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An inquiry into human nature and the cost of the wealth of nations

Thought Leader: David Martin
February 8, 2013

Abstract
Current economic ontology development has
failed to confront two important errors associated with
historicism. Embracing the linearity of economic value
being directly attributed to the labor applied to natural
resources taken together with efficiency arguments used to
justify monetary policy on both the microlevel (transaction)
and macrolevel (global trade), we know these legacies
of the scientific method applied to economic systems have
left the G-20 paralyzed to deal with structural failings
evidenced from banking to business to economic policy.
An exploration of the structural modalities that impair our
current capacity for adaptation and alternative methods for
accounting for value is the basis for this inquiry. Integral
accounting is proposed as a more suitable method to
transition from scarcity-based market models to abundance-
based modes of sustainable engagement.

1 Introduction
Setting into motion the moral apology for the subsequent two
and one half-centuries of industrial hegemonic violence and
ideological propaganda—animated by struggles for
‘‘resources’’ and ‘‘labor’’—postmodernism has yet to
challenge Adam Smith’s doctrine of dominion upon which
his entire Inquiry is based. Erwin Schro¨dinger, a 1933 Nobel
Laureate for his work in quantum mechanics, lamented,
‘‘There is a tendency to forget that all science is bound up
with human culture in general, and scientific findings, even
those which at the moment appear most advanced and esoteric
and difficult to grasp, are meaningless outside their
cultural context’’ (Schro¨dinger 1952). As culture recontextualizes
normative memes, it is errant to seek application of
social, economic, or physical sciences from one period to
constrain the innovation called for at times of transition.

Awash in the tsunami of systemic dislocation misnamed
a ‘‘Global Financial Crisis,’’ it is reasonable to critique our
structural assumptions and consider the adequacy of our
current general theories and their corollaries. As we
observe the carbon-loving algae and lichens currently
thriving in the thawing tundra courtesy of the greenhouse
gases humans emit, we can observe our climate calamities,
like our financial ones, are only apocalyptic to our way of
seeing the world—not the speciation terminus they are
frequently portrayed to portend. Humanity’s affinity for
self-destructive myths, neither new in our day nor readily
disarmed, makes them no more empirically true today than
they have been with each passing eclipse since the beginning
of heliocentric myth millennia ago. Perturbations in
the consensus performance of systems afford rare opportunities
to consider whether our challenges are essential or
merely evidence of the outdated social optics prepared for
paradigm shifts (Kuhn 1970).

Our present economic and social dissociative disorders
were in full virulence during the Reagan/Thatcher era of
protectionism when nationalist procurements disguised as
trade modernization under the WTO. On the one hand
touting ‘‘free-market’’ supremacy all the while creating
gross industry-specific intervention, the economic policies of the early 1980s built the myth from which modern
systems seem helplessly bound. In a paper presented to the
Oppenheimer Study Center on Economics, Revelation,
Reality, and Computers, Maxwell Fellow, Dr. Herbert
Striner detailed with remarkable precision the collapse of
the US technical superiority now evidenced in the global
market (Striner 1990). Arguing without fundamental
redefinition of the integral role of government aligning
itself with industrial intervention, ‘‘free-market’’ dynamics
fail both in name and in practice. Without manipulation of
government or social priority, what we think of as industrial
capitalism has not evidenced its capacity to be
sustained.

Assaults to the brewer’s yeast mathematical dogma are
exposing the dry rot in the timbers upon which the scientific
method is built. Linear regression, where neither
independence nor homoscedasticity is measured or controlled,
has served to indict its adherents as neither metric
nor meaning is coherent with observed reality. A critique
of Smith’s assumptions allows us to consider the suitability
of new models which shift our linear hierarchical framework
toward an essential model in which covalence
(interdependence) and fusion (generative energetics) serve
as structural guides. We present an argument for an infinitely
orthogonal optionality model which reflects an
organic homologue for rationalizing economic systems.

2 ‘‘Free’’ against ‘‘rents’’
Adam Smith did not initiate the fallacy of ‘‘free’’. In his
monetary encyclical meant for the provisioning of the
Fourth Crusade in 1199, Pope Innocent III cemented the
inviolate principles of economic dominion in which
humans (to be clear, Christian) were supreme over ‘‘creation’’
and value (rents) wrought from exploitation was
central to the human experience (Smith 1776). The notion
of ‘‘free’’ presumes that the creation or assembly of what
is seen as an exploitable resource was without ‘‘cost.’’
This notion presumes the present condition in which a
resource is observed is the only relevant time. Silver in
the ground in fifteenth century Potosi is. The context of
the debt owed by the crown of Spain to other European
courts, a monetary and social obligation formed by a
regional consensus, justifies its ‘‘free’’ extraction. The
extraction of both the ore and the local labor subjected to
genocide for the endeavor is ‘‘free’’ as they have no
‘‘rent’’ value in the moment of their extraction. From the
actual enslavement in the mines to the modern entrepreneurial
illusion which seduces celebrated innovators to
create businesses, the majority of which fail to provide
tax losses for wealthy investors, ‘‘free’’ and ‘‘rent’’
dichotomies require contextual myopia.

Our modern notions of currency, market exchange, and
central banking are indistinguishable to the Judeo–Christian
story of Joseph in the land of Egypt when, during a
great famine, Joseph and Pharaoh created the first documented
commodity exchange in which currencies, commodities,
property rights, and future markets were created
(The Bible: Genesis 47:13–26). While frequently overlooked,
this financial innovation derived from desperation
and famine serves as the archetypal inspiration for even the
most sophisticated market transactions today. Managed
scarcity, the basis for historical and modern economic
models and practices, saw humans and land as commodities
for exploitation by the few for the benefit of the few.
While Niall Ferguson celebrates modern financial innovation
alleging it to be a crowning achievement of the
modern establishment (Ferguson 2008), a careful review of
the Egyptian famine account contains every element of the
risk-hedged arbitrage market behavior which was both
celebrated and vilified in 1929 and 2007: Aetna at the turn
of the twentieth century, AIG in the turn of the twenty-first
century, and J.P. Morgan, Chase, Citibank, Bank of New
York, etc., and their predecessors in both.

In the records of an Estates General gathering in 1484 in
France, it was stated, ‘‘Money is in the body politic what
blood is in the human body: it is then necessary to examine
what bleedings and purgings France has undergone.’’ Hale
and Mallett summarize, ‘‘The two major bleedings were
papal taxation and the purchase of luxury goods from
abroad. The effects of the first could be countered by
political action, the second by ‘drawing gold and silver into
the country’’’ (Hale and Mallett 2000).

The story of money as a reductionist expression of
denominating value is inextricably a story of taxation,
originally required to support religion and war. It may be
worth noting little has changed in at least four millennia of
human history as, to this day, our fear of considering
alternative, more orthogonal, and humane value metrics
may have, at its core, profound angst to question monetary
and economic precepts is to menace a divine right (Malthus
1798). Five hundred years after Louis XI and Henry VII
substituted luxury consumerism and terrestrial conquest for
the hegemonic role of the Church’s control of wealth, set in
full preeminence by Innocent III in 1199 in his financing
encyclical for the Fourth Crusade, to suggest society can
operate without a single, scarce artifact of monetary
exchange managed by a sovereign is still heresy.

Therefore, as we consider a Commons ‘‘Currency,’’ we are
invited to consider not only the laudatory energetics of a
more human value exchange, but we, at the same time, bear
an obligation to consider the transition between the
incumbent now and the future to which we strive. This
position is seldom taken when we speak in sweeping idealisms,
however; one of the enemies’ transformations
comes in the form of a failure to invite the current actors
into the future.

It is informative to consider John Maynard Keynes’ The
General Theory of Employment, Interest, and Money
(Keynes 1936) which highlights the catechism that has
defined and enslaved modern economic thought. Tragically,
Keynes himself concludes his posthumously misapplied
(though frequently invoked) treatise stating that:

Our criticism of the accepted classical theory of
economics has consisted not so much in finding
logical flaws in its analysis as in pointing out that its
tacit assumptions are seldom or never satisfied, with
the result that it cannot solve the economic problems
of the actual world (Keynes 1936).

Keynes builds his entire thesis on the basis that ‘‘consumption—
to repeat the obvious—is the sole end and
object of all economic activity.’’ The ‘‘propensity to consume’’
together with the centrality of malleable monetary
friction are corollaries to every argument in his model. The
natural sequelae of this foundational postulation include
the following:

1. Labor (an euphemism for all those engaged in
productive endeavors) is a commodity, and laborers
are Pavlovian actors who are coerced and manipulated
by fickle money-wages and interest (Keynes 1936 91);
2. Natural resources supporting extraction (gold, silver,
metals, oil, etc.) are free for the taking, exist for the
purpose of consumption alone, and are essentially
baseless in value at extraction, thereby rendering them
‘‘free’’ for exploitation (Keynes 1936 130, 213); and
3. That entrepreneurial psychology will persist in seeking
to maximize monetary profits as sine qua non giving
no consideration for value metrics apart from those
defined in monetary terms. (Keynes 1936 264, 290).

Human activity, both the rent utility whereby the industrialist
can extract labor for the purpose of industry and the
proxy through which social status can be achieved or
maintained, is applied to ‘‘free’’ resources for their
improvement into ‘‘goods.’’ The expenditure of energy (both
human and mechanical), according to Smith and his progeny,
renders ‘‘value’’ as evidenced by a monetary transaction
confirms the raison d’eˆtre for enterprise. At no point in the
supply chain are any essential artifacts valued beyond their
utility to animate the final artifact. A copper coil is not seen,
for example, as having essential elemental value. It anonymously
receives current, animating a rotor that animates a
compressor that then circulates gas to effectuate a pressure
gradient elucidating a thermal condition in which a beverage
is cooled. The ‘‘rent’’ object is a cold beverage for which an
environment from which the copper was sourced had to be
deforested and its pristine lakes and rivers toxified.

The plastic deformation properties, or structural failure
susceptibility, of this unconsidered dichotomy is a function
of the number of explicit factors contributing to a supply
chain for which ‘‘free’’ is applied. Ignore the copper source
and you get geopolitical unrest and social upheaval. Ignore
the smelting energy requirements, and you get permanent
resource depletion and environmental degradation. Ignore
the grid required to distribute the animating electricity, and
you remove utility bonds undergirding most fixed income
pension schemes in the industrialized economies. And,
ignore the chemical additive that makes your beverage zero
calories, and you fail to account for your liver and kidney
failure associated with the artificial sweetener.

3 Progressive linearity
Regression seeks to observe a series of independent variables
across one axis and relate their association with
variables on another axis. As complexity is accepted within
a model, associations seek to minimize model error and
control for variance. Implicit to all regression is a context
in which variable, variance, and model exist. Scatter is a
scalar function; duration is a temporal function; and so
forth. Acknowledging the complete failure of statisticians
fully circumscribes the limitations of assumption nonadherence,
the scientific method requires serial, confirmatory
processes by which it arrives at empirical truth.

Popper (1945) foreshadowed the self-congratulatory
euphoria evidenced by Ferguson (2008) when he critiqued
the common macro-parametric error of historicism in
which selective narration creates the illusion of variable
and variance quantification and modeling. Regression
underpins the logical framework for moral rationalism in
which the existence of ‘‘means’’ (the process by which a
thing is manifest) can be viewed in light of the ‘‘ends’’
(final artifact or event of value or production).

Exploitation, as an animating impulse and unfettered in
this context by its pejorative connotation, is a function of
dimension constrained progressive linearity. When modeling
social, economic, population, or production systems, the
sine function demonstrated as an ascent (up the x-axis) and
temporal perpetuation (out the y-axis) is a ubiquitous feature
not by observed natural order but by progressive linearity
model consensus. Many systems, however, explicitly defy
this consensus yet are modeled into justifications thereof.

Take, for example, debt-supported sovereign currency
or fractional reserve banking in which an underlying rent is
required for the currency utility to exist. Assume the value
of the Treasury includes a hypothecation of value derived
from the cost of renting the economic power of others. The
others, in our scenario, require a 2 % annual rate over a
period of 30 years. This imposition of a fixed, linear progressive
rate on a system known to have periodicity
uncorrelated both to the rate and to the duration is by
definition unstable. Ironically, it led Keynes to foretell:

I see, therefore, the rentier aspect of capitalism as a
transitional phase which will disappear when it has
done its work. And with the disappearance of its
rentier aspect much else in it besides will suffer a seachange.
It will be, moreover, a great advantage of the
order of events which I am advocating, that the
euthanasia of the rentier, of the functionless investor,
will be nothing sudden, merely a gradual but prolonged
continuance of what we have seen (Keynes
1936).

He goes on to see the day above as the day when the
volume of capital increases so as to eliminate scarcity and
that the executive skill of the entrepreneur will, ‘‘be harnessed
to the service of the community on reasonable terms
of reward’’ (Keynes 1936 377).

The monetary utility of our current economic paradigms
defies regression. It meets none of the scedasticity, linearity,
variance, or duration requirements of an independent
variable. Yet, despite its explicit failure to meet a single
condition of a discrete variable; it has maintained its
unassailed preeminence as the arbiter of wealth and the
metric of successful enterprise.

Model instability, then, is a function of disequilibrium
created by the imposition of linearity on systems that are
amorphous or multidimensional in their complexity. Note
that when the United States sought to foster greater
wealth creation with the legalization of usurious private
equity after the Second World War, greed alone was
insufficient to animate the desired capital flows. Explicit
intervention in the form of: (a) preferential, high-profit
margin government contracting to private equity funded
enterprises (Small Business Administration of 1953); (b)
liberalization of pension fiduciary obligations to flow
capital into the private equity markets (Pension Act of
1974); and (c) tax incentives to allow investors to recognize
losses from their enterprise investments (Small
Business Investment Act of 1958; LLC formation of
1982) all were precedent to the ‘‘Silicon Valley’’ miracle.
Each of these ecosystem incentives mandatory for
the desired capital flows and each directly redistributed
monetary wealth from the broader ecosystem to the
selected beneficiaries.

4 Essential integral accounting
Smith’s (1776) Inquiry together with his idealized contemporaneous
colonial experiment celebrated by Keynes
150 years later laid a foundation now collapsing under the
weight of its unconsidered assumptions. In Joseph
Schumpeter’s criticism of John Maynard Keynes and
David Ricardo, he correctly indicted the fallacy of overreliance
on variable reduction from which explanations
could be readily deduced, but through which policy
application failed given the ignored abstract complexity of
reality. Beyond his observations of business cyclicality,
Schumpeter offered an insight into humanity which profoundly
challenges classic industrial economics and illuminates
a central deficiency in Taylor’s human
productivity essential tenet. He suggests that the catalyst
for meaningful systemic economic change may emerge
from ‘‘intellectuals’’ which he described as those persons
suitably versed and positioned to offer critiques on social
systems and advocate for interests of social strata to which
they do not belong and for which they have no explicit
incentive save a broader moral imperative (Schumpeter
1942). In other words, he introduces the notion that the
commodity–industry (energy ? labor)–consumer good
linearity in which efficiency and exploitative ignorance are
essential will ultimately unravel in favor of a more
dimensional appreciation of values.

Articulating a more suitable model to both understand
enterprise economics at the micro- or the macrolevel
invites a multidisciplinary exposure to principles beyond
linear regression and variable constrained modeling. While
daunting, the task of highlighting the incapacity of current
models may be more suitably done using a simple
metaphor.

Consider a wooden playground for children. We can
agree through application of design (knowledge and technology),
and we can assemble a safe (well-being) structure
on which children can play. To do so, we apply a saw
(technology predicated on steel comprised of metallurgical
coal [unaccounted], iron ore [unaccounted], internal combustion
using petrol [unaccounted]) to a tree [unaccounted
composite of soil, water, and sunlight], which we cut into
boards. These boards are shaped and bolted (see metal
above) into a configuration with crossbeams and supporting
limbs. To these structures, we affix nylon (technology
predicated on oil [unaccounted] and industrial chemicals
[unaccounted]) to attach swings and ladders. So far, our
industrial paradigm has explicitly ignored: (a) production
and replenishment realities for everything consumed as
commodities; (b) presumption of property rights associated
with their extraction and exploitation and the enforcement
thereof; (c) orthogonal uses for each commodity in other
applications in vivo and in situ, e.g., the tree also served as shade (well-being) and habitat; it manufactured oxygen and
starches while holding soil and water (technology); it held
currency value as a unit of carbon credit or as the production
agent for harvestable crops (money); it recorded
information regarding climate, rainfall, temperature, and
sunlight (knowledge); it served as an aesthetic element in
the landscape (custom and culture), e.g., the metallurgical
coal served as an aquifer filter for cleaning subterranean
water sources (technology), recorded biodiversity and
physical history (knowledge), had thermal options for
cooking, heating, etc. (other commodity value);

a) social consensus on a priori selection of industrial
priorities;
b) tacit recognition of the equivalent option extermination
value explicit to each industrial production
imperative.

Socioeconomic theorists protest the unmodelable complexity
of this exercise. This same objection is the progenitor
of our catastrophic view of asymmetric system failures (e.g.,
climate change; peak oil; resource depletion; geopolitical
resource-animated conflict; etc.) which evoke a handwringing
impotence by those who advocate model simplicity.
However, the daunting nature of the model complexity is
an essential corollary to the industrial economic model of
managed scarcity. From ‘‘raw materials’’ to ‘‘labor,’’ we find
our systems valuing only those things that can be constrained
in scarcity for the control of the capitalist and industrialist. It
has been a relatively recent phenomenon for the public sector
to comment on (though still largely ignore) the cost-associated
‘‘Commons’’ such as seaborne or airborne commerce
(Brimley and Flournoy 2009).

To fully engage in integral accounting, we begin with an
audit of that which we access—both in abundance and with
perceived scarcity (Martin 2007). In our classification of
our ecosystem, we seek to see each artifact not as the object
to which effort can render value, but rather as energy
containing intrinsic value: a helpful exercise to reconsider
our metaphor of a tree. Where an industrialist sees a tree as
metric units of timber, volume of pulp or BTUs of caloric
heat, integral accounting sees the commodity dimension
thusly but also sees the tree as:
• the customary gathering place for human interactions or
the aesthetic of sanctuary (custom and culture);
• the keeper of climatological records and knowledge of
rain, wind, moss growth, and seasonal dynamics
(knowledge);
• the unit of stored value in the protection of the forest
(money);
• the technology of photosynthesis or biosynergistic
production of saps, fruit, or medicines (technology);
and
• the essence of tree which provides shade for the heated,
roof for the exposed, or limbs for the playing child
(well-being).

By viewing tree as essence rather than as named commodity,
we realize countless value (including commerce) is
possible without altering the state of the tree. In other
words, by applying no phase (temporal or classification
permanent alteration) nor state (observable condition
affording maximum optionality) alterations, we could rent
value from the tree while preserving its essential nature in
all other spaces. In so doing, we diminish or eliminate our
utility imperative for tools and power.

And thus accounted, the human actor is invited to consider
whether the cutting of a tree to make a playground for
children is a genuine efficiency or whether an advantaged
interaction is to allow the child to learn to play on the tree.
By liberating our optics that under the Adam Smith cosmology
rendered value in alterations of phases and states
through the surrogate of stored value animated by money,
we may find ourselves engaging more and manipulating
less.

In the integral accounting framework, having completed
the audit, we step into the playful duality we call polarization.
This step relies on the dual meaning ascribed to this
term. First, we apply the notion of positive and negative,
not in some empirical dogmatic frameworks, but rather in
simply a sense of things. Ascribing positive and negative
classification to the things in our sphere of consequence
gives us a mirror by which we see ourselves in our surroundings.
But having quickly ‘‘polarized’’ our audit by our
sense of affinity or repulsion, our sense of ‘‘good’’ or
‘‘bad,’’ we then assess the resilience of this classification by
forcing each audit artifact into each dimension of value. In
other words, we ask the unasked question—Is a thing good
because it is essentially good or do we see it as ‘‘good’’
because we have classified it a certain way? Returning to
our tree for a moment: Is the well-being attribute of
‘‘shade’’ ‘‘good’’ when you see it as the thing that blocks
passive solar heating of your house in the winter? You see,
by auditing—not in the two dimensions of a balance sheet
but rather in the six dimensions of an Archimedean solid—
we recognize our ‘‘values’’ are often derived from our
optics, not the other way around.

With an audit that actively measures six classes of
value—both for storage and for exchange—phase and state
efficiency can be measured empirically. Back to our tree; if
I cut a tree for lumber to make a children’s playground, I
must add technology (saws, logistics, etc.) and potentially
pay money for services or delivery of the artifacts derived
from the tree rather than using the tree as a play environment
and preserving all optionality in the tree. Wealth can
be measured, in this scenario by the function of: wealth = utility × retained optionality ∞ where ∞ = d(t) ʃ of all users × all value dimensions.

In our final step, we enter the enterprise of what we call
fusion economy. We use this term in honor of the Coulomb
effect variously posited as the quantum explanation for a
perpetual, persistent, unconstrained, and infinite source of
energy (Coulomb 1785). A fusion reaction, grossly simplified
for those non-physicists, is catalyzed by a magnetically
charged environment into which one particle elects
to, or is induced to, change its charge—positive to negative
or negative to positive. This unleashes a persistent, perpetual,
energy-creating dynamic analogous to our sun.
When we understand the principle of a thriving economy or
thriving enterprise, we look for that transformation which
will unleash persistent, perpetual dynamism.

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