From the “Preface to the English Edition” of “The Theory of Money and Credit” by Ludwig von Mises: “All proposals that aim to do away with the consequences of perverse economic and financial policy, merely by reforming the monetary and banking system, are fundamentally misconceived. Money is nothing but a medium of exchange and it completely fulfills its function when the exchange of goods and services is carried on more easily with its help than would be possible by means of barter. Attempts to carry out economic reforms from the monetary side can never amount to anything but an artificial stimulation of economic activity by an expansion of the circulation, and this, as must constantly be emphasized, must necessarily lead to crisis and depression. Recurring economic crises are nothing but the consequence of attempts, despite all the teachings of experience and all the warnings of the economists, to stimulate economic activity by means of additional credit.

Mathematicians of the day.

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A Weekly Dose of Hazlitt: Communist Crack-Up

Communist Crack-Up” is the title of Henry Hazlitt’s Newsweek column from May 27, 1957. Here, Hazlitt shows that even using the USSR’s own inflated production statistics, the Soviet economy was less productive than the Tsarist economy. Note that this is in 1957, yet for the next three decades the US intelligence agencies continually overestimated the strength of the Soviet economy and thus its military capacity. Was this due to economic incompetence or was it a treasonous method of inflating budgets and influence? It was probably a bit of both. The latter is an iron law of bureaucracy while for the former, we can cite:

The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.‘ – Paul A. Samuelson and William D. Nordhaus, Economics, 13th ed. (New York: McGraw-Hill, 1989), p. 837.

A little less than a year ago, those who take Soviet boasts
seriously were warning us that Communism might be
about to beat capitalism “at its own game—production.”
Since then the evidence has been unmistakable
that, far from there being any “miracle” of Communist
production, the lands behind the Iron Curtain are going
through an economic crisis.

The most revealing recent study of Soviet production
was in a paper presented before the American
Economic Association by Prof. G. Warren Nutter of
the University of Virginia and the National Bureau of
Economic Research. Warning that we must depend on
Soviet official statistics, “where a government with flexible
standards of candor has exercised rigid control over
the trickle of information it has allowed to the outside
world,” Nutter presents tables to show that even on the
basis of these official statistics production in Russia lags
farther behind that of the U.S. in most basic industries
than it did in 1913. His tables cover 37 industries in
three benchmark years. I select comparisons for nine
basic or representative industries:

Number of Years Lag
Industry                    1913   1937   1955
Steel ingots                   21      32       29
Electric power              13      21       16
Coal                                45      49      47
Crude petroleum         14      26       34
Cement                          19      33       32
Railroad freight cars   33     51        69
Butter                            21      38       35
Boots and shoes          23+   44       44
Cotton fabrics              28     44       48
Median 37 industries 28     36       34

If we take steel ingots as an example, the above table
means that the Russian production in 1913 was roughly
equal to the production achieved in the United States
around 1892, or 21 years earlier; that the lag had risen
to 32 years in 1937, and fell somewhat from that point
to a level of 29 years in 1955. The comparison is even
worse on a per capita than on an overall basis. For the
37 industries in 1955, the median lag in per capita output
was 56 years.

A major sign of financial strain in the Soviet Union
was the announcement by Khrushchev on April 10 that
the Soviet Government had decided to “postpone” for
twenty to 25 years the redemption of 260 billion rubles
of bonds held by the Russian people. This proved once
again not only that the Soviet leaders will repudiate
their most solemn pledge, but that they are as contemptuous
of their promises to their own people as of their
treaties with the “capitalist imperialist” West.

How to Decentralize

But the most striking evidence of a crisis in Russian
production is Khrushchev’s radical plan for decentralizing
control. He is planning to abolish most of the
giant ministries in Moscow and to shift daily operational
control to a separate “economic council” in each
of 92 economic regions. This pays capitalism the flattery
of partial imitation; but it obviously does not go far
enough to be effective.

A far more promising step was taken last year in
Poland, when Gomulka declared that “joining of collective
farms is voluntary.” As a result, it is now announced,
85 percent, or all but 1,958 of the 12,500 collectives
forced together in a decade of Communist rule, have
been liquidated.

All that Russia now has to do is to allow such a
return to relative economic freedom and quasi-private
property not only in farming but in industry. Let the
government give the workers and managers shares in
their respective industries or plants, say, in proportion
to their wages or salaries. Let the new shareholders or
partners in each plant elect their own managing partner.
Allow everyone to buy or sell shares as he chooses;
to change his occupation; to buy or sell or produce or
consume what he wishes. Free all wages and prices from
government control. Let successful managers reap their
reward in profit, and let the burden of losses fall on the
unsuccessful managers. Allow and encourage competition.
Establish security of private property. Stabilize
the currency. Respect obligations and enforce contracts.
The result will be an enormous increase in production—
of the goods consumers want, and in the proportions
they want them.

This, of course, will be capitalism. But the Soviet
leaders should find no difficulty in accepting it, provided
only they are allowed to call it Modern Socialism.

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Macroscopic description for networks of spiking neurons by Montbrió, Pazó, Roxin

A major goal of neuroscience, statistical physics and nonlinear dynamics is to understand how brain function arises from the collective dynamics of networks of spiking neurons. This challenge has been chiefly addressed through large-scale numerical simulations. Alternatively, researchers have formulated mean-field theories to gain insight into macroscopic states of large neuronal networks in terms of the collective firing activity of the neurons, or the firing rate. However, these theories have not succeeded in establishing an exact correspondence between the firing rate of the network and the underlying microscopic state of the spiking neurons. This has largely constrained the range of applicability of such macroscopic descriptions, particularly when trying to describe neuronal synchronization. Here we provide the derivation of a set of exact macroscopic equations for a network of spiking neurons. Our results reveal that the spike generation mechanism of individual neurons introduces an effective coupling between two biophysically relevant macroscopic quantities, the firing rate and the mean membrane potential, which together govern the evolution of the neuronal network. The resulting equations exactly describe all possible macroscopic dynamical states of the network, including states of synchronous spiking activity. Finally we show that the firing rate description is related, via a conformal map, with a low-dimensional description in terms of the Kuramoto order parameter, called Ott-Antonsen theory. We anticipate our results will be an important tool in investigating how large networks of spiking neurons self-organize in time to process and encode information in the brain.

The paper can be read here.

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CO2 Forest: Improved Random Forest by Continuous Optimization of Oblique Splits by Norouzi, Collins, Fleet, Kohli

We propose a novel algorithm for optimizing multivariate linear threshold functions as split functions of decision trees to create improved Random Forest classifiers. Standard tree induction methods resort to sampling and exhaustive search to find good univariate split functions. In contrast, our method computes a linear combination of the features at each node, and optimizes the parameters of the linear combination (oblique) split functions by adopting a variant of latent variable SVM formulation. We develop a convex-concave upper bound on the classification loss for a one-level decision tree, and optimize the bound by stochastic gradient descent at each internal node of the tree. Forests of up to 1000 Continuously Optimized Oblique (CO2) decision trees are created, which significantly outperform Random Forest with univariate splits and previous techniques for constructing oblique trees. Experimental results are reported on multi-class classification benchmarks and on Labeled Faces in the Wild (LFW) dataset.

The paper can be read here.

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Frédéric Bastiat’s Economic Sophisms Is Now More Important Than Ever by Julian Adorney and Matt Palumbo

The great economist Frédéric Bastiat would have turned 214 today. His contributions to liberty have been many, but while so many advocates of free markets focus on The Law, there is another book that represents his legacy even better: Economic Sophisms. This short work of essays epitomizes perhaps his most important contribution: using taut logic and compelling prose to bring the dry field of economics to hundreds of thousands of laymen.

Bastiat did not, generally, clear new ground in the field of economics. He read Adam Smith and Jean-Baptiste Say and found little to add to these giants of economic thought. But Bastiat possessed a keen wit and a clear, pithy writing style. His writings have become immensely popular. One-hundred-and-fifty years after his death, essays like “A Petition” are still circulated as an effective counter to progressive economics.

Bastiat makes three central contributions in Economic Sophisms. First, he reminds us that we should care about the consumer, not just the producer. Second, he dismantles the argument that there are no economic laws. Third, and more generally, he is one of the few politicians and writers who thought with his head, not with his heart. Bastiat used logic to clearly lay out the consequences of political actions instead of hiding behind good intentions.

Surplus, Not Scarcity

Economic Sophisms expresses a common theme over and over again: we should craft policies that focus on consumers, not on producers.

When Bastiat uses these phrases, it can be easy to misinterpret him. Keynes, writing 100 years after Bastiat, hijacked the terms. But Bastiat wasn’t a Keynesian. When he discusses how consumption is the end goal of the economy, what he means is: having goods (which benefits consumers) is more important than making goods (which benefits producers). Put another way, producers prefer scarcity, because it drives up prices. Consumers prefer surplus for the opposite reason.

Producers advocate all sorts of methods for reducing the total quantity of goods (theirs excepted, of course). Producers seek to tax goods from other countries that compete with their own. They outlaw machines that would replace them. Producers even favor policies like burning food to drive up food prices, a policy that caused much starvation when it was enacted in the United States during the Great Depression. Consumers, by contrast, prefer abundance. They are happiest when they have a plethora of goods to choose from at a low price.

Bastiat points out that we are all consumers, including the producers. The man who produces railroads also uses his wages to buy goods. One can imagine a world with no producers, a paradise in which man’s every need is fulfilled by nature or a benevolent God. But one cannot imagine a world with no consumption. In such a world, man would not eat or drink, have clothing or buy luxuries. Consumption, and quality of life, is the essential yardstick to measure a society’s economic prosperity.

When we enact producer-backed measures like tariffs, Bastiat argues, we favor producers’ interests over consumers’. We show that we’d rather have scarcity than surplus. Taken to its logical extreme, such a policy is absurd. Would anyone truly argue that total scarcity is preferable to having plenty?

The rest of the article can be read here.

The Law and Economic Sophisms can be found in The Bastiat Collection.

When Bastiat is championing the interests of consumers versus producers, it must be understood that he was combating mercantilism. As the authors of the article note, Bastiate was certainly not a vulgar, aggregate demand, Keynesian. Rather, he was part of a long tradition of classical liberals fighting against the scourge of mercantilism, which along with inflationism are the most persistent of economic fallacies.


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On the Verge of the Second Entrepreneurial Turn by Jakub Bożydar Wiśniewski

Up until recent days, the history of humankind has been primarily a history of organized violence – wars, conquests, raids, slavery, oppression, and persecution. Entrepreneurs provided goods and services, but the attention of both the common man and the social scientist has been turned primarily toward the ruling caste of parasitic exploiters. It seems likely that this unfortunate state of affairs has been chiefly the result of the operation of some of the more unsavory features of our evolutionary heritage.

And yet some encouraging things happened along the way. In roughly the 17th and 18th centuries, the combination of the right moral and economic ideas (spontaneous order theory, the concept of the invisible hand, and the philosophy of natural rights to life, liberty and property), their widespread dissemination through the printing press, and the migration to America of a self-selected group willing to create a new society built around these concepts ushered in a qualitatively different era. For the first time in history, the entrepreneur has been widely and explicitly recognized as the driving force of civilizational progress, while the ruler has been demoted to at best a necessary evil. The first entrepreneurial turn has taken place, and humankind has finally managed to shake off at least part of its unfortunate primordial heritage.

Since then there admittedly have been several bumps and reversals along the way from violent primitivism to peaceful civilization, but overcoming them has only made the relevant ideas and practices more robust and refined. To use Taleb’s phrase, entrepreneurship is anti-fragile, and so are the ideas that make the world safe for its unhindered development. In their original formulation, they conceded a role for organized violence and even suggested that it is necessary for the smooth operation of entrepreneurial ventures. Perhaps it was precisely this concession that allowed organized violence to feed off the wealth-creating energy of entrepreneurial individuals and grow more deadly than ever before. And perhaps it was precisely this unfortunate result that prompted the contemporary rethinking of the economic and ethical foundations of entrepreneurship.

If the defining features of the entrepreneurial market process – creative destruction, alertness to unexploited profit opportunities, and economic calculation projected into the uncertain future – are so conducive to the efficient production of goods and services, why should they not be equally conducive to the efficient production of institutional frameworks that facilitate their unhindered operation? This is the central question that propels the second entrepreneurial turn – the theoretical and practical exploration of entrepreneurship as a multi-level phenomenon, operating not only within given institutional frameworks, but across them as well, and seen not only as a result of their existence, but also as the driving force behind their emergence.

This question becomes particularly interesting and relevant in the context of entrepreneurial provision of law and order.

The rest of the article can be read here.

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Sequential Extensions of Causal and Evidential Decision Theory by Everitt, Leike, Hutter

Moving beyond the dualistic view in AI where agent and environment are separated incurs new challenges for decision making, as calculation of expected utility is no longer straightforward. The non-dualistic decision theory literature is split between causal decision theory and evidential decision theory. We extend these decision algorithms to the sequential setting where the agent alternates between taking actions and observing their consequences. We find that evidential decision theory has two natural extensions while causal decision theory only has one.

The paper can be read here.

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A review on memristor applications by Marani, Gelao, Perri

This article presents a review on the main applications of the fourth fundamental circuit element, named “memristor”, which had been proposed for the first time by Leon Chua and has recently been developed by a team at HP Laboratories led by Stanley Williams. In particular, after a brief analysis of memristor theory with a description of the first memristor, manufactured at HP Laboratories, we present its main applications in the circuit design and computer technology, together with future developments.

The paper can be read here.

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