About Economics: The Social Assumptions

ABOUT ECONOMICS

" Rent is that portion of the Earth which is paid to the landlord for the use of the original and indestructible powers of the soil. " - David Ricardo

The notion of dis-interested 'objective' science is a myth. Behind every set of theories lie the values and assumptions of a society, or of a group within society. This is no-where more true than within economic theory.

Orthodox economics - the theory of the market - is usually considered to have four main branches:

There is no point in setting out these systems on this Site, since there are many good (and bad) books and Web Sites to refer to. See our Links page for information.

Consequently, they look to governments or other centres of authority to enact new laws that would tip the playing field of economic interaction in the direction of their particular utopias. [* The honourable exception in the above list is Guild Socialism; this approach is considered further below1.]

Orthodox and unorthodox descriptions/proposals may be bracketed together as conventional economics. Radical economics, on the other hand, is based upon different assumptions in respect of economic value and options for human economic decisions. These will be explored in the following pages.

SUMMARIES

ORTHODOX ECONOMICS

In social terms the four orthodox approaches may be summarised as follows:

(Neo) Classical

The market is wonderful. Governments should leave it alone except to deal with any obstacles to its free working (like trade unions). If they do this, the country (i.e. the middle classes) will prosper and there will be full employment.

Keynesian

The free market will not always deliver full employment. Governments should interfere to regulate it: spending more, cutting taxes, printing money etc. (i.e. be a bit nice to the workers).

Monetarist

It is true that the free market will not deliver full employment, but that will keep (would be) workers on their toes. It is more important to keep inflation down so that our (middle class) savings are not eroded - oh and keep endless growth going by persuading people to consume more and more trash - never mind the planet.

Marxian

Nature's bounty is for free (and infinite). All value comes from the workers' labour. The surplus value (above what keeps them alive - their wages) becomes the wealth/savings/capital of the middle classes. Some of this is re-invested in the hope of making more money. Once the workers take power they can control their own surplus - and get a life. [See below for further consideration of surplus value.]

The original theory assumed survival wages only. But as early as 1870 Marx wrote:

" England's Proletariat is the world's Bourgeoisie "

Bought a pair of Indonesian-made trainers lately? Welcome to the bourgeoisie!

UNORTHODOX ECONOMICS

These models are given a little more description as some of them may be less familiar:

Not as fluffy as it sounds. Links through to anthropology, sociology, Maslow's theory of human needs, and hard headed game theory. Critique of zero sum economics has some parallels with Open Capital (Partnership Economics) - see 'Making the Change' page.

Capital machines do most of the work today. Labour is (or should be) dirt cheap. So most people can't consume enough to match modern production. Answer? Pass government legislation for low interest loans all round: so people can buy into capital ownership, share in the wealth (profits) from production and consume enough to keep it all going - all without hurting the rich.

Credit makes the world go round. One party's loan/debt is at once the other party's asset/savings. A credit note (i.o.u.) becomes money when it can be passed around (assigned). Not all loans are spent on real (wealth creating) investment. Real investment will only happen in a favourable environment [when profits can be made]. It is up to governments to create that environment.

[Not a new economic model as such but an explosive revolt by economics students and some academics to open up economic debate; end the rule of neo-classical orthodoxy. It further seeks to debunk the myth that economics is objective science and bring the hiden values/ideology into the open.]

The central cause of wealth and poverty side by side is the 'private' ownership of, and consequent excusively restricted benefit from, nature's bounty (land and other resources). These resources rightfully belong to all - but it is not necessary to sieze them 'for the people'. All that is needed is for the 'owners' to pay society a fair levy for the use of them. This income to the state could replace all other taxes once the laws are in place and valuations done. Thus wealth will be re-distributed to us all.

We now live in a world of abundance. The individual is all important and the interest of consumers should be paramount [never mind the workers!]. The scheme can ensure the good life for all by allowing consumption to keep pace with production. A National Credit Office will close the gap between (the value of) goods on sale and our total buying power by fixing the retail prices of goods at below cost. It will also calculate The Nation's real wealth at any time and issue a flat rate National Dividend, to distribute to us all the surplus wealth of the power age.

The right of each individual to hold private property - both land and the means of production - is sacrosanct. This right should be open to all, with upper limits (by law) on property held per person or family. As far as possible people should work for themselves with their own resources and not employ others. Hence both capitalism and state socialism must be opposed. [Co-operative production not discussed.] The implication is a small scale, local, low technology economy: a vision that pre-dates much green thinking.

[Special Note: Guild Socialism, summarised below, stands apart from all the above in that it rejects several of the starting assumptions shared by most orthodox and unorthodox economic models and/or proposals. In particular it rejects the idea that The State could/would enable their (or any) good society by passing the right laws.]

Guild Socialism had most support in the first decades of the last century. It was crushed by the hostility of a whole circle of interests who certainly didn't want the people, the plebs, doing it for themselves: -

- plus also by the 'loyalty' trump card played by the system (i.e. most of the above) during the Great War of 1914-1918.

Many of the ideas of Guild Socialism were advanced for their time and have relevance today. The dilemma for this site is whether to include it as a strategy on offer in 'Making the Change'.

The Guild Socialism outlined here is an approximation of a range of views held at the time and owes much to Roger McCain.

As a one-liner Guild Socialism proposed continuous collective bargaining between organised and interlocking social groups. The Guild Socialists were, if not anti-government, strongly anti big government and anti top-down government (which doesn't leave a lot!) They were committed to democracy - but not representative democracy as on offer today. The closest model would be delegated cascade democracy [see 'Exploring Democracy' page].

They were clear that the people unorganised (in any sphere) had no voice and no hope before the forces bearing down on them. They were also clear that effective power should be as close as possible to the grass roots.

At that time radical economics meant production and control of production. The Guild Socialists were ahead of their time in seeing people as (local) citizens and as consumers, as well as workers - and in need of bodies to represent them in each of these roles. This led them to advocate a devolved, cross-cutting, democratic society; one where people might wear more than one hat. [Compare Devolve! information sheet No 4: Culture and Political Pluralism.] In their view the role of the state or "commune of all" would be minimal arbitration and not much else.

Most Guild Socialists did not want to abolish the market. Rather, they saw the prices, quantities and quality of goods fixed by negotiation between producer guilds and consumer councils. Thus the things coming to market would be actually what people wanted - unlike State Socialist systems. They also foresaw civic guilds (or guild groupings) to run free public services in health and education, in consultation with citizens councils.

Another radical proposal was to have no personal income tax ('socialists' are usually big on taxes!). Rather, they intended the funding of public services etc by direct transfers from the industrial producer guilds: i.e. out of their margins at the point of wealth creation. Again decided by negotiation.

BACK TO BASICS

US AND IT

Fundamentally, economics is about a relationship between an organism and its environment: how it feeds on its environment to stay alive - and more. [This is covered in more depth in the 'Behind Economics' page]

The 'organism' which is trying to survive may be an amoeba, a crocodile, a wolf pack, a tribal community, an imperial nation, a human individual, a small business or a global corporation.

Amazingly - for social animals like humans - the distinction becomes subjective! What we see as me/us and what we see as the environment to feed on/exploit are decided by values in our heads. A traditional human hunter/gatherer group would think of themselves as a 'we' - anything hunted or harvested would be for all. In contrast an obvious extreme case is a thief or con-man who clearly sees others as the environment to feed on. However this is true to a degree for all of us in modern fragmented cultures. Margaret Thatcher was not so far wrong when she said: " There is no such thing as society. "

VALUE

Both orthodox and unorthodox (i.e. conventional) approaches to economics are based upon fixed definitions of economic value.

The radical approach treats economic value as either undefinable or perhaps definable only in relative terms - e.g. works of art and objects with sentimental value.

The deeper thinking underlying these concepts may be found in the 'Behind Economics' page.

SURPLUS VALUE

It was noted above that any 'organism', from an amoeba to a human group or enterprise depends on a relationship with its environment - needs to extract value from it. There will be some minimum level (threshold) of energy/nourishment/harvest/wages/takings that just keeps alive/sustains each entity.

When the value extracted by activity/work is above this threshold then surplus value may be created, with major ecological/economic/social implications. The concept of surplus value was first identified by Karl Marx - in fairly narrow economic terms. It is central to the Marxian theory of capital accumulation. Surplus value is barely mentioned in other orthodox economic theories, where the less revealing notion of 'added value' is deemed safer.

What happens to Surplus Value should be right at the centre of economic, social and ecological thinking. At present it is mainly extracted: partly for consumption by a few; mainly for yet more productive capacity - the endless growth syndrome. Some other possibilities are explored in 'Behind Economics'.

As soon as there is Surplus Value there is at once the basis of a kind of currency. The earliest form of currency is the promise - probably at least 50,000 years old. Even today the words 'Promise to Pay' feature on many bank notes.

This means that the science of Accountancy is also this old. Studies of traditional peoples show that they carry in their heads 'balance sheets' of favours they owe and favours owed to them.

Once you have a social structure where you can be fairly confident that promises will be honoured (whether by natural obligation or at the point of a gun) it is possible to 'own' promises owed to you, such as a promise that someone to whom you provided some surplus corn to when their crop failed will do the same for you - repay you out of their Surplus Value (of time or produce). These promises today may be stored as money in the bank!

There are only two basic resources available to any creature, group or organisation: -

Capital may be defined as stored labour. It scarcely exists until there is surplus value above bare survival level, except in limited forms like accumulated wisdom - e.g. how to hunt well.

Once above that level, capital can take various forms: tools, machinery and software (see below); education, skills and developed ideas; pledges/promises of labour. Note that although a machine may seem to be an alternative to human labour, that machine only exists by virtue of the labour stored in its design, construction and maintenance. Similarly with domesticated and kept working animals.

A common error of economic theories is to confuse capital with ownership of capital. Ownership is a social construct, not a physical/mental reality. Ownership, where socially accepted and/or imposed, can be of both capital (stored labour - past or future) and nature's bounty (land etc - though improved land will have labour stored in it). [But see next headings.]

THE CATCH 22 OF CAPITAL TOOLS

A capital tool may be any manufactured thing - from a spade or hoe or bow and arrow to a complete production line, which once made can mean better growing or hunting or faster output, so creating more Surplus Value.

The catch is that if you are poor to start with (no Surplus Value of your own) you cannot afford to lift your nose from the grindstone to make it. So anyone in a position to produce that tool to you (whether a spade or a whole factory to work in) is also in a position to demand a high price - like a big cut of the new value created as you work. So the poor stay poor and the rich get richer!

OWNERSHIP/PROPERTY

Although taken for granted in most modern societies - both by people as a whole and by most economists - there are several issues to bring out here.

First, the extent to which the environment, its treasures, people, their genes, their body parts, their ideas, their labour, their manufactures ... can be owned, can be bought and sold, can become property. Two examples may suffice. A century or so ago, a wise chief of the native american peoples posed the question to the arrogant new settlers: "How can anyone own the land?" More recently, a major English water undertaking, challenged on a claim for water charges on a building with no water service connected and the capacity to collect surface water rather than discharge to drains, replied: "It makes no difference. We own the sky." Such is the pace of human progress...

Second, the nature of ownership. Both English common law and social practice recognise a distinction between beneficial ownership (yours to use as you wish) and trustee ownership/stewardship (held for the benefit of the community or certain groups/persons within it).

Third, the terms of ownership (i.e. of legally backed claims on property or assets). These may be either:

However, a new instrument that transcends this division is examined in 'Making the Change'.

CONTROL

It has been shown that one effect of the Catch 22 of Capital creation is that some groups in the fast changing society will grow rich in tools/promises (unless there is some social ethic of redistribution/sharing).

It then becomes important to these groups to control the society in order to:

Unfortunately the conventional debt-driven economics that now dominates the world economy depends on perpetual growth to keep its model stable! Otherwise there is not enough hyper-consumption to match the ever more productive supply of 'goods' ('bads'?) which are churned out.

"I saw the bodies of children as fuel for the jet engines. That vision moved me to change my position on the continuum of wealth and poverty." - Charles Gray

This requires (and creates) the alienation of the individuals of the modern world, where hyper-consumption (by the haves) is a substitute for un-met social and psychological needs.

Further, the elite power network which now dominates the world (though no longer controls its dynamics) cannot let go of this model and those values, since it depends on them for its supremacy (see 'Control' above).

It may be time (and there may just be time) to look at getting behind economics as we have known it....