rwer-issue-61
Issue no. 61, 26 September 2012
You can download the whole issue as a pdf document by clicking here
In this issue:
The optimal material threshold:
Toward an economics of sufficiency 2
Samuel Alexander download pdfThe normative foundations of scarcity 22
Asad Zaman download pdfDegrowth, expensive oil, and the new economics of energy 40
Samuel Alexander download pdfNash dynamics of the wealthy, powerful, and privileged: 52
America’s two-player, Darwin metaeconomy
L. Frederick Zaman download pdfCapital as power: Toward a new cosmology of capitalism 65
Shimshon Bichler and Jonathan Nitzan download pdfA warrant for pain:
Caveat emptor vs. the duty of care in American medicine 85
Avner Offer download pdfReassessing the basis of economics:
From Adam Smith to Carl von Clausewitz 100
Robert R Locke download pdfMankiw’s attempted resurrection of marginal productivity theory 115
Fred Moseley download pdfThe evolution of economic theory:
And some implications for financial risk management 125
Patrick Spread download pdfMore on why we should bury the neoclassical theory 137
of the return on capital
Roy Grieve download pdfInstant comments – You may post comments on papers in this issue at the bottom of this post.
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—— Ugarteche, Puyana and Madi ——
Gerson Lima / Maria Alejandra Madi
Edward Fullbrook and Jamie Morgan
————— Michael Hudson ————–
Maria Alejandra Madi / Jack Reardon
————- Edward Fullbrook ————-
—————— Steve Keen —————–
————— Richard Smith —————
————– Gustavo Marques————
– Victor Beker and Beniamino Moro –
————– Lars Pålsson Syll ————-
—————– Stuart Birks —————-
Edward Fullbrook and Jamie Morgan
———— Armando Ochangco ———-
Shimshon Bichler / Jonathan Nitzan
————— Mauro Gallegati ————–
————— Herman Daly —————-
————— Asad Zaman —————
—————– C. T. Kurien —————
————— Robert Locke —————-
Real-World Economics Review Blog 
Asad Zaman makes a brave attack on The Normative Foundations of Scarcity, but an Islamic university in Islamabad is not perhaps the best place for studying the aftermath of the re-formation of Christianity in Britain, where modern economics started. I would like Asad to return to this having grasped the significance of the printing of the Bible in historical order (i.e. Jewish law before Christian ethics), Luther’s initial protest just four years after Machiavelli’s ‘The Prince’, and the British history of Norman domination, Christian transmutation of slavery into serfdom and the beginnings of enclosures and dispossession of the serfs by the time of Henry VIII, as detailed in Thomas More’s ‘Utopia’ (1516). While the Establishment wrote the subsequent redistributions of church and recusant property out of history, an observation-based no-holds-barred analysis may be found in Cobbett’s ‘History of the Protestant Reformation’ (1824). He should read and reflect on this, Shakespeare’s ‘Merchant of Venice’, (c.1580), Bacon’s ‘Advancement of Learning’ (1604, particularly on the reasons for his initiation of modern science), and understand how plague and Descartes’ coordinate geometry (c.1620) paved the way for the fluxions (calculus) of Newton’s ‘Principia’ (1687). After comparing Hobbes’ ‘Leviathan’ (1651, by when life had become “nasty, brutish and short” – with Locke’s ‘Essay Concerning Human Understanding’ (1690, inspired by Newton’s optics and an empirical rejection of Descartes’ innate rationalism) and with Berkeley’s ‘Principles of Human Knowledge (1710, on idealism), one can see the undertones of Hume’s 3-volume ‘Principles of Human Knowledge’ (1739/40, on science, emotion and morality reduced to law). It was Hume’s fallacies which “roused Kant from his slumbers”; Adam Smith was his friend and utilitarian J S Mill (“greatest happiness of the greatest number”) his heir, as was Logical Positivism via Moore’s criticism of utilitarian ‘Ethics’ (1912).
With this understanding of the background, Zaman should read what Locke actually says about private property in the ‘Two Treatises of Government’ (1690: 2nd, ch.v), ending:
” What portion a man carved to himself was easily seen; and it was useless, as well as dishonest, to carve himself too much, or take more than he needed”.
The historical context was the settlement of America, not the so-called “Glorious Revolution” of 1688 and the subsequent Bank of England financially controlling government, legalising the enclosures Locke had objected to and printing money in lieu of un-corruptible gold to finance large-scale private estates, industrialisation and the building of stately homes. It seems to me Locke was pointing towards the need for democratic Constitutional Law binding even governments subject to the temptations and corruption of commerce.
Reading what Kant said is more difficult. Suffice to say he was a ‘conceptualist’ rather than what Humean philosophers dismiss uncomprehendingly as an ‘idealist’. Echoing Christ, and within the limits of his own period, he anticipated the findings of information science that the world becomes what you make of it. If the 1% treated others as they would have others treat them, the world would become a much better place, and scarcity merely an inconvenience calling for resolute action.
As an aside to the capitalist story, it is worth reflecting on the development of Kantian conceptual understanding from both sides of the Christian divide: Hegel’s dialectic (1816, ‘The Science of Logic’) and J H Newman’s ‘Development of Christian Doctrine’ (1846) in different ways both anticipating Marx’s dialectical materialism (‘Capital’, 1867) and Darwin’s theory of biological evolution (‘Origin of Species’, 1859). Today’s experimental information science remains all but hidden in the materialism of developing technology. In the aftermath of the Napoleonic war, Marx – an atheist with an anti-Christian Jewish background – revived with his ‘Communist Manifesto’ (1878) the British fear of the French revolutionary response to injustice, which had so hardened conservatism in defence of ill-gotten privileges.
Peaceful Christian methods of education by demonstration were ridiculed by Marx as ‘utopian’ and autistically ignored by the politicised capitalist establishment. (What changes)? For Islamic eyes it is therefore worth mentioning Anglican Christian Socialism in the tradition of Owen, Ruskin and Temple, and Catholic Social Teaching post-1891 in the community tradition of the Acts of the Apostles, the Benedictine rule of monasticism, Mondragon cooperatives and original European Economic Community.
Addendum to the paper “Nash Equilibrium of the Wealthy, Powerful, and Privileged: America’s Two-Player, Darwin Metaeconomy” (RWER Sept 2012):
Peter Radford in Whither economics? What do we tell the students? (RWER 52) laments that:
Those who study economies are naturally drawn to real world economies, whether they think of themselves in that camp or not, because of their attention to the world around them…[on the other hand] Those who prefer to investigate the properties of equilibrium, rational expectations, and efficient markets are studying economics. They are dealing with abstraction since their starting point is an artifact created from assumptions, axioms and the like…The problem with this split is that it implies that economics over the years has come to represent something other than the study of economies, and this is the source of the conflict that now rages.
The paper Nash Equilibrium of the Wealthy, Powerful, and Privileged: America’s Two-Player, Darwin Metaeconomy (RWER Sept 2012) seems to be working toward resolving this split by raising the theory of the Nash equilibrium from the economics of individual players to a global two-player political economy: the ruling elite v. the middle class (and lower classes).
One important aspect of this real-world application of Nash equilibrium, which wasn’t addressed in the above paper, should be addressed however. The Nash equilibrium in this application has the basic characteristics of a Weberian ideal type. The ruling elite and populist middle or under classes are here conceptual tools to be “formed by the one-sided accentuation of one or more points of views and by the synthesis of a great many diffuse…concrete individual phenomena, which are arranged…into a unified thought construct.” (p. 48) Each of which “to the extent that it has really taken certain traits, meaningful in their essential features, from the empirical reality..and brought them together into a unified ideal-construct.” (p. 49)
(Max Weber 1904, Objectivity of Social Sciences and Social Policy. http://www.molsci.org/research/publications_pdf/Objectivity_Essay.pdf )
The ‘momentum,’ ‘inertia,’ and ‘force’ related to the historically ongoing “Nash dynamics” of the US economy in this paper are conceptual ideal types as well, which give more information about how the ruling elite and populist classes may interrelate dynamically; so that the theoretical approach of this paper in total is an economic ideal type that attempts to capture the “spirit” of capitalism.
This global conception of the ideal-type thus places Weber’s theory within a real-world context in which equilibrium theory is generalized to the global US two-player, Darwin metaeconomy: ruling elite (and surrogates) v. populist classes (and surrogates).
Conversely, it also places Nash equilibrium within a generalized Weberian context toward realizing a real-world economic theory.
Dr Asad Zaman’s elegant and inspiring paper reveals the connections between the growing international movement to ‘reclaim the commons’, childhood education, and the dictates of consumer demand within a capitalist culture, and has profound implications for all three. Thank you.
The idea that emotion is inevitably irrational also needs to be challenged. Emotions are generally seen as belonging to the female, and thus share her second class status. But emotions are also an indication of a reality which for reasons of repression, ignorance, or unconsciousness, it may not be possible to express in other ways. It is enormously important that emotions about injustice with regard eg to the distribution of resources, should be recognised as valid. Emotions are the means by which we recognise that something is unfair, and thus underpin our value judgements.
Anna, I agree with you about both Asad’s paper and the valuing of emotions. Coming at the latter from the points of view both of reflection on a life-time of family emotions and professional interest in how emotions work, they appear to be evolutionarily wired-in experience of what’s significant, dangerous or happening too rapidly for us to have time to think about. They work by chemically energising the neural batteries relevant for focussing attention on them.
Re “Economics should fail better”, I’ve just been writing on computers being a good model of brains. In computers, status switches similarly draw attention to a range of situations (like faulty data, dividing by zero or overflowing a space) which are known to be dangerous. These provide the data for error correction logic and “good” programming involves taking them seriously.
Samuel Alexander’s otherwise excellent critique of the failure of ecological economics to take proper account of rising energy prices contains a single, all too conventional flaw. He takes population growth as a ‘given’ to be accommodated rather than another important variable to be tackled. Total human impact on the planetary environment is, by definition, the average impact per person multiplied by the number of people; and natural resources per person are, by definition, total resources divided by the number of people. It is thus self-evident that stable or reducing populations are an essential, though far from sufficient, condition for bio-physical sustainability. This applies at any energy price or consumption level.
The UN projection for the global population in 2050 is somewhere between 8.1 and 10.6 billion people, depending largely on what we do about it in the meantime. I fully agree with Alexander that structurally declining energy return on energy invested (EROEI) heralds a grim future; but however grim it is, it will be less grim, the nearer to 8.1 billion we stabilise, and then start to reduce our numbers. Regardless even of energy, it is a fact that growth in anything physical on a physically finite planet will certainly stop at some point. It is also a fact that population growth can only stop either: by fewer births (the humane way – contraception backed by policy and resources for family planning and related, preferably voluntary, programmes to enable/encourage people to use it); or by more deaths (nature’s way – famine, disease and competition/war). As Maurice Strong (Sec-Gen of the first Rio Earth Summit in 1992) put it: “Either we reduce the world’s population voluntarily, or nature will do this for us, but brutally”. It follows that population stabilisation/reduction policies in all countries should be an essential part of any realistic degrowth soft landing strategy leaving some kind of civilisation intact.
My own paper, presented to the conference of the International Society for Ecological Economics in Rio in June, was entitled “Population Growth: Multiplier of Impacts; Divider of Resources; Creator of Conflict”. It identified the relevance of population growth to every theme and sub-theme at the conference. I hope Dr Alexander will take account of population as a variable in future work.
Roger Martin
Chair, Population Matters (UK)
Roger, thanks for your comment. I understand of course that population is a multiplier of everything and that stabilising and reducing population is an absolute necessity. That said, if I take projected population growth as a ‘given,’ it is because we’ve known about the population bomb for a very long time, and still population increases. To avoid being misinterpreted, I should have acknowledged the population issue more directly, but the fact is I personally don’t have much to contribute to that debate. I’m out of ideas. The only point I’d like to make is this: even if we were able to stabilise population today at approximately 7 billion, we’d remain in gross ecological overshoot, and this is why I dedicate most of my energies to confronting the consumption issue (see http://www.simplicityinstitute.org/publications).
As my first paper in this issue argues, we desperately need an economics of sufficiency, and that implies living much more ‘simply’ (i.e. much lower energy and resource consumption and social complexity). Just as you argue that population is too often overlooked, I argue that few in the broad environmental movement recognise the radical lifestyle implications of strong sustainability. The macro-economic implications of this in the rich would are that a phase of planned economic contraction is required on the path to a ecologically sustainable steady-state.
I look forward to reading your article.