The goals for the economy

If I’m to explore ideas concerning macro economics, I need to have a clear understanding of the goal – what is the economic system trying to achieve? Any such goal must be subjective – it can only be “my” goal. I might hope that others will agree with it, but I cannot see any basis for arguing that a particular goal must be the goal. The best I can really hope for is a goal, or set of goals, that is simple, achievable – at least in principle – and that seems consistent with what most people seem to want. To that end I nominate, and will go on to embellish, three goals: maximum productivity, minimum hardship, and long term stability.

In his seminal work “An inquiry into the nature and causes of the wealth of nations”, Adam Smith starts out by exploring the concept and practice of the Division of Labour. This principle forms a foundation for the rest of his inquiry.

The “division of labour” refers to specialization by individuals. Instead two people developing skills in both the preparation of food and the construction of clothing, one might specialize in food while the other specializes in clothing – they divide not just the total labour between themselves, but the sort of labour. Without some form of economic management, one will then end up with hungry and the other naked. With a system for sharing, they can expect better clothes and better food. In order to achieve this sharing of produce from the divided labour, something must happen between the two. This might involve the giving of gifts, a system of barter, redistribution forced by an external party, or any of a number of other possible economic frameworks.

In different circumstances, different frameworks might be more suitable but it is not the purpose of this essay to consider what might be most suitable, but only to consider what it means for anything to be suitable. Any such metric must, I think, take into account the reason why there is any need for an economy – any division of labour at all.

I have deliberately chosen my foundational scenario to lead towards the solution that I want, so I should be open and honest about that. A division of labour could easily come from a different motivation, such as by a strong or cunning individual capturing a number of slaves and forcing them to specialize in different ways to meet the needs and desires of that controlling individual. Certainly there have been slave economies and there still are today in various forms. I choose not to consider them, partly because I find the idea repellent, but also because they tend to fail my final goal: long term stability. Masters can get old, sick, or generally weak, and slaves can unite and rebel. A slave economy can survive decades or generations, but it will always be just a few steps away from collapse, and can hardly be considered to be stable.

Building on the base

If we accept that the motive for division of labour is better quality results, it seems reasonable to choose a goal of maximizing the total results. This does not necessarily mean the absolutely best clothes and tastiest food, as there are expected to be other goals for individuals not explicit in the economy, such as leisure time. So it is not a goal that gives precise outcomes, but rather shows a direction. The idea of “maximum” must be understood not as a single idea, but rather as a combination of the individual goals of all. I see this division of evaluation as a necessary partner to the division of labour. Others may see it as imposing my own personal egalitarian views on the economy that I will describe, and I have no wish to deny that.

For the economy as a whole to be maximally productive, it is not necessary for every individual to excel. Typically a few individual will be extraordinarily productive, many will cluster around a median, and quite a few will have low productivity. The reasons for this will be many and varied. Different opportunities, different motivators, different abilities will inevitably lead to different results. The strategy for the economy would be to provide opportunities, motivation, and abilities as appropriate to improve productivity. What exactly is “appropriate” will depend on the style of economy chosen.

Though many factors will affect opportunity, motivation, and ability, possibly the greatest effect will come from hardship, as it suppresses all of these in most cases. When hardship can be overcome, it can serve as a powerful motivator, and can lead to the acquisition of abilities and the carving out of opportunities, so we should think that all hardship must be eradicated. But for most people in most circumstances: poverty, illness, discrimination, violence etc will reduce their net contribution to society. For this reason, minimizing of hardship could be seen as one branch of the broader goal of maximizing productivity. I choose to make it clear and distinct because it suits my personal agenda. I think there is no amount of increased productivity that can justify avoidable systemic hardship, so it needs to stand separate to ensure there is no temptation of justify a little hardship for the prosperity it might afford others.

To a degree, my third goal of long-term stability could be justified as encouraging maximum productivity, as the collapse of any economic system will result is reduced productivity, at least for a time until something else replaces it. It can also be based on my second goal as instability invariably results in hardship for all. I wish to make it explicit though because having stability does say something else important about the economic system – it suggests that it is closer to being complete. If a system is expected to fail, then there is some external factor that might affect the system but which is not being managed by the system. This means the system is not complete.

So: these are my goals, to form a basis for my future musing. An economy should tend towards maximizing productivity as understood – possibly quite differently – by various members, it should avoid systemic hardship while not absolutely avoiding individual hardship, and it should be prepared, as far as practicable, for all eventualities.

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