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Bold New Directions in Politics and Economics
The Human Economy Newsletter, March 1991, 12 (1) 3-6, 12.
Carmine Gorga *
This Newsletter is dedicated to the proposition that the economy exists for the benefit of humans rather than vice-versa. For that to be true it is necessary for the economy to be both humane and sustainable. We invite contributions to this effort.... We are also extremely grateful to Dr. Carmine Gorga for allowing us to print his essay on Bold New Directions in Politics and Economics which begins on the next page. We think that this essay is remarkable in breaking new gourd and would appreciate any feedback to it.
Editorial Staff: Mark Friedman, Steven Hickerson, Jason Kesler, E. Dale Peterson, Donald Renner, Richard Schiming, Robert Simonson, Gerald Alonzo Smith, Economics Department, Mankato State University.
Clearly the times call for bold new directions in politics and economics. There is a crisis in our thought processes first and in our actions thereafter. This paper contains the broad outline of a long-considered response to this long-standing crisis. It is a three-pronged response: In politics, we must go beyond both Individualism and Collectivism. In economic policy, we must go beyond (a) prevailing practices of taxation on land and natural resources; (b) concentration of ownership of income and wealth; (c) top-down management of the money supply; and (d) certain forms of organization of industrial and financial assets. In economic theory, we must go beyond the confines of Keynes' model of the economic system.
This paper is divided into three sections. The first treats issues of political science. The second, issues of economic policy. The third, issues of economic theory. A few concluding comments attempt to address more directly the concerns of the members of The Society for a Human Economy.
The work outlined below is the result of over thirty years of research that, at its major junctures, has been carried forward with the assistance of some of the best minds of this century - notably, Professors Vittorio de Caprariis, Robert A. Mundell, M. L. Burstein, and Franco Modigliani.
The title of this paper is suggested not only by the motto of The Human Economy Newsletter, namely "New Directions in Economic Thought and Action," but also by a personal communication to this writer from Professor William J. Baumol. Upon reviewing a paper entitled "The Dynamics of the Economic Process," Professor Baumol has written: "You are certainly striking out boldly in new directions and your work promises to yield new insights and results." This is not a singular assessment. Professor Michele Boldrin has remarked: "I find admirable your effort to combine insights from so varied and different areas of research into a new and fascinating picture." This work is available as one of the Human Economy Papers and is listed in this Newsletter, Volume 11: Number 1 (March 1990).
Beyond Individualism and Collectivism
Both Individualism and Collectivism foster the "I vs.Thou" (I-T) pattern of thinking and action: one promotes the individual at the expense of society, the other promotes society at the expense of the individual. Both systems are faulty because they are based on abstract entities. The individual, as pinpointed by Professor Alasdair MacIntyre, is a creation of the last four or five hundred years of political theory. It is an abstraction. And a greater abstraction is society by itself.
As society clearly does not exist without the individual, so the individual - the isolated, the lone individual - does not exist without society. Does a fish live out of water? Can an individual human being live without tradition, the gift of companionship, the hope of the future? The reality is composed
of an individual human being placed within the social context.
From the I-T model of political science we must pass to the I-R-T model, the I in relation with the Thou. Synthetically, this model suggests that the social and political reality is enclosed in the Social Man, the Civilized Person. (Should we reduce the expression "the Social Man" to Somism? Or should we prefer Sopism for "the Social Person"? Personalism will not do: legally, the person is a creation of the state; conceptually, the person - unless civilized - remains isolated from its context). Analytically, in this model there are three entities to analyze: the I, the Thou, and the Relation linking the two.
Notwithstanding Descartes, whose formula "I think, therefore I am" had the unfortunate result of reducing the human being to a thinking machine, the I is composed of body, feelings, and mind. These elements are like organs that operate, freely rather than compulsorily, within an organism. They can go their own merry way toward a destructive end or they can be fused together into the dignity of the individual human being. Through this spiritual integration man and woman, the animal, a meager companion for social and intellectual intercourse, is transformed into a potentially civilized person.
To realize this potential takes an act of volition enclosed in the concerted effort of all human virtues. It is they that empower men and women, because, as St. Thomas Aquinas said, "virtue is the peak of power".
Since it adds external strength to inner strength, most empowering of all is a procedural virtue that, as Fr. William Ferree, S. M., points out, has been defined only during this century by Pope Pius XI: social justice. Its definition is an attempt to return to the concrete Aristotelian conception of justice as justice in action, with the social dimension explicitly added to it. Social justice is organizing for the discovery and implementation of the just: namely, the common good, the good of the I and the Thou. In progression, with Paul Tillich, we can then say: "So we shall speak first of justice,
love and power in human relations, then of power, justice and love in social institutions, then of love, power and justice in relation to the holy."
The mountain of social order can also be scaled through the path of solidarity: the commonality of interests is approached directly and the range of convergence of rights is left behind. The path is less rough and threatening, and makes social organization a little easier to achieve. The goal is the same. As Pope John Paul II specifies, solidarity "is not a feeling of vague compassion or shallow distress at the misfortune of so many people, both near and far. On the contrary, it is a firm and persevering determination to commit oneself to the common good; that is to say, to the good of all and of each individual because we are all really responsible for all."
Is the existence of the common good - both as end and means - a pure esoteric matter? Is it a matter that can be easily dismissed with a grain of cynicism? Yes, it can; but at one's own risk and peril. As all other self-fulfilling prophecies, cynicism - no less than realism - gathers what it sows. This
conclusion is, quite surprisingly, reached by both the best religious tradition and the best economic theory, and is offered as a matter of fact as well as deep theory. As fact, while Professor Milton Friedman speaks of international interconnections that produce a pencil, Pope John Paul II speaks
of interdependence "sensed as a system determining relationships in the contemporary world in its economic, cultural, political and religious elements, and accepted as a moral category." As theory, one field speaks of "general economic equilibrium," "competitive equilibrium, "social welfare"; the other speaks of the "common good." Economic theory, in the rich tradition epitomized by Professors Kenneth J. Arrow and Gerard Debreu, proves the existence of a social optimum with the help of the logic and mysticism of mathematics; theology proves the existence of the common good with the help of the logic and mysticism of morality. (Both disciplines list a set of specific conditions to be met for many independent decisions to create an optimum social order rather than chaos; and if those conditions are not respected, in the end, it is neither the fault of theology nor of economic theory.) While the teleology of economic theory is profit maximization, the teleology of theology is dignity maximization. The equilibrium of supply and demand creates the market; the equilibrium of rights and duties creates the just. Both economic theory and theology finally agree that it is the just that creates social order, the only milieu in which the market thrives and men and women can fulfil their human and divine destiny.
But how do we determine what is just? Procedurally, in the peace of our soul we tentatively ascertain what is just; only then can we try to convince others of the validity of our definition - all the while being open to be convinced by others of the validity of their definition. Thus we discover the just.
And we do something else as well. It is at this precise moment of common agreement that we start getting organized for the implementation of the just; it is at this precise moment that we enter into a pact of solidarity with others, a pact of love, a pact of respect for each other's needs. While following this procedure we not only empower the I, we also empower the Thou. Thus we establish a relation of true equality between the two entities. This procedure for the discovery and implementation of the just creates the moral support on which political democracy can be built at every level of human association.
Substantively, since the just calls for a defense of what belongs to us, the dictates of solidarity and social justice demand that we be very certain about the definition of the just.
Historically in Western culture the majority of existing "sacred and inviolable" rights, rights that can be protected in a court of law, have centered around the rights of property. The radius of these rights is still largely determined by the Lockean definition of property as direct possession of real and financial property.
Three major developments have occurred since Locke's time: taxation has become a widespread burden and correspondingly tax evasion an endemic phenomenon; the corporation has become the dominant envelope in which business is conducted; and much business is conducted through the use of credit, especially national credit. Of these phenomena, national credit seems to deserve a word of explanation. Looked at in the present,
national credit is the power to create new money; looked at prospectively, it is the fountainhead of economic energy and vitality of the nation; looked at retrospectively, it represents the value of congealed toil of every citizen.
These new realities have created new rights, some of which still lack definition. Among these, the property rights that most need to be explored can generally be described as: 1) The right of every citizen to directly enforce the obligation that all other citizens pay their justly apportioned share of taxes, because if one does not pay taxes others have to pay them - the presupposition is that the tax burden is not lopsided; 2) The right of employees to share in the ownership of the products of the corporation, because wealth (which includes new capital) is created by the combination of labor and capital; 3) The right of every citizen to share in the benefits that the use of national credit can bestow, because all citizens contribute to the creation of the specific values embodied in national credit; and, 4) The right of "stakeholders" - namely, bondholders, suppliers, customers, and employees - to the preservation of the integrity of the corporation against external capricious and arbitrary forces, because the corporation is an indirect creation
of stakeholders; without stakeholders, the corporation collapses.
Since taxes unpaid by someone else affect my property, they might be defined as my negative property (debt). Such a definition attempts to cover the reality that tax evasion does not deprive often fumbling government officials of the means to perpetrate additional mischief; these excuses are separate political issues; tax evasion, primarily and directly, defrauds other citizens of their property. Since - as Pope Leo XIII was one of the first to recognize - one is barren without the other, new products might be defined as joint property of their creators, the owners of capital and labor. Since everyone contributes to its creation, national credit might be defined as common property. And, finally, since - as Max DePree, among others, has suggested - stakeholders have legitimate interests in the operation of the corporation, the corporation itself might be defined as complex property. The corporation produces a bundle of benefits: shareholders have a direct and primary interest in these benefits; stakeholders have an indirect and residual interest in them. The residual rights of stakeholders can be claimed, not against shareholders, but against offending members of the community at large. As is traditional in the birth of new rights, the differential rights that issue from these definitions are likely to be measured and affirmed first in the political realm rather than a court of law.
It remains to analyze (a) why these specific rights are selected, (b) what are the limits within which these rights can be enforced, and (c) what are some of the likely effects of either their enforcement or non-enforcement. These are questions of political economy that are treated next.
Four Conditions for Free Markets
Because of the widely recognized failure of past attempts at regulation, there is a great demand today for the creation of free markets - both in the West and in the East. But unregulated markets, as Professor Paul A. Samuelson has put it, create Charles Dickens capitalism. How to escape this dilemma?
The traditional escape route is to have recourse to the definition of the just. Once a society reaches a fundamental agreement on what is just, or with Aristotle what is due (or, actively, what belongs) to each one of us, the foundation is laid for lasting and peaceable solutions to human problems.
In this decade, we need to reach agreement that the four new property rights mentioned above are indeed just: 1) The right of a private citizen (not simply the government) that another pay his justly apportioned share of taxes; 2) The right of employees to share in the ownership of the products created jointly with capital, products that include new capital; 3) The right of every citizen to obtain access to the use of national credit; and, 4) The right of stakeholders to the preservation of the integrity of the corporation against external capricious and arbitrary forces.
Once these differential property rights are agreed upon as defining most of the current particular "just," the specifics of the translation of these definitions into rights enforceable in a court of law will be easily obtained.
The reason for the selection of these four rights is that, as one goes beyond the rhetoric of current fiscal and monetary macroeconomic policies, one discovers that from the lack of affirmation of those rights stem four policies that have long been dominant in the West - no less than, mutatis mutandis, in the East: (1) Near tax-free status of land and natural resources; (2) Concentration of ownership of income and wealth; (3) Top-down management of money supply; and, (4) Concentration of organization and management of industrial and financial assets.
These four policies little by little, surreptitiously, create Charles Dickens capitalism - or the Gulag. This result occurs without malice or forethought. But intentions are, literally, immaterial: they are otherworldly. It is concrete actions that we are concerned about. And here a subtle distinction needs to be kept firmly in mind: Policies do not create actions; people do, people act. They act, first of all, by accepting or rejecting, improving or corrupting the social fabric they inherit from previous generations. What economic policies achieve, assisted by a myriad of other cultural factors, is to set limits to actions: limits to the amount of good as well as evil that human beings can accomplish. Policies, as all other visible and invisible forms of organization of human effort, represent the framework within which human beings act, so much so that most of those who live outside it are by definition the heroes, the martyrs, or the saints.
With these caveats, it is important to realize that those four policies operate in concert and permit actions that turn to the detriment of everyone. The poor most of all. But do not the rich also suffer from inflation and deflation, pollution, exploitation, and conflict that are fostered by those policies?
And what of fear? What of conflict across national borders?
Still more important is to become aware of the chain of causation that leads to the following dichotomy: enforce those rights, and you create and preserve free markets; do not enforce them, and you foster a phenomenon that used to be called monopoly and, more precisely, can be defined as hoarding of wealth (a) beyond one's needs, (b) to the sacrifice of the satisfaction of other peoples' needs, and (c) holding it in a non-productive
state. This last characteristic of hoarding is the most important from an economic point of view; has been missed by economic analysis; and is still missing from economic theory.
The non-payment of taxes, in addition to shifting the financial burden onto other people, leads directly to hoarding of land and natural resources thanks to the dynamics of two factors: through resulting higher asking prices, barriers to new entry are raised; and through lower maintenance costs, the protection of previous hoards is reinforced. But hoarding is also fostered by the illegitimate appropriation of other peoples' (i.e., workers' and even, in some ways, capitalists') wealth: at one time more than another, many industrial products sit unused in factories as well as in private homes (i.e., are hoarded). Much national credit is also either not used (i.e., is hoarded) or is misused to hoard real wealth. Finally, many resources are hoarded during takeovers, mergers, and acquisitions: at one stage of the business cycle more than another, factories are boarded up, supplies are unnecessarily stockpiled, and managers and workers are laid off - and are thus, temporarily if not permanently, forced to hoard their skills and abilities.
Four marginal changes, if gradually but relentlessly implemented, would transform negative effects into positive ones. By a ten percent yearly increment over a decade: (1') Shift the burden of taxation from man-made improvements onto God-given land and natural resources; (2') Expand capital ownership not only through Employee Stock Ownership Plans (ESOPs) and cooperatives, but especially through a non-inflationary and non-deflationary macroeconomic national incomes policy - or, more specifically, shift the on-again off-again call for a "social contract" to the steady call for a legal contract; (3') Institute a system of bottom-up management of money creation (a) for capital expansion only, (b) at cost, and (c) to benefit all; and, (4') Leave corporations absolutely free to grow or decay through internal development, but starting a pilot project with some of the largest ones prohibit them from buying or being bought by other corporations; stop the procedure at the level of corporations doing only intrastate business or some other objectively defined level. Internal growth, yes; external acquisition, no. We are concerned with methods of growth, not limits to internal growth.
If these four policies are instituted, free markets are not only created but preserved. Access to the ownership of land and natural resources is made freer for rich and for poor, for present and for future generations. The right of access to public financial capital is preserved for all. Private capital -
both physical and financial - is protected from external piranhas. Labor is gradually rewarded more through profits than through wages. Labor unions benefit from these processes, if they aid in their development.
Hoarding in Economic Theory
The prohibition against hoarding exists in every religion, from Judaism to Hinduism. It became a firm and elaborate tenet of canonic law in the Catholic Church during the Middle Ages. It is in vigor in Islamic law. In each context, the prohibition against hoarding is supported by the best economic thinking prevalent in the specific culture.
Yet hoarding has received scanty attention from Western economists during the last four to five hundred years.
The essential reason for this neglect is that, especially with the Reformation, hoarding came to be confused with a similar-looking, but completely different, phenomenon: "accumulation." When wealth beyond the satisfaction of one's needs legally belonged to the poor, hoarding was morally
prohibited; when the accumulation of wealth (rather than work) became a calling sanctified by God, the prohibition against hoarding was rendered ineffective. Indeed, with Adam Smith, accumulation became identified with what we call investment and was justified as a means to increase the wealth and presumably the welfare of nations. In addition, during the last fifty years - as D. H. Robertson feared - hoarding has to all intents and
purposes been eliminated from the vocabulary of economists because the economic system is being analyzed through the lenses of a formal model which does not include hoarding as one of its component parts. This is Keynes' model of the economic system. Any elaboration of that model suffers from the same limitation.
This inability to take hoarding into account is one of the reasons why that model must be revised. There are many other independent reasons that lead to the same conclusion.
Once that model is revised, vast new vistas open up to economic analysis. A fundamental restructure of Keynes' model leads to a system composed of three modules: real wealth, ownership rights over wealth, and monetary wealth. This transformation is effected through two mental operations: first,
for analytical purposes, the world of real wealth is separated from the world of financial wealth; second, the world of ownership of wealth is re-inserted into the economic system - where it stood at the dawn of economic analysis. This operation places again the world of morality, politics, and the law at the very core of the economic system - not as an external given, but as one of its internal, integral components. At the same time, no discipline loses its autonomy.
The three worlds of the real, the legal, and the monetary sub-systems provide a complementary and mutually enriching understanding of the economic reality. In the new framework of analysis, there is one distinct mathematical model for each perspective from which the economic system can and ought to be studied. The economic language is precise and unchangeable throughout the discourse, hence it can be safely translated into mathematical terms. And the language, respecting throughout basic principles of logic, bridges the gap that exists today between technical economic language and common language.
As the new framework integrates the work of various mental disciplines, so it closes the gap that exists within economics: the gap between macro and micro economics. The new framework describes - in turn - the economic system of the individual person, the corporation, the city, the state, and the world. The differences among these entities are reduced to differences of quantity, not quality. As William A. Schirra stresses, "The quality of justice permeates the economic system for all."
This organic description of the economic system as a whole is no longer static, but inherently dynamic. In fact, the description of the dynamics of the three basic modules is greatly assisted by recent developments in nonlinear mathematics and fractal geometry. The system as a whole can thus be studied as three solids moving - singly and jointly (one into the other) - in space.
And the entire construction is anchored to this reality. Analysis reveals that the system is primarily driven not by government actions and investment decisions taken by groups of people but by individual private decisions concerning the type, the amount, and the timing of hoarding. Personal responsibility thus becomes the touchstone of the entire economic reality.
More. Since it is only goods hoarded that become scarce, it is evident that hoarding causes scarcity - and thus inefficiency. Implicit in this analysis is an ultimate realization: moral actions are efficient actions. The gap between morality and efficiency that has plagued our minds for four to five hundred
years is closed. Morality and efficiency go hand in hand.
The validity of these statements can henceforth be measured through computer modeling and econometric analysis.
In this paper we have covered an enormous amount of ground rather breathlessly. It is now time to take a deep breath and start filling in the many gaps that need to be filled. The collaboration of the reader is more indispensable than ever.
How does this new framework of thought and action address the concerns of the members of The Society for a Human Economy? It is obviously impossible to reduce the concerns of each and every member to a homogeneous formulation, but the common concern seems to range from the ability of natural resources to sustain our consumerist habits to the set of human relations that are thwarted by the prevailing methods of organizing human effort.
After stating the obvious that no reader is looking for magic formulas and this writer is certainly not providing one, the new framework of thought - if carried out into daily practice - would meet many of those concerns because it is based on personal responsibility: responsibility toward oneself, other human beings, and the planet earth as the center of our universe. (Since the universe seems to be infinite, each point in it stands at its center.) The new framework is based on responsibility and the accompanying freedom provided by economic security. Both characteristics will do wonders to protect our natural resources.
If everyone pays his share of taxes on land and natural resources, these resources begin to be more appreciated for their intrinsic values and therefore they begin to be better used. (Taxes should be raised upstream to avoid pollution, and not downstream as payment for pollution.) Also, once these resources are no longer hoarded, more people are free to have access to them - and, provided all other measures called for above are implemented, they will have the financial and cultural means to use them wisely.
In addition, the resources to be opened up are those that radiate from the downtown of our metropolitan areas: fewer parking lots, fewer lots filled with weeds and rubbish, and fewer abandoned buildings - as well as less forcibly punctuated superdevelopment - at the very core of those areas. Neither would the next band of land be overcrowded, nor would the band next to it be underdeveloped, i.e., hoarded by the few for the benefit of the few, hence necessitating a leapfrog over to the next band. Nor would the wilderness that extends beyond be punctured by unsightly and costly developments. Just think of the financial costs and the frayed nerves that are expended due to overstretched lines of commuting to work and pleasure, lines of communication, lines of police and fire protection, lines of sewer and garbage collection. Are not these lines overstretched because many plots of land in between are hoarded expecting their price to become higher and higher - or, in recessions and depressions, to fall less steeply than other prices?
To develop lands wisely from the core cities outward is to practice conservation. That would be the ultimate effect of a progressively higher tax burden on land values, provided it never reached confiscatory levels. And a similar effect would result from higher taxes on natural resources. Would not all non-renewable energy sources be treated with greater respect if they were taxed for the benefit of all? Indeed, by raising their development cost, would not the gap with the production cost of such renewable energy sources as solar cells become smaller?
Surely consumerism is the malady of the age. But to consider it the cause, rather than the effect, of our problems is misguided. Consumer goods are mostly stolen away from their rightful owners, the people who directly or indirectly produce them. That alone creates a guilty conscience that contributes to their destruction. But there are many other causes that produce the same effect: if one is dissatisfied with one's inner world - namely, the world of work, the world of self-expression - then one searches for satisfaction in the external world. Hence goods are sought after as an expression of one's power. And then, if one acquires them on credit, one hates them before, during, and after the act of consumption as they become an expression of self-enslavement. Thus not only are those goods destroyed at that stage, but more trees, more fauna, more landscapes are destroyed to generate income to pay for goods already destroyed.
Switch the reality of work from a wage to a profit paradigm by enabling employees to become owners of corporations in which they work, and you put men and women in charge of their destiny; in charge of relations with fellow workers; in charge of waste.
Let everyone benefit from the blessings of capital formation through a switch from a private saving to a national credit paradigm, and you undermine the classic rationale for hard-heartedness and selfishness: "I got mine the hard way; get yours the same way (if you can)."
Let entrepreneurs develop corporations in the old-fashioned way rather than by steal and stealth, and all beneficiaries will feel secure in their income stream.
What can be expected as the combined result of these four marginal policy changes? Perhaps one effect will be of overwhelming importance: The aim of economic life will be the enhancement of one's dignity rather than one's cash balances. Work for money will become again work for production of valuable goods and services. From service exclusively to oneself and, often, to evil we will pass to service to oneself to others and to God.
Dr. Gorga is a Fulbright scholar. A
lecturer and author of numerous publications in economic policy and fisheries
development, he is president of Polis-tics Inc., an economic consulting firm in