Thursday, July 18, 2013

The scent of money

I’m finishing up a paper on money in the context of a physical understanding of the economy at the same time as I’m reading Hölldobler and Wilson, Journey to the ants, and the juxtaposition has me thinking about how we differ from other animals, and how we don’t.

Ants have to coordinate hundreds of thousands of individuals in numerous tasks: building the nest, tending the queen, tending the brood, foraging, defending the nest, attacking other nests. There’s always some division of labor: a queen who does nothing but lay eggs, female workers who tend the eggs and gather food, and males whose only role is to mate with virgin queens (I apologize if that sounds like a pitch for a cheesy movie).

In some species, the division of labor goes further, involving multiple castes in very specific roles. In leafcutter ants, the biggest individuals are the soldiers, whose only role is to fight. Below them, the biggest workers cut pieces of leaves and bring them back to the nest. Smaller ants take those pieces and chew them up into balls of vegatative matter, which they hand over to the smallest ants, the farmers. These farmers place the vegetable balls into the masses of fungus that they tend, and disappear into tunnels too small for the other castes, reemerging with harvested fungus for the others to eat.

Leafcutter ants make a chain to bend a leaf that will form part of their nest.

Ants have found a solution for coordinating huge numbers of individuals in a relatively complex division of labor, and their solution involves a repertoire of chemical signals and behavioral cues. The means are relatively simple: If I detect aroma A, pick up the thing giving off the scent and bring it back to the nest; When I smell aroma B, follow it; If something strokes my antennae, regurgitate food.

But the results are seemingly miraculous. The system is thoroughly decentralized, with nobody in control (the queen doesn’t give orders, she just lays eggs), yet the colony as a whole exhibits what looks like purposive behavior. In some of the essays in The mind’s I, Douglas Hofstadter plays with the idea (not unique to him) of an ant colony as a superorganism, exhiiting a kind of intelligence, if not necessarily consciousness.

Humans face a similar problem of coordinating thousands or millions of individuals in a division of labor more articulated than what you see with the ants, and we have two basic solutions. One is hierarchical, anything from a tribal chief (if the chief has real authority) to the empires of the ancient world, to the nested hierarchy of European feudalism, to the “state capitalism” of the Soviet bloc.

The decentralized, non-hierarchical solution is markets.

Of course there are other ways that humans organize themselves, including norms of reciprocity (e.g., I share my bounty with anyone in my group, and anyone in my group shares their bounty with me). Somewhere I encountered the observation that such norm-based systems work very well, but only on a small scale (I’m trying to document that observation, but I’ve not yet had any luck). The idea is that norms work when you know the people with whom you’re interacting, and there’s a limit on how many people we can know well enough for the purposes of following norms.

The systems that allow large-scale societies and complicated division of labor are different in that respect. In a hierarchy, I only have to know the people directly above and below me and understand my relationship to each of them: what obedience I have to give to those above, and what authority I have over those below.

A market does an even better job of economizing on information. Faced with actions A, B, and C, which action do I expect to leave me with the most money over time? Do that one. It’s true that deciding among A, B, and C may be an information-intensive process, but the decision rule is simple: choose the one with the biggest money payoff.

In some sense, this is a lot like the ants’ system, only simpler. Instead of 20 to 40 chemicals plus some behavioral cues, there’s one rule: follow the money. And this economy of means has miraculous results.

Instead of maxing out at around a million, human societies grow to the hundreds of millions. And instead of “technological change” coming through genetic evolution requiring many generations to work itself out, we can adopt new physical technologies and social groupings several times within a generation.

But the simplicity has its costs, as well. The ants’ fantastically sophisticated systems are vulnerable to “hacking” by parasites. Various other organisms have stumbled upon ways of mimicking a certain chemical, or replicating a particular behavioral cue, and the ants will blindly follow their orders.

“I detected scent A, so I picked it up and brought it to the brood chamber.” Normally that’s useful, because the larvae of your species emit scent A, but in this case it was coming from the larva of some other insect, which you will now feed, and which will in fact eat the eggs that would otherwise grow up to be your sisters.

The same goes for money.

I’d argue that humans as individuals are much harder to fool than ants are. Could you impersonate someone’s spouse, or child, or sibling, or parent, well enough so they actually thought you were the other person? And I don’t just mean over the phone or by email, but impersonate in person.

In identifying a familiar person, we’re drawing on such a broad range of cues: many aspects of facial appearance; height; body language; voice; perhaps smell, subconsciously. A human can’t get through all those layers of ID, never mind some other species (they do get us to take care of them, but not by fooling us into thinking they’re our children. Or do they …?).
This is actually from an article entitled, "Why Japan prefers pets to parenthood"
If norm-based systems require the ability to know who someone is, humans are pretty immune to having a social parasite trick us into feeding their baby.

Hierarchies are more vulnerable. If you recognize your superior not by his individual phsiognomy, but by his signs of office and his manner of command, then he can be impersonated by anyone able to mimic the signs and the manner.

And money throws aside even those last two markers.

“Money doesn’t stink.”

“Money is the best translator.”

“I live by the golden rule: he who has the gold, makes the rules.”

We are rich in sayings that express money’s impersonal quality.This impersonality is what makes markets so effective. But it also creates the same sort of vulnerability which marks ant social structures. $1,000 will buy me exactly the same amount of stuff, regardless of the context in which I obtained that money.

I'm not at all claiming that markets are (or should be!) the only way we organize ourselves, or that when people engage in market transactions think only about the price and the good being traded, ignoring broader social context. But markets present that possibility in ways that norms and hierarchies don't.

I don't think it's a particularly novel observation that the role of markets has expanded over the last several centuries, even as we've continued to use norms and hierarchies for various purposes. And it seems that as markets expand, they move in the direction of the depersonalized "pure" form.

If we look at supply chains from a Chinese factory to Walmart, or from a California farm to my local grocery store, those didn't just spring into existence like Venus arising from the waves. Each depends on a series of interactions between specific people. But when we go to the store and buy shirts or produce, very rarely do we think about the people who sewed the shirt or grew the lettuce. We look at the good, we look at the price, and we make our decision.

The result is difficulty in resolving certain kinds of problems. Elinor Ostrom made her career out of documenting and analyzing the ways people create Common Property Regimes, ways of managing things like pastures, forests, fishing grounds, irrigation systems, things that no individual owns but that require coordinated action.

In his classic article "The tragedy of the commons," Garrett Hardin argued that people couldn't solve the problem of overusing commons except through government coming in and controlling the resource. Ostrom looked around and found that people did solve such problems--not always, but it was hardly a rare phenomenon.

Ostrom found that a hallmark of their solutions was sophistication. Autonomous groups of people do a really good job of crafting rules that provide a useful flow of services while preserving the resource over long stretches of time. People pool their knowledge and observations about, say, how the forest grows and which plants they can take when so as not to do lasting damage. And they express their needs. And they come up with rules that balance things.

And they're able to do that because their goal is simply to put their heads together and solve a common problem. There are "costs" of following the rules, and there are "benefits" of having access to the resource, but the group can balance those in whatever way seems appropriate to them. This gives them access to solutions that are not available when you're first reducing all factors to money terms and then having to make the money come out positive.

Say a business dumps pollution in a river instead of cleaning up its effluent, and people downstream suffer some harm as a result. We call that an "externality," because the cost of the harm from pollution is external to the firm's expenses and revenues. We also call it a "market failure," which is a very descriptive term. A system that organizes activity by buying and selling things through money will do some tasks well, but will leave out other information that a more personal system would incorporate.

Reaching back to the ants, this kind of market failure is sort of like a chemical signal gone awry. Chemical A was supposed to make me pick up an ant larva and move it to a different brood chamber, but instead, it made me take it out to the refuse pile. The money pheromone was supposed to make me do something useful for other people, but instead it led me to crap all over the river they drink out of. Sorry.

So there's doing one thing because the market rewards it, when it might be better for society if you did something else, or did it differently. And then there's financial fraud, where in real terms you're not doing anything at all, but you manage to "trick" the signals of the money system to sending you all sorts of stuff you haven't earned. You create mortgage-backed securities that look like real things, and you get rich while other people follow the money-trail you laid, straight to financial hell.

This isn't the ant's wiring going wrong so that it takes a useful signal and responds to it wrong. This is you mimicking chemical A so that the ant picks you up and brings you into the nest as if you were a larva, but instead you eat up all the ant larvae. This time, not really sorry.

As with ants, if the parasitic behavior gets out of hand, the host is crippled, which may be what the last decade built up to, and 2008 was when the wasp larvae emerged from host ...
... or when the the mind-control fungus finally made its way to the ant's brain and made the critter dance to the tune the fungus played. Choose your metaphor.

But the ants don't sit passively by and wait to be taken over by aliens. According to that link at "mind control fungus," "ants have evolved the ability to sense that a member of the colony is infected; healthy ants will carry the dying one far away from the colony in order to avoid fungal spore exposure."

And we humans don't have to sit around, either. We implement environmental laws and regulations. We create financial regulations. We have a Federal Reserve. After this last spot of unpleasantness, we sort of tried writing some new regulations, though we curiously opted not to employ existing defense mechanisms (i.e., prosecuting people where there's reasonable evidence of fraud).

We also seem to have gotten tired of many of our own defenses against environmental damage.

We'll see how that all works out.

Postscript: I'm well aware of the ugly history of describing people as parasites, most spectacularly in Nazi Germany ("Jews!") and in Soviet Russia ("Bankers!" "Bourgeoisie!" "That political faction that used to support me but no longer does!" "Rich peasants!" "Uh, the peasants who are now the 'rich' ones 'cause we carted away all the folks who used to be the rich peasants!" "Shoe-shine boys who make too much money!" "Bueller?").

And domestically there's the tradition of refering to the government as a parasite because it doesn't produce anything that can be sold.

But I mean the word in a very specific sense, what Hölldobler and Wilson call "social parasitism." Out of context, that makes it sound worse, closer to the Nazi or Soviet usage, but it's actually a useful distinction. A parasite like a leech (there's another term with a loaded social history) sinks its teeth into you, and hopes you don't notice while it takes its meal. Its strategy does not depend on the way you interact with other people.

A social parasite is different. It's not so crude as to just go up and bite you, or position itself in your gut and eat your food. Instead, it plays on the way you communicate with others and makes you think it's someone you like, so you willingly feed it yourself.

The financial system is a fundamental information system allowing people over a wide area to effectively work together. When someone is able to use the financial system to enrich themselves at the expense of others, while not doing anything useful in return, that seems like a close analogy to how some creatures parasitize ants.

But I am not advocating gulags for "parasites"--after all, sometimes the things that prey on an ant species' social system is another ant species. Instead, we should be figuring out how the parasitic behavior works, and making it harder for it to work in the future.

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