State 2

Federal Government

LegislativeExecutiveSupreme Court

Constitutional Reform

Free will Environment

Federal Jurisdiction

State Jurisdiction

The Cybernetic State

Javier Livas

The Unity of Economics, Law and Politics

The People

State 1

The Cybernetic State

Read this first ...................................................................................................................................1

Part I: The Viable System Model

Chapter 1: A Cybernetic ModelSystems and models...................................................................................................6A Viable System and its elements..............................................................................7Recursion ...................................................................................................................8

Chapter 2: The VSM's Internal RelationshipsThe Mind-Body Problem ...........................................................................................11The Metasystem and Cybernetic Logic .....................................................................12The SYSTEM and Causal Logic................................................................................13More Cybernetic Logic ..............................................................................................14

Chapter 3: ExchangesExchange of Information ...........................................................................................16Variety and the Laws of Control................................................................................16Exchanges of Matter and Energy...............................................................................19Energy Amplification.................................................................................................20Entropy.......................................................................................................................21

Part IIEconomies as Viable Systems

Chapter 4: A Viable EconomyCybernetic Economies ...............................................................................................24An Economy's SYSTEM ...........................................................................................26An Economy's Metasystem........................................................................................28An Economy's Environment ......................................................................................29The Economy and Information ..................................................................................30The Economy and Entropy ........................................................................................31

Chapter 5: The Economy's New AssumptionsBuilt-in uncertainty ....................................................................................................34Assumptions as Models .............................................................................................36Economic Exchanges .................................................................................................38

Chapter 6: The Emergence of MarketsRedefining markets ....................................................................................................41Markets and Variety...................................................................................................44Competition and Cooperation ....................................................................................46The Invisible Homeostat ............................................................................................47SYSTEM TWO..........................................................................................................48Markets and Liberty...................................................................................................53

Part IIIThe Law and Viability

Chapter 6: The Nature of LawThe Cybernetics of Law.............................................................................................55The First Laws ...........................................................................................................56Law and the Viable System .......................................................................................56Law is Information.....................................................................................................58Legal Entities .............................................................................................................59Property as Person......................................................................................................59

Chapter 7: Markets & JusticeLaw and Economics...................................................................................................63Markets as Spontaneous Order ..................................................................................64The Markets' Regulatory Limitations ........................................................................65Law is a Metasystem Solution ...................................................................................66Administration of Justice ...........................................................................................69Law's Dual Nature......................................................................................................74The Minimal State......................................................................................................77

Chapter 8: Public & Private LawMetasystemic Management........................................................................................81Duality and Tension...................................................................................................83Hidden Lawmakers ....................................................................................................85Public and Private Law ..............................................................................................87

Part IVPolitics and Viability

Chapter 9: System THREEConstitutional Map.....................................................................................................90First Recursion Level.................................................................................................92Second Recursion Level.............................................................................................94

Chapter 10:System FOURIntelligence.................................................................................................................98Self-reference.............................................................................................................101Learning .....................................................................................................................103The VSM's Planning System .....................................................................................105

Chapter 11: System FIVESovereignty as Closure...............................................................................................107The Area of Politics ...................................................................................................109Political Parties ..........................................................................................................110Amplification .............................................................................................................111Metasystem's Values..................................................................................................113

Part VThe Cybernetic State

Chapter 12: The Cybernetic StateA Shared Model .........................................................................................................116Self-Organizing System.............................................................................................117SYSTEM TWO:More Liberty ...................................................................................119SYSTEM THREE: Here and Now.............................................................................123SYSTEM THREE*: The Courts................................................................................125SYSTEM FOUR: Legislation and Long Term ..........................................................126SYSTEM FIVE: The People......................................................................................129A World of Environments.........................................................................................130

Read this first

The emergence of a cybernetic State is now a real possibility, and most likely inevitable in thenear future. This book sketches this information age organization and the cyberneticmanagement principles on which it is based. As we shall see, many of its features are alreadypresent in embrionary form in the modern democratic State.

The description of the cybernetic State relies on the Viable System Model (VSM) developed byprofessor Stafford Beer and explained in several of his books. This model originates fromcontrol theory and the cybernetics of the human nervous system, and has been adopted andvalidated by management science. In this book the VSM is used to show the nature of the State.

The enormous explanatory power of this cybernetic map will show that Economics, Law, andPolitical Science, which have mostly been studied separately, actually refer to three differentaspects of the same phenomena, namely the State. In this sense, the book attempts a synthesisof ideas that were born disconnected and remained so for a long time. Helpful insights about theevolution of economic, legal and political theory are a byproduct.

This new and integrative approach gives support to many thesis. One is that a nationaleconomic system is not complete without its legal and political system. In fact, the threesystems are in a complete overlap to form a unit and are therefore inseparable. To prove thispoint I will show that the basic architecture of viable systems can be found in both ancient andmodern economic, legal and political institutions.

I must alert the reader to the special significance of the order of the book chapters. Thebook follows a sequence that in the past has proven to be the best way to explain and build the

viable system model from scratch. After all, the whole point of cybernetic thinking is to make acomplex system easier to understand. But most importantly, since the State has also evolvedfrom lesser to more complex forms, the book's structure itself constitutes one big argument thatsupports the fact that the States now in existence will become more and more complex.

A crucial and helpful idea to keep in mind as the book is read is that viable systems are builtby piecing together other viable systems. This is the way Management Cybernetics deals withthe high complexity of viable systems. A graph at the end of this introduction shows how this"system of systems" explanation works.

Part I of this book describes the viable system model in a very basic and general manner.Chapter 1 refers to the viable system's three main components and their relationships. It alsoshows how several viable systems can be linked to form another viable system. I explain theidea of recursion, a key to the model's explanatory power. Chapter 2 talks briefly about theimportant difference between Aristotelian logic and Cybernetic logic and how each hasinfluenced the way organizations are described. These two logics are then related to the roleplayed by the exchanges of information, materials and the energy needed to support life.

Part II describes an economy as a viable system. Chapter 3 points out the characteristics of acybernetic economic unit. Chapter 4 explains how two or more economic units form a market.Chapter 5 introduces the idea that there are regulatory limits of market activity and how theselimits are overcome by creating another economic unit at higher level of organization.

Part III talks about the relation between man-made Laws and the natural laws of viability. InChapter 6, Law is redefined as information and is connected to the cybernetic paradigm.Chapters 7 and 8 show that ancient legal institutions appear neatly structured as if they werefollowing the viable system model as a blueprint. This perfect match between the VSM andancient institutions becomes evident as we explore the Law, markets and the minimum legalsystem. The legal system's complexity is addressed as the uses of cybernetic logic and causallogic are explored.

Part IV of the book views the Political system in its primitive expression and explores the moredeveloped political systems of the modern democratic State. The viable system structureappears again as we examine the Constitution of the United States using the cyberneticapproach of Management Science.

Part V contains the book's conclusion and can be read separately, provided one is familiar withthe VSM's language. It is an overview of the Cybernetic State and its implications in relation toa series of issues that concern people all over the world. Previous chapters act as supportivearguments.

The purpose of this book is to help accelerate the arrival of the Cybernetic State and bring aboutan expansion of individual freedoms. This is the most important mission I can find forCybernetics, the "baby boomer" science of communication and control which hasrevolutionized many other sciences and technologies.

You may notice that the description of the VSM travels in a circle. The same is true with thearguments presented in this book.

Start

Step #2

Step #1

Step #3

SYSTEM TWO link And it's back to Step #1

Add SYSTEM THREE

A Viable System

Components . .

. . and Connections

Add SYSTEMs FOUR and FIVE

3

4

5

Part I

Viable Systems

Chapter 1

A Cybernetic Model

Summary

The Viable System Model and its three components are introduced. The idea of recursionexplains how viable systems are nested in other viable systems.

Systems and MODELS

A system is a set of elements and their relationships.1 This is a well accepted definition,however...

Systems are observer dependent, so anything can be a system. It is up to the person who definesa system to identify its elements and show how they are interrelated.2 Therefore, anyone canidentify a system, and anything can be a system. But the person who identifies a system has, soto speak, the burden of proof.

The whole idea of speaking about highly complex and adaptive systems such as living systemsis precisely because their complexity defies simple cause-effect explanations of their behavior.Complex adaptive systems have too many parts, are adaptive, and display learning capabilities.Given that we are unable to list each part and examine the nearly infinite amount of internalrelationships, we treat complex systems as a set comprised of a few black boxes. We then makemuch simpler models of the interior of each black box in an effort to describe its internal

structure in an attempt to predict how they will behave.

Models are no more than highly simplified versions of complex systems. We use models to tryto preserve the relevant features of the system being modeled. Models are only rated by theirusefulness, and cannot be judged as being true or false.

A VIABLE SYSTEM and its elements

Viable systems are defined as highly complex systems that are able to maintain a separateexistence.3

The basic model of a viable system is quite simple. According to Stafford Beer, the cyberneticmodel of any viable system has the following three elements:

1. SYSTEM2. METASYSTEM3. ENVIRONMENT

I will use capital letters for each term to give each one a specific meaning given that their use isstrictly conventional and must retain their consistency with the language of the model.

The system is made of one or more operational elements. It is the part that is actually andphysically producing something.

metasystem is the name used to designate the SYSTEM's management unit. Its purpose is tomanage information and use that information process to control the output of SYSTEM.

The environment is an ever-changing assortment of things that fall within the immediate controlof the SYSTEM, such as its immediate sources of energy and materials.

A person living alone on an island provides a fine example of a viable system. The threeelements are the person's body, his central nervous system and his environment. Together theyform a unit that sustains life.

ENVIRONMENTSYSTEM (Process, Operation)

METASYSTEM(Management)

The Elements of a Viable System

Fig. 1.- The viable system is comprised of an on-going process that operatesaccording to its management unit and within the limits of a loosely demarcatedenvironment.

Any living organization, regardless of size can be described by these three elements. Thegenerality of the model fits a company, a government, and even the Church. In every case wefind the same basic components: a management trying to regulate a process within some sort ofan environment. The three components are vitally linked.

Recursion

Recursion is a mathematical term that means 'a repetitive procedure'. Imported by organizationtheory it means a structure made of components similar to itself. Russian dolls provide a goodmental image of recursion since they are built by placing similar dolls of different sizes oneinside the other.4

Management cybernetics has found that the idea of recursion is a clever way to solve theorganizational complexity of living things. It is an alternative and powerful way of describingorganizational structure. This is how the VSM is built.

Modern biologists have confirmed the recursive nature of viable systems. Recursiveness hasbeen present since life on earth began. It starts in the cell with the ability of DNA to makecopies of itself and runs up the ladder of evolution through, cells, organs, animals, and all theway up the operation of the human brain with the ability to observe itself. On top of that, humanorganizations are built in a recursive fashion too.

Complex life forms are organized in recursive levels. Plants, animals, humans and humanorganizations are recursive organizations. Corporations, for instance, are organized intodivisions, and departments and so on down to shop floor and all the way to individual workers.Countries have states, and states have cities and each can have hundreds of thousands ofinhabitants. It is natural to organize recursively.

Recursion

Given the nature of recursive arrangements it follows that a set of two or more viable systemscan become another larger viable system. This happens when we identify a commonmetasystem and the larger environment that envelops the new resulting entity.

As we shall see in much detail later on, the State is a prime example of a viable system.Political science is well aware that its three elements are a population, a government and aterritory. It is a recursive structure given that its subassemblies share the same organizationalstructure.

***

Two different logics underlie the recursive structure that is used to describe viable systems. We

shall examine these two logics briefly in the next chapter.

Chapter 2

The VSM's Internal Relationships

Summary

Aristotelian logic and Hegelian logic are both used to explain the connections between theelements of the viable system model. One is cause-effect oriented and the other is the logicof circular causality. The first is useful for explaining exchanges of matter and energy andthe second is best suited to explain processing information.

The Mind-Body Problem

The relationships between the three elements of the viable system are as important as theelements themselves.

The relation between the METASYSTEM and the SYSTEM was known as the mind-bodyproblem in the XVI century.

The French thinker René Descartes considered the mind and the body two distinct entities, eachwith its own set of laws. There was a material nature and a world of ideas. We know that theCartesian distinction led the way to the creation of classical science and its experimentalmethods.

Nowadays there are new expressions of the mind-body problem. This is the same difference wefind between the observer and the observed, between information and matter, between aregulator and the regulated system, between computer software and hardware5, between theplan for building a self-replicating automata and the automata itself6, between the DNA and thecell7, between the management and the human organization being managed 8 and finally,between a government and the population being governed.

Mind and body, metasystem and system, information processor and operator, planner and doer,all reflect the same type of relationship.

The Cartesian duality can be explained by two different logics: causal logic and cyberneticlogic. Each logic lends its support to a different scientific paradigm.

The Metasystem and Cybernetic Logic

The METASYSTEM operates on cybernetic logic. This is the logic of information processingas done by neural networks.

The key to cybernetic logic is circular causality. Circular causality is the result of informationfeedback; a system whose output is fed back to affect the input is a feedback controlled system.According to circular logic, cause and effect are interconnected and are inseparable parts of thesame phenomena.

Cause EffectSystem

Information

Circular Causality

Input Output

Feedback loop

Much of human information processing is based on feedback type processes of a circular nature.The decision to cross a street does not involve exact computation of velocities of incomingvehicles but rather a series of quick mental adjustments based on experience. The same is trueabout hitting a tennis ball, for example. Information goes into a series of comparison loopsbefore a decision is made.

The SYSTEM and Causal Logic

The System is a center of activity, a producer of things. It must act on the Environment

according to cause-effect relationships, such as A causes B, and B causes C, so A causes C.Physical exchanges and transformations are its main concern. Causal logic belongs toNewtonian science and its physical and chemical transformations.9

Newtonian cause-effect logic is identified by the measures such as speed, force, acceleration,weight, hardness, conductivity, time elapsed, horsepower, BTUs, etc.

The invention of causal logic emerged from Aristotle's principle of Non-Contradiction.Knowledge is gained when something is divided into A and Non-A. Further distinctions ofNon-A, Non-X, etc. provided a pyramidal structure for knowledge.10

A

X

Y

Non-A

Non-Y

Non-X

Aristotle's Non-contradiction Principle

?

For centuries, the process of reason was based on Aristotle's logic. The syllogism allowed theformulation of a conclusion derived from applying a major premise on a minor premise. In thefamous example of syllogistic reasoning "Socrates is mortal" derives from "All men aremortals" and "Socrates is a man".

Conclusion

Major Premise

Minor Premise

The Syllogism

The family tree-like organization chart reflects the effect that Aristotelian logic has had onorganization theory. The chart is used to identify areas of responsibility and is based on a notionof hierarchy where final authority is exerted by the highest position on the chart.

The Organization Chart

The Boss

More Cybernetic Logic

Given the recursive nature of the viable system, there are two more informational exchanges toconsider:

In addition to those found in the METASYSTEM-SYSTEM relationship, informationexchanges are present in the SYSTEM-ENVIRONMENT because of important control relatedconnections that we will examine later.

A third information exchange relation occurs between the Metasystem and the environment. Itis an informational connection whereby all viable systems are seen adapting to changingcircumstances in their environment.

ENVIRONMENT

SYSTEM

METASYSTEM(Management)

VSM: Set of Relationships

Cybernetic Logic

Causal Logic

Having examined the different logics ruling the relationships between the viable system'selements, we shall examine the content of exchanges in the next chapter.

Chapter 3

ExchangesExchange of Information

Life is the result of exchanges of energy, materials and information between a living system andits environment. Living systems are open, dynamic systems.

Information exchanges play a crucial role in the survival of viable systems. Life requiresreading the signals given by the environment and acting upon those signals.

Information exchanges are an obvious fact today. However, scientifically speaking it is a recentconcept. Widespread use of this concept is also recent. Most literature on Economics, Law andPolitics say nothing about information exchanges in spite of its now obvious importance.

We shall see how modern information theory can contribute to the building of the CyberneticState.

Variety and the Laws of Control

Information is control. Control has its own laws that have to do with the limits of transmittinginformation.

The exchange of information between the a viable system's elements is not exempt from theapplication of cybernetic laws.

The concept that helps us understand the limits of control comes from Ross Ashby'scontribution to control theory. According to Ashby any attempt to control a highly complexsystem requires matching its variety. Variety is: "The number of possible states of asystem".

For instance, the variety of a street light is the number of things that in its sequence. Variety isthe number of possible moves in a game of chess, or the different behaviors of a child. Differenttemperatures, the products on the shelves of a supermarket, the number of ways to fix a salad,results on a scoreboard, voting patterns, are examples of variety or system complexityproliferating everywhere.

The greater the variety or complexity of the system to be controlled, the greater the variety ofthe control system needs to be. The states of the system have to be matched by the regulator inorder to achieve control. This is Ashby's Law of Requisite Variety at work. Ashby expressed itin very simple terms: "Only variety absorbs variety".11 The Connant-Ashby Theorem then saysthat every good regulator must contain a model of the system to be regulated.

system regulatorHOMEO-STATICLOOP

amplifier

filter

Law of Requisite Variety

Viable systems have been dealing with each other's complexity for millions of years. Thevariety handling in viable systems is done in two stages: from the management to the operationand from the operation to the environment.

From a cybernetic perspective, devoid of content, a manager's basic problem is managing avariety equation. This is done in two ways:

1. Amplifying the information that controls a process; and

2. Filtering the information produced by the process.

Many managerial practices such as planning, training, and organizing work are examples of

amplification schemes.

Filtering incoming variety is done by eliminating things or issues that are not relevant to thesystem.

The same control variety balance must exist between the SYSTEM and the environment.

Good products, efficient production and attractive prices, in addition to publicity, are perfectexamples of amplification done by the SYSTEM.

Attenuation starts with the identity of the organization under consideration. Not everything thatis happening around it is relevant to a given organization. There are activities that it will getinvolved in and others that it will not. "We sell cars, not airplanes" some will say. "We are inthe entertainment business, not in the trucking business" will say another. That is how variety iscut from the theoretical infinite amount of activities any one person business or institution candisplay.

A great deal of variety is eliminated by rule-making in general, setting policies and makingprocedure manuals.

Another form of cutting variety is through contractual arrangements. Contracts specifyobligations and eliminate a lot of undefined variety that comes in the form of uncertainty. Inthis way the universe of possibilities is chopped down to a manageable size.

Variety is cut by standardization, and market research. Perhaps a corporation can even attenuatethe demand by playing correctly the amplification of advertising.

Management rules of thumb as well as management techniques are full of amplification andattenuation schemes that have been selected by years of practical experience. Cybernetics israther content free.

To sum up, the metasystem manages the system by amplifying its control variety andattenuating the incoming disturbance variety. The same amplification-attenuation scheme iscarried out by the system in regard to its environment.

Exchanges of Matter and Energy

A viable system's own environment provides the energy and matter needed for the operation ofthe system. Surrounding materials and other viable systems are used by viable systems tosupply the energy and raw materials to rebuild themselves.

Causal logic is well suited to describe matter and energy exchanges that take place between theoperating system and its immediate environment.

Goods

Entropy

Materials

Energy

SYSTEM ONE

InformationLoops

VSM: Exchanges

Meta System

Transformation processes in the cell as well as in the factory require energy. No change takesplace in living systems and organizations without the consumption of energy.

The consumption of energy can be mapped in exactly the same fashion whether we are talkingabout a business a production line or an individual worker. Factories require electrical power,gas or oil.

Given that energy and materials come from the immediate environment, the ENVIRONMENTis a crucial part of the viable system model.

Energy Amplification

Given the importance of energy use in life processes and the desire to make our model complete

in every way, it is necessary to review the mechanism of energy amplification.

According to Ashby, "Amplification is taking a quantity and converting that into another."12

The amplification of a low energy activity is done by its access to an energy source with ahigher energy content. A radio amplifies an electronic signal and turns it into a powerful soundwave. This is done by converting the signal into a controller of electric energy to which theamplifier is connected.

In the same fashion, a machine operator amplifies his control over his environment with theenergy stored in the fuel used to run the machine.

System

Information:Low Energy Instruction Signal

Environmental Energy Source

Regulator

High Energy Output

Work

Entropy: UnusableEnergy

Energy Amplifier

The cells of a human body amplify their minute energy capabilities by extracting energy fromfood.

Entropy

Entropy is a by product of any system that consumes energy. In order to remain viable a systemhas to deal with the entropy in its environment.

Entropy is a concept that comes from thermodynamics.

The term was coined by Rudolph Clausius, from the Latin meaning contents of transformation.He used it to describe the process whereby energy is lost and degraded in a way that it can nolonger be converted into work.

In modern times the term entropy can be used to describe three different manifestations.

The first usage, is the original and better known energy-related entropy as defined by Clausius.It is the result of the Second Law of Thermodynamics, which states that "the amount ofunavailable energy always tends toward a maximum."

Energy related entropy is produced for example, when we burn gasoline to run a car's engine.Some of the energy is transformed into mechanical energy and the rest is wasted as unusableheat or vibrations.

The second type of entropy is related to information loss. The definition of information uses theexact same formula used to describe energy related entropy, except for its negative sign. Thus,information became also known as negative entropy and entropy synonymous with disorder,noise, meaningless data, confusion and the disruption of communications.

Thirdly, there is material entropy. Garbage, toxic gases emanating from some industrialchimneys, and discarded automobiles and tires, are all examples of material entropy.

Matter, energy and information are undoubtedly three powerful concepts. Used in conjunctionwith their corresponding entropies allows us to make better maps of life processes.

***

Having reviewed the essential version of the Viable System Model we shall now proceed to seehow it applies to the structure of economies.

Part II

Economies as ViableSystems

Chapter 4

A Viable Economy

Summary

The main features of a cybernetic economy are outlined and related to the viable systemmodel. We examine the METASYSTEM, SYSTEM and ENVIRONMENT of a modernnational economy. Capitalist nation-states may evolve to become cybernetic economies.

Cybernetic Economies

The concept of a cybernetic economy is an information age alternative to idea of billiard ballNewtonian economy which is very widespread. The cybernetic economy results from theapplication of the cybernetic paradigm to the description of an economy.

In real life, economies are complex living systems, self-organizing, inherently and potentiallyunstable. To use the language developed by researchers at the Santa Fe Institute they "exist atthe edge of chaos".13 Some economies grow and dominate others and some die quickly afterbeing born. New products and technologies propagate themselves and markets rise and crash.Economies share attributes with other complex adaptive systems such as brains, cells, andimmune systems. These are the economies that need to be modeled and better understood.

Scientists at the Santa Fe Institute, including the renown economist Kenneth Arrow, are nowtalking about economies being complex adaptive systems (CAS). They criticize traditionaleconomic thinking for being too far away from the obvious complexity of the modern world.

A cybernetic economy is a viable system as defined by Stafford Beer.14 It has an identity and anidentifiable metasystem, an operational system and an environment. The organization isstructured recursively according to cybernetic principles and most importantly, it recognizesitself as such. Without a shared or explicit model of itself along these lines, we cannot talkabout a cybernetic economy.

Cybernetic economies are purpose-oriented organizations where information plays a key role.

According to the viable system model a solitary person on an island is not a cyberneticeconomic unit. The person and the ideas in his or her head, plus the island and its surroundingsconfigure a true economic unit.

A worker is not an economic unit, although the person is. The worker with his soldering kit,lathe or working instruments and the instructions and training to carry out his work constitutesan economic unit.

A family is not an economic unit either. The family members require their house or otherbelongings, their sustaining activities and their moral values and rules for sharing to make aneconomic unit.

A factory is an economic unit in so far as it includes its workers, its suppliers and customersand its management. Also included are the charter of incorporation, and the rules and policiesthat control the activities of all of those involved with the factory.

A country is not an economic unit, nor is the government, nor the population. Only the State, asa valid recursion, with its territory, its population and its government is the proper national leveleconomic unit.

The capitalist model of the economy is incomplete; it corresponds to a model of the economicSYSTEM. It needs a governmental metasystem and an environment to make it a cyberneticeconomic unit. Besides both elements have to be a part of the economic model and this modelmust be widely accepted.

An Economy's SYSTEM

An economy's SYSTEM is the set of economic operators that directly produce goods andservices.

According to the idea of recursion, economic sectors are complete economic units that resideinside the national level operation. Subsequently, sectors are divided into industries, industriesare subdivided into businesses, and so on, until the level of individual persons is reached.

Under the VSM's rules of recursion, every person or corporation making an exchange of goodsor services is a complete economy and also a part of an overall economy's system.

Higher order economies appear as lower level economies become integrated. The pooling ofresources bonds economies together and makes them more efficient.

An example of a recursive mapping of a national economy shows economic sectors as viablesystems in operation.

National Economy

Communications

Services, Etc.

Energy

Transportation

Industry

Commerce

Energy Sector

Fossil fuels

Solar

Others.

Hydroelectric

Geothermal

Nuclear

Sectors of a National Economy

The difference between the VSM approach and the traditional approach is that the latterconsiders the economy as a machinery located within the State. In our view that "economicmachinery" is the SYSTEM and therefore a part of the economy. The economy must include aMetasystem and an Environment to be a viable system.

The circular flow mechanism of goods, services and money exchanges is not a completedescription of an economy.

Finished Goods and Services

Money Income

Economic Resources

(Land, Labor, Capital, Entreprenurial ability)

(Wages, Rents, Interests, Profits)

Consumption Expenditures

Circular Flow Model

$

$

Firms Households

The cybernetic model handles the circular nature of exchanges through the idea of recursion. Ithas no need to distinguish between households and businesses.

An Economy's Metasystem

The metasystem is to the system what a regulator is to system it regulates. The relationship isbonded by Ashby's Law of Requisite Variety.

A recursive economy has a management at each recursion level. Persons are governed by theirbrains, just as small businesses are managed by their owners. Larger enterprises are managed bya board and ultimately by a stockholders meeting. All these are metasystemic relations.

At highest level economy, at the national level the METASYSTEM corresponds to the nationalgovernment. Governments are the economies' metasystem, regardless of the degree of directintervention in the operation of the SYSTEM.

The economic metasystem works with information, with ideas and many models of the maythings are, including a model of itself.

For instance, a capitalistic model resides in the heads of capitalists although the model ofcapitalism has no way of recognizing this fact.

In contrast, the informationist model of the economy goes to reside in the model and is part ofthe economy itself. The phenomena is similar to that of DNA, it directs the building of a celland is also a part of it.

In the informationist model of the economy there is feedback between the model and economicactivity, between the model and the real world.

Clemson says:

"... let us distinguish between the management and the models of the unit that themanagement holds. These models may be partially explicit, e.g. a computer simulation orthe balance sheet), but they are always at least partially, and almost entirely implicit, buriedin people's heads in the form of intuitions, biases, prejudices, guesses, etc. In whateverform these models exist, they constitute the management's view of the unit that is beingmanaged."15

Peter Senge, a modern management scientist writes:

"In the traditional authoritarian organization, the dogma was managing, organizing, andcontrolling...In the learning organization, the new dogma will be vision, values and mentalmodels".16

The faults of the models residing in the metasystem are translated to inadequacies in the controlfunction, a fact that does not go unnoticed. Breton and Largent say that the economy (thechariot) goes where our desires (the horses) take it, but we (the charioteers) are supposed to tellthe horses where we want to go. To do that,

"We need maps..., conceptions of ourselves and what is ultimately real". The software is asimportant as the hardware. "Economies, then, aren't just us. They are our maps in action".17

The cybernetic economy overcomes the phobia towards government by making sure thatgovernment is built as a recursive organization from the bottom up. From the minds of ordinarypeople to the boardroom, and from the city council to the federal congress, the best use of self-control is made.

In the pursuit of more self-government the VSM assumes that the principle of maximumautonomy that governs viable systems is being followed. It also assumes that people understand

that it is cheaper to process information than to use extra energy to correct mistakes.

In this framework, political and economic activity are modeled as integrating an economicsystem. Politics and economics exist at all recursion levels. They are not different things, butrather, two different descriptions of the same thing.

An Economy's Environment

In our cybernetic model, the environment is not one and the same for all systems, but relative toevery system. The environment of a system is the environment under the consideration of theobserver of that system.

The point is easily clarified when talking of an economy. The environment of an economy isnot the same for all. Each economy has its own relevant environment. Each person, as aneconomic unit has an environment; each business, and each national economy has its ownenvironment. Many of these environments overlap.

Corporations are the environment of other corporations. Economies have other economies asenvironment, and together, they share an overall environment.

The Economy and Information

The cybernetic economy considers information processing as the basis of wealth creation.Information is recognized as the prime factor in production, and insures the systems' long termviability.

Until now, mainstream economic thinking has just not incorporated information into itslanguage nor into its model of the economy. In a society that has already been labeled theinformation society, economic thinking lags far behind.

Information is not mentioned as a production factor in Capitalism or Marxism. Even theconcept of human capital falls short in conveying the importance of information as a productionfactor.

Perhaps the commerce of intellectual property, information processing, software development,professional management and consulting and technology will force economists to deal with abetter model of how things get done.

Crawford says:

"new knowledge leads to new technology, which in turn leads to economic changes, which

in turn leads to social and political change, which ultimately creates a new paradigm orworld view. This model can be used to explain the dramatic economic, social and politicalchanges the world is experiencing".18

This description of a virtuous circle in the form of a positive feedback loop between newknowledge and economic and political change cannot be taken literally. New knowledge aloneis not a guarantee of economic progress. It must be anchored by the proper control mechanismsto prevent massive production breakdowns such as the one suffered by the former Soviet Union.If the breakdown occurs some form of knowledge must be missing.

The cybernetic economy is more than "knowledge economy" in the sense that it has to be ashared knowledge economy.

Because knowledge grows in value as it is shared, businesses are reorganizing to facilitatecooperation.19 Japanese management methods emphasize cooperation and participation.

"The humanistic firm both competes and cooperates with other firms in the context oforganized market, in contrast to the capitalistic firm, which is only supposed to competewith other firms in a free market".20

All societies have been and are information based societies of some sort.

The big economic questions about what to produce, how to produce and for whom are answeredby the information processing structure. It is the system's organization that makes the decisionalthough the exact trajectory of the decisions can be untraceable.

The Economy and Entropy

Energy is another vital element of life's processes. Energy exchanges are too important not to beexplicitly included in the model of an economy. But how is this dealt with in the traditional wayof economic thinking?

The circular flow model of the economy is often called the economic engine and is judged on itssize, not on its efficiency. Little is said about the waste it produces or the pollution it generates.No connection is made with the finite resources of the planet or with the fact that a largerengine requires more energy to run it.

The engine's growth and its output are measured, because they can be quantified, and newdecisions on the allocation of resources are made to maximize that growth, to the exclusion ofother factors. But no consideration is given to the fact that perpetual growth is unsustainable ,

because of capital and energy considerations.

"Most current economic policy, indeed the very orientation of economic theory, boils downto the pursuit of economic growth, as indicated by the increasing Gross National Product(GNP). An economy that is growing at 3 per cent per annum is thought to be performingadequately, more growth is splendid, less growth is worrying, and no growth or negativegrowth indicates widespread economic failure. The assumption is that growth is good andmore is better. It is as if economists had never heard of cancer". 21

We are forced to agree with the criticism and ask: how did a dominant discipline get to be basedon such assumptions?

The true usefulness of the 'economy as engine metaphor' resides in the fact that at least it showsthat modern economies are hooked on using more and more energy. However, the engine'senergy transforming capacity massively displaces human energy, producing the conditions forunemployment and inflation. More and more energy go into each unit of product. Growth isalso necessary to maintain employment when the labor/output ratio falls as a result of moremechanization, thereby closing a dangerous reciprocally fedforward loop that is seldomacknowledged in economic literature. Growth at this stage of capital per unit produced ratiorequires new capital in massive doses. In practice, mechanization can be made more efficientbut is never diminished.

Entropy is an inevitable output of all economic activity.

But, the circular flow diagram says nothing about the consumption of energy, just as it ignoresinformation as a factor. Entropy, per se, is ignored. We have annotated however, that pollutionof the environment is labeled as an externality. Externalities are regarded as secondary andunwanted effects of the economic activity. Not enough importance is given to the fact that

"the law of entropy is inviolable: increasing production and consumption must entailincreasing natural resource use. The law of entropy can be economically interpreted tomean that the transformation of energy and materials must always involve a process ofqualitative dissipation from a more useful (low entropy) to a less useful (high entropy)state, i.e. resources become wastes".22

Capital resources then needed to abate pollution putt further pressure on capital financing andfurther constrain expansion and economic productivity. Environmental goods that were oncefree, such as air and water are now scarce. Finding new sources translates into unforeseeneconomic costs.

Prevailing economic theories deal with entropy in a peripheral way. When entropy is mentioned

it is not given proper importance, it is not as a first and main concern. Of course, if it weren't forentropy the world would be a paradise. Scarcity would mean nothing, since things would beobtained effortlessly.

Entropy is generated as a result of energy consumption and conversion to unusable forms. Andyet it is considered as a secondary effect in the production process or an externality to themarket system. This idea has to change. Entropy may be hated or unwanted, but it is aninevitable product of economic activity and our main concern.

The problem with the current economic model, given that it ignores entropy is not its existence,but its popularity. It stands as a paradigm at the core of current economic teaching.

***Beneath the Newtonian and Cybernetic economic models are a series of assumptions on howthe world works. The assumptions are exposed to reconsider them as part of the models thatdetermine our economic activity.

Chapter 5

The Economy's New Assumptions

Summary

The assumptions underlying Newtonian and Cybernetic economies are seen as world modelsshaping economic behavior. Values become the final determinants of behavior.

Built-in uncertainty

Newtonian economists search for certainty in the realm of the reductionist paradigm and adeterministic "billiard ball" universe. Models are built to make predictions, which areconsidered the only test for truly scientific knowledge.

In sharp contrast, the cybernetic economist will welcome uncertainty. He is well aware thatinformation, the economy's key ingredient, explodes in unpredictable ways.

It is a well explored fact that Newtonian economics has been built on an analogy with physics.Adam Smith, John Stuart Mill and later Alfred Marshall, to name a few, considered individualinterest and the search for profits as a "force" that gave cohesion to the economic universe.Consequently, the free enterprise system inherited this force that makes competition for profitsin free markets and private property the basic elements of capitalistic economies.

The problems encountered by the operation of such an economy gave strength to the followingpremises or assumptions:

1 Nature is bountiful, exploitable and inert.23

2 Scarcity and choice are said to be the economic problems.24

3 Land, labor and capital, are the only inputs of the production process.

4 The three coordinating tasks of in any economy are specialization, division of labor andexchange.25

5. There is such a thing as perfect competition.26

6. The growth of the Economy is the overall objective of economic activity.

7. Economic agents can be perfectly rational.27

In the cybernetic economy assumptions have a special place in the metasystem. Economicthinking is part of economic system and the assumptions economists make are important towhat gets done eventually. Changing the assumptions, which are part of the maps of theperceived reality, changes the framework for economic activity.

Assumptions provide us with a world view which enables us to reduce the variety with whichwe must cope. But they do us little service if they leads us to cling to simplistic explanations orreject discomforting evidence.

For instance, the bountiful world assumption has now been tempered by concept of spaceshipearth. This newer view has not been incorporated to any great extent into thinking abouteconomic issues.

The stability assumption has now been overthrown by the evidence of rapid and sometimescatastrophic change. The assumption of perfect competition suffers the same fate.

Scarcity is a term commonly related to scarcity of materials and energy, a problem about thestate of the environment.

Following the cybernetic model, however, it is clear that choice is a thinking activity, andtherefore, an activity typical of the metasystem not of the economic operation per se. Choicemay define scarcity. Such is the case when scarcity is built into the product's design. Forinstance, businesses spend billions on advertisement that differentiates otherwise identicalproducts.

Scarcity as well as abundance are relative terms. Specialization can be the result of abundanceas much as it can be the result of scarcity. The first and natural exchange is the exchange of thatwhich is abundant.28

Energy is everywhere. The shortage is of technologies to extract it. Lack of knowledge has hadfar more relevance in keeping us away from energy sources than the lack of energy bearingmaterials.29

The perfectly rational economic man is another vanishing economic assumption. Its enemy isvariety in the environment that defies any possible calculation and rationality.30 People learn tobe better guessers as they can never be perfectly rational.

Assumptions as Models

The problem of not being constantly aware of the assumptions we make is that assumptions areturned into models in the metasystem, independently of whether the metasystem' existence isrecognized or not.

Once turned into models, different assumptions lead to different actions.

Scarcity assumptions lead to a strategy of competition, of hoarding goods and gaining controlover energy reserves or sources such as land, labor and capital; it is the survival of the fittest.Selfishness and greed become an appropriate human response. When the assumption is scarcity,the strategies, values and purposes are those of domination and exploitation.

Cyberneticians are trained to recognize when a system dynamics' gets into a positive feedbackloop; this is a sign of inherent instability. The arms race is an example of such a noncooperation system where the output of one system is fedback as a disturbance to the other andso on.31

In contrast, using knowledge as the basis for economic activity breeds cooperation and sharingand concern for mutual development and the realization of altruistic values.

The point is that self-organizing systems are prone to be shaped by their environment. Thecontext in which a living system evolves has a great deal to do with what that system becomes.

Specialization is an example of the environment's influence on economies. It is the logical (inAristotelian terms) solution to scarce information. It is a typically reductionist answer tolearning and versatility constraints. The new paradigm in a highly intensive informationalsociety is not specialization but universalization such as that brought about by the newcommunication technologies that are generating more personal informational autonomy.32

On the production side, the informational richness of the worker makes him more valuable and

his product more flexible. High speed robots are making a mockery out of human mechanicalspecialization.

Even specialized knowledge is, given its logical structure, highly subject to being replaced bydata base computerization. Professions are being translated into expert system searches anddiagnostic programs.

Information is the only thing that does not wear out, and as it spreads through society, it de-specializes people and makes better, high variety universal machines out of them.

The information revolution is turning the scarcity paradigm upside down. Space age materialsare being used than can be more easily recycled, while new strategies for saving energy are alsobeing explored.

The line of reasoning applied to specialization applies to division of labor. The productionprocess can become over-specialized and obsolete overnight. Evidently, a paradigm change is inorder.

Division of labor is an inherently reductionist solution also, and perhaps more permanent thanspecialization because while this is being changed on the informational side, division of labor islinked to material transformation. It has been a crucial feature of the industrial society.

However, universalization of materials is beginning to take place. Plastics have been replacing athe high variety of other materials in numerous industries. Flexible automation, allowed bysemi-universal machines, are fast taking over production. A high variety of products is possiblewith little or no extra effort or energy consumption. High variety information about productspecification is a machine of nearly infinite transforming and processing potential and selectedthrough multiple choice steps on a computer.

Division of labor is related to learning, which is a metasystemic function of a viable system.The mastering of certain processes helps the efficiency of the system, which is saving energyand preventing waste. Division of labor can be explained as a coupling of the learning processesof two systems, a sharing of information about the capabilities and histories of the partiesinvolved.

The way to get things done in the shop floor is changing dramatically. The bureaucratic way ofbosses and supervisors is having to say goodbye to a worker who is more adaptable to changingprocesses and where individual satisfaction is a necessary component of a well made job.

Who does what, when and why brings us to the subject of economic exchanges.

Economic Exchanges

Cybernetic economies are built on a very different set of assumptions than those of theNewtonian economy. Economics now becomes the science of life-supporting exchanges.

Exchange is the basic economic concept, not scarcity. Information exchanges precede exchangeof materials. Exchange of information is also prior to exchanges of energy. Energy consumptionis minimized as a primary economic activity. The efficiency of a system operator in relation toan environment is the main economic factor.

Buchanan and Von Hayek coincide when they favor studying exchanges and propose a scienceof exchanges, whose Greek derivative would be "Catallaxy".33

According to Buchanan, the process of exchange, trade, agreement, or contract becomes thesubject matter of economics. The principle of spontaneous order, or spontaneous coordination isleft to stand as the only real 'principle' in economic theory.

This approach erases the diving line between 'the economy' and 'the polity', and between'markets' and 'governments', and between the 'private sector' and the 'public sector'.

Economists could look at politics and its processes in terms of the new exchange paradigm, as anatural extension of the "catallactic" approach. The only requirement would be to modelcollective action through individual decision makers as basic units, and as a reflection ofcomplex exchange and agreement of a relevant community of persons. Politics would bereserved for the non-voluntary relationships of persons. Then the constitutional perspectiveemerges naturally from the politics-as-exchange paradigm. Such is the connection thatBuchanan makes of economics, politics and law.

This view seems in almost perfect accordance with the cybernetic analysis presented in thisbook. Economic exchanges includes information, matter and energy as the viable system modelsuggests.

At present, the strong connections of economics to the law and to politics are not obviousbecause the current paradigm is an obstruction. The connections appear natural as soon as theyare seen as the expression of cybernetic logic.

Cybernetic logic deals with information as a certain order, an arrangement that can affect otherarrangements. Informed matter, matter that is arranged in a certain way will channel the energythat it receives. Information therefore, commands energy. This is a crucial fact forunderstanding the role played by the metasystem of a viable system.

In the case of a human economic entity the search for food is directed by the brain. It is in thebrain that information is stored and processed. In turn, changes in the information state of thebrain changes the person to the point where activity results. A man's brain acts to counteract aninternal lack of equilibrium.34

All this being said, we can't deny that changes in the internal arrangements in the brain have aneconomic importance, whether they express themselves immediately or not. This is the reasonfor including information as an essential part of the basic economic unit, "Homo economicus".

The model of an economy must necessarily include the conceptual elements present in thehuman brain, as well as the values and rules of behavior, that the individual has. Traditionaleconomists will recognize that this is the site where the problems of what, when and how toproduce are decided.

Individual cells certainly don't have choices, but as soon as the complexity of the human level isreached, choices are sometimes possible and sometimes inevitable. So too, human societies alsomust make decisions through their own metasystemic arrangement.

The new economic question is: how much variety can we have, and at what cost to ourenvironment?

***

The cybernetic economic unit described in the preceding pages will now be used as a buildingblock to gradually build a higher level economy.

Chapter 6

The Emergence ofMarkets

SUMMARY

Markets are redefined and linked to the management of the variety equation. Adam Smith'sinvisible hand turns out to be a cybernetic device. Markets are seen as non obtrusiveregulators that can help us maximize our freedom.

Redefining markets

A cybernetic economic system or unit has now been defined. Essential information processesthat provide control have been included.

It is time now to start building a higher level economy using other economies as units. So theimmediate task is to build a market.

Markets are not a territory to be captured.

Markets arise when economic units come into contact and exchange materials, energy orinformation. Markets result from the interaction of two or more economic units, but do notqualify as economic units for lack of a common metasystem.

A Market Arrangement

A market arrangement can lead to the formation of a new economic unit but other componentsof the viable system, not yet explained at this point, must be present.

The full explanation of how a cybernetic economy is put together should allow every economicconcept to fit perfectly. However, some inconsistencies with the current economic languagearise. Three such inconsistencies help us explain the newer approach.

The first and foremost inadequate term in current use is that of a 'market economy". The term issupposed to describe an economy which is managed solely by market decisions. But the term,popular as it is, is nevertheless, highly misleading.

The term implies that a market can be a complete economic unit; that it doesn't have, or needs, amanagement. According to our model, every economy has a management, visible or not.

Two economies can join in a market arrangement and still lack the rest of the components thatmake it a complete economic system. This is a strange case where you add one and one andwhat you get is something that is still less than a unit.

"Market forces" is clearly another Newtonian paradigm term. We would rather say that"information states" are the activators of economic activity. Feedback signals activate desires.

Finally, another comment the nature of economies and markets is in order. Some economistscontend that "the three coordinating tasks of any economy are specialization, division of laborand exchange.35 However, it is markets that do the coordination, not an economy. This point isfundamental to understand the nature and function of markets.

Coordination results between or among two or more economies acting as each other's markets.

Specialization and division of labor are a result of a positive feedback information about aneconomy's capacity or efficiency at carrying out certain types of exchanges. Exchange, then, hasa complementary nature that easily reinforces the arrangement.

In short, a given information state can become attached to its complement. A recent example ofsuch market activity takes place when just-in-time supply and production systems becomecoordinated.

Reduced to their minimum essence markets are not a "place" but a system for exchanges thatoperate on information. A fifteenth century merchant, of course, would not be expected to beaware of the informational aspects of the taking their goods to a market place.

A market implies at least exchanging information. As a matter of fact, the first thing that isexchanged in a market is information. Some markets, like the stock market, which operateelectronically exchange information only. Money and stocks are information.

The concept of market must change to set the stage for the new era of information technology.The marketplace changes from a place to a phone number. The market is as far as a phone line,and with the advent of cellular phone technology and satellite communications, the market iseverywhere. The market is not a place but rather an interface.

Markets and Variety

Markets make cybernetic sense. The market link decreases the necessary regulatory variety of aviable system.

The variety absorption strategy of a Newtonian market differs from that of a cyberneticeconomy:

1. In the closed Newtonian system, the customer and the supplier are markets, and part of

the external environment. Capital and labor markets also lie beyond the business's borders.Markets are "out there" to be conquered and seen as a problem of internal control.

2 Newtonian managers want total control and dream of clockwork-like corporations. In thebeginning of this century Fredrick W. Taylor sought to mechanize and optimize labor andsupported his recommendations using time and motion studies. Henri Fayol optimized themanagement process: planning, organizing, commanding, coordinating and controlling.

3 Both Taylor and Fayol are filtering or canceling disturbance variety. Taylor started at theshop floor and Fayol at the management.

4 The attitude towards the worker is one of concern over production volumes ofstandardized product, and using minimum amounts of labor and materials. To standardize, workis simplified and depersonalized. The rigidity of the organization breeds dependent, submissiveand passive employees. Although the variety of the system is reduced the well being and selfactualization of the employee is obstructed. The worker develops a distaste for the regimentedjobs he performs in factories, and would like more personal utility in work. The manager isunaware or doesn't consider worker satisfaction with his job his responsibility.

5 The manager controls by trying to eliminate any source of entropy. He determines thesystem's goals as a set of preferred states chosen from a universe of possible future states(though he does not have the language to think in these terms). Through planning, the actionsthat create this future are then deduced and the appropriate control mechanisms installed.

Organizing is also a variety reduction strategy. Policy, experience, judgment, intuition, andanalysis is used to "systematically rule out whole classes of potential choices".36

6 Closed system strategies work well on simple activities by using recipe-like sequentialinstructions. Algorithms work well in low variety problems by reducing the solution space. Thesum of individual goals adds up to the realization of the overall purpose.

The closed system approach of clockwork control is very distant from an open systemapproach; it does not work when the system is more complex. Markets appear very differentlyunder a perspective where amplifying regulatory variety is considered vital:

1 In the open system organization arrangement an important part of the system'senvironment is included as an element of the viable system unit. The environment is a varietysource that can be put to good use if the proper links are established.37

2 Management amplifies its control strategy, because markets are seen as multiple andinterlocked and very interactive creating a high variety situation.

3 The worker is now considered a source of control variety. Managers amplify their controlthrough the worker. The worker is no longer an entropy source to be filtered, but an amplifier,an ally in the control of the market or environment. Management becomes participativemanagement.

4 The business cares about labor participating in management; it also cares about thesuppliers and clients being treated as "part of the family". The business is not complete withoutall of these players, whose nature changes from market, in the traditional sense, to being a partof the viable system unit.

5 Businesses follow heuristic strategies –such as those used in playing chess— to face thehigh uncertainty of the marketplace instead of following recipe type solutions.

6 The organization is embedded in its environmental complex of markets.38 Potentially, weare all somebody else's environment. Business becomes its markets. The border of the businessis redrawn to include the market, the clients, the suppliers, the workers and the capital availableto it. The business and its markets are now in constant co-evolution.

In synthesis, markets are born through the environmental contact of two viable economicsystems. Both systems are considered each other's market and each other's environment. This isnot too difficult to understand. But, we need to recognize that their integration into a higherorder system will have them exchanging information at the operational and metasystemic level.This is the real benefit of pooling resources and creating a new and all encompassing viablesystem.

Competition and Cooperation

The new concept of market requires that the idea of competition be reconsidered.

In the Cybernetic State, competition and cooperation are both accepted and considerednecessary forms of behavior. The key question is knowing when to compete and when tocooperate.

Cooperation and competition can coexist with one another. . .if the logical recursion level isdifferent. Games are cooperative arrangements to compete. People agree on a series of rules thatdefine the game. Competition is the game, and common rules of behavior are the context.

When cooperation is the context surrounding competition, competition can be creative andpositive. Each player does his best in order to bring out the best in the other player too. This isthe competition expected to be found in market arrangements.

However, if things are the other way around and competition is the context for cooperation theresult is dramatically different from the first case. The competition is a power struggle and thewinner obtains the forced cooperation of the looser. This is the logic of war and economicconquest.

Competition is considered a vital mode of economic activity according to Neo-classicaleconomists. Unfortunately, competition is not always situated in a context of cooperation. Thisattitude is to a great extent frequently influenced by a mistaken interpretation of Darwinismapplied to economics. It is also an expected consequence of the scarcity assumption.

Competition is usually related to making more profits than your competitors. The profits allowsurvival; sustained losses mean economic death. In the first case the market rewards theefficient or the innovator; and punishes those who are not.

However, what generates these extra profits? There are two areas where a better performance isgoing to pay: innovation and efficiency. Innovation is information related, product designrelated, technology related; and efficiency is energy-matter conversion related. Both would haveto be accepted as intrinsically good, regardless of whether there is competition or not. Youwould not necessarily need a competitor to justify the constant need for improving on thetechnology. What competition is really about is how the prize for competing is assigned.

Competition's privileged position in economics can only be explained by the omission of thecontext. Looking closely at the economic system we find cooperation more important thancompetition because economic competition happens in a context of cooperation.

Competition and cooperation compels us to examine a key economic issue: the limits of marketregulation.

Competition leads us to explore the regulatory capacity limits of Adam Smith's "invisiblehand".

Cooperation leads us to contracts and laws which serve as a cooperative context forcompetition.

The Invisible Homeostat

If economies survive it is due to their regulatory capacity.

Adam's Smith's idea of the invisible hand that guides the economy is one such regulator and a

notable exception to reductionist thinking. In this respect economic theory has embraced acybernetic mechanism.

The "invisible hand" explains how free markets become the foundation for a prosperouseconomy. It works as follows:

A free market, apparently chaotic, is a self-regulated mechanism that automatically tends toproduce the type and quantity of a desired product. If a product is scarce, its price will be drivenupwards and this in turn increase the seller's profits. Production of that good will then beincreased not only by the original producer but by other producers also; the search for profitsinvites them to do so. The increase of production and of the supply will alleviate the originalscarcity of the good. Increased competition also brings about the need to lower production costsand the final price paid by the consumer. Successive adjustments of this process will drive theprice to a natural limit. (Note: Include Beer's model in "Management and Cybernetics".)

DemandSupply Price

The Invisible Hand Homeostat

Smith's invisible hand implies negative and positive information feedback working together.Negative and positive feedback make the market system get into control. The more the priceincreases, the smaller the demand. On the positive feedback side, the more production increasesthe greater the efficiency and the cost reduction. Fedforward mechanisms are counter balancedby negative feedback.

Economies are complex adaptive systems behave according to complex loops of negative andpositive information feedback. Feedback controls the market system.

Adam Smith was using good cybernetics way before this science was invented. But although hediscovered these cybernetic mechanisms at work, quite a lot was left out of his models simplybecause the proper concepts had not yet been invented.

SYSTEM TWO

Contrary to current wisdom, markets are more dependent on cooperation than on competition.Cooperation provides cohesion to recursive structures and paves the way to the creation oflarger systems.

The component that serves as a coordinator of viable systems is called SYSTEM TWO in theVSM's terminology. This subsystem serves as an anti-oscillatory device that allows viablesystems to pool resources without infringing their individual autonomy.39

SYSTEM TWO is a channel whereby between viable systems express agreements.40

Agreements are exchanges of information that establish commitments to future actions. Theseagreements are based on mutual convenience. The new information state created by thoseinvolved in the agreement propels them to fulfill their part of the mutual commitment.

The products of SYSTEM TWO arrangements abound. We use SYSTEM TWO typeagreements to set up alphabets, writing, languages and dictionaries.

Agendas, all types of schedules, units of measurement, whether miles, kilometers, pounds orkilograms, together with months, hours, minutes and seconds are the product of SYSTEM TWOarrangements. The units could be larger or smaller and it wouldn't make any difference. It is theability to provide coincidence that is important.

In contrast, days and years are natural occurrences and the mathematical ratios of musical notesare built into the design of our ear canal.

Rules of courtesy and etiquette are SYSTEM TWO solutions developed through the centuries.They are not formally enforced but their convenience is obvious in a crowded society.

Conventions have been defined by Peyton Young as:

"A pattern of behavior that is customary, expected, and self-enforcing. Everyone conforms,everyone expects others to conform, and everyone wants to conform given that everyoneelse conforms [Lewis, 1967]."41

Young also notices that conventions may appear and continue even if the relationship is notsymmetric or entirely fair in appearance. The important consideration is that convention tend tolock themselves in place and make it difficult for the economic players to unilaterally changethem.

The idea behind SYSTEM TWO solutions is to get different people to coordinate some quantityor quality without having to go through successive adjustments and perhaps oscillations in theexchange of information. SYSTEM TWO saves information processing just as labeling andcoding do.42

A school schedule puts students and their teachers in the same classroom at the same time.Street lights tell drivers when to go and when to stop.

Money is a typical SYSTEM TWO solution for units of measurement. The idea of having priceson things serves this same SYSTEM TWO function, it limits or speeds up the bargainingprocess.

Accounting standards and other standards in general are SYSTEM TWO solutions. They getpeople to have the same frame of reference.

Production lines have SYSTEM TWO arrangements to coordinate production levels and timing.

A shared model is also be SYSTEM TWO solution. A shared model organizes information andcoordinates its recipients. Models are built with the intention of being shared with others.

External agreements in the market also employ system TWO. But the systems that participate inthe agreement have previously seen themselves participating since they have a model ofthemselves as participants.

SYSTEM TWO type cooperation appears when two economies come into contact and start amarket. Simple forms of cooperation through exchange are fostered by proximity. Exchange ofgoods implies exchange of information. In an extreme case no formalities are required forexchange of goods in a cooperative arrangement. The arrangement would be very loose.Disposable good A produced by X, is exchanged for disposable good B produced by Y.

The interlocking of informational arrangements breeds spontaneous order. Material exchangesfollow. It happens at a cell level and it has happened at a species level. Perhaps more importantthan the survival of the fittest is the fact that species have co-evolved. One species creates theenvironment for the development of another and this one in turn is found to reciprocate byenhancing the environment conditions of the first.

Exchanges in markets are SYSTEM TWO coupling arrangements within a viable system orbetween various viable systems. While various systems share each other's environments, eachsystem is still in charge of its own viability. Their identities remained unchanged.

System Two is a cooperative context where both cooperation and competition betweeneconomies takes place. The relationship between the economies involved is that of a homeostatof continuos exchanges and the pursuit of a dynamic equilibrium.

Game theory, developed by John Von Neumann and Oscar Morgenstern, has providedeconomic thought with a mathematical tool that shows how (from a cybernetic viewpoint wemight add), economic behaviors tend to converge on the maximin (for maximum good,minimum bad outcome) solution.43

Looking at the System TWO market arrangement in further detail we see the circular path of theinformation flow. The agreement (dashed lines) of two viable systems is first –a commitment toexchange information and second, to act in accordance to this information exchange (boldhorizontal arrows).

In a market arrangement, information about SYSTEM activity is fed into the metasystem viathe SYSTEM TWO channel. Acting on that information and the signal coming from a higherlevel (small arrows), a comparison of information takes place at comparator "X" and, ifnecessary, a metasystemic command is issued to the SYSTEM to carry out. Information aboutactions taken by the SYSTEM, in each case, are fed back to the metasystem where it is matchedagainst the internal model "M" which resides permanently in the metasystem and indicates thedesired outcome. Part of the agreement involves changing one's own internal description ormodel regarding the expected behaviors of the system. Both internal models are modified whenthe agreement takes place and, as we shall explain in further detail later on, this requires thecommitment of another system, System FIVE where the identity of the system resides. Aspectsof the agreement are manifested in the SYSTEM TWO channels of both systems. This is notcommand channel.

Not to be ignored is another communication channel not indicated above. This is the oneexisting between the two operations, represented in the graph as a squiggly line that connectsthem. These are other forms of spontaneous cooperation between operators of different viablesystems that may emerge even before their bosses get together and make more formalagreements.

The Market

S5

S4

S3

5

4

3

S2S1

S2S1

Environment

Environment

M

M

Markets, as we begin to visualize, are not a complete economy. If the VSM is correct, two ormore systems joined by a market do not amount to a higher level viable entity.

Markets and Liberty

Market systems can be explained in terms of the optimization of regulatory variety. Given that adecision to exchange is taken freely, the systems involved in the exchange receive from each

other that which would otherwise be negated by their own regulatory capacity.

Market arrangements are self-imposed agreements and therefore do not impinge on liberty. Foranyone that appreciates liberty the market mechanism is a blessing.

It is also true that a network of market relationships in big numbers solve many regulatoryproblems that cannot be solved by individual rationality and computing.

This is the cybernetic explanation as to why markets are associated with freedom. Viablesystem operate more efficiently when they solve as many problems as possible through a self-adjusting market-like mechanism.

However, the cybernetics of the VSM says that liberty in a market economy is never absolute.

The big question about market economies is: Do markets have requisite variety? Can a marketeconomy solve all the problems that it is liable to encounter? The answer is no.

Market economies encounter many unexpected variety sources that they cannot handle byagreement, such as disagreements about previous agreements.

Those things which the two economies cannot agree about can only be solved at a higher levelof recursion. One such problem, for example is the carrying capacity of the commonenvironment of systems that share resources.

Part III

The LAWand Viability

Chapter 6

The Nature of Law

SUMMARY

Law is redefined as information. A connection is made with the elements of viable systems.The formal definition of legal persons and property confirms the explanatory capability ofthe VSM.

The Cybernetics of Law

Jurists may be surprised to know that Law has many cybernetic features. In fact, during its longevolution, legal science has discovered and formalized the essential structure of the viablesystem. The explanation for this being so should be obvious: lawless societies are not viable.

Law has recognized the need for the legal existence of a basic unit of a viable system unit andhas labeled it a legal person. Law has also recognized and formalized the existence of SYSTEMTWO solutions. Eventually Law has had to provide a framework of rules for the rest of theviable system including SYSTEMS THREE, FOUR and FIVE.

Given that enacting and applying Law involves information processing, lawmakers haveintuitively discovered and applied important cybernetic principles. It is clear that cyberneticmechanisms are identifiable in the structure of legal institutions.

The First Laws

Centuries before the Christian era, the Greeks pondered on the unchangeable, unwritten code ofheaven.44 The laws of reason or natural laws preceded any other law. Natural laws weretimeless rules binding all nations and individuals, and not to be defied. Being independent of

man's existence, they were destined to rule the universe forever.

On a more down to earth level, the first organizations somewhat identifiable as law applyingentities were communities ruled by just one person, whether a tribal chief or a king. A king'sjudgment or decree was Law and was expressed in an imperative mode, "Do this!". Authoritywas exerted by force. Later, generalizations of decrees became Law. Accepted customs andprecedents also became Law.

The regularities of nature were called laws after the concept of man made laws had beenestablished. The fact that the same conditional "IF - THEN" format used to express both typesof laws helped strengthen the notion that kings and emperors were applying the supreme will ofGod. The laws of nature, an orderly universe and the wisdom of kings and prophets fell in thesame category.

We are interested here in man made laws as they relate to Ashby's Law of Requisite Variety,which qualifies as one of those eternal laws.

Law and the Viable System

Legal science has often been accused of isolationism. Law has its own language, and mostuniversities separate the Law library from the rest. The legal profession, in turn, is a very closedand highly conservative system and lawyers are often accused of perpetuating a monopoly thatis said to exist for their own personal benefit.

Perhaps a powerful reason for the isolation of Law is the large cybernetic nature of legalsystems as opposed to the cause effect relationships of classical science. Making explicit use ofthese cybernetic principles could very well help rescue legal science from its detractors.

The primary and most popular debate among legal scholars' is over the definitions of Law andof the legal system.45

H. L. A. Hart says:

"Few questions concerning human society have been asked with such persistence andanswered by serious thinkers in so many diverse, strange, and even paradoxical ways as thequestion: What is law?"

Definitions of Law abound. Here are three different ideas about the nature of Law:

1. "Law is a command backed with a threatened sanction, issuing from a political

superior".46

2. "What officials do about disputes is...the law itself".47

3. "Every law belongs to a legal system....A theory of a legal system is a prerequisite of anyadequate definition of 'a law' ."48

As I shall explain in further detail the above definitions address different aspects of the viablesystem organization.

When Law is characterized considering its imperative nature, we are only pointing at themetasystemic nature of laws and the command channel of the viable system, indicated by thevertical line that runs through the management boxes.

When Law is defined as a system for resolution of conflict we are dealing with Systems TWOand THREE* with their variety absorption capacities and natural limitations. It also solves theproblems generated for instance in the THREE-FOUR homeostat. The information flow ofthese systems run on several of the vertical axis of the graphical model of the viable system.

When Law is defined as a system of norms the whole viable system is being acknowledged.

To reach a full understanding of the above arguments lets us start by redefining the problems ofthe law:

1. Law is information.

2. Law seeks requisite variety.

3. Law is recursive.

4. Law has a dual logic.

5. Law is a metasystemic set of rules.

These five attributes of Law very well cover the main problems of jurisprudence. They lead usto the definition of Law and legal person, to connect Law with markets, settling disputes, andthe administration of justice, to legislation, and to the political process.

We shall now proceed to explore this list.

Law is Information

Law is synonymous with order and, therefore, with negative entropy. Law is information, pureand simple. That being said, here is a more modern definition for the Law, one based on acybernetic viewpoint:

Law is the recursive set of instructions that organize the State and regulate itsentities.

All laws and legal systems belong to the realm of information, and this is the reason why thecybernetic paradigm can further illustrate their true nature. Information and control are closelylinked. Laws and legal rights are about controlling human behavior on a social scale.Cybernetics, being the science of control and communication in living things and machines, canprovide useful insights on these matters.

Law is information, but it is not identical to that which it informs. The old identity made byKelsen whereby the Law and the State are considered synonymous is therefore not correct.

Given that Law is information, it can be stored in many different mediums and needs not existin written form.

To deal with the informational aspect of Law, legal systems acts as inquiring systems, that isprocessors of symbols.49 As such, many of the features of classifier systems are shared by legalsystems. Classifier systems exist as agents in computerized artificial worlds and individuallywork with IF-THEN rules to adjust to an environment, creating as they learn, ever morecomplex rules and clusters of agents.50 These, by the way, are the same requisite variety controlstrategies followed by legal systems as they go from general rules to more particular, detailedand complex ones.51

Legal Entities

The requirements of inquiring systems brings us confront another ancient problem of the Law.How and why are legal entities created?

The Romans were the first to create the concept of legal entity. The basic building block forlegal entities was created when humans were considered subjects of rights and obligations.Romans spoke of roman citizens.

The concept of legal entity proved vital in setting up economic man, and later, political man.

Legal entities are a metasystem's way of creating something it is capable of recognizing. It hasto issue instructions on how to construct what the metasystem will accept as reality. But givenhuman nature, this reality can only be communicated among humans by finite signals orsymbols. The inquirer must create the legal entity, define it with symbols and make thesereadable and cognizable.

Legal man is, speaking in cybernetic terms, a filtered informational version of the physicalindividual: a subject of rights and obligations.

The definition of legal person comes from the Greek word persona meaning mask. Havingrights and obligations is having a valid status to modify an information state in the metasystem.The legal system will recognize your inputs if and only if you are a legal person. The cyberneticstate is an inquiring system, a symbol processor. It need rules on how to accept input to thesystem. One such rule is the definition of juridical person.

Property as Person

The evolution and increasing complexity of human communities, seen as viable organizations,go hand in hand with the evolution of property law.52

Hunter gatherers could roam free in a world without artificial borders. The viable unit was thefamily or the small tribe. There was no individual property or disputed territory either.

Only when human environments came in contact borders had to be defined and defended. Asense of dominion or property developed as a survival strategy.

Further on, specialization of functions in society and individual viability pushed towards theidea of private, individual property. Possession of simple instruments became private property,as suggested by the VSM's internal logic.

Private property existed in Greece with a strong communal content.

In Rome, around the sixth century B.C. the institution of private property was clearlyestablished in terms of the family unit, represented by the father. Only the 'paterfamilias', thefamily patriarch, had the capacity to own property, including as such, the slaves. Slaves weretherefore, usable, abusable and exchangeable property and not persons. The property owner isthe manager of the viable unit called the family. The definition of the human legal entityextends to the immediate environment required for viability. Within that extended border,Romans spoke of the right to use and abuse property. The argument is strengthened by the fact

that not all people were recognized by the Roman legal system as legal entities or citizens ofRome. The Roman law made an important distinction that provided property owners,exclusively, with the capability to lead an independent existence.

SYSTEMPersonFamilyPopulation

METASYSTEMFree Will"Paterfamilias"Government

The Legal Entities-VSM Correspondance

ENVIRONMENTPropertyPatrimonyTerritory

• VSM• Legal Person• Roman citizen• The State

In the XIII century, St. Thomas Aquinas justified private property with arguments that implythree aspects of the VSM's basic structure. Private property avoids extra labour, (saves energy),creates order and prevents confusion (anti-entropic, organizes production) and prevents themore frequent disputes about things owned in common (saves information processing). Allthree are connected to the informational aspects of keeping track of personal effort.Environment, system and metasystem are implied in St. Thomas' arguments. Private propertyhowever, while respected, should be used for the common benefit and shared with others incases of necessity.53

In the XVII century John Locke elaborated extensively on the labour-based theory of property.His ideas linking property to viability are to be found in the right to posses property as the rightto the fruits of one's own labor.

"Every man has a property of his own person...whatever he has removed from the state ofnature and has mixed with his labor ...is his own property."54

Property defines the borders of the viable system, and in doing so defines the holder of propertyrights. Once in the hands of feudal lords and monarchs, landed property eventually reached thecommon people.

"The crucial point, however, is that by law, custom, and usage every legitimate title to 'real'property derived ultimately from a grant from the king, whatever the source of hisauthority may have been."55

"American property law was essentially English property law, and title to every foot ofland that was legally held in the United States derived its legitimacy from a grant by theBritish Crown or the Crown's assignee's or successor or successors as sovereign."56

As more and more people have access to property, government is given the role of preserver ofproperty. As industrialization emerges, so does the fencing of plots of land and a correspondingright to do so. Economic viability implies the need to ensure access to energy sources. Thescramble for accumulation of property is set in motion.

Laws incorporate property as part of the legal person's immediate environment. But even inlegal systems borders are not always clearly cut or precise.

Thus we find that in common laws systems,

"liberty and private property carried with them a large body of assumptions, customs,attitudes, regulations —both tacit and explicit— and rules of behavior. Thus neither libertynor property was a right, singular; each was a complex and subtle combination of manyrights powers and duties, distributed among individuals, society and the state."57

For instance, among the reserved public rights,

"the most important were grazing, wood gathering, hunting, passage and use of water.None of these rights was static. The tension between public and private property rights wascontinuous, ever subject to a gradual drift in favor of one at the expense of the other."58

In Napoleonic systems of law, civil laws are greatly about the definition of the borders of viablesystems and the rules pertaining the interactions among them. The Civil Code deals with thefollowing topics: the person and his family, property, obligations and contracts, associations,inheritance, etc. The legal person is precisely someone who can hold property and be the subjectof obligations compromising his property.

The importance of the immediate environment as part of the legal entity system is furtherconfirmed when property takes a political role. As democratic political systems first appeared inthe late XVIII Century, in Britain as well as in France, the recipient of political rights is theproperty owner and not the individual person.

Court decisions have also considered the legal person as an entity that extends all the way tothat person's property:

"and where the statute makes the owner of a dog liable for injuries to any person, itincludes the property of such person.59

There are other examples of the legal person-property connection. There are cases where

property is being considered as person. Artificial persons are another example: the estate of abankrupt person is a collection of property to which the law attributes the capacity of havingrights and duties. We also find: "The estate of the decedent is a person".60

To further explore the world of Law, take with us the basic legal unit and look at the notion ofjuridical rights and obligations. These two complementary notions appear much clearer whenreferred to markets. We go back to our market model to see how the Law applies to it.

Chapter 7

Markets & Justice

SUMMARY

Markets have intrinsic regulatory limitations that the Law overcomes. The study of Lawtakes us into the METASYSTEM. Administration of justice is SYSTEM 3*. The concept ofthe minimal State appears and is examined as a THREE-TWO-ONE system.

Law and Economics

Life is a struggle to achieve requisite variety, and to offset the tendency towards reaching athermodynamic equilibrium. Control variety has intrinsic survival value vis a vis theenvironment; it is a source of security, a form of insurance against unforeseen perturbations.

Legal and economic entities coincide in the search for variety equilibrium and therefore sharethe same underlying structure. They are bonded by the cybernetic Law of Requisite Variety.Law implicitly recognizes the requirements of economic viability as it creates a legal person.

To go beyond the legal and economic units we now connect the Law to the market systemmaking sure to keep in mind that the economic system and the legal system are the same thingviewed from different perspectives. Buchanan asks:

"Who is an individual? Who is a person? Someone conceptually defined by the legalstructure..."61 "Therefore a legal-governmental order is logically prior to any meaningfuldiscussion of the process of any market interaction among persons".62

Exchange in market arrangements are a complementary combination of individual strategiesthat increase access to control variety for both participants. Market arrangements solve thevariety equation through an homeostatic relationship called a SYSTEM TWO in the VSM's

conventional language.

In the evolutionary sense, two or more viable legal and economic entities with theirenvironments and fuzzy borders are the main actors in setting up a market, an agreement toexchange.

Law provides the cohesive ingredient that allows markets to become a new economic entity. Tosee how this happens we must follow the VSM map and go from SYSTEM TWO to SYSTEMTHREE.

Markets as Spontaneous Order

History of Law shows commerce and Law evolving side by side.63 One of the oldest recordedlaws, the Hamurabi Code has an important component of commercial law. Medieval merchantsalso made very important contributions to the Law. Many more examples could be given but thepoint to be made is quite simple.

The co-evolution of commerce and Law shows that the internal logic of viable systems and theprinciples of self-organization have been at work for a long time.

Just as it does in Adam Smith's "invisible hand that guides the economy", Cybernetics makesother disguised appearances in economic literature. Self-organization is recognized by F. A.Von Hayek as he writes about the 'spontaneous order' of markets. Von Hayek sees humansociety as having an 'internal gyroscope' which serves as a natural internal ordering mechanismthat produces 'spontaneous order'. Hayek "applied this insight to central issues of political andlegal theory".64

Markets are certainly a form of spontaneous order. Self-interested behavior of marketparticipants generates a spontaneous order. This order is as a result of complementaryinformation states that turn into what Maturana calls a structural coupling.

If societal and natural evolution go towards greater complexity, not only are markets self-organized, but once in existence, markets help generate laws and institutions that preserve thosemarket arrangements and make them more efficient. The success of markets turns them intodesirable and perpetuable solutions that are then protected by law. In this regard Buchanan says:

"At some stage of human history, some man invented rules for interacting with his fellows,and then convinced (by force or by persuasion) these fellows to abide by these rules".65

The rule is the result of a decision based on another agreement: protect the market.

"...in any trade or exchange, the individual participant has a self-interested motivation todissemble, to cheat, to defraud, and to default. Laws, customs, traditions, moral precepts—these are all designed and/or evolve to limit or control the exercise of such short-termself-interest".66

F. A. Von Hayek touches on the concept of 'spontaneous order' as part of his inquiries into thenature of order in society. Amazingly, his explanation of Cosmos and Taxis. are stronglyreminiscent of Systems TWO and THREE of the VSM.

Cosmos is internal and spontaneous order, the product of action of many men but not the resultof human design. Taxis refers to the kind of order which is made and which is imposed fromwithout; it is related to organization, command and obedience, or a hierarchical structure of thewhole of society in which the will of superiors, and ultimately of some single supremeauthority, determines what each individual must do.67

The Markets' Regulatory Limitations

Market connections have developed and will continue to exist because, cybernetically, they area very efficient means of absorbing variety.

But market arrangements are always surpassed by external perturbation variety, just as realworld variety surpasses that of individuals. Agreements, no matter how clear, always have roomfor interpretation. Variety is always greater than anticipated and word-defined borders arealways inevitably blurry.

Conflicts arising over agreements are forms of variety that remains unsolved by thoseagreements. Residual variety creates conflict; it must be absorbed somehow.

Environments expand and overlap as models of environments overlap. Competition for controlof an energy source or over a shared environment can only be solved by agreement or byconflict.

The solution through agreement lies in SYSTEM THREE, which in an Economic system is ametasystemic rule making structure.

Law is a Metasystem Solution

Laws are needed because markets arrangements are not stable as autonomous systems. Theyneed a legal background to provide them with stability. Beyond certain complexity the

participants in markets require and ask for metasystemic intervention.

Conflict resolution is not only necessary but in fact inevitable. Conflict over system bordersmay arise whether there are market agreements or not. Laws create and formalize SYSTEMTWO solutions organization. This explains why Law is also defined as handler of conflicts.But, whatever is meant by handling of conflicts, the task is better understood as a varietyreduction strategy.

The variety absorbing limitations of SYSTEM TWO require a legal metasystem. Law is ametalanguage, an enabler of coincidence of maps.

Laws appear in market settings when agreements are turned into formal contracts. Contracts arelegal formalizations of SYSTEM TWO market like arrangements. Contracts are metasystemicagreements in the sense that they are agreements about other previous agreements.

The Law says: "IF two persons do this and that, THEN they will have a contract. IF they have acontract, THEN the consequences of entering a contract are such and such". Contracts areinformation exchanges on future actions of the entities involved. Contracts imply the sharing ortouching of environments.

Metasystem

System 2

The Contract Loop

Contracts are often considered the origin of Law. Consequently, society has been called asocial contract. Although recursive structures were never explicitly identified as such, the factthat contracts proliferated everywhere certainly made this definition attractive.

Game theory shows why legally binding contracts provide a better outcome for both parties.68

The betrayal of the contract or the legal arrangement, however, increases one party's payoff andmust also be dissuaded by legal means.

The legal-governmental system that regulates markets obviously reinforces property rights andcontracts. Border delimitation is prior and basic to market exchanges.

However, in spite of its obvious function as a provider of order, the formalization of contracts

itself is not removed from the variety equation. As soon as a metasystem intervenes in privateagreements the requisite variety challenge immediately enters the picture again. There areseveral considerations to make:

1.- Legal rules are stated and finitely defined in the Aristotelian logic of the non-contradiction principle. Laws describe sets and rules for finding what belongs to the set. Butlegal sets are intrinsically fuzzy —because of the natural limitations of language— and notexempt from creating conflict themselves.

2. Contracts have a special status in the eyes of the law but do not stand on their own. Theydepend on a recursive sequence of agreements. Agreements between two parties depends onagreements on context, and also on the meaning of words and symbols. The ultimate meaningof words is decided by agreement. Every word in the dictionary is a product of agreement.Every word we say involves a contract about meaning.69 All are SYSTEM TWO solutionswhose content matters only because it is agreed upon.

3. The metasystem cannot deal with an unlimited variety of contracts. It has to cut down thevariety. Formal legal rules dictate who can make contracts and determine the correct procedureson how to make them. Much of the work is adopting previous SYSTEM TWO solutions.Costums, traditions and moral precepts, all of them presumably having crucial survival valueare made into law.

Napoleon's incursion into lawmaking illustrates the problem of achieving requisite variety. Hefound the existence of SYSTEM TWO practices and saw the usefulness of upgrading them tohave legal status; he ordered the creation of the Civil Code.

"The leading idea of the French codifiers had been to exclude uncertainty and arbitrarinessin the administration of law, and for that purpose they wished to reduce as far as possiblethe interpretative and creative function of judges, which they distrusted. The judge was tobe no more than a machine intelligently applying a body of clear and stable rules; and therewas therefore to be a complete, smooth, seamless network, the measurement of anyproblem against which would automatically indicate its solution."70

In cybernetic terms, we can say that the creators of the Civil Code were thinking that once thecode was in place, the judges would have requisite variety to solve all the cases brought beforethem. However, that did not happen. A "school of exegesis", dedicated to the interpretation ofthe code, was soon born.

Common law systems resisted the temptation to codify its laws. The judges were there toprovide requisite variety through their decisions.

All laws, and specially civil and commercial laws, have a strong anti-oscillatory content. Theexchange of information dealing with future behavior allowed the emergence of the firstmarkets and, once formalized, the emergence of the first contracts. Certainty saves controlvariety and is an important value in any legal system.

So we see how the legal-governmental system can be the next logical step after the spontaneousorder generated at market level. But once created, the legal system turns around and defines andapproves the creation of legal entities. Those legally defined entities are legally entitled to makecontracts. The legal system also authorizes or recognizes certain agreements. It standardizesthose agreements in order to deal with the variety. It is an agreement over acceptable privatemarket agreements. The choice of legitimate agreements is a SYSTEM TWO solution atanother level of recursion.71

The metasystemic ability of SYSTEM THREE for making comparisons and finding "better"solutions, implies the presence of a superior intelligence. This intelligence results from aprocess of observing the individual intelligence of the parties involved in the market.

Law is explained as the information that is produced by the metasystem to do three things:

1. Prevent conflicts;

2.- Settle the conflicts that arise; and

3.- Enforce legal resolutions.

We have already explained how cooperation and competition can coexist. We shall examine thetwo other tasks of the Law now.

Administration of Justice

Agreement, even legally binding agreement, assumes the possibility of a potential futureconflict. Legal borders of systems are often blurry and subject to change. Take for example, theconflict brought about by something as simple as changing the regulations on the use of aparking lot. Potential conflict is a part of observer relativity which the Law tries to eliminate butcan never banish completely.72

Beyond the content of a specific contract is the agreement and commitment to give a specialstatus to those agreements that comply with certain formalities. Beyond that standardization isthe commitment to enforce formal contracts that are violated. This is one of the functions ofSYSTEM THREE.

The legal metasystem not only decrees the existence of certain Systems TWO, but it alsoestablishes their protection by enforcement. The enforcement process is triggered by the partythat invokes and proves the violation of a legally binding agreement. This is the judicialfunction of SYSTEM THREE and is labeled in the VSM as SYSTEM THREE*. This VSMconvention is not difficult to remember considering that police marshals frequently use badgeswith the shape of stars. In business corporations this is an internal audit channel.

System three* is a preserver of order and an enforcer of metasystemic rules that preservecohesion. Local markets, as small environments of viability, are protected by local policeforces. International markets, as much more expanded life supporting environments, arefrequently defended by the use or the threat of use of military force.

Legal systems use Aristotle's principle of non-contradiction to solve controversies. Expressed asa juridical principle, non-contradiction says that no law can order and prohibit something at thesame time. According to the law no two environments overlap. Judges will therefore resort tothe syllogism when they decide a case and restore everything into its proper place.

Inevitably though, Aristotle's influence has also fostered the specialization and fragmentation ofLaw. Distinctions are the basis for judicial resolutions. Further and further distinctions can bemade in every case that comes to be adjudicated.

The judicial process itself is built according to Aristotelian logic too. The sequence is logicaland all information is formalized. The metasystem is incapable of reading information that doesnot meet the requirements of the formalization filters. According to Loughlin:

"Legal facts are not imported from the outside in a straightforward sense but areconstructed within the law by the operations of the legal system."73

Lawsuits arise when the one or both of the parties involved have different models of their legalreality. Environments are seen to overlap. The issue is brought to court as a description of theoverlapping. With the versions of both parties and a reference to the applicable law, the courtdecides the case by making the definite map.

For a court to reach a decision is not as simple as it sounds. The whole process and theattributes of the court have to be specified in cumbersome detail. The rules include the rules ofevidence, procedures, etc. The court is instructed by the law and/or legal precedent on how torebuild a legal reality and establish the truth.

As experience is gathered, more and more rules are added to the judicial process. Anaccumulation of rules is evidence of the effort made to achieve requisite variety. It is an

accepted fate of lawyers that in civil cases reality's variety cannot surpass the court's. The are noissues without a solution. The court resolves the issue no matter what and closes the caseregardless. It is a logical closure. Variety is ultimately canceled by the courts' final decision.

The aphorism "There is no right without a remedy", is the juridical recognition of Ashby's Lawof Requisite Variety. "The concept of justice is abstract and formal; the requirement of formaljustice is that we treat like cases alike, and different cases differently, and to give everyone hisdue."74

All the legal structure is recursive and reaches to the judicial process and beyond. Legalprocedures unfold into definitions and then into other procedures. Action, process andjurisdiction, the main components of the process remind us of the trilogy of the viable system.The reason for this is the need to map reality on a one on one basis to the extent reasonable.

The courts have to map the variety of the law on to the variety of the case. The court throws outexcess variety that arrives in both the plaintiff's and the defendant's positions. This is done inthe incoming attenuation channel.

The amplification channel carries the judges' instructions, and decisions. Also, on that samechannel the sentence carries orders for its execution. This closes the process loop.

The trial and its stages have a homeostatic nature. Lawyers are well aware of this feature.Procedural rules evolve as do the court's decisions. There is always room for extending themeaning of a word or traveling the homeostatic circuit one more time and establishing a newlegal precedent. This feature of legal systems should surprise no one. The constant expansion ofthe law is what keeps lawyer in business. Otherwise, the process could be totally mechanizedand a good part of the lawyers' work could accomplish by anyone using a computer.

As the body of law expands, the interpretation requirements expand exponentially.

Laws are the formalization of rules of conduct. They are built on Aristotelian logic, so in thissense laws are always hierarchical in structure.

Every law can be broken down to a set of instructions for doing something or not doingsomething. The application of the same principles, rules or instructions over and over again, in aclearly recursive process, enables simple instructions to become a very complex system of laws.The State, the most complex and all-encompassing of all social viable systems is built on suchrecursive arrangements.

Metasystem

System 2System 3*

The Administration of Justice Loop

The final stage of the process is clearly the application of cause-effect logic. The judge's rulingdoes not necessarily bring voluntary compliance. It is in the execution stage that law becomesraw power. At this point information controls energy.

Metasystem

System 3*

The Enforcement Loop

In conclusion, the variety absorption strategy of legal systems in relation to economic activitymakes a great deal of cybernetic sense because of the following:

1.- All possible variety of economic activity among individuals is first absorbed naturally,without metasystemic intervention, by private market-like agreements and exchanges.

2.- Further variety elimination justifies protecting certain SYSTEM TWO's versus other notso useful SYSTEM TWO's. This prevents proliferation of variety absorption schemes.Protection implies selection and formalization and the threat of enforced compliance. The threatsystem is a useful form of information amplification that, if done right, serves everybody. Whenthe selection of the solution is made by the users themselves, presumably there is a betterchance that the most useful SYSTEM TWO solution is protected.

3.- Once formalized, only non compliance with the contract can bring about enforcementthrough legal procedures. Access to the enforcement procedure is done through a series ofhomeostatic loops, all of which are to be found within the viable system model.

As you have probably noticed, the three components of governmental power appear as part of avariety absorption strategy of a viable system. A legislative function, a judicial function and anexecutive function are the ingredients of SYSTEM THREE at the highest level of recursion.Requisite variety handling provides considerable cybernetic support to Montesquieu's idea ofseparation of powers of the State.

All three variety disposing channels are indicated as loops. Loops recognize the fact that theyare subject to constant change and that, contrary to the expected certainty of Law they do notand cannot provide it in all cases. The contract loop, the justice loop, and the enforcedcompliance loop are homeostatic relationships. This means that although they are formalized inthe law, they are not cast in stone, nor do they provide absolute certainty. The loops imply asuccessive adjustment and information exchange. This is cybernetic logic at work reflecting theway things actually happen in existing legal systems. The Law is caught between trying toestablish certainty in the effects of human relationships and the impossibility of achieving it.

Law's Dual Nature

Law has a dual nature. It is partly hierarchic and mechanical, and at the same time it is partlyself-organized and organic.75 The duality of Law is a reflection of the two different logicsoperating at the SYSTEM and the METASYSTEM and the natural tension in the homeostat thatconnects these two elements of the viable system.

Formal rules have the SYSTEM level as their proper ground while legal principles are clearexamples of circular metasystemic logic. Aristotelian logic is apt to explain the cause-effectresemblance of the first.76 But juridical principles escape the logical hierarchic structure;principles are not entirely mapable rules.

The following paragraph illustrates the point, in a clear reference to the metasystemic characterof legal principles:

"Dworkin argues, contrary to the positivists, that principles and not rules are thefundamental blocks of a legal order. These principles are not just norms of a higher level ofgenerality than rules. Rather, they are higher order items which govern the meaning andapplication of rules."77

"Dworkin suggests that principles do not apply in an all-or-nothing fashion to situations;in any situation a number of principles may be relevant and the function of the adjudicatorwill be to asses the weight of these competing principles in that particular context.'"78

A field of mathematical called fuzzy set theory helps explain the nature of principle basedsystems as they apply to the administration of justice.

"Recently, legal theorists [Dworkin, 1968, 1977; Hayek, 1973] have focused on thisdistinction and challenged the earlier 'positivist' legal theories of law as articulated rules[Kelsen, 1954; Hart, 1961]. Rules, as Dworkin says, apply 'in an all-or-none fashion'.

Principles 'have a dimension that rules do not —the dimension of weight or importance,'and the court 'cites principles as its justification for adopting and applying a new rule'.Rules greatly outnumber principles. Principles guide while rules specify.

"Only rules dictate results, come what may. When a contrary result has been reached, therule has been abandoned or changed. Principles do not work that way; they incline adecision one way, though not conclusively, and they survive intact when they do notprevail."

"Rules tend to be black or white. They abruptly come into and out of existence. We postrules on signs, vote on them as propositions, and send them in memos: must be 18 to vote,open from 8 a.m. to 5 p.m., $500 fine for littering, office term lasts four years, can takeonly five sick days a year, an so on. Rules come and go as culture evolves.

"Principles evolve as culture evolves. Most legal principles in the United States grew outof medieval British common law. Each year their character changes slightly, adaptively, aswe apply them to novel circumstances. These principles range from very abstractprinciples, such as the presumption of innocence or freedom of contract, to morebehavioral principles, such as that no one can profit from a crime or you cannot challenge acontract if you acquiesce to it and act on it.'"

"Depending on whether a judge uses a principle based system or a rule based system hewould proceed differently in the face of the evidence and testimony brought before him byopposing counsel. In a rule-based system he would give every statement a true or falsevalue and chain the arguments according to the rule book to reach a decision. In a principlebased system he would determine the extent to which "the evidence invokes a large set ofvague legal principles. The fuzzy judge may cite case precedents to enunciate a decision bycombining these fuzzy facts and fuzzy principles in an unseen act of intuition and orjudgment. If pressed, the fuzzy judge may defend or explain the decision by citing thesalient facts and relevant legal principles, precedents, and perhaps rules. In general thefuzzy judge cannot articulate an exact legal audit trail of the decision process."79

The are numerous examples of the dual nature of Law appearing in studies of jurisprudence.Jurists that seek an Aristotelian logic system of law with requisite regulatory variety are havinga lot of trouble finding it.80 This is not to say that it is not a sure way to assure and expand theincome generating capability of attorneys.

The idea of a natural law is a principle based system of laws while down to earth man madelegal instructions are rule based laws. Both types of laws fit the metasystem and system dualitydivinely. Kant's "pure norm" theories of law approximates the notion that laws are information,which in turn is pure order. In Kelsen the duality is expressed as two worlds coexisting: the

world of the 'ought' and the world of the 'is'.

'Rebus sic stantibus' and 'pacta sunt servanda' are two ancient principles of legal interpretationthat also reflect the evidently puzzling duality of the coexistence of metasystem and system.The first is a principle or tacit condition "said to attach to all treaties that they shall cease to beobligatory so soon as the state of facts and conditions upon which they were founded hassubstantially changed".81 It is a principle that asks for justice. The second principle asks for theliteral application of the law. Justice in this latter case is not as important as living with thecertainty provided by an unchangeable rule.

Going back to the challenge faced by the judicial process, the strategy for putting an end to thecommonplace predicament of the incompleteness of the law, is the judicial capacity to decreethe closure of the process. The facts are said to fit or not fit an environment defined by aprinciple and not by a rule, thus deciding the issue and closing the case.

For this reason justice is non computable. Justice, is a human output caught in the tensionbetween the rights of the individual and the welfare of the community. And the variety equationshows that no matter how detailed the law is, there is always room for interpretation. The finalclosure, the point where the judicial process defines the borders of the Law is the act that can becalled just or unjust.82

The Minimal State

Since our explanation has reached SYSTEMS THREE-TWO-ONE of the VSM it is entirelypertinent to discuss the idea of the minimal State given that it clearly illustrates a THREE-TWO-ONE system. Some political scientists think that it is an integral solution for societalcontrol.

3

According to Robert Nozick, the only functions that should be carried out by the State are thoseof "protecting citizens against force, theft and fraud and the enforcement of contracts". TheState plays the role of an umpire, a preserver of law and order.

Nozick's extreme position considers the individual as absolutely autonomous and prior to, andindependent of society. Briefly said, the government tends to be restrictive or repressive, andtherefore, the State should play the role of an umpire only.

Does a minimal State make cybernetic sense?

First of all we have to recognize that not all relationships in society are of a contractual essenceor origin. The law recognizes the need to coordinate many other relationships that are not bornout of a contract. Legal rules, for example, try to coordinate competition for the use ofcommunity property. The criteria for assigning value to different solutions varies and so doesthe mix of rights and obligations.

Let us briefly use control of city traffic as an example. Consider what to do about preventingaccidents at a road intersection: the first option is to do nothing. If the traffic is sporadic, and thevisibility excellent, drivers reaching the intersection will synchronize their speeds and avert acollision. The coordination is spontaneous; a primitive SYSTEM TWO appears naturally, in thesense that it is built in as part of the self-preservation instinct of human beings. A mistake, or awrong calculation of relative speed of approaching cars will eventually cause an accident. Oneor more such accidents bring about the need to reduce their occurrence. Reducing the

probability of an accident can first be obtained by giving the right of way to one of the roads.The road with the most traffic is selected so as to minimize the number of cars having to stop atthe intersection. When traffic is greater on both roads, a street light makes more sense.SYSTEM TWO coordination still is the solution to prevent collisions, but the coordination isentrusted to the sequence of alternative red and green lights. The red light does not physicallyimpede anybody from crossing out of turn. The risk of accident, the desire to comply with thelaw and/or the possibility of getting a traffic ticket are all reasons for stopping at a red light. Theexistence of the traffic cop and the rules that explain and back up his work is SYSTEMTHREE.

We can see from our example that we still have the problem of determining who decides toinstall a street light or better yet, to construct an overpass that removes the intersection and, indoing so removes the problem too.

How and by whom are these SYSTEM THREE rules made? These are the tasks of SYSTEMSFOUR and FIVE, as they explain the rest of the VSM.

As far as considering whether the individual is prior to society or not, this is a typical exampleof the classical chicken and egg problem. What came first? In the chicken and egg problem theanswer has to do with the co-evolution of the chicken and the egg. In dealing with the State, wewould rather pose the question as to whether the State is a naturally occurring phenomena ornot. Is the State a valid and necessary recursion as a human organization? Cyberneticallyspeaking, everything points to that. What good is it to say that the individual comes first if theState is self-organizing and won't just disappear? If you stop to consider that modern man isborn into a world situation it is not necessarily mistaken to say that the State exists first. Theproblem is the relationship, not who arrived at the party first.

In any case, as we've seen, the government metasystem has a logical and cyberneticjustification, acting as a common solution to the limitations of market arrangements. A SystemThree only metasystem is in fact a management structure of the most rudimentary nature.

The trouble with the minimal State is certainly not the fact that it has the goal of insuringmaximum individual liberty. The principle of maximum autonomy is part of the VSM'sdiscoveries; it is considered a condition of viability. The problem is that System Three does notexhaust all the necessary metasystemic functions to ensure the viability of the new entity either.The real problem is that if the State's formal organization is limited to a THREE-TWO-ONEorganization, Systems Four and Five will appear on their own anyway. Kingships were suchorganizations, and free-market economies develop their own metasystemic structure too,whether formalized or not, in which case it is known as a power structure.

Jane Jacobs explains the problem discussed above arguing that society encompasses two moral

syndromes, two main ways of organizing government which are closely related to ancestralforms of societies. One is the guardian society and the other the commercial society:

1.- The guardian system arose from territorial and hunting societies, societies that guardedboundaries, were suspicious of outsiders and were deeply protective of their possessions. Theguardian system is conservative and hierarchical, adheres to tradition, values loyalty and shunstrading and inventiveness.

2.- The commercial system on the other hand, is based on trading and functions well when itis open, trusting of outsiders, innovative, positive and forward thinking. It values collaboration,contracts, initiative and optimism.

"This struggle plays out in virtually every industrialized country."83

The problems facing the organization of the state is the perpetual struggle between bothattitudes toward government. The commercial system tries to corrupt the legislature to becomethe de facto guardian. The guardian tries to control the commercial system by increasingregulations or by substituting itself as a producer of goods. The invasion of roles sets off avicious circle of unfortunate interventions by both sides.84

The answer is to redesign society in such a way as to separate the guardian and the commercialsystems. Circular negative feedback loops maximize control, positive feedback loops maximizecreativity. Both cybernetic devices should be considered when designing the metasystem andsystem.

Going back to the mapping of the architecture of the human body and using it as the foolproofreference, we are forced to notice the potential inconvenience of trying to manage a viablesystem that has no more structure than THREE-TWO-ONE. Systems THREE-TWO-ONE takecare of the internal equilibrium or homeostasis. Beer calls this the management of 'here andnow'. Systems THREE-TWO-ONE however, are not enough to assure the viability of thehuman body.

To make this point quite clear, Beer compares the management an organization composed ofonly SYSTEMS THREE-TWO-ONE to a decerebrate cat.

"You can take a perfectly good cat, and anesthetize it, and remove the cerebrum. You canpin the decerebrate cat to the table, and keep it fed, It lives on; its viability ensured by abogus environment, and sustained by artificial sustenance. If you prod its leg, it kicks back.And this is called 'living'."

The missing part is a properly integrated THREE-FOUR FIVE metasystem. We will expand on

the study of Law as it relates to the intricacies of the metasystem and in Part IV enter the studyof the political component of the State as a viable system.

Chapter 8

Public & Private Law

SUMMARY

The dual logical nature of the viable system explains why the complex tasks performed bythe metasystem requires and triggers political activity. Talk is about the differences betweensystems THREE-TWO-ONE and THREE-FOUR-FIVE.

Metasystemic Management

There is much more to the governmental METASYSTEM than the idea of a minimal Statesuggests. In addition to the controversial distinction between itself and the SYSTEM, theMetasystem has a series of built-in tensions to resolve; its internal informational relationshipsare homeostatic in nature.

The Metasystem-System connection is itself intrinsically complex and controversial. Thedifferent logics of both are not easy to see or understand. This complexity manifests itself inpolitical reality as controversy. Controversies typically involve both the setting of goals and therole of values.

As pointed earlier, the very first problem is one of method. While people involved in Systemroles are inclined to apply analytical methods and the breaking of units into its component parts,those intervening in a Metasystem capacity are more concerned with putting disperse piecesinto a unity. The roles played by each are reminders of the difference between the westernintellectual tradition of reductionism and the less tangible and more spiritual eastern tradition.

According to Clemson, the Metasystem-System duality expresses itself along two lines:

The first is the integration of the system as a whole, versus the autonomy of subsystems. Theduality acquires a strong ideological content as in the perpetual struggle of individualismagainst communitarism. There is the need for reconciling private (System) and public interests(Metasystem).85

We must add however, that the uneven distribution of knowledge and information poses anotherdilemma: the understandable desire for equality is put at odds with the need to create some formof hierarchy if things are to get done.86 Even in SYSTEM TWO solutions the duality appearswhen the need for sequence in one operational element is put at odds with the need tosynchronize with the sequences of other operational elements.

The duality is a recurrent theme throughout history. The survival of the whole is frequently usedas an excuse by those in power to demand obedience and discipline of those they consider theirsubordinates. In response to that authoritarian tendency, people risk their lives to be part of thegovernmental metasystem. That is what struggles for democracy are mostly about.

The second aspect of the duality is stability (System THREE-TWO-ONE) versus adaptation(System THREE-FOUR-FIVE). The organization strives to maintain structure but at the sametime it must deal with a dynamic environment.87 Adaptation depends on how well theenvironment is internalized. The adaptability tension is manifest between the inner directednessof SYSTEM THREE and outer directedness of SYSTEM FOUR, which is expressed in theTHREE-FOUR homeostat of the VSM.

The VSM goes into great lengths to show that System Three is present-time oriented. If onlySystems THREE-TWO-ONE is active, the organization will not be able to adapt to changingcircumstances. SYSTEM FOUR establishes direct contact with the external environment and isresponsible for adaptation and change; it is future oriented. Preserving internal homeostasis andmanaging change requires deciding how to allocate resources between present and future needs,a function of SYSTEM FIVE.

The VSM shows that the metasystem is the area of politics, law and economic management.The mixed character of almost every economy supports this diagnosis.

We will show how different authors and scholars converge on what appears to us as the use ofcybernetic concepts to describe the metasystem.

Duality and Tension

The dual nature of the viable system makes itself present in both political and legal theory as itspills into the rule making strategies.88

In this area there is manifest tension between the seduction of universalism and the pragmatismof particularism. One rule to cover all cases sounds as an attractive idea but is not likely toprovide requisite variety. But having a specific rule for every situation is not a viable solutioneither.

Legal theorists recognize the homeostatic relationship between the metasystem and the system,albeit using another language. It is an implicit topic in recent discussions about constitutionallaw. Loughlin says:

"We should not look at the constitution either as a straightforward guarantor of justice(Three-Two-One) or as a mere instrument of sovereign will (Three-Four-Five). If we are toadvance our understanding of public law, we must learn from the limitations imposed bythese styles. We can not maintain the 'ought' of the Diceyan era in the face of the realitiesof modern government. But neither can we eliminate the 'ought' from our understanding oflaw and deal only with the 'is'. The tension between the 'is' and the 'ought' is an inescapablepart of our condition."89

The combinations of Systems Three-Two-One and Three-Four-Five are frequently used toindependently describe the nature of the State. Understandably, the resulting explanations arepartial and unsatisfactory. The minimal State is, as we have seen, an example of the first. Thecontrasting examples are totalitarian regimes where the metasystem takes over total control ofthe operation, canceling local autonomy. Totalitarian regimes ignore recursion levels and thriveon perpetuating the confusion that the government and the State are the same thing.

Oakeshott's political analysis recognizes the State's built-in duality. Loughlin comments onOakeshott's view on this matter:

"He (Oakeshott) argues that our views on the nature of the modern state have beenpolarized between two modes of identification. First there is the conception of the State associetas. The idea of the State as societas corresponds to the civil association in that isprovides a vision of the State as a non-purposive, rule based institution (System Three-Two-One). This conception of the State underpins the work of Machiavelli, Hobbes,Locke, and Montesquieu. Secondly, some theorists —including Bacon, Fourier, Marx, andthe Webbs— have formed a view of the State asuniversitas. Universitas may be identifiedwith enterprise association since it embodies the idea of a managerial state constituted inthe pursuit of a set of purposes (System Three-Four-Five). Oakeshott suggests that the

State 'may perhaps be understood as an unresolved tension between two irreconcilabledispositions represented by the words societas and universitas. This tension, he continues,'has imposed a particular ambivalence upon all the institutions of the modern state and aspecific ambiguity upon its vocabulary of discourse: the muddle in which we now livewhere "law", "ruling", "politics", etc., each have two discrepant meanings."90

The presence and complications of the existing duality are in clear view. Oakeshott alsodistinguishes between instrumental law and non-instrumental law; it is similar to the distinctionbetween manager and custodian made by Jane Jacobs.

In another of his interesting opinions, he sees that the extension of the apparatus of civil rule hassubverted the moral integrity of civil association and created a 'Servile State' equiparable to acorporate productive enterprise where private interests clamor for awards and instrumental rulesand orders issued by the administration replaces civil law.91

In our own translation of Oakeshott, Systems Three-Four-Five of the modern State are underconstant attack by business interests that find the power of Three-Two-One a useful tool forassuring themselves their own niches of viability. An informal metasystem or power structuredominated by private business takes over the whole system in the name of market freedom andautonomy.

Hidden Lawmakers

The expansion of commerce, the complexification of laws, and the appearance of the modernState are all intricately linked to each other within a new world view where the harnessing ofnature's energy sources becomes deliberate.

During six hundred years, medieval European agriculture had been communally organized andprotected under the feudal pyramid. Peasant councils administered the commons. Then thetraditional community life was disrupted by the search for private gain. The self-sufficiency ofcommunal life and a subsistence economy was changed to the interdependency of diversifiedmarket economy. It surely seems that trade and the pragmatical knowledge it fostered led theway for new efforts in science.

The intellectual support for the new world view of privatizeable natural resources came from atleast a half dozen philosophers and scientists.

a) Francis Bacon (1561-1626) the father of modern science instituted warfare againstnature, the dominion of man over the universe through rational and analytical power.

b) René Descartes (1596-1650) saw nature as a giant machine, run by well orderedmechanical principles. He stripped nature of its aliveness.

c) Isaac Newton (1642-1727) provided the science in the new cosmology with his three lawsof matter and motion.

d) John Locke's (1632-1704) utilitarian value of nature provided the rationale forcommercial exploitation of the environment. Nature was made of spare parts.

e) Thomas Hobbes (1588-1679) attacked communalism. He assured that competition forscarce resources was inherent to human nature.92

In the legal front we find that "expanding markets, improved transportation and overseas traderequired new forms of regulation, coordination and control." Oral agreements becameinsufficient to record transactions and they were displaced by the codification of commercialrelationships. Land, which had been shared, came to be seen as a resource that could beenclosed for private gain. Between the sixteenth and nineteenth centuries legal and political actsenclosed the publicly held lands. Relationship of land and people changed, the peasantsmigrated to the cities and helped supply the industrial revolution with cheap labor.

In communities, feudal principalities and free city-states began to federate into monarchies andthese in turn were transformed into nation-states. Regional integration of feudal states alsohelped the emergence of the nation-state. The boundaries of the nation state grew to meet thedemands of the expanding markets.

Merchant corporations had begun acting boldly within the newly gained status of limitedliability, such as the Muscovy corporation, established in 1553, and the Hudson Bay Company,established in 1670. The State and these corporations found a double blessing in their mutualrelationship. The corporations provided the State with new sources of revenue and the Stateprovided the corporation with legal protection at home and military protection abroad. In duetime, and where necessary, armed infantrymen cleared the way for market expansion.

The State, as the embodiment of the political system, the corporation, and the professionalmilitary consolidated a formidable triad. Together they exercise near complete domination overthe earth, its resources and inhabitants.

Later, Geopolitical theories came to consider the State as a living entity, based on the idea thatland and people joined together to form an organic whole." The nation state was animate andconscious. New ideas coming from biology helped redefine the concept of the State.93

The next and inevitable step was the justification that States should go to war against one

another for control of the global commons.

History of politics reflects increasing complexity of human social arrangements. The evolutionof the status of ordinary people has gone from being somebody else's tamed source of energy tobeing autonomous viable entities and a source of information that influences the politicalsystem.

Kingdoms and feudal lords were viable systems in medieval times, but not the serfs. The serfswere, for all practical matters, an energy source of the kingdom; they could hardly be calledviable systems. The people's revolt against oppression means one thing: opposition to beingused as an minimally educated energy source, or its cybernetic equivalent, some sort of roboticreshaper or mover of matter.

Identity, which is a complex individual metasystemic function, plays a crucial role in opposingthe condition of serfdom or slavery. Knowledge and pattern recognition abilities are of coursecrucial to establish an identity, which is per force, of a metasystemic nature.

When one person rules as the metasystem of a whole country he usually calls himself a King. Interms of the VSM, absolutist rulers are unipersonal embodiments of Systems Three, Four andFive of a viable system. The ruler is the final decision maker and as such portrays himself as thesafe keeper of the system's identity. In cybernetic terms, he provides the logical closure to thesystem.

Most of the time however, kings are System Three; the rest of the metasystem components,System Four and Five remain hidden in the background. It is someone else that posses theultimate power but does not intervene to veto executive actions except in extreme cases.

At this point we are not interested in finding out how a one man government makes decisions.We know however that the internal arrangement of his brain is provided by nature's owndesigns and external stimuli. VSM research has already shown that Systems Three, Four andFive have a neurophysiological foundation as well as a theoretical cybernetic explanation.

Public and Private Law

Another indication of the theoretically convenient split between system and metasystem are thediscussions about private and public law. These discussions are very visible in codified systemsof law such as those emmanating from the legal tradition of the Napoleonic Code.

Private Law is that part of the law which is administered between private individuals or citizens.It includes the definition, regulation and enforcement of rights and obligations of private

individuals.94 In the Napoleonic tradition, the Civil Code deals mainly with individuals, family,their property and its exchanges.

Public Law in turn, regulates relationships that are fundamentally political in nature and itsmethodologies are quite distinct from those of private law.95 It is "categorically different fromprivate law." Public law deals with the State in its sovereign capacity. Constitutional andadministrative law are examples of public law. Also considered as such are those laws wherethe State is the subject of the rights or object of duty, for example criminal law.

The answer to the duality may be found in German philosophy. German philosophers have beengood at finding unity in opposites.96

"Another characteristic of German culture is a serious intellectual and philosophicalinterest in communication and consensus. Immanuel Kant taught his categoricalimperative, that the individuals behavior toward others should be such that a universal lawcould be derived from this conduct. This approach offers a potential reconciliation betweenuniversal laws and particular situations, the parts of society and the whole, the right of theindividual and obligations owed to the collective. These are the first three dilemmas of ourmethodology, to which an 18th century German philosopher worked out solutions. Theanswer to moral problems of man in society , said Kant, lay in the 'resolution ofantinomies' – precisely the theme this book has been pursuing."97

Antinomies have been defined as:

"a contradiction between laws, (1) Antagonism between laws; the opposition of one rule,principle, or law to another. (2) The unavoidable contradiction to pure reasoning whichhuman limitations introduce, as formulated by Kant; paradox. (3) A contradiction orinconsistency between two apparently reasonable principles or laws."

"Hegel argued history could be understood as a dialectical process of contrasting andcontending ideas capable of achieving a larger and more truthful whole. Marx claimedscientific and materialistic basis for his own revolutionary dialectics."98

In sum, if we cannot escape the dual nature of the State which only reflects the duality of humannature, then we must find the right mix for the coexistence of freedom of choice with inevitableself-imposed constraints.

Part IV

Politics and Viability

Chapter 9

System THREE:The Manager

SUMMARY

The VSM is tested in a real life situation. A living constitution is described to show how thefirst recursion level of an actual State is organized. The model helps explain why thetraditionally essential aspects of government are non other than those described by SYSTEMTHREE, the manager of everyday affairs; and it also shows where the rest of the metasystemresides.

Constitutional Map

Now comes the time to put the VSM to the greatest test of all.

If the State is a viable system, is it correct to say that a State's constitution must contain a VSMmap of that State?

To answer this question we turn our attention to a living constitution and search for theorganizing principles on which the VSM is built. Our intuition turns out to be correct. In terms

of our model, a constitution describes a viable system.99 The United States Constitution is aproof of this.

The history the United States of America allows us to say that this country was not born with allthe features of a viable entity. It became a viable entity until the Constitution went into effect in1789. Prior to that, the thirteen states had subscribed the Articles of Confederation, but this wasa System Two arrangement, literally, a "union between the states".

The Confederation had the name "United States of America'", but it was not a viable systemunit. Each member state had a vote in the decision making and at least nine of the thirteen stateshad to approve any new law. It did not have an executive office and was ruled by commissions.It did not have its own source of revenues, nor did it have the power to enforce its laws uponindividuals; it had to rely upon the state governments to enforce them. There was an incipientmetasystem in the System Two agreements and certainly no System Three.

Each of the States subscribing the Articles of Confederation in 1781 had its own constitution,which shows each one as a viable entity.100 The signing of the federal constitution was theofficial creation of a new viable system and from our point of view, a new level of recursionwas built using the states as building blocks.101

Given that a constitution contains the construction layout for the State, which is a viable system,it can be homomorphically mapped to the Viable System Model. The ideas of sovereign people,of limited powers of government, individual and group freedoms, constitutional guarantees,balance of powers and the constitutional supremacy are all to a great extent coincident with theviable system principles and concepts of identity, self-reference, homeostats, recursion,maximum autonomy, closure, System Three* audits, etc. The Constitution also defines who canlegitimately make inputs to the system as it defines the eligibility of voters and public officials.

We find the homeostatic nature of constitutional government in the following assertion: "TheAmerican Constitution faces in two directions, for it is both an instrument of power and asymbol of restraint".102 For example, powers are given to Congress and its prohibitions arelisted immediately after.

Then again, the separation of powers follows the idea of designing a series of built-in restraintsthat will act reciprocally on the various branches of the government. All these are cyberneticmechanisms of control, better called homeostats.

Recursiveness and viability are implicit in the limitation of the powers of Americangovernment. Lives, liberty, and property are protected from arbitrariness by the "due process oflaw", as stated in Article 14 Section 1 of the Constitution. The protection goes beyond the

biological self to every legal persons' licit activities, which include the celebration of contracts.Laws define the formal borders of systems.

First Recursion Level

In its first recursion level the american constitution describes the overall organization of thenew nation's government. The constitution has an implicit national government in the hands ofthe people that is recursively structured into a federal government and lower recursion levelstate governments.

The first level of government is seen in action only when the constitution itself is modified.Only very long term change is involved at this first level. The rest of the national government isentrusted to the federal government.

The history of the US Constitution helps explain the reason why political rights have evolved inaccordance to the logic and increasing complexity of the State's metasystem or government.

Since some aspects of government are more obvious or have gained a notorious presence in theminds of the general public, it seems fit to explore the constitutional metasystem beginning withthe participants of SYSTEM THREE at the first level of recursion.

Stafford Beer's literature on the VSM explains that System Three is a fulcrum between the restof the metasystem and the operation. It is a manager of everyday affairs. In the nation statethese affairs are turned over to the highest levels of government, such as a congress and apresident, or a parliament and a prime minister; and to the courts.

Law making, law interpretation and the application of the law are the three typical processes ofgovernment. Where existent, written constitutions describe the organization of government andthese three processes.

In the United States of America, the Constitution establishes the legislative powers of Congress,the powers of the Executive and the judicial powers of the Supreme Court. These three entitiesor powers are responsible for the "here and now" management of the country.

The executive power is vested in the President of the United States. The legislativeresponsibilities of Congress are contained in Article I, Section 8 of the US Constitution. Theseinclude: the power to collect taxes, to borrow money, regulate interstate commerce, declare war,etc.

It is understandable that the Constitution only details the very first recursion level of

government; and then provides the rules and principles used for building the rest of theorganization. It describes the content of the metasystem's black box.

At this first constitutional level the key ingredient, converted into the supreme law of the land,we find that the states are handling over part of their own previous sovereignty to the newentity, but ultimately placing it in the hands of the people of a new nation. The principle offreedom is protected by the commitment to observe the rule of law, etc.

But SYSTEM THREE is not alone inside the black box. According to the VSM architectureSYSTEM FOUR and SYSTEM FIVE also form a part of the METASYSTEM and must bespecified. As it turns out the constitutional text does just that.

SYSTEM FOUR is related to the long term adaptation of the system. Its presence in theConstitution is specified in the procedures necessary to change the constitutional text itself. Thisis the role played by the permanent constitutional convention were the key players are Congressand the states of the Union. We deal with SYSTEM FOUR in the next chapter.

The first level of recursion also specifies the occupants of SYSTEM FIVE at this level. FIVE isthe seat of the organization's identity and is organized as a network. We deal with SYSTEMFIVE in a later chapter.

These are the main ingredients of the first level of recursion: organizations, and rules oforganization —such as the bill of rights— and others are an important part of creating a nationalidentity. This level of government is not an every day matter of concern to most citizens andgoes unchanged for long periods of time, as proved by the sporadic nature of constitutionalreforms. However, recursively speaking, this basically simple organization only provides thefirst level of government. To go any further into the organization we must go one recursionlevel down to the strictly federal level or the state level. If we take the first option then thefederal government becomes the system in focus and we, as observers, shall have to describethe participants in that metasystem.

Second Recursion Level

A point made above is that the VSM mapping of the US Constitution shows a rarely noticedinstitution responsible for long term change and adaptation: the permanent constitutionalconvention. But since this level of government defies the traditional notion of government thatconsiders Congress as the people's instrument for planned change, how does Congress fit in itslegislative role? The answer lies in the next recursion level.

In the second and third recursion levels we find the federal government and the states each as aviable organizations, as direct doers of certain things. The federal government has its ownenvironment defined by the Constitution. At this second level Congress assumes the role ofSystem FIVE. This recursion shift is a direct consequence of having representative government.The case would be different for a nation so small that all the citizens could gather in the mainsquare and decide what the problems are, what to do and what laws to approve.

When the federal congress becomes SYSTEM FIVE, it plays the role of a sovereign body.

State 2

Federal Government

LegislativeExecutiveSupreme Court

Constitutional Reform

Free will Environment

Federal Jurisdiction

State Jurisdiction

The People

State 1

Congressional committees, now become SYSTEM FOUR as they probe the environmentdirectly by calling people to testify. SYSTEM THREE is now the Executive or president orprime minister. The Executive is the "here and now" manager at this recursion level. Thissecond level is the most obvious manifestation of government, and therefore it is considered themost important, which it is not. But because of this preeminence, people who are ignorant ofpolitical structures and recursions are inclined to think —in extreme cases— that the presidentis the boss and that he rules as if he were some sort of king.

An important point to notice is that one person or body can play different roles at differentlevels of recursion. The laws of viability require certain tasks to get done but does not ask whodid them. It is an information saving strategy of the Law to have specific offices comply withspecific responsibilities.

US CONGRESS

Economy Sector #1

THE EXECUTIVE

Congressional Committees

Federal EnvironmentSecond Recursion Level:The Federal Government

Economy Sector #2, etc.

Constitutional matters are not exempt from meeting the demands of the Law of Requisite

Variety. Two recursions are not enough to absorb all the regulation needed to organize a wholecountry. Therefore, Congress is given the power to create government agencies that make rulesthemselves and fill up the details not covered by ordinary legislation. Congress may delegate toothers some of the powers which the Legislature may rightfully exercise itself. Delegation ofpowers are a form of control variety amplification that is achieved by organizing governmentthrough a recursive structure..

The state governments level are operational elements at another recursion level. In the currentAmerican political experience, the contents of the METASYSTEM management box is notclearly defined, nor is it obvious at all, given the fact that the states are individual systemsthemselves. However, pending further analysis, one is inclined to say that the individual states’autonomy has been gathering strength in the form of a state governors' association, wherecommon problems are discussed. Most of these problems have to do with the interference orlack of support of the federal level of government.

The VSM can help diagnose the structural problems between state and federal recursion levels,but it is up to Congress to take note of the different roles it must play at different levels so as tonot dispossess the states of their original authority and autonomy. The need for a governors'association is an indication of a recursion level not working properly, or simply put, thenegation of the original constitutional pact.

A look in further detail of SYSTEM FOUR will give us a better idea of how adaptation andchange are cared for in the first recursion level of the constitution.

Chapter 10

System FOUR:The Modelmaker

SUMMARY

Adaptation to changing circumstances requires every viable system to constantly probe itsenvironment. Just as humans do, the State learns by increasing its capacity for modelmaking.

Intelligence

Some viable systems are intelligent organizations. From a cybernetic viewpoint this means thatthey do these three things:

1. Make maps of their environment;

2. Compare the map of their environment with an internal map of itself;

3. Adapt their behavior and/or organization for survival.

The overlap between viable systems and complex adaptive systems in this respect is veryhigh.103

The State is a viable system too, and therefore, it also has to do these things. But how does theState carry out its map making functions, how does it adapt to changing circumstances? Thenature of System Four provides some answers to these questions.

Map making and model building are typical activities of System Four. Given that two or moreassociated viable systems have their own environments, the emergence of a viable entity at ahigher level of recursion implies an expanded environment, otherwise the association would notmake any sense. The 'something' that is gained from the association of two systems are theemergent properties of the new system and a new environment. System Four's function is toexamine the enlarged environment, which is, according to Beer's model, the potential or futureenvironment of the newer and emerging entity.

4 PLANNER

3

Beer calls SYSTEM FOUR the 'planner'. Planning involves making maps of future conditionsand scenarios. Viability requires adapting to changing conditions; and adapting meansanticipating changes in the overall environment. SYSTEM FOUR does just that. In business,SYSTEM FOUR does things such as model building, exploring future markets, and runningsimulations. These are activities directed at an environment not yet incorporated; it is a targetenvironment.

We find that in the government of a country, SYSTEM FOUR is also present at many levels ofrecursion, but it is quite noticeable at the highest constitution level.

In the Constitution of the United States of America, which is the best and most copied exampleof a constitution, SYSTEM FOUR is none other than what some call the permanentconstitutional convention. This is the constitutional organ formed by the Congress and the statesof the Union with the purpose of agreeing on modifications to the text of the constitution itself.According to the Constitution, three fourths of the state legislatures have to approve anamendment to the Constitution in order for the amendment to pass. Amendments of theConstitution are the highest level of adaptability to be found in any legal and political system.

Self-reference

Another feature of SYSTEM FOUR is that it provides self-reference. Self-reference is alsopresent at the constitutional level, just as the VSM expects it to be.

Political and legal theorists have been dealing with the complex issue of self-reference for quitesome time. An outstanding jurist, John Austin, considers that the legal system cannot becharacterized by the command-threat description of the legal norm because not all norms havethis structure. He argues that there are many other types of rules. A legal system requires rulesthat are not sanction oriented. Some of those rules are "recognition rules".

Recognition rules are:

"the complex constitutional rules, statutory provisions, and judicial precedents which tellus what is to count as law."104

Besides recognition rules there are many other rules of law that don't share the command-sanction structure. H.L.Hart mentions rules of change and rules of adjudication. Rules ofchange are those that

"enable private individuals to alter their legal position" or enable the legislators to enactnew laws. Rules of adjudication establish "the apparatus for deciding, in cases of conflict,how the law is to be applied."105

The existence of rules of change implicit recognition that the legal system is made ofhomeostatic relationships, that the borders of the system are inevitably fuzzy. Things belong tothe system through a legal definition or a court definition one moment are not a part of it thenext.

Rules of adjudication are of System Three* nature.

Laws contain many concepts that require special definitions. These definitions depend on wordsof everyday use that have their meaning explained in the dictionary. In a sense the dictionary isalso Law.

Raz touches on the subject of the law's unfolding by saying:

"The creation of norms differs from the creation of statutes, by-laws, regulations, etc. intwo aspects. (1) By enacting a statute, making regulations, etc., the authorities create partof a norm, the other parts of which may have been created at other times, perhaps evenhundreds of years before, and often by other bodies. According to Bentham and Kelsen,parts of the same norm may have been made by ministerial decrees, while other parts havebeen made by local authorities, others still by judges, and so on: e.g. a municipal by-lawimposing a fine on violators of some parking regulations and the Act of Parliament settingup the courts and procedure governing such cases are both parts of the same norm. (2) Byenacting a constitution, . . . the legislator creates not only a part of one norm but a part ofmany norms, usually of a great, very great number of norms."

Then Raz adds:

"Kelsen thinks that a constitutional law is a part of every norm created on its basis."106

So all the rules of a legal system are dependant on the constitution, the supreme law of the land.But self-reference appears to point out that the same can be said the other way around. Theconstitution is dependent on the rules of the English language. Or, is it not?

Laws are sometimes, in effect, self-referential statements. And what are the practicalimplications in the study of legal systems? It means that Cybernetics is a more appropriatelanguage for explaining the systemic nature of Law.

For instance, Raz then goes on to praise the systemic notions discovered by Bentham:

"The discovery that a law is not identical with a statute or a section in a statute, etc., thatmany statutes from all the branches of the law including civil as well as penal law,contribute to the content of every law, was the most important turning point in Bentham'sthinking on legal philosophy."

We, in turn, infer from Raz's reasoning that he is implying that laws are recursively structured.

We can explain self-reference more easily in the following terms. Do you see the lines that weare using to graphically describe the VSM? Those lines are laws in a graphical mode. Laws areusually verbal descriptions of the borders of systems. We must remember that we are used tousing words to describe laws. But we could very well be using computer code, sign language ordiagrams instead of verbal descriptions. Some laws could well be shaped as lines in a diagramor a map. As a matter of fact, this already happens when the lines are drawn in maps to delimitelectoral districts.

Looking at the VSM of the US Constitution with the help of our new graphical interface visionwe can see the lines describing the model the same way as we see the membrane of the wall of acell. The membrane's complex chemistry filters the neighboring substances, allowing some ofthem to enter through the walls of the cell. The same can be said of the lines that we use todepict the model of constitution. These lines contain the filters. Who can enter the metasystem?To be part of Congress you have to get elected as a senator or a house member. There are manyfilters that have to be passed to reach these positions. Other lines filter in the President, andothers, the Supreme Court justices. The same can be said for other recursion levels.

Self-reference is also present in Article V of the Constitution.This article states the conditionsunder which the Constitution itself may be amended. John Casti says: "We have here a legalversion of the paradox of omnipotence." Can Congress make a law that amends its power tomake laws? If they can, then they can't, and vice-versa. "So we conclude that amendmentclauses are immutable except by illegal or extra-legal means like a revolution. In other words,they can only be amended if we take an 'exo-legal' view of the situation, in effect allowing thesystem to examine itself from the outside."107

Learning

SYSTEM FOUR is also the seat of learning. "The account of inside and now is filtered upwardvia SYSTEM THREE."108 It is then compared to the information coming from theenvironment. The internal information of the situation is compared to the model that SYSTEMFOUR has of itself within the model of the whole. Learning takes place as the processes ofawareness progress.109

Learning is also an atribute of complex adaptive systems as described by John Holland andothers working in the Santa Fe Institute.110 The key to learning are the internal models held bythe system. According to John Holland:

"Even an agent as simple as a bacterium employs an unconscious internal model when itswims up a glucose gradient in the search for food."

"An agent has an internal model if we can infer something about the agent's environmentby just inspecting the agent's environment."

" Internal models can be thought of as a set of rules that enable an agent to anticipate theconsequences of its actions."111

5

4

3

InternalModel of System

Self-reference in SYSTEM FOUR

The work done on classifier systems illustrates clearly how it is possible to generate learning asan emergent behavior through the application of a succession of rules.112 Requisite variety isachieved by means of rules that specify actions that make the environmental states match theinternal model and rules that modify the internal model according to experience. General rulesplus "exception rules" push the system to better control.

Niklas Luhmann is a German social theorist that has been working with concepts drawn fromCybernetics and from biology, such as Maturana and Varela's concept of autopoeisis, whichliterally means self-production. Loughlin reflects on Luhmann's ideas saying that:

"The legal system is a cognitively open system; it remains oriented to its environment notsimply despite its closedness, but rather because its closedness. Closure does not mean anabsence of an environment; nor does it mean complete determination by itself (in the oldsense of legal formality). A system can reproduce itself only in an environment. If it werenot continually irritated, stimulated, disturbed, and faced with changes in the environment(i.e. learning), it would soon terminate its own operations and lose its autopoietic (self-producing) character."

"The cognitive quality demonstrates the system's openness to its environment. Thenormative quality emphasizes the unity of law as a recursive system."113

After having studied autopoeisis and biological phenomena Luhmann is convinced of the legalsystem's learning abilities. I quote Loughlin, and add the applicable VSM terminology:

"Human beings, through actions and experience, generate expectations about the world(System Four internal models). These expectations are structural since only a smallproportion of the possible is probable (i.e. expectable)." Cognitive expectations producelearning as experience provides an opportunity to compare expectation against reality(System Three information).114 "Law becomes an instrument of the planned change ofreality."

"The complexity of society, like any system, is regulated by its structure; that is by the pre-selection of possible environmental conditions which the system can accommodate.Structural questions therefore provide the key to system-environment relations. There arein society a range of structural mechanisms in operation, including cognitive structures(knowledge) and media of communication ( truth, power, money). From our point of view,however, law is of particular significance; law can be viewed as a structure which definesthe boundaries and selection types of the social system."115

The Three-Four homeostat is the organ of adaptation of the viable system.116

The VSM's Planning System

F.A. Von Hayek has said that:

"An ideal picture of a society which may or may not be wholly achievable, or a guidingconception of an overall order to be aimed at, is nevertheless not only indispensableprecondition to any rational policy, but also the chief contribution that science can make tothe solution of the problems of practical policy".117

Beer suggests that planning includes idealized planning, which turn out to be a never endingprocess given the fact that possibilities are changing constantly due to technologicalbreakthroughs. Long term plans are meant to be aborted as conditions change.

Planning activities are correlated to the component elements of the metasystem. System Five,given that it contains the system's identity, is involved in idealized or normative planning, as itdescribes an ideal outcome; System Four is linked to strategic planning, the deployment and useof vital resources; and System Three to day to day programming of activities.

The reader is referred to Beer's research on this subject.118

Chapter 11

System FIVE:The Sovereign

SUMMARY

This is the final stage of building the model. System Five holds the key agreements on theState's identity and provides logical closure to the organization. The people, working as ainformal network, are the sovereign.

Sovereignty as Closure

In political theory it has been called sovereignty for centuries. In the recent language ofcybernetics and the viable system model it is called closure. The ideas match perfectly.

Closure and sovereignty both stand for the final stage of the information process that runsupwards through the system, informing it, and then transduced downwards to generate action atother levels.

Closure means logical closure, the completeness of the language that describes the viablesystem. Closure is the snake, Ouroboros, eating its own tail. In everyday language the saying"The buck stops here," conveys the idea of closure.

In the Viable System Model, System Five is itself metasystemic to the Three-Four homeostat.System Five provides logical closure to the viable system by monitoring the interaction ofSystems Three and Four, which tend to represent the present and the future needs of the system.

System Five is always a network, whether an autocrat's brain, the board of some company, ashareholders meeting or the citizens of a democratic country. This network, however, functionsin a mode which is the antithesis of hierarchy. Individual components usually have the sameformal status within in the network.

Sovereignty has been defined as the final source of authority, that which is accountable to noone but itself. In the case of States, it includes all the powers to accomplish the legitimate endsand purposes of government. "The sovereign is the person, body or state in which independentand supreme authority is vested."119

Political rights, also called active rights, were historically considered grants of the sovereign tothe people, "indicated by the legal terminology for the right to vote, the suffrage franchise.Suffrage derives from the medieval Latin suffragium, meaning support, assistance, intercessoryprayer; franchise derives from the French franchir, meaning to set free; thus the sovereigngrants his subjects the freedom to support, assist, or pray for him."120

System Five is the final component we need to explain the viable system. It concludes thedesign of the VSM and occupies the uppermost position in its graphic description. System Fiveis the site where the organization's identity takes shape.

The briefest way to describe System Five is to say that it is a very complex and interactivenetwork. The components can be nerve cells, a group of individuals, or groups of organizations.

1.- In the human body System Five resides in the neo-cortex of the brain. Billions of nervecells get involved in the activity of the neo-cortex. We know the neo-cortex as the center ofidentity and willful conduct.

2.- Formally speaking, the stockholders meeting is System Five of a business corporation.The law takes great care in regulating the structure of corporations. Many regulations establishthe framework and conditions under which decisions are taken at a stockholders meeting.

3.- Materially speaking, in a monarchy or a tyranny, System Five resides in the ruler's heador is conformed by an elite.

4.- In a true democracy it's citizens are System Five of the first recursion level .

Neural Type Network

5

3

4

Our prime example, the Constitution of the United States of America starts with an expressionof self-reference and identity when it reads: "We the people of the United States, in order toform a more perfect union..." This democracy is an example of the people being System Five atthe first level of recursion. The people are considered the final source of State power. Actingformally as voters or citizens, they have the last word on what every level of government—federal, state and local— can or should do.121

The Area of Politics

We are interested in the organization of the metasystem when a large number of people, such asthe citizens of a country participate in the designing their government. This is the area ofpolitics.

Political struggles are precisely the confrontations for control of the metasystem of anyorganization made of two or more persons.

In a way, even individuals have internal political struggles. But these are the subject ofpsychology. Human will is the rather mysterious result of internal confrontation of ideas andpriorities, because there are always two or more sides to every issue. Identity reflects the

personal political puzzle that individuals must sort out.

When two or more persons attempt to achieve a common goal by creating a new organization,there is room for an open political confrontation or at least a need for political agreement andsettlements. Identifying objectives, making plans and allocating resources are all politicaldecisions typical of metasystemic activity. Many people label this activity as political activity.We are reminded of the phrase: "Politics isn't everything, but it is everywhere".

Broadly speaking, politics is the name we use to identify the interaction between two or moreindependent human wills. The merging of wills is a political decision. The creation of markets(System Two), and the creation of rules to protect the market structure (System Three) are thenthe subject of political decisions. In our model, given the recursive structure of organizations,even contracts are, or involve, political decisions. All political decisions involve mentaloperations where identity is crucial.

Politics is interactive and homeostatic in nature. This is why politics is frequently seen assynonymous with negotiation. Viewed positively, politics involves an intensive exchange ofinformation, endless discussions, and open debate.

Political Parties

Political parties are organizations that give the State's metasystem a built-in redundancy. Theyengage in information processing by exploring solutions, making new models and offering themin an open market. Political parties try to map themselves to a reality and sell those maps.Political ideas go to their own market place for testing: free elections.

The maps adopted by society are only valuable as System Twos. The rules that protect theirenforcement are second order agreements and intrinsically modifiable.

Many homeostats are formed in the selection and communication process of laws andregulations. For example, rule changes are desirable to update the system. However, too manyrule changes are not easily communicated.

The system's operation has to communicate the current rules, otherwise it brings entropy to thewhole process.

Political parties are still very much involved in ideological wars. They are all searching for lowvariety rules that solve all problems. It is not possible to find such rules. The search then turnsto models and once again, labels such as liberalism, neoliberalism, and Marxism are used toconvey models of society with the minimum variety possible.

Specialized groups are formed to politically pursue concrete goals. Ecologists,environmentalists, anti-abortion activists don't care to have a model. They cut down the varietyof their proposals in favor of efficacy. They do not notice that their reductionism plants theseeds of their own defeat at the most macro level.

Amplification

Ignorance and uncertainty reflect a lack of variety; and lack of variety is synonymous with adecreased capacity for adaptation. How have political systems dealt with ignorance anduncertainty?

One sure way to deal with ignorance is canceling incoming variety through the enactment oflow variety rules. This strategy, history shows, is the strategy of arbitrary rulers and autocraticregimes.

The other strategy is amplification of the metasystems own capacity for better informationprocessing; becoming an intelligent organization.

Historically, the inherent deficiencies of the metasystem's organization were dealt through whatWaninsky calls the selection of the better politician, the best person to govern.122

Control variety amplification at the metasystem level is achieved in different ways: in ancientChina, emperors had the right to have concubines and many children from which to select thenew ruler. European monarchies opted for hereditary succession and the invocation of divinewill. In Britain, the system is partly hereditary and partly representative government.

The democratic, representative, form of government of the United States, works under variousconcurrent assumptions: a) that the greater the number of people capable of being selected andof those making the selection by contest allows a better selection, b) that more involvement andparticipation by the people in government affairs distributes information about the state ofthings c) that knowledge about problems are needed to foster self government.

Most nation-states have converged on the democratic strategy for internal amplification of themetasystem's regulatory capacity. Recursive structures also appear as local, national, state andprovincial governments emulate each other's organization.

These assumptions made by democratic forms of government recognize redundancy as a valueof the metasystem: the more people coinciding in a SYSTEM TWO solution the better thesolution is. Rules about rules are second order rules. The assumption works until an external

perturbance disrupts this stability. Then a new blind spot is detected and another solution isneeded.

The values of the metasystem are free flow of information and adaptability. A country thatcloses its culture falls into lack of competitiveness.

Amplifying personal variety in a democracy is synonymous with pumping information into thesystem. The variety amplification scheme that becomes critical is the distribution ofinformation. The struggle for control means selling better maps to everyone: maps of realities,maps of metasystem structures, capitalistic maps, Marxist maps, etc. This is free marketsolution where ideas are the merchandise. The war of ideologies is born.

Thomas Jefferson's solution to the ignorance of the masses was to inform them and trust thewisdom of the average of large numbers. Other contemporaries of Jefferson were supportive ofthe idea that the masses should not be entrusted with details. They should be handled andinfluenced by the wiser men in power.

The variety amplification strategy has created long episodes of conflict. Some people favorconstraining information flows and saving the energy that would have to be employed inmassive communication. Others favor sharing the information regardless of the cost ofinforming the masses.

Metasystem's Values

Solving the amplification strategy of the State requires recognizing that the cybernetic lawsapplicable to information exchanges are very different from those of transformation of energyand matter applicable to the satisfaction of human needs.

It is useful to realize that the value system behind the system and the metasystem are different.The idea of homeostatic, non-computable circular causality relationships is a powerful one.

The key consideration to make about this complex network of interactions is that it is subject toprobabilities and not causal laws. This is cybernetic logic in action, not Aristotelian logic.During the 1950's Von Neumann warned us of the trouble of describing networks with the useof words. Words, as discrete units, are no good at describing complex networks.

Cybernetic logic and causal logic carry their effect into the value system of each system. Thepolitical metasystem follows the values of networks and causal logic subjects the operation tofollow the values of hierarchies. However, when recursion levels are ignored the operators feelan intrusion coming from above.

The metasystem's values are those needed to create a high gain amplifier. These values areliberty, equality of access, rewards for individuality, creativity, diversity, decentralization,effectiveness, interdisciplinary knowledge, self-expression and self- actualization.

Liberty has two expressions: it must mean liberty to participate in the governing process andliberty from what is traditionally known as unlimited government. Liberty is better expressedunder the VSM by saying that maximum autonomy is a pre-requisite of viability.123

The METASYSTEM is not concerned with energy requirementes of decision making because itis always low in comparison to the energy expended at the SYSTEM level.

The values likely to be found at the operation level are those of the industrial society. These areobedience, loyalty, hierarchy, conformity, standardization, centralization, material wealth,certainty and security.

The nine basic human needs identified by Manfred Max-Neef also map themselves interestinglyunto the subsystems of the viable system: Subsistence or permanence, maps unto the viableSystem as a whole. These are the needs for food, housing, and income. The need for protectionmaps unto System THREE. We can understand that System TWO, is linked to the needs ofcommunication, affection, and participation. System FOUR is linked to the need of learning,understanding, creation, and leisure. System FIVE is definitely connected to the need of identityand freedom.124

Wealth creation is in essence a moral act; it depends on a set of beliefs. A deep structure ofbeliefs is the invisible hand that regulates economic activity (the metasystem rules) culturalpreferences or values are the bedrock of national identity and the source of economic strengthsand weaknesses.125

The culture of origin is the most important determinant of values. It is hard to understand how itis that Economics has survived as a value emptied discipline.126

Part V

TheCybernetic

State

Chapter 12

The Cybernetic State

SUMMARY

The essential attributes of the Cybernetic State are described.

A Shared Model

The preceding chapters have served to support the idea that the cybernetic State is a possibleform of political, legal and economic organization. I shall speak about it in the present tense.

We should be able to understand that the State's regulatory capacity has centuries of evolution,and that given its self-organizing features, it is not likely to self-destruct or disappear soon:

"The question is not whether or not there should be a State. It is what sort of Stateit should be, and how it would meet the needs and rights of those it should serverather than dominate." 127

The point being made is simple: if the State not about to disappear, then it is must becybernetically controlled, so that it meets the needs of the people and truly protect their rights.

The cybernetic State is the next step in the evolution of the modern State. It brings thecybernetic paradigm to essential aspects of social organization and makes a wiser use oftechnological innovations.

To that effect, the cybernetic State is explicitly organized as a viable system. Its structure isrecursive and the viable systems it contains display the maximum local autonomy possible,while at the same time retain a strong sense of community.

At present, the modern State does not resemble the cybernetic State. The transition from thefirst to the second is still an ideal goal we strive to fulfill. In general, the modern State is stilltrapped in reductionistic approaches will not solve the problems created by complexity.

The cybernetic State recognizes that a new language to discuss its organization is needed.Taking the cybernetic approach means that people have to learn to describe many of theirpersonal everyday experiences in terms of systems, environments, feedback, control, amplifiers,recursive structures and circular causality.

This does not mean however, that the cybernetic State rejects the usefulness and explanatorypower of the Newtonian paradigm. Clemson says:

"Ashby wrote that, if adequate for our purposes, we should by all means use the classicalmethods of reductionism (i.e. deal with the system in terms of its parts) and avoid the moredifficult methods of the cybernetician."128

Some modern States show important cybernetic features. Viability, however, requires adoptinga different conceptual framework than the one being used now.

Self-Organizing System

The cybernetic State captures the useful features of the modern State. As a self-organizingsystem it shares a cybernetic structure with humans, human organizations and other viablesystems.

Considering its complexity, the State is the highest level political organization in the scale ofhuman organizations. Supranational organizations usually do not meet all the criteria and ordisplay all the components needed to qualify as viable systems in terms of our cyberneticmodel.

The modern State took more than two centuries in the making and has outstanding cyberneticfeatures. Scholars still characterize it as being composed of three elements: a territory, apopulation and a government. These are the same elements that the VSM suggests: anENVIRONMENT, a SYSTEM and a METASYSTEM. The mappings made by politicalscientists have been, in this sense, highly insightful.

When a State first appears it uses the language of self-reference; it provides for its own structureand sustainability. In cases where a State appears with the enactment of a written constitution ordeclaration, that constitution contains a model or description of the new organization, just as

DNA contains the blueprints for building the cell in which it is contained.

The cybernetic approach we have used shows us that State is not the product of a contract.Neither is it the product of a social contract. This is so even though it does provide theframework for an infinite amount of contractual relationships. To say that the State is anassociation of individuals that come together to seek common goals disregards the notion ofrecursion and the existence of recursive structures that outlive the individuals that create them.

The modern State is the product of a series of selections with survival value that has beenheavily influenced by the Newtonian world view.

In contrast, the cybernetic State reconsiders all the Newtonian influences of the modern State'scurrent structure. The cybernetic State would embrace the new scientific paradigm provided byCybernetics, where information is the most valuable asset in an economy and the common linkwith law and politics.

SYSTEM TWO: More Liberty

The Cybernetic State is formed by individuals that are well aware that the national economy andthe state are the same thing and that the government must make clever use information in orderto operate successfully.

Market mechanisms play a crucial role in the cybernetic State's processing of information andare exploited to the fullest. Markets are recognized as indispensable and powerful regulatorsand absorb as much variety as possible. The overriding idea is that a great deal of economicregulation can be obtained by contractual agreements, that do not require metasystemicintervention.

However, the State, or the economy for that matter, cannot function without a metasystem.Every viable system has a metasystem and the economy, being the State itself, has nationalgovernment as its metasystem.

At this point, while we are considering the potential of market regulatory mechanisms we mustask: Just how close could we get to an economy which is a fully free market economy? Is thecapitalist dream of no governmental intervention possible? What are the limits to our freedomin an orderly society?

Exploring the consequences of having a totally computerized society can help us answer thesequestions. We soon realize that there can be no economy without a management metasystem,even if its existence is reduced to a super intelligent computer program.

Imagine a society where an enormous network of interconnected computer systems such asInternet, would act as a super supermarket of goods and services. This system would serve asthe coordinator of every economic activity. Citizens would access the computer and placeorders for services and offer work or money in return. The computer would constantly sort outdemands for goods and services and match them with offers of services and products.Depending on the demand for a given good or service, the computer would automaticallycompute the exchange rate, or price, of the said good or service. Sitting at the computer terminalanyone could be aware of the 'price' of anything. People would then choose a transaction andcommit himself to paying the asking price or carrying out the contract. No cash transactionswould be needed, as the computer would keep track of all exchanges and the personal status ofevery citizen. This society would be regulated by contractual arrangements only. People wouldhave a wide choice of roles in such a society. The computer would test the ability of a person tocarry out a given role before assigning it. People could preprogram their work schedule a week,a month or a year in advance. In this utopian society the government would be reduced to asoftware program. Any changes to the software would have to be approved by a majority ofcitizens.

Although this computerized society of perfect citizens is imaginary, the purpose of the exampleis to show that even in this case, where individual choice is maximized, the computer networkand its operating rules constitute a metasystem, a form of government.

The argument in favor of a perfectly free market economy is in essence no different from KarlMarx's idea of stateless society. In VSM's terms both systems assume that a society can be runon SYSTEM TWO type regulators, where every exchange is voluntary or everyone knows hisor her role perfectly. In either case it appears obvious that the system needs some sort ofenforcement measures. What, then, does a social system with no government mean? It mightmean no metasystem indeed, but clearly no viability either.

The ideas that support maximum economic freedom can result misguided for lack of anadequate understanding of the cybernetic rules of viability. It is far more important to noticethat free-market economies are not so free when government intervention is used to createspecial and protected niches that negate true economic competition.

These considerations are usually the subject matter of politics, but in the cybernetic State theyare all part of the same theme. The lack of agreement on the issues that are to be resolvedthrough contractual arrangements is something that must be decided politically. And then again,good politics is the application of marketplace mechanisms to select the best ideas on how togovern.

Economies are viable systems. Therefore, there aren't any economies that are not a part of a

greater economy, just as all viable systems are contained in, and contain, other viable systems.In this light, it is not acceptable to portray the market economy as a viable possibility on itsown.

As a matter of fact, economists are quick to point out that there are no pure market economies,that all economies are mixed to a certain extent. With this they are recognizing that in the realworld all economies have some sort of metasystem. If this is truly the case, then the discussionshould be focused on how to best structure government and not to try to ignore the roll ofgovernment.

The goal of a free society is to make use of SYSTEM TWO solutions to the maximum.

Free market economists are correct in criticizing governmental intervention in the businesseconomies. The trouble lies in the fact that under this approach the government is defined asbusiness' natural enemy.

Government's interventionism is the result of an improper design. Lack of requisite varietyusually results in low variety rules, in dictatorial measures and interventions.

Let us also consider that the lack of popularity of government has to do with the entropyequation and the idea of the system's closure.

The government is a collector of entropic issues, of matters that are problematic and in need ofa solution that no one else can provide.

Basically, the creation of order in society is obtained by paying the price of having to makesense of disordered ideas that reach the debate floor. The Government does much of society'sdirty work. For instance, when the law requires that the corporations have their by-laws thisallows corporations to become highly structured and predictable, and easier to deal with bythird parties. The permanence of the by-laws provides a stability with is highly appreciated byanyone dealing with the corporation. The State is not so fortunate. Being at the highest step ofthe recursion ladder it has no other level to absorb excess variety. This responsibility rests onthe State. The State is therefore in a continuous state of agitation. When the State has to identifySYSTEM TWO solutions, for example the adoption of standards for weights andmeasurements, this selection process requires intense consultations and deliberations andendless discussions and arguments. Order for some is disorder for others. This is the law ofentropy at work in the civil society.

The political arena is the place to hold discussions that would disrupt the business world. Thelaw purposely creates mechanistic niches that provide security and certainty. As a counterpart,the production of security and certainty in one system, has the unfortunate consequence of

producing disorder for the other. In the same fashion, the law provides certainty and reliabilityto the economic operation but requires adapatation efforts, in the form of new laws to bedebated at the political marketplace.

The government is, from a managerial viewpoint, an experimental site for ideas that needexploring.

The cybernetic State must redirect the activities of the business community so that theenvironment is restored. To do this the mechanisms of free enterprise and its built in dangershave to be understood. Without a well functioning environment to sustain it, commercialactivity itself is imperiled in the long run. As thing are right now, commercial activity isrewarded when it exploits, rather than conserves, the natural environment.

Much of capitalism's success is due to the fact that economies began as energetically opensystems and environments were something to be conquered. Free market activity has flourished,but it has surpassed the borders imposed by nature.

The world's most powerful and active economies have embraced the Cartesian mechanisticworld view. It has been the paradigm that supports their operation. For a while it seemed asthough the invisible hand of capitalism could in fact run itself like a perpetual motion machine,or some sort of self-regulating mechanism. But just as the world was about to decree that freemarket capitalism could go on unchallenged we have come to realize that it is not self-regulating at all, that there are some built-in positive feedback loops in the system that make ithighly unstable in the long term. It is therefore useless and cynical to continue to praise theaccomplishments of democratic capitalism.

A culture that believes that it is business' sacred duty to placate a high variety demand for allkinds of imaginable products is a culture that wastes precious energy. It's balance with nature isnonexistent. As provider of goods that require too much energy to produce, modern industrystands out as an immature ecosystem.

Chemical industries are examples of immature ecosystems. They are profitable only becausechemical waste is not accounted for in the cost of their products. The current economic modelrenders us incapable of doing anything against companies that externalize costs and transferthem to the natural environment. The cost of restoring the environment is seldom contemplatedor accounted for.

In general, the business culture is set up as an endeavor that consumes resources without takingproper notice what has in fact been taken away from the natural world. We have to agree withPaul Hawken when he states that because of the obvious disequilibrium with nature we, thebeneficiaries of capitalistic thinking are living a "transient period of materialistic freedom".129

Markets are not equipped to recognize the true costs of producing goods. The marketmechanism does not have the language to talk about the destruction of planet. The relevantinformation is missing because it is not profitable to generate it.

Market economies tend to focus on short term monetary profit. There is little concern fornature's harm. Markets are good at setting prices but cannot recognize the true costs. Gasolineuse for example, generates acid rain, smog, and threatens the health of everyone sharing theenvironment with the motor car.

The alternative the having a short-sighted economy is to give it its proper dimension byincorporating the rest of the components that assure its viability.

SYSTEM THREE: Here and Now

The national or federal government is the State's metasystem or management. The constitutiondescribes the highest levels of government only. There is an obvious reason for this. Theconstitution assume or imply that the rest of the structure is recursive. Other governmentalstructures are also recursively organized all the way to the lowest levels of recursion, that is,until the individual person is reached.

The government and the State are obviously different things. The notion that the State is thegovernment is a common view found in economic literature, specially if it is socialist orcommunist. One is inclined to say that this is an error, but instead of making a value judgment itis much more educational to simply recognize that it is a fundamental aspect of that model. Andas a model residing in the system's metasystem it exerts its influence on everything that systemdoes. In countries where socialism took great importance, the State and the sovereign were seenas one. The sovereign was also considered the owner of important public services.

F.A. Von Hayek says:

" There is no need in the discussions of these problems, so long as only one country isconcerned, to bring in the metaphysically charged name 'state' . It is largely under theinfluence of continental and Hegelian thought that in the course of the last one hundredyears the practice of speaking of the state (preferably with a capital 'S'), where governmentis more appropriate and precise, has become to be widely adopted. That which acts orpursues a policy, is however always the organization of government; and it does not makefor clarity to drag in the term 'state' where 'government' is quite sufficient. It becomesparticularly misleading when 'the state' rather than 'government' is contrasted with societyto indicate that the first is an organization and the second spontaneous order."130

The notion that government is synonymous with the State must therefore be rejected.

The Government metasytem is a network of human information nodes that works in a self-vetoing fashion. Both elections and the balance of powers are self-vetoing homeostats. Thisnetwork works very much like the human brain, with unreliable components. The stability ofthe system comes from the stability of the values of those forming the network. The basiccoincidence in the way of thinking of many people produces voluntary compliance with thelaw.

The power to punish offenders of the law is incorrectly considered the main distinguishingattribute of the modern State. The key attribute of the Cybernetic State does not reside in itscapacity to punish the transgressors of the law, but on the convergence of wills for upholdingthe law. The willful acceptance of certain standards of prescribed conduct is far a moreimportant attribute of the State.

The direct benefit of cooperation does more to uphold the system than threats and punishment.So, the main attribute of the State's is willful compliance on behalf of its citizens and not, as it isoften portrayed the right to impose punishment on the people; even if this is the State'sexclusive attribute.

It should be clear that countries with highly diverse cultures will depend more on theenforcement of the laws than those countries where the culture is highly standardized.

The power of the State begins as information. The final stage of the information process is theenforcement of legal decrees. Information is converted into forms of energy through the processof energy amplification. Information controls energy, it is information turning into action. Thepower comes from the sharing of information by many people who do not override the use ofthat power in concrete cases.

The dual nature of living systems is an accepted feature of the cybernetic State. It has ametasystem and an operator. The metasystem is saturated with the values informationprocessing through a network. To talk about it, the cybernetic paradigm is far more relevant.The operation is also organized recursively but in its final stages it has hierarchic and causalconnections. At this final level the cause-effect logic takes on a specific meaning; in the end,matter must be transformed for life to carry on.

The values of the operation are loyalty, certainty, discipline, obedience, and control. There isroom for applying mechanistic criteria, and specialization comes in handy.

It is paradoxical, but the rule of Law is the application of certainty by the metasytem in order to

assure the liberty at the metasystemic level. Participation in the metasystem is characterized byits values, one of them being liberty. However, once a rule is adopted it descends to theoperation to limit the liberty of those that produce the goods.

Politics, considered as the practice of metasystemic activity, has also evolved rules which arecomparable to modern rules of information processing and software development. The State isan information processor and a map maker. In not so recent times all the processing was donethrough a bureaucratic infrastructure; this has changed with the use of computers, bettercommunications and more modern organization schemes.

Modern states are supposedly symmetric in the upward channel and the downward channels,where the rule of law is in principle applied equally to all individuals. In theory, everyindividual has the right to participate in government.

The struggle for democracy has been a struggle for individual viability and liberty.

The application of law as a means to insure liberty, however, is a tricky concept.131

Cybernetically speaking, everything that is identifiable arises from constraints imposed byphysical laws. Personal liberty is in fact the liberty for a person to choose which constraints heis willing to impose on himself and others. Liberty is in principle unconstrained at themetasystem level; and it is relative at the operation level where transformations are the productsof processes that impose physical constraints on matter.

SYSTEM THREE*: The Courts

The Cybernetic State is not as focused on widespread use of computers in governmental mattersas it is in understanding the correct application of cybernetic principles.

The Courts have already been influenced by the use of modern communications and computersin legal work. The exchange of legal documents and word processing is highly intensive .

Justice is typically homeostatic in nature. It is non computable. Laws can absorb part of thevariety of life but there will always be a residue. The remaining variety can only be absorbed bya human judge or jury.

The expansion in the number of rules does not necessarily translate into better justice. Theprocess can become only so complex before it becomes unintelligible. The Cybernetic Statemust recognize that all legal designs necessarily end in a homeostatic absorption of varietywhich means that inevitably non-computable human judgment puts an end to what wouldotherwise become infinite processing loops. The design of legal institutions must include

explicit use of these homeostats.

The current paradigm in American law is an adversarial system. The problem with thisapproach is not the contest itself, but the fact that lawyers are given the right to generateunlimited variety. The system concedes to the pressure and new rules are constantly created.The system is full of surprises.

An alternative solution to endless litigation is to impede a case from 'expanding' the law. If trueinterest arises in the new legal definition, cases would generate new law after the caseconcludes. Certainty and fast adaptation would result from this system. The Supreme Courtdecisions would be incorporated as new law to be applied in future cases. Congress would stillbe able to reform the law at any time.

Another alternative that would reduce litigation is making a much wider use of privatearbitration methods to settle disputes.

Once the Law is better designed the most cumbersome legal chores can be done by computersrunning expert systems software.

SYSTEM FOUR: Legislation and Long Term

The cybernetic State reorganizes the current approach taken to legislation and applies thecybernetic model to a full extent.

The cybernetic State separates short term decisions from long term decisions. Although somelegal systems make a distinction between constitutional reforms and ordinary legislativechanges to the law, legislative bodies ordinarily give too much power to people that have thesame time horizon. Duties to the present and to the future become confused in a messy state ofaffairs.

The alternatives to traditional solutions are two fold:

1.- To isolate SYSTEM TWO solutions and accelerate their application. Sharing the samesoftware and heavier use of computers can provide this acceleration. The systematization ofcourt decisions can simplify the search procedures of applicable law.

2.- To recognize the need to separate Systems Three and Four at the highest levels ofgovernment. The everyday handling of affairs must not be mixed with long term priorities.

The everyday governmental function of SYSTEM THREE is carried out by the executive

power under the SYSTEM FOUR rules provided by Congress. Further regulations are approvedby governmental agencies.

F.A.Von Hayek addressed this problem by saying that long term interests must be separatedfrom the influence of short term interests. That the same body of parliament or congress shouldnot have both jurisdictions.

A solution to the conflict between short term and long term priorities has been suggested byMaarten Willemsen. He uses the VSM to make the analysis.

According to Willemsen, a prerequisite condition for the viability of the State is met by theclassical doctrines of the distribution of powers and the rule of law, formulated by John Locke,Montesquieu, Kant and many British and American philosophers of the 18th century. Followinga logical criteria, these provide a sufficient normative distance between the operative functionsof the executive power and the strategic functions of the legislature.

However, the distribution of powers, and therefore the metasystem of government, havecollapsed in contemporary constitutions for several reasons.

In many democracies, the institutional setup is such that Congress or Parliament both decideson legislation (SYSTEM FOUR) and controls the budget (resource allocation, SYSTEMTHREE). The democratic process, operating through the competing parties do not really offerthe citizen a variety of choice. The electorate is often mediated by lobbying groups that preferdirect interventions on the command channel. Lawmakers make ordonnances, not general lawsof just conduct. We find this institutional setup .

Pressure groups tend to lobby for special short term interests, which are easier to organize andnot for general interests. Therefore, the electorate will not serve effectively as Three-Four-Balancer and the whole system will tend to focus on the short term, neglecting the long term.

Re-election is often guided by the same short term constraints. Though long term decisions arenever addressed. This results in the loss of foresight and direction, flexible response andpreemptive measures in politics.

The cybernetic State recognizes that its METASYSTEM control loops belong to different levelsof logic and must be regulated relatively independently of each other. The systems's differentneeds must be anchored in separated social legitimations, so that each level can be managed inits own right.

The creation of different voting procedures can solve the problem. The SYSTEM THREEassembly and the SYSTEM FOUR assembly would be elected separately; or different

procedures for enacting ordonnances, laws and constitutions would also be put in place.

Direct democracy by popular rule, plebiscitarian elements in government and legislation doesnot solve the problem. Once again it is easier to mobilize the electorate for a veto againstanything than for dangerously innovative solutions. The country's strategic options cannot bedecided in these terms.

Another factor working against long term interests is the excessive delegation of powers in theExecutive. The executive or the cabinet's decisions (in the case of parliamentary government)can then be more easily influenced by power groups. Willemsen concludes that:

"This setup endangers the democracy it supposedly fosters. This leads to a twofoldrepresentation: a powerless one that is democratically elected, and a powerful illegitimateone."

The problem has been addressed by Von Hayek in terms which are very close to thosesuggested by the VSM. According to Willemsen, Von Hayek argues that legislation is quitedifferent from administration. In fact, we would say, both functions belong to different levels oflogic.

Legislation is part of SYSTEM FOUR and its purpose is to sanction general, abstract rules ofjust conduct. These rules address both citizens and the administration (central command axis).

Legislation is of a higher logical order than execution and can be understood as a way ofinstalling new “programs” in society, as societal learning, and the restructuring society (veryslowly, very carefully) towards new ends. Laws form the long term conditions for individualand governmental behavior.

The administration, on the other hand, means to allocate special resources to special ends. Theadministration enforcing the laws and providing services shall have no say on which laws toenforce.

Government functions can be distributed between two assemblies: a Government Assembly anda Legislative Assembly.

Constitutions based on cybernetic principles must make a clear distinction between SYSTEMTHREE and SYSTEM FOUR functions and provide the means for rapid adaptation. SYSTEMFOUR adaptation through constitutional reform appears to be too slow in responding to rapidlychanging needs.

SYSTEM FIVE: The People

In the cybernetic State every citizen has the right to be a part of the SYSTEM FIVE network.Citizens are entitled to participate in the definition of a national identity. There are no obstaclesor prejudices standing against this participation.

SYSTEM FIVE is a network of citizens that provide themselves with the means to be informedabout every aspect of government. Computers serve as popular control amplifiers allowing realtime audits of governmental programs.

The modern State allows the government and government officials to keep secrets from thepublic; the Cybernetic State does not. This is the only way a system of this size can effectivelybe under control of the people. The principles of transparent management are carried out to theextremes. The system can have no secrets.

Just as freedom of the press and of speech were key aspirations in the past couple of centuries,the Cybernetic State shall make the use of technological resources to provide full disclosure ofgovernmental activities. There are no reasons for hiding governmental information because theorganization can be recursive and respect local autonomies to the greatest extent possible.

Also, "common sense, not to mention recent political experience, suggests that healthyeconomies and healthy societies alike have to keep order and chaos in balance —and not just ina wishy washy, average, middle of the road kind of balance, either. Like a living cell, they haveto regulate themselves with a rich web of feedback and regulation, at the same time that theyleave plenty of room for creativity, change and response to new conditions." 132

The cybernetic State must prove itself as an expert information processor and amplifier. Moderncommunications are its most important instrument of social development.

The celebration of many more social agreements must be given high priority. The cyberneticState must go beyond the democratic formula of majority rule and must seek the power ofconsensus and widely held models of what complexity means.

World of Environments

Part of the new identity held dear by the SYSTEM FIVE network is the sense of environmentalresponsibility. The cybernetic State is born with a commitment to take good care of theenvironment and restore it where necessary.

Positive feedback loops in the depletion of natural resources have to be identified and reversed.

The cybernetic State acknowledges as a result of the first industrial revolution and in spite ofthe second industrial revolution the world is arriving at the limits of growth. The critical areasare many:

The lack of fresh water, the generation of waste, the consumption of non-renewable energyresources, the wavering food supply, together with the destruction of forests are connected toeach other and to the extinction of different species. Urban crowding, generates an increase incriminality and drug consumption. Misinformation is at the heart of an incapability to put anend to these problems.

There is a new awareness that they are all critically interconnected.

The insecurity bred by these evils increases the application of traditional solutions that have onething is common: they do not work. Police powers are increased, science and its solutions arefurther specialized. A hidden economic metasystem demands loyalty to the free market system.The weak are crowded out of their vital environments.

The environment to which we usually refer to is the environment that is shared by all viablesystems. It is identified as the air we breath, the waters we share, and the natural resources thatpreserve global viability.

But each viable system has its own environment and some of these are incompatible withothers. How to make these systems coexist is the challenge of the community of States,controlled by ecology conscious citizens.

The world environment is common to all living systems. "Common" means high varietyrelationships and the inherent lack of capability to make computations. This fact requirestransferring regulatory criteria to principle based systems and not some form of numericmanagement.

The capitalist model based on free market economies cannot remedy its own limitations. Inprinciple, the market is the only admissible regulator of economic activity. Markets shouldexpand infinitely, which is synonymous with having to cope with infinite variety. Productionand products should increase forever. From the cybernetic standpoint, however, it is clear thatthese rules are the description of a system that is ultimately positively fed forward. At the mostcomprehensive level there is no feedback to control the system. The capitalist system does nothave an intrinsic control system. It is like a car with no brakes. Only the forces of nature canbring it to a crashing stop. Environmental pollution is one of those forces.

The market-only system assumes that the competition for scarce resources multiplies the search

of those resources or new ones. As history shows this appears to have been the case. Newknowledge has allowed new resources to play a role in solving human needs. New sources ofenergy and raw materials have been discovered. But only recently the awareness of the limits onthe carrying capacity of the earth has become an issue. Entropy starts being a legitimate andimportant concern.

The cybernetic State's internal model of itself accommodates the concern with the deteriorationof the environment and provides a path of development actions that channel further efforts todeal with pollution in a sensible fashion. A market economy model cannot addressenvironmental concerns simply because the model does not include an environment. The appealis therefore made to a visibly separate and independent political system. If the economic modelwere complete and considered so from the outset, many problems could be solved instead ofcausing environmental damage. Pollution of air and water and open spaces has been a hiddencost of the market system where the environment is not even considered as part of the economicmodel.

Loyalty to free-markets must be preserved. But no loyalty can be given to the concept of a fullyfree-market economy. There is a world economy in the making and is not separable from thelegal and political systems that will structure it. It is fundamental that we get the libertyequation right.

The cybernetic State must become a truly gigantic information pump, a great organizer of socialprocesses. It will also organize itself to provide the technology to reorganize economic andbusiness activity according to recursive organization criteria. It will have worked out all therecursions of industrial, commercial and services organizations. The economy will operateunder the same model in real time control modes, generating information based on high speedcomputer and statistical programs, for filtering off irrelevancy. The plan has been laid byStafford Beer on several occasions. The political will to do this is still to step forward.

The cybernetic State will help redesign business activities in such a way that it pays to actethically. The making of profits cannot short circuit the restoration of the environment.Restoration has to be a by product of industrial and commercial activity.

Companies must learn not to destroy the world around them and to act as socially responsiblebusinesses. The variety equation indicates that control has to be installed at the source.Profitable business and taking good care of the environment cannot continue to be considered asself-excluding activities. Recycling and reusing must be given every possible chance ofoccurring. Big businesses must set the example and lead smaller businesses away from the pathof ecological destruction.

Use of fossil fuel energy will have to decrease dramatically. The current rate of energy

consumption in the G-7 group of industrialized nations for example, is not sustainable at aworld level. Consumer products will have to have more information and less energy and matter.

Concern with the environment is already breeding a new kind of politics. Environmentalism isthe most powerful movement in politics, but the problems of the common environment will notbe solved unless the thinking is straightened.

We must also turn our attention to the other side of the VSM. What kind of amplifiers do wewant government to use? What about information pollution and the accountability of the media?

The model of the cybernetic State can begin to provide a framework to help make pertinentquestions. The answers may then start coming. In this respect, the methods of parliamentarydebate may start learning from the techniques now in use in private enterprise to reach betterand more complex decisions based on consensus instead of relying on decision making by asimple majority.

The cybernetic State will give information the maximum importance. It will strive toaccumulate and distribute knowledge, making use of all available means. It will assure itself thebest quality information and protect itself from noise. Being structured by unobstructedinformation it will be capable of acting on principle, not on short term convenience.

The cybernetic State will avoid the fallacies of quantification as information replaces capital asthe desired output of economic activity.

The cybernetic State will have to reexamine the size of central government and proceed to givelocal authorities the maximum autonomy possible. Its main job will be to divest itself of theaccumulated power.

Once a critical mass of cybernetic States is reached, the role of the military will be confined to aworld level force, where national armies will not be needed.

Given that each State is an expression of a natural recursion, it must abide by the laws of natureand proceed to find an equilibrium in its exchanges and manage the common environment without waiting for other States to do so. It must also develop a metasystem which encompasses themultinational corporation so that business cannot shop around for lenient rules.

The model of the cybernetic State can be the blueprint for the construction of a cybernetic stateof well-being for all. The common enemy of humanity and the living world is entropy in all itsmanifestations and nothing else.

Bibliography

Ashby, W. R. (1965) Introduction to Cybernetics. London: Chapman and HallAspray, W. (1990) John Von Neumann and the Origins of Modern Computing. Cambridge:MIT PressBaumol, W. and Blinder, A. (1988) Economics: Principles and Policy. San Diego: HarcourtBrace JovanovichBeer, S. (1966) Decision and Control. London: John WileyBeer, S. (1972) Brain of the Firm. London: John WileyBeer, S. (1974) Designing Freedom. Toronto: CBC PublicationsBeer, S. (1975) Platform for Change. London: John WileyBeer, S. (1979) The Heart of Enterprise. Chichester: John WileyBeer, S. (1985) Diagnosing the System for Organizations. Chichester: John WileyBerman, H. (1973) Law and Revolution. Cambridge: Harvard University PressCampbell, J. (1982) Grammatical Man. New York: Touchstone BookCasti, John L. (1994) Complexification New York: Harper PerennialChurchman, C. W. (1971) The Design of Inquiring Systems. New York: Basic BooksClemson, B. (1984) Cybernetics: A New Management Tool. Abacus PressCrawford, R. (1991) In the Era of Human Capital. HarperCollinsDozier, R. (1992) Codes of Evolution. New York: Crown PublishersEdey, M. and Johanson, D. (1989) Blueprints. New York: Penguin BooksEkins, P. (1985) The Living Economy. London: RoutledgeEspejo, R. and Harnden, R. (1989) The Viable Sytem Model. Chichester: John WileyGalbraith, J.K. (1987) Historia de la Economía. Barcelona: ArielHampden-Turner, C. and Trompenaars, A. (1993) The Seven Cultures of Capitalism. NewYork: DoubledayHarris, J.W. (1979) Law and Legal Science. New York: Oxford University PressHawken, P. (1983) The Next Economy. New York: Ballantine BooksHawken, P. (1993) The Ecology of Commerce. New York: Harper CollinsHeims, S. (1980) John Von Neumann and Norbert Wiener. Cambridge: MIT PressHeims, S. (1991) The Cybernetics Group. Cambridge: MIT PressHodges, A. (1983) Alan Turing: The Enigma. New York: Simon & SchusterJacobs, J. (1992) Systems of Survival. New York: Random HouseKelly, J.M. (1992) A Short History of Western Legal Theory. Oxford: Oxford University PressKolman, E. () Qué es la Cibernética. Buenos Aires: Siglo VeinteKosko, B. (1992) Neural Networks and Fuzzy Systems. Englewood Cliffs: Prentice HallLaughlin, M. (1992) Public Law and Political Theory. Oxford: Clarendon PressMacRae, N. (1992) John Von Neumann . New York: Pantheon BooksMangabeira Unger, R. (1976) Law in Modern Society. London: Free PressMaturana, H. and Varela, F. (1988) The Tree of Knowledge. Boston: New Science Library

McConnell, C. (1960) Economics. New York: McGraw-HillMcCormick, N. (1978) Legal Reasoning and Legal Theory. Oxford: Clarendon PressMcDonald, Forrest. (1985) Novus Ordum Seclorum. Lawrence: The University Press of KansasRaz, J. (1970) The Concept of a Legal System. New York: Oxford University PressRifkin, J. (1981) Entropy: A New World View. Toronto: Bantam BooksRifkin, J. (1991) Biosphere Politics. New York: Crown PublishersRothschild, Michael. (1990) Bionomics: The Inevitability of Capitalism. New York: Henry HoltSegal, L. (1986) The Dream of Reality. Markam: Penguin BooksSenge, P. (1990) The Fifth Discipline. New York: DoubledayToffler, A. (1990) Power Shift. Bantam BooksVon Foerster, H. (1981)Observing Systems. Seaside, CA: Intersystems PublicationsVon Hayek, F. (1973) Law, Legislation and Liberty. Chicago: The University of Chicago PressVon Neumann, J. and Morgenstern (1944) Theory of Games and Economic Behavior.Princeton: Princeton University PressWaldrop, M. (1992) Complexity . New York: TouchstoneWanisky, J. (1978) The Way the World Works. Polyconomics Inc.Watson, A. (1985) The Evolution of Law. Baltimore: The John Hopkins University PressWhynes, D. and Bowles, R. (1981) The Economic Theory of the State. Oxford: MartinRobertsonWiener, N. (1948) Cybernetics: or Control and Communications in the Animal an the Machine.Cambridge: MIT PressWinograd, T. and Flores, F. (1986) Understanding Computers and Cognition. Reading:Addison Wesley

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The Viable System Model

The Environment

1 This simple definition of System is perhaps one of the most popular.2 See Clemson, Cybernetics as a Management Tool, p. 21.- We can say there is a Cybernetic relativity. Cybernetics has played an

important role in realizing the need to identify the observer in science. Departing from the classical approach, Cybernetics showedthe importance of the observer as part of the experiment. But it also lays claim to the inherent relativity of knowledge given that theobserver is the one who defines the system and the variables to be observed. It has demonstrated that "the nature of our reality isunavoidably tied up with our nature as observing systems". This has been called second order Cybernetics and has embraced thefoundations of all knowledge. In sum, it has provided a basic consideration that the rest of science was missing.

3 Beer, Stafford the Heart of Enterprise4 See Breton and Largeant, p.62. Recursion is not a term of common usage, but the idea it represents has been present in many ways

for a long time. Let us recall the ancient belief that human semen contained many "homunculus", that is to say, millions of littlemen, and that somehow inside them were others, and so on indefinitely. In the same vein, Leibniz, the German philosopherspeculated about the existence of monads, where every monad reflected the whole. "What happens in the whole, each monad feels,and what each monad does, the whole feels." Also see the book Codes of Evolution.- The recursions or levels of recursion in natureare many. They go from the first informational arrangements of atomic structures displaying life capabilities up through cells andhigher order plant and animal life. The recursions continue through humans and human organizations up to local, national and world

organizations. They configure whole ecological systems and go up to planet level, in the terms of the Gaia hypothesis. From there itexpands into the universe where there is expansion and order being created constantly at the planet level, solar system level, then togalaxies, and clusters of galaxies and contracts to the elemental attributes of atomic matter and sub atomic particles. The recursiveuniverse closes in on itself in one rather gigantic loop that embraces the quantum, genetic and synaptic codes.

5 See Aspray, p.176.- Perhaps the first person to fully understand the role of information as something "incorporable" to a computingmachine was Alan Turing. As a mathematician trying to provide an explanation of Gódel's Theorem, he invented a theoreticaluniversal machine or Turing machine and solved the basic design of the modern computer. This "machine" was a "mathematicallyprecise, theoretical model of the stored program computer that was developed eight years later". At the time, a computer was aperson doing computations, and Turing's theoretical machine was destined to make the human computer's computation operationstotally explicit and machine reproducible. He also wrote one of the basic papers of modern computing called "On ComputableNumbers" in the year 1936. See also Turin's biography: Alan Turin, The Enigma, by A. Hodges.

6 See Aspray p. 197. An automaton is any "system that processes information as part of a self-regulating mechanism", such as thehuman nervous system, computers, homeostatic systems within biological organisms, radar, telephone and communicationssystems. In general, we know them now as control systems. When John Von Neumann studied the theoretical design of self-replicating automata, he became aware that "a minimum threshold of complication (complexity) was needed for automata to be ableto produce other automata as complicated as themselves". He found that there was "a minimum level of complexity below whichautomata are degenerative (can only produce less complex automata than themselves) but above which some automata can produceequally or more complex progeny". He later showed how, given that minimum complexity, the automata could produce much morecomplex tasks by increasing the complexity of the instructions it had and followed. He proved that it was mathematically possible tobuild a robot-like machine that would produce more robot-like machines. The puzzle confronting scientists was how the plans tobuild the automata were contained within the automata. An infinite amount of plans within plans appeared to be a necessary butimpossible solution. Von Neumann found that the solution was for the automaton to use its own structure as the plan to build theother automata. (1953)

7 After John Von Neumann proved his self-replicating automata theory, scientists found that the structure of DNA, the geneticmaterial responsible for life on Earth followed exactly the mechanism described by Von Neumann. DNA, as it was known, ruled thedevelopment of the cell in what we are calling a metasystem-system relationship. DNA has two emergent properties, it is a "two-jobsubstance". These two functions are the cornerstone of the life process. "DNA is heterocatalytic (it makes proteins) and alsoautocatalytic, (it makes itself)". It not only produces copies of itself but it does so using its own structure as a map. DNA is believedto have existed for about 3,500 million years .

8 With very slight variations, the same forms and functions observed in cells and in the human body are observed in business andother human enterprises. The organization principle is universal: information is processed and according to it, materials areprocessed and transformed into products that are used to sustain and create new life. Vital energy and materials come from theenvironment. In all cases, no matter what the size of the organization, from the smallest to the largest, information directs theprocess that controls the transformation of materials and energy. The business enterprise has in its management the equivalents ofthe cell's nucleus and DNA. Management bears the identity of the corporation, has the blueprints of the factory and plans and directsthe production process. The resulting instructions are carried out by specific operating units. Large business entities have existed aslegally incorporated entities for at least 400 years. The management-business relationship has been recognized at least that long.

9 Artificial life has proved that the logical structure of life is completely independent of material cause. See John L. Casti's paper:That's Life? Yes, No, Maybe. Santa Fe Institute.

10 Beer, Stafford. The Intelligent Organization.- Conference in Monterrey, Mexico.11 Ashby, Ross.- An Introduction to Cybernetics12 Ashby, Ross.- An Introduction to Cybernetics13 Perhaps the most interesting concept being researched at the Santa Fe Institute is precisely the idea that life takes place, and is only

possible, at the border of order and chaos. The four classes of cellular automata , dynamical systems, the organization of matter andundecidable computation provide solid arguments that this is the case.

14 The overlap between complex adaptive systems and viable systems is not perfect. Conceptually, the first can encompass thesecond, with viable systems being a special kind of complex adaptive system. Physically, however, viable systems have many

complex adaptive systems within them. We prefer to use viable systems because the idea of recursion is clearer; for instance, everyagent is an economy AND part of a larger economy and so on. We do not want any unnecessary loss of variety in the model, or toignore individuals as complete economies themselves. The idea that complex adaptive system agents are disperse, although true ifyou look at individuals or households in the case of an economy, can lead to ignore intermediate levels of recursion and thecohesiveness that they display as a requisite for viability. The second reason for using viable systems is the already existing researchand the possibility of making the VSM a graphic model shared by others as it is in some parts of the business world. Otherwise,adaptive complex systems is fine.

15 See Clemson16 See Senge p. 18117 See Breton and Largeant, The Soul of Economies, p.6-7)18 See Crawford p. 419 See Crawford p. 12420 See Robert Ozaki, Human Capitalism p.121 See The Living Economy p. 822 See Living Economy p. 1123 One of the first assumptions of Newtonian economics is that of a bountiful world. There is no notion of limitations. Energy and raw

materials are plentiful, waiting to be extracted. Nature is exploitable and subject to conquest by man. The success of classicalscience is unstoppable, and the. proof of that was that it brought about the industrial revolution. The idea that industrial developmentcould be unlimited is reinforced as is the capacity to accumulate knowledge through the reductionist method. Another majorassumption of Newtonian economics is that the world is stable. Stability was introduced to the economic realm because it allowsprecise measurements. The assumption was applied to the production of goods and services. The idea behind this assumption wasthat one could take the data obtained and with those figures in hand extrapolate them to the future with amazing simplicity, in aclear imitation of Newtonian science. Newton's science used the coordinate axis to show the relationship between variables in thephysical world. For example, in a distance and time coordinate axis velocity and acceleration are plotted. Newtonian graphs wereborrowed to explain economic "variables". The inapplicability of the causal method didn't seemed to bother the first economists.

24 See Baumol and Blinder, Microeconomics p.3425 See Baumol and Blinder, Microeconomics p.4426 The economist's assumption underlying the demand and supply law has been called perfect competition. Perfect competition is

based, paradoxically, on the preemption of the reductionist method of analysis. A fallacy of averages substitutes for the burden ofdetailed analysis and is used to validate the assumption. All sellers in a market are assumed to be small and their numbers are solarge so no one person's will dominates. Individual wills are averaged out. The product is homogeneous and information isdistributed perfectly among buyers. Another economic law discovered as coming out of the same "x" and "y" coordinate grid hasbeen the "Law of Diminishing Returns". According to this law, plotting production against inputs generates a curve that shows thata point is reached were a constant amount of extra inputs produces a smaller amount of output. This was taken to be anotherundeniable economic truth about how an economy works.

27 "Practically all theoretical reasoning in modern economics starts with the assumption that agents possess "perfect rationality," thatis that they obey certain axioms of reasonable and logical behavior. This means among other things that agents know what is in theirself-interest, act in their self-interest, and are able to perform the calculations necessary to discriminate the implications ofalternative decisions. This last requirement in turn implies that the agents have the analytical capacity —the smarts, thebrainpower— in a well-defined decision problem to figure out the optimal action. This standard mode of theorizing in economicsassumes that agents derive their conclusions by logical processes from the givens of each problem —premises that are assumedcomplete, consistent, and well-defined. These conclusions follow necessarily and inexorably, deduced from the given premises."However, says Arthur, in the face of complexity the economic decision making process is inductive and not deductive. "In mostproblems of complication, (human decision makers) proceed in a fairly predictable and simple sequence: they look for patterns;construct representations and internal models based on these; use these as working hypothesis; carry out deductions based on these

hypothesis; and strengthen or replace these models or hypotheses as they receive feedback from their environment." See BrianArthur's paper "On Learning and Adaptation in the Economy." Santa Fe Institute.

28 Scarcity is the main economic assumption on which classical economic thinking revolves. Land, labor and capital. are limitedeconomic resources. All three are considered the ingredients or inputs used in the production process. And all of them, economistssay, are scarce. They explain the need for specialization, division of labor and exchange. Scarcity forces rational choices betweenalternative uses of resources. However, we just as easily can say that specialization is the result of abundance, not of scarcity. Thefirst and natural exchange is the exchange of that which is abundant. People take to the market excess production in exchange forsomeone else's excess production. The first incidental exchange of information about complementary forms of accumulated energywill bring about an economic exchange, reinforcing further exchanges. This, apparently, is just what happened between differentbacterial groups, between chloroplasts and plants and mitochondria and animal cells. The mitochondria, tiny organelles inside ofanimal cells that convert oxygen we breath into chemical energy have their own DNA and RNA independent and different fromthose of the rest of the cell. It is thought that these bacteria-size organisms were once living independently themselves. They wereonce bacteria themselves. They invaded or were gobbled up by the larger cells. Flagellates split off the eukaryote line 2 billion yearsago. By 1.5 billion years ago, the sea had become oxygenated. Certain bacteria containing chlorophyll gave off oxygen as wasteresulting from their life process. After everything that could be oxygenated was, the buildup of oxygen in the atmosphere began.Oxygen was later used as the energy source for higher life forms containing a nucleus. (Blueprints p. 317). The complementaryinformational link is unavoidable, and it may have evolved into the creation of the first forms of life. Theorists have it that in aprimordial life soup some molecular arrangements had a better chance to stick together than others. "Since the ingredients that makeDNA (the four bases G, C, A, and U) do stick together better than others, a chance combination of those could — even long beforethe start of life— have an evolutionary advantage. In the random process of molecules getting stuck and unstuck, natural selectionwould already be at work., operating at the level of natural laws". (Blueprints, p. 288) Double feedback loops between two mutuallysupporting substances could have helped stabilize the existence of far more complicated substances as RNA.(Blue prints p. 289)"Competition for making enzymes from a finite supply of chemicals in the soup would have to be regulated so that A and B both gotwhat they needed. For if one got too much the other may not be able to find enough..." Eigen has named this feedback loop of RNAsequences a hyper cycle". See Blueprints p.290. Cybernetics indicates the there are two-sides to control. The same is true foreconomic activity. What is abundant to one is exchanged because it is scarce to another. Why should scarcity be the primaleconomic concept? It is clear that scarce means nothing if there is no abundance of something else. Even if something is scarce, it isaccessible to whoever has the spare energy to get it. A balance is achieved but the balance indicates a two sided equation.

29 Take the evolution of energy sources as an example. Water running in streams, wind, solar energy, coal, fossil fuel and atomicenergy have always existed. It is the lack of knowledge that impedes considering them as such. For instance, if nuclear hydrogen-helium fusion reactors became technologically feasible and were ever built on and industrial scale, the energy needs of the worldwould be solved. Hydrogen-helium fusion energy is radiation free and pollution free too.

30 A very good example of the impossibility of perfect rationality is provided by the game of chess. The game of chess is a closedsystem in the sense that every next possible move at any stage of the game can be identified. However, the number of total possiblecombinations of moves and countermoves is so astronomically high that it is "de facto" impossible to anticipate who gets thedefinite advantage in the next move unless the game is very close to a check mate situation, where the variety of the systemdecreases substantially. Economists of the Newtonian tradition tend to assume that information processing is free and/orinstantaneous.

31 Senge, P. 70 When the dominant assumption of the metasystem is a threat to life, as it was during the cold war, then the strategiesturn to the escalation of attack and defense methods. How could one deny the contents of the metasystem in the management of theeconomic operator? Do stealth bombers build themselves? It is easy to show how two systems can lock each other into this type ofassumptions. The US and the USSR each thought in the following terms:

USSR arms

Build US arms Threat to USA

Build USSR arms Threat to USSR

US arms

Self-reinforcing positive feedback loops

Input

Input

OutputSystem

SystemOutput

The two linear ways of thinking were fused into a circular positive feedback loop called the nuclear arms race. See Example from P.Senge, p 70. What did it take to unlock the closed positive feedback loop? It took the economic destruction of the USSR and anastronomical indebtedness of the USA, that's what it took to put a stop to it. The route of non cooperation is the high entropy routeto a precarious life.

32 See Living Economics p. 91. "Ever since Adam Smith wrote 'The Wealth of Nations' just over 200 years ago, specialization hasbeen regarded as synonymous with economic progress", says James Robertson. Not only did individuals specialize but also entirecommunities. Some were dedicated to coal mining, others to steal making, fruit growing, fishing, coffee growing, or ship building.But nowadays specialization makes these persons or communities more vulnerable to economic changes outside their control.Starve a system of the variety it needs to adapt to changing circumstances and it becomes a hazard. Specialization can result insudden commercial death. The technological impact on the economy have been examined in detail by Paul Hawken in his book"The Next Economy". He stresses that a "new informative economy that reduces the amount of materials consumed by industry andindividuals by raising and enhancing the information and intelligence contained within goods and services" is now living side byside with the "mass economy", which was the economy of the industrial age, having to do with products that were both massive (notintelligent) and for the masses of consumers. See also Rothschild, Michael. Bionomics p. 71. A thesis that points in the samedirection says that our ancestors supplemented "their genetic evolution with technological evolution". It was the human brain thatallowed this connection between the inherent informational capacities and the capacity to store technological knowledge at asocietal level. This information has been accumulating at an ever increasing rate. It is information that lies at the heart of economicevolution.

33 Says Buchanan: "...my 1982 response to this question was to urge that we exorcise the maximizing paradigm from its dominantplace in our tool kit, that we quit defining our discipline, our 'science', in terms of the scarcity constraint, that we change the verydefinition, indeed the very name of our science', that we stop worrying so much about the allocation of resources and the efficiencythereof, and, in place of this whole set of ideas, that we commence concentrating on the origins, properties and institutions ofexchange, broadly considered. Adam Smith's propensity to truck and barter one thing for another —this becomes the proper objectfor our research and inquiry".

34 See: Maturana, the Tree of Knowledge.35 See Baumol and Blinder, Microeconomics p.44.36 See Waelchli's chapter in the Viable System Model, p.61.37 See Waelchli's chapter in the Viable System Model, p. 64. "In the domain of the supra system embracing the organization and its

environment, we focus on three complex, living, high variety, interlocked systems, each of which operates in obedience to Ashby'sLaw. These three systems are the firm's array of markets, its management, and its work force. The last two of these are purposefulalways, the first sometimes is". "The supra system is defined to contain internally all the forces and factors that measurably affect its

states.... The successful organization not only interacts with its markets, but also exercises some measure of control over them,because the supra system operates according to the cybernetic laws of mutually adaptive control".

38 See Beer's Heart of Enterprise.39 System Two arrangements are by definition all those mechanisms that do not impinge on the autonomy of the viable systems that it

coordinates.40 An important issue remaining to be solved in any agreement is the stability of the arrangement. Now, the key to making this

arrangement stable is to impede one of the two grabbing the good offered and not delivering his share. To solve the problem ofpossible unilateral benefit we need a mechanism I will call Maxwell's angel. Maxwell's angel is a gatekeeper, as is his cousinMaxwell's demon of thermodynamics. He opens and closes the trap doors of two vaults where the economic agents place andexhibit the goods they propose to exchange. The angel makes sure that the goods can be examined but does not release them untilthere is agreement on the quantities and qualities of the goods to be exchanged. The angel represents the rules of the process ofreaching and honoring the agreement. In a setting of honorable persons the angel resides in the heads and culture of those makingthe exchange. The angel consumes little energy. In a context of less cooperation, the angel would need to get the help of an agent ofthe law to enforce the agreement. This enforcer of contracts consumes much more energy in carrying out his task than the angel. Ihave identified Stafford Beer as System Two of the VSM as the equivalent of the task carried out by Maxwell's angel has beenidentified by .

41 Peyton Young, in the Evolution of Conventions, a working paper at the Santa Fe Institute.42 The cost of information processing activity is often ignored by current economists as an important factor in economic relationships.

Gathering information is costly too. Individual economic actors do not usually know all that is happening in their environment andtherefore tend to assume that it is stationary unless otherwise observed. This tendency reinforces initial settings of a convention. SeePeyton Young's paper: the Evolution of Conventions at the Santa Fe Institute.

43 A player with two alternative actions in an economic game tends to maximize his outcome or minimize his loss if the other playeralso has two alternatives and both alternatives are linked and limited by a pay-off function.

44 According to Kelly, however, "the Greeks, so fertile in so many areas of the intellect, never produced a practical legal science; theRoman jurists were the first to give this to the world." See Kelly, p. 5.

45 Legal systems, says J.W. Harris are simultaneously : "1) a momentary system of rules constituting 'the present law' of acommunity; 2) as a congeries of normative expressions of disparate types forming part of the tradition of a body of officials; 3) aninstitutional complex centered on the courts." See p. 165.

46 This is John Austin's definition; see Kelly p. 314.47 Definition by Lewellyn, according to H.L.A. Hart, p. 1.48 See Joseph Raz p.1.49 See the book The Design of Inquiring Systems by C. West Churchman.50 A classifier system "is an adaptive rule-based system that models its environment by activating appropriate clusters of rules. It uses

a genetic algorithm to revise its rules. Each rule is a condition/ action form and many rules can be active simultaneously." Theaction part of a rule specifies a message that is to be posted when the rule is activated. The condition part of a rule specifiesmessages that must be present for it to be activated. Thus, each rule is a simple message-processing device that emits a specificmessage when certain other messages are present. Overt actions affecting the environment are the result of messages directed to thesystem's output devices (effectors), while information from the environment is received via messages generated by its input devices(detectors). The overall system is computationally complete in the sense that any program written in a programming language, suchas FORTRAN can also be implemented by a classifier system". Genetic algorithms are modeled on the process of evolutionarygenetics. They manipulate a set of structures called a population to produce another population which is better fitted to itsenvironment in the artificial life generated by computer. See Artificial Adaptive Agents in Economic Theory, a working paper atthe Santa Fe Institute authored by John Holland and John H. Miller.

51 "In a classifier system, the first rules that establish themselves are generalists, rules that are satisfied by many situations and havesome slight competitive advantage. They may be wrong much of the time, but on average they produce the interactions that are

better than random. Because their conditions are simple, such rules are relatively easy to discover, and they are tested often becausethey are satisfied often." "Once the generalists are established, they open the possibilities —niches— for other rules. A morecomplicated rules that corrects mistakes of an over-general rule can benefit both itself and the over-general rule." "A kind ofsymbiosis results. Repetitions of this process produce an increasingly diverse set of rules that in the aggregate, handle theenvironment with fewer and fewer mistakes." See Holland's working paper: Echoing Emergence. Santa Fe Institute.

52According to Roscoe Pound, p.114: "Theories by which men have sought to give irrational account of private property as a socialend legal institution may be arranged conveniently in six principal groups, each including many forms. These groups may be called:(1) Natural-law theories, (2) metaphysical theories, (3) historical theories, (4) positive theories, (5) psychological theories, and (6)sociological theories."53 See Kelly, p.15254 See Kelly, p.23155 See McDonald, p. 11.56 See McDonald57 See McDonald, p.1358 See McDonald, p.2959 See Brewer vs. Crosby, Black's Law Dictionary60 See Billings vs. State Black's Law Dictionary61 See Buchanan p. 26862 See Buchanan p. 26963 According to Kelly, although priests and prophets of ancient times included perceptions of human nature and moral precepts in

their teachings and poetic insights, it was the Greeks who first held objective discussions of man's relation to law and justice andbecame an activity of the educated mind. See Kelly p.1.

64 See Loughling p. 8565 See Buchanan p. 7766 See Buchanan p. 8867 See Loughlin p.8668 See Whynes and Bowles, The Economic Theory of the State., p. 26.: "Let us suppose that X and Y are living in a 'state of nature' at

present and are both considering making a pact or a constitution. Each player sets out to calculate whether some suggested set ofrules would improve his position or not. Interpret x1 and y1 as being the strategy 'obey the rules' and x2 and y2 as the strategy'ignore the rules'. The continued existence of a state or constitution will be of mutual benefit provided that both players abide by therules. The difficulty however is that, once the constitution has been introduced, each player. if he is sure that the other will obey theconstitution, has an incentive to cheat. Player X for example, is in favor of the introduction of the constitution since it offers him animprovement to 8 from 6 as compared to the maximin solution. Once the constitution has been introduced, however, he observesthat by breaking the rules (but assuming that Y abides by them) he can makea further gain of 2 (since for X the payoff from x2, y1 is10 as against 8 from x1, y1). This is precisely the problem of chiselling that was identified in the case of the cartel investigatedabove. Buchanan (1975) relies upon the 'prisoner's dilemma' model to establish, first, that under some circumstances cooperativebehavior will be beneficial to all parties and, second, that the players will have to construct an agency or umpire who has the task ofensuring that players will abide by their agreement. The civil magistrate's function can thus be identified quite precisely and can beseen to be of critical importance if the political society is nto to be destroyed by the 'anti-social' behavior of its citizens."

69 See Winograd and Flores.70 See Kelly, p. 31271 On how legal science sees this nesting of rules and meta-rules see Roscoe Pound, p. 56 where he says that Law as an aggregate ofrules gives an inadequate picture of the manifold components of a modern legal system. The system requires rules, which are detailed

provisions for detailed states of fact; general premises for juristic reasoning known as legal principles; legal conceptions, which aremore or less exactly defined types with which to classify cases; and finally legal standards of conduct, as for example what in Romanlaw 'an upright and diligent head of family would do' or in English equity a standard of fair conduct by a fiduciary.72 "Hitherto, it has been assumed without much argument that there is a relatively simple disjunction between clear cases and hard

cases. In the former, justifications of decisions can be achieved by simple deduction from clearly established rules. In the latter,since we face problems of 'interpretation', of 'classification' or 'relevancy', we have to recourse to 'second order justification'.Deduction comes in only after the interesting part of the argument, settling a ruling of law, has been carried through. But in truththere is no clear dividing line between 'clear' and 'hard' cases. Let us recall the argumentative context. A plaintiff/pursuer orprosecuter (P) has a complaint against someone (D). His best chance of obtaining legal redress is if he can prove some facts 'p'which will enable him to invokesome rule "IF p, THEN q". But the defense may then arise doubt as to the facts, or challenge thelegal footing of the claim, the latter being the possibility which is of present interest. What that will involve in a case where P has arule to invoke is D's raising an argument on the interpretation of the rule or the calssification of the matirial facts in specific terms ofthe rule."

73 See Loughlin p. 25574 See MacCormick, p.73.75 See Berman, p. 9. "In the Western tradition, law is considered to be a coherent whole, an integrated system, a body and this body is

conceived to be developing in time, over generations and centuries." "The body of law survives because it contains a built-inmechanism for organic change."

76 See MacCormick, p.21: "A deductive argument is an argument which purports to show that one proposition, the conclusion of theargument, is implied by some other proposition or propositions, the 'premises' of the argument. A deductive argument is valid if,whatever may be the content of the premises and the conclusion, its form is such that its premises do in fact imply (or entail) theconclusion. By that it is meant that it would be self-contradictory for anyone to assert the premisses and at the same time to deny theconclusion." And in page 33: The logical conclusion reached by the judge "is not 'must' of causal necessity or of logical necessity. Itis the must of obligation. The judge has a duty to give that judgement. It is merely banal to observe that his having a duty so to givehudgment does not mean or enail that he does or that he will give, or tha he has given, such a judgement. It is neither physically norpsychologically nor logically impossible that an individual will not act as he ought, will not act in accordance with his duty. All thatstrictly follows is that the judge would be acting in an unjustifiable way if he failed so to give judgement." And finally, from thearguments on page 35 and onwards it follows that: when a jury pronounces a verdict, a legal truth is established, but the use ofwords (one way or the other) does not make the fact itself true nor false. In this sense the verdict is a model of reality which may ornot be correct. The verdict can be logical even if the law itself does not make make sense or is 'illogical' in a wider sense, but thisproblem is metasystemic to the case in question.

77 See Loughlin p. 23878 See Loughlin p. 23979 See B. Kosko in "Neural Nets and Fuzzy Systems", p. 3380 See McCormick, p. 5: "Any mode of evaluative argument must involve, depend on or presuppose, some ultimate premisses which

are not themselves provable, demonstrable, or confirmable in terms of further or ulterior reasons. In that sense, our ultimatenormative premisses are not reasoned, not the producto of a chain of logical reasoning."

81 See Black's Law Dictionary.82 In a very complex case the problem faced by the judge is no different from the undecidability problem tackled by Alan Turin. The

judge cannot rule on the case unless he retraces all the steps that generated the situation that led to the outcome that is being broughtbefore him, which is not an easy thing to do.

83 See Hawken84 See Hawken p.16485 See Seven Cultures of Capitalism.86 See Seven Cultures of Capitalism.

87 See Clemson p. 22288 "Ideas of fundamental law and rights, of the social contract, of the rule of law, of the limits of state power, are central to the interest

of the political scientist, but no less so to that of the jurist." Kelly, p.xv.89 See Loughlin, p. 24190 See Loughlin, p.7691 See Loughlin, p.7692 See Biosphere Politics: p.4693 See Biosphere Politics: p. 1294 See Black's Law Dictionary95 See Loughlin p. 396 See The Seven Cultures of Capitalism97 See The Seven Cultures of Capitalism98 See The Seven Cultures of Capitalism99 The discovery that constitutions are virtual VSM maps of the State was done in 1983 in Querétaro, México, while Stafford Beer

and I were unsuccesfully trying to get the Mexican government to apply some cybernetic management to its own organization. Afterasking Stafford if it was correct to assume that constitutions are mappings of viable systems he suggested that I test the modelmyself. The constitution at hand to do the mapping was that of México which, like many others, is based on the US Constitution. Ihad read the constitution many times in Law school. This time, I was a looking at it as a cybernetician; to my amazement, and Beer'slater gratification, every feature of the VSM began appearing in the text quite explicitly. The full description of the cybernetics ofthe Mexican constitution were incorporated in my book "Cibernética, Estado y Derecho" published in México City in 1986.

100 See American Government101 Recursion is implicit in political organization going way back to the Greeks. Kelly says: "Plato's (ultimately more influential

disciple Aristotle (384-321 B.C.) also presented the origin of civic existenec as an organic development, resting for him on theprogressive and natural accumulation of units, starting with the family, and thence evolving into the city or state (polis) through theunion of neighboring villages." See Kelly, p. 13.

102 See American Government p.279103 See Holland explanations in p. 145-146 of the book Complexity.104 H.L.A. Hart, according to Kelly, p. 404105 See Kelly, p. 405106 See Raz, p.71107 John L. Casti, Complexification, p. 115.108 See Diagnosing the System for Organizations, p.116.109 What distinguishes evolution and learning is the time scale of each. " Evolution denotes long-term adaptations of the organism to

long-term environmental changes. Learning, by contrast, denotes short-term changes —adaptations in an organism's own lifetime toimmediate perturbations in its environment." See paper by Thomas S. Smith and Gregory Stevens: Emergence, Self-Organizationand Social Systems. Santa Fe Institute.

110 See the book "Complexity", p. 145-146111 See Holland's working paper: Echoing Emergence. Santa Fe Institute.112 A classifier system adapts or learns through the application of two well-defined machine learning algorithms. The first algorithm,

called a bucket brigade algorithm, adjusts rule strengths. Each rule is treated as an intermediate producer in a complex economy,buying input messages and selling output messages. When a satisfied rule R succeeds in the competition to post its own message, it

pays the rule(s) that supplied the messages satisfying its condition part. This amount is subtracted from R's strength. On the nexttime step, IF other rules are satisfied by R's message, and win the competition in turn, then R recieves the rules' payment. R'sstrength is increased accordingly. The net effect of the two transactions is R's profit (loss). Some rules also act directly on theenvirnoment in a way that produces direct payoff from the environment to the system. Their strength is increased in proportion tothat payoff. A rules strength will increase over time only if it earns a profit, on average, in these transactions. Generally this happensonly if the rule directly produces payoff, or else belongs to one or more causal chains leading to payoff. Under appropriateconditions, the strengths assigned by the bucket brigade algorithm do converge to a useful measure of the rule's contributions tosystem performance". "In order to generate and test new approaches to the environment the classifier system needs a secondlearning algorithm, a rule discovery algorithm. A genetic algorithm can be used for this purpose, because the rules of a classifiersystem can be represented by strings in an appropriate alphabet, and a rule's strength amounts to a measure of its performance. TheGA, by forming new rules in terms of tested, above average building blocks, transfers experience from the past to new situations.Plausible new rules result —rules to be tested and retained or discarded on the basis of their ability to enhance the performance ofthe classifier system". " Under the combined effects of the bucket brigade and genetic algorithms rules become coupled in complexnetworks. Clusters and hierarchies of rules emerge. Over time, these substructures serve as building blocks for still more complexsubstructures". "A CS agent can: 1) generate broad categories for describing its environment (so that experience can be brought tobear on novel situations); 2) progressively refine and elaborate the relation between categories (using experience to makedistinctions and associations not previously possible); 3) use these categories to build internal models that supply the agent withexpectations about the world; 4) treat all internal models as provisional (subject to confirmation or refutation as experienceaccumulates); and 5) generate new hypotheses that are plausible in terms of accumulated experience." See Artificial AdaptiveAgents in Economic Theory, a working paper at the Santa Fe Institute authored by John Holland and John H. Miller.

113 See Loughlin, p. 255, 256114 See Loughlin, p..251115 See Loughlin, p. 250116 Beer, Diagnosing the System, p. 120117 F.A. Von Hayek in Law, Legislation and Liberty, p.65118 Planning activities are correlated to the componenet elements of the metasystem. SYSTEM FIVE, as the system's identity is

involved in idealized or normative planning, as it describes an ideal outcome; System FOUR is linked to strategic planning, thedeployment and use of vital resources; and System THREE to day to day programming of activities.Under Beer's scheme of thingseach of these planning activities can be subject or be made to generate an objective measure: Potentiallity, Capability and Actuality.From these three we get other objective measures such as Latency, Productivity and overall Performance.

Potentiality

Cap/Act = Productivity

Capability

Pot/Cap =Latency

Lat/Pro=Performance

Actuality

Strategic PlanningNormative PlanningTactical Planning

Triple Indices of Achievement119 Black's Law Dictionary120 See Loughlin121 See the book American Government, p.288.

122 See the book The Way the World Works.123 The internal balance of liberty was explored by Alexander Hamilton. The quote is by MacDonald, see p. 2: "If liberty is to endure,as much attention must be paid to giving 'a proper degree of authority, to make and excute the laws with vigour' as to 'guarding againstencroachments upon the rights of the community.' An excess of power leads to despotism, whereas 'too little leads to anarchy, andboth eventually to ruin of the people.'"124 See the book The Living Economy, p.49.125 See The Seven Cultures of Capitalism, p.3126 See The Seven Cultures of Capitalism,127 See The Living Economy, p. 78128 See Clemson, p. 25129 See Hawken, p.6130 See Von Hayek in Law, Legislation and Liberty, p. 48131 MacDonald says, see p. 4: "The perpection that energetic government is necessary to the security of liberty and property —for asJames Madison put it in the Constitutional Convention, "the more lax the band," the more easily can the strong devour the weak— wasa crucial step toward becoming able to devise a VIABLE SYSTEM of free political institutions." The internal quotes were taken fromthe Convention records. See p. 10: " Indeed, it is no great exaggeration to say that for two decades prior to the meeting of theConstitutional Convention, American political discourse was an ungoing forum on the meaning of liberty. And there was a wide rangeof opinion: almost the only thing generally agreed upon was that everyone wanted it. Everything else —what liberty was, whodiserved it, how much of it was desirable, how it was obtained, how it was secured— was subject to debate."132 The quote shows transparent government as the essence of liberty in the 21st. Century. Is is taken from the book Complexity, p.

294.