Total Income

Total Income: How Conventional Economic Language Distorts our View of Reality

My perception is that the economic thinking of most people has been straight jacketed into very narrow limits by intensive cultural indoctrination. This straight jacket is worn even by many people who perceive that ecological limits must be taken into consideration in devising long term strategies for human economic activity. Part of the problem is that range of activities which is considered to be 'economic' is too limited.

The common conception of economic activity is limited to human efforts which result in the production of current exchange income in society wide exchange media like dollar, euros, Japanese yen, etc. I will hereafter refer to this type of income as 'dollar income' and hope that people will pardon my apparent U.S. centrism. If I am an apple grower then my current exchange income in dollars is the difference between my business expenses and my gross income in dollars from the sale of apples in the current year. However, such a definition of income is extremely restrictive.

For example another source of income is ongoing services provided by past production. For example a bicycle or automobile provides transportation services for years after the initial purchase (though of course some level of current maintenance costs exist). Long lived energy efficient buildings provide ongoing income in the form warm, dry places to live and work for years after the initial outlay of production resources required for their construction. I have an electronic calculator which I purchased 35 years ago which continues to provide me with service (and thus income) three and a half decades after the initial exchange by which it came into my possession. Such services are obviously part of total real income. If you employer provided you with a car or a place to live these services would effectively augment your income since you would not have spend any of you current dollar income to obtain these things. In the same way artifacts that you paid for in the past continue to provide you with income in the present.

The fact that these ongoing services do not count as part of the economy in popular thinking is very important. Long lived products can potentially reduce our total demand on resources, but if our sole economic preoccupation is with maximizing our current exchange income in dollars, then such resource efficiency is useful only if we leverage it to manufacture and sell additional products in the present. Thus we have the phenomenon of planned obsolescence. Most hand held electronics devices today are sold with manufacturer specific batteries which cannot be replaced by the user. The assumption is that in a few years time when the battery wears out you will throw the device away and buy the latest and greatest version with superior performance and thus 'help' the economy. According the dollar income definition of economic 'health' I would have been helping the economy if I had bought a new calculator every year (and produced something of equal value, naturally) and thrown away the old one.

Another kind of income is production which is not exchanged for dollars. e.g. home grown food, house repairs, automobile repairs, clothing repairs done by the owner and so forth. Included in this category of income are many activities which, at first sight, one would not think of as being 'economic'. For example I claim that taking a recreational walk, taking a ride on your bicycle, playing with your children, playing a guitar or singing for personal pleasure are all forms of economic activity. One might object to the inclusion of such activities as part of economic production on two grounds. First one might say that no exchange is involved, but this claim is false. Human time and attention (a necessary input to all economic activity) is being exchanged for a feeling of psychological well being. Economic activity always involves a primary exchange of production resources for some desired product or service. On some occasions a secondary exchange takes place where two producers exchange their end products. The first kind of exchange is always present in any economic activity, but the second kind of exchange is not a necessity. For example growing your own food or doing your own home repairs cannot be excluded from total income since such activities reduce the need for dollar income.

The second ground for objection to such private activities of personal enjoyment as economic is that they do not involve the production of practical necessities. However, if such an objection is valid, then a very large fraction of exchanges involving dollars have been falsely identified as economic. Humvees, 60 inch plasma screen televisions, jet airplane tourism, etc. are not practical necessities. Such purchases are primarily directed at obtaining so called 'psychic income' rather than about human physical well being.

In fact even those parts of the economy which are most obviously 'practical' have a large components of psychic income associated with them. For example we could derive adequate nutrition from rice, beans, and water, but for most people food and drink are about something more than just staying physically healthy. Well prepared, good tasting food and the social act of eating with other people provides psychic income in addition to providing physical nourishment. We could all be adequately clothed (from the point of view of physical protection) by wearing exclusively sturdy, long lasting, unisex coveralls, but clothing has more significance to us than utilitarian protection from the elements, and we invest them with psychic significance as important expressions of our personal style which we wish the world to recognize and appreciate. Similarly we do not regard our houses or apartments as mere utilitarian boxes which protect us from the elements. We lay them out and furnish them in a way that we think will enhance the psychic income of our domestic life. Such examples can be multiplied ad infinitum.

Logically the psychic income from purely private recreations, hobbies, avocations etc. cannot be excluded from economic activity simply because they do not involve exchanges of dollars. If making and selling music videos is economic activity then so is playing a guitar or singing for your own pleasure. There is no logical way to separate these kinds of activities from one another. The claim that a human activity is economic only if it involves an exchange of dollars is an arbitrary and artificial definition. In fact I maintain that the proper definition of economic activity is any human effort directed at improving the physical and/or psychological well being of people. Clearly dollars do not have to change hands for such activity to take place.

Of course I think that most neo-classical economists would admit that an unofficial part of the economy exists which is not counted by the dollar GDP. However, they would also claim that the subset of the economy measured by dollar exchanges is measuring human benefit since, by definition, people spend money to gain personal benefits of some type. Therefore the more money that is spent the more benefits that are being gained. This claim is highly debatable for a number of reasons. First of all there is the problem of time scale. Even if you believe that every dollar spent in the present is improving somebody's happiness or health, if these dollars are generated by an infrastructure destined to decline because of resource depletion and environmental degradation, then future human happiness and health may be negatively impacted by the effort to maintain that infrastructure in the present. Secondly, given the existence of a huge advertising industry who raison d'etre is to bring in to existence a horde of new psychic 'needs' which can only be fulfilled by the latest productions of advancing technology, the claim that every dollar spent is increasing human happiness in the present is extremely doubtful.

However, I am not going to try to prove how much or how little human happiness is being produced by the advanced economies of the world at the present time. I merely wish to note that in a finite world with a large human population we need to find some way of substantially decoupling the production of psychic income from the consumption of material resources. The income which is truly important for economic health is total income, which includes all goods and services including ongoing services provided by past production as well as current income (physical and psychic) from all production resources, not just those that are measured by dollar exchanges.

In the economic system as it exists today we are obsessed with maximizing current exchange income in society wide exchange media such as dollars. This obsession is so extreme that a substantial group of people exists who reject any suggestion that pursuing constantly increasing dollar incomes is a bad idea as being anti-human. If you dare to propose such a heresy you will be accused of loving wild critters more than you do people and of desiring human beings to suffer and be miserable.

This obsession with current dollar income has two sources. First we have allowed dollar incomes to become primary symbols of human achievement and success, so that a large amount of psychic income is derived from the endless pursuit of more dollars. Secondly we have created an economic system in which the future material security of individuals and families depends on private 'savings' which are just investments in infrastructure, the primary purpose of which is to facilitate dollar exchanges in the present. Therefore the more dollars that change hands the more secure our future looks. As the current global recession shows, in the end game of economic growth this 'security' may prove to be entirely delusionary. I wrote about this phenomenon at greater length in my previous essay <a href="http://www.theoildrum.com/node/5121">The Anti-Economy: How the Pursuit of Private Fortunes is Destroying Community Wealth</a>.

Of course, practically speaking it is impossible to expect that people will not try to maximize their psychic income within the constraints of whatever environment they are living in. Alexandr Solzhenitsyn in The Gulag Archipelago writes about how he and a group of other prisoners spent their days building stone walls in the Siberian countryside. They were organized, disciplined, and took great pride in doing high quality work. They were attempting to maximize their psychic income consistent with the constraints of the unpleasant situation in which they found themselves. Of course a man such as Solzhenitsyn, once he was released from the Gulag, could not content himself with being a stone mason. He naturally sought psychic income in other enterprises more congenial to his natural bent. Even a man such as Thoreau who worked part time as a surveyor and who literally spent a large fraction of his adult life walking in the woods seeking inspiration wanted more out of life than the direct experience of communing with nature. If he was not particularly interested in money, he did desire recognition of his intellectual and artistic achievements, and he died a largely disappointed man because he did not receive such recognition.

The problem with which we are faced is how to decouple the production of psychic income and of material security from increasing levels of resource consumption. My own perception is that this decoupling cannot take place while we continue to regard current exchange income in dollars as the end all and be all of economic activity. Of course there are people who disagree with this conclusion. I once got into an extended argument with a person with formal education in economics who had read and agreed with the primary conclusions of <a href="http://www.clubofrome.org/docs/limits.rtf">Limits to Growth</a> by Meadows et. al., and who admitted that economic growth in the sense that it has been pursued for the last several centuries is not sustainable, but who nevertheless maintained that we could redefine economic growth in such a way that we could maintain the outward forms of private finance capitalism and still converge on an ecologically healthy economic system. At the time I was unable to follow his logic, but looking back on the exchange I believe that the essence of his argument was that by clever social engineering we can make our dollar incomes correspond with an ecologically healthy total income (including psychic components), so that we can go on chasing more dollars forever and simultaneously live in an ecologically sane manner. This would certainly be a neat trick, and if anyone thinks that they know how to accomplish it please don't hesitate to speak up. I would sleep a lot more comfortably at night if I believed that such a feat of social engineering were possible.

The opposite extreme to this vision of an ecologically sane pursuit of ever increasing dollar incomes is the complete rejection of large scale exchange media such a dollars as an inherently evil and destructive institution. From this point of view money is rather like Sauron's ring of power in Tolkien's Middle Earth trilogy; Even if you initially try to use it for good purposes its continued use will ultimately corrupt you and turn your efforts to evil and destruction.

I am personally not ready to take such an extreme view of the institution of money. Exchange is a necessary part of any economic system in which any degree of specialization of labor is present. People sometimes write of economically simpler societies as having a gift culture. If an exceptionally great hunter brings back meat to the village he makes a gift of it to the people rather than numerically bargaining for the maximum possible return on his personal production. Nevertheless an effective exchange has taken place. The hunter has provided meat to the community and he in turn will receive other things that he needs or wants from the community.

In in the future, if we retain some degree of large scale specialized industrial enterprises (e.g. metals manufacturing, electronics manufacturing, etc.) the people who engage in such activities will effectively exchange their output for other kinds of economic output. I think that some kind of formal, large scale exchange media could play a useful role in facilitating such transactions. However, we have to turn that exchange media into a useful tool for accomplishing specific kinds of economic activities rather than allowing it to grow into a monster which defines the nature of all economic activity and which completely dominates our political life.

My view is that rather than trying to maximize our current exchange income in dollars we should be trying to minimize it, consistent with the constraint of producing adequate levels of total income. That is large scale industrial enterprises should be focused on producing a relatively limited range of products with an emphasis on practical utility and long-livedness. For example large scale clothing manufacture should focus on utilitarian long lived products (I do not mean prison gray coveralls. More variety than this can be allowed). People who find life unbearable unless they can express their personal style in their clothing can create or purchase such things locally in more labor intensive ways. Maybe in this case 'style' will come to have real personal meaning rather than being an image sold by the advertising departments of multinational conglomerates. Insofar as consumer electronics continue to exist they should be designed to last (and to be repairable) for long periods of time. My calculator should be a norm to be aspired to. And so forth.

Of course enormous social and political changes are implied by such a change in the orientation of the large scale economy. I am not one of these people who believes that reform of the monetary system alone is sufficient to create ecological sanity. I do not intend in this essay to try to present a detailed vision of an alternative to BAU private finance capitalism. However, I would like to point two institutional features which would be necessary in order to limit the role of large scale exchange currencies our economy:

1. Community control of finance

2. Community contol of capital surpluses

The community in question is the group of people who are served by the industries in question, which for large scale exchange currencies would correspond to national or even large constituencies. I envision that beneath these larger communities would exist smaller regional and local communities that would deal with other types of economic production.

Yes, I know that I am promoting 'socialism'. I do not do so because of deep ideological convictions. I do so because my perception is that allowing the existence of large private concentrations of capital whose only purpose in life is to enlarge themselves will inevitably orient the monetary system supporting such concentrations towards growth. Most of the people who dismiss me as a socialist moron do not attempt to dispute the necessity of growth for the proper functioning of private finance capitalism. They simply claim that some combination of dematerialization of economic output (i.e. population stabilization and greater resource efficiency) and resource switching will allow the global economy to grow comfortably for many long decades into the future. I occasionally run into someone who asserts that private finance capitalism can function just fine in the absence of growth, but I have yet to read a single coherent paragraph supporting this assertion.

Without getting into the details of how I think that community based capitalism might be made to work let me mention some things that I think are not implied by such a scheme of economic organization:

1. political control of day to day business operations

2. productin quotas

3. rationing

4. price controls

For example the Chilean state copper company CODELCO has been a profitable business for more than three decades and, as far as my reading has been able to determine, none of the above features are part of its standard operating procedure.

I should point out that, on a purely physical level, community finance is already a reality. After all what is it that we are physically investing when we create or maintain infrastructure? Obviously we are investing some part of the output of our currently existing infrastructure in which I include the skill and knowledge of our work force. When a new factory gets build the bricks, lumber, concrete, aluminum, steel, glass, wiring, plumbing, machinery, electronics etc. are created by men and women working in existing enterprises. Physically speaking community investment is the only kind that exists. The private financiers are merely people who have gained the right to make decisions about what kinds of new infrastructure projects will receive input from the existing infrastructure, and who receive a cut of the profits in return for granting the right to receive such input.

From a political point of view (as contrasted with the physical point of view) community investment means that the people who make decisions about what kind of infrastructure projects will receive input are community servants whose role is to serve the public good rather than to line their own pockets. The objection to such a mode of procedure by true believers in private finance capitalism as perfect and eternal form is that self-interested investors are efficient, creative, and productive, while any so-called 'public servants' who attempt to fulfill the same role will inevitably be inefficient, blood-sucking vampires who will seek "to sap and impurify all of our precious bodily fluids"[1]. Of course I cannot disprove this claim, but to give an example of another view of the matter I quote the following paragraph from Oscar Wilde's essay The Soul of Man Under Socialism:

"It will, of course, be said that such a scheme as is set forth here is quite unpractical, and goes against human nature. This is perfectly true. It is unpractical, and it goes against human nature. This is why it is worth carrying out, and that is why one proposes it. For what is a practical scheme? A practical scheme is either a scheme that is already in existence, or a scheme that could be carried out under existing conditions. But it is exactly the existing conditions that one objects to; and any scheme that could accept these conditions is wrong and foolish. The conditions will be done away with, and human nature will change. The only thing that one really knows about human nature is that it changes. Change is the one quality we can predicate of it. The systems that fail are those that rely on the permanency of human nature, and not on its growth and development. The error of Louis XIV was that he thought human nature would always be the same. The result of his error was the French Revolution. It was an admirable result. All the results of the mistakes of governments are quite admirable."

I will end my speculations here since I not really capable of evolving a practical plan for the political transformation of society. My primary purpose in this essay is to try to develop an economic language in which it is possible to make intelligible statements about sane economic activity. I am inclined to agree with the English philosopher Thomas Hobbes who wrote the following about the proper use of language in The Leviathan (Chapter IV) :

"Seeing then that truth consisteth in the right ordering of names in our affirmations, a man that seeketh precise truth had need to remember what every name he uses stands for, and to place it accordingly; or else he will find himself entangled in words, as a bird in lime twigs; the more he struggles, the more belimed...

By this it appears how necessary it is for any man that aspires to true knowledge to examine the definitions of former authors; and either to correct them, where they are negligently set down, or to make them himself. For the errors of definitions multiply themselves, according as the reckoning proceeds, and lead men into absurdities, which at last they see, but cannot avoid, without reckoning anew from the beginning; in which lies the foundation of their errors...

So that in the right definition of names lies the first use of speech; which is the acquisition of science: and in wrong, or no definitions, lies the first abuse; from which proceed all false and senseless tenets; which make those men that take their instruction from the authority of books, and not from their own meditation, to be as much below the condition of ignorant men as men endued with true science are above it. For between true science and erroneous doctrines, ignorance is in the middle. Natural sense and imagination are not subject to absurdity. Nature itself cannot err: and as men abound in copiousness of language; so they become more wise, or more mad, than ordinary."

Whether or not we can overcome the madness of the cultural language which now dominates our economic and political thinking is the key question which lies before us.

[1]Taken from Stanley Kubrick's 1964 movie Doctor Strangeglove in which General Jack D. Ripper (played by Sterling Hayden) launches a nuclear war against the Soviet Union in order to thwart an international communist conspiracy "to sap an impurify all of our precious bodily fluids".

June 5, 2009