Economy (^)

The term ‘economy’ comes from the Greek oikos (home) + nomos (norm, nemein = to manage, to care) meaning rules of the house or, more precisely, rules aimed at good household management.
Good household management is based, on the whole, on the careful use of generally scarce resources; it follows that the essential features of ‘economy’ are prudence, thrift and efficiency. 

In the course of history, the simplicity and straightforwardness of the relations between human beings and resources meant that there was no need for a separate complex science of economy. In a not so distant past, what is now considered as economic behaviour was examined and assessed from the point of view of morality, leading, for instance, to the condemnation of usury or the advocacy of a right price. Apart from that, economy, for most people, just had to do with scarce goods produced and consumed within a local agglomeration of households.

It is only with the sustained expansion of production and trade in the XVI and XVII centuries that a series of writings were compiled focusing explicitly on goods and commerce and marking the beginning of a specific field of study.
At its start and for a certain period of time, moral philosophy, much more than any other branch of learning like politics, psychology or mathematics, characterized the outlook of these new writers.
At the same time it is worth noticing something which is not a simple coincidence , namely that the emergence of ‘economy’ as a new field of investigation was paralleled by the ascendance of the nation states. As a consequence, the main concern of most of those who wrote about production and trade was how to increase the wealth of the state of which they felt part, territorially and politically.

The suggestions presented to that end are quite dissimilar, as will be seen shortly. However, for almost all of the writers on the subject, the starting point of ‘economy’ as a topic for analysis and debate was represented by the economy of the expanding nation state.
It is here suggested that this fact concerning its origins will compromise, from the outset, the development of ‘economy’ as a science. 
In short, and for classificatory convenience, we could characterize the evolution of the concept of ‘economy’ as:

-  the practical economy of the ancient world : the household management of the Greeks and the Romans.
-  the moral economy of the mediaeval and early modern world : the relatively limited production and exchanges  among individuals under the influence of religion.
-  the political economy of the late modern and contemporary world : the ever increasing production and exchanges  over which politics exerts its dominion.

The focus of the present essay is on the last period and the intention is to show the main features, facts and final fall of what is used to be called ‘political economy’. 

 

Political Economy (^)

In 1615 there appeared in France a text composed by a certain Antoine De Montchrétien titled Traité de l’Economie Politique. This seems to be the first time when the expression Economie Politique (Political Economy) is employed. The treatise is nothing more than a celebration of the French kingdom, with diverse advice expediently oscillating between foreign trade and economic self-sufficiency (autarky) according to what was deemed convenient to the power of the rising French State.

At that time commercial exchanges between town and country were increasingly supplemented by trade between nation states. That is why the interest of the first modern ‘economists’ is centred on the role of agriculture and on the way to manage trade. 

According to their scholarly interests and positions, the first economists were classified and assigned to two different schools:

-  that of the Physiocrats, who stressed the importance of agriculture as the real source of wealth;
-  that of the Mercantilists, who considered wealth to result from a favourable balance of trade.

Apart from those distinctions, something else differentiates them, and this is their attitude to freedom of trade, favoured by the Physiocrats and feared by the Mercantilists.
However, for all of them, the economic unit of reference was the nation state and consequently the degree of economic freedom advocated or rejected was, on principle, judged according to how well the national economy was deemed to fare in one case or the other. 

This happened because, as already remarked, the first modern writers on economic matters lived in the age of the rising nation state and could not help concentrating on the ascending power of their time, assuming it to be the proper frame of reference for any economic discourse.

Moreover, the widening of monetary transactions increasingly based on national currencies favoured the identification of the proper economic unit as the one where the national currency was accepted or imposed, i.e. the territorial nation state.

It was then practically impossible for the ‘economy’ (in its modern birth and infancy) to be other than ‘Political Economy’ or ‘Staatwirtschaft’ (state economy) or ‘Nationalökonomie’ (national economy).
Historical events and the interpretation given to them would serve to reinforce this view and further contribute to the misleading start that would influence negatively the future formulation and resolution of economic problems.

 

The misleading start (^)

The first economic system that captured the attention and the admiration of past scholars was that of the Low Countries, where many people acquired wealth by shipbuilding and international trade.
What was noticed by many economists of the time was not the reality that open free trade and a general atmosphere of tolerance favoured the development of entrepreneurship and could even bring prosperity to a population quite devoid of natural resources; what was seen was the fact that wealth and power were going to the Dutch instead of them (i.e. the French or the English). 

This is the sign that something had already gone awry, right from the beginning, in the construction of ‘economy’ as science.
In fact, the proposals offered by many economists to combat the affluence of the Dutch, achieved through relatively free entrepreneurship and commerce, were all in the form of state intervention to favour and protect national producers and traders, even to the point of militarily attacking the foreign competitors and driving them away. 

This resulted in France in Colbertism (state aid to national manufacture) and everywhere in what Adam Smith calls the Mercantile System (the state favouring national merchants). However, the main outcome consisted in all the ignoble wars that the various state powers conducted in order to gain political and economic supremacy.

The critical analysis that Adam Smith brought to bear on the mercantile system in Book IV of The Wealth of Nations did not suffice to free economic thinking from the straitjacket of national politics made of national territorial borders and national balances of trade. It is quite indicative of the nature of the times that, by a twist of fate, even such a strong advocate of free trade as Adam Smith would end up, two years after having published his major work, as commissioner of customs in Scotland.

Certainly he was under no illusion about the fulfilment of economic freedom, having written that "to expect, indeed, that the freedom of trade should ever be entirely restored in Great Britain it is as absurd as to expect that an Oceana or Utopia should ever be established in it." (The Wealth of Nations, Book IV).

So, from the start, there were conditions that represented supposedly unavoidable fixtures for any economic analysis; and this means that, right from the beginning, ‘economy’ was equivalent to ‘political economy’, which is then another name for ‘state economy’.

Political economy as state economy is implicitly assumed, by the economists, to refer to:

-  a territorial economy (delimited by state borders)
-  a nationalist economy (biased towards state subjects)
-  a controlled economy (administered by state rulers).

From this misleading start, which not even the classical economists would succeed in redressing because they shared, at least in part, that same mindset as the nation-state rulers, a series of consequences would follow that would be disastrous not only for economy as a science but especially for individuals as economic human beings (i.e. rational household managers).

 

The misguided convictions (^)

The misleading start, in modern times, of economy as political (i.e. state) economy could not produce other than misguided convictions that are still alive and well, promoted and propagated by state paid lecturers and state oriented journalists. 
The misguided convictions can be summarized in three strongly held attitudes and practices:

-  Trade as war
-  Wealth as money
-  Work as employment

Let us examine briefly each of these convictions in order to understand the dynamics of political economy and its consequences on people’s lives.

Trade as War (state territorialism)
The state rulers in the age of mercantilism (from XVI to the middle of XVIII centuries), in the presence of a trade that was growing and widening beyond state borders, did not treat it, as hitherto, just by way of patronizing concessions and protection, but as a powerful instrument for nation-state building.
To this aim, national traders were to be placed in a strongly advantageous position vis-à-vis foreign traders and were to operate for the wealth and power of the state. Moreover, it was widely believed at this time that state wealth and power could grow only at the expense of other states, given the inescapable existence of totally conflicting interests.
For this reason, any terrible occurrence happening to a neighbouring state was considered very good news for another state ruler. Common state policy was to beggar the other state with all sorts of impediments (tariffs, blockades, patents, etc.) to their trade and industry. International trade was seen as a war between states for economic primacy, a trade war that could be supplemented by actual military war against another trading power in order to displace it and gain total political supremacy (e.g. the English Kingdom vs. the Dutch Republic).
The aim of political economy was to dominate international trade in order to export goods in exchange for gold and silver coins. A favourable balance of trade was and is still generally considered a positive objective of political economy.

Wealth as Money (state coffers)
The increase of money (gold and silver coins) in the kingdom was the essential aim of political economy.
The fact that money was equated with wealth is easily explained from the point of view of political economy, considering that the word ‘soldiers’ comes from the Latin soldum, which means money.
So, the availability of money for the state rulers meant that they could pay soldiers, who waged wars aimed at increasing the wealth and power of the state by way of new subjects, new territories, new resources.
Many of the soldiers were previously rural labourers that were now in surplus, following the introduction of more productive ways of cultivating the soil. And this was another reason why the ruler had to have enough money constantly available, to employ them in his service.

Work as Employment (state subjects)
The formation of political economy took place in parallel with remarkable changes in the countryside (e.g. enclosures) and with the transformation of many autonomous peasants into dependent labourers in the new industrial workshops and factories. 
This was the time in England when many landless individuals moved from place to place in search of work, and to counter this Poor Laws were introduced that compelled people to settle down and work in exchange for assistance.
It is from that time onward that the idea that work is mainly, if not essentially, dependent employment started to grow until it took on a life of its own.
Political economists considered providing employment as the necessary way to avoid disturbances or even revolts among discontented masses. This fitted in very well with the views of those who advocated that the state subjects be occupied for the wealth and power of the state.

 These three convictions concerning trade, wealth and work represented an integrated set of ideas that survived even the critique of classical economists (notably Adam Smith) and are still with us at the present time.

They were weakened and almost abandoned (at least theoretically) for a brief season in XIX century England, but that was just a happy interlude that ended with the reaffirmation of state militarism and imperialism and the reformulation of those convictions in a more stringent way. They underlie state economic policies during most of the XX century. 

 

The mischievous policies (^)

The misguided convictions of this economic thinking, centred on the framework of national territorial states and on the political exigencies of its rulers, have produced a series of mischievous policies that have nothing to do with ‘economic’ practices (i.e. ones based on appropriate and sensible use of resources).
Let us examine these policies emerging from the convictions outlined above.

Trade as War
The idea that trade is a phenomenon to be conducted at national state level caused it to be presented it as a sort of struggle between states, where the (commercial) victory of one state is connected with the (economic) defeat of the other state. The victorious state was the one whose balance of trade was positive or, in other words, the one whose exports exceeded imports. The aimed result was more coins (gold and silver) entering the kingdom than leaving it. Clearly, considering that money is only a means to an end, to aim at accumulating money instead of enjoying goods and services is not at all a rational endeavour, unless it is a temporary and partial suspension of consumption and the savings made are directed to productive purposes that will satisfy some other consumer’s needs in the future.
This conception of trade as international battle has resulted in two main state policies:

Control of trade (Protectionism). In order to have a favourable balance of trade, the state limited the freedom of international exchanges (through tariffs and quotas on imports) and subverted (through subsidies and incentives on exports) the normal operation of trade. When some state rulers started implementing these policies, other state rulers retaliated with the result that the regular functioning of the exchanges  was impeded. The impossible aim of a favourable balance of trade for everyone has contributed, in conjunction with other political absurdities, to all sorts of economic imbalances that have had dire repercussion on workers and consumers, i.e. almost everybody, in the form of business cycles of boom and bust, effervescence and depression.

Expansion of trade (Imperialism). In order to overcome the supposed problem of finding outlets for national goods, the politicians went for imperialistic adventures presented as economic ventures by jingoist journalists and state-servile intellectuals. Marx, who cannot be suspected of underestimating the importance of the economic motive, poured scorn on the efforts of “state philosophers” intent on "discovering the secret and hidden mercantile springs" of ‘perfide Albion’ “of which Palmerston is supposed to be the unscrupulous and unflinching executor”; and this search of hidden economic motives behind every political move is done even when the same Lord Palmerston “takes a step apparently the most damaging to the material interests of Great Britain.” (Karl Marx, Secret Diplomatic History of the Eighteenth Century, 1899). As poignantly remarked by A. J. P. Taylor with reference to the imperialism of state rulers: “Their measuring-stick was Power, not Profit” (Economic Imperialism, 1952). Nevertheless, the idea that “trade follows the flag” has become a consolidated doctrine even when negated by historical reality.

 Money as Wealth
The idea that money is wealth is typical of a phase of economic thinking that saw the growing importance and ultimate triumph of monetary exchanges. This fact could certainly not escape the attention of the rulers who, from being the interested overseers of coins (gold and silver), became, everywhere, the monopolistic bosses of internal currency (paper money). 
If money is wealth and wealth begets power, then the state rulers could not help interfering in matters of money in order to strengthen their political power. The state policies resulting from that interference are:

Control of money (Legal Tender). In order to impose a certain currency as legal tender the state rulers have to ban the use of foreign coins from domestic trade and have to centralize its production through the establishment of a national or federal bank. Laws must also be passed to the effect that the money produced by this bank becomes, de facto, a mandatory currency that people cannot refuse to accept in every internal transaction if they do not want to incur in state sanctions (right up to the death penalty). 

Expansion of money (Printing Press). Once they had assumed the monopolistic control of money, the state rulers could play with it according to their needs, which were always grandiose and excessive. With the introduction of paper money the depreciation of the currency which had been a laborious process of reducing the gold or silver content of the coin, became the child’s play of letting the printing press work full time to satisfy the exigencies of the state. Clearly at this point we are totally outside any economic discourse and the expression ‘political economy’ is only a misnomer for political greed and lunacy or, more simply, political swindle.  

 Work as Employment
The idea of work as employment (in an employer-employee relationship) was the result of a patronizing attitude on the part of the rulers coupled with the fear of idle discontented masses. Among many economists there was also the view that the state was responsible for its subjects’ welfare, which was deemed to depend largely on having a stable job and wages. It follows that the proclaimed objective of political economy was to favour the employment of people.
Considering that the rulers are generally attentive to the needs of the masses when they are a force to be reckoned with, this resulted in policies for the:

Control of work (Unionization). Political economy took into account the political strength of the various economic actors. In the case of work this resulted, under the pressure of the trade unions, in favouring nationals in any possible way, up to the point of practically closing the border to new external workers (as the USA did in 1924 with the introduction of quotas to immigration) or in making the movement of people in search of work extremely difficult (and generating the phenomenon, absurd from an economic point of view, of the so-called “illegal” workers). The state rulers in association with the trade unions also contractually institutionalized the dependency and fixity of the employed worker on the plausible pretext of guaranteeing him stable occupation. What we have now, in some countries, is the reality of super-protected legal workers side by side with second-class, deportable ‘illegal’ labour (the foreigners) and super-precarious new entrants (the young, the women).

Expansion of work (Bureaucratization). The political economists also advocated the intervention of the state as direct provider of employment through public works. A path frequently taken was that of swelling the ranks of the bureaucracy to the point that some ministerial or municipal departments now employ many more people than a very large business company. Besides that, personnel hired for political reasons or a plethora of external consultants are also examples of those policies of work-as-employment that made the political economists so proud and self-congratulatory. 

These policies are still with us but not anymore with the same level of amplitude and certitude enjoyed in the course of last century.
During the XX century other notions, which were previously latent, emerged fully and have become consolidated tenets that are no less absurd than the mischievous policies just highlighted.

 

The mindless tenets (^)

The convictions previously listed resulted in the policies briefly outlined above which, in their turn, in order to be justifiable, have generated certain tenets of political economic thinking, upheld by many economists and promoted as reasonable economic doctrine by a multitude of journalists and commentators. Clearly, from mischievous policies only mindless tenets could be expected to derive.
The main mindless tenets of political economy are:

The benevolence of material destruction.
Political economists seem to consider the creation of needs as a bonus for the economic process and are so entrenched in this position that they regard material destruction as a benign or even desirable source of new demand. Frédéric Bastiat is famous for his mockery of this view in his pamphlet "The Broken Window Pane" (in what is seen and WHAT IS NOT SEEN) and for his tragicomic suggestion: “brûlez Paris” [burn Paris] (in Recettes protectionnistes). He could never have imagined that his provocative intellectual challenge would be taken as a serious proposal and explanation for economic advancement even by people who had never heard of him. As a matter of fact this is what happened when some economists attributed the formidable economic recovery of West Germany after the Second World War to the extensiveness of its physical destruction, which allowed massive factory modernization. However, they forgot to explain why the same economic miracle did not take place in East Germany, or why the Swiss economy fared quite well (if not better) without all that destruction.  

Clearly the political economists and their followers are not familiar with the material effects of psychological characteristics (solidarity, willingness to start anew) and of the social environment (freedom of activity). In fact these were the essential aspects behind the formidable recovery of West Germany. Otherwise it would be sufficient to bomb a country and all its factories from time to time, here and there, and, out of the ashes a shining new economy would emerge.

The supposed benevolence of material destruction is certainly not presented by the political economists in such a crude way, but what to make of this statement: "It appears to be politically impossible for a capitalistic democracy to organize expenditure on the scale necessary to make the grand experiment which would prove my case ... except in war conditions." (John Maynard Keynes, Article in the New Republic, July 29, 1940)
The equation: present destruction = future production, could not be made clearer. No wonder that, on that basis, somebody could write an article under the headline: "Hurricane Andrew Good News for South Florida Economy." In short, absurd premises by well-respected economists leading to abominable but consistent conclusions by well-read journalists.

All sorts of material destruction is generally seen with a benign eye by political economists because, according to them, it promotes another of their favourite tenets. 

The desirability of full employment.
Achieving full employment has become the mantra of political economists. As a matter of fact, the case, advocated by Keynes in the cited article, that could be proved by engaging  in a war, was that of full employment.
Three points need to be raised in this respect.

1. First of all, the full employment of political economists is bogus. In fact, in order to keep inflation under control, they come out with the farcical idea of a "natural rate of unemployment" that they fix at the magic number of 3%. What is natural in this rate of unemployment, especially for those who are unemployed in the name of ‘nature’, is a mystery, or rather, an absurdity we had better not delve into.
2. The concept of full employment is difficult to pin down because people (men and women) look for jobs according to the opportunities available. So the number fluctuates on the basis of so many parameters (type of work, working time, level of wages, transport facilities, family structure, etc.) that it is a totally arbitrary statement whenever a political economist says that full employment has or has not been achieved.   
3. However, the main objection to the idea of full employment comes from a purely socio-economic perspective. The essential function of an economic mechanism is to produce goods and services in the most rational (i.e. efficient) manner, not to employ people in the most extensive (i.e. wasteful) way. Otherwise, it would always be appropriate to dig a tunnel with thousands of workers equipped with very small picks and spades (maximum occupation) rather than using a large borer or powerful drills manned by a few individuals (minimum effort).

Certainly, in a technologically backward society people will be employed instead of machines because they are readily and cheaply available. In those societies many will look for any employment in order to scrape together the means of existence. But, with the development of personal skills and technological implements leading to a growth in productivity, individuals can enjoy the fruits of a mechanized/automatized cycle of production with a progressively reduced expenditure of energy and working time. And so the mindless tenet of full employment should be replaced by the apparently shocking (to some people) rationale of full non-employment, whereby work (dependent or independent) occupies only a small (and ever reducing) fraction of the life of an individual, and the rest is available for self-chosen and self-directed activities. And the less the time necessary for work to support living expenses (i.e. the wider the non-employment) the more advanced (productive and wealthy) the members of a community should be considered. And this would turn upside down the entire notion of a society of full employment and the concept of employment that is accepted in such an uncritical way that even the most useless and meaningless work is considered reputable as long as it is legal and it brings in an income.

In fact, for the advocates of full employment the economic cycle is functioning well when most people are employed in whatever occupation is assigned to them and spend all their wages buying the growing amount of goods that the process of production makes available. For them " 'to dig holes in the ground' paid for out of savings, will increase, not only, employment, but the real national dividend of useful goods and services." (John Maynard Keynes, The General Theory, 1936). Clearly this statement is insane even if written by a Cambridge don and applauded by Westminster and Capitol Hill representatives. Their self-interested adherence to such idiocies is linked to another mindless tenet of the political economists.

The necessity of generalized consumerism.
The political economist is generally someone fearful of underconsumption (the "fear of goods" of the mercantilist writers). This is why the person paid to do something totally useless is considered valuable for the working of the "economic machine" because, not only does he not produce anything saleable, but his salary will result in some consumption, that is in the absorption of goods and services.

A quite recent advertisement on a European TV channel showed somebody walking the streets with a shopping bag full of goods just purchased and a voice in the background saying: “He is helping the Economy.”  
This is idiocy at its highest level, not only because Mr. or Mrs. Economy do not exist but also because it turns upside down the relationship between needs and goods.

In the absurd world of the political economist, we do not buy goods to satisfy needs but to assure the salaries of the workers, to provide profits for the businessmen and, last but not least, to generate VAT income for the state.

So we are again, from a different perspective, within the conceptual framework that applauds any material consumption as the way to get ‘the economy’ moving, implying that the people work in the service of the ‘economy’ and not that economic relations work for the benefit of the people.

What the political economists à la Keynes could not envisage was the fact that people encouraged to increase their consumption of goods and services could become so addicted to them that the rate of production of some goods and especially of some services could not keep up with the level of demand. The propensity to save that worried Keynes so much is practically nonexistent for many people. They, like so many states, are deeply in debt and have no intention of starting to behave rationally (i.e. economically) by cutting down waste and attempting to save and invest sensibly. 

However, in order to maintain the same level of spending while avoiding collapse, the political economists have had recourse to another mindless tenet.

The imperative of continuous growth.
If there is a tenet of political economy that is assumed as an implicit objective, upheld everywhere and by almost everybody, it is the idea of continuous economic growth.
This is taken as an imperative requirement of any national economy in order to avoid stagnation and decline.

In fact, many people wrongly associate material growth with development of many kinds (technological, cultural, personal, etc.) and fall into the trap of wishing for the former as the supposed condition for also enjoying the latter. This might be true in a situation where there are many unsatisfied material needs but not when a certain degree of comfort or even some affluence has already been reached. A flabby person should not aim to grow fatter and fatter until he reaches a state of full-blown obesity but, rather, should slim down (de-grow) in order to preserve his health. 

Unfortunately, it is practically impossible to apply these elementary notions to those who, having accumulated huge debts, hope for a continuous growth of this mythical ‘economy’ and so of their income (be it a personal income or the Inland Revenue Income) as the only way out of their insolvency in the absence of any wish to behave economically.

The imperative of continuous growth resembles that of a Ponzi Scheme. The Ponzi Scheme is an ingenious trick of getting money by paying a very high rate of interest; the scheme remains viable as long as there is a capital influx from new lenders attracted by the high interest paid, because it is out of the continuous addition of more funds from the new lenders that the high interest is paid. The scheme collapses when the growth of new participants in the scheme dries up and some people start withdrawing their money.
We have not yet reached a situation of impending financial collapse but something could happen that makes the imperative of continuous growth either very unpalatable (e.g. environmental constraints) or highly unacceptable (e.g. cultural re-orientation) well before it becomes financially impracticable. 

One of the reasons for the existence of growth as the target of political economy derives from the existence of another mindless tenet.

The relevancy of national accounting.
Political economy bases its discourses mainly on national data and on the idea of national accounting.
If this was already a limiting and deceptive way of dealing with global/local economic processes even when nation states held sway, it is now a completely obsolete one.

Moreover, it is not just the limitation in terms of an arbitrary territory (the nation state) that is scientifically untenable in an economic discourse; it is also the fact that the monetary data on which national accounting is based have no real meaning for the lives of people, other than symbolic hints or propaganda messages. 
The recording of investment and consumption could certainly be a way of expressing in monetary terms the different economic choices of the people; but the registered data could equally well cover up the squandering by the state of taxpayers’ money. The GDP figure per se does not distinguish between economically fruitful and economically insane allocation of resources and so it is, in practical terms, useless and meaningless.

Furthermore, to say that GDP has grown by a certain percentage does not say anything about the components of this growth, whether it was necessary to fulfil unsatisfied demand, whether the demand is from individuals who freely allocate their budgets or from the state who dictates a specific allocation of funds without any serious analysis of costs and benefits or record of losses and gains.
What is meant here is not the rejection of the monetary parameter but only that the monetary parameter is useful provided that

- it refers to an individual or community enjoying free choices as to the destination of their monetary resources;
- it is linked to a mechanism of gains and losses that registers whether the resources have been allocated economically or not;
- it is supplemented by other social indicators indicating the actual availability and enjoyment of goods and services by individuals.

Only then might we have a meaningful account of the socio-economic situation of a person or group. Otherwise, huge investments by the state in services that do not work might increase the figure of the GDP (Gross Domestic Product) but the real outcome is to inflate another GDP, namely the Gross Deception Problem.

The mindless tenets here briefly pointed out still dominate most conventional discourses because of some mistaken persuasions propagated mainly by journalists and too easily accepted by the public at large.

 

The mistaken persuasions (^)

The mindless tenets of political economy are widely shared by the common people because of the existence of mistaken persuasions that are nothing other than infantile illusions. 
Political economy, as the term indicates, is a product of politicians in conjunction with economists, and refers to the sphere of political and economic relationships. The mistaken persuasions relate to these agents and to the field of intervention that is assigned to them. In particular people are led to believe that:

- the politicians have a clearer view of the economic reality and espouse better values than the common human being;
- politics is the proper arena and dynamic for solving, on behalf of the large majority, the socio-economic problems affecting everybody;
- the economists must advise the politicians on the best course of action in relation to those problems because they understand these matters better than anybody else;
- the economy is a specific area of social life requiring constant and precise interventions by experts, otherwise it will not operate correctly.

All these persuasions can exist and survive because they are supported by an apparatus of indoctrination (state-servile teachers) and mis-information (state-oriented journalists). Otherwise, they would not withstand even a superficial critical examination. In fact, it should be patently clear to any rational human being that:

-  politicians are human beings like everybody else, who do not have a better grasp of reality than many ordinary people; on the contrary, their election to parliament places them in an ivory tower of privileges and in a position where they are likely to be surrounded by sycophants and pressure groups, all of which constitutes a corruptive veil to any apperception and understanding of socio-economic problems;

-  politics is a confrontational way of dealing with problems, and not only is it inept at treating economic relationships but it is the exact antithesis of economic exchanges, which are carried out because they benefit, in some way, all the contracting parties;

-  the economists are not superior beings with superior knowledge on how to allocate the resources of every single person, for the simple reason that socio-economic reality is a complex whole in a constant flux that cannot be pinned down by a group of experts;

 -  the economy is not a separate sphere of life where homo oeconomicus operates; as a matter of fact neither of them (the economy and homo oeconomicus) exists other than as the invention of some social scientists that have cut out for themselves an area of occupation and intervention.

On the whole, politicians and economists have a distorted view of socio-economic reality, which they see as something essentially:

-  mechanical: made of levers and pulleys which they act upon as master engineers;

material : made of money and gains which they appropriate and distribute according to supposedly superior and all-embracing criteria;

corporative : made of states and institutions in which they are the legitimate actors, purportedly in the name of the people and under the authority of science.

To state things correctly, it suffices to say that political economy has been and still is nothing other than the so-called economy (i.e. producers, consumers) in servitude to territorial politics (i.e. national politicians and bureaucrats). It is, in fact, the agenda of the politicians articulated in technical jargon by their professional advisors, the so-called economists. This agenda is a mismatch of opportunistic expedients, pushing for consumption or saving, for inflation or deflation, for nationalizations or privatizations, according to the contingent exigencies of the ruling elite and its associates. Being so, political economy is not a science, it is not even a semi-science, it is total and utter nonsense.

As for the political economists, they should be seen and named for what they really are: political propagandists writing and acting on behalf of their employers, i.e. the political rulers, and for the promotion of the big or small “national workshop” of which they are both pampered members.

The upholding of mistaken persuasions has produced miserable results, meaning not just poor outcomes but effects that have caused widespread misery and deep despair for millions of people. Let us examine briefly some of the results of political economy.

 

The miserable results (^)

State intervention in economic matters has existed since the coming into dominance of the national territorial state. However, even a century of persistent state interventionism is not a valid reason for believing that the future will be nothing but a continuation of the past. To point to another case of interventionism, state interference in religious matters was and still is practiced in some regions of the world, but it is no longer either existent or accepted everywhere. In fact, many people nowadays would consider it a shocking and totally inadmissible intrusion into their personal life.

Actually, for a brief season, during the heyday of the Industrial Revolution, the intellectual climate, at least in Great Britain, was against state intervention in economic matters. Nevertheless, even then and there, it was quite often a cultural facade behind which the territorial state aimed at gaining national advantages and the national capitalists tried to enlist the state on their side against foreign business competition and internal workers’ demands. The result was, in the end, the falling into disrepute of the idea and practice of a laisser-faire which had been reduced to the cunning ideology of the economically strong or influential, backed by state power.

So, towards the end of the XIX century, open and extensive state intervention eventually resumed, promoted by so-called liberal or progressive parties, even before the ideology of state socialism (Lassalle, Lenin) had made it widely acceptable and desirable.
The results of political economy reached by a highly interventionist state can be summarized as:

National monopolies (big powers and small persons) 
In 1890 the Sherman Anti-Trust Act was introduced in the U.S.A. with the aim of preventing cartel agreements between firms. The real outcome of this law was to make even more attractive the fusion of many firms into very large business companies that dominated the various sectors of the economy. If we add to this the protectionist laws that the Congress passed to favour domestic producers, and the monopolistic patents granted to these huge firms, we have a clear picture of how much political economy did for the rise and maintenance of national monopolies.    

Planned chaos (shortages and surpluses)
Especially during the first half of the XX century, various experiments in central state planning were conducted. The general result was what von Mises defined as "planned chaos." In particular we had
- the failure of the Soviet plans of industrialization and economic take-off;
- the failure of the Chinese state to engineer a socio-economic “forward leap”;
- the failure of the USA New Deal to cure economic depression.
Behind the term failure are to be found either huge shortages causing famine and death or massive overproduction of certain goods (especially in the agriculture sector because of state-supported prices).
The fact is that whenever the state imposes a certain price, if the price is too low the production of that specific good will drop, causing shortages; if the price is kept artificially high the producer will be inclined to over-expand production, being assured that the state will absorb any unsold goods. This is why any price system imposed by the state through its political economy is, in fact, state-engineered madness.

Monetary disorder (inflation and depression)
The area where political economy has produced most disasters, and often untold misery, has been monetary policy.
The idea that the state (via a central bank) is the only institution capable and trustworthy enough to administer the means of payment in the form of a monopolistic legal tender is a conviction stronger than any religious dogma. And this notwithstanding the disasters of inflation and finally hyperinflation (Germany in the period 1914-1923) and depression (USA in the 1930’s) brought about by the measures taken by the central bank. 
Ruinous and protracted boom and bust periods are almost exclusively a product of monetary policies rather than a result of business cycles of expansion and contraction. Business cycles exist but they are something limited in time and consequences and are unavoidable in relation to the technological development and changes in consumers’ demands. 
The pinnacle of absurdity of political economy was reached in the 1970’s with the concurrent presence of inflation and stagnation (stagflation).

All these miserable results had been masked during the period following the Second World War by sustained and necessary growth made possible by a certain liberalization of trade and de-bureaucratization of economic life, after the centralistic excesses of fascism, the “Zwangswirtschaft” (Command economy) of national socialism and the New Deal. That economic recovery which, for example, enabled pressing housing needs to be met and resulted in a general improvement in living standards, was very marked in the less dirigiste economy (West Germany) and more flimsy and difficult in the more interventionist ones (Britain and France).

However, in the 1970’s, once the recovery had been achieved, economic stagflation set in. This situation was not only damaging the economic process (i.e. people’s standard of living) but was also compromising the means of sustenance of the state, owing to the lack of a growing productive sector out of which to extract wealth.
For this reason political economy had to undergo a radical change.

 

The mystifying end (^)

In 1971 Richard Nixon, the 37th president of the USA, in order to justify his interventionist measures in the economy (e.g. wage and price controls, high federal spending), which were not consistent with his professed political beliefs, made a famous declaration, saying: "We are all Keynesians now!"
Certainly he did not suspect that, by the end of that decade, Keynesianism would be increasingly abandoned by politicians and intellectuals and that political economy, i.e. the idea that the state can manage the “economy”, would suffer a profound crisis of faith.

The stagflation of the nineteen-seventies, the serious budgetary problems that were affecting states like the United Kingdom and Italy, and the deep social discontent resulting in wage demands by disgruntled categories of workers, all this was leading some countries to a black future of decline unless a general reorientation of policies was put in place.
It was time to abandon Keynesianism, which had produced not only vast state deficits but also many badly-run nationalized industries and utilities and the introduction of all sorts of restrictions and distortions in economic relations. The state was finally declaring itself unable to manage companies that were accumulating huge debts and were even endangering state revenues.

The transformation of political economy as carried out by Mrs. Thatcher in Britain and Ronald Reagan in the USA consisted in taking the state out of the daily running of large companies and sectors previously nationalized and leaving the entrepreneurs in charge of producing goods and services, and making profits, out of which the state could take away big chunks of money through taxation.
In other word it was the beginning of the separation of the spheres of politics and economics, with the economic sector free (or a bit more free) to operate in order to produce wealth, of which a percentage would become state receipts. It is then appropriate to see in this the first phase of the end of political economy. Debates about political economy continue almost unabated in Parliament and within political parties but the idea that the nation state controls and runs the economy is totally bankrupt, kept alive only in the minds of some deluded individuals.

This policy, generally known as privatization and deregulation, was quite attractive for the state rulers because it allowed them to fill some holes in the state budget thanks to the sale of assets and to higher state revenues. It was copied by the leaders of other industrial countries, which saw not only the general improvement in the economic situation in the United Kingdom (for instance, privatized companies in better shape and delivering services more effectively) but the political success of the exponents of those policies (Mrs. Thatcher got re-elected three times in a row, Ronald Reagan won a huge second term mandate). 
Moreover, when the political economy of planning collapsed with the end of the Soviet Union, it seemed that there was no future whatsoever for state economy and that everything would be entrusted to the spontaneous intercourse of free economic actors, with the state relegated to the role of the reassuring watchman and fair umpire.

Unfortunately this is not the case. Political economy, in the sense of the state running firms and owning utilities, is practically over, but politics, that is the monopolistic territorial state, is still in the saddle. This means that all the main problems and distortions are still there (compulsory state taxation, state deficits, state controlled money, etc.) compounded by the fact that the state can now rely on higher tax receipts from privatized companies and from increased consumerism (high VAT receipts). These new resources have allowed the state to start a new cycle of money squandering (e.g. half a million people were hired by the state in the United Kingdom during the Blair years with no improvement whatsoever being achieved thereby in the standard of services) and even to embark on crazy adventures in the name of ‘exporting democracy’ or ‘fighting for freedom’.

We could end up reverting to a past situation if the insatiable need for further resources leads the state once more to intervene massively in the (mis)management of the economy.
To avoid the return of political economy we need to

-  put economics (i.e. economic thinking and practice) on a sound basis;
-  extend to politics the same standards of performance and behaviour considered necessary for economics as well as for any scientific or technological endeavour.

Let us now examine what economics might have been if it had followed another lead and another course.

 

Economics (^)

The pattern of political economy previously sketched in its theoretical and practical aspects was not espoused by every writer on economic matters.
In actual fact some early analysis heralded the promise of an economic science separated from politics. Economics was born with the Physiocrats. They called themselves simply Economistes and their ideas greatly influenced Adam Smith.

In Book IV of The Wealth of Nations Smith criticized at length the distortions introduced into economics by the policy of mercantilism but did not go far enough to put economics on a universal basis, being still encumbered by the concept of nation (national product, national trade, national state budget).

The same could be said of Karl Marx with his ambiguous formulations about the role of the state in the economy. In his most popular text (The Communist Manifesto, 1848) he embraced the position that the national state had a role to play in the overcoming of capitalism (e.g. as central banker, as owner of factories and manager of public services). Later on (see, for instance, The Critique of the Gotha Programme, 1875) he changed his mind, but to no avail, because those hastily-made proposals previously penned at the end of the Manifesto stuck to him forever, making him one of the champions of political economy, i.e. of state intervention in the economy.

Only those writers who went beyond the narrow boundaries of the nation state were capable of offering interesting insights into the scope of the science of economy.
Some of them, like Piotr Kropotkin, for instance, were not economists by profession. While still using the expression ‘political economy’, Kropotkin nevertheless gave a definition of this field of research free of any political overtone: "the study of the needs of mankind, and the means of satisfying them with the least possible waste of human energy." (The Conquest of Bread, 1906)

Already in 1831 a scholar like archbishop Whateley, unhappy with the expression ‘political economy’, proposed replacing it with the term "catallactics" (from the Greek katallasso = to exchange), stressing the fact that the exchange of goods and services was the essential aim of any economic activity.
Towards the end of the XIX century, the term "economics" started to be used more and more in place of "political economy."

In 1879, in the Preface to the Second Edition of The Theory of Political Economy, the economist William Stanley Jevons put forward the express proposal “to discard, as quickly as possible, the old troublesome double worded name of our science” i.e. political economy, for “the single convenient term economics.”
In 1890 appeared the first edition of Alfred Marshall's Principles of Economics.

However, the change of terminology should not deceive us into believing that a radical change of views had taken place. The term ‘economics’ was used also by people like Beatrice and Sydney Webb, the founders, in 1895, of the London School of Economics and Political Science, who were strong believers in state intervention in the economy and thus advocates of “political economy”. Actually, it was from the end of the XIX century till the end of the Second World War that political economy, and not economics, held sway.

Nevertheless, throughout that period there were isolated voices that objected, implicitly or openly, to the intrusion of state politics into the dynamics of free economic choices.  Those voices were either confined to a certain sphere of analysis and deemed acceptable only in relation to micro-economic matters, like the single firm or the individual consumer (this is the case of the so-called marginalists); or were totally dismissed as irrelevant to current problems and not worthy of much academic study (like the Austrian school of von Mises and Hayek).

In 1922 Ludwig von Mises in Die Gemeinwirthschaft: Untersuchungen über den Sozialismus (Socialism: An Economic and Sociological Analysis, London, 1936) had already advanced the thesis of the absurdity of central planning as an economic instrument that could replace, for the determination of production and prices, the guide mechanism represented by free exchanges. 

In this he had been preceded by Enrico Barone (Il Ministro della Produzione nello Stato Collettivista, 1908) who viewed as inconceivable a political control of the economy, because only continuous experimentation, possible exclusively under free competition, could lead to the emergence of the best coefficients of production. According to Barone, economic adjustments and disturbances, disparagingly labelled as "anarchy" by the advocates of state planning, are in reality the irreplaceable aspect of any process of production that could be qualified as economic. This reminds us of the "creative destruction" highlighted by Schumpeter (Capitalism, Socialism and Democracy, 1942) as the engine necessary to drive any effective and innovative economic process.

Then, in 1944, F. A. Hayek's The Road to Serfdom struck the decisive blow against the very idea of political economy, showing not only the practical unsuitability but also the moral unacceptability of the state interfering in the economic decisions of the individuals.

With the same inclination towards an abandonment of political economy, Lionel Robbins produced in 1932 a famous definition of economics as "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses." (An Essay on the Nature and Significance of Economic Science, 1932).

This definition and all the other critical analysis produced against the viability of political economy as state-controlled/state-directed economy, were meant to place individuals and exchanges at the centre of the economic process one more.

This was a praiseworthy effort but had basic limitations due to the cultural boundaries of that time.
The advocates of economics, as opposed to political economy, were champions of the free market but were still thinking within a framework where a territorial state had monopolistic control of some aspects of the economy, like monetary matters. We had to wait until 1976 for Hayek to introduce the proposal of money denationalization (Choice in Currency: the Denationalization of Currency, 1976). And only in 1993 do we have the essay by an economist, Murray Rothbard, Nations by Consent: decomposing the nation-state, where the monopolistic territorial state is relegated to the scrapyard of history.

Even the ‘public choice’ school that has produced the idea of ‘government failure’ to counter the thesis of “market failure” put forward by the political economists, still subscribes to the concept of the territorial nation state and economy.

So, apart from a few remarkable exceptions (growing in number and influence, however), we are still a long way off the right track and we will remain so until we discard definitively all the old rubbish of GDP and balance of trade and full employment and central bank and legal tender and national economic growth. What is required is nothing less than a very extensive transformation of the paradigm.
To do so it is necessary to abandon completely the idea and practice of political economy and move towards what is here defined as "scientific ecolonomics."

 

Ecolonomics (^)

Ecolonomics represents a new frame of reference that totally supersedes the old national view of political economy and also goes beyond the still limiting and unsatisfactory structure of crude economics.
It unifies the fields of economy and ecology, focusing on the following aspects:

- individuals (needs and exchanges)

- space (spaceship earth with all its inhabitants)

- resources (human, material).

The aim of ecolonomics is the study of the needs of and exchanges between individuals, and the means of satisfying them through activities resulting in the least possible waste of human energy and material resources.
The main concepts taken into account by ecolonomics are those of:

-  needs (the appropriate satisfaction of human requirements)

-  exchanges (the phenomenon of universal recurring reciprocity)

-  activities (the free expression of human qualities).

The needs, exchanges and activities of the current generation should be satisfied and carried out in such a way as to allow future generations to have the same if not even better chances for the fulfilment of these aspects.

This means that, in view of the inescapable reality of finite resources, that the idea of pursuing continuous material growth regardless of the level of needs satisfaction already achieved by individuals, should be abandoned because unsustainable and unsound. In fact, as Kenneth Boulding observed, "he who believes that exponential growth can go on forever in a finite world is either a madman or an economist."
Scientific ecolonomics is founded on the belief that there are universal rules for the appropriate management of spaceship earth. The task of everybody is to discover those rules on the basis of empirical observations, leading to theoretical formulations subject to recurrent verification.

It is then up to each one to accept or reject (in full or in part) those rules, bearing directly the consequences (positive or negative) for the course of action undertaken. Clearly this excludes the possibilities of behaving in ways that compromise the health and wealth of other individuals (for instance, by polluting the environment, restricting the freedom of exchange, monopolizing resources, or implementing similar damaging practices).

Scientific ecolonomics is a cognitive tool useful for making people aware of principles and practices that have proved either appropriate and valuable or harmful and worthless, in particular when individuals deal with scarce material resources and their most efficient allocation. However, ecolonomics does not cover the entire spectrum of human experiences/exigencies. 
In fact, in real life we take into account aspects that go beyond the realm of ecology + economy. Those other aspects, which usually come higher up peoples’ scale of priorities, refer to:

-  ethics (the sphere of moral values)

-  aesthetics (the sphere of sensuous values)

-  civics (the sphere of social values).

Oscar Wilde defined the cynic as "a man who knows the price of everything and the value of nothing" (Lady Windermere's Fan, Act III). Obsessed by the imperatives of political economy (employment, money-making, consumerism, growth, etc.) the majority of people seem to have taken the cynic as their behavioural model and called him homo oeconomicus, confining him within the borders and constrictions of an artificial "national economy."

Actually, the figure of homo oeconomicus and the sphere of “national economy” are no more than fictions. Nevertheless, even figments of somebody’s imagination can become very restrictive and obnoxious realities if they are upheld and imposed on everybody by a monopolistic territorial power like the state.
In reality, there exist only human beings with all their needs, wishes, feelings, attitudes, aspirations, and values, on the vast space of planet earth.

Scientific ecolonomics means the re-introduction on the scene of the free and complete human being capable of making conscious and well informed choices.
The intention is not to replace a fictitious homo oeconomicus with an equally fictitious homo oecolonomicus but to set out on a new path where values, freedom and responsibilities are the main components of individual human decisions and of those of voluntary communities, without the obstacles of crippling mental barriers or constrictive national borders.