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=Discussion=

Dick Bryan and Akseli Virtanen:

==Transcending Hayek and his digital disciples: the market, prices and profits as protocols==

In creating new economic space, ECSA is opening the space for a different economic calculus. Our proposition is that knowledge and its relation to markets needs to be re-thought. What Hayek and conventional economics and their digital disciples take as foundational in relation to markets, we think are protocols, and hence programmable differently. It is this programmability that characterizes the emerging economic space where economy itself becomes a design field.

We can get to the logic of the new economic space not just via a rejection of Hayek, but by drawing some themes of Hayek from the middle of the 20th century and deconstructing them to the 21st century realm of distributed computation and programmable social relations. In essence, if we deconstruct Hayek and indeed conventional economics, the market, prices and profits may be thought of as protocols being followed by a network of agents. But Hayek et al seem to think not. They would concur that prices and profits are protocols, but they analyse as if ‘the market’ is framed instead as a platform: culturally foundational and economically ‘natural’. For them, the market is depicted as a neutral technology into which individuals bring their strategic interests and which, if allowed to operate as it ‘should’, will create ‘equilibrium’ (neoclassical economics) and ‘spontaneous order’ (Hayek). The social ‘good’/’harm’, the commons, the environment, that sits outside these individual interests can only be framed as ‘externalities’, and hence second order considerations.

In new economic space, markets are explicitly defined by distributed network protocols. They are “spaces of exchange”: they structure the space of possibilities for interactions and for the economic properties of the objects populating such spaces. A market is a network and is defined by offer, exchange and accounting protocols that its agents must adopt in order to interoperate as a coherent whole. This emphasis brings to the fore the idea that markets are not “natural”, or innately instruments of capitalism, but can be structured, via redesigned protocols, to open different spaces of possible and to meet visions of different social relationships (for make no mistake, capital is a social relationship). Markets of the new economic space, as networks, are constantly being brought into being in new configurations by the initiatives of it’s agents.

We will elaborate on the nature of the markets in the post-capitalist economic space shortly, but it is first important to frame capitalist markets as distributed network protocols.


It is worth quoting Hayek at some length in his mid 20th century contrast between Soviet-style central planning and the capitalist market system, because what he says resonates with the capacities of a cryptoeconomy:

''- "It is in this connection that what I have called the ‘economic calculus’ proper helps us, at least by analogy, to see how this problem can be solved, and in fact is being solved, by the price system. Even the single controlling mind [the central planner], in possession of all the data for some small, self-contained economic system, would not — every time some small adjustment in the allocation of resources had to be made — go explicitly through all the relations between ends and means which might possibly be affected. It is indeed the great contribution of the pure logic of choice that it has demonstrated conclusively that even such a single mind could solve this kind of problem only by constructing and constantly using rates of equivalence (or ‘values,’ or ‘marginal rates of substitution’), i.e., by attaching to each kind of scarce resource a numerical index which cannot be derived from any property possessed by that particular thing, but which reflects, or in which is condensed, its significance in view of the whole means-end structure. In any small change he will have to consider only these quantitative indices (or ‘values’) in which all the relevant information is concentrated; and, by adjusting the quantities one by one, he can appropriately rearrange his dispositions without having to solve the whole puzzle ab initio or without needing at any stage to survey it at once in all its ramifications. Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coördinate the separate actions of different people in the same way as subjective values help the individual to coördinate the parts of his plan (emphasis added)".''


So for Hayek, price is the reduction of complexly-layered knowledge (a set of protocols) to a single index. With everyone speaking the language of price and the pursuit of profit as a singular index for decision-making, market interactions are said to generate spontaneous order — but what they actually do is to structure the space of possible.

This index could be based in different knowledge, producing a different logic, a different space of possible. ECSA is seeking to build indices for markets that are not driven by profit maximizing and self interest, but still rely on index movements to measure surpluses and to trigger trading strategies for agents that lead to wider economic decisions about what is produced and how. We depict these as the performance indices of the new economic space.

We should note the way in which Hayek depicts price as a simplified index that obviates the need for agents to hold full knowledge. Via cultural enmeshment, agents come to believe that price is all they need to know: price can be trusted to incorporate knowledge.

The most significant fact about this system is the economy of knowledge with which it operates, or how little the individual participants need to know in order to be able to take the right action. In abbreviated form, by a kind of symbol, only the most essential information is passed on, and passed on only to those concerned. It is more than a metaphor to describe the price system as a kind of machinery for registering change, or a system of telecommunications which enables individual producers to watch merely the movement of a few pointers, as an engineer might watch the hands of a few dials, in order to adjust their activities to changes of which they never know more than is reflected in the price movement.

Hayek says price embodies complex information — it creates knowledge of society — and its great functionality is that it is a simple representation of that complexity. But notice, in Hayek’s framing, that price may be the condensation of a complex set of knowledges, but knowledge is not intended to be reverse engineered from price.

This 1940’s advocacy of ‘the market’ and trust in ‘prices’ may stand strong as an alternative to 1940’s central planning, but 75 years on the argument must be different. The ‘imperative’ to have market protocols design a single measure called ‘price’ must be seen as a design choice. (Or if it is inappropriate to depict past history as a ‘choice’, we can certainly depict the future as involving choice.)

Instead of knowledge being condensed into ‘price’ in a capitalist discourse, current technology can enable knowledge to be compiled and stored for a potential range of uses, not just market price formation.

Price is, after all, no more than an index: it measures relative exchange values (between commodities; over time). But in the hands of Hayek and the neo-classicals, with their version of ‘the market’ naturalised as a platform, price can be treated socially as an absolute social measure. Indeed this is the analytical objective: to create the impression that price formation is the social expression of the natural order of markets. Prices slide from being technically relative values to be presented socially as absolute values. This is central to the idea of trust in a (fiat) money system. But the absolute measure is a social and political construct — social and political expression — and it can be changed. The appearance of cryptocurrencies, offering potential for so many different benchmarks for valuation, makes that potential social construction stark.

Why then is ‘price’ as we currently understand it the privileged index of valuation? Why do we not use (for example) sociality (social impact) as the privileged index of valuation? Or environmental impact?

The answer is that price defined in a discourse of profit and denominated in fiat (state) money is a measure that expresses the social and cultural values — the politics — of a capitalist society. In using this notion of price as the privileged measure we assume that: (a) output is conceived as ‘scarce’ and price is a means to ration allocation; (b) production for the market is valued over production for direct use (for the latter generates no price) and © profit is embedded within price (people take things to market so as to make a profit). In a capitalist society, those priorities seem appropriate: they capture the values of that society.

We believe that these social and cultural norms — and the ways of behavior and subjectivity embedded in them — follow to a critical degree from the nature of ownership and collateralization of assets and control over the issuance of and access to the dominant form of money and credit, i.e. certain protocols.

The challenge mounted by ECSA is to make stark that ‘price’, as it is conventionally understood, can be re-framed as just one set of protocols and one set of participants on those protocols but not, as Hayek would have us believe, the only set of protocols. In the context of risking together, distributed ownership and distributed issuance of money, these social and cultural norms will be profoundly challenged."
(https://medium.com/econaut/crypto-political-economy-dd91c6fcff7)




=More information=

* Book: [[Radical Markets]]


[[Category:Crypto Economy]]

[[Category:P2P Market Approaches]]

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