Not just for survival: Economics that is healthy for children and other living things.

We human beings are intricately, intimately a part of the living natural world. We emerged from it and we belong to it. Everything we eat, everything we drink, the air we breathe is provided by the biosphere. As it sickens, we sicken. If it dies, we die.

Human beings, people, are highly social, more social than most mammals because of our elaborate language, which can only exist within a group of people. We form groups, communities, societies, and we sicken if we are not accepted and valued. A society is an emergent feature of a sufficiently large group of people who interact socially. Being social is a core part of our humanity.

An economy is that part of a society involved with providing for the material needs of the society and its members. There is no sharp boundary between the economy and its society, nor between a society and its natural living environment.

An economy commonly includes self-production, barter and gift exchanges that do not involve money. There is not a lot of economic theory developed around this aspect of society, though it is a topic within anthropology and sociology.

Most attention within economics, conventional and otherwise, is on production and exchanges that involve money. Money gives rise to powerful new phenomena.
Broadly, there are two kinds of money:

Commodity money, in which a material commodity, such as tobacco or a pig, is used as an intermediary in exchanges. The ‘money’ has its own intrinsic value. This is really a form of barter.

Token money, in which the intermediary has little or no value of its own. Its physical form might be coins, notes or numbers in a computer. Exchanging goods for token money creates a debt to the holder, because the money is only useful if it can be exchanged for goods or services. Debt involves the future, which is unknown, so debt brings risk. The debt and risk brought in by token money can profoundly change the dynamics of an economy.

There are two sources of token money in most modern economies:

A central bank, which issues so-called fiat money. So-called Modern Money Theory (MMT) addresses the ability of a government, through its central bank, to issue and spend its own money, without having to borrow from anyone. Currency-issuing governments do not have to incur any debts. So-called deficits are better regarded as the provision of a service: a medium of exchange to facilitate the private economy. (MMT would be better called MM Practice, since it describes what is already done; it does not advocate a new money system.)

Commercial banks, which issue bank money effectively as franchises of the central bank. Most of the money we use is issued by commercial banks, and it is issued in the form of ‘loans’ with interest due on them, even though the bank created the money with a few strokes of a keyboard and did not have to earn it. Commercial banks’ incentive is to issue as many loans as possible, so as to collect ‘interest’. Following financial deregulation they have issued too much money, and that has caused severe inflation of property prices and stock prices. Commercial banks need to be carefully regulated.

The inflation of property prices is one major source of economic inequality, which has increased dramatically over the past four decades. This is a threat to the stability of our society, as the United States illustrates. Inequality can be addressed by better regulation of banks and financial markets, and by promoting more equitable forms of ownership like cooperatives. The latter can ensure that wealth, created collectively, flows more fairly to those who helped to create it.

Token money facilitates exchanges of goods and services – that is its central purpose.
A group of alike exchanges that involve money is called a market. Thus we speak of agricultural markets, service markets, financial markets and so on.

Whether the exchanges in a market are of benefit to the larger society depends on the financial incentives that operate in the market. For example the short-term incentive of foresters may be to clear-fell a forest, but the long-term interest of society may be to selectively log the forest so it continues as a healthy forest with a healthy ecosystem, and providing ‘ecosystem services’. Or the incentive of an aged-care provider may be to minimise the care provided so as to reduce costs and maximise profits.

There is no reason in theory or practice to expect an unrestricted market to yield benefits to society. The economic theory that makes this claim, called neoclassical economics, is an abstraction based on absurdly unrealistic assumptions, and it has no useful resemblance to real economies. In other words it is obviously wrong. Its application in policy does great harm. This may be difficult for you to believe, given how pervasive the belief in free markets has become, but there are many economists who affirm its truth. You don’t hear much from them because anyone who challenges the mainstream belief system is marginalised in the profession.

There are by now many examples of the failure of unfettered markets to provide net benefit to our society, for example from forest management and aged care, through the loss of collective memory in government and repeated financial crises, to the privatisations of Qantas, Telstra and the electricity grids.

We need to be able to exchange goods and services, so markets have their place, but they must be managed. They can be managed by attending to the incentives they operate under and, if necessary, with explicit prohibitions such as on dumping poisons in waterways.

Growth of the material economy has become an obsession of economic managers. It derives from periods when greater wealth began to flow to the common people (due to their collective activism) but now continues mindlessly even as the material throughput of our society is causing obvious damage to the natural world (and failing to satisfy our real needs). The goal of GDP growth needs to be replaced by a goal to increase the quality of our lives – which can be much more about harmonious families and communities and a healthy natural environment, for example. This will require the elimination of artificial scarcities – such as too few jobs and insecure, low-paid work – so we can step off the treadmill and live the lives we choose, with sufficient material wealth.

Government and the media are not strictly part of the economy, but they interact strongly with the economy and are part of the inseparable overlap between economy and society.

Government, in its essence, is the means by which we collectively organise our society. There are advocates of minimal government (libertarianism) or no government (anarchy), but recent experience, especially during fires, floods and the pandemic, has led most people to conclude that we need a functioning government with sufficient power to deal with things we cannot deal with individually, or on the basis of volunteering or businesses.

We need therefore to counter those who disparage government. If a government is not working well, it should be improved, not abolished.

Governments currently are heavily influenced by private special interests, to the point of being essentially captured by some industries such as fossil fuels. This is a deep corruption of our notionally democratic system and it needs to be named and treated accordingly. The recent election of community independents free from such influences is a healthy development.

Our mass media enable such communication as is possible across our large societies. Such conversation is essential to the healthy functioning of a society. We are foolish indeed to have let such a central part of our society be controlled, and distorted, by a few rich people, or by foreign corporations and governments. Collective ownership by audiences may be the healthiest way to correct this dysfunctional arrangement.

Our society is heavily extractive. It extracts materials from the natural world. A healthy society needs to cultivate, not extract. It should take only what it reasonably needs, mindful of the need to keep the natural, living world thriving around us. Many traditional cultures explicitly adopted this requirement into the core of their ethics.

The global crises in climate, pollution, water supplies and many others are due to a linear system that extracts, uses once and dumps. We need to return to a cycling economy, in which we reuse nutrients and materials and avoid emitting persistent toxins. Many traditional societies operated much closer to that ideal, and the rest of the living world has been recycling 100% for billions of years. There are many people developing such an approach, and much has been accomplished already, but it needs to be made central to our society’s functioning.

The thinking behind Thrival Economics is developed in more detail in Economy, Society, Nature. A concise summary, with sources, is given in The Little Green (I’m afraid of) Economics (but I want to save the world) Book. A preliminary look at how our society might be run differently is in Desperately Seeking the Fair Go. A deeper exploration is in a forthcoming(?) manuscript Sunburnt: Fixing the stories we live by in the wide brown land.

The mainstream conception of economics that dominates public discussion differs from this version in quite fundamental ways. The definition of an economy, the approach to and purpose of economic study, the relation of an economy to the natural world, the nature of money, the sources of money and the nature of so-called government deficits, the behaviour of markets, the roles of industry and ‘natural resources’ are all misunderstood. The result is that public policy is deeply misguided in many important ways.

The neoliberal ideology has neoclassical economics at its core, but its broader conception is equally awry. The most notable aspect is the attitude that we are, or should be, selfish competitors. This had its clearest expression when Margaret Thatcher said ‘There is no such thing as society’, meaning we are just so many individuals, with the whole being no more than the sum of the parts. Labor adopted this ideology in 1983, though with some partially-compensating social support programs. The Liberal Party soon followed suit. The neoliberal ideology tries to negate a core part of our humanity.

Although the Labor government elected in 2022 is a considerable improvement on the previous Coalition government, which was seriously or grossly deficient in most ways, Labor still adheres quite closely to the neoliberal approach. The Greens have recently espoused a social democratic approach, which is better, but still well short of the potential of moving beyond all of the myths mentioned above, neoliberal and otherwise. The community independents, the ‘Teals’, are mostly former Liberal supporters, evidently interested in promoting private enterprise but much less doctrinaire or extreme than the Liberal Party became in recent times. Some say they want to return to the values of Robert Menzies, the founder of the Liberal Party. They too would benefit from understanding the myths.

Although Labor is pursuing some constructive policies, its approach to global warming is still well short of what is needed, it continues an untrusting, often punitive attitude to the unemployed and others in need, and it constrains itself with the old myths about budget ‘deficits’, even though MMT has penetrated mainstream discussion over the past year or two. It has continued the Coalition policy of tightly binding our foreign and military policies to the United States; in that sense our government is captured by a foreign power.

The continuing attachments to myths are the motivation for this blog. Ill-informed or misguided statements or policies manifest almost every day, even with a government that has some competence and whose members behave like adults.