The previous website, NagaiTosiya.com was my personal website, as its title shows. Still some Japanese readers sent me their articles and asked me to publish them at my site. When I asked them why they did not create their own site, they would say it was troublesome and few visitors came to their sites. So, I have come to think that I should introduce some community features and encourage visitors to participate in contents creation.

Another motive of reorganization is language. My first language is Japanese and I have written more than 300 articles in Japanese, six times the number of those in English. But considering English-speaking and understanding online population is more than five times as large as Japanese-speaking and understanding online population (see the figure below) and English is overwhelmingly important in science, I must write at least as much in English as in Japanese. So, I made the new sites really bilingual. I am considering entering other language editions in addition to English and Japanese ones in the future.

I have aimed at creating a site of my own systems theory (systemics in short) that transcends beyond the boundary of the conventional scientific disciplines. From now on I will aim at offering sites of systemics that transcends beyond the boundary of persons, languages and disciplines. I hope the following five sites will be a platform of systemics research.

2. Systemics Archive

Systemics Archive is a site where I transfer the articles of the old blog site, nagaitosiya.com, which were written before 2011. This is an archive site and I do not update its contents any longer. You might think I do not have to change the domain, but I want change it because I want to change the romanized notation of my name.

There are two major romanization systems of Japanese, Hepburn romanization and Kunrei-shiki Romaji (ISO 3602). The former is the de facto standard and the latter the de jure standard for romanizing Japanese. I domestically adopted the latter and spelled my name "Tosiya" under instruction from the Ministry of Education, Culture, Sports, Science and Technology, while I adopted the former and spelled my name "Toshiya" in identifying my name for passport under instruction from the Ministry of Foreign Affairs. As Hepburn romanization is the most common romanization system in the English-speaking world, I decided to unify my names into "Toshiya".

So, my name is "Nagai Toshiya". It is a Japanese custom to put family name "Nagai" before given name "Toshiya". Although some Japanese opt for a Western ordering on the English editions of their works, the western scholars usually refer to historical figures of Japan in the Japanese order and I would like to put all the names in the original order.

3. Systemics Blog

Systemics Blog is the new blog that succeeds to the old one archived at Sytemics Archive. Here I publish the latest articles of systemics study. If you like it, subscribe to Systemics Blog Feed. You can comment on articles of this blog. You don't have to enter your name, email address, URI, but enter some name (pseudonym is OK) as much as possible.

The old blog is powered by MovableType, the most popular blog software in Japan, while the new one is powered by WordPress, the most popular blog software in the world. I adopted WordPress, because it is an open source software and therefore has many plugins and themes.

The only concern about WordPress is that its default does not provide static publishing model. Unlike MovableType, WordPress supports only dynamic page rendering. I am afraid my poor server may not cope with a large amount of traffic. I installed WP Super Cache to generate static html files, but if you feel my site is slow and heavy tell me it.

I also installed WPtouch, a plugin which formats Systemics Blog with a mobile theme for visitors on Apple iPhone/iPod touch, Google Android, Blackberry Storm and Torch, Palm Pre and other touch-based smartphones. As I do not have these smartphones, I cannot recognize it. If you cannot read articles on them, report it.

4. Systemics System

The entries of Systemics Blog are backed up by Systemics System, a wiki site powered by MediaWiki. As for its name, refer to About Systemics System. The bottom line is Systemics System means my system of systemics and systemics is equivalent to systems theory.

I think the theory of systems itself should be systematic and the wiki software is better tool to compile articles than blog software, which is suitable for periodical contents. So, Systemics System and Systemics Blog have different role. Systemics System is to Systemics Blog what a journal is to a book in the traditional academism. That is to say I post fragmentary articles to Systemics Blog and systematize them at Systemics System.

I do not change the contents of Systemics Blog so that I can accept comments, but you cannot comment on the individual article of Systemics System because its contents are variable. If you want to comment on contents of Systemics System, use Systemics Forum.

5. Systemics Forum

Systemics Forumis a BBS site powered by phpBB to discuss various topics of systemics. You can not only reply to messages of topics but also create your favorite topics of any academic discipline. This site offers forums of almost all disciplines. If your topic covers several academic fields, go to the category of General Topics.

At present, there are no truly interdisciplinary forums for systemics in the web. So, I hope this forum will contribute to encouraging dialog between researchers of systemics. You are not a systemics researcher? Don't take systemics in a narrow sense. Almost every object of science is a system and can be an object of systemics. So, feel free to post your idea and opinion. I will reply to you as much as possible.

In posting you cannot use HTML tags. Instead you can use BBcode. Here are instructions of BBcode. In most cases all you have to do is just click buttons above the form. You can create topics and post your message without registration but it gives you increased capabilities such as subscription, email report and so on. Of course you can also subscribe to Systemics Forum Feed.

6. Systemics Wiki

Systemics Forum is the first step toward to introduce community features. The second step is creating other language (German and French, for example) editions of Systemics System in corporation with its native speakers, when it has enough contents. The third step is Systemics Wiki, a truly collaborative wiki site like Wikipedia, which anyone can edit freely. At this last stage, users in general can post their articles to Systemics Blog as well. I hope these systemics websites will be updated even after my death.

This is a life long plan and it might not make sense to talk about so far future. In fact Internet years are like dog years and this plan might change according to the evolution of web technology. Anyway I will continue my study on systems according to this plan.

If you have a question, bug report, suggestion, feature request, or anything else about this site, feel free to post your message to the following forums.

1. Systemics Archive
2. Systemics Blog
3. Systemics Forum
4. Systemics System
5. Systemics Wiki

Of course you can use the comment form below.

The scapegoat is victimized when a community is faced with the increase in entropy, such as natural disasters, economic disorder and so on. When a social anxiety spreads over the community and it comes to a crisis of disorganization or a civil war, someone, pointing at an alien, says, It's all his fault! and make a scapegoat of him. It doesn't matter whether he is really to blame for the crisis or not. When all the members victimize him together, this togetherness restores the unity of the community.

Usually victimizers are located in the center and victims on the periphery of a community. Let's compare center/periphery and top/bottom in original spatial images. Suppose A is on the top and B is at the bottom of a hierarchy. For A, B is at the bottom and for B, A is on the top. This means top/bottom is not a relative reversible relation. How about center/periphery? For A, A is a center and B is a periphery. For B, B is a center and A is a periphery. So long as it is based on egoism, the difference is relative and reversible. Which is the objective center (with a definite article) and which is a subjective center (with an indefinite article) that might belong to the periphery depends on the amount of capital.

Here it is important for a system theory to notice that center/periphery corresponds to system/environment. The scapegoat exclusion is necessary to reunify and maintain a system by distinguishing itself from its environment. An individual is a subjective center that selects itself on its judgment and excludes its own environment. As I showed the last issue, individuals are selected by selecting and locate themselves on the objective center/periphery structure.

A community finds its scapegoat sometimes inside and sometimes outside it. In the former case, the majority in power victimizes a powerless minority in a community. In the latter case, the community tries to turn the member's dissatisfaction to the outside target. Unlike the former case, the latter case makes the whole community a center, but not always the objective center on the wider horizon. A leader of a minority race under the dominion of the Soviet Union, agitating his comrades, could say, It's all Stalin's fault! though this minority race group would remain the periphery of the Soviet Union. As such scapegoating is doomed to fail for lack of power, the victimizers must have superiority in number over the victims.

In a typical scapegoat persecution, the major center in power victimizes a powerless minor periphery, although, in most of societies, the minority in power exploits the majority. To explain this discrepancy, we need to classify the center into the core as the actually ruling classes and the semi-periphery (semi-core) as the actually ruled middle classes for the sake of analysis. The ruling classes are afraid the ruled classes stand together. So, following divide et impera policy, the ruling class divides the ruled class into the major middle class and the minor peripheral class and persecute the latter class as a scapegoat so that the former could feel that they are on the safer, normal and advantageous side and share the we-consciousness with the ruling class. Pariah in India or Eta in Japan is a typical example of the scapegoat class.

When the core goes corrupt and the semi-periphery gets conscious of exploitation, the center loses we-consciousness. Semi-periphery sometimes makes the scapegoat of the core. Owing to individual high capital, the core has more stable status than the periphery, but as the power depends on the sum of capital, the core is often overthrown, if it loses popular support of the majority, namely political capital.

2. The witch as a scapegoat

An often-cited example of scapegoat is the Witch-hunting in Medieval Europe. As the pre-Christian Europeans associate fertility with motherliness, they tend to worship maternal animistic religion. Against this tendency, Judaism-Christianity is paternal religion. Judaism was not paternal at first, but in order to differentiate them from the Oriental religion, Moses reformed the religion and made Judaism purely paternal religion. Based on Judaism, Christianity was also paternal and got over maternal animism. While Christianity was spreading all over Europe, it made a compromise with the natives by worshiping Maria on one hand and made the native goddesses witches on the other.

The English word witch is relative to wizard and French sorciere also means just magician. What is noteworthy is German Hexe, which derives from Hag or Hecke, meaning hedge. Hag is another English word for witch. Latin striga and Italian strega also derives from hedge. A witch is a woman who jumps over the hedge that distinguishes the center from the periphery.

A witch was believed to apply a special ointment to her body, fly in the air riding blooms and join the Sabbat. The ointment meant an aphrodisiac; the broomstick a penis; flying in the air orgasm; the Sabbat the sexual orgy.

They thought such Dionysian disorder resulted from witches transgressing the boundary of sexual norms. When the boundary between a system and its environment comes to fade, the system falls into crisis. Burning witches at the stake was a ritual necessary for the system to differentiate itself from its environment and re-create the order.

The medieval witch-hunt was most frequent when a drop in temperature caused a harvest failure. The ruling classes must accuse somebody of the starvation crisis so as to evade their responsibilities. The scapegoats that the medieval Christian power chose to make were the heathen magicians that were aliens and peripheral to it.

Some scapegoats were male but most of them were female. There are two reasons for it. First, a woman had a peripheral status those days. Second, sterile women were associated with a crop failure. That's why they were the most likely candidates for witches.

Christianity had been a scapegoat before the Roman Empire authorized it. Once it seized power, it began to oppress heathenism. The witch trial came to an end in the late 18th century, when the People's Revolution drove the religious classes from power. The center/periphery relation has been changing.

1.1. Essence in not always center.

In our body systems, brains are essential, while nails or hairs are inessential. Unlike the latter, the former is so essential that a body system cannot survive without it. But you cannot say a brain is the center and nails and hairs belong to the periphery of a body system, because the body system is different from the social system, where self-conscious agents, namely subsystems that can represent the height of capital as power select one another.

1.2. Center is not always essence

On the other hand, the privileged parasite classes in l'Ancient Regime before the French Revolution was the center to the periphery as the third estate, because they had high capital. However, they were not essential, as the social system could survive or better survive without those classes.

2. Selectors are selected

A social system reduces the indeterminacy of interdependent selection and individuals make themselves the selected being through selecting one another.

To give an example of applicants for admission to colleges, they set an criterion for selection, whose priority order forms the relation of center/periphery; the first choice is A college, the second is B, the third is C and so on. Although they think they just follow the established ranking, it is their decision which to enter, when they succeed in passing more than one college entrance examination, that decides the ranking. There is an autopoietic reflection between them.

Suppose an applicant turns out to fail to pass the examination of A College and succeed in passing the examination of B College. Then, he might say, "To tell the truth, I did not want to go to A College. B College is better than A." It is ressentiment. Although the desire of applicants decides the ranking of colleges, they decide the ranking of themselves through the very desire.

3. The structure of differentiation

Many social thinkers have considered the equal society as an ideal from ancient times. However, as long as people wish for the freedom of selection and try to satisfy the desire for difference, the center/periphery structure does not disappear. Though the information revolution has transformed the hierarchical society into the network society, it does not correct the maldistribution of capital as power. Rather, the gap between the rich and the poor has become still larger. The spatial metaphor to describe the stratification of the hierarchical society was top/bottom, while center/periphery is a metaphor more appropriate to describe that of the network society.

The prototype of our desire for difference is the penis envy and the castration complex in our childhood. According to Freud, an infant girl suffers from a sense of inferiority for lacking penis and wants it. An infant boy is shocked to find a woman does not have a penis and afraid that his father might deprive him of his penis.

This theory of psychoanalysis is based on the male-dominant society of Freud's time. In the family of those days, father had the highest capital. The Phallus that symbolizes it was the father's penis.

2. The desire for difference in matriarchy

If our society were female-dominant, a breast should function as Phallus. However, the case would be somewhat different from that of penis. Since an infant girl as well as an infant boy does not have a rich breast like mother at first, the castration inferiority complex would be such anxiety; "Mummy may eternally stop my bosom from getting well-rounded for fear I might rob Daddy of his love..." On the other hand, an infant boy must have an inferiority complex, realizing his fate to have a poor breast forever.

Both a penis and a breast are signs that negate their deficiencies, a female sexual organ and a male poor breast. Although they can also differentiate sexes, the penis or the breast can be the object of desire as phallus because of its demonstrativeness and its graspable form (the word phallus stems from a Greek word meaning the swollen.)

3. The desire for difference in general

Just as money representing the economic capital and the graduation certificate representing the cultural capital are mere trivial pieces of paper in themselves, a penis and a breast are mere trivial pieces of meat in themselves. But these symbols can often be direct objects of fetish desire.

However, the sexual desire itself is not what I mean by the desire for difference. Men and women charm each other. So, sexual love has symmetry. On the other hand, the desire for difference is based on asymmetry. Although the poor long for the rich, the latter does not yearn for the former.

Before examining it, I'll explain the law of increasing/diminishing returns. The return is the function whose variables are such factors of production as land, labor, capital, intellectual properties and so on. Although every factor is variable input in the long run, in the short run you can make only one factor variable with the others fixed.

Suppose, for example, a farmer is increasing only the input of fertilizer with the other factors constant. When the input is small, the increase in fertilizer has an effect that beats the increase in the cost of fertilizer. But the gradual increase in the input decreases the effect gradually until the returns are reduced to zero. This is the law of diminishing returns.

2. The law of increasing/diminishing returns to scale

Then, what will happen, if the farmer increases the other factors, land, labor etc. at the same time? If s/he improves efficiency by introducing large machinery, s/he can expect increasing returns to scale. It is a biased view that diminishing returns to scale always dominates the Old Economy. On the contrary, many countries, whether capitalism, communism or fascism, had concentrated means of production until the Information Revolution, as economies of scale usually reigned in the industrialized countries.

However, returns do not increase forever. First of all, resources necessary for production is limited. As the Earth is limited, the increase in production raises the scarcity, i.e. cost of ingredients and diminishes returns. The limitation of resources is also the limitation of population, namely demand does not increase to an unlimited extent.

The more important cause that brings about diminishing returns to scale is the swollen middle management. An initial input of additional labor as a factor of production increases returns, since the division of labor improves efficiency. But further input has a less effect and results in diminishing returns to scale, as it enlarges the management cost necessary to supervise workers. The inefficiency of gigantic government enterprises is typical diseconomies of scale.

The best way to reduce the management cost is to make individual workers independent and manage them. If all workers as independent experts devote themselves to their strong points and outsource the other field, the decentralization does not decrease the efficiency.

3. The essence of New Economy

The pursuit of scale since the 18th century Industrial Revolution broke down in 1970s, when the exhaustion of natural resources and the environmental destruction on one hand and the inefficiency of bureaucratic organization on the other came to the surface. Since 70s, the change from the energy intensive industry to the knowledge intensive industry that wastes fewer natural resources has coincided with the structural transformation from the hierarchical organization to the network specialization.

The knowledge intensive network economy has produced a new type of economy of scale, the Winner-Take-All Economy brought about by the network externality of defacto standard. The defacto standard sells the better, the better it has sold.

The positive feedback of defacto standards, whose typical example is the OS of PC, is based on the interdependent network economy. IBM had once the overwhelming share in the world computer market. However, as the global network of computers did not developed those days, NEC could build their own kingdom in Japan. When the information processing function is decentralized from mainframe to PC and the global network of information exchange has developed, the monopoly by a defacto standard becomes possible.

As the reproduction and distribution of digital contents on line costs almost nothing, the increase in sale is believed not to diminish returns. This is the background of the myth of New Economy: the more a dotcom company sells, the more returns it can get. Actually, a rise in sale also increases the cost of advertisement, customer support, a lawsuit against the invasion of copyright and so on. The software industries do not consume so many resources as the hardware industries, but it is just a matter of degree. Owing to the limit of demand itself, a new industry, though it grows rapidly at first, soon reaches full growth and diminishes returns.

The newness of the New Economy consists not in what it makes but how it makes. Classifying Microsoft as a New Economy and Coca-Cola as an Old Economy is superficial. Whether the products are software or soft drinks, first the law of increasing returns and then the law of diminishing returns holds sway over the industry. Increasing returns are inessential to the New Economy. People often say, "NASDAQ is slumping. The New Economy was an illusion." Such a commonplace criticism of the New Economy is not to the point as well.

The essence of the New Economy lies in the knowledge intensiveness. The interdependent network structure that enables the defacto standard and the energy saving economy that enables low inflation are derivatives from the knowledge intensive economy.

An often-quoted example of the bad defacto standard is the QWERTY keyboard before your very eyes. In 1873 a printer named Christopher Sholes developed the QWERTY arrangement to slow down typing enough to reduce key-jamming by spacing out the most commonly used letters. As Remington mass-produced the QWERTY keyboard and many typists learned its arrangement, the other typewriter manufacturers followed it.

Then the progress in typewriter solved the problem of key-jamming. In 1936, August Dvorak designed a rational keyboard arrangement to minimize finger movement and improved typing speed by 10 percent. But as typists persisted in using the familiar QWERTY keyboard, the Dvorak keyboard did not come into wide use.

This is the irrationality because of path dependence. It is quite paradoxical that the worst and only the worst could survive the market competition.

Another example of the inefficient defacto standard is Windows OS. Though my PC has 128MB memory, Windows 98 uses so many memory resources that the system will get soon insecure without booting once an hour. Moreover, it sometimes crash to lose all the input data. But the sunk cost to change the OS is so high that I continue using Windows OS.

2. Lock-in promotes progress

Is it wrong to believe free competition results in the survival of the fittest? Is the lock-in of the defacto standard market failure? I'll prove it is not:

The defacto standard regime does not prevail forever. The technological innovation of DVD will invalidate VHS as the defacto standard of home video format. Windows OS might lose its power as the defacto standard, if PC gives up the status of the main information terminal. In fact, Palm OS is prominent in the field of PDA, imode in the field of a cellular phone and Play Station in the field of a game player. The technological innovation from keyboard input to vocal will nullify the standard of keyboard arrangement.

The worse a defacto standard is, the more likely to be discarded the old technology it depends on is and the sooner we can shift to a new paradigm. It is a happy dispensation of the world.

The classic examples of defacto standards are VHS of VTR, Windows OS of PC etc. I will explore in reference to them what conditions are necessary for a certain standard to be the defacto standard.

A defacto standard is autopoiesis that spreads because it has spread. Agents' selection must be interdependent to give effect to this positive feedback.

In the case of VTR, users have to buy the videocassette recorder that can play back the majority videotapes in a video rental store. In the case of PC as well, users have to buy the majority OS, so as to exchange data with the others.

If it is not certain which standard wins a majority, you will hesitate to judge because of the interdependence, where your selection depends on the others' selection and their selection depends on the selection by their others including you. But once it gets certain, all rush to the majority so as not to be losers and the majority standard as the defacto standard quickly locks in the users.

In the absence of this interdependent relation, you cannot expect the external economy that a defacto standard brings about. You do not have to buy at the online mall again, where you once bought or your friends bought. During the swelling process of the bubble economy that attained the peak in March 2000, many dotcom companies invested too much to establish the defacto standards, believing in the law of increasing returns in the New Economy. The result was miserable.

What standard can be a defacto standard in the relation of interdependent selection, then?

2. Two common sense requisites

Common sense tells you that superior or pioneer standards are advantageous. But these are actually not so important conditions.

Betamax, the VTR that Sony proposed in 1969, had 1 hour long recording time, while VHS, the VTR that JVC proposed 7 years later, had 2 hour long. Moreover, VHS was 5kg lighter than Betamax. But as the image quality of Betamax was higher than that of VHS, it was a well-matched game in respect of performance.

In the case of PC, Microsoft was not the pioneer in the development of OS either. The first OS for PC in the world was CP/M developed by Digital Research in 1973 and it was after 8 years that Microsoft provided MS-DOS1.0 for IBM. The first PC with GUI in the world was Lisa, the antecedent of Macintosh. Windows1.0 that Microsoft developed 2 years later was not only delayed but also inferior to Macintosh.

3. Two actual requistes

If VHS and Windows OS were neither pioneer nor excellent, how could them get the defacto standards? Two factors were important:

1. JVC succeeded in persuading the strongest rival of Sony, Matsushita, which had the greatest own retail network in Japan. It reminds us that Microsoft succeeded in providing Windows OS for IBM, the largest computer company and the rival of Apple. Recently IBM has endeavored to promote Linux. As IBM is no longer the giants of the industry, it is quite uncertain whether Linux can be the next defacto standard.

2. While Sony wanted to hold onto all rights to it, JVC opened and lent their trial model to the other companies, without making it a secret. It enabled other companies to participate in improving VHS, for example, Sharp added front loading system, Mitsubishi Electric fast forward function and so on. It reminds us that Microsoft outsourced hardware, while Apple persisted in its own making, and Linux opened its source code.

To sum up, you must first persuade the possessor of sufficient capital and second throw away secretiveness, spreading the network of outsourcing so as to make a standard lock in the market.

Sufficient economic capital of issuer is necessary for a currency to circulate and sufficient cultural capital of users is necessary for a language to circulate. Although a defacto standard does not depend on the public power by definition, it usually depends on the economic and cultural (brand) capital of the private power instead. Once they get to circulate, circulation causes further circulation and the private power like IBM that used to support the defacto standard, cannot stop this circulation.

Just as money is a communication medium, because it reduces the double contingency consisting of a pair of indeterminacy, whether the barter partner possesses what I desire and whether he desires what I possess, so language is a communication medium, because it reduces the double contingency consisting of a pair of indeterminacy, whether the communication partner understands what I express and whether I understand what he expresses.

There are about 6000 languages in the world. It is as difficult to learn 6000 languages in order to communicate with people all over the world as to barter. If people use English as the lingua franca, the languages to learn are no more than two. The assets necessary to exchange commodities in the specialized money economy are likewise the products of own labor and money.

2. Media measure and exchange values

A language intelligible only to the speaker is called private language. The language in general is to private languages what English is to local languages. You might think there are no such things as private languages. But when symbolizing abstracts empirical diversity, the selection is always otherwise possible and this otherness of possibility is the possibility of otherness. So, individually as well alter ego may select by mistake ego's selection and ego may select by mistake alter ego's selection.

The selection by language has three levels, 1. distinction of sense from nonsense, 2. distinction of truth from falsehood, 3. distinction of value from valuelessness. Any selection on each level is negentropy and therefore produces value. The word "value" is often used on the 1st or 2nd level, for example as the mathematical quantity or the length of a musical note. But the target of people's desire in the language market is the most refined value in the narrow sense on the 3rd level.

Language does not represent meaning and truth the way money represents the value of commodities. If you compare cultural works produced by intellectual activity with economical commodities produced by labor, you will find sense/nonsense corresponds to being/non-being and truth/falsehood corresponds to usefulness/uselessness. Not only usefulness but also scarcity is necessary for commodities to be valuable. Similarly, the well-known truth has no information value. In order to be evaluated, surprise is required of news and originality is required of a theory.

How many buyers are willing to sacrifice how much for a commodity determines the total value of it. Such useful but not scarce goods as air and sunlight are free, because you do not have to sacrifice anything so as to get them. Analogously when you understand an expression by language, you accept a new knowledge at the cost of discarding the old knowledge that contradicts it. A well-known knowledge is worthless, because you do not have to sacrifice anything so as to accept it. The more old knowledge of the more people a new knowledge denies, the more value it has.

The number of currencies that consumers offer indicates the price of economic commodities and the number of signs of consumers praising indicates the merit of cultural works. The praise is not always expressed by language. Symbolic signs such as handclaps can take the place of it.

3. Media save value

Money has the function of saving value as well as measuring and exchanging value. Language also has the function of saving the knowledge besides measuring and exchanging it.

It is the stock and flow of value and knowledge money and language represent that ensures their circulation. Esperanto, however rational as language it may be, does not circulate because it is short of stock. On the other hand, many people are still learning Greek and Latin, though their flows stopped, because they are rich in stock. Electronic money, however convenient its IC card may be, does not circulate so long as the issuer's stock is not so affluent as that of the other issuers.

The more unstable the market gets, the more chances to earn money speculators can grab at. But it does not follow from it that the speculators make the market unstable. So long as the market mechanism works well, no speculators can personally control the market at their will.

All that the speculators can do is to guess ahead. When a price of capital is relatively low, they buy in the hope of a future rise and, when their prospect proves true, they sell it. When the price is relatively high, they make a short sale in the hope of a future drop and, when their prospect proves true, they buy it back. If speculators buy anything overvalued and buy anything undervalued, they will have their funds quickly run out and be weeded out of the market. This shows that, so long as speculators are making money, the market will go neither overvalued nor undervalued.

2. The paradox of beauty contest

Some doubt this criticism of common sense, pointing out the paradox of beauty contest. Here the beauty contest means such as to put the choice of beauties, whose pictures appear in the newspaper, to the vote by its readers and award a prize to those who voted in favor of the beauty that obtained the most votes. In order to win the prize, the readers must think about, not who the beauty is but who the others think the beauty is, who the others think the others including me think the beauty is and so on. This regressus in infinitum of the forecast, it is said, makes the forecasting game indeterminate and most of the readers come to vote for a woman they do not estimate to be beautiful.

It is true the market would be unstable, if, owing to the paradox of beauty contest, many speculators should continue buying/selling what they themselves feel overvalued/undervalued. But I would like to criticize this criticism of the criticism of the common sense in terms of two points.

First, the regressus in infinitum of the forecast does not make the forecasted price diverge. Let a present price be p0, the nth forecasted fluctuation of the price dpn and the probability of the forecasts r (0<r<1). Then the forecasted price is

This infinite series converges.

Second, forecasting the forecast does not amplify but correct the detachment from fundamentals caused by the beauty contest style forecast. A bubble/panic often comes about when participants in the capital market, though they themselves feel it overvalued/undervalued, forecast the other may not feel so and go on buying/selling. But when they forecast that the others go on buying/selling, though they themselves feel it overvalued/undervalued, just because they forecast the other may not feel so, they switch to a sell/buy. It results in correcting the valuation disparity.

3. Speculators as scapegoats

Thus, speculators contribute to stabilizing the market, though they just pursue their own interests. Just as Hitler once targeted the international Jewish financiers, current nationalists scapegoat speculators such as George Sores as the agents of global market economy and try to gain support from the domestic masses. But, don't mistake the real cause of economic crises.

Money is a communication medium, as it reduces the double contingency consisting of a pair of indeterminacy, whether the barter partner possesses what I desire and whether he desires what I possess.

When each of n persons has one unique equivalent commodity that the possessor does not intend to consume by himself and wishes for only one commodity which the other has, the probability of success in exchange between arbitrary pair is no more than 1/(n-1)². In other words, the system that solves the inconvenience of barter can reduce entropy by 2log(n-1).

The fact is commodities are not always equivalent. So, a coincidence of mutual desire is actually even rarer. If none of the pair possesses what the other desires, they must work to produce the desired commodity. However, it catches them in the prisoner's dilemma.

Suppose an inhabitant in a mountain that wishes for fish promised an inhabitant on the coast that wishes for boar to catch a certain number of boars and by a certain day exchange it with the coast inhabitant for a certain number of fish that he promised to catch.

In this case, the mountain inhabitant will reason as follows: It is uncertain whether the partner will catch a promised number of fish by the promised day or not. If he breaks the promise, I do not have to catch additional boars that I do not intend to consume by myself. Even if he keeps the promise, as he cannot consume all the fish, I can steal leftover fish...

Of course, the coast inhabitant thinks the same strategy. As a result, since both inhabitants break the promise and produce the minimum for themselves, the Nash Equilibrium turns out self-sufficiency. But it is not the most desirable state. As the theory of comparative advantage indicates, the specialization and trade increases the benefit of all, even if some gain an absolute advantage over the others. How is the specialization and trade possible, then?

2. Why does money circulate?

Suppose the third rich of reputation appears before the two hesitating about specialization and trade, who accepts any kind of valuable commodity, gives in return an equivalent commodity valuable to anybody and will exchange any other equivalent commodity for it, if they want to get it. This third can solve the problem. The mountain inhabitant can exchange boars for fish with the coast inhabitant through the universal medium of money.

Why can money circulate as something valuable to anyone? Once it circulates, it is obvious that money is useful as an exchange medium, a value-measuring rule or value saving means. But is there any ground for specific goods being money? Precious metals such as gold and silver were once used as material of money, but, as nowadays base materials, paper or an electromagnetic wave took the place of it, you cannot regard material of money as the ground for the value of money.

Does money function as money because it is so established by law? No. Even if the law provides that specific goods shall be money, people do not necessarily use them as money. Moreover, private enterprise can issue its original money. Some company issue money, when they make a rule that they pay consumers points to fill out a questionnaire and exchange presents for it.

3. What guarantee the value of money?

Does money have no ground for its value, then? Does it circulate as money just because it has circulated as money? No. If money had self-sufficient value, why deficit financing or unstable political situations could devalue the currency?

I consider money to be securities for the issuer's asset and estimated earnings. As current money is inconvertible bank note, a Government or a Central Bank does not convert money into some valuable commodities. But that is because the nation pays tax in cash. The Government can make the nation pay in kind like the Tokugawa shogunate. In that case, it is evident that the money issued by the Central Bank is security for national property and revenue.

Of course, the whole sum of currency value exceeds the scale of national property and revenue. You cannot explain it just by means of utility value of money. It rather indicates that the credit creation multiplies the value. Deficit financing devalues money in fear of security value and unstable political situations devalue money in fear of credit.

A margin between the cost of producing a coin and its statutory currency value is called seigniorage. It is the U.S. that gains the largest benefit from seigniorage today. FRB can issue dollars as the global key currency more than domestically necessary. People often denounce seigniorage as unfair profit but it is actually a fair reward for political or military labor to produce the commodity of credit. In fact, credit creates value because it reduces indeterminacy (entropy).

It is because politically and militarily Japan plays a minor role in maintaining an international order that yen does not circulate internationally like the US dollar, although Japan is economically strong. The issuer itself must be universal so that the currency can have universal value.

I defined a system as function to reduce indeterminacy. What makes social systems different from other systems is a special character of the indeterminacy for them to reduce. In order to understand what indeterminacy they must reduce, you have only to imagine how inconvenient it would be without social systems.

Suppose you run into a stranger in an anarchic jungle. Both of you point guns at each other and shout at the same time, "Throw away your gun, and I will throw mine away."

Whether I abandon my gun or not depends on whether the opponent abandons his gun or not, and whether he abandons his gun or not depends on whether I abandon my gun or not. When the selection of both systems thus indeterminately depends on that of the other, the indeterminacy is named double contingency.

2. The paradox of the prisoners' dilemma

It is the best for both to abandon the weapons and coexist peacefully. But there is no guarantee that the opponent will throw away his gun as he promised, even if I throw away mine. He might monopolize the weapons and enslave me.

The combination of payoff in possible four cases is as follows:

My reasoning is " Whether the opponent will abandon or keep his gun is indeterminate. But in either case, my payoff will be bigger, if I keep my gun. So, I should keep my gun." But, as this is also his reasoning, neither of the two abandons his weapon.

This is the so-called prisoners' dilemma. The Soviet Union and US in the Cold War era, both of which hesitated to reduce the nuclear weapons, were caught in the same dilemma.

According to the game theory, the strategy that maximizes the minimum of my payoff, whatever strategy the other player(s) may adopt, is the optimal response. The combination of strategy optimal for any player is called Nash Equilibrium. The paradox of the prisoners' dilemma consists in that the best judgment sometimes induces each player to select the Nash Equilibrium, although all players know it is not the best.

3. To escape from prisoners' dilemma

What should the two of you do, then, so as to extricate yourselves from the anarchy and secure your lives? You cannot get out of the dilemma of double contingency by yourselves. So, let's assume the case where the third appears.

Suppose a common friend appears and, holding pistols in both hands to the two, say, "Throw away your guns in three seconds or I will shoot you. One, two, three!" Then he can make you two abandon the guns. In this case, the third functions as the Government.

When the third is a suspicious alien, he may enslave the two of you, if you abandon your guns. So, you cooperate with the opponent to kill the third, so that the third cannot fish in troubled waters. It makes you have a sense of solidarity. This is the effect of scapegoating.

The third that solves the dilemma of double contingency is called a communication medium. Whether it is a common friend or a common enemy, the communication medium must be equally distant from all players and this same distance makes the communication medium public.

Not all indeterminacy specific to social systems is double contingency. Industry is bound to regulation of bureaucracy, the bureaucracy is bound to the politicians' orders and the politicians are bound to the industry lobby. This tripartite dependent relation of decision-making is not a mere combination of double contingency. So, let's use a more comprehensive term than double contingency, "multi-contingency". Now I can define social systems as communication media that reduce the multi-contingent indeterminacy.

When you observe the reality of representative democracy, you will find that the reverse is the case. It is a few pressure groups of the economically weak that cannot survive without any subsidy or regulation that actually control democracy.

How can the weak minority control democracy? Let's simulate the control by means of a simple example. Suppose a representative governs 10 thousand inhabitants and they have equal rights to vote his decision, paying a telephone rate of 20 cents per call. Who will come out against his suggestion that he should charge every inhabitant 10 cents for subsidizing the weakest in the community?

If the inhabitants are economically rational, nobody will declare himself against losing 10 cents, paying 20 cents for call, while the weakest to be subsidized not only declare themselves for it, but also promise to donate part of subsidy to the representative so as to realize the subsidy. This is the mechanism for the economically weak minority to exploit the silent majority.

2. Why can't the majority rule democracy?

Can the majority exploit the minority, as the classical theory assumes? Let's examine it with the similar example. Who will approve of the representative's suggestion that he should charge the richest in the community 1 thousand dollars for giving 10 cents to every inhabitant?

If the inhabitants are economically rational, nobody will declare himself for receiving 10 cents, paying 20 cents for call, while the richest to be charged 1 thousand dollars not only declare themselves against it, but also offer a bribe to the representative so as to stop the exploitation. This is the reason the majority cannot exploit the minority. The minority can control the majority rule based democracy, not though but because they are in the numerical minority.

Of course, it will not be the case, if participants in a majority decision are fewer. The larger the majority is, the less influence, whether preferable or not, the result has on each voter and the less significant he feels himself, the more are apt to abstain from voting, thinking the result will remain the same without his voting. In short, the more, the less powerful.

3. How to improve the voting rate

In fact, the voting rate among advanced countries is very low. It is because most of the silent majority consider the benefit gained from voting less than the cost necessary to vote that they abstain from voting.

Suppose a voter desires a bill B to be passed through the Congress. In representative democracy, he must face the following indeterminacy:

1. Whether there is a Congressman C or not that pledges to pass B is indeterminate.

2. Whether C, if any, will win the election or not is indeterminate.

3. Whether C, if he wins the election, will honor the pledge or not is indeterminate.

4. Whether B, if he tries to honor the pledge, will be really passed through the Congress or not is indeterminate.

However valuable passing B may be for the voter, its value will be reduced to almost nothing, multiplied by probability coefficients of these 4 uncertainties. This makes the opportunity costs of the time necessary for most of the silent majority to gather information and go voting surpass the benefit of voting.

We must decrease the costs of voting and increase its benefit, so that the silent majority can take part in public choice. The Internet can play an important role in reformation of election. The Internet removes many middlemen including the representatives as mere transmitters of public opinion. Internet voting enables direct democracy, reduces the indeterminacy of voting and increases its value, while it decreases the costs of voting, because you can easily gather information and vote on the screen of a terminal at home. As a result, more voters will participate in the decision making process and democracy will approach the ideal.

According to utilitarianism, we must act so as to maximize the social sum of pleasure minus pain. The ideal of utilitarianism is the greatest happiness of the greatest number.

A common criticism of utilitarianism is this. Suppose A has trouble with his heart, B with his liver, C with his kidney and D is a healthy person. The former three cannot survive, unless they kill D and transplant his heart to A, his liver to B and his kidney to C. The transplant takes D's life but saves two lives in total. So, utilitarianism would approve it.

If D is to be faithful to democracy, he must accept the majority decision. Can the utilitarian calculation justify murdering D?

2. Pareto improvement

In order to protect himself against the violence of the majority, D might refer to the Pareto optimum as an antithesis of the greatest happiness of the greatest number. The Pareto optimum is a state of allocating the resources where it is no longer possible to make anyone better off without making someone worse off. If advance in genetic technology can save the lives of the three by making spare organs artificially, it will be a Pareto-improving allocation of resources. But you cannot make the three better off by making D worse off.

Ideal as the Pareto principle may seem, the problem is that the strict application of it makes almost all improvement impossible. If you try to change anything, some will always oppose it so as to protect their vested interests. For example, although it is globally desirable for the Japanese Government to liberalize her rice market, accepting the suggestion of the GATT Uruguay Round was not a Pareto improvement, because the rice producing farmers in Japan were strongly opposed to it.

3. Kaldor improvement

In this case, beneficiaries can virtually make the Pareto improvement by compensating victims for a loss. This is the Kaldor improvement. It was an example of the Kaldor improvement that the Japanese Government levied a tax on the rice exporting countries and Japanese consumers as beneficiaries and compensated farmers.

Does the Kaldor improvement really optimize the allocation of the resources? The Japanese Government spent about 60 billion dollars to protect the domestic fading agriculture from the Uruguay Round, only to produce many useless and silly facilities. The Kaldor improvement rather reduces the resources to allocate by spoiling the declining industries.

Some economists use the Kaldor's criterion just as a criterion to decide whether to change allocation or not and consider the actual compensation unnecessary. This interpretation makes the Kaldor improvement identical with the utilitarian improvement.

4. Merit improvement

What the utilitarian, Pareto or Kaldor improvement fails to see is that the allocation of resources must be based on justice and meritocracy. Even if a certain improvement makes some worse off, the disadvantage creates positive value, so long as it is valid as penalty. On the other hand, it is unreasonable exploitation for A, B and C to kill D and transplant his organs selfishly, so long as he is innocent.

The utilitarians and the marginal utility school identify value with subjective pleasure but the pleasure is sentiment toward value and not value itself. So, you cannot decide how to improve social systems by calculating the social sum of pleasure minus pain. Observing the rule of justice and free competition by itself has as low entropy as the economic resources.

For example, in order to produce metal, they refine it, with oil burned. Although the increase in entropy as burning oil reduces the resource value, it refines ore and creates negentropy. What making CD players of the refined metal and selling them to consumers decreases is not real entropy but ideal entropy. Namely, it reduces the indeterminacy of listening to favorite music at favorite place and time.

Such consumption as listening to music increases entropy by using electricity and exhausting the CD player. But if you can get rid of stress by listening to music and refresh yourself, you can come to work well again. Since the recreation as play re-creates labor, it is kind of production.

2. Is play different from work?

How about the following distinction: consumption is pleasant, while production is not? Receiving dental treatment is consumption but it is painful, while some enjoy working. So, whether pleasant or not does not help make a distinction between consumption and production.

In the article, "What is Value? ", I asserted, "Play is richer in possibilities than labor. That is to say, the entropy of labor is higher than that of play. As labor is negentropy, it can produce value." But, even it the case of play, consumption may not be utterly arbitrary. Consumption can be significant or meaningless, just as the balance of production can be in the black or red. This distinction is more important than that of production and consumption.

3. Consumption is not always production

As the second law of thermodynamics indicates, you must always increase the entropy of environment so as to decrease the entropy our system. But the reverse is not always true. An increase in entropy sometimes does not decrease the entropy our system. The mere increase in entropy is called waste. If you continue to waste resources in producing and consuming, your system cannot survive for a long period.

Our ultimate purpose is to maintain and develop our systems. Consumption directly and production indirectly contribute to maintaining and developing our systems. Since maintaining and developing our systems in the present is a means to maintaining and developing them in the future, the distinction between production and consumption is relative.

You might wonder, "If we cannot justify play without the reference to production, we must dedicate our entire lives to realizing the value of means. It will make our lives empty. Don't we have to regard consumption as realization of end value, so as to avoid the regressus in infinitum of means-end chain?" But it is not contradictory that individual happiness contributes to maintaining and developing social systems. As it is rather normal, our systems have survived up to the present.

John Ray said, "The honester the man, the worse luck." To be sure, moral justice is not always compatible with economic profit. Suppose you happen to find your company is making an illegal sale. What would you do? Maybe you would be worried about how to cope with the situation:

"Should I inform against the company for the sake of social justice? But this would worsen the achievement of our company. If the company should detect my betrayal, they will fire me. In Japan, it is very hard for a middle-aged man like me to take up another employment. So, should I overlook it?"

Now you are caught in the dilemma of which to select, moral value or economic value.

Of course, generally speaking, those societies where people respect social justice are more economically affluent than anarchy. But the individual economic benefit often comes into conflict with social justice in the short term.

2. Why should we observe moral?

Before examining the difference between moral and economic value, let's recognize what morality is.

The classical ethics that distinguishes morality form utilitarian calculation is this: "Morally bad conduct contradicts itself, when you universalize your maxim. For example, if an egoist universalizes his maxim and allows anyone to be an egoist and thus disregard his interests, it will be against his interests and the egoism that he first intended. The moral law is quite different from utilitarian calculation in that the former is a law of reason a priori, while the latter depends on empirical facts a posteriori."

Why must the maxim be universal, then? If social norms (moral and legal laws) contradict themselves, we will be at a loss how to behave. So, the maxim that cannot be universal increases the indeterminacy of behavior. In other words, it is because social norms reduce the social entropy that obeying them is valuable.

Telling a lie is morally bad, even if it does not directly disadvantage anyone. That's because it increases the indeterminacy of information, if everyone starts to tell a lie. Committing a theft is a violation of the law in almost every country. That's because it increases the indeterminacy of proprietary rights, if you overlook a theft, and so on.

3. Moral value is the same as economic value

I asserted at my article, "What is Value?", that the necessary and sufficient condition for economical value is low entropy (usefulness and scarcity). Social norms have usefulness and scarcity as their low entropy. Just as labor is negentropy that produces commodities as its low entropy, law observance is negentropy that creates social order as its low entropy.

I will show why social norms have usefulness and scarcity.

It is quite evident that individual law observance contributes to social order. So, social norms have usefulness.

How about scarcity? It is not valuable for a saint to observe moral laws any more than for us to walk. However, just as it is touching and valuable for a baby that has crawled on its hands and knees to succeed in walking, so is it touching and valuable for a villain to renounce his former sins and becomes a morally right person. It is because we might yield to temptation that the moral conduct as its negation has scarcity value.

If moral value as well as economical value consists in low entropy, you do not have to consider the former to be something transcending the latter. I cannot support an extreme maxim, "Fiat justitia, pereat mundus. (Let justice be done, though the world be destroyed.)", because it loses an economical balance.

Let's return to the first question of illegal sale of your company. Which to choose between moral justice and economical benefits, like a purely economical question as to which to buy, stock or bond, depends on the situation. The problem is which do you anticipate will bring about more negentropy.