This week’s interview is with Jeff Tucker. We’re talking about how capitalism fits into the bigger picture. Libertarians tend to assume that everybody values the creation of wealth, and therefore free markets are important. But why make this assumption? Perhaps free markets create wealth at the cost of personal or spiritual impoverishment. What to think about this objection?
We also address the staggering beauty and complexity of free markets, illustrated in proper Jeff Tucker style: by telling the romantic story of tuna fish in a vending machine.
I know that some truths can be discovered through the application of pure reason, without appealing to empirical data. These truths are limited in number and tend to be very abstract, but they still exist and are foundational to our other beliefs. I give an argument for them in my book Square One: The Foundations of Knowledge.
However, rationalism is easily abused and often turns dogmatic. Our perennial critics – empiricists – correctly point out the many dogmas common to rationalism. In turn, we rationalists correctly point out the many unspoken assumptions of empiricism. The purpose of this article is to point out where my fellow rationalists are indeed being dogmatic, in particular, with regard to Austrian Economics.
I am an apriorist when it comes to economics. There is indeed a non-empirical, purely conceptual framework that we all bring to our analyses of human action. However, apriorist arguments are frequently over-extended by extreme apriorists, whose ideas are best represented by the philosopher Hans-Hermann Hoppe.
So for the sake of apriorism, we need to tighten up our arguments and specify exactly what can and cannot be claimed by appealing to pure logical analysis. We can make axiomatic deductive claims in economics, but they don’t tell you almost anything about the world. They are important claims – even fundamental – but they are so abstract that most people won’t find them relevant.
Take the common question:
“Does increasing the minimum wage cause a disemployment effect?”
I’ll be analyzing two different answers: “Yes, it certainly does,” and “Yes, it probably does, given reasonable assumptions.” The former is an apriorist claim: on purely logical grounds, we can know that increasing the minimum wage causes disemployment. The latter is an empirical claim: given what we know about the world, it’s most likely true that increasing the minimum wage causes disemployment, though it’s not logically necessary.
For all practical purposes, the latter position is correct, and the former position is dogmatic.
Other Things Equal…
The careful reader might have thought, “Ah, we have to clarify the proposition further. It’s not simply that an increase in the minimum wage causes disemployment. It’s that an increase in the minimum wage causes disemployment, ceteris paribus. You have to hold every other variable constant.”
I concede this point, and this new, more precise proposition is indeed true.
It’s true and neutered.
There is a world’s worth of difference between claiming,
“X causes Y,” and
“X causes Y, everything else constant.”
The claim that “X causes Y” is a regular claim about the world. The claim that “X causes Y, everything else constant” is not a regular claim about the world. In fact, it’s not really saying something about the world; it’s talking about a hypothetical world where only one variable changes at a time, which is not the world we inhabit. I fully recognize that the ceteris paribus condition can be helpful as a thought experiment to clarify our concepts, but it often gets abused by the dogmatic rationalist who ends up claiming:
“X causes Y, ceteris paribus.”
“Therefore, X causes Y.”
To state the error more concretely, the dogmatic rationalist says:
1) An increase in the minimum wage causes disemployment effects, ceteris paribus.
2) Therefore, an increase in the minimum wage causes disemployment effects.
This might seem like a subtle error, but in fact, it’s a catastrophic one. It’s partly the reason why aprioristic reasoning is seen as being dogmatic. Extreme apriorists try to claim that “X is a matter of logical necessity,” when in fact, it’s actually an empirical matter, and because of the axiomatic-deductive nature of their argument, they are not open to being convinced otherwise. I’ve had to change my own beliefs on this subject, having been more on the dogmatic side before realizing my ideas were true yet neutered.
Let’s take a simple example. Say I ask, “Will increasing the minimum wage in Seattle cause disemployment effects?” An extreme apriorist answers, “Yes, certainly, because of these particular causal connections…”
Now imagine I follow up with the question, “But what if nobody follows the minimum wage law? If nobody follows the law, then surely it won’t cause disemployment.”
I’ve actually asked this questions several times to economists in person, and I’ve heard some interesting answers. One prominent apriorist told me, “Well, they’ve got to follow the law!”
But surely, in the real world, people don’t have to follow the law. And if they don’t follow the law, then the standard economic story simply doesn’t apply. I recognize that in the thought experiment they must follow the law – otherwise the analysis won’t work – but that’s not the world we live in. Nobody is asking economic questions about your thought experiment. They want to know what will happen in the real world if Seattle actually raises the minimum wage. Whether or not people follow the law is an empirical question; you cannot logically deduce the answer. Therefore, questions about the minimum wage in the real world require empirical assumptions in order to answer. Whether or not people follow the law is only one example; there are innumerable other empirical assumptions that get packed into economic claims. These assumptions might be perfectly reasonable, but they’re still empirical in nature.
As I like to say in metaphysics, it might be the case that the minimum wage in your head is not the same as the minimum wage in the world.
Changing Ideas
Imagine that the following were true:
“When the minimum wage increases, it changes the self-image of employees. They view themselves as being higher-quality workers and raise their productivity levels accordingly.”
If that were true, then an increase in the minimum wage could, in fact, increase employment. The increased productivity of workers could make their employers more money, which means the employers could afford to hire more people.
Notice that this is not a ceteris paribus scenario. The minimum wage would change, causing another variable to change: the ideas of employees.
So the question is this: do we live in a world where increasing the minimum wage changes the ideas of workers so that they are more productive?
It’s an empirical question.
Now, I personally don’t think we live in such a world. (Or if we do, the gains in productivity are not sufficient enough to offset the additional costs of employment.) However, I didn’t arrive at those conclusions through a series of logical deductions. I’ve observed the world, and I don’t think that’s the one we live in.
Imagine that somebody were making an explicitly psychological case for raising the minimum wage. They wouldn’t claim, “We can increase employment by changing one-and-only-one variable: the minimum wage.” They’d claim, “We should increase the minimum wage because it changes other variables in the real world that increase worker productivity.” This is a coherent, empirical claim that you cannot refute by responding, “But ceteris paribus an increase in the minimum wage causes disemployment!”
Ceteris Dubious
If you think about it, the ceteris paribus parameter is odd in the first place. On the one hand, it’s important to help us understand cause and effect relationships in economics. On the other hand, it can lead to extreme myopia. Take an example outside of economics to see just how odd it is.
Imagine I’m a martial arts instructor, and I tell you, “When kids get promoted to a new colored belt, they perform at slightly higher levels because they think of themselves as being higher ranked.” This is something akin to the “winner effect” – the idea that winners gain confidence because they’re winners, which makes them more likely to win in the future.
Now imagine an apriorist walks in and says, “Bah! That’s logically impossible! Simply awarding a belt to a kid will not improve his martial arts skills because, ceteris paribus, there is no causal connection between wearing a different colored belt and gaining greater skill!”
It would be a bizarre, myopic argument indeed. Technically, the apriorist would be right. It’s not actually the different colored belt which makes kids better; it’s because their self-image changed. But this entirely misses the relevant phenomena we observe in the world.
(Personal anecdote: I actually experienced this in reverse when receiving my first black belt in karate. I was so focused on getting it that once I finally did, I found my skill level dropped. My body and mind got lazy because I wasn’t as focused on improvement anymore. The belt actually made me worse!)
It’s not hard to imagine a child improving his skill level because of a new belt. So why would it be hard to imagine an employee improving their skill level because of a raise? Yes, technically it’s not directly because of the belt or raise, but that’s a claim nobody is making. It’s a clear empirical possibility.
In What World?
Let’s take a step back to see the limitations of ceteris paribus reasoning.
Say you make a claim that “X is true.” Your claim should not change if you add the phrase, “in the real world.” So for example, if I say, “X is true,” I should be able to say that “X is true in the real world.”
What good is a proposition that claims “X is true, but not in the real world”?
For example, the claim “The minimum wage causes a disemployment effect” should be the same as “The minimum wage causes a disemployment effect in the real world.” Yet, the extreme apriorist’s claim is actually, “The minimum wage causes a disemployment effect ceteris paribus, but I can’t tell you what happens in the real world.”
Again, I think the claim is true, but it’s also neutered. If adding “in the real world” changes the validity of your claims, it should be a red flag. This is especially true for the many abuses of mathematics throughout various disciplines, but that’s an article for another time.
One more example of the abuse of apriorism, taken from a lecture I attended in 2011 at Mises University, delivered by Hans-Hermann Hoppe about Praxeology. He gives many examples of what he considers to be certainly-true apriorist claims about how the world works.
Take this one, for example:
“If we increase the amount of money without increasing the quantity of non-money goods, social wealth will not be higher, but only prices will rise.”
This is a great example of dropping the ceteris paribus condition. His claim is true, but only if we’re holding every other variable constant. In the real world, where multiple variables change – including variables that we don’t know are causally connected – it might be the case that an increase in the amount of money could increase the amount of social wealth. It just takes a bit of imagination.
Imagine that we live in a world where the most incompetent people are the wealthiest, and the most capable entrepreneurs are all stuck in poverty. Now imagine there’s a large monetary inflation – a bunch of new money is printed and given to the poor, competent entrepreneurs. Suddenly, they have new means available to them. They start undertaking projects, employing people, and end up creating wealth for society. Without this inflation, they wouldn’t have had enough capital to undertake the new projects. This scenario is essentially a redistribution of wealth from the incompetent to the competent.
So, by increasing the amount of money, social wealth could indeed increase. This is possible because the increase of money isn’t ceteris paribus. When the entrepreneurs received the new money, their behavior also changed, which caused an increase in total social wealth.
I’m not advocating for such an inflation. I’m simply giving an example of where dropping the ceteris paribus condition turns a true-but-neutered claim into a false-and-dogmatic one.
In Defense of Apriorism
Alright, after criticizing the abuse of apriorism, I want to defend the methodology, because I do think it plays a fundamental role in economic reasoning.
From my perspective, sound apriorist claims are rarely about states of the world. They are about our concepts. A careful rationalist will correctly point out that everybody brings pre-empirical concepts to the table before analyzing any data. These concepts are themselves not the subject of empirical inquiry; they are the lens through which we make sense of empirical data.
Every discipline has these presuppositions – including physics, mathematics, biology, etc. – though most people simply aren’t aware of them because they tend to be very abstract and philosophic rather than concrete and scientific.
For example, take the claim that “Humans act purposefully.” It might sound like an empirical claim – that we could go out and test whether or not humans are acting purposefully. But that’s not really correct. What careful thinkers like Ludwig Von Mises point out is that we interpret data about humans through the lens of purposeful action. When we observe humans, we presuppose a fundamentally different lens than when we observe billiard balls – that of purposeful action. It doesn’t make sense to say, “The billiard balls intended to go into their pockets after getting struck.” It does make sense to say, “Johnny intended to go to work at 3pm,” or “Johnny chose to take the train instead of the bus,” or “Johnny values classical music higher than electronica.”
The apriorist is examining the concepts within our own mental framework. When Johnny chooses Beethoven, we can also meaningfully say, “And he could have chosen otherwise, which means Johnny has a preference scale for music.” This preference scale isn’t measured or observed – it’s not really a thing-in-the-world. It’s an analytical construct that’s implied by our concepts about human action.
Take a fundamental economic law: the law of diminishing marginal utility. The first unit of a good gets employed to satisfy the most highly valued end; each additional unit will satisfy a lower-valued end. Is this an empirical claim? Not really. What we mean by “highest valued end”is precisely that it gets satisfied before other ends. It’s part of the definition – the pre-empirical conceptual lens. To say, “Johnny satisfied the lower-valued X prior to the higher-valued Y” is really to say that “Johnny actually valued X higher than Y.”
When I worked for FEE, I remember listening to a lecture by Israel Kirzner, who was a student of Mises. He and some fellow students apparently asked Mises, “But how do we know that humans act?” To which Mises replied, “We observe it.”
I think this is key. To say, “We observe it,” is to say, “Well, we’re guessing, based on the behavior of the objects we observe and based our own internal introspection, since we have special access to knowledge about what humans are. We’re interpreting human phenomena through the lens of purposeful action. It might very well be the case that humans do not act, but then you’ve got a great deal of explaining to do.”
In other words, the concept of “purposeful human action” is extraordinarily powerful – so powerful that it’s fused to the lens of virtually anybody analyzing human behavior. If the concept correlates to the world, we can use pure logical deduction to come up with a kind of aprioristic framework for analyzing human action. If the concept is false, then… perhaps everything is a great hallucination or something else wild and bizarre.
If you accept that humans act purposefully, then you are bound by a particular logical framework that rationalists have discovered. The framework is abstract and limited in scope, but it still exists and is fundamental.
There are other places where apriorism is fundamental to economic reasoning, though I will not spend much time covering them. For example, take the proposition that “Scarcity exists” – i.e. there aren’t enough goods for everybody to have all their ends satisfied. If this is true, it implies other aprioristic truths that we don’t have to observe in the world. If scarcity exists, then humans must choose which ends to satisfy with their scarce means. And if humans choose “this” over “that,” we can meaningfully talk about preference scales, the law of diminishing marginal utility, and if we’re careful, we can even deduce the general framework of the laws of supply and demand. Also note, the particular claim that “scarcity exists” is actually a claim about the world. It’s not just purely about our concepts.
Even in the earlier example about the minimum wage, apriorism and ceteris paribus reasoning can serve a valuable purpose. You could say, “To the extent that employment increases after a minimum wage hike, it is certainly not the case that the additional employment was solely caused by the cost of employment increasing.”
Again, it’s not a particularly relevant claim, since innumerable variables are always changing, but it is still true. Careful ceteris paribus reasoning allows us to hyper-focus on cause and effect relationships. What exactly causes what, and for what reasons? If my martial arts skill improved when I get a new belt, it must be the case that some other variable changed. Holding “everything else constant” in our minds greatly improves our ability to identify cause and effect in a complex world.
So, I think the most accurate approach to economic reasoning is a mixture of rationalism and empiricism. We all bring non-empirical conceptual frameworks to the table whenever we analyze a particular phenomenon. It’s valuable – even essential – to examine, explain, and flesh out the implications of these pure concepts. However, conceptual frameworks and extremely distant abstract truths do not tell you almost anything about what happens in the world. Economics is supposed to be about the world, not about our own minds, and the world is extremely complex. Multiple variables are changing every instant. The ceteris paribus parameter tells you essentially nothing about a world where more than one variable changes at the same time. Since that’s the world we live in, I suggest we rationalists stop abusing apriorism in economics.
Is a “whole” something greater than the sum of its parts? Or, is a “whole” identical to the sum of its parts?
Dr. Andrew Brenner joins me for a fun conversation about mereology – the study of parts and wholes. While it might seem like an esoteric topic, it’s actually central to metaphysics, and the conclusions have implications on things as varied as the philosophy of mind, personal identity, and even the philosophy of mathematics and geometry.
Both Dr. Brenner and I agreed in this episode: the only things that exist are simple substances. There aren’t actually any composite objects, though we act like there are for easy navigation in the world.
I’ve got an idea for extreme data compression. It would allow for essentially arbitrarily large amounts of data to be transmitted or stored in a very small space – even within the OP_Return space on the Bitcoin Cash blockchain.
Disclaimer: I am a complete and utter novice. I don’t know anything, nor do I have any technical expertise. This idea popped into my head a few nights ago when thinking about how to send longer messages through memo.cash. However, I’ve run this idea past a few people I respect, and some parts look promising. It might have a catastrophic flaw or assumption that I’m missing – or it might already be in common use, which wouldn’t be surprising – but it’s good enough to share and risk looking silly. Since I don’t speak the technical language, I can only communicate the big-picture concepts without technical precision.
The general idea is this: to compress data by assigning unique characters to unique patterns of data. Then, storing or transmitting the characters, instead of the data. The characters can then by decompressed to reconstruct the original data. I call it “character compression.”
There are currently more than 130,000 unique characters in Unicode alone, which could be a substantial enough set for significant data compression.
So, let’s take a simple example. Let’s say I want to communicate the phrase, “Bitcoin Cash is peer-to-peer electronic cash.” That’s 46 individual characters. Now imagine I assign the following, using Armenian characters, which are 2-bytes each:
“Bitcoin Cash” = “Ի”
“Is” = “Թ”
“Peer-to-peer” = “Զ”
“Electronic cash” = “Բ”
Call these four assignments a “compression key.” Now, I can communicate the phrase “Bitcoin Cash is peer-to-peer electronic cash” by only using 4 characters – ԻԹԶԲ. If the receiver of information shares the same compression key, then he’ll be able to read the 4 symbols and fully reconstruct the phrase “Bitcoin Cash is peer-to-peer electronic cash.” Simple. In this case, the message goes from about 45 bytes down to 8 – a more than 80% reduction in size.
So, I propose we make a public database for assigning specific characters to the most used English words. Apparently, there are about 3,000 English words that make up 95% of English communication. To start, we could assign 3,000 individual characters to each word. We could use any of the characters not in use for English speakers, like Japanese kanji. “感” could mean anything. That way, we could communicate most English words simply by sharing the corresponding characters with each other. The fewer bytes taken up by the chosen character, the better.
Take for example, the play Romeo and Juliet. It’s got about 25,000 individual words. If each word had its own character, we could compress Romeo and Juliet down to 25,000 characters. Still, not small enough to fit inside a BCH transaction, but we can get much smaller.
Extreme compression
With 135,000 characters to use right now, and say, 5,000 assigned to the words in Romeo and Juliet, that still leaves about 130,000 characters that we’re free to assign. Here’s where the biggest compression happens: what if we assign unique characters to the most popular patterns in English speech. Multiple words at the same time, including the spaces. The words “give or take” are 12 characters together, but they come up all the time in written communication. What if we assigned “give or take” its own character?
You could have one list of, say, the top 100,000 most common English phrases (each a few words long), and compress each one down to a single character. Communicate the character – or put it inside the blockchain – and then somebody else with the same compression key could re-construct the original data.
In other words, you could essentially hack the character limit on platforms like Twitter or memo.cash. With Twitter, you might able to only use 144 characters, or with memo.cash, you might only be able to send 80 bytes worth of compressed characters per transaction, but those characters would correspond to a much larger amount of information reconstructed on the receiver’s computer. The reduction in bandwidth would be enormous.
Even smaller words in common phrases could be reduced by 50%. Take the random phrases:
“And then,”
“To be”
“To the”
“The other”
“A different”
“Not again,” etc.
All of these could be compressed more than 50% if they had their own characters. The longer the phrases or the bigger the words, the more compression.
(Also, in the long run, why stop at 135,000 characters? Why couldn’t we come up with 10,000,000 individual characters that we could assign to unique and more complex pieces of data, to compress things even further? We could create new, 1-byte characters that are not in use in any language, for the sole-purpose of assigning common patterns to them. I don’t know the process involved in creating these things, so maybe this is impossible for some reason.)
All of this compression and reconstruction could be done behind the scenes. Humans wouldn’t need to see the symbols; they’d just see the reconstruction of it. Instead of communicating raw data with somebody, you’d instead be communicating the blueprint for reconstructing the data locally.
Public Database
This system requires creating a public database – the compression key that we all share. I don’t think it would be hard. It’d simply be a very large list of words and phrases, with their corresponding symbols that they get compressed to. The key could be hosted locally on people’s computers (kind of like downloading a new font for your computer to understand), or it could be hosted on something like Github. We could create a kind of universal standard for the compression of ordinary English into characters. Then, your computer would either automatically convert the phrases to characters, or you might have something like a Chrome plugin that does it for you – or perhaps individual companies will offer this kind of compression on their platform (I’m lookin’ at you, Memo.cash).
Playing out the idea further, companies could even have their own unique compression keys, if particular strings of data come up a lot in their systems. There’s no reason why characters would have to be assigned to English words only; they could also correspond to particular pieces of computer code, or any other string of data that’s in a repeated pattern.
If it’s not already widely in use, this system could not only dramatically reduce the amount of information communicated to people, but it might also dramatically reduce the amount of information stored on hard drives. Think how many times Google has the phrase “I am hungry” stored on their hard drives, throughout all the emails and Youtube comments they host. If the data is duplicated over and over, it could dramatically be reduced by replacing the phrases by a single character, then storing the compression key for data-reconstruction when necessary. Heck, you could write a computer program that specifically looks for repeated patterns of information, assigns those patterns a particular symbol, then overwrites the data with a single character and keeps the compression key for later reconstruction. These compressed symbols become a placeholder for patterns. Maximum compression would be the replacement of all repeating patterns with a single character placeholder. Again, I don’t know if this is something that’s already done, but if it’s not, it seems like a good idea.
This idea is very broad and open-ended. Who knows: there could be industry-standard conventions for character compression that differ per language or use-case. Or, it could be used to power a computer program that receives its instructions by monitoring the blockchain for specific inputs. Large amounts of data could be written/executed remotely by communicating only a small amount of symbols. Or, if your data isn’t compact enough, you could simply chain together BCH transactions to encode larger and larger amounts of data that could all be uncompressed by the same key. Or, perhaps you could compress the compression with a different key – finding patterns in your compression and then using a secondary key to compress even farther.
Perhaps this could even be used in P2P file sharing. Instead of sharing the entire file with somebody, perhaps you could share the compression key with them plus the instructions for reconstructing the data on their own machines. (Again, this key could be unique to the particular data that’s being compressed. It could maximize the compression on a per-file basis. So, every time that a common pattern appears, it’s compressed down to one character. The more repetition, the more compression.) Or maybe it could just be used to compress information between two people, who share their own unique keys.
Or maybe it’s just a clever hack to pack more information into limited blockspace. What do you think? There are obviously lots of details to work out, but it seems like this system could help us pack more information into tight spaces like OP_Return.
This week, I am joined again by Ryan X. Charles to discuss the current state of the Bitcoin Cash network. After the failure of the Segwit2x proposal to scale Bitcoin, a significant percentage of early adopters have moved onto the Bitcoin Cash network, and progress is happening fast.
In fact, as of this interview, I’ve decided to only support Bitcoin Cash addresses for my work, and I’ve decided to write my next book on Bitcoin, called “The First Fork: From Bitcoin to Bitcoin Cash.”
Imagine it’s the late evening in Atlanta, and a small white woman is walking to her car in a parking lot. A black man she didn’t see before walks up behind her. She gets nervous and feels like she might be in danger. She holds onto her purse a little more tightly.
Is this a clear case of racism? Is it simply rational behavior? If it’s racism, is it a moral problem?
TK Coleman joins me to discuss these types of situations in Part Two of our conversation on race and colorblindness. Is it really possible to be colorblind, or is that naive to think? Are race relations improving or getting worse in America?
We cover these questions, and many more, in this episode.
