Moral philosopher Adam Smith’s inquiry into the nature and causes of the wealth of nations started with observation of a pin making workshop, noting the tremendous cost savings that could be made by people specialising in different production tasks, collaborating in the overall manufacturing process.
The practical processes of production, as in pin making, were repeatedly adopted, with remarkable success by those involved in the first industrial revolution and in manufacturing and all real economic processes ever since. Understanding how those organisational systems work is the key to understanding the economy and how it might best be governed for a sustainable and prospering population. But it hasn’t been taught as an academic subject area.
Smith also conjectured about the labour theory of value – the value of anything being dependent on the amount of labour involved in its production. Those thoughts were were picked up by Riccardo, Say and others leading to the development of classical economics as an academic subject.
Its dubious theoretical foundations led economists to try to develop it as a ‘science’ in the form of mathematically based neoclassical economics. Its abstruse theories, hypotheses, models and unrealistic assumptions have all been falsified many times, but they’ve remained in place as a widely taught subject with increasing influence over those who rule.
Ruskin likened it to ‘alchemy, astrology, witchcraft and other such popular creeds’. All it lacked was ‘applicability’.
Almost every facet of it is wrong. For example, markets free from regulation, tend naturally to mutate from being competitive towards cartel and monopoly, being controlled for the benefit of the monopolist rather than the customer. That tendency was recognised in the US in the age of the so called ‘robber barons’ and regulated by the passing of anti-trust legislation such as the Sherman Act, and post the 1929 relearning experience by further regulation such as the Glass-Steagall Act limiting the power of would be banking monopolists, which Roosevelt referred to as ‘organised money’, Government by which was ‘just as dangerous as Government by organised mob.’
Continue reading Economic Management Isn’t Just Applied Theory: It’s Much More Important Than That