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The Meaning of Economic Philosophy

Economics / Economic Theory Feb 05, 2018 - 05:42 AM GMT

By: Submissions


Dr. Gero Jenner writes:In ‘The Open Society and its Enemies’, Karl Popper strongly defended the position that major interventions in the economy, especially when ideologically motivated, are usually disastrous and should therefore be avoided. Popper wrote his famous work towards the end of the thirties. On the one hand, he saw the devastating effects of textbook-based economies, where the working masses were tied into an economic strait-jacket by a Politburo, on the other hand, Popper was well aware of the dangers of that kind of capitalism, which tended to place the interests of a few monopolists above those of the general population. Against such aberrations, Popper propagated what he called ’social engineering‘, namely, a model of small steps, where every previous economic intervention is painstakingly scrutinized in view of its effects before any further action is embarked upon. Popper seemed to regard the economy in the same way as a highly complex machinery which a layman cannot tackle without causing the greatest damage.

Poppers attitude was based on healthy skepticism. In the field of politics, society and economics our knowledge is limited. We constantly have to reckon with a multitude of factors whose influence on the totality of the events we can generally estimate only approximately. The future is therefore basically an open (that was the basic message Popper wanted to convey). Anyone who believes that it may be forced into a certain path with the aid of some panacea usually causes more harm than good.

The same call for caution is found in a recent author, the historian Joachim Radkau. He has carved Popper’s suggestions – without mentioning the Austrian philosopher – so to speak into stone by raising them to the status of ten commandments. A historian would in fact expose himself to ridicule with prophecies about the future. Will German democracy be replaced by plutocracy in ten years‘ time, or will it be closer to grassroots than it is today? Is dismantling of the welfare state to be expected in the coming years or will, on the contrary, current full employment enable it to be strengthened? Will Germany be ruled by leftist parties in the coming decades or will their right-wing opponents prevail? Serious science can not give a reliable answer to such questions.

Economic Philosophy

is much more fundamental – as philosophy always is. It is interested in the more basic question where all the little steps lead to? From her point of view, caution can only be considered a virtue if it does not barricade with a firewall the horizon of justified questions. With Popper, she agrees that the future is fundamentally undetermined, so that bold prophecies of the kind mentioned above do not allow for scientifically verifiable answers. She insists, however, that we can well make serious, if-then statements about future developments.

For instance: whether Europe will grow into a single entity or disintegrate into individual states in the years to come depends, first and foremost, on whether political leaders want this to happen, that is, whether or not they decide on measures to promote European unity and are capable of making the population their allies.

Seen in this way, the difference between small and large steps is not very important. When planning can count on the active support by a majority it does not have to stop at small steps. In contrast to Anglo-Saxon countries, where planning is often reduced from quarter to quarter, the companies of the former Deutschland-AG and Japanese ones as well did not pursue a policy of small steps. Quite on the contrary, they resorted to long-term planning – and, as you know, they did so with resounding success. Moreover, in times of its greatest economic expansion, the Japanese democratic government has been most effective in directing the entire economy. The future was by no means open in this case, because it was deliberately directed in a very specific direction by the will of the most influential actors.

China, an authoritarian regime, likewise owes its astonishing rise to such a policy of long-term planning, ie to a policy of very big steps. Planners apply the following maxim: If we provide for certain conditions, then economic reality will most likely meet our expectations in five or ten years. The basic openness of all future is, of course not removed. Social unrest, epidemics, wars and many other factors can wreak havoc even with the best plans, but it would certainly be stupid if the governments of these countries were to relinquish them simply because such a threat may never be entirely removed. In the best case, purposeful planning of the future helps them to substantially reduce its frightening unpredictability.

The limits of growth

The basic question of economic philosophy: Where do all the small and less small steps of socio-economic planning ultimately lead to?, is of existential importance. Companies or states, which at each successive step only orientate themselves on whether the preceding ones achieved the desired success, may certainly be sure to take the path of least resistance, but this easy path may well plunge them into an abyss. Indeed, some Kassandras of our time argue that the industrial era is exposed to precisely this danger. In order to avoid it, economic philosophy is bound to confront the short-term effects of economic actions with their long-term consequences. It is part of the paradox of human action that the respective evaluations fundamentally differ.

Questions about the long-term effects of economic activity are by no means new, but it was nothing less than a breakthrough when in 1972 ‚The Limits to Growth‘ first introduced them with regard to the development of the globe as a whole. This work and its sensational success evoking public applause on the one, and open indignation on the other hand, remains exemplary to this day. ‚The Limits to Growth‘ brought to light at the same time the motivation, the resistance and the dangers inevitably bound up with such a fundamental analysis – that is with economic philosophy.

I. Motivation

is the same that has always been at the root of all human thinking about reality and acting on it: our wishes and hopes. But in this case, these are not the powerful expectations that fuel everyday consumption and the growth of the economy. Most people, especially those from developing countries, desire nothing more than the possession of all those life-enhancing products promised them by a powerful and growing economy.

That was not the theme of Donella and Denis Meadows. Yet they were inspired by no less forceful desires and hopes when writing their work. These hopes were, however, not directed to the present state of humanity but to its future. They wanted to leave a world the their children and grandchildren, which would still be worth living in. In other words, they were motivated by the fear that there would be little reason to hope for such a world when mankind went on squandering its resources at the accustomed pace.

II. The resistances,

evoked by ‘The Limits of Growth’ soon after the book’s publication may be explained by the clash of two powerful expectations that each demand completely different economic actions. Those who wanted to satisfy the hopes for growth in the here and now did not like such warnings, however well founded. Those, on the other hand, who cared for the future of their descendants, accepted them in bitter earnestness; the clinging to mere present enjoyment was to them pure frivolity. In any case, there was one conclusion everybody had to admit. There are definite limits to material, quantitative growth; no tree shoots up to the sky. So the basic idea of ​​the book was beyond doubt, regardless of whether all the data were properly determined and the implications drawn from them incontestable.

Nevertheless, it quickly became clear who in this dispute would emerge victorious. The present with its urgent desire for immediate satisfaction in the here and now? Or the future that the authors wanted to preserve for coming generations? The winners were those, who wanted to suppress, camouflage or deny the truth; they triumphed when ‘The limits to growth’ could be proved to contain a number of too pessimistic, factually unjustifiable predictions. Not a few people even thought that this closed the matter.

III. The dangers,

any economic philosophy has to confront become apparent from such reactions. Their origin lies in the openness of the future, more precisely, in the alternatives overlooked or those nobody can know about because they represent future inventions. Lets take an example. One day nuclear fusion will conceivably provide more energy than man can possibly consume. In this case all worries about poisoning the environment through CO2 emissions would become pointless almost from one day to the next. Such openness of the future, brought about by human intelligence, can never be ruled out. On the other hand, we must also expect the possibility of getting a poisoned chalice. The globe may then be exposed to heat-death, while such an energetic cornucopia would multiply the turnover of raw materials to such a fantastic degree that outside the energy sector we reach the limits of growth even faster.

Open and closed alternatives

The crucial innovation that science and the technologies based upon it have introduced into history during the last three centuries is the greater reliability of human planning. Every single day tens of thousands of planes are on their way to destinations anywhere in the world, almost all of them reach their destination. This even applies to the rockets sent to Mars – a long-term planning, because they only arrive there half a year later. Starting with the mobile phone to the rocket, technological planning dominates our entire life. In their respective field of application, these behave as planned.

However, science and technology – these subsystems of human action – differ from overall political, social and economic reality in that they rely on closed alternatives. An airborne rocket to Mars arrives at its destination or not. There are only two options. A third one of the kind that angels might safely guide the missile to its target, despite a breakdown of the engines or a wrong calculation of the orbit, will not be completely ruled out by believers, but usually even they will admit that miracles cannot be relied upon. So, in fact, only the first two alternatives come into question. In case of a mobile phone, matters are obviously less easy. There are more alternatives than just complete failure on the one hand and flawless functioning on the other. But even then, the possible alternatives are closed – if the amount of errors were infinite, any meaningful planning would indeed be fruitless.

The situation is completely different when it comes to the global effects of technical or social innovations. Here, the conceivable alternatives can rarely be considered as closed. It is for this reason that serious Economic Philosophy must abstain from clear-cut predictions. It must confine itself to statements about the future appearing as if-then sentences.

For example, if non-biodegradable plastic waste will continue to get into the oceans in the same quantities as in the past, then an ecological collapse can be expected, even though we currently do not know whether it will occur in twenty or two hundred years.

Or, if Western states continue to increase the debt mountain each year while being unable to offset it through growth, then either the creditors will one day crush debtors to starvation, or vice versa, the debtors will expropriate their creditors. In human history, we do not find more than these two closed alternatives, which both used to provoke serious social struggles. As a matter of fact, up to the present day no-one has been able to show that, in addition to these two possibilities, there are possible other ones.

Likewise, in view of growth without limit, no one has so far been able to show how we escape its inherent dangers. If we are taking more and more non-renewable resources from the environment and if there can be no doubt that their accessible amount is limited, then we are forced to expect that in the future – in in some cases, such as phosphorus or copper even in the near future – they will fail us.

Nevertheless, predictions that are based on such statements are subject to great uncertainty because the condition expressed by the premise does not necessarily occur. So we are no longer dealing with closed alternatives. The prognosis, for instance, that humankind will continue to extract more and more scarce raw materials in the future represents an unsubstantiated claim. In the worst case, negative growth, ie a shrinking of the economy, could substantially reduce consumption, at best a radically transformed economy could get along with a fraction of resources even while it provides the same standard of living. In such cases, Economic Philosophy does not go beyond more or less probable assumptions – otherwise it would be lost in unproved speculation.

The twofold root of prophecy

Predictions of the future rest on two completely different pillars, namely on the technical state of development at a certain time on the one hand and on human will and intention on the other.

Twice in human history, inventions of technology have caused the most thoroughgoing social reorganization. The first time around ten thousand years ago, when, instead of continuing to hunt and gather food, humans began to produce or nurture it on their own. The second time saw a not less radical change when the industrial revolution ushered in an era of material abundance. Everything seems to indicate that, since the end of the twentieth century, humanity is on the verge of a no less profound and consequential transformation: the Digital Revolution.

Technical inventions can reshape life in fundamental ways without even the boldest prophets being able to foresee their implications before they are actually applied. Looking back over the course of history, the material progress they produced is an indisputable and, in its magnitude, even a breathtaking fact.

This substantially widens the horizon of possible planning. Our epoch characterized by science and technology is distinguished from all preceding ones by the fact that future events – insofar as they are independent of human will and desires, that is to say, insofar as they obey the laws of nature – may be calculated in both directions of time in a manner ever wider and more detailed. This applies to the orbits of planets as well as to the sun’s nuclear fire and it final extinction.

But it applies even to a modern economy increasingly based on technical means. Public transport in the skies, on rails and on highways, the daily supply of energy in all its appearances, as well as the almost infinite flow of information required to mutually adjust economic actions – all this must be done in a modern economy with the precision of a clockwork, otherwise the economic machinery would instantly stutter or stumble. So, normally, the daily, yearly, even the ten-year cycle of an economy is largely predictable. The economic machinery works only so far and only as long as a carefully planned future makes sure it is not simply open.

The foundation of the economy – human will

Here too, the limits of planning are nevertheless evident. Even if modern economies entirely rely on technical means, all of which are based on laws that are independent of human will and desire, the plans themselves are products of human intents and desire. To assert that creative reason, that is, willing, is independent of human will, would be absurd (even if die-hard determinists are committing just this absurdity by basing volition itself on natural laws). Human will being always at the root of human action, prophecy remains built on unsteady ground.

However, the dependence of the economy on human will should not be imagined in such a way as if we were able to conjure up a new economy simply by changing our consciousness and our intents. Current expectations only play a comparatively minor role alongside all past volitions, which have been solidified into existing institutions. That part of the economy we have to – or are allowed to – live with because we inherited it from our ancestors is infinitely larger than the remaining part that our present generation creates or redesigns to its liking. This is quite the same as with language. Most of the words and the entire grammar are taken from the people preceding us, to which the present generation only contributes a very small part. While it is perfectly true that all economic institutions have their origins in human will and desires, most of these have already been crystallized into established institutions, which represent just as stubborn obstacles (or grant as great opportunities) to the will of the living generation as the natural laws of outward nature.

It is, therefore, perfectly right that social-economic transformations usually proceed by small steps – violent interventions in any organically grown organism are likely to lead to chaos. But such restraint does not apply to philosophical thinking, which should always take the biggest possible steps as it need not be intimidated by the natural inertia of existing institutions. The task of Economic Philosophy is always to shed its light on the ultimate consequences of economic and social action and hence to determine the direction of such future developments as satisfy the demands of both nature and man.

Yet faith can move mountains

It may, for example, turn a country like China into a major economic power though it had been a predominantly agrarian society only a few decades earlier. Conversely, the lack of faith in existing institutions that fail to command the support of society, may thoroughly destroy previously intact civilizations like the Roman empire. In both cases, it is the so-called ‚human factor‘, which provides the greatest backing to any forecasting of the future or, on the contrary, creates the greatest uncertainty.

Since Deng Xiao Ping’s transformed the Chinese economy, the far eastern country has been endeavoring to offer its people a better life for the future. Meanwhile, the ambitions of the Asian giant reach much farther. China makes no bones about the fact that it wants to become the leading economic power – a goal that it will achieve very soon. As long as the majority of the population stands firm at the side of government as its material conditions steadily improve from one year to the next, the collective will remain harnessed to this objective. Prophecy is quite reliable in cases, where the collective will is not wavering and uncertain, but on the contrary, a powerful force driving the whole of society in one and the same direction. Human will then turns into a self-fulfilling prophecy. Even temporary economic slumps, which are quite likely to happen because of the high level of indebtedness of the Chinese provinces, will hardly be able to suspend the Chinese ascent.

With a high degree of probability, we may therefore assert that China will become world power No. 1 somewhere within the next two decades. It is by no means technology that caused this miracle, because China had to copy it almost one hundred percent from its competitors (only recently, it stands out through native research and technical performance). It is the ‚human factor‘, the will to power and self-assertion, that plays the crucial role.

Small steps – a measure of uncertainty

On the other hand, a lack of faith, be it in one’s own success or in a common vision, proves to be the most effective means for wrapping the future in uncertainty. Since the great economic crisis of 2008, Western states are suffering from a lack of goals for which to mobilize the majority of their citizens. The hope for an environment that will still be intact in the future is certainly a vital concern for many, but it collides irreconcilably with present-day demands for growing material prosperity. No matter which step companies or politicians take, in the rarest cases they can count on the applause of a majority.

This leads to a fragmentation of expectations and hopes, which forces politics to proceed by way of small and smallest steps – that is, to resort to a policy verging on despondency and even on downright helplessness. Social engineering then becomes a mere strategy of fending off all those constantly arising objections – it is hallmarked by profound insecurity. This is the very opposite of strength expressed in the affirmation of generally accepted goals.

Therein lies an acute danger, as human beings with their expectations always represent that last element in all equations, which can never be completely calculated and often is wholly unpredictable. The civilization of Rome – a culmination in human history until the industrial revolution of the eighteenth century – collapsed after the fifth century without further ado, although all material, organizational and intellectual conditions of its maintenance were still know to the local inhabitants as well as to the invading ‚barbarians‘ at the time of demise. But its citizens no longer associated any hopes with the old ’system‘, in other words, they no longer believed in it, but now expected a better life only from a radically different world. Many people even looked for such a better life was only in the beyond.

Such a shift in expectations was enough to bring a once flourishing civilization for more than half a millennium to its knees. Thousand and three hundred years should pass before an equal height of material development was again reached in the 18th century (Morris, Who rules the world?).

Digital revolution

Economic Philosophy talks about limits, but also about opportunities. The limits are obvious, they have conquered public awareness after the publication of the Club of Rome and the large-scale ‘Global 2000 report’, but it is at least as important to speak about opportunities, because they evoke hopes and positive action. In contrast to many others, I see great opportunities in Digital Revolution as it is presently taking place. Properly managed, it offers nothing less than a recipe against the dangers of increasing resource wastefulness and the environmental poisoning going with it.

This assertion may seem paradoxical at first glance. How can artificial intelligence when controlling industrial production reduce the exploitation of resources? Is it not, on the contrary, reasonable to assume that we have to reckon with an increase in production once machines can operate in a non-stop modus as they must no longer rely on people prone to fatigue and error?

This objection ignores a decisive fact. The people employed in the manufacturing industries are at the origin of the demand for growth. Only when new products appear constantly can they count on a stable income, the pace of production must even increase if their income is to rise. Machines themselves are not gluttonous – in makes no difference to them, whether they only run for a single or for twenty-four hours. It is the people in front of the machines or paying for them who constantly push the economy far beyond the fulfillment of needs. It is they who sustain the greatest evil of the industrial era: throw-away society. In the long run, the social order needs a fundamental reorganization, so that these people earn their livelihood in a different way.

When Economic Philosophy deserves its name

Economic Philosophy sets itself the goal of explaining in a fundamental way the opportunities as well as the dangers of future economic and social development. It not prophesy that the problems of the future will be solved – it is quite possible that humanity will fail before this task. Nor does it oppose a policy of small and cautious steps, provided that they point in the direction of sustainable development.

However, it defines as one of its major tasks to find out the reasons why purposeful planning succeeds under certain conditions, e.g. in the decades of the Deutschland-AG, during the rise of Japan as an industrial nation and today in China, while, at other times and places, for instance in present-day western societies, it becomes extremely difficult. Obviously, everything depends on the ‚human factor‘, because from a technological point of view Western countries are still superior to the rest of the world. In China, a common will directed from above is capable of galvanizing a whole population, at least so long as the country is doing better with every passing year.

In Germany and the countries of the West, where material well-being has reached a ceiling and is turning into wasteful consumption, a willingness to give up the superfluous is certainly to be found. Throw-away consumption need not be increased year after year. But it seems impossible to mobilize a common will towards a goal of sustainable development. This is the real problem Economic Philosophy has to face if it is to deserve its name. How is it that so many do well understand the seriousness of the situation, but only a few are willing to act accordingly?

Old and new Economic Philosophy

I think that this obvious contradiction cannot be understood without considering who in our societies has to bear the brunt of abstinence in order to reduce wastefulness. The majority of ordinary citizens or the privileged few? It is not true that the majority rejects any idea of a sustainable future as it stubbornly clings to throw-away consumption. But it seems quite true that the majority can not be forced to abstinence if, at the same time, a minority enriches itself at its expense. Social imbalances of this elementary kind create resentments that make it very difficult to act together in a purposeful way.

This insight, too, is based on Economic Philosophy – a long-known one for that matter, for it is as old as human inequality, even though its most important representatives did not raise their voice until the advent of the Industrial Revolution. I am, of course, referring to thinkers like Rousseau, Proudhon, Marx up to John Rawls. Two quite different types of Economic Philosophy thus exist side by side.

The newer one only emerged in the second half of the twentieth century. It deals with the relationship between man and nature. The existential threat emanating from technology when inadequately controlled occupies a central position. The older one sheds light on the relationship between people themselves. First of all, it deals with the effects of that kind of inequality, which people reject as unjust and unjustified.

These two kinds of philosophy are fundamental to the understanding of our present situation. It is not technological ignorance but the ‚human factor‘ that renders the solution of the only truly existential problem of our time, sustainable development, so tremendously difficult, even in the technologically most advanced states of the West.

By Dr. Gero Jenner

© 2018 Copyright Dr. Gero Jenner - 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 losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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