Metaeconomics & Metanomics

The term metaeconomics was invented in the mid-1930’s by Carl Menger, who was a mathematician and the son of an eminent economist. The word was coined in order to indicate the need for a new kind of economics in which all relevant facts were presented as quantities in a rigidly mathematical model, and thus could be treated with all the rigour of a science. His suggestion was rapidly taken up by theorists such as Walras and Jevons, for the mathematical discipline which Menger proposed not only gave professional prestige to economists but promised better predictive accuracy, the economist’s holy grail.

Without doubt the mathematization of economics has had good effects, but in its over-developed form, it has had two obvious bad effects. The first is that within the new framework human beings have become an abstraction in order to fit in with the equations, and this is recognized in the term Homo economicus, a species which responds mechanically to the pressures of supply and demand, but is never moved to act economically through emotions such as greed or fear or base motives such as fraud. The second effect is one that affects almost all sciences to a greater or lesser degree: in converting observations to measurements, and then into complex equations, mathematical imagination has tended very often to take precedence over observable fact. Certainly, there is a major role in economics for mathematics, as there is in many human activities, from architecture to agronomy, but it should be the servant in economic theory and not the master.

As against Menger, this website argues for a paradigm shift in the substance, rather than the form of economics, a move which will, paradoxically, take economics back to its origin in the field of moral philosophy. I hope to convince the viewer that when the existing paradigm is examined for it appropriateness to humanity’s needs, it will be seen to be so inadequate, dysfunctional and socially destructive that a new economic paradigm is called for. When the current economic upheavals have run their course, and rebuilding is being planned, it must start from a clear vision of the kind of social community we desire, and this website will argue that it cannot be profit-driven.

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Economics Before Science

Economics was not initially regarded as a science, but as a branch of social morality, strange as that may now appear.  It emerged as an identifiable discipline some 2,400 years ago by Aristotle's Ethics and Politics, although the American economic historian Alexander Del Mar traced thinking about economic principles back to the Vedic literature of India eight centuries earlier. The principles of sustainable economics were well developed in Judaism as Jacob Neusner has shown in The Economics of the Mishnah, and in an age where slavery was a taken-for-granted part of social structure, the Jewish attitude was astonishingly enlightened and mild, with release of Jewish slaves after a seven year maximum a legal requirement. Of economics in the Christian era it is worth singling out in the present context only the fact that lending money at interest was considered a sin so serious that it was punishable by excommunication. Those who practised it were refused Christian burial, which was a major deterrent at that time. It is worth noting that the law against usury did not only condemn lending at excessive interest but lending at any rate of interest, a prohibition that it is also part of Islamic teaching to this day.

The prohibition of lending at interest has had the most profound historical consequences, for Jews in mediaeval Europe were not bound by this law, and hence lending at interest was for some centuries a monopoly of the Jews. Moneylending was, in fact, one of the few professions which they could practice, and because of this Jewish individuals and institutions figure prominently in economic history and modern day practice.  

The birth of economics as a science can be dated exactly to the publication in 1776 of Adam Smith’s book, known by its short title, The Wealth of Nations, and it is noteworthy that he wrote as the professor of moral philosophy at Edinburgh University. Economic theory in general still stands on the foundations laid by Smith and Menger despite the fact that the world has changed out of all recognition in the past two hundred years. The main principles of Smith’s theory are that the economic community is the nation, the aim of economic activity is wealth-creation and the paradigm model is a self-balancing machine controlled by what he called "the invisible hand" of the free market and self-interest. 

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Keynes’ New Paradigm

After Carl Menger, it was left to John Maynard Keynes to initiate a new paradigm, though I do not think he used the term metaeconomics. Perhaps imitating Einstein, he entitled his ground-breaking work of 1933 The General Theory of Employment, Interest and Money (Keynes never suffered from false modesty!), its major premise being that the old practice of balancing a nation’s budget should be abandoned, and governments should go into debt when stimulation of the economy was called for. Thus he extended Smith’s simple machine model into a servo-system, and the London School of Economics for some years displayed a truly ingenious hydraulic model of the British economy (invented by the New Zealander, William Philips) of the British economy, with monetary flows and all sorts of variables represented by the flow of coloured water through a complex of tubes and valves.  President Richard Nixon famously said, “We are all Keynesians now,” to justify America’s adoption of a debt-driven economy, but what Keynes failed to see was that debt is highly addictive to politicians who need to bribe the electorate. The end state of increasingly bigger fixes of national debt is inflation and the corruption of democratic politics. Plato could have told him that 2,400 years ago.

Since Nixon broke the link between gold and the value of the US dollar there has been no economic mechanism to prevent governments from printing money as desired, effectively to keep themselves in power, leaving the bill to be paid by future taxpayers.

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Schumacher’s Metaeconomics

It was left to Fritz Schumacher to revive interest in metaeconomics, but almost by redefining the term. His best-selling work of 1973, Small is Beautiful: A Study of Economics as Though People Mattered has been reprinted several times and has served as a bible for those many people who have seen with dismay a world being dehumanized by big business. In it Schumacher argued that, “the study of economics is too narrow and too fragmented to lead to valid insight, unless accompanied by meta-economics.” (The hyphen is now usually dropped from the word.) Although his book is ground-breaking, it is still classical in that he accepted the profit-making group as a natural and permanent element of economic activity. As against that assumption, this website takes as an overarching principle that the world now needs as a matter of urgency not a profit-making but a sustainable economics. Losing money will, of course, ultimately end in the death of economic structures on any scale, but the ideal to be sought is not making the maximum amount of money, but finding a dynamic balance between several elements, of which profit is only one. We need to ask why a profit element should be incorporated into the provision of water or health services or national transport? In two generations, and particularly after Margaret Thatcher, we have come to assume that only profit-making is an adequate economic incentive. We need now to stand back and look at the whole picture.

Schumacher has an implicitly spiritual agenda – one of his chapters is entitled “Buddhist Economics” - and he calls for recognition by economists that “there is a qualitative difference between mindless atoms and men made in the image of God.” He certainly saw his theory as a step towards a humanizing economic system, but while he criticized the traditional economic system as “propelled by a frenzy of greed,” he seems to miss the vital point that optimizing profit is a euphemism for greed, and therefore misses the logical corollary, that the only alternative to an economics of greed is a non-profit-making economics. Stated thus bluntly, this must at first seem hardly more than idealistic wish-fulfilment, and the main challenge to a new science of metanomics will be how to retain the incentive that profit provides without losing the ideal of mutual help.

To be fair to Schumacher, he did foresee a hazy, distant future where profit-making would not be the engine that drove economic activity, but he had nothing to say about either the nature or the timing of this happy state. Perhaps surprisingly, he supports his optimism by quoting Keynes, who also hoped rather wistfully for a future when humankind would emerge “out of the tunnel of economic necessity into daylight,” but accepted that “until then “avarice, usury and precaution must be our gods.” The present argument is quite clear: we can wait no longer to overthrow those gods, a start must be made before they destroy us, their worshippers.

It cannot be too strongly emphasized that at the heart of metanomics, as of all economic theory and practice, is money. The whole of economics flows from the creating, lending, exchanging and storing of money. The economic collapse into which the world is now entering can be traced directly to a definition of money which is taken for granted almost universally today, but which was questioned by earlier economists and needs to be questioned again. Although it may not at first appear obvious, the kind of money that is used by any community plays a very large part in defining that community. This is why the material on the website has been structured as a spiral with Money and Human Evolution as its starting point. Although it may seem completely over-the-top to say so, if we are not able to reach a new understanding of money, human evolution will not make further progress.

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Metanomics

Paradigm change in any cultural field involves the replacement of a central principle, previously unquestioned, with what is in effect a new article of belief. As Thomas Kuhn pointed out in his ground-breaking work of 1962, The Structure of Scientific Revolutions, a proposed new paradigm comes as a psychological as well as a cultural shock; indeed, Kuhn compared accepting a genuinely new paradigm to a religious conversion. The classic example of paradigm shift is the revolution in astronomy set in train with the publication in 1543 of Copernicus’s thesis that the universe was centred on the sun and not the earth. The Copernican revolution is generally regarded as the beginning of modern science and was initially strongly resisted not only by the Catholic and Lutheran churches but by almost all professional astronomers. Since then, of course, our knowledge of the cosmos has outgrown this initial breakthrough but now cosmologists are equally divided in their theories about the origin of the universe. This is far from being a minor scientific detail, for it heralds a paradigm change in both science and religion, since the underlying issue concerns belief in whether  or not our universe was created at a point in time, the Big Bang, or has existed forever. In a word, science is faced with giving up its hard fought struggle to keep out what Newton called “occult forces” and religion is faced with the humbling prospect of abandoning an age-old, hallowed myth and turning to science for a true creation story. The meta-question for both science and religion is, how important is truth?

Insofar as metanomics is proposed here as a paradigm change and concerns the replacement of a single central axiom, it would probably be Adam Smith’s assertion that economic activity can be modelled as a self-regulating machine in which market forces alone create a state of dynamic equilibrium. This is the principle of the “invisible hand”, a shorthand way of explaining how in a free market supply and demand will eventually come together to fix a “natural” price. Without entering into the many complex arguments for and against the principle, which is of course anathema to socialist economists, the inherent paradox can be pointed out that in many instances government intervention in the market is often needed to make sure that there is a free market. 

Several developments in the last half century have brought the principle of the invisible hand into question, the two most important being the emergence of China as a low wage industrial giant and what might accurately be called the container ship revolution. These two developments alone, not to mention others, have put an impossible strain on traditional economic models, and whether or not metanomics, as here argued, will provide a long term answer, these developments will force a new economic paradigm of some kind into existence.

This is a hugely complex and continually developing situation and it has set the most fundamental of political forces in play. In effect, the nature of the human group is changing before our eyes, and thus the nature of humanity itself. For while global manufacturing is now moving inexorably to low cost developing countries, often lumped together imprecisely as the “East”, the “West” is losing employment and hence its fiscal base. A further predictable consequence is that the developed world is building up an irreducible base of state-dependent citizens. A perfect economic storm is now bearing down on us as the demographics of an aging population and the collapse of pension funds, already clearly in evidence, come together with the industrial factors just mentioned.

These are the meta-problems with which metanomics engages but with no clear picture at present of the strategic options available. First, it will be necessary to understand the causes – a great challenge in itself – and until this is done economists and politicians will be fighting tomorrow’s war with yesterday’s intellectual weapons. The bulk of this website is devoted to analysing the causes of the present and increasingly chaotic situation, but what distinguishes metanomics from informed orthodox economics is its rejection of two even more fundamental assumptions.  The first of these is that the aim of economics of whatever kind is to increase “wealth”, which is taken to be material possessions or comforts or the money to obtain them. The second is the assumption that the natural economic group is the nation state. The latter is already being questioned in the drive to globalism which has been intensified by the rise of China, with all its many economic consequences, and of the transnational business corporation, which actively seeks to escape from regulation by the nation state and whose ideal would be a totally borderless world.

Metanomics redefines the aim of economic theory and practice , so that wealth is not a measurable financial quantity, but a function of human well being, albeit this is not separable from a minimum level of income. “Human welfare” or “human prosperity” might initially be taken to be something akin to Aristotle’s euphoria, which meant something much less dramatic and intoxicating than commonly understood today. In an evolutionary context, human fulfilment acquires an extra dimension, since it has changed throughout the ages and, presumably, will continue to change. Where once in the not so distant past fulfilment was the excitement of the hunt and the satisfaction of a full belly and for many today does not go much beyond beer, football and telly, we see the slow growth of higher aspirations, as civilization proceeds by fits and starts. Metanomics is charged with identifying that something “higher”, thus eventually bringing in the unexpected dimensions not only of artistic and intellectual fulfilment but of spiritual evolution.  The last page of the website looks further into these developments, but it must be said that a brief treatment at this stage can hardly be anything but superficial, for the pattern that metanomics seeks to discern is largely something in the future. One thing we can be sure of is that the economic problems that humankind now faces cannot be solved by the same kind of economic thinking that caused them in the first place.

 

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Metaeconomics & Metanomics | Economics before Science | Keyne's New Paradigm | Schumacher’s Metaeconomics

 

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