stone up that hill.

--------------
What follows is a preliminary
draft of the text of four Web pages about a PCT economics. I started
them as a contribution to an off-line discussion I've been having
with Mike Macree, but the ideas have been germinating much longer.

This is exactly how I had hoped a PCT discussion of economics would begin.
Your post is in a mode I call "truthsaying" -- putting down only what seems
to be so simple that it has to be true, carefully avoiding anything that
that is complex or devious, and having no hidden agenda toward which the
argument is steered. To make this work you have to be willing to end up
anywhere, even with some standard economic theory if that's where it leads.

1. How is money created?

Very nice. Money is a claim on goods or services, and simultaneously a
promise to deliver goods or services. Let's not leave out the quantitative
aspect: it's a promise and a claim relating to a _specific amount_ of goods
or services. Value, as you say, is a matter of perceptions (and reference
levels), but once money enters, so does bookkeeping. Twenty-five buttons for
8 ounces of prime steak, we agreed, not 22, so read the scales and where are
the last three buttons?

Straight barter is analog, but when money enters the formula, the discrete
systems come into play: arithmetic gets into the act. A slab of steak for a
handful of buttons is an analog transaction; 8 ounces for 25 buttons is a
discrete transaction in which you squint closely at the scales and count the
buttons out one at a time, putting the extra ones back in your pocket.

I think you're dead on about debt equaling the money supply, under the
broadest interpretation of "money." An employee discount is money just as
much as the paycheck is.

2. The Value of Money

In my father's book, the idea is brought out that the ONLY coin in which we
can measure payment is the product of time, skill, and effort. The butcher
isn't really contracting for buttons, but for the time, skill, and effort
someone expends on making buttons. All raw materials are free. Meat is free,
but cowboys and truck drivers and butchers aren't.

When quantitative money enters the picture, you're forced to think about
_how much_ money your time, skill, and effort are worth to someone else.
Hard to do, when you may love your job or hate it, or do it well or poorly.

So in PCT terms, it all boils down to producing output in order to control
your own inputs. The worker on the GM assembly-line is producing output
actions to control whichever of their consequences is wanted. The CEO is
doing the same thing. One wonders how it comes about that the time, skill,
and effort of these two people is given such extremely different values.
That's going to be a tricky one to untangle.

Money has value, but only in the context of the goods and services for
which it can be traded.

"Value" is a hard concept to pin down. I suspect that it's about as useful
as the ideal of "quality" that Robert Pirsig had Phaedrus chasing until it
drove him crazy. Unless there's something in the brain that surveys all
control systems at all levels and sums up their states as a measure of error
times loop gain or something like that, I don't think we can deal with a
generalized concept of value. The value of a square meal changes greatly
from just before eating it to just afterward. The value of a Cabbage Patch
doll went from high to low without any change that I know of in the
manufacturing process.

I agree that the value of money is set only in the context of goods and
services. And as you say, the value of goods and services is set only in
terms of people's perceptions and reference levels. To justify a general
concept of value, you'd have to be able to say how much eating is as
valuable as a certain amount of breathing, or music. I think that we pursue
such goals in parallel, and that when we must choose between them, it's a
calamity.

3. Trades and Value

... buttons can be more valuable
than steak to Bill the Butcher, who has lots of meat, while at the same
time steak is more valuable than buttons to Sam, whose clothes hang
together pretty well but who has a hungry family to feed. Value cannot
be a property of a thing that might be traded. It is a perception held
by a person. The value of an item can change over time, even if the
thing itself doesn't change.

There, that says it. Go even further, since a perception is only a report on
what is. The value of a perception is set by the reference level one is
maintaining for it. You can't get away from the hierarchy.

Since the value of a thing to be traded is a perception in the mind of
the trader, it is quite reasonable for Sam to perceive that giving
buttons and getting steak increases the total value of his possessions,
while at the same time Bill perceives that giving steak and getting
buttons increases his overall value.

This "overall value" idea seems unnecessary to me. This gets into the idea
of "rational man." I don't think that a person buying an ice-cream cone is
considering, very deeply, whether this increases his sense of perceived
overall value more than spending the same money on razor blades would do. It
makes more sense to me to substitute the idea of reducing error for that of
maximizing utility. I think we are all too short-sighted to do any real
long-term maximizing, at least on purpose. What we do, mostly, is correct
the salient errors. If we have a taste for some ice-cream and don't need to
shave until tomorrow morning, we'll buy the ice-cream. We can always go
another day without shaving (if we even think about it that way). When
people are telling you how to live your life right, they always suppose that
their rational recommendations have something to do with how people really
work, but I don't think that's often true. Not unless you happen to be one
of the people who is turned on by living rationally, which isn't many of us.

I'd rather put this idea this way: To Bill the Butcher, giving steak is
merely a means of getting buttons; to Sam, giving buttons is merely a means
of getting steak. You give what you don't care about (at the moment) to get
what you want. If Bill were hungry, he'd eat the steak; what he trades is
only what is surplus to requirements. Unless there's a conflict, of course.

4. Trading implies conflict

If value relates to a measure of control, and is also a perception, it
follows that what a person is perceiving relates to how the person
perceives their ability to control their own circumstances. That is an
aspect of imagination, of self-perception, and may well be available
only to humans and their close relatives. The person perceives how their
life would be changed by making a trade; every trade involves giving
away something that has value (reducing the person's ability to
control), and getting something that has value (enhancing the person't
ability to control).

In the light of the previous section, I wonder how often this is really
going on. Does the carpenter regret the nails he had to use up to build your
house? I don't think so -- that's just part of the deal in producing a
house, and getting paid. Nothing is valuable to you if you don't have a
reference level for it and already have as much of it as you want. I think
we have to get beneath the bookkeeping level to see what is really going on.
If the carpenter has become a bookkeeper, he may calculate that every nail
he foregoes the use of will increase his profit on this or the next house.
But I suspect that this is the kind of madness that is engendered by the
very economic theories that suggested he become a bookkeeper. It's another
kind of short-sightedness, in that if this house falls down, there will be
no next house to build.

There is a conflict within the carpenter only if he hasn't thought through
his own profession. Building a house that people will want to buy is the
point of being a carpenter. To do that, you perform whatever actions are
necessary. If you can't do that well enough to receive more than you feel
you have expended, then you need to look for another profession. We
shouldn't base economic principles on the inability of individuals to
resolve their own conflicts. As you say:

But there is another way conflict can be resolved, which is to recognize
that the two conflicting control systems are acting in support of some
higher level goal or goals, and those higher goals may not be in
conflict; they may be satisfiable in other ways. It has been said that
"Money can't buy happiness" but it helps. Money is one way to effect
control, at least control involving the actions of other people, but
there are other ways. People do things for love, as well as for money.

Right, and this is a psychological problem, not an economic one. I think we
have to investigate economics on the assumption that ideosyncratic conflicts
have been taken care of. Only in this way can we decide whether a given
problem is a matter calling for changes in public economic policy or for
psychotherapy.

There is one case in which conflict becomes an economic concern: scarcity.
It seems to me that all economic theories to date have been based on the
assumption of incurable scarcity; the impossibility of everyone getting
everything important that is wanted. I'm not speaking here of a lack of
enough racehorses or diamonds, but of a lack of necessities for a reasonably
comfortable life, without the need for onerous and debilitating labor to get
it. Conflicts over racehorses or diamonds are hard to take seriously as
economic problems; a little couch time would help anyone see that the loss
of either would be of no fundamental importance to one's happiness. But
people need food, shelter, health care, peace of mind, and freedom from
exhaustion and mind-numbing boredom, and no therapist could persuade them
otherwise. People will fight over such things, simply because to give up on
them would be to give up the means of, or the reasons for, living.

It seems to me that one of the goals of any investigation of economics must
be to figure out how these fundamental conflicts can be avoided, or where
necessary, cured. I don't think they should just be accepted as permanent
features of the economic landscape.

Best,

Bill P.

[From Bruce Gregory (970331.1035 EST)]

Bill Powers (970330 MST)

So in PCT terms, it all boils down to producing output in order to control
your own inputs. The worker on the GM assembly-line is producing output
actions to control whichever of their consequences is wanted. The CEO is
doing the same thing. One wonders how it comes about that the time, skill,
and effort of these two people is given such extremely different values.
That's going to be a tricky one to untangle.

In our society a substantial amount of power is wielded by
"stockholders". Stockholders are speculators interested in the
short-term prospects for the price of the stock they hold. They
want this price to increase and they do not care why it
increases. (The average stockholder holds shares in a typical
company for fewer than two years -- not exactly what Adam Smith
would think of as an owner.) Anyone who can increase the value
of a firm's stock in the short term is perceived by the
stockholders as very important. CEO's are very important for the
short-term future, individual workers on the assembly line are
not. Ergo... The myth that speculators are owners is the
justification for this system.

This "overall value" idea seems unnecessary to me. This gets into the idea
of "rational man." I don't think that a person buying an ice-cream cone is
considering, very deeply, whether this increases his sense of perceived
overall value more than spending the same money on razor blades would do. It
makes more sense to me to substitute the idea of reducing error for that of
maximizing utility. I think we are all too short-sighted to do any real
long-term maximizing, at least on purpose. What we do, mostly, is correct
the salient errors. If we have a taste for some ice-cream and don't need to
shave until tomorrow morning, we'll buy the ice-cream. We can always go
another day without shaving (if we even think about it that way). When
people are telling you how to live your life right, they always suppose that
their rational recommendations have something to do with how people really
work, but I don't think that's often true. Not unless you happen to be one
of the people who is turned on by living rationally, which isn't many of us.

How true. The rational consumer is clearly an invention of model
builders to make their lives simpler. (Simply look at the wild
enthusiasm for four-wheel-drive off-road vehicles among people
who would never dream of driving anywhere else than on pavement
in Southern California.)

It seems to me that one of the goals of any investigation of economics must
be to figure out how these fundamental conflicts can be avoided, or where
necessary, cured. I don't think they should just be accepted as permanent
features of the economic landscape.

I sure hope you are right.

Bruce Gregory

[From Rick Marken (970331.0830)]

Bill Powers (970330.0400 MST) --

Only when we understand how economic phenomena emerge from the properties
of individuals will we understand why such things as the law of supply
and demand exist, or seem to exist.

And why such things as the law of cost and demand _don't_ exist -- as in
the Giffen effect, where an increase in cost is associated with an _increase_
in demand.

So the people who get the wages provide enough goods and services for
all the people, including those with capital income, to buy.

I'm not sure that people receiving capital income (I'm not one, by the way,
so this is not a matter of self-interest) should not be counted as people
who contribute to production of GNP. According to the aggregate analysis,
PQ (GNP) at any instant is purchasing power, B. B can be divided into
wages, W, and capital, K, income: B = W+K. And B (less leakage) is used to
maintain a particular rate of production, Q. So productivity depends on
both W and K - - wage related work and capital related work. The capital
related work may involve no more than pushing keys on a computer to make
trades. But I think it still has to be considered part of the work that
drives the productivity of the economy. So I don't think capital is
"unearned income". It is as aspect of the economy that would (if there were
no leakage) allow the economy to grow at the rate at which it intrinsically
capable of growing -- approximately 12.5%.

I think we have to distinguish our judgements of what people do at the mirco
level from what happens economically at the macro (aggregate) level. I,
personally, don't admire the "work" of people like Milkin who make tons of
money by just shifting around numbers on a compurter. But I also don't admire
the work of most lawyers and doctors, either. But the "work" of all these
scumbags (combined with that of decent people like us;-) is what makes up
the American economy. Without these scumbags (and us nice guys), the
aggregate economy would not have the production capability that it has
(12.5%). Theproblem with people making capital income (at the aggregate
level) is not that they are getting unearned income; the problem is that
they are getting such a large income that they are unable to put it to
productive use. The people with unspendable incomes are (by TCP's assumption)
those making huge capital incomes. But I bet there are more than a few
people with huge _wage_ incomes (executive salaries) who are in the same
boat; they can't spent all their wages.

Martin Taylor 970330 10:00 --

1. How is money created?

Bill Powers (970330 MST) --

Very nice. Money is a claim on goods or services, and simultaneously a
promise to deliver goods or services.

I agree. I now think of GNP as a big pie covered with money; you get the
money that covers the piece of the pie you make and you get to use that
money to buy any piece of the pie (equivalent in size to the money you have)
that you want.

I think money was the greatest invention since language. It made it much
easier for individuals to develop specialized skills and cooperate to
produce results that would have been impossible for any person to produce on
his own. I can't imagine that the level of skill specialization and
cooperation we see today would have emerged if we were still using barter.
Without money, I don't believe we would have been able to build computers or
777s.

So in PCT terms, it all boils down to producing output in order to control
your own inputs. The worker on the GM assembly-line is producing output
actions to control whichever of their consequences is wanted. The CEO is
doing the same thing. One wonders how it comes about that the time, skill,
and effort of these two people is given such extremely different values.
That's going to be a tricky one to untangle.

YES! I think that only a PCT level analysis would be able to provide an
answer to THAT very important question.

Best

Rick

[Bill Powers (970331.1500 MT)]

Rick Marken (970331.0830)--

So the people who get the wages provide enough goods and services for
all the people, including those with capital income, to buy.

I'm not sure that people receiving capital income (I'm not one, by the
way, so this is not a matter of self-interest) should not be counted as
people who contribute to production of GNP. According to the aggregate
analysis, PQ (GNP) at any instant is purchasing power, B. B can be divided
into wages, W, and capital, K, income: B = W+K. And B (less leakage) is
used to maintain a particular rate of production, Q. So productivity
depends on both W and K - - wage related work and capital related work.

If you're receiving interest on bank accounts, or rents by virtue of your
ownership of property, you're receiving capital income. Capital income is
simply the non-wage part of total consumer income. You're right that the
spending of capital income contributes to total producer income and is
essential in the macroeconomy. "Productivity," however, is a technical term;
the productivity of a person receiving capital income is zero, relative to
that income. Productivity is simply total producer income divided by wage
costs: PQ/W, I believe.

The capital
related work may involve no more than pushing keys on a computer to make
trades.

That might be counted as Wage income. Hmm. A stockbroker making trades
charges a commission; that is certainly Wage income. But a trader trading
for himself? I think this is neutral. Money passes from one person's hands
into another's, with certificates of ownership passing the other way, but
are any goods or services involved? No _new_ goods, for certain. It seems to
me that only such things as dividends or distributions of profits would
count, because they're part of the cost of production for some producer --
capital income for someone.

Maybe we should look on the stock market as a source of leakage. When you
buy a stock from someone and the company goes broke, the money you spent for
the stock is still in circulation (through the person you paid it to), but
your own net worth has declined. You have less money to circulate, so the
total money available in the system has declined. That may be one form a
leakage. A bad debt would work the same way, whether personal or corporate.
The creation and destruction of money obviously have something to do with
leakage.

All this is very complicated; we need some models.

But I think it still has to be considered part of the work that
drives the productivity of the economy. So I don't think capital is
"unearned income". It is an aspect of the economy that would (if there
were no leakage) allow the economy to grow at the rate at which it
intrinsically capable of growing -- approximately 12.5%.

Capital income is unearned in the sense that you don't have to put out any
time, skill, or effort to get it. The investment you made (if any) may have
come from Wages at one time, but when you start getting money basically just
for existing, it's capital income. You don't run a machine, keep books, make
marketing decisions, or drive a truck. You can use your time, skill, and
effort any way you please. You play a role in providing income to the
composite producer, but no role in creating the product.

As usual with inventing technical terms, there's no "real meaning" involved
here. "Unearned income" doesn't imply that you don't deserve it (or that you
do). It just means that it's income paid to you without requiring any of
your time, skill, or effort in return.

Best,

Bill P.

[From Bruce Gregory (970331.1800 EST)]

Bill Powers (970331.1500 MT)

All this is very complicated; we need some models.

Indeed we do!

Bruce Gregory

[Martin Taylor 970401 13:40]

Bill Powers (970330 MST)] to Martin Taylor 970330 10:00 --

Your post is in a mode I call "truthsaying" -- putting down only what seems
to be so simple that it has to be true, carefully avoiding anything that
that is complex or devious, and having no hidden agenda toward which the
argument is steered.

I can think of no higher compliment, coming from you. Thank you very much.

To make this work you have to be willing to end up
anywhere, even with some standard economic theory if that's where it leads.

Somehow I doubt that is where it will lead, but if so, so be it.

I think that much of what you say will eventually wind up in the Web pages,
since you bring up points I had intended, but that had not yet developed.

>1. How is money created?

Very nice. Money is a claim on goods or services, and simultaneously a
promise to deliver goods or services. Let's not leave out the quantitative
aspect: it's a promise and a claim relating to a _specific amount_ of goods
or services.

This relates to a (future) discussion of value and conflict, which might
well begin here. I can't answer this point as I would like until we get
some handle on this thing called "value." A lttle further on in this
message I include a precis of a proposed Web page on the question.

Value, as you say, is a matter of perceptions (and reference
levels), but once money enters, so does bookkeeping. Twenty-five buttons for
8 ounces of prime steak, we agreed, not 22, so read the scales and where are
the last three buttons?

It doesn't matter, if the "value" of 25 buttons to the "steak-holder" is the
same as the value of 22. So I don't think we can argue immediately for
book-keeping in the arithemtic sense. I think that the arithmetic of
book-keeping has to emerge from the analysis of more fundamental factors.
But I'm prepared to speculate that it will come from the linearizing effects
of noise in sticky or nonlinear feedback systems.

I think you're dead on about debt equaling the money supply, under the
broadest interpretation of "money." An employee discount is money just as
much as the paycheck is.

Yes, and the macro-economic consequence is that if all governments managed
a balanced budget, we would have economic disaster.

>2. The Value of Money
>
In my father's book, the idea is brought out that the ONLY coin in which we
can measure payment is the product of time, skill, and effort. The butcher
isn't really contracting for buttons, but for the time, skill, and effort
someone expends on making buttons. All raw materials are free. Meat is free,
but cowboys and truck drivers and butchers aren't.

Right. That's my starting point, too. Since money is something that exists
_only_ in the imagination, it is something that can be of interest only to
humans (and possibly other primates, dolphins, and parrots).

The words "time, skill, and effort" are appropriate. If you can find it,
check out an article by S. Bagno, in the IRE Conference Record (IEE?) for
1953, where this point is made most persuasively. That's who got me thinking
along these lines 40 years ago.

So in PCT terms, it all boils down to producing output in order to control
your own inputs. The worker on the GM assembly-line is producing output
actions to control whichever of their consequences is wanted. The CEO is
doing the same thing.

Yes.

One wonders how it comes about that the time, skill,
and effort of these two people is given such extremely different values.
That's going to be a tricky one to untangle.

Actually, I don't think it is going to be so tricky. What we are talking
about is the force available to implement the output function of some
perceptual control system. Without going inot the long argument, a manager
directs the application of the force of the workers, and can thus do heavy-
duty controlling that none of the workers could succeed in. The role of
manager, accepted by the workers, provides large effects in the world, among
which is the lining of the manager's pockets--if s/he so wishes and nobody
powerful objects. It's an entropy issue, if you like. By allowing their
efforts to be aligned similarly, in a direction specified by the manager,
the workers achieve much larger effects on the world than they would if
each independently chose what perceptions to control at what values. Some
part of those effects (the _value_ generated by the workers) returns to
the worker, and some to the manager.

It's an ethical issue as to what that balance "should" be. To sort out
the ethical issue may be tricky. One might start by enquring as to the
difference in control possibilities _for the workers_ that are gained if
they follow the direction of the manager, as opposed (a) to doing their
own thing independently, or (b) doing something in a concerted way by
mutual agreement or vote.

>Money has value, but only in the context of the goods and services for
>which it can be traded.

"Value" is a hard concept to pin down....

> Value cannot
>be a property of a thing that might be traded. It is a perception held
>by a person. The value of an item can change over time, even if the
>thing itself doesn't change.

There, that says it. Go even further, since a perception is only a report on
what is. The value of a perception is set by the reference level one is
maintaining for it. You can't get away from the hierarchy.

See below.

>Since the value of a thing to be traded is a perception in the mind of
>the trader, it is quite reasonable for Sam to perceive that giving
>buttons and getting steak increases the total value of his possessions,
>while at the same time Bill perceives that giving steak and getting
>buttons increases his overall value.

This "overall value" idea seems unnecessary to me. This gets into the idea
of "rational man." I don't think that a person buying an ice-cream cone is
considering, very deeply, whether this increases his sense of perceived
overall value more than spending the same money on razor blades would do.

It hadn't occurred to me that we were getting anywhere close to "rational
man," which I agree to be a nonsense concept.

Here's a precis of one of the pages I had intended writing soon. To write it
here may help me to write it better there.

----------begin precis---------

The concept of "value" is elusive. To see how elusive, consider again my
transactions with Sam. I have mown Joe's lawn and received from him 25 buttons.
I need three of them to fix my shirt, but I can't think what to do with the
other 22. Now I need another haircut, so I go to see Sam and ask what he
would like to get for his efforts. "Buttons" says Sam. "OK" say I, thinking
I will give him 20 of my button oversupply, keeping two for an imagined
future emergency.

Sam says he wants 25 buttons. I say "No way. I can give you 20, or even 22,
but that's my limit. I can let my hair grow down to my knees before I'll
give you 25."

Now what is the value of one button in this transaction? I have 25 identical
buttons, and (for the sake of argument) no immediate prospect of getting
more. In order to control some reference perception I have (i.e. a shirt
that I can do up), I must keep 3 buttons. In order to control an unspecified
future perception I imagine I may have, I need 2 more buttons. I can neither
use now, nor perceive (imagine) in the future, a use for 20 of the buttons.

For me, 20 buttons have no value. I could happily throw them away, were it
not for my imagination, which tells me that the next time I need a haircut,
Sam may want them. But 25 buttons has a large value. I will not give Sam
25 buttons in exchange for a haircut. For me, my haircut has much more
value than 20 buttons, and much less than 25. I would be unhappy to trade
22 buttons for a haircut, but I might do so if the hair got long enough.

Is the value of a button then 1/22 times the value of a haircut? Clearly
not, because if for some reason, my Aunt Sally dropped by and left a gift
of 25 more buttons, I'd happily give Sam 45 for the haircut (apart from
imagining possible later trades I might use them for). Would the value
of a button be 1/22 of a haircut before, and 1/45 the value of a haircut
after Aunt Sally dropped over for tea?

Value depends on conflict, in the PCT sense of conflict. The loss of 20
buttons does not affect my control of variables presently being controlled.
The loss of 25 buttons severely affects control of the "presentable shirt"
perception. It isn't the perception of having 25 buttons that is being
controlled in conflict with the perception of having a presentable shirt.
The "presentable shirt" perception can be controlled very well provided
that other perceptual control systems do not demand a reduction below 3
in the reference level for perceived button count. And the "having a
haircut" perceptual control would demand such a reduction if Sam sticks
to his demand for 25 buttons.

The value of the buttons depends on there being a conflict in the control
perceptions for which "button outflow" is a control action (i.e. a settable
reference perception at a lower level). All of which happens in the
imagination.

When two control systems conflict, it is likely that one will overwhelm
the other, at least largely. If Sam sticks to asking 25 buttons, either
I don't manage to succeed in achieving my "want haircut" reference
perception, or I don't succeed in achieving my "want presentable shirt"
reference. But as soon as Aunt Sally comes to tea, leaving 25 more
buttons, the conflict disappears, and so does the value of 25 buttons.

"Easy come, easy go" is more than a moral aphorism. If I expect Aunt
Sally to come to tea bearing such gifts every day, I can get all the
haircuts I might possibly want, without conflict. Then the "easy come"
buttons would "go easy" because they would have almost no value to me.

One can argue that the 20 buttons do actually have value, because I imagine
that I can exchange them for other (as yet unknown) things I may want in
the future. But here again, the value is imposed by conflict. The conflict
now is between the control of my current reference perception of wanting
a haircut and the control (in imagination) of other things that would not
be controllable if I gave away the 20 buttons.

-------------end of precis-----------

It
makes more sense to me to substitute the idea of reducing error for that of
maximizing utility.

I see what you mean, but I think this wording fails, because "reducing
error" is the same as "increasing utility" to me.

I think we are all too short-sighted to do any real
long-term maximizing, at least on purpose. What we do, mostly, is correct
the salient errors.

Yes, but the concept of value as inherent in conflict between the control
of perceptions in imagination seems to cover that. Remember that even Sam's
haircut is, at the moment, only a concept in my imagination. "Value" here
seems very closely related to whatever it is that corresponds to the
error in intrinsic variables that drives reorganization. Only in the sense
that reorganization usually leads toward (if not "to") optimum overall
control is there any "maximizing" of value. One makes those trades that
seem to increase it.

I spoke before of "overall value" not in the sense of a rational bookkeeping
exercise, but more as a feeling of comfort, a local maximizing of the
ability to control (which includes not only money, but also health and
social support relationships). So I agree with your comments about not
wanting to get anywhere near the "rational man" notion.

I'd rather put this idea this way: To Bill the Butcher, giving steak is
merely a means of getting buttons; to Sam, giving buttons is merely a means
of getting steak. You give what you don't care about (at the moment) to get
what you want. If Bill were hungry, he'd eat the steak; what he trades is
only what is surplus to requirements. Unless there's a conflict, of course.

I agree, and hope I extended this statement in the "precis" above.

In the light of the previous section, I wonder how often this is really
going on. Does the carpenter regret the nails he had to use up to build your
house? I don't think so -- that's just part of the deal in producing a
house, and getting paid.

If the carpenter had no way of getting more nails, do you think he would
not regret using them up? But he is getting paid, as you said, which provides
him with the means to get more nails. That doesn't mean there's no conflict.
What it means is that the balance is in favour of the trade. Any small
regret about losing nails is overwhelmed by the ability to control provided
by the pay (and that includes the ability to control the count of nails
he owns--iff the hardware store has any left for sale).

There is a conflict within the carpenter only if he hasn't thought through
his own profession. Building a house that people will want to buy is the
point of being a carpenter. To do that, you perform whatever actions are
necessary. If you can't do that well enough to receive more than you feel

                                  ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

you have expended, then you need to look for another profession. We

  ^^^^^^^^^^^^^^^^^^

shouldn't base economic principles on the inability of individuals to
resolve their own conflicts.

Whether conflicts are resolved is irrelevant to whether they exist. The
mere existence in your writing of the part "well enough to receive more
than you feel you have expended" is a statement that the conflict exists.
Think again about the carpenter's situation if he imagines that he will
not be able to get more nails without a great deal of effort. Would he
then be tempted to use fewer than if he knew he could get as many as he
wanted, for free?

>... Money is one way to effect
>control, at least control involving the actions of other people, but
>there are other ways. People do things for love, as well as for money.

Right, and this is a psychological problem, not an economic one. I think we
have to investigate economics on the assumption that ideosyncratic conflicts
have been taken care of. Only in this way can we decide whether a given
problem is a matter calling for changes in public economic policy or for
psychotherapy.

I'm surprised for you to say this. Certainly the _individual_ problem is
of no more interest to public policy than the motion of an individual
molecule is for the setting of a thermostat. But the resolution of
millions or trillions of individual problems is as important to public
policy as is the movement of trillions of molecules to the thermostat.
And I thought your position was (as mine is) that all economic issues
are at their foundation, psychological.

There is one case in which conflict becomes an economic concern: scarcity.
It seems to me that all economic theories to date have been based on the
assumption of incurable scarcity; the impossibility of everyone getting
everything important that is wanted.

Yes. That's a serious problem, and one that becomes much more important
when we have, first, photgraphs and Xerox machines to reproduce pictures
and text with far less effort than was expended by a mediaeval scribe or
artist, and now reproducible automata (programs) that cost a lot of
effort to produce in one copy and almost no effort to produce in
millions of copies. If I may be permitted to mix metaphors this April 1,
to shoehorn a million copies into a Procrustean bed designed for Adam
Smith's progeny living in scarcity is hardly wise or productive.

Conflicts over racehorses or diamonds are hard to take seriously as
economic problems; a little couch time would help anyone see that the loss
of either would be of no fundamental importance to one's happiness.

Speak for yourself, buddy. As one who has apparently been condemned to
a life of utter misery, devoid of diamonds and racehorces, "I cannot
possibly comment."

But
people need food, shelter, health care, peace of mind, and freedom from
exhaustion and mind-numbing boredom, and no therapist could persuade them
otherwise. People will fight over such things, simply because to give up on
them would be to give up the means of, or the reasons for, living.

Back to scarcity arguments again, are we?

It seems to me that one of the goals of any investigation of economics must
be to figure out how these fundamental conflicts can be avoided, or where
necessary, cured. I don't think they should just be accepted as permanent
features of the economic landscape.

Neither do I, but I think that's an ethical standpoint we share for reasons
other than an examination of the fundamental structures of economics. If we
take it as one of the desired results of our analysis, we run the risk you
warn against: "having no hidden agenda toward which the argument is steered."
It may turn out that the economic argument provide some guidance, or it
may turn out that the ethical issue is independent of the economic one
(or even that the two are opposed, as some economic gurus seem to believe).

More to come, but not now. The analysis hasn't gone nearly far enough in
the "trughtsaying" mode to deal with concepts like "capital." It will,
though. Or at least I hope so.

Martin

[Fro0m Bill Powers (970401.1612 MST)]

Martin Taylor 970401 13:40 --

Value, as you say, is a matter of perceptions (and reference
levels), but once money enters, so does bookkeeping. Twenty-five buttons
for 8 ounces of prime steak, we agreed, not 22, so read the scales and
where are the last three buttons?

It doesn't matter, if the "value" of 25 buttons to the "steak-holder" is
the same as the value of 22. So I don't think we can argue immediately for
book-keeping in the arithemtic sense. I think that the arithmetic of
book-keeping has to emerge from the analysis of more fundamental factors.
But I'm prepared to speculate that it will come from the linearizing
effects of noise in sticky or nonlinear feedback systems.

OK, we can easily postpone the subject of bookkeeping, although it seems to
me that a farmer promised three sheep for his daughter, and recieving two,
will notice the integer difference.

It's an ethical issue as to what that balance "should" be. To sort out
the ethical issue may be tricky. One might start by enquring as to the
difference in control possibilities _for the workers_ that are gained if
they follow the direction of the manager, as opposed (a) to doing their
own thing independently, or (b) doing something in a concerted way by
mutual agreement or vote.

I can imagine an arrangement in which the workers decide that they need a
coordinator, and hire one whose job is to control at a higher perceptual
level than any one worker does. This could be an essential function that
needs to be handled by a single person rather than a committee (effective IQ
= average IQ divided by number of committee members). But is it likely that
the workers would decide that the coordinator is worth 250 times the pay of
the average worker?

···

-----------------------------

Here's a precis of one of the pages I had intended writing soon. To write
it here may help me to write it better there.

----------begin precis---------

The concept of "value" is elusive. To see how elusive, consider again my
transactions with Sam. I have mown Joe's lawn and received from him 25
buttons. I need three of them to fix my shirt, but I can't think what to
do with the other 22.

Etc.

I think that this idea of marginal value can be overdone. There are much
simpler ways to account for the fact that an error seems to become more
important as the last stages of correction take place. All you need is a
control system with an integrating output to give the same effect: the
longer the error persists, the larger the corrective action becomes.

How do we observe the value that something has to another person? Only by
seeing how hard that person will try to get it. I really feel that "value"
is a folk term that may require translation into PCT terms, but is not
itself of any basic importance. In different usages, it may well translate
into completely different aspects of a control process.
-----------------------------------

It makes more sense to me to substitute the idea of reducing error for
that of maximizing utility.

I see what you mean, but I think this wording fails, because "reducing
error" is the same as "increasing utility" to me.

The concept of "error" contains both magnitude and sign implications. The
concept of "utility" refers only to magnitude. So if you know only that an
amount X of a given good has a utility U, and that the maximum utility is U'
which is greater than U, you do not know whether to increase or decrease the
amount of X. On the other hand, if U' is reached at the value X', then it's
easy to compare X with X' and correct the error directly, without going
through the calculation of U. Utility is an unnecessary concept, and
ambiguous, too.

I think we are all too short-sighted to do any real
long-term maximizing, at least on purpose. What we do, mostly, is
correct the salient errors.

Yes, but the concept of value as inherent in conflict between the control
of perceptions in imagination seems to cover that.

I don't set much store by "concepts inherent in" other concepts. If we want
to come up with an economic model that does things, such "concepts" have to
be reduced to explicit operations and relationships that we can program. We
have to distinguish embellishments on descriptions from essential elements
of a model. With respect to modeling, I consider "value" to be a
non-contributor. And it's a departure from "thruthsaying."

Best,

Bill P.

[Martin Taylor 970401 23.45

Bill Powers (970401.1612 MST)]

Martin Taylor 970401 13:40 --

it seems to
me that a farmer promised three sheep for his daughter, and recieving two,
will notice the integer difference.

Yes, but would that difference, once noticed, increase or decrease the
farmer's pleasure in receiving the sheep? (I would have used the word
"value" here, but you don't like it so I won't). If he has to feed the
sheep, maybe he prefers two to three, even if three had been promised.

It's an ethical issue as to what that balance "should" be. To sort out
the ethical issue may be tricky. One might start by enquring as to the
difference in control possibilities _for the workers_ that are gained if
they follow the direction of the manager, as opposed (a) to doing their
own thing independently, or (b) doing something in a concerted way by
mutual agreement or vote.

I can imagine an arrangement in which the workers decide that they need a
coordinator, and hire one whose job is to control at a higher perceptual
level than any one worker does. This could be an essential function that
needs to be handled by a single person rather than a committee (effective IQ
= average IQ divided by number of committee members). But is it likely that
the workers would decide that the coordinator is worth 250 times the pay of
the average worker?

Probably not, but that's a question of power, rather than of economics, I
think. Would a fair judge make that decision? Probably not, but that's a
question of ethics rather than of economics. My preference would be to
look to see whether there is any way of finding an argument as to whether
that ratio has a reason for being better at 5, 50, or 500.

-----------------------------

Here's a precis of one of the pages I had intended writing soon. To write
it here may help me to write it better there.

----------begin precis---------

The concept of "value" is elusive. To see how elusive, consider again my
transactions with Sam. I have mown Joe's lawn and received from him 25
buttons. I need three of them to fix my shirt, but I can't think what to
do with the other 22.

Etc.

I think that this idea of marginal value can be overdone. There are much
simpler ways to account for the fact that an error seems to become more
important as the last stages of correction take place.

I guess I must not have writed too good, if that's what you got out
of the precis. My argument was aimed at the point (which seems obvious
to me as a fundamental intuition that is hard to justify in any other
way) that if you have no use for something, it has no value to you, but
if you have a use for it, to use it for another purpose inhibits your
use of it for the purpose you originally intended. That's when the
thing has value to you, when you have a use for it. And if someone
else wants it in exchange for something else you want, you do or do
not accept the trade, depending on how you perceive the value of
having or not having the one thing as compared to the other.

How do we observe the value that something has to another person? Only by
seeing how hard that person will try to get it.

I was looking at the other side of the transaction. Having the thing,
how much does the other person have to offer you (in terms of improved
control) for you to forego the control the thing allows you, by giving
it away. But one can observe from the other side, too, as you suggest.
It's harder to quantify, looking from outside, I guess. To use another
quote from W. Shagsper the other person may be emitting much "sound and
fury, signifying nothing"...putting on an act, as is done in much
bargaining.

I really feel that "value"
is a folk term that may require translation into PCT terms, but is not
itself of any basic importance. In different usages, it may well translate
into completely different aspects of a control process.

Oh, yes. I do agree with that. In writing my precis, I had the feeling
that I was covering only a small aspect of what the word is used for.

-----------------------------------

It makes more sense to me to substitute the idea of reducing error for
that of maximizing utility.

I see what you mean, but I think this wording fails, because "reducing
error" is the same as "increasing utility" to me.

The concept of "error" contains both magnitude and sign implications. The
concept of "utility" refers only to magnitude.

Sorry--I was thinking of "error" here in the same way as we think of it
in reorganization, as an absolute (or a squared) magnitude. I think of
the utility of something as corresponding rather closely to the reduction
it allows me in the (absolute|squared) error of one or more controlled
perceptions.

Utility is an unnecessary concept, and
ambiguous, too.

Ambiguous, perhaps. But I think it will be necessary, even if it has to
be made precise in a proper theory (like the ambiguous term "perception").

I think we are all too short-sighted to do any real
long-term maximizing, at least on purpose. What we do, mostly, is
correct the salient errors.

Yes, but the concept of value as inherent in conflict between the control
of perceptions in imagination seems to cover that.

I don't set much store by "concepts inherent in" other concepts.

Another misreading, I think. Read with this bracketing: "the concept of
<value as inherent in conflict>" not "<the concept of value> as inherent
in [the concept of] conflict".

If we want
to come up with an economic model that does things, such "concepts" have to
be reduced to explicit operations and relationships that we can program. We
have to distinguish embellishments on descriptions from essential elements
of a model.

Yes, that has to be so. But one often comes to such an effective position
by successive refinement of a position less clearly thought out. At least
I do. I have no problem at all with having the vagueness of my statements
illuminated so that the core truth (if they hold any) can be exposed and
made precise. Did you come to the precise theory of Perceptual Control
full blown at its moment of conception? Perhaps you did, but I suspect
that you saw something like "It has to work like that" rather than "These
are the connections and those the kinds of perception that could be
controlled thus and so."

With respect to modeling, I consider "value" to be a non-contributor.

Perhaps. But is it a non-contributor to a discussion that leads toward
the possibility of modelling? And do you deny that you have a perception
of value that affects your decisions as to whether to buy or sell something,
or to work to produce it? For my part, I certainly have a notion as to
whether the value of looking at a nice flower garden is worth the effort
I would have to put in on planting, weeding, nurturing, and so forth.
Maybe that perception will not prove to be useful in developing models
of economics, but I'm not prepared at this stage to say it won't.

And it's a departure from "thruthsaying."

I knew it was too good to last:-)

But as you know, the other drafts were in preparation for more permanent
display, whereas this one was worded on the fly (though the idea was not).
Maybe a bit of examination will help me to get it right (truthful:-). I've
copied out my text, so it is available to be edited and included if it still
seems "valuable" to do so.

Martin

[From Bill Powers (970402.0814 MST)]

Martin Taylor 970401 23.45 --

I don't mean to discourage, by quibbling over words, what you're trying to
do. I think you're quite right that there are issues of ethics and power
involved as well as "pure" economics. Maybe they can't really be kept
separate. I only want to suggest Keeping It Simple as far as you can: easy
answers first.

Best,

Bill P.

[Martin Taylor 970403 11:30]

Bill Powers (970402.0814 MST)]

Martin Taylor 970401 23.45 --

I don't mean to discourage, by quibbling over words, what you're trying to
do.

"I have to use words/when I talk with you" (or something like that).

I think most people have a notion relating to "value" as I used it, in
much the same way as most people have a notion of "perception" that can
be used to lead them into a more precise (modellable) concept. It may well
be that this quasi-public notion turns into several different technical
concepts. I have two in mind, neither of which covers the notion of
"family values," but one of which does cover "valued friendship." And
it may turn out that my two eventually turn out to be the same, seen from
different viewpoints--or that each splits into several technical concepts.
If so, it will come from an analysis that is "simple" from someone's
viewpoint (perhaps mine, perhaps yours, perhaps someone else's).

I'm not really discouraged. I'm not sure how to word my feelings. For
40 years I've looked at what goes on in the politico-economic world from
the viewpoint that _value_ was what the economists should be dealing
with, not _money_. And that this "value" had to do with human welfare--
rather as the US Declaration of Independence (or the Bill of Rights, or
something) says: "...life, liberty, and the pursuit of happiness..."
Discouragement would lead me to forget this notion, or perhaps forget
the idea of trying to build on it in a publicly accessible way. No, I'm
not discouraged, at least not yet.

I take "life" to be of the essence in any political discussion (and
parenthetically, I ask how any US state can square keeping the death penalty
with that document). "Liberty" is often miscontrued, but I construe it
in the context of PCT to mean something like "ability to control [a wide
variety of perceptions]" which may well be maximized by accepting constraints
on everyone's ability to control some perceptions.

And "the pursuit of happiness" is my (idiosyncratic) definition of economics.
Money is one means toward that pursuit, but no more than that. When money
becomes the goal, the effect is much like that of making the centration of
the steering wheel the goal of driving a car. Hard to keep the car on the
road that way, or to devise political policies that result in happy people
in delightful communities. Or to change the metaphor "the operation
was a success" (inflation is kept in check) "but the patient died" (the
inner cities crumble, and rich people live in defended enclaves while others
starve around the world).

Anyway, my feelings centre around the notion that I prefer a disturbance to
my perceptions of the technical concepts over a disturbance to my self-image
as a serious thinker (as, I perceive, does Hans). I don't mind my ideas
being destroyed by arguments I can't refute. I don't (much) mind other
people not accepting my arguments, provided that I can determine that this
non-acceptance is based on one of two things: (1) there is a flaw in my
argument, or (2) the other person misunderstands my argument.

What I _do_ find disturbing (and discouraging) is a rejection based on
the other person's assertion that "thus and so is true and your argument
violates this truth" where it is the truth of thus-and-so that may be in
question or where the argument actually does not violate it. (Or a
rejection based on questioning my motives for making the argument, which
is why I used to--and others still do--get so annoyed at Rick's rejections
of things posted).

Enough on that.

I only want to suggest Keeping It Simple as far as you can: easy
answers first.

My Okham's razor paper argues that what is "simple" depends on who is
reading it. I'm hoping to achieve simplicity (and truth) for people who
don't know PCT. If they come to learn some PCT in the process of
understanding the discussion, so much the better. But I'm trying to
word the Web pages in a way that is more generally intelligible.

My vague underlying notion is to couple the Web pages
with pointers to tutorials on the underlying PCT concepts, preferably
written by someone else (at present, pointers to the CSG Web site are
enough to be going on with).

Easy answers first is a seductive approach. It can be worthwhile in getting
a sound foundation, and _that_ you must have. But easy answers are often
wrong answers. Any number of dictators have come to power on the basis of
providing easy answers that people have believed. What we need is provable
answers, and if we can't have that, then demonstrable answers.

But there's another point, which can be illustrated with a different
metaphor. One can build a cantilever bridge by extending it piece by
piece across a foggy valley, hoping to reach firm terrain if one builds
far enough. But one can build a longer suspension bridge if one can see
and reach firm terrain on the other side, and sling a light rope across,
which can be used to haul the heavier cables that eventually support the
bridge. Or one can build pylons on intermediate firm places.

Research is a bit like that. Working strictly from firmly based answers
is like building the cantilever into the fog. You don't know where you
will wind up, but (if all the girders are strong, and not provided by
the lowest bidder) wherever it is, you will be safe. That's basic research.
Engineering development, on the other side, starts on firm terrain on the
other side of the river, where some things are known to work, but why they
work may not be clear. A light cord, speculations based on existing basic
research, may suggest where to build the bridge, dragging answers that
work in both directions, until the heavy cable of research that connects
basic knowledge to laboratory practice to real-world practice is built.
The cord may break a few times before the bridge is built, but going to
places that work helps to define the direction in which it may be usefully
built.

It's a long span from individual studies of PCT to the macroeconomics of
Powers senior and from there to the antics of Parliament (or Congress).
But some things seem to be generally true, and other things not. By
speculating how the bridge might be built, we define directions in which
stronger cables can replace weak threads.

Easy answers where they can be had, by all means, provided they are
provable or demonstrable. But recognize that there are some islands
in the river where pylons can be built to secure the cables. We don't
know, perhaps, which islands are rock, and which are quicksand. But some
of them will prove useful, if we don't rely too much on their strength
before they are tested.

[From Rick Marken (970403.1450 PST)]

I think there is a flaw in TCP's analysis of behavior of the
aggregate economy. The flaw seems very simple. Since TCP has thought
about this more than I have, perhaps the flaw is no flaw at all.

Here's is my analysis of TCP's analysis:

The analysis starts with the assumption that at a particular instant
the aggregate producer produces Q' goods at a cost (to the producer)
of P'. So The producer pays out P'Q' dollars to produce Q' goods and
services.

The P'Q' dollars go into the hands of the aggregate consumer, who uses
these dollars (in the same instant they are made) to purchase all of
Q' that it can. If there is no leakage AND the aggregate producer
charges the same amount for the goods as it cost the producer to produce
them (P') then the consumer will return P'Q' dollars to the consumer for
Q' goods and all is fine and dandy. [Note that Q' is
growing over time; if P' remains consant, then the aggregate consumer
is buying more stuff (more Q') for the same unit price (P') over time;
per capita consumption remains constant if the rate of growth of
Q' is exactly proportional to the rate of growth of N (population).
If rate of growth of Q' is greater than rate of growth of N then
per capita consumption increases].

If there IS leakage, then there is a problem. The producer pays the
consumer P'Q' dollars to make Q' goods and services but the consumer
has only (1-alpha)P'Q'= B dollars to spend FOR THOSE SAME Q' GOODS AND
SERVICES (alpha is leakage which is about .07). TCP goes through a
little algebraic derivation to show that, if B<P'Q' then then actual
amount of goods produced (Q) is less than Q' and the cost of those
goods (P') increases so that P'Q' = PQ.

The flaw in this analysis (it seems to me) is that it misses the fact
that Q' HAS ALREADY BEEN PRODUCED AT COST P'. Now producer must sell Q'
goods at a price that will make up for the leakage; that is P'Q' = PQ
means that the cost to the consumer (P) for the Q' goods that are
already produced MUST GO UP to make up for the fact that the consumer
can now only AFFORD (due to leakage) to buy Q (which is (1-alpha)Q') of
the goods it has produced.

If the producer raises the price of the Q' good from P' to P, how
does the consumer afford this increase? Remember, the consumer has only
(1-alpha)P'Q' dollars so it can only afford to buy (1-alpha)Q'
of the goods at their production price (P'). If P is even GREATER
than P' then then consumer can afford to buy even LESS than (1-alpha) of
the goods and services (Q') it produced. If Q is the amount of Q' that
can be consumed at prince P then Q is AT MOST (1-alpha)Q'.
This means that a minimum of (alpha) Q' goods and services are being
accumulated into inventory.

If there is leakage then the aggregate consumer is simply unable to buy
all that it has produced and there will be a continuous increase
in inventories. Since we don't see this, then something is missing
from this analysis. What _might_ be missing is consumer borrowing;
the aggregate consumer might be borrowing an amount nearly equal
to (P'Q'-PQ) to make up the differce between what it has produced
(at cost P'Q') and what it can buy (a subset, Q, of Q' at cost P).

If my analysis is correct, then leakage turns the economy into a
horrible pyramid scheme; consumers must borrow (probably from the
segment of the aggregate consumer that is responsible for the leakage in
the first place) to make up for what it can't buy (of what it has
produced) due to leakage. This "leakage based" borrowing is not the same
as the "time binding" type of borrowing that is done when there is no
leakage. Time binding borrowing is done to pay now for something that
can be paid off with surplus income over time. Leakage based borrowing
(if it occurs) is NEVER paid back because it is borrowing against future
income that will never exist; the aggregate consumer (afflicted with
leakage) will never make enough to make up for the leakage based incime
shortfalls that occur every year.

I'd be interested in hearing what _real_ economists have to say
about this anaysis.

Best

Rick

[From Bill Powers (970403.1921 MST)]

Rick Marken (970403.1450 PST)--

I think there is a flaw in TCP's analysis of behavior of the
aggregate economy. The flaw seems very simple. Since TCP has thought
about this more than I have, perhaps the flaw is no flaw at all.

Here's is my analysis of TCP's analysis:

The analysis starts with the assumption that at a particular instant
the aggregate producer produces Q' goods at a cost (to the producer)
of P'. So The producer pays out P'Q' dollars to produce Q' goods and
services.

...

If there IS leakage, then there is a problem. The producer pays the
consumer P'Q' dollars to make Q' goods and services but the consumer
has only (1-alpha)P'Q'= B dollars to spend FOR THOSE SAME Q' GOODS AND
SERVICES (alpha is leakage which is about .07). TCP goes through a
little algebraic derivation to show that, if B<P'Q' then then actual
amount of goods produced (Q) is less than Q' and the cost of those
goods (P') increases so that P'Q' = PQ.

Let me offer another way to look at this that may help with this problem.
Clearly, if leakage is to be compensated for, there must be new money
entering the system. The only place new money can come from is through
borrowing from the government, and only Federal Reserve banks can do that,
as I understand it. All other borrowing simply shifts buying power around
within the same closed system.

What we're looking for is the equilibrium condition. This occurs when the
composite producer is paying out P'Q' dollars as the total cost of
production, and is receiving money in two forms: (1) Sales receipts in the
amount P'Q'(1 - alpha) and (2) borrowing at the rate P'Q'*alpha. If you add
it up, the equation balances. So the composite producer is actually paying
out more to the composite consumer than it is receiving from the composite
consumer. Borrowing through banks in the Federal Reserve system makes up the
difference.

I think this answers your question:

If the producer raises the price of the Q' good from P' to P, how
does the consumer afford this increase? Remember, the consumer has only
(1-alpha)P'Q' dollars so it can only afford to buy (1-alpha)Q'
of the goods at their production price (P').

Actually, the consumer has (1 - alpha)P'Q' PLUS alpha(P'Q') to spend, but
only (1 - alpha)P'Q' gets back to the producer. The rest, if the economy is
in a steady state, is borrowed by the producer and handed over to the
composite consumer, as Wages or capital income.

When we say that the composite producer borrows money, we mean (thinking in
_composite_ terms) that some new companies are coming into existence and
borrowing money to start up, others are in process of repaying loans, and
still other are going out of business, defaulting on their loans and
destroying a certain amount of buying power. The OVERALL EFFECT is that of
increasing the amount of debt, and hence the amount of total buying power.
As the economy grows, more companies, along with their debt, come into
existence, thus providing the money necessary to support the increased
production to meet the increased demand. Unless, of course, Alan Greenspan
wakes up in a panic.

If my analysis is correct, then leakage turns the economy into a
horrible pyramid scheme; consumers must borrow (probably from the
segment of the aggregate consumer that is responsible for the leakage in
the first place) to make up for what it can't buy (of what it has
produced) due to leakage. This "leakage based" borrowing is not the same
as the "time binding" type of borrowing that is done when there is no
leakage. Time binding borrowing is done to pay now for something that
can be paid off with surplus income over time.

I'm afraid that on the macro scale, where we are talking about the whole
nation, there is never any surplus income. How can there be? ALL of the
income of the composite producer is distributed, either as capital income
(in which we can include profits, dividends, interest, rents, and cash
reserves) or as Wages. Consumer borrowing, regardless of its efficiency as a
way of transferring still more money from the poor to the rich, further
decreasing the standard of living of the poor (by anywhere from 13 to 22
percent for those who borrow) -- this kind of borrowing does not create new
money. It just redistributes the available money, effectively raising prices
for the poor.

As to the "horrible pyramid scheme," I'm not sure about that. It seems that
for the economy to grow, it is essential that borrowing increase to provide
the necessary money. Consumer borrowing doesn't create such a scheme, it
seems to me. But borrowing from the government, which only certain banks can
do, might. Banks are authorized to lend and re-lend money freely as long as
they maintain the legal minimum of cash in reserve. They actually borrow
less from the government than the amount of new money they create, by a
factor estimated at about 5 (the "multiplier"). But by the same token, when
the government forces them to give back some of that money as interest or
through buying government bonds, the available money shrinks by the same
multiple.

This is a sort of pyramid scheme, in that the banks can't come anywhere near
being able to hand each customer all the money that customer has in savings
or checking accounts or CDs or whatever. And this is why capitalists get so
nervous at any criticism of the system. The whole monetary system depends on
practically everyone believing that if they did need their money, they could
get it from the bank. But it's absolutely necessary that this trust and
belief be maintained, because the moment it falters there are runs on banks,
which promptly go broke. If you criticize the system effectively, you
threaten it at its weakest point, and you can expect a strong reaction from
those who are trying to maintain it.

I don't pretend to understand all the complexities of money and banking. I
am sure that many of these complexities are deliberate, serving mainly to
hide some simple, and as you say horrifying, facts. Maybe some of them just
grew, like Topsy, as people thought up more clever schemes for siphoning off
some that that gigantic money flow for their own use. But it is not in the
interests of financial institutions to have their operations be open to any
simple analysis. I think they prefer microeconomics to macroeconomics,
because at the micro level it's much harder to guess which shell the pea is
under, and how it got there. If there's any chance of understanding what is
really going on, in all its naked greed, I think it is through macroeconomics.

I'd be interested in hearing what _real_ economists have to say
about this anaysis.

I'm not sure if there are any, yet.

Best,

Bill P.

[From Rick Marken (970404.0740 PST)]

Bill Powers (970403.1921 MST)--

What we're looking for is the equilibrium condition. This occurs
when the composite producer is paying out P'Q' dollars as the
total cost of production, and is receiving money in two forms:
(1) Sales receipts in the amount P'Q'(1 - alpha) and (2)
borrowing at the rate P'Q'*alpha. If you add it up, the equation
balances. So the composite producer is actually paying
out more to the composite consumer than it is receiving from the
composite consumer. Borrowing through banks in the Federal
Reserve system makes up the difference.

It seems that there should be data on this. Maybe it's in TCP's
book. There must be some measure of the borrowing done by the
aggregate producer (I suppose I should know what this measure is
since Linda works a for the Fed; unfortunately, she doesn't work
in the "giving away money" department;-)) This measure of borrowing
should be precisely equal to GNP*alpha, right?

If there's any chance of understanding what is really going on,
in all its naked greed, I think it is through macroeconomics.

I agree. But I can't help seeing the macroeconomics in terms of
the lives of the individual human beings who make up this macro
economy. This makes the macroeconomics extremely disturbing to me. I've
decided that the only thing I can do about this is to pray
every night that I'll wake up as a Republican;-)

Love

Rick

[From Bruce Gregory (970403.1315 EST)]

Martin Taylor 970403 11:30

I take "life" to be of the essence in any political discussion (and
parenthetically, I ask how any US state can square keeping the death penalty
with that document).

I feel I must address this question. It is well known in this
country that life begins at conception and ends at birth. No
other interpretation is consistent with widely-held views on
abortion, welfare reform, and the death penalty.

Bruce Gregory

[From Bruce Gregory (970403.1800 EST)]

Rick Marken (970403.1450 PST)

I'd be interested in hearing what _real_ economists have to say
about this anaysis.

Are they anything like _real_ psychologists?

Bruce Gregory

[From Bruce Gregory (970404.1100 EST)]

Rick Marken (970404.0740 PST)]

> If there's any chance of understanding what is really going on,
> in all its naked greed, I think it is through macroeconomics.

I agree. But I can't help seeing the macroeconomics in terms of
the lives of the individual human beings who make up this macro
economy. This makes the macroeconomics extremely disturbing to me. I've
decided that the only thing I can do about this is to pray
every night that I'll wake up as a Republican;-)

Prayers are _not_ going to do it. Try hitting yourself over head
with a blunt object.... No, on second thought, we need you
just as you are. (Bet you never thought you'd hear that on this
network...)

Bruce Gregory

[From Rick Marken (970404.1340)]

Martin Taylor (970403 11:30) --

What I _do_ find disturbing (and discouraging) is a rejection based on
the other person's assertion that "thus and so is true and your argument
violates this truth" ... (Or a rejection based on questioning my motives
for making the argument, which is why I used to--and others still do--get
so annoyed at Rick's rejections of things posted).

I don't think I have ever "questioned" anyone's motives. But I think I
have made some pretty good guesses about what people's motives (controlled
perceptions) are. For example, I'm pretty sure that you were (are?)
controlling for the perception of information theory being of value to
control theory.

I also don't believe that I ever rejected anyone's proposals based on my
guesses about their motives for making the proposal. I rejected your
proposals about information theory, for example, not because
I thought you motives were "wrong" but because the data showed that
your proposals were wrong.

I think people get annoyed at my "rejections of things posted" because
I say things that are a disturbance to some important controlled variables.
The people who are not annoyed by me include those who are willing to
consider changing some of the variables they control and those who have
their CSGNet distribution set to "no mail":wink:

Best

Rick

[Martin Taylor 970405 0700]

Rick Marken (970404.1340)]

For example, I'm pretty sure that you were (are?)
controlling for the perception of information theory being of value to
control theory.

Maybe you have a better insight into what I am controlling for than I do.
But I don't perceive this to be so. I have long accepted that _you_ don't
perceive it to be valuable, and, value being a perception, I can't disagree
with that. _I_ find it valuable, but again, I have long accepted that
there's no reason to try to persuade you or anyone else, when there
are so many other things on which reasoned discussion proves to be
possible, as well as useful in advancing PCT. There are even aspects of
PCT on which we agree:-)

I also don't believe that I ever rejected anyone's proposals based on my
guesses about their motives for making the proposal.

I stand corrected, then. I guess that you just have a poor command of
English, on some occasions. (As do we all).

I rejected your
proposals about information theory, for example, not because
I thought you motives were "wrong" but because the data showed that
your proposals were wrong.

No such data have been presented on CSGnet, yet. Several attempts have been
made to _argue_ that there have been such data, but in each case the facts
have been to the contrary.

There have, however, been occasions when the opposite has happened, and
I have wondered how you have managed to sustain the blind spot that you
so assiduously turn in this direction. Could you be controlling for some
perception such as "information theory can have no relevance to PCT?"

Just wondering.

If you have new points to make in the discussion, I'm happy to
participate. What I'm not happy to do is to go through a fruitless
cycle of "tis-tisn't" again. However, at the risk of starting such a
cycle, I may briefly mention the "data" as I see them. The primary "data"
adduced to support the notion that information theory is irrelevant were
that the better the control the lower the correlation between perception
and disturbance. However,one of the very first predictions I brought up in
introducing information theory on CSGnet, before I well understood PCT
and before I realized that decorrelation had been well demonstrated,
was that the better the control, the less the perceptual and disturbance
signal should be overtly related.

As I see it, the whole _point_ of control is to reduce the information
about the outer world that is reflected in the inner world. Control
is like an active shell. A turtle has a passive shell, that performs
a similar function in keeping mechanical disturbances outside.

The turtle shell does this without sensors and without information as to
what disturbances are being kept out. It does this by generically turning
disturbances into heat or reflecting them into their inverse by a bounce.
For this it needs no information about how its shell is deforming--no
sensor system for the deformation that it prevents, and that without the
shell would have occurred to its soft inner body. Control is more subtle,
countering precise disturbances as they occur, using sensors to determine
the effects of the disturbance and effectors to counter those effects.
Despite this, the better the control, the more reliably the perceptual signal
(along with static, unchanging factors including the form of the output
function) can be used to reproduce the disturbance waveform, and this was
demonstrated as part of the earlier discussion.

As I see it--no doubt differently from Rick--it is surprising that the
verification of an earlier prediction should be taken as evidence against
the theory, and that a direct demonstration should be taken as unfair, at
least in part because it was so obvious that one shouldn't even have had to
perform the demonstration. We had said it was obvious, but Rick had said
it wouldn't work as we said, so we had to make the demonstration, refuting
Rick's prediction. The data were then rejected on the grounds that we
used information that the control system couldn't have (namely the form
of it's own output function). That the form of the output function doesn't
change in any way correlated with the disturbance was dismissed as irrelevant,
whereas in fact it is crucial.

At that point I should have given up on the idea that I could disturb Rick's
strongly controlled perception that information is irrelevant to control.
But it took me two or three years after that to realize that. I know it
now, though.

Other readers please note: It wasn't me that brought up information theory
on this occasion. For many monthsI have refrained from discussing it on
CSGnet, on the ground that it is fruitless to attempt to sustain a reasoned
discussion on that topic in this forum. There are plenty of good ideas to be
developed in PCT without dealing with issues that seem non-resolvable by
mathematical reasoning or practical demonstration.

Since I have presented above my main points in the argument (already
recycled in full at least once), I guess it's only fair that Rick should
present his side in brief, to explain why he continues to reject the idea
that information theory is valid in a control context, in the face of data
to the contrary. I don't promise, but unless he brings up something new, I
probably won't respond. It's a fruitless thread to pursue, a fact that I
regret. (And yes, I know that I have not provided a good way to compute
the necessary information values from experimental data, and that I said
I would work on it. I haven't, having been involved in much else that
side-tracked me. Some day I may return to it.)

Martin