Subtitles section Play video Print subtitles This lecture is called "A Short History of Economic Thought" We're going to explore, in an almost haphazardly concise manner, the most notable attributes of the historical unfolding of the market-based economic tradition, as we know it. And while we could go back thousands of years in such an analysis, we'll be focusing mostly on the most relevant, causal, influential ideas emerging from the 17th to the 20th centuries. As an aside, even though this will likely be the most boring presentation you hear today [laughter] I personally find economic history incredibly interesting because it's really a history of perception. If you were to ask a pre-Neolithic hunter-gatherer what their economic model was, if they could even conceive of such a thing, it would likely have something to do with strategic harvesting around seasonal periods of earthly regeneration, locating optimized yields, tactics for physical storage and the like. Today, of course, things have become much more complicated. Yet, we should not be intimidated by modern economics, regardless of how sophisticated it may appear. In fact, I would say that our current practice originated in exactly the same way all the other practices did, with people basically just making stuff up as they go along, based around apparent evidence that seems to make sense, with usually a grace period of sorts before the inevitable fallacy of certain assumptions surface, through negative consequences. As a final introductory note, I would like to set the tone by stating outright that the vast majority of what we call economics, as it is presented in universities and financial circles today, is really an outdated, irrelevant and increasingly detrimental form and system when it comes to the actual maintenance of life on the planet Earth. "It's life-blind" is a great term. There is no structural recognition of any basic natural law processes, principles of earthly sustainability, public health factoring and the like; in the view of the market, these are externalities. And in the millions of pages of mainstream economic theory printed from the 17th century onward, you will likely find not one sentence about the natural, technical processes that actually create and assist in meeting human needs, the sociological importance of meeting those needs for social stability and invariably public health, generating optimized industrial methods to ensure overall efficiency or anything of such. To paraphrase economist Thorstein Veblen, who'll be mentioned again in a moment (a prominent historical figure), there are really two systems at work; there's a business system, and there's a technical or scientific system. The business system has no active recognition of the technical system, hence the natural science behind it, and it works in the modern era to now "Perpetually... sabotage" in the words of Veblen, our scientific capacity and possibility due to its outdated, narrow frames of reference. The point being that true economics can only be understood within the context of physical science. And the traditional market logic has been backwards in its orientation, with most everything centered around short-sighted, subjective intuitions, mostly having to do with human behavior and human nature. PRE-CAPITALISM Medieval feudalism, which spanned roughly from the 9th to 16th centuries, was a system of mutual obligations and services going up and down a set social hierarchy, with the entire system essentially resting on an agricultural foundation, an agrarian foundation. There is great speculation with respect to what happened in Europe to transition out of feudalism, but technology appears to have played a major role, as it has, in fact, with virtually every major social shift. Advanced agricultural transport, enhanced regional trade, better connecting different settlements facilitating the development of markets in more regions, generating an increasingly more prominent system of merchants (a merchant class, if you will) where the artisan producers of the medieval period, which were prior to the point-of-sale, for the most part, for their goods, began to more frequently sell wholesale to these merchants who went afar and re-traded for profit. This commercial expansion, around the late 16th century, helped facilitate what is now retroactively termed "mercantilism," which operated in Europe up through about the late 18th century. Mercantilism has many definitions these days, depending on who you ask, but it essentially is characterized by state-driven foreign trade monopolies to ensure what they call a "positive balance of trade." In short, it was a powerful collusion between the state and commercial industries. And a notable characteristic of mercantilism, something that carries over to this day, was the large amount of national conflict because of the restrictions and protectionist policies put forward by different nations, economic warfare, in effect. And it was in this overall environment, in the late 18th century, Adam Smith, one of the most well-known economists with respect to market theory today, wrote his classic text "An Inquiry Into the Nature and Causes of the Wealth of Nations" In this, he writes an extensive criticism of mercantilism, advocating instead a form of trade and interaction which was to operate, ideally, without national coercion and restrictions of the state. And while many of us might criticize Smith today for his shortsightedness, as I will discuss more in a moment, we should realize that it was an important move in the evolution of economy and the development of civilization. The "free market," as it is termed, opened the door to a kind of immature, unstable, yet creative experimentation facilitated, in truth, by the parallel growth of science and technology. However, as with lots of creative immaturity, as we might see in young children, such active behavior does not necessarily constitute responsible or sustainable behavior, as we will discuss. So, to quickly generalize this evolution from the Middle Ages, it went from a rather static, localized, agrarian society with a strong social order and hierarchy, to further advancement of technology, more expansive trade, communication and commerce, furthering an ever-increasing merchant class, which simultaneously reconsolidated nation-state power. And then from Adam Smith onward, we find a slow, subtle breakdown of protectionist trade techniques occurring, both domestic and international, working to, in theory, promote the freedom of the producers and hence, the freedom of society itself, with what is now abstractly generalized as the free market or free-market capitalism, as it worked out by the mid-19th century. Now, what's important to understand here is the apparent shift of the power center itself, a move from large scale state economic control to so-called business or personal freedom. The problem, however, is that the state economic interests and corporate business interests are one and the same. All we have done in this overall process, in effect, which again, was indeed helpful to a certain degree, as it expanded our capacity, was go from state control of business to now business control of the state. Today, we live in an advanced manifestation of this, with the advent of what can be deemed the "corporate state," where business interests hold final decision-wielding power at every turn, with, gesturally speaking, the elitist kings and nobility of the feudalist period, redefined, behind the scenes, of course, in the form of a constituency of financial and corporate powers. In other words, while change did arguably occur for the better in very basic ways, it has only occurred within a very rigid, locked framework of class elitism and power allocation that is, indeed, based on the same basic, underlying, elitist philosophical worldview. CAPITALISM Before we delve into the psychological and sociological assumptions that underlie the socioeconomic condition we endure today, let's quickly review the core characteristics, structurally, of the free-market capitalist system. 1) Market-Based Production/Distribution Commodity production is based around interrelationships that usually do not involve direct personal interactions between producers and end consumers. Instead, supply and demand is mediated by a mechanism called "the market," using money. 2) Private Ownership of Production Means Society grants to private persons the right to dictate how the raw materials, tools, machinery and buildings necessary for production can be used. 3) Decoupling of Ownership and Labor Capitalists, by historical definition, own the means of production, but yet have no obligation to contribute to production itself. Everything produced by the laborers, who, in effect, only really own their labor itself, is owned by the capitalist by legal authority. I'll touch upon this again in a second. 4) A Self-Maximizing Incentive is Assumed Individualistic, competitive and inquisitive interests are necessary for the successful functioning of capitalism, since a constant pressure to consume and expand is needed to avoid recessions, depressions, loss of growth and other negatives. Underneath the surface of these four characteristics are essentially six fundamental premises, and we will talk about these in pairs, as they relate. Property and The Labor Theory of Value Utilitarianism and The Utility Theory of Value The "Invisible Hand" Metaphysic and the Conclusion that Classes, Imbalance and Suffering is Inevitable If everyone in this room can understand the failed intuitions, truncated frames of reference and general fallacy of these six concepts as they are defended by proponents today, you will be able to break down pretty much every PhD Economist's arguments in support of the current model. Property and The Labor Theory of Value Property, in function, is a basic intuition found throughout all of human society, based around a territorialism of sorts that can also be found, of course, across the animal kingdom in general. The argument isn't the obvious necessity to be secure with our means and tools of survival, recognizing that protection has been needed as we evolve out of these long periods of scarcity, hence the generation of constant conflict. The problem is the application of the theoretical concept of property itself, its value assessment and how it is rationalized in input and function within the internal logic of the capitalist system. I can say a great deal about the sickness of our property culture today as fueled by the consumption ethos pushed like a bad drug, but that will be for another talk. However, let it be said that property as a means of useful function is viable. Property as a unit of vanity and social status is an underlying social distortion, which, when extrapolated in its effects, as quaint as it may seem, is extremely destabilizing. Philosopher John Locke, who died in the early 18th century, published a highly influential book "The Second Treatise of Civil Government" in 1689, and in Chapter 5, Locke expresses his view regarding the origin of property, which is carried over, in one variation or another, into modern free-market economic theory as we know it today. As was natural to that period of time in Europe, Locke's premise for defining property was derived from a Christian perspective, stating "God gave the world to men in common; but since he gave it them for their benefit and for the greatest conveniences of life, they were capable to draw from it; he can't have meant it always to remain common and uncultivated." I don't know about you, but I always enjoy it when humans redefine what God actually meant. [laughter] In short, Locke states that property is created when a person "Mixes his labor with it," the logic being that the labor energy put into the making of a good must naturally be the property of the person performing the task, and hence that property labor is transferred into the good itself. So, God put stuff on the Earth in common, we attach the right of property to it because we are mixing our labor with it, and then we use it for our purposes. Fair enough. Adam Smith clearly agreed with Locke's labor-based property definition, and later applied this logic to what could be termed the "labor theory of value." The labor theory of value suggests that the labor put into the creation of something not only assigns ownership or property, it also determines, in part, where its value or exchange value is sourced. He states "Labour was the first price, the original purchase money that was paid for all things. It was not by gold or by silver, but by labour that all the wealth of the world was originally purchased; and its value, to those who possess it..." David Ricardo, a firm disciple of Smith, a generation later (very influential) reinforced the same basic idea, stating in mild variation "Possessing utility, commodities derive their exchange value from two sources: from their scarcity and from the quantity of labour required to obtain them." He continues with the logic "If the quantity of labour realized in commodities regulates their exchange value, every increase of the quantity of labour must augment the value of that commodity on which it is exercised, [as] every diminution must lower it." However, there's a problem here.