Friday, August 25, 2017

Schumpeter, Kuhn, and the Nature of Value

To ask what is 'valuable' as a generality is an empty question. The nature of value lies within each individual according to their circumstances, i.e. 'My kingdom for a horse.' In Schumpeter and Kuhn we see two very different manifestations of the process of valuation involving a notion of value coming very close to 'necessary'.
In Schumpeterian economic terms, commodities are valuable (capable of market comparison with other valuable entities). That capability drives the circular flow economy. In those terms value is the answer to a two part question. What is valuable? And how valuable is it? Keeping close to home in his analysis, his notion of valuable is a tautology: a commodity is valuable and what is valuable is a commodity. Given the philosophical nature of the question, it is a necessary tautology for an economist. Once an entity has been found valuable, necessary to the point of purchase, then the market answers the second question: how valuable is it in relation to other necessities or to place market function in context, how scarce is it?
In Kuhnian abstract terms, value is a datum that 'means' something, that has a direct connection to a paradigm and a set of rules. It can be a positive value, a predicted result, or a negative value, Kuhn's famous anomaly. Necessity applies in both cases. The discovery of the Higgs boson was a necessity to confirm physics theory. Any other result would have been an anomaly and a necessity to undermine current theory. So, meaningful data are either necessary, valuable, or unnecessary, trivial to use the term scientists use. There is no market in science but the question, how valuable, is left to individual judgment and consensus in the field, a market function without the money valuation. This is why Kuhn is so concerned with incommensurability, being incapable of comparison. Markets routinely value the scarcity of incommensurate commodities in money amounts. Scientists do not so value data and paradigms.
The marketplace of ideas is an old phrase referring to the valuation of paradigms. It is a misnomer. Markets require money, a value calculus allowing relative valuation in a market. Money definitively characterizes the relative scarcity of items like apples and oranges, to use the old illustration. Language, even rigorous language, although a rudimentary value calculus capable of assigning value and comparing data, cannot do that precisely. With language, it is all judgment and consensus.
Money and monetization define the limits of language. That which is beyond the mediating capability of language is properly subject to monetization. Kuhn, with incommensurable, defines that philosophically. He reached the limits of language, of thought. Schumpeter. working within a restricted frame that did not account for money as a value calculus assigning relative scarcity across necessary commodities in a market, consequently and brilliantly recorded interesting economic phenomena, i.e. swarms of entrepreneurs, without quite 'seeing' what he was noticing. He had reached the limits of market analysis without realizing it.
So, these two great minds, approaching the phenomenon of catastrophic change from two radically different directions agree that such events occur regularly, metaphysically in Kuhn's linguistic paradigm shift, economically in Schumpeter's monetary creative destruction. These two universes met in agreement to the existence of a phenomenon across a great divide of language, thought and reality.

Friday, August 11, 2017

The Giants of Disruption: JA Schumpeter, TS Kuhn

The first time that I encountered anything resembling the concept of disruption as used in 'disruptive innovation' [Christensen, 1997] was in the seventies. I was indulging my relentless intellectual curiosity by reading in ancient Greek philosophers on my own and, surrendering to a fit of boredom, was wandering the library aisles when a slim volume's title caught my eye. I read it and it altered my brain. It was Thomas S Kuhn's 'The Structure of Scientific Revolutions' [1962]. My thinking has never been the same since and every book I read after that was interpreted in an analytical frame of paradigm, rules, data, and anomaly.
As I wandered the tangled ways of the life of the mind, led here and there by that demanding need to know, not as an autodidact but as a curious thinking animal, I took up a study of business and economics that would lead to a degree in Operations Management. Of course in the process of acquiring the paradigms and databases of such a degree, the phrase 'creative destruction' was brought to my attention. My Kuhnian mind was immediately taken by the concept and I read Joseph A Schumpeter's 'The Theory of Economic Development' [1934]. The book structured my study of business and economics. It reordered that Kuhnian brain and, once again, my thinking was never the same.
As I continued on my intellectual way, I noticed the both authors' work rested in significant obscurity despite my personal experience of their work losing no power to explain over the years. That is the motivation for this series of blogs of which, this, the first, is a summary before the fact of the rest. The 21st century needs to know these two remarkable minds, one Berkeley, one Harvard, and their brilliant original work. It also needs to recognize the parallels in their theoretical systems and needs to take notice of their significant philosophical differences. That is the secondary purpose of these blogs.
In economic usage, the term 'disrupt' means to unsettle. There is, then, a functioning system in some sort of equilibrium or harmony and a curious unsettling incident which puts the system in disequilibrium. That is all there is to disruption. A 'disruptor', in common usage, deals in disruption, a systems agent provocateur.
The theoretical treatment of disruption requires two elements in order to 'see' disruption for what it is, a ground and a figure. The ground in disruption is an equilibrium state. The figure is a disruption to that equilibrium. In both Schumpeter and Kuhn there is great attention paid to disruption by innovation, the former in business technology, the latter in scientific theory. They both recognize disruptors with Schumpeter going so far as to name them, entrepreneurs.
In Schumpeter's creative destruction model disequilibrium occurs in cycles. The ground to this analytical frame is what has been translated as 'circular flow', an economic engine operating in perfect harmony of supply and demand. As he admits, no such economy exists. It is, like efficient markets, a useful fiction. The figure that emerges against this ground is that of entrepreneurs dealing in innovation and putting the circular flow economy in disequilibrium, swarms of entrepreneurs, as Schumpeter puts it, that occur in regular cycles.
In Kuhn's paradigm shift model, disequilibrium occurs on a necessary basis. When scientific theory cannot explain significant phenomena, there is disequilibrium and, eventually, a new theory or paradigm making new equilibrium possible. The ground to this analytical frame is 'normal science', the paradigm or theory and rules with which we interpret experience. The figure is anomaly, the critical finding that current paradigm or theory cannot explain. It is worth noting that Schumpeter assigns agency to disruption while Kuhn, respecting the brilliant minds of science history of course, does not. It is all problem and solution with him. Kuhn describes a discontinuous narrative of equilibrium, disruption, and metaphysically revolutionary change to a new equilibrium, from one universe to another. Schumpeter describes a continuous narrative of a single universe moving through constant change, driven to equilibrium but unable to achieve it.
From a philosophical point of view, the two are in, Kuhn's famous term, incommensurable (not capable of comparison) universes. They are apples and oranges. Kuhn was an instrumentalist, a theory of knowledge that says we only know what we know of reality through theoretical constructs. For him, when the theory changes, the facts change. It is a solid, pragmatic, and American approach. Schumpeter is an Aristotlean, European economist. There is a knowable fixed universe that only changes in the nuts and bolts of the economic engine. There can be no metaphysical revolution for him.
Can these two brilliant analytical frames be rationalized? Yes and no. One could rewrite Kuhn to conserve Schumpeter's theory as a special case. That would require a psychological model of generational transfer of knowledge and brain plasticity. Kuhn noted such a phenomenon as a lag in adoption but did not develop it. However, such a rewrite would do violence to Schumpeter's philosophical orientation. It would not be the same theory. Kuhn's work is comprehensive of creative destruction but Schumpeter never dreamed of paradigm shift. To say the least.

Blog series on these topics to follow.

Tuesday, June 20, 2017

Taxing Robots: A Naive Appreciation

First, I wish to make clear that any redistribution of wealth is in itself disruptive and polarizing. It is a brutal admission to the failure of a political economy to provide, at once, prosperity and the general welfare. Taxing robots is such a redistribution of wealth and such an admission of failure. This being said, such a tax or usage fee would manage disruption to the gain of the entire society and should be countenanced given the power and reach of smart machines. Realistically they could replace all but the most talented of us economically in the near future.
We have, since Joseph Schumpeter formally identified it, been in the business of the unprincipled business of managing disruption with a constant eye, and a shifting focus, to both prosperity and the general welfare. It is time, in that cycle, in the face of the enormous potential impact of robots and AI, to shift focus once again to the general welfare. How can this be done without destroying the market basis of material existence?
I see a bipartite process of shoring up the existing employment by mandating a Living Wage and, for all those employed by corporations, mandating affordable stock options for all employees and substantial severance packages including stock and stock options. Had these conditions been met thirty years ago, we would be much better off but still behind the curve of the catastrophic disruptive effect of smart machines. In view of this creative destruction tail wagging the dog of Life, Liberty, and the Pursuit of Happiness, intervention, however unprincipled, is in order.
Secondly, I see room for the mandated issuing of licences to deploy Artificial Intelligence and robots with a significant licencing fee. Would this inhibit disruption? Yes. Does disruption need inhibition? Yes. Unless the cost/benefit of deploying new technology includes the cost of dislocation the accounting cannot hold. Vast economic disequilibrium will occur driving market irrationality. That market insanity is, without qualification, the failure of a capitalist political economy. It requires immediate redress, and, in a heuristic unprincipled fashion, prescriptive remedy to prevent such future events. This is an attempt at such remedy and while these remedies notoriously fail in a shower of unintended consequences, as noted by Adam Smith, the history of these attempts compose a narrative from which patterns can be analyzed and more successful remedies made. As in the old saying, Rome wasn't built in a day.
This licencing fee would be significant enough, but well within what the market will bear, to fund free tuition at  the post-secondary level and a subsistence basic income for those displaced even marginally by new technology. The fee has no basis in theory, is derivative of the injunction to provide for the general welfare, and is strictly a management technique in the measured adoption of innovation. It would provide until such time as stock ownership is common, dividends are given due regard, and wholly irrational market dynamics subside.
This suggestion is not made lightly. I believe that markets allocating resources to relevant talent provide the true basis for reasonable, humane social existence. When they do not provide that basis then that is a market failure and, in consequence, a social failure. We are at present flirting with social decay and facing social disintegration in the near future. This is no time for escapism or kneejerk views of the political economy. This is a time to reason and respond ahead of the curve of innovation.

Saturday, May 27, 2017

Civilization and Its Bounds

Civilization is not an easy subject to ponder. Clearly there is an historically broken but intellectually continuous thread from Sumer to Greece to Rome and then to Byzantium. After that the canon passed to the Arabs who held it through the darkness along with the Byzantine monasteries. From the ruins and towers of Byzantium then rose the bourgeois phoenix, market driven, not quite civilized, like Christian Byzantium, but closer to the barbarian than they, which entrepreneur by entrepreneur, disruption by disruption, yet owns the planet.
If it be possible to characterize civilization as moral and intellectual agents conserving pattern and meaning from chaos then market economies are not quite civilized however effective they are at wealth building under specific social environments. The market conserves the pattern. Participants conserve the market. They do not curate the canon so much as engage in database exercises as technicians. This is not ancient civilization. It is civilization evolved and once removed. It is not the same thing.
Make no mistake. Market driven economies build wealth and concentrate wealth in order to build more wealth. That is all they do and they are without equal in doing it. Meaning, in a market economy, is a game and the score is kept in money. An arbitrageur, an entrepreneur, and a banker are moral agents in a closed system of behavior involving these major elements: due diligence, contract performance, and market discipline along with codified considerations of merchant law such as warranties of merchantability. The logical end of the process of wealth creation is the holder of the larger score, the capitalist, employing his cash as a market moral agent to increase the capability of the market economy to create wealth.
This is a closed system. It goes nowhere but to the bank with bags of money and it needs rational constraints to make it humane.
Realize, market morality and the civilized moral system are probably incommensurate. It is essential that market morality be contained in that larger moral structure as something separate, not inferior but different. We clearly need a model of society and business complementing whatever economic model arises from Big Data and AI and we do not have one and are not particularly discovering one. We are behaving into a theoretical vacuum which can result in nihilism and social decay. That is the dilemma we face.

Tuesday, March 7, 2017

Writing in the Moment: Some Views on Writing

"Thinking never hurt a novel."
First, the title describes an impossible situation. Writing is always done at a remove, 'Emotions recollected', as Wordsworth said, 'in tranquility.' However, being in the moment, engage' with the universe, is essential to the quality of the written experience. One cannot 'be' a writer and create legitimately. One can only 'be' a citizen of civilization, a civilizado, living in the 21st century, being in the moment and stepping back occasionally from the chaos of innovation to write.
It is important, in this postmodern age of diversity, to create, maintain, and write from, a psychological space of intellectual and emotional legitimacy. One cannot cast oneself adrift on this sea of innovation and disquiet and expect any result but pure escapism, which is a valuable commodity but a less than serious genre. A novel is an entertainment, created and evolved to divert, and it is well to keep in mind that there is such a thing as intellectual entertainment, such as chess or a good translation of Aristotle. Philosophy is incredibly entertaining to those so inclined and while we are all differently talented and differently placed in different psychological spaces, one cannot overemphasize the intellectual content of a work. It is important to say something. A tree gave its all for that book and I don't even want to talk about what goes into an ereader.


Tuesday, February 7, 2017

The Argument

As I have examined in earlier blogs, information overload, exceeding the brain's plasticity, induces individual insanity and collective chaos. Plasticity stress is a function of the speed and degree of innovation and individual contexts; paradigms, databases, and narratives. The only brake on the locomotive of 'progress' is cultural inhibition to the adoption of new technology.
Early adopters, who fall in the autistic stage of the brain plasticity range, have little cultural inhibition. The slowest to adopt, the schizophrenic stage of the brain plasticity range, are singularly culture bound. Our present method of working out the speed of adoption operationally, progress to social breakdown, is social suicide. It is dystopian.
We absolutely must manage innovation. As discussed earlier, the nature of the universe and the limits of human intelligence preclude any pretense of being 'real'. We all live in distorted realities of filter bubbles. Reality can no longer be an argument for progress. We are generally exceeding the plasticity of the human brain and must manage change. We must increase cultural inhibition to the deployment of new technology while increasing the range and complexity of our personal contexts in order to adequately integrate new technology in humane social schema, a process of some 20 to 40 years.
That is my postmodern mantra and my prescription for dealing with our present chaos.

Do well and be well.

Saturday, February 4, 2017

Modern Innovation

Modern innovation begins arbitrarily with Einstein's 1905 paper on relativity. This, following on the heels of the Long Depression and a general increase in the capability and employment of machine tools, and preceding the Great War and a general collapse of civilization and its narratives, fueled a truly incomprehensible flood of innovation that became intense and socially pernicious after 1945.
The list of innovations introduced into society in the period, 1905 to 1945, is significant but the list of the period, post 1945, is mind boggling, atomic power, television, the integrated circuit and its transistors, the internet, robots, and, now, gadgets that are organized as the IoT, all of them pushing the limits of the human brain and culture and increasingly going beyond those limits into functional insanity and social chaos.
When an innovation is subject to inclusion into a culture that innovation is accomplished individual by individual. Yes, there are protocols for dealing with technology that are circulated among populations. These do not imply comprehension and they are temporary to task completion. They are a part of machine culture, not human culture. Social acculturation means integrating new ideas into neural networks so that behavior becomes meaningful. If one's behavior is a repertoire of such protocols, a machine culture, then one is a minion of the machines and the only meaning is the machine. That is intolerably inhumane. Thus, the eternal drive to comprehend, to integrate new ideas into a coherent brain mass.
With relativity and quantum mechanics and their esoteric and difficult concepts we find this drive, the drive to meaning, frustrated by the individual limits of the ability to understand, a function of talent and plasticity. Culture moves ahead, semper ad Lucem, incorporating new technology and ideas into humane behavioral systems but it moves slowly in filter bubbles and approximate realities. Compounding this are absolute theoretical limits of comprehension, the universe consists of scalar fields decaying into particles and scalar fields are unknowable, and the absolute limit of general comprehension, as Feynmann once said, nobody understands entropy.
Only with artificial intelligence and IoT gadgets do we see the possibility of a meaningful existence obtained within the comfort zone of the average human being, without performance enhancing drugs, without elitist exclusion. There is, at the logical terminus of technological development, more day to dawn, as Thoreau put it. We may be in sight of that dawn, the dawn of machines adjusting to human beings, the dawn of the truly humane society, but we still have to reach that point of technological development and acculturate it. We are not there yet.