Saturday, February 18, 2017

Questions For David Friedman

Fictional Economics: A Request for Aid by David Friedman


XeroWe, The People by Jack C. Haldeman II is a short sci-fi story about people choosing where their taxes go. It was written in the 80s. The economic idea that it demonstrates and gets right is the value of actually knowing the demand for public goods. Or... the value of knowing how many other people are in the same boat as you.

Coincidentally, the other day I wondered what would have happened if Adam Smith had collaborated on a book with the best fiction writer of his time. My conclusion after copious amounts of research (5 mins) was that Daniel Defoe was born too early and Edgar Allan Poe was born too late.

I was thinking about it because just recently a list of books for kids was ordered by the Invisible Hand. As far as I know it's the first and only list in the world that's ordered by the Invisible Hand. Which boggles my mind given that Smith published his book when America was founded. I guessed that writing well and understanding economics are mutual exclusive. And by "writing well" I mean that it doesn't take over 200 years for your concept to be obviously applied. Brains that are well-suited for understanding can't also be well-suited for articulating... and vice versa.

Friedman: Xerographica:

Some years back, the American Economic Review published a clever article by a very smart economist. It was reinventing an idea that appeared in Ricardo's Principles,--in a less plausible and much less important context than Ricardo's version. I sent the Journal a brief note pointing out the fact.

Xero: David Friedman, that gold/scarcity government revenue concept is blowing my mind. Imagine you went on Reddit and created a subreddit for Ricardo's "Principles of Political Economy". Members of that sub could submit passages from that book and vote them up or down. Then the most popular passages would be at the top. The passages in the book would be ordered by the Democratic Hand. As opposed to? As opposed to the passages in the book being ordered by the Invisible Hand. Out of sight, out of mind... no more?

Here's something else that's blowing my mind. Let's say that the DebatePolitics Forum started charging members $1 dollar/month. But... members could elect one person to decide how to divvy up all the fees among the different threads/topics. Pretty much like how our government works. Except, unhappy members could so easily foot vote for other websites. If there was a mass exodus, what would this say about the social contract?

It's bizarre that economists generally don't use community websites to test economic systems. I've failed to convince a dozen forums to implement our government's system.

One last thing... according to most economists... the free-rider problem is a bad thing while consumers surplus is a good thing. I derive value from reading your blog but I've never made a donation. My valuation is greater than my payment. My payment is suboptimal so your incentives are suboptimal so the supply of your blog entries will be suboptimal. But if it would be optimal for my payment to equal my valuation, then how could consumer surplus be a good thing? So it should really be called the consumer surplus problem... and it's a continuum that ranges from the payment being (valuation - $.01) to $.00 cents.

One last last thing. Ever heard of spending money being referred to as nonverbal communication? For some reason this dawned on me for the first time last week. Why didn't it dawn on me before? Spending money is communication... and it's definitely not verbal communication... which leaves nonverbal communication. Who typically studies nonverbal communication? Sociologists? Except, they "can't" study spending money because that's the domain of economists.

With economics spending money is about maximizing benefit. But with communication the issue is accuracy. How accurately are my words conveying my info? Consumer surplus might immediately maximize your benefit, but what you're communicating isn't accurate. If you deceive (misinform) producers then you're going to derive less benefit from their behavior.

Thursday, February 16, 2017

Bryan Caplan and Foot Voting

Over on Medium I just finished writing something about foot voting.  It got me thinking about the economist Bryan Caplan.  He's collaborating with Zach Weinersmith on a graphic novel about immigration.  How cool is that?  It's crazy cool.

Here's a thought for Bryan Caplan and anybody else who happens to read this.

Lately I've been writing a few things over at Medium.  Medium is packed with interesting and thoughtful people and it's really easy to interact with them.  Let's imagine that Medium implemented some terrible policy.  Then what?  For sure people would complain... and if that didn't work then they'd simply leave.  They'd foot vote for other websites... like WriterBeat.  It would be the epitome of brain drain.

Foot voting for a different website is sure easier than foot voting for a different country.  This might sound like a painfully obvious fact with little significance or value.  But if you really think about it... then it should super amaze you that economists don't frequently use websites to safely test different economic systems.

We should all be amazed that Bryan Caplan isn't collaborating with Evan Williams to test our current system of government.

Think about how relatively easy it would be to test our current system.  Members of Medium would each pay $1 dollar a month and they'd have the opportunity to elect one person to decide which stories to spend everybody's fees on.  My guess is that the members would be very unhappy with how their representative was spending their fees.  But rather than waiting around for a few years to elect a new representative, they'd simply foot vote for another website.  Because... it would be super easy to do so.  What would this mass exodus say about our current system of government?

God I'd love to see Caplan trying to pitch this economic experiment to Williams.  How would Williams respond?  "Our current system of government is good for determining the supply of important things... but it would be terrible for determining the supply of stories."

As far as I know, there isn't a single website that's based on our current system of government.  Does that say something about our current system of government?  Or... are people simply missing the opportunity to have an awesome website?  Or... do different economic rules apply to websites?

In a story on Medium I mentioned that Alex Tabarrok is collaborating with the founders of LBRY.  As far as I know, he didn't recommend that the founders base their website on our government's current system.  That's not a surprise.  So I really didn't even think about it.  But now that I am thinking about it... I gotta admit that it's disappointing!

Wouldn't you love to see a website that's based on our current system of government?  The key difference with the website is that it would be so very easy for the members to leave.  This difference would be so delicious.

Of course I'm assuming that people would leave... in droves.  But if they didn't?  Well... if, rather than suffering brain drain, the website experiences brain gain... then not only would this be evidence in support of our current system of government... it would also demonstrate a great new system for websites to use.

Illustrating our beliefs is wonderful.  Testing our beliefs is even better!

Friday, January 27, 2017

Anarcho-capitalism VS Pragmatarianism

[Also posted on Medium: How To Train Your Leviathan]

Patrik Schumacher, who I blogged about yesterday, replied to my tweet...

It's super cool that he replied!

Murray Rothbard is largely acknowledged as the founder of anarcho-capitalism.  He really hated the government.  If there had been a button that would have entirely destroyed the government, then he would have pushed the button until his thumb blistered.

If Rothbard had pushed the button, then he, and he alone, would have answered the age old question... what is the proper scope of government?

Let's carefully consider what Herbert Spencer had to say about the proper scope of government...


To the assertion that the boundary line of State-duty as above drawn is at the wrong place, the obvious rejoinder is— show us where it should be drawn. This appeal the expediency-philosophers have never yet been able to answer. Their alleged definitions are no definitions at all. As was proved at the outset, to say that government ought to do that which is "expedient," or to do that which will tend to produce the "greatest happiness," or to do that which will subserve the "general good," is to say just nothing; for there are countless disagreements respecting the natures of these desiderata.  A definition of which the terms are indefinite is an absurdity. Whilst the practical interpretation of "expediency" remains a matter of opinion, to say that a government should do that which is "expedient," is to say that it should do, what we think it should do!

Still then our demand is—a definition. Between the two extremes of its possible action, where lies the proper limitation?  Shall it extend its interference to the fixing of creeds, as in the old times; or to overlooking modes of manufacture, farming operations, and domestic affairs, as it once did; or to commerce, as of late—to popular education, as now—to public health, as already—to dress, as in China—to literature, as in Austria—to charity, to manners, to amusements?  If not to all of them, to which of them?  Should the perplexed inquirer seek refuge in authority, he will find precedents not only for these but for many more such interferences.  If, like those who disapprove of master-tailors having their work done off the premises, or like those who want to prevent the produce of industrial prisons displacing that of the artizans, or like those who would restrain charity-school children from competing with seamstresses, he thinks it desirable to meddle with trade-arrangements, there are plenty of exemplars for him.  There is the law of Henry VII., which directed people at what fairs they should sell their goods; and that of Edward VI., which enacted a fine of £100 for a usurious bargain; and that of James I., which prescribed the quantity of ale to be sold for a penny; and that of Henry VIII., which made it penal to sell any pins but such as are "double headed, and their head soldered fast to the shank, and well smoothed; the shank well shaven; the point well and round-filed and sharpened."  He has the countenance, too, of those enactments which fixed the wages of labour; and of those which dictated to farmers, as in 1533, when the sowing of hemp and flax was made compulsory; and of those which forbade the use of certain materials, as that now largely-consumed article, logwood, was forbidden in 1597.  If he approves of so extended a superintendence, perhaps he would adopt M. Louis Blanc's idea that "government should be considered as the supreme regulator of production;" and having adopted it, push State-control as far as it was once carried in France, when manufacturers were pilloried for defects in the materials they employed, and in the textures of their fabrics; when some were fined for weaving of worsted a kind of cloth which the law said should be made of mohair, and others because their camlets were not of the specified width; and when a man was not at liberty to choose the place for his establishment, nor to work at all seasons, nor to work for everybody.  Is this considered too detailed an interference?  Then, perhaps, greater favour will be shown to those German regulations by which a shoemaker is prevented from following his craft until an inspecting jury has certified his competence; which disable a man who has chosen one calling from ever adopting another; and which forbid any foreign tradesman from settling in a German town without a licence. And if work is to be regulated, is it not proper that work should be provided, and the idle compelled to perform a due amount of it?  In which case how shall we deal with our vagrant population?  Shall we take a hint from Fletcher of Saltoun, who warmly advocated the establishment of slavery in Scotland as a boon to "so many thousands of our people who are at this day dying for want of bread"? or shall we adopt the analogous suggestion of Mr. Carlyle, who would remedy the distresses of Ireland by organizing its people into drilled regiments of diggers?  The hours of labour too—what must be done about these?  Having acceded to the petition of the factory-workers, ought we not to entertain that of the journeyman-bakers? and if that of the journeyman bakers, why not, as Mr. Oobden asks, consider the cases of the glass-blowers, the nightmen, the iron-founders, the Sheffield knife-grinders, and indeed all other classes, including the hardworked M.P.'s themselves?  And when employment has been provided, and the hours of labour fixed, and trade-regulations settled, we must decide how far the State ought to look after people's minds, and morals, and health.  There is this education question: having satisfied the prevalent wish for "government schools with tax-paid teachers, and adopted Mr. Ewart's plan for town-libraries and museums, should we not canvass the supplementary proposal to have national lecturers? and if this proposal is assented to, would it not be well to carry out the scheme of Sir David Brewster, who desired to have "men ordained by the State to the undivided functions of science"—"an intellectual priesthood," " to develop the glorious truths which time and space embosom*"? Then having established "an intellectual priesthood" to keep company with our religious one, a priesthood of physic, such as is advocated by certain feeless medical men, and of which we have already the germ in our union doctors, would nicely complete the trio. And when it had been agreed to put the sick under the care of public officials, consistency would of course demand the adoption of Mr. G. A. Walker's system of government funerals, under which "those in authority" are "to take especial care" that "the poorest of our brethren" shall have "an appropriate and solemn transmission" to the grave, and are to grant in certain cases "gratuitous means of interment."  Having carried out thus far the communist plan of doing everything for everybody, should we not consider the peoples' amusements, and, taking example from the opera-subsidy in France, establish public ball-rooms, and gratis concerts, and cheap theatres, with State-paid actors, musicians, and masters of the ceremonies: using care at the same time duly to regulate the popular taste, as indeed, in the case of the Art-Union subscribers, our present Government proposed to do?  Speaking of taste naturally reminds us of dress, in which sundry improvements might be enforced; for instance—the abolition of hats: we should have good precedents either in Edward IV., who find those wearing "any gown or mantell" not according to specification, and who limited the superfluity of peoples' boot-toes, or in Charles II., who prescribed the material for his subjects' grave-clothes. The matter of health, too, would need attending to; and, in dealing with this, might we not profitably reconsider those ancient statutes which protected peoples' stomachs by restricting the expenses of their tables; or, remembering how injurious are our fashionable late hours, might we not advantageously take a hint from the old Norman practice, and (otherwise prompted) fix the time at which people should put out their fires and go to bed; or might we not with benefit act upon the opinion of M. Beausobre, a statesman who said it was "proper to watch during the fruit season, lest the people eat that which is not ripe"? And then, by way of making the superintendence complete, would it not be well to follow the example of the Danish king who gave directions to his subjects how they should scour their floors, and polish their furniture?

* See Address to the British Association at Edinburgh, in 1850.


Lots of Kings have certainly had very different answers to the question of the government's proper scope.

Let's engage in some lateral thinking by asking this question... what is the proper scope of the private sector?  How many people answer this question?  How do they answer it?

Pretty much everybody helps to answer the question of the private sector's proper scope and they do so by spending their money.  Are cars within the proper scope of the private sector?  All the people who buy cars help to answer this question.  Same thing with all the people who invest their money in companies that produce cars.

Rothbard correctly argued that the market is the best way to determine what should be done.  But then he undermined his own argument when he was so happy to admit that he would have been very happy to push a button that would have abolished the government.  By happily pushing the button... he, rather than the market, would have determined what the government should do!  He would have answered the question for everybody!

Of course there isn't a single button that would abolish the government.  So anarcho-capitalism would have to be implemented another way.  It could certainly be implemented through democracy.  It could be implemented through revolution.  It could be implemented by a powerful enough ruler.  But there's only one single way that anarcho-capitalism could be implemented on the basis of its own premise.

If people could choose where their taxes go... aka "pragmatarianism"... then each and every person could use their tax dollars to answer the question... what is the proper scope of government?  Is public education within the proper scope of government?  All the people who gave their tax dollars to public schools would help to answer this question.  If too few people gave their tax dollars to public schools, then the market, rather than voters... or congress... or the president... or Rothbard, would have determined that public education is not within the proper scope of government.

What about compulsory taxation?  Is it within the proper scope of government?  Well... in a pragmatarian system... the IRS really wouldn't collect everybody's taxes.  If you wanted a public school to have your tax dollars... then you'd give your tax dollars directly to that school.  They'd give you a receipt and you'd keep all your receipts in case you needed to prove to the IRS that you had indeed paid your "fair" share.

Therefore, if you did give your tax dollars to the IRS... it would be because you wanted to help fund their efforts to ensure that everybody paid their fair share.  And in giving your tax dollars to the IRS... you would be helping to answer the question of whether compulsory taxation is within the proper scope of government.

So, with all of this in mind, if too few people gave their tax dollars to the IRS, then the market, rather than voters... or congress... or the president... or Rothbard, would have determined that compulsory taxation is not within the proper scope of government.  And voila!  We would have arrived at anarcho-capitalism by taking the only legitimate path.

It's entirely possible that anarcho-capitalism is the correct answer.  But it's essential that we do not leap to this conclusion.  It's imperative that we do not bypass the market process of everybody using their own money to answer the question of what should be done.  We have to understand how and why the market process is the correct process.  Then we can understand how and why the market process will produce the correct answer.  Will the correct answer be anarcho-capitalism?  Personally, I don't think that it will be.  But for sure I could be wrong.  In any case, I understand the market process which is why I will respect whatever answer it produces.  In no case will I feel comfortable overriding or overruling the answer that is produced by the market process.

To place any single possible answer... such as anarcho-capitalism... on any sort of pedestal... implies that the correct answer is easy to guess or divine.  This implication will most certainly cast a shadow over the market process.

While I am a big fan of Rothbard, in this regard I am a much bigger fan of Buchanan...


I want to argue that the "order" of the market emerges only from the process of voluntary exchange among the participating individuals. The "order" is, itself, defined as the outcome of the process that generates it. The "it," the allocation-distribution result, does not, and cannot, exist independently of the trading process. Absent this process, there is and can be no "order."

What, then, does Barry mean (and others who make similar statements), when the order generated by market interaction is made comparable to that order which might emerge from an omniscient, designing single mind? If pushed on this question, economists would say that if the designer could somehow know the utility functions of all participants, along with the constraints, such a mind could, by fiat, duplicate precisely the results that would emerge from the process of market adjustment. By implication, individuals are presumed to carry around with them fully determined utility functions, and, in the market, they act always to maximize utilities subject to the constraints they confront. As I have noted elsewhere, however, in this presumed setting, there is no genuine choice behavior on the part of anyone. In this model of market process, the relative efficiency of institutional arrangements allowing for spontaneous adjustment stems solely from the informational aspects.

This emphasis is misleading. Individuals do not act so as to maximize utilities described in independently existing functions. They confront genuine choices, and the sequence of decisions taken may be conceptualized, ex post (after the choices), in terms of "as if" functions that are maximized. But these "as if" functions are, themselves, generated in the choosing process, not separately from such process. If viewed in this perspective, there is no means by which even the most idealized omniscient designer could duplicate the results of voluntary interchange. The potential participants do not know until they enter the process what their own choices will be. From this it follows that it is logically impossible for an omniscient designer to know, unless, of course, we are to preclude individual freedom of will. - James Buchanan, Order Defined in the Process of its Emergence


Giving people the freedom to choose where their taxes go will create a market within the public sector.  The market process of people trading their tax dollars for public goods will certainly produce some government "order".  But because I am really not omniscient, I really can't know, beforehand, exactly what the order will be.  However, I do understand the market process itself which is why I will respect the order that it produces far more than I would respect the order produced by any other process.

The order produced by a king?  I'd shit on it.  The order produced by congress and a president?  I'd shit on it.  The order produced by democracy?  I'd shit on it.  The order produced by Rothbard pushing a button?  I'd shit on it.  The order produced by the market?  I definitely wouldn't shit on it.

To be clear, democracy would be needed to implement pragmatarianism.  But democracy really wouldn't be determining the order of government... it would be choosing the system that determined the order of government.  Millions and millions of taxpayers spending their own tax dollars would determine the order of government.

How to get democracy to choose pragmatarianism?  We start small.  We persuade Netflix to allow its subscribers to choose where their fees go.  If we can't persuade Netflix that this process will produce a far superior order... then we'll have to start even smaller.  We'll create our own website where subscribers can choose which articles they spend their fees on.  Once everyone can clearly see that this order is indeed superior, then the NY Times will create a pragmatarian market, so will Netflix and the rest of the dominoes will quickly fall.  The last, and biggest, domino to fall will be the government.  But it will easily fall because by then every voter will clearly see that the order produced by the market is far superior to the order produced by any other system.

In my blog entry, Pushing For A Pubmar, I shared this relevant illustration that took all my artistic skills to create...

Thursday, January 26, 2017

Patrik Schumacher

[Also posted to Medium: Patrik Schumacher]

You must be shapeless, formless, like water. When you pour water in a cup, it becomes the cup. When you pour water in a bottle, it becomes the bottle. When you pour water in a teapot, it becomes the teapot. Water can drip and it can crash. Become like water my friend. - Bruce Lee

When I was a little kid growing up in Los Angeles, I spent lots of time sitting in bumper to bumper traffic...

Of course I thought it was entirely unfair, and ridiculous, that traffic on the freeway was so unequal.  I was pretty darn sure that the center divider should adjust accordingly.  The freeway should adapt to its demand like water adapts to its cup.

A few months ago on Medium I read this really great interview with Patrik Schumacher.  It was the first time that I had ever heard of him.  I was super impressed!  He is a prominent architect with a really great grasp of economics.

Thursday, December 22, 2016

The Pragmatarian Model For The NY Times

Today I was on my phone checking out Twitter.  I saw this tweet...

The topic looked interesting so I clicked on the link.  A couple seconds after doing so, I was immediately redirected to a subscription page.  I scrolled up and down trying to find the escape pod.  Unfortunately there was no obvious exit sign and I ended up accidentally clicking on a chat button.

When life gives you lemons...


Thank you for contacting The New York Times. We appreciate your business and are always happy to help.

Info at 13:39, Dec 22: You are now chatting with 'Isaac'

Isaac at 13:39, Dec 22: Hi, this is Isaac from The New York Times. How may I assist you today?

you at 13:40, Dec 22: Hi. If I subscribe can I choose which articles I spend my fees on? I don't value all your articles equally.

Isaac at 13:41, Dec 22: Don't worry about spending your fees; if you purchase a subscription, you'll have unlimited access to all of our articles.

you at 13:42, Dec 22: Sure... but how will you know my actual demand for topics?

Isaac at 13:43, Dec 22: You only have to log in with your email account, and you'll be able to read any article you want. How does that sound?

you at 13:45, Dec 22: I am not at all interested in sports and wouldn't want any of my fees paying for sports articles.

Isaac at 13:47, Dec 22: Don't worry about that, since you can choose what articles to view. However, since the price is based on a regular subscription and not in the number of articles you read, the pricing will be the same. Is that what you wanted to know?

you at 13:50, Dec 22: I want to be able to use my fees to provide you folks with positive feedback. Say I happen to really love an article. I'd like to have the freedom to spend a lot of my fees on that article. Then you would know that I truly loved the article. Aren't you folks interested in feedback from your subscribers?

Isaac at 13:53, Dec 22: Sure! The best way you can give us feedback if you really enjoy an article is to share it through your favorite social network. You can also provide us with specific feedback, if you want, by emailing You can also send a letter to, if you want

you at 13:56, Dec 22: Can you cite any sources to substantiate your claim that contigent valuation techniques are truly the best way to provide feedback?

Isaac at 13:59, Dec 22: You can view on the most popular stories we have right now. The stories that appear there are the ones that get the most views per hour, and the best way you can help attracting views to an article is to share it with more people.

you at 14:02, Dec 22: Imagine if subscribers could spend their fees on their favorite stories. Then you would know the true value of your stories. Do you think that your most valuable stories would also be your most popular stories?

Isaac at 14:07, Dec 22: I totally agree with you. I think there should be a way for readers to provide direct feedback when they stumble upon a truly great article. However, since all of our subscriptors are provided with unlimited credit to view any article they want, the only measure we have of the quality of an article is its absolute number of views, so that's what we use as a metric for them. By only reading the articles you prefer, you're helping us find out what the best ones are. What do you think about that?

you at 14:13, Dec 22: Just because I listen to a speech by Trump really doesn't mean that I'd be willing to spend a penny on his speech. Right now you want me to spend my money on your publication. If it only cost a penny per year then no problem. But the more money you want me to spend... the greater my sacrifice. Spending money is mSo if I'm already paying your company a monthly fee... why not give me the opportunity to use it to indicate which of your articles is most worth my sacrifice?

Isaac at 14:18, Dec 22: By watching a speech by Trump you're not supporting him; you're supporting the editor that made the speech available to you. We work every day to make our articles as neutral and unbiased as possible, so instead of supporting a political idea, you're supporting the writers, editors and publishers who bring the information to you. Don't you think it's better not having to worry about reading 20, 200 or 2000 articles?

Isaac at 14:19, Dec 22: The cost of making an article is the same regardless of the number of views it gets, but the popularity of a certain group or articles can determine which articles or writers make it to the front page next time.

you at 14:23, Dec 22: I think you'll agree that it matters whether I give my money to your publication or to The Economist. Clearly it makes sense for me to give my money to whichever publication provides me with the most bang for my buck. But if my preferences for publications matter then why don't my preferences for individual articles matter?

Isaac at 14:26, Dec 22: We think you should be able to read whatever articles you prefer, and that's why we give you unlimited access to all of our digital collection; instead of limiting the number of articles you may choose.

you at 14:28, Dec 22: Do you think it would be difficult to allow me to choose which articles I allocate my fees to?

Isaac at 14:30, Dec 22: Yes, since that would require a huge change on our pricing and subscription methods. Figuratively speaking, you're not renting individual books; you're buying a ticket to enter the whole library.

you at 14:37, Dec 22: I don't mind spending $10 on a ticket to enter the library. Good analogy. But since I have $10 dollars... why not give me the opportunity to choose which books I allocate my 1000 pennies on? I wouldn't allocate a penny on 50 Shades of Grey but I would allocate many pennies to the Wealth of Nations by Adam Smith. When everyone else also allocated their fees then we'd know at a glance which book in the library was the most valuable.

Isaac at 14:45, Dec 22: I completely agree with you. I know that right now we are only using views as a metric of the quality of an article, but sometimes you don't really agree with what you read, and you think it does not deserve the money you've spent on reading it. My best suggestion as of now is to call 855-698-8544, which is our Digital Subscriptions department for mobile users. It is indeed possible to filter or otherwise categorize the articles you read; however, I am unable to do it. I'm really sorry for the inconveniences this may cause.

Isaac at 14:45, Dec 22: Is there anything else I can assist you with today?

you at 14:48, Dec 22: I ended up on this page because I was trying to read one of my 10 free articles but I kept getting redirected to the subscription gateway. How do I escape from the gateway and read the article?

Isaac at 14:49, Dec 22: There should be a "Read Full Article" button that allows you to read it for free, in the article preview

you at 14:50, Dec 22: Yes there is but a couple seconds later I'm automatically redirected to the subscription gateway.

Isaac at 14:51, Dec 22: My best suggestion is to try reading the article on a laptop or desktop computer.

you at 14:54, Dec 22: K. I'll try that. FYI I'm going to post our discussion on my blog... The Pragmatarian Model For The NY Times. Thanks for your time.

Isaac at 14:55, Dec 22: You're welcome! I'll keep that in mind. I hope I was able to help you today.


I was honestly surprised that he chatted with me as long as he did.

Now I'm on my laptop and I was able to read the article.  Eh. My expectation was greater than the reality.  So I wouldn't have spent any pennies on the article.  It turned out that the detour was more enjoyable!

See Also:

The Pragmatarian Model For The Economist
The Pragmatarian Model For Inkl

Sunday, December 18, 2016

Clarifying The Invisible Hand

My response to: The Myth of the Invisible Hand by Jonathan Kolber

I love stories about the Invisible Hand (IH). It’s plain to see that you’ve definitely done quite a bit of homework on the topic. In fact, I even learned something!

However, despite all the homework that you’ve done, you haven’t quite grasped the essence of the IH. Here’s the most relevant passage…

It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society. — Adam Smith, Wealth of Nations 

Clearly this passage doesn’t include the term “Invisible Hand”. But that’s exactly what this passage is all about.

Accountants, for example, are certainly “advantageous to society”. So it’s profitable to become an accountant. But if too many people become accountants… then the supply of accountants will be greater than the demand for accountants… which means that it will become less profitable to become an accountant… and less people will become accountants. Instead, they will go into more profitable professions.

High profits are a green light. Low profits are a red light. The greater the disparity between profits… the greater the incentive for faulty distributions to be automatically altered.

We all subjectively perceive shortages and surpluses and we spend our money accordingly. We influence each other and are simultaneously influenced by each other. We direct each other and are simultaneously directed by each other. We encourage beneficial behavior and are simultaneously encouraged to behave beneficially.

Therefore… no need for government intervention/interference? Well… not quite. Even though Samuelson was an idiot who clearly didn’t grasp the IH… he did grasp that the free-rider problem was a problem.

Like I said, I love stories about the IH. In other words, I subjectively perceive that there’s a shortage of stories about the IH. However, I have never even once spent even a penny on any stories about the IH.

valuation = my perception of the relative scarcity of IH stories
sacrifice = the amount of money that I’ve spent on IH stories

valuation > sacrifice

I truly want there to be more stories about the IH… but, by not spending any money on stories about the IH… I fail to provide any real incentive for people to write stories about the IH. In other words, I basically shoot myself in the foot by essentially lying to producers. Producers really aren’t mind-readers.

The solution is the pragmatarian model. Each month we’d each pay $1 dollar… but we’d be free to choose which stories we spend our pennies on. For sure I’d spend my pennies on stories about the IH. The more people who did so… the greater the incentive for people to write stories about the IH. The greener the light… the brighter the value signal… the sooner there would be an abundance of stories about the IH. The feedback loop would be accurate.

And if too many people started writing stories about the IH? Well… this is definitely hard for me to imagine! But I suppose it’s theoretically possible. If it did happen though then the light for stories about the IH would turn from green to yellow to red and the faulty distribution of topics would be automatically corrected without any intervention of law.

Incentives matter just as much for public goods as they do for private goods…

Public services are never better performed than when their reward comes only in consequence of their being performed, and is proportioned to the diligence employed in performing them. — Adam Smith, Wealth of Nations

So no, the IH really isn’t a myth. Values are subjective. Nobody is a mind-reader. Incentives matter.

Please let me know if you have any questions! It’s entirely possible that my interpretation/understanding/grasp of the IH is faulty. As the saying goes… two heads are better than one…

More heads are occupied in inventing the most proper machinery for executing the work of each, and it is, therefore, more likely to be invented. — Adam Smith, Wealth of Nations