A Study of Culture, Belief, and Social Structure by Tahir Iqbal - HTML preview

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PERSON Person 2 1
Person 3

The diagram above shows a simplification of people giving money to one another (given by the direction of the arrows) where person 1 gives money to person 2 who gives money to person 3 who then gives to person 1 again, and so on. In the presence of feedback in the system (where everyone buys goods from each other) we believe that there is this central abstract mechanism at work. Formulation of a network of people who give money to each other by way of a transformation matrix which gives the percentage of money that each person gives to each other in the elements of the matrix leads one to confirm that this structure is likely to be a realistic mapping of model to reality. This system can be considered as a iterative map:

Y(3)= aY(2) = aY(1) : time=1

Where Y(x) is the income of the xth person in the network and a is an assumed equal proportion of income that is given to the next person. If a is greater than 1, in other words more money is given each time than the initial income then there is an ever increasing tendency to the network. Such an example is where there is debt allowed in the system, whereby a person spends more than their income by borrowing. Where a is less than 1, i.e. where there is saving, then this economy eventual grinds to a halt as less and less money is transferred each time.

Putting Y(3) in terms of Y(1) we see the simple result:

 

Y(3) = a2Y(1)

Thus as time passes the rate of increase of the system where a is greater than 1 is increasing (since the derivative of the equation is greater than 1). Thus this system has a tendency to boom because of feedback. In the presence of debt there comes a time in the economic cycle where the debt repayments come to reduce the value of a, thus the system then suffers falls in money flow, thus a recession.

Economists have long accepted that their analysis is not perfectly real, but their most common refrain is that this is because there is nothing better to replace it with. Here we see that we can certainly find insight from developing analysis of real mechanisms that are generated from the pervasive structures of the reality. If we get the structure correct, both in terms of mapping reality into abstraction and then mapping abstraction back to reality, then we see from this example that there is a realistic hope that such a research strategy could be fruitful. We do however, need to develop the basic research, the conceptual categories that we define to allow us to talk. Without language one cannot discuss reality.

We need to talk about the structure that generates processes to understand where to begin in our analysis. A complex is a set of interacting agents in a system which gives rise to processes though not exclusively. No individual agent has control of the results of the complex, they may even know these effects, they may even suffer because of it. Yet they hold to it as if they were imprisoned in structure. This is not to say that there can be no change to this structure, it is simply that the bonds of the complex are widely held and the ability to bring change to the complex is difficult, perhaps because there are so many people in it or perhaps because people who reject the complex lose their ability to affect the structure. We muse later on the cause of consensus, which we believe is in some ways a desire for coherence among equal people, so that once a structure exists it may not necessarily lead to change of itself even when its members are not completely at peace with it. This is not to exclude other explanations, for example the memetic property of humanity, that is that people simple copy others, or the learning aspect, whereby people are socialised by education and family power structures into having a coherent intersubjective reality.

Foucault argued that the world was the result of historical structures such as prisons, psychiatric hospitals and the intellectual complex of psychology, the state, that created the very terms of words that form our consciousness both individual and social. From these examples we can hypothesise that processes have an impact on language and therefore thought in addition to the relations and organisation of humanity. Language needs more systematic analysis in terms of its structure of interaction as well as in the dynamic process of convincing someone and altering of opinion involved in transferral of a message from one person to another.

But in terms of economics, we must see that processes also have material impacts. The process of hypercapitalism, whereby banks find ever smaller numbers of low risk individuals to lend to yet need to continue the cycle of credit and deposits weaken their prudence in lending and therefore less financial sophisticated people become heavily indebted. The process of property speculation leads to people only selling their house if they make an acceptable return. Thus there is continual house price rises. A complex of social relations leads to this house price rise becoming seemingly cemented into the public psyche. Inflation is a similar complex of wage bargaining institutions, government and business.

In respect of policy creation, one can analyse complexes and their resultant processes and effects on policy objectives. Coupling processes together, perhaps through the creation of complexes can be used to influence material results for the economy and indeed for social policy.

Marx can be understood not for his contribution to truth but rather for the process he created using the then nascent free working class. By latching onto a current and logic of liberalism, that is of equality, and bringing it to the fore of his belief that this should be an economic equality, brought the interests of the working class against those of capitalism. This lead to the development of a conflict in society. The essence of progress is that the logical extension of a belief are the next step in action. We assert that change is often in the direction of consistency and coherency. The idea of progress is that there must be change. Consider the similarity with Islamic theology where the process is to create further extensions of sacred rules to new areas using the original directions though clearly without much discussion on the spirit of the law. Here the motion of change is determined by the structure meta-narrative and resultant institutions of Ulema (Islamic theologians) based on the ideas of Shafi’i.

A key social process for development of non-industrial countries involves the creation of a working class and an accumulating capitalist class. We must see that in many LDCs (Less Developed Countries) the migration of agricultural farmers to cities has resulted in some cases in the enlargement of a working class. Examples include Pakistan and China in recent years. The key to capitalist development is the existence of these basic classes as social groups, which springs from idea maps of these groups and social structure that defines, reproduces and maintains these groups as real things. The capitalist class needs to have an accumulatory or covetous idea of being (that is how they see themselves as an objective or a rule of maximisation of saving). The working class often needs to be a consumer of capitalist goods and therefore an essential point needed for accumulation of the capitalist class is for there to be a market for production, which the working class provide in part. We see that once the insertion of the idea of capitalism and the necessary institutional structures of it are in place then the process of production, accumulation, consumption can begin to draw in non-capitalist classes into the system. A hypothesis of Africa’s lost decades of development is that this matrix of institutions, the capitalist class, the working class, and the value adding processes of the firm (in terms of technology, social organisation, markets and marketing, business strategy, the lack of government intervention into the ‘beliefworld’ of the society) has not been tackled coherently by actors including government.

What we see here in abstract terms is that ideas and social structures (such as rules, strategies, beliefs, essentially idea maps, lifeworlds and the synthesis of these two- the ‘beliefworld) can create and alter social processes. This general policy point must be fully internalised for the practitioner to obtain the most benefit from these essays.

2. The role of falasafa (philosophy) in Economics

Many economists ascribe a key role to theory for informing and structuring theoretical developments in the literature. Without theory one would not know what data to collect and how to put this together. Yet where does theory start? We suggest that the impatience to produce results leads economists away from Truth, the true system that is present in reality. The essential seed of knowledge is philosophy (falasafa), the first academic subject. Going back to the roots of knowledge in order to better avail oneself to the Truth is we argue, essential.

The argument is stated that we need to ground our analytical work in reality, as objectively as we can. If we do not begin in reality, although we may end up in theoretical constructs, we can have a hunch that we may never be near to the truth. The story of people with blindfolds; one who felt the trunk of an elephant and decided it was a rope, another who felt the leg and decided it was a tree, all of whom were wrong. Philosophy provides the historical academic legitimacy for this approach of rationally working hard on one’s most closely held concepts, delving into basic matters, and constructing theory based on that. We can see the role of philosophy informing physics, untangling the issues raised by quantum mechanics. So we suggest an analogy between economics, which uses physics’ mathematics in much of its theoretical work, and physics. By discussing the very basis of what we are doing, keep our mind on where we are, as a zen master we have greater hope of overcoming the past analytical misfortunes of economics.

For example, economics debates often structure around key concepts. Perfect competition is overturned by Williamson’s transactions cost approach. But perfect competition is kept as the surrounding analytical structure, and this is misleading. If the economists had taken the falasafa approach and started with the question, “what are the salient features of the system we are considering?”, then we believe that this empirical observational approach would be bringing about a debate structure that has a better chance of reaching the Truth. This concept of structure of debate conditioning knowledge development is the argument of Thomas Kuhn’s theory of knowledge in respect of “paradigm shifts”. We can take this further and see that debate’s course through time will be generated by structures of society, whether it is the rules of the language that ideas are communicated in or if political economy affects that actual choice of who is a valid person to produce knowledge and participate in the debate. So economics has taken a strongly mathematical turn since the 20th Century, perhaps because it produces arguments that reduce the number of people involved in the debate due to the ever increasing complexity of the mathematical language that is used to communicate in the debate. Those who argue in a different set of terms are disciplined or rejected with to the refrain ‘this is not rigorous or analytical’. Thus the debate of economics is structured to maintain itself. There is no valid argument why the ‘rigorous analysis’ in other words putting economics into mathematics is necessarily going to lead one to the truth. The argument why logical reasoning from true assumptions will lead to true answers underlies the belief in mathematical economic theory, yet the mathematics is not suitable for society and distracts the basic problem of identifying the actual structures that exist and do effect outcomes in society.

From the rule ‘economic theory must be rigorous (mathematical)’ we see here an interesting fact, that conversations in the debates often repeat a similar set of refrains and junctures that lead to a certain structural stability to the social organisation of knowledge production and the path it takes. This is considered later when we look at long lasting social elements and propose the analytical tool of conversation trees, that is abstracting conversations between people that lead to a formation or reproduction of a social structure.

It would seem self-evident that science should be grounded in reality. This is the essence of every other science apart from economics. The biologist starts with the microscope, the astronomer starts with the telescope. While economists argue that their assumptions are grounded in slow changing “obvious” behavioural tendencies, such as profit maximisation/self interest, which we must add are highly likely to be specific to a historical period of capitalism, recent work on complex systems and even simple systems with feedback of certain orders and relations (nonlinear dynamics) shows that looking at a single aspect of the system without considering the complete reality is misleading. An iterative map can show structural change in its dynamics given certain small parameter changes. Why do we assume that the economy is not so contingently defined in its outcomes?

Thus we argue that in order to revitalise economics, we must consider as our starting point, a close analysis of the relevant aspects of the system. You may ask, where should we start? Clearly economics is different to other sciences because it is its relevance to society that determines what it should be about. Clearly economics has responded to social influences in terms of the problems it chooses to look at, a terribly problematic issue for all economists. When there was the Great Depression, there was the answer from Keynes, when there was inflation, there was Friedman. When there was a political desire for free trade, there was Adam Smith. But we want to take this a stage further. By answering the key questions, problems and issues society and the world faces, we can provide a guidance and a light for humanity. Building our observations on for example a question, such as “how does the housing market work?”, which is highly relevant to today’s world, we can see various institutions; estate agents, business media, home owners, home sellers, buy to let investors, property developers, tenants, home buyers. The dynamic produced by an institution is what could be termed the dialectic, in other words the process of relations between institutions, which is defined as the units of analysis in society. Economics is observationally about flows, whether monetary, informational or in terms of assets, activity and beliefs. A key point to add to any analysis is where these flows feedback among institutions, gives rise to developments of various things such as consensus, value, sudden change like crashes or booms.

The role of falasafa in economics is ongoing, it is not just about setting the structure for the debate. Many debates depend on our terms and the contradictions in opinion are explained by this. The idea of “productive and unproductive” activity in an economy affects the rent seeking debate among others. Thus such a debate would benefit from falasafa’s wise intervention in defining productive activity. This question can be seen to depend on what we mean by the economy or specifically capitalism. Essentially we take the point that capitalism is about generating high, long term, growing levels of activity in society and among them, through monetary compensation and the corresponding affect this has on social status and reproduction of institutions like classes. We have a hypothesis for theory and empiricism to consider, which is that capitalism provides better results than state planning in many sectors of the economy because of the presence of feedback between flows and institutions that lead to growing yet often volatile results in statistics such as GDP, asset prices/quantity and thus wealth, employment, wages, profits to firms.

It would be useful to apply falasafa to the understanding of inflation. Consider for example whether the rise in price of a product due to better marketing of it, quality changes or just the passage of time providing greater popularity of it, is inflation or a rise in GDP?

Consider what falasafa can do for the question of growth in the money supply. Evidence shows that large increases in the money supply lead to hyperinflation in many cases. Falasafa thinking leads one to believe that the system of money flowing around the economy becomes unstable and ever increasing if money supply is allowed to grow considerably. Keeping a reasonably tight grip on the money supply thus leads to system stability, which may or may not be desirable. We consider later whether the historically generated concept of time value of money (discounting of cash flows with time) and debt with interest leads to this instability.

We have thus shown a few areas where more in depth thinking based on observational reality may lead one to consider a whole new debating and methodological process as well as give rise to a fertile market of theories competing for evidence. We can only hope that this is the way forward for economics.
3. Counterfactuals in Life History Livelihood Studies of Poverty

Abstract

A modern trend in the literature on poverty has been to extract life histories of the poor. These detailed narratives obtained through interviews have a weakness. They do not elucidate the counterfactuals in the life history, that is what would have happened if some factors were different and therefore do not give a good indication of the appropriate policy to be undertaken to provide escape routes from poverty. We outline an approach that can be used to show the alternatives through financial modelling in spreadsheets of alternative scenarios. Therefore advice and intervention can be structured by poverty eliminating organisations.

Argument

Life histories, or a narrative of the history of a poor person are frequently created by academics interested in understanding poverty. These are normally part of a larger livelihood analysis often combined with panel and cross sectional data to bring out qualitative facts. They also have the advantage of communicating the difficulties of the poor as well as giving tried and tested escape routes from deprivation.

They do not however give an indication of what would have happened if different courses and decisions were taken. In short, what are the choices of the poor and what are the necessary tendencies of different categories of poor’s life histories. This is known as the counterfactual. The term comes from the philosophy of physics and is used to understand the contradictions and problems of quantum mechanics. It’s application comes from the study of history. In order to suggest that say a country has had growing inequality due to liberalisation it is necessary to know what would have happened otherwise. It is certain that this is not something that can be found objectively, that can be measured with accuracy, however, an indication of the likely outcome could be found using a method used by financial analysts. In the financial world, practitioners often need to find out whether a project would be viable under different scenarios. In order to make an assessment of this they use spreadsheet models of the financial aspects of a project and run this under different assumptions.

We argue that this could be a useful way to expose the counterfactuals in the life histories of the poor. Simply, a model of the assets, income streams and outgoings are taken with the life history interview. An indication of possible income streams and asset accumulation is found by sampling regions with those opportunities that are accessible to the poor person who is being studied. It might be possible to find out that certain forms of education produced positive alternative life histories, though this would alter the outgoings and short term income of the subject. New ideas to find escape routes from poverty could come about.

Alternative viewpoints

The limitation and thus the thrust of future innovation in poverty research is to assess the macro impact of alternative life history strategies. That is for example, if everyone was to become a doctor then there would be oversupply and thus many unemployed, whereas the individual decision to become a doctor would improve the life history of the individual as well as her/his community. The need to niche (each person doing different things to make money) is therefore apparent from this statement, thus policy drawn from counterfactual life history analysis requires a heterogeneous policy outcome. This means that policy must find many different sources of incomes and assets for the poor with care taken that the collective result is not self-destroying.

4. Kaldor’s Laws vs Keynes

What would a synthesis of Keynes and Kaldor look like? The processes of supply are that different firms impact each other, though manufacturing does this better since a product can be mass produced. Thus a factory can produce over time many copies of a product which can have high value added. Therefore a manufacturing firm will have increasing returns to scale given a high demand for its product. Supply is assumed to not necessarily create its own demand. The fact that a company has fixed costs is the reason why there is increasing returns to scale, since at low levels of sales the company breaks even. At high levels of sale, where the product becomes a cultural contagion, profits are much higher. We posit that this is a more important channel of growth than the physical change in the amount of materials that can be made. This is clearly important but we believe that the financial supersedes the physical.

When we look at Keynes, i.e. demand feedback throughout the economy, we want to disaggregate this and look at individual firms and individuals each connected to each other with goods and money flowing between each other. Let us assume there has been a rise in the stock market, so there is more money potentially to flow around the system. The demand for a well marketed good rises and so industry grows. At some point it increases its scale, therefore there is more to invest in the firm. The key point is that it is because the firm is a value generating process, it adds substantial value to inputs, that means there is increasing returns.

The non-manufacturing sector will have an increase in its income from the expenditure of the workforce and owners of the manufacturing firm. Thus there is a rise in overall GDP. Since the manufacturer has increased profits there will be substantially more demand by those connected into the output of money from the firm for goods which are culturally contagious (e.g. phones, TV, computers, cars, homes, stocks) as well as services. Will this lead to greater productivity in the non-manufacturing sector? Clearly one must distinguish between products which are services (like hair cuts) and products which are not manufactured but are assets, such as houses and stocks. Also one must distinguish between physical productivity and profit per worker (price productivity).

If a firm makes more phones for every worker it has then there is a clear example of more physical productivity. However making phones is not what a firm does, making money is its essential role. If a firm makes a change to a phone that enhances its value to the customer, such as 3G, then it is increasing the profit per worker as well. One could say that this is about changes in quality, but we would say that quality is how well something works rather than what it does for the consumer, whether this is in terms of status (like a Rolls Royce) or in terms of changing their life (e.g. a mobile phone rather than a landline). When we measure productivity in growth accounting we often use GDP data which is partly caused by physical productivity and mostly caused by the amount of value has been added by the firm. Thus there is a lapse of logic in how economists talk about the supply side with monetary terms. Accounting for inflation has no effect on this, as if taking the price of a basket of goods that might be purchased by a consumer would make any sense, apart from eliminate some of the price feedback (the rise in prices due to the rise in prices) that occurs in this data. Inflation adjustment entails throwing the baby out with the bathwater since some price increases, such as for better innovations or marketing, are important to capitalist economic growth.

Returning to our original discussion about whether services would increase in productivity, it is unlikely that they would improve their physical productivity except in the small way of improving skills in a workforce through greater practice. On the other hand, price productivity is likely to improve since profits are rising when there is greater demand and this may rise by an increasing amount per worker depending on how the capital labour mix for the provision of a service.

When firms are doing well in the economy the value of buying a stake in those firms increases. As a firm is sold, another may be bought by the owners thus bringing up the value of all firms if this occurs in a large way. In addition, other assets may be invested in by the people who are connected to the output stream of profit from the firm.

Given the strategy of banks to lend more to those with greater assets it would seem that a rise in demand filters through to more lending since asset prices would have increased. This raises demand in the economy.

Thus we see the progress of a pound throughout the economy that generates the expansive growth of capitalism.

 

5. Memetic house prices

Memetics is the study of units of information (meme) flowing around a society that reaches what has been understood in the economics literature as contagion, that is the widespread adoption of a belief or practice. An example of a meme is religion, which spreads widely as an accepted form of truth. Other examples are scientism and liberalism which are a widely accepted contagion in the Western world. Society is seen as a network of agents each spreading memes that they have internalised to others. A problematic point of this analysis is what happens when two equally credible memes that are mutually exclusive exist. Which one would dominate?

All that is necessary for a contagion to occur is the ability of an idea (meme) to spread between agents in a society. Structural aspects of a market, such as lack of supply of houses and the desire to compete for higher prices when supply is short, will be a driver for this spread of the idea of ‘rising house prices’. However, the covetous nature of modern society is also a part of the rise in house prices meme spreading, since people who did not desire more wealth would not look for higher house prices when they sell. The greed of society, modelled in consumer choice as monotonicity of the utility function, is itself a meme which has spread since the medieval times of Europe when such things were seen as sinful for the average person.

If such an analysis is correct then one might argue that it would be in the interests of house buyers to spread a meme that there are falling house prices. However, buyers are future sellers, that is they are co-opted into the house price rise meme by the belief that house prices will rise further in the future when they can sell. Thus there is a lack of competition among memes and therefore the housing market rises over time, even ahead of reasonable indicators such as house price to earnings ratios.

6. Economic theorisation

Bourdeiu’s cried out against the mathematical sickness of economics in its modern form. He talked of models that were description rather than deduction. In this he means we should take a more empirical look, though he is interpreted by us to mean casual as well as rigorous empiricism. By casual empiricism we mean the capability of the human mind to observe and note key facts that determine an object of interest. We will argue that deductive reasoning is no different to this approach, we posit that economists are preoccupied with obtaining ideological results and fit their ‘reasoning’ to the answer they wish to find. We consider the debacle created by Dinwiddy in showing that the State is as efficient as the Market using general equilibrium analysis. The key to understanding why Dinwiddy was able to turn the main thrust of economic theory on its head, a work of deep insight and imagination, is to understand that she put the state into the general equilibrium equations where the firm would normally be and replaced prices in this equation with a factor that could be determined when making a decision about how much resources the state should spend. This roundly put the whole of general equilibrium theory to its grave, since it becomes clear that the reasoning produces a result similar to the ontological argument for God. This is based on the assumption of man is imperfect and God is perfect. Since man exists, cogito ergo sum, God exists, since perfection has all of the positive qualities of imperfection. The flaw in this argument is that one could have a perfect imaginary island, which would then exist by virtue of the assumption of perfection even though it is imaginary. So to get back to general equilibrium theory, the firm is God in the ontological argument. It produces perfect results due to the nature of the logical machine that produces a deduction that is true but does not really tell us why firms are capable institutions for the production of goods. In essence in setting up the system of reasoning in a model one is applying one’s casual observations of the economy. For example, the idea that agents are profit maximising and the attached idea that this can be modelled as a mathematical maximisation problem.

The second issue is that a common desire of economics, even historical types, is to use rigorous empiricism to isolate causes of change. This should be the end result of economics but it is not the first stage of analysis, which is identification of the system in question. An example of rigorous empiricism is to essentially partition countries into those with high and low growth and then attach causality to any variable that is of high value in the high growth country set. For example, human capital is high in rich countries. It therefore becomes a result of regression analysis that human capital is seen to cause growth. On the other hand lack of corruption is high in high growth countries so this is seen as the cause of growth. Barro’s regression of inflation/growth to independence of the monetary authorities is another one. However, such analysis becomes tediously nonsensical when the many causes of growth are put together. If single exogenous variable regression gives us the confirmation of causality then why can one find many causes; lack of corruption, human capital, monetary institutional independence. The retort to this argument is that one can have a multivariate regression containing all variables. However one should realise that statistics was developed prior to what we know about non-linear dynamics, which tells us that what appears random can be deterministic. All statistics depends on a meta-model of randomness, i.e. variables distributed by some or other distribution. Were the economic system to have any chaotic equations within it then statistics would not be suitable for determining cause since some of the randomness which is stripped out by the regression would in fact be a part of the causal system. Clearly exogenous variables must be independent under the assumptions of regression so it is possible that variables may interact which means that the whole process of rigorous empiricism through regression is in need of redevelopment.

Proving the likelihood of chaos in economic systems requires some element of this system to be subject to non-linear interactions between variables or feedback which is non-linear. An example is interest and profit paths. Vernon’s product life cycle hypothesis suggests that profit will go up a significant rate at first. This can be assumed to be greater than the cost of capital, the loan going up by a constant interest rate. As long as this happens (and it is likely to be so since the firm would not engage in developing the product otherwise) the profit after interest payments goes up possibly by a non-linear amount. This money is recycled into the economy as savings and costs such as wages. In effect wealth is created by producing products but all costs are repaid and added to the economy. The level of economic growth increases. However, there is feedback between the amount of investment (savings) and profits produced. The more money available for investment from banks, the more profits there are. And since profit goes up by a much higher amount than the interest rate cost, there is a possible non-linear causal connection. The successful company may also be bought up by investors, which raises the level of wealth in the economy since an asset (the company) has been created. Thus wealth increases, profits increase, and bank earnings from interest also rise when a new product is produced.

The fundamental equations of financial value generation by the firm (Finance/Supply) National Income = profit + cost of capital + wages + land costs

 

Profit = f(capital)

 

Capital = g(wealth) ; the more wealth one has the more capital one can raise

 

Wealth = h (profit) ; the assets of a company are worth more if they are making higher profit

 

Fundamental Psychological/cultural value generation by the firm (Demand)

 

Cultural want - Meme – Product benefits - Product – Firm Image ; meme complex (M)of want and firm

M circulates through networks powered by social and symbolic capital of all nodes in the network who are co-opted into the firm. For example, a journalist may write an article about the product. Over time, M becomes a consensus and is a cultural unit in itself that is self-evidently propagated. An example is make up or the hoover (which has as the name of the product the company that invented it).

7. Inflation and assets

Inflation is not a reality. It is an imposed idealisation put upon data to reduce the primacy of money. Money is what is moving throughout an economy in a feedback process, moving from person to person, stimulating them into activity that is useful for others. Inflation, given by an average basket of goods does show a phenomena of price feedback, that is prices that depend on other prices, but it is an overstated problem. For example, in harsh times people will switch consumption to cheaper goods, goods which may be of a lower quality. Thus the uncertainty of knowing the right basket of goods to calculate inflation is apparent.

Thus we can see that the difference between real and non-real growth is near impossible to calculate. Thus we see the primacy of money in an economy. When we unlock ourselves from the inflationary chains we see that things like assets become deeply important for the economy. Looking at inflation adjusted income we would see asset rises as a decline in the growth of the economy. But rather they are the source of development. The myriad channels in which assets raise the amount of money in the economy combined with the fact that asset prices, while increased by the amount of money that goes into the asset market, can go much higher than the total amount of money in the economy. This is because only a small proportion of assets are traded at any one time. Thus most of the assets are held in expectation of capital growth or because they have a useful cultural value, like houses.

It is understood that inflation is linked to the time value of money. The latter is the value by which money is risklessly assumed to increase over time. This must be seen as culturally and historically contingent. In an Islamic economy, the presence of a decrease in savings over time due to the law of Zakat, that 2.5% of all savings not invested is given to the poor or needy, changes this concept.

Inflationary pressure can be caused by rises in the interest rate. As much as firms leverage their investments, there will be a cost push effect of rises in interest rates by the same argument that wage rises lead to inflation. If prices rise by the same proportion that interest rates rise then there is a lowering of the real interest rate, given that firms are able to restrict competitive pressures that would avoid price rises through norms and system wide strategic compliance. This line of thinking leads us to question the very basis of the theory underlying monetary policy in conjunction with labour market theory. The conventional wisdom is that rises in interest rates lead to a fall in inflation. Yet they can also be considered, assuming one wishes coherence with Labour market theory, to do the opposite. It is an interesting hypothesis to consider whether in fact the transmission of monetary policy is through changing the amount of money circulating through the system, which in fact is how central banks change interest rates.

If we take it as given that it is money circulation that is proportionate to the amount of economic activity, then we can look at the scenario where Zakat is introduced in an economy that does not allow interest to be paid on loans. The investor has a choice of either losing 2.5% per year of their money or risking their capital through engaging or investing in business. The third alternative is to give interest free loans, which though they would not involve reduction in the value of their capital, would not allow any increase in it either. Large, established organisations such as government would be seen by the investor to be low risk investments and therefore they may find it acceptable to lend interest free loans to them. Thus fiscal policy in an interest free economy needs zakat as a law to be viable. Since the investor wishes to develop their capital, they would also invest in value adding processes such as businesses, perhaps by way of intermediary organisations which would essentially be a cross between venture capital funds and a bank. On the other hand, unproductive assets, such as houses, would not be of great interest to the investor except as much as they are needed for social institutional reproduction. We would expect that money would not be heavily drawn to such assets and for their price to be largely stable over long periods of time, except as population and income changes occurred. Thus we would expect house prices in this kind of economy to remain within the income of the buyers. Government could use fiscal policy to give loans to people to buy houses, which would be interest free as well.

Consider now the effect of an increase in the money supply. The key determinant of the outcome is the recipient of the increase in money. But the recipient is a tree of people and organisations that each pass on the increase in money supply to others, since saving is discouraged, while investment in value adding profitable avenues is enforced into the system. It would seem a possibility that inflation may not be a necessary consequence for anything less than very large rises in the money supply as a proportion of the economy. Were this shown to be true, the consequences for humanity would be nothing short of astounding. Consider the fact that when the money supply in Spain rose following conquest of parts of the Americas there was according to Montesquieu inflation, but when money supply rose in the early Islamic empire following conquests of parts of Africa and Europe there was economic growth according to the literature. In both cases money supply was determined by the amount of gold/silver in circulation and thus conquest brought new sources of these precious metals. This insight proceeds from our earlier contention that a matrix of nodes connecting to each other unidirectionally can be summarised as a triangle of nodes that will either have an ever increasing, stable or decreasing rate of change in the flow of money between them. Under the system of zakat there is a deflating aspect to the system which has the result of raising the market size since zakat is given to the poor. Thus the system does not see the booms and bubbles of contemporary capitalism but instead we can feel that money supply increases from government can lead to stable sustained growth.
8. Debt and Balance of Payments

Many developing countries have high levels of debt. There seems to be large amounts of particularly foreign denominated debt held by governments in these nations. We suggest that the reason for this may be a feedback compounding process that raises the level of foreign denominated debt held over time very quickly.

The process is as follows; foreign debt is taken which goes up by its interest rate. As the debt interest is paid, the exchange rate devalues, due to the massive exchange of money required to pay the debt interest off. This puts the balance of payments into deficit, which itself must be financed by debt, which in turn increases the interest payments. Overall the debt increases taking an ever larger part of the state’s expenditure and leads to default eventually. Therefore the international financial structure leads to a tendency to debt crises.

9. On the dynamic system of the economy

The economy can be seen as a matrix of agents where each element of the matrix represents the bank account of each agent (Agent matrix). Another matrix determines the percentage of money that flows (spending) to each agent from each agent (transformation matrix, T (t(i), t(j)) where 1>t(i) ,t(j)>0) . The agent matrix is multiplied by the transformation matrix repeatedly each period. What is noticeable is that while the bank accounts of each matrix goes up, the overall level of money in the economy has not changed. This is what we could call wealth growth. However, economic (income) growth can be either from rises in the value of the bank account assets (like house price rises) or from more transactions occurring or from debt being introduced into the system which changes the transformation matrix so that the sum of each agent’s spending is greater than 1.

Sinks can be represented in this formulation as agents which have many if not all other agents spending much of their money on them. Houses are a sink in fact all assets are, but when they draw money towards them they become larger in value thus creating conditions whereby there is an outflow of money from houses into the economy.

10. On the nature of the economy

When a firm produces a product that has a large customer base and makes a profit, the value of the firm itself as an asset becomes large. This adds to the wealth of the economy, when the sale of the firm is realised. Also a bank will lend money on the basis of the value of the business thus unlocking the savings of the economy. Developing countries have fewer businesses making less money thus savings are not loaned to their fullest amount. The money multiplier, where bank loans become spending and thus deposits in accounts and therefore are recycled into the economy over and over again, does not come into effect in its fullest form therefore the developing country is stuck in a low income and low wealth steady state.

When a firm engages in marketing it creates new blocks of value in the culture of society and in terms of the economic framework, creates a monetary linkage to their product. People come to yearn and save up for those products, which become a part of existence. But there is a limited amount of goods that can be known about and bought by a consumer. Each person has a finite amount of brain capacity and also time to buy products, so there is a limited amount of goods that can exist in the brain and also one cannot shop for 1 billion products. Therefore the economy has a ceiling level of value which it cannot go above given a certain number of consumers. However, by increasing the amount of consumers this ceiling can be raised. A way of doing this is to develop poorer places and end poverty.

11. The world bank and poverty lines

The world bank estimates that there are 1 billion people who are poor, who live on less than a $1 per day. This implies that giving $1 to each of these people will get them out of poverty. The end of poverty is easily achievable for only $1 billion per day or $365 billion per year. This lowering of the poverty line, the level at which one is considered to be poor, is part of the mean and stingy policy of the right wing that has always been the case in history. Why should not the poor have washing machines, nice clothes, a mobile phone, computers, money for their pension, healthcare, education up to degree level? Why can’t poverty be defined as not having many of the items that society can produce that would improve welfare up to a reasonable standard. Why can’t this be the goal?

12. Systems of thought

In parallel to the system of signs of Saussure, the differences between the interplay of the many signifieds and signifiers, we suggest the idea map. These are networks of ideas, linked together by mental observation, subjectively. The idea map is related to the arguments it generates. These arguments are associated with interests through the idea map, so an economic theory that says that minimum wages leads to unemployment is to link the interest of the worker in not being unemployed with the idea that one should not have minimum wages. In society, an advance has been made so that idea maps are also the product of social forces trying to achieve consensus. The right wing elements of society may generate the idea map that minimum wages lead to unemployment so that the left will not push for the minimum wage as it will cause a bad effect for workers, the left’s interest. Idea maps’ links are not necessarily causality but can be any subjective link that makes ideas connected, as in the case of interdisciplinary social science. They is an interplay between the idea map and the arguments it creates. These arguments form the interests of the believer in the idea map.

The idea map has tensions inside it which when conceived as an idea map, such as interdisciplinary social science (composed of sociology, political economy, semiotics, post-structuralism, etc) can lead to people changing the ideas to alleviate these tensions.

The idea map is drawn and redrawn by each individual participant and is propagated. Idea maps does not necessarily entail knowledge, they are identifiable in political movements and coalitions, in advertising as an entirety and in the network of associations in ordinary advertising. They are the building blocks of ideology. They are our values and they are a valuable tool to help one look clearly at much of the linguistic reality of society.

An advert for a soft drink may be linked to ideas in culture of youth in general, of the higher social strata of youth culture (coolness) and of the feelings one obtains from consuming this product. This becomes associated with the brand and propagates as an idea map through the coincidence of minds filled with that idea map which is the result of advertising in the media affecting many people. Idea maps generate value, that is the creation of demand both potential and realisable. The supply of money to allow value to be realised, that is become part of the circulation of money, is not generated by idea maps in the realm of advertising. Some idea maps do not need to be advertised to be generated. Google is a useful technological information product which is free and thus creates value in the sense that it generates an audience from the idea map it’s brand is constituted of. The Google idea map is “find any information you require from a large mass of information” and “simple easy to use interface” and “minimalism”, an artistic movement in culture and “quick loading web page”. This is propagated across the internet and among people and has generated a market leader in the search engine market without conventional advertising. These associations are instantly and cross culturally made by most if not all observers. They have the characteristic of an objective idea map while the earlier soft drink ad idea map has the characteristic of a subjective media created one.

Arguments are created by the Google idea map such as “it is better than its competitors” while the soft drinks ad creates the same argument. “You should use this product” is the general argument produced by a successful brand’s idea map. This argument is propagated around society through the spread of idea map. At the grand level, they produce legitimacy. “You should buy capitalism”.

There is a dyad of idea map and argument which creates Gramscian interests. The fact that there are contrasting interests in society changes the idea maps to alter the arguments which themselves determine interests.

The memetic analysis of idea map propagation would suggest that idea maps which are most likely to propagate will become the most widely spread. If an idea map is in line with an interest in a social force then the members of that group will find themselves taking up the idea map. The survival value of an idea map is ultimately the relationship the arguments from the idea map have with the interests of different groups in society. If these arguments depend on hypothetical information then if this information is later found there will be a discarding of the idea map. Fads and fashions occur in idea maps, witness the change from Marxism to Post-modernism in elements of the left. This is part of the flux and flow, non-linear dynamic system of ideas in the society. Feedback at tipping points will lead to different ideas coming into favour and losing them as people are more likely to hold an idea if someone else is propagating them that they are linked to and they find to be credible. Idea maps can be long and complex, this may add to the fascination for a potential believer. In fact the most privileged of idea maps, science, is totally inaccessible to all but the few. Thus we are in contravention of the memetic theory of Dawkins. In a sense we can reconcile ourselves with Dawkins by suggesting that the word “Science” with its de facto idea map, of truth, progress and modernity, propagates around the system as a short message which is credible due to the inventions it has created which generates credibility for the idea maps of science which do not propagate throughout the whole of society. Thus people pay money to learn to become scientists. Idea maps are associations in the mind that spread through society. They are the very meaning of things which is where they are related to signs in that idea maps have meanings drawn from them. Thus we are at odds with Semiotics which we believe has missed this important way of looking at society. Semiotics deals with the sign as it is already conceived but says nothing about the actual development of meaning. Even the study of how children learn signs is not the approach to the totality of knowledge. Meaning is culturally and historically determined in the development of idea maps. The presence of rationality makes idea maps alter over time as they are debated and formed and reformed, with irrational ideas being discarded. The cultural narrative of progress leads to idea maps being changed to the march of time, with new ideas being created and links between ideas being altered. Idea maps overlap, forming meta-narratives, like anti-Americanism or modernity. They can become dissociated with the ideas they originally came from and change under another dynamic, one of the social groups which are involved in the debate of the idea map and thus create a hypereality. They lose their credibility and grounding as their origin is lost, as can be seen in the stories of the news media which are many different idea maps that are propelled by interests of participants in society, and echo in each other in debate among members of the media.

Debate is a form where idea maps can be drawn and redrawn but also where different idea maps can come into contact through the medium of argument. These arguments interact to form the debate. The progress of this is to a more complex form of thought than the idea map. Ideas are created in debate, the product of many limited minds working together to form a greater whole. These go on to form the basis for new idea maps and if the debate is propagated well, to change the idea maps of society.

The game of the debate where each side wishes to win, which means to show the superiority of their idea maps leads to fixing of facts to ideas, and moulding of idea maps into arguments which support their side of the debate. Interests will converge in debate as the interaction between the participants leads to each side wanting to convince the other in order to win. Thus debate leads to consensus being produced. Arguments that are difficult to overcome in debate will lead to people trying to change idea maps by blocking or disregarding some lines of thought to undermine whole sections of idea maps in addition to countering individual arguments. The example is Popper’s use of the Hegelian Dialectic to create his argument that democracy was the best system, which uses the same reasoning base as Marx to come to a mutually exclusive outcome. Thus we see that ideas have a reasoning base, which forms part of the production of the idea map. This may or may not be associated with the interest of the group. Many reasoning bases will come from a stock of tools which are recognised by the group which seeks to make the argument. In this, Popper is rare. Economists use the tools of science to create idea maps which create arguments that capitalism is good. These tools of science are part of modernity which is part of capitalism and democracy. This is the idea map for western society (modernity- capitalism- democracy). There is an interest in western society to propagate democracy across the world. It has not been seen that the best way to do this is to make democracy better, so that it solves the world’s problems. This would come from looking at the idea of modernity that is progress which involves continual creative destruction. Democracy does not mutate with new generations. It is reproduced in its archetypal form through each generation. Strange that democracy is centrally about discussion of new ideas yet it does not discuss itself to any large degree.

Where is truth in all this discussion? We have belief of participants in debate but does this tend towards the truth. We should look at how debate tends away from the truth. This can happen through the production of idea maps that conform to an interest or are part of the game of debate. We can also approach this problem from the standpoint of analysis of the outcome of a reasoning base. This is a methodology, a set of practices and rules which govern the creation of ideas. Reasoning bases which engage in criticism will from Popper come nearer to the truth. Distributed computing would tell us that complex problems can be solved by many agents each attacking a small section of the problem. Debate allocates the problem to many participants. A person comes up with an argument which is countered by someone else. This creates an opportunity for another to see the problem in a different way and synthesise the two arguments. Another sees the synthesis as valid but part of it is wrong. So they suggest a new revision to the idea. An amendment. Another sees another problem with this. Someone else suggests a paradigm shift. The idea maps are changed and the process continues. We can see from this example that debate can be modelled as a distributed computing process even though the problem is not subdivided by a central controller. The mechanism in debate is completely decentralised and created by debate.

Back to our question of where is truth, it can be seen that ideas such as mathematics are generated by the practice of mathematics and the very essence of the logical rules that they form. Thus there is a system external to society in the essence of thought which is the generator of the idea of mathematics. Different people can thus find similar ideas without communication, simply by following the rules of logic. The interaction between the person and the mathematical system allows that person to have the idea of mathematics. This is distinct from ideas such as a mathematical hypothesis such as the Riemann hypothesis or the idea of God, which do not stem necessarily from the external system (in the case of mathematics, the rules of logic and the system of rules and methodology of it) but are created within society and propagate for reasons other than an external system. The truth in this analysis has the characteristic of coming from an external system that generates ideas. Given that mathematics is truth. Inductive logic from scientific experiments can be seen to be a kind of external system as well. What other kinds of external systems are there? And what of the problem of the external system of society that generates truths about society? This is deeply problematic since there can be no external system that does this since the only system that can do this is society itself. However, since one is part of society no complete revelation of the system of society can occur since we are the model and must interact with it. One needs God to find truth in society. That said one can observe parts of society, or even the society as a whole (which is different from the society of individuals) and use that to generate ideas. The question is, what is the appropriate methodology for social science and policy analysis, given that there are many different methodologies in social science and these have changed over time?

One idea is to abstract mechanisms and structures in society from data, whether from narrative, or numbers or qualities or simply from casual observation. Define relationships, though not necessarily causality or the exact degree of control a node has on another node. Try this for other examples, different places, different times, different circumstances in others words carry out “experiments”. See if you can find the general structure and also the specific relationships. At the most specific you will create the historical narrative, the relationship will be valid for a experiment set of 1. At the most general, few relationships will be valid for all ‘experiments’, but the experiment set will possibly be sub dividable into different groups. You will need to play around with the categories and concepts you use to develop the relationships. Change the very basis of your thinking and carry out the experiments again. Try to synthesise your findings and come up with a general structure that governs most if not all of your experiments. Subject your ideas to criticism and debate. Take ideas from the debate and discard ideas that do not stand the pressure of criticism. This kind of methodology will create ideas from the external system of society through essentially following a distributed problem solving approach. Society is partitioned into different experiments which are ‘solved’ for relationships and then the whole result is connected together by the researcher.

13. The production function

The capitalist production function is seen to be a predictor of growth built on analytical foundations of neoclassical economics. We must diverge from discussing this to a thought concerning the unwritten methodology of successful progressive sciences, rather than the Stalinist Bureaucracy that we term the economics profession. Every single science that has made any progress in the last century has one simple, basic commandment. Look. Look at the object of enquiry. Do not pluck ideas from the air. Essentially this is the objective-subjective distinction, with successful science erring on the path of objectivity. Yet economists have consistently and insanely taken the opposite view, with a litany of excuses as to why this is so. Biologists begin their study with a microscope, Astronomers begin with a telescope. Close observation is the essence of successful science.

Observation of society would produce some facts. The first of these is that society is full of human beings. These people are connected through institutions. Flows of various valued objects occur between them governed by those institutions; goods, money, assets, love, true and untrue information, ideas for reform of institutions, etc. These flows, in abstraction, can satisfactorily be referred to as a network. So we have an analytical representation that no amount of calculus would ever produce. There is the true story of the statistician who asked his advanced students to produce the law for data that he had generated from Pythagoras’ theorem using only statistical techniques. They could not find even this simple law from the data set without having been told how it was generated.

National income is a piece of data in the units of a currency. It is often calculated as the value added by the economy and is thus a misleading statistic on economic activity and flows since this is essentially data collected from VAT returns supplied by businesses in the UK. The problem lies in the fact that labour costs are part of the added value figure, they do not form part of the calculation of costs in the UK. Thus increasing labour in the amount of value added and thus GDP leads to circularity in the production function, since Y=f(K,L). This is therefore not an equation that can be statistically estimated within the assumptions of such an analysis, since the causal route of labour to income is necessarily in the inflation of value added estimates in addition to higher levels of production and demand. Consider for example, falling wages because of weak labour power, this would lead to, holding the system frozen, the same level of physical output (volume) with falling national income since value added in terms of labour’s wages are lower. But the capitalist profit = wages – cost. Thus if costs remain the same and wages fall, profit will increase. Therefore national income in monetary terms will not be changed in Truth, but will be lower as it is measured. If we suggest a simple political economic model of labour power having a monotonic relationship with wages then clearly whenever labour power gets stronger, value added will rise more if labour power becomes stronger and the market is amenable to price or quantity rises in production. The choice of price rises rather than quantity rises to provide largesse to labour leads to inflation and growth (and thus higher interest rates from independent central banks) in the former case and growth in terms of GDP volume in the latter. If one’s economy is full of classically rational firms then they will have to judge between raising prices, which does not raise profits since interest rates will rise in response to this, or raising quantity, which means raising productivity or raising the amount of labour employed whilst stimulating demand.

This is possibly why central banks do not do GDP targeting but rather inflation targeting.

The second point of the aggregate production function is that it does not occur in the planning of any business in any part of the world. It is not derived from any observation of any business. Since the market has a tendency towards adopting better techniques it is unclear why they would not use publicly available aggregate production functions whether in financial planning and budgeting or in decision making of choosing between various techniques, were the production function a truthful device. Since the market does not use this, what is the justification for the market acting as if it did use this technique? Appeals to non-existent theoretical structures cannot repeal the objective truth of the higher court of empiricism.

The third point is in the empirical application of production functions in “Growth Accounting”. The problem with this is the main result of this research, namely that most of the increase in growth is not accounted for by labour or capital but is rather held in a residual to the equation. This residual is precisely the problem, capital and labour are not the only determinant of growth, thus the production function does not actually explain anything or tell us anything. More recent research has brought up many examples of different explanations for growth, such as human capital formation, stable open markets, respect of property rights and the insulation of the state. The circularity of the equations matches the many laps of the circuits of capital in the world with endogenous growth theory (growth comes from growth).

We have outlined our key observation concerning the failing methodology of economists, namely lack of observation. But in addition to this we may add some less obvious criticisms. Firstly, there is the tendency to desire to be too exact in relations of entities of analysis. Secondly, there is the overestimation of overlapping models to each be objective truth since they are derived from seemingly obvious assumptions. I see two objects and say since 1+1 =2 then these two objects must be two different entities. But in fact my problem was in my very understanding of the existence of the objects, since what I was looking at was Yin and Yang, which as every wise person knows are one and the same object. Overlapping models should in debate be connected in terms of nesting within one another, one being discarded in favour of another or being left as a confusing conundrum for later scholars to deal with. The fact is that in economics multiple models exist in a variety of different analytical fields to explain the same phenomena, with no one model really trying to become dominant in any particular area. Game theory sits alongside neo-classical economics. In order to rationalise this with the fact that economists trust their logic and assumptions, it is held in reason that if assumption and logic are correct then the outcome must be correct, then we may rescue economics from it’s daze by nesting our methodology with the rest of economics. This is that the logic-assumptions axis is really talking about processes within society that may or may not be empirically observable in dominance or even at all. Thus we do not say that there is not a price mechanism. Instead we say that it is possible to see the effects of higher prices from demand outstripping supply. At times this simple device may be in effect. At times it may not. The key point is that there are assumed to be many processes working through society which do have a logical path, they form and are destroyed, may be long lived or short lived. Just as Yin and Yang, good turning into bad and then back again forever, are also a possible process in society. The fact that economics can produce parallel models for the same objects of enquiry without any clear indication of one model being wrong and the other being right, given that all economic models are true in assumption and logic, means that, since the world is assumed to be a manifestation of logic, many processes can occur in society in parallel, in a network, all in flux.

14. On the normal distribution

The normal distribution is a term in statistics that gives the properties of independent random variables, for example, what proportion of values these groups of these variables will take, or the estimation of the average (mean) from a sample. It is a cornerstone of statistics and therefore science which needs the normal distribution to test theories empirically. It is based on a rigorous proof, the central limit theorem.

We argue that this foundation stone of science and mathematics is wrong. We suggest that the very conceptualisation of randomness is a result of our flawed knowledge which leads us to this mathematical artefact (something which exists in mathematic logic but not in reality).

Firstly, the assumption is that there are independent randomly distributed variables is in dispute. A system may produce what appears to be random results when in fact they are the result of a chaotic non-linear system. Thus what appears to be random is in fact determined. A system may be highly influenced by a chaotic non-linear system which leads to variables which are partly determined and thus have a definite non-random element. These kinds of systems can occur wherever there is feedback of variables (due to the chaotic properties of some iterative maps) thus the distribution of the variables is in fact not independent of the values they take. In economics many variables are in fact ‘counters’, they are the store of other variables, like a bank balance going up with income over time. A distribution of a person’s wealth will go up over time, thus shifting towards the positive side. The mean goes up over a lifetime.

The class structure of society will determine the cross-sectional distribution of income, one would expect business people to earn more than the unemployed. Therefore a cross-sectional distribution of income would not conform to the assumptions of the normal distribution since the variable, income, is not a random variable. Money does not randomly flow to people but is rather the product of capital distribution. A rise in incomes due to the poor having capital allocated to them will produce a change in income that is not the result of a random process. In essence, the abuse of the normal distribution veers us away from enhancing scientific knowledge.

We now question the very idea of randomness. It seems an unscientific concept, since what is called randomness is the sum total of things we do not know and cannot conceive at present. The idea that random consequences cancel each other out on average denies the likelihood of the unlikely. The fact of the matter is that one cannot actually determine things which are indeterminate. Some phenomena can only be modelled in terms of simple networks of mutually caused variables which do not have any determined outcome.

The weakness in this argument is that the normal distribution is the best tool we have. But it does not get us closer to the truth rather it imposes a subjective reality onto the system. There is a question as to whether information about the system is contained in variables which are observed. An example is the story of the maths students who were shown a data set generated from Pythagoras’ theorem but instead made a model using statistical tools that only predicted the existing data set rather than finding Pythagoras’ theorem. The question of how much information is contained in variables cannot be understood by mathematics alone. Rather a science of testing the validity of statistics must begin, which looks at different classes of well understood systems and sees how well statistics can determine the real system dynamics. In this way improvements could be made to statistics and its methodology that would have wide reaching consequences for knowledge in general.

15. The theory of the Islamic state

 

“the meaning of life is the meaning of the state”

Abstract
“the theory of the Islamic state is deduced from Islamic principles that are evident to all Muslims. Saliently this is that God exists and we must both Love and Fear Him in a test of life that is based on achieving the maximum amount of moral action. We argue that through the use of moral calculus and the injection of moral principles

into the nation-state there is political, economic and social progress towards the ideal.”

A state is defined in terms of a set of institutions connected to a social group or groups by means of various contractual (de jure or de facto) agreements. It has become a centre of production and reproduction of violence and power over a geographical territory associated with a name, e.g. the UK or Iraq.

Analysis of history in simple terms in Islamic philosophy would outline a series of causes and effects in a networked chain necessarily extending back in time to reach the uncaused cause, God. God’s existence is taken as a given or perhaps is inferred from empirical propositions, which are secrets that cannot be told directly to any non-believer, the reason for this a secret in itself.

From God’s existence, one obtains an understanding of God’s attributes, since God is known as His attributes. His attributes are uncontensiously defined as being love and strength, the All Merciful, the All Mighty. From this we obtain our relation with God, to Love Him and to Fear Him. Love of God implies love of what He has created, guards, guides and in the finality of this world- judges. Fear of angering God causes us to restrain and reduce damaging His creation, prominently and saliently, humanity. Loving God and His creation implies helping and enhancing His creation.

From this we can infer the meaning of life, for God has given the universe and its inhabitants a meaning. We call this meaning the engagement in moral action. From this we obtain the purpose of the state, since the state represents society it must draw its meaning from society. Society is composed of humans who have been contacted by God and commanded to engage in moral action, thus the purpose of society is to create the maximum opportunity for this objective and indeed this is obtained by society being moral as an emergent effect of individual morality. Since society’s meaning is moral action then the state has as its core meaning, you might say core value, moral action. The state is presumed to have the ability to create structures of itself which influence and enhance the nation’s ability to be at one with its purpose. Clearly action will involve things that are not moral action, but their central basis, their root, is moral action. Moral action is something that is undertaken that has an effect which can be judged to be good. We feel that the sacred texts put judgement of humanity more on the basis of what results from our action rather than what we intended to achieve. Manslaughter is still a crime even if it does not have the intentionality of murder. Islamic political theory as expounded here is a positive prescriptive framework.

“the Emperor’s new Liberty”

We now turn to the competing contemporary framework for the state, that of the liberal democracy. In a descriptive rather than ideal sense, this is a sham, as is clear by the lack of voter turnout, apathy among the population, and endless political jockeying by competing powerful groups. However in its ideal it represents a significant challenge to Islamic political theory. Liberal theory gives boundaries for free action and just that. Society forms itself under internal dynamics which cannot be guided by great individuals because the central ethos is not to accept control. Without guidance humanity is lost, it is a stochastic system perhaps a random walk with drift tending towards ever more base desires and increasingly time compressed joys. Thus moral action is not upheld as the purpose of being. Society degenerates and with freedom blunting its weapons of mass attraction to goodness, cannot reproduce itself as a moral force. Elites start using hysteria to form consensus, but their lies create mistrust of them, thus power fades from the centre. The survival of the vacuous liberal society as a moral institution becomes jeopardised year by year and the economic becomes the core value that is held by all. The belief in freedom as a core value is an empty promise, since it does not by its nature prescribe what is good. In essence it is defined in liberal theory that all actions are good as long as they do not cause harm to another. This is the point of criticism or at least disjuncture with the Islamic political theory we have deduced above. The set of all good action does not correspond exactly to the set of all actions which do not harm another, though clearly there is some overlap. The disjuncture between Islam and Liberalism is that the nature of good action must be examined more closely. Liberalism is Lazy on this point. Liberalism also does not define the state’s purpose which leads to, in the Despotic-Democracies of the existing Western nations, processes which we have outlined above resulting in continual degradation and degeneracy. This Qutbian-style argument, the approach of beginning one’s quest for Islam from the existing state of the West, to look for progress by a critique of Liberal democracy, flows in a different direction to Qutb, since he himself was equally vacuous as Liberalism in terms of carefully and analytically defining the purpose of the state and the steps back from that which would have given his writings a more solid foundation, his arguments on social justice aside.

A pluralist Liberal would say that this argument that shows shortcomings of liberalism does not apply to her. This is because the pluralist says that society is a given (we would say by history) and freedom allows different elements of society to freely act as long as they do not harm others elements of society. We would not wish to go against useful ideas, indeed it is a historical fact that Islamic societies of the Medieval period operated a parallel judicial system for non-Muslims, effectively giving a kind of judicial devolution though not a political one. There is no disjuncture between pluralism and Islam in ideal, though in practice pluralism gives rise to pressure groups whose power takes over the legitimate population’s desires and wishes. Without the call to moral action, the struggle for it internally and externally, all systems fall into the dust.

The problem of pluralism, which also applies to the pluralistic Islam we advocate, is that of Plato’s ship. The ship can only go in one direction, thus government cannot aggregate contradiction and so consensus becomes difficult to obtain. There is the difference in language, model and values of different social groups which is the Habermasian argument of distorted communication stopping consensus formation. There is crucially the contradiction of progressive democratic consensual societies, i.e. debate must continue to obtain better solutions to problems but debate eliminates consensus on these solutions. An answer to this contradiction is for an elite to carry out the debate while the rest of the population simply obeys the elite, which is largely the model in Western democracy. The similarity of Shafi’I’s elite of scholars determining Islamic rules which Muslims must obey and the Democratic West is a key point. We reject Western democracy as it is de jure, but in doing so we must also reject Shafi’I and what is generally termed the Shariah in favour of a reestablishment of God’s rule in Muslim countries. The point on which we reject both these systems is that the elite become arrogant, unattached and unrepresentative of the population that they lead, which results in a legitimation crisis. Information flow between the population and the elite becomes problematic due to the lack of knowledge of how to aggregate preferences in such a way as to obtain consensus. This problem was outlined by Rousseau and lead him to the belief in small direct democracies as being the only sustainable and legitimate system. Of course there is an answer to the information flow aggregation problem in large nation-states. This is to expand the number of participants in the debate with a social norm that everyone must follow the law. More people engaged in the debate results in a nationwide discussion on the definition of moral action in our Islamic nation-state. This leads to a greater feeling of ownership of the law and leads to better laws due to the computational superiority of ever larger groups of people communicating with one another. The superiority of the ideas from this debate lead to people viewing them as legitimate, the ownership of these ideas by the people leads them to see these ideas as legitimate. Thus the deviation between law and action becomes small under the continual grand national debate.

Aggregation of people’s ideas and policy preferences does not necessarily have to be accurate to obtain consensus, it must simply not be contested. There is necessarily no logical answer to the aggregation problem. Expanding the debate to more participants reduces macro disintegration of consensus (contestation by political groups) as well as micro disintegration (contestation by individuals) through deviation of action from law. The former is reduced by the superiority of ideas produced by all-inclusive national debate, while the latter is reduced by ownership of ideas by the people.

To obtain uncontested policy in Liberal democracy, the elite resorts to enhancing a vain media narrative that leads to a deviation from the moral, often in the form of apathy or perhaps in the form of unconditional acceptance such as ephemeral patriotism. The basis of these narratives is often lies or truths that leave out important information and evidence.

The Islamic approach to uncontested policy is based on argument using the truth, mutual respectful discussion by all under the direction of guidance from the greater persons. We outline below a general analytical approach for obtaining a ranking and prioritisation of policy options, which we call Moral Calculus. From Moral Calculus adequately estimated and discussed throughout society there is the production of communicative tools for obtaining consensus. We take it as natural law that humanity is attracted towards what it sees as good, thus if people discussed in truth what was the best course for society then there would be an eventual result of law and government action being driven towards moral action. This is the Islamic dialectic, a method of giving a degenerate society a higher moral purpose as undertaken by the Prophet (saw), and enshrined in the Qur’an, for achieving the purpose of the Islamic state (moral action) which causes society to become moral and achieve its purpose as set out by God. This rests on the forces of the moral being a substantial proportion of society and being vocal, integrated with society as well as ever engaged in reforming society and the self for the better (i.e. towards spreading the belief in moral action, both inwardly and outwardly). So the teaching and internalisation of moral calculus as well as its analytical development results in a bringing together of different belief systems, we suggest that religions of all societies would have in their intersection moral calculus for ranking choices, and so leads to consensus in a continual national debate of all persons. This leads to social and economic progress towards the ideal moral nation-state.

Natural law is defined and assumed as God’s law, for God is the source of nature and all that there is. In all religious beliefs this is consensually defined as a common commandment for humanity to do moral action.

In the Liberal tradition, one may say that natural law, the consensus on what is good, is ‘life, liberty and the pursuit of happiness’. But life is a given and we see no disjuncture between liberalism and Islamic political philosophy in this case, apart from that in Liberalism one has a life of liberty, which is the gift of an empty box. The pursuit of happiness reduces to degeneracy as society finds only base desire to follow as well as media magnified vane symbols. Fame becomes the frame around a picture that is only a frame in itself. The infinite regress and self-referential nature of fame- I exist as a celebrity because people know who I am (perhaps because others know me), a celebrity being someone who is known by many others, is symptomatic of the fetishtistic bottomless pit of Fire that liberal society has dug itself into. Moral action is the inverse of seeking fame. It places value where people positively affect others rather than being (in the case of fame) positively affected by others (in their knowing and valuing you).

Thus we conclude this section by noting that we have lifted the night niqab of the liberal nation-state that oppresses humanity and we release the world from the chains of ugly equality to allow them to find value in the moral value.

“Give me martyrdom or give me death” Moral Calculus

Defending liberty against our reproaches would suggest that there is little guidance on how choices are made. Clearly if one simply leaves it to the democratic consensus in this Islamic political philosophic theory then one is simply replacing vacuous liberty with a vacuum under the name of Islam.

To avoid this contention we outline moral calculus, a method which gives an analytical framework for differentiating between different actions in order to find the moral ideal.
The problem of aggregating preferences outlined above as well as the Habermasian distorted communication issue and the essential tension in debate to achieve consensus is soothed by this analytical approach since a common standard for assessing of policy options is proposed.

Below are defined different effect functions for present, future and afterlife:

T(0) = present T(1) = future T(2) = afterlife

A weighted index is created with weights; c>b>a :

 

A x T(0) + B x T(1) + C x T(2)

The exact configuration of the weights depends on one’s attitude to uncertainty. This must be distinguished from risk as there is no certainty of any of the outcomes occurring. Risk and thus the computation of expected probability implies that on average the outcome is known, if the outcomes were to be run and re-run many times over. Uncertainty is where we do not have expected probabilities and to compute them would be misleading. One cannot have several goes at moral action at those junctures outlined in moral calculus. Clearly there is a further issue of the expected probability of success of the choice, which needs some assignment of probability to the index. This can be computed from historical information and modelling of the issue in question. One can have several tries at different choices so there is the prospect of using expected probability across the entire result but there is always a fundamental uncertainty as to whether the result of the afterlife is worth the cost in the present and future.

From this data on choices, perhaps similar to the method suggested by Ross Perot in regard to democratic involvement in budgetary decisions of US Federal Government, the population can be persuaded by different choices and give feedback for more elucidation, disagreements with calculation and assumptions, suggestions of new choices and in the final analysis, decisions on where they stand, possibly including why they believe in a particular choice over another.

All things are only made superior if they are placed alongside something else, it is the necessary nature of the greater than sign in logic that there are at least two elements being compared as it is in language for a proposition involving the words “greater than”. Heaven needs Hell. Hell needs Heaven. So Moral Calculus needs its Hell, something to compare itself with for legitimacy. We use Cost Benefit analysis for this. The principle difference between cost benefit analysis and Moral calculus is that an afterlife is added in the latter. However an inequality is assumed in Moral Calculus between the greater and the lesser humans, in favour of the lesser. This point is found through the contradiction we outline below in Cost Benefit Analysis.

Secular Liberal Cost Benefit analysis proceeds from an assumption which is considered objective of equality between different people’s levels of happiness adduced by some measure such as money. In this method one adds up the benefits to all people in the present and future and take away the costs for judging between policy options. There are many subsidiary issues in cost-benefit analysis but it is essentially compressing happiness in society by established metrics in the literature of economics in present and future with the assumption that there is no afterlife. However consider a policy of reallocating assets from rich to poor people. Under cost benefit analysis each person’s happiness is weighted equally so a reallocation leads to no net gain. This is a subjective principle, many societies in antiquity would have rated the sovereign as having greater weight on their happiness than the rest of the population. Liberalism brought in the equality of weighting to all people’s happiness. But this leads us to a contradiction, a paradox at least, that the assumption of equality would make us judge against reducing economic inequality. One simply cannot morally say that the giving of an additional pound to a rich woman affects their happiness the same as an additional pound to a poor woman, it is as repugnant as it is wrong. A counter argument given to me concerning this point is that one is making a value judgement in giving more worth to the poor than the rich. But equality is itself a value judgement, it is small ‘t’ truth of the Liberal society that has been cemented in history for so long that people do not criticise it. Both judgements therefore are equal in their subjective validity. As one can summarise Descartes’ argument of one not being to deduce the existence of the world since it could all be an illusion of the devil’s making, one cannot be necessarily objective. All truths and Truths are intersubjective realities, consensus’ which gives us hope for the consensus centred morally active Islamic nation-state.

The issue of atonement for sin.

Related to the issue of Justice, which is the punishment of the sinner who has wronged another by an external party most possibly the state, though not necessarily, is the issue of atonement for sin, which is where the sinner punishes himself perhaps under the direction and judgement of the state’s institutions or perhaps reduces harm / increases happiness to people who they have wronged, even if such deeds are only symbolic. To obtain a moral course one is not just looking for the best outcome for humanity as computed above in ‘next and this world’ utilitarian terms, but also with regard to making up for and repairing the damage one has caused. The exact approach for this depends on the sin but a moral society must make public available information on strategies for atonement of sin in parallel to its judicial system. This information may be produced by society in its discussions. Atonement is not just for individuals but also for nations and social identities.

The Morally competitive market

The definition in society and state of moral action being the purpose of life, nation and state, leads to competition among people through the tennis effect (also called the revenge effect) for control of moral assets. The economic (money), political (institutional effect and structure) and social assets (social institution formation and reproduction) are sought after and are turned into moral assets through their use for achieving moral action.

This is analogous to profit maximisation in economic theory. Since profit maximisation leads to optimal allocations for society in economic terms of value, moral competition leads to optimal allocations for society in moral terms of value. The economic argument says that a person following their Earthly drives for happiness leads to the maximum happiness for all, so if a person is defined as finding their happiness in the identity of the moral with action then the result is analogously that the most moral outcome is chosen and results. The identification by economists of economic optimality leading to social optimality sidesteps the reallocation of assets for moral purposes, the implication being that greater degrees of equality may be superior morally to inequality of certain orders of magnitude.

Realisation of the Moral High Ground, the choices which are most good in comparison to other political groups, as a political tool for attaining attraction and support for one’s political group, leads to political elites jockeying for position for the more moral course and policy. The individual’s desire to obtain the best choices under moral calculus leads them to a rush towards moral action. The business’ desire to add value for its owners leads them to be pressured by individuals’ value of moral action to themselves engage in obtaining the moral high ground among their competitors.

We expand our earlier point that moral action leads to superior results morally speaking than under the assumptions of Liberal democratic capitalism. Consider the Edgeworth Box. This secular model of a 2 person economy where any given allocation of resources leads to Pareto Optimal results necessarily if people trade two different goods. Pareto Optimality is where there is no better allocation without making someone else worse off. This is shown to be where the marginal rate of substitution between goods is equal for both parties. The Morally competitive market is where one adds in the prospect of Heaven as a reward for moral action. Consider a simplification of the Edgeworth Box to the allocation between two parties who make up the economy of 1 good. We shall call this an Edgeworth line which is defined as having length 1 as a simplification, the length being the total amount of the goods in the economy. A moral action is confined in this analysis to being the giving in charity from the rich to the poor. X1 is the amount of the good that person 1 has and x2 is the amount of the good that person 2 has. The algorithm for moral action is that if x1 > x2 then person 1 is richer than person 2 so person 1 can increase their utility in the afterlife by reallocating resources to the poorer person. This algorithm is in the other way around if person 2 is richer than person 1. Thus where x1 equals x2 there is an equilibrium and no further change in state can occur. Since x2 = (1- x1) then equilibrium is x1 = 1 – x1 which gives the result x1 = ½ = x2. Thus equality is the tendency of moral action in allocation of resources. The Edgeworth Box is a con since it obfuscates the distribution of resources problem with the decision to maximise between two goods. Since the choice is limited to the two goods the question of the income distribution is overlooked.

As a digression we give the economist who reads this a subtle choice that may lead them to accept our fundamental premise, that God exists. The market is often shown through General Competitive Equilibrium Analysis (GCE) to be the optimal allocator of resources by economists. But Dinwiddy has shown that if the firm is replaced by the state in this analysis then the state is shown to be the optimal allocator of resources. One can show that this is entirely incorrect for both firm and state by recourse to the argument that demolishes the ontological argument for God’s existence. This is where man is assumed to exist but is considered imperfect. God is perfect. Since perfection intersects the characteristics of imperfection then since man exists, God exists. However the counter argument to this is that an imaginary perfect island is put in the argument in place of God with the result that something that is deduced to exist which is a contradiction with the definition of an imaginary island. If one put an imaginary firm in place of the firm of general equilibrium analysis then we come to the same answer, something that does not exist is the best allocator of resources. Coming back to the ontological argument, if one wishes to say that with GCE, that either the capitalist system or command economy is the perfect allocator of resources, then one must accept the ontological argument for God is true, since one has to disregard the imaginary agent counter argument by coming up with some reason for its invalidity. Therefore the economist who believes in GCE, whether they are from the left or right, must accept the ontological argument for God’s existence, which brings them to the propositions put forward at the start of this essay.

In conclusion, the moral drive is a viable allocator of resources for the purpose of reproducing the nation-state and enhancing itself and humanity as a whole. The economist may disagree with us by saying that the moral imperative is weaker than the economic, but he comes from the secular Western democracy which has degenerated from its historical moral purpose and seeks to replace moral purpose at the heart of every society in the world through Globalisation. This is the fight back and we shall see which course wins in the end.

“the battle for the soul of humanity begins here”

 

16. Truth, Democracy and Statistics

David Cameron, UK Conservative Leader outlined an issue on his weblog about the problem of aggregating people’s comments and views for use by the representative politician. Clearly one answer to this is the referendum, a simple question that is passed if a majority agree with it. Opinion polls are also similar simple means of aggregation. But their drawback is that in compressing the information that is available to the researcher on the opinions of a democracy, there is signal degradation, that is one does not account for the various nuances and shades of belief. The question can be created through analysis of conversation trees to put the voters into a situation where they agree in majority with the person who sets the question.

Thus what is required for research is to create statistical means whereby one can aggregate loosely structured sentences together from everyone in the debate of a nation-state to provide a spectrum of opinion rather than a boolean true or false result of an opinion poll. Statistics use the language of numbers so this is a difficult task, but what might be needed is an advance in the understanding sentence structures that lead to an aggregated sentence. The other way is to create indices of belief that aggregate the sentences produced in a debate to give numerical output, perhaps a policy matrix, where each dimension is a different policy direction.

The use of the term statistics as being the tool of solving the aggregation problem in democracy is misleading however, as one could construct the ‘complete’ sentence which encompassed the entire debate on a subject. Clearly this would be by the definition of a debate (a clashing of contrary arguments) an incoherent sentence, so this is unsatisfactory. Another approach is to draw a diagram with each of the contrary opinions against each other. To be certain, as we increase the numbers of people in a debate this will quickly be difficult to contain clearly in a simple diagram.
Another answer is for people to self select their closeness to various existing arguments and opinions so that a policy matrix can be built up easily. This has the drawback of subjectivity and political bias.

An example of a policy matrix:
1 2 3 4
{pro war anti war anti war pro war }
{anti terror anti terror pro terror pro terror} diagram A

Diagram A shows an example of a 4 x 2 policy matrix. Contained here are a number of different opinions expressed by a group of hypothetical citizens. Citizen 1, whose views are given in column 1, is for the war on terror but against terrorism. Citizen 2 is against the war and against terrorism. These are archetypal mutually exclusive views and we call them policy vectors. They are different and cannot be aggregated. Many people will have opinions in each of these archetypes. A policy matrix could thus contain all the different variations in thought and be simplified by hand in small samples or through analysis using a computer to obtain a first reduction, that is where policy vectors which are exactly the same are reduced to the number of identical policy vectors. So if there are 10 people who are anti-war and anti-terror and 2 people who are pro-war and anti-terror then the policy matrix after first reduction is (2, 10). A second reduction can be created whereby similar viewpoints are put together using fuzzy logic or some similar technique. Therefore what may be an n dimensional policy matrix (where n is the number of citizens with views in a debate) becomes after second reduction possibly manageable enough for a representative politician to make sense of after some study. Over time it is likely that one will find recurring themes.

17. A justification of a plan to end poverty through alternative Economic Theory

The idea: end world poverty by raising wealth in the economy. We suggest a 0.5% Tobin tax that will raise a projected £1.25 trillion per year. This money is used to employ people in developing countries to build primarily houses and other assets which are then given to the poor. Careful analysis should provide the exact amount of houses to be built so as not to create oversupply. The stimulus of the aid package should circulate in the poor economies raising house and other asset prices as well as stimulating investment in productive activity. This raises the wealth in the poor countries which makes them have higher GDP growth. We argue that raising wealth is the key way to facilitate the market. Our analysis shows that developed countries will eventually reach a maximum GDP which they cannot go ahead without redistributing wealth to LDCs. We argue that building houses is a means to amplify aid given to developing countries, since houses go up in value.

We take concepts from fluid mechanics (sinks and sources) to represent the flow of money in an economy, the insight being that the economy is best represented as the dynamic system of a flow of water moving round points a space which represents different people in the economy. We use insight expressed in language rather than the so called rigorous approach of contemporary economics, which we feel does not achieve truth over time since it is limited in terms of the kinds of systems and processes it can express through mathematics. This is strictly speaking political economy in the vein of the classical thinkers such as Malthus and Adam Smith. These thinkers would identify systems and processes and think about likely scenarios that would be produced.

Bank lending goes to the rich, so make the poor rich.

The principal of banking as an institution is to lend more money to those with more assets. In developing countries there are not many assets therefore there is less lending. More lending raises economic growth. Since a bank is a sink, that is it draws in much of the money in an economy like a black hole, there will be low growth since money will not be recycled to other people. There will be a one way flow of money towards lenders. By creating assets like houses as our plan suggests, the bank is turned from a sink of money to a source, that is a positive contributor to the economy. By making houses for many poor people, more lending is available for business owned by the poor. Thus the poor have a greater chance of becoming rich. This is like an inversion of microcredit, which involves lending to the poorest in small amounts. By raising the amount of wealth of the poor and then letting the market lend large sums to them to create more wealth, a faster move out of poverty occurs overall.

An argument against this is that such a process was undertaken by banks in the 2007 credit crisis in America. Here banks would excessively lend money to low income/ uncertain income households based on their existing assets. We must see that in this case they raised the amount of liabilities for the poor, while we suggest raising the amount of assets owned by the poor. What this event does make clear is that lending must be a relationship between a bank who assesses the feasibility of the reason a borrower wants funds for. Essential to the approach is to make sure that borrowed funds are put into value adding activities, such as business and learning, as opposed to fuelling a consumption bubble.

The depression inducing effects of debt repayments from LDCs.

Many developing countries’ governments have high levels of debt. There seems to be large amounts of particularly foreign denominated debt held by governments in these nations. We suggest that the reason for this may be a feedback compounding process that raises the level of foreign denominated debt held over time very quickly.

The process is as follows; foreign debt is taken which goes up by its interest rate. As the debt interest is paid, the exchange rate devalues, due to the massive exchange of money required to pay the debt interest off. This puts the balance of payments into deficit (given the fact that many factors such as poor marketing and poor quality products lead the demand curve for LDCs to be flat) which itself must be financed by debt, which in turn increases the interest payments. Overall the debt increases taking an ever larger part of the state’s expenditure and leads to default eventually. This process is increased by compounding of the various flows. According to Keynes, money flowing out of the economy will reduce GDP.

The Prebisch Singer thesis states that developing countries exchange rates have been devaluing. Our above analysis would give the reason for this as the massive outflow of funds to pay back debt as the reason for the pressure on exchange rates. Thus what is called for is a reversal of this with £1.25 trillion being pumped into developing countries’ economies every year. This would benefit developed countries because it would reduce the incidence of debt crises and defaults.

Inflation and assets

Inflation is not a reality. It is an imposed idealisation put upon data to reduce the primacy of money. Money is what is moving throughout an economy in a feedback process, moving from person to person, stimulating them into activity that is useful for others. Inflation, given by an average basket of goods does show a phenomena of price feedback, that is prices that depend on other prices, but it is an overstated problem. For example, in harsh times people will switch consumption to cheaper goods, goods which may be of a lower quality. Thus the uncertainty of knowing the right basket of goods to calculate inflation is apparent.

Thus we can see that the difference between real and non-real growth is near impossible to calculate. Thus we see the primacy of money in an economy. When we unlock ourselves from the inflationary chains we see that things like assets become deeply important for the economy. Looking at inflation adjusted income we would see asset rises as a decline in the growth of the economy. But rather they are the source of development. The myriad channels in which assets raise the amount of money in the economy combined with the fact that asset prices, while increased by the amount of money that goes into the asset market, can go much higher than the total amount of money in the economy. This is because only a small proportion of assets are traded at any one time. Thus most of the assets are held in expectation of capital growth or because they have a useful cultural value, like houses.

Market size and demand

The maximum market size of any product is assumed to be finite. A household would only have 1 washing machine, 1 or 2 cars, 1 microwave oven. Thus a policy that caused income to become more evenly distributed would result in greater demand overall. Keynes noted a similar outcome but through a different process. He stated that the proportion of income consumed declines as income rises. This is perhaps given some credibility by our finite market size argument.

This implies that a policy to make the poor in the world richer would increase the size of the global economy, making everyone better off. This is because the total market size would increase because more people would be able to demand goods. Developed as well as developing countries would benefit.

Memetic theory of house prices

A meme is a basic unit of cultural information. It can be anything, any message sent from one person to another. The y spread much like a virus until they reach the whole of society and form a consensus. Their dynamics are highly variable and unpredictable though consensus can hold for long periods of time. In the housing market, memes propagate of the overall state of the market. System wide memes saying whether the market is thriving or in recession spread. At times the housing market is in boom, thus the boom meme is dominant. At other times it is the slump meme that forms the consensus. A criticism of the our plan to build houses is that it would create a surplus of houses and thus reduce the average house price. Our contention is that the reason why house prices go up is a memetic phenomena. They go up because the consensus is that house prices will go up. The stimulus package of construction suggested by our campaign would create the expectations of house price rises.

In short houses go up in value because people believe that they are going up. While demand and supply are key processes in the memetic system, the belief that something is valued at a certain amount is something that is transmitted throughout the network of people. Mania’s and panics in asset markets talked about by Kindleberger are more thoroughly analysed as memetic phenomena.

Value

Goods are given value, that is the amount of money someone will pay for them, through the creation of brand names. Some brand names are from small businesses which create goodwill from their interaction with customers. Corporate brand names come from the interaction with society through advertising and Corporate Social Responsibility.
Before capitalism or the free market economy there is no value in society. As capitalism progresses new ideas are created for products, archetypes of the goods that are produced. Historically changing mechanisms come about for the creation of new archetypes and the attachment of value to them by society.

Thus is places like Africa many things are not given much value. As an economy develops and people’s incomes rise, value rises due to the pressure on prices of goods and services produced by firms. This raises the total amount of GDP, in essence ‘value added’, thus growth occurs. But this process needs a rising amount of money in the economy. The source of this money would be the increase in asset wealth produced by the plan we have given.

Feedback in the asset based free market economy

 

We look at feedback in the spending and investment as well as the growth of assets which are hypothesised to not take money from the economy.

 

Of £1 that is earned by a worker, 80p is spent on consumption. This cycles back into another persons earnings which increases the GDP of the economy to £1.80. This process continues until the earning is 0p.

Of the £1 earned by the first worker, 20p is invested in assets. This asset can go up or go down. If the asset doubles to 40p then the economic wealth of the society has doubled. No new money has been injected into the economy when the asset goes up in value but the wealth of the economy has doubled. Our proposed plan relies on building assets, in this case houses, that raise the wealth of the economy and thus impact on economic growth. When the asset is sold or a loan is secured on it, the worker can spend or invest more growing the economy.

As poor people would be employed to build the houses in our campaign (see Home page) they would spend much of the money they earn. This moves money moves on to the people from whom they bought goods. These people spend their money so money moves to others and so on. In this way more activity is created by injections of money into the economy. This feedback process, whereby an injection of money flows through the economy in transactions through many people making them engage in activity and also helping to fund investment and thus longer term activity is the essence of why the free market economy works so well. The problem with the free market economy is that there are sinks (as in a dynamic system) where most money flows towards without being recycled in the economy. One of the reasons why there are sinks is because many people do not have much money thus there is a lessening of economic activity due to poverty. This is the situation we see in developing countries.

Figure 1.0 shows a notional tree of money flowing between individuals. Each circle represents a person and the number shows the amount of money they have. The arrow shows the direction of consumption in other words the flow of money from one node to another. Each movement of money takes place in a single time period so the diagram shows 3 distinct time periods.

In time=0, the top tier node has £10. This node spends all their money on products from the two nodes beneath it, each of whom receive £5. Activity of those nodes in producing products has been increased. In time=1 the second tier nodes spend all their money on two other nodes each, though one node in the centre is a sink and receives money from many nodes and thus ends up having more money. Assuming that there are 3 time periods in a year, national income is £30 though money supply is £10. What we can see is that the reason why capitalism works so well is because of the feedback effect of money flowing through the society and stimulating people into activity.
Another point to make from this analysis is that the theory that raising money supply creates inflation is not necessarily true. Money simply flows in the economy and it is unlocked from the generation of price feedback (our subdivision of inflation as a concept) by our argument given above. In fact this analysis is similar to the quantity theory of money, but the novel feature that helps us is the analysis of money flow into different people in the economy and without linking inflation into the system. Keynes also touched on the concept of the flow of money but he subdivided the economy into firms and households, which we believe to not be general enough to give us true insight and also does not give a direct representation of the economy. The point of this kind of analysis is that it allows us to make a simple argument. If the amount of money in an economy is increased then national income increases, though how long this can occur will depend on how many and how powerful sinks are.

figure 1.0 – money flow pyramid abstraction

We can generalise this approach to representing money flow in the economy with a matrix of agents where each element of the matrix represents the bank account of each agent (Agent matrix). Another matrix determines the percentage of money that flows (spending) to each agent from each agent (transformation matrix, T (t(i), t(j)) where 1>t(i) ,t(j)>0). The agent matrix is multiplied by the transformation matrix repeatedly each period. What is noticeable is that while the bank accounts of each matrix goes up or down, the overall level of money in the economy has not changed. Money will tend to flow into some agents who are sinks, for example owners of large amounts of assets such as banks or supermarket chains. National income is given by the sum of many agents income in a period of time, there being many transactions in any period.

If assets are created for the poorer agents then lending can occur from the rich to them thus circulating money throughout the economy.

Sinks can be represented in this formulation as agents which have many if not all other agents spending much of their money on them. Houses are a sink in fact all assets are, but when they draw money towards them they become larger in value thus creating conditions whereby there is an outflow of money from houses into the economy. Thus tackling poverty through building assets is a viable technique to amplify aid flows.

Assets price growth

The essential property of assets is that they can grow to very high amounts, well out of proportion to the amount of money in an economy. The reason why is because only a small part of the total amount of assets in an economy are traded. The money that supports asset price growth is thus concentrated, so a boost to the economy can raise asset prices to very high levels. This unplugs sinks like banks and gets them to recirculate their money to people in society. The recipients of these loans will have a higher chance of creating new assets and flows of money if they start up larger and better businesses. Thus the economy grows by very high rates with wide dispersion of assets.

Housing Wealth

Some would argue that raising the amount of houses in poor countries would reduce their average price. This is a crude demand curve analysis. However, demand shifts up when there is a rise in wealth. Furthermore building large amounts of houses as in our plan raises and redistributes the total housing wealth which is average price times number of houses. This would have an impact on the economy even if prices were slow to increase.

18. Perfect Competition, a critical disjuncture with the conventional wisdom

Perfect competition is the supposed outcome of a number of assumptions regarding capitalism. Any argument can be analysed at its core, that is the important mechanisms involved in producing the outcome it suggests. While many have criticised perfect competition through the departure of reality from its strict assumptions, we say one should use the eye of reason to understand what exactly perfect competition theory is talking about and why this is not true, in order to come up with a considered and powerful critique of this.

Perfect competition suggests that firms are price takers, the market determines the price they set. The decision maker in the firm can only affect the cost structure according to this theory by determining the amount it will sell. As such it is suggested then that the long run outcome is that firms will produce a quantity and sell it entirely up to the point where marginal cost crosses average cost. Marginal cost can be seen loosely as variable cost, the unit cost for 1 more unit, without an apportionment of fixed costs to this. Average cost includes fixed costs and thus is initially drawn as downward sloping due to economies of scale.

The reason why the perfect competition model is beyond repair is because the flow of information, power of decision makers and outcome in terms of sales and cost structure is not accurately depicted. A firm may put much effort into forecasting sales but it seems quite likely that such forecasts have a significant margin of error. A simple reason for this is that sales will depend, among other things, on how much is produced by all competing firms. Thus each firm in the market needs to have a model of each other firm’s sales forecast in order to create a sales forecast. Thus Gödel’s Theorem would tell us that this kind of self-referential system cannot be put into mathematics or logic. Thus there can be no complete model of sales forecasts for either the individual firm or for the market. In reality, firms use heuristic analysis, look at past trends, economic indicators and market research to come to a number for sales forecasts. As a result firms are often observed to be sales maximisers, looking to increase market share above all else.

A significant advance in the theory of supply could be made should a thorough analysis of the mechanism for sales forecasts to be made and developed over time as is actually used by firms.

Since there is no a priori way of knowing ones sales, the amount produced, given a lag between when goods are made and goods are sold, means that the average cost curve does not exist when the firm is making the decision as to the quantity to produce. Thus the disorganisation of capitalism can lead to overproduction or undersupply, simply from the aspect of the decisions a firm makes. Since the firm does not have an average cost curve, as it could invest in machinery but then find it can’t sell a single unit, or it may under invest and perhaps run out of stock. This latter result is not a long term problem given sustained sales growth as the firm can always invest in new machinery later. A firm may want to trade at levels which are most profitable for it, but there is no necessity of a firm making any sales. Customers in capitalism have a certain freedom of choice.

A second problem is the addition of debt and interest repayments on capital as well as on costs for running the business. The structure of the average cost curve means that a firm in the perfect competition model must have Seers and Mystics with the ability to see clearly into the future in order to be able to structure its financing structure with the production process and market demand. As central banks alter interest rates, often depending on the pricing decisions of the market/collection of competing firms, there is clearly an additional macroeconomic area necessary for inclusion into the model.
A third and most obvious point is that firms set the price of a product. This is evident from even the most casual interaction with business. The idea that a firm may not be able to do this because of market pressure due to the ability of consumers to switch to a different product actually causes large problems and is a possible mechanism for the cause of recessions or slow growth. Many firms in reality are oligopolies. They optimise with respect to risk and profit to stabilise market prices and reduce competition, as can be seen by understanding just what business strategy theory produces as a norm (Michael Porter, Competitive Strategy).

In summary the model of perfect competition suggests that firms will produce up to the point where price=marginal cost=average cost. Since sales cannot be forecast by Gödel’s theorem due to a self-referentiality in a true sales forecast model of firms, the firm cannot know a priori its average cost curve. Thus they cannot set the amount of production therefore the perfect competition model breaks down. A few simple observations show that a firm has different characteristics to the perfect competition model of the firm; in terms of not knowing its sales, but being able to set a price at whatever it wishes. Thus we conclude that perfect competition is a misleading model and that accurate research to develop this key area of macroeconomic analysis must involve a greater degree of accuracy and empirical rigour based on observing and identifying the key tendencies of the economy and then relating it to other areas in a sense seeing everything as it is.

As an alternative to perfect competition we see from looking at different business’ that the key force of their strategy is to create economic rents or restriction in supply. For example, the PC industry has no patent on the overall technology so rivalry leads to a great reduction in profits and therefore the business has become commoditised. On the other hand the existence of a patent on the microprocessor CPU such as for Intel’s chip leads to large rents for this company. From the stand point of the idea map that will generate the tendency of behaviour of business managers we can look at Michael Porter’s book on Strategy. Here he essentially turns the perfect competition model on its head and essentially prescribes to business managers to do everything they can to avoid competition through building up capabilities. Here we see that business’ concept of value adding and the economic concept of value, surplus or economic rent is essentially similar if not actually approaching exactly the same concept from different academic methodologies. Thus we have an alternative to perfect competition, a rent seeking model of firms which aim to reduce competition and create rents through their capabilities. Thus there is no concept of efficiency and Pareto Optimality or the necessary superiority of free market based capitalism is not conclusively held. Consider the high rates of productivity of China compared to other nations in the late 1990s and early 21st Century. This country has a large state sector thus market efficiency cannot be empirically held as a universal law given these high levels of productivity. On the other hand, looking at productivity as value added growth, in other words the development of successful rent seeking by firms, leads to one seeing a reason why China has had much higher levels of productivity growth than say India or Africa.

There is also the demand creating effects of firms which involves linking their product into the idea map of the society they serve, thus culture is altered by capitalism, though this is also subject to dynamics.

 

19. A Centre to a Circle

 

A circle is a beautiful object. Its perfection through symmetry holds the eye. Analysis of the circle shows an edge of infinite sides and a centre around which all points are equally distributed.

So too is the circle of mankind, Liberalism. The centre is the will of the points around the circle, and if any point should move, all must move to maintain the circle’s integrity as an object. Each point is equally near and far from the centre. The linked chain of each point, were one to follow a path from one to another, is infinite. This is the Liberal Aesthetic.

As a driver for social change in the Colonial powers of the West, it must not be underestimated. The analogy is of the power of sovereign, essentially the unchecked nebulous creature that is the centre of the circle as well as the government, the nation, the state of existence imbued with the desires of the people. In short, democracy in ideal. This must be distinguished from democrazy, the existing Liberal reality (which we call Liberality), where checked power is checked by itself and is in an endless loop among itself, deaf to the cry of progress, the wail of the suffering of mankind.
Each point of the edge of the circle is an individual. Its power to affect the state is given by its distance from the centre. All radii are equal. Thus the Liberal Aesthetic demands that each one may affect the centre (government) equally.

Marx extended the Liberal Aesthetic to redefine the centre as the economic reality, economic power, control of production. The tension between laissez-faire economics and Marxism is really a contradiction within the Liberal Aesthetic itself.

Take the analogy further and one sees that each point is related in position to each other and must maintain its relative position to the other points to keep the circle in existence. Should a member of society deviate from its position from the centre then all members of society should also move their position. Since position is power, that is the ability to exercise ones influence on the universal will of the centre, all must restrain or enhance themselves equally in the ability to exercise influence in response to the movement of another. Society may decide that people’s power to influence the centre through violence, coup d’etats, riots, are not acceptable. But all must move away from this for the Liberal Aesthetic to be maintained. A particular person may become highly influential as a result of control of information. This particular person then becomes part of the centre which all are considered to have the right to influence equally.

Consider the growth of society and the expansion of diameter of the circle to accommodate more individuals. As society grows, each person’s voice becomes drowned out by the others. The centre becomes arrogant and removed. The circle collapses away through apathy and corruption. The Liberal Aesthetic dies and we are only left with a historical ruin, a stone circle whose meaning is lost in history.

On the purpose of social science and the methodology to produce progress

Montesquieu takes law to be relational issuing from the nature of things. In other words a law is a relation from structure. We have untrue laws, for example, Newtonian mechanics does not work for very small particles. We have discussed in other works that social science is chiefly about information compression. One person has eggs in the morning, another has cereal, another has niari and pouri. We can compress this sociological information and talk of people having a meal called “breakfast”. Similarly the study of institutions can be seen as compression of the data into smaller packets of data; class, family, tribe. To some extent information compression as a goal of social science is the analogue of laws in natural sciences. It is pleasing to the heart of a social scientist to talk about the subject of society without recourse to a universal, grand narrative of Truth. Thank postmodernism. But social science needs a goal to organise itself and impose a centre around which the members of it can organise. A common code, a language structure, is required to be part of the centre. These kinds of goals, one might say codes/language structures form a nexus with the social relation and structure of an academic discipline and impose a trajectory on its debates.

In economics we see a lost fleet in pea soup fog lurching from one great tidal wave to another. This is an example of a methodological state and social structure of economists that has interacted to produce rampant nonsense for at least a century. Even through adoption of important and intelligent ideas from other sciences, the ideological tendency has been to be destructive and misleading answers to questions which currently leaves our world in problematic situations. An elite of economists have produced methodological goals and codes such as “rigorous analysis” and a plethora of mathematical objects and artifacts to mislead the state’s members as to the nature of the economy. Essentially the strategy has been to block or perhaps funnel all acceptable analysis towards difficult mathematical techniques which are held as truths. In this way dissent from the orthodoxy of pro-capitalist ideology is contained and destroyed. Whilst this may have issued from the social tensions in wider society through the 20th Century, it clearly has left the capitalist system without chart, compass or navigator, though still captain and crew.

We see that the term “rigorous analysis” is a keyword in the methodological structure of economists, and it means the use of analytical methods involving mathematics. It effectively blocks economists from non-mathematical criticisms. Since the development of new mathematical structures is slower than the development of discourse, it is easier for economists to maintain the central narrative of economics; business is good, state is bad. Clearly though this has the downside of economists not knowing what to do when business is not good.

We use no sleight of hand in openly explaining that “information compression” is our suggestion as a keyword for thinking about the kinds of methodological structures needed for a successful progressive social science. However, unlike “rigorous analysis” it is not meant to steer the discipline towards a political agenda that has not even been thought through. Thus the keyword “rigorous analysis” is a conversation tree blocking strategy to maintain a small easily controlled elite of academics involved in the production of economic knowledge. The process we believe the repetition of “information compression” will have on the development of social science is a gradual mapping and carving up of the society into overlapping categories. Clearly it is beneficial to compress information since this is easier to communicate. In this there is a political agenda, one of democratisation of social science, whereby simple ideas are promoted and spread widely through society so that it may be fulfilled by greater understanding of itself. The other side of the coin is that an elevation of the simple, in the sense of being easily communicated, leads to a widening of the number of people who can be involved in creating these ideas.

The third reason for using information compression is because this is an abstraction of what many great social scientists have done especially in respect of understanding society through its units of analysis, which are termed institutions. A class is many workers, a family is many households, a nation is many citizens.

The fourth outcome is the emphasis on subjective recognition of objective components of the social world. The mind puts the pieces of light together from a chair that it looks at and calls it a chair, rather than piece of light 001, 002, 003, etc. So too we feel that the mind can capably recognise objects in society.

An aside to the point of “information compression” is the downside risk of it. Shannon would tell us that information compression leads to signal degradation, that is loss of information. Thus we sacrifice heterogeneity in our work, though clearly there is a place for such approaches in social science to balance and eventually synthesise with the main body of work.

Coming back to information compression we suggest that this be used to create the units of analysis for social science. From here we need to organise these units into systems. This is where different units interact. Also we need to look at subsystems, that is where the components of the units interact. We can look at historical trajectories and debate counterfactuals to create hypothesis’ about these systems. We can do comparative ex post experiments from looking at broadly similar yet slightly different systems to test some of these hypothesis’ as well as create more of them. Thus this is the empirical element of the social scientist social structure.

At the same time a philosophical development is needed. This is to clarify what we are doing, what objective we have in mind and bringing together different strands of social science to see how coherent they are with each other. In other words there is philosophy as a coordinating mechanism in the social structure of social sciences.

A third element of the social scientist social structure is the development of “complexity analysis”, that is the understanding of complex systems. Whilst physics understands individual atoms it does not understand the outcome of many bodies interacting in any deterministic (non-probabilistic) sense. Thought experiments and simulation are possible ways of going forward with this bottleneck in the social science methodological complex we are discussing.

With all three elements; an empirical democratic social science, a managerial philosophy of social science and a complexity and complex systems social science, we believe social science will be able to produce far more progressive and effective answers.

Just as from a circle, an infinity of equal radii are formed, so from this Tripartite system of disciplines in social science one can see a widening of the subject in terms of both membership and total number of ideas. More ideas are created but with greater skills developed in information compression, these ideas can become synthesised in the sense that the most convincing aspects of them are recognised. Certainly we are more likely to find the truth if we have more goes at the game of science. But it is highly likely that the downside risk for this approach is that we never really know which idea is correct. Thus we increase the chance of getting to the truth with the extra baggage of doubt. The benefit though is that we will have created in social science a common language from reason that can be diffused throughout society for which to give a centre much as law is at the centre of a court room. Therefore Liberality is dead. Long live Liberalism.

20. Anti-Americanism in British Society

We propose to study the rise of anti-Americanism (AA) in the UK. The social groups this sentiment is divided among are Muslims, Christians, The Left, The Media, Politicians, The Right. We also look at the sources of Muslim’s in Britain’s more radical understanding of the world like through a consideration of Osama Bin Laden’s statements.

We propose to use data from publications by elements of these groups to elucidate the themes of AA. The thesis is that anti-Americanism is the UK’s alcoholic lust for a dream world. The cure for this is the focus of our analysis. The prospect of hate that originates from AA is disturbing and possibly destabilising.

Methodology

We outline a few possible methodologies, that is algorithms and rules of seeking knowledge, here. At the core of our methodology is to create models of behaviour and use this to create a narrative for analysis. Our other element is perception, the ability of the human brain to recognise the object in question like recognising a face.

We can take narratives of history and abstract mechanisms that occur in it. This is essentially information compression, that is making a big narrative into a small model. From this we can find policy suggestions. We can also synthesise models and concepts from theories that are the information compression of historical narratives, such as Marx.

We can create models from stylised facts, that is reasoning from assumptions about the underlying structures that define an object of interest. This is done in economics and also physics.

 

We can take a critical realist approach, that is to take events and suggest hypothesises to explain these events. Test hypothesis’ with reason and other events to narrow down number of explanations

We also create ideas from allegories other systems. Very different systems can have similar emergent effects if they have similar system structures. An example we use is the idea of distributed computing (Grid computers) and democracy/debate.

We can subject our ideas to critical debate, either by ourselves or with others. Criticism generates creativity.

In what follows we use these methods as guidelines for our thought, though we create a narrative that knits together these methods in a similar kind of reasoning to retroduction, that is to use the best method to tackle the problem, as opposed to separating reasoning into deductive and inductive knowledge.

The Universal Social model

This perhaps arrogant term is our description of our attempt to find a universal social model. We take Marx’s concept of social forces and Jessop insight that social forces when blocked find other routes to achieve their aims, perhaps with more vigour. By social force, we mean many individuals who have an ideology, social norms, goals and who create an emergent effect (a characteristic of the group that emerges from the actions of all group members). So capitalism or the free market economy, has an ideology (economics), social norms (contract and company law), goals (profit) and creates an emergent effect (continual expansion over long periods of production and consumption in society). There is not necessarily agreement between agents of a social force, either tacit or written, (see the conflict between Iraqi Sunnis and shias) so this is very different from say a bureaucratic organisation such as the modern military. There is not necessarily a central leader though some parts of the social force are more influential than others and the archetypes of the ideas that motivate and generate the social force’s world view may be from old ideas, such as the possibility that Sayid Qutb’s writings give the Islamic radicals of today much of their ideology.

We suggest that social forces have both a potential and realised energy. The potential energy is the pent up desires of the groups that form the social force to carry out actions in respect of their ideology and goals. Realised energy is the riot, the speech, the applause, the overthrow. Potential energy may either fall or increase in response to realised energy occurring. A group may become worn out, or it may be spurred on to greater heights.

We look at recent theories of society, memetics, particularly the mathematical models of nodes in networks, with a node each representing a person in society and the links between the nodes representing communication between each node which all form a large and complex network. While we dismiss the models given by this literature, the basic framework is kept, that is of nodes passing messages to other nodes. We expand on this. A node will have a filter, similar to the idea of an activation function in neural networks, that blocks, enhances or changes messages that come to the node.