Concordian Economics
Tools to
Return Relevance to Economics
Carmine Gorga
Reprinted
with permission of Forum for Social Economics (http://www.springerlink.com/content/1w885686112kt7r7/),
May 2008.
For Soc Econ (2009) 38:53-69
The original publication is available at www.springerlink.com.
Abstract With the help of planes and solids, this paper presents an enlargement of
the field of observation of economic theory. Through this transformation, the
distribution of ownership rights to money and wealth assumes a central position
in economic analysis. Thus social relevance is returned to economics. The
validity of this operation is confirmed by the return of the millenarian field
of economic justice to its traditional function as guidance to economic policy.
The paper then presents four sets of economic rights and responsibilities that
offer the potential of translating principles of economic justice into the
complexities of the modern world.
Keywords economic theory, economic policy, economic
practice, economic justice, economic rights and economic responsibilities,
social relevance.
As problems of human and natural ecology mount
up, there is growing in mainstream economics the conception of economics for
economics sake. The tendency is to see economics as an autonomous discipline
isolated from other sciences, and yet dominating all other social sciences. No
matter what concerned people within and without the economics profession
maintain, the tendency is to neglect those concerns because mainstream economics
has an unstoppable inner force of its own that makes it impossible to change course.
This paper assumes that this tendency is due not to the will of any individual economist
but to the sheer power of their tools of economic analysis. The action is
involuntary. The process is mechanical (cf PAER).
The process is not without consequences. Economic
theory has lost control of itself. Perhaps no one has made the case stronger than
Alan Blinder (1999), who has said: "...too much of what young scholars
write these days is 'theoretical drivel, mathematically elegant but not about
anything real.'" As a direct consequence, economic theory has become
splintered into various schools, which vie for their own preferred policies.
Because of the current disarray, monetary policy has largely been left to the
bankers; fiscal policy to the politicians; and hardly anyone speaks of labor or
land or industrial policy any longer. In a word, by becoming detached from reality, both economic theory and policy risk becoming socially
ineffective—which does not mean that economic practices are not causing social
consequences of their own.
This paper offers a set of new tools that is
capable of changing this course of action. Through these tools social relevance
reveals itself as an integral part of the constitution of economic theory,
policy, and practice. To be specified at the outset, the new tools do not
reject but incorporate the old tools of analysis. Using planes and solids in
space, in addition to points and lines, economic theory automatically encompasses
a larger social reality and returns to the fold of socially relevant sciences
with authority to suggest desirable policies and practices.
While the proposed tools in economic theory are
the result of forty years of analysis published in Gorga (1982, 2002), desirable
policies and practices are distilled from a program of action presented in
Gorga (1959, 1964, 1987, 1991a, 1994, 1997, 1999, 2002, and 2007). More
extensive treatments can be found in the writings of Benjamin Franklin, Henry
George, Louis D. Brandeis, and Louis O. Kelso—with their works, necessarily all
their works, read in rapid succession and not any of them as a stand-alone
effort. Standing alone, these works are open to debilitating objections.
Together, they become an impregnable fortress.
TOOLS TO CONTROL ECONOMIC
THEORY
Mainstream economic theory is an impressive
intellectual construction with its own internal logic. Its structure is a
bastion impervious to any external influence; it has become a mathematical
science, and as such it is autonomous of any influence that does not enter into
its logical structure. The intellectual apparatus of mainstream economic
theory, once deconstructed, revolves around the following tool kit, which we
propose to preserve and to build upon.
Existing Tool Kit
As everyone knows, economics is built
on the theory of supply and demand. The demand of most everything increases as
its price decreases; and the supply of everything increases as its price
increases. This is the bare structure of most theories in economics, from the
theory of growth to the theory of money. To appreciate the full force of this
method of analysis one needs to realize that the lines of supply and demand represent
sets of numbers—in turn derived from functions of two variables, prices and
costs—and then one must see those schedules in movement. As they move up or
down, right or left, they meet each other at different points on the Cartesian
grid and determine a specific equilibrium of prices and quantities offered and
accepted of any item of wealth in the market, from bread to gold. The basic
characteristics of this framework of analysis become evident upon reflection.
The focus of attention is on the market exchange; all that goes on before or
after the exchange lies outside the purview of the analyst. The mainstream economist
qua economist can only analyze, forecast, and report on present or likely
future tendencies toward equilibrium of items of wealth that are offered in the
market in exchange for other items of wealth, be they currency or pet rocks. The
consequences that follow from market exchanges lie mostly outside the purview
this framework of analysis. Is the production of items being exchanged in the
market causing physical damage, or moral depravation? Is the distribution of ownership rights over
items being exchanged causing a concentration of wealth into too few hands? Is
the consumption of items being exchanged causing ecological disaster? These are
all familiar questions that are at the heart of the economist’s concern. Yet,
they can at best be acknowledged by the economist, but they will unavoidably be
dismissed as belonging to other fields of analysis such as politics, ecology,
morality, and the law, fields that lie outside the expertise and control of the
economist.
The analysis becomes more complex daily by the
sheer weight of accumulated data; hence equations multiply, econometric
applications become more sophisticated, and theorems concerning the
characteristics of economic relationships become more and more subtle; indeed,
there now seems to be a model for every economic activity—and, lately, for many
non-economic activities as well; and if the information is missing or it does
not quite fit the case, there is the stand-by option of “as if” assumptions.
Impressive as these techniques are, beyond all refinements in the state of the
art of mainstream economic analysis, most economists admit to its basic
limitations; not only that, they also admit that economic theory has been in a
state of crisis at least since the publication of Keynes’ General Theory
in 1936. (What did Keynes say is a question that has plagued the profession
ever since.) Three of the most recent recognitions of the crisis span the arc
from acknowledgment of the limits of mainstream economics (Mankiw 2006) to
criticism about the relevance of mainstream economic theory (Manicas 2007) to
the belief that economic theory has improved and that it is expected to improve
over time (Warsh 2006).
As the history of minor and major theoretical
revolutions and counterrevolutions proves, economists are ready to try nearly
any stop-gap measure to resolve the crisis—provided the proposed measure does
not affect the structure of the theory. This position is non-negotiable; and it
is not the purpose of this paper to negotiate it. What is presented for discussion
is a far simpler proposition: if we want more comprehensive and more accurate results,
we need different tools of analysis. In addition to points and lines, we shall
be using planes and solids in space: at first, only rectangles and spheres.
The consequences of this transformation are
far-reaching. Rather than attempting to create an improved mainstream theory, we
shall incorporate its vital and functioning core into a new framework of
analysis which, for a number of consilient reasons, this writer likes to call
Concordian economics: as we will see below, the structure makes room for the
perspective of each one of the various schools dominating today’s economic
analysis; it opens its doors to inputs from various other intellectual
disciplines; and it extends itself in a seamless web to cover economic policies
and economic practices.
New Tools in Economic Theory
Through laborious logico-mathematical steps
(Gorga 2002: 41-158), one obtains a restructure of mainstream
economic theory (Gorga 1982) and its gradual transformation into Concordian
economics. While the book presents a description of that transformation with
its resultant new mathematical models (Gorga 2002: 25, 38, 71, 74-6, 121-25,
129-37, 153-58, 168-70, 264, 303-20), the present paper reproduces the core of
that ground with primary assistance from geometry; thereafter, it extends the
analysis to cover economic policy as well as economic practices for implementation
of selected economic policies.
![](file:///C:/Users/Carmine/AppData/Local/Temp/msohtml1/01/clip_image001.gif)
Figure 1.
The Economic Process
In this figure, the values of “production”,
namely the values of all real wealth produced over a specified unit of time are
assembled into one category of thought that is recognized as aggregate supply.
(It is to be noticed that this unit is “pure” because it contains only stocks
of real wealth and no monetary wealth. It is also to be noted that in a more
complete treatment this value ought to be observed from the point of view of
demand as well as supply: thus we ought to have an analysis of the demand and
supply of the production of all real wealth.) We follow the same procedure for
the values of monetary wealth, thus firmly separating real wealth from monetary
wealth, and we call the result “consumption” or aggregate demand. (Ditto for
the treatment of all monetary values, which here are not observed from the
point of view of supply: The question of the quantity of monetary values
created lies outside the scope of this presentation.) We finally repeat the
procedure for the aggregate values of ownership rights over real and monetary
wealth, and we call the result “distribution” of ownership rights. (At this
juncture we assume that the values of ownership rights over real wealth are
identical to the values over monetary wealth). In sum, we have enlarged our
field of observation from points and lines to planes and interactions among
planes; and, rather than leaving the question of the interaction between demand
and supply open (cf. Klein 1970: 143), we have continuously specified—and
distinguished one from the other—the demand and supply of (a) real goods, (b) monetary
instruments, and (c) values of ownership rights over real and monetary wealth.
Figure 1 reads as follows. When real goods and
services pass from producers to consumers, monetary instruments of a
corresponding value pass from consumers to producers. Then one cycle of the
economic process is completed—and it is accompanied by the silent exchange of
values of ownership rights over monetary and real wealth. Both money and goods
change hands. The unit of account can be the economy of one person, one nation,
or the world. In macroeconomics, the exchange occurs neither between two
insignificant commodities (cf. Schumpeter 1936) as in microeconomics nor
between any two forms of financial instruments as in the economics of Wall
Street. In macroeconomics, fully respecting the laws of supply and demand the
total production of real wealth is exchanged for the total availability of
financial resources—as in Keynes’ principle of effective demand (see Brady
1996). Finally, in this figure the exchange visibly occurs under a regimen of
social and legal relationships: ownership is apportioned at the moment of
creation of wealth; and only owners can legally exchange wealth.
An effective way to analyze the instantaneous
relationships captured by Figure 1 is to reduce it all to the economics of only
one person. A person who snaps the apple from a tree, vs. gathering seeds, for
instance, while respecting as always the rules of supply and demand commits an
act of production. This person automatically apportions the ownership of the
apple to the self, which means that this person is legally empowered, as it
were, to sell the apple to the self. Thereafter, this person is free to eat the
apple—or sell it to others. One of the merits of Figure 1 is that it describes
the economic process as a whole. Everything is instantaneously related to
everything else. Thus we run away from the shattered world of the schools and
go back to the world of Classical economists who knew that economics is
composed of the integration of Production, Distribution, and Consumption of
wealth. This integration can be made more specific by a more extensive and
updated reading of the terms, along these lines: The Theory of Production—namely
a pure and robust production function—is concerned with the production of real
goods and services (as might be studied by Supply-Side economists); the Theory
of Distribution is concerned with the distribution of the value of ownership
rights over real and monetary wealth (as might be studied by
Institutionalists); and the Theory of Consumption is concerned with the consumption—or
expenditure—of monetary, i.e., financial instruments (as might be
studied by Demand-Side economists). More importantly, by recognizing that
Figure 1 is the flat image of a sphere we bring the mathematics and geometry of
economics up to the standards that prevail among modern engineers and scientists
(see, e.g., Thompson 1986: 36), namely:
Synthetic
Model of the Economic System as a Whole
(From
Gorga 1991b)
p· = fp(p,d,c)
d· = fd(p,d,c)
c· = fc(p,d,c)
where
p·
stands for rate of change in total production
d·
for rate of change in the values of distribution of ownership rights
c·
for rate of change in total expenditure.
And, most important for our immediate purposes, we
can see that the theory of distribution of income and wealth now occupies a
very central position in economics. All that relates to the distribution of
ownership of income and wealth becomes an immediate and integral concern of
economic theory—no longer an afterthought or an issue placed at the margins of
economic science. Related issues of social relevance of economics can no longer
be shunned aside by the economist on the assumption that they are external to
economic theory. These are indeed issues that lie at the very core of economic
theory; and one does not stray away from mathematical and quantifiable theory
either. What is to be measured and evaluated is the economic value of ownership
rights over income and wealth—and the different economic effects of different
patterns of distribution of income and wealth. Decisions relative to these
issues are taken during the very process of production and exchange of wealth;
they are not something to be concerned with only after the more impellent problems of production and exchange are
resolved, as assumed in Keynesian economics and, mutatis mutandis, in
mainstream economics, see, e.g., Klein ([1947] 1968: 187). The concern
about the social relevance of economics—as all Institutionalists have devoutly
wished—is now brought within the purview of the economist.
Issues of distribution of economic values of income
and wealth are not givens; they lie at the very core of the economic process
and are determined by the inner workings of this process. On Mars the situation
might be different; on earth, people create not only real or physical wealth—they
also assign values to this wealth. Indeed, it is economists (and accountants)
who, assisted by the laws of supply and demand, assign these values as best
they can. Lawyers only validate these statements by transforming them in
negotiable legal instruments that are called ownership rights. These rights
might belong to an individual person, to a corporation, or to the state; but
they legally belong to someone. And an exchange of real wealth for monetary
wealth involves at the same time an exchange of the value of ownership rights
over real and monetary wealth. It is thus that, no matter the disclaimer by
many economists, economic values are created and are created at the very core
of the economic process.
TOOLS TO CONTROL ECONOMIC POLICY
Having discovered that the distribution of
ownership rights over income and wealth is an integral part of economic theory,
the question becomes: What are the tools to obtain the desired pattern of
distribution of income and wealth? This is the eminent question of economic
policy. Economic theory tells us that, once this pattern is set, most other questions
of economic policy are automatically settled. The answer to the question is well
known.
Existing Tool Kit
Even though the historic roots of economics lie
in moral philosophy, economists have lately assumed that they have nothing to
contribute to the discussion concerning the selection of patterns of
distribution of income and wealth. They have left the field to lawyers,
ethicists, philosophers, sociologists, and political scientists. Mainstream
economists believe that they do not have—and, what is more important, they ought
not to have—any tools to control the pattern of distribution of income and
wealth. Mainstream economists assume that this is a given, namely a
determination that is and ought to be left to society as a whole. Economics, as
pure science, as an autonomous mathematical science, is supposed to analyze the
effects of various societal decisions, but not to intervene in those decisions.
It is a direct consequence of this assumption that economic theory is fast becoming
socially irrelevant.
Under these conditions, the discussion on
economic policy falls into a trap. The discussion becomes the property of
various schools of economics, each purporting the benefits of its own dictates
and none being able to convince the other schools of the validity of its
positions.
We do not need to put a step on this slippery
slope. Once it is established that the pattern of distribution of income and
wealth is an integral part of economic theory, the analysis is restricted to
this question: How can we translate economic theory into economic policy? In
the paragraphs below we will offer a set of new/old tools for consideration.
This set calls for the construction of the theory of economic justice,
and therefore economists will discover that they have much to contribute to it.
This is the high road to re-establish social relevance to economics.
Proposed Tools to Control Economic
Policy
A mere glance at the history of
economic thought makes us glean this proposition: The transmission belt that
for millennia carried economic theory into economic policy is the doctrine of economic justice. While remaining astonishingly
constant from Aristotle to the Doctors of the Church (see, e.g., Wood
2002: 83), this understanding allowed for continuous adaptations to the
circumstances of the moment. The doctrine of economic justice was divided into
two planks: distributive and commutative justice. Distributive justice guided
rules and regulations that govern the division of wealth as it is created;
commutative justice guided rules and regulations that govern the transferal of
wealth between buyers and sellers at the moment of the exchange. While the
Doctors of the Church left much room for discretion in the determination of
distributive justice to the parties involved in the economic process, they
reached a firm and revolutionary conclusion about the dictates of commutative
justice. The commutation of wealth, namely the exchange, occurs in accordance
with principles of justice, they discovered, only if it reflects a free market
price: a price determined in a market that is not dominated by either
governmental or private monopolistic forces (see, e.g., Schumpeter 1954:
98-99).
While this formula appears simple, it envelops
great complexities. With it, the Doctors of the Church unified the social requirements
of freedom with those of morality in economics; and it was the exercise of
morality that yielded freedom. The application of this formula created the
essential conditions for the enterprise system to be as free as it could be at
the time.
Over time, this ordered set of priorities was
twisted around and its power dissolved. Through insistence on unfettered
economic freedom, the unity of freedom and morality—with its inherent social
relevance—was shattered and the doctrine of economic justice was lost in the
fog of time.
Truth to tell, the dissolution of the doctrine
of economic justice was facilitated by the fact that it was never presented
with a visible head. People with direct or indirect access to land and natural
resources participated in the economic process as a matter of fact through
well-established privileges and as a consequence of unspoken sets of rights
(indirectly, access to land and natural resources was secured through the
commons: for millennia the safety valve to preserve the dignity of the poor).
Hence, it never occurred to Aristotle or any of the Doctors of the Church to
make explicit the requirements of a third plank that might be called
participative justice (Gorga 1999, 2007). For a great variety of reasons, those
conditions are no longer in existence. Today, one has to beg in order to participate
in the economic process. And if one does not take part in it, one is
marginalized; one is shunted to the margins of society. Hence the plank of
participative justice, as it is increasingly recognized from many quarters,
must be explicitly formulated. When participative justice is added to the other
two planks, the doctrine is completed and transformed into the theory of
economic justice. Once that is done, one is presented with a framework of
analysis that can be represented in this fashion:
![](file:///C:/Users/Carmine/AppData/Local/Temp/msohtml1/01/clip_image002.gif)
Figure
2. Economic Justice
Figure 2 reads as follows. Participation in the
economic process is a matter of justice, because only men and women who
participate in the production of wealth are entitled to the distribution of
ownership of a share of the wealth created through their participation.3
A just commutation of wealth, a just exchange, is implicit in the very
distribution of wealth in accordance with one’s participation; but, of course,
the principle of commutative justice extends itself to cover the exchange of
wealth just created for other wealth existing on the market. It is in accordance with these objective
principles that the pattern of distribution of current income and wealth is and
ought to be determined. Economists can render these calculations very precise.
But economists have much broader tasks than
these. Figure 2 is a mirror image of Figure 1. If the distribution of ownership
rights is an inherent part of the economic process, as we have seen in the
previous section, economic justice becomes a natural extension of economic
theory. Indeed, one can just as soon separate economic theory from economic
justice as one can separate a person from her shadow. (The forced separation of
these two entities has ineluctable consequences of its own that ought to be of
great interest to the investigative powers of the economist.) Given this
condition, a minimum set of questions to be asked by economists in the formulation
and evaluation of any economic policy might be: Does the proposed policy favor
participation in the creation of wealth? Does it allow for a fair distribution
of the wealth thus created? Does it allow for a fair transfer of wealth from
one person or group to another? Much could be said on these issues, but since
much is already well known, we shall shun away from
broad and elaborate discussions of these issues.
The wisdom of staying away from broad and
elaborate discussions, however, does not necessarily require staying away from
the specifics of the case. The specific question is: How can we transfer the
principles of economic justice into the complexities of the modern economy?
Needless to say, this is a question that is not
formally and comprehensively raised in mainstream theory. This is a question
that arises naturally and forcefully within the context of the structure of Concordian
economics.
TOOLS TO CONTROL ECONOMIC PRACTICES
In the section on economic theory we have seen
how does the economic system create wealth, how its value is determined by economists
and accountants, and how its value is then transformed in ownership rights by
lawyers. In the section on economic policy we have observed how economic
justice determines the apportionment of those ownership rights. In this section
we shall observe how the economic system operates in practice.
Lack of an Existing
Tool Kit
“High” mainstream theory is silent on the
practices of economics. This neglect is not due to chance; rather, it is due to
the assumption that, since economic practices are determined by society at large
and are supposedly controlled by allied social disciplines, they lie outside
the economist’s field of expertise. Indeed, having abandoned the field to
lawyers, and ethicists, and philosophers, and sociologists, and political
scientists, mainstream economists have become passive takers of a proposition
that lies at the very core of the issue. This is the proposition that present
ownership rights provide practical rules for the distribution of future
ownership rights. The proposition has long legs, because it determines the
pattern of future distribution of income and wealth. Economists observe every
day the manifold negative consequences of this belief, but feel powerless to
even address the issues. This is another juncture at which, by taking themselves
out of the discussion, economists are threatening to make economics a socially
irrelevant discipline.
To regain their power, economists have only to
look at it as an economic, rather than a legal, political, or moral issue. If
they do that, they discover that their assumptions are faulty. The error is elementary.
The reasoning is circular. In order to enter and to break this circular form of
argumentation, namely that present property rights determine future property
rights, economists need to remember that property rights are pieces of paper: a
piece of paper does not—and cannot—create real wealth. It is not even the exercise
of property rights that creates real wealth. Property rights are a bundle of
rights that link human beings to things. Their current owners may wish as hard
as they can, it is not in the nature of property rights to create wealth.
It is not the use of property rights, but the
use of property—namely, the use of real goods and services—that
creates new wealth. The distinction is fundamental. The discussion is shifted
away from the abstract legal field on to a concrete field. The discussion is
focused on the observation of the economic reality. The use of real goods and
services to create new wealth is infused, not by property rights, but by the
exercise of economic power. To an economic power corresponds an economic right.
As specified below, temporally, logically, economically, and legally, economic
rights precede property rights. Economic rights are the generators, the fathers
and the mothers, of property rights. The nature of economic rights becomes
clear when the two rights, economic rights and property rights, are observed as
separate and distinct entities, and then both rights are placed in
contraposition with entitlements. The three terms are often used as synonyms.
They are not. As specified in Gorga (1999),
First,
the content of these three entities is different. The object of property rights
are marketable things, tangible or intangible things such as material
goods and services. The object of entitlements are human needs, from
food to shelter to health. The object of economic rights are economic needs.
Second, the legal form of these three entities is different. Property
rights are concrete legal titles over existing wealth; economic rights
are abstract legal claims over future wealth; and entitlements are moral
claims on wealth that legally belong to others. Finally, the quantity that they
measure is variable. While both property rights and entitlements relate to
existing wealth, and therefore a necessarily finite quantity, economic rights
relate to future wealth, an unknown and elastic—if not a potentially infinite—quantity.
Economically, and consequently legally, real
wealth is created by the exercise of economic rights—indeed, economic rights
and economic responsibilities, as we shall see. Hence economists are fully
entitled to extend their competence to the field of economic rights and
economic responsibilities. Economists will discover that the field is wholly
within their range of expertise and responsibility. At the end of this journey,
economists shall be able to offer to lawyers, ethicists, and philosophers, as
well as political scientists and politicians, this proposition: Future
ownership rights are determined, not by property rights, but by economic
rights—indeed, they are determined by economic rights and economic
responsibilities. Thus the closed circuit that at present imprisons economic
theory, the proposition that property rights beget property rights, is broken.
Economists are in charge of economic issues.
New Tools to Control Economic Practices
The transmission belt that carries principles
of economic justice into the complexity of modern economic life, and shapes
objective guidelines for the formulation and evaluation of just economic policies
is the presence of economic rights and economic responsibilities (ERs&ERs),
both lodged in the same person at the same time. These two conditions need to
be clarified. Economic rights and responsibilities need to be lodged into the
same person, otherwise one does not follow an economic discourse in which
everything is strictly related to everything else; rather, one follows
escapism: if my father, my uncle, or the state is responsible for my welfare,
we are lost, as Keynes used to say, “in a haze where nothing is clear and
everything is possible” (Keynes 1936: 292). The second condition is equally
important. Economic rights are rooted, not in abstract morality, but in our own
concrete economic responsibilities (cf. Gorga 1999).
ERs&ERs 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 these economic needs, our focus of
attention is on the satisfaction of the plank of participative justice;
successive iterations that are mostly skipped in this presentation would reveal
that the same rights and responsibilities satisfy also the requirements of the
planks of distributive justice and commutative justice. A minimal set of
economic rights and corresponding responsibilities is as follows:
1. We all
have the right of access to land and natural resources. This is a natural
right. It belongs to us just in virtue of our humanness. Land and natural
resources are our original commons. They belong to us all. This is an essential
right, because without the possibility of exercising it, we are deprived of the
possibility of participating in the economic process. And without this participation,
we are marginalized; we are made dependent on the good will of others. The most
direct way of securing this right in the complexity of the modern world is
neither through squatting nor through expropriation; rather, it is through the
exercise of the responsibility to pay taxes for the exclusive use of
those resources that are under our command—with a corresponding reduction of
taxes on buildings and man-made improvements on the land. The exercise of the
responsibility to pay taxes on land has a double function: It secures our right
to the use of the resources that are under our command and it also makes room
for others to access land and natural resources that they need. Land taxation
is the economic bridge between hoarding, namely the accumulation of idle land,
and the right of access to that land with its natural resources. Paying taxes
on the value of land and natural resources gradually encourages dis-hoarding,
hence it lowers the price of the land, and correspondingly opens up the
resources of that land to all those who need them and can make use of them.
Worrisome hoarding is especially that which occurs both downtown and in the
belt surrounding major cities and towns. It is to leapfrog over this belt that
people go to the suburbs in search for affordable land, thus creating
overstretched lines of communication and protection and overlong commuting
lines—with consequent waste of fuel that overtaxes nonrenewable
resources, the ozone layer, the pocketbook, and the nervous system. Paying taxes
on land value is a most fair form of taxation, because it implies returning to
the community part of the value that is created, not by the individual owner,
but by the community. Land that sits idle does not produce income, true; yet,
it produces capital appreciation over time: Rare is the case of capital loss;
and even when that occurs, the relative loss tends to be smaller than the loss
on other assets. (To see how this pair of ERs&ERs meets also the
requirements of distributive and commutative justice, let us simply consider
that, if one avoids taxes, the total tax load is not going to be distributed
fairly among the population. And if one avoids taxes, one obtains something—i.e.,
private control over a quantity of resources—for which one does not offer
proportionate compensation to the rest of the community.)
2. We all
have the right of access to national credit. Since national credit is the
power of a nation to create money, and since the value of money is given by the
value of wealth left over by past generations and the creativity of every
person in a nation, national credit is the last frontier, the last commons.
Without access to credit today one is made economically impotent. Worse, since this
advantage is granted to the privileged few, it is automatically denied to the
majority of the population who are henceforth condemned to pay a higher rate of
interest, if they obtain credit at all. Of course, such a loan should be
extended only on the basis of the
responsibility to repay the loan. And these loans will have a high chance
of being repaid because they ought to be issued at cost and issued exclusively
to individually owned enterprises, Employee Stock Ownership Plans (ESOPs), and cooperatives,
as well as states and municipalities, and issued exclusively for capital
formation, namely for the creation of new wealth—not to buy financial paper,
consumer goods or goods to be hoarded or to cover administrative expenses of
states and municipalities. Capital credit liberates people, while consumer
credit enslaves them.
3. We all
have the right to the fruits of our labor. This right should not be limited
to the right to obtain only a wage. It should be extended to cover the other
major fruit of economic growth over time: capital appreciation—as well as being
subject to capital loss, of course. The only justification for reserving capital
appreciation for stockholders, the owners of a corporation, and excluding
workers from it, can be found in the fact that loans are given only to owners
of past wealth (the Catch-22 of today’s economic reasoning: “save and invest
and you too can become rich”—as if this proposition were either economically
feasible or ecologically sustainable.) But from now on this right can be
extended to people who do not have prior wealth through the right of access to
national credit—especially by legally transforming workers into owners through
individually owned enterprises, Employee Stock Ownership Plans (ESOPs), and
cooperatives. Of course, this full right should be extended only in
correspondence with the responsibility
to offer services of value equivalent
to projected compensation. And there will be an outpouring of such services
because, while in a command and control economy workers are requested to check
their brain at the factory gates, in a socially responsible economy—an economy
in which rights are exercised on the basis of responsibilities—workers/owners
are legally, socially, and psychologically empowered to exercise their brain
fully at their work post.
4. We all
have the right to protect our wealth. This right seems to be universally
accepted, except in one case that matters most: in the case of the
trustification process, the process used especially after the Civil War in the
United States to create corporate trusts and repeated
in a hundred subtle variations ever since. (People feel free, not only to
acquire shares of the stock of one corporation, but free to use that stock to
acquire another whole corporation by all forms of trusts, mergers, and acquisition.
The very idea of the corporation, forever a public entity, has thus been
privatized and monetized.) There are two ways in which corporations grow: One
is through internal growth, and this approach ought to be protected in no
uncertain terms; the other is through external purchase and, with limits, this
manifestation ought to be prohibited in no uncertain terms. Why? Because this
prohibition is the only certain way to protect the wealth of present owners.
And if it is assumed that most stockholders of the modern corporation are happy
to have their shares bought and sold on the market, it must be granted that
growth-by-purchase takes wealth away from workers who have contributed to
create that value—and many times, in the trustification process, lose their
work site as well. All in the name of efficiency—a misnomer that stands for
private financial gain generated at the expense of shifting costs onto the
shoulders of the community at large. Of course, this right ought to be
purchased only at the cost of the
responsibility to respect the wealth of others. These are two-way streets. We cannot even attempt to restrain the
Pac-Man economy, while we use Pac-Man instruments.
These economic rights and responsibilities can
be exercised by anyone who does not only want to receive economic justice, but
also wants to grant economic justice to others. Indeed, these are the essential
conditions for the establishment of economic justice, as well as the
establishment of a free enterprise system, in the modern world. As a
consequence of the dynamics of the implementation of these four marginal
changes in our current practices, 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 taken care of by charity. No.
There is no compulsion in any of the above suggestions. The landowner can pay
more taxes and control more land or can escape the tax levy altogether by
reducing land ownership to zero; the applicant for a national loan can escape
the constraints suggested for access to national credit by tapping into private
capital markets; the worker can escape the responsibilities of ownership by
vying for a job rather than an equity position; and the owner of physical
capital can escape the constraints implicit in the proposed anti-trust policy
by remaining below the trigger of an agreed-upon threshold for growth-by-purchase
prohibition. This prohibition should apply to the largest corporations first
and be gradually expanded to include eventually all except, let us say,
corporations engaged in intrastate or regional commerce.
Intellectually, the proposed economic rights
and economic responsibilities perform functions outlined in the conception of
“general abstract rules” by Hayek (1960: 153), the “original position” by Rawls
(1971: 12, 72, 136, 538), the “reverse theory” by Nozick (1974: 238), and the
“Principle of Generic Consistency” by Gewirth (1985: 19); practically, they
will function as Gladwell’s (2000) “tipping points”. Ultimately, it was a poet,
Vincent Ferrini (2002), 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.”
Operating as tipping points in our modus vivendi, ERs&ERs will 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 people are kept in
check, all wealth will be distributed, not equally—that is meaningless
utopianism—but fairly. The assurance for this result resides in the transformation
of the current social contract into a legal contract: when landowners pay their
share of land taxes, they will sell their hoards and access to land and natural
resources will automatically be opened up for most people; when people will get
access to national credit, many will become independent entrepreneurs; when
workers are transformed into owners, they will have the legal tools to demand a
fair distribution of income; when growth-by-purchase will mostly become a
forbidden activity, most corporations and most employee/owners will preserve
their independence. These measures, by consistently curbing the excesses of the
few for a period of at least ten years, will cumulatively lead to a fair
distribution of income and wealth. To reassure ourselves of this outcome, let
us comprehensively look at the issues from another point of view. If land
owners were to use their possessions of land and natural resources efficiently (with
efficiency measured through lower private capitalization and higher effective
demand), would there be such wanting in the world? If national credit were made
available to all entrepreneurs at cost, would we not translate the immanent
reservoir of creative powers into economically profitable ventures? If workers
were transformed into worker/owners, would we not increase our extant
productive capacity incommensurably? If corporate growth-by-purchase—with
accompanying translation of that economic power into corruption of our
political system—were curbed, would we not obtain less concentration of
economic power into a few hands?
All four ERs&ERs naturally lead to a fairer
distribution of income than prevails today. Eventually, with a fair
distribution of income and wealth, there will no longer be any need for redistributive programs, which are an expression of
double utopianism (first, people as if living in la-la land are allowed to
accumulate much, no matter how; and then they are expected to peacefully discharge their ill-gotten wealth). Preserving
their current wealth, the rich will grow richer at a steady but slower pace;
and the poor will no longer be poor, because they will have all they need.
Lacking fuel at both ends, violent oscillations in the business cycle will be
abated.
We will thus recover the essential truth of
economics. This is the truth that there are two conditions of growth: economic
freedom and economic justice, as concrete expressions of freedom and morality. Both
are essential. The relationship between the two is quite clear: While freedom
does not necessarily bring justice with it, justice unavoidably brings freedom.
One can abuse freedom by denying freedom to others, one can never abuse
justice. Hence, the initial condition of freedom for all is proof positive of
the existence of economic justice in the land. This is economics that is
socially relevant. And the relevance is not an afterthought. The relevance is
implicit. The social import of economic theory is realized when the
distribution of ownership rights is seen as an integral part of its
constitution; and the social import of economic justice and economic rights and
responsibilities is simply stated: We must prevent all foreseeable injustices
from occurring. Once an injustice has occurred, there is nothing that can be
done to undo the dastard deed. This is the bosom of realism.
One last question: Is the proposed program of
action the latest expression of utopianism? 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 at least from morality to economic
theory and from there—through economic justice—to economic policy and practice.
Utopianism promises immediate results, as if by magic. This proposed program of
action 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 multitudes. The proposed program of action is expected to be
readily understood and spontaneously implemented by the multitudes.
CONCLUSION
The lament that economics lacks social relevance
assumes many forms, but these are mostly centered on the treatment of issues of
distribution of income and wealth. We have found that these issues are not even
investigated by economists today because they assume that they lie beyond the
field of economics. Hence, by placing this issue at the very core of economics,
we have given back social relevance first to economic theory, then to economic
policy, and finally to economic practices. Without ever abandoning the field of
economics, we have established a continuity of discourse between three stepping
stones in economic analysis. We have followed this line of reasoning. Since
money and financial instruments are not wealth, but only represent wealth, in
macroeconomics one cannot add money to real wealth. The two have to be kept separate.
This condition raises the question about the relation between money and real
wealth. As in the economics tradition from Aristotle to the Doctors of the Church,
we have recognized that money and real wealth must be equivalent in value. But
equivalence is a formal relation among three terms. What is the third term? The
third term that links money to real wealth is the economic value of ownership
rights; hence, we have presented a restructure of economic theory that reflects
the need to study not only the monetary economy but also the real and the legal
economy at the same time. From this new framework of analysis, novel answers
are given to the question: How is the distribution of ownership rights achieved
today, and how “should” it be achieved? An investigation of the economic,
rather than the legal, moral, or philosophical aspects of this question leads
to the transformation of an age-old doctrine into the theory of economic
justice and to the discovery that the creation of wealth is achieved, not
through the exercise of property rights, which are static, but through the
exercise of well-defined economic rights and economic responsibilities, which
take care of the dynamic needs of the economic world.
FOOTNOTES
1.
Every step of the way in Concordian economics,
decisions are taken following relentlessly the dictates of fundamental rules of
logic. For instance, analysis reveals that since current definitions of saving
and investment contain items that are productive (farmed land) and items that
are nonproductive (fallow land) of further wealth, both saving and investment
respect neither the principle of identity nor the principle of
non-contradiction and therefore they cannot be equivalent to each other, as
they ought to be for their relation of equality to be formally valid (see,
e.g., Allen 1970: 748).
2.
The separation of real wealth from monetary wealth is
an integral part of the transformation of Keynes’ model into the series of
mathematical models that provide structure to Concordian economics. This is a
procedure that, outlined with the help of geometry (Gorga 2002: 32-37), starts
with the enlargement of the definition of consumption from expenditure on consumer
goods to spending in all its manifestations (ibid., 139-50), passes
through the definition of money (ibid., 222) and the monetary
formulation of the Flows Model (ibid., 309-12), and ends with the
establishment of the equivalence of the processes of production, distribution,
and consumption (ibid., 312-19). The description of these three
processes and the economic process as a whole form the substance of Concordian
economic theory (ibid., 159-234).
3.
What to do with the widow, the orphan, and the handicapped
is a moral issue. Economics does not do anything for them. Indeed, as proved by
the history of the world, even in the richest of the communities at the height
of the business cycle, economics cannot do anything for them. Their number can
become so overwhelming, their needs so vast, that even charity becomes
powerless. Economics cannot do anything for the widow, the orphan, and the
handicapped—unless, of course, they own stocks and bonds. But then they
are not poor; they do not need any assistance through morality. They are
capitalists and by the virtue of being capitalists, by the virtue of owning the
machines, they participate—through remote control of the machines—by right in
the economic process.
Acknowledgments
This paper is uniquely due to several maieutic
interventions, truly beyond the call of duty, by Dr. Wilfred Dolfsma. I also
would like to acknowledge a clarification brought to this paper by Godfrey
Dunkley. If this paper has become a cogent presentation less exposed to
potential debilitating criticism of single points, it is due to innumerable
constructive suggestions by two referees of Forum. A more detailed background for this paper is
contained in “The Economics of Jubilation”, an unpublished monograph that has
been well received by such a diverse audience as Dr. Michael E. Brady, Dr. John
C. Rao, Professor William J. Baumol, and Professor Roger H. Gordon. That work,
in turn, is based on a framework of analysis which was greatly assisted for 27
years by Professor Franco Modigliani and 21 years by Professor Meyer L.
Burstein, among others.
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Carmine Gorga is a former Fulbright scholar and the recipient of a
Council of Europe Scholarship for his dissertation on “The Political Thought of
Louis D. Brandeis.” Dr. Gorga has transformed the linear world of economic
theory into a relational discipline in which everything is related to
everything else—internally as well as externally. He was assisted in this
endeavor by many people, notably for twenty-seven years by Professor Franco
Modigliani, a Nobel laureate in economics from MIT. The resulting work, The
Economic Process: An Instantaneous Non-Newtonian Picture, was published in
2002. During the last few years, Mr. Gorga has concentrated his
attention on the requirements for the unification of economic theory and
policy. For details, see www.carmine-gorga.us.
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