Behind Economics: Hidden Assumptions

BEHIND ECONOMICS

"The true product of the economic process is an immaterial flux, the enjoyment of life, whose relation with [economic activity] is still wrapped in mystery." - Nicholas Georgescu-Roegen

Taken literally the title of this page is a nonsense, since economics might be defined as: -

"THE KNOWLEDGE AND PRACTICE OF THE ECOLOGY OF SURVIVAL"

However, so long as the 'science' which describes (and justifies) the present economic organisation of most of the world is believed to be economics, then there is clearly a very great need to go beyond it.

In the previous page we took a peep behind the curtain of conventional economics, both as theory and practice. We found it to be: -

Now this task of going beyond 'economics as we know it' may be said to have two aspects:

If objectivity in science is a myth, this is nowhere more true than in the so-called social sciences - including economics.

Every economic model is built on the foundations of a whole raft of assumptions, value judgements and agendas: usually unstated, unexplored, unmentionable, unconscious or totally unknown to the economists involved.

The attempt here - a challenge of integrity - is to bring this context, these assumptions, into the open: as far as they can be known.

One way to proceed is to pose a series of 'What?' questions as headings and then try to see which information, concepts and principles shed at least some light on each question. Some of the issues exposed will lead into caverns too deep and dangerous to be explored here: we can only mark the entrances.

As a starting point to the 'What?' questions we may take the statement on the previous page:

The next step is to offer some answers to each of these key questions - or at least to suggest which concepts and theories may be helpful.

Leaving aside non-human organisms and their social groups, the 'I/we' trying to survive/do well in the world could be an individual or family, a tribal group or a people, a nation state or a region, a small business or great corporation, a shared interest network or a complete social class - even humanity as a whole!

Where humans differ - certainly in degree - from all other species is in their ability to make subjective judgements (albeit culturally influenced) about what is me/us and what is it/them (the environment). In other words to choose where the boundary lies between the organism and the environment. For one person or sub-group it seems important that "we all pull together", for another their supposed fellow citizens are mostly fair game.

In fact, it's not even that simple: for we are capable of holding conflicting loyalties/identities at the same time. Thus a person who is ruthlessly self-serving at one level, extracting value from all around them, may be extremely patriotic at another, even to laying down their life for 'The Nation' (say).

Apart from personality traits and particular life experiences for certain individuals, any social group will have a measurable 'sociality index' at a given point in time - roughly the extent to which the members or sub-groups are for each other. It can be argued from theory that below a certain sociality level the wider society starts to fall apart big time. Some modern societies may be close to that point now.

We now have to distinguish between 'willed' and 'structural' sociality. For example: you live in a traditional community with a high sociality index. Your house burns down. We all rush to rebuild it for you - because we care about you.

Now you live in a modern alienated society where frankly we mostly don't give a damn about you. Your house burns down ... and it's rebuilt for you. How come? Because through our insurances we formally agree to help each other. In other words, the structural device of mutual insurance puts us 'on the same side' for this purpose. (Note that you have not 'bought' the rebuild. The cost almost certainly couldn't be met from your premiums alone.)

On the next page we explore a simple structural device that could just possibly undermine the conflict of interests on which modern capitalism is founded - at least within certain spheres of operation.

Classical economics avoids this mighty question altogether with its assumption of rational man: who wants nothing more from life than to optimise his (sic) economic advantage in the market place. What's more, since most of us are Convergents* who expect to take our cultural cues from others, a simply amazing amount of human resources (via direct and indirect persuasion in various media) now goes into making this assumption a self-fulfilling prophesy. (Funnily enough, when workers try to bet the best price for their labour at the point of sale people get shirty: "You're only supposed to do it as a consumer, silly.") [ * See 'Very Local Democracy' page for first level explanation.]

Now even as individuals, human purposes and needs can be very far from those of rational man. They may be complicated and conflicting. They may seek any or all of survival, security, creativity, fulfilment, importance, immortality... Their goals may be life denying as well as life affirming. They may want things that money can't buy. (Though the system does it's damndest to commodify all things: the simple pleasure of walking is now presumed to require an arsenal of expensive kit and gadgets.) Conversely, the person without money has no needs as far as the the system is concerned.

The psychologist Abraham Maslow suggested a pyramid of human needs, such that once a basic need (say for food) has been met other, more sophisticated and eventually more creative and fulfilment-seeking, needs can come into play. There is obvious merit in this theory, though it may also be seen more negatively as describing indulgent consumption of intangibles (fancy therapies etc) by the relatively affluent while most people buy what escape they can with the wages from junk jobs. Further, it is a scale of individual needs: see below.

In natural society - i.e. through 99.9% of our evolution as homo sapiens - the basic unit is not the individual but the group. It is only in this context, this interaction field, that most of our truly human qualities appear - just as a single atom of carbon gives little clue to its wondrous qualities playing a part in a protein molecule. (A modern committed group may be widely dispersed and bonded by shared values rather than daily survival; the principle is the same.)

Now the system - whether defined as the market economy or the centralised state - hates groups. The Jacobins of the French revolution - ironically the model for all modern states and control systems - went to enormous lengths to destroy all bonds, all vendees, all local power centres, all organic 'reactionary' social structure. Liberty, Fraternity, Equality - but only for 'its' citizens as individuals: new atoms with nowhere to turn, no vessel for their loyalties but The State, The System. To be sure, you can put greater armies in the field that way (as two world wars have shown), create great consumer markets too. Modern, mobile, atomised societies are now spreading over the world, uprooting both older tyrannies and still older village communities as they advance.

The psycho-social effects of the breakdown of community bonds and norms - this is still a process since old patterns and networks die hard - may yet include the destruction of our intuitive humanity. Herbert Marcuse defined one aspect of this process as 'repressive desublimation'. For example: complex feelings of love and friendship broken back down into sexual titillation stimulated by objects.

So the answer to the question "What purpose?"; "What are our needs?" is itself compromised by our present predicament. Is there a way back from here?

A cynic might take this as an ironic question - meaning is there still one left? Assuming there is, we need to understand what is out there and how its condition and properties interact with us.

Nicholas Georgescu-Roegen, one of the few wide-thinking economists of the last century has pointed out that conventional economics doesn't really understand the environment at all. It still uses nineteenth century mechanical models to represent the behaviour of actual economies and processes. These have long since been abandoned by physicists and other 'hard' scientists.

The point about mechanical models is that they are simple (whereas the real world is complex) and reversible - nothing wears out: you can always get back to where you were.

Georgescu-Roegen argues convincingly thar real organisms (or whole economies) trying to survive in the real world are governed by the patterns of thermodynamics. In particular the so-called Second Law, which says that things do wear out and change irreversibly. It also says that energy runs downhill too. To make use of it an organism needs to 'catch it on the way down'. Amazingly, science has no word for high level or source energy. It does have a word - entropy - for used up or sink energy. So let's coin the word intropy (strictly high intropy) for the fuel energy that drives our world.

Just as a water wheel needs a high side pool (the source) and a low side pool (the sink) to turn and do work, so an organism needs from outside itself: food, which means energy to run on (and spare parts for self-repair), and a place to dump its waste products.

Another feature of thermodynamics is that it makes a big distinction between open systems and closed systems. In an open system, although the organism is constantly degrading its environment by taking resources from it and spewing out waste, that environment can be taken as limitless. In a totally closed system the process stops (or the organism dies) when either there is no more fuel/food or the sink side is full of waste. (This happens to yeast in beer making when it either runs out of sugar or is poisoned by the alcohol it has produced.)

The situation on our planet is in between these two systems in that thanks to sunlight there is always a source of intropy to run things (modestly) but everything else must either be recycled or used up. Nature's own recycling scheme is called an ecosystem. Microbes and other organisms break down waste products which then fertilize the soil which then supports vegetation which then feeds herbivores and eventually all animals.

Enter humans. When numbers are small and technology modest, like a few human tribes in a great forest or vast plains, then the environment can be taken as limitless for most purposes - a more or less open system. (Though note that even 40,000 years ago the human groups that had started to move up from Africa were slowly eradicating the great mammals of Europe and Asia.)

As human numbers, technology and hence the power to consume have all increased, the transition to a closed system environment has been relentless. However, a feature that can arise during this transition is the open frontier - where one dimension is temporarily open to aparently limitless growth (because various checks have not yet kicked in). Examples of this syndrome are the American West in the 18th/19th centuries and the hardware bonanza of the 19th/20th centuries. Open frontier situations can generate great economic vigour and optimism.

Today, with seven billion humans soon rising beyond ten billion, consumption growth is insanity. The open frontier in software and intangibles cannot save the day. Even steady state at present levels will cause fast degradation in a system this closed, as Georgescu-Roegen has argued. The waste problem is now probably more critical than the resources problem. Waste doesn't just mean physical garbage: it includes the psychic stress we now inflict on each other: airport noise, crime, social anger... The yeast in the bottle may be a metaphor for our future.

This topic may indirectly provide a clue to getting off the rat-race described above.

There is a distinction to be made: between hard and soft environments. Perhaps one should say harder or softer since a whole range of variations can exist.

In a totally hard environment the so-called law of the jungle applies: everything is fair game for the surviving organism, which itself may be fair game for a bigger predator. (The takeover battles of giant corporations come to mind.) In a softer environment, which usually implies some symbioisis or co-operation, the organism need not expect total hostility/exploitation - but on the other side of the coin there are expected restrictions on behaviour. The classic case of a very soft environment is the family or mother as experienced by the young child.

Within co-operative and highly bonded social groups it becomes a moot point when it is more useful to think of the individual members interacting in a very soft local environment, and when to view the whole tribe/group as one organism acting in and on the broader natural (or social) environment. Taking this further, a social individual may sometimes be viewed as 'nesting' in concentric circles of progressively less soft environments, each with their own protocols: the family, the local friendship network, the tribe or town, the region or nation, the wider world...

A significant feature of many traditional peoples, often with a very long (ten thousand years plus) track record of survival and stability, is that they don't really know a 'hard' environment at all. Everything is sacred and treated with respect. A prayer is said to the spirit of the tree before it is cut down for essential shelter. Always the minimum for survival is taken from the natural environment. Compare this with the complete destruction (including destruction of peoples) wrought by the logging of tropical rainforests today. And we called them primitive?

This question leads us to look at some of the issues raised above, but from a new angle.

Starting again with a historical perspective. Because humans are the least specialised, most flexible, of all species they have a wide range of feeding options: each one giving rise to distinctive social organisation, values and culture. They may be foragers, scavengers, hunters, fishers - and by implication herbivores or carnivores or both.

Once controlling the food supply becomes an option there is a critical choice to be made. Either the insecure yet also carefree lifestyle of the hunter-gatherer, which ensures small dispersed groups with little hierarchy (N.B. prisoners/slaves would have virtually no economic value: they could not be armed for the hunt yet would still have to be fed); or the more secure but also more neurotic option of controlling part of Earth's surface through plantations and/or animal husbandry. At once 'others' whether weavils, wolves or other tribes are potential threats, robbers, enemies.

Not only that but larger, more hierarchical social groups are possible, with certain individuals and eventually certain classes fed (voluntarily or otherwise) by the toil of the many. Prisoners now have economic value as slaves, since a few overseers can watch over many in the fields. The path to mass 'civilizations' has begun.

In large modern societies - to the degree that most others are seen as either semi-soft or hard environment rather than 'us' - a new range of options emerges.

Money is the new 'food'. Earning, making, scrounging or taking a living in the social environment replaces foraging, scavenging, hunting in the natural one. Social security benefits of various kinds are the last remnant (or perhaps a re-creation) of the mutual economies of the tribal group - but now mediated through faceless state bureaucracies, with wealth transfers via taxes resented by many; avoided by some.

Except in some nuclear families the mutuality of shared incomes is today practised by only a microscopic minority in first world countries. Despite this, it should not be discounted as an option for the future [see 'Making the Change'].

(It may be noted in passing that the early traders were the first moderns: travellers, cosmopolitans, commodity handlers, dealers in exchange ... loyal to their pockets rather than their tribes.)

Another option also exists in the social environment: whether to be passive towards that environment (the wider society), accepting it as a fact; just trying to get on or get by ... or to be reflexive towards it: attempting, with others, to challenge or shape our social reality by entering the realms of social activism, politics, community involvement. (More recently, the impact of our societies on the natural environment has been a focus for social activism.)

Here the distinction between Convergents and Divergents [see Very Local Democracy page] again comes into play. These complementary roles evolved long ago as part of the organic structure of small, tightly bonded, human (and other) groups. Cast adrift in mass societies, the majority Convergents become a major passive element, open to persuasion and manipulation.

In so far as the purpose of any animal, group etc is life-affirming, it will need to attract at least enough from its environment to survive. They/we may at times do better than this.

In 'Behind Economics' the important notion of surplus value was mentioned. According to Marx the 'theft' of our surplus value by one class and its re-investment as new capital was the driving engine of capitalism.

The options for what happens to surplus value are much wider than this. Here are some possibilities: -

For a species which has become clever but not yet wise ... it may be possible to extract more and more surplus value to the point where the environment is threatened. Economics shades into ecology.

Ivan Illich took this further with the vital concept of the two thresholds - a lower and a higher. Only between these thresholds can a system be stable and sustainable.

Applied to economics, the lower threshold is already well understood. Below it the creature, species, pack, group, individual, company has negative surplus value - does not survive. This happened to Neanderthal man and happens daily to many businesses! Above this threshold lies the possibility of surplus, of the good life, of abundance - but also of predator exploitation.

Yet there is also Illich's second threshold. In economics this is reached when the creature/society extracts so much surplus value from its environment that it begins to threaten that environment.

Ultimately the environment degrades, almost certainly taking its 'locusts' down with it. For many decades now Ecologists have been warning that this situation is rushing towards us - some would say that it has already arrived. [See 'What Environment? above.]

So perhaps the most crucial decision of all for a powerful species, people, community, person is where to pitch material well being on the scale between the two thresholds. This decision is now upon us. [See 'The Simple Way' in the 'Making it Happen' page.]

The obvious starting point is our innate physical and mental abilities. It has been said that the key to human evolution over the last few million years has been the eye - hand - brain triangle: forward facing eyes for perspective vision; opposing thumbs for easy grasping and manipulation of objects; rapidly increasing 'silent area' in the brain for reflective and eventually conceptual thought.

Leading on from these attributes, an ever increasing range of acquired skills are now available to us (though some have also been lost in the recent very rapid phase of human development). Also, hopefully, the beginnings of wisdom: seeing the other, the not-us, as a living fabric with needs, purposes, vitality, beauty - and fragility.

The next distinctive tool of modern humanity may be described as 'mechanical leverage'. Not just the lever bar of the pyramid builders but the whole pyramid of technology right up to the incredible software tools of today.

One could not omit pehaps the most powerful tool of all: human co-operation. Teamwork made it possible for the stone age hunting team to tackle a mammoth or giant cat. It makes possible the construction of modern cities with their incredible complexity. Paradoxically, it makes possible the destruction of modern warfare. Can it deliver a solution to our predicament?

There are numerous economic theories or models: several of them noted in the previous page.

"If you laid two hundred economists end to end they wouldn't reach a conclusion" - Anon

It is not the intention here to set out a perfect (or any) economic system, complete with theorems etc. Rather, as we have been doing, to set the context for such system(s) by bringing into the open: -

To continue with the task... An economic theory may be descriptive or normative (though there is always a grey area between them).

A descriptive model, as the name suggests, attempts to describe how and why an existing society works, or how an earlier form of society did work. It may also be used to predict how a foreseen future society will operate.

A full blown normative model is a blueprint for some desired future state of affairs, setting out the economic decisions (by individuals) and policies (by social groups or their ruling elites) needed to get there. Where most of the values of the existing society are accepted, normative models reduce to proposed policy changes policy changes to to address some problem or correct some imbalance in the system. A classic example, with massive unemployment in the 1930's was the advice of J.M.Keynes that governments should forget balancing the books and spend big money themselves to create jobs and achieve social objectives. (They do that for wars anyway!)

Some economic models may be designed with particular social forms in mind, for example: -

Apart from adaptations to particular geographical conditions, not all of these societies can remain static in time. Their products and effects may act as social transformers: the models that attempt to describe them may struggle to catch up.

This is especially true of a dynamic, indeed revolutionary, system like capitalism. Georgescu-Roegen has argued that Marx - who believed himself to be setting out the dynamics of capitalism - was actually modelling the transition to capitalism. In the maturity of that system 'the workers' are far too valuable in the supermarket aisles, consuming as if there is no tomorrow, to be working twelve or more hours a day, six days a week, slaving for a pittance in dark satanic mills.

The fundamental distinction for normative (goal seeking) economic models is whether they map paths for continuous growth economies, for steady state economies, or for economies in downwards transition towards long term sustainable levels.

As indicated above, all but the most modest and cyclic economic activity begins to change the actors, the environment and the economies themselves. This is especially true once the generation of surplus value allowed the creation of both new tools and new social realities.

The first iron axes capable of felling mature trees were to have as dramatic an effect on the great forests of North Europe as the chainsaw was to have on tropical hardwood forests two and a half thousand years later. The effect of the birth of agriculture on social structure has already been noted.

Taking this a bit further, economic evolution has not merely affected the environment, it has created new ones. The tribe, as we have observed, was once the 'we' that looked out on the world. This has shrunk to the extended family, the nuclear family, often now to the solitary 'I'. The new social environment through which the urban individual can move like fish through water can be, at one and the same time, culturally overwhelming, lonely and dangerous. Beyond this is the packaged nature of theme parks, maintained sites and safari trips. Beyond this again is a planet at bay under the impact of progress.

The effect on human beings is more complex. It has already been noted that Maslow's pyramid or scale of human needs may be viewed negatively in economic terms as a measure of the indulgence of affluence. This is especially true when considered in a North-South context. It is certainly a feature of post-modern or late capitalist societies that the purveyors of the latest fashionable therapies can command quite high prices in the market place while original producers of basic necessities for the world are often paid a few cents an hour.

Still on the negative side of the ledger, attention has previously been drawn to social degradation, to the trivialisation and object substitution of inter-human relations and qualities: in Marcuse's term 'repressive desublimation'; in the wisdom of the East moving energy down, rather than up, the chakras.

On the other hand, the modest affluence that some of us enjoy within the system is both a privilege and an opportunity. To start with, it can provide a combination of human resources - good health, confidence, time to think, information, awareness - which then allows the option of reflexive action on behalf of others and/or the environment.

More significant than being a 'good liberal', a decision not to maximise income, not to turn all wants into needs, at once takes power back from the system, opens up behaviour and lifestyle choices not obviously available before. When such decisions are taken by larger numbers of people in a structured way a new economic/social/ecological environment becomes possible, if only on a local scale. [This option is explored in a more practical way in the 'Making the Change' page that follows.]

Lastly, there is the feedback effect on the very economic system that is driving the changes.

In their monumental book 'Economies of Signs and Space', Scott Lash and John Urry argue, among other things, that 'production capitalism' is giving way to the marketing of symbols, dream myths; that nation states are giving way as power centres to a few information-rich hubs of world trade; that the middle classes - bedrock of capitalism as a social/political force - are being squeezed by both new affluence and new poverty; that reflexive consumer choices have now made organised capitalism impossible - the system is out of control; that this new reflexivity, though presently focussed on self-indulgence, has radical potential.

Taking the 'out of control' theme a little further, we can note that money, once a means of exchange, is now the driving logic of the system as well as its universal lubricant and a sense numbing drug.

A tool used in ecological discussion today is the concept of an ecological footprint: the impact of a given society or region on the environment (usually just resources and pollution). This is converted into the area in square miles or square kilometres that would be needed to fully support the demands of the region. A comparison with the actual area of the region gives some idea of the resources etc 'robbed' from other parts of the planet and (depending on the method of calculation) from future generations.

By applying this thinking to the planet as a whole one can derive the concept of the total footprint or impact of humanity, which could be measured as the number of earthlike planets needed to sustain the present level of activity indefinitely, without overall degradation.

Now some ecological thinkers have identified the three key factors which determine the impact (I) of human activity on the planet: the size of the population (P), the average consumption level of that population (C), and the level of technology (T).

It is clear that impact on the planet will increase with both population and consumption. The effect of technology may be more mixed. Some aspects of technology may help reduce the total footprint - development of some solar panels for instance. Others may induce greater resource expenditure and/or pollution build up for a given level of average consumption - development of air travel is a classic example.

Whatever else it does, a radical economic model intending to give a long term future to our species - and all other species still saveable - will need to face up to the population issue (the forbidden 'P' word) and the (over) consumption issue, as well as taking account of the full effects of technological progress.

WHAT ORGANISM?	What is me/us?
WHAT PURPOSE?	What do I/we want?
WHAT ENVIRONMENT?	What can I/we feed off and put waste into?
WHAT OPTIONS?	How many different relations with the environment are possible?
WHAT TOOLS?	What aids and mechanisms are available to help me/us?
WHAT MODEL?	What picture(s) make most sense of my/our world and activities?
WHAT EFFECTS?	What might be the consequences of my/our long term economic activity?