Peter Drucker: What Is A Business?

We have to start with its purpose, which lies outside the business. A business organization is an organ of society. There is only one valid definition of a business purpose: to create a customer. This leads to two and only two basic functions – marketing and innovation. All the rest are “costs.” Marketing is the distinguishing, unique function of the business. The uniqueness of the enterprise is that it markets a product or service. The economic revolution of the American economy since 1900 has been in large part a marketing revolution. He gives the examples of Sears (the book was published in 1973) and Japan after 1950. Marketing is so basic that it cannot be considered a separate function.

Despite the emphasis, marketing practices are more often rhetoric than disciplined. When managers speak of marketing, they often mean effective selling. They start with their products and look to their market. But selling and marketing are antithetical rather than synonymous or complementary. There will always be a need for selling, but the aim of marketing is to make selling superfluous, such that the product or service “sells itself” in the view of the customer.

The second function of a business is innovation – the provision of different economic satisfactions that are better and/or cheaper. Innovation may be finding new uses for old products. Innovation is not solely invention. Nontechnical innovations – social or economic – are at least as important as technical ones. (Management: Tasks, Responsibilities, Practices 61-66).

“However important the steam engine was as an invention, two nontechnical innovations had as much to do with the rise of modern economy: the mobilization of purchasing power through bank credit, and the application of probability mathematics to the physical risks of economic activity, that is, insurance. The innovation of limited liability and the subsequent development of the publicly owned limited-liability company were of equal importance” (66).

“Innovation can be defined as the task of endowing human and material resources with new and greater wealth-producing activity” (67).

There are three kinds of innovation: product or service, marketplace and consumer behavior or values, or of the various skills or activities used to bring the product or service to market. (107).

Peter Drucker on Communication #2

2. Communication is expectation. We see/hear largely what we expect to see/hear. The unexpected is usually not received or it is ignored or misunderstood. The human mind attempts to fit impressions and stimuli into a framework of expectations. It resists vigorously any attempt to make it “change its mind,” that is, perceive what it doesn’t expect to perceive.

Before we can communicate, we must know what the recipient expects to see/hear. Only then can we know whether there is a need for an “awakening” that breaks through the recipient’s expectations and forces him to realize that the unexpected is happening.

3. Communication makes demands. It demands that the recipient become somebody, do something, or believe something. In other words, if communication fits with the beliefs, aspirations, values, or purpose of the recipient, it is powerful. If it goes against them, it is likely not to be received or be resisted. At its most powerful, communication affects a change of beliefs, aspirations, values, or purpose.

4. Communication and information are different and indeed largely opposite—yet interdependent. Where communication is perception, information is logic. The more information can be freed of the human component – of emotions, values, perceptions, and expectations – the more valid and reliable it becomes. Information is always encoded. To be received, let alone be used, the code must be known and understood by the recipient.

Similar to my comment in #1, I don’t entirely agree with this. I believe his ideas about many other things are stronger, and plan to make several more posts about them. 

Peter Drucker on Communication #1

Peter Drucker (1909-2005) was a management consultant, educator and author (Wikipedia).  I read several of his books many years ago. He was philosophical yet practical about business. He had many insights. One of them was Management:Tasks, Responsibilities, Practices (1973). I recently recalled he had written about communication.

His four fundamentals of communications are:

1. Communication is perception.

2. Communication is expectation.

3. Communication makes demands.

4. Communication and information are different and indeed largely opposite—yet interdependent.

In this post I will only expand on the first one.

“Is there a sound in the forest if a tree falls and no person hears it?” The correct answer is: No. There are sound waves, but no sound unless someones perceives it. Drucker makes this a segue to communication.

It is the recipient who communicates. The so-called communicator, the one who emits the communication, does not communicate. He utters. Unless there is someone who hears, there is no communication. There is only noise.

Perception isn’t logic. It is experience. The “silent language” of gestures, tone of voice, and the context – including cultural and social referents – can not be dissociated from what is said.

One can communicate only in the recipient’s language or his terms, using terms that relate to his experience. The connection between experience, perception, and concept formation – that is, cognition – is much subtler and richer than earlier philosophers imagined.

Fanatics aren’t convinced by rational arguments, because they do not have the ability to perceive a communication that goes beyond their range of emotions.

I believe Drucker's description of the recipient is correct in general, but I personally wouldn't say it is only the recipient who communicates. I think it's a two-way thing. Maybe he had this one-way view due to his work with higher-level managers. Indeed, he writes later in the same chapter about downward communication from managers to subordinates. He writes: [A]ll one can communicate downwards are commands, that is, prearranged signals. One cannot communicate downward anything connected with understanding, let alone motivation." That doesn't sound fully real to me. For example, what about communicating between peers from different work areas? Teachers and students? Client and consultant?

Four Kinds of Capitalism

According to GoodCapitalism, Bad Capitalism, a book written by Baumol, Litan & Schramm, there are four kinds of capitalism. They all have in common the private ownership of (business) property.

The first is state-guided capitalism, in which government tries to guide the market by supporting particular industries. This model has been favored in Asian countries, where the state controls the banks and other financial institutions. The states underwrite low wage export oriented businesses to produce goods primarily for the world market. The problem with this kind of practice is that governments tend to overinvest in favored industries and underinvest in those needed for their domestic use. States are also notoriously slow in responding to the demands of a changing marketplace.

The authors distinguish state-guided capitalism from centrally planned economies, in which the state owns the means of production, sets wages and prices, often cares little about what consumers want, and provides no incentives for innovation.

Secondly, there is oligarchic capitalism. The economic system is nominally capitalist, but government policies mostly promote the interest of a small and usually wealthy part of the population. Economic growth is not a central objective, the main goal being to keep or enhance the position of the oligarchic few.

Along with oligarchic capitalism there is often informality. Individuals and firms do things that are constructive but technically illegal, such as lacking licenses, but without being outright criminal. Informal operators get much less access to legal protection and credit. The oligarchs do not consider more formal rights for informal operators to be in the oligarchs' narrow economic interest. The oligarchs don't want the competition.

Thirdly, there is big-firm capitalism. The big firms operate mainly in well-established markets and deal in large volumes. They often innovate incrementally with product and process refinements but usually not in radical or revolutionary ways. Many incremental improvements over a long period of time can amount to radical, comparing the start and end of the interval. Big firms are essential to mass-produce some of the innovations that radical entrepreneurs are unable to do by themselves. On the other hand, big firms may become lazy or influence government to help them or hurt the competition.

Lastly, there is entrepreneurial capitalism. Entrepreneurs can be radical or replicative. The majority are the latter. They more or less copy other business successes, usually in a new location. The authors do not mention franchises, but they surely fit this pattern. (McDonald’s is a great example.) The great breakthroughs in technology are usually brought to market by the radical entrepreneurs, individuals or small firms. This type of organization -- free of the constraints of big firms -- is better at creating new markets and opportunities.

The authors say the most successful economies are those that have a mix of big-firm capitalism and entrepreneurial capitalism. The more established firms -- often multiple generations removed from its entrepreneurial founders -- refine and mass-produce the innovations that entrepreneurs bring to market.

In China, Trump-Style Infrastructure Partnerships Are Used to Hide Debt

The title is the title of this Wall Street Journal article dated Dec. 6. The link may allow the reader to see only a little of the article online, but some excerpts follow.

"The 400-foot JinQing Harbor Bridge under construction in this small seaside city [Wenling, China] is being financed not by bank loans or bonds but by a Chinese twist on the public-private partnerships that the president-elect has proposed to fund infrastructure projects in the U.S.

The city, like many in China, faces budget constraints after years of expansion amid warnings from central authorities that debt is already too high. So to pay for the $1.2 billion highway project that includes the new bridge, Wenling’s government teamed up with Bank of China Ltd. to create an “industrial fund” that pulls in money from ordinary investors.

Ultimately, the city is on the hook to pay back the money with a preset return. Critics of the structure say it is merely a way of disguising debt to pile more obligations on already straining government entities."
..............

“We’re seeing continued proliferation of off-balance-sheet channels to help banks extend and mask credit,” said Jack Yuan, a Shanghai-based analyst at Fitch Ratings. “Much of this is going to infrastructure and other local government projects, sometimes in the guise of funding for public-private partnerships.”

End excerpts.

This doesn't exactly parallel what I wrote in Pied Piper Finance? on Dec. 1, but it is very close. I note two minor differences. The Bank of China is government-owned, whereas the banks in my scenario are privately owned. The source of money is "industrial funds" rather than loans. A major likeness is that a big part of the money is not recognized as official government debt. In other words, it's "off-balance-sheet" like the WSJ article says.

Investment Or Durable Good? #3

There are some business expenses that are clearly investment expenses, e.g. all the parts and labor that go into an auto-maker producing a car or truck. When the car or truck is sold, there will be revenues. Some other expenses aren’t so clearly linked to revenues, so they might be regarded as for durable goods or services or even non-durable goods or services. Consider accounting. Paying for an accountant is an ordinary, necessary business expense, except perhaps for very small ones, but it is not a revenue maker for the firm. (It is a revenue maker for the accountant who is paid.)

A similar sort of analysis holds for claim adjusters for insurance companies and lawyers hired by many businesses. They typically don’t get the company revenues, but using them may indirectly boost the company’s profit (or reduce losses).

What about education? If somebody pays the expenses to attend a technical school or college for an education tailored for a particular kind of job after graduating, that is investment spending. If the parents of such person, the student, pays the expenses instead, I think it is still investment spending.

When parents pay for the education of their children for grades K-12, that is paying for a durable good. The same seems to apply in some other cases, e.g. pursuing a college liberal arts degree with a very unspecific career goal. That would especially be the case of a trust fund child who wants to go into the Peace Corps and do even more volunteer work after that. In other cases it could be a mix.

What about labor? If I rake all the leaves in my yard, that is a consumer good. Most people with an opinion would probably say it was non-durable, since it will need to be done again in about 12 months. That doesn’t change if a pay somebody else to rake all my leaves. However, if I hire somebody to do it, there is income to the yard guy. Most of his income for doing so is for labor, but he does a little investment spending or recouping prior investment spending – the cost of the gasoline he uses in his leaf blower and a little of the cost of the tools he uses.

Trump’s Impulsive Tariffs

I applaud President-elect Donald Trump’s proposals to cut the corporate tax rate and reduce regulation on business, especially smaller businesses, on whom they are most burdensome. His impulsive statements about tariffs are a different matter.

Donald Trump Warns of 35% Tariff For Companies That Move Abroad

"Despite the Carrier deal, the company still plans to close a plant in Huntington, Indiana, moving about 700 jobs to Mexico."

This plant makes microprocessor-based controls for the heating, air conditioning and refrigeration industries, i.e. parts that are probably used in the plant that Carrier is going to keep in Indiana. So what does Trump believe the tariff should be imposed on? And wouldn’t it be a cost for the plant that Trump claims to have helped save?

Further, suppose a foreign company, e.g. Honda or Toyota, has plants in the USA. The company with good economic reasons decides to replace a plant or part of it with one in another country. So legislation signed by Trump imposes a 35% tariff on the company's goods coming into the USA. The parts issue is pertinent again. Also, foreign businesses might wonder, "If I build a factory in the USA, what happens to me in the future if I want to relocate or merely shift part of production elsewhere? I don't want to take that chance. So I think I'll pass on building that new U. S. plant [and creating more American jobs]." (Hat tip to Gralee for this point.) Does that sound great for Americans in general?

Trump has threatened to impose tariffs on imports from China because he feels that the Chinese have stolen American jobs. He has ranted against the USA’s trade deficit with China. But imports from China aren’t solely made in China.

“On trade, although the headline data shows China accounted for 50% of the U.S. trade deficit last year, that number gives a highly distorted view since around 37% of those exports consist of imported parts, mainly from Japan, South Korea and Taiwan, according to Deutsche Bank Chief Economist Zhiwei Zhang. In value-added terms, he calculates, China accounted for just 16% of the U.S. deficit, slightly ahead of Japan and Germany.

        A trade war with China, Mr. Zhang notes in a report, “would be a war against all participants of the global supply chain, including U.S. companies.” Link.

Indeed, Almost Everything Trump Says About Trade With China Is Wrong.

Consider tariffs on a smaller geographic scale. Suppose a USA company wants to shut down a plant in state X and move production to far-away state Y. So the government of state X imposes a 35% tariff on goods shipped from a new plant in state Y back to customers in state X. Would Trump as President approve that tariff? (It's probably illegal, but I'm only questioning a principle.)

And why not a similar principle -- a 35% tariff on all imports? Oh, I get it. Trump companies import a lot of stuff.

Of course, imposing tariffs creates a host of other problems, e.g. higher consumer prices, enforcement, and retaliatory tariffs. Effects outnumber intentions here.

The Golden Triangle-Yokohama Deal

Sean Hannity talked with Paul Ryan on Fox News. Ryan talked about public-private partnerships to rebuild infrastructure. Link. The Golden Triangle and Joe Max Higgins were mentioned.

Part of the Sunday, December 4, 2016 CBS's 60 Minutes show was about The Golden Triangle and Higgins. Link. Higgins has worked hard to bring manufacturing jobs to Mississippi, which lost a lot of manufacturing jobs over the past few decades.

There is more detail about what has been done here, from which I quote.

To win the Yokohama tire plant Joe Max Higgins "installed water and sewer systems on the proposed site for the plant, and he secured $30 million from the state for a new access road so trucks could reach the factory."

That doesn't sound like public-private funding to me.

"Yokohama agreed to build the $300 million plant in the Golden Triangle. Higgins secured about $100 million in incentives and an estimated $200 million in tax breaks from the state of Mississippi and the counties that make up the Golden Triangle."

The incentives and tax breaks are worth as much as the cost of building the plant. Is that crony capitalism? The devil may be in the details. The plant is expected to bring 2,000 jobs. Assume a generous $100,000 wages per job, a figure given for one worker in the 60 Minutes show. State income tax = $4,660 for single and $4,470 for married. I'll use $4,565. 2,000 x $4,565 = $9.13 million. 200/9.13 = 21.9, the number of years to offset the $200 million in tax breaks. (A lower average wage would lead to more years.) That doesn't include the $30 million for a road, whatever the water and sewer system cost, or $100 million in incentives. Hmm, that suggests crony capitalism to me.

Of course, the people who get those jobs are going to be very appreciative. But it doesn’t sound to me so great for the rest of the people of Mississippi.

Milton Friedman wisely observed that we spend our own money on ourselves very carefully. We spend other people’s money on ourselves less carefully. But the least carefully spent money is other people’s money on other people.

Cafe Society

Last night we saw Woody Allen’s Cafe Society on DVD. I liked it as I usually do Allen’s films and his humor. Some humor from it follows.

The lead character is Bobby Dorfman. Most of the movie is about Bobby and his romances. His family is Jewish and he has a gangster brother Ben. His parents are Rose and Marty.

Ben is apprehended, imprisoned and sentenced to death. Dismayed that the Jewish faith doesn't have any provisions for an afterlife, he converts to Christianity, and he's buried in a Christian cemetery, much to the chagrin of some family members.

Rose Dorfman: First a murderer, then he [Ben] becomes a Christian. What did I do to deserve this? Which is worse?

Marty Dorfman: He explained it to you. The Jews don't have an afterlife.

Rose Dorfman: We are all afraid of dying, Marty! But we don't give up the religion we are born into.

Marty Dorfman: I'm not afraid to die.

Rose Dorfman: You're too stupid to appreciate the implications.

Here is bit of Woody's philosophical humor: “Socrates said the unexamined life is not worth living. But the examined one is no bargain.” 😊

The Carrier Deal

President-elect Trump’s claiming to save 1,100 jobs at Carrier in Indiana was all over the news. A closer look says that it isn’t that many. Of course, Trump tried not to say anything about Carrier’s tax break.

A Wall Street Journal article says the number of jobs saved was 700. “The Indiana governor was offering $7 million over 10 years to encourage the company to keep in the state roughly one-third of the 2,100 jobs it planned to ship to Mexico” (link). 

A Chicago Tribune article says the number of jobs saved was 800. “Carrier, he said, had agreed to preserve 800 production jobs in Indiana. (Carrier confirmed that number.)” Link. 

Does this tax break make sense for Indiana? I will use the Chicago Tribune’s number of 800 jobs.

Assume $50,000 income per worker. That's very close to the that of the Carrier workers. State income tax =$1,617 = 3.23% for single, $1,584 = 3.17% for married. I’ll round the midpoint. 800*$1,600*10 = $12,800,000.

So at first glance Indiana gains about $5.8 (=12.8 - 7) million in tax revenue. (700 jobs implies a $4.2 million gain.) However, this assumes the 800 workers would otherwise vanish from Indiana's workforce such as being unemployed or moving out-of-state. Therefore, it is clearly an unrealistic assumption. If that were true of only 200 jobs, Indiana has a net loss of $3.8 million (= 200*1,600*10*10^(-6) – 7.0). Indeed, if that were true up to 437.5 (=(7*10^6)/(1600*10) jobs, Indiana has a net loss.

One thing that could justify the state government's decision -- one I didn't think of when I first posted this -- is unemployment benefits that Indiana could pay if these 800 workers were laid off. $7,000,000/800 =  $8,750 per worker. A few months unemployment benefits could cost the state  government that much. Beyond that I can only guess. Also, how much such benefits might be (hypothetically) could be diminished by severance benefits from Carrier.

Regarding Carrier’s decision its parent, United Technologies (symbol UTX) is relevant. UTX is a huge defense contractor. Perhaps the high-level executives at UTX considered saving those jobs in Indiana – rather than saving costs by having the work done in Mexico, estimated at $65 million – creates good will that will pay off when UTX deals with people in the Trump administration regarding defense contracts in the future. $65 million is not a lot for UTX; 2015 revenues were $56 billion and net income was $7.6 billion. Of course, it's a good deal to those who keep their jobs. Nevertheless, prima facie, it doesn’t look like a good deal for the Indiana state government and hence for the people of Indiana in general.

Investment Or Durable Good? #2

In this post I will apply the concepts in #1 to some other examples where their application isn’t as clear or is mixed.

What about airports? “The vast majority of airport revenues come from fees paid by passengers using the airport, landing fees and space rental fees paid by airlines, parking charges and sales of food and goods at the airport. Though not well understood by many Americans, commercial airports receive almost no taxpayer-funded support from state or local sources. Federal grants that help pay for airport construction projects come from a portion of the travel taxes paid when you buy an airline ticket or ship a package and fuel taxes paid by general aviation” (link).

So to the extent there is no taxpayer-funded support, building an airport is investment spending. Ditto to federal grant money which is recouped via the taxes as described.

What about housing? Next consider somebody who buys a duplex, half to live in and half to rent out. It is half durable consumer good and half investment by the meanings in #1.

The reader may have thought by now that my meanings are confusing, since it can make the identical entity a consumer good or investment good. That is true, since the focus is not on the physical nature of the entity, but on the purchaser’s intention or use. For example, a car dealer buys a car in order to sell it at the dealership. The car is an investment good. For the person who buys the car from the dealer, it is probably a durable consumer good. On the other hand, if the person buys it to use it half the time as an Uber driver, it’s half investment good and half durable consumer good. It’s similar for food. Food purchased by a restaurant to prepare and fix for its customers is an investment good. The same food purchased to take home to eat is a consumer good.

Affordable Housing

This post will compare two affordable housing programs, one by the government and one in the private sector.

The government one began when the US Department of Housing and Urban Development (HUD) was given authority under 1992 legislation to undertake an affordable housing program. HUD imposed goals on mortgage providers, especially Fannie Mae and Freddie Mac to make it easier for medium and lower income people to get a mortgage and buy a home. (Of course, pushing only buying neglects rentals.) HUD pursued its goal by promulgating weaker underwriting practices – lower down-payments, lower credit scores, accepting higher ratios of house and house-related expenses to income for buyers, and weaker documentation of the buyer's income. They were usually called subprime mortgages. Some were called Alt-A mortgages. Over the next 16 years or so this led to a housing bubble, then a crash in house prices, much higher mortgage defaults, and foreclosures. All this spilled over into the wider financial sector that enabled the mortgages, resulting in the Financial Crisis of 2007-8. Advocates of government activism and government apologists say the financial crisis was created by the private sector. Of course, there were some problems there. However, the primary cause was these affordable housing goals, and they made possible the problems in the private sector.

If you want to read more about this, see Hidden In Plain Sight. This government affordable housing program unwittingly led to a “train wreck.” The fix took multi-$100 billion bailouts with taxpayer money. 

The private sector one has only begun, but I bet it will turn out far better. The key elements are in a Wall Street Journal article, from which I cite. “[Facebook] announced Friday it will spend about $20 million in Menlo Park and East Palo Alto, Calif., two cities that surround its campus, to create a fund to build new housing, support job-training programs and provide legal assistance to tenants in danger of eviction.
      Some $18.5 million will go to a fund to build new housing, primarily targeted at low- and moderate-income families, with consultation from community groups."

Why are they doing this? I attribute it to the very high price of housing in Silicon Valley. (This shows all single family homes under $800,000 in Palo Alto). Also, Facebook, Google and other companies in Silicon Valley are already running buses from distant areas like San Francisco where their employees can find cheaper housing. You can read about it here and several other places on the Internet.

After the Facebook housing is built many employees will find more affordable housing near work and thus shorter commutes, distance and time. A side effect will probably be that housing will be made more affordable in the areas from which they move. It will probably work out pretty well. And it will not lead to multi-$100 billion bailouts with taxpayer money. 

I have described a government-created affordable housing program that led to a “train wreck” and a private-sector affordable housing program. Which do you prefer?

Pied Piper Finance?

Assume a government wants to do a big infrastructure project – resurfacing a major highway and repairing bridges along the route. This is not a toll road and that will not change. The government finds a contractor who will do the work. However, the government does not want to pay all the cost upfront. Therefore the government’s overseer of the project – call him “pied piper” -- finds a private investor (PI), who will borrow a large part, say 85%, of the money to cover the construction cost. PI will put up the remaining 15%. The pied piper promises to pay PI enough over several years so that PI can pay back the loan, plus some more. How much more might depend on meeting deadlines and how much actual construction costs turn out to be compared to the amount budgeted. If construction is done in less time and/or costs come under budget, PI will receive more from the government. If construction is done in more time than expected and/or there are cost overruns, PI will receive less from the government. In other words, incentives are attached to PI’s 15% equity stake.

Since the government doesn’t borrow – PI does that – the project will not increase the government’s debt or any deficit it has initially, under current cash-based public accounting practice. However, it probably will over time when the payments to PI come due, whenever the government does not have enough cash on hand at the time to make said payments.

This is off-budget treatment by the government. It is what the federal government does already regarding Social Security and Medicare. It is obligated to make payments to beneficiaries of these programs well into the future in excess of incoming revenue. But there is no corresponding debt for the excess of future outgo over future FICA tax revenues on a federal government balance sheet. The federal government doesn’t even publish a balance sheet. The only item that the government prominently presents that is a balance sheet component is the national debt. Cash deficits for the programs become debt as they materialize.

Is the scenario described above what Mr. Trump has in mind when this webpage says his infrastructure plan will be deficit-neutral? (This document by two Trump advisers had more detail.) Of course, it will be deficit-neutral early on when PI puts up the money, borrowing 85% of it. But when the government payments to PI commence, I will bet that it won’t remain deficit-neutral. The government will likely issue more Treasury debt to offset shortfalls, and that debt will be added to the national debt, which is now about $20 trillion. Depending on how the pied piper’s deal with PI is structured, those payments may not start coming due, and some may not be due anyway, until after Trump no longer occupies the oval office. Then they won’t be “his debts”; they will be the next president’s … and ours.

Or maybe much of the $1 trillion infrastructure plan would be pushed onto state and local governments. They already pay for a lot of infrastructure and get earmarked revenues to do so, e.g. fuel taxes for roads and bridges. Whatever is so pushed would be off-budget for the federal government. It might even be done selectively with strings attached. The state or local government is told it must contribute some of the money, e.g. raising it by issuing bonds. If they don’t, then they get no federal money.

Investment Or Durable Good? #1

I will start with the meaning of some terms.

Investing - The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit. (Investopedia).  

I take "profit" here in a monetary sense, not an amorphous one that might include, for example, somebody profits by doing more physical exercise or buying dentures.

Investment spending – spending which is part of an investment activity

Consumer good – something purchased (or otherwise obtained), but not an investment. There is no intent to bring about revenue, sales proceeds, or money profits.

Following common usage, consumer goods may be durable or nondurable. Investment spending may be for durable or nondurable goods. Ditto for consumer spending. (Here is the topic on Wikipedia). 

Some people, like here, distinguish between industrial goods and consumer goods. I won’t use the former term. “Investment goods” will suffice in lieu of it and puts more emphasis on the intention to produce future revenue or sales proceeds or money profits.

Easy examples of an investment are purchasing stocks or bonds. A home builder laying out money to build a house for future sale is an investment and all the money he spends to do is investment spending.

Part of what inspired this post is current politics – proposals for government investing in infrastructure, e.g. repairing roads and bridges or building new ones. First consider a new toll road. A hypothetical private investor builds a road expecting to recoup the amount of money used to build it and make a profit from collecting future tolls and maybe rents from gas stations and restaurants at service plazas. Suppose instead a government did this, but future expected revenues amount to only half of the upfront cost. Then by the above meanings the cost of the new road is half investment and half purchase of a durable good.

Next suppose a government spends to repave (resurface) an existing road or build a new non-toll road. That is not an investment by the above meaning. It is far more like buying a consumer durable good such as a house to live in, or a furnace, or water heater, and so forth. In the repaving case, it's akin to spending for a new roof on your residence. 

Therefore, when politicians and others talk about government investing in infrastructure, it is loose talk by the above meaning. In some cases or to some extent, it is investing. Otherwise, it is spending on a durable good.  

A Natural History of Human Thinking #3

This post is a little more about Michael Tomasello's book A Natural History of Human Thinking. The author explains his meaning of collective intentionality.

Conventional cultural practices can evolve into institutions, their key feature not just regulating activities, but constituting them. A human group might make decisions about what to do next by arguing among themselves. For more difficult decisions, the group might form some kind of governing council, which would give otherwise normal individuals abnormal status and powers. Some individuals might become like chiefs. Thus councils and chiefs are cultural creations. (p. 90).

These institutions and their practices with their acceptance and enforcement become “objectified” into the way things are, or ought to be, in the world at large. “Human group-mindedness thus reflects a profound shift in ways of both knowing and doing. Everything is genericized to fit anyone in the group in an agent-neutral manner, experienced as a sense of the “objectivity” of things, even those we have created. Thus is human joint intentionality “collectivized”” (p. 92-3).

Pied Piper Donald Trump

Since Donald Trump won the November 8 election, some of his proposals have gotten more attention. One such proposal is about the country's infrastructure -- highways, bridges, airports, water and sewer systems, etc. One can find several articles/comments about this proposal by searching Google News. Even though Democrats believe there is a need for improving infrastructure, they don't like Trump's proposal. 

One such article is in the Wall Street Journal here. Online subscribers can read the whole article at the link. Others who want to do so will need to find another way, e.g. a library. The ones I have seen have very little detail about his plan. An exception is this document written by two Trump advisers about a month ago. 

Trump’s infrastructure plan strikes me as another half-baked idea from the pied piper Donald Trump. In my view it has a big enough hole to drive an Abrams tank through it. Whence the revenues for the hypothetical private investor (PI)?

Said document says, “For infrastructure construction to be financeable privately, it needs a revenue stream from which to pay operating costs, the interest and principal on the debt, and the dividends on the equity.” Again, whence the revenues for the hypothetical PI? The article offers no answer I can see. 

The article assumes that for every $1,000 of an infrastructure project the PI will make an equity investment of $167 and it will borrow $833. If borrowed at 4.5% for 20 years like the article says, the debt service will be $37.5 each year for interest plus $833 in 20 years.  In addition there are all the construction costs for labor and materials, which I will assume is $1,000 to keep it simple. So aggregate cost, simply speaking, is $1,000 + 20*$37.5 + $833 = $2,583. 

The only “revenue” in the proposal for PI is the 82% tax credit, which amounts to a mere $137 (=0.82*$167).  But this could be realized only if PI has taxes due as the result of other operations. Regarded as an isolated business, the revenue would be $0! That’s unless Trump plans for more handouts to crony capitalists.

I leave it to those under the spell of the pied piper, or anybody else, to tell me whence the revenues in excess of $2,583 to cover the $2,583 of costs identified above plus whatever the target profit is. (A 9% dividend on the $167 equity implies a target profit of $300, i.e, 0.09*$167*20.) How much of that revenue comes from the US Treasury in the pied piper's plan? Does he plan to siphon off gasoline and diesel tax revenues, toll revenues, heavy vehicle use fees that truckers pay, etc. that the federal and state governments receive now and have for decades? Are there going to be lots of new tolls on many roads and bridges that have none now and those go to PI?

The idiom "PI in the sky" seems fitting. 😊

Job creation

The Entrepreneurial Way to 4% Growth is a recent Wall Street Journal article. Online subscribers can read the whole article at the link. Others who want to do so will need to find another way, e.g. a library.  Some quotes from the article are:

1. New firms are the country’s principal generator of new jobs. Data from the Kauffman Foundation suggest companies less than five years old create more than 80% of new jobs every year. While the nation seems more enthusiastic than ever about the promise of entrepreneurship, fewer than 500,000 new businesses were started in 2015. That is a disastrous 30% decline from 2008.

2. Silicon Valley [ ] already receives disproportionate attention from Washington. This sliver of the nation’s entrepreneurs—high-tech companies and the venture-capital investors who fund them—has shaped the narrative of entrepreneurship for too long. By my estimation, these “rock star” firms, less than 5% of all startups, have much higher failure rates and create proportionately fewer jobs than the 40% of all new businesses started every year by franchisees.

3. The application of complex Dodd-Frank provisions has led community banks to finance fewer and fewer promising businesses—despite their unique knowledge of local markets.

4. Anti-growth policies like ObamaCare and minimum-wage increases make hiring workers prohibitively expensive.

The following are my comments.

- The US Gross Domestic Product (GDP) fell 2.9% in 2009, the worst result since The Great Depression in the 1930's. Like me, one might expect that the subsequent GDP growth would have been quite good. It wasn't. I have no doubt that the policies of Barack Obama and his administration contributed a lot to the anemic recovery. See here, then click on MAX to show the most years. Indeed, BO's presidency was the first ever to not have a year of at least 3% GDP growth.

- Contrary to the WSJ article, about 2 years ago Hillary Clinton asserted in a speech: "Don't let anybody tell you that, you know, its corporations and businesses that create jobs." What a remarkably stupid comment! Google, Amazon, Facebook, Uber, etc. each employ 1,000's of people, but started with a handful at most.  

- It would be interesting to learn more about job losses, e.g. (a) sorted by small, medium, and large businesses, and (b) sorted by the age of the firm.

Interview with Thomas Sowell

Thomas Sowell - Production, Inequality and Human Capital is an interview with Thomas Sowell about his new book Wealth, Poverty and Politics.  I haven't read the book but plan to. There are two versions -- 2015 and 2016. The latter is an expanded version of the former with a lot more statistics (per others).

Why Did Trump Win?

Trump Won Because Voters Are Ignorant, Literally  (When a solicitation hid the article, I refreshed the page and that removed the solicitation.)

"But, to be fair, Clinton’s victory would also have been."

"Voting is more like doing the wave at a sports game than it is like choosing policy."

TV show about North Korea

Last night we saw a show about North Korea on the National Geographic Channel. It was made in 2006-07 and is available on You Tube. What a depressing place! The people are brainwashed and greatly revere Kim Jong-il despite the deplorable standard of living of most of the population and political prison camps. The common folk do not even have family pictures in their homes, only those of their "Great Leader", past and present.

A doctor from Nepal made a 10-day visit and removed cataracts from 1,000 people blind in one or both eyes so they could see again. Then they praised and thanked Kim Jong-il, and the doctor not at all.

Election 2016

Gomer Pyle used to say, “Surprise, surprise, surprise!” Many people, including me, were surprised by Donald Trump’s winning the election for President over Hillary Clinton.

Ding-dong, the witch is dead! Politically, that is. What a Trump presidency will bring is a huge unknown. I hope it will be better than if Hillary had won. Hillary’s way is near always anti-freedom, more government controls, more government spending, and more foreign meddling and giveaways. While avoiding saying so, she advocates a walk toward socialism or totalitarianism, rather than a sprint as desired by Bernie Sanders. This is on top of her personal character -- corrupt, power-lusting, two-faced, chronic liar -- and conflicts of interest via the Clinton Foundation.

Proposition 61 on the California ballot failed, deservedly so in my opinion. It would have put price controls on prescription medicines, and only for the privileged benefit of state agencies and employees, about 12% of residents. The stock prices of pharma companies jumped about 10% yesterday in response, which still did not offset the price drop over several weeks prior to the vote. Of course, Bernie Sanders was all for it.

Post-season MLB #10

Congratulations to the Chicago Cubs. They became World Series champs for the first time since 1908 by beating the Cleveland Indians 8-7 in game 7. It was a long thriller.  The Cubs led 6-3 after 7.5 innings. Then the Indians scored 3 runs to tie it in the bottom of the 8th inning. Neither team scored in the 9th inning. Rain delayed the start of the 10th inning. The Cubs scored 2 runs in the top of the 10th, and the Indians scored one run in the bottom of the 10th.

It was the 7th time a team had won the World Series after being down 3 games to 1, last done in 1985.

The Cubs' Ben Zobrist was named MVP of the series. He drove in the go-ahead run and scored the final run in the 10th.

Post-season MLB #9

The Chicago Cubs avoided an embarrassing 0 wins, 3 losses, and an end to the World Series at Wrigley Field last night. They beat the Cleveland Indians 3-2. Cubs reliever Aroldis Chapman with his 100+ mph fastballs pitched the last 2 + 2/3rds innings, allowing no runs.

The series resumes in Cleveland with game 6 tomorrow, and game 7 Wednesday if needed. Indians lead the series 3-2.

Post-season MLB #8

Last night was the first World Series game played in Wrigley Field since 1945. After splitting games 1 and 2 with the Cleveland Indians in Cleveland, the excitement and expectation of Cubs fans was high. The Cubs starter Kyle Hendricks led the NL in ERA this year. The Indians starter Tomlin gave up the 3rd most home runs in the regular season this year, and a fairly strong wind was blowing in Wrigley from home plate toward left field. Hendricks got in jams but exited without ceding a run. Tomlin pitched even better. The Indians scored their only run off a Cubs reliever in the 7th inning, and the Indians bullpen ceded no runs. The Cubs threatened in the 9th -- runners on 2nd and 3rd base -- which created suspense but they were stranded. Final score, 1-0.

With Cleveland's #1 starter (Kluber) on the mound tonight against the Cubs #4 starter (Lackey), the prospects for another Indians win and Cubs disappointment are pretty good. I say to Cubs fans, "Let in that billy goat!" He must not have been there last night -- else there would have been a lot of talk about it -- and look what happened!  :-)

Bullying

 Hillary Clinton Has A New Plan To Combat The Bullying Spurred By Donald Trump

The rag named The Huffington Post naturally believes it's a great plan for the federal government to spend another half billion dollars to solve another alleged problem. The Editor's note is another indication of the rag's bias -- full of nasty hyperbole about Trump with no mention of the thoroughly corrupt, power-lusting, two-faced, chronic liar Hillary Clinton. 

Note that Hillary's proposal is not for the Clinton Foundation to spend the half-billion dollars.

The American Spectator has a much different view. Hillary Crowd Lie of the Day: Trump-Induced School Bullying.

Beyond what the Spectator notes is Hillary's consistency. She has a "plan" for all kinds of felt wrongs. Her proposed "plans" or "solutions" consistently invoke more government power and more government spending. Spending another half billion dollars of other people's money, which the recipients will joyfully accept and vote for, is Hillary's answer to most questions she chooses to answer (not related to her past lies, misdeeds and cover-ups). Drug prices too high? Sic the government on the seller. College costs too much or repaying a loan is a burden? More free education and more student loan forgiveness, government-paid, of course. Health insurance costs too much? More government paid "insurance" and more control over providers. She is extremely fond of more government bullying, as long as she or somebody like-minded commands the bullies. Moreover, to her the government "creating money out of thin air" is manna from heaven. 

A Natural History of Human Thinking #2

“Great apes do not create new communicative functions by combining their gestures, their vocalizations, or their gestures and vocalizations together [ ]. But humans do, including young children from the earliest stages of their communicative development, and including even children exposed to no conventional language, vocal or signed, at all [ ]” (p. 66).

“With gesture combinations we now also have the possibility of beginning down the path to the subject-predicate organization characteristic of full propositions” (p. 67).

“The overall picture is thus that early humans used their pointing and iconic gestures, both singly and in combination, to communicate much more richly and powerfully than did their primate cousins.” He says none of this required language; such communication is the prerequisite of becoming a language user (p. 68).

The Billy Goat Curse

The Chicago Cubs advancing to the World Series makes a good time to link to the amusing story of the Billy Goat Curse.  Here is more about the fan interference incident in 2003.

Post-season MLB #7

The Chicago Cubs will play in the World Series! Their last time was 1945. They beat the Dodgers 5-0 to win the NLCS 4-2 (games).

The World Series starts Tuesday (Oct. 25). Whoever wins will end a long drought --107 years for the Cubs or 67 years for the Cleveland Indians.  The Indians' last time in the World Series was 1997.

A Natural History of Human Thinking #1

This is the title of a book by Michael Tomasello. The author tries to explain the uniqueness of human thought and behavior by comparing them to great apes. The overarching hypothesis is shared intentionality. It comprises a two-step evolutionary process: joint intentionality (mainly two actors) followed by collective intentionality (more than two actors). (p. 31). The latter evolved into cultural or institutional practices and norms.

He writes: “In joint collaborative activities in which the partners are independent, it is in the interest of each partner to help the other play her role. This is the basis for a new motive in human communication, not available to other apes [ ], namely the motive to help the other by informing her of situations relevant to her.” (p. 50)

“When great apes work together in experiments, there is an almost total absence of intentional communication of any kind [ ]. When apes communicate with one another in other contexts, it is always directive [ ].”

“The emergence of the informative communicative motive, alongside the general great ape directive motive, had three important consequences for the evolution of uniquely human thinking.”

“First, the informative motive led communicators to make a commitment to informing others of things honestly and accurately, that is, truthfully.” (p. 51)

“The second important consequence of this new cooperative way of communicating was that it created a new kind of inference, namely, a relevance inference.” (p. 52)

“The third and final consequence of this newly cooperative way of communicating was that there now emerged, at least in nascent form, a distinction between communicative force – as overtly expressed in requestive and informative intonations – and situational or propositional content as indicated by the pointing gesture.” (p. 54).    

Post-season MLB #6

Wahoo! The Cleveland Indians go to the World Series. They beat the Toronto Blue Jays 3-0, their 4th win in game 5. They again relied heavily on the bullpen -- 4 + 2/3rds innings. The starting pitcher, Ryan Merritt, went 4 + 1/3rd.  He had pitched only 11 innings in the majors before this game, but he did very well. Relief pitcher Andrew Miller won the MVP of the series (4 games, 7 +2/3rd innings, 0 runs, 14 Ks).

The Chicago Cubs beat the Los Angeles Dodgers to even the NLCS at 2 wins each. After being shutout the last two games, the Cubs scored 10 runs.

Post-season MLB #5

The Cleveland Indians won again against the Toronto Blue Jays and now lead the series 3-0.  The Indians again relied heavily on their bullpen, using 7 pitchers. Starter Trevor Bauer departed after only 2 outs in the first inning due to injury.

On Friday Bauer cut his pinky finger on his pitching hand trying to repair a drone. It required several stitches and was bandaged before the game. MLB rules prohibit even a band-aid on the pitching hand, so Bauer could only rely on the stitches to hold. They didn't. A tv viewer could see blood dripping from his hand after about 15 pitches. Maybe the wound will heal enough and Danny Salazar can return from his injury in time for the World Series. Even if the Indians win today (ending the ALCS), the World Series won't start until next Tuesday, October 25.

A Canadian activist had filed a lawsuit to bar the Indians from calling themselves Indians and wearing the Chief Wahoo logo on their uniforms while in Canada. The activist insisted that the team’s name and logo are demeaning and “offensive” to indigenous people. However, a few hours before the game a judge ruled against the plaintiff.

Post-season MLB #4

Yeah, Wahoo! The Cleveland Indians won the first two games of the ALCS against the Toronto Blue Jays with great pitching. They won 2-0 and 2-1.

The Chicago Cubs and Los Angeles Dodgers split the first two games of the NLCS. The Cubs won the first game 8-4 with a pinch hit, grand slam home run in the bottom of the 8th inning. The Dodgers won the second game 1-0. Dodger Clayton Kershaw, 3-time Cy Young winner, pitched 7 shutout innings.

Post-season MLB #3

The Chicago Cubs won the NLDS over the San Francisco Giants (Oct.11). They were behind 5-2 after 8 innings, but scored 4 runs in the top of the 9th, and the Giants failed to score in the bottom of the 9th. Cubs second baseman Javier Baez played a big role. This video shows that.

The video includes his amazing, diving catch and off-balance throw to first base. The batter Denard Span, a very fast runner, was initially called out by the umpire. After review, he was called safe. When Span then tried to steal second base, Baez tagged him out with his very fast hands.

Post-season MLB #2

The Cleveland Indians and Toronto Blue Jays both swept in the ALDS. Of course, I will root for the Indians -- my local team now -- when they face the Blue Jays in the ALCS to decide which one plays in the WS.

The Indians swept the Boston Red Sox. It was (most likely) the final game in the career of David "Big Papi" Ortiz of the Red Sox (link). In the spring he announced he planned to retire after this season. What a final season it was!  A decline in skills late in a career is typical, but wasn't for Big Papi. His batting average was .315, and he had 38 homers and 127 RBIs.

Post-season MLB #1

I predict the Chicago Cubs will win its first World Series since 1908. The Cubs "win %" was .640 for the regular season. Second best was .586. (Link).  The Cubs pitching staff is very strong. Their regular season ERA was 3.15; second best was 3.51.

If the Cubs make it to the WS, their first home game will be game 3 (first two at the AL team's park). Seats in Wrigley Field start at almost $3,000 at www.vividseats.com. Even a rooftop seat -- outside Wrigley is $1,399.

If the Cubs don't win the WS, then I'd like to see the Indians win it.

The Horsewhipping of Donald Trump

This article evaluates the 2016 election much like I do.  Like the current President, neither of the two major candidates is near worthy of being President.

Coffey: Primary and Secondary Qualities #4

Philosophers have characterized the difference between primary and secondary qualities in various ways.

1. On 9/22 I quoted Coffey's distinction between qualities in actu (perceived) and in potentia  (unperceived) respecting the secondary qualities sweetness, whiteness, etc. He doesn't make and says there is no ground for the same distinction between primary qualities, e.g. roundness, size, etc. (Vol. 2, p. 128-9). Maybe that is because he couldn't conceive of any sort of dissimilarity between such primary qualities perceived and unperceived, and his saying so would have been an indirect agreement with John Locke. Locke: "From whence I think it is easy to draw this observation, that the ideas of primary qualities are resemblances of them, and their  patterns do really exist in the bodies themselves; but the ideas produced in us by these secondary qualities have no resemblance of them" (ECHU, II, VIII, 15). An example of the latter is perceived color versus light wave frequency.

2. Another way of stating the difference is that primary qualities are categorical but secondary qualities are dispositional.  In this context "dispositional" means a quality that is manifested given the appropriate circumstances. Analogous examples: (a) glass is fragile in that it will break if struck hard enough, and (b) sugar or salt is soluble in that it dissolves in water.

3. Another way of stating the difference is primary qualities are intrinsic but secondary qualities are extrinsic or relational.

Coffey: Primary and Secondary Qualities #3

Thomas Case's book Physical Realism was published in 1888. Coffey used it to present and criticize its view of primary and secondary qualities.

Physical realism is the view that sense qualities are neither conscious states nor modes of the external universe, but modes or states of the perceiver's organism. It is favored by many scientists. Since nothing external can be immediately apprehended, but only inferred (by the principle of similarity) from data that are internal, we can ascertain the real nature of these latter data only by asking ourselves from what kind of data can we have inferred the objects which science assures us to be externally real. Such data must be internal but also physical, i.e. of the same order as the objects inferred by science. They cannot be purely psychic states. But the only objects which science assures us to be externally real are extension, volume, shape, motion, etc., which are like their internal sensible correlates, and such transcendentally inferred imperceptible modes of the former as e.g. corpuscles, undulations of aether, etc.: that correspond externally to the internal secondary qualities. And the reason why the former externals are like their internal correlates, and the latter unlike theirs, must be because the perceiver's sense organon is so constituted that it is capable of assuming in itself, and presenting to consciousness, states similar to the primary externals under the influence of the latter, whereas it can assume and present to consciousness under the influence of the secondary externals only states dissimilar to these.  (Vol. 2, p.124-5).

Coffey sees no sufficient grounds for this view, for example, external motion is like sensible motion, but external heat is an imperceptible mode of motion while sensible heat is not sensibly a motion at all. He objects to the motion example considering the motion of a train or hailstorm saying that the internal, sensible appearance is an immediately apprehended nerve motion or organic condition appearing as an external train or hailstorm motion.  (I don't buy his argument there when I consider the co-occurring retinal image.)  (Vol. 2, p.126-7).

A little later, he expresses his objection as follows: "For since the whole sense organon is an extramental material factor, we cannot say that it presents to conscious one set of qualities as they are--whether in itself or in the extra-organic domain, or partly in the one and partly in the other, but in both cases--beyond or independently of consciousness, and another set otherwise than they are beyond or independently of consciousness" (Vol. 2, p.133).

Coffey: Primary and Secondary Qualities #2

Coffey's view is that there is no difference knowledge-wise between primary and secondary qualities. Of course, he doesn't argue against the distinction Aristotle made between the common and proper sensibles -- those that are perceived by more than one sense (shape, mass, motion, solidity, number) and those that are perceived by only one sense (color, taste, sound, smell). He disagrees with and critiques two alternative views -- immaterialism and physical realism.

Coffey devotes several pages to the view of Bishop George Berkeley. Since Coffey criticized immaterialism rather than primary and secondary qualities, I will be brief.

In Berkeley's book Three Dialogues between Hylas and Philonous,  Berkeley's views were represented by Philonous (Greek: "lover of mind"), while Hylas (Greek: "matter") embodies Berkeley's opponents, in particular John Locke. Hylas presents the primary-quality distinction as follows.

"You must know sensible qualities are by philosopher divided into primary and secondary. The former are extension, figure, solidity, gravity, motion, and rest. And these they hold really existing in bodies. The latter are those above enumerated [colors, sounds, tastes, etc.]; or briefly, all sensible qualities beside the primary, which they assert are only so many sensations or ideas existing nowhere but in the mind" (Three Dialogues). 

Locke wrote: "Such qualities, which in truth are nothing in the objects themselves but powers to produce various sensations in us by their primary qualities, i.e. by the bulk, figure, texture, and motion of their sensible parts, as colours, sounds, tastes, &c., these I call secondary qualities" (An Essay Concerning Human Understanding, Bk. II, Chap. 8, Sect. 10).

Thus Berkeley misrepresented Locke's claim. Primary qualities cause the perceived secondary qualities.

Coffey: Primary and Secondary Qualities #1

Coffey wrote much about primary qualities (or common sensibles) versus secondary qualities (or proper sensibles) in Epistemology; Or the Theory of Knowledge. He presents the scholastic view of secondary qualities with which he agrees as follows.

"The names of the various proper and secondary sense qualities,--of colors, sounds, tastes, smells, tactual and temperature qualities,--are not names of mental states, or of organic states, conditions or qualities, of the perceiver: they are names of qualities of external or extra-orgaanic bodies. But Aristotle, St. Thomas, and the scholastics generally, while holding that these qualities are really in external bodies independently of our actual perceptions of them, realized the necessity of distinguishing between the unperceived reality of these qualities, and the characters which their reality assumes in our actual perception of them: between those qualities in actu and in potentia. In the untasted sugar there is real sweetness but not the sensation or perception or taste of sweetness; in the unseen snow there is real whiteness but not the vision of whiteness, or actually perceived whiteness; in the unheard tempest there is real sound, but not the hearing or actual sensation or perception of sound; in the unsmelt violet there is real perfume but not the actual smell or perception of the perfume; and so on. In other words, if we understand the name of the sense quality to denote this quality as actually perceived,  and thereby to connote as part of its meaning the actual conscious perception process or state itself, then of course the quality so named cannot be in the unperceived external domain actually (in as much as the sensation or perception process is absent from the unperceived domain); but nevertheless the unperceived quality is really there, and we can say it is there potentially or virtually, meaning thereby, not that the quality is any less really these when unperceived than when perceived, but that as unperceived it is a potential or virtual percept or term of a conscious perceptive process; in other words that it is a reality capable of being perceived though not actually perceived" (Vol. 2, p. 106-7).

Coffey: Senses and Intellect #3

More from Peter Coffey's Epistemology; Or the Theory of Knowledge follows. Coffey presents the scholastic theory of necessary judgments that he advocates.

"When, therefore, I reflect on my spontaneous assent to such a judgment as that 7 + 5 = 12, I observe the following facts: (a) that I affirm a necessary identity between predicate and subject; (b) that I affirm the identity after having seen it intellectually through comparison of the concept of "12" with the concept of  "7 + 5"; (c) that I affirm it because I have seen it. Moreover, I observe that (d) I see the necessary identity because I see that the concepts necessarily involve such identity [ ]" (Vol. 1, 234).

"How are the absolute necessity and universality of these relations to be accounted for? Manifestly these characteristics cannot appertain to any objects as perceived through sense experience, for they transcend the limits of sense experience. The necessity and universality in question are not empirical or a posteriori. They characterize objects not as perceived by sense but as conceived by intellect. The questions is, why or how is it that objects, as conceived, reveal such relations?
   "The answer is that the objects reveal those relations because intellect, in conceiving them, apprehends them in the abstract, i.e. divested of all the conditions of the contingent, actual, physical existence whereby alone they can be data or objects of sense experience. It apprehends them (in their essence or nature) as being independent of the limitations under which, in their sensible, physical, material existence, they come into sense experience: and because it so apprehends them it can and does see in them properties, laws, relations, which characterize their essences, their actual physical existence must necessarily and universally conform. And it is our intellectual intuition of these objects as involving such properties, laws, and relations, that gives us the absolutely necessary and universal judgment,--the judgment which is a priori in the sense that it is not grounded in sense experience [ ]" (Vol. 1, 241-2).

   "The abstractive and intuitive character of intellectual conception or thought is thus the key to the characters of necessity and universality in judgment of the ideal order. The intellect abstracts, as its proper objects, from the concrete, individual data or conscious sensation and reflection, the reality which constitutes the essences or nature of these data: these essences or natures it contemplates in this condition of abstraction in which they are static, changeless, self-identical entities: and thus it sees them to be characterized by properties and relations which, like themselves, are immutable necessary, eternal, etc." (Vol. 1, 243).

I believe there is merit in his making a sharp difference between sense and intellect, but it seems to me too sharp. I see conflict between the first and second excerpts. In the first he asserts the identity of  7 + 5 = 12 after having seen it, though intellectually. Yet in the second he asserts the judgment is not grounded in sense experience. How anyone could see that 7 + 5 = 12 is true intellectually without seeing it grounded in sense experience is incomprehensible to me. Indeed, such a claim is very much like Kant's, with which Coffey had earlier strongly disagreed.

Coffey: Senses and Intellect #2

 As noted in my prior post, Peter Coffey mentioned the straight stick partly submerged in water on page 237 of Volume 1 of Epistemology; Or the Theory of Knowledge. He addresses said stick again in Volume 2 as follows.

"But the presentation of a sense datum can be an occasion of deception to the perceiver, inasmuch as the latter may judge that the datum is external, or how it is externally, without adverting to the fact that the presented datum is partially determined by the conditions of his organism, and this condition is, perhaps, abnormal. And just as the subjective, organic condition of the perceiver may be an occasion of error in his spontaneous judgment, so may the abnormal condition of the external thing itself, or the physical medium spatially intervening between the latter and the sense organ of the perceiver. A trite and telling example of this source of error is the familiar fact that a straight stick partially immerses in water and seen obliquely appears bent. Or again, to a person sitting in a moving train which is passing another train that is stationary, the latter appears to be moving and the former at rest: a double or compound illusion. Or, an object seen through a microscope appears much larger than "it really is". [ ]
   "Now such "illusions of the senses," though puzzling to the plain man, have never shaken his spontaneous belief in the trustworthiness of his senses under normal conditions. But philosophers, who have tried to think out the bearing of these illusions on our spontaneous beliefs regarding the existence, qualities, and nature of the external domain of reality, have been more than puzzled by such illusions: many have been driven by them into the position of theoretical scepticism, subjectivism or idealism" (p. 93-4).

Straight trumps bent because the stick is seen as straight when not in the water or fully immersed in the water, and can be felt as straight even while seen as bent. We judge that under most and normal conditions perception matches reality. However, such analysis does not apply to a circular table top. Under most and normal conditions the table top is seen as elliptical rather than circular, and we judge it to be really circular. On the other hand, we don't regard the elliptical case as an illusion. In every case what is seen conforms to and depends on the retinal image.

These example, the trains, the moon seeming almost as large as the sun, the railroad tracks that seem to converge, and others seem to support no comprehensive rule for identifying illusory versus non-illusory percepts.

Coffey: Senses and Intellect #1

More from Peter Coffey's Epistemology; Or the Theory of Knowledge follows.

"Through the impressions produced on our senses by objects, the latter necessarily make us aware of them as they appear, even when they appear to us as otherwise than they really are. A straight stick, plunged in water, necessarily appears to the eye as bent; two plane pictures, seen through the stereoscope, necessarily appear as one solid object seen in perspective or relief; and so on. We can correct such illusions of course; but it is by intellect we correct them, not by sense: the deceived sense can never correct its own deception. Or rather, we should say, it can never correct the error:  the intellect judging spontaneously that such objects are as they appear.   [ ]
   "But while sense is thus necessitated in revealing to us how things appear, intellect is not necessitated by the mere sense impressions in judging how things are. Our sense-awareness or sense-consciousness of how things appear is not knowledge, it only furnishes the materials of knowledge, the data for interpretation. Knowledge proper is knowledge of how and what things are; it is attained only by judgment; and judgment has its immediate object the assertion of a nexus (of identity or non-identity) as real" (Vol. 1, 237-8).

His using necessarily seemed superfluous to me until he contrasted the senses with the intellect. In my opinion "not necessitated" sounds correct for judgment, but "necessitated" sounds a little off for the senses. Regarding the sense data as "given" and the judgment as "not given" sounds better to me.

Coffey Critiques Kant #4

More from Peter Coffey's Epistemology; Or the Theory of Knowledge follows. I find this rather obvious allusion to Kant's ideas rather funny.

"When the plain man distinguishes between "appearance" and "reality," between "what a thing appears to be" and what it "really is," he is certainly not thinking of two distinct "things," -- one a "mental" thing (an "appearance") and the other an "extramental" thing (a "reality"), -- but of one and the same (extramental) thing under two aspects, viz. of this thing as (he thinks that) it now appears, and he otherwise knows it to be. Yet philosophers, reflecting on the distinction, have come to think of two distinct things, viz. the extramental thing (the "thing in itself" the "noumenon") and a "mental" thing which they call an "appearance" or "phenomenon"; and some philosophers have concluded that we can never get beyond knowledge of the latter" (Vol. 2, p. 168).