The Intersections of Freedom, Knowledge, Economics, and Evolution

Acknowledgments: This essay draws inspiration from the groundbreaking works of David Deutsch on knowledge creation and the fabric of reality, Yuval Noah Harari's insights on human cooperation and information systems, and Daniel Kahneman's exploration of human decision-making and cognitive biases. Their contributions to understanding knowledge, society, and human behavior have profoundly influenced the ideas presented here.

I. Introduction: Individuals, Firms, and Governments

Economics is a dynamic interplay between three fundamental players: individuals, firms, and governments. While economic theory often divides the field into micro and macro categories, these three entities alone shape our economic reality through constant interaction. Individuals, in particular, are often overlooked in economic discourse, despite being the only real, tangible actors. Firms and governments are ultimately conceptual creations derived from individual ideas and actions.

To understand the difference between these actors, consider their privileges. Firms and individuals operate in the economic sphere with tools like capital, labor, and innovation. Governments, however, hold exclusive powers: the authority to print money, collect taxes, design the legal environment, provide justice, and command military force. These privileges make governments uniquely powerful among the ideas constructed by individuals.

When individuals and firms compete in any marketplace, their key advantage is their knowledge and not information. For example, I know all the facts in order to create spaghetti with meatballs. However, I lack the knowledge of the ratio of those ingredients, the exact temperature needed to cook, and soon. This difference in knowledge creates competitive advantage for different restaurants. It can be argued that this is just some asymmetric information that I as an individual do not have. However, we constantly see this phenomenon where many chefs compete with the same ingredients and information, and yet the maestro produces a superior end product with her touch. Asymmetric information therefore helps in creation of knowledge, not necessarily guaranteeing it.

Knowledge is created by solving problems. In the same example, the maestro would refine her skills through years of error corrections in her craft. This creation of knowledge is true across markets: finance, entertainment, technology, education, and health. Similar examples of individuals refining their crafts can be taken.

Whether or not something is valuable knowledge can only be tested through time. For example, the success of a decision to invest in a certain stock can only be told years down the line. Similarly, the maestro can only be identified with the test of time.

Wouldn't it be wonderful if we could find these maestros in advance so that we could reap them before everybody else does. That is the entire point of competitive advantage in the markets - financial, social, and public. The solution for finding these maestros in advance is to seek explanations and reasonings behind the maestro's success.

These explanations and reasonings can range from: political, historical, fundamental, statistical, and of course rhetorical. We can see successes from individuals having such varied explanations. Luck could be an obvious answer and cannot be disregarded. This statement however lacks explanation, so we will reject it. Another form of explanation for such a question would be rational and logical.

For any rational or logical explanation carries these characteristics: identification of facts, cause and effect relationships between these facts, and a conclusion after a series of cause and effect relationships. This process also allows for creation of hypotheses and theories. Therefore, when a new fact is identified and a series of cause and effect relationships can be drawn with good explanations, a new hypothesis can be drawn. After empirically testing the hypothesis, if true, it becomes an accepted theory. This process of identifying facts or searching for explanations happens due to a series of questionings and problem-solving.

Now we will take a look into various theories/ ideas in the marketplace and detail their rationale behind it.

For political and historical explanations, it is necessary for the historical facts to be correct. I am not calling facts as something "True" because it would be disrespectful for theoretical findings that have explanations and chains of cause and effect relationships which are actually True. When we understand these facts and chain of events we understand the past better. Should not Truth be something that has meaning rather than something that is a fact? There are really not many restrictions as in what facts may be. Facts can be derived from archaeology, something abstract, an event that has evidence of existence, and soon. When we combine these facts and search for explanations it pushes us towards a direction - the direction of Truth. In the vast majority of historical and political explanations we see major disagreements not in facts, but in explanations and reasonings of these chain of events. As explained previously, these explanations need to be rational and logical for it to have any substance of Truth.

From a fundamental perspective they regard something as the fundamental factor that affects all others. For example, the first and second amendments are considered to be fundamental for the United States. Similarly, in the stock market the income statements, balance sheets and cash flow statements are regarded as fundamentals. The only variations and disagreements come in the degree of to what depth and extremes.

From a statistical or quantitative approach, data is the key in determining what is to be regarded as the good holders of value. It is based on the belief that if correlation holds a particular trend then it can be assumed that the trend will follow the data points. There is no one fundamental factor that affects all others here. Every single point of data is taken into consideration.

Subsequently, what is considered logical and rational? 2+2 = 4 is assumed to be something that is rational and logical. The entire statement "2+2=4" is the Truth we reach after assuming the abstract facts "2", "+" "2" and "=". These abstractions are merely instruments to reach Truth. For something to be rational and logical it has to have a basis of reality.

It is important to consider that rationality and logic as a quality is not a default state of human beings. Rationality and logic has to be trained and learnt implicitly. The capability for rationality and logic differs among individuals; the reasoning for why we have winners and losers in various games we play as humans. Individuals who exhibit exceptional logical and rational ability in one domain may fail miserably in something else, as they lack the understanding of reality in other domains. However, there lies something far beyond and important than intelligence(rational ability) and knowledge which is awareness. Awareness of various existences. Health and Education are not merely instruments for power. They build awareness and foster creativity.

There are facts about human nature that my readers simply cannot ignore that exist in humans that do not require any training: love and trickery. The phenomenon of Love and Trickery is global and cannot be blamed for existence due to other factors. It exists regardless of other factors.

The idea of rationality exists because of the history of rationality, enlightenment findings, culture of rationality and educational systems. Humans were not always rational and logical. But, humans always tricked and loved.

I mentioned love and trickery as an idea to explain two social realities we witness in the world. The reality of Power and Creativity.

In the past, humans used muscle(their own or animals) as a source of energy and conversion of energy. Slowly other tools were invented to convert energy. Fossil fuels allowed the scale of production, consumption and conversion of energy to a larger extent. Most of anything that has power can be transferred through one form or another. In the age of Artificial Intelligence, mental power has been automated. I would like to draw a distinction between mental power and creativity. Anything that has a script can be automated by converting one source of power to the other. Anything that does not have a script and is useful, that is in essence true creativity. AI enables humans to detect patterns across a wide array of information. This is a greater ability of power than in the information age where information had to be manually searched. However, conversion of information into knowledge lies within humans. Power is not only fundamental to physical technologies. It is fundamental to social technologies as well.

Among all factors of production: Land, labour, capital, and enterprise, only enterprise is truly creative because it is dependent upon creating new knowledge in the marketplace. In the labor market, for example, connections or networks are often necessary to succeed. Connections and Networks are just another word for Power. Land is something naturally scarce. Hence power law applies. Capital too is scarce- power law applies. The only domain of economics where the power law does not apply is enterprise.

There are two qualities of social power: scarce and fractal and two qualities of creativity: unknown and abundant. Creativity also establishes a new kind of Power. We can add to our definition of creativity- novel, useful, and something that establishes a new Power. Once established, it can be used to influence social reality.

II. Knowledge, Information, and Trade

Individuals vary in intelligence, awareness, critical ability, personality, habits, and behavior. These individuals engage in constant trade with each other, with firms, and with governments. Trade, in essence, is the exchange of information—not merely goods or services. The primary tools for this exchange are money, votes, and information itself. The free market presumes that individuals, equipped with rationality and a wide scope of information, decide market outcomes. Yet, the reality is more complex.

Historically, information has been very secretive and powerful and the reach to information was limited. Tools to reach information were institutions: libraries, universities, families, religious houses, money, etc. The conversion of information into knowledge has however always been determinant upon individuals. The creation of new knowledge has also been a determining factor of individuals. An individual can also only create knowledge to the matrix of information provided. This matrix of information can be transmitted through genetics, culture, trade, institutions, data and other many factors. Knowledge is the expression of all this information which depends upon individuals. This expression is the personality of individuals, firms, and governments.

We will also later see how information is different to knowledge through an example of tennis. We will make further distinction that information or facts is binary: true or false. Knowledge, understanding, and judgement on the other hand lies in layers.

This knowledge, shaped by genetic code, culture, institutions, trade, and data, is the true engine of change. The creation and expression of this knowledge depend on individuals. Thus, firms and governments acquire a personality reflective of the individuals who constitute them. This personality includes both the fir tree (substance) and the ornament (appearance). Both are essential, and as we will see, ornamentation—or trickery—is fundamental to human behavior.

III. The Nature of Ideas: Organic vs. Inorganic

Firms and governments are not real entities; they are abstract ideas born of individual minds. Firms include corporations, universities, churches, and even constructs like marriage. Governments consist of institutional branches such as the executive, legislative, and judiciary. Political parties aim to control these institutions through elections, disseminating information that creates differing knowledge among individuals.

But not all ideas are created equally. Ideas emerge in two ways: organically and inorganically. Organic ideas form through micro-level communication and feedback between individuals. Inorganic ideas arise from top-down systems, often without human feedback. Algorithms, bots, advertisements from firms, and state propaganda can generate inorganic ideas that shape individuals' knowledge without their awareness. This asymmetry can influence votes and markets alike.

Feedback is the distinguishing feature of organic versus inorganic ideas. Ideas processed and modified through genuine human feedback are organic. Those manipulated or generated by impersonal systems are inorganic. The modern world faces the risk of becoming dominated by inorganic ideas generated from algorithms, AI, bots, that masquerade as truth, shaping the economic and political landscape without transparent deliberation.

IV. Information Control and Historical Servitude

The degree of servitude in any society is tied to its information systems. Consider British rule in the United States and India. In the U.S., slaves were subjected to a tightly controlled information pipeline. Any rebellion was met with cruelty, and awareness was suppressed. When leaks occurred—when individuals gained new knowledge—slavery was abolished and civil war fought among differing knowledge bases. In India, the British failed to control the information pipeline as effectively, leading to more resistance and lesser degree of servitude.

Modern examples abound. Nazi Germany, Communist Russia, and Maoist China all leveraged inorganic information control to shape knowledge and behavior. This inorganic information created and distributed is called propaganda. Organic information exchange—bottom-up, human-initiated, and human-feedbacked—is essential for freedom to flourish. Even in free markets, controlling the flow of information can manipulate perceived reality, as seen in the marketing of cigarettes as healthy in the 20th century. Therefore, the market only self-corrects if the information exchanged is organic and feedbacked - the dialectic method.

Lack of awareness of being subject to inorganic information systems corresponds to a higher degree of servitude. Individuals, unaware of their manipulated perceptions, become compliant to powers they cannot see or understand. The lesson from history is clear: only when individuals gain awareness and new knowledge—through leaks in the controlled information pipeline—can freedom be reclaimed. These leaks of information and knowledge happen due to constant competition among differing knowledge bases - a possibility only in the free market.

V. The Foundation of Freedom: Speech and Art

Freedom of speech is not merely a civil right; it is the master technology that enables all others. Though philosophers have long debated the definition of freedom, it resists complete capture in language. Let us borrow a tool from mathematics: set theory. Consider a set A representing absolute freedom. Within it exists a subset B, the freedom of speech. For A to exist, B must be fully contained within it. Without freedom of speech, no form of freedom can be fully realized.

Freedom of speech allows for the creation of art—defined here as anything both novel and useful. Whether it's a poem or a technological platform like Uber, art emerges from freedom. In nations lacking freedom of speech for all, art exists only among the ruling class, often in the form of policies designed to entrench their power. In the U.S., examples include historical laws like the Black Codes.

Art can only arise from the experience of freedom. This is true both culturally and technologically. Technological innovations are a form of artistic expression. Uber, Bitcoin, even space exploration—each is a product of artistic insight into human problems. The societies where freedom is most preserved are those where both high culture and technological art flourish.

It is because freedom of speech is the master technology that allows other ideas—especially those that can dismantle entrenched memes (untrue but widely accepted beliefs)—to survive and propagate. The dismantling of such memes takes time, but without absolute freedom of speech, this process cannot occur. If absolute freedom of speech does not exist, an idea can be used to control all others. For example, if communism or some religion becomes the master idea, it does not allow ideas that can counter them. Absolute freedom of speech even allows ideas that could dismantle its very idea itself. Of course, that has not happened in history. If freedom of speech is not absolute, some other memetic idea automatically becomes the absolute idea. The memetic idea does not allow evolution and progress, as it does not allow filtering of ideas.

Somebody must have created the economic reality that we live in today. In the US, the credit of the economic reality of today goes back to the founding fathers. The visionaries. The first and the second amendments. And all the coming amendments. Realism is a false tool to understand economics. Realism takes current economic facts and makes judgements. The facts are: income inequality, illegal immigration, misinformation, and soon. Economic facts are outputs of a function. The function is the so-called free market with all its deviations and protections which produces all of these outputs or facts.

VI. Designing Functionality

Firms and governments are only as functional as the individuals who design them. Dysfunction can result from flawed theoretical design or poor execution. It is crucial to evaluate the theoretical foundations. For instance, communism is often said to be a good theory with poor execution. I argue the theory itself is flawed because it disregards human creativity as a tool that can dismantle existing power dynamics.

Communism does not accept that a new chess piece can be designed and introduced by economic players. Capitalism, though imperfect, predicts its shortcomings—like income inequality—as tradeoffs for broader prosperity. Also, it accepts that human creativity can introduce a new chess piece in the power economy. The determining factor of how well the newly introduced chess piece in the power world lies in how good its entrepreneurship is - a major factor of production other than land, labor, and capital. Entrepreneurship depends upon knowledge and creativity. Silicon Valley in the USA is an example in the USA that continuously develops new chess pieces. Although most of these pieces produced become pawns, some end up becoming queens like Uber, Twitter, Apple, and Facebook.

Communism sacrifices individual liberty for income equality. The free market, on the other hand, accepts inequality as a trade-off for a rising tide that lifts all boats. However, the foundational assumption of rationality in the free-market within economic agents is flawed. Humans are not purely rational; rather, they are driven by the desire to trick others and avoid being tricked. This trickery, more than rationality, governs the true workings of firms, governments, and individuals. Just like in a chess board, tricks can be used to sustain and increase power in the economic play. The sophistication of trickery wins economic games.

Advertising is a primary example. Companies display half-truths and hide harmful details in fine print, that too because of regulations. Due to priming effects (continuous display of something that instills adrenaline due to fear or dopamine due to pleasure) in humans, advertising surpasses fine print. Trickery is not a deviation from the market—it is its core mechanism. It is deeply rooted in evolutionary biology. It ensures survival, helps in establishing hierarchies, and secures the future of one's genetic information.

Tricks that are against the legal environment are crimes. Crimes therefore are a stupid way of expressing creativity in places where the rule of the law stands. However, in places where the rule of the law is not functional, crimes become the standard practice. The belief on the rule of the law is also completely dependent upon individuals.

VII. Evolution, Knowledge, and Flow

Evolution is not just biological; it is epistemic. The knowledge that survives is the one best suited for its environment. For the growth of knowledge, the best suited environment is absolute freedom of speech. Humans possess the unique ability to design the environments in which they evolve: legal systems, religions, cultures, games like tennis, etc. The main difference between freedom of speech in the USA and other countries is that the absolute nature of it allows individuals or groups of individuals to design any evolutionary games that they want to play. However, we do have to play evolutionary games that our ancestors designed.

There is a psychological idea that the state of flow is achieved when an individual gets the right amount of pressure for the level of their skill in that domain. For example, a pro tennis player would not improve his tennis skills playing with an amateur. A professional tennis player has to play with another professional tennis player for new problems to arise and find solutions. This back and forth of problems and solutions produces the beautiful game everybody loves. Another idea that we can learn from the game of tennis is that knowledge is inherently implicit and that understanding lies in layers rather than in binary. Information or facts, though, is binary. Information is either true or false. As explained previously, there is some fact or true information of tennis that Roger Federer knows through which he has created some unique asymmetric knowledge of the game. Roger Federer obviously has better knowledge and understanding of the game than me and you, that is why he will win all games if he plays with us. Roger Federer himself may be unaware that he possesses such knowledge, called the power of intuition.

The state of flow—a balance between difficulty and skill—nurtures evolution. Humans design their own environments and thus have the power to steer evolution in conscious directions. This is why designing optimal environments is key. The best one we have built so far that allows progress is absolute freedom of speech. It is imperfect, but it has enabled the greatest flourishing of freedom and progress.

Just like how most medicines are designed for the general population and side effects vary among individuals, absolute freedom of speech is general and lacks specific adaptations to the day-to-day realities of people's lives. The role of government is to make necessary amendments in policies to address these day to day realities. Investing in education of individuals that is not dogmatic can also significantly alleviate people out of unnecessary suffering.

VIII. The Caste System as a Predictive Model

In every society, people fall into four roles—intellectuals (Brahmins), warriors and politicians (Kshatriyas), traders (Vaishyas), and laborers (Shudras). This was a prediction done by Krishna in the Mahabharata and it has been true throughout culture and history. The free market environment produces the classes of people as an output by chance of genetic mutation in the knowledge base. The free market is the macro environment. Each individual has their own micro environments. Due to the wrong interpretation of knowledge, the society of India and Nepal was designed to be in such classes by birth as a forced output rather than by chance in the free market. The result is one of the ugliest realities in the world. An environment that does not allow for evolution of knowledge and ideas, or at least only allows it in a limited population- Brahmins. Culture, therefore, plays an important role whether it creates an environment that promotes evolution.

This pattern of roles across society is visible in the U.S. as well: academia and professors as Brahmins, politicians and military as Kshatriyas, entrepreneurs as Vaishyas, and workers as Shudras. The crucial difference lies in mobility. Free markets allow for movement between roles. Rigid systems like caste suppress this movement, hindering intellectual and cultural evolution. In the free market, memes (false beliefs held widely) are eventually corrected. In the caste system, they persist.

The development of the internet has democratized information access. However, it has not allowed for progress to happen across the world. Why? Because of the desire of the non progressive rulers to maintain power through the power of their memes: Religion, Communism, Media Propaganda, etc. It has created a situation where information is plenty but knowledge, understanding, and judgement is scarce. The growth of knowledge happens by solving problems and the problems in the world of memes are only further memes. Memes are essentially an irrelevant problem to fix. The root cause is the non-existent maximum freedom of speech.

However, it is not as easy to just deploy absolute freedom. A caged bird, if set free, will only be a victim of a predator because the caged bird has not gone through the process of evolution. It will even resist being free due to the domestication of memes. Similarly, I won't be able to beat Roger Federer in tennis because he has gone through that environment's evolution. I have not solved problems by creating my own knowledge. The age old wisdom goes: "give a man a fish and you feed him for a day, teach a man to fish and you feed him for a lifetime". We all are on a different evolutionary path across many knowledge domains.

One thing has remained clear by the example of the internet: abundant information alone cannot fix problems. It is the creation of the ultimate environment- maximum freedom of speech that allows for other micro environments. Also, it is very difficult to influence a culture that can challenge prevailing dogmas. Cultures are organically created knowledge passed down through generations. Any culture that accepts absolute knowledge is dogmatic like the caste system. To develop an educational system that counters dogma is an inherently complex task. Inventions happen by challenging dogmas, and that is only possible in a free society as evidenced by US history. Using force once and for all to establish freedom fails too as evidenced by the US invasion of Afghanistan and Vietnam. Similar to how caged birds would not be able to hunt, most people suffering from historical systemic abuse find it difficult to ideate freedom.

Dogmas, memes, and social evils are all different words for the same idea - false idea but believed to be true by the majority that is causing social problems. It is used as a tool to assume power which then allows power wielders to falsely rationalize their worldview. Although, some level of memes are necessary for the functioning of the society- the noble lie. The difference in culture lies in the difference of the foundational trust. If the foundational trust is in the absolute freedom of speech, memes generated within this context can be corrected over the long term. For example, all the mistakes that have been made and corrected throughout American history. If the foundational trust lies in some kind of a meme, for example the caste system, it becomes a never ending vicious cycle.

Since education under the free exchange of ideas and not dogmatism is the absolute foundation for progress; globalization, the English language, and the Internet have played a key role in spreading ideas and memes. The difference in identifying good ideas from memes also depends upon individuals, and educational institutions play a major role in this filtering process.

Educational institutions like universities act like a fast-track way to correct the errors and create new knowledge. Therefore, any compromises to educational institutions leads to compromises to error correcting mechanisms. Another key insight of the educational system is that the quality of education is not a determinant factor of information, infrastructure, or even funding. The quality of education has a direct relationship with creation and transmission of knowledge.