Non Arbitrary Resource Allocation

Theory is useless without implementation. If people in the 17th century read Newton’s Principia and then simply went about their lives as before, then it would’ve been another useless book. Likewise, mastering Smith’s The Wealth of Nations would useless if it won’t lead to any nation or society becoming sustainably wealthy. This is why the main effort in this endeavor is in implementing Smith’s free trade system, as the Non-Arbitrary Resource Allocation, which incorporates all his ideas such as the division of labor in society, commodity-based valuation, the use of ratios (instead of equations), and profit-sharing or giving the produce of one’s own labor, among others.

 

What is Non-Arbitrary Resource Allocation or NARA?

NARA is our response to Smith’s call for an alternative to money:

Money in this respect may be compared to the high roads of a country. It does not create corn or grass. But it circulates all the corn and grass in the country. If we could find any way to save the ground taken up by highways, we would increase considerably the quantity of commodities, and have more to carry to the market. (Lectures, Div. 2, Chap. 9)

 

It is a version, brand name, or part of a bigger system of trade which we call Social Resource Allocation which in turn serves as an alternative to the commercial system.

 

Technically, NARA is a resource clearing system that circulates goods in wholesale trade or between ‘dealers and dealers’ in order to increase sales and profitability by reducing the use of money and nominal value instruments, which Smith saw as Daedalian wings which can render any economy unstable.  This can be seen in the 1929 crash (stocks), 1970’s oil shock (petrodollars), Black Monday (stocks), Asian Crisis (hot money), Dotcom Bubble (tech stocks), and the 2008 Financial Crisis (derivatives), all caused by some form of nominal value instrument in parentheses. All those instruments resulted in economic downturn or the reduced production and circulation of goods and services in society.

 

By reducing the circulation of nominal value and increasing that of real value, the companies in the system can be better insulated from the crises mentioned, so that they in turn can keep producing during such times

Therefore, the poverty of any country increases as the money increases. Money is a dead stock in itself. It supplies no life convenience. (Lectures, Div. 2, Chap. 9)

 

Though Smith explained the philosophy behind such a system, it was Jean Baptiste Say and John Maynard Keynes who were the ones to propose its real-world implementation:

When a superabundant article can find no vent, the scarcity of money has so little to do with the obstruction of its sale, that the sellers would gladly receive its value in goods for their own consumption at the current price of the day: they would not ask for money, or have any occasion for that product, since the only use they could make of it would be to convert it forthwith into articles of their own consumption. (Say, Treatise)

The proposal is to establish a Currency Union.. based on international bank-money, called bancor, fixed (but not unalterably) in terms of gold.. for the
purpose of settling international balances..  an agreement might provide that, in the event of one of the contracting States having a debit balance with the Clearing Union exceeding a specified proportion of its quota on the average of a period it should be free to resort to import regulation or to barter trade agreements or to higher import duties (Keynes, The Keynes Plan)

 

If NARA were implemented in the 1920’s, then it would have prevented the Smoot-Hawley Tariff Act, found a ‘vent’ for America’s excess goods (such as the Ford Model A), enforced equity controls or stricter regulations on stock trading to prevent the 1929 crash, and strived to build fellow-feeling with foreign nations, especially the Axis powers.

 

Though the ‘clearing’ aspect is the most visible part of NARA, it has other components which all work to make economies more stable yet progressive, and recession or depression-proof. The most important is the promotion of the idea of ‘society’ in economics. To solve economic problems, we must go directly to the core meaning of ‘Economics’.

 

What is Economics?

Simply put, economics is the science of resource allocation or budgeting, which manifests as ‘home management’ in active form:

Socrates:

  • In the case of the arts just named, we can state the proper work or function of each.
  • Can we (similarly) state the proper work and function of economy?

 

Critobulus:

  • I think it must be the business of the good economist at any rate to manage his own house or estate well. (Xenophone, Oeconomicus)

 

This original description of the word ‘economy’ is supported by the fact that the word ‘economize’ implies an idea of frugality and good budgeting. Based on this description, then an economic system is considered a failure if the household or society is wasteful or is not functioning in an acceptable or good way (note that Smith sees human skill as a very important capital).

 

Since a household or society is made up of members, then a failed economic system is one where its members are performing below average or not to their ordinary potential, due to some suffering from poverty, lack of opportunity, and other forms of injustice. In the same way, a family is considered a failure if or ‘bad’ if it lets one of its children get malnourished while the rest grow fat, some of its children are highly educated while others are not, or when its children fight amongst each other violently and regularly, or is filled with vice.

obesity-and-malnutrition

Having extreme social inequality and internal social conflict and vice is bad socio-economics just as having extremely fat and thin, or unruly children is considered bad parenting or home management.

inequality

p4-syria-b-20131202-870x652

To prevent inequality, conflict, and vice, we apply metaphysics and put the the idea of society as the first and underlying idea behind or after ‘economics’, just as the ‘family’ is put at the front of the ‘home management’. This added emphasis on society will better check the selfishness which is so common to human minds, as it is imbued by nature to ensure the propensity for self-preservation which is needed for existence. (Note that 18th century political economy was very closely tied to moral philosophy, which itself extends from metaphysics, until both moral philosophy and metaphysics died with the industrial revolution of the 19th century)

Modern Economics Can Destroy The Planet

However, existence was not made for the sake of existence. In other words, existence is just a means towards an end. It follows that the effort for self-preservation is to be allowed up to a certain and small extent, relative to the goal. One grabs a pen and paper not for the sake of having a pen and paper, but for the goal of writing something. The existence of the pen and paper is essential to, but is insignificant, relative to the existence of a great novel or treatise that can be written with it. Likewise, a socio-economic system is essential to the members of society getting fed, clothed, lodged, and having access to transportation, electricity, water, education, for them to freely achieve their own ends, not for the ends of vested interests. However, current economics focuses only on owning and accumulating resources for the sake of ownership and accumulation, without really having a great purpose.  Each generation accumulates, enjoys, then dies, slowly draining the planet of its resources over the centuries (since the planet as a system has a much longer lifespan) until it has nothing left to give.

anactivistdr drought

Socio-economic Freedom through Non-Arbitrariness

Systems can fail if there are many points of failure, caused by undue complexity. A system can fail instantly and spectacularly if there is a single point of failure or a certain part that centralizes or engrosses most of the processes.

Single_Point_of_Failure

In an economic system, this can be caused by resource centralization in various ways, such as in state-owned enterprises, too-big-to-fail banks, and through a single means of valuation such as that of money, stocks, credit derivatives, etc. To address the failure caused by organizational centralization, Smith advocated competition by limiting joint stock companies to a few industries (Book 5). To address the failure from money, manifesting as financial, currency, and debt crises and credit crunches, he advocated real valuation through food or corn. However, all these run counter to selfishness, profit maximization, and arbitrage, and so they have never been implemented.

Non-Arbitrariness Leading to Political Democracy and Economic Democracy

Non-arbitrary leader-selection through votes or likes

Non-arbitrary leader-selection through votes (or likes)

If you went back in time and told a feudal lord or king to voluntarily give up his reign after 6 or 8 years to be replaced by someone voted by or ‘liked’ by the people, as this would lead to a stronger town or country, he will laugh at you and think of you as crazy. Likewise, in the current economic system, it would be absurd to tell a CEO of a too-big-to-fail bank or corporation to spinoff some of its businesses, or to tell a central banker to not do quantitative easing and instead just breakup big mercantile companies for the sake of stronger industries or a more stable economy. It would also be in vain to tell a communist leader to split up the communist party or to sell state-owned enterprises to prevent their arbitrary control of society and the economy.

Political democracy didn’t come to the world overnight. Economic democracy will likely take a bit longer, since the root causes that prevent its realization: the selfishness of humans and the vulgar idea that money = wealth, which Hume and Smith respectively exposed, still exist very much today.

In his textbook Economics, Samuelson wrote: “When the rich man’s dog gets the milk that the poor man’s child needs to avoid rickets, is the system working badly? No. It is working as it is designed to do – putting goods in the hands of those with the most money or dollar votes.” Economics only cares about sales and profits and does not care about the weak and non-profitable members of society, and thus, has no solution to socio-economic problems like civil war and migrant crises.

migrants

If the arbitrary game created by economics does not stop, then inequality will rise until societies break down into animal-like societies which lack moral sentiments following instead the doctrine of the survival of the fittest, as seen currently in conflict areas around the world, or the planet itself gets exhausted and can no longer sustain life.

So How Can We Implement A Non-Arbitrary Socio-Economic System?

By going through the works of Smith and Hume, we can form a blueprint of concrete steps to build  a new system that works for society (instead of only for those-who-live-by profits). It eventually will be implemented as an IT system that uses big data, artificial intelligence, and blockchain, since prices are just information. You can find more details in this post.

 


 

Edit: 2/2017 Added link to SORA

 

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