2013-06-11

Rules Versus Merit: An Introduction

I have been trying to distance myself somewhat from the traditional "capitalism versus socialism" divide, since those terms are no longer as descriptive as they were when they were originated. Today, I'd like to discuss the shortcomings of the old terms and introduce some new terms of my own.

Capitalism And Socialism As They Were Originally Conceived
Originally, capitalism was meant as a contrast to mercantilism. The point of "capitalism" in those days was to highlight the fact that a society that produces more, but possesses less gold, enjoys a higher standard of living than a society that possesses a great deal of gold, but produces very little. European kings were obsessed with increasing their wealth in gold, when along came the economists, pointing out that the difference between the Aztecs and the Spaniards was neither gold nor Christ, but production. A dozen pyramids and a pile of gold were insufficient to match the technological advancements of the European conquistadors.

A logical conclusion from this point was that those kings who preferred to engage in free trade in order to facilitate domestic production made their countries better off than those kings who preferred to wage war in order to acquire the gold of foreign kingdoms and/or bar foreigners from trading with locals out of fear that "local gold" would escape into the clutches of foreign kings.

Note that socialism had nothing to do with this. At that point, socialism was not really viewed as an "economic system," and thus there was no conflict between "socialism and capitalism." It wasn't until Karl Marx appeared that socialism started gaining traction as an economic system. Marx wrote books that criticized "the capitalists," but he was not actually promoting mercantilism. Rather, he was criticizing free trade, which as aforesaid is the logical conclusion of capitalism, but not its synonym.

Once you understand this aspect of economic history, the "capitalism versus socialism" framework seems silly. Capitalism and free trade are different, but the former requires the latter in order to operate efficiently. Similarly, socialism results in mercantilism, due only to the fact that the trade barriers required to establish socialism have the effect of creating de facto mercantilist conditions in the country.

There is certainly an issue here, but it is obfuscated by the terminology. The issue is not "capitalism versus socialism," but rather free trade versus trade restrictions.

Capitalism And Socialism As They Are Today
Both "capitalists" and "socialists" oppose monarchism. Capitalists came first, and their objection was that the kings' pursuit of gold was interfering with the people's ability to freely pursue their own interests. Socialists, at least "scientific socialists," i.e. Marxists, came second, and their objection was that the interests of the wealthy were interfering with the people's ability to enjoy a higher standard of living.

Pause for a moment and consider an alternative, non-economic way of understanding the difference here. The "capitalists" were angling for a social system that enabled people to seek out their own interests. The "socialists" were angling for a social system that resulted in a particular set of standards. Thus, one way of viewing this conflict that escapes the "capitalism versus socialism" language is to see it as a conflict between interests and standards.

One of the main problems with modern use of the term "capitalism" is that those who use it critically tend to conflate a series of social outcomes with free trade. What I mean is that many modern critics of "capitalism" object to the entrenchment of corporations and oligarch in the political social order. Their argument is that "capitalism" creates an environment in which "the rich" penetrate the government and enact institutional barriers against "the poor." A simple logical assessment of this claim reveals that no arrangement could ever be called "free trade" if one group of people employs the mechanisms of government against the economic interests of another group of people. This confusion is not limited to critics of "capitalism." Even advocates of the so-called "American system" believe that the US government should do anything in its power to improve the lives of American businesses.

We are no longer really talking about "free trade" anymore. We're back to talking about mercantilism! Advocates of US-style "capitalism" want the government to enact mercantilist policies to protect the "gold" held by US companies; critics object that such measures disproportionately favor the wealthy elite.

Thus, an avowed (or closeted) "socialist" in present-day America is one who believes that systemic corruption unfairly favors the rich, and that new rules should be put in place to protect the poor and guarantee them certain standards of living. The supposed "capitalist" today is not much different than the traditional European monarch, arguing that the best way to ensure prosperity is to fill the vaults of American lords with gold.

An important note here is that free trade capitalists are not included in this discussion at all, and that "socialists" are only socialists insofar as they support state counter-measures to provide for the poor. This likely explains why today's socialists don't like being called socialists, and why today's capitalists are so quick to insist that they don't want to get rid of "the safety net."

At any rate, fully excluded from this discussion is any treatment of the interests I alluded to above. That exclusion has been fatal to our modern understanding of comparative economic systems.

Rules Versus Merit
The shortcomings of the existing terminology having thus been fully highlighted, I would like to propose a new way of looking at the same issues. As indicated above, I think there might be something worthwhile in the term "interests" as contrasted to "standards." The major problem with those words is that they mean different things in different contexts. For example, there is a big difference between "being free to pursue one's interests" and "being subjected to the lobbying of special interests." Likewise, there is a difference between "holding oneself to a higher standard" and "subjecting others to a set of standards."

We gain a great deal of clarity by posing the issue in terms of rules versus merits.

A rule is an unwavering condition of some kind. We most often use rules to drive some kind of a decision downstream. "Eat your vegetables or you can't have any dessert" is reflective of this concept, because the decision to provide dessert must meet the condition of the recipient having first eaten her vegetables. That's obviously a very simple example. Rules can be highly complex, conditional on and interrelated to other rules, and so on. But the decision is always binary: either the condition is met, or it isn't. The decision rests on which is the case.

Thus, a framework of rules is one in which decisions are based on conditions assessed in a binary way. 

By contrast, a merit is nothing more than something that is deemed to be of value. Merits can also be used to drive decisions. Unlike rules, though, merits are not binary; they are informative. Returning to the vegetables/dessert example, we might consider giving a child dessert based on the merits of her behavior. Certainly the willingness to eat her vegetables can be a merit in her favor, but other factors might also apply. Did she finish her chores and homework? Did she wash up? Was she nice to her siblings and peers? Is today her birthday? At any rate, when making decisions based on merits, consideration is no longer binary. Rather, we take consideration of all the merits we find relevant to the decision and determine which way the evidence points.

Thus, a framework of merits is one in which decisions are based on conditions assessed according to personal values in a non-binary way.

Differentiating between these two frameworks can be complex business. For example, a framework of merits can be used to create a framework of rules, as in the case of when we create a set of conditions for providing dessert to a child. She must meet 3 of the 4 conditions: (a) eat her vegetables, (b) finish her chores and homework, (c) wash up, (d) be kind to siblings and peers. Our values help us come up with the list of conditions, but once we assess them as a yes/no decision point, we are now dealing with a framework of rules.

Discussion
There is no reason to believe one framework should be used exclusively.

The scientific method, for example, can only ever be a framework of rules. This is because deductive logic is rule-based decision making by definition. Introducing subjective values into the scientific process leads to flawed conclusions.

That said, I challenge anyone to use the scientific method in order to build a good romantic relationship. You just can't do it. Finding a good mate is more than a matter of applying a set of rules to a list of candidates. If it weren't, we'd never hear anyone lament that their relationship "is great on paper, but lacks chemistry." A mate who meets all your best criteria may, for example, greatly exceed a "provider" criterion, but only barely meet a "passionate" criterion. In such a case, your relationship to that person may indeed be very secure, but very often boring. Certainly deciding whether such a relationship is right for you is more than merely applying the rules, but assessing them on an individual basis.

Clearly, neither framework can be applied to every facet of life. The trick, predictably, is in knowing when to apply one framework and when to apply the other. As I have already implied, that is a question of understanding the scope of each framework.

Politics, Rules, And Merits
I could probably elaborate on the Rules versus Merits idea to great length, supplying additional examples and highlighting my full line of reasoning in knowing when one produces a better outcome than the other. But, I started this blog post with an endpoint in mind.

As you know, I am an advocate of free markets. Under the old terminology, that makes me a capitalist. Like the capitalists of the old days, I am in favor of leaving human beings free enough to pursue their own interests. This implies that critics of free markets prefer a world in which human beings live lives that meet certain standards. Well, standards imply rules, and interests imply merits.

Economic systems based on merits are those that require competition to determine which goods, services, methods, and resources have the highest merits according to society as a whole. Without this competition, there is no way to determine which of these things is meritorious and which is not. As this competition cannot take place in an environment of rules, it is clear that competition, free trade, and merit-based decision-making are all part of the same categorical framework.

By contrast, economic systems based on rules are those that require analysis to determine which goods, services, methods, and resources shall be chosen and distributed to society as a whole.

Which framework is superior depends entirely on one's opinion of how well rules and can be created and analysis conducted in advance. That is to say that no product can be distributed correctly (under a rule-based framework) until the rules exist. In order to establish these rules, we must first agree on what information is relevant to the formation of rules, then we must agree on which pattern of information is superior, then we must agree on how best to determine the pattern of the information, and only then can we apply these rules to society.

Conclusion
There is obviously much more to say on this matter, and I plan on revisiting these ideas a few times in order to fully clarify them, similar to how I have approached the moral/existential dichotomy. For now, let this serve as an introduction to the concept of rules versus merit. In future posts, I will try to better-highlight how free markets are meritorious and fettered markets are rule-based.