Costs and Priorities are Universal Principles of Social Resource Management
Costs and priorities are universal principles of social resource management. Life performs self organizing processes that establish identity by realizing structures of knowledge and resource flows, in a way which exhibits mathematical ideas, whether or not life is purely a mathematical construction. Meanwhile, “Supply and Demand” reduces the dynamics of society to the interaction of utility, ownership, trade, and prices.
Note: Because this is the most important post in this publication, and serves as its introduction, I update it regularly to better present the ideas of “Costs and Priorities”.
Also, my evaluation of the resource principles of life tries to work with a reasonably open ontology, and seeks to maintain a minimal cast of epistemically related core concepts that can be connected both clearly and robustly, ie it makes sense in many different contexts, exhibiting the same ideas and principles across these contexts.
Last Edited: November 2017.
Last time I discussed “Supply and Demand”. I stated that ownership is the most important assumption made by the ideas of “Supply” and “Demand”. We don’t often consider it, but there are many possible ways we could design and practice ownership as a society.
Ownership is a collection of social practices which determine how we interact with each other to manage and use resources. Ownership reflects expectations in our social, legal, and political relationships. We often fail to consider the role that ownership plays in social problems. Political efforts to improve society often target the effects of a problem, instead of recognizing and addressing the cause. Recurring social problems ALWAYS involve inappropriate or ineffective practices that have been established in social relationships. Ownership is an example of an established social practice that can, at times, create social problems. The more important a resource is for a community or society, the more carefully ownership must be designed. This is not something you can write into a legal document and forget about. We need to be continuously aware of how ownership evolves and affects our social practices if we want to maintain a healthy society.
The framework of “Costs and Priorities” is a generalization of, and an improvement to, the conventional economic model of “Supply and Demand”. Costs and priorities is a better framework because it doesn’t simply assume that ownership exists. Costs and priorities are the key ideas you need to consider if you want to evaluate how ownership, and other social resource practices, evolve over time.
Costs and priorities are not arbitrary alternatives to the concepts of supply and demand. “Supply and demand” serves as the foundation of conventional economics, so it is important to show how “costs and priorities” both improves on, and generalizes, this conventional model. Specifically, we generalize the concept of supply, from “goods offered for a price”, assessed from the perspective of sellers, to “resources availaible for a cost”, assessed from the perspective of resource users. We also consider all resource costs of actions, not only fiat prices of exchange. Furthermore, we replace the concept of demand, which is “products requested for a price”, with the more general idea of resource programs: “Patterns of resource use established to realize objectives while being constrained by costs”.
“Supply and demand” is limited to specific social contexts. It only applies when peers engage in profit based, price denominated, exchanges of products and resources. Furthermore, they must follow certain behavioral practices in how they assess and resolve prices, which fulfill the assumptions of the supply and demand model.
Commonly, social contexts of exchange, or markets, are simultaneously collaborative and adverserial, in other words, competitive. Contrary to common perception, there is not a single possibility for what competitive markets look like. Instead, participants in competitive environments follow two general social practices: Competitors pursue self-serving objectives, but conform to rules. Participants behave adversarially based on conflicting interests with mutual tradeoffs: one person’s gain is another’s loss. But the potential harm of selfish actions is limited by defined boundaries of acceptable behavior. Additionally, group identities may be established for unified action in pursuit of shared objectives. In this way, competitive environments feature both adversarial and collaborative behavior, and often involve collective social entities that function as coherent units. As the world of athletic sports demonstrates, simple variations in rules can make each competitive game unique and require a different set of skills. Yet these games all do two basic things: they limit permissible adversarial actions, and organize spontaneous social cooperation in teams. By designing effective games, we see the amazing potential of human collaborative performance and create social resiliency to changing resource conditions and evolving meta-social practices such as politics.
In this way, contemporary marketplaces are socially beneficial, precisely because they are games. As with any game, the rules are not universal, but they do evolve toward the best adaptive expression of the arbitrary preferences of traditions. The rules are iteratively designed by responding to real world problems that arise during the performance of the oddities of cultural tradition. Why do we want to put the soccer ball in the net? Why do we want to accumulate money tokens or other assets? There is no de facto reason why these objectives are valuable in and of themselves. It’s just tradition.
In such games, scorekeeping, or accounting, is a central part. We use scorekeeping to assess performance, and make social judgements. Prices specify numerical quantities tallied by the scorekeeping practices that mediate our market interactions and relationships. With any resource action, we must consider the costs involved. Prices are a specific type of cost. Prices are social costs. Whenever social conditions are attached to the acquisition or use of a resource, those conditions qualify as a price. A price level is a specific numerical resource quantity, of either physical or virtual resources, stipulated as a condition to claim, receive, or use a resource.
Games are an example of evolving choice paradigms. Costs and priorities are key ideas to understand the evolution of such choice paradigms. Choice paradigms determine the actions of individuals and society’s use of resources through practice that emulates an ideal.
Costs
Costs are resources expended in performing an action, or other negative side-effects of an action. Whenever we acquire resources, we are expending other resources. Supply is a mathematical summary describing a quantity of a resource that is said to be available at a given price level. Prices offer the illusion of mathematical equivalence based on the price setting process. But what does this process of setting prices really look like? Price setting is a social accounting process, indeed, it is the key accounting process on which the rest of economics rests. (Prices allow us to use numerical abstractions that project diverse aspects of material society onto single dimensional quantitative scales.)
Supply and Demand only applies under a fixed political and legal framework of ownership. In such a context, controlling a resource sought by others makes you rich. In the real world, inappropriate control of an essential resource can make you a target of retribution, punishment, or political fallout.
Supply and Demand is promoted for its supposed ability to describe the way markets resolve prices. In reality, there are many political channels and social processes that determine the resolution of prices. These channels don’t break pricing, they lead to pricing that better represents the interests of all parties affected.
Economists generally dismiss scenarios like war as outside their scope of study. Violent conflicts rarely conform to the simplifying assumptions of economic models. But these conflicts arise from core aspects of human relationships. If our conceptual framework can’t tell us anything about why this happens, it may fail to be useful under other scenarios as well.
Prices have many factors and effects, but they always involve two fundamental and complementary perspectives. In the context of conventional exchange, we call these perspectives “buying” and “selling”.
Two Common Complementary Perspectives in Goal Oriented Social Interaction
Social efforts involve participants with different perspectives. Different perspectives can develop into well-defined roles. We sometimes use different verbs, describing actions in social efforts, based on the perspectives of the participants. Some examples are “Lead” or “Follow”, “Propose” or “Accept”, “Suggest” or “Promote”, as well as “Participate” or “Contribute”.
The perspective difference of buyers and sellers is usually demonstrated by one entity initiating the exchange, and the other fulfilling it. The initiator initiates an exchange as intermediate step in achieving a complex objective, while the responder responds to their request in order to fulfill a social constraint. One party is the Client, the other is the Server. The client initiates, while the server fulfills.
In many scenarios, such as is the case with mutual exchange of goods, the roles of client and server could easily be reversed. If Alice has Apples, and Bob has Bananas, and each wants what the other has, either could initiate an interaction. But let’s pretend that there is a social convention that the person holding the lighter colored fruit is expected to initiate interactions. Furthermore, our imaginary society also dictates that if two items of produce to be exchanged have the same color, the longest dimension of each item should be measured, and whoever bears the item with the greatest length along that dimension should initiate interactions. Under either criteria, Bob would be expected to approach Alice, as bananas are both longer and lighter colored compared to apples. Establishing respective roles streamlines the resolution of social interactions, making them less “awkward”, but there can be deeper ramifications of such expectations on long lasting social outcomes.
Thus, social interactions oriented toward fulfilling goals rarely involve mutually equivalent roles. Generally, one side initiates and the other fulfills. If one side wants to initiate, but there is no one ready in a complementary position to fulfill their requests, they must abandon their objective or fallback from the role of client to the role of server, until a client comes along who sees their outstanding offer and takes advantage.
Significant problems can develop in a society based on who has the means available, and the inclination for, fulfilling roles of either client or server. If everyone were eager servers only, there would be no leadership or direction, and we would fail to get things done. If everyone were only willing to be clients, there would be no cooperation, and likely perpetual fighting would ensue. Effective balance is needed, so that we have proper proportions of clients and servers, and also so that individual entities can take on roles of client and server in comparable amounts when it becomes important for them to do so.
If a segment of society is denied the means and opportunity to assume the role of client, then their needs will simply not be recognized and met by society. Ownership, strictly speaking, is not an absolute social necessity, but serves as a tradition that establishes how goal oriented social interactions get resolved. But under this convention, it becomes necessary to evaluate outcomes in distribution of ownership carefully, as well as the rationale behind granting ownership in the first place, so that imbalances don’t develop and inefficiency and disenfranchisement can be addressed.
Prices Mediate Goal Oriented Interactions in Societies that Recognize Ownership and Cooperate through Marketplaces.
Prices affect the purchasing power of buyers and sellers, ie their ability to set priorities and the weight given to those priorities. Relative prices can affect consumption choices, what resources we use and what actions we choose based on the costs involved. Prices reflect both costs of resource use and society’s priorities. Suffice it to say, that indirect price channels, such as wage standards, taxes, regulations, and other rules, are how society establishes important priorities and communicates costs.
Our policy goal should not be high prices or low prices, but pricing structure that reflects healthy political and social relationships and empowers cooperation by balancing the roles of clients and servers in society.
Priorities
Priorities apply in two distinct situations under the “Supply and Demand” framework which are in fact instances of the same situation in our improved framework. Demand is a function of priorities. The resources we are willing to expend in action is an expression of its priority relative to the costs involved.
On the other side of the transaction, people acquire, develop, and sell resources according these communicated priorities based on the costs involved. Ultimately, an individual seeks to most effectively fulfill their own priorities, even when some of these priorities are shared group objectives.
Under “Supply and Demand”, buying and selling are different actions, but in this framework they are the same thing: expending resources according to priorities relative to costs.
“Costs and Priorities” facilitates better models using entity abstractions and conceptually reveals the dynamics of political relationships
One powerful aspect of the “Costs and Priorities” framework is that you can use any level of entity abstraction. For example you can look at individuals, communities, institutions, groups, special interests and more. Economics struggles to model institutional and political relationships, but by formalizing principles of costs and priorities, you can model effectively using these abstractions. Such abstractions exist in our vernacular in large part because they are very important for understanding real world dynamics.
When modeling entities abstractly, it is helpful to understand the programs whereby these entities establish their existence and influence. Costs and priorities are fundamental to how and why any entity creates these programs.
