The trouble with economic policy today is that it does not know where we stand; hence, it does not know where we are supposed to go. It lacks a compass. So the pendulum cyclically swings, directing our faith and trust from The Government to The Market—and back; or, speaking in schools, from Keynesians to Austrians.
And we consistently betray ourselves.
The fault lies neither with The Government nor with The Market. The trouble lies with us. The trouble lies with our lack of understanding of economics.
Briefly put, economics is understood as being composed of a long string of goods and services that go, let us say, from tables and chairs to consulting services and from there to cash, stocks, bonds, and derivatives. There are no costs associated with the production of these goods and services; production does not occur in time; and these entities are vaguely related to human beings.
Concordian economics transforms this linear conception of economics into a relational discipline in which everything is related to everything else. This is a new world. This is a new understanding of the economic world.
In the course of fifty years of research and publications in a variety of peer-reviewed journals and books, I have developed a simple compass, a traditional tool to help us navigate through the economic world. Here is the compass; its specialty is that it helps us discover the territory and create the atlas, a set of maps as we move about:
Figure 1. The Compass
With the help of this compass we will run away from sorry shoals of economics as understood and practiced today and we will reach the happy shores of what I like to call The Economics of Jubilation. The path is simpler than we have been led to believe. Our decision is not to let our fears control us. It is our fears that push us to hoard wealth. We will then see the “circle” of hoarding reduced as nearly to zero as humanly possible. Men and women will then stand at the center of the economic world. These men and women will be in full control of the economic process; thus, they will courageously obey the principles of economic justice: they will run the economic system to the tune of justice, namely they will practice Concordian economics. The end result will be an economic path toward growth that is needed, equitable, and sustainable.
Clearly, we have to unpack these “code” words: economic process; economic justice; the practice of Concordian economic principles; and economic growth. Here follows a geometric and visual image of these entities. The mathematics that stands behind these images can be found in publications that I have gathered in the Store for the convenience of the reader.
The economic process
Astonishingly, the study of economics proceeds without a commonly understood definition of this field of study. Half facetiously the profession goes on with the understanding that “economics is what economists do”.
IMHO, economics is the study of the economic process. Following a long and detailed reasoning pursued with the help of age-old principles of logic and assisted in this search by eminent thinkers, especially Professors Franco Modigliani, a Nobel laureate in economics at MIT, and M. L. Burstein, a professor of economics at York University, respectively for 27 and 23 years, I have come to the conclusion that “economics is the study of the economic process” and that this process is the integration of Production, Distribution, and Consumption of wealth. In geometric form, the process can be
Figure 2. The Economic Process
Clearly, a cycle of the economic process is completed during the course of a specified unit of time in a specific geographic location when goods and services pass from producers to consumers—and “money” passes from consumers to producers. For this transaction to occur peaceably and equitably, in a civilized society both producers and consumers must be the rightful owners of the items they exchange.
Aggregate Supply and Aggregate Demand are familiar entities. A full description of Distribution of Ownership Rights covers the economic values of rights of ownership over consumer goods, producers’ goods, and common goods—goods that are owned neither by private individuals nor by the government, but by the community at large: water and air are two such goods.
This is basically all there is to it in the economic process. Complications arise as soon as the economic system starts to move. Human nature is such that producers, in their desire and effort to service all of the determined or estimated market size at hand, tend to end up simply producing too much. Consumers, on the other hand, want always to acquire all goods and all services with as little expenditure of money as possible. When producers produce too much relative to consumers’ ability or willingness to pay the producers’ asking price, the system operates in a state of "imbalance".
As it becomes clear by looking at the pattern of growth over time, the end result of these tendencies is this: there is overproduction on one side and underconsumption on the other. These tendencies are exacerbated by two phenomena that for a large number of reasons pass under the radar of economic analysis. The distribution of ownership of rights over money and wealth tends to be concentrated into fewer and fewer hands. Then reasonable fears arise the system cannot go on as in the past. In addition, as people lose their sense of economic security, hoarding increases and the system is totally gummed up.
Leaving many subtleties and complications aside, who is the knight on the white horse to free the economic process from the straightjacket of hoarding? Well, to my unending surprise I discovered that from Moses to Adam Smith people knew what to do to keep the economic process running smoothly: They recommended economic policies to control hoarding; control of usury was a central tenet of this train of thought.
Comes Adam Smith, the Enlightened One, and he revolutionizes our thought patterns. First, he declared himself the great emancipator: his intent was to free humanity of the straightjacket represented by restraints on hoarding that had traditionally been imposed upon people by every civilized society that I have studied. He replaced external controls with the wishful thinking of internal controls; he suggested that an “impartial spectator” was more moral than a bunch of “(drunken) monks”.
This was a great hoodwinking job. Proof? One only needs to ask the classical question; who is the impartial spectator, pray tell? The answer is astonishingly simple: lui-même, of course! The individual person thus becomes judge, jury, and executioner of human action. No wonder we are in the mess we are today. Number One rules!
Not satisfied with this hoodwinking job, Adam Smith did something else to complete his task. He erased hoarding from the vocabulary of economists. Mathematical economists can see this clearly now: all the wealth that is not spent is saved; and saving is equal to investment. There is no alternative. In theory, there is no room for hoarding.
In practice, it is a whole different story: you cannot open a newspaper without encountering the specter that hoarding of cash is casting upon the economy. The reality is open to everyone to see, except to economists who are not yet ready to shed the shackles cast upon them by Adam Smith. Worse still, economists are totally unaware of such shackles. Even Keynes thought he was fighting the emptiness of the Marshallian world of economics, while instead what was clouding his mind was Adam Smith’s definition of saving.
Professor R. W. Goldsmith, a professor off economics at Yale, calculated that there are literally 100,000 possible definitions of saving.
Hoarding and its effects
It was in 1965, after a summer of intense intellectual struggle with Keynes’ General Theory, that I changed the meaning of saving to hoarding and found myself in a new intellectual world. Again, eschewing the mathematics of the transformation, this is what I gradually discovered:
Figure 3. Effects of Hoarding
The effects of hoarding become immediately evident as soon as one sets hoarding in relation to investment, as in a standard Lorenz diagram in which their sum is always equal to 100. If you have more hoarding, you have necessarily less investment; hence, less growth. If the existing amount of wealth is inordinately hoarded by the few, the many will automatically have less; and the number of people living in abject poverty will inevitably increase. What takes a moment of thought is to see the relation between hoarding and inflation: to see inflation increasing with increasing levels of hoarding, you have to focus on the hoarding of real wealth. Money spent on goods hoarded remains in circulation “chasing fewer goods”.
I am often asked to pass value judgments. Is hoarding “bad”? The answer is “complex”, because one has to take into account the amount, the type, and the timing of hoarding. To give two specific examples, some hoarding of real wealth is “good” when it smoothens present supply with future demand; also, some money hoarded right now has a good effect, because, if all the money outstanding in the economy were put in circulation overnight, we would have sweeping flames of inflation destroying our financial wealth.
All too briefly, substituting saving with hoarding, totally unaware, I simply undid the intellectual and moral morass into which Adam Smith has plunged human beings. Why am I so certain of these effects? The reasons are fundamentally simple. One reason is that, if you change saving to hoarding, then insert this definition into Keynes’ model of the economic system, do the math, and you will be compelled to recognize that investment is income minus hoarding. Do not be afraid. “Remorselessly”, as it has been stated, follow ancient principles of logic, and you shall duplicate the theoretical structure of Concordian economics.
Another fundamental reason for my firm belief in the validity of the results of my research is this. After working for forty years in this field, this is what I discovered in 2006. By looking at the issues retrospectively through a study of history, to my unending astonishment, the statements that investment is income minus hoarding turns out to be nothing but the mathematical formulation of the Parable of the Talents. The parable tells of the master who returns, praises those who have invested the talents he had entrusted to them upon his departure for a foreign land, gifts them with the wealth they have created, and promises to entrust to them greater amounts of his wealth in the future; the third who has buried the talent entrusted to him is bitterly denigrated, the one talent is taken away from him, and he is condemned straight to hell! No appeal. No mercy. Why such an uncharacteristically harsh treatment? The answer lies not so much in the analysis of the economic effects of hoarding as in theology. The one who, dominated by fear, hoards wealth, sins against the glorious and magic munificence of God. Nature, if you prefer.
The Economic Process and Its Environs
A peculiar characteristic of the economic process is that it touches, and in turn is touched by, all mental disciplines. Thus production does not occur without knowledge of physics and chemistry and geology and geometry and mathematics and so on and so forth. And consumption, with its accumulation of financial instruments, does not occur in a vacuum either; rather, it is a product of politics—or what is classified as the set of monetary and fiscal policies of a nation. And how does the distribution of ownership rights take place? Today we might feign ignorance or even—in obeisance to a misguided understanding of pure science—disdain for the mechanisms of creation of ownership rights. The ancients had no such qualms: They knew that ownership rights are created in accordance with the principles of economic justice.
Forget Adam Smith. What did deep thinkers such as Aristotle and the Doctors of the Church have to say about hoarding? Well, for two thousand years they consistently urged us to follow principles of economic justice. They were precise: actually they gradually perfected the study of economics because they looked at the system through the lens of the principles of economic justice, namely the principles of distributive justice and commutative justice: how should wealth be distributed and exchanged among human beings. Their conclusion was that the wealth had to be distributed equitably and wealth exchanged had to be of equivalent value: can anyone come up with a better solution?
Figure 4. Economic Justice
If people do not participate in the economic process, they are marginalized; then in not infrequent they are thrown from the margins of society onto the street.
If people do not acquire a fair share of what they produce, they are defrauded.
If people do not receive a fair compensation for the wealth put on the counter for a market exchange, they are swindled.
All this is self-evident. What escaped me for many years is the observation that the graph of the economic process is the reverse image of the graph of economic justice. One is the mirror image of the other. The two entities cannot be separated one from the other except at great peril to the stability of the economic system.
When income and wealth are not distributed equitably—whether some get more than their due, machines displace jobs, or jobs are outsourced abroad—consumers have not enough financial resources to purchase the goods produced, merchandise rots in warehouses, and the conscience of the nation feels compelled to experiment with all sorts of programs of redistribution of wealth.
This reality comes clearly to the fore when the two figures are put directly together as in the following figure, which shows a one-to-one correspondence between the key modules of each system of thought:
Figure 5. True Economic Reality
The simplest way to read this figure is to remember that from Moses to Adam Smith the economic life of the nation was evaluated and guided through the lenses of economic justice. From Adam Smith onward we have gotten accustomed to evaluating and guiding the economic life of the nation through the lenses of production, distribution, and consumption of wealth. Neither approach is complete without the other.
Another characteristic, which becomes evident through this figure, is that Concordian economics relates with equal value to the economy of the individual person, the city, the region, the state, or the world. Thus the distinction between microeconomics and macroeconomics disappears from sight. While the scale changes, the same model applies to all.
Principles of Concordian economics
The key principles of Concordian economics are formulated as a set of economic rights and responsibilities, which come forward in response to the well-known requirements of the factors of production identified by Classical economists as land, capital, and labor—with the addition of a modern distinction between financial and physical capital. Guided by the economic needs of a Schumpeterian entrepreneur and inserting our discussion into the guiding structure of economic justice, our focus of attention is on the satisfaction of the plank of participative justice; successive iterations that are skipped here would reveal that the same rights and responsibilities satisfy also the requirements of distributive justice and commutative justice.
Let us keep this simple dynamic mechanism in mind: If we do not participate in the economic process by right, we are made dependent on the will of others; we are eventually marginalized; and then we are thrown onto the street.
A minimal set of economic rights and corresponding responsibilities is as follows:
Figure 6. Principles of Concordian Economics
These principles perform functions outlined in the conception of “general abstract rules” by Friedrich Hayek, the “original position” by John Rawls, or the “Principle of Generic Consistency” by Alan Gewirth. Ultimately, it was a poet, Vincent Ferrini, who caught the essence of economic rights and economic responsibilities by identifying their ability to provide “the answers to universal poverty and the anxieties of the affluent.”
Economic rights and responsibilities can be exercised by anyone who wants to receive economic justice, and also wants to grant economic justice to others. Operating as Malcolm Gladwell's “tipping points”, they set in motion a process of interdependence that respects the reality of economic affairs, and the reality of human relationships. Recognizing that most people and most businesses always act morally, the increasing number of “bad apples” that at times seem to receive all the attention (and envious support) of a superficial intellectual world will be recognized as dangerous exceptions, perhaps ostracized, but certainly no longer applauded. Once the tendencies of these wicked people are kept in check, all wealth will be distributed, not equally—that is meaningless utopianism—but fairly.
The above economic rights and responsibilities incorporate the essential conditions for the establishment of a free enterprise system in the complexity of the modern world. Economic freedom will be expanded to embrace all who want to subject themselves to the rigors of the economic process—and then the few remaining hard cases can be easily receive the care of charity.
For fuller explanations, rather than going to my work the reader might want to review the writings of Benjamin Franklin, Henry George, Louis D. Brandeis, and Louis O. Kelso—considering their relevant works in careful succession, not as stand-alone efforts. Standing alone, these works are open to debilitating objections. Together, they become an impregnable system of thought.
All too briefly, the dynamic interactions among these principles of Concordian economics—Concordianism, if you will— blossom into an All-American economic policy, which is welded together out of these major components:
1. A natural
resources policy: 2. A
bottom-up monetary policy; 3. A
labor policy; and, 4. An industrial policy.
If production, distribution, and consumption proceed in an equitable and sustainable way, the growth of the economic system over time yields three parallel lines. A bare knowledge of the economic reality tells us that, instead of three parallel lines (or three synchronous spheres), what we have today can rather be depicted as follows:
Figure 7. Economic Growth
Contrary to the mantra in economics textbooks, I have lately come to realize that the pattern of distribution of ownership (DO) of income and wealth tends to be concentrated into fewer and fewer hands before it returns to “normal” levels, thus with considerable exaggeration it can be said that over the course of a business cycle it acquires an inverted V-shape. In turn, for the relative ease with which financial instruments can be created, the trend line of the pattern of monetary wealth (MW) can rather quickly separate itself from the trend line of real wealth (RW). A bubble is created.
How to return to a fair distribution of ownership rights over money and wealth and how to deflate the bubble at the earliest possible moment with the least loss of real wealth (indicated by area a’ and area a”) is a matter of equity and sustainability: it is a matter that falls onto the realm of Concordian economic policy.
With the help of this compass and the maps presented above, together we shall build a new economic world.&&&
One question: Is Concordianism the latest expression of Utopianism? Reduced to its bare and essential bones (all the rest is intellectual scaffolding), is the program of action proposed by the gradual implementation of the four economic rights and four economic responsibilities of Concordian economics a quixotic venture? The curt answer is: No. Utopianism has consistently been based on the wishful thinking of a single person. The proposed program of action results from filling in the gaps of a millenarian train of thought that, in a seamless web, extends itself from morality to economic theory and from there—through economic justice—to economic policy and practice. Utopianism promises immediate results, as if by magic. Concordianism asks for concerted, protracted effort. Whatever life Utopianism has, it is based on the fanatical following of a small group of people who try to force it upon the will of the general public. The proposed program of action is expected to be readily understood and spontaneously implemented by the population at large.
This framework of analysis was powerfully aided by 27 years of assistance from Professor Franco Modigliani, a Nobel laureate in economics at MIT, and 23 years of assistance from Professor M. L. Burstein, a professor of economics at
All graphs were beautifully revised by David Goran Shedlack, who, with David S.
Wise and Peter J. Bearse, also powerfully contributed to sharpen the verbal
presentation of this work. Heartfelt thanks to all. York University
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