PMEText
Postmodern Elements
in Economic Thought
Richard A. Stanford
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CONTENTS
Preface
Part 1. Postmodernity and Beyond
1. The Postmodern Epoch
2. Comparing Economic Systems
3. The Death of Capitalism
Part 2. Postmodern Elements in Economics
4. Origins of Economy and Economics
5. Understanding the Way the Economic World Works
6. Postmodern Elements in Economic Thought
7. Reality in Economic and Postmodern Thought
8. Values in Economic and Postmodern Thought
Part 3. Conclusions
9. Conclusions
Glossary of Terms Used in This Book
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Early in the third millennium of the Common Era, we seem to be at a crossroads of intellectual and cultural thought. The general consensus among cultural and intellectual commentators is that the Modern Epoch ended around the middle of the twentieth century and it has been supplanted by the Postmodern Epoch. But the Postmodern Epoch itself may be coming to an end with the opening of a so-called “Post-Postmodern” era.
Although it has been said that economics is perhaps the academic discipline least affected by Postmodern thought, economists incorporated some Postmodern views even before Postmodernity was in fashion. But Postmodern thinkers have not been shy about criticizing the methods and content of economic thought.
Much of Postmodern literature only describes the cultural and ideological transformations that have taken place during the second half of the twentieth century. The causes of the Postmodern cultural and ideological transformations are the subjects of continuing debate among social scientists, cultural anthropologists, and philosophers. I do not in this book try to explain why such a cultural transformation has taken place. Rather, my more modest goal is only to assess the presence of Postmodern ideas in economic thought. This is important because the late-twentieth century Postmodern cultural and ideological transformations of Western societies pose serious challenges to the survival and vitality of market economy, which is the central decision-making vehicle of capitalism.
In this book, the term “economy” refers to a society’s institutional arrangements for allocating its scarce resources, producing goods and services, and distributing them to its population. The term “economics” refers to the study of economic relationships, i.e., descriptions of economic phenomena, theories about how they work, and policies to manage them. Terms for many other disciplines that study their subject matters end in “-ology”, e.g., theology, sociology, cosmology. A parallel term ending in “-ology” to mean the study of economic matters would be “econology,” but this term has not supplanted “economics” in popular usage.
Organization of the book
As a platform for departure into the examination of the appropriate role of government in regard to economy and religion, the chapters in Part 1 lay out the characteristics of the post-World War II movement called Postmodernism.The Postmodern transformation of Western culture has crept into economic discourse. Chapters in Part 2 identify Postmodern elements in present day economic discourse that have implications for the viability of market economy.
Part 3, the final section of the book, offers conclusions with respect to the incidence of Postmodern ideas in economic thought.
Richard A. Stanford
Summer, 2012
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PART 1. POSTMODERNITY AND BEYOND
Intellectual and cultural epochs come and go. Some last for centuries,
others last only a few decades. Early in the third millennium of the Common
Era, just when it seemed that the Postmodern Epoch had completely displaced
the Modern Epoch and was here to stay, Postmodernity seems to be falling
out of fashion. The new era, for want of a better name, is being called
“post-Postmodern.” Neither term is imaginative, exciting, or informative.
The chapters in Part 1 lay out the characteristics of the post-World War
II movement called Postmodernism.
Critics and commentators have outlined a progression of cultural epochs from the ancient understandings of the workings of the world through the Medieval Age, Enlightenment, Modern, Postmodern, and now post-Postmodern eras. What follows is a brief and admittedly superficial overview of the aspects of the epochal progression that pertain to economies and their cultural settings early in the twenty-first century.
Ancient peoples perceived that the universe was created and controlled by God (or gods), and all unexplained phenomena were attributed to divine causation. The Western Medieval worldview differed from the Ancient view in that God appeared to follow consistent patterns that became regarded as “natural law.” The Enlightenment of the late-seventeenth and eighteenth centuries shifted understanding of causation from subjective judgment and emotion to objective reason and rationality. The Enlightenment was the precursor to the so-called Modern Epoch that most commentators describe as coincident with Industrial Revolution in the West and continuing to mid-twentieth century. The Modern Epoch entailed the optimistic belief that the application of science and technology to industry could bring about a better world. The ideals of Modernity[1] included equality, democracy, freedom, and human rights.
The foundations of the so-called “Postmodern Epoch” were laid during the nineteenth century by German and Austrian philosophers Karl Marx, Sigmund Freud, and Friedrich Nietzsche, and during the early twentieth century by French philosophers Jean-Francois Lyotard, Michel Foucault, and Jacques Derrida.[4] Among the nineteenth century thinkers, it is perhaps Karl Marx who had the greatest influence upon the emerging economic thought of the late nineteenth and early twentieth centuries. Indeed, historians of economic thought often identify Marx as a “Classical” economist along with the likes of Thomas Malthus, David Ricardo, Jeremy Bentham, and John Stuart Mill.
Prior to World War II, many Western economies were primarily industrial in the sense that half or more of their total employments was in manufacturing industry, and half or so of the value of their gross outputs (Gross Domestic Products) consisted of manufactured goods. In the early post-World War II years, many of the formerly industrial economies of the West made the transition to become principally service economies in which less than half of their employments and outputs were accounted for by industry. By the turn of the third millennium, less than twenty percent of US employment was engaged in manufacturing, but the US manufacturing output continued to be among those of the top half-dozen manufacturing countries in the world.
Coincident with this transition, a movement among European continental philosophers began to question the ability of industrial capitalism to continually bring about material improvement and emotional well-being for their societies. They also focused upon negatives that they perceived were brought by industrial capitalism during the twentieth century: the Great Depression, two world wars and a “cold war,” the Holocaust, the prospect of nuclear annihilation, and ever more unequal distributions of income. By the last quarter of the twentieth century they had begun to exhibit a rising skepticism concerning absolutism in science and religion.
Table 1 is a modified version of tables exhibited at the website “Modern vs. Postmodern Culture.”[2] The left side of Table 1 details selected Modern Epoch characteristics that pertain to economy and culture and will be referred to in subsequent chapters. There are other characteristics of the Modern Epoch pertaining to art, architecture, social relationships, and historical and literary criticism that are not represented in Table 1.
Social commentators perceived that the cultural milieu of the late-twentieth century was becoming characterized by skepticism, ethical relativity, permissiveness, religious pluralism, and a victimhood mentality (i.e., everyone is a victim, no one is responsible, and society is to blame for anything bad that happens).[3] Crime and vandalism were on the increase. Expectations were rising that government should ensure that all of society’s needs are met and that government should prevent any from suffering harm or discomfort. For want of a better term, the emerging era became known by the rather unimaginative term “postmodern” to distinguish it from the Modern Epoch prior to WWII.
A quote from Edward W. Younkins’ essay “The Plague of Postmodernism” conveys a sense of the present-day content of Postmodern thought:
Postmodernity has its detractors. M. J. Braun spoofs the physics quest for a unified theory of both cosmology and particle physics, i.e., a “unified theory of everything”, in a piece entitled "Postmodernism: A Unified Theory of All the Trouble in the World."[8] Younkins says that “Postmodernism is the irrational response of today's intellectuals to the failure of socialism both in theory and in practice.“[9] Steve Mizrach surveys criticisms of Postmodernism in his comment entitled “Talking pomo: An analysis of the postmodern movement”:
Assuming that the Postmodern worldview differs significantly from the Modern worldview and is influencing Western societies, some details of Postmodern thought that pertain specifically to economy and its cultural setting are summarized in the right side of Table 1 and will be referred to in subsequent chapters. Table 1 is constructed to enable row-wise comparisons of views between Modernists and Postmodernists.
At the top of Table 1 is a representation of a continuum between views of extreme Modernity and extreme Postmodernity. Intellectuals may define and comment upon the extremes, but the point of this continuum is that not all people in Western societies have adopted philosophical positions at either extreme, but rather may be somewhere between the extremes. Religious fundamentalists likely are closer to the Modernity extreme on the left end of the continuum. People who perceive themselves to be liberal and “liberated” from the constraints of doctrine and absolutist social values may put themselves closer to the Postmodernity extreme on the right end of the continuum. Many people will find themselves gradually moving in one direction or the other as they mature and as their social associations and perceptions change. There likely are generational differences in that people of older generations may tend to be closer to the Modernity extreme, while many in their child, grandchild, and subsequent generations may occupy social thought positions ever closer to the Postmodernity extreme. Great social transformations often take multiple generations to complete.
Early in the twenty-first century, Postmodernity’s extreme subjectivity, pessimism, ethical relativism, pluralistic tolerance of other religious traditions, and rejection of absolute truth seemed to produce a cultural malaise which weakened the “social glue” that binds society together. Some cultural commentators concluded that the fragmentation, pessimism, criticism, and nihilism of the Postmodern Epoch is falling out of fashion, and that a new era refocusing on eternal truths and faith in them has begun to unfold. Some were even beginning to admit that ancient religious traditions continued to have relevance in spite of Postmodernists’ efforts to define them away. There also emerged an implicit recognition that many traditional pre-Modern beliefs that had been relegated by Postmodernists to the historical scrap heap had persisted through the optimistic Modern Epoch and even survived the nihilistic Postmodern Epoch. People again were feeling the need for more substantial bases of value in their lives. Positive themes identified in the new era are faith, trust, dialogue, and sincerity.
Cultural commentators have introduced various terms to describe the new era of the twenty-first century, including trans-modernism, pseudo-modernism, late-capitalism, the “New Sincerity,” and post-millennialism. But the least-imaginative descriptor, “post-postmodern,” seems to have stuck. As with any newly emerging cultural orientation, it is difficult both to name it and to discern all of the emerging views and beliefs that ultimately may define it. And of course it remains to be seen whether post-Postmodernity has enough staying power that it can be regarded as a true “epoch,” or will it be only a passing intellectual fancy that withers on the vine after a few years. In any case, as with theories, it takes an epoch to displace and epoch.
Nikolai Wenzel doesn't use any of the terms that have been proposed for the post-Postmodern era, but he says that "parallel to the post-modern rejection of modernity's bold aims, there is emerging a pre-modern religious radicalization in the West" in the form of a "significant migration towards more fundamentalist churches, especially in the US."[15] But post-Postmodern thought is not exclusively the province of Christian fundamentalism. Its influence stretches into mainstream American religious thought and practice as well.
Cultural commentators have introduced various terms to describe the new era of the twenty-first century, including trans-modernism, pseudo-modernism, late-capitalism, the “New Sincerity,” and post-millennialism. But the least-imaginative descriptor, “post-postmodern,” seems to have stuck.* As with any newly emerging cultural orientation, it is difficult both to name it and to discern all of the emerging views and beliefs that ultimately may define it. And of course it remains to be seen whether post-Postmodernity has enough staying power that it can be regarded as a true “epoch,” or will it be only a passing intellectual fancy that withers on the vine after a few years. In any case, as with theories, it takes an epoch to displace and epoch.
___________
*In a New York Times column dated December 12, 2025, Thomas Friedman says,
(https://www.nytimes.com/2025/12/12/opinion/tom-friedman-david-brooks-polycene.html?campaign_id=39&context=audio&emc=edit_ty_20251212&instance_id=167855&nl=opinion-today®i_id=74240569&segment_id=212169&user_id=86b0d837dd357b2a6e0e749321f6ed7f)
Chapter 1 Endnotes:
[1] Some writers use the terms “modernism” and “postmodernism”. I prefer to use the corresponding terms ending with “-ity” rather than “-ism” on the assumption that “-isms” often refer to advocative ideologies, whereas “-itys” are more simply descriptions of states or conditions of thought that are not necessarily advocative.
[2] http://www.crossroad.to/charts/postmodernity-2.htm.
[3] Barry Spurr says that postmodernism is a political phenomenon deriving from a culture of resentment and victimhood, “Focus on Postmodernism: What is the difference between King Lear and Ginger Meggs?”, MercatorNet, June 2, 2006, http://www.mercatornet.com/articles/view/focus_on_postmodernism_what_is_the_difference_between_king_lear_and_ginger_/.
[4] Luther Tweeten and Carl Zulauf have provided an excellent discussion of the history and philosophical background of postmodernism in a paper presented to the 1999 annual meeting of the Agricultural and Applied Economics Association, “The Challenge of Postmodernism to Applied Economics”, http://aede.osu.edu/programs/anderson/papers_old/The%20Challenge%20of%20Postmodernism%20to%20Applied%20Economics.pdf.
[5] Edward W. Younkins, “The Plague of Postmodernism,” http://www.quebecoislibre.org/04/041215-9.htm.
[6] Thomas Sowell, “Dismantling America, Part II”, August 18, 2010, http://jewishworldreview.com/cols/sowell081810.php3.
[7] Leonard Pitts, “A flagrantly reasonable conservative”, Miami Herald, August 22, 2010, http://www.miamiherald.com/2010/08/22/1787010/a-flagrantly-reasonable-conservative.html.
[8] M. J. Braun, (American Thinker, May 2, 2010, http://www.americanthinker.com/2010/05/postmodernism_a_unified_theory.html.
[9] Younkins.
[10] Steve Mizrach, “Talking pomo: An analysis of the postmodern movement”, http://www2.fiu.edu/~mizrachs/pomo.html.
[11] Nikolai Wenzel, "Postmodernism and Its Discontents: Whither Constitutionalism After God and Reason?" New Perspectives on Political Economy, Volume 4, Number 2, 2008, p. 179, http://pcpe.libinst.cz/nppe/4_2/nppe4_2_4.pdf.
[12] Wenzel, p. 160.
[13] Steven Yates, “A Thinker’s Guide to Postmodernism (Or: Anatomy of an Academic Racket)”, http://www.lewrockwell.com/yates/yates74.html.
BACK TO CONTENTS
Economic theory, much of it dating from the Modern Epoch prior to the middle of the twentieth century, usually presumes a context of market capitalism. Postmodern thought of the late-twentieth century has been generally critical of market capitalism because economies organized as capitalism inevitably result in distributional inequality. The purpose of this chapter is to consider implications of the alternative forms of economic systems that societies may choose.
Postmodern commentators have generally favored socialism as the preferred form of economic organization to achieve distributional justice. It is ironic that toward the end of the twentieth century, many postmodern thinkers had come to a begrudging acknowledgement that the “end of history”[1] likely will include market economy as envisioned by Adam Smith in An Inquiry Into the Nature and Causes of the Wealth of Nations (1776) instead of the utopian communism envisioned by Karl Marx in Das Kapital (1867). The bases for the grudging acceptance of capitalism are threefold: the realization that capitalism is highest-level emergent form of economic organization, that capitalism has outperformed all other economic systems that have been tried, and that some form of capitalism is the natural fall-back position for societies that have experimented with other economic systems that have failed.
“Comparative Economic Systems” (CES) was a standard course title in
the course listings of undergraduate economics departments in US colleges
and universities prior to about 1990. The principal subject matter
of a CES course was a comparison of the organization and functions of the
two types of economic systems seemingly joined in mortal combat after World
War II and during the so-called “cold war” era.
Capitalism Contested
The grand contest between market capitalism and authoritarian socialism, begun in 1917 with the Bolshevik Revolution in Russia, came to an end in 1989 with the demise of the Soviet Union. The Soviet experiment with authoritarian socialism failed because of inherent inefficiencies of centralized direction, ever worsening bureaucratic morass, and fiscal "bankruptcy" precipitated by the Soviet effort to match the American "cold war" military buildup. With the final discrediting of authoritarian socialism, market capitalism stood as the clear winner. Since 1989, most of the former historically planned economies (HPEs) have been attempting, with varying degrees of success, to resurrect or establish functional market economies. HPEs are said to be in transition from central control of their economies toward decentralized functioning as market economies.
In the wake of the demise of the Soviet Union, CES courses disappeared from many economics department course listings because the competition between market capitalism and authoritarian socialism seemingly had been settled. Few new editions of CES textbooks were written. Socialism had failed; capitalism was still standing. The contest was over. What was left to compare? Only around the turn of the third millennium did the subject matter of CES begin to reappear in economic department course listings, often in the guise of a new course title, “Transition Economies,” with focus upon the HPEs.
Karl Marx was one of the nineteenth century precursors of the twentieth century Postmodern movement. In Das Kapital, Marx identified a number of different systems for organizing an economy: communalism, tribalism, feudalism, capitalism, socialism, and communism. The first four of these are a succession of naturally emerging stages of ever-greater sophistication and complexity. Capitalism, the "end-game" of this natural progression, is also the default form of economic organization in the sense that it is the form of economic organization that a society will end up with unless the society makes a deliberate choice of some other form of economic organization. Market capitalism can be described as a combination of private ownership of the means of production coupled with dispersed and participatory decision making through markets.
Marx thought that societies inevitably would choose an alternative to market capitalism. He hypothesized that capitalism would exhibit an ever sharper dichotomization of society into a property-owning class of capitalists and a propertyless laboring class. Worsening class conflict would culminate in violent revolution of the laboring class to overthrow the capitalist class in order to establish a "dictatorship of the proletariat." Authoritarian socialism, Marx's "dictatorship of the proletariat" can be described as a combination of state ownership of the means of production coupled with centralized decision making.
The Marxian schema beyond capitalism has not happened, at least not in the industrial societies of Western Europe where Marx anticipated it. It didn't occur to Marx that the revolution would come in the near-feudalistic state of Czarist Russia. It was never very successful there because Russia simply had not first passed through a capitalist phase. The Soviet authorities found that they had to accumulate a stock of capital before they could make progress in the socialist quest to achieve efficient production through managerial rationalization. In the end, a faulty incentive system and bureaucratic excesses coupled with efforts to match the American "star wars" military expenditures brought the socialist experiment to an end. Today, virtually all of the former constituent states of the Soviet Union as well as its former client states are hastening to privatize state-owned assets and establish working market economies.
The principal reason that the socialist revolution never occurred in the industrial countries of Western Europe where Marx expected it is that their societies found a mutuality of interests. Workers became capitalists through their pension funds, and capitalists became hired managers working for the shareholders. Today in these countries and the United States, the ownership of corporate shares is widely dispersed, both to pension funds and to individual persons. It is doubtful that a Marxian-style revolution ever will be a realistic prospect for the United States or the market economies of Western Europe.
During the 1930s and '40s, an authoritarian variant of capitalism, fascism,
was implemented in Spain, Italy, Germany, and Japan. Fascism couples private
ownership of the means of production with centralized determination of
the answers to the fundamental economizing question. Although Fascism nominally
was banished from the world stage by the victorious Allies in 1945, variants
of it can still be found in certain third-world countries.
Virtues and Problems of Capitalism
Several factors commend market capitalism as the economic system of choice.
• Except to maintain the "rules of the game," market capitalism does not require the exercise of centralized authority unless its market mechanisms do not function satisfactorily (a charge that is commonly leveled by Postmoderns and other critics of capitalism).
• Competitive market participation makes for "consumer sovereignty" rather than state sovereignty. In competitive markets consumers dictate to producers what to produce.
• Indeed, as long as markets yield a socially satisfactory mix of consumer goods and services, no central direction or coordination is needed; the system "works itself."
• The incentive structure of market capitalism contains a mechanism that automatically pursues economic efficiency.
• Because of private ownership of property in capitalism, the problem of "dipping from a common pool" is avoided.
• Perhaps the most important aspect is that market capitalism is the economic system that provides best venue for the exercise of both economic and religious liberty.
• Markets may fail to recognize some costs and some benefits. Markets tend to overproduce goods causing “spillover costs” and underproduce goods providing “spillover benefits.”
• Markets won't produce "public goods" because they are too expensive for single consumers to purchase, because individual consumers cannot exclude others from the use of them, and because it is difficult for consumers to meaningfully assess the benefits of public goods relative to their market prices.
• In a market economy, competitive conditions may be impaired when some producers are able to attain monopoly power or position.
• Market economies naturally entail some degree of instability in the form of cyclical expansion and contraction, with attendant episodes of unemployment and inflation.
President George W. Bush, in a speech to the Manhattan Institute, defended U.S.-style "free-market" capitalism as the best hope to cure the world's financial problems and promote prosperity in both developed and developing nations:
Chapter 2 Endnotes:
[1] This is a term coined by Francis Fukuyama in his book The End of History and the Last ManStanding, Free Press, 1992).
[2] George W. Bush, "The Surest Path Back to Prosperity," The Wall
Street Journal, November 15-16, 2008, p. A11.
BACK TO CONTENTS
3. THE DEATH OF CAPITALISM
Humans have been trading with one another from nearly the beginning of their existence on earth. Trading is the essential characteristic of what today is understood to be market economy. Market economy is the principal decision-making vehicle of market capitalism.
The end of capitalism has been foretold almost from the beginning of its identification by Karl Marx in Das Kapital (1867) as a form of economic organization characterized by investment in capital for profit. Marx, a nineteenth century precursor of the twentieth century Postmodern movement, hypothesized that internal contradictions of capitalism (bourgeoisie exploitation of the proletariat) would bring about its end. It would terminate in violent revolution as the proletariat rose up against the capital-owning bourgeoisie that would be replaced by a dictatorship of the proletariat.
Joseph Schumpeter in Capitalism, Socialism, and Democracy (1942) also predicted the demise of capitalism and its replacement by socialism, but by the democratic legislative process rather than by violent revolution.
Late twentieth century Postmodern thinkers judge that market capitalism outcomes are bad enough to warrant replacing capitalism with socialism so that “philosopher kings” can make wise economic decisions on behalf of their societies. With the failures of virtually all socialist experiments that have been attempted, Postmoderns have begrudgingly recognized that capitalism is likely to be the dominant form of economic organization into the foreseeable future. In lieu of replacing capitalism with socialism, Postmoderns have favored government interventions to correct the perceived faults and failures of market capitalism.
During the financial turbulence of the early twenty-first century, there has been a revival of assertions of the death of capitalism, or at least "American style capitalism." The cover of the October 18, 2008, edition of The Economist shows a relief of a mortally wounded lion with the caption "Capitalism at Bay."[1] The cover of the October 27, 2008, issue of Business Week depicts images of Henry Paulson and Ben Bernanke with the caption "The Future of Kapitalism."[2] Anthony Faiola, a Washington Post staff writer, posted a news analysis piece in which he asserted, "The worst financial crisis since the Great Depression is claiming another casualty: American-style capitalism.”[3] Speaking in Toulon, France, on September 25, 2008, French president Nicolas Sarkozy said, "Self-regulation as a way of solving all problems is finished. Laissez-faire is finished. The all-powerful market that always knows best is finished."[4] He asserted "The present crisis must incite us to refound capitalism on the basis of ethics and work."
The world has seen no examples of pure capitalism. Even the North American continent has never seen pure capitalism. The British crown always played an economic decision-making role before the Revolution. The laissez faire advocated by Adam Smith in The Wealth of Nations (1776) always was an ideal. Smith himself identified a number of legitimate functions for government in a market economy. Government has been involved in the operation of the American economy almost from the moment of the founding of the Republic in setting weights and measures, providing money, establishing a system of contract law, subsidizing canals, roads, and railroads, etc. The practicality of American capitalism has been a workable blend of market economy and government involvement.
Nor has the world seen any examples of pure socialism. During its heyday of the 1960s through the 1980s, the Soviet Union was a mixed economy that attempted to move ever closer to pure authoritarian socialism. Because of bureaucratic limitations it had to continue to use market-type decision mechanisms to allocate most resources and distribute most products. Softer variants of socialism combine state ownership of the means of production with political democracy, i.e., "democratic socialism."
The term “mixed market economy” describes an economy in which markets play predominant roles in addressing fundamental economizing questions (what mix of products to produce, how to produce the product mix, how resources should be allocated to producing each of the selected products, and to whom the output should be distributed), with minimal intrusion by government. In an extreme libertarian view, there would be no role of significance for government to play in a market economy.
The greatest challenge to market economies in the twenty-first century is likely to be an ever-expanding role for government to play in the economy as expected by Postmodern thinkers. Taken to its logical extreme, the end-point of such a progression could be either fascism (privately-owned means of production with state control over it) or authoritarian socialism (state ownership of the means of production and centralized decision making). In either case, the loss to society would be the curtailed personal liberties of market participants.
Marx in Das Kapital speculated that human nature could be overcome in solving the economic problem (the juxtaposition of insatiable human wants against scarcity in nature). He reasoned that capitalist production could be rationalized to increase the flow of goods and services and that people could be conditioned to no longer want what they did not have or what other people had. In the latter case, Marx thought that human nature could be overcome by a political process of indoctrination. That Marx misperceived this aspect of human nature is attested by the failure of authoritarian socialism almost everywhere that it has been tried.
In like fashion, it is a misperception that the natural human proclivity to "truck, barter, and exchange" (Adam Smith's phraseology) can be overcome by law or circumstances. In an editorial commentary in Barron's, Thomas G. Donlan asserts that "Capitalism--investment for profit--is universal. Neither politics nor revolution can kill it.”[5] Just as Mark Twain quipped that "The report of my death is an exaggeration," the proclamation of the death of capitalism is at least premature, if not greatly exaggerated.
Markets persisted even in the Soviet Union, despite concerted efforts to eliminate them. Any economic system must address four fundamental economizing questions: what should be produced, how should the product mix be produced, by whom should it be produced, and to whom should the output be distributed. In addressing these questions the Soviets, during their seventy-year grand experiment with authoritarian socialism, attempted to eliminate all remaining vestiges of capitalism. They came close to achieving complete authoritarian control in regard to the "what" and "how" questions, but they failed miserably in accomplishing their objective with respect to the "by whom" and "to whom" questions. The sheer complexity of a multimillion person population continued to require reliance on markets to allocate resources and distribute the output of their economy.
Capitalism, the most advanced naturally-emerging form of economic organization, may not be dead, but it likely will continue to morph into forms that will meet the needs of generations to come. This morphing process may present a long-run problem for capitalism. Marx predicted that violent revolution would establish a "dictatorship of the proletariat," but this never happened in any of the market economies of Western nations because of an emerging mutuality of interest between employees and the owners of the capital that the workers used. Workers became owners of capital through their pension funds, and the managers of capital themselves became employees.
As noted by Schumpeter, there is a danger that in a democratic polity the morphing process will entail a gradual drift toward socialism. This process, which has been described as "socialism through the back door" and "stealth socialism," may occur so gradually as to be unnoticed until some future generation wakes up to the realization that Marx's conclusion was correct even though his specified route to it was wrong. The gradual drift toward socialism via the democratic process is a process that can be applauded by many Postmodern thinkers.
Indeed, the efforts of the Bush Administration to address the financial
turbulence beginning in 2008 have already resulted in a significant socialization
of finance and industry in the United States. In consonence with Postmodern preferences, the Obama Administration has continued to move the U.S. economy further along the route toward socialism with the provision of universal health care, expanded regulation of finance and industry, and governmental acquisition of ownership shares in the automobile and other major American industries.
Chapter 3 Endnotes:
[1] The Economist, October 18, 2008, cover showing a relief of a mortally wounded lion with the caption "Capitalism at Bay."
[2] Business Week , October 27, 2008, cover depicting images of Henry Paulson and Ben Bernanke with the caption "The Future of Kapitalism."
[3] Anthony Faiola, “The End of American Capitalism?", Washington Post, October 10, 2008.
[4] Nicolas Sarkozy, http://euobserver.com/9/26814/?rk=1.
[5] Thomas G. Donlan, “The Crash must Come," Barron's, October
27, 2008, p. 58.
BACK TO CONTENTS
PART 2. POSTMODERN ELEMENTS IN ECONOMICS AND THEOLOGY
There are elements of Postmodern thought in economic analysis. There are both parallels and contrasts between values and concepts of what is real in economics and Postmodern thought. The chapters in Part 2 delve into these parallels and contrasts.
BACK TO CONTENTS
It has been said that economics is perhaps the last academic discipline to have been influenced by Postmodern intellectual thought, and to have been the least influenced by it. A colleague recently quipped that many of the basic ideas of economics are a century or more old. This puts the foundations of economic thought in the Modern Epoch[1], for which most economists likely would be unapologetic.
In spite of the Postmodern denial of the verity of objective theory based on observed “facts,” economists identify the essential economic “fact” of the material world as scarcity. Scarcity, the opposite of abundance of things material, is axiomatic to economics; it’s the sine qua non of economics; it’s the raison d‘etre of economics. If somehow scarcity could be eliminated from the face of the earth, economics as an academic discipline would have lost its reason for being.
The evidence of the scarcity of any material thing (and time, hence also services) is a positive price. Virtually everything valued by human beings has a positive price. Such prices are determined by interaction between demanders and suppliers in markets, and hence may be construed as social valuations although postmodern thinkers would deny that they are in any sense “objective” or universal valuations.
The acquisition of such scarcities by human beings involves what economists call "opportunity costs." The opportunity cost of any scarce thing is what has to be given up in order to obtain it. The opportunity cost of something may be denominated in terms of market price, but it may also include such other psychic or "real" dimensions as time, effort, mental anguish, and loss of satisfaction. Because of scarcity, the real cost of the things or activities we select are the highest-valued things or activities that we deselect.
A literal interpretation of the Eden myth story in the biblical book of Genesis suggests a biblical explanation of the origin of economy. The "Garden of Eden" also must have been pre-economic in the sense of being characterized by perfect abundance. The human inhabitants could simply gather all that they cared to consume, and in so doing live luxuriant lives. Even time was available in abundance since "in the beginning" there seems to have been no limit on the duration of life and no counting of time (except the "days" of creation). The inhabitants' "original sin" resulted in their eviction by God to a life of toil in an outside world characterized by scarcity. It also resulted in time itself becoming a scarce resource because death would limit the duration of life. The stringency of such scarcity thus created the need for economy. This myth story suggests that since God evicted Adam and Eve from the abundant Garden, the economic nature of the world they inherited must be by God's own design and intent.
The origin of economy can be adduced apart from biblical literature. For example, we can imagine that ten thousand or more years ago early human beings were still few in number as they roamed a plenteous (though danger-ridden) nature and could therefore gather adequate sustenance to meet their survival needs. The implication is a pre-economic state of abundance, but one that tended to be "nasty, brutish, and short" (a la Thomas Hobbes in The Leviathan, 1651). Progressive population growth through the millennia brought human inhabitants ever more often into contact and into contention with one another for the available resources. The Malthusian phenomenon of population pressing upon limited resources[2] created both a condition of scarcity requiring economy, and political arrangements (Leviathan, social contracts, etc.) to rationalize and civilize such interaction.
References can be found in ancient writings, including the Bible, of economic conditions and economic problems, but no well-developed efforts at systematic explanations of economic phenomena are found in ancient writings. Economists generally date the advent of economics as a systematic study of human efforts to deal with scarcity from the publication in 1776 of An Inquiry into the Nature and Causes of the Wealth of Nations by Scottish moral philosopher, Adam Smith. The academic discipline of “political economy” unfolded during the nineteenth century because Smith’s book set in motion a chain of subsequent publications to correct or extend his views. Around the turn of the twentieth century, economics drifted apart from political science so that academics could better focus and specialize their studies in these two subjects.
The process of economic growth that began to accelerate with the Industrial Revolution around 1820 has produced a veritable torrent of goods and services and has raised per capita incomes through all of the regions of the world, some of course at faster rates than others. Even so, the state of economic existence in which humankind finds itself at the threshold of the third millennium is still characterized by scarcity of productive resources, services, and consumable material things relative to human needs and wants for them. The evidence of this scarcity is that virtually all things of present-day human use and consumption have positive prices. (Exceptions are a few so-called "free goods" such as air, and nuisances such as pollution.) Prices serve the essential function of rationing scarce things across the population of potential users.
The reality of life in an imperfect world characterized by scarcity is that we still have “to muck about” in toil to earn subsistence and provide for dependents. And everything in the material world has a price, i.e., a valuation determined by social interaction in markets. Although some have hypothesized ultimate solutions to the economic problem of scarcity (Karl Marx's purported solution was utopian communism), the problem does not appear capable of solution in the foreseeable future.
Economic ideas have remained largely untouched by Postmoderns and other social commentators as they have described the various epochs of intellectual and cultural
thought through the ages. Perhaps this is attributable to the “fact”
that scarcity, the fundamental economic characteristic of the world, has
persisted through the ages and is likely still to be descriptive of the
material world at the “end of history.”
Chapter 4 Endnotes:
[1] See David F. Ruccio and Jack Amariglio, Postmodern Moments in Modern Economics, Princeton University Press, 2003, p. 2.
[2] Thomas R. Malthus, An Essay on the Principle of Population,
1798.
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5. UNDERSTANDING THE WAY THE ECONOMIC WORLD WORKS
Postmodern thinkers reject the notion that an objective and universal reality can be discerned. For them, all experience is subjective, so what is “real” is specific to each individual and is filtered by the individual’s experience, perceptions, values, and feelings. Hence, each person’s subjective “reality” is as authentic as that of any other person’s and there is no common or universal reality. Postmodern thinkers who hold this extreme view may overlook the possibility of coincidence of subjective experience among people that is substantial enough to be taken as descriptive of a collective reality.
From Adam Smith’s publication of The Wealth of Nations in 1776 forward
to the present, economic analysis has been predicated upon the presumption
(often not even made explicit) that the majority of humans in a society
behave similarly, share values and objectives, and respond in like manner
to incentives, both positive and negative. Economic analysis attempts
to discover principles of common behavior with logical deduction and by
applying statistical analyses to available data.
Apriorism
Early analysts (both natural scientists and economists) wishing to explain a phenomenon took an approach in which they began with behavioral assumptions, chose a small number of deterministic variables that seemed most likely to explain the phenomenon under study, employed inductive logic to structure a model, and deduced conclusions that they took to be true in an a priori sense. They abjured empirical testing of their deduced conclusions simply because they started in the right place and used appropriate logical procedures to structure the model and derive conclusions from it. This approach became known as “extreme apriorism”. Most economic thinkers prior to World War II were extreme apriorists. In contrast to the postmodern literary method of “deconstruction” of a text to discern its essential meaning, apriorism might be understood as “constructionism”, i.e., a method of building up an explanation of a phenomenon from its constituent elements.
The economist’s a priori approach, an almost purely logical thought process, generally follows the following procedures:
- First, observation of some phenomenon captures the attention of an economic investigator who then chooses a behavioral premise to serve as foundation (or departure platform) for further analysis. The behavioral premise often consists of an object of pursuit and a pattern of behavior, e.g., satisfaction maximization, income maximization, cost minimization, profit maximization. Sometimes the behavioral premise is simply a pattern of behavior, e.g., diminishing marginal utility or diminishing returns.
- Once a basic behavioral premise has been selected, the economist attempts to simplify from the complexity of the phenomenon under investigation (called the "dependent variable") by selecting a small number of causative factors (called "independent variables") that are likely to be most important to the structure or behavior of the phenomenon. All other things are assumed constant (in Latin, ceteris paribus). This is admittedly a second-best approach compared to the laboratory controls that can be imposed in an experimental approach.
- The initial observations, behavioral premise, selected independent variables, and constancy assumptions serve as a platform for departure into further analysis. With these "first things" (hence the Latin term a priori) established, the economist uses a pure thought process of inductive logic to reason through to a generalization about them. The generalization, in modern parlance called a "model", may be represented as a set of verbal statements, one or more mathematical equations or graphs, or statements couched in the syntax of a computer language.
- The economist then employs deductive logic to derive particular conclusions about the model. Nineteenth century economists were inclined to accept the deduced conclusions as a priori (self-evident) truths about the world itself. In the Post WWII era economists are more likely to regard the deduced conclusions only as tentative hypotheses to be subjected to empirical validation if adequate data are available. While natural scientists may rely upon data generated while conducting laboratory-controlled experiments, economists usually must resort to experiential information captured from naturally occurring real-world processes.
- If the deduced conclusions are supported in a statistical sense by the empirical evidence, the economist may draw the inference that the model conclusions are descriptive of reality (i.e., real-world circumstance), and that the model is considered a valid representation of the real-world phenomenon.
Experimentation
Only in the last few decades have economists begun to use the experimental approach more commonly used by natural scientists in discerning the workings of the world. In an experimental approach, the scientist starts by posing a hypothesis about the relationship between a phenomenon under study and possible causes. The scientist then designs an experiment such that the facilities of laboratory control can isolate the variables in the experiment from any extraneous variables (implicitly, hold them constant). The scientist is provided with data that are generated by conducting the experiment. The experiment usually is conducted numerous times, generating enough data for a statistical inference about the validity of the hypothesis. Once adequate data are in hand, the scientist employs the tools of statistical analysis to test the hypothesis, thereby accepting or rejecting it on grounds of statistical inference. The statistical procedures are usually conducted by computerized statistical software.
For a variety of reasons, until fairly recently economists have shied
from using experimental approaches. The reasons for avoiding experimentation
have included the sheer size and complexity of social systems, the costs
of attempting to implement laboratory controls, and moral implications
of social experimentation. Economists also are concerned about a
Postmodern concept, the so-called Hawthorne Effect, i.e., the likelihood
that subjects of experimentation indulge in "affected behavior" to make
themselves "look good" in the eyes of the experimenter, and thereby contaminate
the experimental results.
Empiricism
Statistical concepts and analytical procedures were well developed by the third decade of the twentieth century. Computers, developed during World War II, became capable during the second half of the twentieth century of handling ever-greater quantities of data for an ever-increasing number of variables. Given these enabling conditions, some analysts (natural scientists and economists) advocated starting with a collection of all possible deterministic variables for a phenomenon under study, accumulating large banks of data for the variables, and then using computers to analyze the data.
In a purely empirical approach, statistical procedures enable the analyst
to delete those variables that do not contribute adequately to explanation
of the phenomenon under study. The analyst then ends up with a model
containing only those deterministic variables judged by statistical criteria
to contribute significantly to explanation of the phenomenon. If
the variables that are retained in the model (after non-contributing variables
are deleted) together yield a statistically significant and sufficient
level of explanation, the model is taken to describe and affirm a principle
(or “law”) that applies to the scientific phenomenon, or in the case of
an economic model, to a majority of the members of the society. This
approach, which makes no behavioral assumptions and employs neither inductive
nor deductive logic, became known as “ultra empiricism.” It is congruent
with the Postmodern literary approach known as “deconstruction,” i.e.,
breaking down a text into elements in order to glean the essential meanings
of the text. But it may violate another Postmodern principle if it
is not accompanied by adequate narrative of the circumstances and events
that provide the empirical data.
Current Practice
Post-WWII economic analysis typically employs a combination of apriorism and empiricism. The economic analyst typically starts with an a priori approach to structure a model using inductive logic and then deduces logical conclusions from it. But instead of regarding the deduced conclusions as a priori truths that do not need empirical validation, the analyst takes the deduced conclusions as tentative hypotheses that need to be validated by using statistical procedures on empirical data. In the natural sciences, data usually are generated by conducting experiments. Economists more often rely upon data that have been captured from naturally occurring experience, but in recent decades some economists have followed the lead of the natural sciences in attempting to design experiments which can yield data for statistical analysis. A Postmodern criticism of economic analysis is that too often economists do the statistical analysis, draw conclusions based on statistical inference, and write their journal articles reporting the statistical results, but give little attention to writing the narrative of circumstances and events that should accompany (actually, should precede) the statistical analysis.[1]
In the statistical analysis of the experimentally generated data that
they use to test their hypotheses, natural scientists may expect the level
of explanation of a material phenomenon and the confidence that can be
placed in it to approach a hundred percent. Rarely in economic analysis
does the level of explanation or the confidence that can be place in the
explanation approach a hundred percent because there are in any society
people whose experiences, perceptions, values, and feelings diverge from
those that are typical of the society.[2] Even so, economists believe that
they can achieve a modicum of objective reality in specifying economic
“truths” (economists call them “models”) that can explain economic behavior
of groups (not individuals) and forecast future economic states, though
not with absolute certainty. In this sense, “economic science” continues
to operate out of the ideas of the Modern Epoch, but with a bow to Postmodern
concepts.
Chapter 5 Endnotes:
[1] See Maxine Udall’s discussion of omitted variable bias in “Post-Modern Applied Economics: It’s the Error Term, Stupid”, http://maxineudall.typepad.com/maxine-udall-girl-economist/2009/09/postmodern-applied-economics-its-the-error-term-stupid.html.
[2] In their book entitled The Cult of Statistical Significance:
How the Standard Error Costs Us Jobs, Justice, and Lives (The University
of Michigan Press, 2008), Stephen T. Ziliak and Deirdre McCloskey fault
economists’ use of arbitrary statistical significance levels to authenticate
economic hypotheses.
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6. POSTMODERN ELEMENTS IN ECONOMIC THOUGHT
Although it has been said that economics is perhaps the discipline least affected by Postmodern thought, economists incorporated some Postmodern views before Postmodernity was in fashion. But Postmodern thinkers have not been shy about criticizing the methods and content of economic thought.
Consumer Behavior
The economist’s theory of consumer behavior was well formed by the middle of the twentieth century. A cardinal rule of the theory of consumer behavior is that interpersonal comparisons of utility (i.e., “satisfactions”) are strictly forbidden. It is alright for one person to make comparisons of his or her own state of satisfaction at different times or in regard to different goods or for different quantities of the same good. The latter comparisons are the basis of the economic principle of diminishing marginal utility, i.e., that for most people successive increments of a consumable yield less and less additional satisfaction. Economists think that people who are typical of the society make “rational choices” to purchase goods by comparing the expected satisfaction from consuming some number of units of the good to the satisfaction given up by paying the price for that quantity of the good. “Rational choice” is of course a presumption of the Modern era that is questioned by Postmodern thinkers.
But there is no objective basis in the economic theory of consumer behavior for comparing the satisfaction of one person with another person’s satisfaction realized by consuming the same quantity of the same good. This rule of consumer behavior renders the experience of satisfaction a unique phenomenon that is specific to the individual, just as latter-day Postmodernists contend. One person’s satisfaction “reality” simply cannot be compared to another’s satisfaction “reality” on any objective basis. An adage from American Indian lore is “Don’t criticize me until you’ve walked a mile in my moccasins.” It is of course heroic to think that one person can ever completely grasp the unique experiences and feelings of another person (i.e., his subjective reality, a Postmodern concept).
Even though economists insist upon the rule prohibiting interpersonal
comparisons of satisfaction, political bodies often violate the prohibition
by enacting redistributive tax and transfer legislation based on the premise
that a tax dollar taken from a higher-income tax payer will cause less
loss of satisfaction than the gain of satisfaction that a lower-income
member of society will enjoy from receipt of a transfer payment of the
same dollar. This concept also underlies progressive tax structures
that impose ever-higher tax rates on successively higher-income tax brackets.
Mechanistic Explanation
An aspect of economic theory that has been criticized by Postmodern thinkers is that the economists’ causative explanations of the workings of capitalist market economy are mechanistic and function without reference to moral values. Economists theorize that the capitalistic market economy can work mechanistically, but only under ideal circumstances. For a mechanistic market to work well, it must be situated within a cultural context with supporting moral values.
Moral philosopher Adam Smith may not have intended to spawn a discipline that developed mechanistic and amoral explanations of economic causation, but neoclassical economists (beginning with the application of calculus to economics around 1870 and continuing to the mid-twentieth century) applied the Newtonian model of a mechanistically ordered universe to the emerging capitalistic economic order. Economic thinkers could describe market mechanisms that do not rely upon moral values because they are reputed to be self-adjusting. Indeed, efforts by external authorities (governments) to constrain or modify the workings of the economic mechanisms and their natural outcomes, it was argued, would hinder the self-adjustment processes. This was both the basis for and the natural extension of Adam Smith’s advocacy of a laissez faire role for government to play in the economy.
The self-adjusting nature of a market mechanism follows from the presumed continual monitoring by market participants of prices compared to expected satisfactions or usefulness of things to be sold and purchased. Shared values imposed by cultural conventions, social relations, religion, and moral proscriptions could be expected to constrain those who would take advantage of others’ ignorance. And if some succeeded in taking advantage of others, the “fool me twice, shame on me” principle should quickly correct any exploitation. This principle of course presumes adequate perception and rational insight, both of which are objects of skepticism by Postmodern thinkers.
The mechanistic functioning of capitalist market economy that emerged
in neoclassical explanations was not particularly problematic as long as
economic activity occurred under nearly ideal circumstances and was contained
within and constrained by cultural norms, social inhibitions, religious
teachings, and moral values. The neoclassical economic theories performed
their explanatory functions less well when circumstances became less than
ideal and as the cultural constraints faded into Postmodern subjectivity.
Morality
Personal liberty in the forms of consumer sovereignty and freedom of enterprise is what makes market economy work, but a gradual Postmodern process of impairment of the cultural background began to subvert the mechanism in the form individualism and economic freedom taken to their logical extremes. It is ironic that Postmodern thinkers believe that all experience is subjective and that values should be self-determined, both of which imply extreme individualism, but they favor a collectivist form of economic organization (socialism), and that being precluded they favor authoritarian interventions (regulation) to correct perceived economic problems.
The problem that began to manifest itself as the Postmodern era unfolded after World War II is that individualistic freedom of thought led a growing number of people to conclude that their own preferences and values were just as authentic and more important to themselves (a manifestation of extreme subjectivity) than any societal mores and constraints. The shared values of the Modern era began to evaporate, and with them a sense of community. There are in every generation some business decision-makers who flout moral conventions (and the law) in quests for super-normal profits, but it seemed that a growing number were shucking their moral inhibitions as the twentieth century wore on, and new generations of young MBA-trained executives entered fields of industry and finance seemingly with minimal social and ethical conditioning.
A palpable moral decline in the economic arena became manifested during the 1990s in the WorldCom and Enron debacles. The period leading up to the financial crisis of 2008-10 witnessed mortgage lenders issuing mortgages to borrowers who could ill afford to make the monthly payments, and financial traders taking exorbitant bonuses even as shareholders in their companies suffered traumatic losses. Greed unconstrained by either law or moral inhibitions has been judged to be the motivating factor in both instances.
Economic theory, entrenched in reason-based mechanistic and amoral explanations
of economic causation, may have missed much of the Postmodern transformation
of society that has focused upon subjective realities and resulted in a
wholesale (but not completely universal) rejection of absolute truths and
community values. The unfolding economic and financial turmoil of
the early twenty-first century seem lie beyond their “objective” economic
theories.
Efficiency
No economic system (feudalism, capitalism, fascism, socialism) has ever been the seat of morality in its respective society. Rather, an economic system is contained within and must be constrained (if at all) by the prevailing culture and religion of its society. The structure and incentives built into a market economy render it an efficiency-pursuing mechanism, but one that does not ensure distributional equity (fairness). In fact, there often are trade-offs between efficiency and equity in the sense that when either is achieved the other suffers. This is not to excuse economic actors (or any other members of society) from immoral behavior, but it is to suggest that it is the function of the societal container of the economy to limit the impairment of equity when efficiency is pursued by economic actors.
Certainly the humans who function as business and financial decision-makers
should be expected by the larger society to behave responsibly and morally
according to its shared conventions, no less so than anyone else in the
society. Shared values are foundational to the communitarian view.
Postmodern thinkers may reject the idea of community-shared values, but
ultimately it is the joint role of family, academy (the educational system),
clergy (the religious system), and polity (the political system) to establish
and maintain community-shared values, to acculturate prospective business
decision-makers (and everyone else in society) to adopt and abide by those
community-shared values, and to establish a legal system that fosters those
values and punishes violations of those values.
Economic Failures
The apparent economic failures of the early twenty-first century are actually manifestations of Postmodern processes of individualization, disintegration, differentiation, pluralization, and fragmentation of society. It is these processes that have impaired the sense of community-shared values of the Modern era that enabled the mechanistic functioning of market economy. It must also be admitted that assertion of this list of Postmodern processes does not explain why these processes have ensued, but we shall leave it to philosophers of the Postmodern Epoch to “deconstruct” this issue.
Perhaps there is some good news as the post-Postmodern era opens.
By the turn of the third millennium, some social commentators have concluded
that the pessimism, nihilism, and criticism of the Postmodern epoch is
falling out of fashion, and that a new era characterized by a search for
eternal truths and faith in them has begun to emerge. As the so-called
post-Postmodern era opens, evidence lies in the emergence of so-called
“mega-churches” with literally thousands of attendees (not necessarily
members) who are seeking assistance in forming their personal values and
some foundation upon which to erect these values. Herein lies the
opportunity for religious institutions to play an instrumental role in re-forming community-wide shared values based upon traditional religious teachings, and to acculturate the next generation of economic decision-makers to abide by them.
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7. REALITY IN ECONOMIC AND POSTMODERN THOUGHT
Postmoderns insist that since all reality is subjective, it is not possible to discern an objective reality that is universal. Economists presume that there are shared and common goals and behavior patterns that can be discovered by deductive reasoning and empirical testing. Indeed, economic subsystems like resource allocation and product distribution can be modeled only to the extent that members of society share common goals and behave rationally.
Postmodern thought focuses its consideration of values on the cultural dimension and insists that all values are subjective in the sense of being specific to each individual. The idea of universally applicable “objective value” is explicitly rejected. Economic theories have been constructed over the past couple of centuries during the Modern era under the presumption that cultural values are determined outside of the economic arena, but that economic activity occurs within a cultural milieu that conditions and constrains it. Economists typically give little thought to such externally imposed constraints other than to analyze how they might impinge on the workings of economic mechanisms and the incentives that economic actors confront. When economists use the term “value,” it is usually in the sense of what something is worth.
Economists focus much of their “value” analysis upon what they call "real." A "real" value is in contrast to one that is expressed in nominal or "money" terms. Money values are the nominal values that are determined in markets or aggregated from market data. An example of a nominal value is the price of Colgate toothpaste in a Wal-Mart store at a particular point in time. Another is the Gross Domestic Product of a nation like the United States for a particular year. The GDP is a nominal value is because it is denominated in the currency units of the realm during the period for which the data were captured or compiled.
In contrast, "real GDP" is Gross Domestic Product from which the effects of inflation (or deflation, should it occur) have been removed by a statistical procedure known as "deflating." Other examples of real variables are real wealth, real income, and real money balances. In all of these cases, the relevant sense is the real purchasing power relative to some earlier time once the depreciating effect of inflation has been taken into account.
Certain economic variables are taken to be inherently real by virtue of the fact that they are quantities rather than values. Examples include populations, employment, unemployment, the amounts of tangible goods produced, and the quantities of those goods that were not sold and thus become additions to inventories. Of course, when the quantities or amounts are valued at their current prices, they become nominal values. For example, inventory is included in the national income accounts at its cost rather than quantities of specific items.
"Realness" for economists also applies to the economic concept of opportunity cost even when inflation is not the issue. It is tempting to a novice to regard the cost of something as the money price that is paid for the thing. But the opportunity cost, a.k.a. "real cost," is measured in terms of the highest-valued alternative foregone. This may involve much more than the simple money price which is paid for the something, or the real cost may not involve any monetary transaction at all. When one makes a purchase and pays a certain amount of money, one also incurs costs of searching for the best deal, transportation costs in getting to the site of the transaction, and the time necessary to get there and return. Time is a scarce resource; the "real" or opportunity cost of reading this essay is the value of the best alternative activity (use of time) that the reader is giving up.
Economists extend the concept of realness to the psychic or emotional costs that one suffers in undertaking an activity. These are the distasteful side effects of the activity. If the activity is expected to earn income, then the psychic and opportunity costs need to be netted out from it in order to assess the "real value" of the income. But this also suggests that there may also be psychic or emotional benefits that result from an activity in addition to the money income that it yields. The real income thus includes the money income plus any psychic benefits less all monetary and psychic costs.
A difficulty of "netting out" the psychic and opportunity costs from the monetary income is having to find a common denominator. Either the money values have to be converted to some psychic basis, or the psychic and opportunity costs must have cash values imputed to them. Since this exercise is inherently subjective, each decision maker ultimately must go with an imprecise sense ("gut feel") for the net result. No surprise to Postmodernists, different humans will assess the non-pecuniary costs and benefits differently in light of their own preferences and experiences.
Perception plays a very important role in the economist's analysis of
real values and costs. Economists generally acknowledge that people base
their life decisions upon their perceptions of reality that may differ
significantly from the actual circumstances. However, the perceptions of
reality are authenticated by their use as decision criteria. For the decision
maker, the perception becomes the decision reality that is unique to the
decision-maker. This is of course a very Postmodern concept. But
if perception diverges significantly from the material circumstance (the
“reality”), the decision may lead to erroneous, even disastrous, consequences.
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8. VALUES IN ECONOMIC AND POSTMODERN THOUGHT
As noted in Table 1 of Chapter 1, Modern era thinkers tend to be ethical absolutists who base their values on revealed doctrines, particularly those contained in the Judeo-Christian Bible or the Quran. They believe that society should follow religious or cultural standards that are considered inherently correct or divinely inspired. In contrast, Postmodernists are ethical relativists who base values on agreed “standards” that may change. They take all values to be subjective in the sense that they are specific to individuals. Postmodernists explicitly reject the ideal of “objective values” in the sense of moral requisites and constraints that are shared by the larger community. They believe that society should grant them rights to set their own standards and values on an individual basis.
Economists operate on the presumption that “objective values” of product worth are determined in market transactions that pit the subjective valuations of buyers against those of sellers.
Economists take as “fact” the essential economic characteristic of the world to be scarcity, which is the opposite of abundance of things material. The evidence of the scarcity of any material thing (and time as well) is a positive market price. Such a price is determined by interaction between demanders and suppliers in a market, and hence may be construed as an objective social valuation of the thing. Economists refer to such scarce things as "economic goods." People find economic incentive to produce and provide such goods to other people as long as the market prices exceed the corresponding production costs.
A few things are sufficiently abundant that the market values them at zero prices; they are free for the taking by anyone who wishes to gather them. There is no income to be earned in the processing of such goods, and hence no incentive to provide them to other people. Economists refer to such things as "free goods." The few textbook examples are common air and ground water. "Pure air" and "drinking water" have to have been treated at some cost, and so are not free goods.
"Nuisance goods" (an obvious contradiction in terms) are abundant things with such negative characteristics that no one would pay positive prices to acquire more of them. But people often do pay positive prices to rid themselves of nuisance goods. Examples include common rubbish, sewage, nuclear waste, and environmental pollutants. Economists often refer to nuisance goods as "bads."
Subjective values are those held uniquely by each individual. Individuals may make comparisons of their own valuations of different things, or they may make intertemporal comparisons of their own valuations of the same item. Consistent with Postmodern thought, economists recognize that it is strictly not legitimate to make interpersonal comparisons of subjective valuations. This suggests that each person should respect the subjective valuations made by other persons since it is not possible to "get into the heads of others" to see what they are experiencing.
Market prices are construed by economists as objective valuations because they are socially determined by interactions between collections of free-agent buyers and sellers engaging in market transactions. This view is consistent with Modern era thought that objective knowledge (facts, observation, and exercise of logic) can explain reality in an absolute sense.
If there are large numbers of market participants on both sides of the market, the market is said to be competitive. The smaller the numbers of participants on either or both sides of the market, the greater the potential for the exercise of monopoly power. If the number of participants devolves to one on the sellers side of the market, a "pure monopoly" is said to exist. In the case of a single participant on the buyer's side of the market, the result is "pure monopsony."
The implications of the presence and exercise of monopoly power on either side of the market are considered below. For the moment let us assume competitive conditions characterized by large numbers of participants on both sides of the market. The buyers are referred to by economists as "demanders," the sellers as "suppliers." They are perceived to bid and offer prices for available and desired quantities of scarce material goods in markets until deals are struck. The prices struck in such deals then are "objective" determinations of valuations in the sense that they are socially determined. As such they are simply amoral facts accepted by the free agents who are parties to the transactions.
The markets in which these amoral facts emerge are amoral social constructs, but which are populated by human beings who may choose to behave morally or immorally in the context of the society’s mores. The objective (in the sense of being socially determined) prices are reflections of the scarcities of the goods relative to wants for them in an imperfect material world. The market price “facts” are sometimes judged to be immoral or obscene on some distributional grounds, e.g., if the market-determined price is beyond a low-income person's purchasing capabilities.
Even though a price is reputed to be objectively negotiated in a market, market participants continually engage in subjective valuations of the good in order to render a rational judgment about whether the market-determined price is greater or lesser than their personal valuations of it. It may be said that everything which I have is for sale, and I am "in the market" for everything. However, I will not sell those of my possessions that I value more than their market prices, but I will purchase from the market things whose market prices are less than my personal valuations of them.
The subjective valuation of a good involves an estimate of the personal satisfaction that the prospective consumer may realize upon acquisition and consumption of the good. Consistent with Postmodern thought, every person's valuation of a good is therefore unique and may be different from valuations of the same good by others. The consequence is that some of us will buy the good (our purchasing powers permitting) at the "going" market price; others will not (either they choose not to, or their purchasing powers do not permit them to do so).
The economic theory of how market values are determined and how people make their purchase decisions has characteristics of both Modern and Postmodern thought. While subjective valuations of goods by individuals are entirely consistent with Postmodern thought, the objectiveness of valuation by the market is consistent with Modern era thought.
Market prices change over time with changing demand and supply conditions. Such price changes often are manifested by particular vendors who "run sales." Prices tend to become higher with intensifying scarcity, as for example with exhaustion of the resources used as inputs in the production processes. Prices may fall as the goods become more abundant, for example, with discovery of new input sources or technological advances that lower production costs. As market prices change, individuals continue to compare their own subjective valuations to the changing market prices.
In the absence of monopolistic manipulation of prices, there are no particular moral implications to the simple facts of market price variations. Prices rise and fall in response to changing demand and supply conditions; it simply happens. While it is certainly true that rising prices may render purchases more difficult or impossible to people with lower incomes, such price variations neither imply nor convey any malevolent intents to preclude lower-income people from the enjoyments of the goods.
It is indeed possible that monopoly power may have been involved in the determination of the market price of a good, but it may be very difficult to discern whether or not such is the case (the exercise of monopoly power is an easy charge to levy, but one which is difficult to substantiate). The monopoly control of material inputs or the product market itself may result in higher than "normal" market prices. The consequence is that those exercising monopoly power may be able to capture "super-normal" profits. Price increases that are attributable to the exercise of monopoly power invite judgments of immorality on the setting or raising of prices, and the prices so set or raised may be thought of as immoral, especially if they serve to preclude from the market people of lower incomes.
The difficulty of discerning whether or not monopoly power has been instrumental in the setting or raising of a price may lead to the presumption that some monopoly power may have been involved in the determination of all prices. One who is inclined to this presumption may infer that any particular price or any price increase may be an "immorality," and the business decision maker who perpetrates it is "immoral." Such a presumption typically is held by those who are naturally suspicious of the market process and the motives of business decision-makers. More intense competition is the economist's preferred remedy to the possession and exercise of monopoly power in a market. To the extent that a market is more competitive than monopolistic, an imputation of immorality to a particular price or price change is unfounded and unfair to the businesses engaged in supplying the market. In competitive markets, price increases simply follow from changes of market conditions.
It may be admitted that market-determined values might diverge from
divine values, but another view is that these values are simply
non-comparable. Economists long have recognized that multiple, divergent
valuations serve different purposes. For example, economists commonly distinguish
between "nominal" values which are negotiated in markets, and "real" values
which are nominal values adjusted to eliminate the effect of inflation.
Such valuations serve different purposes and may not even be compatible
or consistent with one another. Such divergent valuations become significant
when the "wrong ones" are used as criteria to allocate society's scarce
resources.
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PART 3. CONCLUSIONS
These deliberations about economic and Postmodern thought allow some conclusions to be drawn. The conclusions that follow are my own.
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9. CONCLUSIONS
Conclusions about economic and Postmodern thought can be only very tentative. The reader is invited to critically examine these conclusions and to compile a list of his or her own conclusions.
1. Postmodern values. The logical conclusion of the Postmodern
worldview is a socially fragmented society in which each individual determines
his or her own values and behaves as an ethical relativist. Postmodern
values and standards will continue to be in flux in response to culture
changes. The Postmodern extreme subjectivity of value determination is consistent with the economist's assumption of self-interest on the part of an economic actor.
2. Postmodern fragmentation. Continuance of the Postmodern processes can be expected to result in further fragmentation and social disintegration with attendant victimhood mentality, civil strife, resentment of wealth, self-serving criminal activity, and calls for more government regulation and control. Calls for ever more government regulation and control are not consistent with the free market ideology underlying market capitalism except to address problems of the needed provision of public goods and to correct the market-distorting effects of externalities.
3. Challenge to market economy. The greatest challenge to market economy in the twenty-first century is likely to be an ever-expanding role for government to play in the economy as expected by Postmodern and thinkers. An ever-expanding role for government to play in the economy is not consistent with the free market ideology underlying market capitalism.
4.Fascism or socialism. Taken to its logical extreme, the end-point of an ever-expanding role for government in society and the economy could be either fascism (privately-owned means of production with state control over it) or authoritarian socialism (state ownership of the means of production and centralized decision making). Postmodern thought favors a transition from capitalism to socialism but is suspicious and skeptical of increasing state ownership and control.
5. Transition to socialism. Capitalism can be expected to continue to “morph” toward authoritarian socialism by democratic legislation rather than by violent revolution. This approach is consistent with Postmodern thought.
6. Post-Postmodern Transition. A post-Postmodern cultural reversion toward an ideology that emphasizes personal responsibility could curb the Postmodern progression. A Post-Postmodern transition would be congruent with the individualistic ideology of market capitalism. However, much of the Postmodern agenda of the early twenty-first century has been institutionalized by law and is likely to persist into the twenty-first century.
7. Economic systems. Some systematic means for dealing with scarcity must govern material human relationships, else violent and chaotic conditions will result. Possibilities include communalism, tribalism, feudalism, capitalism, socialism, fascism, and communism. The first four in the list are emergent, culminating in capitalism, the motivating and decision-making vehicles of which are markets. In the end, market economy is what we get if we don't make deliberate social determination to select some alternative to it. Though none are without problems, market economy may be the "least worst" of the lot. Many Postmoderns have come to a grudging recognition that some form of market capitalism will still be in operation at "the end of history."
8. Self-interest. The economist's concept of self-interest is congruent with the Postmodern concept of extreme subjectivity. Although self-interest governs all human activity, it may be tempered by social conscience. An important role of family, clergy, and academy is to infuse society with social conscience.
9. Economic theory. Economic theory contains more features that are congruent with Postmodern thinking than appear at first glance. Both economic and Postmodern thought assume self-interest. Economists take individuals to be rationally self-interested. Postmodernists take self-interest to the extreme of unconditional subjectivity as the basis for personal values. Economists deny the legitimacy of interpersonal comparisons of satisfactions. Postmodern subjectivity is tunnel-visioned upon the self to the virtual exclusion of the values and interests of others.
10. Economic method. Empirical economic analysis, by starting with a large number of explanatory variables and deleting those that do not contribute satisfactorily to the explanation of a phenomenon, might be recognized by Postmoderns as a deconstructive analytical procedure.
11. Role of government. Most Western economists accept and teach the virtues of market economy while acknowledging its faults. Postmoderns regard the faults as serious enough to replace market economy with socialism in the interest of social justice. But with the failure of socialist experiments, Postmoderns begrudgingly accept capitalism but favor governmental intervention to correct the flaws of market economy.
12. Morals. Postmodern thinkers criticize economic theory of market economy for being amoral or even immoral, but they advocate the subjective determination of morals that culminates in situational ethics. It is the role and responsibility of family, academy, clergy, and polity to establish
an environment of community-shared cultural values (morality) that condition
and constrain economic decision-making. The role of economy is to
achieve efficiency in the allocation of scarce resource to produce goods
and services wanted by society, but subject to the cultural constraints
imposed by society.
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Glossary of Terms Used in this Book
This glossary contains economic terms that are used in the text plus
some additional terms that are used in other glossary entries. The
included meanings, elaborations, and examples pertain specifically to the
contexts of discussions in this text. Undoubtedly, many of the terms
have other meanings than those included here. No effort has been
made to include religious and theological terms in this glossary on the
assumption that the reader already has some familiarity with them or can
glean their meanings from other sources.
academy, the educational establishment encompassing kindergarten through graduate educational institutions.
abundance, the unusual economic condition of the material world such that more of an item is available for human consumption than humans need or want; the opposite of scarcity; the evidence of abundance is a zero or negative market price.
authoritarian capitalism, a.k.a. “fascism”, a form of economic organization that involves investment in capital for profit by private owners who respond to the dictates of an state planning agency that determines product mix, product characteristics and qualities, and production quotas.
behavioral premise, a prior assumption about how a dependent variable responds to one or more independent variables.
bourgeoisie, the wealthy capitalist class comprised of successful entrepreneurs who have wrested control over production processes that was once exercised by individual craftsmen.
bureaucratic morass, the increase in the complexity of decision-making through innumerable layers of bureaucracy in private business firms, not-for-profit institutions (including churches), and government offices.
capital goods, "man-made" means of production that can be used to produce consumer goods or other capital goods; capital goods are durable and typically have multi-year lives over which a stream of productive services are yielded, but which depreciate (deteriorate) due to use and weathering during their useful lives; capital includes plant (the buildings within which production takes place) and equipment (the machines and tools used to convert raw materials into finished consumables).
capitalism, a form of economic organization that involves investment in capital for profit.
clergy, the religious establishment of a region or country.
communism, the utopian culmination of the transition among forms of economic organization envisioned by Karl Marx in which the economic problem of scarcity relative to want insatiability has been solved by production rationalization and social indoctrination.
constructionism, a Modern epoch analytical approach that entails building up an explanation of a phenomenon from its elements.
consumer sovereignty, the personal liberty of the individual to choose how to spend (or not spend) his or her disposable income.
deconstructionism, the Postmodern literary approach that breaks down a text into elements in order to glean the essential meanings of the text.
dependent variable, the object of scientific experimentation or social science modeling.
dictatorship of the proletariat, the authoritarian socialist management mechanism that Marx thought would succeed capitalism once the proletariat rose up in violent revolution to overthrow the bourgeoisie.
diminishing returns, the economic production phenomenon of output increasing at a decreasing rate as ever more inputs are employed in a fixed production process; Thomas Malthus theorized that as population continued to increase relative to the fixed production capacity of the earth, diminishing returns to labor would be exhibited by falling per capita incomes.
ethics, choices in regard to moral precepts; a choice may be ethical or unethical depending upon whether behavioral rules are obeyed, or whether the choice yields good or right results for those who are parties to the decision, and perhaps also for "innocent third parties".
ethical absolutism, the belief in the existence of universal standards or “categorical imperatives” of ethical behavior that are absolute and unconditional, irrespective of the consequences.
ethical egoism, the belief that every person ought always to act so as to promote the greatest possible balance of good over evil for himself; therefore, an act contrary to one's self -interest is an unethical act.
ethical relativism, the position that there is no one universal standard or set of standards by which to judge the morality of an action; an ethical relativist may hold the same act to be morally right for one society, but morally wrong for another; a similar distinction may be applied to two individuals within the same society; a problem of ethical relativism is that each person's ethics are specific to the person; no comparative moral judgments are possible.
externalities, a.k.a. “spillovers”, a so-called “market failure” consisting of positive and negative side-effects of consumption or production activity that impinge upon innocent by-standers to market transactions and thus are not recognized by markets; negative externalities resulting from the production or consumption of a good result in the market over-allocating resources to production of the good; positive externalities resulting from the production or consumption of a good result in the market under-allocating resources to production of the good; examples of positive externalities include the benefits of public health care and public education; examples of negative externalities include various kinds of environmental pollution.
fascism, a.k.a. “authoritarian capitalism”, a form of economic organization that involves investment in capital for profit by private owners who respond to the dictates of an state planning agency that determines product mix, product characteristics and qualities, and production quotas.
free good, any material good that is available in sufficient abundance relative to human need or want for it such that its market price is zero.
free market economy, a market economy with no significant role played by government in the processes of determining product mix, methods of production, resource allocation, or output distribution; a term used mostly by non-economists and particularly by critics of market capitalism who wish to point out the faults and failures of market capitalism; technically, there is no such thing as a free market economy since virtually all economies throughout history have been mixed economies.
ideology, (1) a value orientation that advocates or legitimizes a relationship of political power and/or economic interest between social groups; a concrete program or plan for political action; examples: communism, socialism, capitalism; (2) a collection of ideas that makes explicit the nature of a good community; the ideas by which a community translates its values into reality; examples: individualism, communitarianism.
income distribution, the range of income received by a population quintiles or deciles arranged from lowest to highest.
independent variable, one of several possible hypothesized influences upon a dependent variable.
inequality of the distribution of income, a factual description of the proportions of the income of a society received by successive deciles or quintiles from lowest to highest; to be distinguished from distributional inequity which is a matter of perception that the degree of factual inequality is socially unacceptable; the merit-based distributional mechanism of capitalism virtually ensures that income is unequally distributed.
inequity of the distribution of income, the perception that the degree of factual inequality in the distribution of income is socially unacceptable; the merit-based distributional mechanism of capitalism virtually ensures that income is unequally distributed, but it is an object of debate as to whether the existing distribution is inequitable.
interpersonal comparisons of satisfactions, comparisons of satisfactions between persons that are strictly prohibited in economic analysis; intertemporal comparisons of satisfactions from the same activity experienced by the same person at different points in time are permitted in economic analysis.
laissez faire, the economic philosophy introduced by Adam Smith in his 1776 book, An Inquiry into the Nature and Cause of the Wealth of Nations that favors a minimal role for government to play in the market economy.
market capitalism, a form of economic organization that involves investment in capital for profit and employs market processes as the principal decision-making and motivating vehicle; market capitalism entails private ownership of the means of production and participatory decision-making through market mechanisms.
market mechanism, the decision-making and motivating vehicle of market capitalism; a market mechanism involves the interaction of demanders and suppliers to determine market price of a good when its quantity demanded is matched to its quantity supplied.
market price, the valuation of a good transacted in a market as determined by interaction of demanders and suppliers.
maroeconomic instability, expansion and contraction of output of a regional or national economy accompanied by falling and rising unemployment levels, greater or lesser rates of inflation, and variations of interest rates, more so for short-term rates than for long-term rates; macroeconomic instability creates uncertainty that constrains enterprise freedom.
mixed economy, an economy entailing a combination of market mechanisms and authoritarian direction to determine product mix, methods of production, resource allocation, and output distribution.
mixed socialism, an economy that is predominantly an planned and directed by centralized authority to determine product mix, but which employs market mechanisms to determine methods of production, resource allocation, and output distribution.
Modernity, the cultural and intellectual milieu of the period roughly coincident with the Industrial Revolution up to the middle of the twentieth century, and characterized by individualism, belief in the possibility of gathering absolute facts and reliance upon reason to discern absolute truths (religious and scientific), ethics based upon religious teachings and cultural conventions, and monotheism; see Table 1 in Chapter 1 for a list of characteristics of Modernity pertaining to economics.
model methodology, a.k.a., deductive method, apriori method, the process employed by social scientists, particularly economists, when conducting experiments is not feasible, to discern principles about the workings of a real world phenomenon; model method starts with a presumed behavioral premise, makes assumptions of constancy of extraneous matters, employs inductive reasoning to structure an abstract model of the phenomenon under study, and uses deductive logic to derive conclusions about the phenomenon; if sufficient data can be captured by field observation or are available in published historical sources, the derived conclusions may be subjected to empirical verification or rejection.
monopoly power, the ability of a producer or seller to exercise pricing or other discretion by virtue of being the only producer or seller in the market for a good.
moral precepts, personal or societal views of what is good or right for human beings; ethics involves choices in regard to moral precepts.
night-watchman functions, the routine functions that government must undertake on behalf of a market economy, including enacting a system of law, providing for the protection of property, ensuring domestic serenity with well-organized, trained, and restrained police forces, providing for national security by maintaining an efficient military establishment for defensive purposes, maintaining and enforcing a system of weights and measures, and providing a reliable and elastic money supply
nominal value, the monetary value of an economic good as determined
in markets by the forces of demand and supply; a value that has not been
adjusted to remove the effects of inflation or deflation.
nuisance good, any material goods that is present in such abundance exceeding the total quantity of it needed or wanted such that one would not pay a positive price to acquire more of it; some humans might pay others to rid themselves of some quantities of a nuisance good; implicitly, the price of a nuisance good is negative; a.k.a. “bads”; examples include garbage, sewage, pollutants in the air or water.
opportunity cost, what must be given up in order to acquire something; the usual presumption is that the true opportunity cost of something acquired is the highest-valued item or activity given up; a.k.a. “real cost”.
political economy, the complex of political system and economic system in place in a region; typically, a mixed market economy is coupled with a democratic polity, or a socialist form of economic organization is paired with a centralized and authoritarian polity; historically, “political economy” referred to the undivided study of economics and politics before the two disciplines drifted apart around the turn of the twentieth century.
polity, the political system in place in a country.
Postmodernity, a post-World War II cultural and intellectual transformation of society described by certain philosophers and social commentators and characterized by subjectivity, social fragmentation, ethical relativism, literary and theoretical deconstruction, rejection of absolute truth, and religious pluralism; see Table 1 in Chapter 1 for a list of characteristics of Postmodernity pertaining to economics.
post-Postmodernity, hypothesized by some social commentators to be the successor to the Postmodern cultural epoch and characterized by social revulsion at the extremes of the Postmodern epoch, reversion to pre-Modern reliance upon religious traditions of belief in absolute truth and associated ethical values, but conditioned by the Postmodern insistence upon religious pluralism; religious fundamentalism or reawakening is cited by some social commentators to evidence a post-Postmodern cultural transition; the characteristics of post-Postmodernity are continuing to evolve.
proletariat, the working class comprised of people who have lost whatever control they (or their forebears) may once have had as craftsmen over their own resources and ability to produce consumable articles.
property, material goods, land, and structures on land held in ownership; property is “private” if ownership is held by persons or groups of persons; property is “public” if ownership is held collectively or by the state.
psychic cost or benefit, the non-pecuniary negative or positive feeling, respectively, experienced by a human in regard to some economic activity in which the human is engaged; efforts often are made by economists to estimate monetary equivalents of psychic costs or benefits for inclusion in economic models.
public goods, goods that are “large and lumpy” in the sense that they are of large-enough scale and cost that individual members of society are unlikely to be able to afford to purchase them alone; public goods are an example of a so-called “market failure”; public goods are not subject to the so-called “exclusion” principle, i.e., individuals can not acquire the good and exclude others from its use; public goods are also not subject to the “more for me, less for you” principle, i.e., uses by individuals leave no less of the public good for others to use; the provision of public goods is not in response to market price and profit signals, and thus requires a collective action by the society to finance and produce the public good or to commission its production by private sector producers; examples of public goods include streets and highways, water and sewer systems, ship ports and airports.
real, a descriptive adjective that in economics means that adjustments have been made to nominal income to eliminate the effects of inflation (or deflation) so that the real component of nominal income change can be examined.
real value (wealth, income, money balances), a “deflated” value of a monetary amount after removal of the effects of inflation or deflation; the “true” or opportunity cost of acquiring something by giving up something else.
rule of law, the legislation of rules that govern social, political, and economic relationships among citizens, and which stand irrespective of the identity of the current political administration; to be distinguished from rule by authority which is specific to the current political administration and may change at the whim of the administration or when a new administration succeeds the previous administration, e.g., by coup or revolution.
scarcity, the normal economic condition of the material world such that humans need and want more of an item than is available; the opposite of abundance; the evidence of scarcity is a positive market price.
scientific experimental methodology, the process of conducting experiments in isolated environments in order to generate data that may be used to test and verify or reject hypotheses about causation.
self-interest, the orientation of individual humans to protect themselves and enhance their own welfare by acquiring consumable goods and durable assets.
social goods, goods that entail positive externalities not recognized by markets; an example of a so-called “market failure” because markets tend to under-allocate resources to the production of social goods; governments often attempt to correct for the under-allocation of resources to social goods by subsidizing the production or consumption of them.
socialism, a form of economic organization in which the means of production are owned by the state and authority to determine product mix, means of production, allocation of resources, and distribution of product are vested in a state planning authority.
spillovers, a.k.a. “externalities”, a so-called “market failure” consisting of positive and negative side-effects of consumption or production activity that impinge upon innocent by-standers to market transactions and thus are not recognized by markets; negative spillovers resulting from the production or consumption of a good result in the market over-allocating resources to production of the good; positive spillovers resulting from the production or consumption of a good result in the market under-allocating resources to production of the good; examples of positive spillovers include the benefits of public health care and public education; examples of negative spillovers include various kinds of environmental pollution.
victimhood mentality, the widespread social view that everyone
is a victim, no one is responsible, and society is to blame for anything
bad that happens.
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