Intelligent Systems And Their Societies Walter Fritz



Economics is a science that studies a certain part of the activity within a human society. See Societies (For continuous reading, like a book - do not enter here now).. It is not our objective to give you a detailed look into economics. Economics has been established as a hard science, especially its branches of econometrics and economical statistics. However, since this science is concerned with the activity within a society, it would be advantageous if it was based on the exact definitions concerning societies, as developed in the page on societies. (Here "exact" means definitions made up of concepts that can be measured, and concepts that can be used in a mathematical formula.)

For the economist who is uneasy with the present definitions of the fundamental concepts used in economics, who questions why these concepts exist, and would like to know how we define them, we present the following short explanations and definitions.


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Division of Labor Value Demand Competition
Goods Money Market Profit
Tools Interest Entrepreneur Innovation
Capital Supply Continue on after the definitions


Division of Labor
The IS is a learning system, but it learns at a relatively slow pace. Since it has a limited existence, it cannot learn all available knowledge. Therefore, it is better for each IS to learn only a part of the available knowledge and work with this knowledge, and trade the product of its work with other ISs that have learned other knowledge and skills.
Most intelligent systems learn almost all they can about a specific subject; these are the "specialists". Some intelligent systems, the "generalists," learn a little about each subject, how they are related, and how they influence each other. This relational knowledge is required to coordinate the work of many different specialists.

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Goods are material objects that the IS needs for some of its important objectives. We distinguish these goods as follows:

Free goods.  Those goods that renew themselves or are available in larger quantities than the ISs of a society will need in the future. Each IS is then permitted to take as many free goods as it wants, without having to give something in return. Air is a free good, but clean air can become scarce due to contamination. Game and fish are free goods as long as their populations are much larger than the hunting and fishing community. Minable ores were free goods only as long as the consuming society was relatively small and consumed little. Today, ores are definitely not free, since consumption is much larger and ores are being depleted.

Consumer goods.  These goods are relatively scarce. The IS must manufacture them or obtain them from other ISs through barter or payment. Some goods are manufactured continuously, such as electricity. Some goods become available during a short period in the year, such as wheat, and must be stored. A low level of stored goods, or stocks, makes the society vulnerable. It may reach a point of zero stock. For instance, suppose that a big meteorite or comet falls on Earth, which darkens the sky with dust and impedes harvests for two years. Is there enough stock to feed humanity for that period? Probably not. Humanity is vulnerable according to the level of food it stores.
Certainly, there is a limit to the tolerable scarcity of goods. The increase of the number of individuals in an environment, which cannot support any additional people, will lead to fighting, war, famine, and thus to the potential for a drastic reduction in the number of individuals.

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Humans have invented tools. A tool is something that helps an action; it allows you to reach an objective with fewer man-hours. A tool is also called an economic good. It speeds up the production of consumer goods considerably, and makes production much easier. But it does not form a part of these consumer goods. Note, however, that the time consumed in making tools is recovered later. It is only useful to make a tool if the total time needed to produce the tool and the good or goods that will be produced by that tool is lower than the time required to make the goods without that tool.

Examples of tools include manual tools, machines, buildings, factories, and commercial organizations. Examples of communication tools include letters, telephones, radio, television, and computer nets. Other tools, such as periodicals and books, help accumulate scientific and practical knowledge. There are also tools for material communication, such as roads, railways, and pipelines.

Furthermore, there are tools (methods and organizations) that were developed to enable a society to function better, such as methods of electing a good government, of generating good laws, of applying these laws, enforcing compliance with them, of the mutual control of the public powers, and for controlling the efficiency of the governing subsociety.

Efficiency of a tool can be measured by division. The man-hours needed to reach the objective without the tool divided by the man-hours needed to reach the objective using the tool. For the society, an average increase in tool efficiency by x% means an increase of the economic production by x%.

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If tools are built faster than they are used, a stock of tools accumulates. This stock is sometimes called "investment" or "capital" and can be considerable. It slowly accumulates over many years, and a war can then destroy it in a short time. A continuous decrease of capital also occurs due to wear (depreciation) and due to becoming outdated (technical obsolescence). Since tools make acting easier, a society with a considerable stock of tools can act efficiently and thus obtain its objectives more easily.

If the society's momentary objectives are of a military nature (since it fears invasions by neighboring societies), it may accumulate military tools (weapons) and tools for producing them (military factories). But this decision limits its accumulation of tools to produce consumer goods (civilian factories), since its resources (materials and time of its members) are a nearly constant value. If its objectives concern the immediate well being of its members, it may build up its stock of tools to produce consumer goods. However, this consumer focus limits the society's accumulation of military tools and makes it more vulnerable to invasions by other societies.

Tools used in agriculture have an interesting effect. If one person employed in agriculture produces food for three people, 1/3 of the population will work in agriculture and 2/3 will not, They will be city dwellers. Those numbers are exact proportions. In this situation, if more than 1/3 of the population works in agriculture, there will be a surplus of food that cannot be consumed, but the surplus could be exported. If less than 1/3 of the population works in agriculture, there will be a famine unless importation of additional food is possible. If one person in agriculture produces food for ten, 9/10 of the population will live in cities, and so on.

The continued well being of a society depends on a good method for handing these tools on to the future generations of the society.

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The amount of barter goods that an IS is willing to give to another to obtain a good is called the value of the good.

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Since so much bartering goes on in a society (because IS's are cooperating with each other in a system of division of labor), members in all human societies have found it convenient to name one bartered good "money." Money has to be something of limited supply, not perishable, and easily subdivided. From then on, the society will perform all bartering with this "money." In ancient times, some societies used shells. During recent wars, some societies have used cigarettes. In the past several centuries, humans have used silver and gold as the main barter good--the money. Now, it is generally agreed that paper or electronic money is the best barter good. Naturally this idea requires that its supply be limited. If its supply is not limited, inflation or a loss of the money's value occurs. Note that inflation is always a loss of the available money's value. The goods themselves, wheat, manufactured articles, and so on, do not change value fast and drastically.
Banks multiply money. Typically the amount of money they keep as a reserve is much smaller (for instance 20%) of the money they loan out. The government can regulate the value of money by changing the amount of the legal reserve and thus make money more plentiful or more scarce.

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In the last 2,000 years, the advantage of having a certain amount of money at hand has become evident. This amount of money should be vastly greater than that needed for immediate barter. This money can then be loaned by one IS to another. As an exchange for this service, the lending IS wants to obtain something, which is normally expressed as a percentage of the amount loaned and called interest.
If you want to use a house for a limited time, you pay a rent. If you want to use a car for a limited time, you rent it. Similarly when you want to use money for a limited time, you pay a "rent" it, which is called interest.

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The amount of goods manufactured and offered for barter at a certain time is called the supply of a good.

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The amount of goods required at a certain time by all ISs of a society is called the demand for a good.

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Intelligent systems cannot learn all the knowledge and skills that exist. Therefore they use the knowledge gained to produce some goods and services and sell these, buying the rest of the goods and services they need from others. This process of selling and buying we call the market. We see that the existence of markets has its origin in the properties of the intelligent system. In a free market the price is determined by supply and demand (Other market structures exist such as monopoly and oligopoly).
The physical place, normally centrally located, where the interchange of goods between members of a society takes place is called the market place.

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An IS who persuades other ISs to work for it, who organizes their activities and supplies tools so that they can work efficiently, we call an entrepreneur. The entrepreneur compensates the other ISs for their activity with barter goods, normally money; but the goods produced are the property of the entrepreneur. The main traits of the entrepreneur are the ability to have goods manufactured that can then be bartered for a profit, his supply of capital, and of the organization to reach that end. His objective is the resulting profit. The working ISs (employees) enter into such an agreement only if they do not have the vision to produce goods at a profit or lack the capital or organizational talent required; and thus are better off (they reach their objectives easier) working for the entrepreneur.

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Competition is an indirect attack by one society on another. Here the society acts on the environment (not directly on the competing society) and changes the environment to make it more difficult for the other society to reach its objectives.

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Profit is the excess money resulting from the sale of goods, once all the costs (mainly the cost of capital and of the activity of other ISs) have been deducted. If this excess is negative, we call it a loss.

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Innovation is the invention of better tools, is a very important factor that increases the standard of living for the society's members.

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In the previous text, we looked at the principal concepts used in economics and explained them in the light of the theory of intelligent systems. See Intelligent Systems (For continuous reading, like a book - do not enter here now). It should now be much clearer why these concepts are used in economics and what their relation is to the IS.


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Last Edited 6 Mar. 06 / Walter Fritz
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