A QUESTION OF VALUES:
Is making money all economics is (or should be) about?
By John Dillon
For most people, economics is seen as the "art" of making money. From this perspective, the growth of speculative finance may seem to be just a new and more efficient phase of the game of making money.
But is making money what economics is really about? How can we say that speculative activities create " wealth" when nothing of real value is ever produced? And what of the cost in terms of rising unemployment, growing disparities of income, and ecological destruction?
Questions of economics are ultimately questions of values. What value do we assign to activities and resources? These are, at heart, ethical questions, despite the fact that modern economics is presented as a science, divorced from considerations of morality.
We often forget that the root meaning of economics, or its Greek equivalent, "oikonomia," means "the care and management of the household." In other words, when we speak of economics we should be speaking of the care and management of our home, our community, our world.
From our values perspective, we view economics as the art of sustaining and enhancing life itself. This is even clearer when we see that "economics" and "ecology" are derived from the same root.
Aristotle made a clear distinction between economics (oikonomia) and purely speculative activity which produces nothing of real value. He called the latter set of activities "chrematistics," which can be defined as "the branch of political economy relating to the manipulation of property and wealth so as to maximize short-term monetary exchange value to the owner."
Aristotle's classic example of chrematistics concerned the philosopher Thales of Miletus. When the local citizens chided Thales for his simple lifestyle--saying in effect that his philosophy was useless because he had accumulated no wealth through it--Thales took up the challenge. Through his knowledge of astronomy, he was able to predict a bumper olive harvest. While winter still lay over the land, he leased all the olive presses in the area at a bargain price. When harvest time came, he was able to make huge profits from his monopoly.
Thales employed chrematistics to his advantage. The difference between him and the modern-day chrematists engaged in speculative capitalism is that he saw his activities in their true light--as little more than a cheap trick to extract profit at the expense of others. "After all," as Herman Daly and John Cobb noted in their book For The Common Good, "Thales had planted no olive trees, built no olive presses, discovered no new uses for olive oil, and made no one but himself better off."
The world of speculative capitalism is fundamentally an exercise in chrematistics. Like Thales and his olive presses, financial assets are often generated without creating anything of real value. Attempts to pay back that money often result in the destructive "mining" of ecosystems and the unjust exploitation of human labour.
In an earlier era, those who profited from investments without engaging in useful production were called "rentiers." The term, borrowed from the French language, refers to those who collect "rent" from their ownership of land and other assets without having to work for it. Interest on loans may be thought of as a form of rent paid for the use of the money. Rentier incomes are often higher than the normal return that might be earned on capital invested in production.
Strictly speaking, a speculator is not the same thing as a rentier. A speculator makes money by betting on the direction of price movements. Thus a speculator can make money even when prices are falling by taking a "short" position--i.e., selling commodities or financial instruments for future delivery.
Classic rentier behaviour is somewhat different from the actions of today's financial élite. A classic rentier would hold onto the title of his or her bonds until they reached maturity. Today's speculators may only hold a market position for a few minutes, hours or days before selling again on highly volatile, computerized markets.
They also profit from their investments by using their financial and political power to maintain high real interest rates and unregulated financial markets. The rentiers' political power stems from their ability to withhold finance from governments that they deem to be pursuing "unwise" policies.
Bond traders can bid up interest rates through the sale of government bonds. The losers are the unemployed, genuine entrepreneurs who would invest in production, and middle-income taxpayers who pay for the cost of servicing government debts at higher-than-necessary interest rates.
The power of the financial markets has put into question the sovereignty of the nation state. The money traders have become more powerful than national governments in determining monetary and exchange rate policies.
Business Week has described the managers of "hot money" as "a sort of shadow world government--one that is irretrievably eroding the concept of the sovereign powers of a nation state." Says one New York banker: "Countries don't control their own destiny. If they don't discipline themselves [i.e., adopt policies that please the money managers and investors], the world market will do it for them."
If one concedes that financial markets largely rule the world, then all that is left for governments and central banks is to try to please these markets by pursuing the policies the bond traders demand: low inflation enforced through monetarist policies of high real interest rates and high unemployment, and policies of fiscal austerity.
Ultimately, this represents an abdication of power to wealthy investors and their interests. It means that governments must give up any pretense of truly working for the common good. In essence, this means abandoning the most basic principles of democracy.
This is the position adopted by the federal Liberal government. Prime Minister Chrétien argues that his government can retain sovereignty only as long as it implements policies of fiscal austerity. Subservience to the demands of the global bond traders can also be discerned in the speeches and actions of Bank of Canada governor Gordon Thiessen and Finance Minister Paul Martin.
It is possible, however, to imagine an alternative--one that challenges the growth and power of the speculative economy. It requires the will and the desire to change the course of economics. Ultimately, economics is about choices and values. We can choose to let speculative capitalism continue its advance, or we can choose to confront it.
To some this may seem to be Utopian. Yet the world economy as it functions today is obviously far from sane. We need a vision to guide us to an economics of the future. Economics need not mean accumulating wealth for the few at the cost of the many. It can be about finding ways to manage our common "household" so that the quality of life is sustained and enhanced for all.
Ultimately, then, economics must move from a quest for short-term gain to the art of long-term sustenance.
John Dillon is a researcher with the Ecumenical Coalition for Economic Justice. This article was excerpted from his book, "Turning The Tide: Confronting The Money Traders," which was recently co-published by ECEJ and the CCPA. The 132-page book is $15--free to CCPA Sponsoring Members and $7.50 to Supporting Members--and may be obtained from the CCPA.