Nov 3, 2011

The old law of the world: efficiency

All changes that have occurred in human history in the organization of the community (from the smallest up to the greatest empires and nation states) had two main components: the social and the innovation. The two essential and interdependent elements are the main reasons of change in the model of any human organization.

Social organization always has been dependent on the existing level of innovation. Throughout history, civilizations that had a new weapon or a lot of tactical knowledge and social organization skills have always been the leading civilizations. The Romans managed to build a great empire due to a superior social organization and the Vikings maintained their supremacy with those fast water craft. All great civilizations have lost their supremacy only when the advantages of a unique social organization or a better level of innovation disappeared. Where innovation was present in several communities at the same level, the social organization made ​​the difference between dominator and dominated.

I would be able to say that the model of social organization and the innovation have created a social paradigm and define the way of thinking and human action.

The existence and use of the currency, Stock Exchanges, Central Banks, fractional reserves system, financial derivatives are all the results of the innovation process. And we can generalize. Any development - from weapons to the most trivial aspect of life - is based on innovation and social organization. Therefore a better social organization has a potential to generate innovation and the innovation can change the social organization.

For example banks were just simple primitive metal deposits, the printing has made ​​available notes and tickets issued by banks and created conditions for emergence of central banks; the computer has made ​​possible the existence of fractional reserves and electronic transactions. Note that the history of innovation in the currency system is based on a series of social changes, i.e. optimization of social relations. Small errors in social organization were eliminated.

I believe that humanity due to globalization, innovation and social changes is at the moment when the social paradigm is changing.

This requires a notice: the change of the social paradigm occur in many years or decades. Look only how much the innovation has evolved in the last decades, how many types of social organization were cease to exist and how many adaptive changes were took place in the entire world.

The economic system is a part of social system, and the change of the current social paradigm is an adaptation of economics to new realities.

Any social paradigm (exactly as I defined it - an organic combination of social organization and innovation) whose inefficiency has been proven, cannot be experienced again in the same form.

In conclusion, efficiency is the law which govern human activity and it causes the shift of the social paradigm. 'Crisis' is the generic name for the period of time in which this social paradigm is changing.

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