[MSL]

What is Metaeconomics

  I was pretty sure, that there is not only economics, but also -- metaeconomics and I found out I am right. Let's learn more about the metaeconomics:
 The term metaeconomics was invented in the mid-1930’s by Carl Menger, who was a mathematician and the son of an eminent economist. The word was coined in order to indicate the need for a new kind of economics in which all relevant facts were presented as quantities in a rigidly mathematical model, and thus could be treated with all the rigour of a science. His suggestion was rapidly taken up, for the mathematical discipline which Menger proposed not only gave professional prestige to economists but promised better predictive accuracy, the economist’s holy grail.

Without doubt the mathematization of economics has had good effects, but in its over-developed form, it has had two obvious bad effects. The first is that within the new framework human beings have become an abstraction in order to fit in with the equations, and this is recognized in the term Homo economicus, a species which responds mechanically to the pressures of supply and demand, but is never moved to act economically through emotions such as greed or fear or base motives such as fraud. The second effect is one that affects almost all sciences to a greater or lesser degree: in converting observations to measurements, and then into complex equations, mathematical imagination has tended very often to take precedence over observable fact. Certainly, there is a major role in economics for mathematics, as there is in many human activities, from architecture to agronomy, but it should be the servant in economic theory and not the master.

As against Menger, this website argues for a paradigm shift in the substance, rather than the form of economics, a move which will, paradoxically, take economics back to its origin in the field of moral philosophy. I hope to convince the viewer that when the existing paradigm is examined for it appropriateness to humanity’s needs, it will be seen to be so inadequate, dysfunctional and socially destructive that a new economic paradigm is called for. When the current economic upheavals have run their course, and rebuilding is being planned, it must start from a clear vision of the kind of social community we desire, and this website will argue that it cannot be profit-driven. It hardly needs to be said that all this presents a massive challenge for a modest website such as this, and hence compression and simplification have been called for, which I have attempted to achieve in many place by judicious quotes.

Economics Before Science

Economics was not initially regarded as a science, but as a branch of social morality, strange as that may now appear.  It emerged as an identifiable discipline some 2,400 years ago by Aristotle in his Ethics and Politics, although the American economic historian Alexander Del Mar traced thinking about economic principles back to the Vedic literature of India eight centuries earlier. The principles of sustainable economics were well developed in Judaism as Jacob Neusner has shown in The Economics of the Mishnah, and in an age where slavery was a taken-for-granted part of social structure, the Jewish attitude was astonishingly enlightened and mild, with release of Jewish slaves after a seven year maximum a legal requirement. Of economics in the Christian era it is worth singling out in the present context only the fact that lending money at interest was considered a sin so serious that it was punishable by excommunication. Those who practised it were refused Christian burial, which was a major deterrent at that time. It is worth noting that the law against usury did not only condemn lending at excessive interest but lending at any rate of interest, a prohibition that it is also part of Islamic teaching to this day.

The prohibition of lending at interest has had the most profound historical consequences, for Jews in mediaeval Europe were not bound by this law, and hence lending at interest was for some centuries a monopoly of the Jews. Moneylending was, in fact, one of the few professions which they could practice, and because of this Jewish individuals and institutions figure prominently in economic history and modern day practice. 

The birth of economics as a science can be dated exactly to the publication in 1776 of Adam Smith’s book, known by its short title, The Wealth of Nations, and it is noteworthy that he wrote as the professor of moral philosophy at Edinburgh University. Economic theory in general still stands on the foundations laid by Smith and Menger despite the fact that the world has changed out of all recognition in the past two hundred years. The main principles of Smith’s theory are that the economic community is the nation, the aim of economic activity is wealth-creation and the paradigm model is a self-balancing machine controlled by what he called "the invisible hand" of the free market and self-interest.

Keynes’ New Paradigm

After Carl Menger, it was left to John Maynard Keynes to initiate a new paradigm, though I do not think he used the term metaeconomics. Perhaps imitating Einstein, he entitled his ground-breaking work of 1933 The General Theory of Employment, Interest and Money (Keynes never suffered from false modesty!), its major premise being that the old practice of balancing a nation’s budget should be abandoned, and governments should go into debt when stimulation of the economy was called for. Thus he extended Smith’s simple machine model into a servo-system, and the London School of Economics for some years displayed a truly ingenious hydraulic model of the British economy (invented by the New Zealander, William Philips) of the British economy, with monetary flows and all sorts of variables represented by the flow of coloured water through a complex of tubes and valves.  President Richard Nixon famously said, “We are all Keynesians now,” to justify America’s adoption of a debt-driven economy, but what Keynes failed to see was that debt is highly addictive to politicians who need to bribe the electorate. The end state of increasingly bigger fixes of national debt is inflation and the corruption of democratic politics. Plato could have told him that 2,400 years ago.

Schumacher’s Metaeconomics

It was left to Fritz Schumacher to revive interest in metaeconomics, but almost by redefining the term. His best-selling work of 1973, Small is Beautiful: A Study of Economics as Though People Mattered has been reprinted several times and has served as a bible for those many people who have seen with dismay a world being dehumanized by big business. In it Schumacher argued that, “the study of economics is too narrow and too fragmented to lead to valid insight, unless accompanied by meta-economics.” (The hyphen is now usually dropped from the word.) Although his book is ground-breaking, it is still classical in that he accepted the profit-making group as a natural and permanent element of economic activity. As against that assumption, this website takes as an overarching principle that the world now needs as a matter of urgency not a profit-making but a sustainable economics. Losing money will, of course, ultimately end in the death of economic structures on any scale, but the ideal to be sought is not making the maximum amount of money, but finding a dynamic balance between several elements, of which profit is only one. We need to ask why a profit element should be incorporated into the provision of water or health services or national transport? In two generations, and particularly after Margaret Thatcher, we have come to assume that only profit-making is an adequate economic incentive. We need now to stand back and look at the whole picture.

Schumacher has an implicitly spiritual agenda – one of his chapters is entitled “Buddhist Economics” - and he calls for recognition by economists that “there is a qualitative difference between mindless atoms and men made in the image of God.” He certainly saw his theory as a step towards a humanizing economic system, but while he criticized the traditional economic system as “propelled by a frenzy of greed,” he seems to miss the vital point that optimizing profit is a euphemism for greed, and therefore misses the logical corollary, that the only alternative to an economics of greed is a non-profit-making economics. This is precisely the premise on which this website builds.

To be fair to Schumacher, he did foresee a hazy, distant future where profit-making would not be the engine that drove economic activity, but he had nothing to say about either the nature or the timing of this happy state. Perhaps surprisingly, he supports his optimism by quoting Keynes, who also hoped rather wistfully for a future when humankind would emerge “out of the tunnel of economic necessity into daylight,” but accepted that “until then “avarice, usury and precaution must be our gods.” The present argument is quite clear: we can wait no longer to overthrow those gods, a start must be made before they destroy us, their worshippers.

It cannot be too strongly emphasized that at the heart of metaeconomics, as of all economic theory and practice, is money. The whole of economics flows from the creating, lending, exchanging and storing of money. The economic collapse into which the world is now entering can be traced directly to a definition of money which is taken for granted almost universally today, but which was questioned by earlier economists and needs to be questioned again. Although it may not at first appear obvious, the kind of money that is used by any community plays a very large part in defining that community. This is why the material on the website has been structured as a spiral with Money and Human Evolution as its starting point. Although it may seem completely over-the-top to say so, if we are not able to reach a new understanding of money, human evolution will not make further progress. Now that huge amounts of money across the world are evaporating, as massive deleveraging comes into operation and banks and businesses collapse, one may hope that the ordinary thoughtful person will be prepared to engage in debate about the kind of money the world needs in order to avoid systemic shocks on this scale that can wipe out a lifetime’s savings. In such a debate a new perspective appears on what it means to be fully human.

George Soros’s New Paradigm

Spurred by what he calls “the worst crisis since the Great Depression,” George Soros has proposed a “new paradigm for financial markets,” but this is really a contradiction in terms, since a genuine paradigm would encompass all aspects of economics, not just one type of market. What is most fascinating about his book is that having made his fortune as a poacher, he has now turned gamekeeper, in order to establish a framework of rules within which financial speculation on a global scale can be carried on. That said, there is some justification for his use of the word “paradigm”, since all economic markets are now dominated by the financial markets. This is a quite recent phenomenon, coming into prominence when so-called financial engineering started to take precedence over traditional engineering and manufacture, and the thrust of economics turned to making money with money. It hardly needed a crystal ball to foresee that once economic activity had been redefined in this way, traditional principles of trade, based on the extractive, manufacturing and distribution industries were going to be distorted and neglected, for who would chose to make money the hard way when it could be done with the touch of computer key. The real metaeconomic revolution must surely lie not in establishing a global rule book for the manipulation of money but returning to a more simple understanding of economics based on the exchange of goods and services of real value to the community. When financial wheeling and dealing has assumed so great a role in economics, a new look at the foundations is imperative.

Source: http://www.metaeconomics.co.uk/metaeconomics.html