Loose Ends in Economics

Libertarianism, a philosophy of selfishness?

2013-05-24T13:24:00.003-04:00

Libertarianism is often labeled as a philosophy of selfishness. This is a mistake, and to see why it is a mistake, we need to review the basic principles of libertarianism.

Liberalism rests on the concepts of self-ownership, homesteading, and non-aggression. According to this theory, each person has the right to be the master of his or her own body. This right stems from the belief that each person has free will. The existence of free will is understood as an axiom--a self-evident truth that cannot be proven or disproven.

The next step in the logic of the libertarian theory of rights is mixing one's labour with nature--homesteading. One acquires legitimate ownership over the products of his or her own labour when these products are created by using resources that were not previously owned by anyone. In other words, natural resources belong to the one who finds them first. In cases when a resource is already owned by someone, another person can legitimately acquire this resource only through a voluntary exchange.

The key feature of a voluntary exchange is that the exchange is performed in the absence of physical aggression or a threat of physical aggression. This means that it is illegitimate to take one's resources without one's consent, and it is critical that this consent is obtained in the absence of a threat of physical aggression.

From this, we can see that the libertarian theory requires one only to respect the property of others. It does not, however, dictate what kind of preferences one should have when it comes to using his own property. For example, libertarianism does not state whether one should use his own property for charitable purposes, or to make a profit, or keep it all locked up at all times. Libertarianism only opposes taking one's property without his consent, nothing more and nothing less than that.

I have more to say on the problems of using subjective judgment of others' actions (i.e., "action x is a selfish thing to do") as a normative criterion, but this is unrelated to libertarianism, so let's leave that for another occasion. Until then, you might want to take a look at this piece, where I explore the concept of intellectual property in a similar context.

What we should know about probability

2013-05-15T23:49:00.001-04:00

The concept of probability is often used but rarely properly understood. The first thing we need to understand about probability is that it is a human construct. This means probability is something we made up. We made it up to describe our ignorance and our beliefs about the world. Since our beliefs are, by definition, always subjective, the concept of probability is subjective as well. Another important thing we need to understand is that probabilities are useful in repetitive events, but they tell us nothing about single, unique events.

Just recently, one famous Hollywood actress decided to undergo a surgery to remove both of her breasts because the doctors found that she "had an 80% probability" of developing breast cancer due to the presence of a certain gene. Without the intention of judging her choice, let us examine what this 80% probability means. It means that 80% of the people examined in the past that had this particular gene and that followed certain lifestyle had developed breast cancer. For those remaining 20%, researchers could not find a distinguishing feature, compared to the other 80%. In other words, if there are 100 individuals with this particular gene, and these individuals have similar lifestyles (including all the environmental conditions surrounding them), 80 of them will develop breast cancer and 20 won't.

We are tempted to say that an individual from this group has an 80% probability of developing breast cancer, but this is incorrect. If you look at an individual that had developed breast cancer and ask: can I use the 80-20 ratio to explain why this particular individual had developed breast cancer, the answer is--no. You can ask the same question about an individual that did not develop breast cancer and the ratio would be equally uninformative. It wouldn't tell you why individual X or Y ended up in the 80% group and individuals Q and Z ended up in the 20% group.

Let's say this particular actress is actually in the 20% group, but, of course, no one can tell her this because no one knows this underlying reality. This means that she was in this group before she learned about the 80-20 ratio, and she is in the same group now, after she learned about the ratio. She still doesn't know in which group she is. So, learning about the 80-20 ratio describing the health of some other people did not add any new information about her health.

What do probabilities really mean then? The real meaning of probabilities is that they are our own subjective expression of our beliefs about the unknown. We base these beliefs on our evaluation of past experiences. Our famous actress has observed the past results of medical research and she formed certain beliefs about her health, which is still unknown to her. We don't know her actual thought process, but her actions demonstrate that she would rather remove her breasts and reduce her subjective belief that she is in the 80% group than wait and see in which group she actually is.

But, suppose that, instead of the 80-20 ratio, this ratio was 99-1. This means that of every 100 individuals with the particular gene and similar living conditions, 99 get breast cancer, and 1 doesn’t. Suppose you were that one person that will not develop cancer, but, of course, you don't know this. The doctor comes to you and says the chances of not getting cancer for you are 1%. What does that number tell you about your health? Nothing.

This is because we are dealing with single, unique events. Only if you had the opportunity to live your life 100 times, could we say that you will not develop cancer only in one of those 100 lives. But, you are living only one life, and that’s why applying probabilities to a life of a particular person is inappropriate.

Similarly, as far as we know, our actress is not going to relive her life 100 times. This is why using the terms like “she had an 80% chance of developing cancer” are inappropriate. The 80-20 ratio is no more informative about this actress’s underlying objective reality than any other arbitrarily chosen ratio. The number is, however, quite informative about her subjective reality--her beliefs.

An Austrian Indifference Curve vs. The Value Scale

2013-05-12T01:32:00.001-04:00

From the introductory undergraduate to the advanced Ph.D. courses in economics, students are taught that the concept of the indifference curve is very useful in analyzing human choice. I am emphasizing the term useful for a reason. No one ever said it was true. I don’t think anyone that understands the concept would ever try to claim that this is how humans actually make choices. However, is this the most appropriate way of conceptualizing human choice?

The answer to this question depends on what the purpose of this conceptualizing is. I will assume that we agree that the primary purpose of conceptualizing in general is the communication of ideas. Without conceptualization, ideas remain known only to the individual in whose mind they are formed.

In this article, I compare the Austrian and the mathematical neoclassical conceptualizations of consumer choice. To perform this comparison, I first translate the concept of the indifference curve into the language of Austrian economics and then compare this translated version to Rothbard's concept of the value scale. While there are similarities between the two approaches, the Austrian approach, at least in my experience, outperforms the indifference curve approach as a tool for communicating economic ideas.

The Austrian View of Choice

As demonstrated by Ludwig von Mises and later elaborated by Murray Rothbard, the basic axiom of Austrian economics states that humans act in order to move from a less preferred state into a more preferred state. They do this by using means to meet their ends. Their ends are ranked in the order of preference. Otherwise, no purposeful action is possible. Humans act to satisfy the more valued ends before the less valued ones. This is the act of choice. Something must be valued more than something else to be chosen. If two things are seen as having the same value, then there is no choice taking place. Both things can be used to satisfy the same end equally well in all respects. In the eyes of the decision maker, these two things are identical. The choice here is not between the two identical things but between any one of them and something else that satisfies some other end.

Rothbard rejected the concept of indifference as an economic concept. I don’t disagree that indifference and choice don’t make good friends. However, I will try to add some more interpretation to one of the ways mathematical neoclassical economics uses the concept of indifference--the indifference curve.

The Concept of the Indifference Curve

An indifference curve represents different bundles of two (or more) things--say, apples and oranges--where each of the bundles contains different proportions of apples and oranges but all bundles are associated with the same level of utility. (An additional assumption for the existence of an indifference curve is that the two goods are infinitesimally divisible. Thus, we need to assume that a cut up apple satisfies a certain human end in the same way as, say, a whole apple does.)

A simple example of an indifference curve would be all bundles of apples and oranges in which the total weight of the bundle equals, say, one kilogram. Here, we can have a bundle that contains only apples or only oranges or we can have any bundle in between (i.e., 1 gram of apples and 999 grams of oranges; 2 grams of apples and 998 grams of oranges, 2.1 grams of apples and 997.9 grams of oranges and so on; any combination that adds up to 1000 grams will do.)

Let us now use the Austrian framework to interpret this indifference curve. This step may be considered as heresy by some Austrians, but I'll take the risk. I see this as an exploratory exercise, and thus a valuable research tool.

An Austrian Interpretation of the Indifference Curve

If an individual, let's call him Jim, evaluated any of those bundles described above, he would attach the same utility to it as to any other bundle that he could have evaluated instead. This further means that all the bundles on the indifference curve satisfy the same end equally well. We can extend this analogy and say that the end Jim wants to satisfy is to eat one kilogram of fruit.

Note here that the relevant good, in Jim's mind, are not apples and oranges but fruit. If the relevant goods were apples and oranges, this would imply that Jim values apples and oranges as separate goods and then somehow adds the utilities he derives from the two goods into the utility of the whole bundle. This would contradict the ordinal nature of utility and therefore we can only speak of fruit as the relevant good. The apple and orange content are then attributes of the good in question. Goods are valued for their attributes, so, in this case, fruit is valued for its apple and orange content (in much the same way, say, a car is valued for its design and fuel efficiency).

If all units of fruit were free of charge, Jim would take one. Which one he would take is an absurd question from his perspective because all bundles are identical--in the sense that Jim can satisfy a given end in exactly the same way by using any one unit of fruit. Thus, an indifference curve without prices has no link with the concept of choice.

If we attach prices to the apple and orange content of fruit, each unit of fruit on the indifference curve will have a different monetary price because it contains different proportions of apples and oranges. Of course, one will buy the cheapest unit of the same thing. This is the cost minimization part of the consumer constrained optimization problem called The Dual in neoclassical consumer theory.

Suppose that the price of apples was $1 per kilogram, and the price of oranges was $1.5 per kilogram. The cheapest kilogram of fruit that Jim could buy would be the one containing only apples. In neoclassical consumer theory, we call this a corner solution because Jim chose a bundle that is at the very end of his indifference curve.

The concept of the indifference curve is an abstraction of the individual decision making process. It is a communication technique, a metaphor. As such, it is by definition unrealistic if interpreted literally.

To come back to my initial question: is the concept of the indifference curve the most appropriate means of conceptualizing the idea that humans make choices? Does this abstraction capture the essence of choice and does it communicate this essence to others better than alternative conceptualizations? Are there more succinct ways of describing choice?

The Indifference Curve vs. The Value Scale

Murray Rothbard came up with the concept of the value scale to describe choice. Using Rothbard's framework, we would say that Jim chose the $1 kilogram of fruit over the $1.5 kilogram because the cheaper kilogram was placed higher on Jim's value scale. It was placed higher because, given that Jim owns a limited amount money, this $1 kilogram of fruit allows him to satisfy more of his other ends compared to the $1.5 kilogram of fruit.

Like the indifference curves, value scales are abstract descriptions of the same observation--that Jim exchanged $1 for one kilogram of apples. So, are value scales more appropriate abstractions than indifference curves coupled with prices? In my own experience, I was far more successful communicating consumer theory to others using Rothbard's formulation. Even when I used the indifference curve approach, it became understandable to most people only after I translated it into Rothbard's language. Thus, in my experience, Rothbard's value scale approach is a more effective communication tool than the indifference curve approach.

Kako zaustaviti mehanizam rata

2013-05-05T21:58:00.000-04:00

Pretehodna poglavlja:
1. Mehanizam rata: uvod
2. Mehanizam rata: sastavni dijelovi
3. Mehanizam rata: pokretanje paklene mašine

Mehanizam rata je teško, ali ne i nemoguće zaustavtiti. Ovdje mislim na zaustavljanje mehanizma prije nego što počnu masovni sukobi. Jednom kad masovni sukobi počnu, gotovo je neumitno da će sukobi trajati dok jedna od strana potpuno ne malaksa. Kada uđu u period masovnih sukoba, ljudi na obje strane su čvrsto uvjereni da protivna strana želi da ih uništi i to uvjerenje se svakim novim sukobom samo još jače učvršćuje.

Pošto političari i marginalci u ratu vide priliku za ostvarenje svojih životnih ciljeva, oni neće biti zainteresovani za zaustvljanje mehanizma u početnoj fazi. To je ona faza kad marginalci prolaze nekažnjeno za zločine počinjene nad pripadnicima druge društvene grupe (vjerske, etničke, itd.). U toj početnoj fazi domaćini još uvijek nisu počeli vjerovati da bi i ostali domaćini iz drugih društvenih grupa bili spremni na takve, etnički ili vjerski orijentisane zločine.

Jednom kad domaćini počnu da čine zločine, a opravdavaju ih kao neophodnu odbranu, već je prekasno za zaustavljanje mehanizma rata jer će svaki novi zločin voditi učvršćivanju vjerovanja da ne postoji razlika između domaćina i marginalaca na suprotnoj strani. Dakle, jedini period kad se mehanizam rata može zaustaviti je u toj početnoj fazi kada domaćini jedne etničke ili vjerske grupe još uvijek vide razliku između marginalaca i domaćina u drugoj etničkoj ili vjerskoj grupi.

Kako to provesti u djelo? Prvo, potrebno je poznavati strukturu mehanizma rata, tj. potrebno je da domćini poznaju strukturu ličnosti marginalaca i politčara i da budu svjesni igre koju ta dva segmenta društva igraju. Domaćinima prvo treba da bude jasno da su, bez podrške domaćina, političari i marginalci nemoćni.

Međutim, ovo nije dovoljno. Potrebno je da domaćini uskrate svoju podršku političarima i marginalcima i to je onaj teži dio. Ljudi imaju prirodnu tendenciju da se plaše "stranih" grupa ljudi i taj strah ima evolutivnu pozadinu. Kao i kod ostalih ljudskih destruktivnih strahova, i protiv ovog straha je potreno koristiti razum.

Prvi korak u ovoj borbi smo već napravili ako smo shvatili strukturu mehanizma rata. Dakle, jasno nam je da će se domaćini iz one "njihove" etničke ili vjerske grupe odlučiti na nasilje samo onda kad vjeruju da će ih domaćini iz ove "naše" grupe napasti. Jasno nam je da domaćini žele nasilje samo onda kada vjeruju da je to jedini način da spriječe nasilje nad sobom. Jasno nam je takođe da treba da uvijek imamo u vidu da prve zločine započinju marginalci, a ne domaćini. Svrha tih zločina je da zbune domaćine tako što će ih navesti da povjeruju da se marginalci ni po čemu ne razlikuju od svojih sunarodika domaćina.

Sljedeći korak je da domaćini sebi iskreno predoče šta to dobijaju, a šta gube, ako odluče da ne odgovaraju na provokacije marginalaca. Ta računica treba da uzme u obzir činjenicu da, u većini ratova, domaćini na obje strane gube mnogo. Mnogi izgube čitavo imanje, a gotovo da ne bude porodice koja ne izgubi bar jednog člana u ratnom vihoru. Uz to dolaze sve one traume koje rat sa sobom nosi. Njih je teško riječima dočarati, ali svako ko je iskusio dugotrajno naslje i strah za vlastiti život i živote svojih bližnjih, razumjeće o čemu pričam.

S druge strane, neuključivanje u ratni sukob sa sobom donosi rizik od napada marginalaca. Ova opcija isto donosi strah i neizvijesnost. Ali, marginalci ne mogu dugo terorisati domaćine i to iz više razloga. Prvo, političari će, ako vide da domaćini nisu zagrizli mamac i ne uključuju se u sukobe, morati da upotrijebe zakonska sredstva protiv marginalaca. Političar koji na duži period toleriše stihijsko ponašanje marginalaca, tj. ne održava vladavinu zakona (ma kakav zakon to bio) nema političke budućnosti. Političari to znaju i zato im je cilj da se domaćini što prije uključe u organizovano nasilje započeto od strane marginalaca. Ako domaćini odbiju da se uključe, do organizovanog sukoba neće doći.

Ako političari ne uspostave vladavinu zakona, onda dolazi do sloma države. Priča o slomu države je zanimljiva, ali bi nam oduzelo previše vremena da se time sada bavimo. Oni koji su zainteresovani, mogu više o tome da pročitaju ovdje.

Dakle, za zaustavljanje mehanizma rata je potrebno da većina domaćina na vrijeme shvati da bi ratom izgubila više nego što bi dobila. Pošto je trenutna tendencija domaćina da nasjednu na igru marginalaca i političara, potrebno je raditi na tome da bar buduće generacije domaćina budu imunije na ovu igru. To je težak, ali ne i neizvodljiv posao. Za početak je dovoljno da oni koji shvate kako funkcioniše mehanizam rata i kako se taj mehanizam može zaustaviti prenesu svoja saznanja drugima. Najvažnije je ova znanja prenijeti djeci i uopšte ohrabrivati djecu da razmišljaju kritički, van šablona koje im nameće državni obrazovni sistem. Taj obrazovni sistem uvijek kroje političari i zato možemo biti sigurni da našu djecu neće u državnim školama učiti o mehanizmu rata.

Ova serija tematski povezanih tekstova je moj doprinos zaustavljanju mehanizma nekih budućih ratova. Siguran sam da se moji napori neće zaustaviti ovdje, čak i ako se uvijek budu odbijali o stijene.

Mehanizam rata: pokretanje paklene mašine

2013-04-24T08:47:00.002-04:00

Prethodna poglavnlja:
1. Mehanizam rata: uvod
2. Mehanizam rata: satavni dijelovi

Kao i svako čovjekovo svjesno djelovanje, učestvovanje u ratu je stvar izbora. Čovjek će se uključiti u rat samo onda kad misli da mu je to najbolja opcija, uzimajući u obzir sve opcije koje su mu na raspolaganju.

Pošto su potičarima i marginalcima konflikt i naslje često privlačni načini ostvarenja njihovih životnih ciljeva, lako se može razumjeti da bi se ove dvije grupe relativno lako upustile u rat ako im se ukaže dobra prilika.

Ali, dugotrajnog i masovnog sukoba ne može biti bez učestvovanja najbrojnije kategorije--domaćina. Znamo da domaćini ne vole konflikte. Oni žele, ako ikako mogu, da ih izbjegnu jer konflikt može da uništi produktivni, pordični način zivota koji domaćin gradi.

S druge strane, iz iskustva znamo da domaćini, ne samo da su učestvovali u ratu u bivšoj Jugoslaviji, nego su oni činili najbrojniju grupu u tom ratu. Taj rat je, najvećim dijelom, bio rat domaćina jedne nacionalnosti protiv domaćina druge nacionalnosti.

Ovo se na prvi pogled kosi sa mojom prvobitnom pretpostavkom da domaćini ne vole konflikt i samim time ne žele da napadaju druge ljude. Ako bismo pitali njih, na svakoj od zaraćenih strana biste čuli isti odgovor--da se ta strana samo brani od one druge, koja napada. Ako "naša" strana ponekad i napada to je samo zato da bi se spriječili potpuno sigurni budući napadi one "njihove" strane.

Iz ove destruktivne i nasilničke slike gotovo da ne možemo prepoznati one prvobitne miroljubive i produktivne domaćine. Kako je došlo do ove preobrazbe?

Da bismo razumjeli proces preobrazbe domaćina iz miroljubivih proivođača u paranoične ratnike, moramo se vratiti u prvu fazu rata. To je faza u kojoj su političari, iz ovog ili onog razloga, zaključili da bi nasilan konflikt između njihovih simpatizera mogao učvrstiti i produbiti njihovu vlast. U slučaju bivše Jugoslavije taj pogodan momenat je došao krajem osamdestih godina prošloga stoljeća kad je postalo jasno da je jugoslovenska ekonomija u silaznoj putanji i da kao takva ne može izdržati pojačane pritiske MMF-a za vraćanje starih dugova koje je Titova vlast koristila u procesu industrijalizacije pedesetih, šezdesetih i sedamdesetih godina.

Činilo se da je to pogodan momenat da politički vrhovi nekih republika iskombinuju ekonomske reforme sa simpatijama velikog broja stanovništva prema ostvarivanju državnosti tih republika. Pogoršavanje ekonomske situcaje u zemlji služilo je kao motiv za optuživanje kako je republika X "pokradena" od strane republika Y ili Z. Nerijetko se sa najviših političkih pozicija mogla čuti zapaljiva retorika da se "tako više ne može", da se trebaju "poravnati računi" ili da "mi svoje ne damo".

Ovakva retorika sa najviših političkih pozicija bila je prvi signal marginalcima da bi najviši potički vrh, na svakoj od suprotstavljenih strana, mogao zatvoriti oči pred nasilnim djelima. Marginalci su to shvatili kao šansu da budu primijećeni, prepoznati, poštovani, da se i njih konačno neko boji i da ih uvažava.

Prve otmice, maltretiranja i ubistva 1991. u "multietničkim" dijelovima Hrvatske su bili i prvi testovi kojima su marginalci ispipavali puls trenutne političke elite, na obje strane. Ni na jednoj strani nije došlo do kategoričke osude tih, tada još sporadičnih zločina. Neću pominjati imena jer su imena za ovu priču nebitna. Bitan je mehanizam.

Čak i tada, mnogi domaćini su uviđali da su ti zločini počinjeni od strane marginalaca, a ne od strane radnih i miroljubivih ljudi. Većina jos uvijek nije u tim zločinima vidjela sjeme rata jer ih nisu vidjeli kao izraz nacionalne netrpeljivosti nego kao izraz nečovještva marginalaca. Često se mogla čuti ocjena domaćina da neko nedjelo nije uradio Srbin ili Hrvat nego nečovjek. Isto se tako od mnogih domaćina moglo čuti da onaj koji je bio maltretiran ili ubijen, nije tako završio zato što je Srbin ili Hrvat nego zato što su ga napali kriminalci i neljudi.

Dakle, većina domaćina, na obje strane, je i dalje vjerovala da im ne prijeti opasnost od domaćina druge nacionalnosti. Samim time je većini domaćina cijena ostvarenja političkih ciljeva njihovih vođa pomoću rata tada bila previsoka. Dakle, juš uvijek su neuključivanje u sukobe s marginalacima smatrali boljom opcijom.

Ali, marginalci, kad su jednom osjetili da neće biti kažnjeni, nisu stali. Maltretiranja, otmice i ubistva se nastavljaju. U opštoj mreži prenošenja informacija sistemom čula-kazala postaje sve manje jasno da li je neko nastradao zato što je bio Srbin, Hrvat ili Musliman ili zato što je naišao na neostvarenog marginalca. U svijesti domaćina postaje sve manje jasno da li je neko počinio strašan zločin zato što je "nečovjek" i marginalac ili zato što je Srbin, Hrvat ili Musliman.

Ova nesigurnost kod domaćina rađa dvije moćne emocije: strah i prezir--strah za sigurnost vlastitih porodica i prezir prema "njima". "Oni", u svijesti domaćina, više nisu samo marginalci nego sve više i domaćini druge nacionalnosti. "Oni" "nas" mrze i spremni su na svakojaka sredstva, kao što su neki dan nekuda odveli i možda ubili moga poznanika ili člana porodice. Tako počinju da razmišljaju domaćini na obje strane.

Ovaj proces dovodi do subjektivnog doživljaja pada cijene nasilnog sukoba u odnosu na neuključivanje u sukob. Nasilnim sukobom bi domaćin mogao izgbiti sve, ali mu se isto tako sve više čini da bi i neuključivanjem u sukob mogao izgubiti sve. Povećanju cijene neuključivanja u sukob sada pridonose i zahtjevi marginalaca, ohrabrenih od strane političkog vrha, da se ovaj ili onaj domaćin opredijeli da li je na "našoj" ili na "njihovoj" strani. Trećega nema.

U početku su mnogi domaćini su spremni provesti cijelu noć sakriveni u svom dvorištu ispred kuće da bi spriječili eventualni napad na sebe, porodicu ili komšije. Poslije ovoga, samo je korak do stražarenja sa puškom, puškom koju je politički vrh imao spremnu i putem marginalaca objeručke mu ponudio. Sa puškom u ruci, domaćin je postao ratnik, a organizuju ga baš oni marginalci koji su "prvi uzeli pušku u ruke". Domaćin i sada, sa puškom u ruci, marginalca koji mu je postao vojni komandant, gleda kao marginalca i protuvu, ali pristaje na njegovu komandu jer misli da je to sada neophodno da bi zaštitio svoju porodicu.

Sada su na svakoj od zaraćenih strna domaćini napunjeni strahom i prezirom. I kada napadaju i kada ruše i ubijaju, oni se brane. Svaki novi napad samo je odgovor na prijašnji napad "one strane". Svako novo zvjerstvo je, u njihovoj svijsti, samo prevencija budućeg zvjerstva "one strane". Mehanizam je pokrenut, a zaustaviće se kad jedna ili obje strane potpuno malaksaju.

Nastavak: Kako zaustaviti mehanizam rata

Mehanizam rata: sastavni dijelovi

2013-04-22T13:13:00.000-04:00

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Rat je kompleksna pojava. Baš zato što je kompleksan, potrebno je definisati i opisati njegove osnovne dijelove. Svaki od tih osnovnih dijelova ima specifičnu funkiju u mehanizmu rata. Iako je moguće rasparčati taj mehanizam i na više kategorija dijelova, da bismo razumjeli njegovo funkcionisanje, potrebno je da primijetimo bar tri kategorije. Ja te kategorije nazivam (1) domaćini, (2) političari i (3) marginalci. Svaka od njih je definisana svojim najvažnijim pokretačkim životnim motivom.

Domaćini su najbrojnija kategorija. Gro te kategorije čine ljudi koje mnogi od nas nazivaju "običnim" ljudima. To je, recimo, moj komšija automehaničar, moj rođak kamaiondžija, moj prijatelj pekar, i naravno, moja supruga koja pomaže ljudima da se odviknu od bolesti zavisnosti. Domaćini su ljudi koji svoj život i identitet grade oko svoje porodice i imanja. Oni proizvode dobra i usluge potrebne ostalim članovima društva. To znači da domaćini nisu samo "obični" ljudi. Domaćini su i naučnici, umjetnici, sportiste i uopšte ljudi koji u prvi plan stavljaju proizvodnju i dobrovoljnu razmjenu dobara zarad unapređenja svoje porodice i imanja, kako materijalnog tako duhovnog.

Domaćini ne vole konflikt. Za njih je konflikt gubljenje dragocjenog vremena i resursa koji bi se mogli utrošiti na unaprijeđenje domaćinstva. Domaćin izbjegava trivijalne konflikte. Veći konflikti za njega predstavlaju rizik da bi mogao izgubiti porodicu i imanje. On će se odlučti na konflikt samo onda kad misli da neuključivanje u taj konflikt može imati katastrofalne posljedice za njegovu porodicu i imanje.

Političari su brojčano manja kategorija od domaćina, mada se ponekad njihov broj može enormno povećati. Političar živi za to da upravlja drugim ljudima. Neki političari vjeruju da im je to uzvišena moralna dužnost, da bi bez njih ostali ljudi zastranili u bespuću bijede i nemorala. Takvi uglavnom izbijaju na sam vrh političke piramide vlasti u društvu. Oni manje "kreativni" i manje zaneseni idejom o sebi kao spasitelju društva, dolaze do srednjih i nižih pozicija u piramidi vlasti.

Bez obzira na motive koji leže u pozadini, svim političarima je zajedničko da žele da vladaju. Što je njihova vlast čvršća, to se oni osjećaju ostvarenijima i ispunjenijima. Pošto se snaga vlasti svakog političara zasniva na tome koliko čvrsto i koliki broj ljudi vjeruje da je on taj koji treba da upravlja, političar je skoncentrisan na to da ubijedi ostale ljude da je baš on taj pravi. On je skoncentrisan na to da uvjeri ljude da je za njih najbolje da svoju životnu energiju usmjere onako kako im on to savjetuje.

Što se tiče konflikata, političar voli konflikt ako on taj konflikt može da iskoristi za učvršćenje svoje vlasti, tj. za ubijeđivanje ostalih ljudi da je on baš taj pravi vođa koji im je potreban. Dakle, za razliku od domaćina, za političara konflikt nije nešto što po svaku cijenu treba izbjegavati. Za političara je konflikt samo jedan od načina da dođe do ostvarenja svog životnog cilja. Štaviše, političar svoju valst čak i u mirnodopsko vrijeme zasniva na tezi da je on ostalim ljudima potreban kako bi odvratio potencijalne agresore od pomisli da ih napadnu. Dakle, za političara, konflikt je život.

Treća kategorija dijelova mehanizma rata su marginalci. Kako i samo ime sugeriše, ovo su ljudi koji društvo posmatraju sa margina. Marginalci su najneproduktivniji članovi društva. Pošto su neproduktivni, oni često ni ne vole da proizvode pa se odaju spletkama, prevarama i sitnom kriminalu. Za krupniji kriminal nisu dovoljno vješti. Time se bave političari.

Marginalac obično ne zasniva porodicu, a ako je i zasnuje, često su te porodice disfunkcionalne i brzo se raspadaju baš zbog marginalčeve prirode. On ne zna ili ne želi da stvori skladan, produktivan odnos sa drugim ljudima.

Marginalci su generalno neostvareni ljudi. Ili nisu dovoljno produktivni ili nemaju ostale sklonosti koje su potrebne da bi postali domaćini, a u isto vrijeme nisu dovoljno sofisticirani da bi postali političari. Oni bi voljeli da budu cijenjeni, prepoznati i poštovani od strane ostalih ljudi, ali jednostavno nemaju kapaciteta da to poštovanje steknu na "pravi" način

Za marginalca konflikt ne predstavlja veliki trošak jer je njegov život u takvom stanju da nema šta da izgubi. Porodice ili nema ili se raspala, a imanje mu je ili malo jer je neproduktivan ili na klimavim nogama zbog kriminalnog stila života. Štaviše, konflikt je jedan od načina na koji marginalac pokušava da bude primijećen od strane drugih ljudi, da stekne njihovo poštovanje. Često ćete čuti marginalca da se diči time što se s nekim posvađao. Dakle, kao i za političara, za marginalca je konflikt od posebnog značaja kao način ostvarenja njegovog životnog cilja.

Naravno, kao i svaki opis kompleksog mehanizma, ova podjela na tri osnovne grupe ljudi koje čine sastavne dijelove mehanizma rata ima u sebi elemente generalizacije. U svakoj od ove tri grupe bi se mogle definistati podgrupe, a u svakoj od podgrupa pod-podgrupe i tako unedogled. Isto tako bi se mogla opistati gradacija, tj. postepen prelaz iz jedne grupe u drugu gdje neki pojedinci imaju elemnte dviju ili svih triju grupa. Ali, kao što ni opis molekularnog sastava klipa, cilindra i radilice benzinskog motora suštinski ne doprinose objašnjenju mehanizma rada tog motora tako ni dalje detaljisanje u ovom slučaju ne doprinosi boljem objašnjenu mehanizma rata. Zato ću se zaustaviti na ovoj podjeli i u nastavku opisati kako su ovi dijelovi međusobno povezani u mehanizmu rata.

(Nastavak: Mehanizam rata: pokretanje paklene mašine)

Mehanizam rata: uvod

2013-04-21T10:39:00.000-04:00

Rat je strašna pojava. Oko toga se skoro svi slažemo. Isto tako se skoro svi slažemo da u ratu većina ljudi, na obje strane, gubi. Možda se ne slažemo da li baš u svakom ratu većina više izgubi nego što dobije. Da bismo u startu otklonili sporenje oko toga, za one koji misle da postoje neki ratovi u kojima većina ljudi na jednoj od zaraćenih strana dobija više nego što gubi, ovaj članak se odnosi na one ratove u kojima većina, na obje strane, gubi više nego što dobija.

Sada treba da definišemo "gubitak" i "dobitak". Pošto su svaki gubitak i dobitak prvenstveno pojave koje se dešavaju u našem umu, i dobici i gubici su subjektivne prirode. Dakle, ne mogu se mjeriti objektivnim metodama. Nekome nije previše da izgubi imanje, zdravlje pa čak i članove porodice i prijatelje zarad nekog "višeg" cilja. Neki taj viši cilj nazivaju slobodom, državnošću ili dostojanstvom. Ova lista može da bude podugačka i nebitno je koji termin koristimo za taj "viši" cilj. Bitno je da ponekad ljudi vjeruju da neki viši cilj opravdava sve žrtve kojie su potrebne da bi se do njega došlo.

Da li je rat u bivšoj Jugoslaviji jedan od takvih ratova u kojima većina, bar na jednoj (pobjedničkoj) strani vjeruje da su gubici u ratu bili manji od dobitaka i kako to izmjeriti ako gubici i dobici postoje samo u svijesti ljudi a ne u nekom objektivnom obliku? Koristiću, naravno, moju subjektivnu ocjenu reakcija na rat u bivšim jugoslovenskim republikama, sada, dvadesetak godina kasnije. Prvenstveno mislim na Hravtsku, Bosnu i Hercegovinu i Srbiju jer ne mislim da bismo ono što se desilo u Sloveniji mogli okarakterisati kao rat.

Čini mi se da većina kosovara i dalje vjeruje da je rat njima donio više nego što im je odnio. S druge strane, moja je ocjena da većina ljudi u Hrvatskoj, BiH i Srbiji sada misli da im je rat odnio više nego što im je donio. Ako se oko toga ne slažemo, onda je ovo dobar momenat da prestanete sa čitanjem ovoga članka jer je sve ono što ću napisati bazirano na ovoj pretpostavci. Pokušaću da objasnim kako to može da dođe do rata u kome većina onih koji su u njega bili umiješani poslije misli da je taj rat bio greška. Kako to inače miroljubivi ljudi poput mene ili vas mogu da se pokrenu na masovno uništenje drugih ljudi?

Sljedeća sekcija: Mehanizam rata: sastavni dijelovi

Feeding his horses

2013-04-17T23:54:00.001-04:00

My grandfather, Dusan Rajsic, was one of the only 92 people who broke free from the Nazi concentration camp Jasenovac on April 22, 1945, after spending 4 years there. All other inmates were killed by the guards that day. He said that what kept some people alive for 4 years was if they excelled at some trade, so that they were useful to the camp managers. My grandpa had a gift of talking to animals so he was in charge of the work horses at the camp. The horses apparently followed his instructions to minor details. I later witnessed his gift when he would take us, children, into his carriage for a ride through the village.

In 1995, when we were leaving our homes in fear of retaliation by the Croatian army during the operation Storm, my grandpa said to my grandma, my uncle and his family: "You go; I have to stay and feed the horses." On April 10, 1996, on the anniversary of the Nazi state that instituted Jasenovac, my grandfather was found dead in his empty house. They say he died of natural causes. Either of natural causes, or because some passers-by got overly enthusiastic celebrating the anniversary, the date of his death is quite ironic. If there is heaven, I am sure my grandpa is taking care of his horses there.

Oh yes, and did I say that my son's name is Dusan?

My grandfather, Dusan Rajsic, in his village

My family, taking a ride in some other village

Five reasons why the LCBO sad child posters should go down

2013-04-13T18:45:00.000-04:00

The LCBO (Liquor Control Board of Ontario) is "an Ontario government enterprise and one of the world’s largest buyers and retailers of beverage alcohol." Posters like the one below (Photo by: The Ethical Adman) can be seen in many LCBO stores. They are part of what LCBO calls the Social Responsibility program. Below are five reasons why Ontarians would be better off if they didn't have to look at these posters every time they buy alcoholic beverages.

1. They are vague

What does it mean to drink responsibly? How many times per day? How large should the drinks be? What should the alcohol content be? How far should my children be when I'm drinking? Should we engage in any specific rhetorical rituals before starting to drink, like explaining to others that we are about to have a drink? Are there any thought processes we should practice? If so, what kinds of thought processes?

I could keep going with these questions, but you get the picture. Even if I wanted to follow LCBO's advice to drink responsibly, if I don't know LCBO's definition of responsible drinking, I will not be able to follow this advice.

What if my definition of responsible drinking is completely out of line compared to the LCBO definition? Then, the poster will be completely ineffective. I think that I am already drinking responsibly. So, there is no need for me to change anything even though my drinking habits may not satisfy the desires of the LCBO's poster-makers.

2. They are self-contradicting

The poster says that the lessons we, their parents, teach are important to our children. So far so good. I want my children to learn from me. In fact, I want them to learn from me and not from some government bureaucrat that treats other adults like children who need others to remind them to behave responsibly. This is why, if I am to follow LCBO's advice to provide a good role model to my children, I should NOT give any weight to the poster. If I give any weight to the LCBO poster, I am sending the message to my children that I accept being treated like a child by other individuals (i.e., the LCBO poster-makers). I certainly do not want to send this message to my children. Therefore, as a good parent, I must ignore the poster.

3. They are hypocritical

Imagine a cocaine dealer coming to his buyer and saying: "Your children look up to you, use cocaine responsibly." You can imagine what the likely reaction to this "advice" would be. If I was a cocaine user, I would politely suggest to my dealer that he change his occupation if he is worried about the negative effects of cocaine use on the well being of my children.

So, why should my alcohol provider get any other treatment? Only because his selling of alcohol is legal and the drug dealer's selling of cocaine is not? I wouldn't say so. We know that prohibition laws are arbitrary. Someone could decide tomorrow to ban a substance that was perfectly legal yesterday.

Having this in mind, my answer to the LCBO poster-maker worrying about the well being of my children would be: If your emotional distress caused by your lack of trust in my ability to exercise responsibility is so high that you feel the need for sticking a poster in front of my face, please feel free to sell some other substance to me. I don't know, maybe strawberries. They're healthy and children like them too.

4. They induce emotional distress in our children

The first couple of times my daughter saw the LCBO sad child poster, she did not ask anything but became strangely silent. Then, after seeing the poster two or three more times, my daughter asked me: "Why is this girl so sad?" I didn't have a good answer right away. I mean, I did have a good answer, but not an answer that a seven-year-old would understand. Over time, I managed to persuade her that there is no association whatsoever between that girl on the poster and her; that the girl on the poster is sad because that's how she was supposed to look for the photo-shoot, not because her parents go to the LCBO. My daughter now understands that there are some people who feel good about themselves when they try to make others feel bad about themselves. These people made the poster.

5. They increase, rather than reduce our need for alcohol

After a person of normal intelligence sees the LCBO sad child poster, he or she generally goes through the mental process of realizing the above four points. This is generally followed by a feeling of frustration and mental pain, pain resulting from realizing that some people may actually think you are that dumb and not notice the arrogance and disrespect in the poster.

There are different ways one can ease this pain. Some people exercise, some eat, some meditate, some talk to their friends, some use drugs, and some drink alcohol. Since you are already at the liquor store, buying some more alcohol seems to be the most convenient pain killing option at the moment.

Although I don't think other people's alcohol consumption should be any of my concerns, and thus I would not include reason #5 into my personal list of reasons why the LCBO sad child poster should go down, we know that the LCBO poster-makers, at least on paper, care about our alcohol consumption. Thus, if their objective is to have some control over our alcohol consumption, they should seriously consider removing the sad child poster. The poster increases our need for drinking.

Intellectual Property: A Classical Liberal and a Libertarian Assessment

2013-04-01T10:36:00.001-04:00

Many contemporary theorists and commentators frame the question of intellectual property as a question of ownership over ideas. In this framework, a new product is seen as an embodiment of a new idea. Producing multiple copies of a new product is then seen as a materialization of the same idea. Some conclude that ascribing ownership over a new idea to its original creator in the same way we ascribe ownership over material objects is inconsistent with either classical liberal or libertarian theory of rights. This inconsistency has led some to conclude that a creator of a new product has no right whatsoever in limiting the future replication of that object by others. This, however, is an erroneous conclusion.

The purpose of this article is two-fold. First I will elaborate why the concept of intellectual property is inconsistent with the classical liberal and libertarian theories of rights. In short, the root of this inconsistency is in the incoherent and ultimately subjective criteria for conflict resolution created by the concept of intellectual property. Second, I will argue that this inconsistency does not imply all replication of a new object is illegitimate. Classical liberalism and libertarianism contain clear principles for evaluating the legitimacy of copying in different situations. Both of these points bear heavily on the distinction between an idea and physical objects and on the nature of ownership under the classical liberal and libertarian theories of rights.

The Distinction between an Idea and Physical Objects

In its most general form, an idea has been defined throughout history as that which is not matter. For example, I may have an idea of a circle in my mind, but as far as we know, this circle does not exist anywhere as a physical object. It takes physical objects, say, pen and paper, to translate my idea into a material form. However, this translation is only provisional. I can imagine a circle that can never exist in reality. The equation x² + y² = r² defines an infinite number of dimensionless points in the x-y space, all at an equal distance, r, from one, central point. In other words, this is an equation of an ideal circular line in the Descartes’ two-dimensional coordinate system. This line, however, has no thickness or mass. No one can draw a line that has a thickness and a mass of zero.

This exercise has illustrated that, while ideas are not physical objects, they take shape through specific relationships of physical objects. In other words, an idea describes a relationship among physical objects. The idea of a circle describes a relationship of dots on a piece of paper or iron molecules in a steel rim, or polyvinyl molecules in my car radio knob or any other material particles in countless other circular objects.

We communicate our ideas to others by the use of physical objects. I am now using black shapes on a white surface to convey this idea. Some computer programs can translate these shapes into vibrations of oxygen, carbon dioxide and nitrogen molecules (i.e., audio waves) that you can hear. Maybe, someday, we will be able to communicate by the use of electromagnetic waves emitted directly from our brains. Even this form of communication of ideas requires material objects—electromagnetic waves. It takes a specific arrangement of physical objects to convey an idea. But it is important to maintain the distinction between the idea and the object. The idea is not the object. The idea is non-material. The object is material.

Since ideas are non-material phenomena, they have some attributes that physical objects don't have. For example, the same idea can exist in two different places at the same time. The idea contained in the previous sentence now exists in your mind as well as in my mind. It did not disappear from my mind after I gave it to you. Therefore, we cannot speak of "theft" of ideas in the same way we speak of theft of physical objects. Your future use of my idea does not remove my ability to use the same idea. This is not the case with physical objects. If you take my car and decide to use it, that car will not be available to me anymore.

However, there are even more troublesome implications of the distinction between ideas and physical objects. To appreciate the importance of these implications for a proper assessment of the concept of intellectual property within the classical liberal and libertarian frameworks, we need to provide a brief summary of classical liberalism and libertarianism.

Classical Liberal and Libertarian Theories of Ownership

Classical liberalism rests on the concepts of self-ownership, homesteading, and non-aggression. According to this theory, each person has the right to be the master of his or her own body. This right stems from the belief that each person has free will as a gift from God.

The next step in the logic of the classical liberal theory of rights is mixing one’s labour with nature—homesteading. One acquires legitimate ownership over the products of his or her own labour when these products are created by using resources that were not previously owned by anyone. In other words, natural resources belong to the one who finds them first. In cases when a resource is already owned by someone, another person can legitimately acquire this resource only through a voluntary exchange. The key feature of a voluntary exchange is that the exchange is performed in the absence of physical aggression or a threat of physical aggression.

Modern libertarianism has much in common with classical liberalism. Like classical liberalism, modern libertarianism is based on the concept of self-ownership, homesteading, and non-aggression. Unlike classical liberals, libertarians generally do not seek a religious justifications for the origin of rights. The existence of free will is understood as an axiom—a self-evident truth that cannot be proven or disproven. Aside from the potential disagreement on the origin of free will and self-ownership, classical liberals and libertarians derive similar conclusions when it comes to the legitimate ownership over resources.

Within the classical liberal and libertarian theories of rights, ownership is defined as one’s jurisdiction over physical objects within a defined space and time. For example, I own this computer, but I don’t own the room in which I am sitting and typing this text. The room is owned by the real estate company that rents apartments to tenants. This spatial delineation of ownership performs a specific function—it defines the terms for resolving conflicts among individuals.

If I wanted to sell this apartment to someone, my landlord would probably object to this transaction. The fact that the landlord owns the apartment provides a clear rule for resolving this conflict. I don’t have the right to sell something I don’t own. On the other hand, if I wanted to sell this computer, my landlord could not object because the physical matter that makes up my computer is not under his jurisdiction. Therefore, the classical liberal and libertarian theories of rights provide a clear prescription on how to resolve our conflict. This is the ultimate practical function that any moral rule has to satisfy—to provide unambiguous criteria for conflict resolution.

In that sense, a rule that creates contradictory or conflicting prescriptions for action does not qualify as a universal moral principle. If an action can be right and wrong under the same rule, then this rule does not contain a clear demarcation principle between right and wrong and thus cannot be used as a moral principle. Intellectual property is one such rule that creates ambiguous and conflicting recommendations for action.

Conflict Creation through Intellectual Property

Let us now extend the concept of ownership from physical objects to ideas and let us go back to my circle example. Suppose I was the first person to come up with an idea of a circle, and I use this as an argument that I own the idea of a circle. Since ideas are non-material phenomena that materialize through relationships among material objects, my claim that I own the idea of a circle implies a claim of owning a relationship among physical objects. I claim that I own a relationship in which physical objects are arranged in a circular shape. This, in turn, implies a claim of ownership over physical resources—I claim that only I have the right to arrange physical objects in a circle.

This creates a problem. If I claim I own the idea of a circle and, say, my neighbor claims he owns his pen and paper, there is a conflict. My claim that I own the idea of a circle interferes with his jurisdiction over that pen and paper. He now does not have complete jurisdiction over that pen and paper. According to me, only I have the authority to leave a circular trace on that paper with that pen. According to him, however, that pen and paper are his and he may use them to draw whatever he pleases, including a circle.

Now we need an additional rule to resolve this conflict. We need to determine whose ownership has priority and why. But, whichever way we decide to solve this conflict, the result is that, after introducing the concept of intellectual property, neither the traditional classical liberal theory of ownership nor the intellectual property theory alone were initially sufficient to resolve the conflict.

The second problem is the arbitrary nature of the intellectual property rule. All arrangements of matter differ from each other to some degree. One circular arrangement may be one millimetre wider than the other in some areas. But, why stop at one millimetre, or at one micrometre, or at one nanometre, or at any order of magnitude?

So, we have to decide how similar two objects have to be to be considered identical. Like any choice, this choice is ultimately subjective in nature. One individual may think that if any two circular shapes, when superimposed, do not deviate from each other by more than 1 millimetre, they are similar enough to be considered identical. Another person may think this is too big of a difference and he or she may ask for a stricter standard, maybe one tenth of a millimetre. Yet some other people may think that even this standard is way too loose, and they may ask for a one micrometre cut-off point. Whichever the cut-off point, it is always subjective. Now my neighbor’s freedom to use his pen and paper depends on the whims of whoever decides which shapes are similar enough to my circle and which are not.

Thus, by introducing the concept of intellectual property, we have added a degree of subjectivity into the criterion delineating the distinction between right and wrong. In contrast to physical invasion of property, where the limits of one’s property have objective attributes in space and time, the limits of intellectual property are subjective in nature and they exist only in the mind of the individual that judges which objects are similar enough to be considered identical.

This leads to situations where it is humanly impossible not to violate someone else’s intellectual property. If the decision on what is similar enough to be considered identical is indeed subjective, and it is, then someone could expand the limits of intellectual property depending on his or her preferences. I may think that a hexagon is similar enough to a circle to be considered a special case of a circle. After all, if we follow the geometrical logic of a circle, a circle is a polygon with an infinite number of sides. Why not then include all polygons?

We don’t have to stop there. We could include an ellipse as well. If an ellipse that deviates one micrometre from the shape of my circle is similar enough to it to be considered identical, why not an ellipse that deviates one milimetre or one centimetre or five centimetres. Using this logic, almost any shape can be produced from our original shape if we simply expand small deviations from the original shape. There is no objective criterion when these small deviations begin to be too large.

This means that our criterion for separating right from wrong is not only subjective but it can change at any instant depending on someone’s preferences. This is a far cry from the classical liberal and libertarian theories that seek universal principles that apply equally over space and time to everyone (i.e., non-aggression) where our adherence to these principles can be verified using objective demarcation criteria (i.e., physical intrusion into a space owned by someone).

However, this incompatibility between the concept of intellectual property and physical property does not automatically mean that the creator of a new product cannot put any restrictions on its future use by others. The concept of voluntary exchange of property sets clear rules how this is to be done within the classical liberal and libertarian frameworks.

Applying Classical Liberalism and Libertarianism to a New Product

Let us go back to my circle example. Let us imagine that I designed a new product and let’s call this product the wheel. I used my own materials to produce a number of wheels and now I am considering selling or renting some of them to others.

First, I want to make sure no one sees my wheels before I sell or rent them. If someone sees them, he or she can use this information to produce their own wheel. Their acquisition of this knowledge would not violate any of the libertarian principles if, for example, they saw my wheels while visiting my neighbour for a cup of coffee. They did not intrude into my property whatsoever, and if they want to use their own resources to replicate what they saw in my yard, that would be a perfectly legitimate use of their own resources.

Second, I may want to make sure that the users of my wheels follow certain practices. This also implies that I would prefer renting the wheels over selling them. Renting would allow me to have some control over the renters’ use of the wheels. I can put different conditions in a contract, which the potential renter can either accept or reject. For example, I can ask that the renter does not produce any wheels in the future. I can specify how different any potential product produced by this person would have to be for me not to consider it a copy of my wheel.

I could even specify areas where the wheel can be used. Alternatively, I could simplify the contract and just require my renter to prevent any replication of my wheel. This would compel the renter to use the wheel only in spaces where the owner of the space can offer guarantees that no such replication would occur.

Critics may say that it would be nearly impossible for the renter to prevent any replication by third parties. This, however, may or may not be true. If it was true, I would take this into account and design a contract that I think would be acceptable to a potential renter. While I would like to prevent any replication of my wheel by third parties, if it is practically impossible to prevent legitimate replication (i.e., replication that occurs in the absence of violation of anyone’s property), then, let it be so.

The point here is not that the classical liberal and libertarian principles can ensure all my desires regarding the potential replication of my wheel are met. It simply means that these principles provide a mechanism by which a creator of a new product can have some control over its future use by others.

Conclusion

The concept of intellectual property is flawed. It is flawed because it does not have clear, objective limits, and it is in contradiction with the concept of ownership over physical objects. This is why this concept can only result in arbitrary standards that are based on the subjective judgment of whoever determines the limits of intellectual property. However, it is not true that if we abandon the idea of intellectual property, we also must accept all forms of copying and replication of new products. Classical liberalism and libertarianism contain clear principles for separating legitimate kinds of copying from the illegitimate ones.

Bezdržavni ekvilibrijum

2013-03-22T22:43:00.000-04:00


Za ilustraciju se zahvaljujem: https://www.facebook.com/PhilosophicalAnarchism

Uprkos uvreženom mišljenju da je bezdržavno društvo utopija, postoje dobri razlozi da se veruje da je ovo društvo ne samo ekonomski izvodljivo nego i da pruža kontinuirane podsticaje za nenasilje. Doživljavanje države kao neizbežne, kao i doživljavanje bezdržavnog društva kao neodrživog, zasnivaju se na pogrešnom ekonomskom razmišljanju i iracionalnom strahu. Ovde možete pročitati ostatak teksta.

The Myth of Canadian Tolerance: The Case of Health Care

2013-03-17T08:47:00.002-04:00

And your definition of thoughtful is?
(Photo taken at a public facility in Ontario)

If you want to be hated by Canadians, just say that their healthcare system is broken. This is the link to a Globe and Mail piece referring to my analysis of the economics of wait times in Canadian emergency rooms. If you click on the comments section you will see the degree of negative sentiment toward this analysis.

Here, you can follow the thread of comments on this post on my Facebook page.

Three simple tips for quitting smoking

2013-03-16T10:05:00.000-04:00

These are the three main principles that I used while quitting smoking. They worked for me, and they might work for you if you want to quit or significantly reduce your smoking. I started smoking when I was fifteen years old and smoked for eight years after that. For most of that time, I smoked at least a pack of cigarettes a day. Now, I am eight years completely smoke-free. Before that, there were two years when I had maybe two or three cigarettes in total. These are my three principles:

1. Focus on short time periods.

Live your non-smoking life one day at a time. Every day, set yourself a goal that you will not smoke that day. This will take away the burden of identifying yourself as an absolute non-smoker. Identify yourself simply as a person that will not smoke today. You don't have to carry the burden of transforming yourself into a non-smoker right now. Instantaneous and complete personality transformations are very rare (if not impossible). Setting yourself a complete personality transformation as a goal will almost certainly be overwhelming. Thus, avoid it. Remember, you can start smoking tomorrow if you decide to do so. Quitting smoking is not a prison sentence. It is a choice that you made.

2. Within those shorter time periods, focus on the immediate present. Be proud of the fact you are not smoking NOW, at this moment.

This will make you even prouder if you feel strong craving for cigarettes. If you focus on being proud of not smoking, you will be proud that you are overcoming this craving. If you focus on the NOW, you will always be in a position to be proud of not smoking. This also means that you will avoid thoughts like this one: Wouldn't it be nice to light up a cigarette. This thought is about the future. And, if you focus on your present non-smoking, this will displace thoughts about your future smoking. Again, remember, you can start smoking any moment in the future if you decide to do so. The reason why you are not smoking right now is because you don't want to.

3. Know that your past does not determine your future; your present determines your future.

There is no reason to feel bad about your past attempts to quit smoking. The fact that you did not become a complete non-smoker in the past does not determine whether or not you will smoke now. If our past determined our future, then no one would ever learn anything. Learning is impossible without "failure". If you have never "failed", you have never learned anything.

Why negotiating with your children is a bad idea

2013-03-14T07:53:00.001-04:00

It is a bad idea because if you decide to negotiate, you are sending the message that your first offer was not the most you can do for your child. This is a message of dishonesty and reservation. You are hoping they won't ask for more. You are hiding your true capacity to go in their direction. If you want to build trust and clarity with your child, offer your maximum right away.

Five Common Misconceptions about Employment “Off the Books”

2013-03-13T01:14:00.000-04:00

We want to buy more when we don't pay the tax
on goods. Similarly, employers want to employ more
workers when they don't have to pay a tax on labour.

There is a stigma attached to the productive activity commonly called employment “off the books” or “under the table”. This is the case in which the employer and the employee hide their relationship from the state and thus avoid being forced to pay levies to the state or comply with state regulations.

The stigma attached to employment “off the books” is unfortunate for at least two interrelated reasons. First, this stigma is based on widespread misconceptions about the nature of the productive relationship between the employer and the employee. Second, the misconceptions about the nature of employment “off the books” facilitate policies that end up harming those same people these policies were designed to help—the poorest members of society. I will address the most common five of these misconceptions I have encountered so far.

1. If workers refuse to work "off the books", the employer will have no choice but to hire them legally.

There is economic theory behind work "off the books", and it is clear that many of those who advocate condemnation and punishment of this type of productive activity don’t understand this theory. I too worked “off the books” as a new immigrant in Canada, and I did this because this was the only way for me to be profitable to the employer. In other words, my contribution to the profit of the company was not large enough to pay for the government-required fees and regulations. If my employer had to pay all the fees and comply with all the regulations, he would have been better off not employing me at all. Employing me under those conditions would have been a waste of money for him. Many people who work "off the books", like I did in my first years in Canada, would not have been offered their present job if they demanded to be employed legally.

In many cases, working "off the books" is the best option not only for the workers and employers but also for other members of society. If a person were to be prevented from working "off the books" and ended up being unemployed, other citizens (i.e., tax-payers) would have to provide him with the goods and services necessary for living. The unemployed person would, however, not provide anything in return. In contrast, by remaining employed “off the books” he would keep providing a productive service to others.

2. Working "off the books" is unlawful and therefore it should be strongly condemned and severely punished.

The fact that something is illegal does not mean that it is in itself bad or immoral. I often use the example of keeping black cats in one’s home during the Middle Ages to illustrate this point. Raising black cats in the Middle Ages was illegal, but now we see how absurd and arbitrary this law was.

Suppose that the state parliament votes on a new law that requires every employer to increase his contribution to the state budget by 25% per every employee. At the moment the new law is introduced, all those who are employed under the old law become criminals, and, according to the new law, they should be condemned and punished. But, the only difference between how they do their business now and how they did it before is that some people (i.e., 250 or so members of parliament) don’t like it any more. These members of parliament want more money now, and if you don’t give this money to the state, you will be labeled as a criminal.

To avoid being labeled as criminals, some employers would have to lay off the least productive workers. Alternatively, the employers could keep these workers off the books. Working "off the books” is the way the the employer and the employee try to avoid state levies and thus maintain their productive relationship. The magnitude of the state levies is always a result of arbitrary decisions of those in power.

3. Hiring "off the books" always gives an employer extra profit and therefore always represents the exploitation of the poor by the rich.

This statement is problematic for two reasons. First, let us note that hiring "off the books" gives employers “extra profit” only in the case of those workers whose marginal value products (i.e., their contribution to firm’s profit) is significantly higher than their current salary. For all others, hiring "off the books" provides employers with just enough profit to keep the marginal workers (i.e., workers whose marginal value product is only slightly higher than their salaries) in their jobs. If these workers were to be employed legally, they would become too expensive for the employer and he would have to find a way to terminate their employment.

Second, even in the case of those more productive employees, whose marginal value product is significantly higher than their salary, it is problematic to say that they are being exploited by the employer. These employees are in a voluntary relationship with the employer. As long as the employer is not using a threat of physical violence to keep them on the job, there is no objective basis for claiming this is an exploitative relationship. We may not like the conditions of this relationship, and we may want the employee to be paid more, but this is nothing more than one subjective judgement, one of millions of equally subjective judgements of other people. How are we to persuade someone that our judgement is more correct than any other judgement? We can’t. Other than the absence of physical invasion and a threat of force, there is no objective criterion against which we could measure the “exploitative” nature of any relationship.

4. Employment "off the books" destroys the competition by firms that are doing business legally.

It is not employment "off the books" that destroys competition. It is the regulations. Why? Suppose an employer decides not to hire a worker "off the books" because he does not want to "cheat the state." If this worker is not profitable when hired legally by this employer, then he will not be profitable if hired legally by another, similar employer. The employee will become unemployed and either turn to the welfare office or become a burden to his family and friends. So, by refusing to hire workers "off the books" the employer did not help someone who would want to hire the same workers legally. He has just added another person to the number of those that are already living at the expense of the tax payers.

5. Our country is poor because employment "off the books" does not contribute to the state budget.

This is a statement that can often be heard in the so called developing countries. People somehow perceive illegal, yet voluntary and peaceful labor to be the cause of the relatively low level of well being in the country.

In fact, the true causal relationship runs in the opposite direction. Employment "off the books" is common in poor countries precisely because regulatory compliance is costly. Each new regulation requires a pre-existing stock of goods that will be spent on compliance activities. Regulations require producers to perform additional activates that they did not perform before. These activities require time and other resources. Without an increase in productivity, new regulations cause a reduction in the available stock of goods and services. In other words, regulations deplete our wealth. Thus, compliance with various state regulations is a luxury that only rich economies can afford.

Contrary to the common belief, it is not employment “off the books” that impoverishes a nation; it is compliance with the ever increasing number of arbitrary demands by the state that impoverishes many productive individuals. Employment “off the books” is the last ditch attempt by these individuals to escape this impoverishment and thus remain productive members of society.

Conclusion

Working “off the books” is a special kind of productive activity. It is special not for its alleged immoral character but for its unique economic features. It is one of those activities that keep the poorest and the least productive members of society from getting even poorer by becoming unemployed. This productive activity also saves the rest of society from becoming the sole provider of living expenses for these unfortunate individuals. Thus, those who want to help the poor ought to advocate for decriminalizing the poor’s secretive, “off the books” relationship with their employers, not threaten them with fees, fines, imprisonment or other forms of state force.

Writing about War

2013-03-12T13:58:00.001-04:00

I don't think I've ever written a structured blog post or an article about war. I just realized that as being somewhat strange, given my belief that war was the most traumatic experience in my life. Ok, maybe it's not that strange; who rushes to write about traumatic experiences, especially the most traumatic ones?

I did write about being a refugee, within an economic context, but that's only a small part of war, and it is generally the part that I consider the least troubling. In fact, I learned a lot about the functioning of the market by being a refugee in a country in which the state was losing its grip.

However, I've thought about war quite a bit, and I even have had a working title in mind for quite a while. I just never got to that part of actually writing down the damn thing. Maybe this is so also because I have high hopes for this future piece. My intention is to show people how one gets trapped into thinking that war is a good idea. And, when you realize it's actually a terrible idea for most of us, it's already too late.

So, what I've decided now is to make the first step--to open a Word file and write down the working title on the first page and then save this file in "My Articles" folder.

Updating my list of oxymorons

2013-03-11T18:17:00.000-04:00

Words that Don’t Belong Together:

(My old list of oxymorons (or oxymora))

• scientific consensus

• religious tolerance

• military intelligence and

• university innovation!

Example:

Scientific Consensus

- This is not the validation criterion for science

• Darwin and Galileo were not initially in the majority

• Science is fragmented – there is no correspondence between the scope of disciplinary coverage and the boundaries of disputed issues

• Consensus is usually the precursor of paradigm shift (Kuhnian scientific revolution)

A new oxymoron for my list, used yesterday by the British Prime Minister David Cameron:

Free market politics (why is this an oxymoron?)

Ego can be a great motivator

2013-03-10T12:09:00.001-04:00

A long time ago, when I was still in Belgrade studying forestry, I loved the first and second year courses, and I ended up having a top average in my generation. Then, at the end of the second year, due to various circumstances, I lost interest in school. I thought then--I know I can do it if I want to, but why should I? Who cares? I need something more challenging.

My University of Belgrade Student ID

Soon after, I learned many things I hadn't known before, but I failed third year, twice. I simply didn't care. There were more important issues to resolve, like how to use Jung's psychoanalysis to resolve your inner conflicts; how to live in peace with the past; how to look forward to the future.

Then, one event moved me. Some guys, very limited in their abilities, talked to me with a noticeable sense of superiority. Their condescending tone was awakening. At that moment, even though I knew I would be going to Canada in a few months, I decided to show to myself that I can still do what I used to do before. I took our soil science textbook, read it from cover to cover, went to an exam after more than a year of not taking any exam, and got a 90%. The professor even asked me if I was considering graduate studies in soil science. I said--maybe, I don't know yet.

I don't remember if I ever met those guys again, but I will always remember the last few minutes of the conversation I had with my soil science professor. The way he talked to me brought back the sense of self worth to me at that moment.

What planning is and what it is not, in one minute

2013-03-08T00:58:00.001-05:00

If those that believe in material determinism (i.e.,natural scientists) are right, planning of an economy is just an illusion. It was all predetermined by the strict laws of nature. If those that believe in free will are right, planning of an economy is impossible. You cannot plan someone else's choice. That's just impossible by definition. In either case, the "planners" are just fooling themselves.

Note that I am not saying planning is useless. I am saying that planning of other people's choices is a logical contradiction. Planning of your own actions is not a contradiction. Thus, like any one of us, the planners can only plan their own actions, close their eyes and hope for the best. But, your planning of your own actions is not the same as planning of the economy.

If people have free will, then the degree of our "influence" on them is a matter of their choice. A more accurate description of what people mean (or ought to mean) when they talk about planning within society is--coordination of individual plans. Every individual plans his/her own actions while taking into account what he/she believes about the plans of others.

Listen to: "Assuming Away Reality"

2013-03-06T12:51:00.000-05:00

YouTube user TheProdigalBard took the time to record his reading of my article "Assuming Away Reality". Thank you, TheProdigalBard!

Are you a trouble maker?

2013-03-05T13:11:00.000-05:00

When you confront and question the authority of someone who has more physical force than you do, are you looking for trouble? Should you know better and try not to anger those in power?

These are the questions that resulted from my recent encounter with a Facebook post by the campus police at my university. They posted a surveillance photo of two individuals and were looking for help in identifying them for the purpose of bringing them for an interview. After asking the police a few questions on their Facebook page, I was given an answer that the motive for interviewing these two individuals was that they were seen walking in "non-public areas" and that some university staff members labeled these individuals as "suspicious". However, there was no clear definition of "non-public" areas or if being in these areas was an offence of any sort. The police stated that walking in "non-public areas...is generally not an offense although there could be contraventions under the Trespass to Property Act." However, they did not explain when and how walking in these "non-public" areas stops being a legitimate exercise of one's freedom of movement and starts being trespass of property.

Thus, we have to conclude that the only offence of these two individuals at this point, according to the police, is that their location and physical appearance were not pleasing to some staff members. The police stated that they "routinely" follow this procedure when there are such complaints.

My initial plan was to examine and question this policy. After all, the fact that some activities are "routinely" done does not automatically make those activities right or justified. To illustrate this point, let us use an extreme example of routine operations performed by state authorities in the past. In World War 2, thousands of Jews were routinely killed in gas chambers. Does this mean that it is ok to kill Jews? Second, is just looking "suspicious" to some people a sufficient reason for being forced to talk to some people (i.e., the police) you may have no desire to talk to?

I'm sure I looked suspicious to many people many times. To illustrate this, we can take a look at the photo on the right. It was taken this morning while I was going to work. The individual in this photo looks suspicious to me. The way he is dressed and his facial expression look like a cause for concern to me. If I didn't know that this individual is someone with a PhD in economics on his way to work, a proud father of two happy children, a loved husband and son, a recipient of multiple academic awards and scholarships, and a person whose worst offence was a "rolling stop" at an all-way stop sign, I would be weary if I saw him in a "non-public" area. I would think this individual may be a safety concern. But, is my suspicion a sufficient condition for interfering with this individual's freedom. Is my subjective judgment, based only on his physical appearance, sufficient for forcing him to justify his presence at a particular place? Does my suspicion imply he is supposed to justify his freedom to someone even though he has not committed any crime? I will leave the answering of these questions to you.

Something else caught my attention--the reaction of one of my family members to my plan to post the above questions on the university police Facebook page. That family member said: "You're really looking for trouble." Although this was said in a semi-humorous tone, we both knew that the truth behind it wasn't all that funny. What it meant is that, when you provoke those in power, you better be prepared for the consequences.

But, there is something more to this statement than that. There is an implied judgment in it--it is you that is causing trouble, not the person in power. Somehow, he or she has no choice but to retaliate, to punish, and it is up to you to choose whether you want to be punished or not. It is your fault if you get punished. All of a sudden, we turn to labeling you as the trouble-maker without the slightest question about the moral justification for the actions of the person in power.

Without intention of equating this situation with any tyrannical regime, I will draw a few implications from this experience. No wonder it took special kind of intellectual and spiritual strength to oppose tyrannical regimes in the past when a typical reaction to those that attempt to oppose or question any authority is that they are troublemakers. No wonder there weren't more people like Mahatma Gandhi or Martin Luther King. It takes a special kind of courage to be a "troublemaker" in a society where force of the powerful is seen as a law of nature, unchangeable, and morally unquestionable.

The Best Thing an Economist Can Do

2013-02-26T08:07:00.000-05:00

I am becoming ever more convinced that the best thing an economist can do is to talk to "average" people. These people want to help others but they often don't know how their good intentions can lead to unwanted consequences. However, I find that academic economists only pay lip service to the ideal of "educating the public". Most of them like to talk to other academic economists in a language only they understand and about issues only they and, maybe, some government agency, care about. And then we complain no one listens to us, economists. Even if someone tried to listen, he or she would not understand much. Ironically, we, who talk about efficiency so much, blame others for being efficient with their time by not using it on listening to those they can't understand.

Pet zabluda o radu "na crno"

2013-02-24T21:25:00.002-05:00

1. Ako radnici odbiju da rade "na crno", poslodavac neće imati drugog izbora nego da ih zaposli legalno.

Jako je važno ovom pitanju prići hladne glave. Postoji ekonomska teorija iza rada "na crno" i očigledno je da mnogi koji su za strogu osudu i kažnjavanje rada "na crno" ne razumiju tu teoriju. I ja sam u Kanadi radio "na crno", a radio sam zato sto sam jedino tako mogao da budem profitabilan tome gazdi. Drugim riječima, moj doprinos profitu firme nije bio dovoljno velik da bi se od njega izdvojila davanja državi. Ako bi morao da plaća sve te dadžbine, gazdi bi bilo bolje da me ni ne zapošljava jer zapošljavajući me samo gubi novac. Dakle, mnogi (možda ne svi, ali mnogi sigurno da) od tih ljudi koji rade "na crno", ne bi ni dobili taj posao ako bi trazili da budu zaposleni legalno.

Zato je u mnogim slučajevima rad "na crno" najbolja opcija ne samo za tog radnika i poslodavca nego i za ostale građane. Ako taj radnik ne bi radio "na crno", bio bi nezaposlen i onda bi ostali gradjani morali da ga izdržavaju.

2. Rad "na crno" je protivzakonit i zato ga treba oštro osuditi i oštro kažnjavati.

Činjenica da je nešto protivzakonito ne znači automatski da je to i samo po sebi loše ili nemoralno. Često koristim primjer držanja crnih mačaka u srednjem vijeku da bih ovo ilustrovao. Držanje crnih mačaka je u srednjem vijeku bilo protivzakonito, a sada vidimo sav besmisao tog zakona. Slično tome, recimo da država sada izglasa novi zakon koji od svakog poslodavca zahtijeva da poveća za 25% po radniku izdvajanje u državni budžet. Istog momenta kad se taj zakon izglasa, svi oni koji su zaposleni po starom zakonu postaju "ilegalci". U tom slučaju bi neki poslodavci bili primorani da ili otpuste neke radnike ili da ih zaposle "na crno". Znači, rad "na crno" je način na koji tržiste (i poslodavac i radnik) pokušava da zaobiđe državne namete, a ti državni nameti su rezultat arbitrarnih odluka vlastodržaca.

3. Rad "na crno" poslodavcu uvijek daje ekstra profit i zato uvijek predstavlja iskoristavanje siromašnih od strane bogatih.

Ta teorija da rad "na crno" poslodavcu daje ekstra profit je tačna samo u slučaju onih radnika čiji marginalni vrednosni produkat (doprinos profitu firme) je znatno veći od njihove trenutne plate. Za sve ostale, rad "na crno" poslodavcu daje samo dovoljno profita da marginalne radnike (radnike čiji je marginalni vrednosni produkat samo malo veci od njihove plate) zadrži na poslu. Legalizovanjem bi ti radnici postali preskupi za poslodavca i on bi morao naći načina da ih se oslobodi.

4. Rad "na crno" uništava legalnu konkurenciju.

Nije rad "na crno" to što uništava konkurenciju nego propisi. Zašto? Recimo da poslodavac odluči da ne zaposli nekog radnika "na crno" zato što ne želi da "prevari državu". Ako tom poslodavcu nije isplativo da ga zaposli legalno, onda to nije isplativo ni nekom drugom poslodavcu i taj radnik će ići na biro za zapošljavanje ili će biti na teret familiji. Znači, odbijanjem da radnika zaposli "na crno" poslodavac nije pomogao nekome ko bi htio da tog istog radnika zaposli legalno. Samo je dodao još jednu osobu na teret platiša poreza.

5. Naša država je siromašna jer rad "na crno" ne puni državni budžet.

U stvari, ova uzročno-posljedična veza ide u suprotnom smjeru. Rad "na crno" je čest u siromašnim zemljama baš zato što je poštovanje propisa skupo. Za poštovanje svakog novog propisa potrebno je da neko stvori zalihe dobara koje će se utrošiti na poštovanje tog propisa. Propisi su dodatni zahtjevi na račun proizvođača dobara i ti dodatni zahtjevi uvijek podrazumijevaju utrošak sredstava koja neko prije toga mora da proizvede. Dakle, poštovanje raznih državnih nameta je luksuz koji samo bogate ekonomije mogu da si priušte.

Intimidation by Confusion: The Case of Natural Rights and Self-Ownership

2013-02-22T12:35:00.001-05:00

Many commentators try to invalidate the concept of self-ownership by using slavery as a purported contradiction to the self-ownership of slaves. This is a mistake. The following conversation on a recent blog post by Robert Wenzel, Designed Rights versus Natural Rights, is illustrative of the common misconception when it comes to the concept of natural self-ownership. It is also illustrative of a rhetorical technique I call intimidation by confusion. Below is an excerpt from the blog conversation between Wenzel, an unnamed supporter of Wenzel's view, and myself. I will let the reader judge who is using intimidation by confusion as a rhetorical technique here.

Predrag Rajsic February 16, 2013 at 10:16 AM
The slave owner may control the consequences of slave's actions, but it is still the slave that chooses his own actions based his own evaluation of those consequences. In that sense, the slave's self-ownership is no different than any other individual's self-ownership.

Replies

Robert Wenzel February 16, 2013 at 6:08 PM

So you would be in favor of slaves because they "own themselves" in your view?

Predrag Rajsic February 18, 2013 at 9:29 PM

Who cares what I would be in favour of. My point was that the concept of natural rights is independent of actual human relations.

The Cleaner February 19, 2013 at 12:24 AM

Pedrag,

You are shifting the conversation. You said "slave's self-ownership is no different than any other individual's self-ownership."

Wenzel, thus, has a very legitimate question, just how does self-ownership work, if it exists for a slave?

You are attempting to shift the debate. You did not say "the concept of natural rights is independent of actual human relations," you said slaves have self-ownership.

Do you still believe this?

Predrag Rajsic February 19, 2013 at 2:30 AM

No, I don't think I am shifting the debate. The debate is not about my beliefs or preferences. It is about the concept of natural rights. I think I explained above the context in which the slave's natural self-ownership is defined. It is defined by the existence of slave's choosing of his own actions. It is not defined by slave's relationship with the slave owner. If it was, the concept of natural rights would depend on the specifics of every particular situation. The idea implied in my first comment was that the existence of natural rights does not depend on the particulars of a situation, so there is no inconsistency here.

So, if there is anyone shifting the conversation here, it is the one who asked if "I would favor slaves" because "they 'own themselves'". (I am guessing "slaves" was supposed to be "slavery" here.) I may favour slavery because slaves own themselves or I may favour slavery for hundred other reasons. I also may oppose slavery because slaves own themselves if I dislike their self-ownership as is defined above. However I decide to form my preferences around slavery, it has nothing to do with whether or not natural rights exist independently of the relationship between two humans.

Even you, The Cleaner, finish your post with asking about my beliefs. If I am not mistaken, you are asking if I believe slaves have natural self-ownership. So, you are asking me if I believe slaves have free will, because insofar as they have free will, they have self-ownership. Do I know if anyone, including myself, has free will? I don't. Do I believe humans, including slaves, have free will? Yes. But, who cares about my beliefs. It is flattering to know that someone does care, but my beliefs are not the topic here. Or are they?

I am still waiting for a reply.

Intimidation by Confusion: The Case of Inflation

2013-02-21T15:46:00.002-05:00

One of the common sins of media commentators and pundits of all colours is what I will call intimidation by confusion. This is a situation when a phenomenon is made incomprehensible by the use of unclear terminology and by invoking even less clear relationships. This makes the audience reluctant to ask for clarification because they assume the commentator’s explanation is confusing not because it is wrong but because it is too complicated to be understood by someone with “non-technical” knowledge.

One such case of intimidation by confusion is the recently often heard explanation of the general rise in prices, popularly called—inflation. The popular assertion made by many commentators is that increases in prices result from an increased “cost of production” of goods and services. Most people at that point would feel like asking: Well, yes, I see my bills rising over time, but where does this increase in the "cost of production" come from; what's causing it? Most people, however, do not ask this question fearing it is a stupid question. It is not, and I'll explain why.

The Cost of Production Fallacy

Note first that the concept of money supply is nowhere to be found in this "cost of production" argument. While it is true that there is a logical link between the price consumers are willing to pay for the final product and the total expenditure producers are willing to incur to produce that product, careful examination shows two key points.

First, the logical direction of this link between input and output prices runs from final consumer goods to inputs used to produce those final goods. It does not run from inputs to final products. Inputs are only valued insofar as they can be used to produce goods that someone is willing to buy. The producer's willingness to pay for inputs is limited by the amount of money consumers are willing to pay for the final product.

For example, the amount of money a baker is willing to pay for a pound of flour is limited by how much consumers are willing to pay for a loaf of bread. The baker cannot simply start charging $500 for a loaf of bread and justify this to his customers by claiming that his flour supplier is asking $400 for a pound of flour. At that price of bread, most or all consumers would stop buying bread. Thus, it is not "cost of production" that drives prices of consumer goods. It is the willingness of consumers to pay for different consumer goods that determines how much money producers can spend on inputs.

The second point that becomes evident from this is that the link between the final product prices and the producers' expenditures on inputs is established through the process of exchange of goods and services and money. In most simple terms, our willingness to pay for goods and services will depend on how much money we actually have and how much of that money we are willing to exchange for goods and services. The portion of all the money within an economy that people are willing to exchange for goods and services at any point in time is key for understanding inflation. Let us call this portion—the money supply.

The Money Supply and Prices

The link between the money supply, the demand for goods and services and the expenditure producers are willing to incur to produce those goods and services is established through the process of market exchange and competition. At any point in time, there are some individuals offering money in exchange for goods and services, and there are other individuals offering goods and services in exchange for money. The shortcut label economists use for the first group is the consumers, while they label the latter group as the producers.

Imagine now you are a consumer that have had a monthly income of $3000 for the last two years, and your income increases to $3500. You will have $500 more to spend on things you could not have bought before. You may decide to save a portion of those $500, say $200, and spend the remaining $300.

Now imagine the government decided to add $500 to the paycheque of every public service employee in your country. For this purpose governments generally use the central national bank whereby the bank adds new currency (i.e., money) into the government's budget. If most of these public service employees are like you and I, they will want to spend a portion of that new money.

Now we have hundreds of thousands or millions of people wanting to buy more goods and services than before. But, if the quantity of goods and services available on the market did not increase compared to the last two years, we will have millions of people competing to buy the goods and services they were not buying before.

This will lead to a faster emptying of the producers' stocks of goods and longer line-ups for different services. The producers will interpret this as a signal that their prices are too low—a signal that they can increase their profit by increasing prices since so many people want to buy their products. Thus, this increase in the frequency of market exchanges will prompt the producers to increase their prices.

As the producers' shelves are being emptied faster than before, they will want to replenish them faster, so they will try to buy more inputs than before. This will signal the input suppliers to increase their prices as their stocks are being depleted faster than before. Finally, as the prices of inputs and final products rise, the increase in the frequency of exchanges will slow down until we end up with the frequency of exchanges similar to the one before the increase in the money supply and with prices of final products and inputs higher than before. At this point, the new money created by the central bank will be circulating within the economy.

This is the basic mechanism of the percolation of new money into the market economy. The more money your central bank creates in a given period of time, the faster will the prices of most or all products rise if most people decide to use this money in market exchanges rather than accumulate it.

Conclusion

This brings us to the conclusion that, if we see money prices of all or most goods rising over time, this rise is a symptom of the money supply rising faster that the available stock of goods and services. People are offering more money per unit of goods and services purchased in a given period of time.

Now that we understand the mechanism behind the general increase in prices, we can no longer allow various commentators confuse us with buzz-phrases like "rising cost of production" or "rising input costs" or, worse, "rising costs of living". In my experience, the best way of fighting intimidation by confusion is by actually asking the "stupid" question that is brewing at the back of your mind while someone is "explaining" to you how the world works. Thus, I encourage you to do the same after reading this article.