Adam Smith was wrong

Adam Smith is considered the father of modern [exchange] economic theory and his ideas about economics have influenced economists for hundreds of years. One of the basic tenets he is often credited with espousing is paraphrased in the Wikipedia article:

…when an individual pursues his self-interest, he indirectly promotes the good of society. Self-interested competition in the free market, he argued, would tend to benefit society as a whole by keeping prices low, while still building in an incentive for a wide variety of goods and services.

Some philosophers have taken this idea to the extreme, such as Ayn Rand in her book The Virtue of Selfishness. While it is clear that Smith was aware of far greater complexities in the exchange economic system than are captured in this abbreviated idea, they are less-often mentioned, or perhaps outright whitewashed, by an exchange economic establishment that would like to promulgate the simplistic notion that the market works best when it is unregulated and governed only by self-interest.

John Nash – Governing Dynamics

In his work on governing dynamics, for which he later received the Nobel Prize, John Nash addressed how an isolated strategy of self-interest does not necessarily lead to the best possible outcome. A fictional example of this principle was portrayed in the 2001 movie, A Beautiful Mind, as seen in the accompanying clip. In that simple account, John says of Adam Smith’s self-interest principle,

[Adam Smith’s theory is] incomplete… because the best result will come from everyone in the group doing what’s best for himself and the group.

This is significant in that it is exactly how civilitics differs from economics. Exchange economics gives each participant in the marketplace an opportunity to negotiate independently and maximize their own self-interest. As a result, self-interest, frequently manifested as greed, is the dominant principle. In contrast, civilitics shifts compensation into the public domain, creating a mutual dependence on both what is best for the individual and what is best for the group, just as Nash proposed.

This characteristic of self- and group-interest is intrinsic to civilitic systems because of the explicit lack of reciprocity in civilitic relationships. As a result, the reward system is negotiated upon the values of society instead of by self-interested greed, leaving little or no need for enforcement, regulation, or mandates to control civil behavior.

Civilitics and the music industry

This post is part of a larger discussion that involves intellectual property of every form, ranging from artwork to patents. But here, specifically, we will confine the discussion to music.

In one of her TEDx talks, Jodi Beggs discussed several ways in which musicians survive economically. She did not spend much time on the conventional recording industry, but discussed alternative funding sources such as “pay what you want” and crowdfunding. She also spoke about freely-available music downloads and the presumed threat of digital music downloading and sharing.

Of course the conventional funding method for artists is to sign with a recording company which then handles overhead costs of producing, marketing, and distributing the artist’s music. This relationship gives artists the chance to focus on their music instead of handling the day-to-day job of running a business. Typically, artists must trade some of their profits and much of their independence for the business services they receive from recording companies. In some cases, artists are bound by exclusivity clauses that prevent them from performing outside those contractual relationships.

Some musicians have explored “pay what you want” funding methods as a way to create a less adversarial and  more friendly relationship with their customers. Other artists have turned to crowdfunding, such as kickstarter, to support their profession. This last group is beginning to look more civilitic, although most crowd funding campaigns remain based on some kind of exchange system to reward support. Even so, the bulk of the gifting is to the artist, presumably as a reward for the good works they have already created, even though it is unlikely those works were themselves freely given.

In addressing the question of digital music downloading and sharing, Jodi said,

…the weakened copyright protection, because of digital downloading, has not helped the producers of music, but it has actually helped society overall because it has resulted in a transfer of surplus economic value from producers to consumers and we have new consumers entering the market that either wouldn’t or couldn’t pay the old prices for music. Not something the industry likes to hear, but something that’s based on very valid scientific principles.

So, contrary to the tenets of Adam Smith, Jodi seems to be encouraging an economic philosophy that elevates “helping society overall” above the economic benefit to the music producers themselves.

In order to make the transition to a more civilitic recording industry, we would need to combine the last two points of Jodi’s discussion: crowdfunding and digital downloading. This is what it would look like:

  • Musicians would do the work of performing and recording, presumably because it is what they love to do, and because it contributes value to the world. As part of that effort, the music would be made freely available for download and/or distribution to the masses. After all, music that is not heard does not enrich the world.
  • The reciprocal side of the equation is that people who hear and love the music contribute in kind, whether back to the musician or in some other positive way. They might choose to make a donation of some kind back to the musician, or they might just “pay it forward” to someone else in faith that it will eventually reach back to the musician. In any event, the musician receives value back from the world in appreciation for their own form of contribution.
  • Overall, the musician provides music without any explicit promise of reward. Conversely, the world supports the musician without any explicit promise of additional music. This arrangement is fully ivi on both sides: things freely given without expectation of direct reciprocity. Of course it follows that better musicians will likely receive higher levels of appreciation. At the same time, it follows that greater appreciation is more likely to free up musicians to perform more works.

In My Garden by Peggy Lang

In My Garden by Peggy Lang

A good friend of mine is a singer/songwriter. Because of her, I have always considered how civilitics would apply to musicians. As with any profession, musicians have overhead tasks that must be done in order to pursue their ultimate goal of performing: there is time spent practicing, tuning, writing, coordinating, planning, and so on. In the economic world, most of those overhead activities do not generate revenue, so they must be covered by money earned from other activities such as performances and selling recordings. However, in a civilitic system, every activity that contributes to value in the world (as overhead activities do), holds the possibility for earning appreciation (ivi) from the community at large.

My friend, Peggy Lang, once had the opportunity to sign with a major recording company but she remained independent and never achieved the comparative musical success that some of her counterparts managed. I think she would tell you she managed to keep her soul in the bargain. It has made the pursuit of her music more challenging and it has forced her to support herself in other ways. Not surprisingly, exchange economics does not support those who challenge the established system.

After speaking with Peggy, she is making her album, In My Garden, available for free download as a civilitic gesture. Producing a run of CDs, marketing, and distributing them, is a large expense for a sole musician, so Peggy is making the download of this album available and is adding value to the world in doing so. She is not requesting any payment in exchange, though I am sure she would certainly put any donations to a good use. Mostly, in making this gift to the world, there is a hope that this will generate another civilitic gift forward. So if you download and enjoy the music, the most appropriate response is to contribute something of your own toward making the world a better place.

Definition of ivi

Introducing a new word: ivi, which rhymes with divvy. It will be taken to mean those things which are done in a civilitic sense. This word is appropriate for a number of reasons, not least of which is that it is contained within the word civil – even though technically not the root of that word. It is also contained within the words giving and living, which are also relevant to the discussion. Besides all that, it is short and easy.

ivi

A new word

Ivi is about doing what is right or good or beneficial without consideration for the immediate personal return. Ivi is working for the common good. When a billionaire makes a public donation of a million dollars to a university, that might not be an ivi action. But when a homeless and hungry person shares their last loaf of bread, that’s an ivi action.

When people stop working to make a living and begin working to make a difference… that’s an ivi civilization.

[Update: 2015-08-21] In review of this post, it will be noted that the original definition of ivi, offered above, has already morphed into something slightly different. At this time, ivi is most often used to describe the merit achieved in contributing to the public good. So it is less often used as a verb (to do a public benefit action) and more as a noun (the merit or esteem earned for having taken action in the public benefit).

Economics as a dismal science

Thomas Carlyle referred to economics as a dismal science in his work, Occasional Discourse on the Negro Question, published in 1849 because he believed the new science of economics, with its market forces of supply and demand, would undermine the social advances that had been achieved through slavery. Consequently, he argued, any cultural shift from slavery to exchange economics was doomed to a dismal future.

Slavery

Slavery

Of course, time has shown that exchange economics ultimately brought about great industry and advances in science and technology. So we might conclude that Carlyle was mistaken and economists can wear the dismal badge with pride in the sense that it successfully replaced the ethically-corrupt institution of slavery while being at least as productive. In her TEDx presentation, Jodi Beggs remarked, “If that’s what we are going to consider dismal… Hey, sign me up!”

If we look at the production of value as we progressed from slavery to exchange economics, it might look something like the first two diagrams at the right. The first diagram characterizes slavery in the sense that an entity (large orange figure) exercises relatively complete power over one or more individuals in an unequal relationship. In this arrangement, the master exerts power over the slaves and wields coercive power over them, which is used to transfer value from the slaves to the master (yellow arrow). The slaves, who are powerless in the relationship are also the ones who provide most of the productive value in the relationship.

Exchange economics

Exchange economics

In an exchange economy, the power appears to be more equally shared between participants. While the power sharing may not be totally equal, we could characterize an economic relationship as one in which both parties wield some degree of power over the production and transfer of value. In a market, for example, the seller has control over the price of goods and the buyer has control over whether or not to buy those goods. Of course, this is the system most prevalent in the modern world, and the one that Carlyle predicted would be a dismal failure.

Unfortunately, the situation under exchange economics is often much closer to slavery than we are led to believe. Employers sometimes wield unequal power over their employees because the employees are dependent upon their jobs for survival. This form of economic slavery can be seen in sweat-shops in the developing third-world as well as in certain jobs within industrialized western nations. Indeed, it is remains a fairly dismal outcome of the economic model.

Normally the economic discussion stops there and does not consider anything else. After all, what could be more progressed than exchange economics? Slightly dismal though it may be, it is certainly better than the alternative: slavery.

Civilitics

Civilitics

At this point, I direct your attention to the third graphic. In this case, the graphic is much the same as the first (slavery) except that the arrow now points in the other direction. From that point alone, we might want to conclude one of two things: Either (A) it is very similar to slavery and just as bad since the power is unequally held, or (B) it might actually lie at the other end of the spectrum, being as much better than economics as economics is to slavery.

My intention is to show how civilitics, represented by the third diagram, is ethically more sound than exchange economics. In fact, I would like to recast exchange economics as the dismal science it has turned out to be.

Whereas civilitics depends on a similar disparity of power as slavery, it does so by inverting the power structure, making the power holder the one who transfers value to those without power in the relationship. The immediate question one might ask is, “What would prompt someone with power to voluntarily give away value to those who have no power?”

The answer to that question is inherent in the nature of a civilitic system. In simplest form, it is the giving away of value that entitles one to receive additional value from others as part of a slightly altered social contract. This is not so different from exchange economics in which one must make money in order to have the money to spend. Said differently, one must initially provide goods or services in order to eventually buy goods and services.

The significant difference is that civilitics is not based upon reciprocity (exchange) between individuals, but rather upon one’s participation to the public benefit as a whole. Because value is strictly given (as a gift), and the benefit to the self is decoupled from the giving relationship, the tone of every transaction is shifted from “What’s in it for me?” to “How can I help?” This is a subtle but very important difference.

Ultimately, economics has given us many great wonders. But it has also nearly about broken our planet. Without economics, the infrastructure that will build civilitics could never be built. So it’s a mixed blessing. Maybe dismal or maybe not. Either way, it is time to move forward, just as we once moved forward away from slavery.

TEDxPublicStreet: Jodi Beggs

I happen to be a big fan of TEDx. For one thing, it is a sort of quasi-civilitic network, allowing people to give freely of their experience while generating a social reputation in the process. But even moreso, many of the presentations have some really excellent content. Collectively, TEDx is a beautiful gift to the world.

Jodi Beggs at TEDxPublicStreet

One particular TEDx presentation was made by Jodi Beggs at TEDxPublicStreet on January 20, 2013. To her credit, I think Jodi might be about as close to connecting the  civilitics dots as any mainstream economist is likely to be, while still remaining an economist. In her biography, Jodi identifies herself as a hybrid between Steve Levitt, Demetri Martin and Jon Stewart. It is clear that her thinking is motivated as much by ethics as exchange economic dogma. This particular presentation was given at an event with the theme “how people in different fields are using what they know in order to make the world a better place” (her own words). Her presentation is so relevant to civilitics that I could devote several posts to discuss all the material:

  • First of all, Jodi points out that economics was once known as the dismal science. The term derives from concerns by nineteenth-century economists that ending slavery would hamper economic progress and plunge the world into a depression. This discussion provides an excellent entry point to discuss the relationship between slavery, economics, and civilitics. This is nothing new, but civilitics brings the discussion of exchange economics, started by Thomas Carlyle in the mid-nineteenth century, to its full circle conclusion, showing how civilitics is to exchange economics what exchange economics was to slavery. In some respects, exchange economics is really just the new slavery. See my detailed discussion at Economics as a dismal science.
  • Secondly, Jodi speaks extensively about the music industry, which is apparently her specialty. Here again, she goes so far as to almost touch on civilitic systems of production while not quite seeing the possibility. I have a very good friend who is a singer/songwriter, which has caused me to give considerable thought to how civilitics would work for musicians. While discussing the economics of crowd-sourcing, “pay what you want”, and music sharing, Jodi comes very close to bridging the gap to the civilitic paradigm. See my detailed discussion at Civilitics and the music industry.
  • Finally, in passing, Jodi singled out “one pretty famous” economist: Adam Smith. She summarized one of Smith’s basic tenets, saying his “idea of supply and demand of the self-interested producer making things – not because he wants to directly benefit society but because he wants to benefit himself – that actually can be very much in line with doing what’s best for society overall.” Unfortunately, Adam Smith was wrong and Jodi should have emphasize the words “can be” in that quotation.

Over recent years, we have seen many negative consequences of exchange economics. I am encouraged by economists like Jodi who are honestly looking for ways to vision a positive role for economics in the modern world. The effort is honorable and I can imagine how frustrating it must be to really believe in the economic mythology while seeing confronting how it undermines good in the world. I have every expectation that Jodi will be among the first to awaken from the dream (dare I say nightmare?) of the exchange economic machine and realize there is a real alternative within our reach.

Creating an alternative to explicit and implicit economic dependence