The Impasse of Economics

This article is a brief summary of one chapter in a landmark book first published in 1982… The Turning Point: Science, Society & the Rising Culture, by Fritjof Capra.

In chapter 7, The Impasse of Economics, Capra offers a profound commentary on the roots of our current and ongoing economic crisis.

Reaching far beyond today’s stale and outdated argument of ‘ capitalism vs. socialism’, Capra accurately explains the roots of modern culture, now largely addicted to money, consumption and endless distractions. While the need to remap our economy is now painfully obvious, it is not merely an intellectual task but will involve profound changes in our value system. Higher values and a more holistic social order, emanating from evolved corporate communities, must begin to replace economics as the foundation for a sustainable world. Free enterprise – imbued with an overriding ethical conscience – can offer us profound possibilities.

You can access Chapter 7 (and the entire book) online at: www.wplus.net/pp/Julia/Capra/

You can also find Fritjof Capra on YouTube.

Here are some key excerpts from Chapter 7…

Economists generally fail to recognize that the economy is merely one aspect of a whole ecological and social fabric; a living system composed of human beings in continual interaction with one another and with their natural resources, most of which are, in turn, living organisms. The basic error of the social sciences is to divide this fabric into fragments, assumed to be independent and to be dealt with in separate academic departments… This fragmentary approach is also reflected in government, in the split between social and economic policies and, especially in the USA, in the maze of congressional committees and subcommittees where these policies are discussed. A truly holistic framework is sadly lacking in the work of most contemporary economists. They are increasingly out of touch with current economic realities.

The evolution of society and its economic systems is closely linked to changes in the value system that underlies all its manifestations. The values a society lives by will determine its world view and religious institutions, its scientific enterprise, and its political and economic arrangements.

E.F. Schumacher [see page 4 in this newsletter] describes two opposing economic philosophies:

• One is our present materialist system, in which the ’standard of living’ is measured by the amount of annual consumption, which tries to achieve maximum consumption along with an optimal pattern of production.
• The other is a system of Buddhist economics, based on the notions of ‘ right livelihood’ and the ’Middle Way,’ in which the aim is to achieve a maximum of human well–being with an optimal pattern of consumption.

Contemporary economists, in a misguided attempt to provide their discipline with scientific rigor, have consistently avoided the issue of unstated values. Kenneth Boulding, speaking as president of the American Economic Association, has called this concerted attempt “a monumentally unsuccessful exercise … which has preoccupied a whole generation of economists (indeed, several generations) with a dead end, to the almost total neglect of the major problems of our age”.

Economics today is in a profound conceptual crisis, and economists themselves are beginning to acknowledge that their discipline has reached an impasse. In 1971 Arthur Burns, then in the chair of the Federal Reserve, remarked that “the rules of economics are not working quite the way they used to”, and Milton Friedman, addressing the American Economic Association in 1972, was even more frank: “I believe that we economists in recent years have done vast harm – to society at large and to our profession in particular – by claiming more than we can deliver.” By 1978 the tone had changed from caution to despair when Treasury Secretary Michael Blumenthal declared: “I really think the economics profession is close to bankruptcy in understanding the present situation, before or after the fact.” Juanita Kreps, outgoing Secretary of Commerce in 1979, said flatly that she found it impossible to go back to her old job as professor of economics at Duke University, because “I would not know what to teach.”

At the deepest level, reexamination of economic concepts and models must deal with the underlying value system and recognize its relation to the larger cultural context.

The inevitable revision of our basic economic concepts and theories will be radical at best. The new theory, or set of models, is likely to involve a systems approach that will integrate biology, psychology, political philosophy, universal holistic education, together with economics, into a broad ecological framework.

Explicit reference to human attitudes, values, and life styles in future economic thought will make this new science of holistic economics profoundly humanistic. It will deal with human aspirations and potentialities, and will integrate them into the underlying matrix of the global ecosystem. Such an approach will transcend by far anything attempted in today’s sciences; in its ultimate nature it will be scientific and spiritual at the same time.