The Basics of Economic Systems
According to which premise we choose, we define the fundamentals of economic life. Our economic premises and assumptions—whether of scarcity or of anti-scarcity—give rise to basic economic strategies.
Scarcity-based economies build strategies around the possession of material goods, which traditional economic theories categorize into land, labor, and capital. What counts is how much real estate we own, how much money we have, and how many hours we work. Economic strategies involve trading our countables to increase our net value.
The ideal for many, though attained by few, is to own enough land and capital so that we don’t have to sell our labor. In other words, we work to buy back our time from economic society, so that economic worries no longer dictate our choices.
With inflation and the insecurity of modern economies, however, the price of economic freedom goes up, and the period of indenture increases. Philosopher John Locke’s insistence that people possess their own labor becomes an illusion. Instead, we lease our labor from the economy with an option to buy, though we never seem to collect enough assets to complete the purchase. The economy turns into a company town like those of the early 20th century, in which the company—in this case, the economy—owns us, and all we do is get “another day older and deeper in debt.”
The danger with this strategy is that it tends economies toward feudalism. By making freedom cost more, scarcity-economies reduce societies to two classes: the few in power and the many who are economically disenfranchised. Both groups go to their graves burdened by money. Both shortchange themselves because of the economic model.
For example, since the decisions of both rich and poor are limited by fears about scarcity, their talents in other areas go untapped. How many Leonardos, Mozarts, or Einsteins have come and gone undeveloped, because money matters took precedence in their lives? The poor don’t have time for frills such as education, while the privileged often push aside their talents in order to acquire wealth. They get hooked on getting more, long after their needs are met. In scarcity-based economies, money-concerns make it hard for people to pursue their life’s calling. Individual gifts go to waste.
Applying capitalist or socialist terms to such economies doesn’t make them less feudal or less wasteful of human talents. In fact, scarcity-based economies develop precisely the economic imbalances that both Adam Smith and Karl Marx railed against.
Unfortunately, Smith and Marx didn’t challenge the scarcity-premise but focused on different ways of distributing goods. In practice, however, distribution strategies haven’t prevented the economic poles from widening, since they don’t challenge the premise that causes the gap. The root assumption that scarcity rules economies remained unquestioned.
Economies Based On Creativity and Knowledge
If, in contrast to scarcity, economies build on creativity and know-how, they focus less on things and more on how we manage things. Our economic roles shift from possessors to stewards, from consumers to managers. Fixed quantities of things no longer dictate our actions. “Energy and materials are limiting factors,” Boulding writes, “not creative or formative factors.”2 The “limiting factors” pose economic challenges; the “creative or formative factors” meet those challenges.
Because we can be creative whether we own things or not, ownership isn’t the primary concern. Not that we should stop owning what we need to live and work. Historically, as private ownership became possible for more people, it increased economic independence from kings, states, aristocracies, and plutocracies.
But the strategy of owning as much as possible misses the economic mark. The game of Monopoly isn’t a model of how economies work but an analysis of how they fail. The Depression of the ’30s inspired Monopoly’s creator to invent the game to show where inflated ownerships lead. Monopoly ends when one player dominates the board, having caused the rest to go bankrupt. No further exchange can occur when all but one player is broke. The more economies resemble Monopoly, the closer they are to a breakdown. No more game.
By contrast, successful economies keep exchange going, enhancing it wherever possible. The more players participate, the more diverse the system. The stronger and better all the players are, the more each has to offer. Exchange increases. The whole system is enriched.
By establishing a system of exchange, economies link problems with solutions, needs with know-how. What counts isn’t so much the things available—the fixed stock of billiard balls – but the process of creativity and the flow of knowledge. How does the process work?
a) What’s common to all. In the first place, know-how gives everyone equal access to an economy’s main source of wealth. We can all cultivate knowledge and work with it creatively. The system in turn protects what each of us has to offer and then explores ways to enhance this primary resource.
For instance, knowledge-based economies depend on education. Education becomes top priority, even if it means paying people to go to school, as many companies are now doing. What’s more, education isn’t limited to business, math, and the sciences. Creativity blossoms the more we rediscover our home in the realm of ideas. Ideas spark our imagination. They also give us reasons to care—beyond the reason to make money.
Not that making money is wrong, it’s just inadequate to meet today’s economic challenges. The money-reason hasn’t, for instance, made top executives care about the environment, the quality of life, or the welfare of future generations. Yet these factors are central to good household management.
Fortunately, there are disciplines that inspire creativity and caring on wider levels. Religion, philosophy, literature, history, and the arts touch us where balance sheets can’t. By enlarging our minds, these disciplines enlarge our worlds, making us enduringly rich, as Viktor Frankl discovered even in concentration camps. The happy byproduct is that they also extend our economies’ resources. The more we explore our potential on intellectual and spiritual levels, the more insight and creativity we bring to how we manage our households.
With the information age, then, creativity and knowledge provide a basis for economic equality. Knowledge is our common inheritance. There’s plenty of it, and it’s becoming increasingly accessible to us all.
b) What’s different. But complete equality is achieved only when all differences disappear, which is neither possible nor desirable. Each of us cannot know all there is to know in exactly the same way. Neither would we want to. Economic systems thrive on a diversity of interests and talents, otherwise there would be no reason for exchange.
Which is precisely what we have. Each of us cultivates knowledge differently. No two of us have identical ways of digesting the information available. Even if we did, two people can use the same knowledge quite differently. As Plato noted in the Republic, each person focuses the totality of knowledge in a unique way; each citizen expresses the whole republic through unique skills and talents. Or, as in the philosopher G. W. Leibniz’s theory of monads, each person develops an individualized view of the whole—a distinct window on the world.
Diversity is great for economies. The more diverse a system, the more possibilities it includes for developing new levels of order. By increasing order, diverse systems become more flexible. They include more options for responding to stress. If one method doesn’t work, we have a backup, and more backups behind that. By increasing an economy’s power to overcome scarcity, diversity increases an economy’s chances of survival.
Investors are well aware of the uses of diversity. If we spread our risk by putting money in different places, we’re less vulnerable if any one of them fails. Our whole future doesn’t depend on the success of one venture.
Communities also know something about diversity. A one-company town can become a ghost town overnight if the main employer pulls out. The more businesses a community nurtures, the more stable and secure its economy.
Diversity, therefore, constitutes the second fundamental factor of knowledge-based economies.
The diversity that individuals bring to economies gives economies their strength and durability.
The effect of the first two factors – knowledge and diversity – is that economies free everyone to be creative. The fact that we each don’t have to grow our own food, for example, frees us to put our energies elsewhere according to our abilities and interests. By developing our talents, we can offer something to the system that’s uniquely ours.
c) Systems of exchange. But it’s no fun developing individual talents without ways to exchange them. We want to share our abilities as well as to draw on the abilities of others. There’s “a propensity in human nature to exchange,” Adam Smith wrote, a “disposition to barter.”3
Exchange brings economies alive. What’s the use of diversity if we can’t move it around? Economies exist precisely to provide an efficient system through which knowledge can flow. What bees do for flowers, economies do for us. They cross-pollinate our creative abilities, so that something new is always cropping up.
All this cross-pollinating makes economic exchange synergetic. Through exchange, diversity increases diversity. Knowledge, skill, and creativity feed each other to yield possibilities greater than what individuals alone could produce. By exchanging ideas as well as goods and services, economies jump to new levels of prosperity.
By contrast, hoarding, the opposite of exchange, chokes economies. Hoarding works on the fort-premise: acquiring as much as possible provides an illusion of security apart from the system. Even though the system might collapse, at least our private fort will stand.
But the fort-strategy works against economies. The more we hoard, the less exchange occurs and the weaker the entire system becomes. Nor does the strategy achieve the security imagined. If the system fails, the fort hasn’t much future either.
Healthy economies establish security as a function of the whole system. If the system is diverse and exchange ongoing, then the economy is both flexible enough to weather storms and rich enough to provide opportunities for everyone. Security lies in the integral system of exchange, not in fragmenting the system with forts.
d) Mutual benefit. Why should we enter into economic exchange? Because it benefits us to do so. But the benefit isn’t one-sided. Exchange depends on mutual benefit, a concept that Adam Smith adapted from Plato. Either both sides gain, or there’s no exchange. No one freely enters into a relation in which all the benefit goes to the other party.
For this reason, win-win is the only practical and realistic economic strategy. In fact, it’s what we do all the time. Day to day, we don’t demand benefits from others without offering benefits in return. The concept of reciprocity goes to the bone. If others get more than we do, we feel cheated. If we get more than they do, we worry that they feel cheated, in which case we’d lose the chance to do business with them in the future. In the end, we strive for a balance. We want fairness – mutual benefit.4
When reciprocity prevails, economies are better off. Mutual benefit increases prosperity on all sides. It builds trust. If we’re not afraid of being ripped off, we do business freely. Trust makes exchange flow, so that the entire system becomes more secure.
The opposite strategy (win-lose) encourages subtle and blatant forms of stealing, plenty of which are legal. Win-lose strategies follow from the premise of scarcity. After all, given limited resources, we can’t all win. Some people and nations must simply go without (as long as it’s not us). But win-lose strategies don’t build economies. Who agrees to such an arrangement? Once burned, who subjects themselves to it again? Who does business with someone who’s out to bilk us? We’ll do it only if we’re forced to – if we have no other choice.
Because win-lose strategies aren’t a form of mutually beneficial exchange, they aren’t intrinsic to economies. Nor are they practical. Quite the reverse. They foster practices that endanger economies. Without contributing anything in return, win-lose strategies siphon off the prosperity that win-win economies produce without contributing anything in return. They drain economies, until we reach the end of the game.
When win-lose practices dominate an economy, we stop trusting both the economy and each other. We all suffer. When exchange isn’t for mutual benefit, we stop exchanging. The game ends.
But the loss to the economy is even greater. Win-lose strategies give us an excuse to abandon our creativity. We lose sight of our powers as givers and only develop our roles as takers. The economy loses more than what’s siphoned out of it. Once again, individual knowledge and talents go to waste.
Two Systems: Which One?
The premises of scarcity on one hand and of creativity on the other set up two contrasting economic systems.
From the scarcity premise, strategies develop that, first, make limited material resources the starting-point.
Second, what passes for diversity are different uses of labor, which depend on how land and capital are distributed – who owns what. Instead of developing individual talents (which diversity does), mere division of labor traps us in dead-end jobs, determined by our place in the economic hierarchy. Creativity isn’t nurtured but squelched; diversity isn’t increased but diminished.
Third, we manipulate the division of land, labor, and capital to own as much as possible. Acquiring is the name of the game, since hoarding secures our private interests.
Fourth, to increase our ownership of limited resources, we struggle to win out over others. Our gain is another’s loss, and vice versa. The system makes us feel and act like thieves, whether we want to or not. It brings out the lowest passions in us and rewards them.
But does this model really work? In his critique of it, the third-century philosopher Porphyry wrote:
“In the light of unlimited desires, even the greatest wealth is but poverty… No fool is satisfied with what he possesses; he rather mourns what he has not… Many have attained wealth, and yet not found release from their troubles but have exchanged them for greater ones. Wherefore philosophers say that nothing is so necessary as to know thoroughly what is unnecessary… [Otherwise] while the pile of wealth is growing bigger, life is growing wretched.”5
Fortunately, there are other models for economies and other strategies for acting in them. From the premises of knowledge and creativity, a system develops that, first, includes everyone. Creativity belongs to us all. It comes with being human. Moreover, the knowledge we need to be creative is universally available. And it isn’t scarce. As a resource, it’s unlimited in its potential for growth.
Second, diversity increases as we work creatively. The more we diversify our talents, the stronger our economies grow, which frees us to diversify our talents further.
Third, we interact with the economy not to maximize ownership but to exchange the best we have for the best others have. To keep exchange going, we bring it our best.
Fourth, we do this so that all may benefit. Either we all win, or we all lose. To paraphrase John Donne, every loss to a person or nation diminishes us, while every gain increases us. It’s great prose because it reveals a great truth. It’s how economies work as systems—something more than Monopoly players driving each other out of business.
2. Kenneth Boulding, Evolutionary Economics (Beverly Hills and London: Sage Publications, 1981), 45.
3. Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (reprint, New York: The Modem Library, 1937), 13, 16.
4. The win-win model is gaining acceptance in the literature appearing on business in bookstores and libraries. For instance, there’s Ross R. Reck and Brian G. Long’s Win-Win Negotiator (NY: Simon & Schuster, 1985) as well as Lucy Beale and Rick Fields’ The Win/Win Way (NY: Harcourt Brace Jovanovich, 1987). In The Strategy of the Dolphin (NY: William Morrow, 1988), Dudley Lynch and Paul L. Kordis buy win-win as the basic goal but warn that the win-win can’t be achieved superficially, otherwise neither side benefits. But then, that’s not real win-win.
5. Porphyry, Porphyry’s Letter to His Wife Marcella Concerning the Life of Philosophy and the Ascent to the Gods, Alice Zimmern, trans. (Grand Rapids: Phanes Press, 1986), 55-56.
This article is the second installment of a four-part series.
Adapted from Denise Breton and Christopher Largent, The Soul of Economies: Spiritual Evolution Goes to the Marketplace, (Idea House)