Oct 232011

An interesting pattern emerges, when we line up market structure from economics and finance with theories of developmental psychology and pedagogy, as in the table below. For more details than I describe here, click on the links at the head of each column to see the Wikipedia articles on these topics.

Admittedly, the alignment undoubtedly is not as precise as implied below, but the exercise is fruitful, at least in broad brushstrokes. The point here is to seek insights that might lead to testable hypotheses, rather than to present established conclusions concerning a detailed theory of society.

Brief Introduction of Each Column

Starting at the bottom, Maslow argued that the primary motive of all individuals is survival; where this is not assured, nothing else will occupy an individual’s mind. Once survival is assured, the individual will focus on safety. Only after survival and safety are fulfilled, can individuals focus on social needs. When survival, safety, and social needs are fulfilled, the individual can focus on self-esteem, which is a fundamental topic in itself, especially among those who grow up in dangerous or abusive environments. Finally, once all of these needs have been fulfilled, the individual can focus on self-actualization — ‘realizing one’s full potential’ or ‘going beyond oneself’ — which might manifest itself in the creation of works of art, volunteering, or any other activity that one feels compelled to do for its own sake

Kohlberg‘s focus was on morality. He argued that how an individual decides ‘right’ from ‘wrong’ starts at a primitive level and becomes more sophisticated as one matures. At the lowest level, the test is pain vs pleasure; if it hurts, it is wrong, and if it feels good, it is good. In time, this develops into egoism, in which the orientation is toward oneself to the exclusion of all others, often associated with young toddlers and their tantrums. As one develops — and corresponding to Maslow’s Social stage — one’s moral orientation becomes outward; first as ‘be nice’, and later as a law & order adherence to the rules. For a minority of the population, contradictions and other failings of the status quo lead to an moral orientation based on questioning authority and reconciling inconsistencies. Finally, some very few adopt a universal ethic, which manifests itself as a single principle that guides the individual’s sense of right and wrong. For some, this ethic might be non-aggression; for others, the superiority of one’s tribe; etc.

An individual can move up or down either hierarchy, but will tend to be grounded in a specific one at any particular time. Individuals generally can imagine the next developmental level up, but not beyond. Those operating at a very primitive level, for example, will be unable to distinguish a universal ethic from egoism. This, also, is not to say that a universal ethic will be viewed by others as ‘good’, as when one who has embraced non-aggression evaluates the morality of a tribalist who believes in the collective ‘superiority’ of his or her people.

Bloom‘s Taxonomy deals with pedagogy and the appropriate method of education. With very young children and those who are new to a subject, the first step is identification, which essentially is being able to point a thing when named. The next step is definition, which is when the learner is able to explain what something is without naming it. Next is application, which is using a tool, concept, or anything else in a prescribed fashion. Higher-order learning begins with analysis, which is breaking complex puzzles, concepts, or objects into simpler constituent units. There is some debate concerning the order of the last two steps: evaluation, which is judging a thing based on some standard, and synthesis, which is constructing something new from existing components, whether it is a structure, a work of art, story, etc.

Market structure is the relationship between the number of buyers and the number of sellers in a market. Here, we focus on the number of sellers and assume that the number of potential buyers is very large. The most restrictive market structure is the command economy, in which a central authority rations goods and services, and secondary trading is generally difficult if not forbidden outright. Next is monopoly, in which only one supplier exists. One of the hallmarks of monopoly markets is price discrimination which occurs when two buyers pay different prices for the same good or service; in any other market structure, buyers can shop among sellers and buy from the one with the lowest price. A market with a small number of sellers, each of whom represents a significant portion of the overall market is called an oligopoly. Oligopolies are distinguished by ‘interdependence’, in which a sale made by one oligopolist is a sale lost by each of the others; oligopolists often have very large advertising budgets. A market with imperfect competition has a large number of sellers — each of whom might have some amount of monopoly power based, most commonly, on geography — none of whom represents a significant fraction of the total market. Most of the sellers that each of us deals with in the real world are imperfect competitors, who might be able to price discriminate through coupons, early bird specials, happy hours, etc., but who do not have the market power of an electric, sewage, or water utility. A commodity market is one in which the good or service sold by one seller is economically identical to the others’. This includes things like wheat, gold, and financial assets that are sold on formal exchanges. At the furthest extreme are public goods*, which exist in such abundance that one’s consumption does not diminish anyone else’s ability to consume them, and one is unable to meter their consumption or stop others from consuming them. Common examples are breathable air at sea level, seawater, and anything else that one can consume in unlimited quantities for free.

Market Structure and Developmental Psychology
Self-Actualization Universal Ethic Synthesis Public Good
Self-Esteem “Question Authority” Evaluation Commodity
Social Law & Order Analysis Imperfect Competition
“Be Nice” Application Oligopoly
Safety Egoism Definition Monopoly
Survival Pain/Pleasure Identification Command

The Table Row-by-Row.

In general — and bearing in mind that the real world is much subtler than implied here — life in a command economy is brutish and mean. Individuals in such a society likely have little time for reflection on higher ideals, and instead focus their attention on survival and avoiding punishment.

In a society dominated by monopoly, the focus is on personal benefit to the exclusion of virtually all else. Corruption is a common feature in a society that has one provider for each category of goods and services, and innovation and entrepreneurship are essentially unknown — except, perhaps in the oligopolistic or imperfectly competitive underground economy — and daily life is highly bureaucratized.

A society dominated by imperfect competition — “a nation of shopkeepers” as Karl Marx sneeringly described 19th Century England — is organized along the principles of ‘getting along’, ‘not rocking the boat’, and ‘observing established customs’. Perhaps, regulations exist to ensure that the peace is kept. At a personal level, social needs are the primary focus, along with ‘knowing one’s place’. Marginal improvements in techniques are tolerated, so long as they are not disruptive.

A society dominated by commodification — ‘McCulture’, if you will — will be one in which individuals’ social needs are fulfilled in general, and the quest for self-esteem is the primary focus. Rules are broken, norms are evaluated, old ways are cast aside by each new generation. Seen from the outside, such a culture might look superficial, made of plastic, and chaotic, but it operates by its own internal logic of creative destruction and disruptive innovation.

Finally, a society dominated by public goods is a society in which individuals seek self-actualization through the synthesis of what has never existed before, based on some universal ethic. For those locked into the habits of thought of lower stages of development, a public goods society is indistinguishable from a command or monopoly society (i.e., ‘communism’). But, whereas command and monopoly societies suffer from chronic shortage, public goods societies have so must stuff that they just give it away.

The Way Ahead

The wealthy parts of the world today are dominated by commodification, self-esteem, and social change. However, a small but growing subculture of open source, free culture, and ubiquitous charity already has had an impact on modern life. The move is away from command and monopoly in the form of patent and copyright. Granted, those with a vested interest in the status quo will not go quietly, but go they will.

This is not a ‘good’ thing or a ‘bad’ thing, as all value is subjective. It simply is. Some will love the change, others will hate the change, and the great majority will just roll with the tide.

We are in the latter stages of an epochal transition from the capital/labor dichotomy to the knowledge/service dichotomy in an increasingly integrated global community, where borders are largely meaningless, anything that can be encoded as information — whether software, music, texts, videos, title, or even money — flows freely, and emerging institutions are supplanting traditional forms of social coordination.

Invest accordingly.

Prof. Evans

*Note: The term ‘public good’ should not be confused with ‘government-provided good’. If the ability of an individual to consume a good or service is reduced by others’ consumption, or if it is possible to restrict access, then it is a private good, regardless of whether it is provided by government or no direct fee is charged for it. Thus, ‘public schools’, ‘public beaches’, ‘public roads’, etc. are government-provided private goods.

Oct 112011

Hogwarts in the 'Hood

BBC News has a wonderful article on a charter school in one of Chicago’s roughest neighborhoods that is modeled on an English private school (referred to as ‘public schools’ in British English, oddly enough), and billed by its operators as “Hogwarts in the ‘Hood“.

This reminds me of a John Stossel 20/20 special report from some years back called, provocatively, Stupid in America.

I see reports and articles like these from time to time, and I want to invest accordingly!

One part of me – the part that lives in South Florida – wants to start a school that caters to local high school pupils who would prefer to start their own businesses rather than seek employment in others’ businesses upon graduation.

Another part of me – the part that teaches Finance and Economics – recognizes that schools require physical facilities (expensive), insurance (expensive), and admissions/recruitment (expensive), and that Pecuniology.com can provide the online component of a hybrid program that focuses on business education at an established charter school anywhere in the world (time consuming, but not expensive).

Pecuniology.com has academically qualified instructors in Accounting, Economics, Finance, Information Technology, and Management, all of whom have many years of online teaching experience, and all of whom have experience with multi-ethnic and at-risk student populations.

We’re here.

Invest accordingly.

Prof. Evans

Oct 052011

Please take a few moments to review the New Steam Age Curriculum (NSAC) page at Pecuniology Research.

I am especially interested in working with students, professors, and entrepreneurs in Middle Income Countries, in order to ensure the widest global relevance possible.

Invest accordingly.

Prof. Evans

Oct 032011

The Mail Online, a newspaper, reports, “Mexico City lawmakers want to help newlyweds avoid the hassle of divorce by giving them an easy exit strategy: temporary marriage licenses.”

Mexican wedding

Apparently, about half of marriages in Mexico end in divorce, and this is an attempt to adapt to that reality.

Gay marriage, drug policy, now this.  Keep an eye on Mexico.

Invest accordingly.

Prof. Evans