Part I – Economics Then and Now

The Study and History of Economics

It was the economist Thomas Sowell who once said there are no solutions in economics only trade-offs ^[1]. This is a stark reality not only for economics, but for life, given the rule in economics fits the rule of existential life that we can only make do with what scarce time and resources we have in front of us and to make the most of it. The study of economics is real, fickle, contentious, liberating, and humbling all at the same time. Economics is a science, mainly a social science, but also a quantitative science that focuses on a foundational concept of the world. Much like Sowell, trade-offs in lieu of solutions are needed in a larger context outside of dollars and cents.

It is no wonder why the concept of economics uses historical references such as Mesopotamia, Greek Antiquity, Ancient Rome, Ancient China, and Persian civilizations. Greeks from Aristotle who suggested the intermingling of economics and politics relates to imports, exports, agriculture, and the importance of land ownership for economic benefit^[2]. In addition, Thomas Aquinas outlines division of labor and the exception of government intervention in the political-economic realm; furthermore, the embracing of individual function for wealth creation and government guidance^[3]. The classical ideas of accepting land, labor, and individual function for a commonwealth are all themes in the classical work by Adam Smith – regarded as the father of capitalism and classical economics. In his 1776 work: The Wealth of Nations, he outlines classical capitalism as the means of production for the will of profit through wage labor, private and natural ownership of property, price mechanisms for resources and competition, and taxation for the commonwealth^[4].

Much of what Smith alluded to follows the classical ethic of economics relating to land, labor, and individual ownership with the modern tenants of value, production, and distribution of goods and services. Essentially the economic model has not changed much since ancient antiquity; however, the growth and combination of politics with economics have risen since the Industrial Revolution and adds another complexity to its story.

Political Economics

The interplay of politics and economics are almost destined to connect, given the same classical tenants of economics came from similar individuals when discussing politics (i.e. Aristotle and Thomas Aquinas). This asks what the government does to serve the function of the people – as this is the main objective of the polis, or the body of citizens? There is no doubt the connection of economics and the will of the people in a given polis is entrenched. The individual and natural law of economics also relates to the individual and natural function of the human as noted in many works ranging from Locke, Hume, Bacon, Descartes, and other enlightenment thinkers. The natural law derives from the eternal and immutable existence of rights that are formed from and for the human wellbeing. For politics, John Locke describes this best in his treatise on government that man is a state of perfect freedom and free of unnatural tyranny imposed by the will of any other man^[5]. This was primarily the basis for the United States Constitution and the free and inalienable rights of all men to be equal as created and above tyranny.

If we look at the modern economic landscape from 19th, 20th, and now 21st century, economics come to the forefront of many political discourses in almost all nations. Economics is at the top – or near the top – in almost all political discussion as it incorporates classical sociological characteristics. Voters look to leaders in government to ask: “how can I expand my individual freedom in land and labor within this economic system of laws and rights”? This is the main question from everyone: optimists, pessimists, cynics, rationalists, liberal, conservative etc. The economic question stays the same, it is only broadened by political proclivities. The divergence of economic thought is based in the political landscape, and in certain political systems, widely differ on economic solutions. The objective of this treatise is to understand and coalesce around these socio-political ideas in economics, and rise above the fray of bureaucratic stagnation with rational concepts.

Capitalism

In the political economy, one system is predominant and standard amongst many nations. Capitalism closely relates to the fundamental aspects of economic action focusing on an individual’s or country’s trade and industry that are controlled by private interests for profit. This is the motive in many nations – predominantly western (United States, United Kingdom, France, Sweden, Germany) – and some eastern countries such as India, Japan, Singapore, and Indonesia. The capitalist model is baseline – or status quo – for economic growth considering the globalization of economics post-Cold War. Although many countries may accept socialized aspects in their economy such as medical, emergency services, schooling, and welfare safety nets; the classical capitalist model helps these socialized services through surplus taxation and wage labor creating a connection between capital gains and commonwealth support. The common contention with capitalism comes from the taxation scheme providing enough to benefit the commonwealth as different political bends influence its connection.

Most modern capitalism accept the form of free-market enterprise with some taxation to benefit the commonwealth for social advancement. The Bentham – Stuart Mill idea of utilitarianism is to show the social benefits of taxation in a capitalist system. For example, what are the benefits of a police service for both the owner, laborer, government, and society. Well, the police through law protect the assets of the owner, the bodily safety of the laborer, the order of the government, and the general safety of society. Thus, one can conclude the taxation from capital gains for social services like police render a net benefit to all human actors of capitalism. Medical is more nuanced as the services of care should be reflected in taxation — given medical for the laborer is needed for bodily safety which benefits the owner for work, the government for civic duty, and the society for a prosperous continuation; however, degrees of medical coverage are debated in nations. Political nuance is welcomed and displayed in the system of capitalism which allows the positives of freedom, growth in living standards, and public/private efficiency to be mirrored with competition creating natural inequality, instability, and individual strife. However, these are purely situational, and a capitalist economic foundation comes down to one formula:

Freedom + Choice – Competition = Net Capitalist Gains

Freedom and choice are at the utmost abundance in a capitalist model, as if it wasn’t for capitalism, there would be no endeavors like entrepreneurship, labor and wage agreements, collective bargaining, or personalized choice for autonomous individual success. The unfortunate realism of capitalism is that freedom and choice automatically meet competition in one form or another, competing with other individuals; thus, the economic law of scarcity is in play and competition is natural. This is not a negative; rather, it allows an individual to obtain and collect as much freedom and choice as possible so that when competition comes into play, net capitalist gains are still positive. For example, the freedom to pursue a field and to choose outcomes in that field through education, work, and experiential skills makes someone less dispensable when competition is introduced, rendering a positive capitalist gain. With that said, sometimes competition overwhelms freedom and choice, that is why taxation is still important in a capitalist system to bring the net at – or close – to equilibrium.

Marxism

The concept of equilibrium relates to the fair equalization of all in an economy. Marxism is an economic outgrowth of capitalism that critiques through socioeconomic inquiry attempting to understand class relations between owners, laborers, government, and society. It accepts a critique of markets and societal development by understanding relationships of production and technological forces leading to the laborer (proletariat) ultimately seizing power over the owner (bourgeoises). The namesake coming from Karl Marx with Friedrich Engels^[6], uses history and the constant class struggle which ends in the laborers becoming the owners. One example focuses on artists and merchants creating their own co-ops and galleries through collectivism to become effete merchants of art granting access to the bourgeoise and control of their work.

The basis for Marxism – in a modern sense – is safety and comfort related to perceived higher order needs. As the laborer wants to procure safety and comfort in their work by seizing control for freedom, the formula for this is much more convoluted as it allows many more factors of control, especially in the political realm:

Relating to Maslow’s^[7] hierarchy of needs the observance of comfort and safety – predominantly psychologically – connects to a Marxist framework of freedom for the proletariat from the bourgeoisies. However, as economic law states: no solutions, just trade-offs as freedom must work within a governmental, bureaucratic, and egalitarian system which creates an output — only to be met by natural competition (like in all economic systems). Marxism has been wildly written about, mainly due to its acceptance of dialectics^[8] that have created many critiques stemming into many social, political, and cultural landscapes providing a justification for needs to be met for the good of the proletariat; thus, the whole.

The resurgence of Marxism and socialism has been a fixture in the 21st century, it really came along during the 2008 financial collapse and the Occupy Wall Street protests. Many saw the banks fail with junk loans only to get bailed out through government, thinking to themselves the system is obviously broken, and it is true, the corporate-government mixture in many developed nations is broken, leaving mostly millennials footing the bill of previous generations. Full disclosure, I put myself on the right side of the political spectrum and have many disagreements with the socio-cultural and political aspects of Marxism. However, I cannot in good conscience ignore this issue and must take the concerns of a new generation seriously with this resurgence.

Schools of Economic Thought

When we talk about certain styles of economics, we tend to discuss deeper theories on how economics relate to the world in general. This is done through different schools of economic thought that cross political and social spectrums. Mainstream economics or orthodox economics are the generally accepted forms through empirical and rational justification. Disciplines of mainstream economics fall into two camps:

1. Macroeconomics: the structure and economic decision making on a large scale encompassing an entire national or global economy. Topics include GDP, unemployment rate, and inflation.
2. Microeconomics: the structure of economic decision making by individuals through the allocation of scarce resources and the interactions between other firms. Topics include supply and demand theory, opportunity cost, and game theory.

One area of institutional or evolutionary economics that has been impactful are the different schools of heterodox economics or unorthodox economics that goes beyond classical understanding. Heterodox economics places the science as a vehicle through theoretical action as branches of economic schools of thought are made from theory and develop reasons on how to understand mainstream economics. The Austrian School had members such as Carl Menger, Jean-Baptiste Say, Murray Rothbard, Ludwig von Mises, and Friedrich Hayek with theories focusing on the actions of individuals to make economic decisions, sovereignty for both owner and laborer in the marketplace, and that only through freedom could the individual be free ‘politically’ as well. This is contrasted with Keynesian economics (named after John Maynard Keynes) or post-Keynesian economics that connects the output, employment, and inflation to the expenditure and taxation of government bodies to increase market demand. As you can see, Austrian School economics are at odds with Keynesian economics as it places the political civilian in different spots of power dynamics; either at the center making their own decisions, or at the behest of market forces connected with state inflation, taxation, and expenditure by an elected body. It is in this divide where political action comes into play.

Theoretically, individuals on the right side of the political spectrum would follow an Austrian School approach – as individuals on the left side of the political spectrum would accept a more Keynesian approach, all for maximizing the best outcomes for macro and microeconomic action. New Left and New Deal economics embrace a collective form of monetary centralization where labor and outputs are effectively controlled through the measures of inflation and taxation. An example of a Keynesian model would be most national systems with government policy dictating taxation and inflation of the dollar solely for the purpose of enhancing market demand. For example, both United States and China use Keynesian economics; however, the US allows for more individualism in their marketplace, where China has strict centralized control over markets. Most western nations allow Austrian style actions for microeconomic functions like 10 different cable companies competing through pricing and service for individuals. Even on somewhat of a large scale, individuals through stock trading, and purchase of government bonds allows one to be involved in macroeconomic areas. With all this information, we find ourselves still challenged by economic systems. Most of these theories are on their way to being a century old and still we find problems coalescing around economic systems for a general benefit.

Problems in Economics

The economic problems lead to social and political strife and often bleeds into a dysfunction of a society. It is no wonder the importance of people such as Aristotle, Plato, and Aquinas who were extremely salient about this in their writings. The problems in society are valid in the form of government taking away more and more economic freedom, and generations suffering under the excessive consumption and inequality.

How do we reconcile?

First, we have to diagnose the problem of what is happening within economic systems in order to make sense of how to fix problems. For this, we will use western economies – predominantly the United States – but this will not ignore other mixed (social/capital) economies like Canada or Sweden, or even fully social/Marxist economies like China and Cuba. The diagnosis of this problem is to say yes, in western societies the problem is capitalism – with a caveat. That caveat reflects that the forms of capitalism are not shown in the American system today, as what it was intended to be, rather a pernicious form of crony capitalism that has taken place as an outgrowth of excessive Keynesian ideals blending too much government and corporation. Because of this, you get lobbyist groups influencing congressional bills, dark money campaign finance, return on investment through legislation, and monopolistic practices. This capitalism is a cancer, and it needs to be understood and remedied. It is in crony capitalism what creates distrust from the public, with distrust comes fear, and with fear comes anger.

It is through the path of distrust, fear, and anger how you get the outgrowth of political collectivism either left-wing socialism or right-wing socialism becoming dominant – leading to social strife. Have it been national socialism or political neo-Marxism, social strife is putting it lightly, strife is shown in the death of millions during the twentieth century through depraved leadership, such examples include the Soviet Union and Nazi Germany. We are already seeing history repeat itself with starvation in North Korea and Cuba, and genocidal imprisonment in China. In addition, we are seeing spiking inflation and unemployment in the United States, and absurd debt burdens in countries like Canada and the United Kingdom causing physical and psychological illness. The reason for this treatise is to observe, analyze, create, and institute a framework for how we can deal with these economic issues early on in the century, before its too late.

The Current 21st Century Landscape of Economics

So, what do we need to do to create this framework? Well, it is important to start with an ethos (or general ethical guideline) to ensure we have a clear path toward understanding and implementation. From what we have read so far, what are some things we can provide? First, I feel it is important for an economic system to regain or rebuild trust to the individuals in its system. If trust cannot be built, there is no use continuing with the framework. Second, there needs to be more transparency with economic action. If the government is going to continue to be a part of the economy(even if strictly legislative), less smoke and mirrors are needed, just a clear view inside. Third, there needs to me more individual involvement not only in markets, but in economic decision making. Fourth, accept tried-and-true methods of classical economic theories, even ancient theories. Lastly, use freedom and democracy to our advantage and embracing national roots in economic success.

This treatise will introduce new theories and concepts that will be conducive to a modern economy, at the same time, allow a classical approach to inform and guide our understanding. Politically, this may be charged for some as it fails to meet certain proclivities, but do remember, we are trying to move away from the cronyism that is plaguing our economies today; thus, the need to remove oneself from the political picture is important. Moving forward, the discussion about new ways to do economics are long past due and needed in such a divisive culture today. If this can provide anything at all, it is a clear and rational outline for how economics can be done throughout the 21st century and potentially beyond. This is not to say this is a complete solution, as criticism may be open for interpretation; if so, this hopes to build on a future work from myself or another concerned individual with the same motivation to seek similar answers to economic questions.