Evolution of Complex Systems

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Evolution of Complex Systems

• Lecture 9 Economics and money
• Peter Andras / Bruce Charlton
• peter.andras_at_ncl.ac.uk
• bruce.charlton_at_ncl.ac.uk

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Objectives

• Exchanging human artefacts
• Accounting
• Money
• Memory and information subsystem
• Identity violations and adaptation in the economy
• Organisations
• Banks and the monetary system

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Society

• Society system of human communications
• Social systems subsystems of the society
• E.g. political system, educational system

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Reproduction of the society

• Reproduction of human communications and
  referencing, continuation rules
• Memories human memories, written memories
• Education, religion and science
• Human artefacts facilitate reproduction of human
  communications

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Human artefacts

• Objects, writing, rituals, services
• Represent human communications (behaviour) which
  led to the creation of the artefact
• Facilitate utilisation a set of human
  communications (behaviour)

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Exchanging artefacts 1

• Exchange economy three potatoes for an egg
• E.g. primitive worlds, Bulgaria 1996, Germany
  1923

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Exchanging artefacts 2

• Reproduction and expansion of utilisation
  behaviour set of corresponding human
  communications
• E.g. pots, rituals

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Economy

• Economic communications exchange of artefacts
• Economy system of exchange of human artefacts
  seen as human communications
• Economy subsystem of the society
• Artefacts goods, services
• Economy ? reproduction of the society

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Memories of economic communications

• Memories of existing goods and exchanged goods
• Transactions what was before, what is now, what
  has been exchanged stock and flow
• Early forms human memories, knots, marks in
  stone, writing, pieces of stone or shell

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Accounting

• Inventory of existing goods and services using
  memories stock
• Records of exchanges using memories flow

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Valuing artefacts

• What can be exchanged for what
• What is the potential or expected contribution of
  artefact to the reproduction and expansion of the
  society
• Values are context dependent

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Exchange and value

• Artefact context dependent value
• Exchange aim improved reproduction and expansion
  potential
• Value-based exchange is expected always to lead
  to increased reproduction and expansion ability
  of the society or social system
• Note that the latter does not happen necessarily
  in reality

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Value measurement

• What is the reproduction / expansion facilitating
  potential of an artefact (good or service) in the
  context of a social system
• Valuation based on expectation
• Valuation expressed in terms of exchange

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Marginal exchange

• Evaluation of equivalence of reproduction /
  expansion potential of artefacts
• Provides the value of the artefact
• E.g. a sheep is worth of three goats but not four

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Early money

• Shells, stones, animals
• Relatively rare goods
• Exchangeable with any other good or service key
  feature

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Money 1

• Copper, silver, gold coins
• Rare goods emerge as universal exchange vehicles
• Facilitate the reproduction and expansion of
  exchanges (economic communications) and through
  this the reproduction and expansion of the society

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Money 2

• Coins with agreed value e.g. gold coins made
  of a mixture of silver and gold or copper and
  gold
• Paper money
• Money is a standardised universal exchange
  vehicle
• Social system / economic subsystem defines the
  value of the money

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Money and economic communications

• Economic communications exchange of goods and
  services
• Money vehicle of economic communications
  signal of value price of goods and services
• Money special good

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Accounting and money

• Accounting in terms of money
• Records of economic communications are
  standardised in terms of money
• Stock and flow measured in money terms

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Economy and money

• Economic communications exchange of goods and
  services all expressed in terms of exchange of
  goods and services for money
• Language of economy exchanges with money
• Rules of the economy system rules regulating the
  money and money exchanges

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Memories of economic communications

• Memories records of money exchanges for other
  goods, services or money
• E.g. receipts, bills
• Accounting in terms of money money values of
  stocks, money values of flows
• Money memory of ability to exchange goods

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Actions of the economy system

• Actions exchange communications that have an
  effect on the environment
• E.g. production of goods and services
• Exchange of goods and services triggers the
  reproduction and expansion of usage behaviour ?
  effects on the environment

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Perception of the economy system

• Perception environment effects on exchange
  communications changing the expectations about
  continuation communications
• Changing needs of the society ? changing values
  and needs for goods and services
• Effect change of the economy system
• E.g. some jobs may disappear, some goods may
  disappear, other jobs and goods emerge

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Economic expansion

• Necessity in expanding society
• Lack of economic expansion increases the
  likelihood of contraction of the whole society
• E.g. communist vs. capitalist economy

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Inflation

• The value of money changes rapidly and the amount
  of changes are unpredictable
• E.g. printing money
• Money can be seen as memory of the economy ?
  what is the value of the economy
• Shrinking economy growing money supply ?
  readjustment of the value of money ? may lead to
  inflation
• Unpredictability increases ambiguity in economic
  communications triggering shrinking of the
  economy
• E.g. Brazil, Argentina, Bulgaria, Germany 1920s

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Identity and identity violations

• Identity of the economy definition and
  regulation of money within the economy
• Fault fake money
• Error production of unwanted goods
• Failure hyper-inflation

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Adaptation in the economy

• Rules about valid money, punishment for using
  fake money
• Implementation of new check e.g. better market
  research
• Resetting the economy by introduction of new
  currency e.g. Brazil, Bulgaria, Argentina

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Economy and society

• Growing society needs growing economy
• Growing economy supports the growth of the
  society
• Growing economy needs small inflation
• Reason
• Ideally growth in money supply should match
  growth in economy
• If there is not enough money the economy will
  shrink
• Predicting exactly is impossible, so supplying
  little bit more guarantees to have enough fuel
  for growth

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Organisations

• Organisation set of human communications
  following a set of constraints (rules)
• E.g. company, university, government

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Organisations and economy

• Production of goods and services happens in
  context of organisations
• Organisations themselves include to large extent
  economic communications exchange of services
  and goods e.g. payment of a salary
• Large economies rely to large extent on
  organisations in the production of economic
  communications

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Structures in organisations

• Structure constraint on organisational
  communications
• E.g. university department, marketing department
  of a company, badminton section of a sports club
• Strucutres may generate subsystems

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Memories of organisations

• Records of organisational communications
• Records of money values of stocks and flows

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Information subsystem of organisations

• Communications about memories
• Management information subsystem
• Management communications identity definition,
  checking and enforcement for the organisation
  rules and regulations

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Identity violations in organisations

• Fault wrong accounting statement
• Error production of goods that cannot be sold
• Failure bankruptcy

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Adaptation in organisations

• Correction of wrong calculation in the accounting
  statement
• Rules about doing a new kind of better market
  research
• Reorganisation by selling parts and merging others

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Organisations and money

• Organisation exchanges of goods and services for
  money
• Organisations need money to reproduce and expand
• Organisations usually increase by increasing
  their available money amounts
• Profitability economic organisations

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Organisations in the economy

• Organisation money in money inside money out
• Profitability criterion of success
  (reproduction and expansion)
• Organisations compete in the context of the
  economy
• Competition in terms of profitability

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Organisations dealing with money

• Early times the mint
• Coins were produced by rulers fuelling the
  exchange communications ? reproduction and
  expansion of the economy
• Specialist money traders coin exchangers ?
  early banks

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Banks 1

• Bank organisation performing the exchange of
  money and recording of such money exchanges on
  behalf of humans and organisations
• Banks are specialist organisations generating
  memories of economic communications

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Banks 2

• Banks also generate communications about memory
  communications of the economy
• E.g. analysis of loans, evaluation of credit
  worthiness
• Commercial banks constitute the primary
  information subsystem of the economy

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Banks 3

• Interest rates expectations about the economy
• Multiplicator effect lending money to clients
  increases the available amount of money in the
  economy
• Bank money, electronic money

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Central banks

• Early the mint
• E.g. Fed Federal Reserve System in the US, Bank
  of England
• Central bank regulates the money supply (base
  interest rate, reserve requirements), the
  validity of the money, rules of currency exchanges

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Information subsystem of the economy

• Central bank plus commercial banks
• Central bank analysis of the economy in monetary
  terms and setting the rules of the economy in
  monetary terms ? identity of the economy
• Commercial banks analysis of their segment of
  the money market, setting local rules of loans,
  mortgages, interest rates

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Fiscal regulations

• Fiscal regulations rules set by the state
  regulating the money values of state services and
  the procedures of implied money exchanges
• E.g. taxes, tariffs, fees

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Fiscal and monetary policies

• Fiscal policy the state as an organisation
  acting in the context of the economy and using
  the political power sets the rules about
  providing the money revenues needed for the
  reproduction and expansion of the state
• Monetary policy central bank sets the identity
  definition, checking and enforcement
  communications for the economy

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Complexity of the economy

• Hunter gatherer societies
• Coin money
• Paper money
• Electronic money
• Central bank and banking system

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Expansion and complexity

• More expansion ? more complexity
• High inflation decreases complexity
• Deflation decreases complexity
• Decrease in complexity ? shrinking of the economy

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Summary 1

• Human artefacts
• Exchanges of human artefacts
• Economy system of exchange communications
• Accounting memory of economic communications
• Money

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Summary 2

• Identity violations and adaptation in the economy
• Organisations
• Banks and the central bank
• Information subsystem of the economy
• Monetary and fiscal policy
• Complexity of the economy

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Q A 1

• Can we see the performance of a religious ritual
  as a human artefact ?
• Is it true that a piece of land is a human
  artefact ?
• Can we consider the writing of a poem as a form
  of accounting ?
• Is it true that the value of a service or good is
  given by its expected ability to facilitate the
  reproduction and expansion of the society ?
• Is it true that the marginal exchange value of a
  good provides the value of that good ?
• Can we use pints of water to measure the marginal
  exchange value of a horse ? What about using
  small pieces of silver ?

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Q A 2

• Is the money a memory communication unit in the
  context of the economy system ?
• Is it true that inflation is caused by large
  amounts of fake money ?
• Is it true that hyperinflation usually is handled
  by redefining the identity of the economy through
  introduction of a new currency ?
• Is it better to have zero inflation than to have
  small positive inflation ?
• Is it better to have negative inflation
  (deflation) than to have high positive inflation ?

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Q A 3

• Are organisations formed by sets of constrained
  economic communications ?
• Is it true that criterion of profitability in the
  context of competition of firms is implied by the
  need for growth of the society ?
• Is it true that commercial banks increase the
  money supply by printing more money ?
• Can we consider the central bank as the core of
  the information subsystem of the economy ?