«ISSUE Vol. VIII No. 1 March 2013 ERENET PROFILE CONTENT SPRING MESSAGE PUBLISHER Dr. Péter Szirmai – Editor PAPERS Dr. Antal Szabó – ...»
Illustration 8: The Decalogue of utilitarian economics Commandment I. Man is homo oeconomicus, maximizing his individual utility, following his self-interest.
Man is selfish Be like that yourself, build your strategy on such motives of others!
Commandment II. Always evaluate both sides! You are a rational being, aren’t you? Minimize your cost, Cost/benefit maximize your profit!
Commandment III. Division of labor helps to satisfy not only basic needs, but also luxury demands.
Division of Labor Consuming is good, isn’t it?
Commandment IV. Strive hard to defeat your competitors. Be always and increasingly competit-ive, this will Competition continuously develop your skills. Like in nature, fittest wins!
Eg. Robert H. Nelson : Economics as Religion: from Samuelson to Chicago and Beyond, or Duncan K. Foley :
The latter is only half-ready with intent, first not to fall into the sin of blasphemy, second because the story is not over. It is likely that the resurrection from the idol-worship of economism (in scientific terms bifurcation) is approximate.
ERENET Profile Vol. VIII, No. 1. www.erenet.org Commandment V. In nature the one that adapts the quickest wins. So be swift in adaption, speed up, hurry, Power, size grow, be strong and victorious. Be successful, not a looser!
Commandment VI. Markets have no limits, think globally! One actor is always small to hurt the system.
Unlimited world Market mechanisms and technological innovation solves all problems.
Commandment VII. Be self-assure! The system has been working for long. Many predicted its end, but noone Self assurance had right. However, socialism failed, so capitalism is The Winner.
Commandment VIII. Strive for complete safety, do not hazard or improvise. Plan, control, act! Minimize the Safety human factor, persons are not reliable.
Commandment IX. Don’t break the law – unless it is really necessary (see Commandment II.) Do not pollute Limits the environment, be ethical, CSR!
The rest you can trust on technology, market, economic development!
„Trust” Illustration 9: The’creed’ of developments
But the utilitarian economics, which has stiffened to the quasy-religion of economism is only one alternative, we have to name the other, moral economics, the forgotten branch of economics. This has a 2300 year old tradition with Aristotle20, clearly dominated the public behaviour of the middle ages due to Thomas Aquinas (1269). Under the name of Islam economics it has founders, who were in advance of the father of [in our terminology utilitarian] economics not less than 400 years. This title is almost unanimously granted to Adam Smith (1776), he is the uncrowned king of [utilitarian] economics.
Recently some other opinions have encountered. There lived and worked a muslim historican, sociologist and economist, Ibn Khaldun (1375), who wrote a book resembling the Wealth of Nations almost exactly four centuries earlier. Some say the original was even better21. I cannot judge if this is due to the Arab Spring, the rising self-contiousness of the muslim culture and science, which has been considered as inferior in Europe, in the last centuries, or is it a verifyable fact22: anyway, some scientists claim that Ibn Khaldun is not only the father of islam economics, but the whole economic science23 (Boulakia 1971, Al-Hamdi 2006).
The first forerunner of modern capitalism and with this utilitarian economics was the mercantilist school, which is symbolized in Illustration 10 by Jean-Baptiste Colbert 166424, the finance minister25 of Louis XIV. (le Roi Soleil). According to the chief mercantilist and his followers wealth is not generated in production but in exchange, and it only incorporates in money (gold). For this reason the sole source of a wealth of a nation is foreign exchange. They did all to create a positive balance of foreign trade. Next to him is John Law 171626, a speculator of Scottish origin, who seemed to rescue France from bankruptcy – then failed.
When he was studying the Bank of Amsterdam he became convinced that an economy can be driven to an ongoing prosperity, in case of an abundant flow of credit and banknotes. Without telling the full story, we can state that Law can be considered as one of the first pioneers of inflation, stock exchange crash and derivative crisis. We do only mention the other major representatives of utilitarian and moral economics of the 18 th-19th century, as detailed and decent literature is available on them in many libraries and textbooks. These would be Adam Smith 1776, David Ricardo 1817, François Quesnay 1759 and the school of phisiocrats, Thomas Robert Malthus 1798, Carl Menger 1871 and Léon Walras 1874.
Despite of detailed documentation we cannot neglect to describe the ideas of the Englishman John Maynard Keynes 1936, and the first empirical researcher and scientific supporter of modern growth theory, the Belorussian-American Simon Kuznets 1971. In the most developed Western countries, the three decades between 1945 and 1975 has been called the age of Keynes. John Maynard Keynes was the one to differentiate between macro and micro economics, he is the most well-known theoretical economist after Karl Marx,
according to many. R. F. Harrod wrote about him in 1951:
On Illustration 10 and hereafter we only depicted the portrays of the scientists, but their name is easy to recognize with the year specifications. For simplicity, we did not locate them in history based on the birth and death dates, but with the year of publication of their magnum opus. The only uncertain data here is Aristotle.
In his full name Abū Zayd ‘Abdu r-Rahman bin Muhammad bin Khaldūn Al-Hadrami who was in advance of his age with 400-500 years, when he formulated the concept of the division of labor (in the West Adam Smith in 1776), the law of supply and demand (in the West Alfred Marshall in 1867), what’s more, as a moral economic consideration he also showed that the power of nations lays in social cohesion, in other words too large parities between the rich and the poor are catastrophic for a country’s future.
Since the 1960-70s also Western scientist started to note the results of Islam economics. Hand in hand a movement has started, to make this economic theory an operative policy. An influential player in the field was Baqir al-Sadr (1935-1980) with his work Iqtisaduna (Our Economy). Alas the great scientist was sentenced to death by Saddam Hussein. Another proponent of the Islamic economic heritage is Waleed Ahmad J. Addas. At the same time, the young scholar questions in his article Methodology of Economics: Secular Versus Islamic if Islam economics would be an independent, consistent science. In his opinion it is rather the articulation of the Wholy Quran and the Shaira, while even at the economic faculties of Islamic countries western mainstream economics is taught.
Jospeh Schumpeter (1994, p. 73.) points out the centuries-deep gap of economic thinking, which detaches the modern from the ancient Greek. He only explored in his last days the work of Ibn Khaldun, but that time he was most deeply amazed. He considered the Arab philosopher more authentic than Adam Smith. Boulakia (1971) had similar opinion: „Ibn Khaldun is the forerunner of many economists, he is an accident of history and has had no consequence on the evolution of economic thought...His name should figure among the fathers of economic science.” Foundation year of the French West India Company and the French East India Company.
Contrôleur général des Finances.
In this year the (French) General Bank was established. Original name: Banque Générale (1716), later Banque Royale (1718), Banque de France (1800), one of the first central banks in the world.
ERENET Profile Vol. VIII. No. 1. www.erenet.org
documents extending to 700 pages, which is available in many languages. Instead of further examination, let us
site two paragprahs from the 1931 document, Quadragessimo anno:
Free competition has destroyed itself; economic dictatorship has supplanted the free market; unbridled ambition for power has likewise succeeded greed for gain; all economic life has become tragically hard, inexorable, and cruel. To these are to be added the grave evils that have resulted from an intermingling and shameful confusion of the functions and duties of public authority with those of the economic sphere - such as, one of the worst, the virtual degradation of the majesty of the State, which although it ought to sit on high like a queen and supreme arbitress, free from all partiality and intent upon the one common good and justice, is become a slave, surrendered and delivered to the passions and greed of men. (QA 109) … for dead matter comes forth from the factory ennobled, while men there are corrupted and degraded. (QA 135) On the other side of the coin we have to tell that at least 40 per cent of CST is social, political, and of course religious-moral teaching, in other words it does not relate to economics directly. So CST cannot be understood as an economic school or consistent theory, in its contemporary form. But it can be developed to an economic school, of course not in itself, but in relation with the other mentioned schools of moral economics.
On Illustration 14 we see Catholic32 Social Tought in the Illustration 14: i) Utilitarian economists and their challangers ii) alternative schools of economics and iii) the Catholic Social Teaching bottom, other harmonizing religious and lay moral economic schools in the middle. Examples are Buddhist economics (Ernst Friedrich Schumacher 1973), environmental and ecological economics (Nicholas GeorgescuRoegen 1971, Herman Daly 1989), or Nobel-laurate scientists from the Indian subcontinent (Amartya Sen 1998, Muhammad Yunus 2006) dealing with the economics of the poor and desolate, to name only a few. At the end of this part we can summarize the major differences between utilitarian and moral thinking with a table from the doctoral thesis of Laura Baritz.
33 Jonathan Sacks, Chief Rabbi of the United Hebrew Congregations of the Commonwealth. Article available at CatholicEducation.org: Chief Rabbi Lord Sacks. "Has Europe lost its soul?" address given at the Pontifical Gregorian University (Rome, December 12, 2012).
ERENET Profile Vol. VIII. No. 1. www.erenet.org But if we look at the future, trends could easily turn to their reverse. More precisely three scenarios
1. Catastrophe scenario All forecasts include this sinister scenario, which is characterized by Zsolt Hetesi, as “the future – which actually will not exist”. On Illustration 16 it is symbolized by a dotted blue curve – diving rapidly.
Symptoms are global climate and resource crisis (Worldwatch Institute, Al Gore, IPPC), large scale migration or even invasion to secure land, wars for water and other bery basic resources. The fundamental reason for the catapstrophe scenario is overconsumption (in some opinions overpopulation), which causes dramatic decline of the “common pastures”34, which in turn kicks back directly to humanity. In this possible future forcing economic growth further pushes over the balance of nature, developed world economy collapses in its current form, leading to serious humanitarian tragedies.
The large multinational corporations playing on global markets loose their basis of existance in a minute.
Remote raw material and energy supplies become irreliable or stop completely, luxury consumption drammatically falls back, stock exchanges and banks close down. Spillover effects paralyse the well functioning system. If we are optimistic, we can envision this scenario not only as a sudden and overall cataclysm – where economy as such ceases to exist – but as wave of clashes, where conditions are normalized and a new, lower balance is reached. In this case those smaller companies will be winners, which are producing basic goods for the region they operate.
2. Continued globalization
The data discussed at the beginning of this article might mislead us into a wrong diagnosis, and although the common pasture is full, human invention might solve problems. In this flawless scenario technological development (efficiency and substitutability), and market mechanisms are able to keep up rising yields, we are able to continuously increase the supply of the common pasture. This option is depicted with a dashed blue line, foreseeing ongoing and rapid growth.
Despite the historic consensus, in the last decades fewer and fewer believe in this scenario – still, economies are functioning in this spirit. The European Union strives to be a knowledge based economy, the most competitive region in the world. China is willing to mass produce at incredibly low cost level, if they can come up to the club of the top economic players. USA’s resistance to climate change policies is well-known. Economic growth is still an untouchable sacred cow, restricting consumption or making efforts for even and just distribution are not even in question. We want to tackle climate change with pure technological and market mechanisms, fashionable topics are CO2 sequestration, trading emission rights, hibrid cars, biomass utilization. Energy efficiency has become a buzzword. Few have a look at graph of total energy consumption, which alas seems not to know the decoupling theory and tends to grow steadily.
According to this scenario the electric circuit works this way as well, that is developed countries can reach the state of decoupling, where they can be richer and not to burden the environment any more, and this continuously increases the happyness of the members of the society, despite of the Easterlin-paradox.
3. Renaissance of localization
According to the third scenario the airplane will not collapse, but it is also unable to continue flying high.