by Ambjörn Naeve, November 1995
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It is often argued that we live in a ‘post-industrial’ society. However, the industry hardly shows any signs of dying, despite the fact that it currently employs a much smaller part of the labor force than before. Therefore, instead of ‘post-industrial’, it would be more appropriate to call our current society ‘auto-industrial’, since this development is mainly due to an increasing degree of industrial automation.
However, there are many signs that we are moving into a ‘post-intellectual’ society. The avalanche-like increasing amount of information, which must be processed and digested in ever-shorter periods, forces a superficiality that leads to a constant ‘news stress’ where the surfers’ behavior is rewarded at the expense of the deep-diver’s and where manipulative how-oriented knowledge displaces why-oriented analysis and reflection . A striking example of this phenomenon is the term ‘economic science’.
One could argue that we are living in year 27 of the post-intellectual era. It is, at the time of writing, twenty-seven years since 1968, the year when the Swedish State bank (Riksbanken) instituted the so-called. “Nobel Prize in Economics”, and thus provided the economic speculations with the scientific status they so desperately needed. As we know, economic “geniuses” are now speculating not only on television!
After the economic meltdown of the 1980s, one might wonder about the state of the economic ‘science’. Do our financial high priests really know what they are doing? Can we trust them when they come up with their self-assured statements about what needs to be done to overcome one or the other of the social problems that are related to economics?
I will argue below that the answer to these questions must be a resounding no! It is time to raise the level of the economic discourse and seriously question the decisive influence of the economists on the development of society. I claim that the economic emperor is naked, a fact which, as a mathematician and a citizen of the community, I feel obliged to express in order to maintain my self-respect.
Of course, I do not expect any serious reaction to my views from any leading representatives of the economic priesthood, but hopefully my thoughts can help people in other areas to break their silence and start discussing the economic rape of social life that is spreading in the name of unrestricted market fundamentalism.
This discourse is by no means new, and important contributions have been made from many different authors. For example, in her book Creating Alternative Futures – The End of Economics , Hazel Henderson describes the conceptual crisis of economics in a brilliant and innovative way. Among other things, she points out the need to define new criteria for economic efficiency. I will return to this subject at the end of this article.
Deirdre McCloskey, who is professor of both economics and history, discusses economics and economists from a rhetorical perspective and emphasizes that economic ‘science’ is not about seeking truths but rather about convincing its audience that what it says is credible (“creating credibility”) . McCloskey describes economics almost as a literary art form, whose ‘scientific’ development is shaped by external conditions – above all by power. In her studies of economics as discourse , she criticizes the claims of economic models to correspond to reality, and emphasizes their ability to provide meaning to us – as opposed to truth. She also argues that logic has been given far too much room in economics, which is entirely in line with Georgescu-Roegen’s description of the ‘economic arithmomania’ (see below).
In his book The Death of Money – How The Electronic Economy Has Destabilized The World’s Markets And Created Financial Chaos , Joel Kurtzman, executive editor of the Harvard Business Review, provides a devastating critique of the emergence and inherent logic of electronic financial markets, pointing to the root causes of their well-known imbalance and nervousness.
These authors are all well-versed in their subjects, and their books should be mandatory reading for economic and political policy makers. My discussion of the financial economy below is essentially based on Kurtzman’s book.
However, the most fundamental criticism of economics known to me comes from Nicholas Georgescu-Roegen, who was a professor of economics at Vanderbilt University and who was also profoundly proficient in both mathematics and physics. In his epoch-making book The Entropy Law and the Economic Process  Georgescu-Roegen critizises traditional economic models from a mathematical and scientific-theoretical perspective.
He describes the emergence of modern natural science based on sharply defined, logically constructed concepts which he calls ‘arithmomorphic‘. The tremendous success of Newtonian mechanics in its treatment of the motion problems of dead matter led to an almost religious belief in the possibilities of arithmorphic (theoretical) science within the human sciences in general, and in within economy in particular.
However, the basic concepts in the human sciences are ‘dialectic‘ – i.e. non-sharply delimited and partially overlapping with their opposites – and therefore not suitable for mathematically-based logical analysis. This mechanically inspired ‘arithmomania‘ which guided the founders of economic ‘science’ (such as Jevrons and Walras) has led to human beings being treated with the same equations as mechanical particles in an energy field, interested only in maximizing their so-called utility, in accordance with the corresponding laws in mechanics.
However, since the concept of utility is by its nature dialectic, no economist has ever been able to come up with any method to measure it. In choosing the arithmomorpic approach, economic ‘science’ has therefore been reduced to a kind of ‘utility mechanics’, a formal mathematical game devoid of human content and based on symbols that lack any form of anchoring in real reality. This makes economics perhaps the most tragic example of a fundamentally humanistic discipline that has been subjected ‘arithmomorphic rape’.
In his book, Georgescu-Roegen gives excellent arguments in favor of the fact that the necessary analytical modeling of the economic process should be based on thermodynamics rather than mechanics. Thermodynamics is based on the fundamental law of nature called the ‘entropy law’, which results in an irreversible transformation from order to disorder in every natural process. With this conceptual basis, it would be possible to assign an economic value to such important production factors as, for example, the environment and natural resources, which has proved impossible in economic mechanics.
In their criticism of the economic discipline both McCloskey and Georgescu-Roegen emphasize its seemingly unlimited ability to provide us with rational ex-post analysis as a basis for irrational future forecasts – something that in these IT times could be described as economy’s own version of the concept of VR – namely ‘Virtual Rationality’.
Hazel Henderson expresses similar thoughts. According to her, economics is a ‘subsystem discipline’ whose scope has been extended to absurdity in a vain attempt to encompass phenomena which its conceptual foundations do not have the power to explain. Economics and its modern tools cost/benefit analysis are used today to mask social and moral strategy choices and to prevent a vital and innovative social debate about what actually represents a value (= is valuable). Since the term ‘value’ is normally associated with money, I will take the opportunity to briefly describe the history of the money concept.
The history of money
Money was invented in the Sumerian temples about 5000 years ago. Until recently it has functioned as a kind of catalyst – and calibration instrument – for local barter by linking its value to any generally sought-after item, usually gold. In this way goods and services received a one-dimensional price – usually expressed by a rational number – and all prices could be compared to each other, i.e. a product or a service became either cheaper than, as expensive as, or more expensive than any other.
Through the introduction of the fixed exchange rate system (Bretton Woods 1944), the calibration function of money was globalized and the one-dimensional global monetary system was created. This calibration function was maintained through the constant exchange rate of the participating currencies to the dollar, which in turn was firmly linked to the gold ($35 = 28 grams of gold). This period, which could be called the ‘golden age’, was characterized by an outstanding price stability, low interest rates and very low inflation. For example, a barrel of oil cost $4 on the world market in 1948 and that price remained largely unchanged until 1970.
However, on August 15, 1971 this situation fundamentally changed. At that day, president Nixon canceled the dollar’s fixed link to gold (‘closed the golden window’ as the expression goes), thereby creating – himself and the world unknowingly – the logical conditions for the so-called ‘money market’. A week earlier the French president Pompidou had sent a destroyer full of US dollars to New York, demanding that they would be exchanged into gold, which he was legally entitled to do.
Nixon had to act somewhat drastically, because at this time, about 300 billion so-called ‘eurodollars’ were floating around abroad – money that was largely lacking a backing in the US gold reserve at Fort Knox. This ‘paper money’ had been printed during the 1960s to finance the United States’ huge military commitments abroad (especially the Vietnam War). Running the ‘dollar printing press’ had become necessary, since both Kennedy and Nixon had drastically lowered income taxes, while at the same time dramatically raising military spending.
A year later, in 1972, an American science-fiction writer and lawyer named Leo Melamed got permission from the Chicago Chamber of Commerce to begin trading options in money. To his aid he had none other than Milton Friedman, one of the first so-called. ‘Nobel Laureates’ in Economics. Friedman wrote a letter to the Chamber of Commerce explaining why money should be considered as any other commodity, and therefore could be exposed to options trading. The Chamber of Commerce ‘bought’ these arguments, and Melamed’s company IMM (International Money Market) began to speculate on the expected value development of various currencies – initially with dollars, land and yen. Mathematically, this meant trading in the first derivative of the value of money. In 1976, Melamed expanded the operations of IMM to include trading in options on the interest rate trend of the currencies, which entails trading in second derivative of the value of money. Ironically, this market today goes under the name of ‘the derivatives market’.
It is difficult to give any exact figures on the size of this derivatives trade, which also goes by the name of the ‘financial economy’. According to Kurtzman, in 1992 its turnover amounted to about $800 billion a day . This is about the same amount of money then needed to buy the nine largest companies in Japan in a single deal. In 1992 Melamed’s own company, IMM had sales of about $500 billion per day . According to Citicorp’s Paul F. Glaser, over the last twenty years the financial economy has grown between 30 and 50 times larger than the ‘real economy’, i.e. trade in goods and services . He estimates that about 97-98 percent of all capital transfers across national borders have to do with this option trading in money, while only 2-3 percent concerns some form of real economic activity.
In short, money – which up until 1971 used to be a calibration instrument for the exchange of goods and services – has discovered that it no longer needs the goods and services to grow maximally. In fact, it achieves this much better by buying and selling the expected value development of itself – a process that of course is totally computerized, which means that it is done electronically, more or less at the speed of light. The computer buys an option on the market in e.g. Tokyo and sells it a fraction of a second later, or even simultaneously, at the market in e.g. London or New York – something called ‘arbitrage trading’.
The changed functionality of money
What has happened to the concept of money over the past two decades is an unprecedented cultural revolution in history – a revolution whose true meaning is still unknown to most people. A corresponding development in e.g. physics would mean that physicists would begin to buy and sell thumb-sticks and liter measures, and speculate on whether they would shrink or expand over time! Of course, such a ‘measurements exchange’ would certainly be extremely economically profitable, thereby creating a variety of new and exciting forms of market-based employment. In fact, floating ‘exchange rates’ on different units of measure opens up a whole new market, where many companies have a strong need to buy insurance that protects them against unfavorable changes in the measurement exchange rate!
The earlier function of money as a mediator of goods and services meant that it could be likened to a kind of gas in the economic system. A gas that served as a catalyst for various forms of real economic activity. However, the development of the financial markets (megabytes of money) has meant that money has started to change its state of aggregation. Today, money is ‘condensed’ at a rapid rate and drops into a number of (electronic) “Uncle Scrooge vaults” on our planet, while the gas pressure drops to a level that makes it impossible to support the catalytic effects, which money was originally intended to stimulate.
Today the permanent shortage of capital is a striking phenomenon in all forms of real economic activity, which in fact leads to the development of new forms of money. The so-called ‘informal economy’ is developing very quickly, and is probably one of the main reasons why many real economies have been able to survive despite the rapid ‘financialization’ of money. In parallel with various forms of barter, the real economy players are constantly developing their creativity in the art of creating new forms of money, as illustrated by the wild flora of discount coupons, extra prices and discount offers that surround us today. In my opinion, this emerging multidimensional monetary system offers an exciting opportunity to re-establish and strengthen the link between the economy and the underlying reality, a subject which I will return to below.
The neural network of money (‘neuro-dollars’)
Money has been transformed into electronic pulses (‘neuros’) that are interconnected in a global network. Money can also be imaged on millions of computer screens all over our planet, it no longer has any physical location and no longer needs any bank vaults to be stored. The money is nowhere and everywhere at the same time in a global electronic nervous system. It constantly flows from computer to computer – in the same way that nerve impulses flow through synapses – and every time this happens, huge quantities of purchasing power are transferred between the different players in the market.
According to Kurtzman, through the electronic network node represented by New York , about 1.9 (US) trillion dollars (1.9 * 10^12) flow every day. In three days, this cash flow corresponds to the total annual production of all companies in the United States, and in two weeks the total annual production worldwide. Money sums of a similar magnitude flow through the nodes of Tokyo, London, Frankfurt, Chicago and Hong Kong. The explosive development of computers has created the conditions for what Kurzman calls the neural network of money.
With the help of computers, we have created a global economic system where distances are meaningless and time zones irrelevant – a transformation from a gold-based to a ‘megabyte-based’ economy, which is completely decoupled from political control. In fact, moving $1,000 billion from New York to Tokyo is much easier than moving a truckload of vegetables across the state border from California to Arizona. At the same time, we still have nationally-based rules for trading in various financial products (derivatives) – rules whose mutual differences are utilized by the computerized trading programs to make microsecond-fast deals.
However, efficient markets are not the same thing as stable markets. The new information technology has given rise to a system that dumps tremendous amounts of information on the money marketers’ desks (= computer screens) – information that there simply is no time to ‘exform’, i.e. to process and refine . It is the exformation process that creates meaning and context in the underlying information raw material, and without adequate time for this activity it will be impossible to assess the quality of the information and expose the relevant underlying structures. Consequently, money traders become totally dependent on acting hyper-fast (act first and think later), which helps to make the market unstable and hyper-sensitive to loose rumors – a trait that unfortunately seems to be characteristic of the emerging meaningless information society.
Electronic money is created to facilitate the constant trading of all kinds of products. In this regard, it works well – yes even maybe too good (as described above). In one important respect, however, it works worse than the old gold-based money. Electronic money is bad at storing purchasing power – it has a poor storage value. Therefore, it must be constantly traded in order not to lose in purchasing power, which in turn means that the old concept of investment capital has largely ceased to exist.
The major players in the market no longer buy shares in a company because they believe in its long-term value and development potential. Instead, with a push of a button and some underlying mathematical formulas, they switch their holdings of shares, options, bonds, etc. at an ever-increasing rate, and therefore keep their holdings increasingly shorter times. Using their computerized buying and selling programs, they benefit from the market’s constant price fluctuations, which for the human viewer appear only as a kind of price noise. Of course, this behavior also contributes to further reinforcing the well-known nervousness of the market, i.e. its inherent noise sensitivity and instability.
The old gold-based market economy under the Bretton Woods system brought about price stability that rewarded long-term investments. The players knew which prices were applicable and could thus make long-term assessments of profitability. In the modern electronic market economy, this is no longer possible. The old strategy of investing long term in companies that you believe in has therefore been replaced by so-called ‘hedging’. You buy hundreds of options – much like playing a bingo lottery – and base your purchase on mathematical formulas that express average value-based expectations of their future development. It is well known that the vast majority of options will provide loss, but the small few who will become winners will still contribute to the ‘investment’ as a whole becoming profitable.
However, what is profitable for the individual actor is not always profitable for society as a whole. The classic example is the environment where ‘everybody’s business’ becomes ‘nobody’s business’. When the high-tech financial machinery shovels money from market to market with the overall goal of minimizing the risks of the actors, the risks to society as a whole actually increase. In a situation where financial capital avoids investing in new companies, when its time frames are constantly shortened, and when the individual instruments, shares, bonds, options, are less significant than the underlying risk diversification strategy used for balancing the equity portfolio, in such a situation, the capital market is unable to fulfill its basic market economic tasks in society.
Instead of providing venture capital with new companies and financing various politically determined social projects, the development of risk-minimized equity portfolios will move capital away from those who really need it for its long-term development, towards a more and more short-term financial profit maximization. This, in turn, means that companies are forced to ‘eat their own seed’, such as when for example. General Electric, Ford, and IBM are forced to buy up their own shares for thousands of billions of dollars – just to keep the stock price up – instead of investing this money in research and development. Such perverse operations are profitable in the short term, because these companies use the same computer software for managing equity portfolios as all other major financial market players.
Many market economists – especially those who design the computer programs – look at this development with confidence. They believe that listed companies have a single obligation, namely to generate maximum profits for their shareholders. From this perspective, the electronic economy is extremely functional. Companies that slaughter themselves bit by bit and sell the parts give a good result on the investors’ computerized maps and charts. They generate ample rewards, their shares are high in price, and they have virtually no investment costs in the future for research and development. This type of company is merely a payoff and the computers are struggling to buy their shares.
But how should companies be able to assert themselves in the long term with such a development strategy? How will a nation manage as a whole if its companies see profit maximization for their shareholders as their only task? Should the companies ignore customers, employees, the national interest, in order to concentrate on making their shares maximally attractive to the computers that select them? The answer is obvious: If a country’s corporations only take into account the interests of their shareholders, the result will be just as fatal to the country as if all its inhabitants would save during an economic depression.
But the information machines in the financial market do not think about investing. They just try to match more or less random numbers across a global information landscape. Kurtzman describes them as a sort of cruise missile – in search of a number pattern that matches the pre-programmed map. They are constantly looking for fast deals with high returns in the short term. If something fits into their maps of the landscape, then they buy it. They do not ask about the overall effects of such a course of action. They do not wonder how their actions affect the surrounding economic structure of society, because they are not programmed to do so.
The end of market equilibrium
In the electronic network economy, the old ideas of economic equilibrium have lost all their former meaning. How can there be any equilibrium – which economists define as a balance between supply and demand over time – in a system where the amount of information is constantly growing like an avalanche, and information itself can create purchasing power and define value? When the data that people use to make their buying and selling decisions is updated minute by minute? How can there be any balance when Wall Street nerves can cause a 508-point Fall in the Dow Jones stock exchange index  – at a cost of $500 billion – without changing any underlying financial facts? When money is privatized and can be created not only by governments but also by lending to ordinary banks and credit card companies? How can there be any equilibrium when the real economy is almost negligible compared to the financial? When the amount of money moved globally every day exceeds the value of total trade in goods and services?
An important reason for the structural imbalance of the electronic economy is that whenever information is transported in a network, it is enlarged and grows in importance, simply because it is perceived by more and more recipients. This has nothing to do with the inherent significance of the information, on the contrary. The information is not disseminated (necessarily) because it is important, but the information becomes important because it is disseminated – especially in a situation when there is not enough time to judge its quality. Unsurprisingly, one is reminded of Hitler’s famous words in Mein Kampf: If you repeat a lie a large enough number of times it becomes true. The electro-economic variant on this theme could be formulated: If you spread a lie to a large enough number of people, it becomes true!
Each time information is disseminated in the global electronic network, it affects the assumptions made by the connected recipients, whether true or false, important or immaterial. Each operator must consider not only the information received in itself but also how all other players in the network will interpret it and respond to it.
According to Peter Schwartz, head of the strategic planning unit at Royal Dutch Shell in London, the electronic information economy is governed by its own version of Heisenberg’s uncertainty principle, which controls the subatomic particles in quantum mechanics . The economy is itself affected by the way we observe it. The information is always contaminated by the recipients’ moods, feelings and beliefs, and can therefore never be considered complete in itself. Forecasts that are assumed to be based on ‘clean data’ are therefore usually incorrect. And since a network has no center, no place to filter out the false from the true, information that reaches into the global network tends to be considered true before the opposite has been proven, something that there is rarely time to do before it is too late to act. Therefore, instead of analysis, the electronic market requires intuition of its players in order for them to be successful.
One reason why economists often dislike astrologers is that the astrological and economic ‘sciences’ are very similar to one another. Economists and astrologers compete, so to speak, for the same underlying conceptual system, although they often express themselves in different terms. The old astrologically based emotional business cycles – which in the past provided the basis for decisions affecting the fate of entire nations – have been replaced by market-economy variants, often based on the same type of irrationality, and they form the basis for decisions with equally devastating consequences for millions of people. A striking example of such irrationality-based decision making is the Elliot Wave Theorist, an influential newsletter that has a very wide spread in the financial economy. Its theoretical foundations go back to an accountant in the 1920s named R.N. Elliot, who was strongly influenced by Indian mysticism. He linked the ancient Hindu ideas of the cyclical characteristics of life with the so-called Fibonacci sequence of integers (1, 1, 2, 3, 5, 8, 13, …) and thus constructed a wave pattern that he called the Elliot wave, whose structure he thought fit the cyclical behavior of the stock market.
Today, many major financial market players plan their buying and selling strategies in accordance with Elliot’s predictions. Its astro-economic-based market advice and predictions are spread to many thousands of electronic subscribers and exert a significant influence on the development of the market. In the fall of 1991, the Elliot Wave Theorist declared that the market’s peak was reached, and shortly thereafter (on November 15), a mini-collapse occurred when the Dow Jones stock index suddenly fell by 120 points – the fifth largest drop ever. The ancient astrologers would have been extremely happy if they had experienced such astro (eco) nomic success in their predictions!
Despite this spectacular price drop, nothing had happened that affected the financial situation compared to the day before. No major companies had gone bankrupt, no new financial statistics had been published by the authorities, no major corporate mergers had been announced, and no substantial purchase contracts had been canceled. Despite this, the total value of listed US companies suddenly fell by 4 percent! The same can be said for Black Monday, October 19, 1987, when the sudden stock price fall was 22.6 percent!
Rocking the economic boat
It is a well-established fact that the stock market’s tendency to fluctuate has increased strongly in recent years. According to Robert Shiller – a researcher in economics at Yale University – these fluctuations are significantly greater than can be justified by the changes in value of the underlying financial assets. As a cause of this phenomenon, Shiller clearly states “trade for the sake of commerce”, i.e. speculation. Increasing speculation in the market is the mechanism that drives the market itself. One conclusion of Shiller’s research is that the electronic market works worse than its predecessor as a mechanism for detecting real economic value. After all, the value of a company changes slowly, not minute by minute. A company does not increase or decrease its value by 4 percent or 20 percent in a single day. In short, the electronic market economy today tends to hide rather than discover the correct value of our companies and other assets, and it thus fails in its most important market economic task. With a light travesty on Arthur Koestler , one could say: The electronic economy itself constitutes the disease against which it claims to be the cure!
In such a situation, speculative trading becomes a much better strategy for profit maximization than long-term investment. If the correct values of e.g. IBM and General Electric are hidden behind the electronic ‘speculation noise’, then anyone who is lucky enough – or smart enough – to discover the true value of these assets can quickly buy them up, keep them for a short time, and then sell at a huge profit when everyone else begins to grasp what is going on.
The social costs
It is no coincidence that – in parallel with the ongoing process of integration of the world’s economies towards an electronically intertwined whole – there is a social reaction process of local uprisings with violent elements of ethnic rivalry and social unrest. Computers speak the same language; they understand each other. They share information, keep track of products and money, and move capital wherever their programmers want. But what about people? How do the workers in Detroit feel when they are replaced by workers from South Korea, Mexico or Indonesia? How do the people of Russia feel, when their jobs – that used to be protected by the state- are now exposed to global competition in a world economy that their leaders have forced them to become part of?
To these people, the rapidly emerging, electronically integrated new world appears as a world full of fear. For these people, a world where markets are interconnected and production resources globally distributed and mutually interchangeable is a world where helplessness and vulnerability have replaced the old sense of local and national control, a world where fear of the future has replaced self-esteem and security.
Countries joining the global electronic economy become part of an integrated production workshop (the global workshop). But at the same time, their residents are revolting against the inevitable loss of identity and national independence. People all over the world are fighting the transformation into interchangeable labor units in the global production process and respond by emphasizing their own local tribal affiliation. Everywhere, from the old Soviet Union to Bosnia, Belgium and Canada, people demand their right to express their ethnic identity.
Canadian philosopher and sociologist Marshall McLuhan saw the deep inherent contradiction between globalization and decentralization as the strongest structural evolutionary mechanism in our electronic age. He was one of the first to describe the inevitable conflict between these two opposing processes. As a result of the globalization of the economy, a trend towards ethno-centricity, nationalism, fundamentalism and racism is necessarily created. According to McLuhan, globalization, telecommunications, air traffic, electronic media and computers are changing the way we analyze problems, organize companies, structure countries, evaluate each other and even how we use our five senses.
From hierarchy to widearchy
According to McLuhan, the first victim of these changes must be the old forms of hierarchically organized corporate structures under highly centralized control. In the 1960s he predicted that they would be replaced by flatter structures, where telecommunications link the different – more autonomously organized – parts of a company to an organic whole. The administration structure will change from a ‘hierarchy’ to a ‘widearchy’, with lateral links, where it often becomes more important who sits on whose board than who owns a group of companies.
The second victim, McLuhan argued, must necessarily be communism. Almost three decades ago, he claimed that communism was on the verge of extinction. The Soviet system, with its highly centralized command economy, classified information and huge organizational hierarchies, was simply out of step with the emerging electronic reality. In 1968 he wrote that “Communism is something that lies more than a century behind us, and we are deep into the new age of tribal involvement” .
The one-dimensional econommunistic monetary system
There is an inherent premise in our current economic system that is rarely discussed, namely the one-dimensional structure of the prevailing monetary system itself. “Everything has its price,” is often said within the economy, and with this statement one wants to point out that a one-dimensional, (usually) real number can be linked to every ‘thing’ – a number that is usually called the price of the thing. One rarely specifies from which sets of quantities these things are selectable, but that there is a real number on their price tag – on that everyone seems to agree.
Other kinds of sets of values – such as complex numbers or even vectors – are easy to dismiss as unrealistic as a basis for a mathematical price structure for goods and services Complex numbers – it is clear just from the name that this would be far too complex – maybe even totally imaginary – and you don’t want to risk that! In any case, it is better with real prices than with imaginary – right!
Yet there is no mathematical justification for such an opinion. On the contrary, new mathematical price structures actually contain many exciting opportunities for change and renewal in our modeling of the economy. For example, if the value of a product or service is represented by the whole vector of possible exchange conditions that the owner of the product is prepared to accept, this offers a number of mathematical possibilities for the administration of electronically based exchange trading in networks.
The obviousness with which economists dismiss the idea of a multidimensional pricing system is an indicator of the strength of the one-dimensional global monetary system’s power over the imagination. Economic theories that are based on this monetary system, I will describe below as econommunistic. There is a deep irony in the fact that the system that most eagerly fought political communism has at the same time propelled totalitarian econommunism – that is, the one-dimensional dictatorship of the market. What is characteristic of the econommunistic monetary system is the fact that “everything has a real price”. This depiction of the thing on the real number axis creates a total order of the quantity of goods and services, whose members thereby always become comparable to each other (‘cheaper than’ or ‘more expensive than’ or ‘the same price as’).
A very important aspect of this all-inclusive comparability is the fact that the underlying moral and ethical value system in the economy is masked (“Money does not smell”). If a kilo of wheat flour costs $4, and a blast mine $20, then (if we ignore ‘transaction costs’) we can buy a blast mine for five kilos of wheat flour (or vice versa). The point is that we can do this indirectly – by selling the flour at one end of the process and buying blast mines for the money in the other. This provides excellent opportunities to encapsulate unwanted information – money from different businesses can be mixed into the same account, brokers can act as intermediaries and decoys etc. The tricks are many and their application is a profitable business that often goes by the name ‘creative accounting’ or ‘fungibility’.
The possibilities of a multidimensional money system
Since the econommunistic monetary system has largely lost its contact with the real economy and is now mainly engaged in buying and selling the expected change-rates of itself, a new administrative system for the exchange of goods and services must necessarily emerge. After all, the monetary system was once introduced as a calibration system in order to facilitate such an exchange. In the old days, the administrative capability to handle complexity in practice excluded all alternatives to a one-dimensional calibration system. Today, this situation has changed. We have mathematical instruments for handling a multidimensional calibration system (matrix algebra) and the technological support structure needed to operated such management effectively (computers and intelligent cards).
In a multidimensional system for electronically managed barter, each player in the market could operate with an intelligent card which stores a matrix where each row corresponds to a product or service that the operator has to offer, and each column corresponds to a product or service that the operator requests. When a number of players log in to their cards in the network, a computer can then investigate which transaction chains are possible. The actors are then given the opportunity to accept or reject the idea of the proposed ‘chain change’ just as with apartment swaps administered by a brokerage firm. This system, which can be likened to a kind of stock market introduction by all players, is in fact only an electronically supported further development of the kind of local commodity and service exchanges that have been developed in the informal economy – especially in rural areas. At the local trader the residents put up notes on a message board with what they have to offer and what they want in exchange. In some places local ‘currencies’ has even been developed with the function of facilitating this exchange of goods and services.
In a multidimensional monetary system, the relative value of blast mines in relation to wheat flour will be determined by how many are willing to participated in an exchange between them. It is thus not certain that blast mines would have any value at all in relation to wheat flour. By contrast, the ethical / moral / political / social value of wheat flour being exchanged for blast mines would no longer be hidden by the fact that “everything has a price”. Each product would receive multiple prices, as each relationship between different types of goods would receive a price – or rather a kind of conversion factor or ‘stock market index’, which speaks to how much of one product the operator is prepared to exchange for a certain quantity of the other. This would force us to reflect on the value of the fact that wheat flour is exchanged for blast mines.
Multidimensional money will ‘smell’ – and it will smell of ethics – which would give us completely new opportunities to conduct an ethical cleanup of the economy. For example, it would become significantly more difficult to conceal the arms exports in a multidimensional monetary system. There would also be major problems in conducting the bank-administered money laundering on which the whole of organized crime relies.
The schizophrenia of unemployment
The traditional political/legal view of the relationship between work, energy and capital can be summarized as follows: It is the worker who does the work and who should therefore be taxed. Energy and capital are necessary prerequisites for this process and should therefore be provided by society as cheaply as possible. This naturally leads to maximizing labor productivity while minimizing the number of active workers. Companies rationalize by automating their business processes and getting rid of as much of the staff as possible.
A policy for more jobs could be formulated like this: It is the energy and the capital that perform the work and which should therefore be taxed. The worker is a desirable prerequisite for this process and should therefore be provided by society as cheaply as possible. Some insight into these relationships has actually begun to spread in recent times and is debated today under the term tax exchange.
Today the modern industrial society is in a paradoxical situation of increasing production and economic growth at the same time as structurally conditioned unemployment. This paradox is related to the outdated modeling of the production process as if individual input factors (capital, land, labor) could be related specifically to their proportional part of the output , thus forming the basis for an objective formula for the distribution of the production result.
In her book Hazel Henderson calls for a number of new productivity measures, such as capital productivity and energy productivity to correct the current overemphasis on labor productivity and the resulting shift to excessively capital-intensive activities, which are also often supported by tax cuts for capital investment. According to Henderson, it is necessary to change the usual micro-economic approach, which analyzes specific production processes using measures of labor productivity, and which can thereby demonstrate spectacular increases in productivity per worker in capital- and energy-intensive processes. In this type of analysis, one ignores the fact that many workers roll out at the bottom of the system and settle into the growing number of structurally unemployed, while their productivity falls below zero, and they emerge on the social cost side of the economy as recipients of social support measures (= social assistance).
All of this indicates a fundamental lack of relevance in modeling efficiency criteria, since efficiency is a meaningless, subjective concept if it is not specified in terms of system level and time horizons.
The schizofrenia of economics
The fight against inflation is usually stated as the overriding objective of economic policy. However, Hazel Henderson emphasizes that two of the most important sources of inflation must be analyzed from a broader perspective than the traditional economic one. The first stems from the difficult-to-handle and difficult-to-model complexity level of our modern society, and the associated soaring and unpredictable social costs, which lead to a meta-level trade-off between, on the one hand, specialization and division of labor and, on the other, the growing social transaction and coordination costs.
According to Henderson, the second source of inflation originates in our shrinking resource base and the rapidly increasing population/resource ratio on our planet. We are forced to invest more and more capital in the actual extraction process of energy and raw materials, as this extraction takes place from more and more thinned and hard-to-access resource deposits with ever-decreasing net productivity as a result. Compare e.g. the cost of sticking down a sheet of steel a few meters into the ground to extract oil, as one could do at the beginning of this century, with the cost of building modern oil rigs and mounting them on various continental shelves. The net result is the same.
However, the fundamental question still remains: How can we allow our politicians to act surprised and worried about the high level of unemployment, while at the same time allowing them to invest most of our resources in work automation? Why do we suppress the simple fact that if we invest heavily in making people superfluous, people will sooner or later become superfluous.
Crosswise ownership: the art of avoiding accountability
By crosswise ownership is generally meant the fact that company A owns shares in company B while at the same time company B owns shares in company A. It is surprising that such a type of circular ownership structure is actually acceptable in our legal system, which claims to be based on accountability. Crosswise ownership, of course, gives rise to an endless loop of opportunities for companies to shift the blame as well as the accountability for the unpleasant effects of their activities onto their owners. The authorities are forced to chase around the loop and look for accountability until they get tired, and the owners – via the board – can be granted their coveted discharge. However, in order for crosswise ownership to function satisfactorily – from the owners’ point of view – one should avoid getting caught in their own legal infinity loop. The most common way to avoid this is with the help of so-called. multiple loyalties – i.e. they ensure that at least some key people are on all the boards of the participating companies.
Economic aspects of information
It is often said that we are moving into an information society. IT has become a unifying concept for future-oriented information technology, where we expect the new jobs to be created. It is therefore important to study how the economic system actually models information. Why were we – with the exception of McLuhan and a few others – so surprised by the collapse of the Soviet Union? How come our highly paid political and economic experts were so totally taken aback by this development? In my opinion, an important reason for this surprise can be found in the inability of the economy to model the concept of information.
As McLuhan predicted, the decentralization of the information process was doomed to kill the Soviet Union. All the little faxes, copiers, PCs, freestyle tape recorders, etc. made it impossible to maintain the centrally administered social lie that was necessary for the survival of the Soviet society. However, our economic system has chosen to consider the concept of information as a physical product – or rather to disregard the differences between these concepts. The economy disregards the fundamental difference between a book and a pound of butter. Both have a price, an owner, and the same way of trading in the economy through the sale of physical units. This forces legislation that aims to minimize the differences between information and physical goods. With the help of so-called copy-rights, the economy desperately tries to suppress the natural ability of information for cell division through copying. In effect, copy-right becomes copy-wrong! How can such a copy-right based economy model the informational value of e.g. a copier?
Our ‘stochastified’ century
In the economy, we have seen how the old deterministic investment approach has been largely replaced by average value-based risk-spreading strategies (hedging). This is a striking example that illustrates an underlying ‘post-intellectual’ paradigm shift from determinism in the direction of chance. Our century has, in fact, witnessed a remarkable success for various forms of random-based philosophies – everything from the victory of quantum mechanics over classical reasoning in physics, to the gradual stochastification and the consequent statistics tyranny in sociology, implemented by the Statistics Central Bureau and a number of different opinion institutes, which, at a glance, can reduce an individual to some crosses in a response form.
“God does not play dice with the universe” is a famous quote from Albert Einstein. He is said to have uttered it in a debate with Niels Bohr – a debate that was about the underlying conceptual interpretation of quantum mechanics. The question was the following: Is our physical reality based on deterministically formulated laws of nature, or is the concept of chance an ‘irreducible‘ concept, which represents a fundamental (primitive) aspect of reality? Einstein believed in the former, Bohr in the latter.
“The state does not play dice with its citizens” we could have said in the 1960s, when belief in various forms of ‘social determinism’ was still widely prevalent. During this time, it was generally felt that one could influence one’s economic situation through deterministic work. In the social climate of the 1960s, the ‘randomised’ state – with its various state subsidized (= tax exempt) and aggressively promoted forms of gambling – was a completely unthinkable and abominable concept.
Since then, the random gambling philosophy has not only been allowed. In fact, it has become an ideal that is reinforced and communicated in the most expensive advertising places. There is a solid market for chance, because chance offers a rational alternative at a time when fewer and fewer people are experiencing success with some kind of deterministically based economic strategy.
Today, it is therefore suspicious to earn a million by carrying out deterministic work. On the other hand, making a million on the lottery, is totally okay. As we all know, chance is the only true democrat, while any form of deterministic strategy for individual income distribution is viewed with distrust and regarded as unfair. God may not play dice, but he does indeed play the lottery!
Perhaps a non-deterministic pension system will be the only solution we can all accept – at a time when there simply is not enough “deterministic money” to go around. If current trends persist, the two-thirds society will probably be accompanied by some form of randomized pension system – a pension lottery, where the chances of winning are extremely high – perhaps even two-thirds – and where the winners will receive a substantial pension that they can live well on. In addition, the losers will receive ample compensation – perhaps a month at any resort, followed by a self-selected overdose of any kind, to be consumed under carefully arranged conditions. With appropriate marketing, perhaps the losers will appear as the real winners!
The lack of information in the information society
There is a rule of thumb in psychology which is usually called the 5-to-7 rule, which reads something like this: “A human being can only consciously distinguish between 5 and 7 things at the same time”. This experiential limitation in our consciousness is an expression of its very limited ‘bandwidth’, i.e. its highly limited ability to handle information in parallel. In a variety of different experiments it has been shown that a person’s conscious bandwidth (i.e. communication capacity) corresponds to a digital channel that transmits between 15 and 30 bits per second. Naturally, it is difficult to give more accurate estimates.
On the other hand, what seems convincing is that the bandwidth of consciousness is only a small fraction of the millions of bits per second that are input through our senses. Therefore we are biologically forced to compress this input information before we can even become aware of it. But this limitation only applies to consciousness. This is where the unconscious part of ourselves – what Tor Nørretranders calls ‘the me’ – comes in. Over the course of a fraction of a second, the ‘me’ – working through various networks created by evolution – processes the huge amount of information that flows through my senses, compresses it by summarizing, filtering, sorting and creating meaning, and serves the result to the conscious self (‘the I’) with a sufficiently low bandwidth for me to understand the resulting impression of my experienced reality.
Therefore, when expressing ourselves with our entire personality, much of this expression does not pass through the conscious filter of the self. The same is true of the so-called “tacit knowledge” that lies hidden in the art of mastering e.g. a craft. In fact, the kind of broadband communication that only the me is capable of is one of the fundamental prerequisites for our mental well-being. If our work has sufficient bandwidth for this, we experience it as creative and meaningful artisanship – otherwise the work is reduced to employment.
With regard to the information society, Tor Nørretranders has the following to say : But the information society threatens us with another danger: the lack of information. For just as there is too little information in a rectilinear city, there is too little information in the information society. It is a society where most people work entirely at the low bandwidth of language.
Many people already complain that the information society is overloading them with too much information. But the reality is the opposite: people who have the capacity to meaningfully process millions of bits per second now handle only a few bits via a computer screen. For example, the sensuality of artisanship has completely disappeared from the work process, and our consciousness has to feed on a few bits per second. It’s like fast food: almost nothing to digest, no bones and fibers to get rid of afterwards. Ancient craftsmen had a deep tacit knowledge of materials and manufacturing methods; their contemporary successors are presented with ready-made technical solutions on a computer screen.
The workers of the information society have to exite huge amounts of exformation in order to do their job. It is important to “read meaning” into a few numbers on a computer screen. The work process no longer contains an abundance of detail and sensuality, but only a dry and barren minimum cost of information, which must be ‘dressed up’ in order to be meaningful. Society’s problems are about to become the lack of sensuality and the information stream’s cry for meaning. The “advanced” part of humanity has shifted to a lower bandwidth and has started to experience the corresponding lack of fulfillment.
Creating conditions for meaningful work
I will finish by reconnecting with some ideas from one of today’s economic innovators, Hazel Henderson, who in her book referenced above  writes: Today’s choices are no longer as simple and pure as yesterday’s. They include higher technological efforts and more serious human risks than ever before. These new balances are not about simple choices e.g. between different types of energy systems, such as coal, solar or nuclear power, or between different types of transport systems, such as car, bus or train traffic. It is not at all about choosing between the usual menus of private or publicly produced goods and services.
Instead, these new meta-level balances are about choosing between e.g. social specialization and division of labor on the one hand, and consequent social costs on the other. It is about choosing between centralization and decentralization of production (and thus also of the population structure), between energy-and-capital-intensive production or labor-intensive production – a choice that must be based on a much more complex accounting of external factors and social consequences.
Since it is rational today to preserve our precious capital and our scarce natural resources, it follows that we must fully utilize our human resources. We must run our economy on a mix of less capital and more human labor. Such an economy – focusing on resource conservation, full employment and low inflation, would of course also be more gentle on the environment.
The new choices that we are now faced with consciously making in our own generation are usually made by other biological species under the influence of eons of evolution and genetic change. As in genetics, timing means everything: If our adaptation becomes too fast, we risk being ill-equipped for the consequential changes that we must undergo. The inherent paradox is that nothing fails as effectively as success. Perhaps we have exhausted the evolutionary potential of our GDP-related industrial development, and are facing an adjustment in a new dimension for which new benchmarks will be needed.
Perhaps the time has come to realize that the real factors in the production process are energy, matter and knowledge and that the production result consists of people!