Since it necessarily deals with people and the behaviour of people, every
economic theory is in the end also a political one. A theory of economics
requires a massaging of people so that they fulfill the roles that the
given economic theory requires. Historically, the Emperors Constantine and
Charlemagne and their descendants, for example, had an economic theory ...
and they were perfectly happy to massage their societies into the shape it
required to make those theories work. This was partly responsible for what
historians call 'the Middle Ages' or 'the Dark Ages'.
That kind of massaging of people is a lot easier to do when the
mathematical and scientific basis of that theory bears some relation to the
reality that people perceive around them. The contemporary classic example
of this is Karl Marx's theory where he tried to explain a set of political
observations by allying them to what he thought was a sound economic
theory. The iniquities that Marx observed were very real -- the oppression
of large communities of people in factories etc while the Industrial
Revolution occurred around them in such a way that a few benefitted while
many suffered. Marx's big problem, however, was that the economic theory he
devised to explain this phenomenon, and then to counter it, was
mathematically bogus. His theory about rates of return and rates of capital
were just plain wrong as Samuelson was later able to prove by using some
sophisticated arguments based upon an econometric model using matrix
mathematics. Samuelson simply studied the observed behaviour of economies
and demonstrated that the economic behaviour Marx was alluding to had never
in fact been observed anywhere, and that the relative prices of labour and
capital never in fact behaved in the way he said they would. The patent
failure of Communist regimes to deliver on their promises is in no small
measure linked to the fact that Karl Marx was a very poor mathematician,
and that the model he devised was simply incapable of delivering the
results he promised. No amount of tinkering with large scale economic
structures or at a governmental scale (5-year plans or whatever), be this
in Russia or elsewhere, was going to make an erroneous scientific-economic
theory work. No matter how great was the political and social control that
the governments who practised that system exercised, they simply could not
deliver appropriate economic results.
This has got nothing to do with whether or not Marx's actual political
ideas or ideals, based as they were on ideas of 'the brotherhood of man'
are or are not laudable. This is simply to do with the fact that it was not
possible to realize those ideas through the economic theory that he
produced in order to support them.
In complete contrast to Karl Marx, Adam Smith produced a very different
economic model. Smith, however, took a very different approach. He started
by looking at the very best physical, and therefore mathematical, model of
his day, which was Newton's theory of gravitation. Smtih then set out
explicitly to construct a model of economic behaviour that was as
mathematically sound and logically rigorous as Newton's. The 'force' that
he came up with, and which was intended to act as the mathematical analogue
to Newton's theory of gravitation, he called 'competition'.
By competition Smith meant that in the face of uncertain information, all
economic entities were to be regarded as acting in one very simple way:
they all set out to procure goods and resources at the minimum possible
prices that they could; and they all set out to dispense and sell goods at
the maximum possible price they could attain. Price therefore became the
sole method of interaction between economic entities. This system became
called capitalism. The only thing then necessary was for governments and
societies to put into being the social organizations that would make it
work. It had, of course, a corollary. The information available to actors
was uncertain, and so also their responses were uncertain. In the face of
this no-one could predict exactly what economic actors would do. The only
thing the model could predict was that no matter what they did they would
maximize profits and find ways to acquire resources and produce goods.
Therefore, the best thing any government could do would be to leave
economic actors to get on with such transactions, conducted through the
medium of price, and to interfere with it as little as possible.
And ... since Adam Smith came up with an explanation that made a lot of
sense, both citizens and governments proved willing to do whatever it took
to bring about the relevant economic and political reality. Adam Smith's
theory remains, to this day, the most sound and best working economic
model, and it therefore spreads itself wherever it can simply because when
presented with a choice people tend to go for something that can produce
results, and Smith's system does tend to produce results.
However ... every economic model has its political consequences. One of the
problems with the Smith model is that of 'uncertain information'. What are
people going to do in the face of 'uncertain information'? And what efforts
are people going to make to come by 'more certain' information? And how are
they going to behave as their stock of information increases?
What drives the Smith model is the proposition that when a consumer is
confronted with two goods, one at a lower price than the other, they do not
immediately know WHY one of the goods is being offered at a lower price.
The brutal political reality of the world is that it is very likely priced
more cheaply because a lot of rape and pillaging and exploitation of
workers has gone on to make the good cheaper, but without specific and
convincing information upon this point the 'average' consumer will tend to
presume that one set of goods is lower in price for entirely 'altruistic'
reasons having to do with the e.g. willingness of one party to offer goods
for a lower price simply because in the long run they will make a bigger
profit that way -- and not because some group of people has gone out of its
way to make very sure that those providing the goods are paid considerably
less than 'the minimum wage'. Whether or not such things do or do not
happen you will have to judge for yourself.
There is another 'problem' with the Smith model -- although whether or not
this is 'really' a problem depends upon your political point of view.
Please remember that the Smith model is based upon a model analogous to
gravitation. And ... gravity is about height. What this means is that since
all goods begin at 'zero height' and are 'in the environment' (i.e. they
are all initially resources and not goods) then if one object ends up at a
higher location than another (i.e. it has somehow become a 'more valuable'
good), then something must have happened to get it there.
There are two possibilities. Either, someone worked upon it to make it more
valuable; or else it has somehow been taken away from one person by
another. By the same token ... if some economic group is 'wealthy' or
'high-up', then something must have happened to 'elevate' those wealthy
groups relative to the non-wealthy ones. The only question now is -- how,
when, and why did that relative elevation occur? Again you will have to
ponder upon such things for yourself. The important factor here is what
people are inclined to presume given a world of uncertain information ...
or, of course, given a world in which obfuscation of facts is likely to
occur when that obfuscation is in someone's interests because that
obfuscation helps them increase the size of their profits in that the vast
bulk of economic actors simply shrug their shoulders and pick the lower
price -- when they do not have information to tell them why they shouldn't.
The question of exactly what processes have been imposed upon goods and or
groups so that they can have a higher value and/or worth is, of course,
very hard to answer without immediately straying into more overtly
political considerations. It is a big argument that has gone on within the
capitalist system pretty much ever since Smith invented it.
Some say that certain groups are wealthy simply and entirely because of the
workings of 'the free market'. They append that argument by saying that the
free market is totally dispassionate, it is 'natural', and it is inherently
'fair' and 'just'. Others, of course, say that people can only get wealthy
off the backs of others who are perforce obliged to remain poor and at the
bottom of the ladder of wealth. In such a view the system is itself obliged
to work in such a way that poor and exploited people are kept deliberately
'out-of-sight' and 'out-of-mind' of economic actors who might well behave
differently if they knew more about the processes involved in given
economic transactions. To pick a reasonably current example doing the
rounds at present, if Nike can manage to keep the vast bulk of its
consumers unaware of exactly what it is doing to those of its workers
located in 'less fortunate' countries and whom they force to work for no
benefits and at extremely low wages, then given that the world is filled
with uncertain and imperfect information it is very likely that those
consumers will keep happily buying those goods because the 'best thing'
that each of those consumers can do (for Nike, for themselves, and for the
workers) is pay the lowest possible price they can to get the maximum
possible benefits. They are additionally entitled to assume, without
further evidence to the contrary, that Nike will act as they do -- which is
do its best to make sure that those foreign workers are treated 'reasonably
comparably' to the workers that they know about and who are located rather
closer to home. Whether such things are so or not is, again, for you to
judge. Please note, however, that the reality of the Smith model is still
that it is a thesis about how consumers behave in a world of uncertain
information.
Smith's system, uncertain information and all, works so well (at a
governmental and predictive level) that it has survived the introduction of
a new set of economic models. Economic theorists and politicians use game
theory quite a lot now. And ... game theory is also about the kinds of
decisions that individuals are likely to make when they are surrounded by
uncertain information, given the need to attain a specific goal or target.
In economic game theory that target is the same as in the Smith model
namely: benefitting one's own self to the maximum possible degree and at
the minimum possible cost. Interestingly enough, game theory is also used
to help create strategies in war. And ... economics is about war because
war (along with slavery and other forms of repression) is a very good way
of extracting the maximum quantity of resources without having to
recompense the people who provide those resources. In the Smith model, of
course, if making war is felt by economic actors to be cheaper than
engaging in acts of trade then a given economic group is likely to go to
war or engage in other acts of aggression -- and particularly if it can be
obfuscated so that there is uncertain information about the causes of war,
its progress and the like.
The big question of our age, from an economic historical point of view, is
the fact that information about 'others' on the planet is becoming less and
less uncertain all the time; as also is information about the long-term
consequences of economic actors being constantly encouraged to maximize
their short-term economic gains. This means that the actions of governments
(and corporations) in pursuit of economic goals are becoming less uncertain
to potential economic actors. And ... whether or not capitalism as we know
it can stand up against the fact that the system works at its best when all
players in the market are forced to play with uncertain information is a
big question that will probably be addressed over the next century or so.
As the G7/G8 powers are increasingly finding out to their cost, whenever
they try to have a conference about the global economy, all the social
sciences suffer from a very particular difficulty. Human beings are not in
fact insensitive, unintelligent, or uninformed economic actors. They do
have knowledge and information. They also often have strong beliefs about
how human beings should conduct themselves. Their future actions are all
too often tempered by that kind of knowledge, information or belief. And
... the suspicion is growing amongst a significant proportion of 'the
wealthy' of this planet that the wealth they currently enjoy has its roots
in unpalatably low prices foisted upon others somewhere along the line.
Somewhere along the line, steps have been taken to create their wealth that
necessitated that other human beings could not in fact maintain 'a decent
standard of living'. Political assassinations, economic disadvantaging,
political repressions ..... And ... the suspicion amongst some regarding
such things is now so high that they are beginning to use those suspicions
to in their turn massage the political environment in which economic
actions take place so that proper recompense is offered to those whom in
their eyes were previously mistreated. Many of the economic actors
concerned are perfectly willing to go out on the streets and demonstrate
against such a system, to participate in environmental groups and the like.
And ... of course ... there are (at least) two different kinds of
'uncertain information'. There is uncertain information because people
genuinely cannot be expected to have more information; and there is
uncertain information because people can't be bothered to make the effort
to acquire it. Increasingly, people are pointing to the fact that the
latter kind of uncertain information is inexcusable and that people SHOULD
make the effort to acquire information about exactly what is involved in
creating and producing the goods that they consume. (And, since America is
the wealthiest collection of people on the planet and consuming far and
away the most goods, this criticism is the most forcefully directed at US
citizens to the point where its social and economic institutions are often
accused of deliberately keeping its citizens uninformed so that the present
economic situation can continue).
Uncertain information also has an interesting consequence in military and
political actions. An interesting strategic imperative that wormed its way
into both the Vietnam and Gulf Wars, to take but two recent and well known
examples, was that so much of it was played out on TV. This had the
consequence that those on behalf of whom the war was ostensibly being waged
no longer had uncertain information about what was supposedly being done in
their name. They could see very well what was being done 'in their name'
... and many of them indicated that the price that they were being asked to
pay in order to maintain the life-style that they had was not one that they
were prepared to pay. This was also a big motivating factor in the Gulf
War. The Head of State of a large military power was forced to make
decisions about military objectives based upon the fact that the citizens
in his nation could see what was happening on TV. For good or ill, military
decisions were made in the light of that.
And, of course, one of the most important things about terrorism is that it
is at its most effective when its actions are played out in the media.
Terrorism can be regarded as a way of putting information before economic
and political actors so that, with more information, they will modify the
way that they live and realize that the profits that they are enjoying have
come at a cost they might well not have been aware of. Possibly as a
consequence of such factors we have the interesting military and political
situation where a bomb is dropped by one hand at one minute, while seconds
later parcels of food are dropped by the other hand. As any aid worker will
attest, this is a near-100% wasteful way of donating humanitarian aid. As
but one example, in the very area where those food parcels are being
dropped the countryside is still full of minefields left by the Soviets --
and on average there are about a dozen incidents a day of mines going off.
However, it is very likely that those food drops are not being dropped with
the intention of helping the citizens of any beleaguered nation, but simply
to massage the political opinions of those who can see the war upon their
TV's, and who can see the parcels being dropped. They are the economic
actors on behalf of whom the war is supposedly being waged. I leave you to
draw conclusions. Please do not shoot the messenger. My intention is only
to speak about an economic model.
Quite what will replace the Adam Smith model once global TV, radio and the
Internet have knitted the whole world together even more than they do now
nobody quite knows. There is also the issue of what human beings will do as
it gradually dawns upon them that uncertain information can be very
expensive politically. But ... seems like we are living in exactly that
kind of age ... an age in which it does seem to bother some people that
while they are able to make a high profit and have a high standard of
living, others do not seem able to do so ... and rightly or wrongly they
link these two together ... and then institute social movements based upon
that perception. A large number of US citizens, for example, still refuse
to link the poor economic and political status of Black Americans with the
prior existence of slavery, while others say that they are linked. Linked
or not, what is a fact is that alleviating the status of Black Americans,
if anybody wants to do it, is very expensive economically and politically.
This therefore boils down to the question of whether or not there is the
economic and political will to do something about the situation. Most
consumers, in a world of uncertain information, tend to favour the status
quo or to carry on leaving their information uncertain in the belief that
eventually price will solve everything.
But ... whatever replaces the Smith model it had better and also have a
sound mathematical basis ... or else incorporate into it parameters that
take into account what it is that people do, and how they behave
politically and economically, once they are aware of the conditions under
which live the people who are forced -- by the system -- to receive low
prices and low wages for everything they have to offer.
One thing is certain though. If anybody wants to set up a new economic
order then they are going to have to come up with a better predictive and
economic model than Smith's because whatever may be its faults the Adam
Smith model allows governments to make plans and bring about results. As
the Communists found out to their cost, governments that cannot deliver on
the promises they make are in the end in serious trouble. But ... for as
long as Western governments can deliver results on the promises that they
make (and what they always promise is that those who believe in the system
they propagate will be better off tomorrow than they are today) then for so
long will they have a method for making sure that the system continues in
existence and that others also want to copy it. It is likely that the Smith
model will only break down for one of two reasons: (a) a better model comes
along; and (b) consumers indicate that the premise of uncertain knowledge
is no longer an acceptable way of doing business and conducting economic
affairs.
We seem to be living in such an age.
Kool Musick
Keep Musick Kool
_________________________________________________________
Do You Yahoo!?
Get your free @... address at http://mail.yahoo.com