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Trading Lessons

End of Economic Man Revisited

InvestorEducation / Resources & Reviews Jul 25, 2012 - 12:11 PM GMT

By: Christopher_Quigley

InvestorEducation

Best Financial Markets Analysis ArticleIn 1939 Peter F. Drucker wrote "The End of Economic Man: The Origins of Totalitarianism". Its publication caused a sensation. When Winston Churchill became prime minister of Great Britain he gave the order to include the book in the kit issued to every graduate of a British Officer's Candidate School. A year previously Churchill had reviewed the publication. It impressed him because he realized that something fundamental had happened in the world with the rise of Fascisms and he wished his officers to understand what they were fighting in Hitler's Germany and Mussolini's Italy.


"In 1939 fascist totalitarianism had assumed the proportions of a world revolution. It had become the only effective political force in Europe, and had reduced democracy to impotent defense internally and externally..... The reasons why all resistance to the fascist menace has proved unavailing is that we do not know what we fight.....The masses joined fascism not because they believe it its promises, which takes the place of a positive creed, BUT BECAUSE THEY COULD NOT BELIEVE IN THEM..... Fascism is the result of the collapse of Europe's spiritual and social order..... At first glance it might appear that the "science" of economics has never been more dominant than just now and that, therefore, the belief in the society of Economic Man could never have been stronger. Nation after nation has entrusted the management of its affairs to the trained economist. He is in demand as business executive and as a business leader, as lecturer and as radio commentator. But this superficial appearance is deceptive. We have installed the economist in a last desperate effort to save the society of Economic Man, just as the eighteenth century installed the philosopher - the rationalist, enlightened, historically trained scholar - on its shaky thrones. And like the Philosopher-Kings in the eighteenth century, the Economic-Prime Minister in the twentieth century has failed..... It is not that the standard of knowledge of the economist has deteriorated. It is the belief in the desirability and in the necessity of the sovereignty and autonomy of the economic sphere that is disappearing; and with the belief, the reality.

The masses have realized that the exercise of free economic activity will not and cannot lead to the establishment of the free and equal society..... He can no longer explain or understand his existence as rationally correlated and co-ordinated to the world in which he lives; nor can he co-ordinate the world and the social reality to his existence. The function of the individual in society has become entirely irrational and senseless. Man is isolated within a tremendous machine, the purpose and meaning of which he does not accept and cannot translate into terms of his experience. SOCIETY CEASES TO BE A COMMUNITY Of INDIVIDUALS BOUND TOGETHER BY A COMMON PURPOSE, and becomes a chaotic hubbub of purposeless isolated nomads..... The threats of sudden permanent unemployment, of being thrown on the industrial scrap heap in one's prime or even before one has started to work. Against these forces the individual finds himself as helpless, isolated and atomized as against the forces of machine war..... ECONOMIC PROGRESS NO LONGER APPEARS TO THEM AS THE SUPREME MEANS TO A SUPREME GOAL..... The Western democracies have to realize that totalitarian fascism cannot be overcome by socialism, by capitalist democracy, or by a combination of both. It can only be overcome by a new noneconomic concept of a free and equal society. "

So wrote Peter Drucker in the simple eight chapters to "The End of Economic Man". What was valid in 1939 is more valid even now in 2012. Despite the experience of a horrendous world war the lessons expounded by the author have been forgotten or ignored. Accordingly, I believe that the European economic order is once again on the cusp of a similar disaster. Extreme thinking you might say, but not so I fear.

What were the essential conceptual elements presented in "The End of Economic Man" which have been ignored?  Let me summarize:

1. Economics is not a "science" as such; rather it is a social concept.  For example, as enunciated by Drucker, the whole scientific system of classical economics collapsed when Henry Ford started out to obtain a monopoly by cheaper prices and larger production in blissful ignorance of the "economic law" according to which monopolies reduce production and raise prices.  The failures in the "science" of economics have not been solved but rather buried. The implication is that the basis upon which the western financial system is structured upon is very fragile.  

2.  When economics fail the key social implication for society is the alienation of the masses.

4. Alienation has political consequences and those who identify and exploit this alienation will attain power. Ostensibly the purpose of this power is to counteract the breakdown of historic social, economic and political structures.

5. The nature of "modern" society is built upon a common solidarity of fairness and the equality before the law.  When this fairness and equality fail throughout a society it is a sign that a new totalitarian phase may be nearing. This totalitarianism replaces freedom with imposition and order with organization.

6. Totalitarianism ends when its supporting society has become so dysfunctional that hope is replaced by despair and its supporting society collapses like a "rotten egg" to a morally and economically superior social force and order.

7. History repeats itself through ignorance and hubris. It is the duty of the intelligentsia in any society to fight this tendency and so bring that society to a new plain of universal peaceful development rather than   stagnate then disintegrate into parochially competitive and warring factions.

Parallels in Europe Today
Those of us currently living in Europe today look on with horror at the disaster that is the Euro project. When we see how the power elites are allowing countries like Greece collapse for "economic" reasons we are appalled. We sense Europe is falling into a new "totalitarian" trap warned of by Drucker. Germany, the only remaining power in Europe, is allowing "inhuman policies" destroy human society. The specter of "lifetime unemployment" faces the youth of Portugal, Cyprus, Greece, Ireland, Spain and Italy. Hundreds of thousands of French are fleeing France to live and work in London. Economically Europe is utterly dysfunctional yet policy is not altered and "insane" austerity the only game in town. The parallel to 1939 is astonishing.  Then "crazy" economic decisions created the "zeitgeist" for the collapse of Europe. In Ireland listening to the news as it unfolds day to day it appears as if European nations are all sleep walking, in tandem, into a quagmire of social collapse. Institutions are being allowed fail. State assets are being sold off to favored associates for a song. Guilty bank executives are allowed stay free with impunity. Banks rates are fixed so allowing derivative players make billions.  Running businesses for mom and pop operators has become a "non-economic" bureaucratic night-mare. Hope is leading to despair. This for Drucker was the "canary in the coal mine". This trend cannot be allowed continue. When will our statesmen "wake up".
 
Here is how Peter Drucker ended his introduction to the 2004 reprint of his classic. I believe its message has never been more pertinent given the above. Let those of us who are aware take its implications on board and act accordingly:

 "The totalitarian response, this book shows, does not solve anything. On the contrary, the problems are only made much worse, and the world made more nightmarish. To be sure, this world of ours - like probably all societies before - is insane. But paranoia is not the cure for an insane world. On the contrary, what is needed to make life bearable in an insane world is sanity. Maturity, to use a much abused word, does not consist of trying to make the universe rational. That attempt, the attempt of the nineteenth century, will probably always end in frustration. Maturity does, however, not consist either of trying to outdo the irrationality of the universe. It requires that we make our own behavior rational - and this alone gives us the chance at a decent and a meaningful society."

Reference:         "The End of Economic Man"

                         Peter F. Drucker

By Christopher M. Quigley

B.Sc., M.M.I.I. Grad., M.A.
http://www.wealthbuilder.ie

Mr. Quigley was born in 1958 in Dublin, Ireland. He holds a Bachelor Degree in Accounting and Management from Trinity College Dublin and is a graduate of the Marketing Institute of Ireland. He commenced investing in the stock market in 1989 in Belmont, California where he lived for 6 years. He has developed the Wealthbuilder investment and trading course over the last two decades as a result of research, study and experience. This system marries fundamental analysis with technical analysis and focuses on momentum, value and pension strategies.

Since 2007 Mr. Quigley has written over 80 articles which have been published on popular web   sites based in California, New York, London and Dublin.

Mr. Quigley is now lives in Dublin, Ireland and Tampa Bay, Florida.

© 2012 Copyright Christopher M. Quigley - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Christopher M. Quigley Archive

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