I.7: Money

(from the larger project of an introductory approach to Ecological macroeconomics)

No video for this chapter, at least not yet.

But there is a pull quote:

Money, in its pure form, is like chicken for a vegan, in a world where everyone is a vegan.

Here's the text:

CHAPTER 7: MONEY

With money, we move solidly into the realm where there aren’t directly analogous phenomena in other species or in ecosystems as a whole. The task is the same: there’s still a need to coordinate the actions of multiple individuals within a species, or to mesh the roles of multiple species within an ecosystem. But money as a tool for doing that is a uniquely human approach, with unique attributes.

And yet, to understand it we’re going to start by going back to those pre-human models. Because when we look at money’s role in the context of how ecosystems coordinate their activities, we do two things. First, we shed a particular light on how money works. And second, we develop a way of seeing when money doesn’t work so well.

Animal use value
Use value for humans
Exchange value
Value added
Distributing use value
Money
- What money is
- Roles of money
- Attributes of money
The value spectrum

Animal use value
Start with a familiar picture, one of the stylized versions of an ecosystem from chapter 2. [See Figure I.7.1 below.] The ecosystem is full of species that are doing things that keep the whole thing humming along nicely. But that’s not “why” they’re doing it.

As an example, look at soil organisms decomposing dead stuff that used to be living. If we had to translate the instructions in their genetic code and accompany those instructions with a rationale, their genes wouldn’t be telling them, “Break down that organic matter and make it available to plants for new growth so that everyone in the neighborhood can thrive.” No. Their genetic instructions are, “Eat that, because it’s got energy or other stuff you need in order for you to live.”

That other thing gets done: the soil organisms break stuff down and make it available for plants. But from the organism’s perspective, that’s not why it’s doing it. It’s merely doing what’s useful for its survival. The seemingly magic part is that a coevolutionary process has shaped it such that, when it does what’s good for its own survival, it’s also doing what’s good for the ecosystem.

From an animal’s perspective, the “value” of anything it does is based on how much that thing contributes to the survival of its genes. Animals are shaped by evolution such that behaviors they find useful—behaviors they choose to engage in, behaviors that have “use value” to them—are also behaviors that increase the chance of their genes making it into the next generation and beyond.

Feel the power!

For my first-year seminar on "Climate & the economy," I wanted to convey the magnitude of our energy use, but in a tactile way.

So I had all of us run up three flights of stairs.

Of course, it was a little more structured than that.

First, we measured a flight of stairs, multiplied by three, and found that we would be climbing about 44.5 feet vertically.

Second, one student "won the lottery" by wearing flip-flops, so she got to stand at the top of the stairs with a stopwatch.

And third, I'd asked all the students to know their weight (more or less)--though I wouldn't be collecting that information.

I.6: Social evolution of the economy

This one starts from the observation that living in groups is really useful, then looks at the different mechanisms humans have used to coordinate that cohabitation, starting with norms and progressing through money and credit.

Video here.

http://papasez.hubpages.com/hub/Weaver-ants-predation-and-natural-control

Now I'm worried

http://www.secretsofthefed.com/post-humanism-will-you-welcome-and-love-your-robot-overlords-wvideo/

There was a news report on our local NPR station about a company in the area that's improving computers' ability to recognize the content of messages.

Simpler systems see the word "love" and assume the message is positive, or the word "hate" and assume it's negative, and route it to what it thinks is the appropriate department for a response.

The new system can look at the message more holistically. I was cooking, so I might have missed something, but I specifically recall them saying that it could detect sarcasm.

Oh, crap. I figured that was our one insurmountable trump card when it comes to the apocalyptic battle between the machines and us.

"I love, love, love our robot overlords." [Fixes a charge to one end of the central brain machine.]

"I know, man, they're like, totally awesome." [Fixes a charge to the other end.]

KABLOOM!

...

So I guess that won't work.

Time for Plan B:

http://cheezburger.com/2327076608

I.5: The physical evolution of the economy

How the economy evolves, from hunter-gatherer societies to post-industrial economies.

Part a
Part b

I.4: The physical structure of the economy

As with chapter 3, this one is in two parts:
Part a
Part b

We finally make the jump from just looking at ecosystems, to using ecosystems as an aid in understanding how an economy is put together.

A defining moment

A couple days ago I was looking for a concise definition of an ecosystem for a class. As a first stop, I checked with Wikipedia, and what I found seemed reasonable:

An ecosystem is a community of living organisms (plants, animals and microbes) in conjunction with the nonliving components of their environment (things like air, water and mineral soil), interacting as a system. These biotic and abiotic components are regarded as linked together through nutrient cycles and energy flows. As ecosystems are defined by the network of interactions among organisms, and between organisms and their environment, they can come in any size but usually encompass specific, limited spaces (although some scientists say that the entire planet is an ecosystem).

To contrast it with an economy, if you go to Wikipedia's entry for that term, you learn that:

An economy consists of the economic system, comprising the production, distribution or trade, and consumption of limited goods and services between two agents, the agents can be individuals, businesses, organizations, or governments. Transactions only occur when both parties agree to the value or price of the transacted good, commonly expressed in a certain currency.

Hmm, that seems both a little opaque and a little too much assuming a market, to the exclusion of other ways of doing things that do actually exist. Fortunately, the words "economic system" were a link, to another Wikipedia page, which explains that:

An economic system is a system for producing, distributing and consuming goods and services, including the combination of the various institutions, agencies, consumers, entities (or even sectors as described by some authors) that comprise the economic structure of a given society or community. It also includes how these various agencies and institutions are linked to one another, how information goes between them, and the social relations within the system (including property rights and the structure of management). A related concept is the mode of production.

That's more useful, but it occurred to me that, with appropriate substitutions, their definition of an ecosystem could also serve pretty well as a definition of an economy:

An economy is a collection of human organizations (households, companies, governments, and associations) in conjunction with the natural resource base, interacting as a system. These human and non-human components are regarded as linked together through flows of matter and energy, coordinated by social norms, money, contracts, and regulations and law. As economies are defined by the network of interactions among human groups, and between human groups and natural resources, they can come in any size, but we often measure economies bounded by the borders of nation-states (although globe-spanning links have existed for centuries, and have grown much stronger since World War II).

The funny thing is, after years of chipping away at the work of melding macroeconomics with an ecological perspective, it was just a few days ago that a thought drifted through my mind, and I realized I finally had a concise definition of what it is I've been trying to do:

The economy is a biophysical process by which we provision ourselves, subject to physical laws and following ecological principles. Economics, properly understood, is the study of the social structures that control and coordinate that biophysical process.

Oddly enough, my adaptation of Wikipedia's definition of an ecosystem ends up as something like an extended version of the definition I'd come to only a couple of days earlier.

The business about it being a biophysical process is simply a reflection that any economic action has physical consequences or prerequisites. If you bought a TV, a whole series of physical actions happened, with resources being pulled out of the ground, being transformed using energy derived from other resources that have been pulled out of the ground, put on a ship, brought to the store, etc. In macroeconomics we focus on somewhat abstract aggregates of spending: consumption expenditure, investment expenditure. But every time money is laid out, something physical either already happened or is now going to happen.

This doesn't mean that economics is ecology. That's what the second sentence is for: What makes it economics is the focus on the social structures of control and coordination.

Nor does it mean that you can never do economics without taking environmental factors into account. For one thing, microeconomics can generally ignore them (unless of course you're doing environmental economics).

And there can be situations in macro where the physical environment responds in familiar ways to the actions your society undertakes, in which case you can actually ignore the environment.

But macroeconomics is the study of the system as a whole, the study of the process by which a society produces its total output. And environmental factors are a fundamental part of that process. If you don't understand how they're linked, you're going to get things seriously wrong when environmental conditions start changing.

I.3: Complex adaptive systems

Here's chapter 3, broken into two parts (for length--the total is about 16 minutes):
Part a
Part b

This is about how ecosystems are self-organizing systems that adapt themselves to changing circumstances. It's the last chapter before we get into economies.

I.2: Ecosystems - energy and matter

This is chapter 2 of the introductory macroeconomics course.

It lays out the parts of how ecosystems work that will be useful in understanding how an economy works.

CHAPTER 2: ECOSYSTEMS - FLOWS OF ENERGY AND MATTER
The previous chapter made the case for an economy having some important similarities to an ecosystem, and for resources and the environment playing a fundamental role in macroeconomics.

Every economic process uses resources in one way or another, and economic change can even be defined as a change in the way resources are used.

The next step is to study how ecosystems work. This may seem like an odd move in an economics course, but there are two reasons for doing it.

The first is that ecosystems are in some ways simpler than economies. The extra complications of economies have to do with the social tools humans create, which we’ll start getting into in chapter 6. But their role will be easier to understand if we start without them.

The other consideration is that there’s a long history of people studying ecosystems as ecosystems, and not so much of looking at economies that way, so we’re going to poach off of knowledge gained in other fields.

Chapter overview

• 1st and 2nd Laws of Thermodynamics
• Energy storage and gradients
• Functions and structures in ecosystems
• Circulation of matter vs. pass-through of energy

Missing the obvious questions

Morning Edition had an interview this morning with a member of the Board of County supervisors from Siskiyou County, in Northern California. Michael Kobseff is one of the members who voted in favor of a resolution for the county to secede from its state, along with other counties in northern California and southern Oregon, and form the new state of "Jefferson."

Kobseff's stated objection was the "burdensome regulation" from the state; its one-size-fits-all approach was designed with cities in mind and was running into the ground businesses that were decades old, some were 150 years old.

The interviewer observed that the proposed state included no major cities, no centers of economic growth. Kobseff replied that if the area were freed of burdensome regulation, it would thrive.

I've never been to Siskiyou County. I've never been to California north of San Francisco or to Oregon south of Portland (type casting!). And perhaps Mr. Kobseff is right on target. But there were two questions glaringly missing from the interview.

I.1: Economies, resources, ecology

(from the larger project of an introductory approach to Ecological macroeconomics)
Here's a video version of Part I, Chapter 1 of my macroeconomics course, setting the economy in a physical context.

(There's an unfortunate pause about halfway through.)

CHAPTER 1: ECONOMIES RESOURCES, ECOLOGY

What does an ecosystem have to do with an economy?

 

There’s a pair of straightforward answers—they may even have occurred to you. For one thing, the economy gets some important inputs from ecosystems: trees, fish, clean water, just to name a few.

 

Going the other direction, when the economy harvests trees, or pollutes, or lays down pavement, that affects ecosystems.

 

These answers aren’t wrong, but there’s another one that goes a bit deeper. That’s the idea that an economy is itself kind of like an ecosystem, or that economies and ecosystems are two instances of the same sort of thing.

Too lucky to be rich

Brad deLong is posting "deleted scenes" from his manuscript on the economic history of the twentieth century, such as this one on why the twentieth century wasn't a Chinese century. After describing the ways in which China was economically, technologically, and socially behind in 1870, after being ahead in 1200, he looks around for answers, and includes this one in the list of possibilities:

Perhaps the root problem was that with triple-cropping rice strains the wet-rice fields were too fertile, the governmental bureaucracy too effective, and the avenues of establishment-oriented upward mobility to the striving and aggressive too open. After making a little money the logical next step was to buy some land. Because the land was rich, because labor was plentiful and cheap, and because the empire was (most of the time) strong internally, one could live well after turning one's wealth into land. One could also easily make the important social contacts to pave the way for one's children to advance further. And one's children could do the most important thing needed for upward mobility: study the Confucian classics and do well on the examinations: first the local shengyan, then the regional juren, and then the national jinshi. Those who had successfully written their eight-legged essays and made proper allusions to and use of the Confucian classics would then join the landlord-scholar-bureaucrat aristocracy that ruled China and profited from the empire. In the process of preparing for the examinations and mastering the material needed to do well on them, they would acquire the habits of thought and values of a Confucian aristocrat landlord-scholar-bureaucrat. Entrepreneurial drive and talent was thus molded into an orthodox Confucian-aristocratic pattern and harnessed to the service of the regime and of the landlord class: good for the rents of the landlords, good for the stability of the government, but possibly very bad indeed for the long-run development of technology and organization. Carlson (1957) quotes an imperial edict of 1724 condemning mining as a potential source of disorder and treason, for "[M]iners are easy to recruit but hard to disband. If mining is left to the initiative of merchants there wil be danger of crowds assembling and harboring treachery…"

There may be something to it, but it also has a troubling element. Look at the three basic factors laid out in his first sentence: fertile land, effective bureaucracy, and open avenues of upward mobility. If you were to ask a random person--or even a random economist--were those where helpful factors or harmful, they'd likely say that each of them was helpful. So why are they harmful here?