# PCT Economics

**URL:** <http://discourse.iapct.org/t/pct-economics/8146>\
**Category:** CSG1997\
**Created:** [March 30, 1997, 12:42pm UTC](http://discourse.iapct.org/t/pct-economics/8146 "1997-03-30T12:42:48Z")\
**Posts on this page:** 20\
**Page:** 1

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**Author:** ![Bill\_Powers1](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/b/8e7dd6/32.png) [@Bill\_Powers1](http://discourse.iapct.org/u/Bill_Powers1)\
**Post date:** [March 30, 1997, 12:42pm UTC](http://discourse.iapct.org/t/pct-economics/8146/1 "1997-03-30T12:42:48Z")

</div>

[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.

---

<div class="post-metadata">

**Author:** ![Martin\_Taylor6](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/m/49beb7/32.png) [@Martin\_Taylor6](http://discourse.iapct.org/u/Martin_Taylor6)\
**Post date:** [March 30, 1997, 3:29pm UTC](http://discourse.iapct.org/t/pct-economics/8146/2 "1997-03-30T15:29:22Z")

</div>

[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

---

<div class="post-metadata">

**Author:** ![Bill\_Powers1](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/b/8e7dd6/32.png) [@Bill\_Powers1](http://discourse.iapct.org/u/Bill_Powers1)\
**Post date:** [March 30, 1997, 7:10pm UTC](http://discourse.iapct.org/t/pct-economics/8146/3 "1997-03-30T19:10:04Z")

</div>

[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.

---

<div class="post-metadata">

**Author:** ![Bruce\_Gregory9](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/b/43a26b/32.png) [@Bruce\_Gregory9](http://discourse.iapct.org/u/Bruce_Gregory9)\
**Post date:** [March 31, 1997, 3:34pm UTC](http://discourse.iapct.org/t/pct-economics/8146/4 "1997-03-31T15:34:16Z")

</div>

[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

---

<div class="post-metadata">

**Author:** ![Richard\_Marken](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/r/9fc348/32.png) [@Richard\_Marken](http://discourse.iapct.org/u/Richard_Marken)\
**Post date:** [March 31, 1997, 4:45pm UTC](http://discourse.iapct.org/t/pct-economics/8146/5 "1997-03-31T16:45:19Z")

</div>

[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

---

<div class="post-metadata">

**Author:** ![Bill\_Powers1](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/b/8e7dd6/32.png) [@Bill\_Powers1](http://discourse.iapct.org/u/Bill_Powers1)\
**Post date:** [March 31, 1997, 10:33pm UTC](http://discourse.iapct.org/t/pct-economics/8146/6 "1997-03-31T22:33:11Z")

</div>

[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.

---

<div class="post-metadata">

**Author:** ![Bruce\_Gregory9](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/b/43a26b/32.png) [@Bruce\_Gregory9](http://discourse.iapct.org/u/Bruce_Gregory9)\
**Post date:** [March 31, 1997, 11:03pm UTC](http://discourse.iapct.org/t/pct-economics/8146/7 "1997-03-31T23:03:11Z")

</div>

[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

---

<div class="post-metadata">

**Author:** ![Martin\_Taylor3](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/m/7ea924/32.png) [@Martin\_Taylor3](http://discourse.iapct.org/u/Martin_Taylor3)\
**Post date:** [April 1, 1997, 8:12pm UTC](http://discourse.iapct.org/t/pct-economics/8146/8 "1997-04-01T20:12:50Z")

</div>

[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

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

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

&nbsp;&nbsp;^^^^^^^^^^^^^^^^^^

> 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

---

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**Post date:** [April 1, 1997, 11:54pm UTC](http://discourse.iapct.org/t/pct-economics/8146/9 "1997-04-01T23:54:50Z")

</div>

[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.

---

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**Post date:** [April 2, 1997, 5:15am UTC](http://discourse.iapct.org/t/pct-economics/8146/10 "1997-04-02T05:15:36Z")

</div>

[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

---

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**Post date:** [April 2, 1997, 3:19pm UTC](http://discourse.iapct.org/t/pct-economics/8146/11 "1997-04-02T15:19:40Z")

</div>

[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.

---

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**Post date:** [April 3, 1997, 5:22pm UTC](http://discourse.iapct.org/t/pct-economics/8146/12 "1997-04-03T17:22:18Z")

</div>

[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.

---

<div class="post-metadata">

**Author:** ![Richard\_Marken1](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/r/ed8c4c/32.png) [@Richard\_Marken1](http://discourse.iapct.org/u/Richard_Marken1)\
**Post date:** [April 3, 1997, 10:54pm UTC](http://discourse.iapct.org/t/pct-economics/8146/13 "1997-04-03T22:54:38Z")

</div>

[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

---

<div class="post-metadata">

**Author:** ![Bill\_Powers1](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/b/8e7dd6/32.png) [@Bill\_Powers1](http://discourse.iapct.org/u/Bill_Powers1)\
**Post date:** [April 4, 1997, 3:16am UTC](http://discourse.iapct.org/t/pct-economics/8146/14 "1997-04-04T03:16:35Z")

</div>

[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.

---

<div class="post-metadata">

**Author:** ![Richard\_Marken1](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/r/ed8c4c/32.png) [@Richard\_Marken1](http://discourse.iapct.org/u/Richard_Marken1)\
**Post date:** [April 4, 1997, 3:43pm UTC](http://discourse.iapct.org/t/pct-economics/8146/15 "1997-04-04T15:43:41Z")

</div>

[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

---

<div class="post-metadata">

**Author:** ![Bruce\_Gregory](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/b/4bbf92/32.png) [@Bruce\_Gregory](http://discourse.iapct.org/u/Bruce_Gregory)\
**Post date:** [April 4, 1997, 3:54pm UTC](http://discourse.iapct.org/t/pct-economics/8146/16 "1997-04-04T15:54:09Z")

</div>

[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

---

<div class="post-metadata">

**Author:** ![Bruce\_Gregory](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/b/4bbf92/32.png) [@Bruce\_Gregory](http://discourse.iapct.org/u/Bruce_Gregory)\
**Post date:** [April 4, 1997, 3:54pm UTC](http://discourse.iapct.org/t/pct-economics/8146/17 "1997-04-04T15:54:09Z")

</div>

[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

---

<div class="post-metadata">

**Author:** ![Bruce\_Gregory](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/b/4bbf92/32.png) [@Bruce\_Gregory](http://discourse.iapct.org/u/Bruce_Gregory)\
**Post date:** [April 4, 1997, 4:01pm UTC](http://discourse.iapct.org/t/pct-economics/8146/18 "1997-04-04T16:01:49Z")

</div>

[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

---

<div class="post-metadata">

**Author:** ![Richard\_Marken](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/r/9fc348/32.png) [@Richard\_Marken](http://discourse.iapct.org/u/Richard_Marken)\
**Post date:** [April 4, 1997, 9:41pm UTC](http://discourse.iapct.org/t/pct-economics/8146/19 "1997-04-04T21:41:05Z")

</div>

[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"😉

Best

Rick

---

<div class="post-metadata">

**Author:** ![Martin\_Taylor6](http://discourse.iapct.org/letter_avatar_proxy/v4/letter/m/49beb7/32.png) [@Martin\_Taylor6](http://discourse.iapct.org/u/Martin_Taylor6)\
**Post date:** [April 5, 1997, 12:50pm UTC](http://discourse.iapct.org/t/pct-economics/8146/20 "1997-04-05T12:50:01Z")

</div>

[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

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