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Peter Joseph - History of Economic Thought - Z-Day 2013

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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vast majority of what we call economics, as it is presented in universities and financial circles today, is really an outdated, irrelevant and increasingly detrimental form and system when it comes to the actual maintenance of life on the planet Earth.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. If we are to respect these rules of property, value and such attainment, how does money fit in? How does money serve as both a store of value and a medium of exchange, when, in effect, its value attainment has no causal connection to anything related to human production? We just decide it has value and put it into circulation. Money, whether on the gold standard or fiat, is completely decoupled from the process of value and property creation. John Locke and Adam Smith make it clear that true wealth, the wealth of nations, is not a function of how much gold or silver or hence, money economy has. It's actually the sum of the production, the goods and services the economy produces. That is the true definition of wealth, as per Adam Smith, who states "The annual produce of the land and labour of the society is its wealth." And the main punchline is that money can buy labor. What does this mean? It means that one can buy the actual process of value creation and ownership creation with a fake commodity that has neither of these causal attributes built into its existence. Capitalism's dominant feature exploits this, as the private ownership of the means of production, including labor through money, or "capital" as it's called, enables a form of power and wealth consolidation that is unprecedented as an economic system, in causality, maximizing the use of this fraudulent, made-up commodity. This basic contradiction, as minor as it may seem, is actually quite dramatic, and it's been observed by many critics throughout history. Karl Marx, likely the most demonized economic thinker of all time, had a great deal correct with his criticisms of capitalist philosophy. I might not agree with his socialist conclusions, but his criticisms are quite acute. He states "At first the rights of property seemed to us to be based on a man's own labour. At least, some such assumption was necessary since only commodity owners with equal rights confronted each other, and the sole means by which a man could become possessed of the commodities of others was by alienating (giving up) his own commodities; and these could be replaced by labour alone. Now, however, property turns out to be the right, on the part of the capitalist, to appropriate... and to be the impossibility on the part of the labourer, of appropriating his own product" (the product made). "The separation of property from labour [has been] the necessary consequence of a law that apparently originated in their identity." (referring to the capitalists, by definition). Economist Thorstein Veblen, a brilliant sociologist, perhaps my favorite social critic, also rejected the idea of private property and that it was a natural right, often expressing the absurdity of thought that leads the, what he called "absentee owners," the owners that don't do anything, to claim ownership of commodities produced, in reality, by the manual labor of others, highlighting again the irrationality of the long-held principle that from labor comes property. However, Veblen went further, and he expressed something much more profound than everything I've just talked about. He expresses the social nature of production and how the skills and knowledge accumulation inherent completely voids the causal justification of property rights in and of themselves, stating “[The] natural-rights theory of property makes the creative effort of an isolated, self-sufficing individual the basis of ownership vested in him. In doing so, it overlooks the fact that there is no isolated, self-sufficing individual... Production takes place only in society, only through the cooperation of an industrial community. This industrial community may be large or small... but it always comprises a group large enough to contain and transmit the traditions, tools, technical knowledge, and usages without which there can be no industrial organization and no economic relation of individuals to one another or to their environment... There can be no production without technical knowledge, hence no accumulation and no wealth to be owned... and there is no technical knowledge apart from (the) industrial community. Since there is no individual production and no individual productivity, the natural-rights preconception... reduces itself to absurdity, even under the logic of its own assumptions." Think about it. How can we create anything of ownership in a physical or intellectual sense and be isolated? How can we source anything to a single individual or select group? Veblen recognized, basically, that we live in a group mind; we live in a shared concept, whether we like it or not and we share our ideas and skills. And you know this rhetoric today we hear (it's very common in the right, in the conservative circles) "You get what you work for." In this ethic, your contribution is the only thing that can manifest and improve life. Yet, did anyone in this room invent the automobile? Yes, we might have to pay for it at this time, but the general intellectual design and the (hence) thousands of years of scientific inquiry and awareness that manifest that piece of technology, was given to us, given to our generation for free, along with countless other inherited lifestyle realities we take for granted. While our intuition and basic interest in our own well-being seems to support, again, this justification of property, whether physical or intellectual, the whole thing falls apart very rapidly when we take the perspective of social, intellectual development over generational time. So, the next time someone tells you that "You only deserve what you work for," tell them to go find a new Earth, reconstruct the entire edifice of human civilization as we know it, from the ground up, inventing everything as they go along. And only then will they deserve to have such things as a cell phone, mathematics, air conditioning, modern medicine or the like. [applause, cheers] Moving on. Utilitarianism and the Utility Theory of Value Utilitarianism is, in many ways, both a psychological theory of how people behave and an ethical theory of how they ought to behave. Keep this in mind. It has many different schools of thought today. But in short, it is a model of behavior which is based around something of an impulsive, hedonistic assumption of human action in general. It deals with pleasure and pain and the idea that human beings basically react in favor of pleasure and work to avoid pain, on all scales (very convoluted, as I'll describe). A notable figure and proponent of utilitarianism is Jeremy Bentham, who died in the early 19th century. He stated "Nature has placed mankind under the governance of two sovereign masters, pain and pleasure. It is for them alone to point out what we ought to do... By the principle of utility is meant that principle which approves or disapproves of every action whatsoever, according to the tendency it appears to have to augment or diminish the happiness of the party whose interest is in question." Utilitarianism is at the core of the microeconomic behavioral assumptions put forward by what is called "neoclassical economics" today. The assumption of people working to maximize their happiness and reduce suffering is a guiding principle, and various behavioral models of high complexity have also been created in these intellectual circles. Within this assumption, there are lots of other ideas built-in naturally, such as the idea that humans are insatiable, and we have infinite material wants which never make us satisfied. We have deeply ingrained need to be better than others and other competitive nuances and the like. However, before we address the obvious problems with these assumptions, it's important to point out what utilitarianism, as a behavioral model and eventually as a model of value, actually accomplishes. With the labor theory of value, the workers in a capitalist institution were simply another good to purchase, with value basically extracted systematically. However, as the relationship goes, the more workers are paid, the less profit is available for the owners. This is basic cost efficiency stuff you hear about in Economics 101. However, a troubling awareness underneath the surface, which was recognized by David Ricardo, Adam Smith and others, is that this highlights a conflict between workers and owners. The owners wish to maximize their profits, while the workers wish to maximize their wages. David Ricardo made this very clear in his writings, that the interests of workers and capitalists were always opposed. "If... wages should rise" he often said "... profits would (necessarily) fall." Now this, of course, is quite true without dispute, but it's extremely inconvenient for those who really wish to believe capitalism is a system of social harmony. And the Utility Theory solves this. The Utility Theory of Value states that a good value is mostly not derived from labor, but is based on the mere perception of those who wish to own. This new view, in effect, enables a detour from the class war problem, essentially reducing everyone to self-maximizing exchangers, and since everyone is exchanging, on their own hedonistic behalfs and in their gleaming self-interest, they are all operating in an abstract, "equal playing field" in some bizarre philosophical logic. I'm not kidding! This is an historical defense. Marx, of course, in all of his general belligerent glory, was very aware of this strange logic and stated "Indeed, insofar as the commodity of labour is conceived of only as exchange value, and the relation in which the various commodities are brought into connection with one another is conceived of as the exchange of these exchange values... then the individuals... are simply and only conceived of as exchangers. As far as the formal character is concerned, there is absolutely no distinction between them... as subjects of exchange, their relation is therefore that of equality." Veblen, who was probably even more horrified by the neoclassical economic assumptions, saw the idea that all human economic behavior was to be reduced to a hedonistic interplay of self-maximization and preservation as absurd. He even joked that "A gang of Aleutian Islanders slushing about in the wrack and surf with rakes and magical incantations for the capture of shell-fish are held, in point of taxonomic reality, to be engaged in a feat of hedonistic equilibration in rent, wages, and interest. And that is all there is to it!" In the end, the problem with utilitarianism is that the distinction of what constitutes pleasure and what constitutes pain is not only utterly subjective, it is only predictive in the context of the most impulsive and shortsighted reactions. It is an apt recognition because, again, in the competitive market model of economics, this tendency is actually clearly reinforced. It reinforces this impulsive shortsightedness, structurally, all the time. For example, a corporation might not want to suffer the financial pain of proper disposal of toxic byproduct, so they dump it into a river next to the plant. However, when those local people go home to their families and turn on the tap water, not knowing that this river leads to a reservoir to which their water is sourced, they are going to suffer a great deal of pain in the long-term due to cancer and other health problems that would result. I hope that is clear, as this perspective is likely the most dangerous of all perspectives in modern economic thought. The selfish self-maximization of utility, as an assumption of behavior, leads only to short-term pleasure, at the expense of long-term suffering. The Invisible Hand, Suffering and Class War As a final set of premises, let's now examine the metaphysical notion of the famed "invisible hand" and the basic historical assumption of immutable class imbalance and human suffering. Returning to Adam Smith, it could be argued that his most notable contribution to the philosophy of capitalism was his general suggestion that, even though individuals might act in a narrow, selfish manner, there was what he called an "invisible hand" at work that secured a positive social outcome in the long run. He stated "As every individual, therefore, endeavors as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry, that its produce may be of the greatest value, every individual necessarily labours to render the annual revenue of the society as great as he can. He... neither intends to promote the public interest, nor knows how much he is promoting it... he intends only his own gain and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention... By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it." This nearly religious ideal had a powerful effect on the post-Smith era, giving, in fact, a very socialist vindication for the inherently self-maximizing arguably anti-social behavior common to capitalist psychology. Implying a basic utilitarianism as well, under the surface of this is, of course, a glaring paradox. Smith considered the "laissez-faire" or completely open form of capitalism as the highest mode of socioeconomic operation, stating that it was a "system of natural liberty" and "Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man or order of men." Well, today with 1% of the world's population owning 40% of the planet's wealth, one billion starving, literally not meeting nutritional requirements on a daily basis, and almost half the world in deep relative deprivation, there's ample proof that the mechanisms of the market economy clearly gravitate towards power consolidation and, in effect, the limiting of freedom, the limiting of health of many billions of people in the world today, systematically. However, it's really interesting to see this consequence, because if you really examine Smith, Ricardo and now Thomas Malthus, if you examine their writings in detail, you'll notice something very interesting, that the invisible hand which suggests, implies, in fine print, the betterment of all, is really only acknowledged to help a deserving subsection of the population. Throughout all of their writings, in general, they imply that suffering will remain, regardless, and in the case of Ricardo and Malthus, they actually emphasize not helping the poor in some cases, as it only gives them false hope in the long run. The term "naturalist fallacy" can be applied here, as these thinkers were taking their intuitions about the limits of society and assuming they were empirical, just as they did in the Bible. "You will always have the poor among you..." ~ Matthew 26:1 And while we do not hear much about Malthus these days, with respect to his incredibly incorrect population theory, which stated, among other things, that it was a law of nature to have rich and poor, along with the inevitable consequence of increasing reproduction as wealth increased, implying that the poor must exist or be repressed, since the carrying capacity cannot possibly handle everyone maintaining a quality standard of living as he knew it then. And these theories, unfortunately, still underlie the very core ethical assumptions pushed forward by the market economy's basic social approach today. So I ask you, if the dominant, most influential historical proponents of this economic model, a model which has spread across the world, planted this intellectual seed that it was impossible to take care of everyone and that poverty was inevitable, and that it's only a higher, moral class, in effect, that really deserves the fruits of a decent life, do you think that maybe it might explain why there has been virtually no real effort on the part of any large-scale establishment to actually resolve global suffering on any real level, even though it has clearly statistically been technically possible for many, many decades now due to advancements in technology? In conclusion, I wish to point out, again, that the capitalist market economy did facilitate a stage of improvement on a very basic level, as with anything in the course of evolution. There's no such thing as wrong if the mechanism of understanding, correction and adaptation is working properly. And that's the problem today; we're not adapting fast enough. I see it is an issue of social maturity. If we look at cultural evolution as a process of adaptation and with the needed vulnerable acceptance of new knowledge as the mechanism of change, we can begin to see that we are stuck or moving in a very slow way, when it comes to the way we think about economics. Naturally, due to the extremely powerful reinforcement it has, generation after generation, it compounds this value neurosis over and over, creating increasing fear of change. And I hate to sound condescending, but right now I put the maturity level of human society, in this regard, at about the age of 9. [oohs] We have an entire species of children selfishly running around the earth, hoarding toys, many still believing in Santa Claus, fighting over abundant toy blocks, pushing to the front of the line, jockeying for mommy's attention and status, creating little gangs to feel wanted and to feel powerful. And it isn't that we can't see a path of maturation; it's rather the sickness that exists in this household we share, the water we swim in, the foundational values and beliefs that currently embody the whole of our society, our ideological parents, the zeitgeist itself. And that's why we're here. It's now an issue of growing up, and whether anyone likes it or not, they are in The Zeitgeist Movement, one way or another. Thank you very much. [cheering, sustained applause] www.thezeitgeistmovement.com

Video Details

Duration: 33 minutes and 9 seconds
Year: 2013
Country: United States
Language: English
Producer: The Zeitgeist Movement
Director: The Zeitgeist Movement
Views: 294
Posted by: ltiofficial on Mar 28, 2013

This is the second talk of eleven, from The Zeitgeist Movement's flagship, 5th Annual "Zeitgeist Day", 2013 Main Event, held in Los Angeles CA on March 17th.

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