Cheat to win. That is the message I got from frequent readings of Kurt Godel’s essay “On Formerly Undecidable Propositions of Principia Mathmatica and Related Systems” over the four years spanning from my junior year in college until the end of my first post-graduate job. Cheat to win, or more accurately, transcend the system to know its secrets, is the essence of the so-called “Incompleteness Theorem” and when played out in the pseudo-real-world of market economics, it is incredibly disruptive.
Game theory, when applied to economics, is a infinite game designed to keep wealth and wealth related power in the hands of those who possess it – “the rich get richer, the poor get poorer” is actually built into the rules of the game, the point of which is to minimize uncertainty, chaos, and instability while maximizing work and the generation of currency, that is the motion of capital through the economic circuits by creating difference of potential that induce flow of capital from areas of affluence to areas of greater or lesser abundance. Ideally, this exchange is done with two profit points, one directly where the margin of exchange favors the “seller” and the other indirectly, where some part of the exchange is siphoned off by one or more third parties who sanction, broker, or otherwise facilitate the exchange. The greatest power lies in the ability to coerce compliance to one’s will to control exchange, as it grants the supreme position to siphon both the greatest amount of an individual exchange and the greatest volume of exchanges.
Commerce is a transformer, meaning that the transaction of good or service in exchange for capital is only effective, in the context of the game, when that good or service is obtained by the “seller” at a cost less than the capital received from the “buyer” and thus the value of the transaction is a step-up or step-down, depending on the point of view, when viewed in an absolute sense. Equitable exchange is entirely a matter of psychology, as the seller is never incentivized to actually provide an equitable exchange and so must create a demand that provides an illusion of value to off-set the margin of exchange the seller is extracting from the transaction. In effect, every measure of value must be accounted for on both sides of the equation, but the seller may substitute absolute value for implied value if the buyer is willing to accept the substitution, and this substitution is what we term profit. Or to say it more clearly, the buyer must accept a certain measure of imaginary value for an exchange to earn the seller capital.
The most obvious means for creating implied value is scarcity. If demand exceeds supply, then the implied value increases with demand. The scarcity may be actual, it may be artificial, it may be the result of exclusivity or monopoly, but as long as demand exceeds supply at the point of exchange, the seller will hold the advantage.
The other most obvious means for creating implied value is fetish. If the urge to possess a good or partake in a service is irrational or absurdly directly, then no matter what the supply-demand dynamic, the seller will hold the advantage because the buyer’s passions are inflamed.
The most desirable means for the creation of implied value is the union of scarcity and fetish. In these circumstances the seller will become very wealthy. This is the principle way to succeed within the rules of the game.
An adjunct to creating implied value is the reduction of production costs. The less it costs to produce a good or service and bring it to the market, the less absolute value must be accounted for in order to enter profitability. Lower production cost can also be a strategic advantage if competitors cannot realize as much implied value at the same price.
All of this, however, presupposes a certain set of conditions, namely the existence of rule-abiding participants of the game and the resulting stability, order, and relative predictability that flows out of that rule-following. It does not abide the transcendent seller.
The transcendent seller has, in our lifetimes, made a number of appearances. In some cases it is the emergence of the supreme broker, as when a nation-state nationalizes a commodity, or in the case of OPEC, a cartel of nation-states. This use of physical power to transition by force from one of the poor to one of the rich is historically common enough that we have many accounts, both real and imagined. In other cases it is the disruptive force of a new tool or technology that destabilizes the game, permitting new players to gain power, as in the rise of “information technology” during the network revolution. Again, riding the wave of improved tools and technology is sufficiently commonplace for us to not be deeply concerned when it happens.
But what of other disruptions that are foreign enough that we are unsettled? The two that come to mind are the disruption caused by unchecked abundance and the disruption caused by the failure of implied value. Unchecked abundance, particularly without planned obsolescence, is detrimental because demand dries up and suppliers cease to be relevant. This may be best illustrated by music. Late in the 1990’s music became super-abundant in the form of digital replication of digital files (replication being identical copies, and opposed to reproduction which implies compounding flaws over generations). Ignoring the reaction of the legal system to the copyright violations (themselves a system of sanction placed upon exchange by governments to secure revenue in the form of future artist productivity) and focusing on the actual impact of this super-abundance, we fast forward to present day when many of us have tens or hundreds of Gigabytes of music and thus a corresponding reduction in incentive to participate in the music exchange market, not because the fetishistic desire for music is lessened but because when you have 100,000 songs in your collection, chances are the fetish can be satisfied by something you already possess. In addition, when you already possess that many songs, and you have experienced cost-free acquisition of music, even if it is unlawful, the psychological consent to substitute the actual value for some implied value is absent. Or to put it another way, while we might occasionally pay 99 cents for a single song, but we are unlikely to ever enjoy paying twenty dollars for 12 or 15 songs in an album, and we want that single song to come with as few strings a possible regarding what we do with it.
We’ve seen the collapse of implied value in the context of songs as a result of super-abundance, but can implied value collapse on its own? What about when the housing bubble burst? In this case, an abundance of demand, facilitated by poor lending decisions, spurred a radical increase in the amount of implied value buyers were willing to substitute for actual value with the seller. Billions of dollars were “created” when homes were sold far in excess of their actual worth. This spurred the building boom that would create a supply glut but the actual collapse of implied value stems from the fragile financial instruments used to pay for the homes in the first place. When the “creative” mortgage’s balloon payments came due, the lenders (who are in effect the true “buyer” in most real estate transactions) could no longer accept the original propositions about the amount of implied value in the home, instead treated the entire price as actual value, because they themselves were victims of similar shenanigans further up the economic food chain. The results were catastrophic, yet the actual perpetrators suffered relatively few consequences, largely because what they did was to set in motion a series of motions, themselves entirely within the rules of the game, yet their original motive force was wholly in the realm of Godel’s system transcendent meta behavior.
While we’re all peripherally familiar with the outcomes of the finance collapse, it really isn’t a good example of “cheat to win” because it largely didn’t actually cause anyone to win. A better example might be the strategy of competing with without actually participating in a particular market segment. If, for example, I wanted to be a producer of word processing software, I would necessarily find myself in contention for capital with the largest seller of word processing software, in this case, Microsoft. In such a scenario I would be easily over powered by the immensity of their reach, and relegated to a niche player no matter how wonderful or innovative my technology is because I am playing by the rules of a game designed to keep Microsoft on top and me at the bottom.
If, on the other hand, even though I possessed a word processor software product of sufficiently wonderful and innovative qualities to try and compete, I chose not to be a “word processor software vendor” and instead used the software as a means to accomplish some other end, one where the use of the software by people actually contributed to the meeting of some goal, and this goal was funded by a revenue stream that doesn’t require me to actually sell the word processor software, then I would be well served to make this software available at no cost, disseminated as widely as possible, and to nurture any fetishistic following that might emerge. I would do this not to compete with other word processor software but to further my alternate ends, even though the peripheral result of this end being achieved might be that I deprive other word processor software vendors of customers.
And what if my ends were furthered by not just word processor software, or office productivity software, but many different kinds of application software, operating systems, information services, and the like, none of which need to generate revenue for me, but all of which I want to be used by as many people as possible because of the benefit I gain by their use which furthers my ends, in turn generating revenue for me? All of these vectors can be widely disseminated and given away for no cost, thus depriving any competitor of not only users but direct revenue. While my revenue is divorced from my product line at least in as much as units shipped has no relevance to profitability, the other “competitors” in these ecosystems are tied to units shipped for their existence, and, like some sort of economic kudzu, I am choking them off with the tendrils of my various endeavors without ever having to actually “compete” on the terms they have established to maintain their prominence in the game. That is the essence of “cheating to win”.
If you want to follow Godel, it seems that at least one design pattern is to have a loss leader that infiltrates a segment and does a lot of damage (depriving them of customers/revenue) without ever having to declare itself an actual competitor, subject to the rules of the game relevant in that particular part of the game.
When I look at dying sections of the economy, I wonder whether they are dying natural deaths (as the auto industry seems to be), succumbing to cancer and old age, or are being murdered (as the print media industry is, or the mobile voice and cable operators seem poised to be), picked off like the coeds in a slasher flick by some force or set of forces external to the system; the victims of those who are “cheating to win” in a game designed from the ground up to guarantee they lose.
John Boyd says you can’t change anything as long as the status quo reigns, and I love the scrappy underdog, but anything can happen when the seas are rough and the sun is behind the clouds, so I’m no longer accepting that I’m merely cynical when I say that anyone who feels the need to tell you they aren’t evil deserves to be treated as if they actually are. Stability, at least some measure of it, is what lifts us up out of the mud and permits us to be civil, to stop fearing for our lives, and to be productive. Chaos and capitalism are related by a power law graph – a little bit of chaos doesn’t make a lot of difference, and there is a lot of room under the log tail, but most of the graph is above the line in 80% of cases you might find your self in.