Social Cooperation and the Development of Social Structures
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On cooperation, trade, money, and the development of productive powers under capitalism. http://bit.ly/oeQM4N
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Social Cooperation and the Development of Social Structures
- 2. Topics Social cooperation Social structures (organizations & organisms) Development of social cooperation Trade, securities, money, capitalism The expansion of social cooperation, productive power, and wealth under capitalism
- 3. Social cooperation Societies are more than a bunch of individuals The interaction among individuals (cooperation) is the basis of all social life Individuals cooperate (one way or another) and social structures result from cooperation Cooperating means helping others, sharing a purpose and acting collectively to realize it Direct cooperation: noninstrumental helping Indirect cooperation (narrowly self-regarding, e.g. trade)
- 4. Social structures Organizations: Families/households (parent viewpoint) Proto-states (extended families, clans, tribes) & states (city-states, nation-states, multi-national states), political and civic organizations Firms, nonprofits Organisms: Families/households (children viewpoint) Markets (indirect or self-regarding cooperation) Mobs, spontaneous crowds
- 5. Trade Trade is a form of social cooperation Trade is self-regarding cooperation Upside: May unleash individual productivity & creativity Downside: May weaken social bonds, especially in the presence of gaping inequality Trade presupposes private ownership Private ownership Economics Law Ideology
- 6. An economy with markets & government Wealth (productive and Financial securities Gov’t & consensus consumptive) (bonds) making
- 7. Trade, markets & capitalism Trade is trade of financial securities (legal claims of ownership over goods) Money Markets link other social structures (state, firms, households) Use of private wealth for profit goes back to ancient times Capitalism: markets + inequality (wage labor)
- 8. Horizontal cooperation Simple cooperation Division of labor & specialization Mechanization & industrialization Automation & digital technology
- 9. Division of labor Labor is purposeful human activity To accomplish any purpose, labor has to be split: At each point in time or for each period of time By individual Yet, wealth is produced collectively and for wealth to be produced we need labor to unite The labor of society is split by task, function, age, sex/gender, occupation, industry, sector, nation However, for society to function, all those tasks, functions, etc. must be reconciled one way or the other
- 10. Division of labor Uniting the divided labor is cooperating Cooperation entails sharing (at least) a purpose Cooperation requires that workers share productive inputs (natural resources, means of production) Divisibility of labor, specialization, reducing input/output = increasing output/input
- 11. Mechanization Machines have (1) a motor or engine, (2) a transmission mechanism, and (3) a tool or set of tools attached to it that operates on the labor’s object Simple tools: the motor or engine is human or animal. Advanced tools: the motive force is water, wind, steam, internal combustion, electricity, etc. Mechanization builds on labor division and cooperation
- 12. Automation Automata have (1) a programmable control system and (2) a machine or set of machines controlled or regulated by it Advanced automata use modern information (digital) technology. Computers (programmable digital machines) are being used as universal control systems.
- 13. Vertical cooperation Methods of hierarchical cooperation: Force or threat thereof Deprivation of basic necessities (land, consumption goods) “Enlightened” self-interest Psychological manipulation Rational persuasion
- 14. Wrap up Societies are based on cooperation among individuals Social structures (organizations and organisms) result from cooperation Trade is a form of social cooperation, with pluses and minuses Trade requires other forms of social cooperation Productivity expanded as labor division led to mechanization and automation Vertical cooperation has been the rule in the last few thousand years of history Is it possible to have a completely flat society, with no hierarchies?
Editor's Notes
- In these slides, I explain that the basis of all social life is the cooperation among individual human beings. I will also explain how social structures emerge, both intentional social organizations and unintentional social organisms. I will discuss in some detail the character of trade, a specific form of social cooperation, and of markets, a specific set of social organisms. I will also refer to the foundations of finance. I will then characterize capitalism and refer to the social transformation that capitalism has ushered in human history. In particular, I will talk about how, under capitalism, the scale of social cooperation has expanded in human history, especially in the last four, five, or six centuries, leading consequently to an extraordinary increase in the productive power and wealth of people.
- Social cooperation – people helping people – is the basis for the existence of any society. People don’t produce in isolation. The specific attributes of humans, human self awareness or human consciousness, language, etc. would not exist if we had not developed those attributes in interaction with one another. The higher functions of our human minds, abstract thought, logical reasoning, in their complexity and richness would not be possible without language, without human communication. The word communication means sharing ideas. Without the ability to share them, human ideas would not be possible. We need one another. We depend on one another. One way or another. Even the most basic reproductive function of human beings, procreation, requires even nowadays, with modern technology and all, the participation of more than one human being. We reproduce sexually. As children, as babies and infants, we need the help of our parents or of adults. This goes on at least until our adolescence – which now may extend, in some cases, well into our 20s. Most people on earth live in families, households, neighborhoods, towns, cities, which are large aggregations of individuals co-habiting, sharing a limited space, and interacting on a regular basis.We produce in productive units, business firms, enterprises, companies. We work in groups and volunteer in nonprofit organizations. We form states – governments, political and legal institutions, which are a bunch of individuals performing certain functions and tasks in combination with one another. We even talk of a global or globalized village, as the cost of communications and transportation continues to shrink the world. We are tightly intertwined. Biologically, studies show that our feelings and emotions move in sympathy. We have a very hard time hurting others, especially when we feel there is not a clear and legitimate reason to do so. We are continuously searching for social validation, for the acceptance of others. Even when we say that we don’t care about what others may think of us, we certainly do. We care. We are injured when others say and do bad things to us and appreciate it when people are nice to us. We are very social and political animals – as the great Greek philosopher, Aristotle, once put it.In fact, we say that we build society when we cooperate, and we cooperate systematically or consistently, always or often. Our interactions generate the phenomena that we call social. These emerging phenomena that results from our interactions we can call social structures. The opposite of cooperation is, of course withdrawal and – in the worst case scenario – violent conflict. Conflict unravels the cooperation that societies need to function.What is a structure? Marvin Minsky, the head of the artificial intelligence at MIT wrote a book, the Society of Mind, that suggested this analogy to me about how a most basic physical structure emerges. Think of three blocks of wood or whatever material. If these blocks just lay next to each other, you have nothing but three blocks scattered randomly. Now place two of those blocks as playing the role of columns or pillars. Then place the third one on top. What we have now is a bridge. Where does the “bridgeness” of the bridge come from? The bridge is not the blocks. The bridge is the blocks plus the way in which the blocks are placed with respect to each other. The bridge is the blocks and the particular physical disposition of these blocks, two of them supporting a third. That’s what the bridge is. The bridge is a structure, a physical structure. The components of the structure are the blocks, but the bridge is not those blocks alone. The bridgeness of the bridge results from the physical position of the blocks in relation to one another.Similarly, social structures – the tissue that make up a given society -- are the emerging phenomena of individuals relating to one another in particular ways.The most general way in which people relate to one another is cooperation. Cooperation means helping others, sharing a purpose and taking collective action to realize that purpose.Now, it is easy to see forms of direct cooperation among individuals. When a mother feeds a baby, there’s cooperation. One individual is helping another individual. The baby needs to be fed and the mother wants to feed the baby. They combine and the result is baby feeding and at the end a fed baby. If there is a large and heavy piece of furniture blocking the hall, and we needed to clear it, we could combine efforts and remove it. If the piece of furniture – a piano – is to heavy and each one of us cannot move it individually, we can join forces and move it. We would, of course, need to share the purpose (which requires language, communication, and having the idea of a clear hallway in our minds to start with) and then implement that purpose in the world. And we’d have to do it collectively.That is cooperation.We must distinguish between two forms of cooperation: direct cooperation and indirect cooperation. Direct cooperation happens when people help people without keeping a very strict and close account of how much we give and how much we take. We may keep a good accounting, but we do not condition our helping others on others helping us in a certain proportions. Like, I give this much and I take this much. It’s more like helping for the sake of helping. Indeed, if I help, then I increase the chances of receiving help in turn. But we don’t do it with that in mind to the point where our helping others is determined by our expectation of being helped later or then in some proportion. That is direct cooperation.It is the most common or pervasive form of social cooperation in human history. Primitive societies were that, societies, because people help people. Women and children were gathering fruits, roots, and nuts. Men were out hunting mammoths. They went out in groups, to protect one another, from a hostile natural environment. The environment was so hostile, because the productive power of those people was so limited. The output of their hunting efforts were shared in accordance with need. The very notion of individual ownership didn’t exist. The poverty and vulnerability of those people made them cooperate tightly. If the group turned the back on you, you were dead. You needed the group. The group was your insurance policy. So you paid your premium because you knew that when you needed the support of the group you would have it.Families, clans, and tribes were based on this type of cooperation. Families, even nowadays, and many modern households that are not families, but that share income and spending, entirely or partly, cooperate directly. Furthermore, modern businesses are productive units were workers and managers cooperate directly. The manager doesn’t sell its management to the worker on the production floor. The workers in production don’t sell the products to those who store them in the warehouse. The cutting department in a shoe factory doesn’t sell its semi-finished shoes to the sewing department or the dying department. No, all of those departments belong to the owner or owners of the business, and all those workers cooperate with one another directly. Even in our society, there are many goods that are provided as public goods. We will talk about them later on. For example, firefighters don’t come and sell you protection against fires. We pay taxes and out of that, firefighting is funded, and when there’s a fire, the firefighters take action. Etc.All of these are forms of social cooperation.On the other hand, indirect cooperation happens when people demand reciprocity in a very precise quantity. I give this, but I take that. In that case, people are not helping others for the sake of helping them and building a community intentionally. No, they are helping others, because helping them is a means to their own individual ends. They are using others to attain their individual aims. Trade is an indirect form of cooperation and I’ll be saying much more about trade next.
- The social structures that emerge from our mutual interactions can be classified in two groups: organizations and organisms.Organizations are social structures that are (more or less) deliberately sought, intentionally arranged. We design them and then we keep them up. Organisms are social structures that emerge spontaneously, without being the result of a deliberate design. Of course, in reality, all social structures are a mixture of both – every conceivable social structure, even the most organized or consciously structured, will retain a certain degree of spontaneity, since humans cannot exercise full control over its physical or natural environment. The productive force of labor is always finite.But let us consider these two extreme types of social structures in turn. Let’s begin with organizations. For example, basketball teams that will play a basketball game. Organizing a basketball game requires the cooperation of at least two basketball teams. Or a basketball league with several teams, which requires an even more complex cooperation among many teams, and that requires setting up schedules for games, locations, etc. Again, I am not saying that everything that a basketball team or league does is precisely planned. No, certain things will be spontaneous, especially during a given game, but the set up and basic rules will have to be arranged deliberately. And if we don’t like the outcome, we can always adjust the design so that we accomplish the goal pursued to the best of our ability.Consider now organisms: social structures that evolve rather spontaneously, without people necessarily knowing where things are going to wind up. In this case, individuals pursue rather narrow goals, follow a few local rules, proceed, and the chips fall where they may. To yell as social structures, these organisms must acquire a certain order and stability -- although sometimes, like organizations, they may break down or fail. If these organisms didn’t attain a certain order and stability, if they were not robust, then we would not be able to observe them in history, except as anomalies. It is precisely because of this, that we then to wonder about social organisms. Their robustness makes them particularly fascinating to the point that people tend to attribute to them an almost magical rationality. In part, that is related to the fact that all pure physical structures and biological structures, those that we find in the rest of nature, are all spontaneous formations. So, when we see a social structure that emerges and grows and proves to be very robust, we attribute to it the rationality of nature, and we humans – in spite of our purposeful behavior and expanding productive powers – retain a certain humility, respect, if not fear for the powers of nature. So we tend to view these formations as endowed with almost magical characteristics.The most interesting example (the most relevant to us) or a pervasive and robust social organism is, of course, markets. Markets are groups of people who don’t necessarily choose one another. They are members of the same market, because they happen to be buying or selling a given commodity (a commodity is a good that is exchanged in markets). And, as a rule, they act in a self-regarding manner. That is, they do not particularly care for the effect of their actions on others. They mainly care about their own individual wellbeing. They buy or sell when and if that is in their individual interest. They refuse to buy or sell, if they feel they are harming themselves individually by doing so. So, they are driven by self interest, not by the need or desire to help others.Even though people in a market are not there to help others, they effectively help others. If you go to a supermarket and give $4 to the owner of the supermarket in exchange for milk, you are helping the owner of the supermarket with $4 and, in exchange, he is helping you by giving you what you need – a gallon of milk. So, it’s I scratch your back you scratch my back type of deal. It’s win win. It is cooperation, but it is cooperation not for the sake of cooperating, but for the sake of accomplishing an individual purpose or meeting an individual need.Again, families (from the viewpoint of children) have some of that quality. As children, we are born in a family setting not of our choosing. We grow up in them without really haven’t had much to do with the decisions that led to its formation as a family. Now, from the viewpoint of our parents, who more or less willingly and consciously enter their marriage or union, things are different. A similar case is that of a nation: We are born in a given nation and we grow and become citizens and have to pay taxes, etc., and it’s not something that we chose. We can, of course, emigrate later on -- move to other places. But it is clear that the formation of states (city states, national states, or multi-national states) required a large degree of intentionality. They resulted from a civiv and political process driven by the design and will of certain leaders and their political organizations.On the other side, social organisms like cities or markets, while they are largely spontaneous. The main characteristic of markets, especially the markets that economists call “free” or “unregulated” markets, is that the spontaneous element is dominant in them. Individuals use other individuals as instruments to their ends. People are only seeing to it that their individual interest is served, and the social outcome is not something that they deliberately plan or pursue.Mobs, spontaneous crowds that – often by sheer chance – wind up doing things collectively, are another type of social organism. Their behavior can be very difficult to predict or control. We recently witnessed the riots in London. That is the case of self-”organizing” groups of people that then go on in a destructive rampage. Or people in a stadium cheering their team. Or people without preparation reacting to a fire in a panic. Etc. I should say that markets, and this is something that economists seldom mention in their textbooks, can behave sometimes as mobs of this kind. We’ve seen it recently in the stock markets, after the markets reacted to the prospects of a prolonged economic crisis in the U.S. and the EU. All of a sudden, people in the financial markets reacted in panic, or rather overreacted. That can be very scary to people, because what one person does reinforces what others do in a sort of cascade. To summarize, again, all social structures are a mixture of both organization and organism, but I guess we can talk about them as if one of these elements – organization or spontaneous order – predominates.
- Trade is a form of social cooperation. For example, barter. I take a notebook. I give 4 pens in exchange. In principle, we could produce the same welfare by having the person with the pens and notebooks donate them to a public fund and then having the public fund give the pens to the person who needs them and the notebook to the other person. I produce chicken salad and you produce bread. We then exchange some of the salad for some of the bread. It is not very different from us having a potluck dinner. You bring chicken salad, I bring bread, and then we share. So it is cooperation. But trade is a form of cooperation in which each of us seeks to advance her/his individual interest. In the video clip about the basic processes in the life of a society, I mentioned that we needed then to abstract from conflicts of interest. Now we can see how trade can lead to conflicts of interest. If we help each other only when the proportion of mutual help – what each of us gives compared to what each of us takes – is consistent with the price in the market, in other words, when it is consistent with the rate of exchange between salad and bread as determined by the haggling and negotiating between buyers and sellers in the salad and bread markets, then if I take more bread in exchange for a pound of salad, or you take more salad in exchange for a loaf of bread than dictated by the prices in the market, you or I will be violating the rules of trade, and one of us may feel abused, taken advantage of.But before I dwell in the negative aspects of trade, let me say that trade – a form of human cooperation that, in its primitive form of barter, can be traced back perhaps 100 thousand years, which is about 1/10 of the time that human beings proper, so-called homo sapiens – has shown to be a very powerful form of cooperation, in that it has managed to harness and spark human productivity and creativity to an extraordinary extent. I will say more about this later on.Back to the nature of trade: Since we care mainly about our own individual interest and not about the social outcome, what happens to others, then we may decide that we want to actually try and take advantage of each other. In a sense, trade counter-poses or opposes us to each other, pit us against each other. What is good for you is what is bad for me, and vice versa. We get into a zero sum game. If you get more is because I get less, and vice versa. One of us may emerge as a winner and the other as a loser, as a sucker. Even though it is overall win-win, because otherwise we wouldn’t want to trade, the very fact that we mainly care about our individual interest, makes us adversaries. As we will see there are gains from cooperation or, in this case, gains from trade. Our individual welfare can increase. But how that additional welfare that results from cooperation or, specifically, trade is distributed between the individuals involved can be really tricky. In trade, we face each other as means to each other’s ends and – therefore, because each of us is a human being with different needs and interests -- as adversaries, one trying to take advantage of the other. We are cooperating, yet we’re in conflict with each other. Trade is, in this sense, a perverse form of social cooperation. It is perverse, because it undermines the basis of social cooperation. It makes people use, distrust, fear, and loathe people. And, in the long run, that doesn’t help us stick together as a society. Society becomes a place where people are pitted against one another, fight with one another. And that is the opposite of social cooperation. That is the recipe for the disintegration of a society. It is not an accident that societies where trade is the dominant form of cooperation, where markets are the dominant social structure, with little regulation by public agencies, experience high degrees of criminality, violence, legal litigation, law enforcement, private and public security, incarceration, etc. A large amount of the resources of society are spent in locks and safeboxes, in the court system, sustaining lawyers and jury duties (i.e. people who are not producing wealth but just consuming it), as well as law enforcement, and prisons. And, since people become hostile to people, there is also an entire industry that produces means of destruction – arms, military hardware, etc. On the other hand, societies where other forms of social cooperation predominate, or where markets are constrained legally, highly regulated, the indices of violence and criminality are significant lower. Moreover, even in a society like ours, during emergencies such as the terrorist attacks in 2001 or blackouts or earthquakes or hurricanes tend to show this cooperative side of people, and you may see that – depending on the context – the levels of criminality and violence decrease significantly. People feel that they share a purpose and come together. When they feel that there is no common purpose, that each person is on her/his own, then conflicts result. These problems compound when there’s social polarization, when private ownership is unequally divided, when a few have all and most have little.Let me examine the presuppositions of trade a little bit more. When I trade something, when I exchange something with another individual, there is a shared presupposition, namely that each of us owns privately the good that one is exchanging. You own the pens and I own the notebook. That is why we can willingly, voluntarily, share them. If we don’t acknowledge each other’s rights of ownership over our respective goods, then that means that you can take my good or I can take yours without giving anything in exchange. Stealing would be okay. Trade requires that we do not steal from each other, that we respect each other’s rights of ownership over these goods. Then we can exchange them. Now, let’s see. If your good is yours, that basically means that one way or another society assigns to you those rights (either by default or by actively doing so) and that society uses some of its resources to enforce those rights. Thus, if anybody wanted to steal the good from you, then society would feel that violation as an injury to all and would take action to protect your good and punish the violator. Rights of ownership have to be social structures deliberately or consciously organized. Property rights do not emerge spontaneously. Property rights have to be codified legally and ethically (and defended ideologically) for them to stick. Society has to do this purposefully. People have to come together as a society and codify these rights, and then enforce them, make them effective. So note that private ownership, which presupposes trade, is a social structure that has to be created on purpose. A state has to exist. A state is not a mob. A state is not a market. A state is not an spontaneous organism. A state is a social organization. Furthermore, for people to cooperate and form and sustain a state, the state and its functions have to enjoy a certain degree of legitimacy. People have to be believe that the state is necessary and that it is doing, largely, the right thing. If the trust of people in the state begins to erode, then enforcing rights and sustaining the political system becomes more and more costly. Society has to spend larger and larger amounts of resources to keep the legal and political order from falling apart. And since productivity is limited, then that dooms a state, that dooms a legal and political system. You cannot keep a legal and political system for long against the wishes of the majority of the people, especially when people stop being afraid. Look at what happened very recently in North Africa, and what is going on today still in that region, and in the Middle East. The ruling elites have to resort increasingly to force, and that means that they have to divert resources from productive uses to enforcing and upholding the state. If people are truly adamant against the legal and political system, that cannot last long. At some point, the legal and political system will collapse. The rulers may succeed in postponing the collapse by repression, by scaring people, bribing or killing the leaders of a social insurrection, disrupting their organization. But if the people at the grassroots are done with the legal and political system, then that is going to collapse one way or another. History has shown this repeatedly.In the remainder of the course, we will be focusing almost exclusively in how markets function. However, we should never lose sight that behind markets, there are always other social structures that are not spontaneous organisms that result from people cooperating casually, without concern for others. On the contrary, these organizations require that we be concerned with others, that we see people not as instruments to our ends, but as concrete individuals with concrete needs and powers, that we treat people as people, and not only as tools for our own ends.
- This slide shows how underlying our society, just like any society would require them, there are productive inputs and goods – that metabolism, that cycle of production and consumption that I showed you before, in the previous video clip. Now, in a society where the goods and the productive wealth of society is privately held, privately owned, then to each item in the left hand side box corresponds a deed or title of ownership, a legal claim that entitles its possessor to dispose or use the good or productive input in question. That legal claim is, technically, what we call a financial asset or a security or a bond. A bond means a relation, and I’m using the term bond in that very generally sense. That piece of paper, pdf file, or even verbal or tacit (implicit) recognition says that you and I are bonded together in a certain way, that we are relating to each other in a certain way. It says that I own this computer or this bike, that I can use it or give it away or exchange it for another good, if I so wish. And it says that you should respect that. So it bonds the rest of you to respect my rights. If you violate them, you are exposed to the punishment by society.Now, when I say that these legal claims, these bonds or securities or financial instruments are the legal recognition of my rights to dispose of the good in question as I wish, do I really mean that? Does it really mean that I can do with that good whatever I wish to do with it? Well, no. For example, if I own a car, can I do anything I wish with it even in our society, which is a society that grants and enforces private ownership? The answer is no, I cannot use my own private property, my car, as I please. There are constraints. For one, there are physical constraints. We are constrained by the laws of nature. Just because I own a car doesn’t mean I can defy the law of gravity and fly on it. I am exposed to damage by storms, floods, etc. which can reduce my property to a piece of junk. That is kind of obvious. But that is not the only constraint I face. My private ownership rights are limited by the economic conditions. If we live in a society with markets, then owning a car means that if I want to sell it, I can only receive whatever price I manage to fetch in the market. If cars are dime a dozen, then I will only get 1/12 of a dime for it. And there is so much I can buy with 1/12 of a dime!That is not all, since we also live in a society with a state, with a government or political and legal system, then I have to pay taxes on it, I need to get a license to operate it, and I have to abide by the laws of traffic, park it in designated places. Etc. I definitely cannot use the car as a weapon and run it over a person I don’t like. That would be a violation of the law and I’d be exposed to harsh punishment. Moreover, political conditions also constrain or limit my use of the car. If there is a demonstration, if there is political instability, if there are riots, then I have to be more careful to avoid having my car damaged. Etc.Furthermore, my ownership rights are also limited (even if that is not legally stipulated, but these are limitations nonetheless) by ethic (or moral) and aesthetic constraints. These constraints are not as hard or harsh as the physical, economic, legal and political constraints, but they impose certain limits to what I can do with the car. It’s not nice to go so fast and make a lot of noise and bother your neighbors, etc. And you can keep your car very dirty at a certain expense: people will start to look at you as a bum, without much concern for others, etc.Within all those constraints, those legal claims (bonds, securities, policies, etc.) are what we trade when we trade. When we trade commodities, we are transferring those claims from one person to another. All markets are financial markets in the sense that what we exchange in all markets is these financial securities. Sometimes, these financial securities are held in sets, collections, or – as they are commonly called – “portfolios.” Business firms, corporations, for example, are portfolios of financial securities. They are a collections of buildings, plants, facilities, vehicles, inventories stored in warehouses, etc. Then the legal ownership over corporations (so-called corporate equity or stock) is shared by a number of owners. In that sense, this stock is a derivative security or derivative financial asset, because what underlies the stock is a bunch of other financial securities – the property of buildings, plants, facilities, vehicles, inventories, etc.I will discuss these issues in more detail in money and banking.Finally, I will stress the important point that, since these financial securities are legal claims or legal contracts, they would not be much if they were not enforced. So, the authority of the state is behind the markets, behind each of these contracts. I will add that the resources that society has use to legislate, administer, adjudicate, and enforce these legal contracts and policies are resources that must be diverted from potential productive uses. So, a society that is functional, where these instruments and the social conditions that underlie them are viewed as legitimate and acceptable generally is the ideal case, because that means that people believe in the system – so to speak. So there are very few violations of the terms of these contracts, rules, laws, and policies, and therefore society doesn’t have to spend as many resources conducting all these legislative, administrative, and judicial business. In fact, to repeat what I said with respect to the previous slide, history shows that when the legitimacy and morality of a social order is questioned, then no matter how many resources may be thrown at stopping people from raising up, the system is doomed. This shows the importance of consensus around the existing social and economic institutions. Education at all levels, particularly universities play a big role in this, as the mass media and other organizations that try to shape up the public opinion – think tanks, etc. Again, the last resort (or, as the Romans in ancient times called it, the “ultima ratio,” the last reason) is force, and a state has the monopoly of organized violence. That’s what the police and the military are ultimately for.
- Since trade presupposes ownership and ownership has a legal aspect: ownership is a contract between the owner of a piece of wealth and the rest of society – and those contracts (whether they are explicit pieces of paper or pdf files with stamps and signatures or verbal agreements or implicit or tacit) are what we call “financial securities” or “financial claims” or just “securities” or “bonds” or “financial instruments”, then – effectively – what people trade when they trade anything is financial securities!In separate courses in our curriculum, macroeconomics and money and banking, we discuss in some detail the origin and functions of money. Let me at this point just say that a particular financial asset that has emerged historically is money. Money is usually defined as anything that people more or less generally or universally accept as a (1) means of purchase and (2) as a means of payment (settlement of debt obligations). Historically, in its origins, when people traded commodities, they bartered them. In other words, they exchanged a certain amount of a good for a certain amount of another good. This could be a hindrance, because it required what economists call the “double coincidence of wants” – you have to want what I have and I have to want what you have in order for us to make a deal and exchange our goods. But what if I don’t want what you have or you don’t want what I have? Then there’s no deal. DOUBLE COINCIDENCE OF WANTS FORMULAMoney emerged as a way around this problem. Markets would not exist a day without a host of social organizations that sustain them. In fact, markets link a myriad of organizations, rather than mere individuals. In our society for example, markets link households and families and business firms of all kinds and state institutions (governments, public agencies), nonprofits like many colleges, hospitals, etc. Some people characterize our society as a society of markets. Our economy as a market economy. In a sense it is, because markets a very important economic role in our society. But markets are not everything. Markets are embedded in a society in which there is a lot of direct cooperation and social organizations that are based on direct cooperation, on helping each other without keeping close track on the rate of giving and taking. Markets connect all those social organizations. And so, when we refer to the success or failure of our society, not everything – good or bad -- is due to markets.
- It is important to distinguish between horizontal and vertical cooperation. Horizontal cooperation is cooperation among – roughly speaking – peers or equals. In other words, horizontal cooperation is cooperation among people on a relatively equal footing. Vertical cooperation is cooperation between non-equals.
- In any society, labor exists divided, temporally and spatially, at the very least. On top of that, the producers are individual producers. Thus, the totality of the labor power of a society resides in individual producers, each of her/his own self. On the other hand, since the survival and development of society results from individuals cooperating, then this divided labor needs to reunite. Labor must necessarily exist as divided labor but also as united labor.The inevitable division of labor -- temporal, spatial, and across individuals -- does not necessarily entail that one individual or small group of particular individuals will concentrate certain tasks, e.g. the task of coordinating and directing the other producers to ensure that the whole process flows, that labor is reunited. In theory at least, it is perfectly possible that these higher tasks of coordinating and directing the other producers be shared or rotated among the various individual producers. Adam Smith argued in the Wealth of Nations that the inborn characteristics of babies tend to be rather similar, and that it is the “division of labor” (social conditions) that leads to large disparities in the abilities of individuals down the road of their lives. Thus, Smith (the founder of our discipline) made it clear that most social inequality is not the result of differences in our genetic endowment, but instead differences fostered by social conditions, conditions of our own making.Now, to repeat, I say that horizontal cooperation requires a relative equality among the individuals. I mean equality, not only in legal or moral terms (as in “we are all equal under God” or “we are all equal under the law”). No, I mean equality also and more importantly as equality in the disposition over wealth, access to wealth, etc. And I mean, all wealth (physical, human, etc.). And, therefore, equality in the access to political power, etc. Justice Scalia in his response to the McCain-Feingold act that intended to curb the influence of “big money” (financial wealth) on the political process: “Money, like water, will always find its way down.” Scalia may have been wrong in using this argument against the legal attempts to make it harder for wealthy individuals to influence the political process. But Scalia is entirely right in noting that financial wealth, by its very nature, tends to translate into political power, which is the force that shapes and reshapes the law of the land. The founding fathers of this country were aware of this. Thomas Jefferson argued that only a society with a strong and “vibrant” middle class could sustain a democratic political system, thus suggesting that the role of the government was to tax the rich and assist the poor more than proportionally in order to prop up the middle class. Polarized societies, and studies show this unmistakably, tend to be highly dysfunctional, mired with corruption and social unrest, subject to periodic revolutions, civil wars, etc.
- The development of cooperation among the direct producers led to modern industrial and increasingly automated processes in the economy.Simple cooperation: Every producer does the same or a similar task, but all the producers share certain natural resources and means of production (e.g. space, a building, a big machine, etc.).Division of labor and specialization: The production of a good is decomposed into several stages or steps, and different steps are assigned to different producers, which allows for these producers to specialize in (and become very good at) those specific tasks. Historically, this development led to a tremendous increase in productivity. The downside is that people loose the skills and awareness of the whole process, which stunts human development.
- Mechanization and industrialization: A motor or engine attached to an instrument by means of a transmission mechanism (this whole contraption is called a machine) allowed for producers to carry out more and heavier tasks in the same period of time. The massive introduction of machinery led to the industrialization of production processes. The energy sources of power for the engines or motors (wind, water, coal/steam, electricity, oil, gas, atomic) and the machines over all evolved tremendously in the last few centuries.
- Automation and digital technology: While mechanization delegated mechanical or “manual” tasks until then performed by humans (horses or oxes) to machines, automation and modern information technologies have allowed for the delegation of “mental” or “intellectual” tasks to computer devices, such as calculations, data analysis, etc. Thus computers or like devices controlled by humans now direct an increasingly large amount of production processes. Digital technology, i.e. the realization that ideas (i.e. technology, knowledge, information, data, be it under textual, audio, or image form) can be translated into zeros and ones, which enable digital computers to store, manipulate, and retrieve at decreasing costs.It must be clear that the evolution of (horizontal) cooperation along these various forms/stages has been the source of the spectacular economic growth that human societies (not all, but a number of them) have experienced in the last few centuries. Each of these stages built on the previous one.
- How is vertical cooperation possible? How has it been possible in human history?Here is a list of methods by which those on top of the social pyramid have managed to “persuade” those at the bottom to keep pedaling.