If you study Lambda Calculus, you probably already know that λxy.y arg1 * arg2 * will decrease to arg2, since x is replaced with nothing, and the remainder (λy.y) is an identical function.
You can write zero in many other ways (i.e. come up with a different convention), but there are good reasons for using λxy.y. For example, you want zero to be the first positive integer, so if you apply the successor function to it, you get 1, 2, 3, etc. Using the function λabc.b (abc) you get λxy.x (y), λxy.x (x (y)), λxy.x (x (x (y))), etc., in other words, you get the whole system of numbers.
In addition, you want zero to be a neutral element with respect to addition. With our successor function S: = λabc.b (abc), we can determine n + * m * for n S m, i.e., apply the successor function to m n times. Our zero λxy.y satisfies this, both 0 S m and m S 0 are reduced to m.
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