Steve KelseyEconomics is an evolving discipline. During my lifetime economics has transitioned from post-war Keynesianism, through the emergence of Neoliberalism in the 80’s and now stands at a new evolutionary juncture with competing theories and and beliefs. But there is one common thread that links these theories together and that is their focus on money rather than wealth.
Irrespective of theoretical foundations, all economic models concern themselves with fiscal and monetary policy. Fiscal policy focuses on the governments ability to create and distribute money, Monetarist policy focuses on the private creation and distribution of money. But money is a concept with no physical reality. Wealth, by contrast, is entirely about physical reality. Wealth surrounds us in the cities we live in, the products we use, the services we enjoy. But modern economics has little to say about the creation and distribution of wealth. Modern economics makes assumptions that wealth is an end goal, a product of the economic system, but views wealth through the abstract medium of money.
Which is a bit of a problem, because wealth for all must be the objective of any well managed society. Wealth for all means an end to many debilitating social problems and political tensions. More importantly, wealth empowers every citizen, freeing up their creative and intellectual resources for the benefit of all. Wealth for all maximizes the future potential for human civilisation and therefore it is not a matter of preference, but our long term survival.
And yet modern economics appears ambivalent towards wealth and its distribution, focusing rather on the means of money creation and distribution. Wealth creation may well be a desired consequence of money management, but even if this is in some measure true modern economics is also distorted by competing ideologies. As Tomas Picketty noted in Capitalism and Ideology, his thorough analysis of the historic impact of capital on ideology,
“ Every epoch therefore develops a range of contradictory discourses and ideologies for the purpose of legitimising the inequality that already exists or that people believe should exist”
Thomas Piketty – Capitalism and Ideology
Modern economics is riven by contradictory ideological influences. If this were merely an academic battle it would not matter, but since WW2 economics has held a dominant influence over policy. The utility of economics was, quite literally, battle tested during the second world war and gained an influence over policy it has never lost. It is therefore essential that economics is right.
Why is a physics based economic needed?
Objectivity
Connection with physical consequences of decisions eg environment
Clarity- abstraction can obscure relationships between factors by over simplifying
Direction – policy should be guided by a discipline that is directly connected to the world, not a conceptual analogue
Economists want their discipline to be taken seriously as a science and strive to achieve the objectivity and descriptive power of the hard sciences like physics. I think it is time to take economists at their word and place economics on a firm physics based foundation where the physical reality we all live in provides the building blocks for our economics and, ultimately, policy.