The Solution to the Flaws of Current Economics is Socio-econonics

As human dharma is essential in creating value for all, the entire society should be taken into account in the study of economic activity. Such a discipline is broadly referred to as socio-economics.

As such discipline has not yet been formalized, I define socio-economics as a discipline with one part devoted to studying the subjective aspects of economic activity such as the behavior of a person or groups of persons in relation to their wants and needs, encompassing psychology, sociology, philosophy, morality, and social justice, and another part devoted to the objective aspect covering current economics, finance, and accounting. The study of society comes before the study of economics, relegating the role of quantification, as mathematics works best in the field of physics and engineering, and not in fields that involve human minds.

This two-part approach will seek to maximize the synergy between the subjective human mind and the objective physical world, which then, in theory, will “make nearly the same distribution of the necessaries of life” among all humans as Adam Smith described of the invisible hand. To realize this goal, basic socio-economic principles will be introduced:

Principle 1: Human wants & needs are based on the experience of consciousness

Human wants and needs arise inside the human mind as a reaction to external world. It can be observed as one wakes up, needs and wants do not arise until one becomes fully aware of one’s situation. We do not feel the need to rush to get out of bed until we realize the time or until we regain all of our senses. I refer to active consciousness as mind, which gains experiences as it receives and processes information from the external world. The collection of experiences then forms perception, and it is this that assigns a value to objects in the external world.

Since the perception of value is based on the experiences of the perceiver, a quantitative valuation of pleasure and pain or of goods and services will only be useful to the perceiver himself. Person A may rate an object with a value of 10. Such a rating may be totally irrelevant to Person B who rates it with a value of 2, but may be relevant to Person C who rates it with a value of 9. A just society is one which respects the individual value perceptions and feelings of all of its members:

Injustice, thus, begins when the valuation of certain members are neglected. Injustice reaches its height when a single perception of value, is arbitrarily imposed on society by dictators, emperors, or a single ruling class, such as corporate lobbyists in capitalist countries or the Communist Party in communist countries. While the political sciences have created concepts to bring about political freedom, economics is still suffering from the lack of justice and freedom imposed by the selfish hand. For economic activities to be considered just, democratic processes should therefore be extended to all participants and to all aspects of economic activity.

Principle 2: The objective is based on the subjective. The subjective is derived through consensus which is based on human dharma

Since each person has his or her own subjective perceptions for each good or service, all economic activity, whether it be production or trade, will be more fair and efficient when each person has the means to express his value-perceptions and know those of others. A clothing manufacturer will not waste resources making clothes that other people do not want and a young person will not waste time studying a skill that society thinks will be obsolete. Although value-perceptions vary with each person, it is not impossible to find commonalities between them. All humans, regardless of gender, social status, race, nationality, and culture, assign a value to basic needs such as food, shelter, clothing, health care, and security, all of which must be addressed by society:

According to Mr. Hobbes..man is driven to take refuge in society…because without the assistance of others he is incapable of subsisting with ease. (TMS, Part 7, Sec. 3, Par. 4). No society can surely be..happy, of which the far greater part of the members are poor and miserable. It is but equity..that they who feed, cloath and lodge the..people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged. (WN, Book 1, Chap. 8, Par. 35)

Thus, it is in the best interest of society to empower and render all of its members productive so that they may be able to provide for all. This explains why Smith stated that a landlord is “obliged to distribute” his excess crops to the poor. This empowerment must be done naturally and freely according to each person’s dharma, while making sure each one does not impair those of others. In my earlier paper entitled Understanding Humanity, I stated that people and societies in different times and places have different mindsets depending on the level of their consciousness and their social cycle, which are often more dynamic than their environment or culture. A society’s economic objectives, therefore, must also be in harmony with its societal dharma or natural needs, otherwise externalities and conflicts may occur.

In the past, coordinating such objectives in towns, cities, and countries was problematic as the system of communication and organization was not yet fully developed. Nowadays, with the prevalence of the internet, mobile technology, and social networks, it is possible to realize such economic coordination both in the local and regional levels. Our generation is the first in history to have the ability to realize Smith’s vision of rapid, large-scale economic coordination:

The wholesale dealer, by affording a ready market to the manufacturer..by taking his goods off his hand as fast as he can..enables him to keep his whole capital..constantly employed in manufacturing..to manufacture a much greater quantity of goods…(and) the owner of a large capital to support the owners of..small ones, and to assist them in those losses..which might otherwise prove ruinous to them…Were it possible..to establish this intercourse universally, and all at once..it is not perhaps very easy to imagine how great..extensive, and..sudden would be the improvement..this change..would alone produce upon the..country. (Book 4, Chap. 5, Par. 59, emphasis added)

Such coordination can take place between producer and consumer companies in real-time through information technology, allowing the analysis of economic data such as demand, production capacity and employment, so that proper resource allocation and incentives can be directed to address the changing needs of society, in the fastest, most efficient manner.

Principle 3: Societies, markets, and governments are one biological system

The government’s natural role, as protector, regulator, and arbiter, is essential in providing security, justice, and freedom in the great machine of society:

Commerce and manufactures..can seldom flourish in any state in which there is not a certain degree of confidence in the justice of government (The Wealth of Nations, Book 5, Chap. 3, Par. 7). Human society..appears like a great..machine, whose regular and harmonious movements produce a thousand agreeable effects. (TMS, Part 7, Section 3, Par. 5)

A good example of how the integration and coordination between all sectors can produce economic value is the microfinance movement, wherein even the poorest and neglected sectors have been made productive through the empowerment given to them by NGO’s and governments (Duflos & Imboden, 2004). The continued success of such a movement (Deutsche Bank, 2007) proves that unity under human dharma produces good effects even without complex mathematical equations or models. Another example is the Nordic model, which arguably, is the most sustainable version of Capitalism. Its policies and institutions (Berggren, H. & Trägårdh, 2011) are similar to the principles advocated by Adam Smith:

Adam Smith | Nordic Model “by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention” | “Nordic capitalism shows that individualism need not lead to social fragmentation, distrust and short-term maximization of material interests. Promoting individual autonomy through policy can, on the contrary, lead to greater social cohesion if it is done in an egalitarian way. Less dependence and weaker patriarchal structures means that more people feel empowered and satisfied with their lives.” “Every individual..can, in his local situation, judge much better than any statesman or lawgiver can do for him” | “Perhaps most crucial to the positive feedback cycle that has managed to stabilize the Nordic economies at a productive equilibrium..is the degree and extent of inclusion of citizens and civil society in the governance process.” “It is only under the shelter of the civil magistrate that the owner of that valuable property..can sleep a single night in security.” | “A strong state and individual autonomy are not a threat to civil society, but are instead its prerequisites.”

Table 1. The Nordic Model has the basic principles taught by Adam Smith

Principle 4: Local empowerment results in maximum efficiency

Rather than interpret “self-interest” as selfishness, socio-economics interprets it as self-empowerment and svadharma which leads to freedom, consistent with the idea of free trade:

Every individual..can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman who should attempt to direct private people in what manner they ought to employ their capitals would..assume an authority which could safely be trusted, not only to no single person, but to no..senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it. (Book 4, Chap. 2, Par. 10) …in the political body, the natural effort which every man is continually making to better his own condition is a principle of preservation capable of preventing and correcting, in many respects, the bad effects of a political œconomy, in some degree, both partial and oppressive. (Chap. 9, Par. 28)

The statement above challenges the reasoning for the existence of the WTO, IMF and the World Bank which can be influenced by vested interests and can interfere with competition and local economies, as such organizations impose extraneous rules and blanket solutions which may be detached from the local reality, risking to render local people worse off (Dugger, 2007).

The World Bank can be replaced by smaller regional development banks, the WTO can be replaced by multilateral barter organizations, and the IMF can be replaced by Smith’s corn index. These will free up local economies to pursue their own societal dharma:

The natural effort of every individual to better his own condition when suffered to exert itself with freedom and security is so powerful a principle that it is alone..not only capable of carrying on the society to..prosperity, but of surmounting.. obstructions.. of human laws.. (Chap. 5, Par. 82). Plenty of good land, and liberty to manage their own affairs their own way, seem to be the two great causes of the prosperity of all new colonies. (Chap. 7, Par. 38)…It is thus that every system which endeavours, either by extraordinary encouragements to draw towards a particular species of industry a greater share of the capital of the society than what would naturally go to it, or, by extraordinary restraints, force from a particular species of industry some share of the capital which would otherwise be employed in it, is in reality subversive of the great purpose which it means to promote. It retards, instead of accelerating, the progress of the society towards real wealth and greatness; and diminishes, instead of increasing, the real value of the annual produce of its land and labour. All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society. (Book. 4, Chap. 9, Pars. 50-51).

Principle 5: Small networked companies are better than giant corporations

Principle 6: Economics Based on the Balance of Demand, Real Value and Trade