Unforeseen Contingencies

Dr. Lee -- thank you very much for this introduction to post-science. I am skeptical of post-science, but find it intriguing, and hope we'll be able to have a discussion that throws some light on this.

I'm going to make a few preliminary comments; I'm sure we'll both have more to say.

1. I'm quite certain that it will be of utmost importance that we carefully define terms; otherwise we'll be talking past each other. So, for example...

2. What do you mean by "value?" Your initial point seems to be that science is value-neutral (I fully agree). Post-science, dealing with social sciences and computer science, must deal with value. I agree (at least wrt social sciences) but isn't it possible to have positive social science?

3. The "infinite spreadsheet" notion is supposed to calculate value to infinity (do you mean eternity?) What does this mean? Value to whom? and of what? measured how?

This illustrates why definitions will be crucial. In natural language, "value" can refer to purely subjective rankings, or monetary prices, or ethics, or... many other things.

4. How can the infinite spreadsheet, or anything else, solve a problem that includes infinitely many variables?

There's much more I could say, but this is sufficient to start a discussion.

Anyone who wishes is welcome to comment.

BTW, the new Google version of blogger is giving me fits. If you are having trouble commenting, let me know at steele_econ(at) yahoo.com
 

Wow, where do I start? First, I must confess that natural philosophy is not one of my strongest subjects. But, I am fascinated with scientific and technological discovery.

Anyway, I believe post-scientists are embarking to make post-science a scientific/theological doctrine that is comparable or superior to the Bible, Torah, Koran, or any other religious text. If so, I don't think its needed. Science is a valid philosophy that does not need to be intimidated by religious dogma.

This concept, post-science, reminds me of Dr. Frankenstein's efforts to manipulate death-the infinite, by creating another human-the finite, with dead body parts and lightning.

Post-science seems very strange to me and I need to learn more on this subject to really give a deeper opinion on it.
 

Subject: Mathematical Definition and Quantitative Results In Social Science

Hi Dr. Steele,

Thank you for your great help and prompt comments.

Response to 1. 2. 3. and 4. (on definitions and infinity) of Dr. Charles N Steele: Thus far, all the definitions in post-science are mathematical. Value is extracted from the solution in satisfying the forward accounting equations {Total Cash Return = Sum of Cash Flow + Cash From Resale} for the price and all the resale prices to infinity in time. The final result is the Quantitative Supply and Demand Model (General Economic Equilibrium Analysis) described in the patent (6,078,901). Some people consider price as value, and others, total cash return, as above and in post-science verbal definition of value, decision, etc. The above equation involves a price and a resale price, which is related to its resale price in another similar equation. This system of an infinite number of equations extends to infinity or eternity. An equivalent approximate equation is used to replace all the equations from a finite time to infinity. The finite time can be as long as one wants. After the price is determined at the end of the finite time, the calculation is done in a time-reversed fashion to get the current price.

The whole process is mathematically rigorous, but NOT exact. Social science from the experience of post-science should be more rigorous (mathematical rigor vs. empirical verification), but less precise (approximate time-invariant inputs) than solutions in physical science. Also, social science should be quantitative, but can be approximately within certain acceptable tolerance; for example, tolerable rate of return can be anywhere from 3 to 15% for commercial office buildings, but not less than 3% or less than either the interest rate or the inflation (the cause of US S& L Crisis).

Post-science applause the mathematical economists (Gerard Debreu and Kenneth Arrow, both friends of Hugh Ching, founder of post-science) for clarifying the definition of the supply and demand model, but they can only solve, qualitatively, the spatial part of the problem with subjective ranking. The temporal solution on page 34 of Debreu’s book Theory of Value is wrong (the condition is not realistic). Thank you for allowing me to clarify one of the basic positions of post-science. ### [Chien Yi Lee]
 

Subject: Science vs. Post-Science

Hi Prof. Banks,

Welcome to our discussion and for starting with some most fundamental and broad comments. In some sense, many of your comments are valid, to a certain extend, as we will see when our discussions go deeper. Founders (C. V. Ramamoorthy, T. L. Kunii, Hugh Ching) of post-science would love to discuss the religious and poetic (Kunii) implications of post-science, but I can only give you a brief comparison of science and post-science.

Post-science is more complex and more rigorous than science. Science (5 variables) does not deal with value or complete automation. The standard of rigor of science is empirical verification. The solution of value (50 variables) must require mathematical rigor, because value cannot be empirical verified (the correctness of paying for an ounce of gold for $600 cannot be empirically verified because the price of gold can vary continually to infinity in time; drug test is a problem in life science and cannot be empirically verified because DNA propagates to infinity). Computer or life science needs the rigor of logic because of infinity and unlimited complexity (500 variables).

In comparison to Dr. Frankenstein’s effort, post-science proposes the self-creation of the living system through programming DNA, a prime example of completely automated software. Yes, post-science agrees generally with the Bible, etc., but hopes that they can be updated with the discoveries in science and post-science. Post-science believes that knowledge becomes a religion (based on faith) when it becomes mature. Today the world is dominated by the religion of science. Post-science is still far from mature. Thank you for your very creative comments. ### [Chien Yi Lee]
 

Have you managed to reduce human thought to purely materialist (in the ontological, not the psychological, sense) causes? If not, we must remain mind-body dualists in our approach, and value remains subjective. Under those conditions, all attempts to calculate objective valuations are doomed to failure - values are established by the infinite variety of human preferences.

The Infinite Spreadsheet, though, looks a useful tool to avoid manual iteration through a trial-and-error series of calculations, but to present it as anything more than that is to overstate the case. It has very little to do with philosophy or the social sciences, from what I can see.

We should be careful about elevating computer models into anything more than what they are - tools to test scenarios. They do not prove anything. The misinterpretation of models as probative rather than illustrative is responsible for much of the overstatement by lay commentators of the predictions of climate-change theory.

For a proper explanation of the errors of scientism, materialism, positivism etc, see Mises's Theory and History. It would be a mistake to see post-science as in any way supportive of or supported by Austrian economics.

Incidentally, what is the relationship between post-science and post-normal science? The latter seems to me to be a way of destroying science by removing the rigours that give it value.
 

Hi bgprior. Welcome to our discussion. Your questions are very educational for me.

The answer to your first question is that post-science has managed to reduce human thought to both materialistic and non-materialistic causes. The total return is the sum of the monetary and non-monetary returns or %total return = %monetary return + % non-monetary return. Thus, when the %non-monetary return, such as pride of ownership and risk, are high, the %monetary return is low. For example, apartments have 15% return and office buildings, 12%; the difference of 3% is the headache associated with managing non-professional apartment renters. The Infinite Spreadsheet considers just the %monetary return. Since the %total return is roughly constant for all investments at about 10% in USA as a historical average, the %non-monetary return can be estimated as the difference between the %total return and the %monetary return. Thus, the %non-monetary return can be roughly quantified.

One valid criticism of post-science solution of value is that different people may have different perception of value. For example, what is the meaning and the purpose of life? Here value determination depends on knowledge beyond social science, possibly, into life science or the design specifications of creation. The Infinite Spreadsheet mathematically interprets the price or return in terms of all the factors affecting value. It is mathematically rigorous. Of course, the input accuracy is important for it to be useful, but without it, accurate inputs are still not sufficient for making a rational investment decision. The inputs depend on value perception; so social science, by itself, is still incomplete. We need life science, which includes physical and social sciences, to give us a complete picture of knowledge.

Austrian economics supports the Free Market, which, in the opinion of post-science, is better than a market regulated by man-made laws, but not as good as one regulated by non-violable laws of nature in social science, such as the Infinite Spreadsheet (all mathematically rigorous relationships corresponding sufficiently to reality are laws of nature) and all its approximate time-invariant inputs, such as the expected rate of return. Post-science supports Maximum Planning, which includes both central and private planning.

Post-science tends to agree with you about post-normal science, which tries to relax the standard of rigor of science (empirical verification). In post-science, social science is more complex (50 variables) than science (5 variables) and requires the rigor of mathematics (deterministic valuation system). Life science, with 500 or an unlimited number of variables, needs the rigor of logic (DNA programming or post-science Universal Computer Source Code I invent). Even though I try to defend post-science, your questions are fair and very fundamental. Thank you. ### [Chien Yi Lee]
 

Dr. Lee, the more of this I read the less I understand. Value, in the sense you sometimes seem to speaking of it, is not simply the magnitude of a variable; it's the importance that some mind attaches to something. This is what you seem to be speaking of when you point out science is postive, and cannot tell us what to value.

On the other hand, the infinite spreadsheet (IS) calculation you describe is a calculation of equilibrium market value, which is quite a different thing.

So I do not understand what you mean by value; it sounds like two very different things to me.

Regarding the IS calculation -- it may be mathematically rigorous, but is it any good? How could you incorporate all the unforeseen contingencies that make our knowledge far from complete? The future exchange value of some asset will depend on all sorts of events and discoveries we cannot possibly know at this point, the error term. It sounds a lot like assumptions in, assumptions out, at best.

Supposing that the IS is fairly accurate, what is it you've really determined with it? The value(s) that would pertain if we were in equilibrium? The value(s) we will actually observe?

Finally I don't understand what you mean by a market regulated by non-violable laws of nature. Natural laws are always non-violable, so markets regulated by manmade laws are certainly governed by natural laws. But human "laws" (enforced rules of conduct) cannot be dispensed with. Which activities are permitted and which are forbidden in social relationships? We can't avoid answering this question, and as soon as we do, we've defined manmade "laws."

And again, thanks for your input.
 

Thank you, Dr. Steele, for your thoughtful comments. Your criticism of the definition of value is totally justified, for it has historically been a vague term. Post-science uses value in the same sense as others, especially, Gerard Debreu. People still wonder why Dr. Debreu uses “Theory of Value” for his mathematical exposition on the supply and demand model. If you insist on a post-science technical definition of value, I can give you the one used in the Infinite Spreadsheet patent (6,078,901): Value is the total return, which is the sum of the monetary and the non-monetary return; verbally, value is defined as the sum total of all the benefits and losses to infinity in time. The Infinite Spreadsheet just work with the monetary return = Total Cash Return = Sum of Cash Flow + Cash From Resale and, thus, does not offer precise quantitative definition of value directly. However, from the approximate relationship %Total Return=%Monetary Return +%Non-Monetary Return=10%(4% natural rate of return + 6% inflation), the value or Total Return can be calculated as Total Cash Return + Non-Monetary Return, which is roughly equal to Total Cash Return multiplied by (10%-%Monetary Return)/10%. For example, a commercial building with 15% rate of return has a –5% of non-monetary rate of return for risk and management headache. If the building has a market price of $1,000,000, the value of the building is only $500,000 to the average person, not the ultimate buyer, who is willing to pay the highest price. From this calculation, the average person would not be interested in any investment over 20% rate of return, even if it is free! Too much headache? Well, this discussion is just for fun and probably has little use in business. The value of any product or of science is proportional to its price, which can be determined by the Infinite Spreadsheet based on its cash flows. At best, there are only implicit quantitative definitions of value. Post-science will look further into this problem.

On the other hand, IS is very useful because it can calculate the price of a real estate or, when the price is known in the form of a quote, the rate of return of a stock. Most people are interested in the price and the rate of return, not the value, which is not used in business, much. If all real estate investors use IS before investing, there should not be any more S&L Crisis because IS can easily (with just three calculations for a market) detect over-valuation, the cause of market crash. Unfortunately, politics rules economics. During the last US S&L Crisis, no matter how much we stretched the inputs, the market price could still not be justified. Real estate inputs are very stable and are generally reliable. Our real estate predictions are virtually infallible. I can ask my teacher Dr. Hugh Ching to discuss with you about stocks, if you are interested.

IS calculates the market price, if all the inputs, even if they are wrong, are obtained from market comparables (using IS, too, a circular argument). If the inputs are obtained logically, IS calculates a logical or rational price. In general, IS is a mathematical interpretation of the price or the rate of return in terms of all the relevant financial factors. Since IS considers an investment as a black box and the investor is permanently severed from the investment when the black box is sold, the IS calculation is all-inclusive, that is that IS has included all the factors affecting the price in the calculation.

As an investment yardstick, IS is as accurate as its future expectations. IS can incorporate all the unforeseen contingencies in its %Non-Monetary Rate of Return as risks. Also, any mathematical system that sufficiently corresponds to reality is a non-violable law of nature. IS is one of the most significant examples of the laws of nature in social science. It is far more stringent than most man-made laws, which are generally not based on laws of nature and do not take into consideration infinity in time and space.

Your last point on man-made laws is very broad. We probably should discuss it with a realistic example, as I posted in my initial introduction of post-science. I restate it here:

“The Infinite Spreadsheet based on the solution of value (http://infinitespreadsheet.com) is far more stringent than most man-made laws, for it takes into consideration the consequences of a decision to infinity in time. An actual example of the conflict of man-made and natural laws is the Infinite Spreadsheet, which has predicted the US Savings and Loan Crisis, and the FIRREA (Federal Institutions Reform, Recovery and Enforcement Act), whose required market comparison method was the main cause of the Savings and Loan Crisis (An owner refinanced at comparable prices from the past right after market crash could still get a loan amount substantially higher than market price) (http://www.post-science.com/seidman.htm).”

Post-science speculates that if all the man-made laws are formed based on value determination, which involves the infinite spreadsheet, we will have a rational society, one even better than the Free Market of Milton Friedman. Without the calculation by an infinite spreadsheet in valuation, post-science suspects that most man-made laws are wrong, if not short-term, long-term, as Milton Friedman pointed out in his private communications with us. Post-science agrees with a remark you’ve made once to post-science post that social science will become irrelevant. Post-science believes that after mankind has discovered most of the laws of nature in physical and social sciences, it will devote almost all its time to life science or creation, which must operate within the limits set by these non-violable laws.

I have here just offered some general responses to your comments. I would be happy to discuss or respond to any further specific comments. Thank you for helping me focus on some general and fundamental issues of post-science. ### [Chien Yi Lee]
 

Dr Lee,

Thank you for your detailed reply.

I apologise for using terms like materialism without defining them. Unfortunately, because of my failure to do so, we are talking at cross-purposes. The sense in which you use materialism is what I referred to unhelpfully as the psychological sense. To clarify the distinctions between the two senses of the term, I cannot do better than quote Mises (from Theory and History):

"The first connotation refers to values. It characterizes the mentality of people who desire only material wealth, bodily satisfactions, and sensuous pleasures.

The second connotation is ontological. It signifies the doctrine that all human thoughts, ideas, judgments of value, and volitions are the product of physical, chemical, and physiological processes going on in the human body."

I was referring to the latter connotation. My point was not whether post-science allowed for materialistic and non-materialistic aspects of valuation, which usage can hopefully now be seen to use the first, psychological connotation. My point was, closely related to Dr Steele's points, that one cannot claim to have introduced a scientific method for calculating values unless you have first found a way to reduce all human thought to "physical, chemical and physiological processes". Without doing that, valuation retains a subjective aspect that is not amenable to scientific calculation. Instead, value can only be discovered through the exercise of human choices. Those choices are not reducible to a formula, however complex and with however many variables, unless you have found a way to reduce thought to a mechanistic, predictable process.

You appear to recognise this limitation when you say that "One valid criticism of post-science solution of value is that different people may have different perception of value." I cannot identify how you resolve this fundamental limitation to calculating value scientifically, when you say shortly afterwards that "The Infinite Spreadsheet mathematically interprets the price or return in terms of all the factors affecting value." Surely you have just recognised that it does not include all the factors affecting value, as it cannot incorporate differences in and changes to individual perceptions. To an Austrian, this is not just one missing aspect, but a fundamental missing aspect, without which calculation of value is meaningless.

One of the fundamental differences between your approach and that of an Austrian economist is that the latter are (determinedly and defiantly) methodologically individualist, whereas you are happy relying on generalisations from aggregates and averages. An Austrian could never say that "apartments have 15% return and office buildings, 12%; the difference of 3% is the headache associated with managing non-professional apartment renters" and would find little utility in saying that "the %total return is roughly constant for all investments at about 10% in USA as a historical average", if indeed such an estimation could be substantiated. What building, owned by whom, when and under what circumstances? Whether or not you can calculate averages for people's choices, Austrians would say that those averages are not a reliable guide to the valuation at which a particular individual may arrive in a particular situation.

A blog comment is not a suitable place for me to try to set out a philosophical approach to valuation. Rather than trying to restate (badly) the Austrian position and how it contradicts your approach to valuation, can I again recommend that you read Theory and History by Ludwig von Mises (not to mention "Human Action" and "The Ultimate Foundation of Economic Science" by the same author, and probably a bit of Karl Popper too), if you are not already familiar with them. I believe they will help to distinguish between the connotation of value (perhaps more properly price) that is calculated by a mathematical model such as the Infinite Spreadsheet, and the notion of value as it is experienced subjectively by individuals. I am afraid it is the latter connotation that is relevant to philosophy and the social sciences. The former connotation is relevant to accountancy. As such, it may still have a significant value, but it may help to illustrate the difference in the connotations to consider how one would apply post-science to calculate that value.

Bruno Prior
 

Thank you, Dr. Lee. Some light is being generated.

I'm very much in agreement with Bruno Prior's comments.

I follow the formulas you've given. But there are numerous things I do not understand.

1. Again, the problem isn't whether IS can calculate, it's how good the calculations are. Presumably the IS calculation gives us general equilibrium values. But why are these relevant? If current values are not equilibrium values, then what's relevant for decision making is the expected time path of adjustment -- whether towards equilibrium or away from it.

2. The model seems rather parsimonious. I believe you've said the IS uses only 50 variables, and yet can calculate monetary value to infinity. But 50 variables is a small number for a forecast, particularly since this must be a general equilibrium setting. The usual econometric problems of omitted variables and forecast error growing exponentially with time raise doubt that the IS solves the problem of determining value.

3. Unforeseen contingencies, exogenous shocks, forecast error, however we characterize it, these entail the very things we can't sensibly quantify because we don't know what it is we are quantifying. How can IS take them into account as you claim?

4. IS requires market prices as an input, correct? This raises two problems. (A) Are prices assumed to be equilibrium prices? If so, then what problem is there to solve? If not, then presumably IS calculates a time path...returning us to the problem of entrepreneurial error, unawareness, unforeseen contingencies, or whatever we want to call them.

(B) The claim that IS valuations can replace the free market seems wrong to me, since IS depends on market prices as an input, and must be assuming that they are economically meaningful, and not simply random numbers. I'd be willing to agree that IS or something similar might be an improved way of forecasting future exchange values, but that's different.

Two final short questions: Would it be accurate to say the IS is simply an improved way to make conditional predictions of future asset prices based on current prices?

And if it's more than this, how does it overcome Robert Lucas' "econometric policy evaluation" critique, which might roughly be that the use of the IS will change the very behavior it is trying to predict?

Many thanks to you Dr. Lee, and to Mssrs. Prior and Banks for your comments. The discussion is interesting, and I hope it continues.

Charles N. Steele
 

Subject: Quantitative Non-Monetary Return vs. Qualitative Preference

Thank you Prof. Prior and Dr. Steele, for your lengthy and detailed comments. Instead of response directly, I feel that I need to get to the most basic questions Dr. Steele has asked about the Infinite Spreadsheet. As you have provided the background of your thinking, I shall also reintroduce the related background of post-science. I have asked a few other post-science people to look into the suggestions of Prof. Prior.

I believe that I have now a rough idea of our relative positions. I am one of the spokes persons of post-science. My main contribution to post-science is the invention of the concept of Universal Computer Source Code, under the guidance of Prof. Ram (C. V. Ramamoorthy, founder of software engineering). Prof. Ram, with Harvard Ph. D. in computer science, is one of the supreme judges of software innovations, for he knows practically everything about software. Another founding member of post-science is the late Dr. Ta-You Wu, the Father of Chinese Physics with two Nobel Prize students, Lee and Yang. Dr. Hugh Ching, a MIT trained mathematical scientist, is a direct intellectual descendent of Harold Grad, Richard Courant, and David Hilbert. Dr. T. L. Kunii, a graduate of the University of Tokyo, has founded the Computer Graphics Society with headquarters in Geneva and the Department of Information Science at the University of Tokyo. My writings are taken freely from their writings. As it should be, the discussion should be now turned over to among the founders of the knowledge with me as the main messenger for post-science.

We should not be offended by their violently conflicting remarks, as those between Dr. Milton Friedman and Dr. Ching and between Prof. Karl Popper and Prof. Paul Feyerabend, who sponsored Dr. Ching at the Department of Philosophy of the University of California at Berkeley for eight years. Dr. Friedman finally concluded that in private communication that Dr. Ching has not succeeded in trying to “proselytize” him into post-science. Here I am glad that Dr. Steele wants, but Dr. Friedman refuses, to get to the bottom of the Infinite Spreadsheet. In this comment, I shall try to “get to the bottom” of the Infinite Spreadsheet. Philosophically, post-science is in conflict with Prof. Karl Popper. Prof. Feyerabend, being once a student of Prof. Popper, stated openly and frequently that Prof. Popper is not only wrong, but also unethical. Prof. Feyerabend, among his books, has written “Against Method” and “Farewell To Reason.” I hope that three of us will not take it personally, when post-science starts to comment on the Austrian School in our future discussions, as it has of Dr. Friedman.

Post-science supports Prof. Feyerabend view regarding Prof. Popper, probably not his exact words (Prof. Feyerabend is one of the most ethical persons known to post-science members; the other is Prof. Harold Grad). By definition, infinite future never arrives, and phenomena involving infinity cannot be empirically verified. For example, drug test on humans, whose DNA propagates to infinity, cannot be empirically verified. Value, price, decision, and plan are not empirically verifiable. David Hilbert credits Kant for introducing the concept of infinity, which Kant uses as an example of problems whose solution depends on rigor rather than empirical verification (non-consequentialism). Generally, post-science, as its name implies, believes that the science addresses one of the lowest levels of rigor in knowledge.

Let’s get to the bottom of the Infinite Spreadsheet. As Dr. Ching explained to Dr. Ta-You Wu and Dr. Friedman with the help of cartoons, IS sums up the first-year cash low, say, $100,000, multiplied by (1+Reinvestment Rate) to the power of the Investment Period, the second-year cash flow, say, $150,000, multiplied by (1+Reinvestment Rate) to the power of the Investment Period-1, so on and so on, until the end of the Investment Period, and the final Cash From Resale, say, a Resale Price of $1,000,000 minus the loan and transaction expenses, such as brokerage fee, capital gain, etc. The Cash Flow is roughly the Annual Income minus the Expenses and the Loan Payments, etc. This is the physical picture of IS. It is simply the realistic accounting of all the cash receipts minus expenses.

As I mentioned before, the above is the Total Cash Flow = Sum of Cash Flows + Cash From Resale. The Total Cash Flow is the Monetary Return. Value, defined as the sum total of all the future benefits and losses to infinity in time, is the Total Return = Monetary Return + Non-Monetary Return. The Monetary Return is approximately the same for all investors and investment. The Non-Monetary Return can be very different for different investors. Here post-science and Austrian School converge and possibly come into collision.

The quantification of Non-Monetary Return is needed to shed some mystery off the definition of value. Thank you, Dr. Steele, for your insistence and patient. The Total Cash Return above can also be expressed as Total Cash Return = Initial Investment x (1 + %Monetary Return) to the power of the Investment Period. Approximately, %Total Return = %Monetary Return + %Non-Monetary Return. Or %Non-Monetary Return = %Total Return - %Monetary Return = 10% - %Monetary Return. The %Monetary Returns expected are different for different investors, based on their “preferences.”

IS is just an all-inclusive rigorous mathematical expression. Each investor is free to “choose” his/her investment criteria, particularly, the expected %Monetary Return based on their expected %Non-Monetary Return. Only when the market %Monetary Return is inputted, would the market Price be determined. The differences in expected %Monetary Return contribute to the range of prices in the supply and demand model mathematically defined in Gerard Debreu’s book “Theory of Value.” To make the point perfectly clear, let’s look at an actual example in commercial real estates. At a certain time, the market %Monetary for office buildings was 12% and for apartments was 15% in San Francisco. The difference of 3% represents the headache in managing non-professional vs. professional tenants. The excessive % Monetary Return also shows the %Non-Monetary Return necessary to achieve the %Total Return of 10% representing the risk in real estate investment, not much.

The equation for Total Cash Return has two prices, namely, the Price and the Resale Price. The Price shows up in many places in the equation, and the Resale Price shows up mainly in the expression for Cash From Resale. For real estates, all the inputs are provided by market comparables or the investor, except the Price and the Resale Price. To determined the Resale Price, another similar Total Cash Return equation is needed, but another Resale Price of the Resale Price is added. This process of adding equations and unknowns continues to infinity.

During the initial period, when the inputs are more important, IS accommodates time-varying inputs, in principle, for as long as is required. At the end of this finite time with time-varying inputs, all the inputs are replaced by equivalent time-invariant inputs. Another rigorous point in IS is that all the inputs must be expressed in the form of approximate time-invariant quantity, so that they can be expressed to infinity in time. The price at the end of this period is also calculated by iteration with the addition of the zero-th order solution, Net Income/Price = constant. This equation in combination with the equation for Total Cash Flow makes the price system deterministic.

Some post-science people have commented preliminarily that, if Prof. Mises takes the credit for introduce the concept of personal preference, he should also take the blame for misleading a whole generation of economists, among whom are Milton Friedman (Free to “Choose”) and John von Neuman, Gerard Debreu, and Kenneth Arrow (qualitative ordering), in the qualitative study of economics. Others feel that Austrian School and post-science generally, agree, at least, qualitatively and, especially, in the problem of general economic equilibrium. I shall present further comments as they come to me. In particular, I have contacted others (e.g. Dr. HAL and Prof. C. Chao) to comment on the detailed specific points raised by Prof. Prior (too long to be included here).

I really appreciate Dr. Steele’s patience and insistency in digging into the Infinite Spreadsheet. Although value quantification is not generally requested in the market place (IS calculates the Price and the Rate of Return), as students of economics, we do have the responsibility to address this fundamental problem regardless of its practical relevance. I would like to thank Prof. Prior for his frank discussions, which have greatly speed up our mutual understanding. ### [Chien Yi Lee, Editor]
 

Dr Lee,

Thank you for a very informative post. I had not come across Prof. Feyerabend. I enjoy being introduced to philosophies. He has now joined the (long) list of authors whose works I must read.

From his entry on Wikipedia (not normally an authority one would trust, but it seems appropriate to judge him by unconstrained, somewhat democratic opinion), there seem to be many attractive aspects to his philosophy. However, I reach the conclusion, which I reach with many of the relativist, revisionist and rejectionist philosophies of the twentieth century - that I agree more with the diagnosis than the prescription. Whilst there is undoubtedly a problem with dogma in science and overstatement of its certainties, I reach the opposite conclusion - that more methodological rigour and rationality is the solution, not less. I find it interesting that your posts stress the mathematical rigour of post-science, because I struggle to see what there is to be rigorous about once one rejects methodological rules and rationalism, as it is claimed that Prof. Feyerabend did.

Dogma is not itself the problem (some rules really are immutable, or at least useful to regard as so), but rather the dogmatic ossification of theories whose certainty is exaggerated by sloppy (i.e. irrational) thinking. Consensus, which it seems Prof. Feyerabend would have regarded as as good a means as any for establishing the veracity of a theory, is often the handmaiden of dogma (look at the debates on climate change for a current illustration, or on the possibility of economic calculation in a socialist economy, for an earlier example). Rationality is the main weapon available to an individual who wishes to challenge consensus and dogma. Ultimately, I cannot see how one debates (and therefore compares the merits of) alternative views if one rejects methodological rules, consistency criteria, falsification, and rationalism generally. This approach is certainly not just opposed to Austrian economics, but its diametric opposite.

I can see the merits of the IS as a means of establishing a specific value (or price) according to specific criteria. I am sure, given the illustrious calibre of you and your colleagues in the field of computer science and mathematics, that it does what you say it does and does it well. But, beyond that, there does not seem to be any basis to progress the discussion about its philosophical (as opposed to mathematical) qualities, as we have no agreed epistemological approach.

By the way, you promote me beyond my station. I am a humble businessman, not an academic, let alone a Professor. If only....

Bruno Prior
 

Subject: Post-science point of view of knowledge is life science, which includes physical and social science

Thank you Prof. Prior for your prompt response. Post-Science Institute has the public policy that, except its patented and copyrighted materials, people are unrestricted in “directly copying” its writing, private or public. It is a knowledge-centered (not money or power-centered) organization formed by knowledge-centered people and intends to spread knowledge without barriers; Prof. Richard Stallman of Free Software Foundation is one of its frequent visitors. As soon as you start to mention post-science, jumpulse, permanent software, the Infinite Spreadsheet, etc. you’ll be called a Professor and, if in formal sittings, Dr. Prior. If you become “famous” for post-science, you’ll be considered for Honoris Causas by many institutions, as I have often been.

Post-Science Institute considers the late Prof. Feyerabend, once a professor at eight prestigious universities in US and Europe, the culturally most advanced human being. He is absolutely intellectually ethical. He knows everything; in his presence, no one speaks, except some technical people of post-science. Philosophically, he is not really that mysterious; he is the most advanced skeptic along the line of Hume, Kant, etc. (the rationalists!?), believing in nothing (Against Method, Farewell to Reason…). The “methodology” of knowledge to them seems to be “to doubt,” a prescription particularly good for the advancement of knowledge. Post-science (especially, I) is not philosophical. It tries to be relevant, for time is short.

Your conclusion: “But, beyond that, there does not seem to be any basis to progress the discussion about its philosophical (as opposed to mathematical) qualities, as we have no agreed epistemological approach.” is generally agreeable. I would also add that from the experience of post-science, social science should have mathematical rigor, life science should have the rigor of logic (integers or general logic), self-creation needs just faith (e.g. Post-Science Medicine believes medicines are created with foods, and elderberry juice is the natural medicine for the flu, which Western Medicine does not yet have a remedy.). Except me, accepting all views as a spokesperson, post-science believes the correct viewpoint of knowledge or the world should be that of life science or creation, not social or physical science. Prof. Feyerabend and Prof. Thomas Kuhn had no objection, when they first met, to post-science statement: “The Foundation Of Knowledge Is Faith, Not Reason.” I am accepted by Post-Science Institute (used as a spokesperson) because I am a fun-centered, not a self-centered, person, who finds post-science useful, in addition to fun (jumpulsetennis.com and jumpulse.com). You sound more knowledge-centered than I am, Prof. Prior. ### [Chien Yi Lee]
 

Subject: Universal Computer Source Code

Prof. Mises wrote: “The second connotation is ontological. It signifies the doctrine that all human thoughts, ideas, judgments of value, and volitions are the product of physical, chemical, and physiological processes going on in the human body."

As the inventor of Universal Computer Source Code, I almost have the responsibility to comment on the above statement by Prof. Mises. The foundation of life science should be complete automation, which is completely ignored by the current life scientists and Prof. Mises, whose reductionistic view (Leibnitz; Prof. Benson Mates is a biographer of Leibnitz and an admirer of Prof. Feyerabend) is influenced by science and not totally accepted by post-science. DNA is completely automated software, which can be silicon as well as any other chemical based or can be a life or a computer; the concept of complete automation is of significance here. The Universal Computer Source Code is just one of the three innovations of the completely automated software, but, just by itself, sits on top of all the current incorrect partially automated computer science, according to my teachers of post-science. Again, the view of life science is more complete than that of social science, even about value. Thank you for your attention. ### [Chien Yi Lee]
 

Dr Lee,

Just to be clear, Mises did not agree with the materialist philosophy, given the limits to the understanding of the human brain at the time he was writing (though he did not rule out the possibility that one day the necessary understanding might be achieved). I doubt he would think that we have got there yet. I do not (and I doubt that we ever will), which is why I remain a mind-body dualist, as he was, and why I believe we need a different approach to that of the natural sciences for the understanding of human action.

It is not clear to me from your comments whether, when you speak of his "reductionistic view", you are referring to his description of a philosophy (materialism) with which he did not agree. Perhaps you could clarify.

Both DNA and computers occasionally go wrong for no apparent reason. I am no more inclined to believe in the perfectibility of genes or computers than in the perfectibility of human nature. You may know the phrase "to err is human, but to really foul up requires a computer" (I quite like the alternative version: "...but to really foul up requires the root password"). We should regard computers as nothing more than powerful but fallible tools (perhaps due to our own fallibility, but I cannot see that the human can be removed from the equation).

I would say that our understanding of both life and computers is insufficient to make the generalisationa and equations between the two that you make. Is the equation of DNA to automated software not materialist (in the ontological sense) at least, if not reductionist?

What puzzles me about people who want to reduce life and thought to merely mechanistic phenomena is why one would want to devalue them in that way. Let us say that you succeed in reducing my very essence to the outcome of my DNA "automated software", making my choices and actions predictable if you know how I am programmed. What purpose would there be to life when everything is entirely predictable and all achievements are the necessary outcome of our programming rather than the result of choice and effort? Whilst I am all for understanding our physical nature, I cannot see that there is any joy to be had from reducing our minds to the outcome of chemical and electrical processes in our brain. Nor do I think such attempts will succeed. The German experiments on Namibian skulls at the start of the last century should be a warning to us all about the dehumanising effect of an attitude that mental capacity can be reduced to physical quantification.

Bruno Prior
 

First, thanks again to Dr. Lee and Prof. Prior for their contributions. I find the philosophic discussion interesting. But let me return to economics, with two minor points and then a lengthier critique of the P-S position as I see it.

One, regardless of my doubts (below) about the infinite spreadsheet calculations, suppose it really could find general equilibrium valuations. Why would these be relevant to a decision maker? Decision makers need to know (or try to know via predictions) future prices, not equilibrium prices. If I want to earn money, I must buy low and sell high, and whether the prices are equilibrium prices is irrelevant.

I suppose that IS prices could become the actual future prices, but I think this would require they be common knowledge, in the technical game-theoretic sense. I doubt this condition could be easily attained.

Two, Dr. Lee, I must set some of your P-S colleagues straight on Mises. He was not the developer of subjective utility theory, didn’t claim to be, and had no influence on any of the economists you mentioned in this regard (and in fact, little influence on them in any matter). I very much like your turn of phrase when you observe that post-scientists and Austrians converge and possibly collide in the matter of subjective utility, which I suspect is apt. But my comments on value and the IS omit this issue; I simply am referring to market (cash) values here.

So on to my major point. Dr. Lee, you seem to have avoided my previous questions, but I’m not going to let you off the hook, because they illustrate a fundamental problem with P-S and claims about the IS. I understand the basic principle of IS. Cash returns are the sum of cash flow and cash from resale, and IS provides an algorithm for calculating this. This seems straightforward enough. But then P-S claims that the IS approach calculates this for every price in the economy, to infinity, which is quite a claim. Simply from the standpoint of practical application this is difficult, and doubtful. But then P-S claims that it has (1) solved the problem of value, and (2) that this can be used to provide market stability and in some sense replace the free market. But unless P-S can successfully answer my earlier questions, it completely fails on these last two claims.

I keep raising issues of the inherent uncertainty that pervades human knowledge. Whether we call it unforeseen contingencies, omitted variables, exogenous shocks, structural change, or whatever, any solution to the “problem” of value must deal with it. You’ve claimed IS can do so, but I’ve seen nothing that explains how it addresses uncertainty at all. In this regard, it seems clearly inferior to, say, a dynamic programming model or an econometric forecasting model. And all of them are simply ways of making intelligent guesses at future prices. The market isn’t replaced by any of this. Only the market has a way of incorporating that which was unforeseen.

Here’s an example. Obviously IS is designed to be applicable to commercial real estate. Suppose we had applied the IS to WTC 1 & 2 on 10 September 2001. I suspect the resultant value would have been substantially greater than the value resulting had we applied it on 12 September 2001. Similarly, real estate values all over America were affected in various ways by this unexpected event. In essence, IS is just assumptions in, assumptions out. The calculations on 10 September would have been reasonable, given the state of our knowledge, but they’d still have been wrong. All that IS does, at best, is derive the full implications of our current imperfect knowledge. It doesn’t tell us the “true” value of anything, whatever that might mean. Furthermore, it doesn’t seem to take into account that there’s pervasive uncertainty. It also must be assuming that prices are not general equilibrium prices, otherwise there’d be nothing to calculate, and no unwarranted market volatility to smooth. But if the price data inputs are not equilibrium prices, then they are imperfect signals that omit presently available knowledge, never mind future unknown events. So again, the “omitted variables” issue is inescapable.

Here’s another example that shows how limited the IS approach is. I have substantial experience with trying to predict prices for agricultural commodities when there are few data other than current price. From what I see, the IS would be useless in this regard. Hence it also would be useless in calculating the value of the land used to produce these commodities, even if the land had no other uses. The problem is compounded immensely if the land has multiple alternative uses. Which crops or other uses will generate the most value? What will be the stream of future values? How will future changes in preferences, in competing markets, in technology, etc. affect this? Everything I’ve read on P-S avoids even addressing these problems, which are very well known issues in economics (except in Arrow-Hahn-Debreu GE theory, where these problems have, by assumption, already been solved).

If you were simply claiming that IS is a superior method for calculating asset values given available data, I’d find this interesting and worth investigating, but not particularly controversial. But instead, P-S claims that this “solves the problem of value” for all prices (assets, I think this means) forever. And on top of this wildly extreme claim, P-S further seems to claim that this resolves the Humean is/ought dichotomy, and tells us what to value. This is an even more extreme claim. Multiple extraordinary claims call for extraordinary evidence, but there’s no real explanation or evidence given for any of them, either in your thoughtful comments or in the P-S links. This gives me great doubt about P-S.

The doubt only grows when claims about P-S seem to make it a “theory of everything.” P-S claims to solve robotics problems, offers elderberry juice as a flu treatment, makes claims to similar status with great religions, offers permanent ID numbers for sale in $10,000 lots, and similar strange stuff. So despite your kind and patient replies – or perhaps because of them – I am increasingly doubtful that P-S makes any sense at all. Simply on the one rather down-to-earth matter of the valuation of assets in the face of uncertainty, it seems to have nothing to offer. Without solid answers, we seem to be at an impasse. References to the late Paul Feyerabend, who would simply have argued (an inconsistency on his part) there are no answers won’t help. It all sounds very half-baked at best.

Regardless, I find this discussion stimulating, and appreciate your efforts, Dr. Lee, as well as those of Prof. Prior.

Cordially to all, Charles
 

Thank you Prof. Prior for your comment (Addressing all our intellectual friends as Dr. Pr Prof. is a habit I learnt from my teacher Prof. Ram (C. V. Ramamoorthy)). After reading over Prof. Mises, I feel that he is an extraordinary intellectual and a great person, the modern Adam Smith. Your explanation confirms my view.

Post-science is a field that has departed from the established knowledge; it only introduces knowledge unknown to science. Thus, it should be in conflict with almost all knowledge. Prof. Mises, as is Milton Friedman, is one of the closest thinkers to post-science and, for his anti-established views, has suffered during his lifetime. My use of “reductionism” is the common notion that science or material is at the foundation of all knowledge. The concept of complete automation does not depend on particular materials. The Infinite Spreadsheet only analyzes value, which, however, must includes the complete understanding of the scientific knowledge of the entity to be valued, such as a nuclear reactor. It, by itself, has no material to reduce to.

Prof. Mises is fine; I am just trying to use his out-of-context words to convey a point. This point is that the solidly established establishment, namely, science, refuses to consider problems with higher than 5 variables (mathematically independent variables). The top intellectuals in several countries support post-science. Yet, most professional academicians runs away from post-science, just because they cannot understand the solutions. Thus, anyone who has a general idea of post-science (e.g. the Infinite Spreadsheet here) will instantly become one f the top authorities in the field, having people run away or being praised. As a spokesperson of post-science, I find this phenomenon both intriguing and fun. Please feel free to try my experience; post-science needs people to approach Prof. Richard Dawkins and the Randi Prize (physicists consider Dr. Ta-You Wu’s solution of touch, jumpulse, a pseudo-science. Dr. Wu could the most analytical Chinese ever lived and is known as the Father of Chinese physics).

Your following idea could be in direct conflict with the basic idea of post-science (I use it just for the purpose of introducing post-science. You can use post-science idea to try out on your intellectual friends):

“What puzzles me about people who want to reduce life and thought to merely mechanistic phenomena is why one would want to devalue them in that way. Let us say that you succeed in reducing my very essence to the outcome of my DNA "automated software", making my choices and actions predictable if you know how I am programmed. What purpose would there be to life when everything is entirely predictable and all achievements are the necessary outcome of our programming rather than the result of choice and effort? Whilst I am all for understanding our physical nature, I cannot see that there is any joy to be had from reducing our minds to the outcome of chemical and electrical processes in our brain. Nor do I think such attempts will succeed. The German experiments on Namibian skulls at the start of the last century should be a warning to us all about the dehumanising effect of an attitude that mental capacity can be reduced to physical quantification.”

Post-science derived the solution of value with mathematical rigor and believes the completely automated software is one of the main foundations for the creation of life. To consider every decision to infinity is unimaginable to the current society, without the solution of value, but must be done to achieve a rational society. Problems in social science contain only 50 variables (the number of inputs to the Infinite Spreadsheet http://infinitespreadsheet.com). There are over 500 or an unlimited number of variables in life science. Machines, including the computer, are predictable. Our creators want to create us as unpredictable and diversified as possible; diversity is fun, and necessary. They give us the illusion of a long-life, as explained by one of the founders of post-science, edited by me (Like Prof. Gerard Debreu, they are pranksters, but post-science accepts Debreu’s definition of the problem of value in his book “Theory of Value”) below and the illusion of even freedom and pain, which still puzzles post-science (how to program a computer so that it can feel pain).

“As far as post-science can see, our universe consists of two parts: (1) The physical universe and (2) Intelligence stored in DNA. Similarly, the human being can be considered to be composed of two parts: (1) The body and (2) The spirit, or the soul, if you wish. Every evening when one goes to sleep, the spirit dies in one’s body, and every morning when one wakes up, the spirit is reborn in the body. The soul could the sum total of one’s memory, including, most importantly, one’s identity or just the spirit. If one is killed (mercifully) during one’s sleep, and one’s one-and-only perfect clone wakes up next morning, nothing would have changed in the world. From this logical argument, how long is a life span? 16 hours during one’s continuous consciousness? Buddhist principle of reincarnation follows the same logic, except what is reborn could be an insect or an animal. There is something about being a vegetarian, or we could be eating our dead parents J.”

Post-science speculates that the created is constrained by all the laws of nature in physical and social sciences and by the design specification of the creators in life science (http://www.self-creation.org Why does anyone want to advertise at this strange site, I never understand), as a car must obey all the laws of science and should be driven within the specifications of its manufacturer. As in Post-Science Medicine, we should trust our creators more than our doctors. From the statement above, one of the main purposes of the existence of mankind is to propagate DNA, the accumulated knowledge of the universe from the infinite past, to infinity in time through the process of self-creation. Anyway, you are getting to areas beyond my comprehension, yet really relevant to knowledge. Thank you for the stimulating discussion. ### [Chien Yi Lee]
 

Subject: Dorfman’s Dilemma on Price Theory

Thank you Dr. Steele for voicing your frustrations. I shall respond to your criticisms in another comment, but would like to see if the following writing from Post-Science Institute about Prof. Robert Dorfman can clear up some of your concerns.

Post-Science Institute writes:
“Robert Dorfman is one of the earliest economists to show an interest in the solution of value conceived by Post-Science Institute. In his earlier work “Prices and Markets” (1967), he expresses that investment theory has little relevance, but in his later writing "Models for Managing Water Quality" (1972), he starts to believe investment approach is more important than the supply and demand model. It is at the later time, he wants to learn more about the Infinite Spreadsheet. Dorfman’s dilemma should help to clear up some basic confusion regarding the solution of value, claimed by Gerard Debreu, who emphasizes the supply and demand model, and Post-Science Institute, which offers a valuation system with a quantitative supply and demand model derived from an investment theory, namely, the Infinite Spreadsheet, whose inputs, in trun, often relies on the supply and demand model.

There are actually four Basic Methods in the application of the solution of value from Post-Science Institute:
Method (1) Price Determination with the Infinite Spreadsheet for a single income producing entity,
Method (2) Land Price Determined using the residue method and for non-income producing entities,
Method (3) Rate of Return Calculated with the Infinite Spreadsheet with a given Price, and
Method (4) Equilibrium Price Determination for multiple commodities with similar functionality.

Gerard Debreu’s solution of value produces a qualitative spatial solution of (4) above. His temporal solution uses the discount method and is inadequate. Kenneth Arrow asks Post-Science Institute the central question or defect in valuation: “What’s wrong with the discount method?” In order to discount correctly, a different discount rate should be used for each different year. The rate of return in the Infinite Spreadsheet is averaged over the investment period from the definition: Total Cash Return = Initial Investment x (1 + Average Rate Of Return) to the power of the Investment Period = Sum of Cash flows + Cash From Resale. The success of the post-science solution of value can be attributed to its following the reality of accounting without abstraction and its solving the problem in its entirety, a process checks with an advice of Benedict Spinoza, a independent thinker.

Method (1) above is used to determine the price of income producing entities. All the inputs to Method (1) must be expressible as approximate time-invariant quantities in order to consider infinity in time. It uses just one equation, the Total Cash Return equation above. The present price and all the future resale prices must satisfy this equation. Value is defined as the sum total of all the future benefits and losses to infinity in time, a definition agreed by both Debreu and Arrow. Value is the Total Return, which is the sum of the Total Cash Return or Monetary Return and the Non-Monetary Return. Similarly, %Total Return is roughly the sum of the %Monetary and the %Non-Monetary Return. Since the market should treat all investment equally, the %Total Return should be the same for all investments. With the known %Total Return and the calculated %Monetary Return, the %Non-Monetary is quantified.

Method (2) is for the determination of the price of non-income producing entities, such as raw lands and raw agricultural commodities. It uses the residue method, which calculates the price of an entity based on the price when the entity has been developed into an income producing entity. It is a very simple calculation, but should be formulated for each different application.

Method (3) is the most complex of the valuation system. Method (1) has to go through very intensive iterative calculation to arrive at a mathematically self-consistent set of numbers in the Infinite Spreadsheet. Method (3), where the price is given, has to do another iterative calculation on top of that of Method (1) in order to arrive at a rate of return satisfying the condition that the calculated price equals the given price. Roughly, the number of iterations can be from a minimum of 10,000 = 100 x 100 to an average of about 1,000,000 = 1,000 x 1,000, and to a maximum of several million or even a billion times, of that of one finite spreadsheet calculation. The double iteration has the additional problem of finding a nearly uncontrollable non-linear convergence scheme. The Infinite Spreadsheet Stock Valuation System, with time varying inputs of 22 years, is only possible after nearly 30 years of experience in the development and testing of Method (1) for real estates.

In comparison to (1) and (3), Method (4) is relatively simple in concept, but might be even more cumbersome in its application, especially, its time-dependent version for the determination of the future prices. Thus, Robert Dorfman could be very accurate in his conclusion that the investment theory is more important than the supply and demand model. Method (4) sums up the number of buyers or sellers, or the demand or supply quantity, of multiple entities with similar functionality to form the demand or supply curve, respectively. The different %Non-Monetary Return of different buyers is largely responsible for the different prices the buyers are willing to pay. The different prices in the supply curve are due primarily to the different costs of the suppliers.

Generally, the four Basic Methods need to be mixed to arrive at a solution of price. For example, the inputs to Method (1) the Infinite Spreadsheet can be obtained from Method (4) the supply and demand model, which is often based on Method (1). Method (2) land valuation requires the price of the developed land determined by Method (1). In real estate valuation, the three separate approaches to appraisal should be combined to form a unified method of valuation the Infinite Spreadsheet Real Estate Valuation System, where the inputs to the income approach, which is the Infinite Spreadsheet, can be obtained from market comparison approach. The cost approach is used in the valuation of Method (2) land development. Method (3) stock valuation takes the advantage of the distilled monetary values from the market as inputs, which, however, entails, most likely, the application of all the other Methods. Method (4) supply and demand model provides the framework for valuation, especially, in its time-dependent format. Examples of its theory and applications of the quantitative supply and demand model are given in the Infinite Spreadsheet patent (Pat. No. 6,078,901). Method (4) agrees completely with the method and qualitatively with the result of Gerard Debreu, who, a pure mathematician, must be given the credit for once for all clarified the definition of the problem of value or the general framework for valuation, involving both the spatial and temporal infinities and their mutual interactions. The post-science solution of value based on Debreu’s problem of value should help to resolve Dorfman’s Dilemma.”

The above is based on the patent on the Infinite Spreadsheet. I shall take the full responsibility for its errors. ### [Translated, Updated and Edited by Chien Yi Lee]
 

Subject: Valuation of agricultural land is worth working on

Thank you Dr. Steele for the detailed comments. The comments from post-science people about you is that you are short in temper and long on intellectual tolerance, and very brave, too, daring to challenge Dr. Ta-You Wu, the Father of Chinese Physics and voted by the post-science people the greatest physicist ever lived with his jumpulse, involving 5 x 5 = 25 variables, 5 from each end of a spring, which surpasses Newton’s impulse with just 5 variables. They also conclude from reading about him that Prof. Mises is a very ethical intellectual and powerful thinker with an eye toward life science; your criticisms of their views are probably justified.

I shall answer the major points one-by-one and do it frankly. However, some of P-S people feel we should concentrate on this one point before expanding into other areas:

Dr. Steele writes: “So on to my major point…But then P-S claims that the IS approach calculates this for every price in the economy, to infinity, which is quite a claim. Simply from the standpoint of practical application this is difficult, and doubtful.”


P-S writes: “In order to solve the current price, all the future prices must also be solved; it is the infinite spreadsheet. The Infinite Spreadsheet establishes a mathematical relationship between the price and all the factors affecting the price, including all the resale prices to infinity in time. For each resale price there is an Infinity Spreadsheet. ALL THE NUMBERS ARE MATHEMATICALLY CONSISTENT IN THE INFINITE SPREADSHEET AND WILL CONTRADICT NUMBERS PRODUCED BY OTHER SYSTEMS GIVEN THE SAME EQUATIONS; ASSUMED NUMBERS ARE NO LONGER ALLOWED. In fact, there is a full demonstration program at http://www.infinitespreadsheet.com (this huge program (2) time-varying self-verifying version takes over 10 minutes to load!) The Supply and Demand Model extends to infinity spatially. Yes, that is the nature of social science. From the long line of rigorous philosophical or logical and mathematical thinkers from Kant to Debreu, this is recognized as the problem of value (consideration to infinity), as defined by Debreu. Also, it is a logically inconsistent to insist on seeing what is defined as unforeseen. All that can be done for an unforeseen occurrence is to recalculate with IS right after the occurrence to arrive at a new price. Or, design a perfectly stable planet with no earthquakes, etc. to eliminate unforeseen earthquakes, etc. Life science, not just social science, is needed to solve the problem of unforeseen consequences.”

The following responses are from me Chien Yi Lee. I am learning how to explain IS from the above which is translated and edited by me.

Dr. Steele writes: “One, regardless of my doubts (below) about the infinite spreadsheet calculations, suppose it really could find general equilibrium valuations. Why would these be relevant to a decision maker? Decision makers need to know (or try to know via predictions) future prices, not equilibrium prices. If I want to earn money, I must buy low and sell high, and whether the prices are equilibrium prices is irrelevant.”

Response: IS translates mathematically the factors affecting the price to a price or a rate of return. Quantitative supply and demand model sums up the quantities for each price to form the supply and the demand curves to reach an equilibrium price. Neither of the above problems is solved outside of P-S. The closest solution is Gerard Debreu’s qualitative spatial solution for the equilibrium price. Both Debreu and Arrow have seen IS and IS demonstration and commented “good.” A decision maker will use his own inputs based on expectations of the decision maker to calculate a price. If the calculated price is higher than the market price, the decision maker should buy the product at the market price. In stocks, the rate of return is the final remaining unknown in a deterministic market (# equations = # unknowns) because the price is given in the form of a quote. IS gives the exact solution, while P/E ratio gives the zero-th order solution. Black & Schole method is wrong because it assumes random walk resale price, equivalent to a flat growth rate.

Dr. Steele writes: “So on to my major point…But then P-S claims that the IS approach calculates this for every price in the economy, to infinity, which is quite a claim. Simply from the standpoint of practical application this is difficult, and doubtful. But then P-S claims that it has (1) solved the problem of value, and (2) that this can be used to provide market stability and in some sense replace the free market. But unless P-S can successfully answer my earlier questions, it completely fails on these last two claims.”
Response: The price depends on the future, in particular, future resale price to infinity in time. One result of IS is that in order to determine the current price, it basically has determined all the future prices to infinity in time. As Debreu, the Quantitative S&D Model based on IS has to consider all the prices to spatial infinity. Do you accept Debreu and P-S claim that infinite time and space must be considered in the solution of price or value? Most economists, such as Milton Friedman (in private communication), do not feel that considering to infinity is necessary. About (1) above, Even Debreu with his spatial solution claims to have solved the solution of value. P-S solves the entire temporal and spatial problem of value. Without a solution of value, the Free Market does not have well-informed market participants resulting in financial instabilities. The market should be constrained by the solution of value (S&D Model), and its participants, by IS, a non-violable mathematical law of nature in social science.

In the comment (2) that this can be used to provide market stability and in some sense replace the free market, IS relates the inflation (growth) rate, interest rate, and the rate of return. Logically, the proper order of the three rates is the rate of return higher than the interest rate, which is higher than the inflation rate http://www.infinitespreadsheet,com Item (1). US S&L Crisis was caused by the rate of return being lower than both the interest rate and the inflation rate. I would be interested in learning any other system that can do the same (given the market price and calculate the rate of return; this is a double iteration for IS stock valuation). P-S is by now rather bored by discussing this point, but any new information will be welcome.

Dr. Steele writes: “I keep raising issues of the inherent uncertainty that pervades human knowledge. Whether we call it unforeseen contingencies, omitted variables, exogenous shocks, structural change, or whatever, any solution to the “problem” of value must deal with it. You’ve claimed IS can do so, but I’ve seen nothing that explains how it addresses uncertainty at all. In this regard, it seems clearly inferior to, say, a dynamic programming model or an econometric forecasting model. And all of them are simply ways of making intelligent guesses at future prices. The market isn’t replaced by any of this. Only the market has a way of incorporating that which was unforeseen.”
Response: There seems to be a fundamental problem in logic. As a philosopher, Prof. Prior can judge this problem; we do need philosophy and its logic. Our current prediction can only be as accurate as the accuracy of our expectation of the future consequences. Here, you are not thinking logically when you do not distinguish expected and actual occurrences; all the calculations for the present price are based on the expected future, and actual data are from the past. If we expect uncertainty, this expected uncertainty will show up in the Non-monetary Return as a risk, which needs to be compensated by a increase in Monetary Return. Do the dynamic programming model or an econometric forecasting model consider infinity? Intelligent guesses of future prices will generally be different from IS calculated prices based on future expectations. Nothing should be able to escape the infinite spreadsheet. It is embarrassing when IS can calculate the resale price, which is assumed by other people or system. The market of uninformed participants, who do not have access to IS, will respond to an unforeseen change slower than IS, which can recalculate the result immediately.

Dr. Steele writes: “Suppose we had applied the IS to WTC 1 & 2 on 10 September 2001. I suspect the resultant value would have been substantially greater than the value resulting had we applied it on 12 September 2001. Similarly, real estate values all over America were affected in various ways by this unexpected event. In essence, IS is just assumptions in, assumptions out. The calculations on 10 September would have been reasonable, given the state of our knowledge, but they’d still have been wrong. All that IS does, at best, is derive the full implications of our current imperfect knowledge. It doesn’t tell us the “true” value of anything, whatever that might mean.”
Response: Again, we need some rigor or logic here. Assumptions in, assumptions out is way too sloppy a description. A rigorous mathematical relationship, which corresponds close enough to reality, must be satisfied for all time or non-violable. What we should distinguish are three cases (1) good results in, good results out, (2) bad results in, bad results out, and (3) good results in, bad result out or (strange case) bad results in, good result out. IS is mathematically rigorous and satisfies (1) and (2) and is not at all easy to formulate. Although it sounded trivial, all social scientists need to learn this as a philosophical lesson in logic.

I would agree with, but replace your statement “All that IS does, at best, is derive the full implications of our current imperfect knowledge. It doesn’t tell us the “true” value of anything, whatever that might mean.” by “All the IS, or any correct system, can do is derive the full implications, for example, in the form of the price or the rate of return, of our current imperfect knowledge. It can only tell us the value based on our expectations, right or wrong.” However, when we do have correct expectations, they are useless without the correct method to derive their full implications, such as the price or the rate of return. So, we better be prepared. Your example of WTC is a good one because the expectation of the above is nil and would be neglected even if someone happens to mention the possibility. But, after 9/11, the risk will become a non-negligible part of the Non-Monetary Return, resulting in a higher expected %Monetary Return.

Dr. Steele writes: “…Furthermore, it doesn’t seem to take into account that there’s pervasive uncertainty. It also must be assuming that prices are not general equilibrium prices, otherwise there’d be nothing to calculate, and no unwarranted market volatility to smooth. But if the price data inputs are not equilibrium prices, then they are imperfect signals that omit presently available knowledge, never mind future unknown events. So again, the “omitted variables” issue is inescapable.”
Response: If there is pervasive uncertainty, %Monetary Return will increase to compensate for the uncertainty. Debreu formulated the problem of value (S&D Model) rigorously (He is a pure mathematician). IS has an all-inclusive rigorous formulation. Both formulation takes into consideration infinity in time and space. I believe that economists need to address the problems of rigorous formulation and of consideration to infinity before they can accuse others of omitting variables. The truth is that mathematically trained people feel that most economists, except the mathematical economists, generally omit many variables, not the other way around. Who is more rigorous, mathematicians or social scientists? Being more complex than science, social science should be more rigorous, not less rigorous. SOCIAL SCIENCE REGUIRES MATHEMATICAL RIGOR. Please feel free to point out the lack of rigor in IS formulation and not talk in generality.

Dr. Steele writes: “Here’s another example that shows how limited the IS approach is. I have substantial experience with trying to predict prices for agricultural commodities when there are few data other than current price. From what I see, the IS would be useless in this regard.”
Response: The current price for agricultural commodities is the equilibrium price of Debreu. The P-S patent (6,078,901) and Debreu shows how this equilibrium price come about; it is result of the intersection of the supply and the demand curve. To find the entire S&D curves, one needs to calculate the price of the agricultural commodities using the Land Valuation System (Basic Method (2) in my previous comment), if necessary, multiple times, until one gets to a price that can be determined by a future income stream (or a final Non-Monetary Return). To determine this final price Method (1) is needed. The calculation using Methods (2) and (1), only gives the quantity at one price. One needs to do the calculation for all the buyers (demand). After one has all the quantities at different prices, one need to sum up the quantities from the maximum price any buyer is willing to pay to a price to get one quantity-price point on the demand curve. The entire demand curve can be constructed this way, even for future times, is one is interested in options or futures. The supply curve is determined mainly by the cost plus the profit and can be determined by just Method (2). Finally, Method (4) puts the supply and the demand curve together. Once one has the underlying mechanism for the equilibrium price, one can change the expected new equilibrium price by the changes in expectations in the demand or supply. Most people do not do the above formally as P-S or Debreu outlines, but their intuitive method follows the same principle. The S&D Model is simple in concept, but cumbersome to do. However, IS could be crucial in the process because it can determine whether the product is under or over-valued. Admittedly, it may not be useful in the above situation for agricultural commodity, on which I have very limited experience, but is central in the valuation of raw or developed agricultural land, as in any income producing real estates.

In summary, IS can calculate the price based on the future income from the agricultural commodities with appropriate formulation of IS, just as in real estates. Different buyers are willing to pay different prices resulting in a demand curve; similarly, for the supply curve. Ultimately, all pay the same equilibrium price from the supply and demand curves or surface for the time-dependent version. This is a general process of pricing, as Debreu tries to convey and P-S agrees. The formulation could be cumbersome, but the principle should be the same and without much subtlety. If you want to try, P-S can contribute its experience in the IS part.

Dr. Steele writes: “Hence it also would be useless in calculating the value of the land used to produce these commodities, even if the land had no other uses. The problem is compounded immensely if the land has multiple alternative uses. Which crops or other uses will generate the most value? What will be the stream of future values? How will future changes in preferences, in competing markets, in technology, etc. affect this? Everything I’ve read on P-S avoids even addressing these problems, which are very well known issues in economics (except in Arrow-Hahn-Debreu GE theory, where these problems have, by assumption, already been solved).”
Response: The web site http://www.infinitespreadsheet.com purposely provides (3) for land calculation based on the price of the developed property or, in your case, the price of the raw land based in the price of the developed agricultural land, whose value can be determined almost exactly the same way as commercial properties. Again, each new situation needs a new suitable formulation, but the fundamental theory is the same. P-S advices you to work, and can work with you, on this. This is a worthy project because it is very cost effective.

Dr. Steele writes: “If you were simply claiming that IS is a superior method for calculating asset values given available data, I’d find this interesting and worth investigating, but not particularly controversial. But instead, P-S claims that this “solves the problem of value” for all prices (assets, I think this means) forever. And on top of this wildly extreme claim, P-S further seems to claim that this resolves the Humean is/ought dichotomy, and tells us what to value. This is an even more extreme claim. Multiple extraordinary claims call for extraordinary evidence, but there’s no real explanation or evidence given for any of them, either in your thoughtful comments or in the P-S links. This gives me great doubt about P-S.”
Response: The claim is as accurate as the claim of the mathematician Debreu, who posed the problem of value, no more and no less. The P-S solution goes further than that of Debreu by exploring the problem of the perception of value in life science, or creation, a problem far more complex than social science. The examples in real estates and stocks are in commercial usage. The basic principle is most likely for all prices forever, as Debreu must have felt (P-S agrees with Debreu, except his temporal solution of value, which assumes an unrealistic same discount rate for all times.) P-S agrees with Debreu that there should be a closure to the problem of value, after 5 thousand years of search by thinkers. The problem and the solution of value provide a foundation for social science, in particular, economics. They are not the entire social science or economics, which needs far greater effort. To challenge the claims of Debreu, a pure mathematician, and Ching, the inventor of the Infinite Spreadsheet and a direct intellectual descendent of Hilbert, Courant, and Grad, put you either on a very ambitious path to intellectual greatness or to become a permanent associate of post-science, as I, as further elaborated below.

Dr. Steele writes: “The doubt only grows when claims about P-S seem to make it a “theory of everything.” P-S claims to solve robotics problems, offers elderberry juice as a flu treatment, makes claims to similar status with great religions, offers permanent ID numbers for sale in $10,000 lots, and similar strange stuff. So despite your kind and patient replies – or perhaps because of them – I am increasingly doubtful that P-S makes any sense at all. Simply on the one rather down-to-earth matter of the valuation of assets in the face of uncertainty, it seems to have nothing to offer. Without solid answers, we seem to be at an impasse. References to the late Paul Feyerabend, who would simply have argued (an inconsistency on his part) there are no answers won’t help. It all sounds very half-baked at best.”
Response: The method of Prof. Feyerabend is “to doubt.” Physical science far from offering the complete picture of the world, but claims to be working on a “theory of everything.” Social science should expand the consideration to infinity, but does not do so generally, except the mathematical economists. P-S view the world from the point of view of life science.

Elderberry juice, as is “Vitamin C and the Common Cold,” is a serious challenge to the entire artificial drug industry. The challenge is based on the life science concept of self-creation http://www.self-creation.org. Instead of criticizing elderberry, it is far simpler to help P-S test it out on your friends, it’s only a natural fruit juice. A local TV station in San Francisco Bay Area has done a survey and finds that it reduces the flu duration from 8 to 2 days in 80% tested people (some probably have bacteria, not virus infection). Elderberry is significant because, if it is effective against flu, it would be one medicine casting doubt on artificial medicine. Can you survive on artificial foods for a few weeks?

Universal Permanent Number Standard is based on the patented Universal Permanent Software. Here is a prime example of how insignificant social science becomes in comparison to life science. All the current temporary software will become obsolete and valueless or even negative value due to the ever-increasing manual updating cost, according to my teacher Prof. Ram. In terms of valuation, permanent software with the capability of auto-update is a qualitative improvement over the current temporary software; the ratio of their value is simply infinite, sooner or later. Arguing about the “incomplete” knowledge of social science could be frivolous from the point of view of life science (to a life scientist, social science is trivial) or in the eyes of our creators (Pascal has this same view).

The application of Universal Permanent Numbers is of immediate concern. Two examples: There is no one-to-one (one input to one result) search capability in general search engines, such as Google and Yahoo. The second related application is that we need Globally Searchable ID Numbers, which does not come into conflict with each other. Currently, ISBN, patent numbers, product codes, etc. are designed to be permanent, but are not universal or globally unique. As researchers, we frequently want to get one faithful output of, say, a journal article and, thus, should particularly be in supporting the one-to-one search. The reward or the cost-benefit ratio of life science products versus social science products is orders of magnitude higher, roughly, trillion vs. billions simply because of the degree of automation. Microsoft and Intel, with their “incorrect” (almost completely automated) life science products, have market cap approaching a $trillion. Agricultural products are an example of completely automated entities, but are not designed by mankind. P-S is in the same position as you, stuck in social science, barely touching the edge of life science, but would jump on any slightest opportunity to promote life science and its products to remind our society of its significance, regardless how ridiculous it appears in the current Age of Science.

P-S welcomes criticism, but, generally, people run away from post-science discussions, except in a public setting, where there is no place to hide. My teachers of P-S frequently ruin seminars not given by their friends. Only the top thinkers in the world are willing to put up with post-science. Thank you for providing me with a chance to practice explaining P-S and hope we can continue this discussion to a fruitful conclusion, in a somewhat slower pace. In the next few weeks, there will be a huge infusion of publicity from the Chinese language media, according to some P-S people, my practice here should be very helpful for me in answering questions from the press, especially in controlling my temper after this first time (I apologize for my temper, too). I truly appreciate your intellectual tolerance in the face of so much controversy. ### [Chien Yi Lee]
 

Subject: Have Faith In Kant > Hilbert > von Neuman > Debreu > Arrow and P-S

The foundation of knowledge is faith. For example, since drug test on humans cannot be empirically tested because DNA propagates to infinity and infinity never arrives, we must choose our medical system based on faith. If we believe in science, we pick our drugs from Western Medicine; If, in post-science, Post-Science Medicine, etc. In economics, we have the choice of believing in the general economists or economists with mathematical rigor.

After our intensive discussion, I feel that Dr. Steele does not have enough faith in Debreu and, thus, has not dig into the application of his theory deep enough. Neither do most other economists. Only in the last several years, Arrow speaks publicly that Debreu is the most advanced thinker in value theory, especially, in his treatment of uncertainty. Debreu has already constructed the entire framework for the consideration of value and price. One area where the solution is lacking is the economic factors, which result in value or price. This area is covered by the Infinite Spreadsheet. If one finds all the factors considered in the definition of value in the Infinite Spreadsheet, one will find that value or cash return will show up in either the non-monetary return or the monetary return. The value gives rise to price. The prices can be used to construct the supply and demand model. In conclusion, when the factors in the Infinite Spreadsheet are considered, regardless whether they produce a quantitative results (of course, it is better that they do), the changes in price of commodities can be predicted.

However, we live in a competitive society. One must consider more and work harder to compete successfully. Debreu offer the framework, its user must dig deep into its ramifications in order to apply the framework in actual practice. The world needs to trust the logical thinkers from Kant > Hilbert > von Neuman > Debreu > Arrow and P-S. I believe that the factors affecting agricultural commodities are in the supply and demand model and the Infinite Spreadsheet. Unfortunately, post-science has higher priorities than working on the prediction of the future prices of commodities, such as stock prediction described below..

It takes over 40 years for Milton Friedman and Ludwig von Mises to convince the world, by the actual collapse of communism, the ill-effect of excessive man-made regulations. And for 40 years, they have suffered the ridicule of a large percentage of the population. It takes 7 years, from 1984 to 1991, for Post-Science Institute to prove, by actual real estate market collapse and the Savings and Loan Crisis, that the Infinite Spreadsheet can make economic predictions. The Infinite Spreadsheet is not ridiculed, but ignored even to this day. Debreu, too, has been ignored even to this day. The post-Friedman and post-Mises world will belong to economists believing in the rigor of mathematics and the mathematically derived solutions or mathematical non-violable laws of nature in social science.

Now Post-Science Institute is in the process of predicting the stock market, which will be made public shortly. The proof of prediction can be shortened from 7 years for real estates to about several months for stocks. Mathematics, which is impossible to be wrong, will soon be challenging the stock market, which up to now has been too complex to predict. ### [Chien Yi Lee]
 

First, thank you to Dr. Lee for his careful replies.

And to everyone, I apologize for being slow to respond; but I am quite busy with professional activities and so will continue to blog as I can.

Dr. Lee, first I must reassure you about my temper -- it isn't short, and I am enjoying & learning from our discussion. (Do the other P-S people really know about me? I am flattered. How?)

I will only make a few short comments here right now.

You state "Social science needs mathematical rigor." But this is not so. Social science needs rigor by whatever means it can be attained. Mathematics based upon confused concepts do not provide rigor. Mathematics can, of course, add to rigor when properly used, but that's not the same thing.

Debreu, for all his brilliance, attacked what is almost a meaningless question: what are the conditions for existence of Walrasian general equilibrium? It's not an entirely meaningless question, but it has next to no application for understanding the dynamics of our real world economy. Two specific examples of what was omitted: sheer ignorance (a.k.a. unawareness) and transaction costs. When these are incorporated into economic theory, the theory and our models become quite different -- and begin to actually model the real world.

So far as I know, I am not challenging Dr. Ta-You Wu, unless he wrote about economics. But I am challenging the notion that P-S can account for unforeseen contingencies/ sheer ignorance/ unawareness simply by increasing the uncertainty factor. If we don't know what it is for which we're adjusting, our adjustment is ad hoc. (BTW, see the original post in my archives if you are unclear what I mean by unawareness and unforeseen contingencies.)

After reading your reply re WTC, I think it's possible you and I may be in more agreement than we realize. Let's test this: you are saying that GIVEN our expectations and data on 10 Sept., the IS would have been the best predictor of what the general equilibrium return/value. In particular, it would outperform other algorithms. On 12 Sept., with new data and expectations, it would give a different result, but still best we can do. Right?

If that's what you are saying, I am not disputing it. I am saying, rather, that this doesn't allow us to dispense with the market at all. The market can respond to changes, and also communicate different participants expectations, changes in preferences, etc. It responds instantly to changes in individual actions (I realize this is something of a metaphor in that the market isn't a thing in itself, but rather the very relations and actions themselves.) The I-S must wait for us to feed new info in.

And in this case, it most definitely has not solved the problem of value, nor can it replace the market.

Elderberry: I was already fully convinced that elderberry and similar remedies are very beneficial. But I can't see what this has to do with a new method of calculating equilibrium prices, nor solving problems of robotics & touch. Does P-S simply consist of any new ideas (although elderberry isn't exactly new) that aren't labeled as science?

Again, interesting thoughts. Maybe the discussion continue!
 

Subject: Market Price vs. Rational Price

Thank you Dr. Steele for your short comments. Many of P-S people here are fascinated by them because they reveal the essence of the differences between general economists and the mathematical economists. P-S is an observer in their debate and knows you from your comments on G8, and I am an observer of the observer and have asked P-S people to view our discussions. It appears that P-S, being founded by mathematicians, is on the side of mathematical economists. Let me get the small items out the way first and then finish with the BIG topic on market price.

On rigor: From the solutions of value and complete automation, social science needs to be quantitative, which means mathematics, and computer and DNA are logical machines, which need logic as the standard of rigor. In particular, the necessity of considering infinity and of obtaining deterministic solutions requires mathematical rigor. P-S agrees that these are vague observations, but are very helpful in describing knowledge, and that raw thinking of Friedman, Mises, Prior, and Steele could be helpful, as Feyerabend would say “Anything goes.”

On Ta-You Wu and Elderberry: Thank you for stating your position. My official P-S position is Lecturer of Complete Automation. I am required to discuss any subject in its entirety, which is generally life science, not physical or social science. Wu’s solution of touch demonstrates P-S critical view of science. Elderberry demonstrates P-S view against Western profit-motivated Medicine (Here is an important money saving policy for someone to pursue). I am trying to convey their implications, rather the particular solutions, which, however, are still under intense debate.

Now to the BIG question: Market Price (Please correct me if I am wrong.)

You, representing the general economists, believe that the market price is correct and the main worry is unforeseen contingencies, etc. You and Milton Friedman believe that the consideration to infinity is not necessary.

P-S believe that the market price is nearly always wrong and will always be wrong without the solution of price. Mathematical rigor to both Debreu and P-S is, particularly, the consideration of the price system to infinity in time and space. Having little practical experience, Debreu is only interested in establishing the framework for the theory of value with rigor and is neutral to the correctness of the price. P-S finds Debreu’s rigorous framework for value fundamentally important to social science, for the consideration of infinity is a must for social scientists in general. How to consider to infinity requires mathematical rigor. Debreu uses set theory, and P-S, just ordinary mathematics. P-S is far better here, introducing a solution without additional mathematical barriers.

Dr. Steele writes: “…The market can respond to changes, and also communicate different participants expectations, changes in preferences, etc. It responds instantly to changes in individual actions (I realize this is something of a metaphor in that the market isn't a thing in itself, but rather the very relations and actions themselves.) The I-S must wait for us to feed new info in.”

Thank you for your great honesty and for expressing the general view of the economists so clearly that it should be considered a classic of historical significant (I don’t mean to be sarcastic). P-S believes that what you expressed above is completely wrong! The simple argument from P-S is that it takes over seven years from 1984 prediction to 1991 crash for the market to response to the overvaluation predicted by IS. P-S current public challenge of the stock market is based on the, most likely, incorrect market price of long-term options of stocks with the highest investment rate of returns. P-S has already actual traded successfully three times, doubling each time in three months in private test with an initial investment of just $20,000.00, ending up with about $140,000.00 profit.

The incorrect market price is just a reflection of the irrational society. If you disagree, we should center our debate on this one point for the benefit of the entire economics community and in the spirit of private collaboration not personal confrontation. Our discussion here has been very educational to P-S people, who all express their gratitude to your generosity and have started to consider you as one of us. Thank you kindly. ### [Chien Yi Lee]
 

Subject: Subprime Woe: Infinite Spreadsheet Nearly Perfect Prediction

Two weeks after the communication below, the single-family real estate market has been on a downward slide, culminating on March 13, 2007 with an over 240 points dropped in the Dow Jones stocks average, the second largest drop in three years, due almost fully to the subprime woe. The following will become official historical evidence. [Chien Yi Lee]

From: FRB.Mail@frb.gov
Subject: Response to your email concerning: Board Members
Date: Thu, July 20, 2006 7:50 am

Dear Mr. Ching:

This will acknowledge your most recent letter. While we appreciate
your continued willingness to share your views, I regret that we will be unable to continue the dialog.

Sincerely,
APM
Public Affairs Office

IF YOU NEED TO REPLY TO THIS EMAIL, YOU MUST DO SO FROM OUR PUBLIC WEB
SITE AT:
http://www.federalreserve.gov .
-----------------------------------------------------------------------
First Name: Hugh
Last Name: Ching
Profession: Mathematical Scientist
Organization: Post-Science Institute
StreetAddress1: PO Box 461
StreetAddress2:
City: Berkeley
State: CA
Country: US
Postal Code: 94701
Email Content:
Dear Dr. Ben S. Bernanke, Chairman of Federal Reserve Board, We would
like to introduce you to our deterministic valuation system, which
relates the interest, inflation, and return rate in a system where the
number of equation equals the number of unknowns (deterministic). The
system is known commercially as the Infinite Spreadsheet and has
predicted the US Savings and Loan Crisis by detecting over-valuation
of the real estate market in the early 1980s. The current real estate
interest rate, if continue to rise, might put the real estate market
out of the logic order of the economic factors. The logic order is
that the interest rate should be greater than the inflation rate and
the rate of return should be greater than the interest rate. As the
interest rate rises, the rate of return calculated by the Infinite
Spreadsheet will decrease. Now they are very close already. The
Infinite Spreadsheet is the exact solution to valuation, as the P/E
ratio or the capitalization rate is the zero-th order solution. You
can use the Infinite Spreadsheet for free http://www.infinitespreadsheet.com. With best regards, Hugh Ching
http://www.post-science.com/ching.htm

[edited by Chien Yi Lee]
 

Thanks, Dr. Lee. Now we are getting somewhere.

Minor points first:

G8? I probably should know what you’re talking about, but am drawing such a blank that I wonder if you’ve confused me with someone else. To what comments on G8 are you referring?

Mathematical vs. general economists: I don’t think the “vs.” is appropriate, but for me at least, the question is simply good economics vs. bad economics, or maybe not-so-good economics. I haven’t anything against mathematics, nor verbal logic, nor empirical work, if used properly and done well. But perhaps more to the point, I am not opposed to math in econ per se, although I think much of what has been done is not very good. Presumably P-S agrees.

“Social science needs to be quantitative:” It seems very strange to me that followers of Feyerabend would be so insistent on a particular method. Isn’t this a contradiction?

“Social science needs to be quantitative, which means mathematics, and computer and DNA are logical machines, which need logic as the standard of rigor.” I don’t understand this statement. I guess you are making a distinction between social science and computer/DNA studies. Am I correct? If so, I don't understand your distinction between math and logic, nor exactly what you mean by quantitative.

P-S view on “Western profit-motivated Medicine:” I suspect P-S is conflating two very different things: the Western (American) delivery system (which tends to ignore non-patentable things like elderberry) and the Western medical science paradigm. The latter has often ignored “natural” cures, but I don’t think there’s any inherent methodological reason for this. On the other hand, there DOES seem to be an inherent “reductionist” tendency in Western medicine, one that ignores complementarities and synergies, particularly with respect to “nutrition,” where a handful of factors (e.g. vitamins) are discovered, isolated and assumed to be the whole story. I believe that there’s new work casting doubt on this approach. But I would simply call this work better science, still within the general Western science paradigm.

OK, on to bigger fish.

You write: “You, representing the general economists, believe that the market price is correct…”

NO! No wonder we’re all confused. I do not believe market prices are "correct." The way I would express it is I don’t believe that market prices are equilibrium prices, in the sense that most neoclassical economists would.

You continue: “P-S believe that the market price is nearly always wrong…”

It depends on what you mean by “wrong,” but if you mean prices are not equilibrium prices, then P-S is correct, on at least this point. Modern neoclassicals simply assume equilibrium. Chicago school economists such as Friedman are particularly adamant about this, and often say that it’s simply confused and unscientific to even talk about disequilibrium (both Becker and Lucas have said this, and I suspect Stigler and Friedman did as well). Someone holding such a belief would certainly feel threatened if something like the IS actually worked. But modern Austrians, such as Mises, or Hayek, or me, think it is entirely reasonable to consider disequilibrium. And it is absolutely necessary to do so, if we are to talk about the real world, instead of the world of the blackboard.

Dr. Lee, it isn’t surprising that you missed this distinction. I haven’t been at all careful to distinguish my “Austrian” ideas from those of Friedman. And most economists don’t understand what Mises and Hayek were about. For example, Grossman and Stiglitz wrote a paper that analyzes what they supposed was Hayek’s contention that prices reveal all information available. G&S showed that equilibrium prices aren’t fully informative (because info is costly, and when revealed it becomes a public good), but this wasn’t Hayek’s point at all. Hayek, like Mises, argued that markets are actually disequilibrium processes of discovery and communication (hence my “the market is a metaphor,” which is a very un-Chicago position).

When I wrote “…The market can respond to changes, and also communicate different participants expectations, changes in preferences, etc. It responds instantly to changes in individual actions” I wondered if this might be misunderstood. I do not contend that here that market prices are fully revealing (nor as close as G&S think they can get). I do indeed agree that arbitrage opportunities can exist, and even persist without being exploited. Thus prices are not “correct,” in the sense that all available information is “automatically” incorporated in them. However, there is a definite tendency for people to discover mistakes and correct them, to push prices towards equilibrium. This is because of the profit that is available for those who find discrepancies and act on them. The profit potential is what responds instantly to changes.

I am now thinking that the IS does something analogous to technical analysis of stock prices. Am I right? If so, it’s no surprise you haven’t convinced neoclassical economists. True equilibrium prices necessarily incorporate all available information. The only remaining uncertainty is white noise, unsystematic and without any trend. Thus the “random walk” theory of prices, and Eugene Fama’s “efficient market hypothesis.”

This has to be contrasted with the Austrian view, in which people struggle with all sorts of imperfect information, and in which market exchanges help them learn (although neither instantly nor perfectly). The Austrian view also includes entrepreneurship as the driving force of market change, where entrepreneurship is the discovery of new, unanticipated knowledge (unforeseen contingencies).

My use of “unforeseen contingencies” has perhaps added to your confusion, because this sounds like “future unanticipated events,” but it means more than just this. It refers to anything relevant that we haven’t noticed, including knowledge that is in some sense currently available. Future unanticipated events are an enormous conceptual problem for the IS, but I’ll ignore this issue until some later post. As for “currently available” knowledge…

(1) there’s the possibility that some asset could be used in a new way that would create more value than it currently creates, but no one has yet noticed this possibility. I can’t see how the IS would be able to address this. But note that even the possibility of an underemployed asset is denied by neoclassical economics.

(2) there’s the possibility that the current pattern of prices is inconsistent. A being with far more brainpower than any of else could see this, and calculate what adjustments would need to be made, in order to generate a mutually-reinforcing, non-contradictory pattern of prices. Something like the IS could indeed make contributions here. This is the IS as Walrasian auctioneer, getting rid of excess demand, excess supply in the given markets. I don’t know of anything in Austrian conceptions of the market that deny that something like this might work (e.g. like technical analysis) although it’s anathema to the neoclassical view.

But note that the prices observed by the clever being, or the IS, are themselves imperfect in that they may not incorporate relevant info that is in fact available (point 1). It is possible to calculate a general equilibrium when some relevant info is missing, unnoticed by everyone. And when the new info is included, we’d have a different GE.

This is all quite apart from the issue of yet unknown future events. (Well, not exactly, because current expectations are today’s data, and as they are about tomorrow’s events, there are links between today’s data and the as-yet unknown events. But that’s the issue I said I’ll raise later.)

I hope my comments here clarify things somewhat.

Here are three questions I’d like answered:

1. What is the G8 reference?
2. Is the IS something akin to technical analysis?
3. Why does P-S assume that observed prices are not equilibrium prices? Why aren’t we “in equilibrium?” Do you have a theoretical explanation for the problem which (I believe) you are trying to correct?


Excuse my lengthy reply, but there was much to clear up.
 

Thank you for your quick reply to our rather fundamental discussion. On behave of P-S, I would like to thank you for continuing and carrying to a conclusion the discussion between Dr. Hugh Ching and Dr. Milton Friedman, who has refused to continue. Most points your mentioned are agreeable to me, except, possibly, the following.

First of all, P-S is founded by formally scientifically trained people, whose basic intention is to solve problems, not to engage in philosophical speculations, which come AFTER the problems have been solved. P-S treats all parts of the solution, such as definitions, methodology, formulation, with equal importance before the solution is obtained. It verifies Prof. Feyerabend’s belief that before the solution “Anything goes.” Only after the discovery that an infinite spreadsheet constraints our every action we claim that solutions in social science should the quantitative, as does the market. For example, “How much is the prce?” requires a quantitative answer. It’s not an important issue for P-S. I believe we agree on this point, too.

Again, the discussion of logic needed for life or computer science and mathematics for social science is after the solutions. It is a very long topic, far longer than our discussion here. Rad theory (general logic or integers), not set theory, should be the foundation of mathematics. Set theory involves human high-level associative memory and together with rad theory forms the foundation of computer science or life science. P-S has a framework for knowledge very different from the limited scope of science. Also, P-S believes in self-creation, which directly contradicts the origin of life theory of science and the theory of evolution. Medicine based on science, which contributes diagnostic tools and public health to medicine, is very different from medicine based on self-creation, which includes the scientific contributions, but relies mainly on the medicine designed by our creators.

The point we might be in disagreement is the correctness of the market price or the equilibrium price. The market price is derived from the equilibrium price, which in turn is obtained from supply and demand. Based on each person’s expectation, the supply and demand curves are constructed. The Infinite Spreadsheet calculates the price based on one’s expectation. Therefore, the market price, the equilibrium price, and the calculated price must agree at one point or for one of more persons. The market price is basically the equilibrium price.

Some people might think that given enough time somehow the market will come to a correct equilibrium. At one time in human history, the “equilibrium” belief is that the earth is flat, but given enough time the equilibrium belief, today, is that the earth is round. The P-S contention is that until we have the correct knowledge, the equilibrium price has been incorrect, throughout history. To make thing worse, the correctness of the price is not empirically verifiable, because infinity never arrives. Yet, P-S speculates that IS should permanently solve the problem of real estate over-valuation, if IS is accepted and used by all market participants. It only takes three calculations to verify if a real estate market is over-valued.

To clarify the difference between the market price and a rational price, we can use IS for real estate valuation. In practice, IS is generally used to calculate two prices: the market price with market inputs obtained based on the market price and the rational price based on the rationally expected inputs. It may sound odd that the inputs justifying the market price is reused as the inputs to determine the market price, but in practice, they are used ALSO to determine the prices of other similar real estates, not just the one from which the inputs are obtained. Generally, the rational price is different from the market price, which is customarily obtained from comparison the past sales data.

To answer your three questions:
Dr. Steele writes: “Here are three questions I’d like answered:

1. What is the G8 reference?
2. Is the IS something akin to technical analysis?
3. Why does P-S assume that observed prices are not equilibrium prices? Why aren’t we “in equilibrium?” Do you have a theoretical explanation for the problem which (I believe) you are trying to correct?”

1. Someone quoted you regarding Russia in G8, the details are not clear to me. G8 is 8 large countries getting together to talk. I’m not familiar with what they talk about, probably, not knowledge.
2. No. IS is the solution, which is still being tested outside of P-S own successful initial trial of stock prediction, of the fundamental analysis. Value depends on the future expectations, not the past. Our friends Ben Zacks and the Zacks family members believe that technical analysis is complete useless. P-S thinks that technical analysis is useful for approximate time-invariant quantities, such as inputs to IS, and is crucial in forming the Finite Spreadsheet Instabilities, particularly, in an irrational market. The Instability is simply the result that a growing price will show a high rate of return in a finite spreadsheet analysis. IS would show a lower rate of return after the price has increased.
3. Equilibrium price is a good term for theoreticians. P-S, being solution oriented, believes that it is a correct concept, but very cumbersome for P-S to handle in practice. Thus, P-S only sees its theoretical value, but is not fully qualified to give a definitive practical comment. However, the equilibrium price should be based on IS to be correct (knowledgeable market participants). P-S appreciates Debreu’s framework for value involving infinity.

P-S is in the process of carrying out its next actual test of stock prediction with IS. If IS fails, stock market will still be out of reach of knowledge (most likely, due to the inaccurate inputs involving unforeseen contingencies). Thanks for your detailed comments and clearly stated questions. ### [Chien Yi Lee]
 

Thank you for the reply. The G8 reference must then be to a much earlier UC blog post. I’m flattered that some of your colleagues have read these. I hope they found them of some use.

Are we at conclusion? While it doesn’t exactly seem so, this may be a good place for a break. I think I understand the P-S position much better, although much remains unclear, and obviously we continue to speak past each other. So for now I will clear up a few loose ends.

You are quite right, I misspoke when I said “technical analysis.” Fundamental analysis is what I should have said. But the main point is that the neoclassical efficient market hypothesis rules out any sort of profit opportunities available from using publicly available information. And both P-S and the Austrians are in agreement that the hypothesis is wrong.

I would like to clear up some further confusion on my position on equilibrium, which I think is representative of the Austrian view. You suggest an equilibrium price may still be in some sense flawed because it depends on individuals’ expectations, which may be erroneous. I suppose that it is conceivable that a collection of erroneous expectations could lead to a result that isn’t subsequently revealed to be mistaken, but it seems unlikely, and perhaps just means there are multiple equilibria. But more importantly, an “equilibrium” based on mistaken expectations really isn’t an equilibrium, since once the errors are revealed the individuals will need to revise their expectations and behavior.

This seems simple enough, but is such a difficult problem that neoclassicals invented rational expectations theory to avoid it. The problem shows that there are all sorts of insuperable difficulties for standard neoclassical equilibrium theory. For example, what is the value of the total capital stock at a given point in time? Neoclassicals would suggest we simply take the summation of each item of physical capital times its price. But observed prices are generated by actions of different people with different expectations for the future – and if their plans are notbased on common and correct expectations then the capital stock can’t be measured. Incompatible expectations and investment plans mean that at least some of the price evaluations will be revealed to be mistakes.

I think that P-S seems somewhat aware of this, but apparently believes that using observed prices, its fundamental analysis analogue, IS, can solve the problem. Austrians such as I don’t believe that observed prices contain sufficient information to do this.

Neoclassicals know that the total capital stock really cannot be measured. But the conflicting expectations problem has even deeper ramifications, which no neoclassical would ever want to consider. Hayek shows that if expectations differ, we cannot even objectively define what a “change in the relevant data” means. It’s no wonder that Lucas, Friedman, Becker, etc. are so adamant that economics only study equilibrium. I think their equilibrium studies are valuable and important contributions, but to stop there is to make economics an odd sort of religion, rather than a study of the real world. In my less charitable moments I think of it as a kind of scientific fraud.

To close, I’d follow Bruno Prior in suggesting that Post-Scientists, who seem to share the frustration with perfect equilibrium theorists, look more deeply into Austrian theories of subjectivism. Particularly relevant is an early paper by Hayek, “Economics and Knowledge,” in which he addresses, much better than I, the issues I raise here. I think Post-Scientists would find reading (or re-reading) it very interesting. (The paper is available in many places online, including http://www.virtualschool.edu/mon/Economics/HayekEconomicsAndKnowledge.htm)l

Thanks, Dr. Lee, for the discussion. Hopefully we will continue.

Charles N. Steele
 

Thank you Dr. Steele for your patience, but post-science recent public stock market prediction and the stock market behavior (adversely affected by the real estate market) automatically continue our previous discussion and verify post-science predictions (about Fed ignorance about IS). Please check http://www.post-science.com site, which leads visitors to the stock prediction (in Chinese, though).

The public stock prediction provides us a background for our discussion on the two points you mentioned:

Charles writes: (1) “I think that P-S seems somewhat aware of this, but apparently believes that using observed prices, its fundamental analysis analogue, IS, can solve the problem. Austrians such as I don’t believe that observed prices contain sufficient information to do this.” And (2) “…Post-Scientists, who seem to share the frustration with perfect equilibrium theorists, look more deeply into Austrian theories of subjectivism. Particularly relevant is an early paper by Hayek, `Economics and Knowledge,’…”

With regard to (1), post-science believes that the difference between post-science and Austrian School is the availability of solutions in social science. Generally, there is a lack of understanding of “what constitutes a `scientific’ solution” in current social science. Solution is defined mathematically (or logically) in post-science; it is simply that the number of equations equals the number of unknown. The involvement of infinity makes the solution of value, the foundation of social science, hard to formulate mathematically. IS demonstrates the consideration to infinity http://www.infinitespreadsheet.com. Post-science, or any, solution for stock prediction will make our discussion “academic.” And only after the solution can one understand the sufficiency of the inputs.

Regarding (2), Prof. Hayek follows the style of practicing knowledge as Prof. Mises. After reading “Human Knowledge” “Theory and History” and “The Ultimate Foundation of Economic Science” some of the post-scientists, familiar with Prof. Friedman and Prof. Debreu, conclude that Prof. Mises has originated most of their thoughts. On the other hand, in comparison to the recent book “Knowledge” on post-science, Mises have written just “half of a book” dealing just with the problems, not the solutions. Yet, his books are excellent presentations of the problems; Prof. Mises is an independent and very logical thinker with absolute intellectual integrity, for which he suffered in material rewards during his lifetime. Again, with the solution of price, post-science realizes that the market or the equilibrium price is generally incorrect. Post-science is publicly predicting the stock market based on the belief that, on a long-term basis, the price must oscillates around the correct price calculated by IS.

Post-science is grateful to you and Prof. Prior for the intellectual discussions, which satisfy its unfinished discussion with Prof. Friedman. In the future, post-science hopes that you will join it in its current practical projects. Currently, post-science challenges the intellectual establishment in the solution of touch in science, in stock prediction in social science, and in complete automated software and its byproduct of Universal Permanent Numbers in life or computer science. Thank you for your great intellectual tolerance of post-science. ### [Chien Yi Lee]
 

Xie xie, Dr. Lee.

While I am not converted to P-S, if I have contributed useful ideas, it's certainly been worthwhile. And if I can be of further service in some way, just ask, I'm at your service.

My interpretation of this exchange; I think P-S and Austrians share a common frustration with neoclassical econ. I think we are uneasy partners on criticisms of scientific method, and we part company when we begin doing econ.

I also gather the P-S people are essentially libertarian. Good on you for that.

It's been an interesting discussion. My best regards to you and your colleagues.

Charles N. Steele