Notes: Knowledge and Decisions by Thomas Sowell
An Overview
- Effective feedback does not mean the mere articulation of information, but the implicit transmission of others’ knowledge in the explicit form of effective incentives to the recipients. A corporation’s profit and loss statement or a baby’s whimpers are such transmissions. Both galvanize people into action in response to other people’s feelings, even though one is articulated and the other not. It is the effectiveness of the incentive transmission, not the explicit articulation, that is crucial.
- The degree of social rationality (i.e. how finely costs and benefits are weighed) does not depend upon the degree of individual rationality.
- What is individually rational within a given set of {institutional, incentives and constraints} may be socially wasteful in alternative institutional processes.
- Conversely, individual rationality is not a precondition for systemic rationality. That is easily seen in biological evolution, where the adaptation of organisms to environment does not presuppose planning for such a result, and certainly not by the organisms themselves. The inherent constraints of their situation as well as the nature of the particular institutional process through which knowledge of these constraints is conveyed to them as individual incentives, also shape the result.
The Role of Knowledge
- The question is not only how given institutions (including whole societies) manage to co-ordinate, but how various institutions (and societies) differ in the manner and effectiveness with which they do it?
- Ideas, as the raw material from which knowledge is produced, exist in superabundance, but that makes the production of knowledge more difficult rather than easier.
- Many ideas will have to be discarded somewhere in the process of producing authenticated knowledge.
- Authentication is as important as the raw information itself, and the manner and speed of the authentication process can be crucial.
- Various kinds of ideas can be classified by their relationship to the authentication process:
- theories: ideas systematically prepared for authentication.
- visions: ideas not derived from any systematic process.
- illusions: ideas which could not survive any reasonable authentication process.
- myths: ideas which exempt themselves from any authentication process.
- facts: ideas which have already passed the authentication process.
- falsehoods: ideas know to have {failed or certain to fail} the authentication process.
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Labor Theory of Value \(Money -> Commodity -> Money'\)
\[Commodity = Commodity_{ProdictionPower}^{LaborPower} * ProductionProcess = Commodity'\]