Evolution of Economics

From Mbscientific_wiki

Similarly economics evolved over the past few thousand years as well. It is believed that domestication of animals such as cattle, along with the advent of agriculture gave rise to the first significant modes of trade some 10,000 years ago. The cattle and the crops in essence were measures of wealth, as they are today in many tribal cultures in Africa and Asia. We see evidence of the first form of banks, as repositories of wealth in terms of grain, animals and precious material such as gems and metals around 5000 years ago in Mesopotamia. What made such repositories possible were governance, which imposed and enforced the rule of law, writing which provided mechanisms for the keeping of records of deposits and withdrawals, and science of agriculture, animal husbandry and tool making, etc. which made the goods available in the first place.

We see the first results of the merger of governance, religion, science and economics in the Great Pyramid of Giza in Egypt some 4500 years ago. This spectacular result was just the kind of thing that memetic evolution needed to firmly establish governance, religion, science and economics as the way to establish social cohesion.

We see the first signs of silver currency, in form of ingots in the Middle East by 2200 BC. We see the first evidence of coins by 650 BC in Asia Minor. The significance of these events is that it tightly binds government with trade. Prior to that any two parties could engage in an act of barter as a rule. But when legal tender was established the rules changed. Now the two trading parties needed a third party, the government, which created and guaranteed the value of the legal tender. So by 600 BC we see the personification of the third party in the form of the merchant banker in Asia Minor and soon after through out the Greek city-states. The banker is directly bound to the government because that is the source and the guarantor of the legal currency. The banker is also directly bound with the traders whomever they may be. Sprinkle these bankers all over the ancient world and you get a trading network that crosses national territories, resulting in the start of the international trade and a directly bound international community.

So from 500 BC on we have had a flow of trade throughout nations which were mortal enemies. It provided the binding glue for societies that would be in a normal state of conflict. It provided for the exchange of goods, ideas, technology, belief systems and all of the things that are needed to create a transnational community, even though most of the time they desperately sought to kill each other.

Another significant event in the evolution of economics where the introduction of stocks. It is not clear exactly when that took place, but it isn't hard to imagine early bankers pooling the resources of many clients into a large venture that they individually wouldn't be able to afford. That established the advent of big business. Prior to that only governments could afford big projects, but those were all intra-national, i.e. within their domains of influence. Stock offerings allowed businesses to be established internationally. That meant that investors that would normally be mortal enemies could forge tight bonds based on economic interests. This was and is to this day the key to forging a tightly bound international community out of what could otherwise be nations in conflict, with different backgrounds, languages, belief systems and otherwise little commonality at all.

About 950 AD paper money was first introduced in China and shortly thereafter gained ground to become the preferred tool of conducting financial transactions. Prior to that fortunes where tied in to physical objects such as gold, silver etc. So the amount of wealth was capped by the availability of those objects. So economics itself was capped by the availability of those objects. Paper money has a virtual aspect to it. Though the paper is physical, its worth is a virtual number printed on the paper. This single facet removes the artificial cap of availability of objects such as gold or silver. Therefore, paper money, and monetary notes in general, freed up economic activities to fit the commerce at hand as opposed to fitting the gold or silver at hand. But that created another problem.

As the scale of trade increased unfamiliar situation pertaining to money exchange became problematic, these are concepts the we now understand as parts of macro-economics: inflation, price elasticity, supply and demand, capital formation, taxation capacity, valuation, money printing. These terms began to force a scientific approach to economic analysis after the renaissance period. By 17 and 18th centuries there were myriad of schools of economic thought. But perhaps the most significant implementation of them all, taking advantage of new political realities in the newly born United States, was Hamiltonian economics, dreamt up and implemented by Alexander Hamilton, among others, in the late 18th century. He in essence created the modern stock market. Where as before stocks were bought by a few wealthy merchants, in the new American political regime everyone could be a shareholder. That system, capitalism, by which we live today, allows for raising vast amounts of capital that even governments couldn't dream of. That allowed for the rapid implementation of industrial revolution and later military industrial complex and now knowledge revolution. This system allowed for unimaginable economic global expansion with all of the social implications that it encompassed. And it is the system within which the industrial world lives today. However, as successful as it has been, it has serious drawbacks among which is the creation of few super wealthy classes and vast amounts of poor workers with no economic rights.

The backlash to that system were socialist economic philosophies and more significantly the communist economic philosophies of Marx and Engels (19th century). The outcome of that was the violent overthrow of the super rich classes and the government regimes that went along with them. The communist block of nations was born. From an economic perspective (along with everything else as it turned out) communism was a disaster from the get go. Capital pools shrank, poverty exploded, and what on paper was to engender universal equality became the rule of the mob personified in a dictator. Having rooted out religion and therefore without any moral compass, every single communist country became the domain of one strong man or another that ruled by fear. And as we know, by the end of 20th century every single communist country had practically crumbled and communism as a global economic movement was finished.

However socialism in many cases merged with capitalism creating various forms of social capitalism almost everywhere. In some countries, Scandinavia for example, the economic system is in fact social capitalism. The rest of Europe and Canada also practices forms of social capitalism. United States has stayed faithful to its purely capitalistic roots, although even here social entitlement programs are heavily funded.

By late 20th century a new form of economy emerged, the knowledge worker economy. It was significantly different from anything that appeared before it. Traditionally, trade involved the exchange of money with goods, physical goods. These goods included food stuff, tools and objects, objects of necessity or desire, otherwise they were material in substance. The knowledge economy puts that notion on its head. Here, knowledge itself is the stuff of currency. The goods are now abstract in nature. Software, movies, recorded music, "how-to" books, etc., we all buy this stuff and what is takes to make them is knowledge. But it hardly stops there, consider the impact of the knowledge of engineering, economics, politics, medicine, mathematics, and the list goes on and on. Knowledge economy even permeates traditional economies by rapidly increasing productivity in a variety of traditional sectors. There are entire university systems dedicated to creating and training these knowledge workers for the endless parade of jobs that are in demand. And the investment banking sector is betting billions, trillions of dollars over time, to develop and gain ownership of knowledge that is yet to be established, giving (hopefully!) rise to the goods and services of the future. To fully understand the scope of the knowledge worker economy it is important to understand the credit based economy. Credit, as in various forms of borrowing, has existed basically ever since trade started. But, in the case of the knowledge worker economy it becomes the financial foundation as well the fuel. To (over) simplify the picture, the manufacturer of knowledge goods, as well as its buyers, borrow from the banks which borrows from the government, which prints and regulates monetary notes. As the size of the economy grows (more knowledge goods are produced and sold), the government simply increases the supply of monetary notes to support the growing economy. Say in the case of purely knowledge based products, software, games, books, movies, music, expert services, etc. there is nothing physical in that monetary flow to hinder or cap the flow. The size of the economy can expand unrestricted by material availability. In applied sectors of the knowledge economy, permeating established genres of engineering, medicine, agriculture, architecture, etc. knowledge products and expert services can proliferate without being capped by material restrictions as well, by enlarge. Compare that with say material based industries such as oil, or wood or steel; they are capped by the availability of the materials in question. Moreover, knowledge products are generally produced with a relatively small energy overhead required to make them, compared to material based industries. Finally, the knowledge worker economy is inherently global.

Knowledge economies have two morphological markers:

1- A System and a Culture of learning- The System of learning consists of primary, secondary, trade, university, and post graduate educational institutions. The Culture of learning instills the fact that learning is a constant in the knowledge economy. In fact the real learning begins after graduation from the System and entering the workforce. It is on the job that real learning and the application of knowledge in building and selling of knowledge products come to bare fruit. The System is the foundation of the knowledge economy, the Culture is its engine.

2- Economic Freedom expressed in free trade networks, specifically the Internet- Economic Freedom lets knowledge products proliferate without bounds. The economic transactions are by enlarge carried out electronically, these days primarily on the Internet.

As we will see later on, the impact of this evolutionary morphology is huge. The knowledge worker economy has already created immense amounts of goods, services and wealth. The hot markets of present and future are in essence driven by the knowledge worker economy. We will cover this topic in much more detail in the second part of this exercise.