Development â”€ Its General Terms and Conditions
Albert Bernard Jansen, eMBA Lecturer Economics, Finance, SCM Yang En Private University Quanzhou, Province Fujian, P.R.C.
Development â€“ Its General Terms and Conditions
This study is reflects on principles for sound development as it emerges on Earth and can be traced down to a few main though scientific verifiable principles based on mathematics. These principles follow a natural law and underlie every development stageâ€™ terms and conditions from start to end.
| Πόλεμος πάντων μὲν πατήρ ἐστι | “War is the father of all.” Heraclitus of Ephesus - 6. Century B.E.
Wars: To put it succinctly: —today DEVELOPMENT as a topic needs a renewed scientific approach. Only a scientific concept as a background fundamental underlying all applicable fields can overcome critical problems occurring at various development stages. A renewed approach would enable us to discern what to look for and where to look at in a more proactive manner should crises occur and threaten to completely block off rational reasoning. In real world practice we see that development do can have extreme dangerous impacts like suicides, criminalities, or even the commencement of wars in order to maintain an upward trend of a country’s GDP 1 . Though it must be said–and this is of course not conducive for peaceful development–commencing wars would be thoroughly in line with development conditions, because conflicting potentials are innate to development at its start as we shall see in upcoming units. As stated by Heraclitus in another famous aphorism; gods play with the tools of creation [i.e. of development]. Of course development should not only be regarded just as a play toy for heavenly beings, but as a magnificent tool in the hands of a responsible mankind—yet necessary to fully comprehend for its proper application. The induction of any development indeed carries an inflammable potential of innate energy, which—once enticed at start but with inappropriate means and goals—could release the inextricable intertwined and initially strict opposed forces into totally undesired directions. So it’s time for the quest on development and its conditions, because entering the third millennium we seem to embark for a totally new era of dynamics, in which development and the feat of its handling will be a main issue for globalized society to uphold prosperity and to maintain peace. It seems clear that once again at various fields the world is preparing to meet the challenges for a totally new development stage—this time on a global scale. We only have to look at research for new energy sources like plasma and ion fusion, which would be the solution for our energy problem based on mineral resources.
GDP = Gross Domestic Product. An economic term to indicate the total market value of all final goods and services produced in a one-year period of a country.
However we may also state, that if there is no awareness of the implications of development— still to be uncovered—we do can expect a future of increasing conflicting interests, of increasing hostilities, of chasms coming to eminence. If not handled properly it will likely result in endless cruelties from destroying a countries financial system and thus its economy through dark trading tricks with financial derivatives up to the eradication of population through a slew of a-moral methods to meet the financial challenge of so-called over population. May war be the generator of all as Heraclitus stated to a certain extend still valid today, it never may be developments final aim. And as we shall see; if the induction of cruelties to decimate population or to grab of a countries’ resources by way of war is no final target, then prosperity and harmony must be developments final result this by means of the convergence of all development forces. Forces initially opposed to each other as we shall cover further on. This study can provide you with a small overview of what we actually ought to capture mentally—thinking and reasoning in terms of development and growth. Anticipating on items to come: development is by no means just growth and vice versa growth is by no means just development. Economics and Business: From Joseph Alois Schumpeter—the known Austrian economist—we inherited crucial thoughts how to distinct between both expressions. 2 Society though seems not inclined to learn very fast. So for reasons of convention teachers and economists are forced not to stress the difference and not to distinct properly; talking about growth while pointing at events that would probably characterize development and talking about development while pointing at events that would under circumstances characterize growth. We can’t blame them, but we should sense a responsibility not to continue with the usus. Still there is a job to do, to get the proper underlinement of developments terms and conditions. This starts in the first place with a proper definition i.e. of a proper distinction of meaning and comprehension of ideas like “development” and “growth”. We have our famous forerunners in development research and are very grateful for it. One of them is the Austrian economist Joseph Alois Schumpeter. To regard Schumpeters contributions to development as a basic construction indispensable for all further research on development is a must to acknowledge for
us and for generations to come. Therefore it’s up to us to handle the topic accordingly. Much has been undertaken already. A look at the evolutionary economist’s contributions with respect to Schumpeter will convince us. With this introduction course we try to contribute to the comprehension of the term development by stressing some very basic maths as well. Of course there would be a lot to say about development to get all the different views conveyed. There is literature galore dealing with this. What could make this study useful to the reader is the new approach of development with respect of what’s going on—and going wrong—in realworld practice, emerging development dynamics with its complexity, weird globalization aspects, potential dangers and unique possibilities. For individuals living in this crucial time—appreciating innovation with respect to development— it’s possible to choose; either to adapt or to step in into the heart of real world development dynamics or stepping aside in reluctance, while looking how the stressful world is passing by. As Ph.D. Tad James, leader in the neuro-dynamic field of Accelerated Human Change, once put it: We can regard ourselves being “through time” i.e. endogen active in development’s process or rather “in time” i.e. dependent on development’s exogen conditions. The model of development introduced, together with the findings stated here is the result of several years of in deep research and is by no means “new” in a sense that it has never been sensed by mankind before. But it is forgotten. And since those times of the ancient, society changed enormously. A new world emerged. But these ancient insights mostly expressed in stone and covert written aphorisms or even calendars are valid still today and can have their say even more trenchant then our modern views. Having said that, the model, presented here, is nevertheless backboned by calculus and we were lucky for the ability to trace its principles from developments start right to developments entropic end. This turns out to be of great help on how to sail between the “rocks of Scylla and Charybdis” as in the story of Odysseus, when we want to be successful achieving our targets through the subsequent stages and inherent bottlenecks in the flux of developments progress. Odysseus blindfolded the crew to pass the crises. Nowadays there can be no intention to blindfold our mates again like Odysseus did with his team. On the contrary; we should strive to keep eyes open widely. This brings us to a next issue: Imagine, if a med has the wrong anamnesis the cure won’t be much of a success—will it? The same way, if an enterpriser or an economist has a biased 5
anamnesis, what will be his planning for the firm’s management or what will his advice to the policymakers bring about? Speaking about development, we definitely need to review the emergence of such remarkable phenomenons like “crises”. Those complex and often enough disastrous situations called crisis should receive a proper foreseeing treatment and—like Odysseus for his time—we also should have the right anamnesis resulting in the right action or cure to deal with it, to feat the critical situations inherently anchored in all development. But it has to be said, that people would like to avoid crises. We can easily imagine why. Mostly we all are inclined, not to go through those development traps and bottlenecks that nevertheless will actually bring us through and up to higher stages of development quality. So we can expect that avoiding crises, treating them as if they were accidents, is like preparing for the wrong anamnesis. And often enough a wrong advice or a fruitless strategic idea ends up in a derailed and tense full development environment—of course an organizational mess is the result. That in turn can lead to a destruction of all previous achievements. This doesn’t make much sense and is an at all times painful experience. A first remedy were to take Schumpeter serious again. But just avoiding the challenges of crises is nor a cure neither a way to envisage and treat such phenomenons. We need to look at it from a positive side. We need not to succumb but to master development. In reality all crises are the sole potential possibility for the eliciting of sense full but necessary steps and for trespassing to next stages of development, because the incremental rationales and game play logic of methods appropriate for growth periods—admittedly most often a strategy f.i. of dull operational research methods—can’t really do the job. We must state:—Crises do not put off their ‘iron helm’ and reveal themselves if regarded as merely threats and dangers to creep away from. So for those, who launch developments and want them sound there is a great need for clearance and for the work up of a lot of biased established views, attitudes and subsequent behaviours in order to master development and its requirements in a sound way. A lot of literature on crises seems only ripe for the bin. Development could also be something not to be materialized off one’s own bat, but demands a lot of courage and social responsible behaviour of all involved. As William Easterly in his study: “The Elusive Quest for Growth” put it: “If you bake a cake, according to a recipe, would you take just one or two out of 10 ingredients needed to start out and make you cooking a success?” The answer of course is, no. Instead we take all ingredients and not just two of them. If Easterly is right, then why is the cooking of a cake so simple and the inducing of development so difficult and complex—even though we take all ingredients the same time? Because the cooking of a 6
cake does not require neither the experience of fatal crises nor the need of terms and conditions connected with development. Nobody dies when some cooking failed, but inappropriate handling of development and crises on a large scale can have numerous victims. So in order to induce development we need not only all ingredients that make development a success as Easterly proposes, but the right reading of the recipe i.e. the ideas of what else is required to accomplish development with success. This implies, that—especially for third world countries as was Easterly’s focus—all stake- and shareholders, donors and participants, need to contribute in practical support as well as in a proper educational as well as ethical preparation3. In order to induce development we don’t need consensus of all different views—on the contrary. But there can hardly be any successful development without a spark of development knowledge. Because development for one thing is the result of the satisfying of demand and coming from two different sides. It is the ephemeral result of an agreement based on mutual interests. Mutual interests are lucky facts, providing the basic for solutions as a satisfying, but ephemeral outcome of originally opposed worlds. Entireties with opposing interests become partners and agree to create the opportunity of exchange of resources. But there can hardly be any development without a simple grade of trust, of good will: i.e. honesty, constructiveness, clear thinking, extrapolation of mutual advantages and finally the dynamics of good teamwork. In general, people – you and me - are not altruistic and there is not always that innate skill or what’s so ever to immediately gist the advantage of all by focussing the advantage of others. There is a moral aspect to this. To see the advantage of all involved in the process has to be trained on a daily base. On the field of business it is our conviction, that an enthusiastic enterpriser with the most valuable and useful ideas and products in his output basket, with the best planning’s to materialize it through his firm, but embarking with poor development capacities, simply isn’t aware of the real power of his contrahent—the stakeholder, like a groom can be unaware of the real value of the bride. In the course of development stakeholders increasingly penetrate the firm and can even overrule its management strategy with their own interests and power, especially the customers. To strive for the volatile and ever ephemerical balance of harmony of opposed energies by way of development is a tremendous challenge for the firm’s owner if he is just focussed on generating his own profit. As a strategy to aim for this focus is not enough and will not hold very long.
Nowadays people—nations—unfortunately tend to fail to meet terms and conditions of development even on a global scale. This study provides a small contribution at least to find the cause as to why failures were made in the past and can reasonably be expected for the future and what can be done to prevent them. Target: In this introduction we would like to emphasize, that the core target of this study is to give the reader an incentive to workout for himself a new look on development. Partly we do this by let him pay attention to the emergence of development nodes between two subsequent growth stages. In physics we know that in oscillation and wave theory two amplitude waves build nodes as a result of two or more waves in case there frequencies differ.4 In development theory we would like to adapt this knowledge—just with one small extension: We stress the additional fact, that—during time development is running through a critical node—an unseen kind of backward looping of developments motion takes place. In physics there are two opposed kinds of energy: potential and kinetic energy. We assume a change of the weighing of these two kinds of energy: From kinetic or direct (“ignitional”) energy being developments’ physical energy or main driver during direct progress into its opposite: The potential energy as the main energy during the sensening—no physical reality—of a retrograde progress or backward looping. So in-between the change of two growth periods in development the two different kinds of energy actually alternate.5 This chapter is but an introduction to the material—you can expect a more in deep discussion in situ. We also would like to introduce the fact that, during the short time development goes through these nodes, we assume that this unseen motion of backward looping is—in this world—experienced as a jump from a just completed to a next development stage. It is this famous jump in development which once Schumpeter regarded as being the actual developments’ procedure. This with distinction to the subsequent growth stages. Basically these development jumps can be regarded as jumps of quality rather than quantity (which would actually mean growth). Now, the curve rising up from quality to quality can’t be visualized by showing a wave in a graph, but by a straight line showing the rise in potency. In order to create a straight line for potencies we need a logarithmic scale.
On internet, java applets are available that show this fact clearly. http://www.walter-fendt.de/ph11e/. You will see an ‘applets.exe’ (Allow ActiveX. Java runtime version 1,4,2 from Sun Microsystems is required. Go sure and quickly check for viruses first): Scroll down till heading: “Oscillation and Waves” and choose f.i. applet: “beats”. 5 As an example to comprehend we can look f.i. at planets with regard to earth: Sometimes they rotate in prograd sometimes in retrograde motion. Planets do not only delay or even “stop” moving at their apogeum. After apogeum planets make a small retrograde looping before resuming their direct motion. Yet in reality this is an illusion.
And thus: We can best show changes in quantity with a linear scale. We can best show changes in quality with a logarithmic scale. Here are two graphs with the same data showing the difference – mind the different grid pattern.
Fig A. a logarithmic scale
Fig. B a linear scale
We can best use linear scales on y-axes (vertical axes) to make changes in quantities clear. We can best use logarithmic scales on y-axes to show changes in quality with regard to potencies’ and their progression. We imply using both linear and logarithmic scales—superimposing them in the same graph—to show you data changes of both developments’ progress and its inherent growth stages. Technically this isn’t quite doable and seemingly in mathematics even not correct, but such a graph—a first sketch of development—depicts pretty good what we mean but mind the underlying basic difference! For an introduction these short explanations will do. However to explain the model of development we have to introduce to the reader a lot more aspects. Visualizations We can’t touch, hear, smell or see development. Being immaterialized its process is going on beyond our physical senses. We only experience our joy, relieve, tenses, our expectations, and the results as our failures and success and so on when we start to develop an idea. So in order to bring things a bit “down to earth” and to make it more comprehensible we use certain visualizations like symbols. Thus for comprehension purposes and as an ideally visualization for the start of each development we take the transparent cube as one of the platonic solids. Secondly to characterize the end of development we take the transparent regular
dodecahedron—a second platonic solid.6 This has a lot of reasons, which are to be explained later. Between both solids, the cube and the regular dodecahedron, as a way to show developments’ progress we visualize a straight staff or rod with two oscillating waves (or snakes) wrapped around the rod, which would symbolize the amplitude of any of the harmonic swings. All three symbols together are a complete visualization of the model of development. As the reader may know these symbols are famous since antique cultures of the Middle-East and there is a good reason for it. To stress it again:—nobody has ever physically seen this composition of symbols, but as a whole it is a meaningful auxiliary and it can help us to clear the idea of development. This model is basic to all natural development. The nodes in the progress of development are already mentioned. They are absolutely crucial and by all means indispensable. Not in a sense, that we would promote the final disaster and the ‘going off’ of someone wrestling to come through. But nobody can and may escape critical situations inevitable coming with the nodes. We should make it a rule for live never to try avoiding them. On the contrary we are encouraged to master them and indeed pass through those bottlenecks in order to enter a next period of growth on a higher level of quality. Lots of literature has been written about how to avoid or to minimize the emergence of crises. Sorry, but it simply won’t work. Better mime the enterprisers courage in your life and accept Schumpeter’s’ idea of “creative destruction” and you’re far better off. From our exposition in theory we will proceed to present a model with its inherent development laws. A next step is the adaption of the model by some characteristical examples taken from real world practice to show you that the outline of this model structure holds.
6 The Greek philosopher and writer Plato mentions the five solids in his written down discussion: “Timaios”. For this see: Timaios Chapter 220.127.116.11. Platon: Sämtliche Werke VIII Insel Verlag Frankfurt a.M. 1991, p.313ff.
Ballmer Rinck’s Formula and The Harmonic Division Physics: At the outset of our explanation of the model of development we first take a tour through the world of physics. This is required to give the new approach a framework and background for reference. From the range of research fields we take a look at atomic physics. There is a reason for starting our tour with Ballmer Rink and his discovery. The formula discovered will be explained in this chapter. Why is Ballmer so important? Because with Ballmer’s discovery of the mathematical background for the occurrence of a specific spectral lines signature we, for the first time, get a glimpse of what nature uses as a specific ‘tool’ creating the numerous varieties and increasing complexity of levels of physical matter. Scientists later found out that, with the use of logarithmic (potentials) nature seem to repeat its basic mathematical principle every time again, but each time on a higher level i.e. on a subsequent spectral line signature. The basic mathematical procedure however always stays the same. Having discovered the quotient of this principle is Ballmer’s important contribution to science. Since the time of Ballmer, search went on from Bohr to Einstein putting questions about the nature of the nucleus and its shell, the excitation of photons and electrons, jumping from one to a next discreet absorption level, if not excited enough falling back while emitting X-ray. They discovered that by times the excitation is enough high, that photons jump all over the shells potential barrier and into the so-called continuum or plasma – ionization and altering the nucleus and its compound. Plasma research – the research of the continuum - is most interesting and we highly recommend the reader to visit some research centres on internet. If we realize on one hand how nature proceeds to materialize and change physical matter creating different levels of quality and if we realize on the other hand how this is done, we get a clue what Schumpeter had in mind defining development as a creative destruction and a leap or a jump to a next level of growth. This higher level would be more suitable and convenient for a next developing stage of the original entity. Explaining principle and procedure of the spectral line signature we compare the techniques nature uses as a kind of template for research on developments procedure in general. We regard it as an important key process, a method or a rule to follow enabling induction of development. Let’s have a more in deep look at Ballmer’s discovery. 11
According to one of the statements of Schumpeter in his Festschrift “Development”7, real and useful discoveries always start with specific experiences on specific areas in praxis 8 . J.J. Ballmer Rinck was a Swiss mathematician and physician, who, in 1885 defined the second of a set of six different series9 describing the spectral line emissions of the hydrogen atom. Ballmer discovered the visible part of the electromagnetic spectrum and in that year 1885 used an empirical equation for it: Where λ (gr. Lambda) is the wavelength in Ǻngstström, n—referring to the ground e.g. lowest energy level—is equal to 2, m refers to the principal quantum number an integer above ground state of energy (m > n), C is a constant (potential barrier) with the value of 3.6456×10-7 m or 364.56 nm. The Ballmer series is characterized by the electron transitioning from m ≥ 3 to n = 2. The next levels or transitions are named sequentially by a Greek letter: Starting m = 3 to n = 2 are called Hα (Hydrogen alpha), 4 to 2 is Hβ, 5 to 2 is Hγ, and 6 to 2 is Hδ. As the first spectral lines associated with this series are located in the visible part of the spectrum, these lines are historically referred to as "H-alpha", "H-beta" and so on. The spectral lines of hydrogen correspond to steps—though not yet jumps which in turn we would compare with an expression of J. Schumpeter as a: “creative destruction”— promoting the electron within its shell to various energy levels. In general theory, excited photons promote electrons to higher levels or fall back while emitting X-ray as soon as energy returns to a lower state. The thing to remember here is that the innate potential to ‘step’ of the excited photons can increase to a real jump and override the potential barriers of the atoms shell with its specific energy levels. In consequence they can unbound, freeing themselves into the so-called continuum and from there transforming the nucleus into a higher organized atom with a changed shell and spectral lines signature. In science this potential barriers penetrating jump is called the process of i o n i z i n g the atoms nucleus. Ionizing of an atom means removing electrons from their genuine orbit system (shell). The imaginary space between two shells or potential barriers—the continuum—is indicated in the energy level diagram of the 7
For this source go to http://www.schumpeter.info -scroll down to find the link to open ’development'. There is also an original text in German language available, for this look at: ’Entwicklung’. 8 Quotation from Schumpeter: “Development” 1932 p1: A preliminary remark is in order to protect the following unpretentious considerations from obvious misunderstanding: Everything I will have to say is to be understood from the perspective of each particular science, and not in a philosophical sense – if not exclusively from the perspective of one particular empirical science, then, solely from the general perspective of working in the particular sciences. If what is said here, in any case, turns out to be of some interest, it is because it has emerged from an altogether concrete problem found in one particular science. It is further because the awareness that a formally analogous situation is found in all the other particular fields of science and the supposition that such a situation is rooted in the structure of our mental apparatus, were in neither case merely postulated, but emerged afterwards, and step by step. 9 There are six different spectral line series: Lyman (n=2), Ballmer (n=3), Pascher (n=4), Brackett (n=5), Pfund (n=6), Humphreys (n=7).
Lyman and Ballmer here.. Thus, excited photons with energy exceeding 13.6 eV can make electrons disappear into the continuum ionizing the nucleus. The ionized nucleus reaches a next potential level with a different ferent spectral lines signature. So the story goes.10 For us this all is to a certain extend comprehensible. However the magic ‘unveiling of the secret’ for the context of development is the following:— —from from the formula’s term in brackets (see Ballmer’s formula form above) we can derive the so-called: called: HARMONIC DIVISION. To keep things simple, we take the first of all series, the Lyman series with m = 2 and n = 1. Being a mathematical component basic to development this harmonic division is crucial for all progress by development. What’s the big thing about this harmonic division? Here is how wiki.org explains harmonic division: ““A A harmonic division is about a specific dividing of a given line segment. In geometry, harmonic division of a line segment AB means identifying two points X and Y such that AB is divided internally and externally in the same ratio. In an algebraic equation shown below, the ratio is two (2/1): XA YA = XB YB
Harmonic division of a line segment is reciprocal as well; if points X and Y divide the line segment AB harmonically, the points A and B also divide the line segment XY harmonically. In that case, the ratio is one third given by: BX AX = BY AY
An applet can show you the jumping of the electron on five of the six series. The last series series—Humphreys Humphreys series— series is not yet depicted. This animation requires Flash Player 5.0 to see it and the explanations are in German. ⇒
Which equals 1/3 in the second example above? Ratios (2/1 and 1/3) are not equal!â€? So far wiki.org. Here comes a third possibility to build a ratio (=2/3):
AX YX = AB YA
This third ratio makes perhaps more clear that there are two o p p o s e d points of view. The left side term of the equation starts at point A (line segment AX), the right side term at point Y (line segment YA). The ratio is the same (the right side terms doubled), but, we view the scene from opposite sides. Here a few pictures of the harmonic division: 1. the divided square with Pythagorean triangles drawn:
2. The same triangle derived from the harmonic division:
And 3: The three means derived from the triangle as well as the harmonic division:
and compare this 4. with the inherent opposition of forces:
then we don’t need much calculus at first to perhaps get an idea in what compound “harmony” is actually embedded shown in terms of algebra and geometry. Let’s just take cognizance of this and proceed with decomposing the quotient in Ballmer’s formula: ߣ = ܥቆ
݉ଶ ቇ ݉ଶ − ݊ଶ
We see that we can do this decomposing into basic quotients to derive the harmonic division. For the deduction we use m = 2, and n = 1 equalling the value of the first of seven of spectral lines signatures called after it’s discoverer Harvard physicist Theodore Lyman (1906): ݉ଶ ݉ ݉ = ∙ ݉ଶ − ݊ଶ ݉ + ݊ ݉ − ݊ Filled out with the Lyman values: 2ଶ 2 2 4 2 2 = ∙ → = ∙ ଶ ଶ 2 −1 2+1 2−1 3 3 1 Ballmer quotient with Lyman values So the squared term in the equation indicates the result of the harmonic linking of that inner and outer division as is shown by the harmonic division. From the quotient of Ballmer’s formula and the harmonic division (again: m = 2 and n = 1) we can also derive the famous Pythagorean triple: 3 : 4 : 5. We already showed you the graph (Fig. 2). To get this extension we simply draw two semicircles on line segment AY connecting all four points AXBY. As you can see it shows a clear relationship: All development starts with a potential controversy situation, shown as semicircles being linked. Remember this carefully: It is thís energetic, tenseness, and intertwined situation, which the ancient Greek called ‘harmonic’. Of course from this ancient point of view we nowadays differ in opinion about how to define harmony. To us, harmony is a way of arranging pleasant sounds, objects and colours. Harmony however according to the opinion of the ancient Greeks is the linking—the ephemeral agreement on a specific place11 of genuinously different, even opposed forces.12
We assume, that, if an ancient Greek would describe the function of his temple, he would probably state, that his temple is the specific place in which the ephemeral agreements (daily votive offerings and rituals) between strictly different entities (god and men) take place. These consecrate activities—according to the Greek—are the constant attempt to create harmony momentum.
So, to summarize some conclusions: A geometric harmonic division divides a given line segment like AB harmonically into two different line segments. If this is done in a manner to really show the innate opposites you will get the same ratio. From segment AB segment AX = 2/3 and from YA segment YX = 2/3. From starting point A (AB) there is a ratio directing to AX and from the ending point Y (YA) there is a same ratio directing to YX. In both cases the ratio is the same (2/3), but each time we take the opposite point to start. It is important to realize that: The law of harmonic division is the result of an—ephemeral—linking of opposed starting points causing ‘harmony’. What are implications? To really see the implications we have to complete our deduction. A sound development like in the field of enterprising is defined as well restricted by principles causing harmony coming from opposed directions i.e. striving from opposed forces, because as will be seen in a next chapter in an ultimate sense the linking of the opposition—and, if critical enough for the next change of state, emerging in logarithmic periods—can be defined as being an encounter of rational as well as irrational forces with there inherent different principles. Through the fact, that during development these opposed realms regularly meet each other in the harmonic division, progressing from start till end, we see the cause behind the appearances of nodes and thus from crises appearing. Now, what we assume in the context of development as well is our sensitive apperception of a kind of retrograde motion occurring while our development passes the periodical nodes. This doesn’t occur physically. It’s just our experience of an illusion. What’s a retrograde motion? Spoken in terms of astronomy: Direct or prograde motion is the motion of a body in a direction similar to that of other bodies within its system. Retrograde motion is motion in the contrary direction. In the field of physics we can show the emergence of nodes by a simple synchronic movement of two waves with slightly differing wavelengths. In astronomy we can demonstrate the occurrence—and the illusionary impact—of a retrograde motion through the orbiting of two entities on two distinct levels around one fixed centre, observed from one of the orbiting entities. As in physics we as well state that retrograde motion is the optical illusion of the movement of
As already stated, It is important to realise, that—especially in business—a sound start of development is never a matter of just having a nice idea, going to a donor to get the necessary resources for practical materializing. Development needs a clear view of the terms and conditions and an awareness of opposed intertwined entities that define all development from start to end. A sound development’s strategy is in the first place concerned about the life, the desires and the fears of the customer and what the producer can do about that … for the moment.
entities with different orbital’s caused by the point of observation, though our sensening of that fact is not. We introduce to you a second phenomenon. Though it has nothing to do with the formula’s mentioned above nor with retrograde motion. We just want to give you a next example of this peculiar passing of a node necessary for the entering of a next level of quality. If we heat water in a glass while looking at the constant rise of the quicksilver bar of a thermometer we put in the glass, water will reach a temperature of 96°C and start boiling— correct? Not correct, because for the boiling it actually needs 100°C. However for a moment the indicating quicksilver bar just slowed down. After reaching 96°C we—again for a moment—don’t see any further rising looking at the thermometer. The difference is 4°C. We now look what happen in the other direction: If we decrease temperature, water can fall to 0°C before turning into ice—is this correct? Again no, for, to let freeze water to ice temperature actually requires – 4°C. So, in both cases we don’t know observe water as a liquid with a temperature of +100°C or -4°C. Instead of real water we have either gas or solid ice. Look carefully: At 96°C increasing and at 0° decreasing the temperature the quicksilver will slow down. And it will take a short time till water starts to change its state to either get a solid or evaporates to gas. Obviously, in order to change its states, water passes nodes of ‘development’ as well. It will reach another level of quality or state—be this gas or ice. During the short time water passes it’s nodes to change its state we, looking the thermometer, can’t observe an increase or a decrease of temperature at first. We of course don’t know if it’s experiencing a retrograde motion while changing the state, but what we do know is the fact, that it can only change its state trespassing a node. This is the simple conclusion: The trespassing of nodes in a process of development is positive related to the entering of new states or levels of quality. It has important implications for our conventional view on development. We could of course start a discussion if water indeed can ‘develop’. Such discussion however would nevertheless miss the point. Water can’t develop in a sense living entities can, but it is highly sensitive acquiring kinetic energy not being in nodes— as is growth. Water is also highly sensitive acquiring potential energy while trespassing a node unto other levels of state or quality—as is development. A thermometer can show an increase and decrease of kinetic energy, but it can’t show an increase or decrease of potential energy (let’s say skill). The quicksilver simply stops increasing. So, observation of half of reality is enabled. It’s the physical side. Development is linked to these phenomenon’s as well. Here comes the first of the implications. We can see nodes occur as a result of two waves with slightly different wavelengths. They diminish the amplitude of the resultant wave. In 18
development we experience those same nodes the same way as stagnating highly critical situations. Thus in order to explain development with it’s nodes we need the assumption not only of one wave as used for instance to show the business cycle but of two waves. And if any nodes in the flow of development’s progress do appear, then these two unsensed waves have: 1. SYNCHRON MOTION—e.g. processing within the same shell—in the flow of time 2. Slightly DIFFERENT WAVELENGTHS (frequencies or speed)13 3. A third fixed point (nucleus) to SENSE the ILLUSION of retrograde motion during a node. In development we observe, that a crisis is the mostly tragic impact of the passing through these nodes—the meeting of initially opposed forces—, as discussed above, necessary to gradually reach a target at the end of development. Here you see that our view on harmony needs a revision. Harmony is no big ‘relax, have a seat and listen’ idea. The emergence of harmony, or let’s say harmonic, in the way it occurs in nature is a sudden robust change of all fixed variables—experienced as a most critical situation. To make the critical impact of this ‘harmonic’ even more clear, we have to add some more information on what typifies or characterizes both opposite worlds, which will be done after explaining the three means: the arithmetic, harmonic, and geometric mean (hereafter with abbreviations: am, hm, gm). The idea of Ballmer’s discovery was subject to further scientific research. From his definement we see that in the field of atomic e.g. nuclear physics Rutherford and Bohr, Heisenberg, Hahn a.o. contributed to develop, refine and apply atomic shell models. At start Einstein was very enthusiastic about the findings. However seeing that in the hands of scientists like W. Heisenberg (who later on derailed final research in German projects for moral reasons), this knowledge was used to build nuclear bombes he got shocked. Let’s quote from an article written by Hugh Gusterson published by Global Research: "The attitudes of those working in the life sciences contrast sharply with the nuclear community. Physicists since the beginning of the nuclear age, including Albert Einstein, understood the dangers of atomic power, and the need to participate actively in managing
Spectral lines theory acquires the assumption of wavelengths discretion subject to integers of variable n:
ny → ny −1
these risks. The life sciences sectors lag in this regard. Many neglect thinking about the potential risks of their work."14 The uranium bombe—developed and constructed by German and American physicians—turned out to be the scientific result of a search for the power of ultimate power through destruction never intended nor used by mother nature. As in the situation of the excited electron transitioning from one energy level to a next, entities that need to be developed as well—f.i. the launch of a firm—need excitation in form of a vision or a creative and sound idea, that gets a haul of enthusiastic energy and sufficient financial resources to materialize over the long run of say 30 years. This idea emerges in the head of an enthusiastic individual and is never the result of a discussion about the utility of an idea of a range of board members of some corporation, institute or a policy party. A fertile idea is a sound idea for enterprising with rational expectations promising a high return on their investment (ROI) in the long run. The thrust investors put in a fertile idea is inextricable linked to the thrust they put in the individual enterpriser materializing his idea by launching and leading his firm. Again to put thrust in an individual makes sense, but to put thrust in the strategy of a collective of a group mutual agreeing in the utility of a firm to be launched is at odds and will hardly hold. So take cognizance to this: All development can start only with entities capable of excitation - individuals and the subsequent materializing of their sound ideas for the long run. On the other hand a firm relies on its customers. Their behaviour, targets, and planning’s for the future is crucial for the strategy and tactic of the firm to survive. The bigger the firm gets the more customers will be attached to it, the more interests are involved. The more Return On Investments of the firm will need to change its components, because—gradually—ROI will not only consist of pure financial interests any longer. This need some explanation: In this context with the term ‘customers’ we mean everyone in some way and to some extend linked to the firm, be it customers, stakeholders, investors, managers or government. If we look in a broadened scene at the range of interests somehow linked to the firm we can look f.i. at the plant’s location. Interests can be highly conflicting if only the enterpriser’s interests are being materialized. So in order for firms to survive they become gradually more dependent 14
on the community of its location or within the virtual network they are operating in. If input can not be materialized anymore to a satisfying output (with or without changed ROI) firms are going bankrupt. This will be in all cases when throughput of resources or production factors (input) may still lead to high quality products, but nevertheless do not lead to sufficient ROI anymore. Firms then suffer from resources’ entropy. The only solution for survival is enhanced concentration on the skills best acquired during past development, a turnaround management project; the firm’s embedding in greater industrial networks and/or the launching of a series of new small firms with the same identity. The key idea is to concentrate the firm in some way with respect to the community to meet its interests again. All individual development will end by entropy of throughput capacity of the entity. If development stayed sound, society will tend stronger and finally its interests will supersede. This knowledge can lead to important inferences: 1. Real development at all time starts on an INDIVIDUAL base. 2. Development can not be extended (or restarted) without a RECURRENCE of conditions equal or similar to the conditions at development’s start. 3. Development will always end if ENTROPY of throughput offsets the benefits of ROI. Comprehending the general idea of development conditions and of nature’s methods with respect to development enabling to create all her varieties is important indeed. Therefore it is perhaps a good thing to stay succinct. To conclude this chapter we return to the first topic and add some graphs that show you the spectral lines signatures on a specific grid already introduced in this unit. It is the logarithmic grid. A section of that grid we showed you before. If we remember the grid shown earlier. It shows a series of those sections as a rhythmical recurrence of the first development stage on subsequent levels! Unfortunately even recurrences of this kind do not promise the firm’s ‘eternal life’ and can lead to an end, which we shall explain later.15
For a background please read this paper of a speech Schumpeter in 1931 held for the readers of Keizaigaku-Ronshu of the imperial university in Tokyo http://www.schumpeter. Info/text2~1.htm
Society’s Progress—Development is linked to Scientific Discoveries Seen in a broadened sense we observe the fact, that Ballmer’s discovery in the field of theoretic physics was not a ‘standalone’ and out of the social context of the days. Researchers in all kinds of disciplines became curious and strived to lift the many hidden mysteries of nature. As a research topic they as well got sensitive for the ‘quest for the development principle’ as employed in nature. Since the era of Enlightment society in general was evolving from an exploratory life heavily controlled by the church or other under patronage of the feudal aristocracy into a situation were scientific explorations, research, reasoning and development started to set the scene. Aspirations to enhance objectivity and transparency in science, to gain individual freedom in political and cultural, and to explore rationalism in social fields were trendy. The psychological cause for this change in mentality can obviously be seen in the coming into prominence of capitalism into society. Gradually the influence of capitalism led to a change in apprehension of moral and social values, of ‘humanities’. One of the impacts of capitalism was that people lost traditional bonds which bounded them to their community. In the UK in the early decades of the 20th c. questions raised, if capitalism could provide a comparable social stability as experienced before. Schumpeter’s opinion being a known economic was appreciated. He stated that capitalism could provide in a technical stability, but called the economical and social impact of capitalism to the people as a kind of “throw on their own resources”. Here we quote from a speech hold by Schumpeter in 1927 in Leeds in front of the Board of the British Association for the Advancement of Science: “If we take a look back we see that in the Middle Ages people lived in an environment essentially stable. There were the church, the castle, the village community, the communal processes, which carried things on year after year in essentially the same way, and neither church nor castle were discussed. There was no reason to discuss them. Discussion was always the precursor of revolution. Thus the environment of the day made the minds of people stable. It was not a system of castle and churches to which they were attached, but a certain visible church and castle and community and a family life quite different from the modern family life. It was an essentially traditional way of life and thinking. These did not exist anymore. Capitalism, with its private property and the motives of private property, was tending to destroy them. It broke up the village community and two things necessarily followed. People lost their sense of anything absolute existing and of the existence of something which commanded allegiance irrespective of personal judgment. Hence they
were thrown on their own resources. They had to fight their way on slippery ground, and doing so naturally focused their attention on the rationality of their behavior, on producing something that would fetch what it had cost at least. The feeling of dependence on their own judgment influenced their culture, duty, mentality, religion, art, and so on. It tended also to cut a man off from all his humanities to other persons and things which in the past were among the most valuable of stimulants. Many of the things dear to our fathers were dear [to us] no more. Not only the bonds which formerly bound an employer to his factory and workpeople, but also the bonds of private life, the relations of man and wife, of parents and children, did not mean now what they meant when they were a necessary form of survival.”16 If we look at this change—but in the context of development—we see that since the introduction of capitalism society experienced a kind of split up or diversification of its social structure. Capitalism had its few though strict principles (compare these principles with today real world practice): •
private property and private initiative
production for the market and the division of labor
enforcement of these principles by government rule
financial resource creation by banks (legalized fractional banking system)
Together with capitalism a social shift prone to the above principles occurred, which created: •
a small upper class of a few rich industrials
a big labor force of dependent people with an ‘organized’ income
a shift of population from rural to urban society
A stagnant pool of a few unemployed, left behind in a desolated state.
Due to the induction of capitalism in society of most of the nations, the role of church and landlord was taken over by other institutions like governments, with its rule makers and politicians. U.K.’ and later U.S.’ led liberalism and capitalism enforced society the social ‘throw on the own resources’. The few that could not bring up there own resources in a sufficient way which would enable them to survive stayed dependent on government. Since then government provided them with institutionalized forms of ‘human aid’. Together with the up rise of liberalism and capitalism, with its rationalization of social and individual behavior we see a next and most 16
„The instability of our economic system“Speech of Schumpeter held in Leeds in 1927. Published in Manchester Guardian 1927, and The Times 1927. see http://www.schumpeter.info/Edition-stable.htm
significant phenomenon occur: The economic booms and depressions caused by the up rise of the business cycle. This up rise of the business cycle was the necessary form economic evolution took under capitalistic conditions. And the questions for economic and social stability coming in around 1927 got its robust answer; the boom—destroying equilibrium—followed by the depression— creating equilibrium: two characteristical trends of the business cycle. In 1929/30 an economic depression—never experienced before— occurred in the USA. People were unknown about any tools to manage the amplitude of the wave of the business cycle and for a moment they were baffled. The occurrence of this very unstable situation in economics was swiftly followed by political and social instability. It was clear that society had entered a totally new era. With the introduction of capitalism and the business cycle society was shifting—let’s speak in terms of development as introduced here—from a : “linear grid into a linear + a logarithmic grid” ! With this unseen shift of terms and conditions, determining the change in background, all principles of development were induced for the first time in mankind. Of course people had to struggle with the new given ‘logarithmic’ rules of development. But they learned to take over responsibility. And so they took care for their individual lives. Through rules and their institutionalized enforcement on governmental level they started to take care for the poorest and for the entire society to survive. This is just a sketch of the broad social context which however should be seen as inextricably linked to individual scientific discoveries summarized to mathematical formulas like those of Ballmer, Bracket, and Lyman a.o. To mentally link the up rise of the business cycle with it’s booms and depressions with seemingly irrespective occurrences like scientific discoveries, we can learn to discern and can indicate what concerted facts led to a global change of society’s structure. To do so, we don’t stress a logical string of single facts, but we put characteristical events in a context that enable us to perceive the impulse, in what way society is on the march to build up a society’s structure that strongly differs from the one known since the Middle Ages. In order to induce development it is necessary to start a concentration of powers by way of individual initiatives like is the case with capitalism. We can see as well, that such a massive concentration inevitably leads to a freeing of bounding of former social structures, leaving a few at the opposite site that—at the same time—are forced to experience a great loss and isolation on all levels. The fact that society as a whole can not be left on its own, but has to be organized 24
and managed as well gave finally rise to the opposed principle of capitalism and open market economy, to the theory of planned economy. From this it was a short step to the collectivistic policies of socialism and communism. There is something inevitable in this contraction and spreading of powers. Sea starts to swell. In terms of development it is a condition sine qua non that such a beating of forces takes place. That the theory of planned economy by communistic principle didn’t work out as planned was due to the fact that it occurred in space and time NEXT to the synchrony evolvement of capitalism (like in the SU, in China, Korea, and Myanmar). Instead of creating and materializing a theory of planned economy, this impulse should have been embedded into the development model of capitalism and liberalism itself—simply as the economic scene of development’s final stage. This fortunately starts to happen now. So, torsos or trunks of stages of the model of development were materialized at the same time in several countries. The torso of developments start is represented by capitalism, introduced in the US, the UK, Australia, Canada, and Europe; the end of development is represented by the range of collectivistic theories, introduced in countries like the SU and the PRC. In the course of time, both sides experience a missing part in developments inherent structure. Such a power contraction could never have been occurred in the MA, in which daily live was ruled by values of tradition. However economic development can not be induced by a day-to-day ‘carousel’ of economic events. Instead it bears all charactistics of unfolding, evolving potentials, of being a project; it shows a plan, a start, a way to go, it experiences crises, it matures with the expected output and finally it is brought to an end. Considering between individualism and collectivism, leaders, politicians of course choosed the trunk of the development’s model what they thought would best suit their country. Being opposed to all negative influences entailed to capitalism, communistic leaders didn't focus on individual freedom (demand-consumption), but on the contrary stressed the distribution aspect of people’s collective wealth (supply-production) in order to satisfy individual needs. One might argue that in the end choosing the one or other policy doesn’t make much of a difference. But it does. And so it holds true, that those leaders, choosing the end trunk (communism and socialism), were at first far more worse off, because— in spite of the fact, that they were absolutely convinced about the value of their social collectivistic concept—, in real world practice they cut off themselves from development before it even could start out. That was the economical, political, and socio-cultural tragedy as a result of the rationalizing behavior and of the trial and error method worked out in the 20th century.
History came with the prove, that for the main part the choice of the collectivistic minded turned out to be of target from the start and the choice of the capitalistic minded turned out to be stained by greatest social deficiencies on practically all levels at the very end. So, question remained: — who was in the possession of the right key? Schumpeter’s Definition of Development and Distinction from Growth Development is changing all variables previously known! So, if we restrict ourselves and just look at development of firms—in the end firms are basic to all society’s progress—, then development can’t be characterized nor foreseen by a trend regression line. Development isn’t characterized by the idea of the unfolding of something identical. In development variables don’t stay within their conventional context, they change simply because context changes. A change of context is dramatically, occasionally experienced as a great luck, accidently causing a tragedy. But at any time its impact always results in the emergence of the unexpected. Again development can be and was paralyzed by influence of a bad policy of governments, but it can’t be induced by the policy of the Schumpeter (left) with a personal friend
good ones either. Business is not a matter of
governments but of enterprisers. Though we observe the fact, that governments have strong links to certain enterprisers, which of course can give governments a strong impact on economy. Apart from government’s main task to control by rule and to provide a fair distribution of the country’s wealth it can—to some extend—outweigh unexpected trends through monetary and fiscal tools, but neither rule nor governmental policy can really give the kick-start of an individual excitation (enthusiasm) affordable to materialize a firm’s idea with goods and services. It can work on a propitious environment giving incentives necessary for firms to invest. By doing so government can contribute to stabilize productivity on a favorable level to keep economy ongoing. However the effort to make a stable trend upwards just by outweighing instabilities towards a future equilibrium will hardly be government’s policy reaching through. The business cycle tells us that—for governments—the best recipe to achieve a prosperous economy is not 26
only characterized by “stabilizing” upcoming instabilities striving to equilibrium, but additionally by granting the industry the flux of the business cycle - with it’s booms and depressions - and by providing sufficient incentives for individual business activities. These are some thoughts explicitly in the line of Schumpeter’s reasoning. It is not our aim to give a full review of Schumpeter’s main thoughts on economy or biographic details. Together with Keynes Schumpeter was a leading economist of the 20th c. and made crucial contributions to economics and economic reasoning. He was not the kind of a shrewd thinker as Keynes perhaps has been, but he instead seems to be a wise man. For the first time in economic history he specified development as a leap to other quality levels changing all fixed variables. By explicitly defining development as the jump into a new level of quality he separated it from growth and it’s only possible change by way of ever diminishing to infinitesimal marginal utility rates. So in order to introduce development in a way we presume be appropriate, we stress the importance of J. Schumpeter. This can probably best be done by referring to one of his articles, a speech written down by Schumpeter in 1932 already in the aftermath of the Great Depression.17 Before quoting him, let’s have a look at the logarithmic grid of the Lyman spectral lines series. We would like to point at the gradually decreasing spaces (see: ‘Gosschen’s law’) between the various spectral lines within the
signature (indicating possibilities to ever decreasing steps to a next spectral line) as well as at the continuum space after passing the Lyman’ potential barrier a space between other spectral lines signatures.
The graph indicates clear what Schumpeter had in mind, explaining growth
as being the result of ever decreasing steps of marginal rates of utility caused by rational 17
Internet source. http://www.schumpeter.info/Edition-Evolution.htm
reasoning and development. It’s a leap or a jump into a total other quality level as the result of creative destruction. First of all Schumpeter defines the problematic of the traditional view on development. According to Schumpeter development does not involve things that stay identical: “The ambiguity of the unfortunate term "development" requires a <…> remark <….>. Expressions such as development or unfolding suggest the idea that some of what is developing has to remain identical, an idea that can readily be the source of prejudice and aberration.” People are used to understand changes—characterizing steps in development—only, if they can give rationalistic or logical reasons pointing to a cause for the change of variables even if this change should appear as a change in norm. As an example he mentions the attempt to explain evolution logically by way of adaptation to changed circumstances as with Charles Darwin’s theory. Schumpeter stresses the fact, that we can reasonable understand things changed, when we put them into a relation to each other. “The fundamental economic truth, which is primarily accessible to observation, can be formulated as follows: all observable variables seek to place themselves in a certain relation to each other, or in other words, they at all times react adaptively to changes in data.” It is obvious that these changes in variables are but reactions of the previous cause. So, people tend to capture all changes in data’s/variables as results from a cause. This enables an explanation from as historical point of view. Schumpeter continuous: “Obviously, the point at which this procedure fails is where a leap-like change of the norm occurs. Where such a leap-like change of the norm follows a leap-like change in the data, we cannot say anything about what will happen in our subject area, except for some trivialities or vague conjectures. From the perspective of each particular science, however, we can consider ourselves excused – we will shortly see that from a more general standpoint the matter is not quite the same – which is why we now want to part with phenomena of this class. In the case of a jerky change of the norm that erupts spontaneously from the system itself, the same problem is much more serious. An example can best show what we have to think of in the economic sphere: Without further ado, a continuous increase in population and wealth explains an equally continuous improvement of roads and 28
an increase of the mail coaches in circulation in a step-wise adapting manner. But add as many mail coaches as you please, you will never get a railroad by so doing. This kind of "novelty" constitutes what we here understand as "development", which can now be exactly defined as: transition from one norm of the economic system to another norm in such a way that this transition cannot be decomposed into infinitesimal steps. In other words: Steps between which there is no strictly continuous path.” To distinct this definition of development from the one of growth: “Only recently have I also become aware of the fact that precisely the kind of change defined above is often excluded from the notion of development and is indeed considered the abrupt termination of what many want to understand as development, i.e. change that in some sense or another is "law like" and predictable, essentially continuous, and within which each state becomes intelligible when it is based on the previous one. <…> what is called development in the sense just mentioned, I usually call growth – which may, of course, also have a negative increment.” We admit the lots of quoting to reflect the view of Schumpeter for an appropriate understanding of the term development and it’s differing from growth. But let’s keep this in mind: As transitions of an excited electron from one spectral line to a next one—proceeding in ever decreasing steps within the signature—differ from the absolute jump into the continuum, while ionizing the core of the atom, in the same way will growth—steps defining growth—differ from development—jumps to other levels. Therefore a change in norm or level—be it productivity, quality or a chemical change–is not caused by excitement within the shell—called growth—but by a sufficient amount of excitement causing a jump over the shell’s critical potential barrier—called development. If you get this idea, you will know the difference between a closed system focussed on growth, stability ánd equilibrium and an open system focussed on envision (German: ‘Gestalt’), on dynamics of destruction and creation. Dynamic development always involves growth, but actually enables the typical jumps to a next level.
But, as Schumpeter stressed, the mess we make reasoning with the same expressions yet thinking with total different contents is a greatest barrier for understanding and research. Let’s jump over this conventional barrier and understand what development is about.
Applications of Keynes’ Model : Keeping up Development by Blowing Debts In this unit we added a lot of text. Again your task is to read it carefully. It provides an overview of the main trend of development in economy. The Great Depression of the 1930s and all its subsequent effects for economic reasoning in theory and in politics occurred in the United States. Since the Great Depression the US had set the trend for development and it’s alignment till today, thus in this unit we will focus mainly on US economic scenery. In a theoretical sense we will line out the conditions for development in upcoming units, but with this historical overview in mind you will be able to trace development’s basic conditions more easily. Conditions at the start of development can change dramatically in the course of development’s process especially at its end. So while reading try to focus on the slowly changing of development’s guiding principles, as they force the context of economic systems and behaviour to change merely beyond rational reasoning. With Adam Smith in the late 1700s—the beginning of micro- and of macroeconomics—economic reasoning starts with a relative closed system of rational guiding principles operating on a small scale. Today these principles are prone to trends of congenital unpredictable behaviour on both sides of the supply/demand and the monetary sector, in an open unprotected system on a global scale. Thus the trend goes from rationality to irrationality; from launching ingenuous industrial ideas into society like the invention of the spinning wheel, railroads, automobiles, electricity etc. to an increase of industrial and monetary entropy as never experienced before. Internet could either bring global society to a radical change of ethic or moral behaviour (which will not likely happen) or provoke a stagnation like the one experienced in the 1930s, though— this time—with hardly a tool for a quick restabilising the ‘old’ shell. So in this first decade of the third millennium development has indeed reached a crucial potential barrier. 30
The central economic question from the dawn of capitalism in the late 1700s has been over the stability of the relationship between production and consumption. There have been roughly three answers to this question, yes, no and maybe. Adam Smith, the father of economic reasoning, claimed a completely harmonious relationship, Karl Marx claimed a completely contradictory relationship, two other economists, Nicolai Kondratiev and John Maynard Keynes, fell between the two extremes. The one constant between these views seems to have been a common acceptance of the labor theory of value, although not always explicitly stated, but with different beliefs in the labor theory's implications for the production-consumption ratio and monetary policy. In short: Smith believed that production could never greatly exceed consumption, while Marx believed that production would catastrophically outstrip consumption. Nikolai Kondratiev believed in a long termâ€”but cyclicalâ€”stability within capitalism over forty to fifty year time spans with serious periodic depressions. He felt that there was an internal restabilising factor within capitalism, which reasserted itself during serious depressions, with each major down turn holding within itself the seeds for the next upturn. Keynes knew that capitalism could build more capacity than it could absorb. However he believed that these imbalances could be resolved through 'counter-cyclical' deficit spending by the federal government. For Keynes, the weak point of capitalism
depressions made further private investment difficult, opening the door to direct federal intervention through the 'counter-cyclical' deficit spending. This type of intervention has become known as fiscal and monetary policy. Thus Smith created the labor theory of value to describe how a small village economy worked, but Marx later showed the consequences of how the labor theory would function within a larger capitalist system, leading to excess production and a serious economic downturn, followed by a political collapse. Kondratiev believed that periodic downturns were resolvable within capitalism. Other long wave writers suggested that new labor-based innovations brought capitalism out of the serious depressions, in effect re-establishing the labor theory for another period, of perhaps twenty years. 31
The 1920s experienced a different type of innovation, more accurately, the reapplication of an earlier invention electricity, to the assembly lines. Electricity-based changes to the assembly lines allowed total manufacturing output to increase, while decreasing the number of manufacturing workers. A similar trend occurred on the farms simultaneously. The increase in productivity of almost fifty percent over five years during the early and middle 1920s allowed profits to rise, driving the stock market forward during 1928 and 1929. Yet as wages failed to keep up with productivity, overproduction increased and a mountain of inventory arose, leading into the Great Depression. The Great Depression marked the end of conventional labor-based, innovation-driven long waves. Innovation during the 1930s continued the model of the 1920s and was more oriented to decreasing the number of workers by individual companies, in a partly successful attempt to maintain short-term corporate profitability by decreasing labor costs. The countrywide effect was that production continued to exceed consumption throughout most of the 1930sâ€Ś The description of this economic collapse by Keynes was 'secular stagnation.' Keynes attempted to use federal deficit spending to reemploy out-of work labor, thus in effect refloating the labor theory of value until private investment could restart and support the labor theory again. Only worldwide war gave Franklin Roosevelt the political power to wrest control over the 1920s1930s-investment model from the corporate sector and direct investment in such a fashion as to rebalance production and consumption through the war. This model of debt-driven consumption continued after 1945, ending approximately in the stock market crash of Oct.1987. There Federal Reserve chairman Alan Greenspan began guiding the economy out of the labor theory of value, towards some new amorphous model. As Internet usage began accelerating in the early 1990s, the outline of a post-labor economy began coming into focus. The conclusion of this lesson unit seeks to show you how the information-knowledge revolution over the Internet is finishing off the Roosevelt-Keynesian solution [war] to the 1930's stagnation, probably eroding the labor theory of value permanently and thus destabilizing all previous explanations for capitalist development. Each of the four economists wrote in different parts of the world and in very different economic times, with little intellectual overlap during their respective working periods. Capitalism was an evolving phenomenon, which each economist described to the best of their abilities during their lifetimes. Each economist's interpretation was influenced by the 32
channel of information, which was then available, and by the relative development of capitalism itself. In the classical era of the late 1700s, Adam Smith believed that by way of the price system an 'invisible hand' kept production and consumption together. Human labor provided both the production as well as monetary value necessary for consuming the output of others in the village. This 'labor theory' of value as described by Smith and later by David Ricardo, simply stated that the number of hours of human labor involved in the production of an article largely determined its market price. Sixty years later Karl Marx, using this same labor theory of value, claimed that capitalism was inherently incapable of providing enough total buying power to keep production recycling into consumption. He believed that not enough monetary value was being transferred to the working class to maintain the long-term balance between production and consumption. He believed that production would ultimately so outstrip consumption that the resulting instability would lead to a revolution by the working class in the advanced industrial countries. Writing during the 1930s, the economist John Maynard Keynes believed that 'overinvestment' could lead to excessive productive capacity and that the national inventory (= unsold goods stored) could get ahead of total consumption power. The whole economy could almost stop, as was the case during the Great Depression. However, Keynes believed that the solution for such a period of stagnation was for the federal government to run deficits, stimulate consumption and restart production. The seeming contradictions between Smith, Marx and Keynes can be resolved however by reference to another less well known idea, the 'long wave' theory associated with Nicolai Kondratiev. This idea can be compared with an elongated business cycle, but this was not Kondratiev's intent. Kondratiev was writing in Russia before World War l and around 1915 was publishing his theories. These forty to fifty year 'long waves' represented the rise and fall of the overall capitalist system. He was somewhat unclear as to the exact cause of the long waves and believed that starting around 1790 capitalism had had two complete 'waves' of economic growth and decline, with a third wave rising in the early 1900s. (See this chart ďƒž) Joseph Schumpeter believed that each of these waves had been associated with a substantially new labor-based innovation, which had in turn increased employment. 33
Later during the 1930s, Schumpeter revised Kondratiev's theory such a way that the capitalist entrepreneur was responsible for particular labor-based innovations, which then precipitated the long waves. The long wave collapses have occurred the way Karl Marx described. However, so long as new labor-based innovations have developed, capitalism has rebuilt itself each time from each collapse. The concept of a long wave theory or a business cycle theory could not have perceived prior to the existence of more than one such long wave or cycle and the development of sufficiently strong databases to supply the evidence for such a theory. The economic data which has existed for much of the twentieth century and which formed the basis for the long wave theory of Kondratiev, did not exist during either Smith's or Marx's era. Thus Adam Smith could scarcely have imagined any type of cyclical theory, based in modern economics. Marx lived and wrote during the long wave down turn of cotton-based manufacturing and the upturn of the steel-based railroad long wave. Yet, an economic database to explain either long wave did not exist. All Marx had to consider was his theory of capitalist development, the labor theory of value, the 1840-1850s economic problems and whatever anecdotal economic evidence he could find in the newspapers of his era. Adam Smith wrote the first major description of village-level capitalism in 1776, The Wealth of Nations, the same year as the start of the American Revolution. In it, he described how an 'invisible hand' seemed to balance out the productive capacity of the village with its consumptive needs. The clear implication was that production and consumption would at large stay in balance, again with guidance of the 'invisible hand'. His interpretation of economics was colored by the fact that modern capitalism had just begun, and the 'invisible hand' did indeed function at least somewhat as he described it. However, the first long wave economic boom was not even on the horizon. When Smith wrote, knowledge was hardly a factor in economy, his 'invisible hand' idea implied that knowledge creation with the result of renewing quality really matter. Karl Marx was writing by 1850 and died in 1883. He lived most of his life during the first long wave based upon cotton manufacturing. He saw an entirely different industrial capitalism, than the village-based capitalism of Smith. His life did not end during the first long wave, but his theoretical views were formed by it. He was unable to see beyond the general tendency of capitalism to eliminate human labor and increase machine-based debt in the production process. Thus he believed that the equivalent of a single long wave would rise, crest and fall, dragging capitalism down with it. Marx lived to see the first long wave fall and the revolutions of the 1850s, but could not understand how a second labor-based wave might get started and 34
restabilize capitalism. Marx was still alive as the second long wave based upon railroads and steel started, but died before it had crested and fallen. Kondratiev was writing near the start of the 1900s and his major theory was published in the United States around 1926. He lived after the two long waves of the 1800s had risen and fallen. Thus the cotton manufacturing era and the railroad era had come and gone by the time Kondratieff was forming his economic views. And a third long wave was making serious progress, that of automobiles, highways and electricity. Kondratiev contradicted Marx, in that he claimed that capitalism was in fact regenerating itself through periodic waves of upward movement after periods of downward movement. What defined these upward movements was an internal ability of capitalism to develop new innovations, which then pulled labor back into the production process after a long wave crash. There seems to be an implicit acceptance of Marx's analysis of the internal workings of capitalism, but a revision of Marx concerning periodic new labor-based innovations and upwards swings in the economy. Kondratiev did not set forth a theory for the long wave, although he did note that innovations developed during the down side of one long wave were often later used the next upswing. Keynes had had the benefit of both Marx and Kondratiev's theories as he wrote during the late 1920s and early 1930s. However, Keynes clearly was trying to counteract a serious business cycle problem during the 1930s, at least as he saw it. Keynes did not have a full-fledged theory of the business cycle, although he believed that cycles were largely the result of instability in private investment. In a book published not long after Keynes' death, Lloyd A. Metzler described Keynes' views on business cycles: â€œThe pure theory of business cycles was never one of Keynes' primary interests. In this field, as in other branches of economics, he found the practical problems of the day more absorbing than discussions of theory for its own sake... Likewise in depressions, the causes of a cumulative downward spiral, and the economic forces which govern the length of this downward movement, were his main concern... He continued to believe that the fluctuations of economic activity occur with some regularity, and that this regularity can be explained on economic
grounds.”18 What in fact J.M. Keynes was trying to remedy was the crash of the third long wave of automobiles and electricity. Unfortunately no new labor-based innovation was ready to restart employment. Moreover, something unique to capitalist development had occurred on the assembly lines during the early 1920s, a technique which permitted output to increase even with a declining number of workers. A then mainstream economist, Irving Fisher,19 described the 1920s-1930s situation, but a fully satisfying explanation could not yet be retrieved. Between 1899 and 1921, manufacturing output rose in congruence with increases in both horsepower and workers, but after 1923, output rose even with a gradual decline in the workforce. Thus for the first time in the history of modern capitalism, an innovation was put into the system which permitted rapid increases in productivity and total manufacturing output—simultaneous with declines in the number of workers providing the labor. This was an extremely radical event. At first it drove up the price of stock—since above average profits were possible from companies employing the new technology. But after the collapse of 1929, the new technology permitted the monopoly manufacturing companies to gradually decrease their worker level and yet maintain roughly the same or perhaps higher output. Even in a situation where production was declining, these techniques would allow the necessary labor to drop even more rapidly than the level of production, thus allowing the companies a chance to keep profits from collapsing completely. This combined with the lack of a new labor-based innovation was a major reason why the economy did not begin to improve after the initial shock of the stock market crash began to wear off after several months during 1930. During previous eras of capitalism, it had never been possible to have such increases in output or the maintenance of a stable level of output, while simultaneously being able to cut the total system-wide number of workers. Thus if the number of people with wages was dropping, even as the nation-wide output was stable or dropping slower than the rate of employee layoffs and if those companies were able to keep their prices at roughly the same level—the system was incapable of clearing the aggregate output with the available aggregate wage income. This was and remains a good formula for creating a stagnating economy.
Lloyd A. Metzler "Keynes and the Theory of Business Cycles", 1947, in Harris, editor, New Economics Irving Fisher, an American economist. See I. Fisher “The Stock Market Crash and After”. 1930.
A shift in the use of electricity on the assembly line was one of the prime causes of this 1920s radical shift.20 Electricity moved from being a consumer invention for lighting and other household uses, or used in the factories for powering the long, belt-driven assembly lines, into powering a completely new point-of-production assembly line system. This new point-of-production assembly line system was the reason for the radical shift in the ratio between labor usage and power increases in the manufacturing sector. This process drove total manufacturing output well beyond total consumption power in the US. Thus Keynes faced two serious problems as he began trying to restart the capitalist system during the 1930s; •
the lack of a new labor-using innovation and
the existing application of an innovation drastically lowering the labor needed in the
existing sectors. According to economists, and politicians around Roosevelt only war would begin to bring consumption and production back into balance. Here John Maynard Keynes had—reasoning in merely economic terms and perhaps unaware of all the consequences—provided the democracies with an economic idea sufficient to finance the war: massive federal deficit spending. Keynes accepted the reality that production could greatly exceed consumption, but he believed that the federal government could rebalance such gaps. Keynes believed that 'overinvestment' could lead to a situation where too much productive capacity or 'aggregate supply' would exist for the existing wage-base or 'aggregate demand' to be able to purchase it. In such a situation, as the inventory build-up gradually forced business to layoff more and more workers, the federal government could rebalance production and consumption through deficit or 'counter-cyclical' spending. The federal government had the legal ability to run deficits, and according to Keynes, had the responsibility to do so when unemployment became a serious drag on the general economy.
Other causes can be seen as the occurrence of prosperity itself or by a big trough caused by the downgrade of all three discovered business cycle waves. This was the opinion of J. Schumpeter. A cause could have been as well the rising insecurity by the excess of credits pumped into the economy by the Federal Reserve – i.e. the belatedly sop up of this excess and/or transition of the securities (gold) from out of the UK by depositors.
In Keynes' model, as business inventory was purchased by the federal government, business would again begin rehiring unemployed labor. Federal deficits would increase the monetary velocity and each dollar of federal spending might account for several more dollars of private spending. That is, the newly hired labor would again begin making purchases and shortly, the production and consumption would again be in rough balance. At that point, ideally the federal government could begin to run a surplus and pay off the debt of the previous downturn. Possibly the overlap between the currently powerful monetarists running the American, European and Japanese central banks; and Keynes lies in the question of monetary velocity, more precisely how to improve the speed of money turnover during a downturn. For the monetarists, improving interest rates should usually resolve the problem. However, Keynes was sure that some economic crises were too deep to be resolved by simply lowering interest rates and required direct federal intervention in the economy. Keynes was not convinced that interest rate policy was any more important to investors than their belief that a given level of investment would return a particular level of profit. Keynes emphasized effective demand in a complete system: â€˘
household demand for consumer
business demand for investment goods
government demand for public goods
Household consumption was relatively stable, largely determined by income itself, but business investment was the weak link. Interest rates as well as profit expectations determined the rate of investment. Investors compare known interest rates with expected profit rates to decide how much or how little to invest. For Keynes, the key to understanding lay in that household consumption would almost always remain close to the levels of household income, it was almost a constant. The problem was that investment depended upon the perception of the capitalist owners-investors, that more profits could be derived by further investment. Thus investment was not a constant, at least not private investment. High levels of private savings would not necessarily lead to equivalent levels of private investment. When for whatever reason, private investment lagged to the point where employment was in trouble, the federal government was obligated to make up for the investment slowdown. Under ideal circumstances, the federal government could provide enough 38
economic lift to being private investment back into the market. The problem with the monetary revision of Keynes' theory is that monetary policy and interest rates alone do not determine the decision to invest by the private sector. Low interest rates will not encourage scared investors, if they do not see profits arising from investment. Thus the Japanese central bank has had its discount interest rate at one-half of one percent for many months and the Japanese economy is still sitting dead in the water, stagnatingâ€”except for its increasing exports to the United States. And on the other hand high interest rates will not necessarily prevent investment from occurring, if investors believe that profits can be derived above the costs of borrowing. Naturally, low interest rates are generally preferable all around, but interest rates were not the crucial element for investment. Monetarists seem to believe that the leveraging of interest rates and the money supply are the crucial elements for keeping production and consumption together. The idea that interest rates might drop too low to be a factor in corporate investment decisions, the 'liquidity squeeze' or 'liquidity trap', is not generally a part of the monetarist formula of economics. Keynes died in 1946, not long after the end of World War ll. The British and Americans had run the war under Keynes' guidance and he died as the western allies were attempting to rebuild the economic foundations of capitalism. After World War ll., there was a breakdown of both Keynes and Kondratiev's theories. First, the capitalist system did not return to the Great Depression after the end of wartime deficit spending, as was feared by many Keynesian economists. And in contradiction to Kondratiev, the capitalist system took off on another twenty-year boom, without another major labor-based innovation. What probably occurred is that deficit spending simply shifted from the federal government to the business and household sectors and these new deficits or debts drove economic growth after the war. Thus a new type of long wave developed out of the application of Keynes' theories to the Great Depressionâ€”a debt long wave, It was the rapid increase in federal debt from 1939 until 1945, which restarted the American economy, and it was the replacement of this federal debt with business and household debt from 1945 until about 1966, which kept the economy booming. Thus two debt waves have moved through the American economy since the Great Depression to uphold the status quo.
Growth have never been automatic, but has come and gone in fairly coherent forty-year waves. The crashes of first two waves were resolved though internal innovations, the rise of railroads in the 1850s and rise of automobiles and electricity in the early 1900s. The third crash in 1929 was resolved about ten years after it started and only through massive federal deficits funding a massive war. The fourth crash or more accurately, the slow-down in western economic growth which started around 1970; was also resolved about ten years after its start, again by a massive rise in the federal deficit starting in 1981-1982. Let’s put things together:— The common feature of the crashes of the first four long waves was that the crashes were resolved by something which put the unemployed back to work, by stimulating investment. The crucial ingredient to the resolution of all four previous crises has been that paid wage employment was rapidly increased by something. The initial long wave was probably caused by the evolution of the labor theory of value, along side the creation of clothing manufacturing, themselves made possible by the invention of the cotton. Put into rough Marxist nomenclature, each of the first four long wave crashes were resolved as the labor theory of value was restored, for another period of time. Another way of looking at matters is that this something stimulated investment again, which in turn caused industry to need more human labor, which in turn allowed private consumption to grow. The first two long wave crashes were resolved by increased private investment stimulated first by the building of the railroad grid starting in the 1840s, then later by the building of the highway and electrical grids starting in the late 1890s. The crash of the third long wave did not have an innovation, which encouraged direct private investment, and the only stimulus was that provided by war later. In the 1850s, this something was the railroads, in the 1890s; this something was automobiles and electricity. In the 1930s, this something was war, funded by American federal debt. In the 1980s, this something was the second cold war, funded again by federal debt. Thus the first two downswings were resolved by labor-based innovations from the private sector, while downswings three and four were resolved by the public sector, with large-scale fiscal deficits funding large military build-ups. These last two downswings were resolved within a Keynesian model of fiscal intervention by the federal government. So to summarize we see that in the US it was the creation of massive public debts—spending on the public industry like defence and related public institutes with their large research and development sectors—as an answer to solve the last downswings and adverting from the thread of an upcoming global recession and stagnation (crisis).
Internetâ€”Final Stages into the Infinitesimal and the Upcoming Jump. Karl Marx originally described a system-wide falling rate of profit crisis as part of his analysis of advanced capitalism. In Marx's model, the increasing use of machinery with a decreased use of human labor would ultimately so increase total production that total consumption power would be too low to keep production recycling back into consumption. A great inventory bulge would lead businesses to lay off excess workers and the downward spiral of laid-off workers and decreasing sales would so affect sales, the profits would fall. Today, the Internet threatens to bring about another type of falling rate of profit crisis. An article in The Wall Street Journal described how the Internet is allowing consumers to compare national prices on given articles, particularly automobiles and to obtain the lower prices: "There is nothing more terrifying than a consumer who knows everything about the pricing of your product," says Kenneth Orton, president and chief executive of Preview Travel Inc., an on-line travel agency based in San Francisco. Its services include a web-based "bargain finder" that scans for cheap air fares. About $3.3 billion in consumer business will be conducted by electronic commerce in 2006. This type of falling rate crisis is also indirectly related to Marx's belief of problems related to the use of automation to decrease employment. Consumers armed with close to actual cost data for various items are a real threat to the profit margins for retailers, and ultimately to the manufacturing sector itself. As consumers develop the ability to use the Internet to obtain the lowest prices, the retail businesses will continue to use the Internet to cut their labor costs: â€œBut as merchants figure out how to cut transaction costs, eliminating salespeople, middlemen, delivery charges, and processing costs, they may wind up slashing prices, but maintaining or even increasing profit margins. Believers in the "new economy" of the Information Age ascribe huge importance to this possibility.â€?21
Bernard Wysocki Jr., 'Internet is Opening Up A New Era of Pricing,' The Wall Street Journal, June 8, 1998, p. A1.
In some ways, this possible merchant response resembles what happened more generally during the 1930s. Then businesses responded to the Great Depression by continuing the trend set during the 1920s, by cutting jobs each year through efficiency increases, at least within the monopoly sectors. Thus instead of a falling rate of profit crisis for the monopoly business sectors, a falling rate of employment hit the working population. And a falling rate of pay crisis probably extended across the entire American working class, exacerbating the effects of rising unemployment rates. Both of these trends temporarily helped business to maintain profits, but also depressed total consuming power within the country, making future job losses 'necessary' for private business. Private business use of the Internet by just three companies totalled about $3 billion already in 1997 according an April report by the US Commerce Department. These same three companies could see their Internet commerce approach $17 billion in three to five years, with total business-to-business Internet commerce approaching $300 billion in the same time span. Almost all of this Internet commerce will likely result in cost savings (i.e., job decreases) to the companies, not to total increased employment. The Wall Street Journal's writer tried to find a silver lining in his article: â€œSome market analysts doubt that the Internet will always be a price destroyer. Over time, though, the Internet may turn out to be more of a price leveller than a price cutter. To economic theorists, perfect market information tends to make prices converge.â€? Of course, since the market has never known perfect information or anything close to it, these 'economic theorists' could well just be 'blue-skying'. It just as possible that the achievement of perfect information will simply drop retail prices to a level, that many brick-and-mortar retail stores can no longer remain in business, putting tremendous pressure upon the manufacturers to lower their own wholesale prices further as well. In this view, the Internet is simply another means for achieving a falling rate of profit crisis; one which private business grabbed as a means for increasing profits, but which so drastically decreased human labor, that a huge economic and political crisis will resultâ€”one potentially worse than the Great Depression, where at least federal intervention and war resolved matters. But the post-1945 economy is coming to an end. We are about to return to the 1930s problem, without the capacity to reemploy the Keynesian solution.
First, the federal debt-to-GDP ratio is likely to begin dropping around 2005, all other
things being equal. •
Second, shortly the Internet is going to begin to create service sector efficiency which
may approximate efficiency increases in US manufacturing and agriculture during the 1920s. Efficiency accelerated then largely because of electricity, and factory and farm automation. In theoretical terms, we now seemingly have reached a development stage beyond Smith, Marx and Keynes and at the moment political economy is floating in hyper space. The most reasonable thing to do is to keep the market alive until the majority of the infrastructure necessary for a full input-output model is in place. Software components of the new inputoutput model are being developed by private companies now, although their purpose is to sell the software for profits. At whatever point that realization occurs, the market will experience a sharp tumble. Then business will even more rapidly begin to use the Internet to increase efficiency, as will all levels of public government, compelled by dropping tax revenue from a deflating economy. Increasing efficiency is just another term for cutting the work force. Another downward spiral of private investment for cutting labor and decreasing national income will have begun. Stagnation as Keynes described it will have returned yet without the possibility of another Keynesian debt-surge to resolve the crisis. Could be that this time stagnation will not hold the US economy together long enough for something to revive it.22 And the latest financial crisis shows that financial markets can wolf down the biggest economic assets just by one or two short-selling transactions either on the currency exchange market or on commodities like crude oil.
A lot of additional background information—partly written by R L Norman, Jr. Ph.D.— can be found on this webpage: http://www.southerndomains.com/southernbanks/index.htm though most issues are archive.
Terms and Conditions for Development
Now that we gave you a historical review and focussed on some upcoming economic blips, we’ll return now to development basics. In the year 1932 the mathematician and polymath John von Neumann put a peculiar question: “What kind of mathematical presumptions are required to prove the Law of equilibrium between supply and demand by the pricing system?” In this study there is no agenda to pick up the Neuman ‘32 discussion in deep. However if a reply would give some relieve, we would state, that presumptions to prove would indeed have a basically mathematical impact. A successful quest for the key solution would probably start with an awareness of the meaning and implications of the harmonic division for development as introduced in one of the foregoing chapters. To make this clear it is necessary to realize, that the harmonic division does not restrict it’s equation to the beginning of development’s process which we presumed starting in the nonmaterial cube as one of the platonic solids, but can be traced and-—based on mathematical principles—demonstrated at development’s end in the irrational world of the regular dodecahedron as well were the principle of the “golden ratio” or √ is resident. In crystallography we do find principles all based on rationality. These principles are basic to the creation of physical matter displaying a series of Pythagorean triples. In fact a simple drawing of a square divided by just a few lines shows us the deep mathematical relationship between the square and the Pythagorean triangle. And if a Pythagorean triangle occurs we should know by now that such an appearance is in all cases the result of the harmonic division however we will not find any traces from principles with reference to matter in nature that would demonstrate a materialization of √ — being basic to the regular dodecahedron. This is a most extraordinary fact, in that the harmonic division is not only a characteristic within the rational world of the square but within the irrational world of the regular pentagram as well. Thus the harmonic division does not materialize all which is subject to it. Is this important? Yes, it is indeed. Because, assuming the start of development related to the cube and the end of development being related to the dodecahedron, we would be capable to trace and demonstrate the harmonic division to encompass development from its start to the
very end just by the means of mathematics. We would have all in hands! We will show that the three means; the am, hm, and gm are part of the harmonic division. We can trace them from the Pythagorean triangle as well as in the ratio of the regular pentagram. They—and with them the harmonic division itself—are the bridge connecting start and end of development. Till now there was evidence for the existence of harmonics and rationality in primordial matter like solids, but there was no such evidence that could show the existence of the golden ratio or √ in nature. Butt this evidence will never be found. If smart people come and show some quasicrystalls or specific forms of viruses in those cases there existence is an ultimate exception on the rule. And should they exist ánd created by nature, they will cause disorder and diseases in nature’s realms. It are not regular appearances. So the only way to approach development—encompassing the total model—in a more scientific way is by using the logic of mathematics. Summarizing the idea: We tried to explain in a first sketch, that, for scientific approach, development is a process highly based on the creation of opposites, on the encounter of these opposites and on mathematical principles and not just some plan being executed. Thus describing development to make it a credible thesis, we use mathematics be it not in the way used by operational research. We need of course a bit philosophy, but the final tool we use, is mathematics. The harmonic division can be demonstrated being basic for the creation of atoms, molecules like Hα, Hβ and of all more complex organized molecular matter, hence of all material. We can research things like matter: We can count, measure and weigh physical material. The harmonic division can also be traced and even demonstrated mathematically in realms where all matter is completely dematerialized. In a situation of total entropy where kinetic energy has vanished. It is clear that it’s counterpart—potential energy—must be the sole energy in the end. Therefore it is a most interesting feature, that development as an ongoing process kick-started in our known earthen world, but leading towards that unsensed realm of the regular dodecahedron. This way is disrupted by nodes of critical situations in which we can see the repeated occurrences of initially opposed forces called harmony. Nearing the end these opposed forces gradually converge by emitting their potential resources of kinetic energy, leading the development into a final state of total entropy. We can trace this process from the beginning right to the end through the three means the am, hm, and gm embedded in the framework of the harmonic division.
Mathematical Approach: The Three means at Start and End
By kick-starting development, three forces are activated that lead through all development stages from start till end. The three means: am, hm, and gm are a mathematical expression for these three forces. We already mentioned the fact, that two of the three forces can be seen as the cause for the amplitude of the waves and are responsible for the expanding and contracting trajectory of development during a growth—and decline—period. During these periods data change and in terms of utility are subject to gradually diminishing steps—in economics called the diminishing rate of return. However the effect of this changing of data can be controlled by rational reasoning (logical thinking). The third force however is released as soon as the trajectory of growth contracts again to form a node defining the (first) period’s end. This third force is basic to all the jumping, which Joseph Schumpeter once defined as being development’s actual process. But it can be called the continuum force as well, because the leaping is always into the continuum. It jumps from the point of start (we presume this start being in the centre of the cube) to a first node on the ‘rod’ of development’s way and out of the cube, enabling a next and higher level of growth or quality. As soon as this second period comes to an end again it jumps from this level of growth to a third one and so on. Now the energy of this jumping is subject to entropy smoothing out differences existing in the system and so not only the steps within the growth periods, but these jumps as well gradually decrease. Forces do converge. So entropy does not restrict itself to biotic levels. If the energy to jump has decreased to such an extend that no other jumps are possible, and then development can’t recover from overwhelming entropy and has reached its final level or target. Every time a jump occurs there is a shift of all previously fixed variables of the databases. For people most of the time this jumping is experienced as having an extremely negative impact on their live, causing highly critical situations. The main reason for this is a still covered knowledge, that the realm of the regular dodecahedron with its irrational principles meets the realm of the cube with its rational principles on development’s cross roads in all the occurring nodes by the principle of this intertwining of the harmonic division already explained. Look again at this graph to see what we try to explain: we assume that development is rhythmically pushing away from the point of start, but on the other hand equally sucking into the centre of development end, from the cube to the dodecahedron. Hydrogen fission based propulsion systems (gm jumps) are developed on this principle (USA’ “black projects” on UFO vessels).
And here comes the trunk of philosophical language we promised you to use: The Greek Archytas of Tarentum was a mathematician, statesman, and philosopher of Magna Graecia (now Italy) and died about 530 BC. He was one of the few ancient philosophers informing us about the three means. The means are basic to the harmonic division as well as to the Pythagorean triple 3 : 4 : 5. We know that Babylonians in the third millennium BC were known with these principles already. Here is an Archytas quotation (fragment B2). Let’s see how he thinks about the three means: “…There are three means; the first is the arithmetical mean, the second is the geometrical, the third is the reciprocal, which is called harmonic. As an example:
The mean is arithmetical, when the three terms are in a relation of analogical excess, that is to say, when the difference between the
first and second is the same as between the second and third; in
6 : 9 : 12
this proportion, the relation of the greater terms is smaller [9 : 12 = 3 : 4] and the relation of the smaller is greater [6 : 9 = 2: 3].
The geometric mean exist when the first term is to the second, as the second is to the third; here the relation of the greater is identical with the relation of the smaller. [1 : 2 = 1 : 2], [2 : 4 = 1 : 2] The reciprocal mean, which we call harmonic, exists when the first term exceeds the second by a fraction of itself, identically with the fraction by which the second exceeds the third; in this proportion, the relation of the greatest term is greater and that of the smaller, smaller.” [8 :12 = 2 : 3], [6 : 8 = 3 : 4] (Brackets supplied.) Having explained, that these means are expressions of the three not yet denominated development forces, we have to uncover the existence of the three means at the start, during the nodes and at the end of development. For the start this is already done by showing how the three means are embedded by the mathematical principles of the Pythagorean triangle and the harmonic division. The Ballmer formula —in it’s basic shown by the first spectral lines signature of Lyman—showed you how the creation of all nature (i.e. all matter) is a result of the coming into existence of opposed forces, linked by the harmonic division. From this the periodic system of all elements can be derived.
It is our task now to show you how the harmonic division and the three means are part of the other side of development—it’s end—as well; i.e. in the regular (mind the adjective) dodecahedron. Though the following could get a bit complicated, but just try to stay on track. In the end we hope it will convince you of the context in which development is embedded; how it looks like—at least in theory, in what way it works encompassing main conditions discussed before. With respect to the three means entering the dodecahedron two additional mathematical conditions are to be introduced to you in order to be compatible with the principles of the regular dodecahedra. We give theme here:
The greatest term of the triple is the sum of the two smaller terms (Compare that this is not valid in the rational context at development’s start.)
The greatest term of the triple represents an entirety (= one) on each of the three levels: number, measure, and potency. (Tracing the different entirety’s we can distinction between the means in the regular pentagram.)
This is rather abstract, so let’s look at what these alterations with respect to the regular dodecahedron mean. As an example we take the tetraktys quadruple 6 : 8 : 9 : 12 depicting the three means in the rational world presented by the solid of the cube. The harmonic mean: 6 : 8 : 12 Where the difference between the first and the second term ( 6 : 8) and between the second and the third term (8 : 12) is in both cases the quotient ⅓. (⅓ of 6 = 2, ⅓ of 12 = 4) The arithmetic mean: 6 : 9 : 12 Where the difference between all three terms is the integer 3 (or 3/1) The geometric mean: 6 : 12 : ? or ? : 6 : 12. It is clear, that the geometric mean lacks the third term. It needs to be completed to appear as a triple. At first, to derive the three means from the tetraktys we split the quadruple up into two parts: 48
6 : 8 : 9 : 12 6 : 8 : 12
6 : 9 : 12
(am) 6 : 8 = 9 : 12 (gm)
As you can see the second term of the geometric mean is not an integer, but an equation 8 : 9 with an inherent difference of one integer (entirety). The geometric mean can only complete itself temporarily during activation: It adds the lacking third term only during the act of jumping into the realm of the ‘continuum’. After the excitement, it falls back into the discrete equation as shown above. However by jumping, the geometric mean already anticipates the end of all trajectory’s in the final stage of development’s process. In this final stage it doesn’t need to complete itself by a third term anymore—consequently further jumps become obsolete. Now, characterizing the three means in general we can say that: Number as an entirety —being nominator of quotient (1/1)—is represented by the arithmetic mean. Measure as an entirety—being denominator of quotient (1/1)—is represented by the harmonic mean, Potency as an entirety—being a root or log of quotient (12/1), (1/12)—is represented by the geometric mean. At the start of development the first of it’s three forces is represented by the arithmetic mean and the entity is number starting all further progression with the smallest entity possible, the quotient 1/1 (going up to 2/1, 3/1 and so on) as it’s least common multiplier. The second of it’s three forces is represented by the harmonic mean and the entity is measure starting all further progression with the greatest entity possible, quotient 1/1 (going down to 1/2, 1/3 and so on) as it’s greatest common divisor. The third of it’s three forces is represented by the geometric mean and the entity is potency starting all further progression with the smallest root or greatest log entity possible, quotient 11/1 (going up to 12/1 13/1 etc.) or quotient 1/11 (going down to 1/12 1/13 etc.) given by any exponent or any logarithmic. 49
It is obvious that any potency’s or logarithmic progressing can’t come into appearance since they are bounded by a single arithmetic entirety, number one. To appear, the nominator or denominator needs a change into number two or any other subsequent number. We at first need splitting of the entirety of nominator or denominator of the quotient to get the third or geometric mean activated. So to enable development start we need to get out of the entirety one. We need division. As soon as nominator’s or denominator’s number is splitted (multiplied) potency i.e. logarithmic forces are empowered to appear in development. In order to induce this division, sufficient excitement of the forces is needed for the leap or the jump out of the entirety one. In the course of development’s process this ‘inflammation’ of energies and subsequent diverging of forces is gradually—during each crisis—made ineffective, forces converge again until all three reach the status depicted in the regular dodecahedron or pentagram. Here, all three means are represented. Though in this end stage they do not oppose anymore. All together they perform an ongoing chain of accumulating series. Have a look at this graph. It shows the appearance of the three means and the harmonic division in this final stage of the dodecahedron (shown as a regular pentagram): If in the pentagram line segment M = number 1, than line segment m = 0,618 being the golden ratio. And thus: We can derive from this the arithmetic mean; (M-m) : m : M = 0,382 : 0,618 : 1. (The greatest term is an entirety represented by number 1). We can derive from this the harmonic mean; m : M : (M+m) = 0,618 : 1 : 1,618. (The greatest term (M+m or 1,618…) is an entirety represented by measure 1). We can derive from this the geometric mean: (M-m) : m : M : (M+m) etc. = 0,382 : 0,618 : 1 : 1,618 etc. (All terms are an entirety represented by either potency’s 1 or logarithmic 1) 1/√5 — 1/√4 — 1/√3 — 1/√2 — √ — √2/1 — √3/1 — √4/1 — √5/1 A close look at the last series will bring us to a stunning discovery: All division is transformed back into one sole and single entirety in process: The chain of gradually accumulating quotients of potency’s (or the inverse logarithmic). Obviously, in the pentagram development has 50
completed all possible levels, and at the end has reached it’s envisioned target—set out even before the kicking off at start.
Development’s Start and End and Some Striking Consequences We should realize that today people are not yet capable to manage development conditions in order to achieve targets while harmonizing their periodical nodes—or crises—properly. More or less stumbling through the critical stages of their development men seem inadaptable to the gradual changing environment for development. They are hardly able to handle any subsequent levels accordingly. As a result people often get disappointed with respect to their expectations and policymakers finally try to violate all development conditions to push their aims forward— despite the damage and the harm. What can be the reason? A main reason could be the fact, that we don’t sufficiently realize conditions gradually changing towards development end. One such condition is, that, once approaching the final stages of development, society seems to gain decisive influence for last stages of any development in order to let such development proceed. However this increasing exogenous power is just an illusion, not a real fact. Due to the law of entropy it is not society’s energy that is increasing, but the individual’s i.e. the firm’s kinetic energy that is decreasing. People call it ‘system fatigue’. These circumstances imply that, if any individual—say an enterpriser—wishes to proceed with development, he is forced to take into account society’s interest and influence for his individual development in order for him and his firm to let development proceed. In terms of thermodynamics we use to speak of entropy for final stages. On higher levels of development where the species men is the hub we can not speak of entropy, but that decreased dependency towards society’s interests should get his full attention. In the end stage of a development started by human beings, instead of the word entropy we should speak of enhanced environmental sensibility and dependency. Development is an individual as well as a social phenomenon. As such it is highly connected with the coming into prominence of economy in society. In the past three centuries it were entrepreneurs that, in the field of business, gradually liberated the resources they needed to develop their firm gradually changing the infrastructure of culture and nation. What do we mean by ‘liberating’ the resources? By liberalization we mean that input i.e. factors of production like soil, labor, capital, information, were put subject to a process of freeing or of democratization on a local, national and international scale.
Products and services (tangible and intangible goods) can have an intrinsic and extrinsic value. The product can have a very high intrinsic value (high cost); still for society value it can turn out to be very low. In such cases it has a low extrinsic value and will not be purchased. This does not only hold true for the firm’s products but for the firm itself as well. Input can only be transferred to output economically by way of effectiveness. Yet if—due to entropy—throughput gets ‘fatigue’ and doesn’t run as it should then ineffectiveness is an increasing part of the game, and a big problem for firms to reach finish and to survive at the same time. In the SME23 sector only a proper distinction between young firms that still have a relative long way to run and developed firms that experience innate fatigue of weaked throughput can give clearance. Grown up firms—situated in the SME sector—of age say 10 to 20 years need not necessarily be large seized, but in this sector there are many of them. They stay relative small, focussed on their own high quality products. Especially the government should appreciate the value of these grown firms of the small and middle class with respect to the extrinsic value of labor force employed. Therefore—again within the SME sector—extrinsic value added policies are to be kept up at the centre of the focus for grown firms to survive, continuing their production by keeping up their quality of output. For grown firms business strategies towards extreme production effectiveness with efforts to uphold ‘vital throughput’ should be regarded as a merely managerial luxus and actually society (i.e. government) should protect them for the stress as long as extrinsic value is maintained. By their proven ability to provide jobs, to take care for rents and to pay taxes developed firms have contributed to stability and therefore created an extrinsic value to society. By not reducing their labor force to the most effective production level any such grown firm can accumulate extrinsic value significantly if they get support by government. On the other hand for start up firms following strategies for production effectiveness mainly with a core strategy on quantity i.e. production effectiveness is the most senseful strategy to follow. So, we can argue that, spoken in terms of development: - High quality products, or products demanding a highly complex production process—like cars—is not the output portfolio of start-up firms for generating a satisfying ROI. And, by the same rule of development: - High quality products, or products demanding a highly complex production process are the ideal output portfolio of grown firms generating a satisfying individual as well as a social or environmental ROI.
SME= Small and medium-sized Enterprise.
And the same is true for all services, be it that these intangible products are at any development stage strongly linked to quality providing human resources. Regarded as a next factor of production only human resources can generate quality (capacities, skills) and consequently can bring firms to the end of their development. But this ‘factor of production’ may not be classified as a firms input. This would depreciate the value of human resources. In fact man can be used as but actually is not a producer. With respect to man—i.e. to human resources—we should speak of quality generators and classify labor force as throughput. All other factors of production can be handled with machines and the like. However, in real world practice of grown firm’s business strategy is often not in line to the principles mentioned above. In practice every firm—no matter what age—is f.i. doomed to benchmark with all others. Here lays a task for government. By inducing appropriate policy, government can give incentives for small and medium sized firms not to lay off employed labor force for reasons of production effectiveness which means for reasons of competion. Society should see the high value of grown firms correspondingly. Gaining intrinsic value is a feature for young firms to serve the interests of private owners and CEO’s to power growth. Maintaining extrinsic value is a feature for grown firms to survive serving the meritorious interests of society. However at the moment we experience that mainly for political reasons this outweighing of intrinsic and extrinsic values of firms itself with respect to a firms ‘age’ in the process of development is not well embedded in society. On the contrary, vital products in primary industries like crude are not regarded being in the field of SME enterprising, but are a sole matter of interest for governments flanked by big and complex industries—and their lobbies. Spoken in political terms this of course is a logical thought due to the vital national interests. Yet on these levels of political in consequence of military reasoning free market principles are violated severely. We for example can look at specific harming policy by abandoning the capitalistic right on individual property, i.e. the right for any nation to dispose of its own vital resources like crude oil, wood or other natural products. There are not yet such rights to stop severe restrictions on national freedom and self-determination. We have international agreements and trade treatises as a result of diplomacy. Through policy’s induced by corrupt and self-centred governments development can be cut off from its natural stem of life. In all situations that set off development—seen in addition with the deregulating influence of blown up and crashing financial markets, often linked to that weird handling of derivates—conflicting
interests often soar up enormously and aims go far beyond the ‘cap’ of any level achievable within boundaries of a sound economic development.24 This, of course, creates war. By inducing war, economic development itself comes at an abrupt and not intended end. We can learn from this, that development is not a matter of just materializing any individual target. Individuals can be human beings, but individuals can ‘blow up’ themselves arguing in a just personal way even at governmental level. In all those cases governments behave and perform like powerful and mighty individuals. But consider that governments are only institutions led by individuals but are not individual entireties. Development again is never just a matter of an all regulating society or institution. If an individual appears being the represententative by grant of the whole institution, nation, or society he often will be empowered with an all overruling power and regulations of these high situated individuals can sincerely restrict other enterprising activities, block off a sound development mostly to the advantage of some industrial lobbies and there special interests. A sound development is always somewhat ambiguous in value. It is ambivalent and— admittedly—not easy to comprehend. Another condition for development at the very end is that it reacts increasingly elastic to moral or immoral individual capacities and behaviour as is the case at the start. We will have to stress again that governments are but regulating institutions— not individuals—and, by definition, institutions can never be subject to any moral behaviour, unless of course individual representatives of such institutions or governments behave like an individualization of their institution, nation or society. If a government’s representative has individual aspirations while representing the institution, any performance on the scale between immorality and morality can easily lie in wait, because of the individual character involved. So at that last development’s stage there is a grown parergon in the field of ethics i.e. morality with respect to quality. Put it more pointedly: Not governmental institutions are important, but the prosperity of the society they represent, and, again not society is important, but any individual embedded therein. We stated already in other words that only individuals can materialize their aims with respect to integrity and morality if they transfer their acquired quality into the output to make it absolutely unique—and therefore profitable—in a even global environment. IT24
In modern society the balance between interests of individuals, individual operating governments, institutions, lobbies and other groups on one hand and society’s interests as a whole on the other hand is at the moment, as you will certainly know, not in equilibrium at all. It can’t be an issue to discuss this problem in this course, but as a topic it is to be explored mainly in the field of political economics.
possibilities, like databases and their systems, milliards of pc’s, global spread LAN and WAN networks and the like do can provide in an increase in quantity and they are ancillaries for striving productivity effectiveness, but they can not provide in an increase in quality. Due to the uniqueness of the species—and as a global conglomerate of milliards of individual beings— only mankind can provide in the creation of i.e. an increase in quality. In germ and principle every single individual is made absolutely unique – and, if handled properly by way of development, so will his product be at development’s end. Therefore restricting ourselves to sole development with its terms and conditions we can conclude that: The final aim of all development is to transfer the innate unique range of qualities of individual beings into their products, regarded as an appropriate supply for growing global demand for quality. In principle this aim is realized at the end of any development up started by entities like individuals. All survival in development rest upon the pillars of the creation of quality and—much more important—upon the innate individual capacity of transforming quantity into quality for a particular development as well as for upcoming developments by way of creation of germs – as an innate fertility. In this concept money of course is an ancillary, but never a development’s aim, because money can substitute the value of quantity and quality of products, but it can not create quality. If money should create any value in quantity then it behaves like a virtual resource or a piggyback. Though, for starters, liquidity and increasing capital assets remain a core target for all enterprising. For matured enterprisers liquidity and capital assets are but a medium enabling the transformation of quantity into quality and to perform fertility through endogen innovation capacity creating new firms. Merger & acquisitions and other similar activities do not necessarily involve or imply such creation. Individual beings inducing development are at start confronted with terms and conditions of all kinds of transparency: i.e. of a demand for rationalized and straight out and long term planning, for logical reasoning, of adaptations to the customer to define output kind and specific quantity
Individual beings experienced in grown development are towards development’s end confronted with an increasing demand for quality. In the course of development they experience an increased influence in the field of ethic, of increased moral sensibility and they should feel responsible. Because these capacities are bridges enabling the transferral of unique quality into their corresponding output. This small exploration may be unusual and perhaps even difficult to perceive, yet it is a concept for the upstart of a development after the jump into the continuum as an issue on our current agenda. At least we have to have a fundamental look at what can be sound for development being successful in order to make a first distinction, discerning it from the global entrepreneurial, economic disruptions of today.
The Harmonic Division Bridging Development’s Opposites We will call the harmonic division which can be find in the rational realm the static harmonic division or SHD and the harmonic division to be find in the regular pentagram the dynamic harmonic division or DHD. We enclosed a short *.swf film to show you the difference of the SHD and DHD. At first the file shows the SHD. We already showed you that this result of a ratio of the inner and outer section of a line segment. The SHD is basic to every start of development and in nature fundamental in the crystalline realm. Next, the file shows you the DHD through the so-called golden ratio visible in the regular pentagram or dodecahedron. This DHD is basic to development’s end. The outbalancing process between SHD for the start and DHD for the end we call the way of development. It is the way all living creatures go starting from SHD and striving for DHD as an ideal situation to achieve. Take a look at the attached film (the movie “Geometry of the development model.swf” can not be uploaded but on request I can send it to the reader). With your mouse you can right click to control the film or you can hover a bottom screen button in this movie to pause or continue. In the film as a measure rod or unit we used the ancient cubit for reasons that do not matter yet in this context. Zoom to full screen ctrl + f; press esc on your keyboard to return. What this film showed you near the end—you got the opportunity to repeat the motion by clicking a button—was a smooth transition between the Pythagorean and the golden triangle or between SHD and DHD. However it didn’t show you next striking feature; namely the appearing 56
of a cleft on the middle axis. Let us explain this: If two triangles like the golden and the Pythagorean triangle e have the same right angle (90°degrees), but their sides nevertheless have different lengths, then of course their hypotenuses are not parallel to each other. Let’s see how we can make this clear: We first draw a pentagram √5 in a circle connecting three points to build the shape of triangle25, such a way that the hypotenuse is vertical and thus equal to the middle axis. If we next draw a Pythagorean triangle within the surface and using the sides of the golden triangle then the hypotenuse of that Pythagore Pythagorean an triangle is not equal to the middle axis, because the Pythagorean triangle has slightly different lengths compared with the sides lengths of the golden triangle. Look at this to see what we mean:
If you draw a circle with diameter 40 cubits (1 cubit = 52,5cm) the pentagram—drawn in this circle—will will show lines with a length of 20 meter each. The ratio 1 : 1,05 between a pentagram line and the diameter of the circle enclosing the pentagram in metrical units is proven to be correct. So if we take ke the royal cubit measuring 52,5cm for the larger length of the diameter we get the ratio 1 : 2. You can construct a regular pentagram using a few lines as shown in many contributions on basic geometry geometry.
The cleft is a result of the difference between the Pythagorean triangle build according to the SHD and the golden triangle (basic to √5and therefore not with sides 3 : 4 : 5) build according to the DHD In the pdf we constructed a double dome according to the DHD using √5. As you can clearly see development’s process will transform the rational SHD into the irrational DHD. This transformation will nevertheless tear apart the Pythagorean structure because of the basic principle of irrationality of development at the end. Bear in mind therefore: Irrational and rational realms are opposed to each other. They are not based on the same principle. Now imagine, if there only would be a sudden change and no real way between start and end of development then in that case no living creature would survive the appearance of this cleft. It would be absolutely lethal and would not allow healthy processing. Health Basic to development is the fact that it procedes.The cleft is a result of the appearance of the regular pentagram. The transformation’s process by way of the coming into appearance of the dynamic laws of √5 (DHD) gradual superseding the SHD is fundamental to all healing and recovering processes as has always been the doctrine of the ancient Pythagoreans and others. All living creatures start within the SHD, but immediately try to achieve this perfect state of the pentagram with it’s DHD on their quest of live to find the perfect state as a final target at development’s end. Therefore to achieve a sound processing until appearance of the cleft, the tearing apart can not be a sole and sudden occurrence, but is apportioned, spread out and emerging in small healthy though critical portions. These portions of small changes turn up during the subsequent development nodes. Each time a crisis in development appears a small change of basic and for the period fixed variables emerges towards the dodecahedron realm and away from the cube realm. This is the final background for the emergence of what we call crises. Crises versus Accidents So please bear in mind that crises are not accidents. Crises make sense. Accidents should always be avoided. Avoidance however may not be targeted when crises show up. Crises are to be meet with positive feelings towards the upcoming of a new quality or state of living. 58
Unfortunately people always mix up the appearances of crises and accidents. We however should discern between them properly. Accidents are a negative aspect of live and always destroy main aspects of quality without giving innate opportunity for further enrichment of live or enriched development chances. A war f.i. has to be regarded as a clash (a kind of induced accident) between conflicting national or individual interests and results are at all times deadly destroying, but an individual or national crisis—caused or not caused by some exogen reason like a war or other accident—is definitely not negative. It only destroys old structures to give opportunity for new ones. So, to put it pointedly: A crisis is a main fundamental to development; an accident is the denial of it. So, what do we do, when we say: in development, crises are a fundamental part of it and will always appear in regular paces during development process? We are not prophesising bad things to come. We read the differing conditions of development start and end, we recognize the appearance of a cleft between start and end, knowing that the impact is spread out and apportioned into several smaller paces or development nodes during process is on his way to finish. Because development occurs in a biotic environment it is not possible to materialize the appearance of the harmonic division in these recurring crises in a scientific manner. But we can look back and can point to already materialized output like the periodic systems of chemical elements. Each element is a result of a jump into a continuum towards a new, more enriched quality. In theory, for each element we can assume a corresponding development period as is done the astronomy to calculate the age of the stars. Nature however can materialize any development only in living creatures or environments. So actually, the chemical elements we know of are to be regarded as a materialized ‘fall out’ or a periodic output like prints of forgone development crises in former living environment of earth. And the spectral analysis coming into prominence in the first decades of the 20th century is the first scientific approach of output of this cosmic historical process. We can compare the development of human beings with such a process of gradually enrichment and materializing elements in nature, if we stay flexible and not try to make this mirroring fix and literally. Human beings will certainly not materialize ‘output’ in elements like the chemical elements Hα, Hβ, Hγ but the method i.e. the way to proceed in order to enable such an enrichment—achieving such 59
an end—is the same. And so are the terms and conditions for any development within a biotic realm. Stress and other Effects Of course problems are created as soon as this pure biotic level is being superseded. This is the case when entities with a higher sensening as given in the pure biotic realm are piggybacking their targets on natural development process while simply disregarding development’s underlying conditions out of unawareness. In such a case causes for stress, failures and other dysfunctioning elements can arise. Our brain f.i. has three levels of consciousness. Stressing the upper level while disregarding one of the underlying levels with their innate though unconscious reaction systems can easily cause various psychological and physiological hindrances. With regard to development we have to do with the same situation: People—like CEO’s—failing to master their crisis—i.e. a firm’s crisis—are just the victim of their unawareness of sound biotic conditions for development. People can be almost blind with respect to development. They often try all kind of technical solutions playing around with rational or other methods, but in fact can never escape the principles of nature and natural development. One of the principles on the level of sensening entities like human beings is to take sociability/morality—being inextricable linked to quality—as a main development’s condition towards the end. In the end, decisions—especially those made during critical situations—are not provisional or everlasting subject to alteration, but are basic for the level of quality of output. To master crises properly is a first condition to achieve quality of outcome. Not to accept the link between morality—or even immorality—and quality (whatever the kind) is like not to accept the possibility to go along with development basic conditions towards end. People’s products and quality is a result of the level of ethics they were able to achieve for themselves. This link might be unusual. In order to induce a sound development we should get used to that still covert relationship between quality and morality (or ethics) soon. Just one look at the scale honesty versus corruption with respect to individuals acting for or representing their institutions like firms, larger industrial or social corporations, or even governments do show that such a relationship can hardly be denied as not being an intrinsic component of development.
Development, Corporate Governance, and Ethical Issues Because of the fact, that development involves main interests of individuals as well as of society and its institutions a sound development is not possible focussing on business profits while violating moral, and/or ethical principles. This is because the natural range of interests of all participants of a firm is a conflicting one in various ways. The outweighing (i.e. the harmonizing) of these interests is a core target of so-called Corporate Governance policy dealing with moral and fairness issues on multi-faceted levels. Ethical issues for instance can arise when firms must comply with multiple and sometimes conflicting legal or cultural standards in international trade. Employers need above all lateral thinkers using their imagination and capacities seeing through to help solving the problems. But let’s first take this out of practice example with respect to fairness or equity: Question: Is it really fair from the Egyptian Government to charge everyone coming from high industrialized areas like Europe, or America with a fee of Eg £ 50.00 while charging own civilians only Eg £ 1.00 up to 3.00 if they want to enter the National Museum in Cairo? Answer: Of course this is fair, because of the significant difference of ratio in income, between most foreigners and Egyptians, which is mostly 1 : 15. When we look at the exchange rate while using the theory of the p.p.p. = purchase power parity, value of European/American and Egyptian economy doesn’t show such a big gap anymore. Being fair means, charging all visitors of the National Museum the like, i.e. with nearly the same value and therefore in the consequence with different prices. Don’t you agree this is fair? Corporate Governance however is a more complex topic. What is Corporate Governance? In short: — Corporate Governance is the set of processes, customs, policies, laws and institutions affecting the way in which a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many players involved (the socalled stakeholders) and the goals for which the corporation is governed. The principal players are the shareholders, management and the board of directors. Other stakeholders include employees, suppliers, customers, banks, and other donors, management staff, the environment and the community at large. 61
So actually Corporate Governance is a multi-faceted subject. An important theme of corporate governance deals with issues of accountability and fiduciary duty (which is a moral duty to responsible
implementation of guidelines and mechanisms to ensure good behaviour and protect shareholders through a savvy, objective and integer management. Another key focus is the economic efficiency view, through which the Corporate Governance system should aim to optimize economic results, with a strong emphasis on shareholders welfare. There are yet other aspects to the Corporate Governance subject, such as the stakeholder view, which calls for more attention and accountability to players other than the shareholders (e.g.: the stakeholders—f.i. employees and their families—or the environment). Board members and those with a responsibility for Corporate Governance are increasingly using the services of external providers to conduct anti-corruption auditing (clear and correct financial reporting), due diligence (careful management) and training. The term corporate governance has come to mean two things: •
The processes by which companies are directed and controlled.
A field in economics, which studies the many issues arising from the separation
of ownership and control. Relevant rules include applicable laws of the land as well as internal rules of a corporation. Relationships include those between all related parties, the most important of which are the owners, managers, directors of the board, regulatory authorities and to a lesser extent employees and the community at large. Systems and processes deal with matters such as delegation of authority. Corporate Governance is used to monitor whether outcomes are in accordance with plans and to motivate the organization to be more fully informed in order to maintain or alter organizational activity. Corporate Governance is the mechanism by which individuals are motivated to align their actual behaviours with the overall participants. Sound Corporate Governance is reliant on external marketplace commitment and legislation, plus a healthy board culture which safeguards policies and processes. 62
Gabrielle O'Donovan—a business author—says that 'the perceived quality of a company's Corporate Governance can influence its share price as well as the cost of raising capital. Quality (i.e. the asset of intrinsic as well as extrinsic values seen as capital) is determined by the financial markets, legislation and other external market forces plus the international organisational environment; how policies and processes are implemented and how people are led. External forces are, to a large extent [and this is important for our development theory] outside the circle of control of any board. The internal environment is quite a different matter, and offers companies the opportunity to differentiate from competitors through their board culture. To date, too much of Corporate Governance debate has centred on legislative policy, to deter fraudulent activities and transparency policy which misleads executives to treat the symptoms and not the cause.’26 Key elements of good Corporate Governance principles include honesty, trust, integrity, openness, performance orientation, responsibility, accountability, mutual respect, as well as commitment to the organisation. Of importance is how directors and management develop a model of Governance that aligns the values of the corporate participants and then evaluate this model periodically for its effectiveness. In particular, senior executives should conduct themselves honestly and ethically, especially concerning actual or apparent conflicts of interest, and disclosure in financial reports. Commonly accepted principles of Corporate Governance include: •
Rights and equitable treatment of shareholders: Organisations should respect the
rights of shareholders and help shareholders to exercise those rights. They can help shareholders exercise their rights by effectively communicating information that is understandable and accessible and encouraging shareholders to participate in general meetings. •
Interests of other stakeholders: Organisations should recognise that they have legal
and other obligations to all legitimate stakeholders. •
Role and responsibilities of the board: The board needs a range of skills and
understanding to be able to deal with various business issues and have the ability to review 26
Corporate Governance International Journal, "A Board Culture of Corporate Governance, Vol 6 Issue 3 (2003)
and challenge management performance. It needs to be of sufficient size and have an appropriate level of commitment to fulfil its responsibilities and duties. There are issues about the appropriate mix of executive and non-executive directors. The key roles of chairperson and CEO should not be held by the same person. â€˘
Integrity and ethical behaviour: Organisations should develop a code of conduct for
their directors and executives that promotes ethical and responsible decision making. It is important to understand, though, that systemic reliance on integrity and ethics is bound to eventual failure. Because of this, many organizations establish Compliance and Ethics Programs to minimize the risk that the firm steps outside of ethical and legal boundaries. â€˘
Disclosure and transparency: Organisations should clarify and make publicly known
the roles and responsibilities of board and management to provide shareholders with a level of accountability. They should also implement procedures to independently verify and safeguard the integrity of the company's financial reporting. Disclosure of material matters concerning the organisation should be timely and balanced to ensure that all investors have access to clear, factual information. Ethical issues and approaches Philosophers and others disagree about the purpose of a business in society. For example, some suggest that the principal purpose of a business is to maximize returns to its owners, or in the case of a publicly-traded concern, its shareholders. Thus, under this view, only those activities that increase profitability and shareholder value should be encouraged. Some believe that the only companies that are likely to survive in a competitive marketplace are those that place profit maximization above everything else. However, some point out that self interest would still require a business to obey the law and adhere to basic moral rules, because the consequences of failing to do so could be very costly in fines, loss of licensure, or company reputation. Theorists contend that a business has moral duties that extend well beyond serving the interests of its owners or stockholders, and that these duties consist of more than simply obeying the law. They believe a business has moral responsibilities to so-called stakeholders like employees and customers, who have an interest in the conduct of the business. Stakeholders might include vendors, the local community, or even society as a whole. They 64
would say that stakeholders have certain rights with regard to how the business operates, and some would even suggest that this even includes rights of Governance. Other theorists have adapted social contract theory to business, whereby companies become quasi-democratic associations, and employees and other stakeholders are given voice over a company's operations. This approach has become especially popular subsequent to the revival of contract theory in political philosophy, which is largely due to John Rawls' A Theory of Justice, and the advent of the consensus-oriented approach to solving business problems, an aspect of the "quality movement" that emerged in the 1980s. Professors Thomas Donaldson and Thomas Dunfee proposed a version of contract theory for business, which they call Integrative Social Contracts Theory. They posit that conflicting interests are best resolved by formulating a "fair agreement" between the parties, using a combination of i) macro-principles that all rational people would agree upon as universal principles, and, ii) micro-principles formulated by actual agreements among the interested parties. Critics say the proponents of contract theories miss a central point, namely, that a business is someone's property and not a mini-state or a means of distributing social justice. You see from these critic remarks that people do not differ between a firm at start and end of development. But if it were true, that firms are not a mean of distributing social justice, what would those same critics say, when someone’s own property (a firm) is claiming society’s property—like tax exemption advantages for big industries—to gain industrial benefits or to avoid upcoming risks? It is that simple, to exclude firms from Corporate Governance duties while taking advantage of society on business level? As already stated: Ethical issues can arise when companies must comply with multiple and sometimes conflicting legal or cultural standards, as in the case of multinational companies that operate in countries with varying practices. The question arises, for example, ought a company to obey the laws of its home country, or should it follow the less stringent laws of the developing country in which it does business? To give an example here: US law forbids companies from paying bribes either domestically or overseas; however, in other parts of the world, bribery is a customary, accepted way of doing business. Similar problems can occur with regard to child labor, employee safety, work hours, wages, discrimination, and environmental protection laws.
It is sometimes claimed that a Gresham's law27 of ethics applies in which bad ethical practices drive out good ethical practices. It is claimed that in a competitive business environment, those companies that survive are the ones that recognize that their only role is to maximize profits. On this view, the competitive system fosters a downward ethical spiral. And it is for this reason, that development terms and conditions should be understood in an all encompassing way. A firm’s role is always to maximize profits, of course, but any restricting to this principle in terms of quantity instead of value disregarding the stage of development will in the end rule out a firm completely from market as well as from society. The cause of many diffused entrepreneurial problems in management with respect to society can be seen as a result of their biasing of principles gradually increasing valid towards the end of their firm’s development. Therefore sayings like: “The firm is not a mini-state …”, or “A firm is not a means of distributing some social justice” are to be seen as solid though self concerned interests, always excluding other entitled opinions, that in turn do not hold to the flux of reality and demand. It is not only what critics of this kind posit in seemingly logic arguments, but with what a-ethical individual attitude these arguments are brought for, that provides the key for their final substantiality and correctness. It is possible to train the senses and to discern between genuous totally different points of view, which in certain cases can be brought for with exactly the same words. This important skill is usually called: occult discrimination, which is a silent method of judging the value of various opinions with respect to a sound development. Mostly, unexpressed targets or covert aims can be discerned clearly in those spaces b e t w e e n spoken words. This analytical capacity will be increasingly important in future.
Gresham’s law says that: any circulating currency (so originally not any circulating ethic principle) consisting of both "good" and "bad" money —both forms required to be accepted at equal value under legal tender law—quickly becomes dominated by the "bad" money. This is because people spending money will hand over the "bad" coins rather than the "good" ones, keeping the "good" ones for themselves.