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  • 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  • is really an outdated, irrelevant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.