Saturday, July 22, 2017

The Search for a Right Direction for a Problem-free Capitalism (Part A)

The basic idea of any economics is to find economic activities – production and consumption – going smoothly.  The success of Adam Smith’s capitalism derives from the notion that if producers and consumers alike are left alone to pursue their individual self-interest, the invisible hands of the free market will establish equilibrium between production and consumption, allocate resources between various sectors of the economy, and stabilize prices, etc.  Over more than a couple of centuries, we find that although capitalism is workable, there are glitches.  We have been searching for a right direction for changing capitalism ever since its shortcomings became clear, the boom and bust or business cycle – alternative periods of inflation and recession – for example.  There is also the question of social good.  Obviously, when individual good sometimes comes in opposition to social good, what then? Smith implicitly believed that the invisible hands of the free market also guarantees social good. 

In truth, even in the 1980s, there has been isolated talk about a paradigm shift in economics in order to extend the concept of the economic person homo economicus to a person in community, to generalize the concept of self-interest to include social good.  But there was no science on how to define a person in society.  After the economic melt-down of 2007-2009 that gave us the great recession, the talk of a paradigm shift has taken a sense of urgency.  Many economists have declared that there is an urgent need for new thinking in economics.  But in practice, economists have come up short.

Of course, subsequent to Adam Smith, there have been many macro-economic theories.  Some of the ideas were implemented because of political motives – they were based on the notion of government intervention for imposing social good, which could be used to put things right in a hurry in synchrony with the usual four-year election cycle in America.  Many of these theories of convenience stand in direct contradiction with Smith’s pivotal notion of the free market, although their motivation is in part to solve one of the outstanding problems of Smith’s  capitalism – the boom and bust or business cycle.  These models, called the demand-side model and the supply side model respectively, use government intervention to jazz up either the demand side of the economic equation or the supply side.  The demand-side model creates middle-class jobs through middle-class tax cuts, unemployment benefits, and government funded public works infrastructure.  The supply-side economics creates more capital supply by tax cuts to the rich; the idea is that this will stimulate direct business investments, trickling down to the middle class by creating jobs.  Currently in America, the two political parties are bogged down in a battle of these two alternatives with various new gimmickries.  But when viewed through the lens of pragmatism, all these efforts are simply version of the same old, same old.

Other modifications of Adam Smith’s  capitalism came about because of a growing belief in scientific materialism – the dogma that all things are based on matter and material interactions.  These models tried to recast economics in the image of the outdated physics of Isaac Newton.  In this way, they began using mathematics to describe economic changes.  Such distortive extensions of capitalism would have been fine if human beings were determined Newtonian machines – robots, zombies, computers, or whatever you may want to call them under the belief system of scientific materialism.  But human beings, even animals really, are not machines; for example, higher animals certainly have feelings that are not computable.  So it is no wonder that such materialist extensions, though sometimes successful in making money for the greedy protagonist in the short term, do not work in the long term.  Indeed, they produce huge instabilities.  The meltdown in 2007-2009 was partly due to such instability unleashed by greed.

Meanwhile, economists of all ilks seem to agree that we have to have indefinite economic expansion in order to deal with periodic but inevitable recession, the bust part of the boom-bust cycle.  But how can a finite ecosystem with finite resources provide such indefinite expansion?

Scientific materialists grossly misunderstand the nature of capitalism, forcing it into the straightjacket of a matter-based worldview.  Before capitalism came about, we had feudal economics with the straightjacket of the religious belief system, in The West, of Christianity.  Capitalism was discovered at a time when the worldview held, as a compromise between religion and the aborning Newtonian science, that both matter and mind are important components of reality – a worldview called Cartesian dualism named after its protagonist, Rene Descartes.  Later, this worldview came to be called Modernism and became the philosophical basis of a truce between scientists and the enlightenment-era humanists, dividing up the territory of dominance for each.  As Adam Smith understood quite well, capitalism crucially depends first on ethics and morality and second on creativity. Only when the market operates incorporating these features of the mind, does its invisible hands maintain overall social good.

To summarize, Adam Smith’s capitalism had the following implicit message in bullet points:

  •        Producers and consumers, do pursue your self-interest with gusto, but…
  •        When dealing with competition, do remember ethics;
  •         And producers, don’t forget to fan the creative power of your team to forever create renewed interest in the consumer for what you produce;
  •        And then, the invisible hands of the free market will distribute capital to make room for new innovation, will produce the needed economic expansion, will grow capital, and will maintain equilibrium and stability to bring not only your personal good but the good of everyone – social good.

But neither ethics nor creativity can be included in scientific materialism with any causal potency; as a result, their role in our society is undermined when that worldview gains prominence.  Much of the current economic crisis has its origin in this decline of ethics and creativity in our society as a whole and our businesses in particular.  Don’t doubt that.

(Source: Amit Goswami PhD, “Quantum Economics”)

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