What does it profit...?

For what does it profit a man to gain the whole world, and forfeit his soul?

From the New American Standard Bible: Mark 8:36

My apologies for quoting scripture, but sometimes the Judeo-Christian Bible has some interesting insights and lovely phrases. This is one of them.

Of course I am interested in the whole business of what is profit as a motivating force for good in economics. Adam Smith told us that each individual, pursuing their own 'selfish' interests would pursue activities that would produce for them a profit. As if by an 'invisible hand' the forces of selfishness are coordinated in a market so that everyone is better off. Well, anyway that is the story the economists tell.

In may last several posts I hope I got you at least questioning the efficacy of the market mechanism as a master or final regulator of economic interactions. As I mentioned, markets are, at best, a kind of cooperative-level control that depend highly on free flow of information in a timely fashion. In a complex economy such as is found in the developed nations we do not really get complete information and we certainly can't rely on the timeliness of it. The evolution of hierarchical cybernetic systems (HCS) as found throughout the natural world as well as in human institutions suggests that markets need another layer of coordination control in order to maximize overall benefits to society. I indicated that the rise of regulatory agencies in the Federal and state governments are a first emergence of such coordination mechanisms. But, these tend to be primitive in functionality and still very much dependent on the choices made by insufficiently wise members of the species Homo sapiens.

I hinted that a strategic layer of control was needed and is, indeed, represented in a very primitive form by the triune form of governments (autocrats are no longer effective in any way as strategic controllers - I claim). I will return to this topic in the near future as I believe there are important lessons about what a fully functional HCS form of governance looks like and it would be interesting to explore this as a basis for the design of future governing structures.

But for the moment I want to look at the underlying assumptions that drive the market mechanism. The most important of these, it seems to me, is the profit motive. I'd like to tackle this question from two seemingly different directions and then show how they really get to the same point. The first is a highly theoretical (in ecological economics) concept of profit or the banked excess free energy in a system. The second is psychological. It is looking at what people 'think' profit is and why they believe they want it and — here is the punch line — deserve it.

A Theoretical Look at Profit

Nature has already figured out what this means. Bear with me. This involves some basic physics but I will try to make it un-technical. It has to do with the flow of energy, accomplishing work, and the role of leverage.

All real systems in this universe are open to the flow of energy, into, through, and out again. The earth's energy flow comes mostly from the sun (the outflow of thermal energy is still important but I can demonstrate the issues better with solar energy). Sunlight enters our atmosphere and is absorbed in several subsystems. It evaporates water to form clouds and rain, some of which falls into lakes and watersheds high in the mountains, giving us stored energy that can later be converted to working energy, say by a dam and hydroelectric generator. The hydrological cycle represents work in that energy was used to 'move' H₂O against the force of gravity to a higher potential state.

A fair portion of sunlight is absorbed by plants through photosynthesis, doing chemical work and storing energy in bonds between hydrogen, oxygen, carbon, nitrogen, and many other elements. Plant life converts sunlight into stored energy for animals to use when herbivores eat the plants and carnivores eat the herbivores. Energy flows through the earth biosphere from trophic layer to trophic layer. Eventually the top carnivores and omnivores, like us, die and the decay of our bodies back into more elemental forms (dust to dust!) releases the remainder of stored energy to the atmosphere in the form of unusable heat (meaning it is too low-grade to do any useful work).

In all of these processes, every time energy is converted from one form to another a fair amount of it is lost in the form of low-grade heat. This is why no physical process can ever be 100% efficient, or even really that close. It is a law of nature that, as far as anyone has been able to tell, is inviolate. All kinds of consequences derive from this natural loss of energy (forever) such as the saying, "there's no such thing as a free lunch". It also helps explain why, when no new energy is coming into a system, things break down — they never get better spontaneously. Its' called the Second Law of Thermodynamics, also known as the Entropy Law.

Looking at living systems as a prime example of profit; profit can be defined as a net increase in stored energy over time. That means that as a living organism grows, by taking in free energy from its environment (as well as material for building structure) it grows. It increases in volume up to some natural limit. But profit doesn't cease at that limit. The organism reproduces and the progeny then carry on the growth. The population then grows.

But here again, just as there is a natural limit to the size of a single organism, there is a natural limit to the size of a population. This limit is determined by numerous factors in the environment of that population, which collectively defines what we call the carrying capacity. But another way to look at the effect of these factors is that they are effective taxes on the individuals and populations. They impose costs that are related to a balancing process that ensures the long-term good of the whole system. Evolution produces mixes of species of plants, animals, microbes, fungi, etc. that interact with one another to cycle energy through the whole system. Sunlight comes in, energy is stored in biomass, and then it is eventually released in the form of heat that dissipates back to the atmosphere and eventually re-radiates into black, cold space. Over a really long time scale, the whole flow eventually balances in what is called a dynamic equilibrium or steady-state. In this state taxes = profits. [Note to libertarians: read no further because your hearts may go into fibrillation!]

In this model, profit is measured in fixed energy that can be converted back to a kinetic form capable of doing additional work (plants eaten by animals to form new animal biomass). While an ecosystem is sparse in fixed energy and if there is a surfeit of incoming energy then there will tend to be a net increase in fixed energy per unit time. More of the incoming energy can be converted to new biomass as opposed to being used to just maintain the system. The system will enjoy a profit. However, there can come a time when an ecosystem is saturated with fixed energy given its available materials. At this point the system goes into a steady-state in which as much energy is eventually released in the form of heat as came in in the form of sunlight. There is no more profit to be made. Or at least not for the system as a whole.

Individual species and individuals may still jostle about for position. When the size of the pie is fixed in a steady-state we have a zero-sum game when there are competitors. Some components of the system will win and some will lose. Biologically, and evolutionarily, those competitors that are more efficient in their use of fixed energy will tend to do better and reproduce more progeny and thereby out compete some others. So some components will seem to be profiting, but it is only at the expense of other components.

Some interesting questions emerge from this concept of profit. One is, can there be a kind of windfall profit? Another is, what happens if one component confiscates all of the energy? So many questions, so little time!

Today we talk about profit in the form of excess income after expenses. We have monitized energy. That is, we now keep track of energy flows via special informational messages called money. Money is just the measure of our control over the flow and uses of energy in doing work (especially in the future: I will be blogging about debt in the near future too). Money is easier to see, touch, feel, count, than energy. Each denomination (coin or paper bill) is just a sign representing an amount of work that could be done. When you purchase something, you, in effect, say that more of the work that went into that something should be done in the future. Money, or at least what economists call M1, is a facilitator of trade of work. Nothing more.

So when firms make profits they can reinvest the remainders in growth or even evolution (getting into a new business). It really is the same as in biology. It just seems different if you aren't that familiar with energy flow in biology. In any case the connection between energy flow and money helps let us focus on the other major component of this story — human psychology.

A Psychological Look at Profit

Individuals will always attempt to secure their needs for energy. For most of nature that means finding the right temperature environment, enough food and water, and, when the time comes, procreating to extend growth. For humans it means basically the same thing. Only with humans the degrees of freedom are so extensive that it isn't always possible to see the connections between energy flow, fixation, and all of the behaviors and thoughts that humans have. We have grown so convinced of our abstraction from nature that realizing that the work we do, the houses we buy, the churches we go to are all just decisions based on energy flow! It may take some time to get your head around this idea. And I know that initially it sounds like biological determinism. Well I suppose it really is a kind of biological determinism, but not the kind you normally think about, e.g. my genes made me do it!

Everything you or I do is geared to one purpose, and that is to obtain, fix and retain, energy. That's it. If it sounds like I am discounting human emotions, culture, etc. you have not understood the nature of nature. Of course individual humans (you, me) have purposes that we own; are personal. But it isn't an either/or argument. Both biological determinism (in the form of energy) and personal choice can be completely compatible. Here is a simple test to see if what I am claiming is true or not. Stop eating. You can choose to do so, and, indeed, many people have killed themselves by doing so. You can do it. But the point is you will die if you do. You can't have just free will. You're life is biologically determined vis-a-vis energy flow. So you might as well accept it and embrace it.

Which leads me to the psychology of profit. When is enough enough? Answer: never.

Life, including human life, is under a mandate to obtain as much energy as possible. If you can't use it all yourself, pass it on to your progeny and they will do the same. Life is programmed to maximize net fixed energy. So is it surprising that individual human beings make choices that lead to accumulation of what they perceive as energy? Believe it or not, even toys and entertainment are related to the accumulation of energy. Playing is a way for individuals to learn how to compete and win, or to become more efficient (personal best). Everything we do, including decisions about who we mate with, is geared to this single motive — acquire more energy.

The things we possess are the result of energy expended to form tools for us to exploit energy flow as best we can. Everything is a tool. Your house is a tool to keep you warm and allow you to organize your activities. Your car is a tool for transportation. Your TV is a tool for entertaining and informing (well that latter is increasingly in doubt). Tools allow individuals to extract more energy from the environment (and the grocery store is part of that environment). The right tool for the right job! Now as to whether or not the job you are doing is worthwhile in some grander scheme may be in question. Do you really need to drive 100 miles to watch that NASCAR race?

Here is the fundamental problem and the reason we are in trouble. We discovered how to tap into the biggest energy bank imaginable. The earth had banked energy for millions of years in the form of dead organic matter trapped deep in the ground and cooked into oil, gas, and coal. This is fixed energy captured from ancient sunlight. And it is potent. Fossil fuels are high potential sources, meaning they can do a lot of work.

So what happens when a clever species, already proven to be able to exploit energy resources from multiple sources (and out competing other species in the process), discovers a seemingly infinite source of powerful energy reserves? It does what it does best. It makes a profit. It expands. It converts material into tools for capturing even more energy. In short it does what its brain is programmed (biological determinism) to do.

The psychology of profit isn't really mysterious. Adam Smith had it basically right, that all things being equal, individuals would pursue their own selfish needs (or desires) and the markets could sort the flow of energy out quite nicely — in his day.

But in Adam Smith's day, augmented energy sources were just beginning to emerge from our clever engineering. There were, and had been in all previous times, constraints on human species profit simply because the sources of energy were real-time solar (wind, hydrologic, burning wood, and animal labor from photosynthesis). This put a limit on what could be done, work wise. And then came coal, and then oil, and the rest is economic history. The sky was the limit. Or it seemed there was no limit.

Now throughout human history, at least since the advent of agriculture, the species profit came strictly from what could be robbed from other species. Taking over land for crops and grazing was about the worst we could do to nature. Individual profit came from a combination of one's share of the confiscated species profit and what one could finagle from the species pool of resources. So even though the pie was growing at the expense of other parts of the environment, and every individual's piece was bigger in theory, it has always been possible for some really clever individuals to take advantage of other, less clever ones, to confiscate part of their profit. Robber barons have been with us from the time the first harvest was gathered, I'm betting.

With the discovery of huge amounts of energy in the form of fossil fuels, and with the development of more kinds of tools to help use that energy human beings did what they were supposed to do. They took advantage of the situation exactly as their biology dictated. It wasn't just selfishness though. It was just natural acquisitiveness based on relative access. Humans are social animals and their capacity to judge their own 'worth' is based on their social status. Everything is relative. If everyone around you has a wide screen, flat panel, wall mount TV, then you feel poor (low status) if you don't have one. It really is less about the quality of the images you view and more about your belief that you are as well off as your peers. You're not selfish per se. Selfish is when you knowingly take resources that should be shared (Hardin's Tragedy of the Commons). Wanting more stuff is just, well, wanting.

Massive energy inputs made massive wanting possible. And true to our character, we wanted. Once in my life I dreamed of owning a largish motor boat so I could go scuba diving. I wanted to be rich if I could because everyone else wanted to be rich and the rich could buy lots of cool stuff. And why not? All around me I saw people getting rich and buying lots of that stuff. I saw more and more stuff being produced. Who wouldn't have thought that wealth was out there for the grabbing? But it was the energy influx that made it possible. That and the fact that no one was thinking strategically.

Almost no one. There have been many seers in history who could see the illusion of wealth, who could see that profit did not come from some open system game, but from a finite resource game. But by the time these wiser persons were able to articulate in modern language what the problems were, the economists (the ones suffering from physics envy) had sewn up the theoretical framework on what wealth was and where it came from and how it was good to go after more and more. So it was that most people liked the message, "It's OK; get yours and don't worry about it; the market will take care of everything." It was easier and more expedient and more fun to accept without questioning this ideological stance. Growth, according to this view, is always good and never bad.

And they failed to listen to the seers. It is still that way today.

People who consume and gorge themselves on high-calorie foods are not bad people. They are not really selfish people. This is what they have come to expect is the right way to live. They are spoiled, and like spoiled children, can't grasp why, all of the sudden, what they are doing is bad.

Why is profit bad? Why is wanting an easier life, wealth, happiness, bad? The answer is that it is all based on a false premise. Growth can only work to push a system toward the steady-state. It assumes there is a fixed amount of energy coming into the system in the first place and that the energy will be distributed through competition and cooperation among all possible variant components (species and individuals). Take off that constraint and you have cancer. Uncontrolled, un-coordinated growth. Now we are stuck with a problematic paradigm in economic theory that doesn't conform to physical reality at a time when our energy flow is about to slow down (peak oil) and in our profligate consumption of energy we have physically altered the chemical, biological, and physical properties of the planet such that our very existence as a species is threatened.

We've had seers, but no strategic thinking or strategic control systems in place to recognize the problem and regulate the tactical and logistical control level, especially on a global scale.

The irony of globalization is that it is making us increasingly aware that we need global-scale hierarchical cybernetic systems. WWI and WWII showed us a need for a global-scale cooperation system. The global markets have shown us primitive mechanisms for cooperation and minimal coordination but have also created tremendous schisms in wealth distribution among states as well as individuals. Unregulated globalization has destroyed the dreams of previous haves and given hope to previous have-nots. But it is chaotic and messy. It has no overarching objective other than the vague beliefs by its proponents that somehow everything will be better.

So here we stand as a species and as a global 'force', on the brink of disaster even while the glimmerings of a HCS, earth-management system is starting to emerge. We still largely believe that we should be making profits, even while the true source of profitability is diminishing. We can't let go of the apparent prosperity we enjoyed, nor can those who see it as their turn to gain that prosperity let go of that dream, even as the making of prosperity can now be seen to threaten our very existence. Our situation is truly precarious. Will we topple into the crevasse of extinction, or learn to manage our affairs (quickly) so as to continue as participants in the evolution of sentience?

Now that is the question.

Comments

[Charles Justice]

I've read about six of your posts so I think I've got the gist of what you are saying about democracy, the market, and complex systems. Your understanding of biology, physics and cybernetics appears to be sound. However, your approach to politics is flawed. You appear to be pushing for some form of technocracy, or rule by experts.
The exchange of ideas and information requires an open society, that is, a society that allows a myriad of conflicting and contrasting ideas to be heard.
There are various means of working out consensus: the scientific method, participatory democracy, etc. All of them require the free flow of ideas. And they all require the active participation of many people.
Ideas must be interpreted, shared, and made workable to fit all the many local conditions that exist. There is no shortcut to this process. attempts to dictate what people should do from the top down oversimplifies and chokes off human initiative.

The problem with human political systems is that political leaders can be mistaken about reality but still be sucessful in leading at least temporarily. That's partly because what we say about reality can influence what people believe to be reality. And it's also because rulers can get their way by force. (eg., might makes right)

The more that people are able to participate in political decision making through democratic processes and active volunteering the more effective society is as a whole.
Scientific experts are essential to assist and advise in the governing of modern societies. But rule by experts leads to the stifling of free speech and the muzzling of informed criticism. Technocracy is not unlike theocracy, which has a similarly stifling effect on free thought.

I recommend reading Karl Popper: "The Open Society and It's Enemies" and "Conjectures and Refutations". Also George Soros: sorry can't remember the titles, but his latest book will do. Please visit my blog: earthjustice.blogspot.com. My latest posting, a criticism of evangelical thought, touches on this subject. And I have other postings on Popper and Soros in my archives.

T

[George Mobus]

Charles,

Thanks for the comment.

You said: "You appear to be pushing for some form of technocracy, or rule by experts."

In fact I am not calling for technocracy. Experts, scientist, engineers, and social scientists I would think would play a part in a hierarchical cybernetic governance process, particularly at the tactical and logistic level of coordination. But I am NOT advocating "rule" by experts.

If you read further back, perhaps, you will discover that my critique of democracy and governance is based on a fundamental weakness of Homo sapiens that makes in infeasible for humans to form a global-scale (or even a nation-scale) government with sufficiently wise (meaning good moral judgment) people operating in the strategic level. My claim is that there is ample evidence in many developed countries to show that politics (the conventional view that you espouse) is failing to produce a stable social milieu. And this after literally centuries of experience and presumed learning from history.

I claim that if the populace were sufficiently wise (and here I mean had a sufficient level of sapient brain power, if you will) then democracy would work in the sense that wise people would recognize the wisest among them and elect them to govern. Strategic decision making could be left to the wisest (structurally I envision this as a council in the executive role and a congress in the representative legislative role). They would select the goals and directions based on a deeper understanding of the needs and desires of the constituencies and balanced against the needs of the rest of the ecos.

What I describe is, of course, a utopia based on the premise that all humans are sufficiently eusapient so as to manage their own lives and local affairs wisely. Since that condition doesn't exist, namely humans are not eusapient, democracy is guaranteed to fail. As we look at the degradation (surprisingly fast) of governance in the US where sufficiently many people voted for GWB, for instance, and continue to elect not only foolish, but idiotic fools to congress I think I'm standing on a solid premise.

This isn't politics as much as it is neurobiology and evolution.

Evolution works by selection mechanisms operating on a variable population set of traits. Sapience is one such trait (or actually a family of brain functions that produce holistic judgment capacity in individuals). What I actually advocate might more properly be termed evolutionary neuro-politics. Or in other words, a government designed in the image of all other natural autonomous agent control systems, and a form of selection that recognizes high sapience for participation in that government.

This is quite far from the ideas of technocracy, which assumes so-called experts can make the right decisions based on their expertise. In fact, if you go far enough back in my blog you will find my critique of specialization and expertise as precisely contrary to the notion of an integrated social milieu (note I did not say uniform or homogeneous milieu!). I do not subscribe that expertise makes one capable of making choices in 'wicked' problem domains.

I hope this helps clarify my position and assuages your concern that I advocate something that we all agree would not work. We probably still are apart on the nature of what might work since it sounds as if you accept the conventional view that this species of human is the end of the line evolutionarily and therefore whatever will be will be based on the psychology of this species.

My vision is of a time when humans have, in fact, evolved further along (if they evolve further!) and are better able to think strategically and systemically. In such a time I think democracy will find its proper milieu and it will provide stability. But in the meantime we have to find something that will work for the current species and, hopefully, guarantee survival of enough of us to seed future generations that will develop along those evolutionary lines.

I will take a look at your blog.

Regards

George

[Charles Justice]

Human beings are capable of incredible things when they work together for an overreaching cause. Think of how American society was transformed into a war economy once the U.S. entered the Second World War.

Before that , everyone was going in different directions. The economy was in bad shape. Most Americans believed that they shouldn't get involved. A significant minority actually supported Hitler.

But after the war government, business, and the public came together, and everybody pitched in to help fight the war. The US economy went into warp speed. Everyone grew vegetable gardens in their back yard and recycled goods for the war effort. They all put up with rationing and other privations.

The same thing could happen again but this time focussing on the problem of global warming. All that's needed is a critical mass of people and some leadership on this issue. It could happen right after Bush leaves the White House. Who knows.

It's easy to think that things aren't happening fast enough. But if you look back on the last two years it's amazing how far American and Canadian society has come in recognizing and beginning to deal with the problem in spite of abysmally poor leadership.

The other thing I would say in reply is that you are too narrowly focused on American politics. Look at Scandanavia. Their political system works well and it's amazing what strides these societies have made in terms of cutting automobile use, developing renewable energy, etc.

Charles

[George Mobus]

Charles,

The narrowness of my focus is based on the fact that the US is the premier exemplar of the source of problems. It leads the world in over-consumption and lack of wisdom! In fact, whatever success has been achieved in Scandinavian countries is fairly small and isolated. Look at the rest of the world. The choices being made in China and other developing nations are still far from optimal.

The first part of your response seems a bit hyperbolic to me. Perhaps you are overstating the case for human cooperation to solve a common problem simply to drive a point. But the history of the period of which you speak is not all consensus and roses.

Finally, your assertions are based on what may turn out to be a false premise. The recent studies in psychology and brain science seem to be showing that there is hardly homogeneity among people with respect to how they 'can' see the world. As I have mentioned in another post, we may actually be looking at a sympatric speciation process going on before our very eyes. We may not all be the exact same species any longer!

In my next posting I will be discussing the idea that we might not even be looking at the right problem, let alone trying to solve it. Global warming is a symptom of the problem. Perhaps a much deeper dig into the whole picture might reveal that we haven't even understood the disease, let alone know how to treat the symptom.

George