Schoene - Fair economics: nature, money and people, beyond neoclassical thinking

Stop worrying and concentrate on the
money you get for it.

Rod Kelly, 2 December 2012, 11.30 PM

author of Sharks Fin and Sichuan Pepper, a sweet-sour memoir of eating in China, published 2011,
transcript from the Food Programme, BBC Radio 4, broadcast Sunday, 4 March 2012

by Matthias Doepfner, CEO of Axel Springer SE, Germany,
English version on the Internet, Frankfurter Allgemeine Zeitung, 17 April 2014

Tax dodging was systematic. The response from the bank and the politicians is anything but.
The Guardian, 10 February 2015, p. 30

Will Hutton, in his book Them and Us, Changing Britain Why We Need A Fair Society (London, 2011), spoke of the problems with the current economic system:

The problem with capitalism is that most of its proponents genuinely believe that it is an immutable force of nature. They think that, like the rest of nature, it works by itself and is best left alone... This is an expression of the best and the worst in human nature the struggle for improvement and self-betterment and the struggle to defeat the other man or woman. There is only a very limited role for the social or the public in all this. Capitalism is about economic hunter-gatherers being allowed to follow their primeval instincts. Any economic and social construction that gets in the way of those instincts will be counter-productive...

I argue... that capitalism quickly becomes dysfunctional when it surrenders to primeval hunter-gatherer instincts without fairness. Capitalism is a much more subtle system than most capitalists think. There is a co-dependency between the public and private spheres that creates innovation and business franchise. The public realm is the custodian of fairness, houses the checks and balances that keep capitalism honest and is the architect of the institutions that allow whole societies to take risks and drive forward their economies. There is a genius in capitalism, but the paradox is that it flowers best in an environment that capitalists themselves think is hostile. Paradoxically, fairness is capitalisms indispensable value.

In this book, we examine the origins of the received wisdom, see how it is flawed in the context of the modern world, and how economics can embrace fairness to man and nature.

A system of natural philosophy may appear very plausible, and be for a long time very generally received in the world, and yet have no foundation in nature, nor any sort of resemblance to the truth.

Adam Smith

We live in a curved four-dimensional space-time continuum, in an expanding universe which came into being with a Big Bang, and our understanding of its history continually increases. What was regarded as a true explanation 250 years ago is no longer seen as such, as new questions are asked, new experiments conducted, and new data collected. As more and more facts are gathered and new, different evidence obtained, our understanding of the world evolves. Events that could not be understood before can now be explained. New theories emerge replacing traditional ones in due course. Views formerly treated as facts become, in the light of new evidence, outdated ideas. This is the ongoing process of scientific discovery.

Here is one example: until medieval times, people thought that Earth was the centre of the universe with every heavenly body moving around it. Our planet was seen as a specially created place, which humans were to rule accordingly. Then, in the 16th century, Nicolaus Copernicus (14731543), a lawyer and physician,to offer to the world, he dreaded so much the prejudice of mankind against it, that, by a species of continence, of all others the most difficult to a philosopher, he hid it in his closet for thirty years together. At last, in the extremity of old age, he allowed it to be extorted from him but died as soon as it was printed, and before it was published.

The conviction that all physical structures could be described in terms of a set of perfect forms circles, squares, and triangles limited the development of astronomy until Johannes Kepler broke the bonds of classical thought and discovered that the orbit of Mars was elliptical a finding that Kepler himself initially considered to be no ore than a pile of dung, while these insights were major changes in mans understanding of the world and of himself.

Thomas Kuhn named this revolution in the history of thinking a paradigm shift,

When, nearly one hundred years after Copernicus, the philosopher, mathematician and astronomer Galileo Galilei (15641642) published his support for his system, the Roman Catholic Church placed his work on their list of forbidden books. He had to answer to the Inquisition. It took the Roman Catholic Church until 1992 to rehabilitate Galilei who is seen today as the founder of modern, mathematics-based physics.

Three-hundred and fifty years later we know that the Sun is not situated at the centre of the universe, but in a side spiral of the Milky Way, our galaxy, and we can suppose with reason that there must be millions more planets like Earth within the Milky Way capable of carrying life. Earth was ousted by science from her supposed special place to a more ordinary one. The idea that man and the planet on which he is born have been especially chosen became obsolete. This still seems to cause a kind of humiliation to people who grow up believing that religion gives them the true explanation for their existence, and one cannot help thinking that even today this may be one reason why so many people seem to turn away from science.

In the 18th century, six planets were known to be moving around the Sun: Mercury, Venus, Earth, Mars and Jupiter. In 1781, a seventh planet was discovered by William Herschel (17381822) and his sister Caroline, which was later named Uranus. Consequently, humanitys view of the world changed again.

This is the normal progression of science, as normal to us as it obviously was to Adam Smith who, in the 18th century, wrote the first and still highly-respected body of ideas that we today call economic theory. The opening quotation shows that Smith was indeed aware that science is an evolving process and this analysis should be applied to his own theory.

The renowned US thinktank, the Pew Research Center in Washington, reported in July 2012 that an increasing number of people seem to have lost the belief in a free market society. Only ten per cent of people in Europe and Japan think that their children will be able to enjoy a better life than theirs. It is therefore, as this study shows, high time we developed other models for our life.

That is what this study aims to do: to analyze Adam Smiths work against the background of his time, in order to find out if and how it can still give us a true explanation of events we observe today, and so build a model for life in the 21st century.

At first this might seem to be a strange proposition, as economists and politicians still claim that, Adam Smith could save the world. Adam Smiths name and his 250-year-old political recipes are so deeply embedded in our society that one might consider analyzing Smith and with him the history of economic thinking a needless and fruitless task.

When we think back to Adam Smith in the 18th century, it seems almost impossible to imagine what life must have been like in his day. When he gives advice, for example, to the colonies in North America, 13 of which declared their independence in 1776, we cannot compare these 13 colonies to the democratic republic of the modern-day United States of America. When he talked about Germany, we should remember that Germany only came into existence in 1871, while before there were various independent German kingdoms such as Hannover, Preussen, Hessen, Bayern, Sachsen and others. Germany as a united kingdom did not become a republic until 1918. The United Kingdom, the kingdoms of England and Scotland were only united in 1706/7, with Ireland joining in 1800, ten years after Smiths death.