Transcript Economy and money

Evolution of
Complex Systems
Lecture 9: Economics and money
Peter Andras / Bruce Charlton
[email protected]
[email protected]
Objectives
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Exchanging human artefacts
Accounting
Money
Memory and information subsystem
Identity violations and adaptation in the
economy
Organisations
Banks and the monetary system
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:
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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
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
1.
2.
3.
4.
5.
6.
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 ?
Q&A–2
Is the money a memory communication unit in
the context of the economy system ?
8. Is it true that inflation is caused by large
amounts of fake money ?
9. Is it true that hyperinflation usually is handled
by redefining the identity of the economy
through introduction of a new currency ?
10. Is it better to have zero inflation than to have
small positive inflation ?
11. Is it better to have negative inflation (deflation)
than to have high positive inflation ?
7.
Q&A–3
Are organisations formed by sets of constrained
economic communications ?
13. Is it true that criterion of profitability in the
context of competition of firms is implied by the
need for growth of the society ?
14. Is it true that commercial banks increase the
money supply by printing more money ?
15. Can we consider the central bank as the core of
the information subsystem of the economy ?
12.