eric the fruitbat » Economics

Gold is Money

erich — Mon, 30 Jan 2012 01:34:35 +0000

I would like to evaluate whether or not Gold functions better than paper as a currency. This subject comes up, because of an engaging argument that I had last night about the U.S. Constitution and it’s purview of the monetary policy of the U.S. government. In particular, though the Constitution does not define what Money is when it allows the Federal Government the power to “coin money” [Article 1, Section 8], it also expressly denies the States from “mak[ing] any Thing but gold and silver Coin a Tender in Payment of Debts”[Article 1, Section 10]. Why the explicit mention of precious metals? Wouldn’t a paper currency (such as any of those used throughout U.S. history) be just as good, maybe better?

Even though Gold and Silver have a long history of being used for currency, I’ve thought often that the exercise of digging gold out of the ground, purifying it, stamping it with an insignia, and then locking it away in a vault as you trade a representational paper certificate instead, was a rather silly thing to do. (Only about 40% is actually used this way. 50% goes to jewerly and 10% to industry [wikipedia]) Why should we use this stuff as money? Can’t you dispense with the gold, and just use the paper instead?

That great historical thinker Aristotle identifies the utilities essential to a currency:

Durable: Money must stand the test of time and the elements. It must not fade, corrode, or change through time;
Portable: Good money needs to hold a high amount of ‘worth’ relative to its weight and size;
Divisible: Money should be relatively easy to separate and re-combine without affecting its fundamental characteristics. An extension of this idea is that the item should be “fungible”, defined as “being freely exchangeable or replaceable, in whole or in part, for another of like nature or kind.”
Intrinsically Valuable: This value of money should be independent of any other object and contained in the money itself, starting with rarity.

Clearly, gold by its very nature is durable, portable (though not so much as paper), and divisible. But some contend the last part: it doesn’t have a clear intrinsic value other than rarity.

But platinum (and many other metals) are more rare than gold, why not use one of them? Still other metals are more difficult to recover from raw earth, making them more valuable as measured by the economic cost of obtaining them, why not use one of them?

Both of these objections can be dismissed on the basis of recognizablility: Other metals are all silvery in color, while gold stands apart for its yellowish color. This property makes it alone easily distinguishable from a counterfeit. So the ‘intrinsic value’ of gold is actually derived from three aspects: rarity, difficulty to produce, and recognizablility. These aspects plus the other utilities make gold the best suited natural material for money. We should therefore add to the ‘intrinsic value’ a fourth aspect: natural suitability as money.

But a printer can produce paper currency with fancy designs, for recognizability, and in limited quantities, for artificial rarity. Thus simulating those aspects which make gold so suitable as a currency. Also, in practice, people do not usually cut the coins in half to make change for a transaction because it trespasses upon the ‘borrowed trust’ of the mint, defacing the stamped insignia and destroying future transaction value. So, divisibility isn’t nearly as strong as the other utilities. Paper currency can be made better than gold in rarity and portablity so it should function better as currency.

Yes, except for that rarity and recognizability do not automatically satisfy intrinsic value. Gold is also difficult to produce. And no matter how complex the anti-counterfeit designs raise the cost of printing, a real government would never try to make the cost of printing a bill equal to the cost of extracting the equivalent amount of gold, because paper lacks durability. Paper bills must be replaced as they wear out.

So, knowing this, how can a government give a paper currency an intrinsic value that the populace will respect? Declare the paper currency good for the payment of taxes. Now, some initially worthless paper, printed in limited amounts and stamped with recognizable designs becomes useful for maintaining ones lifestyle outside of a jail cell. Now people desire having at least some amount of the paper, and are therefore willing to trade to get it. So, by Gresham’s Law paper rapidly becomes the only currency in circulation.

Further, the government now has more control over the currency supply, and has the power to practice monetary policies which can stabilize prices. It is easier for the government to print money as the economy expands than it is to extract more gold. But, it should be noted, that governments historically have not exercised this beneficial aspect of control. Rather, they routinely opt for inflationary measures which destabilize prices. Given that I harbor a strong distrust of government, I actually see this power as a drawback rather than a benefit. You see because gold is a limited chemical element, it can’t be replicated at will: So the use of gold as money prevents government from counterfeiting! Gold is more durable than any government and its printing press.

There is one standing objection I have not yet addressed: shouldn’t the money supply expand with the economy? Adopting a rare and finite substance such as gold prevents that flexibility.

I was not able to verify this on my own (even looking in google scholar), but I’ve heard Doug Casey say that the price of a tunic, sandals, and belt in ancient Rome could be purchased for about 1 troy oz gold; roughly equivalent to a fine suit, shoes, and belt today (at $2,000/oz gold). Though it wouldn’t have been possible to obtain such high quality fabrics then, the price for items functionally equivalent has remained comparable across 2,000 years of economic growth.

Furthermore, it should be noted that as the economy expands, so too does the technology for extracting minerals. Thus we can add to the gold/money supply as the economy grows (though maybe not at exactly the same pace). And, since the economy is now so vast and most of the gold has already been recovered we should not experience any large swings in the money supply (such as Spain experienced during the plunder of South America). Even if gold is a deflationary currency (because only a finite amount exists and extraction is asymptotically approaching zero while economic growth remains exponential) the very predictability of its supply is useful as a stable bedrock for pricing, and the inability of government to counterfeit gold prevents undue market interference for political purposes.

Because paper must make up for intrinsic drawbacks via government coercion, I conclude that Gold is natural Money.

Homo Economicus can vote, but chooses not to

erich — Thu, 12 Jan 2012 05:45:56 +0000

Interesting lecture, put out by the Adam Smith Institute, about The Lessons of Public Choice Theory. It turns out that democracy is a less efficient system than the free market.

For example, voters rationally remain ignorant because their input in the election is not correlated to their knowledge about the process and the candidates. When everyone’s vote counts the same, educational investment just doesn’t pay off.

Another example, regulation doesn’t always pay off. Because, information about the policies and analysis on their effects is politicized out of proportion. The free market provides more information about products through consumer feedback scores Amazon to a consumer, than any voter could ever hope to get about either the regulators and their objectives, or the policies and their potential effects. Lacking information and transparency, government regulation is nearly guaranteed to provide a less cost efficient and worse quality goods.

This lecture is the first time that I have seen the same tools of analysis applied to the economy also applied to the democratic system.

Will the US Experience Hyperinflation?

erich — Mon, 09 Jan 2012 03:52:57 +0000

“Inflation is always and everywhere a monetary phenomenon.” — Milton Friedman.

First, we should observe the circumstances under which hyperinflation can occur.

Hard Specie

A government using a hard specie such as gold and silver coins, still tends, as a natural result of beaucracy, to spend more than its revenues. However, the laws of pysics limit the ways in which the government can procure new metals for coinage. For example, during the decline of the Roman Empire, expenses due to a large standing army, welfare programs, and public works projects, led to increased taxes, until the tax revenue diminshed from a decline in economic activity and evasion. Rome began to debase its currency by clipping coins, issuing coins with less purity, and of no purity (tin plated copper was passed off as silver).

However, the decline occured over several decades, so we cannot actually consider this hyperinflation, even though it represents very high inflation by the standards of the old world. We should note that a hard specie intrinsically limits the rate at which a government can devalue the money.

Hard Money

I shall define hard money as paper certificates backed by a fixed amount of precious commodity. In this situation, the government simply prints more certificates than it has hard backing. If done slowly enough, the economy does not readily notice. However, at some point confidence can be lost, and people will begin to exchange the certifice for the backing. This happened to the United States, when the central bank of France decided to exchange dollars for gold. Unable to meet the exchange ratio, President Nixon responded by taking the dollar off the gold standard.

It should be noted that a hard money standard only prevents inflation if the government can uphold the fixed ratio of exchange. However, because few actually call the government out on suspected fraud, a hard money will naturally experience moderate inflation. Only if the currency fraud is overt will the money experience a hyperinflation.

Fiat Money

Although some claim that fiat currency has no intrinsic utility, that is not entirely true. As long as it remains good for the payment of taxes, it remains valued for the purpose of keeping oneself out of jail. Therefore, a fiat currency will suffice in a country with a lawfully abiding citizenry. If the government loses the ability to control tax evasion, then watch out! for the currency has lost its only remaining value.

Let’s take two illustrative examples.

When Zimbabwe experienced hyperinflation, it had experienced an expensive civil war and had confiscated white-owned farmland which was awarded to a black populace, not educated in its use. The loss in economic output and corruption have prevented the government from paying for its operations (including military expenses needed for civic unrest) in a fiscally responsible manner. Zimbabwe continues to face high international debt, which have not been canceled due to economic sanctions against the country.

When Germany incurred large debt financing World War I, which it lost. The Treaty of Versailles, required that Germany pay reparations to the victors of war. However, because of the productive capacity lost during the war Germany was not able to meet these demands. French and Belgian troops occupied the Ruhr, the most productive region of Germany. In retaliation, the government sponsored worker strikes. These benefits added to the debt and expenses, which could only be met by printing currency.

Solution

Once a populace has lost faith in its government, that loss also extends to the currency. Faith can be restored by adopting a foreign store of value. This can be either hard specie or a foreign currency. In either case, the populace regains its faith, because new currency is something that the government cannot wantonly debase.

Conclusion: Not any time soon.

Most fiat currencies haven lasted only about 40 years[1][2] since the time of their creation. Although, the U.S. Dollar begins its 40th anniversary this year, I don’t think that we will see hyperinflation any time soon. First, we do not face the overwhelming amount of external debt as did Germany’s Weimar Republic and Mugabe’s Zimbabwe. “As of January 2011, foreigners owned $4.45T of U.S. debt, or approximately 47% of the debt held by the public of $9.49T and 32% of the total debt of $14.1T”[3] Second, we do still maintain a productive citizenry, which continues to have faith in its government “During FY 2010, the federal government collected approximately $2.16T in tax revenue.[4] Third, despite the showering of currency into the M1 money supply, the Fed is actively encouraging banks to retain a high reserve ration by paying interest on reserves. This has successfully prevented an inflation of the consumer currency supply. Fourth, the dollar continues to hold a privileged position as the worlds base currency. This position is only reinforced as economic uncertainties destabilizes the European Union, as Japan and China engage in an export war, and as domestic bubbles pop in Australia.

Gary North[5] and Mish[6][7] also offer up some other reasons.

References

[1] Episodes of Hyperinflation
[2] Fiat Money Systems
[3] United States public debt
[4] United States federal Budget
[5] Mass Inflation, Yes; Hyperinflation, No
[6] Hyperinflation Nonsense in Multiple Places
[7] Fiat World Mathematical Model

Promotion of silver as a form of money

erich — Mon, 09 Jan 2012 01:08:08 +0000

I sent the following letter to Mike Maloney, CEO of GoldSilver and WealthCycles. Let’s see if he answers back.

Promotion of silver as a form of money.

You and I both share a preference for the GOP candidate Ron Paul, who advocates a return to hard money. His ‘End the Fed’ campaign has successfully influenced rhetoric surrounding the government’s monetary policies. I believe that you will find, at his rallies, a youthful exuberance for experimentation and an excitement about putting words into action. You will also find his supporters to be the most sympathetic for a return to hard money.

At any political rally, we also find various vendors, usually selling t-shirt and other paraphernalia bearing slogans and promotional imagery. Because Ron Paul’s supporters will be the most sympathetic for a return to hard money: I propose an experiment that just might grab the campaign some newspaper headlines.

Prior to a rally, inform everyone gathered that you will have several booths (clearly marked) which will exchange the government’s paper dollars for silver coinage. Because most vendors ware’s are usually less that ~$30 you should have at the exchange coins smaller than 1oz. Encourage the vendors to accept only the silver coins (and promise that you will exchange them back into government paper if they wish). The goal is to have, for the duration of the rally, a ‘hard money fair’ in which actual silver coins operate as the money (as would tokens/tickets at the fair).

Successfully pulling off this stunt accomplishes several goals: 1. It gets a small portion of the populace familiar with using silver coins as money. They can go on to spread the novelty. 2. Nothing like this has been done at any political rally. The novelty should attract some media attention. 3. It allows the campaign to ‘put its money where its mouth is’, in a way that no other campaign could possibly replicate.

I give you this idea freely, because I am not personally in a position to carry out such a plan, but it seems to me that you have the resources and might be sympathetic to the concept, as radical as it may at first appear.

Your customer,
Eric Hennigan

Ossified Education

erich — Mon, 19 Dec 2011 23:53:26 +0000

I started reading The Innovative University: Changing the DNA of Higher Education from the Inside Out by Clayton Christensen and Henry Eyring. So far, it re-iterates some of the sentiments that I’ve seen before:

Sustaining innovation of the university has left it out-of-touch with the market. Higher education institutions have long practiced piecewise expansion of their curriculum, services, and operations. Internal politics prevent cutbacks in these areas, even in the face of a tough economy. Today most universities offer a plethora of specialized classes and run research campaigns to attract talented faculty. In the words of former UC president Clark Kerr, they have become a multiversity.
The university promotes from within. There is no way to better entrench your viewpoint, and become a self-serving institution than to promote those who best represent the existing ideals. Most university officials act as stewards, steadily maintaining the course, applying diplomatic techniques and policies that have worked well in the past (on which they’ve built a successful career).
Accreditation promotes self-regulation. Education one of the least politically and socially regulated of publicly funded institutions in large part because of the astounding success of accreditation agencies and course transfer agreements. However, mechanisms of comparison have lead most institution’s to emulate the Harvard model.
Accreditation prevents disruptive entry into the market. Companies have so outsourced the building of skills to the university system, that acquiring a job without a certification of passing enough ‘standard credit’s is now quite difficult. However, recent technological advances have made information available as never before. I, for example, have learned more by reading how-to’s and articles online, than through any other medium; certainly more than listening to lectures. Anyone with sufficient dedication can learn incredibly useful skills, and participate with others during the process. Even though it’s quite possible to learn more in this way, employers are reluctant to read your resume without that paper certification. This situation acts to raise the barrier for start-up education companies.

For example, DeVry teaches a diverse collection of 85,000 students, and keeps very close watch on tuition costs, dropout rates, and satisfaction levels. They have for-profit motives to provide higher quality education at lower costs in order to promote their brand.

Embarrassing Big Brother

erich — Sat, 17 Dec 2011 09:04:34 +0000

I read today an interesting article on Lew Rockwell’s site about one Robert Kahre. He had arranged to pay his employees in gold and silver coin. He arranged for them to all work as private contractors, and paid them absurdly low wages (the face value of the coin). Some fascinating ramifications of this arrangement:

Each worker is likely incorporated, and therefore pays taxes, at the business rate, before drawing salary.
Workers insurance, Social Security witholdings, etc. become the responsibility of each contractor; lowering up-front operation costs.
The coins are minted by the US Mint, and can operate as legal tender.
Exchange is made at the face value of the coin (significantly lower than the market value).
Taxes are paid on the recorded exchange value.
Before any of this occurred, he did at one point pay his filing fees using face valued coins.

His companies compounds were invaded, with malice and forethought, by the IRS, SWAT, and FBI; which took purposeful actions to HIDE their activities, as can be seen in this video. They apparently also directly LIED in court, about who they interrogated, and what they did. Amazingly, his 2007 trial ended with jurors acquitting him, saying “the government had failed to prove that the defendants had acted to intentionally violate tax laws”! Things did not fare as well in a second trial in 2009, where he and a couple conspirators were found guilty.

This is an amazingly interesting case. Based only on that (and not his other mechanisms for tax dodging) I think that his only guilt is in exposing the hypocrisy (and greed) of the government and IRS. The lesson seems to be that if you embarrass the internally conflicting rules of Big Brother, he will smack you down.

side note: In that video, he also claims that the IRS, as originally chartered, actually collects, not for the US government, but for the IMF and World Bank. I should perhaps try to verify that claim.

College Isn’t For Everyone

erich — Mon, 31 Oct 2011 08:16:15 +0000

I’ve been spending a lot of cog cycles processing ways to make money doing education. It’s apparently quite difficult. With statements like There is No Profit in Education, No Competitive Advantage to Better Learning. and posts about Why Education Startups Do Not Succeed, as well as a (conspiratorialist) video about the College Conspiracy.

From these discussions, I’ve learned some interesting things:

The well-to-do view education as an investment, while the ‘poor’ see it as a cost. Those who view it as an investment are relatively price-insensitive, so pushing for quality increases costs and disenfranchises those who would benefit the most (if only their viewpoint could be changed.)
Student loan debt has exceeded 1 Trillion. I’m not sure if this is fully represented in the US. debt clock. If graduating students exit college into a recession, and are unable to find a job, this puts additional strain on government finances (because they guarantee student loans).
One factor in the rising cost of education is the availability of low interest student loans. It’s a case of too much money chasing too few goods.
Our educational standards are slacking. We have a feel-good assesment system that’s been suffering grade inflation for some decades. Unfortunately for the future of society, education majors are the worst offenders. I’ve lamented the lack of talent in my students before, this data only corroborates my feelings.

Basically, we’re doomed. I think the only way to solve this issue is with marketing education, and finding a way to commoditize it, so you can make high-volume sales to the lower economic class. Perhaps, the way out isn’t education, but trade schools.

—

I really wanted to stop above, but I’m just compelled to bring a somewhat harsh viewpoint into the mix. Some of the issues above deal with the economics of education. I’d love for everyone in society to be brilliant and creative; but it’s not going to happen.

Let’s go back to first principles and look at the costs: For a person to be educated now takes the first 20-30 years of their life. We know, from history, that people can be economically productive starting at early age. For arguments sake, let’s say we all have manual labor value starting at 10 years old. So, beyond just the child rearing investment (borne by the parents) that individual is actually a social drain for an additional 10-20 years. These years happen to coincide with what’s usually the most productive in the person’s life. That is, when they’d focus on building a career. So, for any of this to be economically sustainable, we’d have to expect (on average) that the educational investment increases productivity from 30 thru retirement enough to pay for the lost years of work.

Given that, we have to admit that education is incredibly costly. Just in terms of the years sacrificed, not necessarily in terms of money or productivity. This represents an intrinsic cost, that we cannot shuffle away with creative accounting. Because it’s a high cost, we should immediately see that education is not a right. It is a privilege; if not for the individuals, then for society as a whole. We have to be rich enough to afford the investment. This remains true, even if the investment is socialized (i.e. the economics are amortized across everyone, even those that only indirectly benefit).

Because it’s a privilege, it’s not for everyone. Now, I don’t mean to disenfranchise any class of people; but I will go on record as saying that I think education is only for those that can afford it. So, let’s examine what I mean by that. I don’t mean that education is for those already wealthy. I do mean that education, as an investment, is something that should be available to as many as possible. That is, we should seek a financial system that gives us a good return. Those currently in a lower economic class should also have opportunities to raise themselves up. Our goal here should be to lower the cost of this privilege as much as possible to reach as many people as possible. If it’s only for those that can afford it, it should be made more affordable (lowering the cost is not the same as granting an entitlement or right).

One of the best ways to make an investment available is of course by offering a loan. This way people without current means can speculate on the investment return, purchasing their education with the expectation on future earnings. That comes with a strong caveat though, which is not factored into our current system. We should not set people up to fail or default. We should not offer loans for study programs that have low future earnings. Banks would have done this naturally (because they don’t want a client to default on the loan anymore than the client likes to go bankrupt) if not for government incentives to offer more leniently. This malinvestment was perpetrated by government guarantee of all student loans, which eliminates the financial risk to the bank, resulting in more loans to more clients for a wider class of study programs to people with lower expectations of return than would be normally approved by any fiscally responsible institution. This situation of course hurts most those that take the loans. And is only one example of poor government finance decisions that drastically harm the very people that government is supposed to be helping.

Actually, coming from the science background. I see no problem with banks that choose to only issue loans to those which have (a) a promising track record of good grades and (b) declare an interest majoring in a STEM program. Because these are the people and skills that we desire in our society, they have a good rate of return on the investment. I know an undesired side-effect is that the humanities and liberal arts will struggle, but unless they can demonstrate a return, so be it. I know they won’t completely disappear, because they retain good cultural value.

Arrow’s voting theorem of Economics

erich — Wed, 09 Mar 2011 06:11:58 +0000

I was in the dining hall, and the TV there had some talking heads babbling about the stock market. I couldn’t really make out what they were saying, but it set the stage in my mind for some other thoughts. I was informed recently that the High Frequency Traders, are really just a natural response to the exchange incentives (HTF’ers get paid for volume created, so all they have to do is make sure they trade alot every day, and break even on any price differential). This really quite perturbed be, as I want a market that is more easily accessible by someone with my income level (slave-wage grad student). I also want a market that is more fair (whatever that might mean).

Deep in the recesses of my mind, I knew something about fairness. It is not always to be had. For example, there is Arrow’s Impossibility Theorem:

In short, the theorem proves that no voting system can be designed that satisfies these three “fairness” criteria:

If every voter prefers alternative X over alternative Y, then the group prefers X over Y.

If every voter’s preference between X and Y remains unchanged, then the group’s preference between X and Y will also remain unchanged (even if voters’ preferences between other pairs like X and Z, Y and Z, or Z and W change).

There is no “dictator”: no single voter possesses the power to always determine the group’s preference.

So, sometimes fairness isn’t achievable. In particular, Ken Arrow has proven it unattainable in a voting system. But, isn’t the stock market, really just a giant online voting system? where people casting their bets as dollars can be seen as people casting their votes as ballots? Doesn’t the market clearing algorithm have to ensure some fairness criteria akin to that listed above? I don’t really have time to look into the issue too deeply, but since Ken Arrow is a very esteemed economist, he may have already published something on the topic. At least, I would expect results concerning market behavior, though my idea concerning a proof of impossibility for a fair market clearing algorithm might be a bit too specific.

Then, if we accept the hypothesis that no fair market clearing algorithm exists, it is simply a natural state of affairs that some companies with inevitably ‘game’ the algorithms which are implemented. Perhaps the only ‘fair’ algorithm is to rotate among a collection of different clearing algorithms, so that the unfairness is amortized across each round of clearing. (This strategy might be problematic though, as I remember it was once possible to make a guaranteed winning at poker if the house rotated among different rules (5 card stud, Texan hold-em, etc) and you changed your betting strategy appropriately. This is actually a specific instance of a more general game theory result that it is sometimes possible, to make a guaranteed win out of two games of chance which, when either is played alone, are a guaranteed loss. I cannot at the moment remember what such a paring of games is called.)

An Infinite Loop in the Economy

erich — Sat, 18 Apr 2009 23:03:57 +0000

I’m not an Economist, but I thought that I’d share a link to a nice article about why we currently face an economic crisis.

The Infinite Loan Machine. An examination of the effect of loan securitization on the fractional reserve banking system.

Loan securitization has become a widely used method for consolidating collections of loans into financial instruments with sufficiently stable statistical properties that they can be freely traded. In recent years the concept has been generally extended, creating a class of asset backed securities, financial instruments which are created from a wide variety of loan sources, including credit card, commercial real estate and even financial investment (hedge fund) lending. In this paper the money and loan supply implications of these instruments within a fractional reserve banking system are examined. It appears that the interaction of these instruments create an infinite loop within the monetary system, which removes the limit on loan creation that should be imposed by the bank’s reserve requirement. This has effectively disabled the ability of the central bank’s reserve requirements to limit the expansion of credit by commercial banks, leading directly to the current credit crisis. The evidence suggests that loan securitization and the sale of commercial bank loans outside the regulated banking industry are incompatible with the stable operation of a fractional reserve banking system.

Weekly Summary of Noospheric Echolocutions

erich — Fri, 29 Feb 2008 19:18:18 +0000

This past week I finished my reading of Mandelbrot’s most recent book The (Mis)Behavior of Markets. I actually didn’t like it that much. I found the book to be especially light on details; for a mathematical empiricist Mandelbrot didn’t actually explain, in unambiguous terms, the patterns that he sees in market data. He did a good job of showing that price charts appear roughly the same independent of company and time-interval. (That is, if you forget to label your axes then a chart covering a few years doesn’t look appreciably different from a chart covering only a few seconds.) But the details of how he knows about the multi-fractal patterns, and how to measure such patterns, or even the basic mathematical characteristics of mult-fractals went entirely ignored. Some of these details were given in a reference appendix for each chapter, but not nearly enough to satisfy my avid mind. The editor also did a poor job of citing Mandelbrot’s references to peer-reviewed papers throughout the text; you had to simply follow along in the appendix simultaneously while reading the main text (an annoying usability bug). Instead of discussing such details within the main text, he opted to give generalized overviews with inadequate pictures of fractals that have nothing to do with finance. Now, I know that since I read graduate-level textbooks on Computer Science in my spare time, I’m not the target audience for this book, but I would have expected to see many, many more price charts and elucidating discussion of features within such charts, esp. considering that he’s so big on empirical data. As it was, even when the book had pictures to convey the geometric ideas within the text they came out piss-poor and confusing. Tufte would be appalled.

Mandelbrot also seems to have a healthy dose of self-assurance (deservedly so, for he is quite accomplished). He didn’t fail to mention that one of his students (Fama) formulated the Efficient Market Hypothesis, and that his early paper on cotton prices help to form a pillar of econophysics. He certainly deserves recognition for developing a very important part of mathematics, but I consider his abilities to write for the layperson to be severely lacking.

I’ve also been reading up on Component-Oriented Software Construction. It’s not a panacea that will solve all the industries woes, but I consider it a significant step towards solving many of our current problems. The traditional Object-Oriented inheritance paradigm is fundamentally incompatible with parallelism, and OO in general suffers from systemic rot as shown by the Circle-Ellipse Problem and the Fragile Base Class Problem. The move toward a Component-Oriented architecture is, in my opinion, a beneficial one. But it comes at a high cost; instead of having a (complex and rigid) framework for message passing and method calling, the programmer must handle request forwarding and chaining themselves; functionality is derived through composition instead of inheritance. In my experience, programmers are the most unreliable piece in the software construction business, and relying on humans to successfully adapt their minds (already trained on the OO model) to a new methodology is a mistake. Furthermore, the Component-Oriented message passing system is so flexible (best formulated as a general directed graph) that a programmer could easily get themselves into the opposite of a deadlock (messages getting passed around continuously in a Hamiltonian path). Debugging could be a real nightmare in such a system, and we’d really best develop techniques for tracing and visualizing information flow throughout the program.

I watched a recording of Guy Steele‘s infamous lecture Growing a Language (because of the poor video quality, you really want to read the article as you watch), which he gave at OOPSLA ’98. This was a delightfully instructive video, I recommend that everyone interested in programming language watch it. I also watched a presentation he gave about his newest language, Fortress, because it was mentioned at LtU. I especially like the mathematical nature of the language, and his willingness to go back and try syntax experiments (APL, PL/I) that failed due to requirements of specialized hardware.

I also read Vannevar Bush‘s famous article As we may think, wherein he introduces the memex. I found the proposed interface to the memex to be both antiquated and mechanically cumbersome, when compared to the modern computer. But, given the technology in his day this is to be expected. Some of the issues related to search, recall, and annotation, were unfortunately glossed over; in fact, these same issues still plague us today, everybody consistently underestimates the complexity of the task; reliable associative search is a hard problem. He did have the remarkable foresight to envision how people would wish to use such a system, and, were he alive today, would probably be greatly enamored with the collaborative efforts of knowledge sharing that places such as wikipedia represent.