Unenumerated

Short takes

2011-12-10T13:07:00.000-08:00

During my blog absence, I've been studying, designing, and implementing a style of programming I call temporal programming. It is useful for, among other things, implementing smart contracts. Meanwhile, I encourage readers interested in programming to check out Node.js. Temporal programming starts with event-oriented programming and takes it further. Temporal programming will give us control over when our instructions get executed: the plodding do this, then that, then the other, as if machine activities are only supposed to happen in one big long sequence and merely output some big long tape, will be relegated to secondary status. More to come.

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Is Netflix management really stupid? To summarize Megan McCardle, no: under copyright law, DVDs are covered by the first sale rule -- once you buy a DVD, you can't make a copy, but you can sell, rent or give away the DVD itself. Streaming, on the other hand, essentially involves making a copy, and you can't do it legally without the copyright owner's permission. So to stream the most demanded content, you usually need the permission of owners, and thus have to pay what they demand.

It thus makes complete sense that Netflix has to charge high prices for streaming -- because for the kind of content they want to stream (i.e. the copyrights that are so valuable that their owners bother to prevent the content from being distributed on YouTube), content owners are demanding revenues similar to what they are accustomed to via cable.

I'd add that the first sale rule also explains why Netflix, contrary to its name, originally succeeded in out-competing a gaggle of Internet video streaming companies by the stone-age method of shipping DVDs by mail. The main thing Netflix may have done wrong was, after succeeding in pivoting from Internet streaming to mailing DVDs, going back to their original goal in a way that set false expectations about prices (i.e. that streaming prices would be closer to DVD rental prices than to cable TV). Probably what happened is that Netflix CEO Reed Hastings thought he could use his mail-order rental business as leverage to negotiate lower prices with copyright owners, but this strategy did not succeed.

It also makes sense that Netflix (and their streaming competitors) lack licensed content due to copyright owners' long-standing aversion to Internet streaming. All this was happening to Netflix's video-streaming competitors long before Netflix's much more recent emphasis on that business. Netflix apparently hasn't, after all, solved the institutional problem that their DVD-shipping model worked around.

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Bit gold and I make brief appearances in Wired's Bitcoin article.

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Water remains fun. Digital fountains show how precisely drops can be located and timed:

This one is a bit different, drops fall with uniform regularity but are used to display light:

Of wages and money: cost as a proxy measure of value

2011-07-05T02:57:00.000-07:00

The subjective theory of value, used by the Salamanca school in Renaissance Spain and most recently in neoclassical and Austrian economics, is undoubtedly the correct one, despite the fact that figures ranging from Smith to Ricardo to Marx used labor as a fundamental measure of value. This labor theory of value is profoundly wrong. If I spend hours digging a hole in your back yard, that doesn't provide you any value unless you wanted a hole in your back yard.

Nevertheless, as we shall see, using labor, or more generally cost, as a measure of value is a common strategy of our institutions and in itself often quite valuable thing to do. How does this come about? The key to the puzzle is Yoram Barzel's idea of a proxy measure, which I have described as follows:

The process of determining the value of a product from observations is necessarily incomplete and costly. For example, a shopper can see that an apple is shiny red. This has some correlation to its tastiness (the quality a typical shopper actually wants from an apple), but it's hardly perfect. The apple's appearance is not a complete indicator -- an apple sometimes has a rotten spot down inside even if the surface is perfectly shiny and red. We call an indirect measure of value -- for example the shininess, redness, or weight of the apple -- a proxy measure. In fact, all measures of value, besides prices in an ideal market, are proxy measures -- real value is subjective and largely tacit.

Such observations also come at a cost. It may take some time to sort through apples to find the shiniest and reddest ones, and meanwhile the shopper bruises the other apples. It costs the vendor to put on a fake shiny gloss of wax, and it costs the shopper because he may be fooled by the wax, and because he has to eat wax with his apple. Sometimes these measurement costs comes about just from the imperfection of honest communication. In other cases, such as waxing the apple, the cost occurs because rationally self-interested parties play games with the observable...

Cost can usually be measured far more objectively than value. As a result, the most common proxy measures are various kinds of costs. Examples include:

(a) paying for employment in terms of time worked, rather than by quantity produced (piece rates) or other possible measures. Time measures sacrifice, i.e. the cost of opportunities foregone by the employee.

(b) most numbers recorded and reported by accountants for assets are costs rather than market prices expected to be recovered by the sale of assets.

(c) non-fiat money and collectibles obtain their value primarily from their scarcity, i.e. their cost of replacement.

(From "Measuring Value").

The proxy measure that dominates most of our lives is the time wage:

To create anything of value requires some sacrifice. To successfully contract we must measure value. Since we can’t, absent a perfect exchange market, directly measure the economic value of something, we may be able to estimate it indirectly by measuring something else. This something else anchors the performance – it gives the performer an incentive to optimize the measured value. Which measures are the most appropriate anchors of performance? Starting in Europe by the 13th century, that measure was increasingly a measure of the sacrifice needed to create the desired economic value.

This is hardly automatic – labor is not value. A bad artist can spend years doodling, or a worker can dig a hole where nobody wants a hole. Arbitrary amounts of time could be spent on activities that do not have value for anybody except, perhaps, the worker himself. To improve the productivity of the time rate contract required two breakthroughs: the first, creating the conditions under which sacrifice is a better estimate of value than piece rate or other measurement alternatives, and second, the ability to measure, with accuracy and integrity, the sacrifice.

Piece rates measure directly some attribute of a good or service that is important to its value – its quantity, weight, volume, or the like -- and then fix a price for it. Guild regulations which fixed prices often amounted to creating piece rates. Piece rates seem the ideal alternative for liberating workers, but they suffer for two reasons. First, the outputs of labor depend not only on effort, skills, etc. (things under control of the employee), but things out of control of the employee. The employee wants something like insurance against these vagaries of the work environment. The employer, who has more wealth and knowledge of market conditions, takes on these risks in exchange for profit.

In an unregulated commodity market, buyers can reject or negotiate downwards the price of poor quality goods. Sellers can negotiate upwards or decline to sell. With piece rate contracts, on the other hand, there is a fixed payment for a unit of output. Thus second main drawback to piece rates is that they motivate the worker to put out more quantity at the expense of quality. This can be devastating. The tendency of communist countries to pay piece rates, rather than hourly rates, is one reason that, while the Soviet bloc’s quantity (and thus the most straightforward measurements of economic growth) was able to keep up with the West, quality did not (thus the contrast, for example, between the notoriously ugly and unreliable Trabant of East Germany and the BMWs, Mercedes, Audi and Volkswagens of West Germany).

Thus with the time-rate wage the employee is insured against vagaries of production beyond his control, including selling price fluctuations (in the case of a market exchange), or variation in the price or availability of factors of production (in the case of both market exchange or piece rates). The employer takes on these risks, while at the same time through promotion, raises, demotions, wage cuts or firing retaining incentives for quality employee output.

Besides lacking implicit insurance for the employee, another limit to market purchase of each worker’s output is that it can be made prohibitively costly by relationship-specific investments. These investments occur when workers engage in interdependent production -- as the workers learn the equipment or adapt to each other. Relationship-specific investments can also occur between firms, for example building a cannon foundry next to an iron mine. These investments, when combine with the inability to write long-term contracts that account for all eventualities, motivate firms to integrate. Dealing with unspecified eventualities then becomes the right of the single owner. This incentive to integrate is opposed by the diseconomies of scale in a bureaucracy, caused by the distribution of knowledge, which market exchange handles much better. These economic tradeoffs produce observed distributions of firm sizes in a market, i.e. the number of workers involved in an employment relationship instead of selling their wares directly on a market.

The main alternative to market exchange of output, piece rate, or coerced labor (serfdom or slavery) consists of the employers paying by sacrifice -- by some measure of the desirable things the employee forgoes to pursue the employer’s objectives. An hour spent at work is an hour not spent partying, playing with the children, etc. For labor, this “opportunity cost” is most easily denominated in time – a day spent working for the employer is a day not spent doing things the employee would, if not for the pay, desire to do.

Time doesn’t specify costs such as effort and danger. These have to be taken into account by an employee or his union when evaluating a job offer. Worker choice, through the ability to switch jobs at much lower costs than with serfdom, allows this crucial quality control to occur.

It’s usually hard to specify customer preferences, or quality, in a production contract. It’s easy to specify sacrifice, if we can measure it. Time is immediately observed; quality is eventually observed. With employment via a time-wage, the costly giving up of other opportunities, measured in time, can be directly motivated (via daily or hourly wages), while quality is motivated in a delayed, discontinuous manner (by firing if employers and/or peers judge that quality of the work is too often bad). Third parties, say the guy who owned the shop across the street, could observe the workers arriving and leaving, and tell when they did so by the time. Common synchronization greatly reduced the opportunities for fraud involving that most basic contractual promise, the promise of time.

Once pay for time is in place, the basic incentives are in place – the employee is, verifiably, on the job for a specific portion of the day – so he might as well work. He might as well do the work, both quantity and quality, that the employer requires. With incentives more closely aligned by the calendar and the city bells measuring the opportunity costs of employment, to be compensated by the employer, the employer can focus observations on verifying the specific quantity and qualities desired, and the employee (to gain raises and avoid getting fired) focuses on satisfying them. So with the time-wage contract, perfected by northern and western Europeans in the late Middle Ages, we have two levels of the protocol in this relationship: (1) the employee trades away other opportunities to commit his time to the employer – this time is measured and compensated, (2) the employee is motivated, by (positively) opportunities for promotions and wage rate hikes and (negatively) by the threat of firing, to use that time, otherwise worthless to both employer and employee, to achieve the quantity and/or quality goals desired by the employer.

(from From "A Measure of Sacrifice")

Proxy measures also explain how money can depend on standards of nature instead of a singular trusted third party:

Although anatomically modern humans surely had conscious thought, language, and some ability to plan, it would have required little conscious thought or language, and very little planning, to generate trades. It was not necessary that tribe members reasoned out the benefits of anything but a single trade. To create this institution it would have sufficed that people follow their instincts to make obtain collectibles with the characteristics outlined below. (as indicated by proxy observations that make approximate estimations for these characteristics).

Utilitarian jewelry: silver shekels from Sumeria. The recipient of a payment would weigh the segment of coil used as payment and could cut it at an arbitrary spot to test its purity. A wide variety of other cultures, from the Hebrews and the famously commercial Phoenicians to the ancient Celtic and Germanic tribes, used such forms of precious metal money long before coinage.

At first, the production of a commodity simply because it is costly seems quite wasteful. However, the unforgeably costly commodity repeatedly adds value by enabling beneficial wealth transfers. More of the cost is recouped every time a transaction is made possible or made less expensive. The cost, initially a complete waste, is amortized over many transactions. The monetary value of precious metals is based on this principle. It also applies to collectibles, which are more prized the rarer they are and the less forgeable this rarity is. It also applies where provably skilled or unique human labor is added to the product, as with art.

(from "Shelling Out: The Origins of Money")

The rational price of such a monetary commodity will be, ignoring more minor effects (e.g. the destruction of monetary units) the lesser of:

(1) the value a monetary unit is expected to add to future transactions, i.e. what it will save in transaction costs

(2) the cost of creating a new monetary unit

Since (1) cannot be objectively measured, but at best can only be intuitively estimated, as long as one is confident that (1)>(2) the cost of creating a monetary unit becomes a good proxy measure of the value of the monetary unit. If monetary units are not fungible, but their costs are comparable, their relative value can be well approximated by their relative costs even if (2)>=(1). If the expected value of a monetary unit drops below the replacement cost, gold miners (for example) stop creating new monetary units (in the case of gold miners, if their production costs exceed this expected value they stop mining gold), holding the money supply steady which minimizes inflation. If it goes above replacement costs more gold mines can be affordably worked, increasing the money supply as the economy grows without inflation. This all depends on having a secure floor to replacement costs, which is well approximated by gold and silver but violated by fiat currencies (as can be seen by for example comparing the rampant inflations of many 20th century fiat currencies against the quite mild, by comparison, inflations that followed discoveries such as Potosi silver in the 16th century and California gold in the 19th).

Sumerian shell money.

We often adapt institutions from prior similar institutions, and often by accident. So, for example, money can evolve from utilitarian commodities that have the best characteristics of money (securely storable, etc.) in a particular environment (e.g. cigarettes in a prison). But humans also have foresight and can reason by analogy, and so can design an exchange to trade new kinds of securities, a new kind of insurance service, or a new kind of currency.

Naturally such designs are still subject to a large degree of trial and error, of the creative destruction of the market. And they are subject to network externalities: to, roughly speaking, Metcalfe's law, which states the value of a network is proportional to the square of the number of its members, and that a network of one is useless. A telephone is useless unless somebody else you want to talk to also has a telephone. Likewise, currency is useless unless one has somebody to buy from or sell to who will take or give that currency. Indeed, with money the situation is even worse than most networks, because unless that person wants to do a corresponding sell or buy back to you at a later date, the money will get "stuck." It will have zero velocity. One needs either specific cycles to keep money circulating (as with the ancient kula ring), or a second currency with such cycles that can be exchanged for the first. Thus, the marketing problem of starting a new currency is formidable. Although Paypal was implementing just a payment system in dollars, not a new currency, it hit on a great strategy of general applicability: target specific communities of people that trade with each other (in Paypal's case, the popular eBay auction site).

But insisting that gold, silver, shells, online payment systems or currencies, etc. must be useful for some other purpose, such as decoration, before they can be used as money, is a terrible confusion, akin to insisting that an insurance service must start out as useful for something else, perhaps for stabling horses, before one can write the insurance contracts. Indeed many of us value precious metals and shells for decoration more for a reverse reason, which I explain in the above-linked essay on the origins of money.

Conclusion

The labor theory of value is wrong. Value is fundamentally a matter of subjective preferences. Nevertheless. Yoram Barzel's crucial idea of proxy measures allows us to understand why measures of labor and more generally measures of cost are so often and so usefully applied as measures of value in institutions, including wage contracts and non-fiat money.

Agricultural consequences of the Black Death

2011-06-24T14:10:00.000-07:00

The Black Death, caused (as DNA testing of victims has recently confirmed) by the bubonic plague, Yersina pestis, swept through Europe primarily in the years 1347-1351, with some recurring outbreaks thereafter. This plague not only brought great demographic changes to Europe, killing off probably about half of the population, but substantial changes to the economy and especially to the dominant sector of the economy then, agriculture. The Black Death provides a great empirical test of Malthusian theories of agricultural economies and it is very informative to look at what happened.

Under a naive reading of Malthusian theory, yield (the amount of food or fodder produced per unit area) should have improved after the Black Death: a lower population abandoned marginally productive lands and kept the better yielding ones. Furthermore, the increased ratio of livestock to arable acres should have improved fertilization of the fields, as more nutrients and especially nitrogen moved from wastes (wild lands) and pastures to the arable.

But while marginal lands were indeed abandoned (or at least converted from arable to pasture), and the livestock/arable ratio indeed increased, it's not the case that yield improved after the Black Death. In fact, the overall (average) yield of all arable probably declined slightly, and the yields of particular plots of land that were retained as arable usually declined quite substantially. Yields declined and for the most part stayed low for several centuries thereafter. Other factors must have been work, factors stronger than the abandonment of marginally productive lands and the influence of more livestock on nutrient movement.
Per capita agricultural output (vertical axis) vs. population density (horizontal axis) in England before, during, and after the Black Death and through the agricultural revolutions of the succeeding centuries.

The main such factor is that increasing yield without great technological improvement requires more intensive labor: extra weeding, extra transport of manures and soil conditioners, etc. Contrariwise, a less intensive use of land readily leads to falling yield. After the Black Death, labor was more expensive relative to land, so it made sense to engage in a far less intensive agriculture. The increase of pasture and livestock at the expense of the arable was a part of this. But letting the yield decline was another. What increased quite dramatically in the century after the Black Death was labor productivity and per capita standard of living (see first three points on the diagram, each covering an 80-year period from 1260 to 1499).

Indeed, the whole focus in the literature on improvements in "productivity" as yield in the agricultural revolution has been very misleading. The crucial part of the revolution, and the direct cause of the release of labor from the agricultural to the industrial and transport sectors, was an increase in farm labor productivity: more food grown with less labor. Over short timescales, that is without dramatic technological or institutional progress, farm labor productivity was inversely correlated with yield for the reasons stated. Higher labor productivity, certainly not higher yield, is what distinguished most of Europe for example from East and Southeast Asia, where under intensive rice cultivation, and abundant rain during warm summers, yield had long been far higher than in Europe. Per Malthus, however, population growth in these regions had kept pace with yield, resulting in a highly labor-intensive, low labor productivity style of agriculture, including much less use of draft animals for farm work and transport.

The bubonic plague was spread by rodents, who in turn fed primarily on grain stores. This also had a significant impact on agriculture, because grain-growing farmers and grain-eating populations were disproportionately killed and people fled areas that grew or stored grain for regions specializing in other kinds of agriculture. In coastal regions like Portugal there was a large move from grain farming to fishing. In Northern Europe there was a great move to pasture and livestock, and in particular a relative expansion of the unique stationary pastoralism that had started to develop there in the previous centuries, both due to the relative protection of pastoralists from the plague and the less labor-intensive nature of pastoralism after land had become cheaper relative to labor.

A final interesting effect is that the long trend from about the 11th to the 19th century in England of conversion of draft animals from oxen to horses halted temporarily in the century after the Black Death. The main reason for this was undoubtedly the reversion of arable to pasture or waste (wild lands). Oxen are, to use horse culture terminology, very "easy keepers". As ruminants they can convert cellulose to glucose for energy and horses can't. Oxen, therefore, became relatively cheaper than horses in an era with more wastes and less (or at least much less intensive use of) arable for growing fodder. This kind of effect occurred again much later on the American frontiers where there was a temporary, partial reversion from horses to oxen as draft animals given the abundance of wild lands relative to groomed pasture and arable for growing fodder. For example the famous wagon trains to California and Oregon were pulled primarily by oxen, which could be fed much better than horses in the wild grasslands and arid wastes encountered. However in England itself, the trend towards horses replacing oxen, fueled by the increasing growth of fodder crops, had resumed by 1500 and indeed accelerated in the 16th century, playing a central role in the transportation revolutions of the 15th through 19th centuries.

Trotting ahead of Malthus

2011-06-11T13:43:00.001-07:00

Progress in the Malthusian isocline in England from the 13th through 19th centuries, as, among many other factors, horses slowly replaced oxen for farm work and transport, the ratio of draft animals to people increased, and more arable land was devoted to fodder relative to food.(click to enlarge)

I have previously discussed Great Britain's unprecedented escape from the Malthusian trap. Such escapes require virtuous cycles, i.e. positive feedback loops that allow productive capital to accumulate faster than it is destroyed. There are a number of these in Britain in the era of escape from the Black Plague to the 19th century, but two of the biggest involved transportation.

One of these that I've identified was the fodder/horse/coal/lime cycle. More and better fodder led to more and stronger horses, which hauled (among other things) coal from the mines, initially little more than quarries, that had started opening up in northeastern England by the 13th century. Coal, like wood, was very costly to transport by land, but relatively cheap to ship by sea or navigable river. As fodder improved, horses came to replace oxen in the expensive step transporting goods, including coal, from mine, farm, or workshop to port and from port to site of consumption. Many other regions (e.g. in Belgium and China) had readily accessible coal, but none developed this virtuous cycle so extensively and early.

Among the early uses of coal was for heating, fuel for certain industrial processes that required heat (e.g. in brewing beer), and, most interestingly, for burning lime. Burned lime, slaked with water, could unlike the limestone it came from be easily ground into a fine powder. This great increase in the surface area of this chemical base, which let it de-acidify the soils on which it was applied. The soils of Britain tend to be rather acidic, which allows poisonous minerals, such as aluminum, to absorb into plants and blocks the absorption of needed nutrients (especially NPK -- nitrogen, phosphorous, and potassium). The application of lime thus increased the productivity of fields for growing both food and fodder, completing the virtuous cycle. This cycle operated most strongly during the period of the consistent progress in the English Malthusian isocline from the 15th through 19th centuries.

Another, related, but even more important cycle was the horse/transport and institutions/markets/specialization cycle. More and better horses improved the transport of goods generally, including agricultural goods. John Langdon [1] estimates that a team of horses could transport a wagon of goods twice as fast as a team of oxen, which suggests a factor of four increase in market area. Add to this the Western European innovations in sailing during the 15th century (especially the trading vessels and colliers that added lateen sails(s) to the traditional square sails, allowing them to sail closer into the wind), and market regions in much of Western Europe and especially Great Britain were greatly expanded in the 15th and 16th centuries.

Expanded markets in turn allowed a great elaboration of the division of labor. Adam Smith famously described how division of labor and specialization greatly improved the productivity of industry, but to some extent this also operated in British agriculture. Eric Kerridge [2] eloquently described the agricultural regions of Britain, each specializing in different crops and breeds of livestock. Some were even named after their most famous specializations: "Butter Country", "Cheese Country", "Cheshire Cheese Country", "Saltings Country", etc. These undoubtedly emerged during the 15th through 19th centuries, as prior to that time European agriculture had been dominated by largely self-sufficient manors. And closing the cycle, there emerged several localities that specialized in breeding a variety of horses. Most spectacularly different British regions during this period bred no less than three kinds of large draft horses: the Shire Horse, the Suffolk Punch (in that eastern English county) and the Clydesdale (in that Scottish county).

Institutions such as advertising and commercial law emerged or evolved to allow lower transaction cost dealings between strangers. This was probably by far the most non-obvious and difficult aspect of the problem of expanding markets. Greatly aiding in this evolution was the growth of literacy due to spread in Europe of the inexpensive books produced by printing especially in the 16th and later centuries. Where in the Middle Ages literacy had been the privilege of a religious elite, with very few on a manor literate beyond the steward, after the 15th century an ever increasing population could read advertisements, order goods remotely, read and even draft contracts.

Another effect of longer-distance transportation was to open up more remote lands, which had been too marginal to support self-sufficient agricultural, to reclamation for use in specialized, trade-dependent agriculture. The ability to lime soils that were otherwise too acidic also often contributed to reclamation.

There were many other improvements to English agriculture and transportation during these crucial centuries, but the above cycles were probably the most important up to the 19th century. Here I'll mention three important transportation improvements later in this period that in many ways show the culmination of the underlying trend: the development of the turnpike (private toll) roads in the 18th century and the associated development of scheduled transportation services, (2) a great expansion in the use of horse-drawn rail cars in coal and other mines, and (3) the development of river navigations largely in the 17th and 18th centuries, and canals largely in the 18th and early 19th centuries, again almost entirely through private investment and ownership.

As coal mines were dug deeper, they were increasingly flooded with water. Long before the steam engine, these mines were pumped by horse-powered gins. Here horses on a gin power an axle (bent through a Hooke universal joint) and belt, in this case powering an 18th century farmyard innovation, the threshing machine. The horses know to not step on the rapidly spinning axle. I'm going to guess that the horse gin was the inspiration for the merry-go-round:

Horse-drawn wagons on rails took coal from mines to docks on navigable rivers and (no small matter) pulled the empty wagons back uphill. Coal and other ores were hauled by horses over these wagonways over distances of a few kilometers. They were almost exclusively used for mines, quarries, clay pits, and the like, running from mine mouth to navigable water. Here's a horse pulling coal on a wagonway:

More horses pulling coal on rails:

Now the only thing left of horse-drawn rail are tourist relics:

Even in 1903 the London streets were still powered by horses (see if you can spot the two still-rare horseless carriages):

And now for a taste of the British river navigations and canals:

The Trent and Mersey canal, built in the late 18th century, could take you from one side of England to the other:

Where Romans had used aqueducts to move water, the British used them in their canal system to move goods where their canals needed to span valleys. A large number of aqueducts were built from stone in Britain during its canal boom in the 18th century. This was the original Barton Aqueduct on the Bridgewater Canal (1760s):

In the late 18th century the smelting of iron using coal instead of wood was perfected. Soon thereafter iron became cheap enough to use for constructing bridges and aqueducts. One result was the spectacular Pontcysyllte Aqueduct in Wales. What in the early 19th century was a towpath for horses is now a sidewalk for tourists. Careful, it's a long way down!

References

Eric Kerridge, The Farmers of Old England

John Langdon, Horses, Oxen, and Technological Innovation

Bitcoin, what took ye so long?

2011-05-28T16:35:00.001-07:00

So asks gwern in a spectacular display of hindsight.

The short answer about why it took so long is that the bit gold/Bitcoin ideas were nowhere remotely close to being as obvious gwern suggests. They required a very substantial amount of unconventional thought, not just about the security technologies gwern lists (and I'm afraid the list misses one of the biggest ones, Byzantine-resilient peer-to-peer replication), but about how to choose and put together these protocols and why. Bitcoin is not a list of cryptographic features, it's a very complex system of interacting mathematics and protocols in pursuit of what was a very unpopular goal.

While the security technology is very far from trivial, the "why" was by far the biggest stumbling block -- nearly everybody who heard the general idea thought it was a very bad idea. Myself, Wei Dai, and Hal Finney were the only people I know of who liked the idea (or in Dai's case his related idea) enough to pursue it to any significant extent until Nakamoto (assuming Nakamoto is not really Finney or Dai). Only Finney (RPOW) and Nakamoto were motivated enough to actually implement such a scheme.

The "why" requires coming to an accurate understanding of the nature of two difficult and almost always misunderstood topics, namely trust and the nature of money. The overlap between cryptographic experts and libertarians who might sympathize with such a "gold bug" idea is already rather small, since most cryptographic experts earn their living in academia and share its political biases. Even among this uncommon intersection as stated very few people thought it was a good idea. Even gold bugs didn't care for it because we already have real gold rather than mere bits and we can pay online simply by issuing digital certificates based on real gold stored in real vaults, a la the formerly popular e-gold. On top of the plethora of these misguided reactions and criticisms, there remain many open questions and arguable points about these kinds of technologies and currencies, many of which can only be settled by actually fielding them and seeing how they work in practice, both in economic and security terms.

Here are some more specific reasons why the ideas behind Bitcoin were very far from obvious:

(1) only a few people had read of the bit gold ideas, which although I came up with them in 1998 (at the same time and on the same private mailing list where Dai was coming up with b-money -- it's a long story) were mostly not described in public until 2005, although various pieces of it I described earlier, for example the crucial Byzantine-replicated chain-of-signed-transactions part of it which I generalized into what I call secure property titles.

(2) Hardly anybody actually understands money. Money just doesn't work like that, I was told fervently and often. Gold couldn't work as money until it was already shiny or useful for electronics or something else besides money, they told me. (Do insurance services also have to start out useful for something else, maybe as power plants?) This common argument coming ironically from libertarians who misinterpreted Menger's account of the origin of money as being the only way it could arise (rather than an account of how it could arise) and, in the same way misapplying Mises' regression theorem. Even though I had rebutted these arguments in my study of the origins of money, which I humbly suggest should be should be required reading for anybody debating the economics of Bitcoin.

There's nothing like Nakamoto's incentive-to-market scheme to change minds about these issues. :-) Thanks to RAMs full of coin with "scheduled deflation", there are now no shortage of people willing to argue in its favor.

(3) Nakamoto improved a significant security shortcoming that my design had, namely by requiring a proof-of-work to be a node in the Byzantine-resilient peer-to-peer system to lessen the threat of an untrustworthy party controlling the majority of nodes and thus corrupting a number of important security features. Yet another feature obvious in hindsight, quite non-obvious in foresight.

(4) Instead of my automated market to account for the fact that the difficulty of puzzles can often radically change based on hardware improvements and cryptographic breakthroughs (i.e. discovering algorithms that can solve proofs-of-work faster), and the unpredictability of demand, Nakamoto designed a Byzantine-agreed algorithm adjusting the difficulty of puzzles. I can't decide whether this aspect of Bitcoin is more feature or more bug, but it does make it simpler.

Lactase persistence and quasi-pastoralism

2011-05-23T23:12:00.000-07:00

One of the more interesting and well-documented events of recent human evolution is the rise of adult lactase persistence, which allows some of us to fully digest milk as adults. All mammalian young, including human, can digest the sugar lactose found in their mother's milk. Essential to this digestion is the enzyme lactase. However, mammals typically lose this ability after being weaned, as a regulatory genes turns off expression of the lactase gene. This loss of lactase production, and thus of lactose digestion, also occurs in most humans: most adults who consume milk don't digest most of the lactose due to insufficient lactase enzymes, and often develop digestive discomfort, a condition called lactose intolerance. However, at least once in Africa, once in Europe, and possibly in Arabia arose alleles in the regulatory gene that kept the lactase in production in adulthood. The spread of these new alleles probably occurred in cultures that already had domesticated milk-producing herds, the milk from which played a crucial role in their childrens' diets and indirectly in adult diets via fermentation (which, at some cost, convert some but not all of the lactose to molecules more readily digested by adults).

The lactase regulation mutation that spread most dramatically was in Europe, until by now it occurs in nearly the entire population of northwest European countries.

Modern frequency of lactase non-persistence as percent of the population in Europe.

This European lactase persistence allele soon came to be most concentrated along the Baltic and North Seas, what I call the core area of lactase persistence. Due to the heavy use of cattle in the core region, lactase persistence spread rapidly there, surpassing half the population by about 1500 BC.

The European lactase persistent populations played a substantial role in world history. The Baltic and North Sea coasts were the source of most of the cultures that conquered and divvied up the Western Roman Empire in the fourth through seventh centuries: Angles and Saxons (founded England), Ostrogoths and Lombards (Italy), Visigoths (Spain), Vandals (conquered north Africa), Frisians (the Low Countries) and Franks (France) among others. Later the lactase persistence core would produce the Vikings, who explored and conquered from Russia to North America and as far south as the Mediterranean, and the Normans, who invaded England, Sicly, and southern Italy led the Crusades among other exploits. Still later mostly lactase persistent populations would found the worldwide Portuguese, Spanish, French, Dutch and British empires and originate the agricultural and industrial revolutions.

Estimated spread of the European lactase persistence allele in the core region in northern Europe over time.

This was by no means the only gene evolving in the core. Indeed, the same cattle-heavy agriculture of northern Europe, probably originating in and migrating from central Europe, also gave rise to a great diversity of genes encoding cow milk proteins.

We found substantial geographic coincidence between high diversity in cattle milk genes, locations of the European Neolithic cattle farming sites (>5,000 years ago) and present-day lactose tolerance in Europeans. This suggests a gene-culture coevolution between cattle and humans. [ref]

(b) diversity of cow milk protein alleles, (c) frequency of human lactase persistence.

Associated with the lactase persistence core was a unique system of agriculture I call quasi-pastoralism. It can be distinguished from the normal agriculture that was standard to civilization in southern Europe, the Middle East, and South and East Asia, in having more land given up to pasture and arable fodder crops than to arable food crops. Nearly all agriculture combined livestock with food crops, due to the crucial role of livestock in transporting otherwise rapidly depleted nutrients, especially nitrogen, from the hinterlands to the arable. However, as arable produces far more calories, and about as much protein, per acre, civilizations typically maximized their populations by converting as much of their land as possible to arable and putting almost all the arable to food crops instead of fodder, leaving only enough livestock for plowing and the occasional meat meal for the elite. Quasi-pastoral societies, on the other hand, devoted far more land to livestock and worked well where the adults could directly consume the milk.

Quasi-pastoralism can be distinguished from normal, i.e. nomadic, pastoralism in being stationary and having a substantial amount of land given over to arable crops, both food (for the people) and fodder (for the livestock). A precondition for quasi-pastoralism was the stationary bandit politics of civilization rather than the far more wasteful roving bandit politics of nomads.

Compared to the normal arable agriculture of the ancient civilizations, quasi-pastoralism lowered the costs of transporting food -- both food on hoof and, in more advanced quasi-pastoral societies such as late medieval England, food being transported by the greater proportion of draft animals. This increased the geographical extent of markets and thus the division of labor. England and the Low Countries, among other core areas, gave rise to regions that specialized in cheese, butter, wool, and meat of various kinds (fresh milk itself remained hard to transport until refrigeration). A greater population of draft animals also made grain and wood (for fuel and construction) cheaper to transport. With secure property rights, investments in agricultural capital could meet or exceed those in a normal arable society. The population of livestock had been mainly limited, especially in northern climates, by the poor pasture available in the winter and early spring. While hay -- the growth of fodder crops in the summer for storage and use in winter and spring -- is reported in the Roman Empire, the first known use of a substantial fraction of arable land for hay occurred in the cattle-heavy core in northern Europe.

England's unprecedented escape from the Malthusian trap (click to enlarge).

Hay, especially hay containing large proportions of nitrogen-rich vetch and clover, allowed livestock populations in the north to greatly increase. The heavy use of livestock made for a greater substitution of animal for human labor on the farm as well as for transport and war, leading to more labor available for non-agricultural pursuits such as industry and war. The great population of livestock in turn provided more transport of nitrogen and other otherwise rapidly depleted nutrients from hinterlands and creek-flooded meadows to arable than in normal arable societies, leading to greater productivity of the arable that could as much as offset the substantial proportion of arable devoted to fodder. The result was that agricultural productivity by the 19th century was growing so rapidly that it outstripped even a rapidly growing population and Great Britain became the first country to escape from the Malthusian trap.

There are thus, in summary, deep connections between the co-evolution of milk protein in cows and lactase persistence in humans, the flow of nitrogen and other crucial nutrients from their sources to the fields, quasi-pastoralism with its stationary banditry and secure property rights, and the eventual agricultural and industrial revolutions of Britain, which we have just begun to explore.

Some speculations on the frontier below our feet

2011-02-15T21:02:00.000-08:00

The biggest problem we face with the frontier below that we're literally in the dark. We have a number of crude geophysical techniques (seismology, gravity field, electromagnetic, etc.) but none of them allow creating a detailed map like we can make of the surface of a distant moon of Saturn or even of a cloud-covered planet like Venus. So in some important ways we are more ignorant of the ground a few hundred meters down in most places on our own planet than we are of the surface of most of the other planets and moons in our solar system. We know less about the distribution of the common molecules below the earth's crust, only 35 kilometers below our feet, than we do of the distribution of those molecules on the surfaces of dust clouds in distant galaxies.

One possible fix to this earth-blindness is the neutrino, and more speculatively and generally, dark matter. We can detect neutrinos and anti-neutrinos by (I'm greatly oversimplifying here, physicists please don't cringe) setting up big vats of clear water in complete darkness and lining them with ultra-sensitive cameras. The feature of neutrinos is that they rarely interact with normal matter, so that most of them can fly from their source (nuclear reactions in the earth or sun) through the earth and still be detected. The bug is that almost all of them fly through the detector, too. Only a tiny fraction hit a nucleus in the water and interact, giving off a telltale photon (a particle of light) which is picked up by one of the cameras. It is common now to detect neutrinos from nuclear reactors and the sun, and more recently we have started using some crude instruments to detect geo-neutrinos (i.e. neutrinos or anti-neutrinos generated by the earth not the sun). With enough vats and cameras we may be able to detect enough of these (anti-)neutrinos from nuclear reactions (typically radioactive decays) in the earth's crust to make a detailed radioisotope map (and thus go a long way towards a detailed chemical map) of the earth's interior. For the first time we'd have detailed pictures of the earth's interior instead of very indirect and often questionable inferences. A 3D Google Earth. These observatories may also be a valuable intelligence tool, detecting secret nuclear detonations and reactors being used to construct nuclear bomb making material, via the tell-tale neutrinos these activities give off.

Other forms of weakly interacting particles, the kind that probably make up dark matter, may be much more abundant but interact even more weakly than neutrinos. So weakly we haven't even detected them yet. They're just the best theory we have to explain why galaxies hang together: if they consisted only of the visible matter they should fly apart. Nevertheless, depending on what kinds of dark particles we discover, and on what ways they weakly interact with normal matter, we may find more ways of taking pictures of the earth's interior.

What might we find there? One possibility: an abundance of hydrogen created by a variety of geological reactions and sustained by the lack of oxygen. Scientists have discovered that the predominant kinds of rocks in the earth's crust contain quite a bit of hydrogen trapped inside them: on average about five liters of hydrogen per cubic meter of rock. This probably holds at least to the bottom of the lithosphere. If so that region contains about 150 million trillion liters of hydrogen.

Sufficiently advanced neutrino detectors might be able to see this hydrogen via its tritium, which when it decays gives off a neutrino. Tritium with its half-life of about 12 years is very rare, but is created when a more common hydrogen isotope, deuterium, captures a neutrino from a more common nuclear event (the decay of radioisotopes that are common in the earth's crust). About one-millionth of the deuterium in the heavy water moderating a nuclear reactor is converted into tritium in a year. This rate will be far less in the earth's interior but still may be significant enough compared to tritium's half-life that a sufficiently sensitive and calibrated (with respect to the much greater stream of such neutrinos coming from the sun) neutrino detector of the future may detect hydrogen via such geotritium-generated neutrinos. However, the conversion of deuterium to tritium in the earth's core may be so rare that we will be forced to infer the abundance of hydrogen from the abundance of other elements. Almost all elements have radioisotopes that give off neutrinos when they decay, and most of these are probably much more common in the earth's core than tritium.

Another possibility for detecting hydrogen is, instead of looking for geo-neutrinos, to look at how the slice of earth one wants to study absorbs solar neutrinos. This would require at least two detectors, one to look at the (varying) unobstructed level of solar neutrinos and the other lined up so that the geology being studied is between that detector and the sun. This differential technique may work even better if we have a larger menagerie of weakly interacting particles ("dark matter") to work with, assuming that variations in nuclear structure can still influence how these particles interact with matter.

It's possible that a significant portion the hydrogen known to be locked into the earth's rocks has been freed or can be freed merely by the process of drilling through that rock, exposing the highly pressurized hydrogen in deep rocks to the far lower pressures above. This is suggested by the Kola Superdeep Borehole, one of those abandoned Cold War super-projects. In this case instead of flying rockets farther than the other guy, the goal was to drill deeper than the other guy, and the Soviets won this particular contest: over twelve kilometers straight down, still the world record. They encountered something rarely encountered in shallower wells: a "large quantity of hydrogen gas, with the mud flowing out of the hole described as 'boiling' with hydrogen."

The consequences of abundant geologic hydrogen could be two-fold. First, since a variety of geological and biological processes convert hydrogen to methane (and the biological conversion, by bacteria appropriately named "methanogens", is the main energy source for the deep biosphere, which probably substantially outweighs the surface biosphere), it suggests that our planet's supply of methane (natural gas) is far greater than of oil or currently proven natural gas reserves, so that (modulo worries about carbon dioxide in the atmosphere) our energy use can continue to grow for many decades to come courtesy of this methane.

Second, the Kola well suggests the possibility that geologic hydrogen itself may become an energy source, and one that frees us from having to put more carbon dioxide in the atmosphere. The "hydrogen economy" some futurists go one about, consisting of fuel-cell-driven machinery, depends on making hydrogen which in turn requires a cheap source of electricity. This is highly unlikely unless we figure out a way to make nuclear power much cheaper. But by contrast geologic hydrogen doesn't have to be made, it only has to be extracted and purified. If just ten percent of the hydrogen in the lithosphere turns out to be recoverable over the next 275 years, that's enough by my calculations to enable a mild exponential growth in energy usage of 1.5%/year over that entire period (starting with the energy equivalent usage of natural gas today). During most of that period human population is expected to be flat or falling, so practically that entire increase would be in per capita usage. To put this exponential growth in perspective, at the end of that period a person would be consuming, directly or indirectly, about 330 times as much hydrogen energy as they consume in natural gas energy today. And since it's hydrogen, not hydrocarbon, burning it would not add any more carbon to the atmosphere, just a small amount of water.

Luckily our drilling technology is improving: the Kola well took nearly two decades to drill at a leisurely pace of about 2 meters per day. Modern oil drilling often proceeds at 200 meters/day or higher, albeit not to such great depths. Synthetic diamond, used to coat the tips of the toughest drills, is much cheaper than during the Cold War and continues to fall in price, and we have better materials for withstanding the high temperatures and pressures encountered when we get to the bottom of the earth's crust and proceeding into the upper mantle (where the Kola project got stymied: their goal was 15 kilometers down).

A modern drill bit studded with polycrystalline diamond

Of course, I must stress that the futuristic projections given above are quite speculative. We may not figure out how to affordably build a network of neutrino detecting vats massive enough or of high enough precision to create detailed chemical maps of the earth's interior. And even if we create such maps, we may discover not so much hydrogen, or that the hydrogen is hopelessly locked up in the rocks and that the Kola experience was a fluke or misinterpretation. Nevertheless, if nothing else this exercise shows, despite all the marvelous stargazing science that we have done, how much mysterious ground we have below our shoes.

Great stagnation or external growth?

2011-02-09T16:57:00.000-08:00

Tyler Cowen posits that we are going through a Great Stagnation. Civilization has harvested the low hanging fruit of the internal combustion engine, electricity, and so on that drove great increases in value and productivity from the end of the nineteenth century. But we have made so few similarly productive discoveries in recent decades that as a result progress is slowing down. Markets have thus overestimated economic growth, resulting in the dot-com bubble and crash and the more recent market problems as real estate prices failed to keep pace with expectations. This thesis echoes much that Peter Thiel and others have been saying, that the financial industry has, in its expectations about financial returns, been counting on 20th century levels of economic growth in the developed world but instead has hit the reality of lower growth rates here, resulting in market volatility and drops.

These pessimistic observations of long-term economic growth are in many ways a much needed splash of cold water in the face for the Kurzweilian "The Singularity is Near" crowd, the people who think nearly everything important has been growing exponentially. And it is understandable for an economist to observe a great stagnation because there has indeed been a great stagnation in real wages as economists measure them: real wages in the developed world grew spectacularly during most of the 20th century but have failed to grow during the last thirty years.

Nevertheless Cowen et. al. are being too pessimistic, reacting too much to the recent market problems. (Indeed the growing popularity of pessimistic observations of great stagnations, peak oil, and the like strongly suggest it's a good time to be long the stock markets!) These melancholy stories fail to take into account the great recent increases in value that are subjectively obvious to almost all good observers who have lived through the last twenty years but that economists have been unable to measure.

In many traditional industries, such as transportation and real estate, the pessimistic thesis is largely true. The real costs of commuting, buying real estate near where my friends are and where I want to work, of getting a traditional college education, and a number of other important things have risen significantly over the past twenty years. These industries are going backwards, becoming less efficient, delivering less value at higher cost: if we could measure their productivity it would be falling.

On the other hand, the costs of manufacturing goods whose costs primarily reflect manufacturing rather than raw materials has fallen substantially over the least twenty years, at about the same rate as in prior decades. Of course, most of these gains have been in the developing and BRICs countries, for a variety of reasons, such as the higher costs of regulation in the developed world and the greater access to cheaper labor elsewhere, but those of us in the U.S., Europe and Japan still benefit via cheap imports that allow us to save more of our money for other things. But perhaps even more importantly, outside of traditional education and mass media we have seen a knowledge and entertainment sharing revolution of unprecedented value. I argue that what looks like a Great Stagnation in the traditional market economy is to a significant extent a product of a vast growth in economic value that has occurred on the Internet and largely outside of the traditional market economy, and a corresponding cannibalization of and brain drain from traditional market businesses.

Most of the economic growth during the Internet era has been largely unmonetized, i.e. external to the measurable market. This is most obvious for completely free services like Craig's List, Wikipedia, many blogs, open source software, and many other services based on content input by users. But ad-funded Internet services also usually create a much greater value than is captured by the advertising revenues. These include search, social networking, many online games, broadcast messaging, and many other services. Only a small fraction of the Internet's overall value has been monetized. In other words, the vast majority of the Internet's value is what economists call an externality: it is external to the measurable prices of the market. Of course, since this value is unmeasured, this thesis is extremely hard to prove or disprove, and can hardly be called scientific; mainly it just strikes me as subjectively obvious. "Social science" can't explain most things about society and this is one of them.

What's worse for the traditional market (as opposed to this recent tsunami of unmonetized voluntary information exchange), this tidal wave of value has greatly reduced the revenues of certain industries. The direct connection the Internet provides between authors and the readers put out of business many bookstores. Online classifieds and free news sources have cannibalized newspapers and magazines. Wikipedia is destroying demand for the traditional encyclopedia. Free and cut-price music has caused a substantial decline in music industry revenues. So the overall effect is a great increase in value combined with a perhaps small, but I'd guess significant reduction in what GDP growth would have been without the Internet.

What are some of the practical consequences? Twenty years ago most smart people did not have an encyclopedia in the home or at the office. Now the vast majority in the developed and even hundreds of millions in the BRICs countries do, and many even have it in the car or on the train. Twenty years ago it was very inconvenient and cost money to place a tiny classified ad that could only be seen in the local newspaper; now it is very easy and free to place an ad of proper length that can be seen all over the world. Search engines combined with mass voluntary and generally free submission of content to the Internet has increased the potential knowledge we have ready access to thousands-fold. Social networking allows us to easily reconnect with old friends we'd long lost contact with. Each of us has access to much larger libraries of music and written works. We have access to a vast "long tail" of specialized content that the traditional mass media never provided us. The barriers to a smart person with worthwhile thoughts getting fellow humans to attend to those thoughts are far lower than what they were twenty years ago. And almost none of this can be measured in market prices, so almost none of it shows up in the economic figures on which economists focus.

Cowen suggests that external gains of similar magnitude occurred in prior productivity revolutions, but I'm skeptical of this claim. A physical widget can be far more completely monetized than a piece of information, because it is excludable: if you don't pay, you don't get the widget. As opposed to information that computers readily copy. (The most underappreciated function of computers is that they are far better copy machines than the paper copiers). It's true that competition drove down prices. But the result was still largely monetized as greater value caused increased demand, whereas growth in the use of search engines, Twitter, Wikipedia, Facebook etc. largely just requires adding a few more computers that now cost far less than the value they convey. (Yes, I'm well aware of scaling issues in software engineering, but they typically don't require much more than a handful of smart computer scientists to solve). Due to Moore's Law the computers that drive the Internet have radically increased in functionality per dollar since the dawn of the Internet. Twitter's total capital equipment purchases, R&D, and user acquisition expenditures are less than fifty cents per registered user and these capital investment costs per user continue to drop at a ferocious rate for Internet businesses and non-profits.

The brain drain from traditional industries can be seen in, for example, the great increase in the proportion of books on computer programming, HTML, and the like on bookstore shelves to traditional engineering and technical disciplines from mechanical engineering to plumbing. It is not so blatant in the relative growth of computer science and electrical engineering relative to other engineering disciplines, but that's just the tip of the iceberg and vast numbers of non-computer scientists, including many with engineering degrees or technical training in other areas, have ended up as computer programmers.

Fortunately, the Internet is giving a vast new generation of smart people access to knowledge who never had it before. The number of smart people who can learn an engineering discipline has probably increased by nearly a factor of ten over the last twenty years (again largely in the BRICs and developing world of course). The number who can actually get a degree of course has not -- which gives rise to a great economic challenge -- what are good ways for this vast new population of educated smart people to prove their intelligence and knowledge when traditional education with its degrees of varying prestige is essentially a zero-sum status game that excludes them? How do we get them in regular social contact with more traditionally credentialed smart people? The Internet may solve much of the problem of finding fellow smart people who share our interests and skills, but we still emotionally bond with people over dinner not over Facebook.

As for the great stagnation in real wages in particular, the biggest reason is probably the extraordinarily rapid pace at which the BRICs and developing world has become educated and accessible to the developed world since the Cold War. In other words, outsourcing has in a temporary post-Cold-War spree outraced the ability of most of us in the developed world to retrain to the more advanced industries. The most unappreciated reason, and the biggest reason retraining for newer industries has been so difficult, is that unmonetized value provides no paying jobs, but may destroy such jobs when it causes the decline of some traditionally monetized industries. On the Internet the developed world is providing vast value to the BRICs and developing world, but that value is largely unmonetized and thus produces relatively few jobs in the developed world. The focus of the developed world on largely unmonetized, though extremely valuable, activities has been a significant cause of wage stagnation in the developed world and of skill and thus wage increases in the developing world. Whereas before they were buying our movies, music, books, and news services, increasingly they are just getting our free stuff on the Internet. The most important new industry of the last twenty years has been mostly unmonetized and thus hasn't provide very many jobs to retrain for, relative to the value it has produced.

And of course there are the challenges of the traditional industries that gave us the industrial revolution and 20th century economic growth in the first place. Starting with the most basic and essential: agriculture, extraction, and mass manufacturing. By no means should these be taken for granted; they are the edifice on which all the remainder rests. Gains in agriculture and extraction may be diminishing as the easy pickings (given sufficiently industrial technology and a sufficiently elaborated division of labor) of providing scarce nutrients and killing pests in agriculture and the geologically concentrated ores are becoming history. Can the great knowledge gains from the Internet be fed back to improve the productivities of our most basic industries, especially in the face of Malthusian depletion of the low hanging fruit of soil productivity and geological wealth? That remains to be seen, but despite all the market troubles and run-up in commodity prices, which have far more to do with financial policies than with the real costs of extracting commodities, I remain optimistic. We still have very large and untapped physical frontiers. These tend to be, for the near future, below us rather than above us, which flies in the face of our spiritual yearnings (although for space fans here is the most promising possible exception to this rule I have encountered). The developing world may win these new physical frontiers due to the high political value the developed world places on environmental cleanliness, which has forced many dirty but crucial businesses overseas. Industries that involve far more complex things, like medicine and the future of the Internet itself, are far more difficult to predict. But the simple physical frontiers as well as the complex medical and social frontiers are all there, waiting for our new generations with their much larger number of much more knowledgeable people to tap them.

Some hard things are easy if explained well

2011-01-26T17:25:00.000-08:00

Proof of the Pythagorean theorem:

Dark matter:

Chemical reactions, fire, and photosynthesis:

How trains stay on their tracks and go through turns:

And just for fun, the broken window fallacy:

Tech roundup 01/22/11

2011-01-22T13:54:00.000-08:00

Atomic clock on a chip for about $1,500. Accurate and independent clocks improve secure synchronous protocols, in other words can help securely determine the order in which events occur on the Internet, wireless, and other networks while minimizing dependence on trusted third parties like GPS. The technology nicely complements secure timestamping (see e.g. here, here, and here) which can leave an unforgeable record of the ordering of events and the times at which specific data or documents existed.

Bitcoin, an implementation of the bit gold idea (and another example of where the order of events is important), continues to be popular.

It is finally being increasingly realized that there are many "squishy" areas where scientific methods don't work as well as they do in hard sciences like physics and chemistry. Including psychology, significant portions of medicine, ecology, and I'd add the social sciences, climate, and nutrition. These areas are often hopelessly infected with subjective judgments about results, so it's not too surprising that when the the collective judgments change about what constitutes, for example, the "health" of a mind, body, society, or ecosystem, that the "results" of experiments as defined in terms of these judgments change as well. See also "The Trouble With Science".

Flat sats (as I like to call them) may help expand our mobility in the decades ahead. Keith Lofstrom proposes fabricating an entire portion of a phased array communications satellite -- solar cells, radios, electronics, computation, etc. -- on a single silicon wafer. Tens of thousands or more of these, each nearly a foot wide, may be launched on a single small rocket. If they're thin enough, orientation and orbit can be maintained using light pressure (like a solar sail). Medium-term application: phased array broadcast of TV or data allows much smaller ground antennas, perhaps even satellite TV and (mostly downlink) Internet in your phone, iPad, or laptop. Long-term: lack of need for structure to hold together an array of flat sats may bring down the cost of solar power in space to the point that we can put the power-hungry server farms of Internet companies like Google, Amazon, Facebook, etc. in orbit. Biggest potential problem: large numbers of these satellites may both create and be vulnerable to micrometeors and other space debris.

Introduction to genetic programming, a powerful evolutionary machine learning technique that can invent new electronic circuits, rediscover Kepler's laws from orbital data in seconds, and much more, as long as it has fairly complete and efficient simulations of the environment it is inventing or discovering in.

Exploration for underwater gold mining is underway. See also "Mining the Vast Deep."

"The Singularity"

2011-01-17T21:32:00.000-08:00

A number of my friends have gotten wrapped up in a movement dubbed "The Singularity." We now have a "Singularity Institute", a NASA-sponsored "Singularity University", and so on as leading futurist organizations. I tend to let my disagreements on these kinds of esoteric futurist visions slide, but I've been thinking about my agreements and disagreements with this movement for long enough that I shall now share them.

One of the basic ideas behind this movement, that computers can help make themselves smarter, and that growth that for a time looks exponential, or even super-exponential in some dimensions and may end up much faster than today may result, is by no means off the wall. Indeed computers have been helping improve future versions of themselves at least since the first compiler and circuit design software was invented. But "the Singularity" itself is an incoherent and, as the capitalization suggests, basically a religious idea. As well as a nifty concept for marketing AI research to investors who like very high risk and reward bets.

The "for a time" bit is crucial. There is as Feynman said "plenty of room at the bottom" but it is by no means infinite given actually demonstrated physics. That means all growth curves that look exponential or more in the short run turn over and become S-curves or similar in the long run, unless we discover physics that we do not now know, as information and data processing under physics as we know it are limited by the number of particles we have access to, and that in turn can only increase in the long run by at most a cubic polynomial (and probably much less than that, since space is mostly empty).

Rodney Brooks thus calls the Singularity "a period" rather than a single point in time, but if so then why call it a singularity?

As for "the Singularity" as a point past which we cannot predict, the stock market is by this definition an ongoing, rolling singularity, as are most aspects of the weather, and many quantum events, and many other aspects of our world and society. And futurists are notoriously bad at predicting the future anyway, so just what is supposed to be novel about an unpredictable future?

The Singularitarian notion of an all-encompassing or "general" intelligence flies in the face of how our modern economy, with its extreme specialization, works. We have been implementing human intelligence in computers little bits and pieces at a time, and this has been going on for centuries. First arithmetic (first with mechanical calculators), then bitwise Boolean logic (from the early parts of the 20th century with vacuum tubes), then accounting formulae and linear algebra (big mainframes of the 1950s and 60s), typesetting (Xerox PARC, Apple, Adobe, etc.), etc. etc. have each gone through their own periods of exponential and even super-exponential growth. But it's these particular operations, not intelligence in general, that exhibits such growth.

At the start of the 20th century, doing arithmetic in one's head was one of the main signs of intelligence. Today machines do quadrillions of additions and subtractions for each one done in a human brain, and this rarely bothers or even occurs to us. And the same extreme division of labor that gives us modern technology also means that AI has and will take the form of these hyper-idiot, hyper-savant, and hyper-specialized machine capabilities. Even if there was such a thing as a "general intelligence" the specialized machines would soundly beat it in the marketplace. It would be very far from a close contest.

Another way to look at the limits of this hypothetical general AI is to look at the limits of machine learning. I've worked extensively with evolutionary algorithms and other machine learning techniques. These are very promising but are also extremely limited without accurate and complete simulations of an environment in which to learn. So for example in evolutionary techniques the "fitness function" involves, critically, a simulation of electric circuits (if evolving electric circuits), of some mechanical physics (if evolving simple mechanical devices or discovering mechanical laws), and so on.

These techniques only can learn things about the real world to the extent such simulations accurately simulate the real world, but except for extremely simple situations (e.g. rediscovering the formulae for Kepler's laws based on orbital data, which a modern computer with the appropriate learning algorithm can now do in seconds) the simulations are usually very woefully incomplete, rendering the results usually useless. For example John Koza after about 20 years of working on genetic programming has discovered about that many useful inventions with it, largely involving easily simulable aspects of electronic circults. And "meta GP", genetic programming that is supposed to evolve its own GP-implementing code, is useless because we can't simulate future runs of GP without actually running them. So these evolutionary techniques, and other machine learning techniques, are often interesting and useful, but the severely limited ability of computers to simulate most real-world phenomena means that no runaway is in store, just potentially much more incremental improvements which will be much greater in simulable arenas and much smaller in others, and will slowly improve as the accuracy and completeness of our simulations slowly improves.

The other problem with tapping into computer intelligence -- and there is indeed after a century of computers quite a bit of very useful but very alien intelligence there to tap into -- is the problem of getting information from human minds to computers and vice versa. Despite all the sensory inputs we can attach to computers these days, and vast stores of human knowledge like Wikipedia that one can feed to them, almost all such data is to a computer nearly meaningless. Think Helen Keller but with most of her sense of touch removed on top of all her other tragedies. Similarly humans have an extremely tough time deciphering the output of most software unless it is extremely massaged. We humans have huge informational bottlenecks between each other, but these hardly compare to the bottlenecks between ourselves and the hyperidiot/hypersavant aliens in our midst, our computers. As a result he vast majority of programmer time is spent working on user interfaces and munging data rather than on the internal workings of programs.

Nor does the human mind, as flexible as it is, exhibit much in the way of some universal general intelligence. Many machines and many other creatures are capable of sensory, information-processing, and output feats that the human mind is quite incapable of. So even if we in some sense had a full understanding of the human mind (and it is information theoretically impossible for one human mind to fully understand even one other human mind), or could somehow faithfully "upload" a human mind to a computer (another entirely conjectural operation, which may require infeasible simulations of chemistry), we would still not have "general" intelligence, again if such a thing even exists.

That's not to say that many of the wide variety of techniques that go under the rubric "AI" are not or will not be highly useful, and may even lead to accelerated economic growth as computers help make themselves smarter. But these will turn into S-curves as they approach physical limits and the idea that this growth or these many and varied intelligences are in any nontrivial way "singular" is very wrong.

Making a toaster the hard way

2011-01-16T12:24:00.000-08:00

(h/t Andrew Chamberlain)

For more on the economics at work here, see my essay Polynesians vs. Adam Smith.

Some conjectures and facts regarding the Malthusian isocline and the industrial revolution

2010-12-04T16:11:00.000-08:00

Reader Matt comments on the Malthusian isocline here,, observing that I placed 17th century Britain a bit "higher" (presumably meaning more advanced, i.e. more "northeast") on the graph than 17th century China.

My placement in this case of one absolutely more advanced than the other is highly conjectural. It's worse than comparing apples to oranges. I had to put them somewhere on the graph and I used my best judgment. Britain was semi-pastoral (yet still stationary) while China had a much more productive climate for grain agriculture (much wetter in the summer and drier in the winter than Britain) and thus could support a far higher population density per hectare. But whether the Chinese population density per hectare adjusted for these natural advantages (presumably leaving technological and institutional differences, what I call denstiy per natural global hectare), which is what I'm trying to graph on my x-axis, was still much higher is far more conjectural. If we draw the x-axis as just population density per hectare (rather than "natural hectare", i.e. adjusted for natural advantages) the Chinese point is far higher, not just somewhat higher as I drew it, and thus China's isocline was clearly more advanced, but I argue due to natural advantages rather than technology or institutions. In terms of technology and institutions, it's worse than apples to oranges not only because of the radical difference between their basic agricultural strategy (labor-intensive grain-and-bean vs. semi-pastoral and heavy use of draft animals) but each had a number of advanced agricultural techniques the other rarely or never used.

See here and here for the background to these theories and the graph in question, as well as a very interesting film of street scenes that allow us to compare the Chinese and British street transportation in the early 20th century (largely before the IC engine replaced horses and rickshaws).

Note that in contrast to the above graph which is schematic and partially conjectural, the following, showing the relentless advanced of the isocline in England from the Late Middle Ages, is based on actual statistics of population and real agricultural labor wage income based on a food-dominated commodity basket:

This differs from the "noisy until 1800" graph of Clark because I've graphed 80-year averages rather than decadal averages to smooth out the noise of pests and short-term climate variations on the quality of harvests which dominated the position of the isocline before the 19th century. The points are from the data but the slope of the isoclines I drew threw them are still conjectural.

Much less conjectural than the relative levels of European and Asian 17th century isoclines and probably more important for the issue of how Britain escaped from the Malthusian trap is that the British laborer and peasant per capita nutrition (roughly corresponding to real income in an era where food dominated the peasant and laborer budget) was much higher than the Chinese. Britain had more and higher quality protein in the diet (partly from more dairy, which has genetic causes, but mainly from more meat, the British having a stationary yet semi-pastoral agriculture). China, having far fewer draft animals per capita, used laborers for arduous and repetitive tasks the Brits considered fit only for draft animals.

Part of Britain's better marginal standard of living can be put to disease, especially the Black Death, but by the 18th century I'd agree that Britain was as healthy as China. What we see after the Black Death is that the Brits greatly increased their meat-eating and use of draft animals, and, what is more important and seemingly unprecedented, were largely able to keep up this intensive use of livestock after their population recovered and even boomed beyond pre-Plague levels, whereas in (AFAIK all) prior agricultural eras and areas increasing human populations in recovery from plagues replaced draft animal with human labor and moved the diet towards grains and away from meat: sliding "souteast" down a static isocline. Also frequent periods of war and excess taxation had often led to the loss of draft animals and their replacement by human labor, in these cases with a regressing (moving "southwest") isocline. In both cases the capital accumulated in draft animals and meat livestock was destroyed. As Steve Sailer correctly points out, in Great Britain there has not been a major famine since before the Black Death while in China they were common until very recently. After the Black Death British agriculture went through a very long period of capital accumulation, in the form of soil conditioners (especially lime), commercial seeds and breeding, engineered water meadows that replaced phosphates and other scarce nutrients, drainage (important in the wet British winters), crops and rotations that fixed more nitrogen (at first growing beans for fodder, then replacing beans with the even better nitrogen fixer clover), and many other improvements besides the tremendous accumulation of livestock. Indeed "improvement" was the watchword of British agriculture as soon as works about it started being published.

So the Chinese peasant and laborer worked harder on a worse diet and lived much closer to starvation, whereas in hard times British peasants could go back to eating the foods that after the Black Death they considered animal fodder (beans, oats, etc.) whereas the analogous soybean was a protein staple of the Chinese peasant as much as it was animal fodder. Again this doesn't tell us whether China's isocline adjusted for its natural advantages was more or less advanced, it tells us that Britain was operating with a higher marginal and mean per capita standard of living and lower population density relative to its natural advantages than China, i.e. further "northwest" on its isocline.

Besides the Columbian Exchange, and even more important, there may have been an even greater but far less heralded exchange going on between Europe and East Asia in the centuries after Europe established regular oceanic contact between the two. Not so much in species, but in techniques and institutions, aided by cheap paper, the printing press, and the resulting expansion of literacy. As this contact increases we see both the East Asian and Western European isoclines advancing rapidly. But the British isocline was advancing faster than Asia's (regardless of which was more advanced absolutely), and probably more importantly in Britain and at least early on the Netherlands were largely maintaining the higher peasant/laborer standard of living despite population growth, whereas in East Asia until the 20th century the isocline started at an already low per-capita income yet the advance was still directly entirely rightward towards higher population growth rather than in catching up to British marginal standards of living. So Britain kept its big lead in per-capita standard of living and farm labor productivity, and thus presumably in the proportion of surplus labor that could be put to work on non-agricultural tasks. And since Britain did not need as large an army as a Continental power, nor as high taxes to support it, more of this labor could go into industry.

Another major factor in industrialization was urbanization, that is the proportion of this surplus labor that could be relocated where other industry or industrial resources were available rather than to where the food was grown. Urbanization (and presumably the general proportion of non-agricultural population) during the 17th-19th centuries was growing rapidly in both Western Europe, especially Britain, and Tokugawa Japan but less so in China, a phenomenon I have yet to see explained (draft animals can't explain the Japanese case as they resembled China in being relatively bereft of them). As far as agriculture and urbanization goes, contrary to myth Tokugawa Japan saw great progress, almost as much as Britain during the same period, albeit much less technological progress in industry than Britain. Urbanization depended most on water transport, i.e. the ability to transport grain to remote regions (the same thing that made ancient Rome a very large city, in her case grain imports across the Mediterranean from Sicily and Egypt). Without good water transport labor beyond that needed for agriculture had to stay in the rural areas near where the grain was grown. Japan, Britain, and the Netherlands had good water transport with many farmers near navigable water due to geography and engineering to extend the navigability of rivers and especially in the Netherlands to build canals which served a triple role of defense barrier, water control for reclamation of formerly submerged areas, and transport. Britain and the Netherlands also had an advantage in that their preferred and available source of protein, beef, could be transported over long distances over land on the hoof, whereas the pigs, fowl, and soybeans of the Chinese required water transport. Urbanization and industrialization also required transport for fuel (wood and coal: forests near navigable water were soon denuded and forests far from navigable water were generally useless. The Brits could use far more forest area per capita because their draft animals could transport more timber and fuel farther. Both the Brits and Chinese had ample and easy-to-mine coal but only in Britain were there mines within ox- or horse-transport distances of navigable water combined with a plentiful supply of these draft animals, which explains why Britain was possibly mining more coal than the rest of the world combined by the 17th century. Horse gin powered pumps also drained the British coal mines before the dawn of the Savery and Newcomen steam engines).

China had for many centuries also had good water transport due to the Grand Canal and its tributaries, but perhaps because of its artificial and inland nature it was far more bureaucratically controlled and subject to excess taxation and other institutional problems than the coastal transport in Japan and Britain. Japan, with its long and thin coastline, probably had the greatest amount of farmland next to coastline controlled by peoples speaking a single language and thus able to trade food with low transaction costs. But Britain's advantage in draft animals more than made up for having a fatter island, as their horses probably made four or more times as much farmland accessible to the navigable water than the mostly human-powered Japanese transport, and its horses also increased the efficiency of river navigations and (eventually) canals. After the railroad, and even moreso the IC engine, reached Japan it quickly caught up to and leapfrogged ahead of Britain (something Clark's theory can't explain).

Malthus and capital

2010-10-24T15:33:00.000-07:00

Why did agricultural civilization remain mired in the Malthusian trap for over 5,000 years? And how was it possible to eventually escape from it? Recall the Malthusian isoclines and how various kinds of societies can be situated along them (click to enlarge all graphs):

Plagues move the economy “northwest” along the isoclines, as more marginal lands are abandoned leaving the fewer people to work and share the more productive lands. Births beyond replacement by contrast move the economy “southeast” towards higher population, the use of more marginal lands, and thus a lower standard of living. Here, for example, is a graph using actual statistics for English real farm labor wage income from 1260 to 1849. Even though England during this period was slowly escaping from the Malthusian trap -- note that each 80 years has advanced farther "northeast" than the previous 80 -- it still followed the basic Malthusian pattern of births and deaths. Observe how the real wage greatly increased after the Black Plague in the mid-14th century, then slowly declines thereafter:

Much less well appreciated than the effects of births and plagues with respect to the Malthusian isocline are creation and destruction of productive capital. Every act of plowing, sowing, weeding, and so on was a seasonal capital investment, and the resulting harvest (and thus the short-term isocline) depended on the qualities and quantities of these short-term investments, as well as on vagaries of pests, weather, etc. Longer-term capital investment could include conditioning, fertilizing, and draining soil, buying livestock, breeding crops and livestock, watering meadows, and so on. Long term progress towards the "northeast" depended on long-term accumulation of capital. It was exceedingly rare to maintain such progress over long periods of time, and the British capital accumulation over such a long period, leading to the breakout from the Malthusian trap, was unprecedented.

Good harvests caused progress that was temporary unless the food was stored and long-term capital investment was substituted for investment in next year’s harvest as well as other pursuits such as luxury and military buildup. Productive innovation, whether institutional or technological, also led to moving the isoclines “northeast”, as they made capital more secure or productive.

Poor harvests (from pests, poor weather, etc.) caused a setback that was temporary as long as it didn’t lead to the destruction of capital. If it resulted in starvation, the deaths boosted the economy up the isocline, so that the standard of living of the remaining population in subsequent years of better harvests was higher than with prior better harvests at higher populations.

Destruction of productive capital was for most of agricultural history as common as creation of capital. Causes included high rents and taxes that forced a choice between going hungry and consuming capital. War (quartering and foraging of troops, destruction of enemy crops and livestock, etc.) was a frequent cause of capital destruction. Some kinds of capital, e.g. livestock and the fertility of the soil, could be destroyed simply by being neglected.

Mancur Olson distinguished between societies of “roving bandits”, where nomadic rulers stole the surpluses of foragers or farmers wherever they went, and “stationary bandits”, who controlled a specific area and simply taxed that area. Rational stationary bandits taxed only to the Laffer maximum, because any further taxation actually reduced their revenues. Indeed, because over-taxation resulted in the destruction of capital, a secure rational stationary bandit reduced taxes below the short-term Laffer maximum to prevent lower tax revenues in future years. Roving bandits, on the other hand, stole nearly all, resulting in destruction of nearly all capital, because anything insecure that one roving bandit didsn't steal was stolen by another.

Stationary bandits did not always confine themselves to taxation that resulted in no destruction of capital. Uncertainty over future power could cause a leader to get greedy and tax at capital-destroying levels while they were still in power. Threats of assasination, coup, or conquest could move stationary bandits closer to roving bandits, since the bandits lost their future revenues if they lost power or territory: in such cases they rationally taxed far higher than the Laffer maximum, usually destroying much capital in the process.

As a result, we can characterize societies and locate their isoclines based on their mode of banditry. This often gets confused with the mobility of production, and the two usually coincided, but they could and often were distinct. Thus most pastoral societies, based on moving livestock from pasture to pasture, also featured roving banditry. And societies based on fixed arable agriculture were generally controlled by stationary bandits. But early modern Britain was a semi-pastoral society but with stationary bandits. And Dark Ages Europe featured roving bandits from pastoral societies frequently conquering arable societies, and being conquered in turn, resulting in a move to a lower-capital society with a mix of roving and stationary banditry.

The Problem of Edible Capital

Of all the ways in which capital can be destroyed, the hardest to avoid, in a hard year, was eating it. Eating your milk cow or your draft animal was like eating your seed corn: very unwise but very likely if your alternative was imminent starvation.

The temptation to eat your capital created vicious cycles of capital destruction. Capital destruction lowered labor productivity, which meant that people produced less calories per calories consumed. This moved the Malthusian isoclines “southwest”, which meant even more people starved during the next equally bad year. War and excessive taxation could trigger or extend the vicious cycle by killing livestock, poisoning farmland, etc.– and rendering future returns insecure, rendering further destruction of capital more probable. The vicious cycle of capital consumption during times of famine may be the main factor that kept ancient agricultural civilizations mired in the Malthusian trap.

Who owned the capital mattered. Edible capital was much more likely to survive (and in the short term the starving people less likely to) if the capital was owned by people who were not themselves starving. Thus, societies living under the feudal hierarchy of long-term tenancy, where livestock was often owned by the local lord rather than a peasant, many have maintained themselves farther above subsistence levels than societies where peasants completely controlled their own livestock.

Culture was filled with warnings against “eating your seed corn.” Thus, as one example of many, Aesop’s stories of “The Goose That Laid the Golden Egg.” It was also filled with warnings about the importance of saving up for bad times, e.g. “The Ant and the Grasshopper.”

Conversely, capital creation that increased labor productivity increased the calories produced per calories consumed, moving the Malthusian isocline up and right. With storage of food it also freed labor for further capital creation, which in future equally good years in turn freed further labor for ancillary or non-agricultural capital investment (transportation, manufacturing, financial services, etc.). However, for nearly all of agricultural history the vast majority of this surplus went to population growth, military expenditure, and luxury display rather than capital investment.

Thus, until the British breakout, agricultural societies remained in the Malthusian trap. Prior agricultural socieities lacked an institutional ratchet that could incentivize capital creation in good harvests, but prevent too much capital destruction in bad harvests. And they generally lacked low-cost protection from foreign wars, so that stationary bandits often started to act more like roving bandits when faced with threats of conquest. To escape the trap, capital creation must exceed capital destruction to such an extent that farm labor productivity grows faster than population. How Britain did this I hope to explore in future posts.

Elements, evolution, and the nitrogen crisis

2010-10-10T00:42:00.000-07:00

The oxygen crisis in the history of life is well known. When photosynthesis arose, cyanobacteria and later plants started dumping large amounts of oxygen into earth’s atmosphere. At first this oxygen, dissolved in the oceans, combined with metals in the oceans and “rusted out.” Eventually, however, the free metals in the oceans were largely depleted and oxygen levels increased in the atmosphere. At first this proved very poisonous, but eventually life not only adapted but took advantage of the oxygen, with some organisms evolving new high-energy respiration pathways that reacted oxygen with carbohydrates from eaten plants. Respiration fueled the Cambrian explosion of sophisticated lifeforms which in turn led to us.

Much less well known, but of similar importance, was the much earlier nitrogen crisis. This was not an overabundance of nitrogen, but the depletion of nitrogen in the readily usable forms that early life had evolved to consume. One might think that life would evolve to reflect at least roughly the same distribution of elements as are available in its environment. Let’s see if this true relative to abundance in our planet’s present oceans:

Elemental abundance in bacteria vs. in seawater (ref):

This is misleading for the metals before the oxygen crisis (i.e. for most of the history of life), when they were far more abundant in the oceans than the present levels shown. But for elements that did not “rust out” of oxygenated seawater, such as oxygen, hydrogen, carbon, nitrogen, phosphorous, and potassium, the above graph is illuminating.

There is a great deal of correlation here to be sure, but there are also outliers, elements that life must concentrate by several orders of magnitude: particularly carbon, nitrogen, and phosphorous, and to a lesser extent potassium. A reasonable guess is that this reflects contingency: life originated in a certain unusual environment, an environment disproportionately rich in certain chemicals, and its core functions cannot evolve to be based on any other molecules. Every known living thing requires, in its core functions, nucleic acids (which make up RNA and DNA), amino acids (which make up proteins, including the crucial proteins that catalyze chemical reactions called enzymes), and the “energy currency” though which all metabolisms consume and produce energy, the adenosine phosphates. Let’s briefly scan some core biological molecules to see how elements are distributed in them:

Adenosine phosphates:

Nucleic acid:

Amino acids:

Lots of hydrogen and oxygen in these molecules, to be sure, but those are the elements in water. So short of a drought or desert, organisms generally have plenty of readily accessible hydrogen and oxygen. Carbon, nitrogen, phosphorous – those are the elements most used by the core molecules of life out of proportion to their existence in the environment.

Carbon, as carbon dioxide, is abundant in the atmosphere (and earlier in earth’s history was far more abundant still). Through the process of photosynthesis, the two double bonds in carbon dioxide can be readily cleaved in order to form other bonds with the carbon in biological molecules. Indeed, instead of storing energy directly as ATP, life can and does take advantage of the relative accessibility of carbon, hydrogen, and oxygen to store energy as carbohydrates and fats, and then through respiration convert them to ATP only when needed.

Nitrogen is also abundant in earth’s atmosphere, but in the form of dinitrogen – two nitrogens superglued together with an ultra-strong triple bond. To form nucleic acids, amino acids, and ATP, something must crack apart the nitrogen. Phosphorous, to the extent it is available in the natural environment, comes in the readily incorporated form of phosphates. The trouble is, phosphorous in any form is just plain uncommon. Nevertheless, all life still relies on it at the center of the genetic code (DNA, RNA) and every metabolism (ATP).

Generally speaking, the result of the chemical contingencies of known life – which for its core functions uses molecules rich in hard-to-obtain nitrogen and phosphorous -- is that in known natural environments ecosystems are either nitrogen-limited or phosphorous-limited. In other worse, the biomass of the ecosystem is usually limited by the amount of nitrogen or phosphorous available. Liebig’s principle states that in any given environment, there is generally one nutrient that limits the growth of an organism or ecosystem. In earth environments that nutrient is usually nitrogen (as ammonia or nitrate) or phosphorous (as phosphate).

The eukaryotes (basically, complicated multi-celled life including all plants, animals and fungi) seem to lack the ability to evolve metabolisms that go beyond a certain point. Instead it’s the simpler prokaryotes -- archae and bacteria -- that have a far wider range of energy chemistry: a dizzying variety of chemosynthetic and photosynthetic metabolisms and ecosystems.

For certain crucial chemicals, the eukaryotes rely on archae and bacteria in their ecosystem. Exhibit A is nitrogen fixation. Life doubtless originated in an environment rich in ammonia and/or nitrates, molecules with only single nitrogens and thus no need to split the superglued dinitrogen bond. But these early organisms would have soon depleted the levels of nitrates and ammonia in the local environment to very low levels. Call it the nitrogen crisis.

Dinitrogen, N2, is the most abundant molecule in our atmosphere. But few things are powerful or precise enough to crack dinitrogen. Lightning can do it, converting dinitrogen and dioxygen in the earth’s atmosphere into nitrates. Lightning thus can, albeit very slowly, put usable nitrates back into sea and soil where they have been depleted by life. Trouble is (a) the resulting equilibrium level is far below the concentrations of nitrogen in organisms, and far below levels for optimum growth, and (b) the process requires an atmosphere rich in oxygen, which the earth until less than a billion years ago did not possess. (Alternatively, lightning might have made significant nitrates from reacting carbon dioxide with nitrogen, a possibility explored here. However, early life probably evolved in water so hot that it destroyed these nitrates).

Prokaryotes came to the rescue – probably very early in the history of life, when local nitrates and ammonia had been exhausted – by evolving perhaps the most important enzyme in biology, nitrogenase, “the nitrogen-splitting anvil.” Nitrogenase’s metal-sulfur core makes it precise enough a catalyst to crack the triple bond of dinitrogen.

Nitrogenase:
The general reaction fixing dinitrogen to ammonia, whether with nitrogenase or artificially, is as follows:

N2 + 6 H + energy → 2 NH3

The dinitrogen is split and combined with hydrogen to form ammonia. Ammonia can then be readily used as an ingredient that ends up, via the sophisticated metabolism that exists in all life, as amino acids, nucleic acids, and adenosine phosphates. When nitrogenase fixes nitrogen it consumes a prodigious amount of energy in the form of ATP. In particular for each atom of nitrogen it consumes the energy of 8 phosphate bonds:

N2 + 8 H+ + 8 e− + 16 ATP → 2 NH3 + H2 + 16 ADP + 16 P

Nitrogenase is extremely similar all organisms known to contain it. It thus probably only ever evolved once. Given its crucial function of supplying a limiting nutrient, despite its high energy cost it proved to be so useful that it spread to many phyla of archae and bacteria. Either it evolved very early in the history of life (before the “LCA”, the Last Common Ancestor of all known life) or it spread through horizontal gene transmission:

Alternative origins and evolution of nitrogenase (click to enlarge) ( ref):

The archae and bacteria that contain nitrogenase, and can thus fix nitrogen, are called diazotrophs. One of the earliest diazotrophs may have been a critter that, like this one, lived in high pressure hot water in an undersea vent. In today’s ocean, the most common diazotroph is the phytoplankton Trichodesmium.

Colonies of Trichodesmium:
The biomass earth's oceans is probably limited by the population of such diazotrophs. Supplying the iron they use to make nitrogenase would increase the amount of nitrogen fixation and thus the biomass in the oceans. A larger ocean ecosystem would draw out more carbon dioxide from the atmosphere, and so is of great interest. This process in the ocean seems to have its limits, however: too much ocean biomass in a particular area can, when it decomposes, deplete oxygen from the ocean, suffocating animals. Oxygen replacement from the atmosphere appears to be too slow to prevent this effect when nitrogen concentrations are high enough, but nitrogen concentrations in almost all ocean areas are far lower than this and would remain lower even while drawing out substantial amounts of carbon dioxide. (Here is a nice Flash animation of the nitrogen cycle in the oceans).

On land, certain plants, especially legumes, are symbiotic with certain diazotrophs. The bugs grow in root nodules in which the legume supplies them large amounts of sugar to power the energy-greedy nitrogenase. In turn, the diazotrophs supply their legume hosts with fixed nitrogen allowing the legumes to generate more protein more quickly than other plants: but at the expense of more photosynthesis needed to feed the energy-hungry bugs.

Petrus Sabbatius comes to power

2010-10-08T20:28:00.000-07:00

The Roman Empire was a military dictatorship. Its emperors came and went in a relentless spree of assassinations and civil wars (example) that lasted for nearly 1500 years. One and one-half millennia of violent government extended across history from the victories of Octavian (a.k.a. Caesar Augustus) over his rivals in decades before Christ to the fall of Constantinople to the Turks in 1453. Despite the violence, or perhaps because of it, Roman elites accumulated vast surpluses and left spectacular monuments unmatched until much later in European history.

By the opening of the 6th century the city of Rome itself was no longer a part of the Empire. Instead Italy was ruled by the Goths and the capital city of the remaining empire, “Romania”, was Constantinople. This city (in modern times called Istanbul) controlled the strategic straights linking the Black Sea and the Mediterranean.

No topics dominated the culture of Constantinople so much as (1) the horse races, and (2) the debate over the relative contributions of the divine and the human to the nature of Christ.

The debate over the nature of Christ divided Christians into numerous sects: Orthodox Catholics, Monophysites, Arians, Manicheans, Nestorians, and many others. The Orthodox Catholics believed that Christ was both God and man, Monophysites divine only, Arians human only, and there were a dizzying number of variations on and nuances to these dogmas. Theology was the hottest topic of debate and biggest motivation for political division and persecution in Constantinople. Constantinople was dominated by Orthodox Catholics and Monophysites, while the Arian heresy held by the Goths and Vandals that had taken over the Western part of the Empire was considered a heresy beyond the pale. Other positions, such as Manicheaism, were sometimes tolerated and sometimes not.

With the coming to power of Christianity the brutal gladiatorial fights had been suppressed and horse racing was now the dominant spectator sport. The Hippodrome in Constantinople was the main place of public gathering. Spectators shouted political opinions at the emperor, who in turn used the crowd to gauge public opinion. Indeed, for the normal citizen, this was the only form of political participation.

The racing teams and their colors – Red, White, Blue, Green – dated far back to the early Empire. By the 6th century, the two dominant teams were the Blues and the Greens. The political nature of the Hippodrome had converted their fans into political factions. The Blues tended to be government types, land owners, and Orthodox Catholics (or, during the frequent schisms with Rome, Chalcedonians). Greens tended to be merchants and Monophysites.

During the reign of Anastasius, in a village in Illyria (probably in modern Macedonia just north of modern Greece), where the natives still spoke a passable Latin, lived a young peasant bachelor. Instead of taking up farming he left the village and came to Constantinople to join the army. Dropping his humble family name and styling himself “Justin” – “just man” -- he fought in several wars and was promoted through the ranks of the palace guards. Eventually he was promoted to Count (head) of the Excubitors, one of the two palace guard groups.

Justin then adopted his nephew, one Petrus Sabbatius, and brought him to Constantinople. Sabbatius too dropped his humble name and, aspiring to the achievements of his uncle and benefactor, restyled himself “Justinian”.

Justin’s master, the emperor Anastatius, was a Green and Monophysite. Justin, and to an even greater degree his nephew, were Orthodox Catholics (or during the schism of the time Chalcedonians) who supported the Blue faction.

Anastasius failed to make formal provisions for the succession. His death in 518 threw Constantiople into confusion, as none his three nephews had strong support. The Manichean eunuch Amantius, Chamberlain to Anastasius, hoped to be a power behind the throne of his chosen puppet, an obscure character named Theocritus. The palace guards had traditionally dominated the succession in Rome, so Amantius needed the support of at least one of the two palace guard groups, the Excubitors and the Scholarians.

Justin, head of the Excubitors, secretly promised to support Theocritus and took money from Amantius to bribe the support of influential fence-sitters. But instead of carrying out this secret plot, Justin lobbied and bullied the Blues, their Senate allies (most Senators were Blue), and his own soldiers. Finally winning acclamation of most of the Blues in the Hippodrome, and fearful acquiescence of the Greens, Justin assumed the purple robes of emperor.

Roman imperial successions had always been highly irregular, but the ideal of authority that other political players would most accept is suggested by Justin’s letter, upon assuming power, to the Pope in Rome: “We have been elected to the Empire by the favor of the indivisible Trinity, by the choice of the highest ministers of the sacred Palace, and of the Senate, and finally by the election of the army.”

To cover his tracks, Justin had Amantius and Theocritus executed, under the pretext that Amantius (a heretic Manichean, but tolerated under Anastatius) had insulted the Orthodox Patriarch of Constantinople. He named his nephew Count of the Domestics. Justinian was a, or perhaps the, power behind the throne. Falling in love with a repentant prostitute, Theodora, he had Justin’s quaestor, Proclus, cleverly draft a law that allowed him to marry a former prostitute while still forbidding such a degrading marriage to other Senators.

Early in 527 AD, Justin fell sick and named Justinian Augustus (co-ruler) and successor. A few months later, Justin died and Justinian at age 45 became emperor.

The former Petrus Sabbatius was to lavish his adoptive name and the empire's treasure on cities new and old, grand buildings, and wars of reconquest. Most importantly for our purposes, Justinian would plaster his just-sounding name on a recompilation of Roman law that has profoundly shaped the West down to our own time.

Coming: Tribonian, John of Cappadocia, revolt, massacre, prostration, and the the birth of a bloody code.

References
Procopius, Anecdota (Secret History)
Procopius, History of the Wars
J.B. Bury, History of the Later Roman Empire
Gibbon, The Decline and Fall of the Roman Empire

Signals, gifts, and politics

2010-10-03T16:33:00.000-07:00

(I recently rediscovered this old post of mine and thought it deserved re-posting).

Paraphrasing Robin Hanson from a recent podcast: "In gifts, it's common signals of quality that matter, not private signals of quality."

Robin Hanson has a great theory for why neoclassical economics so often fails to explain human relationships and institutions, especially personal relationships. Why, he asks for example, do guests bring wine to dinner at an acquaintance's home instead of paying cash, like they would at a restaurant? Traditional economics cannot explain such basic things.

Instead Robin posits, building on the work of previous economists and evolutionary psychologists, that signaling dominates most of our relationships and many of our institutions. In other words, much of our behavior is used to signal, or prove by our behavior, to our fellows our intelligence, empathy, status, and so on. In the hunter-gatherer environments in which our genes evolved, such relationships were far more impportant to our genetic success than any other aspects of our environment. Thus our behaviors are dominated by the signals that would have most advantageously (for our genes) developed our relationships in that environment.

The general theory is sound -- I've held a version of it for quite a long time -- but many of the conclusions he draws from this theory, such as the above quote about gifts, are quite questionable. The thoughtful gift, namely the gift that is targeted towards the recipient's unique preferences, is widely welcomed as the best kind of gift. "It's the thought that counts" may be a cliche and an exaggeration, but it nevertheless carries substantial truth. The thoughtful gift signals our intelligence, our empathy, and the fact that those skills are being used in favor of the gift recipient.

This (and a second theory described below) explains far better than Robin does why cash makes such a bad gift. A gift or exchange like bringing wine to dinner provides the opportunity to signal that one has remembered the dinner menu, and often also signals that one knows the hosts' wine preferences. Cash by sharp contrast is the most thoughtless gift. Cash is suitable only for contractual dealings with strangers; it is worse than useless for developing relationships.

Gift cards exhibit a modicum more empathy than cash (you have to know your pal likes Starbucks), but prior generations who put more effort into relationships considered gift certificates to be rather rude as a personal gift: they were only considered suitable as, for example, a substitute for a cash wage bonus. Today, like "friends" links on Facebook, gift cards signal a modicum of passing fancy which substitutes for the many closer relationships and more thoughtful gifts that most of our forebears enjoyed.

A second reason that cash makes such a poor gift is that it provides a very poor emotional and sensory experience. Most signals, as at least indirect products of evolution, are targeted at our emotions far more than they are targeted at the intellect. A good wine, for example, will be experienced far more fondly and thus remembered far longer than a dirty dollar bill. The most common signals also tend to signal emotional states or skills (e.g. empathy) far more than intellectual ones.

Per Friedrich Hayek, this emotional infrastructure breaks down when we are dealing with strangers -- in those cases contractual relationships and "filthy lucre" are far more efficient and effective ways of relating. But the cold natures of these transactions, i.e. the fact that these relationships are divorced from the emotional signals evolution has wired us to expect, explains much of the political resistance to markets with their "filthy lucre", "greed", etc. Merchants, property, contracts, and so on are crucial to our modern economy, but they send the wrong emotional signals to our hunter-gatherer brains.

Most politics, and in particular the pathologies of politics, are themselves about instinctive signaling -- for example signaling tribal loyalty on the right, or signaling altruistic natures on the left. Most political ideologies freely and fraudulently ignore the crucial distinction between friend and stranger: in the world of political signaling we are supposed to care as much about the vast anonymous "poor" as we do about our own children who we well know to be helpless, and we are supposed to be loyal to a vast country of hundreds of millions of strangers (including more than a few very strange strangers) as if they were all familiar kin. In both cases, these are largely fake signals that don't cost the fraudulent signaler very much: the right-winger does not actually have to be patriotic, and the left-winger does not actually have to be altruistic, and in both cases they usually are not. Few of the children of hawk Congressmen served in the Iraq War, and Barack Obama has given only a miniscule portion of his income to charity. But they are very good at making the politically correct noises that most humans emotionally expect to hear. Thus left-wingers can get great social mileage from calling right-wingers "greedy", meaning that right-wingers are failing to send enough altruistic signals, and right-wingers can get great social mileage from calling left-wingers "unpatriotic." People who, due to real altruism, care more about the actual consequences of political policies than about sending the proper social signals to their peers, usually end up being called both "greedy" and "unpatriotic" in the bargain.

Bugs in the stack

2010-09-29T15:10:00.000-07:00

Continuing at long last with my series on the history of Roman law, I will introduce two of the central players: the administrator and legal scholar Tribonian and his master Justinian, emperor of the late Roman ("Byzantine") empire from 527-565 A.D. Today however, a bit about the importance of their legal code.

If law shapes society’s most basic structures, as master genes -- genes that control other genes -- shape the basic form of our bodies, then Justinian's Code is the ancestral master DNA of the West. If society is a protocol stack and law is a low-level protocol governing our higher-level interactions of politics and commerce, then it's fair to say that the Justinian Code was the Internet Protocol that long governed, and still in many ways governs, the Web that is Western society.

If tech metaphors don't do it for you, let's try religion: Justinian was the Moses of the Western legal world. When the first universities, which were practically just law schools, were founded in Italy in the 11th century, the newly rediscovered Justinian Code was the main draw and the center of the curriculum.

Variations of the legal system of Justinian and Tribonian have been taught in Western universities, and often enacted into the law of Western societies, ever since. And indeed in the 19th and 20th centuries these variations were enacted into law all over the world. The only substantial exception, a partial exception, to the overwhelming influence of this code has been the English legal system and its offshoots.

Ideas derived from Justinian's Code also form many of the basic and often flawed assumptions of the political science and philosophy of law taught in universities to this day.

The Romans had a highly evolved substantive law of crime, torts (“delicts”), property, contracts, and many other commercial and personal matters. In these areas the preservation and recovery of the Roman law was indispensible. The influence of the procedural and constitutional aspects of Justinian's Code was quite another matter, as I hope to detail in future posts. The strong influence of Justinian and Tribonian over Western procedural and constitutional law started with the universities, continued in the Romanization of Continental law during and after the Renaissance, accelerated with the codifications of the Prussians and Napoleon of the 18th and 19th centuries, and reached its zenith with the totalitarian dicatorships of the 20th century. Only some of the odious influence of the procedural law that Tribonian and his crew assembled and drafted for their master has gone into perhaps temporary decline since then.

The historian Procopius, who served in Justinian's army, was a superstitious, or at least creatively metaphorical, man who thought that Justinian was a fiend sent from hell to do maximum destruction to the world. That opinion was only based on the consequences of Justinian in his own lifetime. The cumulative influence of his procedural and constitutional laws on the world since that time has been overwhelmingly more harmful.

Tribonian in the service of Justinian introduced and passed on fundamental flaws in the Western political DNA. Or, to switch back to our other tech metaphor, some severe bugs in the lowest layer of our society’s protocol stack.

Coming up: introductions to Justinian and Tribonian.

The Malthusian mystery

2010-09-24T21:36:00.001-07:00

After a long stint of research and thought I have returned to share some of the results.

In the early 19th century the Reverend Thomas Malthus, foreshadowing Charles Darwin, wrote:

Throughout the animal and vegetable kingdoms Nature has scattered the seeds of life abroad with the most profuse and liberal hand but has been comparatively sparing in the room and the nourishment necessary to rear them. The germs of existence contained in this earth if they could freely develop themselves would fill millions of worlds in the course of a few thousand years. Necessity, that imperious all pervading law of nature, restrains them within the prescribed bounds. The race of plants and the race of animals shrink under this great restrictive law and man cannot by any efforts of reason escape from it ... Wherever therefore there is liberty the power of increase is exerted and the superabundant effects are repressed afterwards by want of room and nourishment.

This is the Malthusian trap: any improvements in institutions, technologies, or any other improvement in labor productivity will over the course of a few generations increase the population until it once again flirts with subsistence levels.

Delayed marriage and plagues can delay or reverse such population growth for a time and produce higher than subsistence standards of living, but, with some small variations (see diagram below), eventually our Darwinian proclivity to procreate will return our descendants back to subsistence levels.

But just as Malthus was writing, his Great Britains were becoming the first living things to ever break free of the Malthusian trap. As a result, in the 21st century the developed world has both populations and standards of living never before achieved.

We can picture the progress of civilization in Malthusian terms. Click to enlarge and examine this schematic diagram:
Click to enlarge.

In this chart, the horizontal axis represents, on a logarithmic scale, the human population per area of land adjusted for natural (but not artificial) variability in its potential to support human food production. Such an adjusted area is typically called by ecologists a "global hectare" and my phrase "natural global hectare" represents a hypothetical measure of this independent of all human labor and capital improvements.

The vertical axis represents per capita nutrition derived, via human labor and capital, from this ecology.

The slope line or "labor productivity isocline" represents, intuitively speaking, a level of civilization. In other words, a level of technological and institutional progress. More specifically, it represents food production output per worker (productivity) adjusted for the marginality of ecology being used. As the isoclines move up and right, a given unit of labor is producing more human nutrition from the same global hectare. So our own 21st century agriculture is far more productive than 19th century British agriculture, which in turn was far more productive than medieval European agricultural, which in turn was more productive than Neolithic agriculture, which in turn was more productive than hunting and gathering.

As we move along a given isocline (a given "level of civilization" as just described) we experience the Malthusian tradeoff: more population per global hectare with lower nutrition, or less population per global hectare with higher nutrition. As we escape from the Malthusian trap, nutrition itself becomes satisfied and the left axis really represents a more general per capita income. Prior to escaping from the Malthusian trap, nutrition dominated the average human budget with fuel (mostly to cook food), clothing, shelter, etc. usually less than 20% of a personal budget or the overall economy.

A number of interesting patterns emerge from this kind of analysis. First, roving bandit societies such as hunter-gatherers and pastoral nomads tended to have lower population levels and higher per-capita nutrition than stationary bandit societies (settled agriculture). The Western European Dark Ages is an interesting intermediate case. This certainly suggests that most prior analyses of Malthusian tradeoffs, which have focused on pure economics, are very incomplete -- that security and politics play a crucial role, and not just in the trivial sense wars and other causes of mortality. There are good reasons of security of property and capital investments to expect this difference between roving and stationary bandits, as I hope to describe in future post(s).

The main question I hope to answer in forthcoming posts is: why did our escape from the Malthusian trap happen when and where it did, and not elsewhere? This will probably involve exploring a wide variety of technologies and institutions and especially the key factors of capital investment and security.

One obvious possible answer -- and the most likely reason humans will continue departing from the Malthusian trap for some time to come -- is birth control. But the British population up to the late 19th century was booming and seldom made effective use of birth control, so this can't explain Great Britain's initial escape from the Malthusian trap. A second answer is to invoke the industrial revolution. But this is a vague term and risks getting at least some of the causation backwards, as one of the factors enabling the industrial revolution was a large swelling of the British industrial work force because improving farm labor productivity meant that fewer farm workers could feed more people. And it neglects a third crucial factor, the transportation revolution. And it risks focusing on technology when institutional changes played a crucial role. All of which I hope to explore and to discuss with my readers.

Meanwhile, for now I leave you with the following fascinating looks at London and Beijing early in the 20th century. See if you can spot a difference between the two societies which I find crucial. Indeed it is visually obvious and is implicit in a theme of the Chinese documentary. The internal combustion engines are irrelevant for our pre-20th-century purposes. Escape from the Malthusian trap was well underway by the early 19th century and the difference I have in mind had existed to some extent at least for many centuries. But if you're into more trivial pursuits see if you can spot the two "horseless carriages" on the London streets.

London in the 1900s:

Beijing and some other Chinese locales in the 1920s:

Interstellar archaeology and surface engineering

2010-02-11T00:11:00.000-08:00

The SETI League has published a short article describing my strategy for what some have dubbed "interstellar archaeology", namely the use of astronomical instruments to look for alien artifacts in other star systems or galaxies. In contrast to SETI, which listens for radio or optical transmissions, interstellar archaeology is looking for material structures. The connection between surface engineering and strategies that look for alien constructions seems quite obvious to me, now that I have thought of it, but I've done a literature and Internet search and haven't seen the connection made by others. The discussions seem to be all about the design of these hypothetical astrostructures themselves rather than about what astronomical instruments could give us a great deal of information about, if there are any to be seen, namely their surfaces.

My strategy emphasizes that, whatever the alien structure may be, we would be looking at its surface. Artificial surfaces tend to be highly engineered for useful thermal and optical properties. The spectra of artificial satellites, painted surfaces, skyscraper windows, and so on exhibit many features which are extremely improbable in nature. For example, skyscraper windows and spacecraft surfaces often have gold at concentrations millions of times higher than stellar dust clouds, because of gold's very good thermal and optical functions. There are also many artificial molecules used in paints, again with unique spectra that would stand out from natural galactic features. Advanced ETI may have moved on to more advanced surfaces, but whatever they use, it is very likely to have highly unnatural spectra in order to optimize its function.

My surface-engineering-based search strategy has the added benefit that it doesn't matter how large any individual structure is, so long as a collection of artifacts collectively present surfaces that look artificial enough to stand out from natural galactic spectra. It also doesn't matter whether or not ETI are operating any of a number of hypothesized high-energy nuclear technologies: natural sunlight reflected off artificial surfaces is sufficient. Thus "Fermi bubbles", hypothetical regions of other galaxies to which an ETI civilization has spread, may be most readily recognized not by features recognizable to the human eye (in any nearby large galaxy, astronomers would already have discovered them), nor by determining what kinds of structures the ETI have constructed, but analyzing, often by exhaustive computer search, spectra of different regions in galaxies for the tell-tale signatures of engineered surfaces.

The basics: procedural vs. substantive law

2010-02-01T23:58:00.001-08:00

Several readers have expressed interest in learning some law. I highly encourage this. Knowledge of legal basics is not only of great practical use in modern society, it is essential for understanding politics and history, regardless of whether you have any interest in becoming a lawyer. I will thus be making a number of posts over the next few months discussing a variety of basic legal concepts. These may include subject matter jurisdiction, personal jurisdiction, the tort of trespass, contract formation, and a variety of other basic legal ideas. Today I write about the crucial distinction between procedural and substantive law.

Procedural law is about how the law gets passed and enforced: who has jurisdiction over whom, and what coercive processes they may use to bring suspected lawbreakers to justice. The famous Miranda lines "you have the right to remain silent...." generally uttered in the U.S. when you are arrested are a species of U.S. federal procedural law. Procedure usually starts in a given case with a great deal of uncertainty and tries to reduce that uncertainty by fairly gathering and evaluating evidence, interpreting the law, and applying those facts to the law to reach legal conclusions.

Substantive law involves every law that is not procedural: it is what we normally discuss when talking about law or politics, namely the laws defining and restricting rights and duties for their own sake, not primarily for the sake of enforcing other laws.

Thus for example modern property, contract, tort, family, and criminal law are substantive legal areas, as are environmental, workplace, traffic, and most other regulations. On the other hand, the laws defining who may sue whom and where, and what does and does not constitute proper arrest, interrogation, and search of criminal suspects, are procedural laws. Historically, just to confuse things a bit, property rights sometimes included rights of coercive procedure, for example the lord who had jurisdiction over his unfree tenants. This made property law in some cases part of the procedural law as well as a substantive law of economic property.

Computer protocols work in layers: wires carry bits of information, and bits of information carry text, pictures, and so on. The raw bits of information are a lower level protocol that carries the text and pictures in a higher level protocol. Language works like this too: at the lowest level, paper has letters written on it. Letters are a lower-level protocol that carries words in a higher level protocol. You can think of the distinction between substantive and procedural law in the same way: the procedural layer is a lower layer that "carries" the substantive law by specifying how it is to be enforced.

We can also think of government and government-like entities as lower levels of the legal protocol. Indeed, it is very useful to study political structures alongside procedural law. Think of coercive entities like police and courts as the paper and pencil, procedural law as the letters, and substantive law as the words and sentences we want to make out of these raw materials.

Software and business method patents: at least four justices see through the Christmas ornament loophole

2009-11-11T21:59:00.001-08:00

Several years ago, before section 101 of the U.S. patent statute became fashionable again, I wrote a paper on it, "Elemental Subject Matter." I remember several professors and patent attorneys, who shall remain nameless, telling me that section 101, which defines what kinds of subject matter are patentable and what kinds are not, was a useless topic to explore -- these issues, they said, had all been resolved and the legal excitement was elsewhere. I thought otherwise. I researched and in my paper I described the basic loophole that made software patents possible. Algorithms are "laws of nature" or "abstract ideas" and as such are supposed to be unpatentable. Patent lawyers being clever got around this by tacking on an extra fig-leaf or Christmas-ornament element to patent claims: the patent was for process X,Y,Z "and a computer", where X and Y and Z is the novel and non-obvious algorithm and "computer" is just your general-purpose computer. Under a long line of high court precedents, starting with the old English case of Nielson v. Harford, and continuing through many Supreme Court cases, this was an invalid claim: {X,Y,Z}, the part of the patent that makes it novel and non-obvious, must itself be patentable subject matter, i.e. not just an algorithm or law of nature or abstract idea. But the Federal Circuit, which hears all U.S. patent appeals and thus dominates U.S. patent law, ignored Nielson. Software became patentable because lawyers could trivially tack on "computer" or "memory" onto software claims, turning abstract algorithms into patentable "machines." Still later, the Federal Circuit allowed even these fig-leafs to be dropped from software patents, they were implicitly understood. The issue has never come before the U.S. Supreme Court. Until now.

At least four Supreme Court justices brought up the issue in Monday's oral arguments in Bilski v. Kappos, a business methods patent. The main patent claim reads as follows:

A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of:

(a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumer;

(b) identifying market participants for said commodity having a counter-risk position to said consumers; and

(c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions

(Forget about the fact that this is not even novel much less non-obvious. When the Federal Circuit allows claims to be made in areas where they previously weren't, the U.S. Patent Office agents are incompetent to analyze techniques in the new area or to search for prior art, and indeed a search of prior patents, which is almost all they know how to do, naturally turns up no prior art. Thus the many preposterously obvious software and business method patents we've seen. The case is being heard on the assumption that the patent office agent was correct, absurd as it is, to declare this claim novel and non-obvious, and the issue is thus focused on whether such business methods are patentable subject matter under section 101 of the patent code).

These four justices seem to agree with the view of my paper that the Christmas ornament loophole lies at the heart of software and business method patents:

JUSTICE STEVENS: I don't understand how that can be a patent on a machine if the only thing novel is the process that the machine is using. Isn't -- isn't the question -- really, the question there was whether the new process was patentable.
(p. 42)

(in reply to Justice Stevens repeating the above point)
JUSTICE KENNEDY: That's -- that's a problem I have.
(p. 44)

JUSTICE BREYER: But then all we do is every example that I just gave, that I thought were examples that certainly would not be patented, you simply patent them. All you do is just have a set of instructions for saying how to set a computer to do it. Anyone can do that. Now, it's a machine. So all the business patents are all right back in...all you do is you get somebody who knows computers, and you turn every business patent into a setting of switches on the machine because there are no businesses that don't use those machines.
(p. 46)

This is also what Chief Justice Roberts is clumsily getting at on pg. 35:

CHIEF JUSTICE ROBERTS: ...that involves the most tangential and insignificant use of a machine. And yet you say that might be enough to take something from patentability to not patentable.

I'd like to think that somebody over there in the Supreme Court building has been reading my paper, but more likely, yet remarkably, Justice John Paul Stevens, the author of Parker vs. Flook, the last case to apply Nielson v. Harford properly, and the only justice left from that 1977 court, still remembers Nielson and has taught a whole new generation of justices its meaning.

The implications of this view may seem harshly radical (if you rely on software patents) or pleasantly reactionary (if you fondly remember the days when we didn't have them). The patent bar and software patent holders have been in a tizzy since Monday, fearing that the Court's hostility to business method patents will lead to a ruling that will spill over to invalidate the recent non-ornamented software patents they have been drafting and the USPTO has negligently been approving. And software engineers have been dreaming that they will finally be freed from some of the increasingly dense patent thicket. But if the Court, as the above comments suggest, returns to Nielson, the result could be even more dramatic than is hoped or feared. Taking the Nielson logic to its conclusion would invalidate practically all software-only and business method patents, including ornamented ones. Those who want software patents would have to go do what they should have done in the first place -- get Congress to pass a statute expanding patentable subject matter to software, and very importantly command the USPTO to recruit and train computer scientists and people who know how to search the non-patent software literature for prior art so that software claims that don't make sense won't pass muster. Then, if this experiment works, a few decades later try the same method for business patents. And if the experiment doesn't work, scrap software patents. At this point, the Federal Circuit's illegitimate experiment with software and business method patents is failing miserably. Let's hope the Supreme Court takes this opportunity to restore its old patent jurisprudence that the Federal Circuit so shamelessly flouted.

The auction and the sword

2009-11-05T22:45:00.000-08:00

Anno Domini 193 is often called the Year of the Five Emperors after the five that ruled as princeps ("first citizen") in all or major parts of the Roman Empire: Pertinax, Didianus Julianus, Pescennius Niger, Clodius Albinus, and Septimus Severus. Indeed, counting the Emperor Commodus, who died at the end of 192, the Empire saw six emperors in the space of five months.

The Roman imperial succession was supposed to proceed by adoption of the most competent possible successor [3]. This followed the example of Julius Caesar's adoption of Octavian as his heir, and Octavian's subsequent taking on the title of princeps as Augustus Caesar. In practice, however, at least three other factors often intervened: first, emperors tended to favor their natural sons over their adopted ones; second, the Praetorian Guard, the emperor's bodyguard, often exercised a life-or-death control over the succession; and third, Roman legions were often motivated to intervene. Combining this rickety system of succession with the awful power of the autocratic emperor, whose "will was law", made successions an all-or-nothing, win-or-die struggle of often devastating violence. The Year of the Five Emperors witnessed more than its share of such violence. It gave rise to the Severan dynasty and more importantly to its legal authorities, who are cited in courts of law today, millenia after the emperors themselves have been forgotten. The Severan's jurists also voiced political ideas that would echo down to our time, as we shall see in future articles.

Commodus, the incompetent and unpopular natural son and successor of Marcus Aurelius, was poisoned by his mistress Marcia (not, I'm afraid to tell fans of Gladiator, slain by Russell Crowe in the Colosseum). Apparently this assassination was a plot that included the Praetorian prefect Laetus and the urban prefect Pertinax. The urban prefect was something like the mayor of the city of Rome: he supervised all the collegia (corporations and guilds) in the city, supervised maintenance of its aqueducts and sewers, supervised the import and doling of grain, supervised a force of police and night watchmen, and other such administrative tasks. The Praetorian prefect was the head of the emperor's bodyguard, the Praetorian Guard, which also (as here) often had the power to make or break emperors.

The Guard declared Pertinax emperor. After only three months in power, as the great historian Cassius Dio reports, the Praetorians, unsatisfied with the funds Pertinax had provided them and fearing persecution, turned against Pertinax:

But Laetus...proceeded to put out of the way many of the soldiers, pretending that it was by the emperor's orders. The others, when they became aware of it, feared that they, too, should perish, and made a disturbance; but two hundred, bolder than their fellows, actually invaded the palace with drawn swords. Pertinax had no warning of their approach until they were already up on the hill; then his wife rushed in and informed him of what had happened. On learning this he behaved in a manner that one will call noble, or senseless, or whatever one pleases. For, even though he could in all probability have killed his assailants,— as he had in the night-guard and the cavalry at hand to protect him, and as there were also many people in the palace at the time,— or might at least have concealed himself and made his escape to some place or other, by closing the gates of the palace and the other intervening doors, he nevertheless adopted neither of these courses. Instead, hoping to overawe them by his appearance and to win them over by his words, he went to meet the approaching band, which was already inside the palace; for no one of their fellow-soldiers had barred the way, and the porters and other freedmen, so far from making any door fast, had actually opened absolutely all the entrances.[1]

The soldiers dispatched Pertinax and the Praetorians then decided to make their pecuniary preferences far more clear before they chose the next emperor:

Meanwhile Didius Julianus, at once an insatiate money-getter and a wanton spendthrift, who was always eager for revolution and hence had been exiled by Commodus to his native city of Mediolanum, now, when he heard of the death of Pertinax, hastily made his way to the camp, and, standing at the gates of the enclosure, made bids to the soldiers for the rule over the Romans. Then ensued a most disgraceful business and one unworthy of Rome. For, just as if it had been in some market or auction-room, both the City and its entire empire were auctioned off. The sellers were the ones who had slain their emperor, and the would-be buyers were Sulpicianus and Julianus, who vied to outbid each other, one from the inside, the other from the outside. They gradually raised their bids up to twenty thousand sesterces per soldier. Some of the soldiers would carry word to Julianus, "Sulpicianus offers so much; how much more do you make it?" And to Sulpicianus in turn, "Julianus promises so much; how much do you raise him?" Sulpicianus would have won the day, being inside and being prefect of the city and also the first to name the figure twenty thousand, had not Julianus raised his bid no longer by a small amount but by five thousand at one time, both shouting it in a loud voice and also indicating the amount with his fingers. So the soldiers, captivated by this excessive bid and at the same time fearing that Sulpicianus might avenge Pertinax (an idea that Julianus put into their heads), received Julianus inside and declared him emperor.[1]

But this was politics, not voluntary commerce, and the military hierarchy of the Roman legions proved to be mightier than the highest bidder. Three governors (commanding several legions each), Albinus of Britain, Severus of Pannonia (south-central Europe), and Niger of Syria, declared themselves emperor, suspended forwarding of tax revenues to Rome, and started marching on Rome to dethrone what they considered to be a corruptly selected emperor. Severus got there first:

Severus, after winning over everything in Europe except Byzantium, was hastening against Rome. He did not venture outside the protection of arms, but having selected his six hundred most valiant men, he passed his time day and night in their midst; these did not once put off their breastplates until they were in Rome.[1]

The security precautions of the Praetorians proved to be no match for Severus' legions, and this was so obvious that the city and Praetorian rank-and-file basically rebelled against Didianus Julianus and the Praetorian leaders and turned the city and the emperorship over to Severus:

Julianus, on learning of [Severus' approach to Rome], caused the senate to declare Severus a public enemy, and proceeded to prepare against him. In the suburbs he constructed a rampart, provided with gates, so that he might take up a position out there and fight from that base. The city during these days became nothing more nor less than a camp, in the enemy's country, as it were. Great was the turmoil on the part of the various forces that were encamped and drilling,— men, horses, and elephants,— and great, also, was the fear inspired in the rest of the population by the armed troops, because the latter hated them. Yet at times we would be overcome by laughter;he Pretorians did nothing worthy of their name and of their promise, for they had learned to live delicately; the sailors summoned from the fleet stationed at Misenum did not even know how to drill; and the elephants found their towers burdensome and would not even carry their drivers any longer, but threw them off, too. But what caused us the greatest amusement was his fortifying of the palace with latticed gates and strong doors. For, inasmuch as it seemed probable that the soldiers would never have slain Pertinax so easily if the doors had been securely locked, Julianus believed that in case of defeat he would be able to shut himself up there and survive.

But Severus presently reached Italy, and took possession of Ravenna without striking a blow. Moreover, the men whom Julianus kept sending against him, either to persuade him to turn back or to block his advance, were going over the Severus' side; and the Pretorians, in whom Julianus reposed most confidence, were becoming worn out by their constant toil and were becoming greatly alarmed at the report of Severus' near approach. At this juncture Julianus called us together and bade us appoint Severus to share his throne. But the soldiers, convinced by letters of Severus that if they surrendered the slayers of Pertinax and themselves kept the peace they would suffer no harm, arrested the men who had killed Pertinax, and announced this fact to Silius Messalla, who was then consul. The latter assembled us in the Athenaeum, so named from the educational activities that were carried on in it, and informed us of the soldiers' action. We thereupon sentenced Julianus to death, named Severus emperor, and bestowed divine honours on Pertinax. And so it came about that Julianus was slain as he was reclining in the palace itself; his only words were, "But what evil have I done? Whom have I killed?" He had lived sixty years, four months, and the same number of days, out of which he had reigned sixty-six days.[1]

Severus "inflicted the death penalty" on the plotters against Pertinax and "murdered" a number of Senators, after swearing a sacred oath not to harm any Senators. (The quoted language is Cassius Dio's [2] in translation). So what were Severus' homicides -- legal executions or illegal murders? This was question of legal procedure. Under the old Republican legal tradition, still nominally enforce but in practice long defunct where the emperor was concerned, most of these killings would have been considered extrajudicial, i.e. murders. As we shall see, under the laws codified under the Severan dynasty, "the emperor's will was law" -- he by definition could never murder, only execute, and his oaths were by definition not binding on his future self.

Major civil war ensued as the Severan legions went up against those of Albinus and Niger. The terrific battles included a spectacular siege of Byzantium -- later to become Constantnople, but already a mighty fortress strategically placed within on the Bosporus, controlling the maritime traffic between the Mediterranean and Black Seas. After four years of civil war between Roman legions [3], Severus came out the winner. I will examine the reign of the Severan dynasty, and in particular the effects of military structure of the victorious legions on the political structure and legal procedures of Rome, in subsequent posts.

References

[1] and [2] Cassius Dio, Roman History, books [1] 74 and [2] 75.

[3] Tony Honore, Ulpian, Oxford University Press (second edition 2002).

Commencing a history of Roman political and legal institutions

2009-11-05T22:22:00.000-08:00

Most modern governments have political structures and legal procedures derived in a long evolution from those of the ancient Roman emperors, with a shallow overlay of modern democracy. The main exceptions, the Anglo-American countries, have legal procedures derived primarily from a partially independent evolution in England, but still with substantial influences from the old Roman autocrats. Political ideas and legal procedures are closely related, and versions of these derived from the Roman Empire have dominated most of European history.

I have started writing a history of this legal and political tradition. It starts with the Year of the Five Emperors, the rise of the Severan dynasty, and under that dynasty the first two major jurists (legal authorities) in the later Roman legal tradition, Papinian and Ulpian. It continues through the famous Codes of the emperor Justinian (as compiled by his jurist Tribonian), to the birth of universities in Western Europe upon the rediscovery of Justinian's codes, through the political philosophies of Bodin and Hobbes, to the Reception of Roman law into Western Europe, to the Code Napoleon, the German and Russian legal codes, and modern dictatorships based on the political and legal ideas of Rome. This will be a sprawling history and indeed I will probably never finish it. But meanwhile I will post a good bit of it to this blog, starting with the next post. I expect to proceed largely in temporal order, but no guarantees. Quite a few of my blog posts over the next two years may be part of this series. It should be quite enjoyable as well as provide unique insights into the history of political forms and constitutions.

Incentives

2009-10-31T13:25:00.000-07:00

Moral hazard and risk compensation for hikers.

If they had not been toting the device that works like Onstar for hikers, "we would have never attempted this hike," one of them said after the third rescue crew forced them to board their chopper.

I hope everybody by now knows about the moral hazard and risk compensation that comes with securitization, and the central role of novel mortgage securitization in the recent financial crisis that led to the current recession. If not, here's a good example:

By buying his mortgages and thus freeing up his capital to solicit even more business, Fannie and Freddie are a big reason Mr. Mozilo has driven [now-defunct sub-prime lender] Countrywide past the Citigroups and the Wells Fargos to the top of the mortgage heap. "If it wasn't for them," he said of Fannie and Freddie, "Wells knows they'd have us."

Here's my analysis of incentives and clocks:

Mechanical clocks, bell towers, and sandglasses provided the world’s first fair and fungible measure of sacrifice. So many of the things we sacrifice for are not fungible, but we can arrange our affairs around the measurement of the sacrifice rather than its results. Merchants and workers alike used the new precision of clock time to prove, brag, and complain about their sacrifices.

If you want something in an emergency you can wait in line, pay through the nose, or do without: choose one. Similar lessons apply to the current health care debate:

In emergencies rationing becomes extreme: people wait in long lines, pay "extortionate" prices, or, even worse, do without. We are thrown into economically unfamiliar territory and transaction costs balloon. Goods will always be rationed in one or more of the above four ways, and in an emergency the rationing can be quite severe. Our charitable spirit can temporarily overcome self-interest, but it can't overcome the knowledge problem or the scarcity of goods.

Even in emergencies, when charity is most likely to spring forth, we need incentives. For example, doctors in emergencies are an interesting exception to the general rule in contract law against officious intermeddlers: if you are a patient who is in no position to consent or decline treatment, a doctor can go ahead and treat you and bill you. An implied-in-law or "quasi" contract has been formed. The same is not true in almost any other case: if that annoying windshield-washing guy starts cleaning your window without your consent, or if the neighbor kid comes along one day and mows your law without permission, you don't legally owe them a thing.

Our great...grandmother was a proton-powered rock

2009-10-25T20:59:00.000-07:00

I've just read a very compelling theory of the origin of life. This pegs my "that explains so many things!" meter in a very big way. Alkaline vents -- the tame cousins of black smokers -- were common underneath earth's early oceans, but were chemically different than today. They were a chemical engineer's utopia: high temperatures and pressures, iron-sulfur mineral catalysts, a substantial proton gradient (alkaline vent water to soda-water-like ocean) and vast amounts of surface area formed by microbubbles. A new theory posits that Peter Mitchell's revolutionary discovery, proton-gradient manufacture of ATP, "the energy currency of life", was the original energy source of life, and that early evolution from primordial nucleic acids to the common ancestors of archaea, bacteria, and ourselves occurred in these sea-vent microbubbles. A proton gradient across a membrane simply means that one side is more acidic (it contains more naked protons) and the other side is more alkaline (it contains more water molecules missing a proton, called ~~"hydroxyl radicals"~~ hydroxide ions).

Because of Mitchell's discovery we now know that all known life uses membranes with proton gradients across them to convert energy into ATP molecules. Wherever the energy comes from -- from light, from carbohydrates stolen from other organisms (i.e. eating food), wherever -- in every living thing it gets converted into a proton gradient that then is tapped to manufacture ATP. In higher animals ATP is made from a proton gradient that is in turn made from "burning" blood sugar with oxygen, and this ATP powers our muscles and brains. In plants ATP is central to photosynthesis: light striking chlorophyll generates a proton gradient, and that proton gradient is used to manufacture ATP, which in turn is used to make sugars and other plant carbohydrates. In all life ATP powers the energy-using chemical reactions needed to make proteins, DNA, and RNA, the complex chemicals of life. (For biochemists reading this, relax, this is a summary: I've necessarily left out a very large number of complex steps, many still not fully understood).

The new theory of the origin of life recognizes that proton gradients existed on a massive scale in alkaline vents. The primordial, carbon-dioxide-rich oceans were acidic like Coca-Cola: they contained too many protons. These soda-water oceans were out of balance with the alkaline vent water, which contained water molecules with protons missing (hydroxide ions). Protons streamed across this gradient, with the protons from the soda-water ocean filling up the proton-deficient hydroxide ions to create normal water molecules. This stream of protons was a massive energy source that could be tapped to drive vast numbers of energy-consuming chemical reactions. Large amounts and varieties of chemicals were made on the vast surface areas of the microbubbles, eventually leading to the immensely complex chemicals and reaction pathways (metabolisms) that became life.

When, much later, plants evolved, they pulled almost all of the carbon dioxide out of the air and oceans, converting it into hydrocarbons and oxygen. Then animals evolved that could breath the oxygen, "burning" it with carbohydrates from eating the plants. Yet these very different energy sources get converted by plants and animals alike into the same thing -- proton gradients across membranes which are used to make ATP, the energy currency of life.

Ironically, we humans by burning fossil fuels are putting a small fraction of this ancient carbon dioxide which plants removed from the air and oceans back into the air, where it not only may be causing a bit of global warming, but is also dissolving back into the oceans and turning them a bit more acidic -- a tiny step back in the direction of the primordial conditions in which carbon dioxide concentrations were vastly higher than our puny modern levels, making the origins of life possible.

The theory's ten-step recipe for life:

1. Water percolated down into newly formed rock under the seafloor, where it reacted with minerals such as olivine, producing a warm alkaline fluid rich in hydrogen, sulphides and other chemicals - a process called serpentinisation.

This hot fluid welled up at alkaline hydrothermal vents like those at the Lost City, a vent system discovered near the Mid-Atlantic Ridge in 2000.

2. Unlike today's seas, the early ocean was acidic and rich in dissolved iron. When upwelling hydrothermal fluids reacted with this primordial seawater, they produced carbonate rocks riddled with tiny pores and a "foam" of iron-sulphur bubbles.

3. Inside the iron-sulphur bubbles, hydrogen reacted with carbon dioxide, forming simple organic molecules such as methane, formate and acetate. Some of these reactions were catalysed by the iron-sulphur minerals. Similar iron-sulphur catalysts are still found at the heart of many proteins today.

4. The electrochemical gradient between the alkaline vent fluid and the acidic seawater leads to the spontaneous formation of acetyl phosphate and pyrophospate, which act just like adenosine triphosphate or ATP, the chemical that powers living cells.

These molecules drove the formation of amino acids – the building blocks of proteins – and nucleotides, the building blocks for RNA and DNA.

5. Thermal currents and diffusion within the vent pores concentrated larger molecules like nucleotides, driving the formation of RNA and DNA – and providing an ideal setting for their evolution into the world of DNA and proteins. Evolution got under way, with sets of molecules capable of producing more of themselves starting to dominate.

6. Fatty molecules coated the iron-sulphur froth and spontaneously formed cell-like bubbles. Some of these bubbles would have enclosed self-replicating sets of molecules – the first organic cells. The earliest protocells may have been elusive entities, though, often dissolving and reforming as they circulated within the vents.

7. The evolution of an enzyme called pyrophosphatase, which catalyses the production of pyrophosphate, allowed the protocells to extract more energy from the gradient between the alkaline vent fluid and the acidic ocean. This ancient enzyme is still found in many bacteria and archaea, the first two branches on the tree of life.

8. Some protocells started using ATP as well as acetyl phosphate and pyrophosphate. The production of ATP using energy from the electrochemical gradient is perfected with the evolution of the enzyme ATP synthase, found within all life today.

9. Protocells further from the main vent axis, where the natural electrochemical gradient is weaker, started to generate their own gradient by pumping protons across their membranes, using the energy released when carbon dioxide reacts with hydrogen.

This reaction yields only a small amount of energy, not enough to make ATP. By repeating the reaction and storing the energy in the form of an electrochemical gradient, however, protocells "saved up" enough energy for ATP production.

10. Once protocells could generate their own electrochemical gradient, they were no longer tied to the vents. Cells left the vents on two separate occasions, with one exodus giving rise to bacteria and the other to archaea.

More here.

Dendritic carbonate growths on the Lost City alkaline vent

Given the vast complexity of the genes and metabolism that would likely have existed in the common rock-bubble ancestor of archaea and bacteria, I suspect it will be a long time before all but the simplest of these steps are recreated in a lab. Still, this is by far the most compelling theory of the origin of life I've ever seen.

Peter Mitchell, discoverer of the proton-gradient manufacture of ATP, was a fascinating character: instead of entering the "publish or perish" and "clique review" rat-race of government-funded science, he dropped out of mainstream scientific culture and set up his own charitable company (nonprofit in U.S. lingo), Glyn Research Ltd. His discoveries were compelling enough to win over the early "he's a wingnut" skeptics and are now the centerpiece of our understanding of biological energetics. My essay "The Trouble With Science" suggests why this kind of independence is good for science. Here's more about Mitchell's theory of proton-powered life called chemiosmosis. The ten-step process above is the theory of William Martin and Michael Russell, and is an extension of Gunter Wachterhauser's iron-sulfur world theory.

Non-market but voluntary economic institutions

2009-10-20T15:45:00.000-07:00

Often in political parlance the phrase "the market" is used quite broadly to cover a wide variety of voluntary economic institutions, including firms, non-profit organizations, families, and so on in addition to markets proper. But traditional neoclassical economics is about ideal markets proper: instantaneous buying and selling on a costless spot exchange. Ronald Coase started expanding the scope of economics with his work on the firm, and this line of thinking has developed into a school, often called the "new institutional economics" or NIE that focuses on non-market or partial-market voluntary economic institutions as well as on the conditions that must be satisfied for efficient markets to be possible. The economics Nobel committee has finally recognized the study of non-market but voluntary economic institutions with its awards this year to Oliver Williamson and Elinor Ostrom.

Williamson and his fellow travelers Oliver Hart, Yoram Barzel, Steven Cheung, and Janet Landa have long influenced my thinking about measuring value, mental transaction costs, smart contracts,
the origins of money, and more.

The new institutional economics school in a nutshell holds that often transaction costs are too high for spot markets to work properly. If spot markets were perfectly efficient we would not need firms or long-term contracts, for example, but in fact we have those and many other institutions besides pure markets. The NIE studies and has started to explain the functions of institutions that are not markets proper, such as long-term contracts and firms, as well as the legal underpinnings of market economies, especially property and contracts. Contracts and property are the main formal expressions of economic relations recognized by the NIE, which makes this school especially interesting to someone like me interested in the economic role of contracts and property and how to adapt these institutions to (and even to some extent incorporate them into) evolving technology.

Note that these institutions are "voluntary" in the sense of the traditional common-law principle of non-initiation of force, and assume a sophisticated legal framework. When this assumption doesn't hold, these principles usually work in a very different way or don't work at all, and one has to be very careful applying them. (See here and here for more on the problem of coercive externalities).

Meanwhile, here is a good article introducing the other economics Nobel winner this year, Elinor Ostrom.

How to save yourself from chasing futuristic red herrings

2009-10-17T16:02:00.000-07:00

For many people, the often outlandish proposals and predictions of futurists are just obviously impractical and are to be laughed off. This attitude, irrational is it may seem to futurists of the stripe who take outlandish ideas very seriously, is itself not to be sneered at -- automatic unbelievers in the alien save themselves from chasing many red herrings. Those who laugh at futurism because they are unimaginative dolts I will not try to defend, but those who laugh at futurism when futurists take themselves too seriously are usually spot-on. For those of a more serious nature and intellect who want to actually figure out the flaws in futuristic ideas, here are some heuristics:

(1) Find the easier thing. If there is an easier way to get much of the value from a proposal, ask yourself, why hasn't somebody pursued this easier way? For example, seasteading proposes the creation of novel structures for people to settle permanentantly in the ocean. Ask yourself, why don't there already exist communities that live permanently on cruise ships? Why haven't oil companies moved the families of their offshore platform workers out to live where the work is?

(2) Look to see if if the futurists have proposed experiments that can be done much sooner and more cheaply that would verify or falsify the propsosal or prediction. Many of the "most important", in terms of perceived future impact, hyper-futuristic ideas are conveniently unfalsifiable: artificial intelligence, uploading of consciousness, and so on. There are a near-infinite number of unfalsifiable theories that our imaginations could dream up, making the odds of any given such theory to be true about zero. The ability to conduct such dispositive experiments, the ability to prove a hypothesized event false if certain conditions occur, paradoxically makes that event far more likely. A related heuristic is to be very leery of ideas that, as is said of fusion power, are "always thirty years in the future". If the futurist can't explain why the futurist of 30 years ago who predicted something similar was wrong, that futurist should indeed be laughed at, early and often. Far too many futurists are so futuristic that they know little about the past which they purport to be projecting. Some don't even know when predictions similar to theirs were already made decades ago, and were already supposed to have come true. At the same time, be wary of futurists who are not willing to make short-term predictions, lest we obtain a track record of the vast uncertainty involved in their brand of futurism.

(3) Except for rare phenomena of high predictability, such as the orbits of planets, past performance does not guarantee future results. Futurists often chart exponential curves of growth in some measure of technology: the speed of transport, the number of transistors that can fit on a chip, and so on. The first half of a logistics curve looks much like an exponential curve. You can fit an exponential curve to the data points, but it's really a logistic curve, which in the long run, and possibly even in the short run, will lead to a radically different kind of future. Because of physical limits and human psychology, reality far more closely resembles logistic curves than exponential ones. For example, world population growth seemed to follow an exponential curve until about the 1960s, when it flipped into a quite different mathematical regime. This transition to sub-exponential growth started much sooner in the developed world, which should have been but was not a clue for the population alarmists. As for physical limits, a good example is transport speed: it seemed to be growing exponentially until it hit the sound barrier in earth's atmosphere and the implacable nature of earth's gravity well beyond it in the latter half of the twentieth century. More on the dubious nature of exponential projections here.

(4) Beware of the prophets of false certainty. These are people who focus on one out of many possible outcomes, or take very seriously unfalsifiable predictions, or follow exponential projections, or have neglected to find the easier thing, and pretend, because nobody has proven them wrong, that their version of the future has a high probability. We have, for example, the Bayesiologists, who, while to their credit are at least aware of first-order uncertainty (known unknowns), neglect the higher-order uncertainties (unknown unknowns) inherent in most futurism and demand that we make some intuitive guess as to the numerical probability of their predicted event. (When asked for an intuitive numerical guess about some hyper-futuristic prediction, "50%, plus or minus 50%, distribution function unknown" is usually the best answer).

(5) Look at interests. You may not understand the science involved, but individual and institutional interests are human universals. Take astrobiology, for example. Here we have a science without a subject. Now the astrobiologists to a man argue that extraterrestrial life must be common, indeed that it may well be right around the corner underneath the ice of Enceladus or Europa or on one of those exciting new exoplanets. There appears to be, as many activists like to say about global warming, a "consensus" among the astrobiologists about the ubiquity of life in the universe. But only primitive life, of course -- otherwise the uncomfortable fact that we have never observed the signs of any artificial surfaces, despite observing billions of stars in our own galaxy and billions of other galaxies, would rear its inconvenient head. Thus the Rare Earth Hypothesis, in which for clever reasons life is supposed to almost always stops evolving beyond some primitive stage, in sharp contrast to the ongoing evolution of life to higher complexity in the only history of life we have actually observed. Does the astrobiologists' consensus reflect their expertise and your ignorance in astronomical and biological matters, or does it reflect something else? Consider this -- if you were skeptical about this astrobiological thesis, why would you become an astrobiologist in the first place, risking your career on a science that has no subject? If the politicians and academic boards who fund them ever became convinced that extraterrestrial life probably does not exist anywhere where we will be able to observe it before they retire, astrobiologists would have to find new jobs. This is a career for true believers. Beyond this rather dramatic selection effect, we have individual and institutional self-interest to keep the argument going -- to fund their careers, astrobiologists must persuade us that life in universe is common, common enough that we should fund multibillion dollar telescopes and spacecraft and, of course, grant copious amounts of research funding to them in order to look for it within or astronomically very near our solar system, which is as far as we can observe the signs of primitive life. Even if you know nothing whatsoever about either astronomy or biology, but do understand a thing or to about humans, you are wise to be highly skeptical of the claims of astrobiologists.

(6) Be especially skeptical of political futurism. From NASA's Shuttle and Space Station, which were supposed to revolutionize space industry, to the politicization of doom-and-gloom scenarios such as overpopulation and the supposed dire consequences of global warming, politics mixed with futurism has a very poor track record. By contrast, private entities like the Singularity Institute, Foresight Institute, and so forth, while even more outlandish and preposterously self-serious, can provide creative starting points for brainstorming towards more practical ideas and are relatively harmless.

(That leads me to my last heuristic -- (7) avoid futurists who can't laugh at themselves).

Futurism at its best is a creative and entertaining game of ideas. Playing with outlandish ideas can be very productive -- for example, the Easier Thing on occasion may turn out to actually be a good idea you can implement now, and you arrive at the easier thing by starting with an outlandish idea. I occasionally explore outlandish futuristic ideas here at Unenumerated, which prides itself on an unending variety of topics. There is nothing to sneer at about futurism as fun unless you have an unimaginative rock for a brain. However, those who take these ideas too seriously, or have created a false sense of certainty about them, do deserve a few guffaws.

The tax collector's problem

2009-10-12T03:03:00.000-07:00

Here's an edited excerpt from my old essay "Measuring Value":

Tax collection is the most efficient department of government. Its efficiency rivals that of many private sector institutions.

From the point of view of many taxpayers this is an incredible claim, given that tax collectors take money we ourselves know how to spend quite well, thank you, and often spend it on amazingly wasteful activities. And the rules by which they take it often seem quite arbitrary. Tax rules are usually complex but nevertheless fail to let us account for many events important to the earning of our incomes that differentiate us from other taxpayers.

How the money gets spent is quite outside the scope of my claim that tax collectors are uncommonly efficient. It is the collection process itself that is the subject of that claim, and the tax collection rules. This essay will demonstrate the efficiency of tax collector's rules by two arguments:

(1) First, we will show why tax collectors have an incentive to be efficient (and what "efficiency" means in this context)

(2) Second, we will explore the problem of creating tax rules, and see how the difficulty of measuring value rears its ugly head. Tax rules solve the value measurement problem through brilliant, often very non-obvious solutions similar to solutions developed in the private and legal sectors. Often (as, for example, with accounting) tax collectors share solutions used to measure value in private relationships (such as the absentee investor-management relationship in joint stock corporations). It is in making these very difficult and unintuitive trade-offs, and then executing them in a series of queries, audits, and collection actions, that tax collectors efficiently optimize their revenue, even if the results seem quite wasteful to the taxpayer.

The tax collector's incentives are aligned with the other branches of their government in a task that benefits all associated with the government, namely the collection of their revenue. No organization of any type collects more revenue with fewer expenditures than tax collection agencies. Of course, they have the advantage of coercion, but they must overcome measurement problems that are often the same as other users of accounting systems, such as owners of large companies. It is not surprising, then, that tax collectors have sometimes pioneered value measurement techniques, and often have been the first to bring them into large scale use.

Like other kinds of auditors, the tax collector's measurement problem is tougher than it looks. Investment manager Terry Coxon has described it well[1]. Bad measures or inaccurate measurements allow some industries to understate their income, while forcing others to pay taxes on income they haven't really earned. Coxon describes the result: the industries that are hurt tend to shrink. The industries that benefit pay fewer taxes than could be extracted. In both cases, less revenue is generated for the tax man than he might be able to get with better rules.

This is an application of the Laffer curve to the fortunes of specific industries. On this curve, developed by the brilliant economist Arthur Laffer, as the tax rate increases, the amount of revenue increases, but at an increasingly slower rate than the tax rate, due to increased avoidance, evasion, and most of all disincentive to engage in the taxed activity. At a certain rate due to these reasons tax revenues are optimized. Hiking the tax rate beyond the Laffer optimum results in lower rather than higher revenues for the government. Ironically, the Laffer curve was used by advocates for lower taxes, even though it is a theory of tax collection optimum to government revenue, not a theory of tax collection optimal to social welfare or individual preference satisfaction.

On a larger scale, the Laffer curve may be the most important economic law of political history. Adams[2] uses it to explain the rise and fall of empires. The most successful governments have been implicitly guided by their own incentives – both their short-term desire for revenue and their long-term success against other governments -- to optimize their revenues according to the Laffer Curve. Governments that overburdened their taxpayers, such as the Soviet Union and later Roman Empire, ended up on the dust-heap of history, while governments that collected below the optimum were often conquered by their better-funded neighbors. Democratic governments may maintain high tax revenues over historical time by more peaceful means than conquering underfunded states. They are the first states in history with tax revenues so high relative to external threats that they have the luxury of spending most of the money in non-military areas. Their tax regimes have operated closer to the Laffer optimum than those of most previous kinds of governments. (Alternatively, this luxury may be made possible by the efficiency of nuclear weapons in deterring attack rather than the increased incentives of democracies to optimize to tax collection).

When we apply the Laffer curve to examining the relative impact of tax rules on various industries, we conclude that the desire to optimize tax revenues causes tax collectors to want to accurately measure the income or wealth being taxed. Measuring value is crucial to determining the taxpayer's incentives to avoid or evade the tax or opt out of the taxed activity. For their part, taxpayers can and do spoof these measurements in various ways. Most tax shelter schemes, for example, are based on the taxpayer minimizing reported value while optimizing actual, private value. Tax collection involves a measurement game with unaligned incentives, similar to but even more severe than measurement games between owner and employee, investor and management, store and shopper, and plaintiff-defendant (or judge-guilty party).

As with accounting rules, legal damage rules, or contractual terms, the choice of tax rules involves trading off complexity (or, more generally, the costs of measurement) for more accurate measures of value. And worst of all, as with the other rule-making problems, rule choices ultimately ground out on subjective measures of value. Thus a vast number of cases are left where the tax code is unfair or can be avoided. Since tax collectors are not mind readers, tax rules and judgments must substitute for actual subjective values its judgments of what the “reasonable” or “average” person's preferences would be in the situation. Coxon provides the following example. Imagine that we wanted to optimize the personal income tax rules to measure income as accurately as possible. We might start reasoning along these lines:

... look a little closer and you find that an individual incurs costs and expenses in earning a salary. He has to pay for transportation to and from work. He may spend money on clothes he wouldn't otherwise buy and on lunches that would cost less at home. And he may have spent thousands of dollars acquiring the skills and knowledge he uses in this work.

Ideal, precise rules for measuring his income would, somehow, take all these and other costs into account. The rules would deduct the cost of commuting (unless he enjoys traveling about town early in the morning and later in the afternoon). They would deduct the cost of the clothes he wouldn't otherwise pay (to the extent it exceeds the cost of the clothes he would buy anyway). They would deduct the difference between the cost of eating lunch at work and the cost of lunch at home (unless he would eat lunch out anyway). And each year these ideal rules would deduct a portion of the cost of his education (unless he didn't learn anything useful in school or had enough fun to offset the cost).

[Because there are limits to complexity, and] because tax agents can't read minds, the government gives them arbitrary rules to follow: no deductions are allowed for commuting expenses, for clothing that is suitable for wearing outside of work, for lunches that aren't part of the “business entertainment” or for the cost of acquiring the skills a job requires (although you can deduct the cost of improving your skills).

The resulting rules often seem arbitrary, but they are not. They are trade-offs, often non-obvious but brilliant, between the costs of measuring more value with greater accuracy and extra revenue extracted thereby. However, the value measurement problem is hardly unique to tax collection. It is endemic when assessing damages in contract and tort law, and when devising fines punishments in administrative and criminal law. Many private sector rules found in contracts, accounting, and other institutions also have the quality that they use highly non-obvious measures of value that turn out, upon close examination, to be brilliant solutions to seemingly intractable problems of mind-reading and the unacceptable complexity of covering all cases or contingencies. Such measurement problems occur in every kind of economic system or relationship. The best solutions civilization has developed to solve them are in most institutions brilliant but highly imperfect. There is vast room for improvement, but failed large-scale experiments in attempts to improve these measures can be devastating.

The Laffer curve and measurement costs can also be used to analyze the relative benefits of various tax collection schemes to government. Prior to the industrial revolution, for example, the income tax was infeasible. Most taxes were on the prices of commodities sold, or on various ad-hoc measures of wealth such as the frontage of one's house. (This measurement game resulted in the very tall and deep but narrow houses that can still be found in some European cities such as Amsterdam. The stairs are so narrow that even normal furniture has to be hauled up to the upper story and then through a window with a small crane, itself a common feature on these houses).

Taxes distorted the economy of the Netherlands -- quite literally. Here are some houses in Amsterdam built in the 17th and 18th centuries, and a typical narrow staircase. Furniture and other large objects must be hauled up by the small cranes seen above the top-story windows.

Prior to the industrial revolution, incomes were often a very private matter. However, starting in England in the early nineteenth century, large firms grew to an increasing proportion of the economy. Broadly speaking, large firms and joint-stock companies were made possible by two phases of accounting advances. The first phase, double-entry bookkeeping, was developed for the trading banks and "super companies" of early fourteenth century Italy. The second phase were accounting and reporting techniques developed for the larger joint stock companies of the Netherlands and England, starting with the India companies in the seventeenth century.

Accounting allowed manager-owners to keep track of employees and (in the second phase) for non-management owners to keep track of managers. These accounting techniques, along with the rise of literacy and numeracy among the workers, provided a new way for tax collectors to measure value. Once these larger companies came to handle a sufficient fraction of an jurisdiction's value of transactions, it was rational for governments to take advantage of their measurement techniques, and they did so -- the result being the most lucrative tax scheme ever, the income tax.

References

[1] Adams, Charles, For Good and Evil: The Impact of Taxes on Civilization

[2] Coxon, T., 1996 Keep What You Earn, Times Business/Random House

When does citizen's arrest become battery?

2009-10-09T00:12:00.001-07:00

Here's a rough citizen's arrest caught on film. Plenty of action during the "more than 7-8 minutes" between when the photographer started shooting and the on-duty police arrived, despite a police station reportedly 2 blocks away. Some interesting comments from locals (apparently most of them police officers) here. Although freelance photographer Mike Anzaldi was there and I wasn't, I'm not completely without doubt about his claim that all the blows administered by the Asian fellow (including a kick to the stomach not pictured here) were justified to "calm him down". You can see some of the ambiguity between controlling a resisting arrestee and battery. (For more of the story, hear Anzaldi's commentary and see more pictures at the first link above). My kudos to Anzaldi for his great documentation of this event. Not so much to the (presumably, since anonymous) cop bloggers with bad attitudes at the second link above, although they do raise one interesting issue, that the victim here did not end up pressing charges -- as a result, the alleged purse-snatcher was only charged with a misdemeanor. Victims often lack an incentive to press charges, and police often try to motivate victims to press charges by withholding stolen property they have recovered. If victims won't act out of a public spirit, or at least out of revenge, to help punish criminals, how can criminals be incapacitated and deterred? By contrast the volunteer citizen arrestors here seem to be acting in a public or at least gallant spirit. I'm not going to take it on faith, as the anonymous bloggers apparently do, that the police have great incentives here either, rather that this does seem to raise a public goods issue, to which police forces are a very imperfect, and in this case quite belated, solution. (AFAIK, BTW, no charges have been filed against any of the arrestors in this case, and I doubt any will be -- they seem to be near but not over the line in using reasonable force to control a resisting arrestee, and even if they were a bit over the line police sympathize with their situation and would be loathe to arrest, and even if arrested and prosecuted a jury would probably let them off).

Incidentally, if it had been police officers making the arrest here, those bites would probably constitute battery on a police officer. But there seems to be no analogous protection for citizens making an arrest -- we should consider adding such protection where the arrest is legitimate. (Often, BTW, the burden of proof on citizen arrest is much higher than for police -- in many states the arrestor must have actually seen the crime being committed, a greater burden than the typical police officer's burden of probable cause. I am skeptical of this discrepancy, too).

I previously posted on another case with a video showing a store owner shooting a robber, the first time in proper self-defense (or defense of others) under a castle law, but the second time apparently over the line between such proper force and murder.

Staving off the Cosmic Malthus

2009-09-24T13:41:00.000-07:00

Robin Hanson has a good argument about the inevitability of Malthusian economics in our future -- here refined by Anders Sandberg. This Malthusian future is distant in human terms but an eyeblink in cosmic terms. Sandberg observes that that our cosmic environment, while very large, is finite and dispersed. Emigration beyond our solar system can expand these resources only polynomially, which can't keep up with exponential economic or population growth. Therefore, our current boom era of exponential economic growth, wherein manufacturing productivity has grown at about the same positive percentage rate per year starting in Western Europe in the late Middle Ages, is historically very unique and must eventually come to an end. Furthermore, Hanson argues that the specter of Malthus, purged in the late 20th century by declining fertility, will return -- Darwinian genetic adaptation to modern fertility-reducing conditions and technologies will eventually bring population growth rates back to exponentially positive rates until once again resource limits are reached and most humans (or posthumans) live at subsistence levels -- very extreme poverty by the standards of modern developed countries.

The Darwinian argument may be overcome if culture keeps evolving faster than genes and thereby can keep overcoming future genetic adaptations. (Richard Dawkins argues that we can overcome our selfish genes). It may be rebutted that units of culture (what Dawkins calls "memes") themselves are Darwinian competitors and thus also face Malthusian limits, or that future computerized minds may reproduce very quickly and evolve as fast as culture. I won't elaborate on these arguments further here as Robin has got me into a hyper-futuristic mood and I'd like to suggest another way in which we might achieve more "room at the bottom".

Hanson counts atoms in order to estimate the density of information (or of minds) that might be created. But, just as Freeman Dyson, Gerard O'Neill, and others showed that planets are a waste of mass, so that technologically mature civilizations won't have planets, I'll argue here that atoms are a waste of mass-energy, and technologically mature civilizations may not have very many of them. Instead information may be stored in photons and collections of electrons and positrons (for example geonium) may handle most information processing and form the substrate of minds.

Given that a photon can come in a vast number of possibly distinguishable frequencies, the spectrum spanning more than 20 orders of magnitude, we may be able to store at least 10^30 bits per photon. One approach to creating photons is to simply capture the energy of solar nuclear fusions as photons, as we already know how to do -- this should give us about 10^95 bits worth of photons of average energy blue. But we'd have to either wait billions of years for all these fusion reactions to occur naturally in the sun or accelerate them somehow. More completely, the neutrons and protons in the sun, if converted into photons of average energy blue, would give us 10^97 bits and we may not have to wait billions of years if we can figure out how to bring about this hypothetical conversion. This is a fascinating but very speculative bit of physics which I will explore further.

Of course, we will still need some electrons or positrons around to actually process that information and recycle photons. And we still need some neutrons and protons around to fuse for energy to make up for the waste heat, to the extent that geonium computations will be less than perfectly reversible. Unless we are very clever and figure out how to make solid structures that don't blow up out of electrons and positrons, we will need some magnetic tanks made out of traditional heavy atoms to hold the geonium. Worse, the strong tendency for baryon number to be conserved makes cracking protons difficult and perhaps impossible. Protons are made out of three quarks, and while cracking quarks is quite possible (particles with two quarks but zero net baryon number decay spontaneously into particles with no quarks), the tendency for baryon numbers to be conserved at the energy levels used by current particle accelerators suggests that cracking the proton, if we can even figure out how to do it, may require vast amounts of energy, so that only a tiny fraction of the sun's neutrons and protons might be converted before we run out of energy from the fusion of the remaining nuclei. Right now we know how to crack the neutron into a proton and electron, but we don't know how to crack the proton. To be feasible we will have to discover a way to "catalyze" proton decay, by analogy to how the activation energies of chemical reactions can be lowered by catalysts.

If feasible, converting wasteful atoms into more useful photons would give us many orders of magnitude more room at the bottom. Staving off Malthus then becomes a question of how much information can be stored in a photon, and of how quickly electrons or positrons can process those photons.

We still face Heisenberg uncertainty as a limit on how quickly these photonic memories can be recalled. The product of the measured time of arrival of a photon and its measured energy (and thus the number of distinguishable frequencies) has a fixed uncertainty -- if we measure the time with greater precision, we can distinguish fewer frequencies, and vice versa. This sets a finite limit on the rate at which we can process the information stored in the photons. Seth Lloyd has calculated that 1 kilogram of mass converted into energy can perform at most 10^50 operations per second. So future civilizations could only stave off Malthus by going photonic -- Malthus will still eventually catch up, assuming Darwinian competition in reproduction remains.

In addition to classical bits stored as photon frequencies, an exponentially higher number of quantum bits (qubits) might be stored in the entangled states of these photons. However, to use some number of these qubits requires destroying an exponentially larger amount of them. Thus, against exponential population growth memory storage itself remains cheap, but recalling memories or thinking about things becomes exponentially expensive. Qubit minds might stave off Malthus by hibernating for exponentially longer periods of time, waking up only to observe an exponentially decreasing number of interesting events.

My argument that we may figure out how to crack three-quark particles like neutrons and protons into photons relies on the probability, due to the imbalance of protons and anti-protons (and neutrons and anti-neutrons) in the observable universe, that baryon number (a property of quarks) is not necessarily conserved, and is falsifiable in that sense: if for example we discover with better telescopes that the amount of antimatter in the universe is the same as the amount of matter, that will at least strongly suggest that even at Big Bang energies baryon number is conserved, rendering the possibility of ever converting the quarks which constitute most of the mass of neutrons and protons into non-quarkish things (like electrons, positrons or photons) extremely unlikely. It's also somewhat imminently testable insofar as if LHC and similar colliders continue to fail to crack the proton, that further dims prospects. Feasibility, however, is not so testable: one could argue that, even if baryon number was not conserved in the Big Bang, and even if we soon discover how to crack the proton in high-energy colliders, we may never figure out a method, analogous to catalysis in chemical reactions, to crack protons at economically low energies or to productively recycle the energies used to perform the conversions rather than it being dispersed as waste heat.

(h/t: the phrase "Cosmic Malthus" to describe Hanson's theory is from commenter Norman at Robin's blog).

Nondeterminism and legal procedure

2009-09-16T21:36:00.000-07:00

Two of the most important characteristics of legal procedure are local coercion and nondeterminism. I've written plenty about coercion recently, so here I'll put forward some thoughts about its nondeterminism.

A deterministic process is one in which, for any state of the world -- a state being a theoretical description of everything that might change the future -- there is only one next state. The omniscient Laplace's daemon could in principle predict everything about the future if the universe were deterministic. In a nondeterministic process, there can be more than one future state, and not even Laplace's daemon can know for sure, and may not know at all, which one will happen. We can model simple processes as "state machines": in the present the process is in one state, in the next instant in the future the process may have transitioned to another state, and so on.

Here's a picture of a deterministic process -- one with only one possible future:

Here's a picture of a nondeterministic process:

If as in the picture above there are more than two possible future states, this can also be modeled as a sequence of binary events:

An event can be natural or a human act. If it's a human act, the decision to act often can or should be based on good estimates of in which state(s) the world is or was in. In legal procedure, generally an arrest should only be made based on an estimate that the person arrested in fact committed a specific crime, for example.

If causally related nondeterministic processes repeat themselves often enough, we can develop a probabilistic model of them. Physicists have developed probability density models for very small-scale phenomena in quantum mechanics, for example.

Practical nondeterminism stems from at least four sources: (1) some of the physical world is inherently nondeterministic, (2) even where deterministic in principle, the configuration of physical states in the world is vastly more complex than we can completely describe -- nobody and no computer comes anywhere close to resembling Laplace's demon, (3) people are far, far more complex than we can mutually comprehend -- especially if you get more than a Dunbar number of us together, and (4) the words and phrases we communicate with are often ambiguous.

Most of the nondeterminism in legal procedure stems from questions of who did what when and where, and the legal consequences that should ensue based on codes and judicial opinions written in ambiguous language. Law summarizes this uncertainty with a number of qualitative probabilities often called "burdens of proof". The following list is sort of, but not necessarily (as they come from different legal domains and are not necessarily comparable), in order of lesser to greater burden of proof:

Colorability
Air of Reality
Reasonable suspicion
Prima facie case
Probable cause
Preponderance of the evidence
Clear and convincing evidence
Beyond reasonable doubt
(To reverse a jury verdict) No reasonable jury could have reached the verdict

These label the probabilities -- not in the sense of numbers between 0 and 1, but in the sense of kinds of evidence and degrees of convincing argument -- required for various decisions of legal procedure to be made: for a search warrant to issue, for an arrest to be made, for property to be confiscated, for a legal motion to be accepted or denied, for liability to accrue in a civil trial, for a sentence of guilty in a criminal trial, for decisions about jurisdiction, and so on.

It's useful to look at these, not merely as classical probabilities, but in the style of quantum physics, as a superposition of states. When a nondeterministic event -- or a deterministic event for which we lack important knowledge -- has happened in the past, we can treat it as a superposition of all the possible events that might have happened. When a person or persons undertakes a procedural act -- arrests a person, issues a verdict, and so on -- under law they should be doing so based on a judgment, to some degree of certainty, that one particular set of facts occurred that justify the act. We can thus see a criminal defendant, for example, as in the state "guilty or not guilty" until a jury "collapses" this probability distribution to a verdict (which collapse, however, unlike quantum mechanics, can sometimes be reversed by an appeals court if deemed erroneous). A suspect is in the state "beyond reasonable suspicion" or "not beyond reasonable suspicion" until a police officer acts, for example to pull over your car on the highway, in a way that requires reasonable suspicion. In principle, at least, this decision too shoul dbe reversible (for example, if the officer pulled over your car without reasonable suspicion and noticed an open beer bottle, that evidence could be thrown out of court based on the lack of reasonable suspicion in the original stop).

Legal procedure needs to control nondeterminism so that people can operate in an environment of reasonably reliable legal rights. Think, for example, about how inefficient the economy would be if most property was in imminent danger of being taken from one owner and given to another due to frequent decisions reversing old court cases, or how full of worry our lives would be if we could be taken off the street and put in jail at random. Thus there is, for example, a strong presumption in English-law countries that a jury's decision is final: and this effected by putting the burden of proof on the court reversing the decision high: "no reasonable jury could have reached the verdict", a burden of proof in a criminal case much higher than the jury's own "beyond reasonable doubt."

The Coase Theorem in action

2009-09-05T00:34:00.000-07:00

A nice illustration of the major flaw I have described in the Coase Theorem. Much of what is valuable in the above link I actually wrote in the comments and will now foreground with some minor edits:

A music store is next door to a doctor's office. The music store would prefer (if the office of a rich doctor who wants quiet for his patients did not exist next door) to let its customers test its electric guitars at volume VM1 > 0. The doctor prefers it to be quieter (VD < VM1). Coase theory assumes that the only possible choices are within the range {VM1, VD}, i.e. any volume of electric guitar testing in between or including these two preferences. In the absence of transaction costs and given only this range, one can indeed conclude that the music store and the doctor will bargain to an efficient outcome. But these aren't the only choices. The music store can, at additional cost to itself C, turn up the volume nobs on its amplifiers and play the music at volume VM2 > VM1. If the doctor is willing to pay the music store P1 to change the volume from VM1 to VD, and P2 > P1 + C to turn the volume down from VM2 to VD, the music store has an incentive to play the music at volume VM2 instead of VM1, or to threaten same, in order to extract for itself a greater benefit from the situation.

In other words, the same physical effect that produced the externality gives rise to an opportunity and incentive to play a negative-sum game. Here it changes the music store's prefered volume in the absence of a rich doctor next door from VM1, to VM2 > VM1, due to the opportunity to extort extra payments from the doctor by creating an even less bearable din, for which the doctor is willing to pay even more to avoid. The music store is willing to incur an extra cost C to itself in order to extract the greater payment P2 from the doctor. For the overall game the payment P2 is a wash and C makes it negative-sum. (In the music store example, cost C comes from the music store chasing away some of its own customers, albeit at a slower rate than it chases away the doctor's customers, by testing its guitars more noisly than it would prefer in the absence of the doctor).

If, as in reality, there are transaction costs causing bargains to sometimes not be reached, the outcome is even worse, as noise VM2 is costlier, perhaps far more costlier, to the doctor's practice than VM1: such outcomes are often far worse outcome under transaction costs than the range of possible outcomes that Coaseians contemplate.

Of course, more generally in the absence of proper prior legal allocations of rights the doctor and music store could threaten each other in other ways: the doctor could threaten to poison the guitar frets, the music store could call in the mob on the doctor, etc.

(Furthermore, even with tort law preventing these other negative-sum games the music store has an incentive to falsely "reveal" preference VM2 instead of VM1 to the doctor and to the judge -- a common problem that good tort law usually, but hardly with perfection, tackles).

The example of the music store and its amplifier volume shows that the externality itself contains potential or actual coercion -- the same physical effect that causes the externality often makes negative-sum games possible, and in the absence of any prior legal limits on the externality, opportunities and incentives for coercive negative-sum games are inherent in the externality -- so that analyses of such externalities with the Coase Theorem, which assumes such games don't exist, will often lead to misleading or false conclusions.

The game being played here by the music store is negative-sum for the same reason a tax is, firstly because the music store's coercion distorts the behavior of the doctor and his patients. Assuming the doctor is helpless to stop the noise without making the payoff (e.g. we artificially assume he can't order a mob hit on the music store, or poison its customers, or emit any other such "extreme" externality to avenge or deter the music store's excess externality) he will go golfing more, and see fewer patients, if he is paying P2 to the store instead of P1. Fewer patients will be healed, a net loss of welfare. Since we assume the music store is rational, it will demand only the Laffer-maximum amount of extortion, but Laffer-maximum taxes still have plenty of distoritve effects that produce inefficiencies compared to the no-taxation case. Secondly, the behavior of the music store is also distorted because it has excess profits to spend. It will invest its extra money in opening new music stores and concert halls next to other doctor's offices, nursing homes, and similar because that is a lucrative source of profit, and so other activities that would prefer quiet will be distorted in turn. It is often unreasonable to assume that Coaseian payees are spending their extra money efficiently. Interestingly, Gary Becker assumed the Coaseian payor's behavior was not distorted and that the Coaseian payee was spending its extra profits efficiently, and used this Coaseian reasoning to argue that governments themselves are efficient outcomes of Coaseian bargaining. Becker's argument is wrong for the same reason that [anarcho-capitalist David] Friedman's [Coaseian] argument is wrong for legal protection agencies: it doesn't account for the economic distortions caused by coercion.

To see where these negative-sum games lead, let's take the case of roving loudspeakers. Pickup trucks drive through the city, parking in front of every business in turn and demanding large payments to take their noise elsewhere. The optimal extortion for the extortors in this case is nearly 100% of all business wealth in the city (again assuming the victims are defenseless), because if extortor A doesn't extort any remaining wealth extortor B will be happy to come in and take it. The economy is so distorted that practically nothing gets produced or distributed and the city's economy collapses. This is the "roving bandit" case studied by Mancur Olson. Where two stores are next to each other and neither can move constitute "stationary bandits", as do gangs or governments with "monopolies of coercion" over fixed territories. As the roving loudspeakers case illustrates, rational stationary bandits collect a far lower percent of their victims' profits in taxes than do roving bandits. (But stationary bandits with the much lower rate than 100% end up collecting a far higher absolute amount -- recall the Laffer curve) . If on the other hand we assume the victims are not defenseless, we have negative-sum games like hawk/dove, negative tit-for-tat, etc. which again are paradigmatically very different from voluntary Coaseian bargains.

We can measure the effectiveness of an excess (or coercive) externality for extracting super-Coasiean payoffs by how great a harm the externality can produce for the least cost to the emitter. The ubiquity of technology that is very effective in producing the greatest harm for the least cost, i.e. weapons, in our world should be a very good clue that our world is not Coaseian. Music volume, spark emission, and so on beyond the "preferred" level Coaseians falsely assume to be maximal are logically weapons. Their harm/cost ratio is lower than guns, tanks, bombers, missiles, flamethrowers, herbicides, and so on, but they have an advantage in being physically hard to distinguish from merely Coaseian externalities, which would come in handy in a world where judges and other lawmakers actually based law on the Coase theorem (the good news is that they mostly don't).

Praying to Gliese 581d

2009-08-22T23:37:00.000-07:00

COSMOS magazine of Australia is teaming up with the Australian national government and the Jet Propulsion Laboratory (JPL) and NASA in the United States to send a ream of messages gathered from the public via the JPL-run Deep Space Network (on which I once worked) to the nearby star system of Gliese 581, which includes the recently discovered extrasolar planet Gliese 581d. The schedule is to send the messages on Friday, August 28th. According to COSMOS's editor, Wilson da Silva,

Yes, it is a "stunt": the purpose is to engage the public during Science Week in Australia and get them thinking about the big questions: are we alone, is life common in the universe, how often does intelligent life arise, how big is space, etc etc.

It will apparently also be good for COSMOS' advertising and subscription revenue:

So far, it has been very successful: more than 1,000 newspapers and other media have published online stories all over the world, it has been featured on 9,000 blogs and more than 1.17 million pages of the site have been read in the past 10 days.

I can't say whether it will hurt or harm the quests of the government agencies and contractors involved for more taxpayer money.

Alas, this admitted publicity stunt gets the public thinking about "the big questions" in a way that is rather prejudiced about the answers. The very act of sending a message to a specific star suggests to our newly attracted pupils that there is some substantial probability of extraterrestrial intelligence (ETI) at the other end, when astronomers have observed over 10 billion galaxies and have never seen any signs of ETI. The odds of even one other ETI civilization in our galaxy, much less specifically around one of the two hundred billion stars in our galaxy, Gliese 581, are rather remote. Just how remote we will now explore -- then we shall take a look at the prayers to Gliese 581d.

The mindset at work with the COSMOS transmission is similar to those behind the web calculator Drake Equations that I've seen. The Drake Equation supposedly brings together all the main probabilities relevant to calculating how many ETI we might expect to find in our galaxy: the expected number of habitable planets, the probability of the origin of life given a habitable planet, the probability of intelligence evolving given life, and so on. You are supposed to be able to input your own assumptions into these calculators and it spits out the expected number of ETI in our galaxy based on these assumptions. Real scientists actually observe the universe and fit their equations and parameters to what they see, rather than what they wish were true, but these "science education" sites invite the visitor to plug in what they wish -- unless it doesn't fit what the web site authors wish.

From these sites we learn something very interesting, not about how science should be done or what it has observed, but about the hopes and wishes of their authors. These calculators don't allow just any numbers to be placed in them, but only numbers within a range defined by the authors. They don't even allow numbers to be placed into them that are most consistent with what astronomers have actually observed in the universe, i.e. the ubiquitous naturalness and lack of artificiality everywhere they look. Let's use as an example the least pathological.

A reasonable guess, given the improbability of actually existential threats between the invention of printing (with the permanence it brings to civilization) and the end of the universe, is that most casually connected series of civilizations will achieve a substantially >1 billion years lifetime. (In other words, while many civilizations might rise and fall, and subsequent intelligent species might even replace prior ones, once a civilization achieves printing this causal chain of civilizations is unlikely to be permanently terminated, and will probably move beyond the home planet and within a few tens of millions of years spread across its home galaxy). The largest value this calculator allows for average civilization lifetime is 1 billion years, but even putting in this too small value makes it impossible to put in at least one other value consistent with our observations. (Update: since I wrote this section on the Drake calculator for a private list a few months ago, they've updated the calculator and it now supports lifetimes up to 5 billion years, but the other limitations remain).

Astronomers have looked far and wide in the skies, builders and miners and geologists and archaeologists have dug and examined millions of places on our own planet, and have seen neither any alien civilization, nor even their remains, on or near our planet or anywhere in our galaxy. They would likely have long since spread across our galaxy by now, a process that would take only a few tens of millions of years. They would have blotted out the stars to keep their energy from going to waste. Our observations of other galaxies -- with extremely few galaxies deeply moved into the infrared consistent with a space-faring civilization efficiently harvesting the energy of its stars -- strongly suggest that the number of civilizations is far less than 1 per galaxy. The naturally rare molecules used in the artificial surfaces of these massive constructions would also stand out in spectra against the naturally common molecules in dust clouds, planetary nebulae, etc. that astronomers actually observe.

But even sticking with the order of magnitude of between 0.1 and 1 per galaxy, this "model" does not allow the input of values consistent with both this order of magnitude and with what we observe about life on our own planet.

One has to put the minimum allowed for both the fraction of habitable planets with life the fraction of inhabited planets that achieve intelligent life to achieve this order of magnitude. Based on the commonality of near-intelligence life on our planet the latter number is probably much higher than the minimum allowed value 1/10^6. Based on the extremely improbable genetic complexity of even the simplest known self-sufficient microbial ecosystem, the former number is probably much lower than 1/10^6. But the program prevents input of these kinds of values most consistent with our observations.

Other Drake calculators I have looked at are far worse still in not allowing the most reasonable values to be placed into the Drake Equation. They are not teaching science -- numerology, or here we might call it Bayesiology, is not science -- they are selling a belief, the belief that our galaxy is filled with morally advanced beings that we can talk to. How are these grossly misleading "educational tools" and publicity stunts like COSMOS helpful in teaching the questions of "are we alone, is life common in the universe, how often does intelligent life arise, how big is space, etc."?

~~COSMOS~~ An Enid News & Eagle piece republished by COSMOS invokes another prejudiced cliche of the SETI (Search for ETI) crowd: ETI living in a heavenly utopia:

Me [Human interviewer]: "... So you don’t elect leaders?
Then who keeps you safe?”

Bleem: “From what?”

Me: “From criminals, from other countries that declare
war on you.”

Bleem: “Explain criminals.”

Me: “People who steal other people’s things or hurt
them. Some even kill other people.”

Bleem: “Explain steal.”

Me: “Taking things that don’t belong to you.”

Bleem: “Explain kill.”

Me: “To terminate one’s existence.”

This nonsense neatly avoids an important question Drs. Jared Diamond and David Brin have raised -- if, per COSMOS' assumption that ETI is common, these creatures, likely far more ancient and powerful than humans, do receive our message and thereby discover us, may that not put humanity in severe danger? Instead of "shouting at the cosmos", shouldn't we put reasonable restrictions on the power, focus, and targets of transmissions until we learn whether and what kinds of threats might exist? (I realize Gliese 581 probably doesn't raise this issue, because being within about 20 light-years they would probably have already detected our oxygen spectra, our "I Love Lucy" and "Seinfeld" broadcasts, our nuclear tests, and much else, but the [update: COSMOS' own, as well as the EN&E's] article[s], supposedly an exercise in education, doesn't even raise the issue and explain this).

By blithely ignoring this issue while it sends the messages, COSMOS again answers the question with extreme prejudice by assuming it is safe. They even have a theological justification: ETI wouldn't harm a flea, because the only thing these innocents can understand is their seraphic utopia. Apparently no living thing up there in the heavens eats any other living thing -- our ETI are puzzled by the very concept of "kill". Our beatific interlocutors were apparently created by an onmniscient and omnibenevolent god to dwell together in heavenly communal bliss rather than evolved through Darwinian evolution. Children of Australia, there's your biology lesson for the day.

COSMOS has rejected "inappropriate" messages to Gliese 581d, but it does not describe what its criteria for "inappropriate" might be. How can any of us humans predict the reaction to any given message of a genetically completed unrelated creature, even assuming it exists, in a culture about which we know absolutely nothing? COSMOS has no basis for deciding that any stupid or insulting message, and there are plenty of stupid and insulting messages that they let through, is better than any other, besides their own particular human 21st century Australian reactions.

Many submitters are sending normal chatty messages, while some are quite properly treating the whole thing as a joke, but it is worth thinking abut how closely many of the messages in this "science" project resemble prayers (all errors in the original):

"I hope when you recieve these messages that you will come and visit and bring a new age to the human race. LIVE LONG AND PROSPER."

"All things work together for good."

"We're live in one universe,so we just like a family.We can share our happy with you."

"We are so small."

"Please help us to stop the obesity problem that haunts our world!"

"Please come visit us on Earth as soon as you can.We've been waiting a long time to see you.Don't make us wait any longer! LIVE LONG & PROSPER!!!"

"I know we are not alone.You are watching us."

"Don't let humans colonize habitable extrasolar planets, contact us before then please. Thanks for not colonizing Earth long ago and allowing humans to evolve."

"Bring some peace to the earth."

"I am told if you say something to the universe it may come true."

"We know that we are not alone,hope to hear from you."

"Your technologies must be advanced than humans by millons of years.let us share all good things and we shall be friends."

"Hello God, are you there?"

And that's just from the first page of messages. These interstellar tweets that COSMOS collected and NASA obligingly plans to send via its Deep Space Network to Gliese 581, the earlier "Teen Message" sent by Dr. Alexander Zaitsev and his team from the Evpatoria dish in the Ukraine, and the Drake calculators that invite you to believe that your wishes are scientifically true, unless they disagree with the authors', are exercises, not in science education, but in "educating" the public in the tenets of an often twisted faith.

Political lessons

2009-07-04T11:36:00.001-07:00

I often get asked to provide an overview of my political ideas. There are so many elements to my ideas -- the importance of coercion and security and how to reconcile coercion with the substantive common law principle of non-initiation of force, the unique and crucial nature of procedural law, the role of low exit costs in enabling freedom and motivating the creation of good law, good vs. bad legal competition, the use (and intellectual recovery, where necessary) of highly-evolved or promising ideas such as political property rights, choice of law and forum, separation of duties with checks and balances, limits on delegation, "smart" (technologically codified and enforced) laws, and so on -- that it's impossible to write a summary article. Therefore this post is more in the "link farm" style.

There are hundreds of pages of reading material here. Which you should tackle depends on which areas you disagree with or don't understand.

Utopians -- those who think government is or could be an institution based on voluntary agreements or peace, or anarchists who think voluntary or peaceful interactions would dominate in the absence of legal procedure based on coercion -- and those who don't know how such utopianism is readily rebutted by real history, should first read my articles about the central role coercion has, does, and will play in human interaction:

Hampton Sides Sheds Light on Olson and Coase

The Coase Theorem is False -- Contracts Depend on Tort Law

The next set everybody should read, as you can't understand politics without understanding the crucial role of legal procedure, and especially jurisdiction (a way to quickly evaluate any proposed new form of government or legal system: ask the proposer how arrest is distinguished from kidnapping, and search and seizure from trespassing and theft -- if they can't give a good answer, the proposal is based on ignorance and you need not waste any more of your time on it):

Why Legal Procedure Is Central to Politics

Three Kinds of Jurisdiction

Exit and Freedom

Property In Everything

Jurisdiction as Property

Political Property and the Evolution of Liberty

Unbundled Jurisdiction and Exit Costs

Government for Profit

Semayne's Case: Liberty of the House

Next are some lessons from the Roman style of government -- based on agency rather than political property rights. (This kind of government has dominated Western political thought -- if you have not read the previous list of articles it is probably the only way you can imagine that legal systems can work):

Democracy as Regular Rebellion

The Principle of Least Authority

Separation of Powers and Credible Commitment

Executive Power and the Interpretation of Laws

Unpredictable Elections

Those interested in the United States Constitution -- whether you want to emulate it, interpret it, revise it, or trash it -- will find the following of use:

Corporate Origins of the United States

Charters and Judicial Review

Due Process Property Rights

Civil Liberties and the Forever War

Comments on the United States Constitution (i, ii, iii)

For those who want to explore the use of technology to help codify and enforce law:

Wet Code and Dry

Security and the Burden of Lawsuit

Smart Contracts

Secure Property Titles with Owner Authority

A Formal Legal Drafting Language

Devices for Controlling Property

Liar-Resistant Government

For those who want to explore some related ideas on philosophy and history:

The Irreducible Complexity of Society

Objective versus Intersubjective Truth

Hermeneutics

An Introduction to Algorithmic Information Theory

Book Consciousness

Security and the Origins of Agriculture

Patterns of Integrity

Origins of the Joint-Stock Corporation

Finally, some notes on political action:

Ten Ways to Make a Political Difference

Feel free to comment or ask questions about any of these or other of my writings here.

Ice rockets earthside

2009-06-19T00:51:00.000-07:00

It pulls hundreds of times the g's over far less time than what I had in mind, but I do seem to have helped inspire Lenape Fire Turtle and friends. Their ice rocket is even reported to have stayed in one piece until it hit the pavement:

Next Fire Turtle tried to make a pulse jet motor out of ice injected with propane. Alas, the exhaust came out a hole melted in the side instead of the hole intended. If you look closely at the start of the side view portion of the video (the second half), you can already see the flaw in the casting where the ice is thin and the hole will appear:

Having looked ahead to a future when the economics and technologies become propitious, my own proposal was to take a grinder to an ice cylinder floating in space, melt the resulting ice flakes into water, and feed that liquid into a solar thermal rocket engine. The small snow-cone machine would gradually eat up most of the ice on the multi-year voyage from comet (or Ceres, or similar) to market. Alternatively, ammonia might be extracted from the comet and stored as a liquid inside a tank made from water ice, adding complication to the extraction process but greatly increasing the efficiency of the rocket motor and thus the mass of water ice, ammonia, or other comet stuff brought to market. More explanations of these icy and muddy daydreams lie here. When I was a kid in body as well as at heart I just stomped around in mudpuddles.

The ice rocket could in that future eliminate the need to launch from earth not just rocket propellant, but also propellant tanks -- or more precisely substitute a much lighter coat of sealing paint and sun shade for the tanks. A well-shaded vacuum can become extremely cold, preventing the ice from sublimating away. After propellant, tanks are by far the heaviest and bulkiest items that today must be launched out of our planet's deep gravity well, and ice rockets could substitute native materials for both.

Meanwhile, it's all just good clean terrestrial fun.

P.S. I also like the search engine.

The collectible premium

2009-06-08T17:34:00.001-07:00

In the comments section of yet another economics professor's blog, Devin Finbarr makes some excellent observations regarding the collectible nature of most investment assets, starting with this nice classification:

There are only three types of goods in an economy:
1) goods providing direct utility ( a car, tv, chocolate )
2) collectibles ( a baseball card, diamonds, gold )
3) flows ( stocks, bonds )

The demand for every investment asset -- stocks, housing, commodities, etc. -- is a function of some combination of these factors. In housing all three demand factors are at work. Every asset that is not just a fixed monetary cash flow has a collectible premium that reflects, when rational, inflation expectations. (n.b. this is technical nomenclature that can have a slightly different meaning than the normal use of the words -- for example I, and presumably Devin, classify the enjoyment one can get from collecting baseball cards or wearing gold jewelry as part of their "utility" rather than their "collectible" nature, the latter being purely a matter of the asset's perceived or actual function as a store of value or medium of exchange).

It is often very difficult to guess what the factors of demand coming from direct consumption utility are (for example, is the sunny yet cool California coast and the wealthy and smart neighbors it attracts worth paying five times as much or is the coastal California price premium, as Devin suggests, primarily a collectible premium?). Sometimes it's also difficult to estimate cash flow. Thus it's often hard to estimate the collectible premium. Also, since the collectible (or inflation expectations) premium is little recognized, a wide variety of bogus explanations are often used to explain price movements that are actually due to changing inflation expectations: the most popular being dubious theories of changes in supply (e.g. "peak oil") or consumption demand, since demand for assets as inflation hedges is very under-recognized. Also common are theories that impute price changes due to changes in inflation expectations to purely irrational psychology, "technical", or "trend" factors based on the history of the price itself. (The history of housing prices from 1940 to 2005 made houses look like a lucrative and low-risk investment, for example).

Devin describes inflation expectations as causing a hunt for stores of value in which packs of investors irrationally change their focus from one market to another, causes bubbles and bursts. Since the collectible premium is often so hard to estimate, and is so little recognized, and so many investors do despite those warnings you hear invest based solely on past price history, I don't substantially disagree with this:

A stock market is in disequilibrium when people start trading stocks as collectibles rather than as flows. In other words, instead of buying a stock based on the hope of generating a return via dividends, they start buying a stock in order to sell it to someone else ( price appreciation)....

When the government dilutes the money supply, people start searching for a replacement collectible to serve as a store of value. People end up buying stocks not based on dividend yields, but in order to trade for later at a higher dollar price. People buy houses not based on direct utility or as an alternative to paying rent, but in order to sell for later at a higher price. These goods start trading as collectibles, and thus are subject to the whims of the herd.

In short, if long-term inflation expectations were zero, the prices of housing, stocks, commodities, etc. could be estimated from demand deriving solely from their cash flow plus consumption demand -- there would be no collectible premium. But since asset prices come with a difficult to estimate and fluctuating inflation expectations premium, this makes it far harder to judge whether an asset is over- or under-priced, leading to greater over- and under-pricing, i.e. seemingly irrational asset booms and busts.

A couple of caveats:

(1) It's important to observe in the context of stocks that their cash flows can come from share buybacks and takeovers as well as dividends, so even with zero inflation expectations people would rationally invest partly for expected price rises in addition to dividends.

(2) There are a number of other sources of high uncertainty in asset markets, e.g. uncertainty over credit conditions, so that bubbles and bursts would not completely go away with zero inflation expectations. However the contribution of changing inflation expectations has, I believe, been the largest factor in most asset price movements since the 1970s.

Bubbles and bursts are based on high degrees of uncertainty about the future far more than on genuine mass irrationality. Of course, things like the Internet bubble seem quite irrational in hindsight, but if you keep in mind what was going on in the late 1990s -- a huge increase in subjective value due to new (to the vast majority of investors) Internet services such as e-mail, Web, search engines, and on-line price quotes -- it was not, without hindsight, terribly irrational to suppose that most of this value would be monetized as profit for the innovating companies. It turned out to be mostly unmonetized -- instead we got most of the foregoing plus shared music, Wikipedia, blogs, and other things of great value for almost free -- so that the Internet bubble collapsed and seems irrational in hindsight.

Bubbles and bursts due to uncertainty over technological innovation will undoubtedly occur again, but the greatest ongoing source of uncertainty in our markets is not regarding technology and monetization of innovation, but rather uncertainties about currencies, credit, globalization, and related political factors, out of which the uncertainty over currencies is usually the greatest.

My takes on last summer's commodity hysteria as it was happening can be found via here.

Devin has put these theories to good use:

since inflation helps build the bubble, even a small amount of deflation can cause rapid price collapses. The fall in price will be much greater than the fall in dividends. Late last summer I was looking at numbers, and noticed that real estate, equities, oil, and gold had all been down for two months straight. The only thing those goods have in common is the currency they are priced in. So I said, “Holy deflation, Batman!” and sold half of the index funds that I owned.

I congratulate Devin and I do like the strategy suggested here, i.e. arbitrage between asset markets with irrationally different collectible premiums. This strategy does, however, assume that one can estimate the price derived from just supply and cash flow plus consumption demand, at least enough to be able to determine that there is a substantial collectible premium.

That said, I'd add (perhaps disagreeing with Devin) that in the large collapse in commodities since last summer, decreased expectations for future industrial consumption (due to rising expectations of a long-term worldwide recession) and probably a change in the rationality of the collectible premium of commodities were also major factors alongside the decrease in inflation expectations. Thus gold did not fall nearly as much as the industrial commodities. (It's also possible that this reflects some sort of security premium in a crisis of gold over other commodities, but despite all the gold coin ads to this effect I'm skeptical about that being a large factor). Of course, a change in consumption expectations will also tend to make stocks go down, due to the more direct cause of decreased profits leading to decreased cash flows from dividends etc. Commodities markets reflected informed expectations about future inflation and consumption more quickly than stocks, giving Devin his signal.

Gold and commodities prices have a good long-term correlation across business cycles. Industrial mineral prices do tend to vary more than gold within a business cycle due to changes in consumption expectation. (Of course these are not really predictable "cycles", but unpredictable effects of things like credit conditions, but "business cycle" is the unfortunate standard term in economics for this variation in overall credit and consumption). Another example of the collectible premium arbitrage strategy is to look at the oil/gold price ratio. Last summer this ratio was far too high (in hindsight, although at the time I was skeptical that this unprecedented ratio would last), reflecting a very high valuation of industrial commodities as collectibles. Recently it has much lower, reflecting much lower valuation as collectibles (probably irrationally too low), as well as lowered consumption expectations (the business cycle). In both cases one would have profited over the course of entire business cycle (and even in these two cases, luckily, over the short run) from betting against even more extreme deviations from the average historical ratio (or historical trend -- it's certainly plausible that oil and some other industrial minerals are being depleted faster than gold, or that there are long-term secular difference in their demand functions, but as the recent oil/gold ratio collapse to 1980 levels suggests, the secular depletion/demand gap between oil and gold is probably quite small, and almost certainly less than 2% per year over the long run).

Exceeding authority under a castle law

2009-06-04T01:41:00.000-07:00

Here's a good video lesson on the difference between legal defense of people within a dwelling and murder in a castle doctrine state. The narration by the announcer here is not clear: the unarmed (it turns out) robber goes down because the pharmacist (the defendant) has shot him in the head. The armed robber flees without firing a shot. The prosecution claims the unarmed robber then lay there unconscious, which is plausible given that the defendant turned his back on him. The prosecutor argues (correctly, if we accept the prosecution's version of the facts) that the first shot to the head was proper self-defense, whereas the later five shots (the video is sped up) were not justifiable self-defense. The defense argues that the injured robber was getting back up and thus, even though not brandishing a weapon (and as it turns out unarmed), could have posed a danger justifying the five shots that killed the injured robber. From seeing on the video the pharmacist turn his back on that robber I'm skeptical of the defense's version of the facts, but that's up to the jury.

Note that calling the police immediately afterward, as here, is a very good idea -- not calling the police as soon is one safely can is a very bad idea, suggesting guilt -- but it probably won't be enough in this case to save this guy from some jail time.

Ignatius Piazza, a self-defense trainer, has a good collection of videos on this case. Local TV station KRMG has a version with the prosecutor narrating the surveillance video (a much better but obviously biased narration).

Not mentioned in these videos is that the armed robber who ran away was also and quite properly charged with murder -- what is called a felony murder, because he committed a felony that led to a death, even death caused by a victim of that felony as here.

Technically, all the Oklahoma statute does is shift from the defendant the burden of proving "a reasonable fear of imminent peril of death or great bodily harm" when killing somebody who has forcefully entered a dwelling or vehicle -- instead the prosecutor must prove that the fear was not reasonable. Here, the burden of proof does shift to the prosecutor, but, again assuming the facts are as he claims, he should be able to prove beyond reasonable doubt either that the pharmacist in fact had no such fear, or that any such fear of harm from an unconscious man was unreasonable.

Even assuming the injured robber had regained consciousness, a much better course of action would have been to have the women at the back of the store call the police and to hold the gun to the robber's head until the police arrived.

I strongly second Ignatius' advice that if you own a gun that you may one day have to use for self-defense, that you take a good training course. Military training is not sufficient for this and indeed may have led this pharmacist, a military veteran, astray. Military doctrine is a very different thing than the civilian law of self-defense and the castle doctrine. I do take issue with Ignatius' simplistic description of a supposed "universal" rule for when self-defense is justified. Some jurisdictions allow far more defense of self, others, and persons within dwellings or vehicles than he describes (especially castle doctrine and stand-your-ground states), and some allow less. If you are going to have a gun around for self-defense, you should learn the laws of your own state, province, or country and you should train yourself accordingly. The laws vary widely. If you aren't willing to learn the laws and train accordingly, as this pharmacist apparently failed to do, you shouldn't keep a gun. By using a gun against criminals you are, morally speaking, deputizing yourself as a law enforcer -- a very good thing, since the police usually can't get there in time to protect victims, but a status that comes with a moral responsibility to train yourself in how to legally use a gun. Self-defense and castle laws give you this authority; misusing these rights is what the prosecutor properly (again assuming his version of the facts) calls "exceeding authority" and thus murder. Note that under the recent Heller Second Amendment case, self-defense and defense of others is a primary justification for our right to own a gun in the first place in the U.S.

The castle doctrine under common law, as well as the quite related knock-and-announce rule for law enforcement, comes from Semayne's case: "That the house of everyone is to him as his castle and fortress, as well for his defence against injury and violence, as for his repose...if thieves come to a man's house to rob him, or murder, and the owner or his servants kill any of the thieves in defence of himself and his house it is not felony, and he shall lose nothing." Modern castle statutes, such as Oklahoma's, often also apply this doctrine to businesses and vehicles. The Wikipedia article on the U.S. castle doctrine has a list of states with stand-your-ground laws and castle laws, with links to the statutory texts.

By the way, political scientists who define governments as entities having a "monopoly of force" are idiots. I just thought I'd get in that shot of my own while I'm here.

Sotomayor, Calabresi, and the Chief Justice at our moot court

2009-05-26T21:52:00.000-07:00

Our 2006 moot court competiton at The George Washington University featured Chief Justice John Roberts, law & economics guru Judge Guido Calabresi, and Judge Sonia Sotomayor (now a nominee to serve with Roberts on our highest court), and was replayed today on C-SPAN. I saw this in person when I was at GWU -- it was fun to watch my fellow law students arguing with these seasoned judges about whether subliminal ads can be banned under the First Amendment. H/T to GWU Professor Orin Kerr.

Futarchy: an experiment we'd learn a great deal from, but please don't try it on me

2009-05-22T14:41:00.001-07:00

Mencius Moldbug and Robin Hanson are debating Robin's intriguing idea of "futarchy", which has attracted many fans. The basic idea of futarchy is "when a betting market clearly estimates that a proposed policy would increase expected national welfare, that proposal becomes law."

Robin and Mencius both make some great points in this debate -- for example, Mencius observes that GDP and similar estimates of "national welfare" are poor criteria for decision-making, analogous to a corporation making decisions to maximize revenue instead of profits. GDP in the United States, for example, rose dramatically during World War II, but its standard of living was probably significantly lower for most people than in the Great Depression due to rationing, death, and other traumas of war.

But both Mencius and Robin have misconstrued or vaguely glossed over two of the biggest problems with zero-sum decision markets, especially when applied to government decisions. First an observation: all prediction markets are decision markets unless the resulting prediction is so useless that nobody ever makes a decision based on it or some government somehow bans all possible kinds of decisions based on those markets. The distinction Robin and Mencius make between the two serves to obfuscate those issues that are problems with real decision markets rather than with theoretical or play prediction markets. Two of the biggest problems are:

1. The problem of "morons' money", deemed by Mencius to be the money of some less-informed fraction of players who are disincentivized to play the zero-sum prediction game, actually means the money of anybody with information worse than the best player's information. Since it's a zero-sum game, and much less entertaining than sports betting, any money that is stupider than the average money has a disincentive to play -- in sharp contrast to normal positive-sum markets. But when the less-informed half of the players leave the market, we have a new half of the market that has a disincentive to play, and so on. There's only one person left for whom it would be rational to play, if there were any market left. Prediction markets can work in an experiment only because students of the professor or fans of the idea feel they have a duty to play, or want to signal to fans that they like the idea, or because there are a few people who, like the much larger population of sports bettors, find it genuinely entertaining and thus worth wasting some time and/or money on. Robin I believe has tacitly recognized this problem in his proposals to goose these markets with subsidies. But how big subsidies are needed? It's a high-risk market, so you need to guarantee a high rate of positive return to the average player to compensate for the risk if you want good information entering the market.

2. Moral hazard: As I stated, prediction markets are also decision markets. We're right now going through major economic problems that stem from neglect of moral hazard. Selling securities, insurance, or betting without the investors/bettors or their agents or regulators exercising due diligence and control creates pathological incentives for people to do things like, as we've seen in the mortgage market, give cheap loans to bad credit risks because there were a bunch of number-crunchers with woefully incomplete models buying or insuring these loans who didn't understanding that most kinds of markets create additional risk by creating moral hazard, that this moral hazard must be well controlled if the market is to work, and that controlling moral hazard is usually far from straightforward.

In these betting markets, which are decision markets, people inside and outside government will make their own decisions based on the market. Coercive decisions will have an especially pathological effect: they turn the zero-sum market into an overall negative-sum game. For example, a market predicting the death of someone can, as Tim May long ago observed, readily be used as an assassination market. That's why, for example, PAM, a since-abandoned effort by the U.S. Department of Defense to try out Robin's ideas for prediction markets, had a market for predicting the death of Yasser Arafat but not of George W. Bush. Since these are markets for government decisions, the decisions it drives will, like assassinations, be primarily coercive in nature, for example to wage war on country X or to tax one group of people in order to subsidize another. If the decisions resulting from such a market were voluntary, you could just go onto a voluntary market to satisfy your needs instead of bothering with deciding that government must make some decision and then betting on its outcome. Furthermore, Mencius, although waxing entirely too rude behind his pseudonymous mask, is probably quite right that these markets will reflect the demand for desired decisions far more than a "supply" of information about how to best make that decision: per (1.), there is little to no incentive to supply such information without huge subsidies to give the markets an overall positive rate of return comparable to other high-risk markets.

For example the market for "if the U.S. gives $20 billion to GM the U.S. GDP will rise by 1.1% or more [instead of the expected consensus by some group of economists of 1.0%]" will be dominated by GM, its unions, its dealers and suppliers, and so forth goosing it to a "probably true" prediction, not by people betting on the extremely uncertain, practically lost in the random noise, outcome of the proposition. If GM thinks it can sway the odds of a decision in its favor by 5% by, increasingly as the time for decision approaches, investing up to nearly $1 billion in the market, it will do so. GM has far more to gain by the gift of other people's money than arbitragers making risky bets with their own money have to gain from arbitraging the market back down to whatever they believe to be the true odds of the GDP rising 1.1%. If GM is banned directly from participating in the market, there are numerous other parties with similar stakes in the outcome and they can't all be banned. GM and its allies also have much to gain by lobbying the government to set up this kind of market for direct subsidies instead of futarchic markets for more generic decisions you might find more useful, such as a "remove the President if the GDP doesn't rise 1.1% or more" market. Futarchy thus becomes little more than an auction for government favors, like the time the Praetorian Guard auctioned off the emperorship to the highest bidder.

It would be interesting to try straightforward government-by-the-highest-bidder. We'd probably discover why historians have equated this kind of process with corruption, but it would be well worth the suffering of some hapless residents in some small county somewhere to try the experiment and learn from it. It would of course be interesting to try out futarchy in a similarly real but small scale, restricting the players as well as the victims of the market to our guinea pig jurisdiction since there are no big GM-subsidy stakes at play.

Of course, some would argue that we are living in this kind of experiment anyway, just under a blizzard of euphemisms instead of a straightforward honest auction. Others would argue that democratic voters bring no more information to governmental decisions than "moron money" would in these markets. I have no ready refutations for these arguments, but they don't prove futarchy is better than either what we have now or other possible alternative reforms.

In summary, fans of prediction markets in general, and futarchy in particular, need to actually specify how to deal with moral hazard, as insurance companies and their regulators have, rather than mysterious hand-waving about the supposed "several ways to deal with it", as well as to acknowledge the need to subsidize these markets and figure out how to fairly distribute these endowments.

What caused the birth of agriculture and the industrial revolution?

2009-05-19T22:17:00.000-07:00

Robin Hanson asks, "what key features make this [human] growth groove possible?" -- two key events being the birth of agriculture and the industrial revolution. Commenter "gwern" is on the money in saying that (a) explaining why the IR happened when and where it did is hard, and (b) the explanation has to include something that China didn't have much sooner, which eliminates most of the usual explanations. I'd add that explaning the birth of agriculture is even harder -- we have vast amounts of historical data on the IR and only archaeological and comparative anthropological evidence about the birth of agriculture.

Indeed, the most important thing in explaing these two events is to be aware of enough facts from different fields, and have sufficient doses of skepticism and common sense, that you can eliminate the many theories that are popular but obviously, if you know enough such things, wrong. For example, be aware that hunter-gatherers were experts on botany and animal behavior. It's not plausible that the simple ideas that seeds can grow into plants that you can eat later, or that you can keep an animal tied or penned up and eat it later, were not discovered and known countless times during the c. 100,000 years between when our brains became modern-sized and agriculture developed. There has to have been some major barrier to benefitting from such obvious ideas to have kept agriculture from developing far sooner. I also don't find genetics plausible as a cause of agriculture, since agriculture ended up spreading to a number of human groups that had become genetically isolated long before the dawn of agriculture. (Genetic evolution caused by agriculture is another story -- Cochran and Harpending have some ideas very much worth thinking about). Also not plausible are climate explanations -- there were many local climates hospitable to agriculture throughout those 100,000 years -- just not necessarily at Mediterranean or higher lattitudes.

That said, going back to the IR there a number of likely-to-firm differences between China and Western Europe (or Great Britain in particular):

(1) Differences in political and legal culture. What differences, specifically, it's hard to say, because there is very little about, for example, Sung or Ming dynasty commercial law that has been translated into English: far too little to compare to English law in the 18th century, for example. We know some very general things, such as that Western Europe was (and still is) a far more legalistic culture than China. Also, we know that Western Europe (contrary to Gregory Clark's claim) radically changed its property law between the 16th and 19th centuries, from a feudal model of of hierarchy of tenures and bundled political property rights to a model based on old Roman law with flattened and purely economic ownership. There ensued movements such as the enclosure movement in England and an accompanying large increase in capital investments in land. But we don't know when or to what extent similar incentives to capital investment might have been present or missing in China.

(2) China never controlled the world's oceans and merchant marine, but the British just prior and during its IR did. If this explains the IR, then to explain our explanation (i.e. why did Britain come to control the world's ocean-going trade) we have to step back and solve the even more puzzling question of how a tiny country of fishing-folk and small-time crusaders, Portugal, and not an advanced superpower like China, was the first country to take over most of the world's oceanic trade routes (later to be beaten back by other Western European countries and eventually Great Britain).

(3) China had the printing press, but in contrast to Western Europe it did not lead to a rapid growth in literacy sustained over several centuries -- perhaps because of bureaucratic central control rather than the free-enterprise printing businesses that sprung up all over Western Europe, perhaps because the much greater number of symbols did not as efficiently lend itself to printing as the Roman alphabet, or a combination of these two factors.

(The Romans were not all good -- indeed they gave our culture something quite nasty which I will blog on in the near future).

Other interesting related phenomenon to explain, (and it would be nice per Occam's Razor if it was the same general explanation, but social life is rarely that simple) is why Japan industrialized well in advance of China and Britain was a few decades ahead of the rest of Western Europe during most of the 18th and the first half of the 19th century.

Robin: "If you wanted to attribute the industrial revolution to writing, you'd have to explain why there was a strong threshold effect, so that pre-1800 writing levels had weak growth rate effects, while post-1800 writing levels had strong effects."

Besides threshold effects, there could be delay effects: for example, the the rapid growth of books and literacy after the mid-15th century in Western Europe gave rise to a slow but accelerating series of innovations (most obviously scientific and technological advances, but perhaps also innovations in business or law), which in turn gave rise to the IR.

Political property and the evolution of liberty

2009-05-14T22:58:00.000-07:00

A "liberty" (Latin libertatis or freedom) in the king's courts of medieval Europe usually referred something very different than it refers to now. It referred to the right of someone to deprive some other people of some of their normal rights as law-abiding subjects. In other words, it referred to a political property, a specifically limited right to coerce some set of people, usually for law enforcement or military or other political purposes. This curious meaning, in some ways quite the opposite of our modern meaning, reflects the conundrum that one person may use some freedoms to deprive another person of their freedoms. To prevent this, these "positive" freedoms to coerce can be limited to procedural powers by which are enforced substantive laws that are generally non-coercive, i.e. that generally protect only "negative" rights. English-derived common law (i.e. law in Great Britain, the Commonwealth, the United States, etc.) since at least the sixteenth century has generally accomplished this, and as we shall see it has used the flexibility of vague phrases to evolve a variety of modern negative rights.

Medieval positive liberties that could be owned included the right of a lord to hang thieves caught red-handed in his territory, the right to hold a market and run a law-merchant court, to collect taxes for the king or for oneself, to be a privateer (i.e. a pirate legitimized under the king's laws), to conquer and run a foreign territory, and so on. There were many dozens of kinds of these political properties specified in thousands of property deeds, called charters. Charters often freely bundled real property (i.e. land) with a variety of political properties over territories matching the boundaries of the real property, but on occasion political properties could be unbundled from land, and specific kinds of political property could be combined with each other in a dizzying variety of ways. Political properties could be held by individuals (as in lords of the manor, counties Palatine, the proprietary American Colonies, and many other examples) or corporations (guilds, boroughs, cities like London and York, companies like the East India Company, the corporate American colonies, and so on).

Individually owned politcal properties were generally hereditary. The king exercised his own hereditary political property, called the Realm or the Crown, from which at least in theory all other political property rights had been originally granted. As the original grantor the king retained via his courts jurisdiction over disputes involving those coercive properties, via the extraordnary or prerogative writs. Most political property rights only involved certain narrow subsets of the royal political powers, while some (such as the county Palatine) were very broad, including all royal powers within the boundaries of the county subject only to the intrusion of the king's extraordinary writs.

In the foreign relations context, in the granting of powers of naval warfare, piracy, and colonization, political property was used for offense as much as for defense. In the domestic context, justice was meted out by these privately owned courts more often than injustice, but it should be observed that breaking free of the jurisdiction of the local lord in order to come under the jurisdiction of the king was, more than any other event, referred to as gaining one's "freedom". If you were the subject of a lord as well as, mostly indirectly, of the king, you were "unfree". If you were the subject of only the king and his ministers, you were "free". At least that is how the king's courts and ministers and any newspapermen that didn't want to be imprisoned for libel by the king's courts referred to it.

In their quest to usurp the political properties of the lords, boroughs, cities, and guilds to run their local courts, the king's courts used cases brought under the extraordinary writs to evolve a set of "liberties" with a different meaning: liberties the way most of us think of them, negative liberties that individuals held against these private law enforcers as subjects of the king, and thus justified removal of the cases to the king's courts. The definitions of various political properties increasingly included the procedures within which those rights to coerce had to be exercsed in order to protect the king's subjects from injustice. Thus we see, for example, over the sixteenth to eighteenth centuries the king's courts successively stripping guilds of various of their jurisdictional powers and thereby increasing the liberty of the individual to freely engage in their trade. To try to be consistent, the king's judges also often, though by no means always, respected these negative liberties themselves in order to justify by rules their usurpation of the positive liberties of rival private courts.

Many of the basic constitutional rights of individuals, for example of the rights enshrined in the U.S. Bill of Rights, descend from these efforts. The lex mercatoria evolved in the privately owned market courts of Western Europe. Much of this merchant law was later incorporated into the common law (the law of the king's courts) in Great Britain by merchant juries in the century leading up to the industrial revolution. At the same time, the king's courts gained a large degree of independence from both the king and the rising power of Parliament, forming a separation of powers between the executive, legislative, and judicial branches that was to be used as a model for the United States Constitution.

Lord Coke, Chief Justice of the king's court of Common Pleas under King James I in the early seventeenth century, declared in Dr. Bonham's Case that these common law rights could even limit the power of Parliament, but this argument came to be neglected by later courts. There has been longstanding debate over whether this argument of Coke's was a legally binding "holding" necessary to reach the verdict of the case or an unecessary "dictum" and thus not binding precedent. A similar doctrine was, however, revived in the United States based on interpreting broad statements in our Constitution such as "due process" in terms of rights derived from English common law in order to limit the powers of Congress and the President. The term "due process" comes from a series of charters that followed the Great Charter (Magna Carta). The phrase was considered largely synonymous with "the law of the land" that features in the Magna Carta, and referred to procedural rights, including the rights of political property and procedural limitations on those rights, that were considred the "common law" at that time. However the United States' courts' much later interpretation of the phrase has been far more creative and modern, including the oxymoronic phrase "substantive due process" under which rights to freedom of contract, school choice, birth control, and abortion, among other such negative personal rights, have been unearthed and applied to limit State and Federal legislative and executive powers. (More on the history of due process here). The modern British Parliament, on the other hand, is considered to have arbitrary sovereign powers, which can only be limited in certain cases by interpreting the language of its statutes in narrow ways to conform with the unwritten British constitution, i.e. its procedural common law traditions, but again with many creative modern flourishes.

In their efforts to limit locally coercive liberties by enhancing negative liberties, the king's courts fell short of consistency in some important ways. For example, a liberty of a corporation to enforce its regulations about a given subject matter (e.g. medicine, for a medical guild) in a given territory was often stripped from that corporation in a case involving a dispute between an individual and that corporation (e.g. somebody practicing medicine in the territory without permission of the guild), on the theory that "one should not be a judge in his own case." This is a very sound principle, and in the case of the guilds it led to the rise of free trade, but as the corporate barristers were quick to point out, the king's courts often did not apply this principle to themselves -- cases involving the king, which were many, remained in the king's courts. To some extent this was achieved by the independence of the king's courts, but it did not prevent these courts from gradually usurping the political property of the private courts and other privately held legal institutions and, with the generous help of Parliament and its own will to power, eventually extirpating them.

There is a detailed analysis of many English cases involving privately owned rights to hold courts and enforce laws, including Dr. Bonham's Case, in my paper Jurisdiction as Property.

Paradoxes resolved (mostly)

2009-05-14T00:39:00.000-07:00

A paradox is usually just a good reductio ad absurdum, or what mathematicians call a proof by contradiction. The paradox serves to disprove one of its assumptions (or equivalently, if we "exclude the middle", to prove the opposite of one of its assumptions). Many intellectuals often overly complicate paradoxes, for the sake of entertainment or out of wishful thinking that the dubious assumption has not in fact been disproven. A paradox is only truly mysterious if more than one of the assumptions being used are truly mysterious, and thus we can't tell which assumption caused the contradiction. But usually it's more a case of obsfucation or wishful thinking than of genuine mystery. Many academics have a terrible habit of hiding or confusing their assumptions, and this allows wishful thinking to run rampant.

Newcomb's paradox

Chooser -- let's say that's you --- plays a game wherein you choose whether to open both boxes A and B or just B. For whatever odd reason -- Predictor is an omniscient diety, Predictor is running a very repeatable simulation of the Chooser's mind, time travel, the Predictor has repeatedly run the Chooser through this experiment before, etc. -- the Predictor already knows with very high probability what box(es) the Chooser will select. The first step in the game is that the Predictor makes his prediction. Then a trustworthy third party puts $1,000 into box A, and $1,000,000 into box B if the Predictor has predicted B only, otherwise nothing into box B. After these two steps are completed the Chooser selects which box(es) to open.

Here's the payoff matrix for Chooser:

Predicted choice	Actual choice	Payoff
A and B	A and B	$1,000
A and B	B only	$0
B only	A and B	$1,001,000
B only	B only	$1,000,000

What is Chooser's best strategy? According to game theory, A and B beats B-only by $1,000 whether the Predictor predicts A and B or just B. Therefore Chooser should choose to open both A and B.

But another strategy for Chooser is the following: The Chooser, knowing that the Predictor has very good information about his forthcoming choice and has mechanically acted on it, and thus is almost surely correct, eliminates those choices where the Predictor is wrong and chooses B-only over A and B because of the remaining two choices it has a higher payoff.

By following 2-player game theory, the expected value of Chooser's winnings is only a bit over $1,000, while by taking into account the high accuracy of the Predictor's prediction and maximizing expected value the expected value is a bit over $1,000,000.

The paradox dissappears if you stop assuming a game with two players. The Predictor does not have any stake in the outcome and is not a player. Indeed, we are told that Predictor will make no free choice at all, but will simply mechanically predict what Chooser will do. It's the Chooser's free will in the face of a mechanical but oddly well-informed Predictor. Chooser should not be misled by the payoff matrix into assuming this is a 2-player game, but should instead choose the best of the two choices of significant probability.

Fermi's Paradox

Enrico Fermi asked, if there are extraterrestrial civilizations, why haven't we seen them? No alien artifacts large or small on earth, nor anything visibly unnatural on the many millions of square kilometers of billion-year-old (or more) surface we've observed elsewhere in our solar system, nor any visible megastructures in our galaxy. Under Darwinian evolution life and civilization tends to spread to use as much energy and matter as it can. New volcanic islands and areas where life has been destroyed by volcanoes are quickly colonized by a very observable spread of plants that soon soak up a significant fraction of the incoming sunlight. Human civilizations have similarly in the blink of astronomical time spread all over our planet, leaving a number of highly visible artifacts such as the Great Wall of China, a dazzling display of lights on the night side of our planet, and in our atmosphere increased carbon dioxide and a potpouri of odd chemicals. Photosynthetic life has given our planet a bizarre oxygen atmosphere and turned our continents significantly darker. Even if an alien society somehow turned radically un-Darwinian and thus remained obsessively small and hidden, it would take just one "crazy hermit" to appear once in hundreds of millions of years to take off and replicate his crazy Darwinian verion of that civilization across the galaxy, building visible structures all over the galaxy to efficiently use stellar energy and recycle volatile elements.

The average star in our galaxy is about 10 billion years old; if it takes 5 billion years for life to appear and evolve into a civilization and 200 million years for the their descendants to spread across our galaxy (which only requires travel at a small fraction of the speed of light), the average civilization that has already emerged in our galaxy should have spread across it 2.3 billion years ago.

If they exist, or existed, evidence of this existence should be all over the galaxy, just as with the existence of life and civilization on earth. But we see no evidence that any advanced civilization has ever expanded into our solar system or any where else in our galaxy. Even worse, we see no evidence of artificiality in other galaxies. Artificial entities would severely change what we observe in the cosmos, but instead the millions of galaxies we've observed seem to look quite natural. This can be easily tested by studying data from our current telescopes. Unless we discover a significant proportion of galaxies that are oddly dim in the optical but bright in the infrared (or perhaps, if the alien machines are extremely clever and very miserly, in the microwave), indicating artificially efficient use of stellar energy, and oddly bright in the heavy element spectra and dim in the volatile elements spectra, indicating artifically efficient enclosure of the volatile elements (for efficient volatile recycling), we must conclude that the odds of finding a civilization in any given galaxy, and thus of another civilization in our own galaxy, are remote. Fermi's paradox simply proves its major assumption wrong: there are no little green men in our galaxy. Sorry to pop that good old sense of wonder.

It would be fun to listen in on a civilization from a distant galaxy, if we ever find one and if we ever figure out how to detect such faint signals. Imagine the Wikipedia of a billion-year-old civilization!

Kavka's toxin

Perhaps less easily resolved, because one of its assumptions is the vague and subjective idea of "intent", is the paradox of Gregory Kavka's toxin: you get $1 million put in your bank account at 9 AM if at 7 AM you intend to drink an extremely painful but not otherwise harmful toxin at 11 AM. The toxin basically causes you to live in sheer hell for 24 hours. You get to keep the million dollars whether you drink the toxin or not. Can you intend to do something that when the time comes would not be rational to do? Kavka says you can't -- that there is no way to win the $1 million. Turn off your alarm and sleep in.

My analysis is that the only ways to win the $1 million are through credible commitment or self-delusion. Thus the Wikipedia entry cites election-year political promises that would actually be too expensive to implement as an example of Kavka's toxin. Of course the political party only fools others (and perhaps themselves) into believing its intent. Standard election procedures, in which campaign promises are not legally binding, prevent credible commitment, so serious intent only could arise through self-delusion.

Liar-resistant government

2009-05-07T16:13:00.000-07:00

I have extensively explored the technological codification of certain aspects of law -- law that is "smart" as in "smart weapons". These could implement in digital protocol important parts of law that are now processed by the mind via legal language or through physical enforcement. My focus has been on smart contracts, smart property, and other such technological reifications of private law. Here I explore the dangerous territory of extending these ideas to public law, especially to governmental forms and legal procedures. Officials of a wide variety of governments have too often over the course of history covered up or falsified evidence, destroyed or forged public records, and introduced other lies into legal and political processes. We need to protect future legal procedures and other governmental operations from such abuses.

The canonical problem explored by computer scientists in designing these protocols, the Byzantine Generals Problem, is itself an exercise about liars in government.

This article focuses on technologically ensuring the veracity and execution of those steps of legal procedure which are capable of such enhancement (formalizeable or objective aspects which I call "dry", in contrast to the many inherently subjective and non-syntactical "wet" aspects of the law): securing chains of evidence, securing chains of command, securely recording and publicizing the ownership and transfer of property, and so on.

A set of ideas I have for procedural law, or "government" broadly defined, is that many of its dry steps might be based on Byzantine fault tolerance protocols along with cryptographic protocols that form tamper-evident structures such as unforgeable chains of evidence. I describe some of these and related protocols further here, here, and here, but I will describe the basic idea of Byzantine fault tolerance here.

The basic idea of a Byzantine fault tolerant protocol is that it is a highly distributed peer-to-peer protocol robust from a certain fraction or less of its participants lying about information originally observed or created by one or a small subset of them. The fraction varies based on various assumptions of the model, but common figures are 1/3 and 1/2 for information originating from one node assuming that node is truthful. If the fraction required for successful collusive lying is not achieved (and such an attack requires either informed negotiations occurring before this protocol step or negotiating the collusion in a single step, the latter possible to avoid by assuming fraud if messaging is abnormally delayed), the liars are detected and can be excluded from future participation in the network. In a less formal sense, Byzantine fault tolerant protocols are simply distributed, peer-to-peer networks with dense communications (in the least efficient but most secure versions, every node sends every bit of information to ever other node) in order to protect against minorities of colluding liars, and to detect and exclude any liars who have not reached the threshold of collusion and thus can be excluded from the network.

Byzantine fault tolerance protocols are not as strong as cryptographic protocols. They can also suffer from the sock puppet problem (also called in some literature the "Sybil" problem), in which one or a few liars control a much larger and sufficient fraction of network nodes, if the participants are not strongly identified as unique individuals. Thus where it is possible, we should augment these dense peer-to-peer protocols with or use instead stronger cryptographic schemes such as hashing and a variety of cryptographic signatures. If the Byzantine protocol is overcome by collusive liars in a way that cannot be detected before sufficient collusion occurs or prevented by cryptography, some outside manual "meta-protocol" is required to figure out who is lying and repair the network or create a new network containing the truthful state. For some kinds of communications, digital signatures and a chain of evidence based on cryptographic hash chains are a much stronger security against forgery. Byzantine protocols, with their imperfect detection and exclusion of liars, are to be relied on only where the lie is of a nature not amenable to prevention by cryptographic chains of evidence.

Sensors and effectors can be readily hooked up to these high-integrity networks. Cryptography can, for example, provide us an unforgeable chain of evidence from a security camera to our computer displays and an unforgeable return chain of command from our mice to a gun or a jail cell lock. Cryptography can also secure smart contracts with the local officials: a judge declares you bailable, said authorization being transmitted to your jail door. Your girlfriend fills out a web form which pays the bail bondsman with a credit card. The bondsman's computer debits her account and then puts up the digital bond, and the jail door opens. You're out and I don't get to date your kind-hearted girlfriend.

One popular piece of secure government that many people have worked on is secure voting.

Several years ago I sketched an important sub-protocol of liar-resistant government, namely secure property titles (or, more generally, secure public registries). Such titles could, of course, include titles to political as well as real, personal, and intellectual property, and physical security devices such as sensors and weapons could be controlled based on them. In addition to to the cryptographic integrity of the records themselves, the public title registry can follow any rules of transfer in at least a Byzantine failure resistant way. Normal title transfers, signed over by the former owner, would be cryptographically strong.

Besides the obvious real property titles, domain names, and so, on, these registries could securely record and transfer the shares of a corporation. Bit gold, my sketch of an electronic currency that minimally relies on trust in any one person or organization, achieves this minimal vulnerability by using secure property titles. Satoshi Nakamoto has implemented BitCoin which very similarly uses a dense Byzantine fault tolerant peer-to-peer network and and cryptographic hash chains to ensure the integrity of a currency.

Making a number of important legal and political functions liar-resistant is on the horizon, and bits and pieces of this task are already being implemented.

Separation of powers and credible commitment

2009-04-28T16:45:00.000-07:00

Douglass North and Niall Ferguson, among other historians, have observed the dramatic lowering of English government bond rates after the Glorious Revolution in 1688 (alternatively seen as a Dutch invasion aided and abetted by Parliamentary and City of London traitors to the House of Stuart, and a subsequent "political merger" of the former enemy nations, as Ferguson puts it). North and Ferguson have imputed these lower rates to the superiority of modern democracy which they see as having been given birth by that Revolution.

Aside from the very uncommon but verbose Jacobite, and aside from that sad majority of historians who are shallow parrots of yesterday's tabloid headlines and fail to see the importance of anything so abstract as government bond rates, there is general agreement by the remaining historians about the effect of the Revolution on the great lowering of England's bond rates. But, while the identification of the Glorious Revolution as a great improvement in the financial condition of the English government (and subsequent world dominance of the British Empire, spread of free trade, abolition of slavery, etc. -- as well as to modern evils such as historically unprecedented rates of deficit spending, taxation, and inflation) is accurate, the attribution by North and Ferguson of these lower rates to the supposed "democratic" nature of the Revolution is quite wrong.

A more accurate if rather vague view of the situation is given by Nicholas Gruen:

Be that as it may, one of the huge things that powered us into the modern world was the idea of subjecting monarchs to the rule of law - particularly in Holland and the UK (after the Glorious Revolution of 1688). Because debtors for the first time had an expectation of being repaid when the monarch borrowed money off them, bond rates went right down and the government could borrow money. ‘A free nation deep in debt’ I think was the contemporary expression as Britain and Holland’s stars rose.

We can be far more specific about how the Dutch Invasion of 1688 caused England's bond rates to decrease. There are rather three specific events, quite related to the rule of law but not at all related to voting of the masses (which was not a feature of England for more than a century following that Revolution), but far more pertinent to the English government's immediately subsequent ability to finance itself at low rates. The first was the Bank of England. Whatever the advantages or faults of central banking to the general economy, the Bank of England was the financial engine behind the Royal Navy's subsequent boast, factual until the 20th century, that "Britania Rules the Waves", and specifically its ability to enforce free trade and destroy slavery. The two other events are quite related. The second event was a now-obscure lawsuit against King William and Queen Mary resulting in a crucial legal opinion written by one of England's greatest Chief Justices, Lord Holt, in 1701. The third was a now-obscure provision of the 1701 Act of Settlement which reasserted the independence of Holt and the other English justices from both Crown and Parliament. The Bank of England is well known, but these latter two events are at least as important and deserve to be yanked from their obscurity and put into every History 101 lesson.

Justice Iredell gives a good description of The Banker's Case in the later U.S. case Chisholm v. Georgia. Briefly, in the case brought by banker creditors of the Crown in 1701 to collect in what was owed them under debts contracted by the Stuart kings, the House of Lords (the ultimate court of appeal), led by Lord Chief Justice Holt, held that that the Court of the Exchequer had the power to decide and remedy a case of debt brought against the Crown, and that their decision holding the debts valid and remedying them with payment from the Exchequer was proper. In this particular case, William had no power to renege, not only on debts incurred under his reign, but on the debts incurred by his Stuart predecessors Charles II and James II.

This would not have meant too much of the Crown had retained a unilateral ability to fire the justices of the Court of the Exchequer for deciding against the Crown. In the Act of Settlement Parliament determined that the Crown's justices held their posts for life "on good behavior": it would take a vote of the House of Commons, the House of Lords, and the concurrence of the Crown itself to impeach a justice.

The combination of The Banker's Case and judicial tenure for life created what economists call a credible commitment for the government to abide by its contracts. This is a comitment that neither a single person as sovereign operating under Ulpian's principle of Roman law that "the prince's will is law", nor a democratic legisulature acting under Rosseau's principle that "the general will" supposedly reflected in the enactments of this legislature are unreviewable law, can make. Such a sovereign can simply declare it to be the law that they need not abide by their contracts or by the property rights of their subjects. It is the separation of powers -- and especially an judiciary with power of final decision over contracts involving the government treasury that is as independent as possible of those tax collectors, borrowers, and repayers -- not democratic voting that makes the credible commitment of a government to repay its debts and otherwise honor its contracts possible.

Polynesians vs. Adam Smith

2009-04-14T15:24:00.000-07:00

Adam Smith observed how even the most basic of products in 1776, at the dawn of the industrial revolution in Britain, depended, directly and indirectly, on the work of thousands of people:

Observe the accommodation of the most common artificer or day-laborer in a civilized and thriving country, and you will perceive that the number of people of whose industry a part, though but a small part, has been employed in procuring him this accommodation, exceeds all computation. The woollen coat, for example, which covers the day laborer, as coarse and rough as it may appear, is the produce of the joint labor of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country! How much commerce and navigation in particular, how many shipbuilders, sailors, sailmakers, ropemakers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world! What a variety of labor, too, is necessary in order to produce the tools of the meanest of those workmen! To say nothing of such complicated machines as the ship of the sailor, the mill of the fuller, or even the loom of the weaver, let us consider only what a variety of labor is requisite in order to form that very simple machine, the shears with which the shepherd clips the wool. The miner, the builder of the furnace for smelting the ore, the feller of the timber, the burner of the charcoal to be made use of in the smelting-house, the brickmaker, the bricklayer, the workmen who attend the furnace, the millwright, the forger, the smith, must all of them join their different arts in order to produce them. Were we to examine, in the same manner, all the different parts of his dress and household furniture, the coarse linen shirt which he wears nest his skin, the shoes which cover his feet, the bed which he lies on, and all the different parts which compose it, the kitchen grate at which be prepares his victuals, the coals which he makes use of for that purpose, dug from the bowels of the earth, and brought to him perhaps by a long sea and a long land carriage, all the other utensils of his kitchen, all the furniture of his table, the knives and forks, the earthen or pewter plates upon which he serves up and divides his victuals, the different hands employed in preparing his bread and his beer, the glass window which lets in the heat and the light, and keeps out the wind and the rain, with all the knowledge and art requisite for preparing that beautiful and happy invention, without which these northern parts of the world could scarce have afforded a very comfortable habitation, together with the tools of all the different workmen employed in producing those different conveniences; if we examine, I say, all these things, and consider what a variety of labor is employed about each of them, we shall be sensible that without the assistance and co-operation of many thousands, the very meanest person in a civilized country could not be provided [emphasis added], even according to what we may falsely imagine the easy and simple manner in which he is commonly accommodated.

Leonard Read used the pencil as an even more startling example of how a simple 20th century product depended on a vast global network of economic relations. The number of people required, directly and indirectly, to manufacture a high-technology device, such as a cellphone or laptop computer, is probably in the millions. Friedrich Hayek explained the fine-grained division of labor that makes modern technology and wealth possible as a division of knowledge in "The Use of Knowledge in Society":

The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate "given" resources—if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know.

Yet there existed a culture, the pre-European Polynesians, which established self-sufficient economies sometimes not totalling more than a few hundred people on dozens of small islands int the Pacific. Due to the small number of people that made up a self-sufficient economy, they did it using technology and institutions radically different from the agricultural civilizations of the Eurasian continent where they had come from. The Polynesians did not work metal: metalworking (for example the mining, smelting, smithing, etc. required to extract and work iron) requires too much of a division of labor. They used only the materials readily available on a South Seas island: their houses, ovens, boats, weapons, etc. were all made out of plants, stones, and animal parts. Since they lived at a Malthusian equilibrium (which almost every culture lived under until northwest Europe in the 17th century started a long climb out of it), their standard of living was on average the same as the world average -- dirt poor by our standards. This was enough, however, to produce catamarans that could navigate the South Pacific long before Magellan and Cook.

Small island economies greatly increased the premium and resulting emphasis on trade between islands in Polynesia and Melanesia (the Melanesians were an earlier group of island settlers). When inter-island trade was feasible, large proportions of resources and attention went into it. The kula ring was a splendid example of a sophisticated trade institution that developed among some of the Melanesians.

What's more, the Polynesians could do something that we moderns cannot -- replicate their entire economy from one island to another by packing up their families, along with a variety of plants and a handful of animals, onto a handful of catamarans. Could we similarly replicate our entire modern global economy, or a set of tools that could produce an equivalent result, to, say, another planet on a handful of rockets? That was the ambition of K. Eric Drexler's nanotechnology: pack a rocket full of "assemblers": self-replicating robots that can make almost anything. In the mid-20th century, mathematician and computer scientist John Von Neumann sketched a theoretical model of a self-replicating machine -- a self-replicating pattern in the 2-dimensional world of "cellular automata" (where, among other simplifications, copy operations come for free). I have long been skeptical of the idea that physical self-replication can be done with a simple design:

While going from macroscopic industrial parts proposed by von Neumann, or the nucleic acids, amino acids and myriad of tertiary biochemicals in bacteria, to atomic-scale diamondoid parts reduces the search space, and thus complexity, but this also reduces the degrees of design freedom. It could be that the search space of diamondoid replicators is so small that there is no possible configuration of, say, 10 million carbon atoms can copy itself in practice, when we get down to the details of atomic placement in each operation. A particularly difficult task in atomic placement for one small segement of a Stewart platform (eg assembling the ratchet complex) may necessitate a blowup in the complexity of the platform itself or in the machinery that brings molecules to and places them for the platform. To be truly self-replicating we need to close all the loops in the graph of operations. Attempts to close the last 1% ("vitamins") might introduce even more open loops than we close. The minimum complexity might easily exceed the degrees of freedom in the search space, in which case a solution does not exist.

The seeming simplicity of the the small-island Polynesian economy, lacking a sophisticated division of production and distribution operations and thus lacking a highly complex division of knowledge, is in one sense an illusion. This simplicity was made possible by making intensive use of very high evolved plant life. The complexity of life is extremely high. The self-sufficiency of the pre-European Polynesian economy is only possible if agriculture can be productively accomplished with tools made by the farmer or his friends. There is no simple design of a pan-assembler or self-replicating device -- the simplest ones we know of, life, are of extremely high complexity, and it will be a long time before we create new versions of life, much less artificial self-replicating machinery, in a lab.

Partially self-replicating machines are, of course, quite possible. The actual direct and indirect labor required for these machines, like those required for laptops and cell phones, is in the millions of people, and for many of the same reasons -- these machines are based on sophisticated microchips and plastics, among other parts of complex origin. Even if we radically redesigned every tool and machine we have for our hypothetical self-sufficient extraterrestrial economy -- and such radical redesign would be utterly necessary -- it would still likely require hundreds of thousands of people and gigatonnes of machinery, at least, to have a wealthy yet self-sufficient economy beyond earth.

Take Smith's coat and Read's pencil, elaborate the required network still further for today's complex products, and multiply by many thousands of products -- that is what is required to fill the shelves of your hardware super-store (in the U.S., Home Depot and Lowe's). Do this again for your drugstore, your clothing store, etc. You'd have no such super-stores in our space colony. It would in many ways be quite poor by earth standards.

The Polynesians relied on the ready availability of high-evolved life that could readily be grown in the native environment (no complex artificial creations like Plexiglass domes or grow-lights needed), and yet were dirt-poor by our standards. Modern products generally require elaborate divisions of labor necessarily involving millions of people. Such an economy cannot be planned, as numerous attempts to do so demonstrated in the 20th century. A modern economy requires a decentralized information-transmitting mechanism such as a market to work. In sharp contrast to the Polynesian small-island economy, our global economy cannot be easily replicated. We have to make it work here, or nowhere.

Money and the efficiency of plunder

2009-04-06T18:21:00.001-07:00

(Note to readers -- after several months of posting reruns, I am back to doing original posts until further notice).

Arnold Kling describes his militaristic theory of the origins of money, and kindly also quotes and refers readers to my theory (or set of theories, as I posit that shell proto-money played a crucial role in several different kinds of hunter-gatherer transactions). Here is the gist of Kling's theory:

Imagine that you're a warlord leading a band of soldiers. Your business model is that your soliders prey on farmers, taking plunder and tribute. To help motivate your soldiers, you promise them a share of the booty. When the band of warriors is small, the promises can be verbal and informal. However, in order to organize a large army, you need formal, written contracts. Lacking lawyers and xerox machines, you make little carvings on metal, hand them out to soldiers, and say, "After the battle, turn this in to the clerk and we'll give you a share of captured slaves and grain and stuff."

There may not be as much contrast between our theories as Kling suggests. We both seem to agree that the traditional economists' explanation of money emerging from a barter market that otherwise obeyed the principles of efficient modern markets is not historically sound (although I do believe it is theoretically and empirically sound as a theory of the way things can happen -- money-like intermediate commodities can and have been observed to emerge from barter markets). Where we may differ, and perhaps not by much, is on the role of coercion. I believe that both coercive and voluntary transactions (and transactions that partook of both components) were important, and that the voluntary transactions were not efficient market exchanges:

Voluntary spot trades are not the only kinds of transactions that benefit from lower transaction costs. This is the key to understanding the origin and evolution of money. Family heirlooms could be used as collateral to remove the credit risk from delayed exchanges. [As explained elswhere in the article, these were typically exchanges that involved very high transaction costs. I'd add in clarification now that the closest modern economic model of them would be bilateral monopoly, not spot exchange on an efficient market]. The ability of a victorious tribe to extract tribute from the vanquished was of great benefit to the victor . The victor's ability to collect tribute benefited from some of the same kinds of transaction cost techniques as did trade. So did the plaintiff in assessment of damages for offenses against custom or law [emphasis added], and kin groups arranging a marriage. Kin also benefited from timely and peaceful gifts of wealth by inheritance. The major human life events that modern cultures segregate from the world of trade benefited no less than trade, and sometimes more so, from techniques that lowered transaction costs. None of these techniques was more effective, important, or early than primitive money -- collectibles.
...
Warfare involved, among other things, killing, maiming, torture, kidnapping, rape, and the extortion of tribute in exchange for avoiding such fates. When two neighbor tribes were not at war, one was usually paying tribute to the other. Tribute could also serve to bind alliances, achieving economies of scale in warfare. Mostly, it was a form of exploitation more lucrative to the victor than further violence against the defeated.

Victory in war was sometimes followed by an immediate payment from the losers to the victims. Often this just took the form of looting by the enthusiastic victors, while the losers desperately hid their collectibles. More often, tribute was demanded on a regular basis. In this case, the triple coincidence could and sometimes was avoided by a sophisticated schedule of payments in kind that matched the losing tribe's ability to supply a good or service with the victor's demand for it. However, even with this solution primitive money could provide a better way -- a common medium of value that greatly simplified the terms of payment – very important in an era when terms of the treaty could not be recorded but had to be memorized. In some cases, as with the wampum as used in the Iriquois Confederacy, the collectibles doubled as a primitive mnemonic device that, while not verbatim, could be used as an aid to recall the terms of the treaty. For the winners, collectibles provided a way to collect tribute at closer to the Laffer optimum. For the losers, collectibles buried in caches provided a way to “under-report”, leading the victors to believe the losers were less wealthy and thus demand less than they might. Caches of collectibles also provided insurance against over-zealous tribute collectors. Much of the wealth in primitive societies escaped the notice of the missionaries and anthropologists due to its highly secretive nature. Only archeology can reveal the existence of this hidden wealth.

Hiding and other strategies presented a problem that tribute collectors share with modern tax collectors – how to estimate the amount of wealth they can extract. Value measurement is a thorny problem in many kinds of transactions, but never more so than in the antagonistic collection of tax or tribute. In making these very difficult and nonintuitive trade-offs, and then executing them in a series of queries, audits, and collection actions, tribute collectors efficiently optimized their revenue, even if the results seemed quite wasteful to the tribute payer.

Imagine a tribe collecting tribute from several neighbor tribes it previously defeated in war. It must estimate how much it can extract from each tribe. Bad estimates leave the wealth of some tribes understated, while forcing others to pay tribute based on estimates of wealth they don't actually have. The result: the tribes that are hurt tend to shrink. The tribes that benefit pay less tribute than could be extracted. In both cases, less revenue is generated for the victors than they might be able to get with better rules. This is an application of the Laffer curve to the fortunes of specific tribes. On this curve, applied to income taxes by the brilliant economist Arthur Laffer, as the tax rate increases, the amount of revenue increases, but at an increasingly slower rate than the tax rate, due to increased avoidance, evasion, and most of all disincentive to engage in the taxed activity. At a certain rate due to these reasons tax revenues are optimized. Hiking the tax rate beyond the Laffer optimum results in lower rather than higher revenues for the government.

We do seem to differ in that Kling's account is basically an account of the origins of coinage in the agricultural era, and mine is an account of the origins of shell proto-money in the hunter-gatherer era. As indicated above, I believe both coercion and voluntary transactions (and admixtures of same) played an important role in the hunter-gatherer era, and as a general matter that's also true of the agricultural era.

I have very little disagreement with Kling's account of the importance of coercion in the origin of coinage. Indeed, here's what I had to say about the origins of coinage:

Given what we have seen about the benefits of proto-money to tribute and tax collectors, as well as the critical nature of the value measurement problem in optimally coercing such payments, it is not surprising that tax collectors, specifically the kings of Lydia, were the first major issuers of coinage. The king, deriving his revenue from tax collection, had a strong incentive to measure to value of wealth held and exchanged by his subjects more accurately. That the exchange also benefited from cheaper measurement by traders of the medium of exchange, creating something closer to efficient markets, and allowing individuals to enter into the marketplace on a larger scale for the first time, was for the king a fortuitous side effect.

My account of coinage differs from Kling only in that I'm looking at the measurement problem that occurs when collecting the plunder; he is looking at the measurement problem that occurs when distributing the plunder out to the soldiers. Both are important. Indeed I have also discussed the latter before on this blog (I don't recall the origins of the idea -- I may have read it somewhere -- a bleg to my kind readers, if you know of a reference, please post it in the comments):

Markets will tend to standardize on whatever the dominant transactor, the party that controls the largest plurality of cash flow, standardizes on, and in most historical societies the dominant transactions were tax collection and the payment of those taxes to soldiers.

By "dominant" here I just mean constituting the plurality (the largest player), not the majority of the value of all transactions, whether coercive or voluntary or some admixture of same. Coinage made measuring the value of both plunder and the distribution of plunder more accurate: both were important in increasing the efficiency of plunder and giving rise to coinage. More efficient exchanges, resembling more spot exchanges than bilateral monopoliies, and thus a larger tax base, were a fortuitous consequence for the Lydian kings (and later for the Greeks who eventually conquered the relatively coinless Persians).

The issue of coercion is also deeply implicated in the origins of agriculture itself. After all, hunter-gatherers were expert botanists compared to the modern layman. They were perfectly well aware that one could plant seeds (and shoots, for asexual reproduction) and have them grow, and could have easily learned the basic techniques associated with early agriculture once they had experimented with this knowledge. Yet these expert botanists with brains the same size as ours existed for 100,000 years before the agricultural breakthrough occured. The problem was not one of farming technique, it was one of securing this capital investment from fellow tribe members and foreign tribes. Only once this problem in coercion and transaction costs was solved could agricultural society appear. More here and here.

Law embedded in the world

2009-01-31T17:40:00.000-08:00

Trying to beat the protocol can get you in trouble:

Confidential auditing

2009-01-31T17:36:00.000-08:00

I once described how confidential auditing was possible and beneficial:

The auditing function is a vast and indispensable part of the modern economy. Auditing controls allow, among other things, employers to delegate resources and authority to employees, franchisors to delegate to franchisees, stockholders to delegate to management, advertisers to count eybeballs, marketers to gather more reliable data on customers, and make possible a wide variety of other such relationships. Auditing controls might fairly be called the security protocols of capitalism...[However,] auditing is in deep conflict with efforts towards greater privacy. Auditors have an ethic of recording, investigating, and reporting as much as possible, and often see privacy efforts as attempts to prevent auditing and potentially cover up fraud...[But confidential auditing is possible because] we can achieve auditing logs unforgeable after commitment via secure timestamps. We can then achieve to a great extent unforgeability prior to commitment, with segregation of duties via multiparty integrity constraints. We then audit these commitments via multiparty private computations.

In an article about multiparty secure (i.e. private) computations I described this process as follows:

Performance phase analysis with multiparty secure computer theory would seem to apply only to those contracts which can be performed inside the virtual computer. But the use of post-unforgeable auditing logs, combined with running auditing protocols inside the shared virtual computer, allows a wide variety of performances outside the virtual computer to at least be observed and verified by selected arbitrators, albeit not proactively self-enforced.

The participants in this mutually confidential auditing protocol can verify that the books match the details of transactions stored in a previously committed transaction log, and that the numbers add up correctly. The participants can compute summary statistics on their confidentially shared transaction logs, including cross-checking of the logs against counterparties to a transaction, without revealing those logs. They only learn what can be inferred from the statistics; [they] can't see the details of the transactions

In this I had been inspired by Eric Hughes' idea of encrypted open books. My sketch is more general insofar as it addresses pre-transaction forging (with separation of duties), post-transaction forging (with secure timestamping), and the auditing protocol itself (with multiparty private computation running off the logs themselves rather than Hughes' specialized protocol running off already prepared books).

But my description was only a proof-of-concept sketch that one could go all the way from preparing to transact to transaction log to finished audits while maintaining both integrity and privacy, with neither depending on large amounts of trust in the auditors. Recently Shen et. al. came up with a detailed design of such a confidential auditing scheme in the context of gathering statistics from the logs of distributed computations:

...no single TTP [trusted third party] node can have the full knowledge of the logs, and thus no single node can misuse the log information without being detected. On the basis of a relaxed form of secure distributed computing paragidms, one can implement confidential auditing service so that the auditor can retrieve certain aggregated system information e.g., the number of transactions, the total volume, the event traces, etc., without having to access the full log data...To prevent an unsupervised TTP from manipulating the system, we design query processing schemes that require TTP nodes work together, using the multiparty private computation, to perform any useful auditing functions.

Secure timestamping and confidential auditing

2009-01-31T17:31:00.000-08:00

Another interesting protocol is cryptographic timestamping. The purpose is to prove that a particular piece of content (i.e. some array of bits) existed at a particular period of time. The basic idea goes back to the anagram publication technique that Robert Hooke, Galileo, and some other early scientists used to prove that they discovered certain things long before they published them. When Hooke, for example, discovered his law of elasticity, he published the gobbledygook letters "ceiiinosssttuv." Later, when he published his law of elasticity, he published "ut tensio sic vis" (as the extension, so with the force). The earlier published anagram proved that he had discovered this law long before he published it.

The modern protocol uses cryptographic hash functions instead of anagrams. Any set of bits (digital content, a network event, whatever) is passed through the hash function, turning into into a unique random-looking string of bits. Those bits are then published to multiple timestamp servers on the Internet. The timestamp servers create a chain of hashes. Using the chain of published hashes, it is easy to later prove that (1) the hash was published before one event and after another event, thus proving the time of publication, and (2) that the hash uniquely corresponds to a particular content.

Note that the content of the file does not need to be published until proof is needed. Thus, for example, one could digitally timestamp a secret digital inventor's notebook in order to prove later that the invention existed at that time. (Might be quite useful under the American first-to-invent system).

Indeed, using multiparty secure computation or the related protocols called zero-knowledge proofs, one can even make a later proof without publishing the content. For example, if Bob received a secret encrypted e-mail message from Alice, Alice and Bob could prove to the world that Alice sent a message at 18:42:39 and Bob received it at 18:43:05 without revealing the actual contents of the message. In a confidential audit of Alice's books based on securely timestamped transactions between Alice and Bob and Alice and Charles, performed using secure multiparty computation, Alice can prove to the auditor that her books balance based on real transactions with Bob and Charles, without revealing in unencrypted form to the auditor either the transactions or the books. Such is the magical reality of cryptography!

Here are some links to papers and other references on secure timestamping.

Bit gold markets

2008-12-27T16:17:00.000-08:00

The basic idea of bit gold is for "bit gold miners" to set their computers to solving computationally intensive mathematical puzzles, then to publish the solutions to these puzzles in secure public registries, giving them unique title to these provably scarce and securely timestamped bits. These titles to timestamped bits will be more secure and provably scarce than precious metals, collectibles, and any other objects that have ever been used as money. In a description of bit gold, which was mostly an overview of the technology, I wrote about how, because the algorithms and architectures for solving computationally intensive mathematical puzzles to create bit gold will often be dramatically improved, the bits (the puzzle solutions) from one period (anywhere from seconds to weeks, let's say a week) to the next are not fungible. But fungible units can be created from non-fungible ones:

bit gold will not be fungible based on a simple function of, for example, the length of the string. Instead, to create fungible units dealers will have to combine different-valued pieces of bit gold into larger units of approximately equal value. This is analogous to what many commodity dealers do today [pooling commodities with a wide variety of qualities into a handful of standard grades] to make commodity markets possible.

Bit strings (puzzle problem/solution pairs) are securely timestamped by their time of publication. More recent solutions that have been produced in greater quantities will be discounted by markets. To create fungible units dealers will bundle strings of different value into pools of a standard value (i.e. collect strings into a pool so that the sum of the market values of the strings in the pool add up to the standard value).

It's a bit indirect, but computers can easily handle these logistics. Leaving aside the gold metaphor for a minute, one can think of these bit strings as digital rare postage stamps. Each stamp might trade for a different price, but one can sort stamps into pools so that the prices of stamps in each pool add up to the same total price. Then divide each pool into tranches to create your standard currency denominations.

The rare stamp metaphor is, however, in other ways very misleading. Unlike stamps, but like gold, there are no ongoing changes in subjective valuations between bit strings to worry about, but instead the demand for bit gold is purely for its monetary functions, and thus purely based on how scarce the supply of puzzles solved during a given time period was and is. As a result, pooling and tranching will work far better for bit gold than it does for actual rare postage stamps.

This deserves more elaboration. It seems to be a common objection to bit gold that the mere difference in the price of a bit from one time period to the next produced by technology improvements introduce intractible subjective valuations, making the matter of comparing one week to the next subject to too much uncertainty and transaction costs, as occurs with many collectibles. Just as pooling and tranching rare postage stamps would be a somewhat risky affair as subjective valuations of the underlying stamps change, so too this is supposed for bit gold.

The problem that would occur if we tried to turn most collectibles into a standard currency by pooling and tranching is that, besides a subjective aesthetic component in the demand curve that doesn't come into play with computer bits, their scarcity is uncertain. Art can turn out to be forged, rare stamps thought to be lost or to have never existed might be found, and so on. The supply curve, in other words, can be highly uncertain and in danger of elasticity. Since the supply and demand curves of different pools can change differently over time, the relative values of pools would diverge from their initial values, so that trying to use tranches as standard denominations of a currency would create arbitrage opportunities.

By sharp contrast bit gold will be entirely public: no one gains secure title to any puzzle solutions until they are published. Thus, the exact amount and kind of puzzle solutions during a given period are well known, and perfectly define the supply curve relative to future weeks for all time thereafter.

There will be, in other words, a perfectly objective, measurable, and inelastic supply curve, completely derivable from the relative scarcity of bits (puzzle solutions) on the week (or the day, or the hour, or the minute, if necessary) of their publication. Arbitrage to set the different prices of different weeks (or minutes) can be computerized on this basis. The demand curve, the demand for puzzle solutions for the monetary functions they can perform as a store of value and medium of exchange, will be based on recognition of the superiority of bit gold as a form of money that is more secure and has a far less elastic supply curve than traditional commodities such as precious metals. Since there are no aesthetic differences, the demand curve will be the same function of scarcity for all weeks (or minutes), so it won't affect the simple scheme of automated arbitrage between epochs with different supply curves. The supply and demand curves of different pools will change in the same way over time, and the relative values of pools will not diverge from their initial relative values. Using tranches as standard denominations for a currency does not create arbitrage opportunities.

For most of history collectibles were used for as stores of value and media of exchange; aesthetics played an important role. But before we can separate out the roles of scarcity and aesthetics, we must ask why humans evolved such aesthetic values. The aesthetic instincts, for example the instinct to collect shiny things, evolved just because in the evolutionary environment they approximated an instinct to collect scarce things, and to distinguish hard-to-find from easy-to-find things, i.e. an instinct to recognize and collect objects that can best perform monetary functions, as I describe here, in the "Evolution..." section early in the paper, and the "Attributes of Collectibles" section late in the paper.

As a proximate matter, the contribution to the demand curve from demand for monetary functions (store of value or medium of exchange or both) and the contribution from aesthetic considerations are completely separable. One can demand a commodity for its aesthetic value, or for its value as money, or for both, or for neither. Thus a check for a million dollars might have a design that is utterly philistine, yet the check is still worth a million dollars.

The value of gold today is almost entirely based on its monetary value rather than mere aesthetic value. There are plenty of metals that are as shiny and smooth as gold, but people don't demand them as a store of value or medium of exchange because they are common. There are plenty of rocks that look as good as diamonds, but "diamonds are a girl's best friend" because they are hard to obtain and thus hold their value. Value comes to attach to the unique aesthetic features of gold or diamonds because these features signal scarcity. The value of precious metals or gems as stores of value, media of exchange, or even as cultural icons does not come from these aesthetic features, it is only signalled by them. It is their secure scarcity, not their aesthetic features, that allows them to be more securely used as a store of value and thus gives them a monetary value, and often a corresponding emotional and cultural value, far above the often trivial value they would have if they had the same aesthetics but were common.

There will be a problem defining futures contracts for yet-to-be produced bit gold: how much it might cost to solve a given puzzle a year later, or even a month, will be a very uncertain matter. But the pools that define currencies will be based on spot prices for already produced bit gold, not on futures.

[These comments edit and add to comments of mine under previous blog post(s)]

Bit gold

2008-12-27T16:16:00.000-08:00

A long time ago I hit upon the idea of bit gold. The problem, in a nutshell, is that our money currently depends on trust in a third party for its value. As many inflationary and hyperinflationary episodes during the 20th century demonstrated, this is not an ideal state of affairs. Similarly, private bank note issue, while it had various advantages as well as disadvantages, similarly depended on a trusted third party.

Precious metals and collectibles have an unforgeable scarcity due to the costliness of their creation. This once provided money the value of which was largely independent of any trusted third party. Precious metals have problems, however. It's too costly to assay metals repeatedly for common transactions. Thus a trusted third party (usually associated with a tax collector who accepted the coins as payment) was invoked to stamp a standard amount of the metal into a coin. Transporting large values of metal can be a rather insecure affair, as the British found when transporting gold across a U-boat infested Atlantic to Canada during World War I to support their gold standard. What's worse, you can't pay online with metal.

Thus, it would be very nice if there were a protocol whereby unforgeably costly bits could be created online with minimal dependence on trusted third parties, and then securely stored, transferred, and assayed with similar minimal trust. Bit gold.

My proposal for bit gold is based on computing a string of bits from a string of challenge bits, using functions called variously "client puzzle function," "proof of work function," or "secure benchmark function.". The resulting string of bits is the proof of work. Where a one-way function is prohibitively difficult to compute backwards, a secure benchmark function ideally comes with a specific cost, measured in compute cycles, to compute backwards.

Here are the main steps of the bit gold system that I envision:

(1) A public string of bits, the "challenge string," is created (see step 5).

(2) Alice on her computer generates the proof of work string from the challenge bits using a benchmark function.

(3) The proof of work is securely timestamped. This should work in a distributed fashion, with several different timestamp services so that no particular timestamp service need be substantially relied on.

(4) Alice adds the challenge string and the timestamped proof of work string to a distributed property title registryfor bit gold. Here, too, no single server is substantially relied on to properly operate the registry.

(5) The last-created string of bit gold provides the challenge bits for the next-created string.

(6) To verify that Alice is the owner of a particular string of bit gold, Bob checks the unforgeable chain of title in the bit gold title registry.

(7) To assay the value of a string of bit gold, Bob checks and verifies the challenge bits, the proof of work string, and the timestamp.

Note that Alice's control over her bit gold does not depend on her sole possession of the bits, but rather on her lead position in the unforgeable chain of title (chain of digital signatures) in the title registry.

All of this can be automated by software. The main limits to the security of the scheme are how well trust can be distributed in steps (3) and (4), and the problem of machine architecture which will be discussed below.

Hal Finney has implemented a variant of bit gold called RPOW (Reusable Proofs of Work). This relies on publishing the computer code for the "mint," which runs on a remote tamper-evident computer. The purchaser of of bit gold can then use remote attestation, which Finney calls the transparent server technique, to verify that a particular number of cycles were actually performed.

The main problem with all these schemes is that proof of work schemes depend on computer architecture, not just an abstract mathematics based on an abstract "compute cycle." (I wrote about this obscurely several years ago.) Thus, it might be possible to be a very low cost producer (by several orders of magnitude) and swamp the market with bit gold. However, since bit gold is timestamped, the time created as well as the mathematical difficulty of the work can be automatically proven. From this, it can usually be inferred what the cost of producing during that time period was.

Unlike fungible atoms of gold, but as with collector's items, a large supply during a given time period will drive down the value of those particular items. In this respect "bit gold" acts more like collector's items than like gold. However, the match between this ex post market and the auction determining the initial value might create a very substantial profit for the "bit gold miner" who invents and deploys an optimized computer architecture.

Thus, bit gold will not be fungible based on a simple function of, for example, the length of the string. Instead, to create fungible units dealers will have to combine different-valued pieces of bit gold into larger units of approximately equal value. This is analogous to what many commodity dealers do today to make commodity markets possible. Trust is still distributed because the estimated values of such bundles can be independently verified by many other parties in a largely or entirely automated fashion.

In summary, all money mankind has ever used has been insecure in one way or another. This insecurity has been manifested in a wide variety of ways, from counterfeiting to theft, but the most pernicious of which has probably been inflation. Bit gold may provide us with a money of unprecedented security from these dangers. The potential for initially hidden supply gluts due to hidden innovations in machine architecture is a potential flaw in bit gold, or at least an imperfection which the initial auctions and ex post exchanges of bit gold will have to address.

Origins of the joint-stock corporation

2008-10-11T12:19:00.000-07:00

The modern joint-stock corporation has many sources in medieval Europe. First among these was corporate law itself. Although the era is commonly referred to as "feudalism," for the hierarchy of individually owned "fiefs" of land and control of serfs as fixtures of that land, large amounts of wealth in Europe were actually controlled by corporate entities. Chief among these were church lands, the corporate entities being dioceses, religious orders and the Roman Church itself. These entities controlled a substantial fraction of the land in Western Europe. Furthermore cities (with varying degrees of political independence), merchant guilds, craft guilds, and many charitable entities (such as hospitals) were legal "corporations," i.e. artificial and perpetual legal persons under law. Some basic issues in corporate law (for example, when are officers individually liable for acts of the corporation, and when the corporation is liable for acts of its agents) had already been solved in canon law and urban law long before the joint-stock corporation.

Another source of the joint-stock corporation was the tradition of dividing ownership over tangible things into "shares." For example, it was common in Italian maritime states fund the construction and operation of ships by dividing them into a certain number of shares (24 and 64 were common divisions). Share owners were responsible for funding voyages (not including cargo, which was typically paid for by trading partnerships called commenda) as well as the initial construction capital, and divided up the profits (fees paid by the merchants less costs). This tradition faded away in Venice when that republic's government took over ship ownership, but thrived across the Italian penninsula in Genoa. Ship shares became embedded into maritime law all over Europe and even survived the British Empire (today in Canada when you register a boat the government still registers 64 shares in it for its owner). The only organization controlled by the shareholders, however, was the captain and crew of the ship.

The medieval organizations that most resembled later joint-stock corporations were the Genovese maone. These bore some strong resemblances to the publicani tax farming corporations of the Roman Republican era, although it is not clear how they could have survived the intervening Late Empire and Dark Ages other than as very obscure (and perhaps now lost) written descriptions. In form and function maone also bore strong resemblances to some early joint-stock companies such as the Bank of Amsterdam, Bank of England, and the Dutch and English East India Companies.

The Italian cities often sold off their tax receivables to wealthy merchants at a discount as a way to borrow funds. (Discounting was one of the many ways late medieval financiers avoided the rather lax and narrow usury restrictions). The debts were divided into equal shares called loca or partes. Legally, these shares were personal property (chattels) and could be freely traded.

Technically, no organization was created when the city sold its tax receivables to merchants. However, to effectively collect the taxes, the holders of loca formed an organization called a maona or societas comperarum. This organization would then subcontract to tax farmers to collect the taxes. By the fourteenth century, Genovese maone also engaged in military conquest and colonization. These were, quite literally, corporate raiders.

Normally, maone were temporary, but some of them ended up lasting for a long time. In 1346 the Maona di Chio e di Focea (a company for managing the taxes of Chios and Focea) was formed. This organization's members obtained from Genoa the exclusive right to collect taxes from Chios (an Aegean island) and Phocaea (a port on the Anatolian coast). But first the company would have to conquer them! Although technically a temporary organization, it lasted until 1566.

Rather than going to buy receivables from Genoa, subscriptions to the di Chio e di Focea's loca shares (still legally debt, but to be paid out in dividends as taxes and trading revenues were collected) went to fund 29 galleys to conquer Chios and Phocaea. The Genovese Republic, for a fee, granted the organization exclusive rights to collect taxes from the conquered territories as well as special trading privileges. The conquests, taxes, and trading were at least partially successful, and by the 16th century more than 600 persons owned loca of the maona. This function and some of this structure would later be emulated by the Dutch and English India Companies, but with a basic legal difference -- "shares" in these later joint-stock companies would constitute ownership (like ship shares) not debt as with the maona.

The most famous Genovese maona was the Officium procuratorum San Giorgio, later the Banco di San Giorgio. Founded in 1407, this bank (and a later Genovese bank along the same lines, the Bank of Genoa) would be the inspiration for later central banks such as the Bank of Amsterdam and the Bank of England. Banco di San Giorgio came to administer most of the Genovese Republic's debts. Dividends were paid out of tax collections (less directly than with earlier maona, but still more directly than the later Bank of England). The maona business was becoming more monopolistic, as it had become in Venice and would become with later central banks.

At the same time, however, the ship share system spread to northern Europe and branched out beyond ships. In Italy and Germany by the 16th century a wide variety of mines were divied up into ownership shares. During the Reformation, a pious follower of Martin Luther gave him some kuxen, shares in a mine in Saxony. Luther complained that he did not know what to do with them. (Indeed, since as with ship shares the mine managers could call on investors to pay up more capital, ownership was not for the financially naive).

Martin Luther

Ship shares and mine shares like these were issued in small numbers (usually between 24 and 640) and thus were not typically traded on exchanges. The number of employees was also small, usually no more than a few dozen. Kuxen were reportedly sometimes traded at the Leipzig fairs. Indeed, illiquidity was the rule in the first century of English joint-stock companies. It was not until the Vereenigde Oostindische Compagnie (the Dutch East India Company, founded out of a merger of smaller colonial companies in 1602) that volume existed to trade company shares on exhanges (which up to that time traded state and municipal bonds and commodities).

Interestingly, the first joint-stock companies chartered by the English Crown (starting in 1553) were companies involved in trading (the Muscovy and Levant companies), mining (the Royal Mines and the Mineral and Battery), and trading combined with conquest (the India Companies, the Virginia and Plymouth companies, etc.) The two mining companies borrowed not only shares but managers and engineers (presumably along with their techniques) from Germany. The Genovese for their part would have felt at home with the trading and conquest companies.

References include:

Harold Berman, Law and Revolution.

Guido Ferrarini, "Origins of Limited Liability Companies and Company Law Modernisation in Italy: A Historical Outline", Centro di Diritto e Finanza WP 5-2002.

Meir Kohn, "The Capital Market Before 1600", working paper 99-06, February 1999.

Emergency economics

2008-10-11T12:13:00.000-07:00

For those of you who didn't catch me on econ-law a few months ago [2005] during the hurricanes, here is an expanded version of what I posted there:

Here are some alternative ways of rationing in an emergency. At least some of these have been written about by Yoram Barzel. We have witnessed all of them during hurricane Katrina [and also this summer (2008) during Ivan]:

(1) market prices ("price gouging")
(2) waiting in line
(3) centrally planned rationing
(4) don't ration: just let the resource run out

It's not clear that, even with perfect knowledge, with or without an emrgency, centrally planned rationing could operate without using one of the other methods of rationing. In any case, our very poor knowledge about each others' needs is sufficient to ensure that, short of a perfect price system, we can't get what we want without waiting in line, and sometimes we just can't get what we want (or even, the Rolling Stones notwithstanding, what we need). The worse the price system -- in other words, the higher the transaction costs -- the more we wait in line or do without, as East Germany once demonstrated (cf. West Germany) and as North Korea continues to demonstrate. Luckily for those of us in largely market price based economies, we need only wait in line when trying to do business with the government, call a toll-free service line, go to a hot movie on opening night, or during an emergency -- i.e. in the remaining situations where prices don't operate very well or at all, due to transaction costs imposed by law or otherwise.

Mises and Hayek long ago demonstrated the weakness of centrally planned economies such as the old Soviet Union (or today's North Korea) -- the lack of knowledge the government has about peoples' needs and desires. Similarly, lack of the requisite detailed rknowledge of the needs of others, especially at specific times of crisis when they need our help most, is a huge problem even if we were perfectly charitable. Not even the local governments exhibited much knowledge of the needs of their neighbors, especially in New Orleans. Much less did the state or Feds (FEMA being only the most glaring example) exhibit even a tiny fraction of the knowledge that would be required for an optimal outcome. This is not the fault of the people in the government agencies to not act as knowlegeably as they are capable of acting, but rather the fault is in their implied promises and our expectations. For example, TV commentators, watching pictures of some Coast Guard helicopters, seem to have come to expect that government agencies will swoop down from the sky and rescue everybody and take on other attributes of God. Such as, for example, being able to knowledgeably evacuate people and distribute other scarce goods and services in a disaster.

Per Mises and Hayek, even if the Soviet Union had been run by an perfectly beneficient dictator, people would have, short of a matching omniscience of said dictator (and of enough of his underlings to receive and act on the knowledge) still have waited in bread lines. When price controls hit gasoline in the United States in the 1970s, people similarly waited in gas lines.

In emergencies rationing becomes extreme: people wait in long lines, pay "extortionate" prices, or, even worse, do without. We are thrown into economically unfamiliar territory and transaction costs balloon. Goods will always be rationed in one or more of the above four ways, and in an emergency the rationing can be quite severe. Our charitable spirit can temporarily overcome self-interest, but it can't overcome the knowledge problem or the scarcity of goods.

Given that waiting in line, or doing without, are very painful (even sometimes deadly) alternatives, and that allowing the charge of very high prices can largely prevent use of these extreme and wasteful forms of rationing, why do we have price gouging laws?

Can price gouging laws be explained as follows? In a zero transaction cost world, consumers would successfully negotiate with retailers for an insurance policy that caps prices in case of emergency. This may be, for example, because retailers are better able to bear the risk of emergency supply shortages than consumers are, or because consumers don't want to bear the risk of having to have an unusually large amount of money at hand during an emergency. (Katrina may be a good example of this -- it reportedly struck just before many paychecks were due, leaving many people who live from paycheck to paycheck without funds). However, the transaction costs for negotiating with consumers for such contracts are too high. Therefore, the default retail sales contract should include such insurance. Price gouging laws are a convenient way to do this. More generally, if it weren't such a bother almost all of us would like to purchase insurance against volatile prices in order to make our budgets more predictable.

Whether and when wholesale contracts include such price caps provisions would provide interesting evidence in favor of or against this hypothesis, and under what conditions it would have been rational to for consumers and retailers to have made such a contract.

As we have seen, there is a strong economic argument against price gouging laws. Consistent application of market pricing during an emergency would minimize the other inefficient, and occasionally deadly, rationing methods above, especially (4)actually running out of emergency supplies. Consumers could be confident that supplies will not run out, so stocking up on excess supplies based on fear of imminently running out of the supply (such as we've seen consumers do in some areas recently with gasoline) would be minimized. Given modern technology, perhaps we should work on improving the availability of credit and liquidity in emergencies via always-up wireless devices and immediately payable liquidity insurance policies instead of price gouging laws.

Furthermore, the promise of very high prices might motivate retailers to fly in special deliveries of emergency supplies at otherwise prohibitive transportation rates. On can even imagine for-profit organizations doing many of the tasks that the National Guard, Red Cross, and similar organizations are doing now. Of course, the moral indignation would be enormous. People, at least in political discussion, tend to be extremely averse to "windfall profits" and seem to have a strong psychological preference for an implicit insurance policy that puts a price cap during emergencies on retail contracts.

Patent goo: self-replicating Paxil

2008-09-22T17:41:00.000-07:00

In his novel Cat’s Cradle, science fiction writer Kurt Vonnegut postulated “Ice-9.” Ice-9 was a form of water that was frozen at room temperature and catalyzed any normal water it came in contact with into more crystals of Ice-9. Once released into the environment, it froze all water, including us. Eric Drexler in the 1980s raised the specter of nano-robots that made copies of themselves and ate everything in their path: "gray goo." A wide variety of similar hypothetical disasters have since been given referred to as some sort of "goo."

Self-replicating chemicals are not merely hypothetical: since Cat's Cradle, scientists have discovered some real-world example of crystals that seed the environment, converting other forms (polymorphs) of the crystal into their own. The population of the original polymorph diminishes as it is converted into the new form: it is a “disappearing polymorph.” In 1996 Abbott Labs began manufacturing the new anti-AIDS drug ritonavir. In 1998 a more stable polymorph appeared in the American manufacturing plant. It converted the old form of the drug into a new polymorph, Form 2, that did not fight AIDS nearly as well. Abbott’s plant was contaminated, and it could no longer manufacture effective rintonavir. Abbott continued to successfully manufacture the drug in its Italian plant. Then American scientists visited, and that plant too was contaminated was contaminated and could henceforth only produce the ineffective Form 2. Apparently the scientists had carried some Form 2 crystals into the plant on their clothing.

Another instance of the “disappearing polymorph” may be the anti-depressant, Paxil (U.S. brand name for the chemical paroxetine hydrochloride). No, self-replicating Paxil doesn’t naturally spread into our brains and make people happy for free. It's not "happy goo." On the contrary, self-replicating Paxil converted, according to one of the parties in the ensuing lawsuit, an old, and now off-patent, form of Paxil into a new, patented form of Paxil. Once the new form, the hemihydrate form of Paxil, was created, its crystals started floating about, converting small fractions of the old form, anhydrous Paxil, into hemihydrate. Both forms of the drug work equally well as an anti-depressant, but it became impossible to manufacture the off-patent anhydrate without some of it being converted into the patented form. Call it "patent goo."

Apotex, a generic drug manufacturer, was all set up to manufacture the off-patent anhydrous generic Paxil when it discovered small fractions of it were being converted into the hemihydrate. They couldn’t remove the contamination. Smithkline, owner of the patent on the hemihydrate, sued them for patent infringement. Apotex argued that the hemihydrate form occurred naturally, so that Smithkline’s patent was invalid. Smithkline argued that it was a disappearing polymorph, that the hemihydrate form had not existed before they had created it in their labs, and that it was up to Apotex to remove the hemihydrate from its product or pay it a royalty. Apotex was unable to remove the hemihydrate and unwilling to pay a royalty.

Judge Richard Posner heard this case in the trial court and wrote an opinion that contains a good explanation of the self-replicating Paxil controversy. The Federal Circuit heard the appeal and decided that Smithkline’s patent on the hemihydrate was invalid as “inherently anticipated” because anhydrate naturally converts into hemihydrate. Normally, anticipation would require an actual reference describing the claimed chemical structure (in patent lingo that the hemihydrate was "taught in the prior art"). But Judge Rader held that inherent anticipation occurs when, more likely than not, an operation that is taught in the prior art would result in the claimed chemical. The anhydrate which was taught in the prior art would more than likely result in natural creation of some hemihydrate. Judge Gajarsa in concurrence argued that the drug was discovered not invented, making it unpatentable subject matter. Gajarsa’s opinion may have inspired the United States Supreme Court to raise the subject matter issue on its own (i.e., it had not been argued by the parties to the case) in Metabolite. The Supreme Court is considering whether to take the appeal on the self-replicating Paxil case as well.

The kula ring

2008-09-22T17:39:00.000-07:00

Just off the cost of New Guinea, Melanesians evolved (over thousands, and perhaps even tens of thousands, of years) a unique commercial institution known as the "kula ring" for the collectibles that circulated within it.

The unforgeably scarce kula collectibles doubled as "high power" money and mnemonic for stories and gossip. Many of the goods traded, mostly agricultural products, were available in different seasons, and so could not be traded in kind. Kula collectibles solved this double-coincidence problem as an unforgeabaly costly, wearable (for security), and circulated (literally!) money. Necklaces circulated clockwise, and armshells counter-clockwise, in a very regular pattern. By solving the double-coincidence problem an armshell or necklace would prove more valuable than its cost after only a few trades, but could circulate for decades. Gossip and stories that about prior owners of the collectibles further provided information about upstream credit and liquidity. In other Neolithic cultures collectibles, usually shells, circulated in a less regular pattern but had similar purposes and attributes.

A letter from the industrial revolution

2008-09-07T16:49:00.000-07:00

Images: Copper halfpenny minted by the Darbies' Coalbrookdale Company and celebrating the Iron Bridge.

Here's an interesting letter from the dawn of the industrial revolution. It was written in 1775 by Abiah Darby, mother of Abraham Darby (III) and wife of Abraham Darby (II), the son of Abraham Darby (I), who invented the process of smelting iron with coke made from coal. The Darby family were Quakers and produced several early industrialists and engineers. This small letter makes or implies several points that may have been crucial to the growth of industry that makes modern wealth possible:

* The importance of property rights and market prices in maintaining a sustainable balance between the supply and demand of wood. ("woods for charcoal became very Scarce and landed Gentlemen rose the prices of cord wood exceeding high"). Although wood became expensive, there remained a sufficient supply of wood for the buildings, mine works, wagons, rails, etc.

* The ability of people living with sufficient technology and secure property rights to bypass and surpass ecological limitations (in this case substituting coal for wood, and later due to this cheap iron-making process, iron and steel for wood).

* Decentralized money issue. Abiah points out that the remote area of Coalbrookdale, where coal and iron were available, still often operated as a barter economy. Thus apparently Abraham had to either coin tokens or open a bank to issue notes (common during this era) so that the Darbies could pay their workers.

* Darby II's invention of the iron-tracked railroad (improving the productivity of the horses by over six times and precursor to the later steam-powered railroad).

* The ability to securely establish large machine works and lay 20 miles of track out in the boondocks and not have them be torn up by trespassers and used for other purposes or confiscated or taxed into oblivion by local lords. In most of the rest of the world that could not be taken for granted.

* The use of atmospheric pressure (Papin/Savery/Newcomen) steam engines to drain the mines and supply water to the waterwheel pond. (The atmospheric engine apparently wasn't up to the job of directly powering the bellows for the blast furnaces; that came later with the Watt steam pressure engine). Steam engines allowed water to be pumped out of mines at a far greater rate, and thus allowed coal and iron mines to be dug far deeper, creating a large and inexpensive new supply of coal and iron.

The link is a Word document, which I don't recommend opening for security reasons, but I've copied the contents below:

http://www.umassd.edu/ir/Resources/MetalandMining/m2.doc

Mrs. Abiah Darby on developments in the Darby ironworks at Coalbrookdale, 1708-1763

Esteemed Friend,

Thy very acceptable favour of the 9th ulto. claim'd my earliest acknowledgments, which I should immediately have made, had not thy kind condescension in taking notice of my late honour'd Husband, and requesting to be inform'd of any circumstance which may be interesting relating him, caused my delay-to recollect what might occur concerning his transactions or improvements in the Manufactory of Iron, so beneficial to this nation. But before I proceed further, I cannot help lamenting with thee in thy just observation, " that it has been universally observed, that the Destroyers of mankind are recorded and remembered, while the Benefactors are unnoticed and forgotten". This seems owing to the depravity of the mind, which centres in reaping the present advantages, and suffering obscurity to vail the original causes of such benefits; and even the very names of those to whom we are indebted for the important discoveries, to sink into oblivion. Whereas if they were handed down to posterity, gratitude would naturally arise in the commemoration of their ingenuity, and the great advantages injoyed from their indefatigable labours-I now make free to communicate what I have heard my Husband say, and what arises from my own knowledge; also what I am inform'd from a person now living, whose father came here as a workman at the first beginning of these Pit Coal Works.

Then to begin at the original. It was my Husband's Father, whose name he bore (Abraham Darby and who was the first that set on foot the Brass Works at or near Bristol) that attempted to mould and cast Iron pots, &c., in sand instead of Loam (as they were wont to do, which made it a tedious and more expensive process) in which he succeeded. This first attempt was tryed at an Air Furnace in Bristol. About the year 1709 he came into Shropshire to Coalbrookdale, and with other partners took a lease of the works, which only consisted of an old Blast Furnace and some Forges. He here cast Iron Goods in sand out of the Blast Furnace that blow'd with wood charcoal; for it was not yet thought of to blow with Pit Coal. Sometime after he suggested the thought, that it might be practable to smelt the Iron from the ore in the blast Furnace with Pit Coal: Upon this he first try'd with raw coal as it came out of the Mines, but it did not answer. He not discouraged, had the coal coak'd into Cynder, as is done for drying Malt, and it then succeeded to his satisfaction. But he found that only one sort of pit Coal would suit best for the purpose of making good Iron. -These were beneficial discoveries, for the moulding and casting in sand instead of Loam was of great service, both in respect to expence and expedition. And if we may compare little things with great-as the invention of printing was to writing, so was the moulding and casting in Sand to that of Loam. He then erected another Blast Furnace, and enlarged the Works. This discovery soon got abroad and became of great utility.

This Place and its environs was very barren, little money stiring amongst the Inhabitants. So that I have heard they were Obliged to exchange their small produce one to another instead of money, until he came and got the Works to bear, and made Money Circulate amongst the different parties who were employed by him. Yet notwithstanding the Service he was of to the Country, he had opposers and ill-wishers, and a remarkable circumstance of awful Memory occurs; of a person who endeavour'd to hinder the horses which carried the Iron Stone and Coal to the Furnaces, from coming through a road that he pretended had a right to Oppose: and one time when he saw the horses going alone, he in his Passion, wished he might Never Speak More if they should Ever come that way again. And instantly his Speech was stopped, and altho' he lived Several years after yet he Never Spoke More!

My Husband's Father died early in life; a religious good man, and an Eminent Minister amongst the people call'd Quakers.

My Husband Abraham Darby was but Six years old when his Father died-but he inherited his genius-enlarg'd upon his plan, and made many improvements. One of Consequence to the prosperity of these Works was as they [were] very short of water that in the Summer or dry Seasons they were obliged to blow very slow, and generally blow out the furnaces once a year, which was attended with great loss. But my Husband proposed the Erecting a Fire Engine to draw up the Water from the lower Works and convey it back into the upper po6ls, that by continual rotation of the Water the furnaces might be plentifully supplied; which answered Exceeding Well to these Works, and others have followed the Example.

But all this time the making of Barr Iron at Forges from Pit Coal pigs was not thought of. About 26 years ago my Husband conceived this happy thought-tbat it might be possible to make bar from pit coal pigs. Upon this he Sent some of our pigs to be tryed at the Forges, and that no prejudice might arise against them he did not discover from whence they came, or of what quality they were. And a good account being given of their working, he errected Blast Furnaces for Pig Iron for Forges. Edward Knight Esqr a capitol Iron Master urged my Husband to get a patent, that he might reap the benefit for years of this happy discovery: but he said he would not deprive the public of Such an Acquisition which he was Satisfyed it would be; and so it has proved, for it soon spread, and Many Furnaces both in this Neighbourhood and Several other places have been errected for this purpose.

Had not these discoveries been made the Iron trade of our own produce would have dwindled away, for woods for charcoal became very Scarce and landed Gentlemen rose the prices of cord wood exceeding high-indeed it would not have been to be got. But from pit coal being introduced in its stead the demand for wood charcoal is much lessen'd, and in a few years I apprehend will set the use of that article aside.

Many other improvements he was the author of. One of Service to these Works here they used to carry all their mine and coal upon horses' backs but he got roads made and laid with Sleepers and rails as they have them in the North of England for carring them to the Rivers, and brings them to the Furnaces in Waggons. And one waggon with three horses will bring as much as twenty horses used to bring on horses' backs. But this laying the roads with wood begot a Scarcity and rose the price of it. So that of late years the laying of the rails of cast Iron was substituted; which altho' expensive, answers well for Ware and Duration. We have in the different Works near twenty miles of this road which cost upwards of Eight hundred pounds a mile. That of Iron Wheels and axletrees for these waggons was I believe my Husband's Invention.

He kept himself confined to the Iron Trade and the Necessary Appendages annex'd thereto. He was just in Ms dealings-of universal benevolence and charity, living Strictly to the Rectitude of the Divine and Moral Law, held forth by his great Lord and Saviour, had an extraordinary command over his own spirit, which thro' the Assistance of Divine Grace enabled to bear up with fortitude above all opposition: for it may seem very strange, so valuable a man should have Antagonists, yet he had. Those called Gentlemen with an Envious Spirit could not bear to see him prosper; and others covetious; strove to make every advantage by raising their Rents of their collieries and lands in which he wanted to make roads; and endeavour'd to stop the works. But he surmounted all: and died in Peace beloved and Lamented by many.

The principle of least authority

2008-09-07T16:47:00.000-07:00

I've written an article on my application of the principle of least authority to the interpretation of legal language. I argue that the United States Constitution, according to its original meaning, instructs judges to construe federal statutes, regulations, executive orders, and other official acts, as well as the Constitution itself, to confer the least authority consistent with their language.

This article is based on a longer paper on the origins of the non-delegation doctrine I wrote for law school. That paper highlights a little-known debate on the non-delegation doctrine applied to the question of whether Congress could delegate the power to define postal roads. James Madison, among others, argued that this was an unconstitutional delegation of legislative power to the executive.

Antiques, time, gold, and bit gold

2008-08-28T16:32:00.000-07:00

What do antiques, time, and gold have in common? They are costly, due either to their original cost or the improbability of their history, and it is difficult to spoof this costliness. For example, it is usually difficult to spend an extra hour at the office without sacrificing about an hour of your personal life.

Unforgeable costliness is a pattern that recurs in many human institutions and is fundamental to civilization. Modern employment is based on the time-rate wage. Our monetary system is based on money being made unforgeably costly either through collectibles, commodity standards, or (in modern fiat currencies) accounting.

The unforgeable costliness pattern includes the following basic steps:

(1) find or create a class of objects that is highly improbable, takes much effort to make, or both, and such that the measure of their costliness can be verified by other parties.

(2) use the objects to enable a protocol or institution to cross trust boundaries

There are some problems involved with implementing unforgeable costliness on a computer. If such problems can be overcome, we can achieve bit gold. This would be the first online currency based on highly distributed trust and unforgeable costliness rather than trust in a single entity and traditional accounting controls. Hal Finney has implemented a variant of bit gold based on a tamper-evident computer plug-in card, for which remote users can verify what code is running on the card.