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
represented as follows:
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.
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.
Economic growth
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 York University
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