The Paradigm of Money
Kono Matsu gives the neophyte bioeconomist a grounding in the history and impact of the current money paradigm.
We might complain about the economy, but rarely do we question the underlying paradigm. Instead, we dance, enthralled by its imperatives, surging in a frenzy of prosperity, or stalled, unemployed, in a bout of paranoia.
The "science" of economics has us under its spell. We sway to its mystical incantations: Gross National Product, interest rates, the monetary supply. We revel in its traditions, in its formalism, in its abstract and irrelevant models of the world; where air and water are free and forests grow forever; where the worth of vanishing resources are disregarded because they cannot easily be quantified; where the wealth of a nation goes up with every automobile accident, with every oil spill, with every newly diagnosed cancer patient.
Now, a revolution is under way in the profession of economics; a radical rethinking of the assumptions that drive Western economies.
In the l96Os, the science of economics was riding high in public esteem. Times were good and there was no reason why they shouldn't continue. Using their Keynesian theories and econometric models, economists pulled the big levers that shaped our lives -- taxes, interest rates, government spending, the money supply -- and like a mighty ship, the economy responded.
John Maynard Keynes, the guru of Keynesian economics, predicted that economics would eventually settle down into a nuts-and-bolts profession "very much like dentistry." And it seemed he was right. The profession was not only guiding the economy but fine-tuning it as well. A Nobel prize was introduced for this promising new science. Keynes was featured on the cover of Time magazine in an issue celebrating an age of planned prosperity; economists would manage our future according to scientific principles. The boom-bust cycles that have plagued capitalism since the industrial revolution would become a thing of the past. Richard Nixon declared, "We are all Keynesians now."
This was heady brew for economists. Their science had suddenly come into its own -- and it was a real science! -- a cut above the social sciences like sociology or anthropology. Economics had precisely measurable entities like "GNP" and "Money Supply" and real laws like the Law Of Supply and Demand. Most importantly, it had mathematics, the universal language of science, to back its claims. The profession also had a mission: to realize the utopian dream of a society without economic misery and want.
Today that dream is forgotten. The profession has fallen from grace. Since the l970s its forecasts have been consistently off the mark and ridiculed in the media. "What Good Are Economists?" asked a Newsweek headline. "It's Back to Doghouse for Economists," declared U.S. News & World Report. "Economics is not a science; it is merely politics in disguise," writes Hazel Henderson, one of the many critics snapping at the profession's heels. "How long can current economic theories continue to lumber along on the wagon wheels of 18th century logic?" wonders Barrington Nevitt.
What happened after 1970? Why did the economics profession stumble and fall? Because it ignored one simple fact: all economic systems operate within the larger economy of planet earth. The economic theories did not work because they ignored such fundamentals as the depletion of natural resources, the long term costs of polluting the environment, and many of the other "externalities" of our industrial system. It's ironic that the economics profession ignored one of its own best known dictums: If you use up your capital, you'll be heading for bankruptcy.
Learning to Subtract
"Governments have yet to admit that degrading the environment is the
same as running up a debt that must eventually be paid."
In 1988, federal government officials found dioxins in shellfish and ordered a portion of the commercial shellfish fishery in Howe Sound, British Columbia closed. This bit of bad news caused hardly a ripple among economists.
A few months later the closure was widened to cover prawn, crab and oyster in the whole of Howe Sound. It was a heavy blow to the communities along Howe Sound, but for the profession of economics, it was a non-event.
A little later, Ottawa extended the ban yet again. Shellfishing was banned in nearly all coastal waters adjacent to pulp and paper mills. Was this calamity accurately reflected in our provincial or national accounting books? No. Would it register in the books if shellfishing on Howe Sound was banned and lost forever? No.
"A country could exhaust its mineral resources, cut down its forests,
erode its soils, pollute its aquifers and hunt its wildlife and fisheries
to extinction, but measured income would not be affected as these assets
The Tip of the Iceberg
Besides the degradation of nature, many other important areas have traditionally been left out of our economic accounting books: the human costs of doing business, all barter transactions, illegal gambling and the drug trade; pretty well anything that is hard to measure in dollars and cents and feed into a mathematical model.
For example, a mother working at home raising children is not considered to be "a worker." She is treated as if she has no input or productivity to contribute to the "real" economy. Economically speaking, she doesn't exist.
The abstract, logical, mostly male world of economic science has in fact less to do with the real world than the profession would have us believe.
"Women, by and large, understand what economics is really about;
meeting the needs of their family, meeting the needs of their community.
Men have turned economics into the sort of science where they say that
there is no demand for food in India because people haven't the money to
buy it. That's crazy! But in traditional economic jargon, that makes
The Economics of the Last Hurrah"Every time there is a car accident, the GNP goes up."
-- Ralph Nader
Joe and Mary own a small farm. They are self-reliant, growing as much of their food as possible, and providing for most of their own needs. Their two children chip in and the family has a rich home life. Their family contributes to the health of their community and the nation... but they are not good for the nation's business, because they consume so little.
Joe and Mary can't make ends meet, so Joe finds a job in the city. He borrows $ 13,000 to buy a Toyota and drives 50 miles to work every day. The $13,000 and his yearly gas bill are added to the nation's Gross National Product (GNP).
Then Mary divorces Joe because she can't handle his bad city moods anymore. The $11,000 lawyer's fee for dividing up the farm and assets is added to the nation's GNP. The people who buy the farm develop it into townhouses at $200,000 a pop. This results in a spectacular jump in the GNP.
A year later Joe and Mary accidentally meet in a pub and decide to give it another go. They give up their city apartments, sell one of their cars and renovate a barn in the back of Mary's father's farm. They live frugally, watch their pennies and grow together as a family again. Guess what? The nation's GNP registers a fall, and the economists tell us we are worse off.
"The social costs of a polluted environment, disrupted communities,
disrupted family life and eroded primary relationships may be the only
part of the GNP that is growing."
How much will it cost to stop acid rain? How much to mend the ozone layer? How much to halt the global warming trend? According to Peter Passell writing in the New York Times, recent studies put the price tag at trillions of dollars through the next century. According to one estimate, the United States' annual price tag could rival the current level of military spending. That's a pretty large time bomb to pass on to future generations.
Such estimates suggest that conventional economics has become not only irrelevant but destructive.
What environmentalists and a few maverick economists are calling for is a paradigm shift, a change of atmosphere and mindset within the economics profession -- a new way of doing business. from the EC 101 classroom up.
"Economy," like "ecology," gets its meaning from the Greek word oikos; which means house or home. The real business of "economics" is to manage our home, which is of course the earth. Somewhere along the way, like most of us, the economists lost sight of that.
"I think there's is a tendency for economists to escape from reality by
saying, well, here is an impersonal technical apparatus which protects me
from any criticism, which protects me from any attack that I'm slanting
the subject. And I regret that. I think we should be willing to face our
It's time to create a more accountable system and profession of economics. We must learn to subtract as well as add to our GNP and create a national bookkeeping that reflects the real value of things. It's time for economists to come down from their ivory towers and grapple with the messy little problems of sustaining life on a fragile planet.
"Before economics can progress, it must abandon its suicidal
"I horrify my friends who are professional economists by saying to them
in a put-down kind of fashion. 'But your discipline is just a branch of
psychology. isn't it?' And they say, 'My God, we are scientists, you know,
we are not in the business of psychology."'
A revolution is now brewing in the economics profession. Theoretical dissension and bitter infighting between competing schools are the norm. The profession is up for grabs. Is economics a science at all? Is it a rudder through turbulent times, or an outdated discipline that must be destroyed before we can move on?
Thomas Kuhn, in his now famous 1962 book, The Structure of Scientific Revolutions, describes how paradigm shifts in science are very much like political revolutions. They don't unfold quickly or easily or without the painful overthrow of the people in power.
Thomas Kuhn's most profound insight is that, in the real world, contrary to the way scientific progress is supposed to happen, an old paradigm cannot be replaced by evidence, facts or "the truth." It can only be replaced by another paradigm. In other words, the profession of economics will not change just because its forecasts are wrong, its policies no longer work, or because its theories are proved to be unscientific. It will only change when a new maverick breed of economists grab the old-school practitioners by the scruff of their necks and throw them out of power.
Up to now there has been lots of serious sniping at the profession of economics. However, no dissenting paradigm has managed to gain a foothold. The old school practitioners live on, reinforced by the politics of tenure, of who gets published and promoted, whose research gets funded, and who gets plucked out of academia for plum jobs when this or that political party wins an election. In the shadow of the green revolution, neo-classical economics hangs on by the skin of its teeth. As author Robert Kuttner put it, "In the economics profession, the free marketplace of ideas is one more market that doesn't work like the model."
Taken from Adbusters at www.adbusters.org