Profits require that the whole must be greater than the sum of the parts. For example, half a chair is not half price of the full chair; most times you cannot sell two halves of a chair separately, or price them separately, even when you assemble the chair yourself from packaged parts. Similarly, the price a carpenter will charge for a chair is necessarily greater than the cost of the parts that make up the chair. In that sense, the whole cannot be reduced to the parts because the price of the whole is necessarily greater than the costs of the parts. If we equated prices to costs, there would be no economy because nobody will find that proposition profitable.
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The Cost of a Chair’s Design
The inability to reduce prices to costs means that the whole is priced based on the costs of the parts, but there is always something extra in the whole beyond the parts. The act of putting the parts together is itself very valuable, and this combination exists independent of the parts.
This viewpoint can be understood only when the whole is separately real from the parts and is added to the parts in order to organize them. It requires us to conceive a chair as a “design” that exists even when the object embodying the design does not. The design is in fact logically prior to the observable object that embodies it even though we cannot see it as an object; the design, rather, exists as an idea and it forms the basis or ground on which the chair is built.
The price that the carpenter charges for the chair includes the cost of the visible parts and the cost of the invisible design, and what it took to convert the design into a visible object. The price is greater than the cost of the visible components because the price includes the invisible. Unless we recognize the reality of the invisible, we cannot conduct economics.
The Value in the Citizens and Government
The economic system is like the chair in which the total value is greater than the value of the parts. The total wealth of the economy is greater than the wealth held by all the individuals and corporations, because the additional wealth is with the government which taxes the citizens and businesses. Like the value of the chair is not fully in the parts, similarly, the value of the economy is not fully in the citizens and corporations. The government is the idea or design of a society—which is independent of the economic activity and yet designs that activity.
By virtue of designing the economic system, considerable amount of value is held in the government, and the government needs this wealth to maintain and improve the economic system. However, the government doesn’t become part of the economy by holding this value, just as the idea chair is not one of the chair parts, and yet it co-exists with the chair. The difference is evidenced in the fact that the government taxes the citizens but not itself. The government can escape taxation only when it is situated outside the economic system.
The Inverted Tree of Economic Value
The chair is a part of a room, which is part of a building, which is part of a city, and so forth. Just as the price of the chair is greater than the cost of its parts, similarly, the value in the room is greater than the value in the sum of the parts, the value in the building and city is greater than the sum of their parts. As more and more levels of organization are embodied in a system, a greater amount of value is produced in the system. Just as the chair exists as an idea prior to its parts, similarly, the room, the building, the city, and the nation existed as a design before their parts. The whole doesn’t reduce to the parts because it existed logically prior to the parts.
These ideas can only be understood when we describe space as an inverted tree in which the higher nodes are like trunks from which branches, twigs, and leaves emanate. The concept chair, is higher than the chair parts, the concept room is higher than its parts, the building design is higher than the bricks and wood in the building, and the laws of the government which provide the blueprint for the working of the economy are higher than the economy itself.
Hierarchy Creates Increasing Value
All societies are based on some foundational ideas—e.g. the moral values of humanity and the purpose of life. The ruler of the land converts these ideas into laws which the governmental machinery—e.g. military, police, and bureaucracy—enforces to ensure that the society conforms to the ideas. Based on such laws, the cycles of production and consumption are created in the economy via businesses. And finally there are employees that work in a business.
There is additional value in the business (possessed by the business owner) than in all the workers in the business put together. There is additional value in the country (possessed by the ruler and the government of the state) than in all the businesses put together. And there is additional value in the ideas (possessed by the intellectuals who guide society with moral values) than in the government which controls the businesses. This produces a hierarchy of value in which the workers relinquish some value for the business owner, the business owner relinquishes some value for the government, and the government relinquishes some value by financing the intellectual and moral activity.
Based on the relinquishing, a tree of value is produced across four levels of organization in a society—intellectuals, government, businesses, and workers—due to which the business cannot be reduced to the workers, the government cannot be reduced to the businesses, and the intellectual activity cannot be reduced to the government. This tree of value constitutes an abstract conceptual model of the society that is both necessary and sufficient.
Concepts Exist Unperceivable
In this hierarchical model, we cannot perceive moral values that create the foundation of society. Similarly, the laws that the government creates to administer society are conceptual entities. The business organization is a conceptual entity which is given a legal status as an individual with rights and duties under the government. And each business creates rules for its employees. The moral principles, governmental laws, business incorporation, and employment rules, are all conceptual. Each of the higher concepts can produce the lower concepts, and different people are involved in this conversion. These people then become the four tiers in organizing a society.
The activities of these people provide evidence for the existence of the concepts, and by this evidence we can perceive moral values, governmental laws, business entities, and employment rules. That doesn’t mean that these ideas are created only at the point of empirical manifestation. We must rather conclude that these ideas exist independently of observation but they are observable when a person with a life force coverts them into recognizable activity.
For example, the moral values can exist, but the society at large cannot automatically become moral unless these moral values are expressed in the actions of moral person. The laws of economic governance can exist but they would not be realized until the government enforces them through a legal, law enforcement, and bureaucratic machinery. A business can remain incorporated but its existence of paper cannot be perceived unless the business transacts with other businesses. And the laws of worker employment can be well-defined but they won’t be evident to anyone unless employees follow them. People convert ideas into activities, and without the life force in their body we can have ideas but no evidence of the existence of such ideas.