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Simplifying Economics

It is easy to become bamboozled by economic jargon and disenchanted by the failure of economic theory to explain or predict events in the real world. Economic theorists contributed (sometimes unwittingly) to this when they attempted to elevate their theoretical models to the status of scientific theory, often by using mathematical equations to suggest rigour or precision.

My aim is to present brief and straightforward ideas on the subject of economics for further consideration and debate.

What is economics really about?

All economic activity is bounded by two conditions or parameters: Nature on the one side, and public policy or legislation on the other.

One might say that Nature provides the foundation in terms of physical resources to meet our physical needs while legislation and public policy set the parameters or constraints under which natural resources may be exploited. What is true of primary production will also apply to all forms of secondary production as well as human services. Whereas Nature is the foundation for the production of physical goods, human talent and skills, both physical and intellectual, provide the basis for human services.

Of course human talent and skills are also involved in the production of physical products and manifest in the organisation of labour and the application of technology.

What Is important here is that the boundary inputs or conditions, Nature, human talent and skills and the regulatory framework, are not themselves within the economic process. Why is this important?

  • Everything that is produced within the economic process assumes the character of a commodity and can be bought and sold. The buying and selling of labour (still deemed quite appropriate in current economic and political theory!) is a left over form of slavery when the whole person could be bought and sold.
  • The fact that land, which is itself not a product of the economic process, can be bought and sold leads to huge distortions within the economy. Land was once considered part of the commons and “land ownership” a form of stewardship on behalf of society. Today the owner of land may degrade it through bad management or simply do nothing with it, thus depriving society of a potential resource. A change in zoning can confer sudden wealth on the owner which effectively amounts to a claim on the rest of society!
  • The buying and selling of public policy in the form of political favours is a corruption of the political process, although it effectively continues due to the widespread entanglement of government in the economic process. The current political debate is increasingly about economic development (jobs, jobs, jobs!) at the cost of social justice and environmental sustainability.


In summary

The economic process has to do with production, distribution and consumption of commodities (goods and services). Land and natural resources only enter this process at the point of extraction or cultivation for the market. Labour and the application of human talent is also not a product of the economic process and to treat it as such by referring to a “labour market” is a leftover from earlier forms of slavery.

The role of money, capital or credit and its relation to economic activity is of critical importance and will be the subject of a separate sketch.

Karl Polanyi spoke of 3 Fictional Commodities: labour, land and capital, declaring that because none of these have been produced for the market place, they do not qualify as commodities and should not be treated as such.

I suggest that the mistreatment of these Fictional Commodities is a major contributor to the economic chaos that is gripping the global economy today.



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