Friday, July 27, 2012

Economics is Backwards

Our economic thought is backwards. For hundreds of years we’ve developed and advanced a method of thought that, in the aggregate, results in overshoot, overpopulation, overthrow.

How could such fundamental errors have occurred? Easy, when formulating a hypothesis as to how the world works, the context of the history is extremely important. The environment on which the modelling is performed is not static, thus the model should not be static either.

The context is the cultural/social milieu, and the period, a time when the riches of the new world have been virtually untouched. You can make egregious errors in concepts and logic without suffering from the impact of that error as it is not apparent and will not be apparent for hundreds of years. It seems like the system works until it doesn’t. What is then is prescribed is more of the same, because that is, after all, what has worked in the past.

So what was the error? The classical economic system has as its foundation, labour, land, and capital. With me so far? The neoclassical economic system is structured thus; labour and capital with land as a subset of capital.

See the problem? No? The economy is presented as a closed system that encompasses land. Mill, Smith, and Malthus thought of land as a pile of free resources. Henry Hazlitt confirms the same thinking in his book Economics in One Lesson. Yet for a closed, encompassing system, economics requires a concept of “externalities”, actions and events that happen outside the system.

Where does these externalities and resource come from if not from the environment? If the economy collapsed as a system, what would be left? Not labour, not capital, nothing but land. If the environment collapses what would be left? Nothing. Without the environment (land) you cannot have an economy, thus it is the economy that is a subsystem of the environment, not the other way around. The environment doesn’t need labour, capital or the economy.

We had it backwards.


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Kyler J. said...

I suppose we could have a land based economy that takes from the land what it is will to give, creates long-lasting recyclable tools and technologies ( ex. bows and arrows, bowls and grinders), and gives back to the landbase, while improving it.

Also whatever goods we construct are shared, and the skills to make them can be acquired by everyone or the majority. So we will always have autonomy.

Unlike the complex, manufactured, imported products and machinery that science provides for us that no one really knows how to use. Also possibly abolishing a slave-like monetary system.

I believe that if the methods and goods of your economy cannot exist within the ecosystem, and improve it than it is unsustainable.

Therefore capitalism, socialism, and communism really have no chance of ever being sustainable, or ever bringing equality.

And in reality if we had a landbase economy, you wouldn't have to even call it an economy, you would just call it a way of living. Because the abstract measurements and reports needed to maintain the economies of civilization like the market, stocks, and all that meaningless garbage will be of no use to anyone.

Vasper85 said...

"I suppose we could have a land based economy..."

Kind of like living off the interest rather than the capital of your investment. I fear that we've been burning through our capital for decades and extracting the resources at the rate of renewal is going to leave many of us wanting as quite frankly we are in overshoot and no one really wants to talk about it.

Also whatever goods we construct are shared..."

Knowledge is power, transparency is security.

"Unlike the complex, manufactured, imported products..."

That is the problem with an economy of specialists, no one knows how to do anything on their own.

"I believe that if the methods and goods..."

I always wondered what would happen if we paid people to plant trees and clean up the environment. It would require a shift of the underlying driving force from earning a profit at all costs to improving the environment to improve your "investment". Maybe all it would take is internalizing all the externalities, but you can bet that corporations will fight tooth and nail against any change that makes it harder to make a profit. Unless of course that profit is based on increasing the yield of the rate of regeneration.

"Therefore capitalism, socialism, and communism..."

I agree because they all hold human-centric production and consumption to drive profits.

"And in reality if we had a landbase economy..."

Agreed, I sure the natives never had a word for "economy". Even the word economy is doublespeak. It is meant to mean to reduce costs and efficiently allocate, but how do you do either with an ideology that requires growth and continued escalating consumption?