The Evolution of Wealth & Human Security: The Paradox of Value and Uncertainty

Life evolves by consciousness, consciousness evolves by organization. Human life evolves by a progressive heightening of our awareness, expansion of our knowledge, widening of our attitudes, and elevation of our values. This evolving human consciousness progressively expresses itself through the formulation and creation of more complex and effective organization – a seamlessly integrated, organic web of relationships encompassing ideas, knowledge, people, activities, processes, systems, technology, laws, institutions, power and values – political, economic, social, cultural, intellectual and psychological. The capacities of one person acting on his own are limited, but the action of organization has no limit. Organization creates abundance.

The evolution of economy is an integral part of the wider evolution of human consciousness and social organization. The history of economics and economic thought reflect this process. Progressive advances in our collective capacity to generate wealth and promote human security are the results of this process. Our comprehension of the process has a profound bearing on the development of that capacity. Rightly perceived, we can discover the true relationship between scarcity and wealth, uncertainty and human security, and the means to transform one into the other. This requires a change in perspective, a shift in values from the quest for immutable, natural economic laws governing the blind pursuit of money and monetarized growth to a focus on the intrinsic value and creative potential of human beings in quest of ever-expanding security, welfare and well-being – the real wealth – that all humanity aspires for. It requires, too, the development of appropriate measures consistent with this shift in values and perspective. When growth focuses on people rather than things, the limits to growth give way to limitless growth.

1. The Rise of Uncertainty

Economics as a social discipline was founded at the end of the eighteenth century on the basis of Adam Smith’s Wealth of Nations. Writing at the dawn of the Industrial Revolution when agriculture was still perceived as the major determinant of wealth, Smith was a practicing moral philosopher, firmly committed to fighting poverty and generating prosperity, not only in his native Scotland but worldwide. He perceived the enormous power of social organization to generate wealth – the power of division, specialization of labor and technology to optimize efficiency and the power of markets and trade, both domestic and international, to incentivize producers and benefit consumers. A firm believer in freedom, he advocated free trade as more conducive to human welfare than mercantilist and monopolistic policies; but he would never have countenanced a world in which the sanctity of the market is given precedence over the well-being of human beings. He believed in freeing economic activity from the arbitrary will of feudal landlords, monarchs and parliaments, but equally so from the narrow self-interest of businesses which advocated policies beneficial to themselves while detrimental to society-at-large.

Born in an age steeped in Newtonian and Cartesian concepts of immutable natural laws and the clockwork certainty of physical nature, he based his concept of economic value on the equilibrium price between supply and demand resulting from unimpeded exchange of goods. That, he argued, was the best way to provide signals to producers where to invest their capital and what to produce and to ensure the lowest possible price to the consumer. Considering foreign wars and enforced colonization a tremendous waste of capital and human resources, which should be more properly invested for productive purposes, he would have firmly rejected the contemporary view that all economic growth is good growth. Yet theoretically he did not distinguish positive from negative contributions to national wealth. At a time when less than half of all economic activity occurred through monetary transactions, he perceived the catalytic role that money played in facilitating commercial exchange and promoting capital investment in manufacturing. But he was extremely skeptical of the efficacy of separating ownership from management and would have been appalled by modern financial markets which have divorced money from its primary role as a lubricant to production and trade in the real economy. An astute observer of fact with a keen historical perspective of social evolution, he drew lessons from the distant past applicable to the tumultuous times in which he lived and based his conclusions on experience rather than ideology. His contributions in thought were validated by the remarkable achievements of the Industrial Revolution, but most of what we now refer to as the service sector did not exist at the time and lay outside his field of consideration.

The world has radically changed since Smith’s days, but economics has remained strangely wedded to concepts which were brilliant insights in his time, but irrelevant, misplaced and even dangerous in our own. Smith would have been the first to acknowledge it. Early in the 20th century, the focus of economics shifted from the supply to the demand side of the trade equation, but the equation itself and the basis for valuing economic activity remained unquestioned. The reference to a price equilibrium justified the search for a system providing a higher and higher degree of certainty. It was deterministic, linked to a frozen definition in time and space. Uncertainty was thought to result from insufficient knowledge, a deficiency that could be overcome with time and eventually eliminated.

While economics clings to the static concepts of equilibrium and certainty, science has evolved over the past century towards an undeterministic view. It does not pretend to provide definitive (godlike) knowledge. Paradoxically, the more we know, the more we identify an increasing number of questions: understanding our ignorance is the first tool in the advancement of knowledge.

We now perceive that certainty is a rare exception rather than the rule. Rather than regarding that as a negative, we perceive that this uncertainty really represents an unlimited field of possibilities out of which we can seek to create positive value, as the insurance industry harnesses the uncertainty of individual events to create greater security for society as a whole. A mechanistic view of manufacturing will not serve in this age in which production volumes are enormous, time quite literally flies, needs change with lightning speed and all aspects of society – and increasingly of the whole world – have become integrated into a unified system, a living organism, that is undergoing a continuous process of rapid evolution.

The formulas of economics no longer suffice to reflect the inherent complexity and uncertainty of contemporary society. Our concept of economic time needs to change radically. In a traditional economy, time could be measured from the point at which production begins and ends with a sales transaction. In our contemporary real economy, time begins long before production or sale and extends long afterwards. Research commences years or even decades before a product is ready for market and fails to generate a marketable product more often than it succeeds. The uncertainty of that investment in research constitutes a major portion of the cost of products today.

Furthermore, we can no longer assess the cost and profit of a product or service at the precise time of delivery. The costs associated with product recalls, product liability, waste management and remediation may arise years after the sale. The delivery of many services extends over very long periods, as in the case of education, medical care and insurance, and cannot be valued in terms of discrete instantaneous transactions. Value resides in the sustained performance of a complex delivery system over time. Thus, the notion that economic value is created and can be measured at a finite point in time based on cost of production is outdated and needs to be replaced with a concept that takes into account the utilization value and utilization time with reference to the user. When utilization over time is taken into account, we rapidly discover that any hope to arrive at objective certainty (as in classical economic equilibrium) is unrealistic. Uncertainties and probabilities have become essential concepts for understanding and managing the wealth of nations. The key economic challenge today is to understand and manage risks, uncertainty and vulnerability.

As Smith understood the negative, wasteful contribution of military expenditure to national wealth, we now realize that this is only one instance of a much broader range of negative economic activities, negative in the sense that they destroy and deplete rather than augment wealth, welfare and well-being. When properly accounted for, depletion of non-renewable resources and pollution of the environment may wholly negate the beneficial effects of economic activities we once cherished with religious faith. The concept of sustainable development is based on the best use and preservation of resources, both human and material, taking into due account the notions of utilization in time and the issue of uncertainty. We need to redefine what we mean by and how we measure value as the basic reference point for the wealth and welfare of nations.

Extended monetarization of the economy was an essential component and consequence of the Industrial Revolution and the model of economic growth that has become prevalent worldwide. In recent times, it has been a common error to blithely assume that all growth contributes to human welfare. On the one hand, our per capita economic measures fail to take into account the dramatic increase in income and wealth inequality, concealing the fact that growth and rising national per capita can be associated with flat or falling living standards for large sections of the population. The numbers may indicate overall progress which reality does not reflect. The financial sector which caters disproportionately to the wealthy has been the fastest growing sector in recent decades. But do rising stock prices that boost the balance sheets of the super-rich really reflect a better life for the common man? On the other hand, monetary measures fail to reflect enormous improvements in quality of life as well as the extension of the monetary economy into activities that were previously carried out without monetary transactions.

The changes represented by uncertainty, utilization time, negative value and monetarization in economics represent quantum shifts in conception comparable in their significance to those brought about in physics by Einstein’s Theory of Relativity and Heisenberg’s Uncertainty principle. They compel us to re-examine economic thought at its very roots, to challenge once sacred beliefs and to fashion new economic theory and new measures appropriate to the economic conditions and social aspirations of humanity in the 21st Century.

When we do this, we may not arrive at greater certainty, but we most definitely do arrive at a greater awareness of the creative process and the enormous untapped potential, which are the other side of uncertainty and constitute a fundamental paradox of our existence. For, uncertainty begins to reveal itself as a field of infinite creative possibilities for the generation of wealth and the enhancement of human security.

2. In Quest of Certainty

Our conception of heaven is a world blessed with an unlimited and assured abundance of everything good. According to the Bible, Adam and Eve were expelled from the Garden of Eden and cast into a new economic world characterized by scarcity and uncertainty. They discovered a world on which Nature had bestowed a richly abundant physical and biological dowry and patrimony (D&P) of fresh air, pure water, minerals, fruit and nut-laden trees, edible and medicinal plants, animals for food and clothing, and many other riches, though not everywhere and not always in the desired quantity or quality.[*] Their descendants established human settlements on lakes and river basins where basic human needs could be most easily met by hunting and gathering. But as population expanded, Earth’s abundance proved less adequate and reliable.

After carefully observing the methods of Nature for millennium, the descendants of Adam and Eve acquired knowledge of some of her methods and even discovered ways to improve upon them. The birth of agriculture marked the first economic revolution in which human beings enhanced the natural productivity of their environment. They replaced the limitations and uncertainty of gathering Nature’s bounty with the greater abundance and security of producing their own food. Wandering tribes gave place to sedentary settlements organized around the seasonal food production cycle. To the natural and biological D&P with which the earth was endowed, human beings added to enhance their well-being a man-made cultural D&P. New facts were discovered, ideas conceived, tools fashioned, methods invented, skills developed, activities sub-divided and specialized, customs and social structures established. Thus, early humanity embarked on the path of development from ignorance to knowledge of Nature’s ways, from unstructured life in nature to the structured life of civilization, from the insecurity of dependence to the greater certainty of mastery.

The last ten millennia trace the most recent and dramatic steps in the process by which human beings acquired the knowledge to improve life on earth in quest of heavenly abundance and organized the activities of the society to translate that knowledge into practice. Through never-ending research and experimentation, they discovered new sources of energy as substitutes for wood, new varieties of food, new materials for building and crafting, new instruments and techniques with which to feed, clothe, house, hunt and war with one another. They subdivided the activities of the community into an increasing number of specialized tasks and occupations. They evolved an hierarchy of authority to ensure order, coordination and cooperation among their members. They created customs, rules, laws, systems to protect, standardize, regularize and harmonize. Each of these discoveries and inventions enhanced their capacity for survival amidst the unpredictable conditions imposed by nature.

3. Discovering the Wealth of Nations

Perhaps to their puzzlement, successive generations of our ancestors discovered that each marvellous achievement was eventually followed by new types of problems and new forms of uncertainty. Leaving the forest for the security of sedentary settlements, as their numbers grew so did their needs, creating new problems associated with larger, more complex societies. The human population grew from about 10 million in 8000 BC to a billion in 1800 AD, when Thomas Malthus forecast that that there would be insufficient resources to feed Europe’s growing population. His calculations were not wrong. As in the case of so many before and after him, his reasonable prediction was confounded by the unexpected. In this case it was the introduction of the potato from the New World. Scarcity and uncertainty were once again forestalled, but not eliminated, by new discovery emerging from the unknown.

In 1776 another keen observer and analyst, Adam Smith, published his famous treatise presenting theories that would become the foundation for economics as a specific discipline or science. At a time when French Physiocrats such as Francois Quesnay were insisting that agriculture is the principal source of national wealth, Smith had the foresight to perceive that the development of manufacturing would become a crucial weapon in the fight against scarcity.1 Published a year after James Watt patented his improved steam engine, which was soon to usher in the first Industrial Revolution, Smith perceived a wider formula for national wealth consisting of three major terms: division of labor, accumulation of capital and free markets. A new organization of work employing skilled workers and technology to perform specialized tasks manufacturing more products with less resources and at far lower cost than ever before was the basis.2 Watt’s steam engine provided the energy needed to propel a wide range of machinery and the mechanical impulse to produce the required movements.3 Smith also understood the importance of another form of D&P, monetarized D&P or Capital, as a unique social organization designed to increase the mobility of resources in time and space. Another social organization, Market, provided the maximum incentive to both agricultural and industrial producers to generate saleable surpluses rather than merely produce for self-consumption. At a time when only a tiny portion of produce entered the monetarized sector of the economy, Smith understood the increasingly important role of money and credit to promote trade.

But Smith’s conception did not end here. He was a political economist in the classical sense of the word, a branch of moral philosophy concerned with ethics and social justice. He viewed political economy as the science of a statesman or legislator whose twin objectives were to generate prosperity for the people, while also supplying the state with sufficient revenue for public services. His quest was not to discover the immutable natural laws of economics, for he understood that economy was a purely human invention. His goal was to comprehend the most effective policies to optimize the welfare of the people, the nation and the entire global community. His view encompassed economics, politics, public administration, history, anthropology, technology, management, sociology and psychology as interdependent determinants of social accomplishment.

Writing on the eve of the American Revolution in an intellectual atmosphere saturated by the idealism of freedom and equality, Smith railed against the narrow self-interest and monopolistic power of mercantilist policies, which favored some industries, businesses and classes of society over others. He exposed the inefficiency and corruption of government-authorized monopolies such as the East India Company, which the English government was forced to bail out numerous times before taking it over completely. He condemned colonialism as an exercise in vanity and advocated either the liberation of the American colonists or according them the full rights of British citizens before animosity destroyed the prospects of mutually beneficial commercial relations. He rightly predicted that America would become the world’s largest economy and the wealthiest nation on earth within a century. US industrial output grew from 0.8% of world output in 1800 to 23.6% in 1900, while Britain’s rose from 4.3 to 18.5%.4

Smith was a pragmatic advocate of free markets based on objective evidence, but he was never doctrinaire. His objective was always the welfare of the entire collective, not a belief in social Darwinism. Resigning himself to the inevitable necessity and inherent inefficiency of public administration, he praised Britain for its good governance in comparison with the other nations of Europe. His book is a remarkable record of the endless experimentation by society to arrive at the optimal blend of individual freedom and public policy. Understanding the powerful influence of business on government, he sought a mechanism to minimize this distorting influence.

Smith wrote at the dawn of the most remarkable period in human history and foresaw the gathering of social powers which were shaping the future. He perceived how the proper combination of various forms of social capital (cultural D&P) could draw upon the physical and biological endowments of earth to generate unprecedented wealth for the nations of the world. Taken together, they formed the basis for a new social organization of production and consumption with far greater capacity to meet human needs and enhance human welfare.

The technological advances of the First Industrial Revolution were primarily quantitative rather than qualitative. The tools and machines employed were extremely simple by contemporary standards and required relatively little education to build or operate. The early steam engines resembled and were based on the same principle as the common kitchen pressure-cooker. The flying weaver-shuttle involved a simple hammer mechanism to propel the shuttle to the other side of the loom. But in the latter half of the 19th century, the development of more sophisticated steam-powered ships and trains followed by the internal combustion engine and electrical power generation ushered in a qualitatively very different Second Industrial Revolution. The D&P for this new phase was human and social capital based on mental resourcefulness applied in the fields of scientific research, commercial organization and finance. Scientific developments were converted into a plethora of new products based on new industrial technologies managed by new types of publically owned and financed, multidivisional business corporations. The increasing emphasis on knowledge also created increasing demand for rapid development of human capital through expansion of the educational system to produce the increasingly diverse range of scientists, engineers, managers, technicians, marketing and investment experts needed by the new social organization.

The increasing welfare and human security generated by the two industrial revolutions account for the most rapid expansion in population and living standards the world has ever witnessed, as shown in Figure 1 below. This marriage of science, technology, organization and finance reached full maturity after World War II and was primarily responsible for the 25 years of continuously high rates of growth in most industrialized and industrializing countries.

Figure 1. World Population and Per Capita GDP (PPP) from 1000 AD to 20015

4. Monetarization of Economy

The monetarization of the economy was an essential characteristic of the Industrial Revolution. Money of various types and forms has existed for thousands of years – shells, animals, corn, tobacco, copper, gold and silver were widely used in different times and places. However, until the beginning of the Industrial Revolution only a small part of economic activities involved the exchange of money. Money is one of the greatest of all human inventions. As language radically increases the capacity of human beings to communicate and interrelate, money acts as a catalytic medium to facilitate economic exchange. Its basis is some form of inherently valuable or symbolic object – wampum beads, coins, a deposit receipt for gold or some other commodity, bank notes, bills of exchange, credit cards, digital entries on a computer screen, or something even more ethereal and esoteric. But regardless of its form, the value of money arises from its general social acceptance and public confidence in the social organizations designed to issue, accept, store and regulate it. Its power is based on a system of standardized values by which all products and services can be measured on a common scale. Thus, the transition to a monetarized economy marks a major landmark in the evolution of complex social organization. The spread of money extends the reach of the social structure to encompass domains of life that previously lay beyond the organized sector.

In an agrarian society the vast bulk of production and consumption is for self-consumption and does not involve money. Agriculture thrives under conditions in which surplus production can be exchanged for other types of goods, otherwise there is little incentive for a farmer to produce more than a family can consume. Thus surplus gives rise to trade. Trade becomes organized in the form of markets, recurring physical locations or systems for the exchange of goods. Barter trade is limited by the difficulty for both buyers and sellers to find others who have something of equal value that they are willing to exchange – which depends on a double coincidence. Thus, trade gives rise to money, a medium for valuation of all products according to a common scale, which facilitates exchange over vast distances and permits storage of value over long periods of time. Trade in Renaissance Europe flourished after the adoption of Hindu Arabic numerals in the 10th century and double-entry bookkeeping in the 13th century made it far easier to calculate volumes and determine the profitability of transactions. Bills of exchange for goods traded across the continent became an important form of commercial credit, giving rise to the forerunners of modern banks. Thus, accurately minted coins established international markets, accurate accounting methods, commercial credit institutions operating on a foundation of legal rights and judicial safeguards constituting the basis for the rise of the monetarized economy.

Until the Industrial Revolution, the use of money was primarily confined to trading activities. No more than one percent of the life of an average European was organized in a monetarized system by selling their time for money or using money for trading; whereas today the average has been estimated at 16 percent or more.[†] During the feudal period, even large feudal landlords possessing thousands of acres of arable land frequently had little use for money, for there was little they could purchase in exchange for their crops. They commonly used their surplus production to feed large numbers of unproductive retainers, often a thousand or more, who endowed the lord with social status in times of peace and an army for defense or conquest in times of war. Thus, even kings and aristocrats often possessed little money, since land was the true measure of wealth.

The fact that before 1800 banking activities were often carried on by marginal groups which did not really belong to the upper classes shows that money was still regarded as a secondary tool of societal organization, rather than an integral part of the social structure. Historian Will Durant recounts an incident just before the French Revolution when the very wealthy wife of a leading Parisian banker was invited to an aristocrat’s home for a gathering of high society women. When time came to sit down for dinner, the banker’s wife was asked to eat in the kitchen. After the Revolution broke down the insurmountable barriers between birth and wealth in France, money came into its own as a premier symbol of status and a source of social power. Across the English Channel, the more pragmatic English were making an evolutionary accommodation with money. The younger sons of English aristocrats were permitted to seek their fortunes in business while many an insolvent but titled elder son condescended to marry a woman of wealth from the middle class in order to replenish the economic resources of an impoverished estate and tarnished coat of arms.

Orio Giarini, Member, Board of Trustees, World Academy of Art & Science; Member, Club of Rome; Director, The Risk Institute, Geneva, Switzerland
Garry Jacobs, Member, Board of Trustees, World Academy of Art & Science; Vice President, The Mother’s Service Society, Pondicherry, India
1. Robert Heilbronner, Les Grands Economistes (Paris: Seuil, 1971).
2. Roy Campbell and Andrew Skinner, Adam Smith (London: Routledge, 1982).
3. David Landes, The Unbound Prometheus (Cambridge: Cambridge University Press, 1972). This is one of the best books on the history of the Industrial Revolution.
4. “Relative Shares Of World Manufacturing Output 1750-1900” Ministry of Law and Justice
5. Ivo Šlaus and Garry Jacobs, “Human Capital and Sustainability,” Sustainability 1, no.3 (2011):97-154.
[*] The word Dowry is used in conjunctìon with the word Patrimony to ensure that the notion of “global assets” is sufficiently wide to encompass both feminine and masculine components
[†] Evaluation made by Ivan Illich in a paper on Shadow Work, presented at a conference at the University of Kassel, September 1980.

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