Monday, September 04, 2006

DESIRE = ENERGY = LABOR = VALUE

I want you to imagine the economy as a sphere. A sphere composed of elastic rings. Yes picture this economic model by imagining an elastic ring, and then adding an incessant number of these elastics, varying in size, rings, in this and that way, overlapping each other so as to make a sphere. I presume that it assimilates a baseball ball without the outer-layer of leather, but I don’t like baseball because I can’t pin point the violence in it, so I will abstain from using a baseball ball as a basis for this economic foundation. By now you must have, in your mind’s eye, a series of elastic rings that you have confined so as to make a not so perfectly round spherical contraption, with irregular peaks and valleys. This is the spherical essence of the economy as a whole, the peaks and valleys are created by the incomprehensible and tenuous interaction of elastic rings. Fundamentally the peaks and valleys are problematic but fairly irrelevant because they invariably iron themselves out, it is the elasticity and length of the rings which wreck havoc on the economy.

The elastic ring represents the only source of value that an economy can process, that is the value generated by energetic effort or labor, and it represents the completion of an actual transaction of that labor as transferred between two individual entities. So a complete ring is the farmer raising chickens trading with the farmer that raises corn. Notice how it is a perfectly clean transaction, there are no middlemen, no borrowing or lending, no futures based market projections, nor depreciation as might be caused by the chicken being eaten by a fox, or the corn perishing in drought. This is the fundamental basis of the economy, a clean transaction. All others things are expletives.

So the chicken farmer exchanges his labor, now in the form of a full grown chicken, with the corn farmer that has turned his labor into corn. The value of the transaction can not be reduced or increased, in other words, there is no way that one farmer can cheat the other in this exchange because both must agree in order for the transaction to take place. If one of them does not agree and is pressured into a settlement, then it is a black market transaction, a hidden transaction that has inherent instability because its value is forced and can only be realized by such. Because of their inherent instability black markets never mature into the larger economy. So our ring , in a normal chicken for corn transaction, is less elastic than we might suspect. It will soon become elastic, more by being open ended than because its transactional nature possesses any elasticity.

Notice however how the fundamental production mechanism is identical, regardless of what crop is grown or what farm animal is raised, both farmers must toil with their own brainy sweat and blood in order to produce either. The essential producer of value is the labor itself, nothing can be produced without it, value and human labor are 100 percent interchangeable. You can add mechanize efficiency to the process and still human labor, that is energy, is the crux that has to produce and maintain the machinery, human labor, energy, picks the crops or makes sure that the chicken is fed and does not run regardless of how the task is accomplished. Various processes add value and cost to the process, but if they get out of proportion they will collapse because it is human labor that creates value, thus opens a transaction, it is also a human recipient, based on want or need, that closes the transaction. There can be artificial elements in between but the beginning or end is always marked by human need and human desire; these determine the potential circumference, or ring manifestation, of all transactions.

The value is then deduce by the amount of effort that goes into the production, certainly it is more difficult to raise chickens than to raise corn. One can add all kinds of interesting values to the price here, certainly I prefer to eat chicken over corn, so the desirability of the product is a factor, but we are ignoring this sort of superfluous value structure and limiting to what traders might consider intuitively important, the nourishment value of the product, and that gives us the nice results we need to keep this economic model afloat. You don’t expect to trade one chicken for one head of corn, there is just more caloric value in one chicken and it cost more labor to raise one chicken than it does raise on head of corn. Further our chicken could in theory be of greater value if it has the potential of producing eggs. Our farmers are reasonable people by nature, they intuit these values more than they think them, and so they exchange accordingly. I am not a farmer so just for the sake of example and to continue proceed with analysis I will say that the farmers will agree to exchange the chicken for a two dozen head of corn. The transaction is closed, our ring is complete.

Say we have a million farmers or traders in other goods performing these transactions, and so we have a lot of rings. But it is relevant to note, that at some point, real or imagined, a transaction must be closed in order for the economy not to go awry, that is if the chicken farmer does not immediately get his two dozen head of corn, then that transaction is not complete, it creates an imbalance in that there is labor that has not be paid and that value of that labor floats in the market with an imaginable settlement, until it is actually settled. All transaction rings are closed either by perception or reality.

Of course economics 101 dictates that this economic model is too rigid, because the transaction must be beneficial to both parties, and they are limited to the goods produced by each farmer. It is then that one farmer realizes that he does not want the corn, he wants to sell his chicken for something else, maybe he wants to exchange all his chickens for a horse, but the horse trader does not want all the chickens. So he then neutralize the problem by giving an independent value to his own labor, and by process this gives an independent value to the labor of another, and that independent value can be temporarily stored, in what then becomes a monetary unit. The chicken farmer has solved his problem, he is able to sell his chickens to anyone, and he is able to use the stored labor value, to purchase whatever he damn pleases from whomever he damn pleases.

Keeping in mind that all we have done so far is merely exchanged goods, a greater thing has occurred, the economy has grown, it is now less rigid, storing labor in a sort of limbo or neutral environment where it can then be turned into any good of value to the self; or it can be reused as labor, creates an open ended transaction, this is why the economy grows, transactions that are not closed create potential economic rings that can be guessed at, who knows if we will buy a house or a car with it, or who knows if we will convert it back into productive labor. The ring closes nicely when the transaction is spent on a good, this immediately fixes the ring in a known position, but if the holder of the value decides to spend it on further production then the ring is not actually closed, it just fluctuates with varying potential, this is what generates uncertainty in the economy.

Now remember you can add as many rings, or extensions to a ring, as you want to add to this but no matter what you do, you are still dealing with human value that does not change the fundamental characteristic of the economy. If you add technology or laborers to automatically or manually feed your chickens, thus replacing your own farming hands that were normally used for the task, what you have done is merely externalized the process of labor from your own immediate influence into a same but merely wider unclosed ring, where other values are then added that will in themselves need to be closed transactions. When you pay your farm labor you close a transaction, but not the larger transaction which is where you still have all these chickens that need to go to market and close themselves out, all those chickens are the product of the labor that you hired, labor that you contracted, and the labor that automated your process. Labor hates to be stored, it hates to remain at rest, if it remains at rest in the form of a good or a monetary unit, it will require infusion, upkeep, or it will lose value with time. This is because the economy, as stimulated by smaller rings, like your hired labor, or your purchased technology, once closed goes forward to formulate new values, and these keep the economy expanding, while idle elements lose value. It is this very attribute that creates the elasticity in the spherical ring structure; closed transactions on top of closed transactions with the outer layer of the expanding sphere, composed of open ended transactions, which actually posses potential closure. Any investment projects a return.

Instability in the economy occurs when transactions are kept open ended for to long so their value becomes largely ephemeral, the devaluation of labor is not taken lightly by anyone, closure is sanity. Humans have a tendency to feel insecure when they imagine a depreciating value caused by increased variables, uncertainty; the more transactions that are far into the future to guess, make it difficult to gauge and manage value, at any given point most of the economy needs to be a genuinely closed transaction, that produces stability. As the economy becomes more buoyant, that is with far more complex potential ring expansions, that is long open ended transactions, it will require more faith in their potential projected value to prevent out right panic, that is fear induced closures that distort and literally reduce true potential value. Short term closures of what were long term transactions, lose value dramatically against the failing manifestation of expected potential, and this will cause, what is more commonly known as a recession, or if severe enough, it can lead to a depression.

If transactions, projected to yield greater value via the process of investment, close before that value is realize, you have a severe devaluation and that leads to unemployment. The sphere is a very tight elastic structure, the input of value by labor is an absolute reality, and so any depreciation of that value means that labor did not get paid is due, which means that it can not consume its due, and this gap, of what was potentially to be paid, directly or indirectly, but was not, creates a sort of slacking in our rubber ring, it is the slack on the ring, that yields unemployment.

Slack is a bad thing, flexibility is good, it allows for the expansion of the economy, but slack is insufficient closure of transactions at projected value, call it wasted labor due to bad investment. or short term rapid closure of long term engineered transactions, or more terribly caused by the hoarding of wealth. Store labor loses value, if an entity possesses billions of dollars in reserves, that idle currency will lose value. To an individual entity with billions that loss of value is not a terrible thing, but to the economy that originally contributed the labor so as to generate value, that is an open transaction that is not likely to return, in full, to complete transactions, hence the generated slack which induces a normalizing contraction.

Well I have opted for this model because I do not believe that anything can create value without human labor, and so I am an absolutist. The logic is simple, the cost of labor can be transferred by widening the circles, you can automate to increase production but that added production is being worked by the labor that automates the process, the cost of labor can not be avoided, any increase in productivity is an increase in and labor cost, they are intrinsically inseparable, labor/cost = productivity. You can not violate this process because labor enters the market to generate capital, a human being is turned into an economic process, labor, and that labor converts itself into energy stored in monetary value, a value which can be added or subtracted through human ingenuity. In large economy labor has acquired an immense ring process, that is that there are many laborers that count on the closure of one giant transaction, all of them perhaps unknown to each other, but completely dependent on one another. It can not be overemphasized, you do not get any increase in productivity if you do not increase your labor and your labor cost; you can however have a third party assume the additional labor cost so that it is transparent to your immediate process.

Successful economies are completely dependant on the agglomerated transfer of labor cost. It will always cost more to produce a good in a successful economy because that is why the economy is successful. Third world economies lack the complexity and intertwined dependence masticated by first rate economies. The call for free trade is merely a logical outward expansion of agglomerated transactions. The search for cheap labor in developing countries cancels itself out in the long run.

A ring based elastic sphere, is my model of the economy, all fueled by human labor and imagination. It is impossible to pin point a controlling interest in this model, people get out of it whatever they can and put into it as little as possible. It is what keeps it all operating mostly at maximum potential. In the end the only possible control of this model is to make sure that labor that is stored, in the form of a monetary unit, does not rest in that condition for long, dynamism is imperative. The level of taxation or regulation in my model does not matter, what matters is how quickly the influx of tax or duties, revenues, are cycled through the economy. Further stability can be stimulated by securing a higher condition of real transaction closure; ironically by simply maintaining dynamics, thus resisting agglomerations of capital, naturally maintains this balance. A by product of the human desire to cash in.