Sunday, November 21, 2010

Econ method 2

Edit 1: poor cut'n'paste management fixed
Edit 2A: For the record, just in case anyone's thinking it, I do NOT think I have added to Objectivism. My thoughts are my own, for my own sake.
Edit 2B: The content in question now also has an addendum.

This entire series on econ method from here on is a very truncated version of my own thoughts regarding induction and validation of various principles important to economics. It is the due concretisation of my post about proper economic method and my rejection of the exclusive use of deduction in determination of economic laws.

This post is not about showing a worked out theory of induction. Rather, it is simply a demonstration of the sort of work in conceptualisation and induction that the economist ought properly be performing to generate and validate economic laws. I leave the full discovery of the theory of induction and its full application to the social sciences and economics for intellectuals more immersed in such issues than I.

Nor will I show the validation of the axioms and causality, as that has already been done. If someone has an issue with just that much then he has bigger problems to deal with than economics. That being said, I will make direct use of one particular corollary of the laws of identity and causality, but more on that later.

Rather than wait until I’ve done the whole lot, which looks as though it is going to run into umpteen pages, here’s the early work that precedes economics proper and focuses on foundational concepts and principles. I'll finish it when I can, though no promises when.

Action and human action
The Miseseans follow Mises’ Kantian methodology and start with their idea of what “human action” is. They treat it as an axiom, in the manner of one of Kant’s twelve categories, and try to deduce from there. This procedure is completely wrong-headed: there is no such thing as innate knowledge, and all concepts are learned. Their idea of human action is, at best, a floating abstraction.

How do we get to a proper conception of what is human action, then? Start with children, of course, and how they learn to speak.

First, action in general. The broadest conception of action is obtained simply by working from observation of instances – via synonyms less formal than action, to be precise. It is from toddlerhood on, during the time we are taught our parents’ tongue, that we start to learn words like “happen,” “do,” “because,” and so on. We have to learn these concepts by our own cognitive action, even if occasion for this is repeatedly provided by the grownups offering instances and us figuring things out. If we’re lucky the grownups do this with proper concept-formation methods in mind and implicitly teach us these methods, while if we’re not we glean what we can by differentiating and integrating (without knowing we’re doing it) from the words they speak at us and the context in which they are spoken. “What happened to the ice-cube? It melted!” “What’s the rock doing? It’s rolling down the hill!” “What are the fish doing? It’s swimming in the water!” “What happened here? What are you doing with that paint!? GET BACK HERE!”

Following from that, as we get older and start going to school, then we learn the more formal words, which includes “action” and related ones like “cause,” “event,” and so on. The method of this learning will follow the same patterns already shown above, just done a little more intensively and academically as well as through continuation of regular home life. We could then have our first worded definition of what action means:

Action is stuff that happens or stuff that things do.

At this point, as adults armed with philosophy we could do better, expressly invoking identity and causality, thus coming up with something like:

Action is the process of change in the identity of entities, following the law of causality applicable to the identity of the acting entities at each successive moment.

Either way, the contrast is against things that just sit there. There’s nothing happening and they’re not doing anything. Getting back specifically to children’s conceptual development, it is not just in science class, either, that we are exposed to the word. In drama classes, particularly when kids are rehearsing for something to be put on stage for our parents to see, the teacher frequently acts like an actual director complete with the basic jargon employed, where he gets us all to set up our props, move into position, and then makes us wait for him to yell out “Action!” before we start doing our lines and moving around.

Once we get past the age of about ten we get a bit more technical about investigating action in school. We learn about the action of acids and alkalis, of weights and pendulums, of stars and planets, of varieties of plants and animals, and so on. For our purposes in economics, the most critical differentiation of types of action is that of inanimate matter versus living organisms. We can see there is an enormous difference between what non-living things do and what living things do, and how all living things share the same basic pattern that isn’t shared by non-living things. So long as we don’t start pulling anthropomorphic explanations for action by inanimate objects out of our backsides in the manner of primitives taught to do so by their equally primitive parents, we need no antecedent knowledge or theories to make such a distinction, just a sufficiently substantial array of observations.

Putting these observations together, as Ayn Rand did in The Objectivist Ethics, we find that while there are many differences between all sorts of entities, and many differences between types of inanimate objects and also between types of living organisms, the essential feature that is common to organisms and which is absent in inanimate entities is that the former exhibit goal-directed action and the latter do not. On that basis we can define organism:

An organism is an entity that exhibits goal-directed behaviour.

Moreover, we observe that the goal in all cases – except man – is self-preservation (reproduction is an adjunct to that). We also observe that the content of action is begun by the organism. From observations like this, integrating it with the meaning of organism, we (as Ayn Rand did) define life:

Life is a process of self-sustaining and self-generated action.

But organisms do not just act in some vague manner. Each acts specifically in the way that its own nature allows it, not just at the level of the whole organism but of each part within it (indeed, all the way down to internal cellular operations, as we later find when we get scientifically sophisticated enough to learn). All living organisms abide by the laws of identity and causality, doing so in ways both common for each hierarchical level, distinct for each class of organism within each conceptual-hierarchical level, and further distinct for each organism in its own context, all as the whole natures of their separate identities provide for.

We can then integrate all this to gain a better understanding of what action specifically by living organisms is. We’ve already observed that all actions follow the law of cause and effect, and we will never find evidence the contrary. We’ve also already observed that living things are pro-active in this regard, yet still must themselves adhere to the laws of identity and causality at all times. With that in mind we can state the following:

Action by a living organism, specifically in its capacity as a living organism, is the pro-active interruption of one set of chains of cause-and-effect and the initiation of another set, intended to achieve the life-advancing goals of that organism.

Each living organism makes its interruptions and initiations according to its own nature and the context in which it finds itself. It is important to note that by ‘intention’ it is not meant that there is mindfulness at work but only that definite goals are prior set as the outcome, be that setting by thoughtless evolution or by human contemplation or anything in between. If the goal is achieved, the particular organism with the identity that most permits the action that leads to this goal is the one that most succeeds at living and procreating. Richard Dawkins also makes this point, specifically in his attacks on Intelligent Design rather than an abstract discussion of what action means, but I don’t recall which of his books it is in.

Once we have the concept of the living organism and its definition, properly obtained from observation, objective conceptualisation and induction, and make a variety of further observations and distinctions, we can get more formal about the concept of man and what his definition is. Cutting to the chase, following the concept-formation method Ayn Rand indicated, we validate Aristotle’s definition of man as the rational animal. We identify rationality as distinguishing characteristic because it is that characteristic that most distinguishes man from other creatures, that it is the explanation for an enormous variety of other characteristics of man both essential (capacity for abstractions, capacity for speech, capacity for complex technology) and inessential (capacity to want to wear peplums or powdered wigs or navel piercings) consequences of man being man.

It is that capacity to reason, that which differentiates us from all other organisms, that makes us specifically men. It is stemming from the exercise of reason to determine what to do and how to do it that some of man’s actions can be identified as specifically human action, as opposed to action in man’s capacity as a Great Ape (good manual dexterity in general), as a mammal (women give birth to babies rather than lay eggs), or as a heterotroph (man eats other organisms for energy and nutrients):

Human action is action by man arising specifically from the use of his mind to determine what to do.

Whether or not a man uses his mind properly in general, and whether or not he is correct or in error despite a commitment to a proper use of his mind, are critical issues for each man but not essential for the nature of human action as such. It is only important to note that specifically human action begins in some form of cognitive action before manifesting in physical action.

We could do much more, expanding on this such as by raising the issue of volition, but at this point it would be pointlessly getting bogged down in details. What is important is that it is from conceptual work of this nature, begun way back in toddlerhood and the words ‘happen’ and ‘do’, that we must and do obtain our understanding of what human action is. There is absolutely no need to take recourse to drivel about innate categories, contrary to what Mises and other Austrians have said. All that is necessary is a capacity to form concepts and the proper exercise of that capacity in the face of sufficient observations. The key is learning what that proper method of exercise is - and Rand has now gotten us started.

The fourth prerequisite of value
Between the end of the previous discussion and the beginning of this one would be various topics, including identifying the nature of value and giving its definition. I won’t go into that here, and instead take it for granted.

One induction that I think is of my own origination is how I arrived at the fourth prerequisite of value. The first three, already identified by Rand in The Objectivist Ethics, are: there must be an actor, there must be an end, and there must be a need to act in the face of opportunities and threats that are not foregone conclusions. The fourth prerequisite of value, which Miss Rand does mention but only as an instance in relation to man, is:

There must be a concrete operation of a mechanism of connection appropriate to the kind of creature that is evaluating, which operation brings together all the relevant facts and standards that give rise to actual values and hence to an imperative to act.

As best as I can remember it, this is what happened. While visiting my parents one day I was watching my father play with their Jack Russell terrier, Chienna, out the back under the pergola. I think it was lunch time and he had extra cheddar cheese cut just for her – Chienna just loves cheese. He would break off little bits from this extra slice and gently toss them at her to catch. One she missed and it rolled behind her. She looked for it in front of her for only a short time, then quickly gave up and looked at him in that puppy-dog expectant way. He wasn’t going to give her more until she got that wayward piece, and so he was saying “it’s right THERE, ya silly animal!” Of course, Chienna didn’t understand a word, so both she and the piece of cheese just sat there. My father soon figured that she wasn’t going to get the picture so he bent down, picked her up, flipped her about 180 degrees, and plonked her back on the ground, whereupon she then caught sight of the cheese and went for it.

That may seem like just an amusing but otherwise unimportant incident to you, but it was an eye-opener for me at the time. What was also an important part of its whole context was that I had been re-listening to Dr Buechner’s lecture series “Objective value versus modern economics”. As it happened, while I was watching this I was amusing myself by connecting what I was seeing to the prerequisites of value. There I was, being a good Objectivist, looking for concretes to go with abstractions. There was the valuer, a dog by the name of Chienna: check! There was the standard of value, that Chienna loves cheese and it is nutritious to boot: check! There was the need to act in the face of an alternative, that she had to catch bits of cheese in mid air or get them off the ground if she wanted to eat them: check! Then she missed a piece of cheese entirely. The three prerequisites were all there, completely visible before my eyes, yet she was not acting! What was missing? At the concrete level the answer was obvious: out of sight, out of mind.

From what I recall, it was me remembering in particular Dr Buechner’s emphasis on grasping that was the critical moment in my mind. When I remembered it I connected to what I was seeing right in front of me and this give me the first thoughts, which then occasioned me to look for other examples of it. On that score the first thing that came to mind was his discussion of plants turning their leaves to face the sun. I looked it up, and leaving aside the complexities of the details, I read how that leaf-turning action was effected by light-activated pumps shifting fluids around (its called heliotropism). Other examples that came to mind were how some plants specifically direct root growth towards the direction of scents of water, while others just use gravity as their chief cue to direct how they develop their root structures, generic thoughts of an instance of predator X hunting an instance of prey Y while an instance of prey Y detects an instance of predator X, and so on. With that set of thoughts in mind I then expressly realised that, far from being sui-generis to man, his grasping of values was actually an instance of a broader principle that deserved equal billing with the other three prerequisites of value:

Values cannot come to be unless there is an operation of a mechanism of connection between all the relevant facts and the mechanism that leads to action.

I also wondered about contrary data. One of the thoughts on that score was how only some plants are active water-seekers in their root-development strategies, with others merely going by programming and essentially ‘hoping for the best.’ In the end I dismissed that as a contrary because there was still the gravity cue and that there is more to the development of roots than just the pursuit of water and nutrients (eg how stability is a major concern for large plants). I also came to the conclusion that it was necessarily consistent with the operation of all consciousnesses, from those of jellyfish on up, since the whole point of a consciousness is to act as a sophisticated connection mechanism that constantly judges real-time data. Heck, even single-celled organisms are hunters or gatherers, actively seeking their preferred prey or sources of nutrients as their style of life requires. I stopped looking for more contrary data after that. If there is any modification to this principle to be made, I think the ‘worst’ it is likely to be is to restrict it to all consciousness on up, but I’ve already shown that it applies to lots of plants and their activities as well.

That was as much as I did to generate that induction in the first place. I did wonder if it in fact it wasn’t already included in the third prerequisite, that there must be the need and ability to act in the face of an alternative. It was the ability part that I wondered about, but I concluded that the answer was no for two reasons. The first is that the ability refers to the technical possibility of completing the action and achieving the goal, not awareness of the opportunity itself. The second, which I thought was the more important, was the separate consideration of the fact that man has to grasp his values before he can act. I concluded no in this case because the grasping and acting are two separate functions, even if connected. I cross-linked this distinction across different organisms and showed that the more complex the organism is the sharper the distinction is in fact, which fact itself requires that the operation of the mechanism must be something separate from consideration of occasion for that operation. You can find my discussion of the mechanism, beginning with how it operates in plants and other animals, and later of its final form for man, in my posts on the core theory of value, so I won’t repeat that here.

Also after the event, I was able to spiral it back to the idea of concepts as beginning in concrete percepts and building from there, plus cross-link both it on its own terms and the suggestions indicated by that spiralling back to more uses in value theory in general (eg more detail on the joining and also distinction between evaluation and action processes, all the way from plants’ mechanisms to man’s) and also to economics proper (eg the marginal revolution and the solution to the paradox of value). I’ll show some of this, but right now I won’t belabour the point, which is again that one must observe, conceptualise and induce, and that those who pluck “axioms” out of thin air (eg the whole of that Kantian category garbage) are guilty of fallacies.

You won’t deduce this from the definition of value or of life or action or action specifically by organisms. You certainly won’t derive this by deducing from any understanding of specifically human action, even if that understanding were properly conceptualised rather than plucked out of the dictionary to be treated as an “axiom,” because it is something that precedes the existence of human beings entirely. Yet, whether straight or restricted to conscious valuation, it is one that is very important for economics.

After writing this, while thinking at work, I also realised that my fourth prerequisite can and should be integrated with the issue of the non-existence of intrinsic and subjective values. The necessity of an operation of the mechanism of connection in all cases likewise means that there must be a connection of something pertaining to the valuer and something pertaining to something in the external world and which is being valued by that valuer. There are no such things as intrinsic values because the valuer has to DO something specific and understandable to create values-as-magnitudes and ascribe them to values-as-concretes. Likewise, there are no such things as subjective values because the valuer as to do SOMETHING specific and understandable.

The application of this to the issue of man's values in particular gets messy, but I think it still holds and I retain my rejection of subjective values as per the philosophical meaning of 'subjective' rather than the layman's reference to 'the personal.' I'll leave that for another time, though, as that entire section still needs more work.

Hierarchy and review of standards
A little while later I made another integration. Unfortunately, I remember much less about how I arrived at this than I do about the errant cheese incident. All I can do is reiterate the materials that went into it, not the process.

Another matter that Dr Buechner discusses is that in relation to the second prerequisite, there must be an end, there is a hierarchy of ends (which is not a reference to rankings of priorities). Perceptual-level concretes are first-level means to rudimentary ends, and then those ends are themselves means to higher ends, they again means to higher-still ends, and so on up to the ultimate ends.

For example, a man can think about enjoying a day at the beach some weekend and contemplate whether Saturday or Sunday would be the better day, or he can think about whether a day at the beach as such is how he wants to spend his weekend relaxing as opposed to going hiking, or whether relaxing as such is how he wants to spend this weekend as opposed to getting work-related chores out of the way, which could lead him to wondering about how much he values his career as such, and so on getting ever more abstract. There exists a conceptual-hierarchy of values for man. Man is capable of having broad and abstract goals, and of breaking them up into components that must separately be achieved in order for the broader ones to be achieved, which can be nested to as many layers as the situation demands. The higher-level values and goals cannot be achieved except by means of an integrated sequence of lower level values and goals, ultimately down to values and goals on the perceptual level.

That much isn’t news to Objectivists, nor is the need for concretisation both within economics (or value theory generally) and outside it. For the record, what I thought of besides the run-of-the-mill stuff like the above was both its connection with something that Mises said, the OSI model of communication systems, and the nature of labour plus integration of the foregoing with management theory in general.

The relevant material from Mises is in “Human action” under the heading “The Principle of Methodological Singularism” (pp44-6 in third revised edition):

Human life is an unceasing sequence of single actions. But the single action is by no means isolated. It is a link in a chain of actions which together form an action on a higher level aiming at a more distant end. Every action has two aspects. It is on the one hand a partial action in the framework of a further-stretching action, the performance of a fraction of the aims set by a more far-reaching action. It is on the other hand itself a whole with regard to the actions aimed at by the performance of its own parts.

It depends upon the scope of the project on which acting man is intent at the instant whether the more far-reaching action or a partial action directed to a more immediate end only is thrown into relief. … The road to the performance of great things must always lead through the performance of partial tasks. A cathedral is something other than a heap of stones joined together. But the only procedure for constructing a cathedral is to lay one stone upon another. For the architect the whole project is the main thing. For the mason it is the single wall, and for the bricklayer the single stones. What counts for praxeology is the fact that the only method to achieve greater tasks is to build from the foundations step by step, part by part.

A little while later I recalled both the OSI model of communications systems, which shows a system of seven layers of protocols and events of how something gets done in electronic systems, ranging from end-user human action at the top “application layer” (eg a businessman writing an email) to the physical structures at the bottom in the “physical layer” (eg copper wiring plus voltage and current specifications, optical cable plus light wavelength specifications, and so on). That there are disputes about the precise content of this particular model is beside the point, as what counts is the idea of hierarchical construction and integration.

I recall that I remembered this one specifically in relation to values, as out-of-left-field as it seems at first glance, because I had already used it regarding the nature of labour. That in turn happened because of another project I was doing, regarding the lessons to be had from “The E-Myth revisited” by Michael Gerber, who pointed out that one of the things the aspiring entrepreneur has to realise is that there is a critical distinction between entrepreneurial labour, managerial labour, and technical labour. By itself that’s fine for business theory, but for economics we must add a fourth layer on top, that of capitalistic labour for the setting of benchmarks by investors for entrepreneurs to meet or achieve while using investors’ money. The connection of the OSI model to labour is that a single action at a higher level must be accomplished by a host of integrated actions at the lower level, where at the finish up a single top-level act (eg the user clicking “send” on a completed email) is achieved by an entire (and enormous) seven-layer tree that ultimately reduces to umpteen bajillion electrical pulses, integrated together by means of the protocols executed and oversight functions performed by devices and programs at each layer. The parallel to achieving something in business and finance should be patently obvious.

The details of how or why I specifically brought the OSI model to mind again while thinking about the structure of means to ends I don’t recall. Still, I do vaguely recall something along the lines of remembering the fact of benchmarking and review of entrepreneurs by financiers, plus the “controlling” task of managers, leading me to adding my own additional thoughts regarding how man should act in light of the fact of the conceptual-hierarchy of values. These thoughts related to how man must take responsibility for the nature of the goals he pursues. At all levels of his conceptual hierarchy man must figure out not just what the appropriate means are but also whether the ends are worth pursuing. It was when I also remembered about avoiding micromanaging (I think I had been watching Oceans’ 13 at around about that time?) that I brought it all together and formulated the principle of the varying urgencies to review:

The urgency to review the merits of the end being contemplated tends to decrease as the abstraction-level of that end increases.

That’s quite a bizarre and tortuous path, I know, but that’s roughly what went through my mind, as best as I can remember it.

Action as exchange
Remember how I said I’d come back to a development of the axioms? This is it: one of the other corollaries of the law of identity is the fact that existence is finite. There is only so much of the totality of the core constituent stuff of existence, only so much material substance whether that substance be matter or energy or whatever else, because identity requires finitude: an infinite quantity is a quantity lacking identity, which is of course impossible. Material substance swirls and changes this way and that, but the grand sum never changes.

Looking at the world itself we can see instances of this - indeed, observation of such instances and recognising that they’ve always been implicit is part of how one arrives at explicit awareness the full meanings of identity and causality. Every single change is always and only ever a shift in the form taken by material substance, even when matter and energy convert back and forth. Even so, its truth comes from the fact that it is a corollary in the law of identity. We have to begin with observations so as to have occasion to think, but the proof it is a straight deduction rather than an induction.

The point of returning to this is that has a definite upshot for all action, in turn for human action as a consequence. By considering the nature of change and the constancy of the totality of material substance, we find we must modify the latter half of that statement. Action cannot bring new material substance into being nor can it send existing material substance out of being. The only thing that action can do is effect alterations of form taken by material substance. With that in mind we reform the meaning of action to the following:

Action is the motion by organisms that interrupts of one set of chains of cause-and-effect and initiates of another set to replace the first, intended to result in material substance taking on a more life-sustaining form than would otherwise have existed.

In short, action is an exchange. Von Mises does state this, but as yet another floating abstraction that his reader is expected to take for granted without knowing where it came from. Nevertheless, it is also a statement that happens to be right, and right enough to proceed to identify the pre-economic meanings of some key terms by combining the fact of alteration of form. The revenue of action is the value of the form that existed after the action, and the cost of action is the value of the form that preceded the action and which had to be destroyed in order to create the new form. A profit is made when the revenue exceeds the cost, and a loss is made when the cost exceeds the revenue.

However, it will not suffice to throw four terms around like that. A proper education on the matter, though one that would be presumed by economics, would be to teach what they are by proper concept-formation methods. Those I’ve already shown above, so I won’t repeat that procedure again. What economics would do is state that presumption, then formalise the definitions by integrating those concepts with both the nature of value and the nature of action.


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