Friday, May 22, 2015

The Mystery of Capital



“In medieval latin “capital” appears to have denoted head of cattle or other livestock which has always been important sources of wealth beyond the basic meat that they provide. Livestock are low maintenance possessions. They are mobile and can be moved away from danger. They are also easy to count and measure. But most important, from livestock you can obtain additional wealth, of surplus value, by setting in motion other industries including milk, hides, wool, meat and fuel. Livestock also have the useful attribute of being able to reproduce themselves. Thus the term capital begins to do two jobs. Simultaneously capturing the physical dimension of assets (livestock) as well as their potential to generate surplus value.”
What a wonderful way to put so abstract a concept. That’s from Peruvian social scientist Hernando DeSoto’s brilliant book, The Mystery of Capital.


Let’s be Ubercapitalist and see everything in terms of capital.
Life is like capital. In nature all living organisms are able to make use of raw materials to transform them into useful energy and functions.
Living things make surplus value out of materials and other life in a continuous ongoing process. Grass grows from the soil, the sun, and the rain. Cows eat grass and feed themselves and produce milk for their young. We make and consume dairy products and meat products. Bacteria live in our guts and make use of our waste products.


We need to understand that the nature of capital has a continuity that encompasses our human existence but goes beyond it to take in a larger circle. Life itself maintains and thrives by taking in raw materials and processing them into food and structural materials.


One of the commonalities of life processes and capital is ability to generate new things: descendants in the case of life, and income flows, in the case of humans.


But why stop at the living world why not consider the solar system? Starts out as a cloud of hydrogen and bits of flotsam and jetsam from a previous supernova. Then coalesces by the force of gravity into one big solar furnace called the sun; and the planets circling around the sun, so much smaller than the sun, were made from accretions of asteroid and comet bergy bits, created by gravity and sheer impact.


The sun: surplus value, a lot more useful energy than a cloud of hydrogen molecules. And the planets: the existence of life, human society, and property could not exist without them.


Why stop at the solar system?  What about the universe?  Big bang gives birth to the Universe – talk about surplus value:  everything from nothing.


Is it magic?? Of course in nature, only humans agree to divide land and things into property and have this property available to exchange for sums of money. Remember those qualities of cattle that de Soto talked about: the cattle were countable, movable, exchangable, and they gave surplus value. This is what drives human economics.


Think of mathematics. Mathematicians can generate beautiful geometric solids, wonderful infinite number series, entire worlds of imaginary objects. All from ideas.


But not just ideas. It’s our mind’s ability to convert space and time into equal units and then to manipulate those units by adding, dividing and multiplying them into forms and objects of wondrous variety. These objects do not exist in reality as some ideal forms, they are created and maintained by the collective acts of humans from all around the world.
What humans can do that the rest of nature cannot is to use collective agreement to create a system of property rights that propels capital forward.


Like mathematics, our economy exists and grows by virtue of collective agreements between humans to abstract out of reality certain features that allow for countability, transformability, and lower transaction costs. This is the role of property in most places where people make exchanges, but most dramatically in our modern economic system of Global Capitalism.


Suppose we organize a system of exchange where anyone can buy or sell units of property.  But how do we organize this market?  First we have to define a unit of account that will be used to measure the value of each property.  The property will have been surveyed as to its location and dimensions, or identified through description or serial number if it is an object.  


In order to make such units of account, descriptions, official surveys, etc. recognizable and acceptable there needs to be a legal system that describes property in a systematic way, and handles disputes between property-rights holders.  In order for this system to work there must be a government and the institutions of courts, schools, some sort of technology such as print, electronic files, etc..  that records transactions.  


Also, in order for the system to work the government needs adequate force and authority.  If marauding Vikings can plunder and pillage towns along the coast with impunity then communities lack an effective central government.  


Perhaps even more importantly there needs to be adequate trust within and between groups of people. All agreements require trust. Without trust commerce and trade diminish severely.  


The inculcation of trust requires complex social coordination that is enabled by the raising and schooling of children,  and the passing on  of recognizable customs, procedures, cultural habits and expectations from generation to generation.  


Trust also depends on perceived fairness in society.  The more inequality in a society, the more perceived unfairness, and the more likely that generalized trust in government, institutions, and other people will break down.


Social coordination and cooperation are at the beginnings and end of the story of capital and the real source of surplus value.  Capital is really social capital. Surplus value comes from the human ability to cooperate and make lasting agreements.

If we don’t begin to understand both human nature and social capital we will only accelerate our downfall.   By coming to understand this we can build economic systems from the ground up to be fair and  sustainable.

Monday, May 11, 2015

The Birth of Reason



The use of a common measure makes it possible for one to cooperate with many  other people, to lay the foundations of, and then to  build a house.  It facilitates  agreement on the size and dimensions of the house, the size of the materials that go into its construction, and  its location relative to the boundaries between one’s property and  one’s neighbour’s.  This is not possible without an agreed upon measure based on a template that can be used over and over again.  This template we call a foot, a meter, an inch or a centimetre.    


Similarly, we can only build organizations and social institutions that depend upon high degrees of cooperation by using a more general template, and one that not only makes common measures possible but vastly pre-dates them.  This is a template we call ‘reason’.  By our collective ability to adopt and replicate  common standards of evidence, discourse, accuracy, logic, conduct, equality, and fairness we make it possible to create and sustain social institutions like schools, governments,  law courts, monetary and financial systems,  and public health systems.    


Aristotle, the ancient Greek philosopher whose writing influenced both European Christendom and Islamic civilization in the middle ages,  called humans the rational animal, thus marking reason as  the ability that distinguishes us from all other animals.   But it is interesting how little we have advanced in our understanding of human nature since Aristotle’s time twenty-four hundred years ago.  It’s only in the last fifty years that archaeological discoveries have accumulated enough evidence to suggest a deeper concept of human nature.  


Plato, Aristotle’s teacher, identified reason with only part of humanity.  Plato’s idea is that there is a kind of natural division of labour amongst humans, and only those people who have the advanced capacity to learn mathematics and have been taught to transcend their appetites possess reason.  This led to Plato’s political theory that there should be a special class of guardians who are kept separate from everyone else and raised and educated based on the principles of reason.  


I tend to side with Aristotle but not with Plato.  I think reason is a commons available to everyone. Humans  really are the rational animal.  But now that we have more scientific knowledge of animals, and of our evolutionary past I think it’s time to take a new look at our origins, at just what it is that made us into human beings, and so distinct from other animals.  


How did we get from violence to reason?  How did we get from animal to human?  It could not have happened through the use of reason, because we did not have it before we were human.  Nor is it likely to have happened through altruism, because altruism is not rewarded by better chances for survival in ape societies.  We didn’t reason our way into using reason.  We can thus rule out the idea that the greater good was  our original motivation for adopting reason.


If we can trust Plato’s account of his teacher Socrates in The Symposium, Socrates argued that the way to knowledge of the good was through Eros.  Love of beauty led us to love of moral goodness in a process that at the end, involves the taming of the passions.  This is a remarkable passage, which I believe points to a fundamental truth of human nature.  We achieved reason by first using passion to guide us and later we used reason to put controls on our passions.  


We can consider that our day-to-day emotions are evidence of the struggles in our ancient past.  Humans could have been far more violent and less cooperative, but we have psychological, social, and political systems for controlling violent behaviour and we use all of them all of the time.   


I believe that the urge to dominate others is instinctive and predates all human society.  Our childhood is largely a socialization process where we learn a panoply of  emotional responses that act to control our urge to dominate.  Consider the power of feeling embarrassment, shame or guilt.  Those who lack these feelings have largely been eliminated from the gene pool, but they still  exist as a small minority that we label - psychopath or sociopath.   As far as we know, apes don’t have these feelings either.


Chimpanzees are humans closest relatives.  We share 99% of the same DNA.   Male chimps have bigger arms and shoulders than humans.  They are strong enough to literally tear one of us apart, something they sometimes do to their own kind.  Chimp society is a lot more violent than human society is. Chimpanzees  live in  a male dominant hierarchy similar to what we see in  human gangs.


Chimpanzees do not  pair-bond.  The norm in chimp society is a kind of hierarchical promiscuity.  Most human societies are predominantly monogamous, and this goes for nomadic hunter-gatherer societies, the simplest of human societies and the closest to  the way our ancient ancestors lived.


Why would the first human group choose monogamy when they could have more pleasure from sleeping around, and wouldn’t this fatally undermine a monogamous system?


The answer is not obvious but it is supported by some key facts.  The  self-organizing state of alpha dominance hierarchy was the default state.  In this state, the majority of males had slim pickings, and would have been better off with monogamy but they were prevented from getting there by the dominant male.  This situation would be stable unless some change could tip the balance permanently in favour of  the majority of males because otherwise every time the alpha male was eliminated, someone new filled his place.  


As much as we think we observe plenty of instinctual behaviour in contemporary politics and social life,  we can also observe that most leaders are not alpha males.  They are leading because of their intelligence and abilities, and because groups of us collectively choose them as leaders.


Most of the time, we don’t need to assassinate or physically subdue our leaders to replace them,  Humans hold their societies together through internalizing moral precepts, through social peer pressure, and through building cooperative social institutions.  This is not self-organizing.  It is not possible through people acting from  their self-interest alone.   It takes continuous effort and conscious decision making. It requires the use of reason, and the conscious adherence to impersonal rules, sometimes in opposition to our own interests.    


This is a messy bother if you don’t need it.  To live in a small isolated group under the shadow of an alpha male is to live in a stable hierarchy, at least until the alpha is toppled.  But, when homo habilis, an early hominin, invented stone tools sometime around two million years ago it   suddenly   gave anyone the means to overthrow the alpha male.  This set the stage for homo erectus, the first monogamous human.


Stone-age technology created a niche for monogamy by making monogamy a more stable alternative to dominance hierarchies.  This is the conclusion of Canadian Anthropologist Bernard Chapais, as I have understood from his book,  Primeval Kinship.  Homo Erectus is the more gracile tall hominin, the first hominin to spread out of Africa into the Continents of Asia and Europe, and the first of our ancestors to control fire.  The sexual dimorphism (size difference),  between male and female in homo erectus, is very similar to sapiens dimorphism.  Chapais argues that this dimorphism, which is smaller in chimps and larger in gorillas, corresponds to a species that pair-bonds.


 The large size difference between the dominant male silverback gorilla and the gorilla female is associated with  a polygamous society in gorillas.  One male controls a harem of females, and there is no pair-bonding.  According to Chapais, homo habilis and australopithecus, the probable ancestors of homo erectus, had a greater sexual dimorphism than humans, one that was closer to that of gorillas.


Once homo habilis invented stone weapons, it became too easy for subordinates to kill the alpha, and so the hierarchy became unstable.  As long as there were males with no mates and males with more than one, there was more potential for violence.  The greater size and strength of the alpha, which  had kept this violence in check before, would have failed to maintain stability in the face of the new technology.  


What distinguishes humans from other species is our ability to cooperate and connect with each other.  For tens of thousands of years  we have covered the globe in a myriad of different societies speaking different languages and yet we are still all part of the same species.


In the stone age, two million years ago, our ancestors adoption of monogamy created more kinship connections and greater group coherence, as well as allowing competition and cooperation on a larger scale. This is the basis for monogamous groups having greater fitness for survival.


Monogamy is not something that can be instituted by individuals pursuing their own self-interest.  Suppose I choose a mate.  What is to stop a stronger male, with more testosterone, from killing me and taking my mate? There must be a collective agreement to establish or maintain monogamy.  In other words, monogamy may have been the first instance of conscious, non-self-organizing system maintained over sustained lengths of time.


In order to maintain monogamy we needed to police our group as a whole, to actively detect and suppress public alpha behaviour, and this  is how we would have begun the collective establishment of  standards of conduct and evidence.  


Reason  is fundamentally collective. Standards of accuracy, sincerity, truth, objectivity,  fairness, and good or bad behaviour all stand or fall by collective agreement. They are irreducibly social because part of what it means  to believe and follow them, is our belief and trust that others will adhere to the  same standards.


In other words, adhering to rules and standards is partly contagious.  If we see everyone else doing it we will do the same.  But if we see no-one else doing it, we won’t do it either.


When we follow a standard we are abandoning pure self-interest.  There will be times when no-one else is around and we can get away with not following the standard, but we choose to follow the rule even in those times. This works as long as we believe that most others are likely to do the same.  When we stop believing this we usually act accordingly.  


Reason was a consequence of our becoming monogamous it was not something that we imagined that we needed. Nor was it a faculty that was magically given to us by a god. The decision to go monogamous, because it meant conscious organizing rather than staying with a self-organizing system,  is the original challenge that led to the development of human reason.


The special thing about reason is that, by agreeing to and following standards we make human society possible. Yet, it is not that the first humans planned to create a society.  They just fell into being human by collectively choosing monogamy.