Monday, January 12, 2009

Modern economy believes that the construction and utilization of abstract forms of assets has a stabilizing effect on the economy, and such abstract entities, like money, shares, futures trading etc., have, over the years, been continuously invented and encouraged. The mechanism works very well, and hides most of the complexities that one would have to otherwise consider. It is much like the application of mathematics to physics or engineering. A simpler allegory would be the driving of a car - the driver knows how to operate the pedals, the steering wheel and the gear shaft, and the complex machinery below the bonnet takes care of the rest. It allows the driver to travel at 90 mph. Such speed, however, does not come without certain making certain compromises. If the car were to break down in the middle of a desert, or were it to crash into a static or dynamic object of considerable rigidity, the results could be cataclysmic. The more complex the machinery gets, the greater the number of points of failure, the lesser the idea the driver has on how to go about fixing the problem, and the more stranded in the middle of the desert he is. The faster he goes, the more devastating the crash is. Since the end of the nineteenth century, the world has witnessed numerous failures and crashes of this incredible economic automotive.

The source of all economies is the exploitation of the bountiful resources that mother Earth provides. There was a time when men were hunters or gatherers. Every man was a self sufficient entity who could complete all the tasks necessary for his survival. The survival closure - which we shall define as the quorum of the group which would ensure the survival of each member of the group - was the individual, or the, at max, the family. Once man formed communities, and each member of the community specialized in a certain trade, an individual could no longer survive by himself. The survival closure now grew to include the entire community. Of course, this made the community very efficient in the exploitation of the natural resources, so that all members of the community had plenty. The flip side to such communities was that it facilitated the spread of diseases, and the fabric of relationship between members of the community grew in complexity and crime and law were born.

Soon communities learned to trade articles - or rather barter them. Until now, man's only dealing was with physical entities. Nothing abstract, had, so far, been invented. Rich men were measured by the numbers of goat and the amount of stocked grain he held. The only arguably abstract notion was the idea of ownership itself. The number of people in the survival closure grew further to include a number of trading communities.

The earliest forms of currency were clams and other natural objects. The introduction of currency resulted in an interesting possibility. An individual or a community could now be rich on the basis of abstract items as opposed to physical items. Although this paved the way for better exploitation of resources, comparable pricing of tradable items, improved lifestyle and more leisure time to devote to activities other than those necessitated by survival, this invention had its own drawbacks. A rich community with no physical assets could easily starve to death; the price associated with food could change. Welcome inflation and speculation.

There was still one hurdle in the way explosive growth. There was no way one could become a millionaire. The act of storing a million clams could prove to be a rather arduous task. The problem was solved with the introduction of money, and subsequent concepts of debts, securities, loans, banks, shares, bonds, etc. Soon there was a big diversion in the way people lived. Tribal chiefs were replaced by emperors, plundering looting and colonization came into vogue, the tribal battles were replaced by organized wars between organized armies of countries. Slavery boomed. A class of people got richer and richer, and another class became poorer and poorer. The list of the unfortunate consequences just keeps growing.

However, without these abstract concepts of economy, man wouldn't have made a lot of the welcome progress he has made - especially scientific progress. Health care improvements have resulted in an increase of the life expectancy and a decline of infant mortality, resulting in a rise of the human population, which cascaded to the over exploitation of the once bountiful Earth, so much so, that today, the entire Resistance of life on this planet is threatened by global warming and a nuclear war.

All said and done, the old, so called, savage way to live by hunting and gathering, or the bartering ways of the red Indian economy wasn't so bad after all.

Of course, man cannot now go back to his ancient bartering ways - entropy can only increase, not decrease - but it would be interesting if bada babu got paid a cow for his services and chota babu a goat - goodbye inflation and economic depression. Lacking the skills, the babus would find it rather difficult to carry home and milk their salaries. Not that we would need the babus once the complex machinery of modern economy was exterminated.

However, since this is not possible, let us learn to live with the modern economy and its abstractions as it is by saying, as a prayer one hundred Hail Andersens and one hundred Hail Lehmanns.


Ashok said...

Less intelligent (in terms of theoretical 'number of senses') creatures have found out living in community has far greater benefits and have survived thousands of years on this planet.
I'm still leaning on the opinion that in an economy where money can grow money, its going to explode under your foot someday. A debt based economy will loose all it has when the day comes to pay back the debt. So who does it get paid back to? And yes, we all should learn to live in this modern economy. Where a productive hour is just a few bits flipped on some electronic storage which may not last more than few years. Talk about leaving behind something for the next generation.

Abhijit said...

the problem is not how to get back to the original state of simplicity, but to sort out a point of stability where things do not get any further complex, and thus more volatile. this may mean taking a few steps back, and moving in a different direction.

lol....i sound like an MBA!