Introducing Jeff's Razor - A Framework for Economics and Ethics
There is an economic and ethical concept that I invented a few years ago and have found quite helpful ever since. It's about simplifying and clarifying economics and ethics applied to society at large, where issues can get quite muddled and messy. This helps cut through that mess like a razor. It's called Jeff's Razor. (The name was inspired by the famous philosophical concept Occam's Razor. I know, that's a lot of hubris on my part.)
This framework is simple, but it has very far ranging consequences. Stated simply, Jeff's Razor means that overall economic prosperity and peace is directly proportional to the voluntary to involuntary exchange ratio. We will unpack this a little, but really it's a concept that could be studied and used for lifetimes.
"Overall" is an important concept because there are errors in any system. The ability to commit error is possibly the defining feature of life. We will dive into that a little more later. But, for now, understand that there will always be exchanges where someone doesn't benefit because of misjudgments and false expectations. But, over time and across people, maximizing the voluntary to involuntary exchange ratio allows for the best error correction possible.
Why is prosperity directly proportional to the overall voluntary to involuntary exchange ratio? This comes down to some of the most basic concepts in economics, especially theory of value. Why is a diamond worth more than water? This problem is called the diamond/water paradox. The real answer is that diamonds are not always worth more, it depends on the context. Someone in a shopping center in California and someone in the Sahara desert might feel very differently about which one is worth more. We will look at both of them. One important thing to realize is that the value comes down to a certain person in a specific context. This is important, because all value is based upon individual value hierarchies. This is part of the nature of being human, it cannot be different. Value hierarchies can be the same, they can be shared, but it's always the individual's value hierarchy.
First, let's take the person in the desert. They've been walking for two days. They ran out of water yesterday. They are dehydrated. But, they have a diamond. Luckily, they go over a sand dune and see another wanderer across the desert. He has water. They talk and come to an agreement. An exchange will be made, the diamond for a few bottles of water. This is insane. That diamond is worth thousands of dollars and the bottles of water are worth only a few dollars. But, that is their exchange value in another place to other people. In this place, with these people, the use value of water is huge. The trader with water will not give more because the diamond isn't worth all of his water, it is only worth the few bottles that he can spare. The trader with the diamond will give it up because a few bottles of water is worth more than all of the diamonds in the world to him at that moment. It's completely sane. This is the subjective theory of value. It's important. You can see how this exchange benefits both people.
The person in the shopping center on the other hand that offers to give someone a few bottles of water for a diamond will be laughed at. It makes no sense, because it's a completely different context. Because it's a different context the value hierarchies of the people involved are completely different.
It's important to note that the people don't have to act like this, although most people probably would. People can have a myriad of different reasons for having different value hierarchies than you. Maybe it's a sacred diamond and the person will not exchange it for anything. Maybe they are willing to die to protect that diamond. Maybe the water is a special holy water of some sort that is worth more than the diamond. Maybe they think a camp is just over the next hill and thus they can make it that far to have water and still keep the diamond. Context is everything, but the only people that are able to make the decision, because it is based on their value hierarchies and is about their possessions, are the people actually involved. There are better and worse decisions, even good and bad decisions, based on those values, but that is a discussion in itself.
Economic exchanges, trades, are not about equal value. That's a common mistake that people make, they think they are giving equal value to equal value. From our example we can see that the values are never equal. What they are is mutually unequal. In the desert the trader with the diamond values water more and the diamond less, and the trader with the water values diamonds more and water less. When they exchange they don't exchange equal things, they exchange things that give both of them a boost, an increase. An increase of what? An increase in well-being.
Well-being is a useful term to denote when more or less of our values are being filled. When we get more of what we value our well-being goes up. When we lose what we value our well-being goes down. Our prosperity is our well-being. Most people associate life being better with money, meaning they value money (because mediums of exchange are extremely useful), and thus we associate prosperity, well-being, and wealth (although that isn't necessarily true, which we already talked about with the various ways of valuing diamonds and water other than the obvious).
Alright, that's the basic idea of why maximizing the voluntary to involuntary exchange ratio also maximizes prosperity, because the exchanges increase the well-being of both parties and it's those parties that have the best chance of correcting errors in decisions over time when that doesn't occur.
Now to ethics. Why is peace directly proportional to the voluntary to involuntary exchange ratio? An involuntary exchange is the opposite of peace. It's the taking of something through threat of force or force. Thus, the less of that the more peace there is. It really is quite that simple. This can get as complex as you want it to get. You can think about, study, and apply this to a million different situations, and write a thousand books on it. But, the basic idea is easy to grasp. Voluntary exchanges are peaceful and involuntary exchanges are not peaceful.
Both of the aspects of Jeff's Razor, the ethical and the economic, peace and prosperity, could be expanded on to infinity (or at least as long as humans are around) and I hope that they will be. For instance, are monopolies beneficial to society? We use Jeff's Razor. Do they increase or decrease the voluntary to involuntary transaction ratio? Immediately we see that there are not really monopolies, there are really two kinds of monopolies. There are monopolies of free exchange and there are monopolies backed by government mandates and force. A monopoly that occurs without the use of force or the threat of force is benefiting a large number of people, that's why they are choosing to use the services and/or products of that company. This is a monopoly that is increasing voluntary transactions and not increasing involuntary transactions. If they change that by introducing force or threat of force then they change from a force for good to a force for evil. A monopoly that can only occur because a government says it must, and anyone who goes against this will be fined, jailed, beaten, and imprisoned, that's a monopoly that is increasing the involuntary exchanges and decreasing the voluntary exchanges. Exchanges that would be able to occur without this injection of force into society do not. That's why there is a decrease in voluntary exchanges. So it hurts society in both ways. This is just the tip of the iceberg.
It is easy to go astray in both economics and ethics, it is easy to get bogged down and confused by all of the complications, to get lost in the labyrinth and not be able to find your way out. But, Jeff's Razor gives you a tool that can clear your vision and your path so that you can see your way clear, and easily determine what would be best for the overall society's peace and prosperity.
(For more information on the subjective theory of value I suggest digging into Austrian economics with special emphasis on Ludwig von Mises. Carl Menger and Eugen Bohm von Bawerk are also important. The French Liberal school of economics contributed a lot of excellent information before that time as well from Frederic Bastiat and Jean-Baptiste Say. There are a few important post-Austrians as well, like Joseph Schumpeter and Friedrich Hayek. For more information on why local knowledge lends itself to better economic organization, and how centralization of decision making causes more errors, not to mention corruption (because that centralized power attracts the worst people and corrupts the best people), I suggest looking into Hayek. For thoughts concerning how this ability to think and correct errors arose I suggest reading Erro, Ergo Sum: An Evolutionary Map for Consciousness, Cognition and Free Will by Andrew W. Notier. For a discussion on the only good intolerance being intolerance of intolerance I refer you to Karl Popper (although an intolerance of force would be a better proposal). For a brief intro on how cooperation and individual freedom are the most recent and greatest advance in the evolution of animals, namely humans, I refer you to page 93 of Love and Hate by Irenaus Eibl-Eibesfeldt.)
"The City of Peace" - A future history science fiction utopia/dystopia action adventure in a framed story of a father telling his son a story about the child's grandfather. That was a crazy sentence.
http://www.jeffreyalexandermartin.com/2017/08/the-xprize-writing-contest-part-5-of-5.html
"The Birth of Hanniba'al" - A dark, somewhat alternative, historical origin story for the Carthage General Hannibal.
http://www.jeffreyalexandermartin.com/2017/11/write-michigan-short-story-contest-part_30.html
"Matt's Eyes" - Don't read this if you don't like horror stories.
http://www.jeffreyalexandermartin.com/2018/11/a-flash-of-horror-part-4-of-4.html
Here are three of my most popular posts.
"The Making of a Great First Line in Fiction"
http://www.jeffreyalexandermartin.com/2017/12/the-making-of-great-first-line-in.html
"A Letter to My Niece in 2034"
http://www.jeffreyalexandermartin.com/2017/12/a-letter-to-my-niece-in-2034.html
"The Most Important Question in Philosophy - Part 4 of 4"
http://www.jeffreyalexandermartin.com/2017/11/the-most-important-question-in.html
You can find more of what I'm doing here: http://www.JeffreyAlexanderMartin.com
You can support this page at https://www.patreon.com/JeffreyAlexanderMartin
This framework is simple, but it has very far ranging consequences. Stated simply, Jeff's Razor means that overall economic prosperity and peace is directly proportional to the voluntary to involuntary exchange ratio. We will unpack this a little, but really it's a concept that could be studied and used for lifetimes.
"Overall" is an important concept because there are errors in any system. The ability to commit error is possibly the defining feature of life. We will dive into that a little more later. But, for now, understand that there will always be exchanges where someone doesn't benefit because of misjudgments and false expectations. But, over time and across people, maximizing the voluntary to involuntary exchange ratio allows for the best error correction possible.
Why is prosperity directly proportional to the overall voluntary to involuntary exchange ratio? This comes down to some of the most basic concepts in economics, especially theory of value. Why is a diamond worth more than water? This problem is called the diamond/water paradox. The real answer is that diamonds are not always worth more, it depends on the context. Someone in a shopping center in California and someone in the Sahara desert might feel very differently about which one is worth more. We will look at both of them. One important thing to realize is that the value comes down to a certain person in a specific context. This is important, because all value is based upon individual value hierarchies. This is part of the nature of being human, it cannot be different. Value hierarchies can be the same, they can be shared, but it's always the individual's value hierarchy.
First, let's take the person in the desert. They've been walking for two days. They ran out of water yesterday. They are dehydrated. But, they have a diamond. Luckily, they go over a sand dune and see another wanderer across the desert. He has water. They talk and come to an agreement. An exchange will be made, the diamond for a few bottles of water. This is insane. That diamond is worth thousands of dollars and the bottles of water are worth only a few dollars. But, that is their exchange value in another place to other people. In this place, with these people, the use value of water is huge. The trader with water will not give more because the diamond isn't worth all of his water, it is only worth the few bottles that he can spare. The trader with the diamond will give it up because a few bottles of water is worth more than all of the diamonds in the world to him at that moment. It's completely sane. This is the subjective theory of value. It's important. You can see how this exchange benefits both people.
The person in the shopping center on the other hand that offers to give someone a few bottles of water for a diamond will be laughed at. It makes no sense, because it's a completely different context. Because it's a different context the value hierarchies of the people involved are completely different.
It's important to note that the people don't have to act like this, although most people probably would. People can have a myriad of different reasons for having different value hierarchies than you. Maybe it's a sacred diamond and the person will not exchange it for anything. Maybe they are willing to die to protect that diamond. Maybe the water is a special holy water of some sort that is worth more than the diamond. Maybe they think a camp is just over the next hill and thus they can make it that far to have water and still keep the diamond. Context is everything, but the only people that are able to make the decision, because it is based on their value hierarchies and is about their possessions, are the people actually involved. There are better and worse decisions, even good and bad decisions, based on those values, but that is a discussion in itself.
Economic exchanges, trades, are not about equal value. That's a common mistake that people make, they think they are giving equal value to equal value. From our example we can see that the values are never equal. What they are is mutually unequal. In the desert the trader with the diamond values water more and the diamond less, and the trader with the water values diamonds more and water less. When they exchange they don't exchange equal things, they exchange things that give both of them a boost, an increase. An increase of what? An increase in well-being.
Well-being is a useful term to denote when more or less of our values are being filled. When we get more of what we value our well-being goes up. When we lose what we value our well-being goes down. Our prosperity is our well-being. Most people associate life being better with money, meaning they value money (because mediums of exchange are extremely useful), and thus we associate prosperity, well-being, and wealth (although that isn't necessarily true, which we already talked about with the various ways of valuing diamonds and water other than the obvious).
Alright, that's the basic idea of why maximizing the voluntary to involuntary exchange ratio also maximizes prosperity, because the exchanges increase the well-being of both parties and it's those parties that have the best chance of correcting errors in decisions over time when that doesn't occur.
Now to ethics. Why is peace directly proportional to the voluntary to involuntary exchange ratio? An involuntary exchange is the opposite of peace. It's the taking of something through threat of force or force. Thus, the less of that the more peace there is. It really is quite that simple. This can get as complex as you want it to get. You can think about, study, and apply this to a million different situations, and write a thousand books on it. But, the basic idea is easy to grasp. Voluntary exchanges are peaceful and involuntary exchanges are not peaceful.
Both of the aspects of Jeff's Razor, the ethical and the economic, peace and prosperity, could be expanded on to infinity (or at least as long as humans are around) and I hope that they will be. For instance, are monopolies beneficial to society? We use Jeff's Razor. Do they increase or decrease the voluntary to involuntary transaction ratio? Immediately we see that there are not really monopolies, there are really two kinds of monopolies. There are monopolies of free exchange and there are monopolies backed by government mandates and force. A monopoly that occurs without the use of force or the threat of force is benefiting a large number of people, that's why they are choosing to use the services and/or products of that company. This is a monopoly that is increasing voluntary transactions and not increasing involuntary transactions. If they change that by introducing force or threat of force then they change from a force for good to a force for evil. A monopoly that can only occur because a government says it must, and anyone who goes against this will be fined, jailed, beaten, and imprisoned, that's a monopoly that is increasing the involuntary exchanges and decreasing the voluntary exchanges. Exchanges that would be able to occur without this injection of force into society do not. That's why there is a decrease in voluntary exchanges. So it hurts society in both ways. This is just the tip of the iceberg.
It is easy to go astray in both economics and ethics, it is easy to get bogged down and confused by all of the complications, to get lost in the labyrinth and not be able to find your way out. But, Jeff's Razor gives you a tool that can clear your vision and your path so that you can see your way clear, and easily determine what would be best for the overall society's peace and prosperity.
(For more information on the subjective theory of value I suggest digging into Austrian economics with special emphasis on Ludwig von Mises. Carl Menger and Eugen Bohm von Bawerk are also important. The French Liberal school of economics contributed a lot of excellent information before that time as well from Frederic Bastiat and Jean-Baptiste Say. There are a few important post-Austrians as well, like Joseph Schumpeter and Friedrich Hayek. For more information on why local knowledge lends itself to better economic organization, and how centralization of decision making causes more errors, not to mention corruption (because that centralized power attracts the worst people and corrupts the best people), I suggest looking into Hayek. For thoughts concerning how this ability to think and correct errors arose I suggest reading Erro, Ergo Sum: An Evolutionary Map for Consciousness, Cognition and Free Will by Andrew W. Notier. For a discussion on the only good intolerance being intolerance of intolerance I refer you to Karl Popper (although an intolerance of force would be a better proposal). For a brief intro on how cooperation and individual freedom are the most recent and greatest advance in the evolution of animals, namely humans, I refer you to page 93 of Love and Hate by Irenaus Eibl-Eibesfeldt.)
________________________________________________
I've written three fictional pieces that I like so far.
"The City of Peace" - A future history science fiction utopia/dystopia action adventure in a framed story of a father telling his son a story about the child's grandfather. That was a crazy sentence.
http://www.jeffreyalexandermartin.com/2017/08/the-xprize-writing-contest-part-5-of-5.html
"The Birth of Hanniba'al" - A dark, somewhat alternative, historical origin story for the Carthage General Hannibal.
http://www.jeffreyalexandermartin.com/2017/11/write-michigan-short-story-contest-part_30.html
"Matt's Eyes" - Don't read this if you don't like horror stories.
http://www.jeffreyalexandermartin.com/2018/11/a-flash-of-horror-part-4-of-4.html
Here are three of my most popular posts.
"The Making of a Great First Line in Fiction"
http://www.jeffreyalexandermartin.com/2017/12/the-making-of-great-first-line-in.html
"A Letter to My Niece in 2034"
http://www.jeffreyalexandermartin.com/2017/12/a-letter-to-my-niece-in-2034.html
"The Most Important Question in Philosophy - Part 4 of 4"
http://www.jeffreyalexandermartin.com/2017/11/the-most-important-question-in.html
You can find more of what I'm doing here: http://www.JeffreyAlexanderMartin.com
You can support this page at https://www.patreon.com/JeffreyAlexanderMartin
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