Thursday, March 23, 2017

Commerce As Communication

Check out this article by Adam Gurri... A Critical Defense of Commerce.  As usual it starts with a relevant renaissance painting.  Why the renaissance?  Out of curiosity I searched Google images for "renaissance painting market".   I like the paintings... but maybe because I love markets.

I like Gurri's defense of commerce... because I love markets?  

If we think of his article as a market, then it has quite a few products that I'd like to buy.  Unfortunately, his market is missing the one product that I'm most interested in purchasing... commerce as communication

Not too long ago I had an epiphany.  I realized that spending is nonverbal communication.  When we spend our money, we inform others about the intensity of our preferences.  The transmission of information is the definition of communication.  So spending is certainly communication... and it's certainly not verbal communication... which leaves... nonverbal communication.

All my life I've known about spending money... and for pretty much the same amount of time I've also known about nonverbal communication.  So why in the world did I only just recently realize that spending money is nonverbal communication?  

Talk about overlooking the obvious.  

Ok, so Gurri's defense of commerce is entirely missing commerce as communication.  This raises a few really interesting questions...  

  1. Is commerce as communication an important aspect of commerce?
  2. If it is, should it be used in defense of commerce?
  3. If it should, what's the best way to do so?  

Before I try my best to answer these questions, I'd like to say something useful and self-aware about my dynamic with Gurri.  From my perspective, usually it's reasonably constructive.  But then it seems like he invariably takes advantage of his freedom to bravely run away... aka "exit".  So perhaps there's something a bit dysfunctional about our relationship.  Which is unfortunate because I think he's a really intelligent guy who genuinely cares about liberty and writes about it far better than I could ever hope to.

Einstein's definition of insanity is doing the same thing over and over but expecting a different outcome.  Here are most of my previous interactions with Gurri...


Am I insane for trying again?  Well, from my perspective, each attempt was somewhat different.  Plus, as Heraclitus observed... no man steps in the same river twice.  Gurri and I really aren't the same guys that we were in 2016!  Heh.  

In any case, it's not like this is a private e-mail to Gurri.  This is a public blog entry.  So if you are not Gurri... then it's entirely possible that you'll appreciate the value of this information and put it to good use... even if he does not.  My eggs aren't all in one basket.  

Let's get this intellectual party started...

Is commerce as communication an important aspect of commerce?


Well yeah.  Spending money is a sacrifice.  It genuinely matters just how much we're truly willing to sacrifice for things.  As I already pointed out to Gurri, willingness to sacrifice is a central theme in the Bible.

In the beginning of the Bible there’s the story of Cain and Abel. Cain sacrificed some fruit, veggies and grains to God. Abel, on the other hand, sacrificed a lamb to God. Abel was willing to make a bigger sacrifice. From this God divined that Abel felt much deeper gratitude for God’s blessings than Cain did.

A little later on in the Bible, Abraham was willing to sacrifice his only son Isaac to God.  Abraham was willing to make a huge sacrifice.  His willingness to pay (WTP) such a steep price effectively transmitted information about the incredible intensity of his preference for God.  

In the new testament we see the culmination of the idea of sacrifice as communication when God sacrifices his only son in order to save the world.  His WTP effectively transmitted information about the incredible intensity of preference... aka "Love"... for the world.  

Imagine if we replaced the economic definition of "Love" (sacrifice) with the democratic definition of "Love" (voting)... "For God so loved the world that he voted for it..."  This would transmit barely any information about the intensity of God's preference for the world.  We'd be largely ignorant about God's true love for the world.  

For anybody who is interested in a coherent Biblical story... things are a bit tricky.  For sure, we really aren’t mind-readers. However, King Solomon believed that God was a mind-reader… “for thou, even thou only, knowest the hearts of all the children of men.” Clearly this would make sacrifice an entirely unnecessary way for humans to communicate with God.  

The Judeo-Christian religion doesn't have a monopoly on sacrifice as communication between God and man.  Here's a passage from John Holbo's book Reason and Persuasion...

*****************************

Socrates: You could have been much more concise, Euthyphro, if you wanted to, by answering the main part of my question.  You're not exactly dying to teach me - that much is clear.  You were just on the point of doing so, but you turned aside.  If you had given the answer, I would already be well versed in holiness, thanks to you.  But as it is, the lover of inquiry must chase after his beloved, wherever he may lead him.  Once more then: what do you say that the holy is, or holiness?  Don't you say it's a kind of science of sacrifice and prayer?
Euthyphro: I do.
Socrates: To sacrifice is to give a gift to the gods; to pray is to ask them for something?
Euthyphro:  Definitely, Socrates.
Socrates: Then holiness must be a science of begging from the gods and giving to them, on this account.
Euthyphro: You have grasped my meaning perfectly, Socrates.
Socrates: That is because I want so badly to take in your wisdom that I concentrate my whole intellect upon it, lest a word of yours fall to the ground.  But tell me, what is this service to the gods?  You say it is to beg from them and give to them?
Euthyphro: I do
Socrates: And to ask correctly would be to ask them to give us the things we need?
Euthyphro: What else?
Socrates: And to give correctly is to give them in return what they need from us?  For it would hardly represent skill in giving to offer a gift that is not needed in the least.
Euthyphro: True, Socrates
Socrates: Holiness will then be a sort of art for bartering between gods and men?
Euthyphro: Bartering, yes - if you prefer to call it that.

*****************************

We know what we need.  But it's essential that others also know what we need.

It is these needs which are essentially deficits in the organism, empty holes, so to speak, which must be filled up for health’s sake, and furthermore must be filled from without by human beings other than the subject, that I shall call deficits or deficiency needs for purposes of this exposition and to set them in contrast to another and very different kind of motivation. — Abraham Maslow, Toward a Psychology of Being
'Let our herds be so numerous that they cannot be housed; let children so abound that the care of them shall overcome their parents - as shall be seen by their burned hands; let our heads ever strike against brass pots innumerable hanging from our roofs; let the rats form their nests of shreds of scarlet cloth and silk; let all the kites in the country be seen in the trees of our village, from beasts being killed there every day.' - Edward Burnett Tylor, Primitive culture

Words can clearly be used to transmit information about our needs.  However, the problem with words is that they are cheap.  If we want others to truly believe that our needs are genuinely worth taking care of then it's necessary that we substantiate our words with sacrifice.  Sacrifice is solid evidence... it proves that our desire has depth...   

"Old-women's Grandson," ran the words of a Crow Indian's prayer to the Morning Star, "I give you this joint [of my finger], give me something good in exchange...I am poor, give me a good horse. I want to strike one of the enemy and I want to marry a good-natured woman. I want a tent of my own to live." "During the period of my visits to the Crow (1907-1916)," wrote Professor Lowie, to whom we owe the recording of this pitiful prayer, "I saw few old men with left hands intact." - Joseph Campbell, Primitive Mythology

In all cases, if you're going to make a sacrifice to a God, it's entirely reasonable to expect a blessing of greater value in return.  A sacrifice with a less valuable return is a bad deal.  A sacrifice without any return is a total waste.  

Let's switch from considering trade between humans and Gods to considering trade between humans. 

By far the most important depiction of commerce as communication is Adam Smith's Invisible Hand (IH).  Unfortunately most people really think that the IH is simply about the benefits of being selfish.   They are incredibly wrong...

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

In a nutshell, the IH is the decentralized process by which people use their own money to identify, quantify and encourage beneficial behavior.  Because again, nobody is a mind-reader.  Society's limited resources can't be efficiently allocated if we don't know the true intensity of people's specific preferences.  

Fast forward to 1944...

The management of a socialist community would be in a position like that of a ship captain who had to cross the ocean with the stars shrouded by a fog and without the aid of a compass or other equipment of nautical orientation. - Ludwig von Mises, Omnipotent Government

In 1945 Friedrich Hayek's essay The Use of Knowledge in Society was published...

We must look at the price system as such a mechanism for communicating information if we want to understand its real function—a function which, of course, it fulfils less perfectly as prices grow more rigid. (Even when quoted prices have become quite rigid, however, the forces which would operate through changes in price still operate to a considerable extent through changes in the other terms of the contract.) The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they may never know more than is reflected in the price movement.

In 1954 Paul Samuelson's paper The Pure Theory of Public Expenditure was published...

But, and this is the point sensed by Wicksell but perhaps not fully appreciated by Lindahl, now it is in the selfish interest of each person to give false signals, to pretend to have less interest in a given collective consumption activity than he really has, etc.

Accurate signals are just as important for public goods as they are for private goods.  But because of the very nature of public goods, it's possible to benefit from them without paying for them.  The standard solution to the free-rider problem is compulsory taxation.  However, simply forcing people to pay taxes does not create accurate signals for public goods.  

In 1963 James Buchanan had the incredible epiphany that people could use their taxes to honestly communicate the true intensity of their preferences for public goods...

Under most real-world taxing institutions, the tax price per unit at which collective goods are made available to the individual will depend, at least to some degree, on his own behavior. This element is not, however, important under the major tax institutions such as the personal income tax, the general sales tax, or the real property tax. With such structures, the individual may, by changing his private behavior, modify the tax base (and thus the tax price per unit of collective goods he utilizes), but he need not have any incentive to conceal his "true" preferences for public goods. - James M. Buchanan, The Economics of Earmarked Taxes

If you subscribe to Netflix anyways, then you might as well use your fees to accurately communicate the true intensity of your preference for nature documentaries.  Except, Netflix subscribers obviously don't have the freedom to use their fees to communicate the intensity of their preferences for specific content.  The same is true of people who "subscribe" to the government... aka "taxpayers".  Why don't subscribers have this freedom?

In 1981 Murray Rothbard's essay The Myth of Neutral Taxation was published...

The charity serves the purposes of the donors, and these purposes are in turn to help the poor. But it is the donors who are consuming, the donors who are demonstrating their preference for sacrificing a lesser benefit (the use of their money elsewhere) for a greater (giving money to the charity to help the poor). It is the donors whose production decisions guide the actions of the charity.

Donors use their donations to inform the decisions of non-profits.

Rothbard failed to appreciate that taxpayers could use their taxes to inform the decisions of government.  Evidently he overlooked Buchanan's 1963 paper.  If Buchanan's insight had been applied to academic papers, then subscribers would have used their fees to communicate the importance of specific papers, and logically they would have been willing to sacrifice a considerable amount of fees to Buchanan's paper.  Then it would have been very unlikely that Rothbard and others would have overlooked Buchanan's valuable paper.

Humans (and their Gods) really aren't the only ones who use sacrifice to communicate the intensity of their preferences...

Today’s Mandeville is the renowned biologist Thomas D. Seeley, who was part of a team which discovered that colonies of honey bees look for new pollen sources to harvest by sending out scouts who search for the most attractive places. When the scouts return to the hive, they perform complicated dances in front of their comrades. The duration and intensity of these dances vary: bees who have found more attractive sources of pollen dance longer and more excitedly to signal the value of their location. The other bees will fly to the locations that are signified as most attractive and then return and do their own dances if they concur. Eventually a consensus is reached, and the colony concentrates on the new food source. — Rory Sutherland and Glen Weyl, Humans are doing democracy wrong. Bees are doing it right

Obviously bees can’t spend money… but they can spend something that’s precious to them… their calories. So WTP is just as relevant for bees as it is for humans.

What about ants?

In Experiment 1 colonies distributed a greater proportion of their foragers towards the higher quality resource. This behaviour supports work by Sumpter and Beekman (2003) on M. pharaonis and is typical of this mass-recruiting species (Jackson et al. 2004; Jackson and Châline 2007; Evison et al. 2012b). The stronger allocation of workers to higher quality feeders is most likely due to a greater pheromone trail laying intensity by ants coming from these feeders (Jackson and Châline 2007) leading to faster exploitation of the higher quality food source via positive feedback influencing the decision by nestmates to lay pheromone trail (Sumpter and Beekman 2003; von Thienen et al. 2014). A greater disparity in quality should create greater disparity in foraging effort between two food sources, a simple behaviour that is integral to colony survival (Stroeymeyt et al. 2010), and this is indeed what we found (Fig. 2). — R. I’Anson Price, C. Grüter, W. O. H Hughes, S. E. F. Evison, Symmetry breaking in mass-recruiting ants: extent of foraging biases depends on resource quality

It takes precious calories to produce pheromones… so an ant’s willingness to spend their pheromones is the equivalent of a human’s willingness to spend their money.

Is it a coincidence that WTP is integral to ants, bees, humans and Gods?

With numerous widely dispersed and incredibly diverse individuals in complex and changing environments… commerce as communication is necessary to help minimize the chances that valuable things will be overlooked.

From ants to bees to Gods to Socrates to Abraham to Smith to Mises to Hayek to Samuelson to Buchanan to Rothbard... it should be abundantly clear that commerce as communication is an incredibly important aspect of commerce.

Should commerce as communication be used in defense of commerce?


Well yeah.  I don't think it's truly possible for people to fully understand and appreciate the incredible necessity and benefit of commerce if they don't clearly see it as communication.   

What's the best way to use commerce as communication in defense of commerce?


The best way to use commerce as communication in defense of commerce is to use commerce to bring commerce as communication to everybody's attention.

It will be pretty easy to bring this blog entry to Gurri's attention.  I'll simply go on Twitter, create a tweet with a link to this entry and mention Gurri in the tweet.  Voila!  He'll receive a notification and see my tweet.  Maybe he'll say to himself, "Oh no, not this guy again!" and ignore the link.  But if he does click on the link then he'll see this blog entry.

Perhaps he'll appreciate that I sacrificed a decent amount of time to create this entry.  However, this really won't adequately inform him of the true intensity of my preference for commerce as communication.

And yeah, I could definitely paypal Gurri $100 dollars.  Sacrificing $100 dollars would better inform him of my love for commerce as communication.  But would it better inform others?  Well...I could publicly announce my sacrifice to Gurri.  However, there is a better way.

Gurri has a brand new website... LiberalCurrents (LC).  It's so shiny and pretty.  Most importantly, it has that new website smell.  I know for a fact that Gurri loves the smell of new websites because creating new websites is his favorite thing.

On the LC homepage you'll see renaissance paintings and links to articles on the website.  But you know what I'd really love to see on the LC homepage?  I'd love to see a link to this blog entry!  I'd also love to see a link to Smith's Wealth of Nations and a link to Hayek's Use of Knowledge in Society and a link to Buchanan's Economics of Earmarked Taxes and and and... it's actually a pretty long list.

I created a Google sheet with a preliminary list and wrote some code to embed it on this page and here as well...





Gurri could easily embed the code for this list into LC's homepage or into some other prominent page.

The most important question is... how should the list be ordered???   The list of links should be ordered by their value.  In order to determine their value we can make donations to LC and use our donations to communicate the intensity of our preferences for specific links.  We'd be using commerce as communication in order to bring commerce as communication to everybody's attention. 

Also, we'd be helping to minimize the chances that people interested in liberty will overlook valuable information.  So it will be just like our very own Twitter... if the founder of Twitter hadn't overlooked Smith's Wealth Of Nations and Buchanan's Economics Of Earmarked Taxes.

We'll prioritize how we spend our limited money in order to help each other prioritize how we spend our limited time.

It might seem like information overload is a relatively new phenomenon.  But there's always been far more information than time to process it all.  It's only natural that our attention is drawn to the sacrifices that other people are willing to make.  In this regard, it definitely makes sense that the Bible managed to capture so many people's attention.

If we want to direct people's attention to commerce as communication... then we gotta make some sacrifices.  We can make donations to the LC and use our donations to determine the order of liberty links.

There are certainly a few logistical issues... such as... how does Gurri valuate links?  Clearly he can't simply take money out of his pocket and put it right back in!  So he'd have to figure out who to donate money to in order to communicate the intensity of his preferences for specific links.

As far as precedent is concerned... it shouldn't come as a surprise that it's pretty meager.

Based on my suggestion, a few months back my friend gave her 4th grade students the opportunity to use their donations to reveal the intensity of their preferences for their favorite books.

More recently, donors to the Libertarian Party were given the opportunity to use their donations to reveal the intensity of their preferences for their favorite potential themes.

In both cases the lists were ordered by the IH.  However, in the first case the IH was a lot smaller.

In the private sector, the IH determines the order of countless things... from frivolous things (ie gummy bears) to serious things (ie computers).  So it really shouldn't be necessary to make the case for using the IH to order a list of liberty links.  Then again, as far as I know, there are only two lists in the world that are ordered by the IH!  Therefore, commerce is certainly in need of a really strong defense.

It would be an incredibly powerful defense of commerce if Gurri used the LiberalCurrents website to allow the IH to order a list of liberty links.  Plus, the name of the website is certainly appropriate!  We'd all guide, and be guided by, the constantly changing currents of liberalism.

Yes, change is the basic law of nature. But the changes wrought by the passage of time affects individuals and institutions in different ways. According to Darwin’s Origin of Species, it is not the most intellectual of the species that survives; it is not the strongest that survives; but the species that survives is the one that is able best to adapt and adjust to the changing environment in which it finds itself. Applying this theoretical concept to us as individuals, we can state that the civilization that is able to survive is the one that is able to adapt to the changing physical, social, political, moral, and spiritual environment in which it finds itself. — Leon C. Megginson

Correctly and rapidly adjusting/adapting to constantly changing circumstances/conditions depends on accurate and efficient communication.  This is why commerce as communication is so incredibly important.

2 comments:

  1. Thank you for your thoughts. You cite a lot of people here, but I think of this perspective (the idea that commerce is communication) as fundamentally Hayekian. The market takes people's choices and purchasing decisions, as well as supply constraints, as inputs, and output prices as sources of information.

    But one can take this perspective too far. Indeed, I think you extend it well beyond its usefulness. If I listed those books with some dollar amount next to them representing how much I donated to show my intense commitment to them (or something), I guarantee you that would persuade no one. People who had not already read those books would think "well, there's someone who cares very strongly about those books" and move on (why should they care what I care about?). Those who have read (some or all) of the books will form their own judgments about whether or not I've ranked them correctly, but also will form their own judgments about the lessons contained in the content of the books.

    The problem with focusing too hard on the communication aspect of _prices_ is that it misses the depth of communication going on in commerce as a whole. But once you take that crucial step, the communication that gets discarded at the start of the analysis as "cheap" returns to a central place.

    I'd recommend McCloskey and Klamer's "One Quarter of GDP is Persuasion" on this topic. It's on JSTOR but if you don't have institutional access let me know, I can DM you a PDF.

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    Replies
    1. Imagine if I said, "Hey Gurri, I wish my blog had more traffic. Can I offer you some money in exchange for a link to my blog on your website?"

      You might not accept the offer but you wouldn't doubt the basic concept.

      Now imagine if I said, "Hey Gurri, I wish my blog had more traffic. Can I, or anyone else, offer you some money in exchange for a link to my blog on your website?"

      You'd doubt the basic concept.

      Now imagine if I said, "Hey Gurri, I wish my blog had more traffic. Unfortunately, I'm kinda broke. If I used crowdfunding to raise some money, could I offer it to you in exchange for a link to my blog on your website?"

      You wouldn't doubt the basic concept.

      Imagine if I said, "Hey Gurri, what do you think about a website where people can submit links and vote them up or down?"

      You wouldn't doubt the basic concept because you've heard of Reddit.

      Now imagine I said, "Hey Gurri, what do you think about a website where people can submit links and spend them up?"

      You'd doubt the basic concept... even though you've heard of markets, crowdfunding and advertising.

      Thanks for recommending McCloskey's paper. She's one of the best living economists. Unfortunately, unlike Buchanan, she's really not interested in providing a coherent economic story.

      I really crave a coherent economic story! What's the best way to divide society's limited attention... voting or spending? Democracy or the market?

      When people visit your website... you're not using voting or spending to divide their limited attention. Are you going to divide their attention chronologically? It's hard to tell if you're going to put your most recent articles on your homepage because you still only have a few articles.

      Dividing people's limited attention among a few articles isn't a very big issue. But what happens when your website has more and more articles? Clearly it's harder for all of them to fit on the homepage. It's also less likely that your newest articles will also be your most valuable articles. As such, it's also less likely that your visitors will find your most valuable articles.

      This means that your visitors' limited attention will be inefficiently allocated. This isn't good for them or you.

      The very point of the Invisible Hand (IH) is to help prevent people from overlooking valuable things. So if you don't want your visitors' limited attention to be inefficiently allocated, then you should allow the IH to place your most valuable articles on your homepage.

      Except, your website really isn't going to have a monopoly on valuable articles. So if you truly want to efficiently allocate your visitors' limited attention, you shouldn't arbitrarily limit the IH. You should allow the IH to place the most valuable articles from any website on your homepage.

      We can help prove, or disprove, that the IH is better than democracy at efficiently allocating limited resources (ie attention). This is no small thing! We'd be helping to apply and test the most important liberal idea.

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