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Economics is Literally Stuck in the Stone Age

by Garrett Fisher
April 9, 2014

It is worth noting that monetary exchange has been a hallmark of human society dating back to the earliest understanding of societal sophistication. Most consider this concept progress; however, I take a vastly different angle on our continued adoption of ancient economic methods. We have gone to the moon and yet still rely on the foundations of exchange used when people were shooting arrows at each other on horseback.

While monetary exchange is one thing, the more important concept is how our entire economic system is designed and to what end it hopes to achieve. While it feels like there are forces that design our economy and force us to comply with it, understand that the “design” of an economy requires willing participation by the masses. While the masses may not feel particularly in control, we collectively have decided that the path of least resistance is to participate in our current economy; thus, we support it and therefore it works. Economics is a loose form of popular vote.

That being said, the earliest economic issues facing mankind had to do with abundance. Famine was constantly looming as humans did not understand much about nor could control the water cycle. People literally died from starvation. Safety and medical conditions followed soon after starvation as a concern. Sickness, violence, and famine led to poverty and trapped most of humanity into a subsistence class economically. Commonly, an elite class was maintained throughout history in many societies. The answer to poverty and famine was to be able to increase production and efficiency.

For millenniums, the practice of slavery and ownership of humans by other humans impeded the ability to produce much in the way of economic efficiency. The elite classes held economic control and, generally, military control; hence, the lower classes were controlled and used in a way to ensure that the upper classes had their needs met. They were afraid of famine and sickness just as much as a poor person; yet, they would place their need for security over the needs of the lower classes resulting in many people being owned as slaves.

The existence of slavery discourages technological innovation. When hard times arise, people are more willing to literally sell themselves into slavery to survive and thus the price for slaves would go down in such times as a function of supply and demand. This system ensured that the owners of slaves remained insulated from having to starve – and what capital existed in a society went toward owning the labor force. Technological innovation was not necessary and was more expensive that simply buying more people (or conquering them). The short-term nature of economics ensured that this cycle effectively continued, as it was just easier to follow the system as it was.

As the Industrial Revolution was in its earliest stages, slavery was outlawed by the dominant world power, Great Britain. Other powerful nations soon followed and within decades slavery was non-existent in the most significant nations of the time. Curiously, technological innovation exploded coincident to abolition.

The banning of slavery altered economics significantly. No longer was the method to retain capital and control revolving around human ownership. Instead, one had to produce something that these former slaves had to purchase from the upper class. In order for the upper class to remain in control and yet for there not to be such a wide divide that civil unrest would pull at the fabric of modern society, innovation was necessary.

In the first instances of industrial innovation without slavery, monopolies developed. It took a few decades in the United States – and it was recognized that the flows of capital are self-compounding and would essentially be unstoppable if left to unregulated economics. Hence, the US government enacted regulations to ensure that no industry could be a monopoly (except specific situations, like utilities for a period of time – subject to high regulation). The result of reducing monopolistic business empires was the continuous force of competition in society.

Competition breeds two forms of outcome. There are companies that choose to take the short-term route to be successful. In this case, it would be the degradation of customer service, quality, employee compensation, and overall experience related to a product or service in order to be able to reduce the price and outcompete other players in the market. To the extent the company is selling to equally short-term minded customers (generally lower income), the process works. The other outcome is that competition produces efficiency as new customers can be attracted by selling an existing or new product or service at a progressively lower cost by virtue of reducing production costs. For the poor who get caught in the cycle of quality degradation for price reduction, the process is debatable as to its helpfulness. As competition produces efficiency gains, there is something positive to measure out of it.

The purpose of the review of major factors leading to innovation is to present the deceptive outcome that we don’t notice. Most when reading the story of the slavery-to-innovation economic change consider it historic and a major stride in human accomplishment. When measuring where humanity came from and where it got to, it is a significant jump, relatively speaking. However, core roots still exist now that did in the Stone Age.

In the Stone Age, starvation was a dominant fear. Food, clothing, and shelter still drive fear into our present economy. As our innovation based gains are fueled by competition, the resulting increase in production and wealth cannot be savored in luxury as one would have assumed centuries ago when predicting the future. With increased convenience, wealth, and food security, we are equally as driven to compete and outperform to attain to our relative slice of global resources so we can have our needs met.  For example, since we have more food, we aren’t malnourished. We can work more and now that is the new standard expected of all workers and as they now all can work better than before, the supply of labor goes up and price goes down. Thus, amidst technological innovation, we live in crowded cities, drive in miserable traffic, breathe smog, work in cubicles in jobs that studies show we don’t like, and we drown all of our sorrows with television, overeating, and banal pleasures. It is considered a massive economic achievement to own two cars, a split-level house, and have Internet access with mobile devices and entertainment to fill our non-working hours. It is not ironic that we refer to it as the “rat race” – indicating that the cycle goes nowhere and just gets faster and faster.

If we continue our current trends, we will have increased “stuff” while working equally as much. Every gain we make in fuel efficiency, home technology, and connectivity will become the new norm – and we will use it to increase the speed at which the rat race operates for comparably similar relative pay. It is an illusion that technology would allow us to spend less time in the rat race; instead, we use it to speed it up and have more global GDP production.

This ecosystem is based on the fact that food, clothing, and shelter are not endemically provided to all humans, in any national economy in this world. In order to have basic needs met, not only does a person have to work, they have to compete. Because we have built a system where we work against each other, fear is the core of our economy. Because of this systemic fear, the speed of the rat race increases and so does volatility in capital markets. When fear is the foundation of an economy, the flavor of what we have is what we will always have in an economy. We cannot increase production and solve this problem – as every other participant in the economy is a potential source of competition – and our focus is on outwitting others to ensure survival – regardless of how much we actually produce.

In this sense, we are stuck in the Stone Age – a very innovative, technological Stone Age. What sense does it make to have 7 billion people confined to a planet with a system where all agree fear and competition is the solution? Economists and policy makers will advise that competition has provided motivation to increase economic output; thus, we are stuck with it. It is intriguing that this motivation exists because of the fear of those who would take from a system that provided from them and refuse to work. In essence, we have allowed the laziest of our economy to govern how the entire system works and reduce its total potential – and the most productive of our economy continue to work under the thumb of this system.

What interests me is how few are interested in questioning the existing system. Naturally, we are motivated to continue the competition process to ensure our personal survival. Competition is a process with continuous short-term rewards built-in with long-term negatives. While we get to eat each week when we compete in our economy, we do not do the planet or the human race any favors. In essence, the system we have communally agreed to places personal interest at odds with societal interest; they are not aligned to be mutually beneficial.

The root of this problem lies in individual thinking patterns and motivators. To effect a progressive modification of how we conduct business with each other, focus will need to shift away from production increases as a solution and shift toward work on effective means to reduce built-in fear and short-term rewards for letting fear dominate. Until then, we are technologically savvy cavemen.