Degree and Cost Analysis of a Transfer

Transferics is concerned with the actual and potential movements (transfers) of resources.  A transfer can be modeled and visualized graphically, which provides an established way to analyze transfers in detail.  This article will focus on the degree of a transfer and the characteristics that result from the degree.

Intro to two-way and one-way transfers

The most well-known type of transfer is a two-way transfer or exchange.  Two-way transfers typically happen in (or between) societies of low social cohesion: The use of money to facilitate transfers is a form of delegating debt repayment.  Money is almost always involved in a two-way transfer; barter is very uncommon and no society based on barter has ever been recorded.  I will come back to this after one-way transfers.

In societies of high social cohesion, it is more typical to find gift-based (one-way) transfer systems, though this usually involves an implicit form of debt, which requires maintaining personal relationships with those involved in the transfer system.  In other words, this debt-based, one-way transfer system should start to fail as the population of the system exceeds Dunbar’s number.

However, one-way transfers without implicit debt are possible as well: A state command economy is based on one-way transfers, and it is this form of one-way transfer which is (perhaps rightly) criticized most harshly.  Debtless one-way transfers are also the basis for the open, collaborative process that has established a foothold in modern society.  They take advantage of the “80/20 rule”—the observation that (roughly) 80% of the contribution (typically) comes from (roughly) 20% of the population.  For example, in the development of the Linux kernel from 2012 to 2013, 0.1% of the developers contributed 8.4% of the changes to the kernel, and 0.3% of developers contributed 18% of the total.

These open, collaborative processes result in resources that are given away with no expectation of return.  Clearly, in large populations, facilitating the creation and application of intellectual resources, and distributing the resulting products (because they have an negligible marginal cost) requires only a simple one-way transfer system.  It is argued, however, that for resources without a negligible marginal cost, we encounter the principle of scarcity: the problem of finite resources and infinite demand for them.  This, of course, requires the use of a two-way, scarcity-based transfery, or economy.

Prices

This, of course, is precisely what we use today.  Nearly all of our resource movement takes place on the basis of (allegedly) equivalent exchange: We create prices, which is a quantity of money (delegated debt) that a seller is willing to accept from a buyer.  Prices are mystified by much of economics, having been claimed to be impossible to replace by any other system, and able to solve intractable computational problems.

However, the Neo-Ricardian and Embodied Energy theories of value have greatly simplified the analysis of prices: A price is formed from the establishment of a price “fulcrum”, which is based on the embodied energy input (the exergy input, which also includes human labor and material costs), around which more volatile economic changes—such as changes in supply and demand or subjective value—cause the price to fluctuate around its fulcrum.  Prices have a minimum that is established by the physical realities of production and logistics, while the maximum only exists as a pragmatic reality of how likely it is that someone will pay far more than the minimum.

Prices are supposed to allow us to compare opportunity costs, which is the trade-off between using resources for one or another product, which may share input requirements.  Prices, in other words, are claimed to allow us to “compare apples and oranges”.  How well this functions in practice is dubious, since the economic system is far from perfect in fulfilling needs; the economy serves those with a lot of money first, which is almost never the neediest group.  While prices may allow the comparison of opportunity costs, the efficacy of this ability ability is very low when a highly-fulfilled population takes precedence over a highly-needy population.

The degree to which prices allow the comparison of totally heterogeneous resources has little to do with prices themselves, and far more to do with how economists view the resources.  Economists see resources as completely substitutable.  The claim goes that two products of the same price could be made of entirely different resources, and if there are shortages of a particular resource in a highly-demanded product, that producers will find a working substitute, typically citing the development of synthetic oil during the World War.

The idea that prices can be used to compare heterogeneous goods presupposes this idea of universal substitution, and assumes that prices are primarily based on subjective value and not embodied energy.  A true cost/benefit comparison using prices would require that marginal cost and marginal profit is information that is available to the consumer, but this is never the case: Consumers know only the conflation of the two, which is the cost to themselves, and must use a variety of other means to compare the potential benefits to themselves.  Thus, prices do not truly allow comparison of heterogeneous goods from the standpoint of the consumer, and actually serve as a barrier to it.  They are primarily a vehicle for producers to extract “surplus value” from the economy into their own, private hands.

The Selection Process of a Two-Way Transfery

In our two-way transfer system, the goal for producers is to maximize the delegated debt they collect, which maximizes their power to access and control resources.  Those that have insufficient money and resources cannot easily enter the system, other than by offering themselves in some way to act as a resource for someone with a surplus.  In this case of a single person, this seems fine; the person can “shop around” for those who will offer them the best deal.  However, consider the effects of this interaction: Because the employer is looking to continue to gain for themselves, they will tend to accept those offers that offer them a return.  The laborer gains relative to others, but not relative to his employer.  The employer also gains relative to others, while increasing the distance between he and his employee.  Assuming we start with everyone being equal other than the entrant, this means we start with an order which has two levels and ends up with one which has three levels.  Transfery entrance can happen several ways, such as birth, real or organizational, or by the transfery’s influence subsuming that of another transfery.

This process can work the other way, with one person being on top (the maximum) and all others being equal (the minima).  The maximum can attempt to offer some product of their resources and debt in order to gain a return on it.  The minima can do the same thing and close the distance between themselves and the maximum, which necessarily results in the minimum whose rank increases gaining more than the minimum whose rank does not increase.  On the other hand, both of these attempts can also fail, resulting in their ranks moving toward the bottom.  Those on the bottom have the least available to offer those above them, restricting their chance of successfully gaining a return.  Those on top have the most available to offer those below them, allowing them more ways to succeed and more bargaining power.  There is no quantity of resources or money at which the maximum will exit the transfery, but there is a quantity at which transfery exit will occur, which is actual or metaphorical death.  When an actor can no longer offer anything to the transfery, they are unable to participate in it.  For a person, this means being served by other transfer systems such as the welfare system or donation, or actually dying.  For a company, this means being bailed out or going bankrupt.

This is the source of the “profit motive” in our system: It may be a conscious motivator for some, but it is always a result of the birth-death process that we see actors which profit the most sticking around.  It’s not necessarily that profit motivated them to be better, it’s that being more successful at turning a profit ensures they do not exit the system.  Since the ability to turn a profit relies on much more than just having a superior product, it is incorrect to say that the profit motive facilitates this outcome.  Having a superior product can offer a return for the producer, but that is not a certainty.  It may increase the probability of this happening, but that is just a probability.  Likewise, starting with more resources does not guarantee that you will be more successful, but it does increase the probability.  Those with the highest probability of success are those  whose products are perceived as on the superior tier of their class, whose offers are known by the most people, and who have the greatest starting point compared to the others.  The latter two are key in explaining the concentration of market share into fewer hands: There is always a network effect at work in markets, which is the population of people who know about your products;  There is also an increase in your chance of success from succeeding.  This creates a process of preferential attachment which concentrates control of wealth into scale-free networks.

The Selection Process of a One-Way Transfery

One method of selection for a transferic system based on one-way transfers is central planning, but most of them have been failures.  Central planners simply cannot determine the needs of most people as well as people can themselves, and they are subject to unconscious incompetence.  If central-planning systems failed, how can scarce goods be allocated between competing ends?  First, it is clear from the open design process that our needs are far less rivalrous than they are alleged to be.  The common Linux kernel is used in most of the computers of the world, in vastly different and “competing” applications, without a bottom-up redesign.  Needs are diverse, but this need not mean they are in competition with one another—the software developer maxim of “DRY”, Don’t Repeat Yourself, is one of the keys to one-way transfer.   A given product class can have a standard implementation that is used for the majority of cases.  This allows those standard designs to be made extremely efficient through shared effort, while those whose needs are not met by the standard implementation can work or help to create customizations to the standard.  This is a far more efficient mode of design than making hundreds of products and hoping that individuals correctly select one of the huge range of possibilities to suit their individual purposes, retiring those that don’t get selected, whether or not they are actually appropriate.

Another key to one-way transferic systems is to change the way we view the distribution of benefits of economic activity.  As a result of two-way transferics based on ownership, we currently perceive the existence of an agent-based origin for resources.  In other words, we consider resources, especially products and services, but also raw materials, as having come from a person or organization.  Anything that we gain comes from someone else’s loss, which is how we justify to ourselves paying our way through the economy.  However, the reality is that most resources do not come from an individual person or organization, and raw materials do not come from any person or organization; almost all of the work that went into a product was done historically.  Raw materials have been formed and concentrated over billions of years by biogeochemical processes.  Intellectual resources have been built up from our earliest observations of the world to the most complex applied sciences that we have today.  The work that a specific individual or organization put in to create a product is not just dwarfed in comparison to the work done by other people and processes, it is nanoscopic.  By shifting our perspective of who is truly responsible for work, it becomes no great leap to understand that allocation comes at a significant cost to a specific person only because of our social system and the fallacious perception of the productive process that comes with it.

From this change in perspective, we can make two extremely valuable conclusions: That freely sharing our work as a rule is an inherently mutualist relationship (one where both parties benefit), and that freely allowing consumption to take place without the expectation of a return is an inherently commensalist relationship (one where one party benefits without harm to the other).  Both of these conclusions are realized through the open-source movement, though they have not been fully applied to the social system in general.  The second conclusion is of further interest in the context of the so-called “economic problem”, that of deciding between competing ends: A form of “pricing” can be created quite simply: It is the ratio of the fulfillment of demand for a product class to the “commensal cost” of the product.  The commensal cost is the quantity of resources that go into a particular product divided by the whole population.  This is called the commensalist price or the benefice:

\tilde{\delta}_r: Demand fulfilled by the resource (measured in units of the resource class)
\tilde{E}_r = \frac{E_r}{n}: Cost per person (normalized to a basic unit such as time or exergy)
\large{\mathbb{B} = \frac{\tilde{\delta}_r}{\tilde{E}_r}}: The benefice, in units of the resource class per normalized cost unit.

When the benefice is formed this way, it results in a higher benefice being better, which fits the character of the word.  We are now able to compare the opportunity costs on a product scale.  Combining this with the opportunity cost comparisons between product classes of Priority Theory of Value (PTV), we have a quantification using physical units that are well-defined and carry information reversibly to compare opportunity costs.  This allows not only people to use their personal judgments in the allocation process, but makes the process computable, as well.

The “Zero-Way” Transfery

A “zero-way” transferic system is one where resources do not need to be transferred at all—they are simply used for the duration that they are needed, shared by a common group of users.  This is by far the most efficient type of transferic relation; fulfillment of demand occurs with no production or transportation cost, and for some resources, no costs of any kind.  The benefice can be applied to zero-way transfer to compare two instances of a product class, as well.  However, due to the inherently lower exergy cost of use compared to allocation, the benefice will be much higher.  Because zero-way transfer is the most efficient form, a one-way transfery should seek to create a large number of opportunities for zero-way transfer.  Likewise, to reach a greater level of efficiency, we should seek to reduce our two-way transfers to one-way transfers.

Conclusion

Measuring our transfer system in terms of the degree of transfer relationships leads to the conclusion that it can be made far more efficient by reducing this degree.  By rethinking how we consider the true bearers of costs and receivers of benefits, we can create a physically-grounded measure of opportunity cost called the benefice.  Further analysis of this particular aspect of transferics could come from looking at n-way transfers, those with a degree greater than two.

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