“Underlying most arguments against the free market is a lack of belief in freedom itself”, the quote is attributed to Milton Friedman noted academic and economist. It is this lack of belief in freedom, freedom to question and interrogate by the individual, which has led to the unfortunate demonising and vilifying of a system that when well run can offer rewards to those who wish to participate. It was in the Biblical city of Jericho, a centre for salt trade, where free trade flourished during the seventh millennium B. C. providing a place, resources and exchange to take place in what can be simply described as an economy.
This essay will seek to establish the basis upon which the economy is structured by examining the ‘real’ economy and the ‘symbol’ economy, distinguishing between them and drawing examples from the current global political economy. CONTENDING THEORETICAL APPROACHES Given the present sophistication of the current global economic construct, emphasis has been placed on the relationship of the actors within the previously mentioned walls of Jericho. It is therefore important for the economy to be expressed acknowledging the contending views.
The neoclassical economic interpretation is that the economy is a market or a collection of markets composed of impersonal economic forces over which individual actors, including states, corporations and consumers, have little or no control. Former New York Times economic commentator Leonard Silk described it as: “For economists the economy is nothing more than a collection of flexible wages, prices, interest rates, and similar forces that move up and down allocating resources to their profitable use as buyers and sellers rationally pursue their own interests.
Such an economic universe is a self-regulating and self-contained system composed solely of changing prices and quantities to which individual economic actors respond. ” Gilpin (2001) holds a countervailing view to the sterile, abstract definition given by Silk, he posits a political economy interpretation defining the economy as a socio-political system composed of powerful economic actors or institutions such as giant firms, powerful labour unions, and large agribusinesses that are competing with each another to formulate government policies on taxes, tariffs, and other matters in ways that advance their own interests.
It must also be noted the most important of these powerful actors are national governments. Given the contending views offered by Gilpin and Silk it is clear that the economy although known cannot be easily defined or can it? On the one hand the players are seen as rational buyers and sellers pursuing their own self interest, on the other, powerful economic actors, firms and businesses lobbying government to advance their own cause. The definitions need not be contending but serve as a demarcation of two very influential economic forces.
(Kenneth Boulding 1971) offers further clarity and defines the economy as that part of (his) three-part total social system comprising the benevolent, the malevolent and the integrative sub-systems in which is organized, through exchange, deals with exchangeables. The economy is such a total social system in which ‘symbol’/money and ‘real’/factor economies link cogently to determine the stable circular interrelationships between these. THE REAL ECONOMY The ‘real’ economy, thus, is the means with which the state is able to achieve employment resulting in a greater distribution of wealth and overall growth.
This is achieved by the establishment of the firm and it is within the construct of the firm that the combining of the factors of production take place. In economics the creation of the firm can be based on neoclassical institutionalism. This theory assumes that institutions consistently seek to further their economic interest based on this belief institutions are created primarily to solve economic problems and will result in increased economic efficiency; for example, a reduction in transaction costs.
It is this reduction that increases the accumulation of wealth and the reinvestment needed for expansion. (Gilpin 2007) It is the recapitalisation that has resulted in China sustaining growth at average seven percent annually. Essentially what China has achieved is the successful twinning of an economic nationalist approach with the ‘real’ economy and the firm at its centre resulting in the possible affirmation of it being next world super power. THE SYMBOL ECONOMY.
That part of the economy belonging to the malevolent sub-system that causes market exchange in speculation, volatile and unethical activities, known to many as the symbol economy is further castigated as lacking the importance of morals, ethical preferences and menus of the general economic relationships. These fundamentals should be adhered to in order to achieve, what is described, as cogent synthesis of the ‘real’ and ‘symbol’ economy (Sen 1990).
This cogent synthesis was lacking in 2008 when the investment bank Lehman Brothers raised the alarm concerning its ability to continue as a going concern. Speculation and greed was the descriptive used to identify the collapse and began what is seen today as the worst global financial crisis to grip the sector. The symbol economy should seen as serving the real economy, the firm having the means to combine inputs in a manner that is efficient produces the good which is sold at a profit, that profit is used for expansion via the financiers through loans, shares, issuance and bonds.
What the world observed occurring, however, was finance capital serving its myopic and insatiable appetite for greater and greater reward. THE CONTENTION David Harvey was stern in his assessment, after identifying human frailty, lapsed regulation, improper economic theory and culture as being some of the contributing factors to the debacle. He narrows the focus to capital especially finance capital and the internal contradictions of capital accumulation.
He posits that capital never solves its problems it moves it around; on reaching a barrier instead of abiding with its limit according to Marx it uses financial innovation to achieve growth. This innovation in turn empowers the financiers who get greedy, by this time finance is able to earn substantial profits via innovation of products within its sector. These profits attract labour seeking the highest reward. The result the ‘real’ economy suffers by not having the labour and technical skills and the availability of capital which is at this time seeking its highest reward.
THE CURRENT GLOBAL POLITICAL ECONOMY Clearly the “symbol” economy is the world of statistics, money, legal arrangements, stocks, movement of capital etc. The “real” economy include factors of production, land, labour and all the other physical manifestations of human economic activity for example the firm. If an analogy could be drawn the real economy is represented by the players, coaches, officials, trainers, and the personnel necessary to conduct a game. The “symbol” economy is represented by the spectators in the stands who are making bets on the outcome.
This analogy is flawed, of course, because in a game, it is absolutely forbidden for the gamblers to influence the outcome-for the simple reason that manipulating the outcome spoils the game. In the economic world, the gamblers on Wall Street or in the case of Barbados Bay Street regularly involve themselves in the outcome of the ‘real’ economy. Of course, it can be argued that whenever the economic gamblers do involve themselves in the real economy, they destroy just as certainly as would be the case in sport. This probably means there is a need to set higher ethical standards for play.
Possible sustainable economic development is wishful as long as gamblers are accorded more power in industrial and more importantly in developing societies than someone who could design the first mechanised cane harvester. Be very clear about this fact, by their very nature, finance actions by the ‘symbol’ economy can only destroy–as our friends on Wall Street, London, Asia and Russia demonstrated in 2008. This latest stock market collapse cost trillions of dollars in losses, doubled the debt of the US economy and rendered millions unemployed overnight.
There is a need to redesign and rebuild a sustainable economy, not by reactive draconian regulation that overly constrains the market but by systematic reduction in the power of the symbol economy, this can only be achieved if consumers free themselves from depending on only regulation- ask, question and interrogate (Friedman 1989). The belief is the ‘symbol’ economy will still be allowed to bet on the economy, but it will NOT be able to influence the outcome. WORKS CITED: Boulding, K. E. 1971. “Economics as a moral science”, in F.
R. Globe ed. Boulding: Collected Papers, Vol. 2. Boulder, CO: Association of University Press. Friedman, M. 1989. “Quantity Theory of Money”, New Palgrave: Money, op cit. pp. 1-40. Gilpin, Robert. 2001 “Global political economy: understanding the international economic order”, Princeton University Press: New Jersey. Harvey, David. 2006 “Limits to Capital”, Verso: London. Harvey, David. 2010. “The Enigma of Capital”, Oxford University Press: New York. Sen. A. K. 1990. “On Ethics and Economics”, Oxford, Eng: Basil Blackwell.