Economic Evolution

 An ‘economy’ might be defined by the financial state of a region in terms of its production and consumption of goods and services and the supply of money. However, while production and consumption drive the engine of an economy, the power of this engine, both in terms of its economic and political scope, might now be best quantified in terms of its value within any monetary exchange.

In many ways, this section of the discussion might have been called ‘Money Evolution’ for while wealth can be equated to the means of production and other tangible resources, the transfer and distribution of wealth now invariably takes place through the digitised media of money. In this respect, money has already evolved beyond being a physical promissory currency to become an abstracted concept that may be created and exchanged within computerised balance sheets. Today, private banks can create ‘money’ via the mechanism of loans and interest, such that 97% of all the money in circulation is digitised with only 3% existing in the form of the fiat currency created by the government. However, in recent years, the central banks have found their own way of creating new money called ‘quantitative easing’ .

Note: While we might understand the inherent fragility of any money system, be it fiat or digitised, we have all become dependent on this system of exchange and most of us have to work our entire life to secure an existence in the modern world through its acquisition. Therefore, we might want to contemplate whether this is the only system possible in any of the brave new worlds scenarios under consideration.

Before continuing, we might first make reference to earlier discussions related to economics, although not necessarily orientated towards an evolutionary future. In this respect, the first reference entitled ‘The Evolution of Economics’ is somewhat misleading as the scope of evolution is from the past to the present and was intended as a basic primer for my own learning process. The second reference entitled ‘Economics: Fact or Fiction’ was more of an attempt to understand some of the issues surrounding the workings of various economic models – see ‘Economic Model Dynamics’ for more details. This framework was then extended under the title The Economic Debate’ to cover the issues of credit and debt along with the wealth inequality followed by a discussion of the development of various ‘Monetary Systems’ that may be more relevant to the current ‘brave new worlds’ discussion. However, while this section is more interested in the evolution of economics as an important part of the developing human ecosystem, we possibly need to provide some initial framework from which we might proceed to discussed future developments. In this respect, we might again reference the discussion entitled ‘The Economic Debate’ and reproduce the following diagram as a general model of the components within today’s economic system, although we do not need to replicate the explanation in full. Of course, while this model is a gross simplification of all the actual structural complexity, it may serve as an illustration of some of the key components within an economy of any nation-state and of some of the basic interactions within the wider framework of other political and social infrastructures.

 

Note: Within this model, the central bank is considered to be an extension of government, which sets the monetary policy , which we might assume is intended to compliment the fiscal policy set by the government. While the independence of the central bank can differ in each nation-state and, in some cases, may be privately owned, we might assume that any political power in government will not allow the central bank to completely undermine its legislative authority, although this assumption is possibly somewhat naïve.

Within the simplified model above, we might get the general idea of how some measure of money is required to flow between the various components of this model, although each may a wider purpose and rationale for existing. However, any evolution of the economic model will potentially require change to any and all these components, which suggests that change will not come easily or quickly unless triggered by disruptive events. One obvious disruptive event is that markets can be changed, and manipulated, such that the balance of power and influence within the system as a whole is also changed, i.e. it has to evolve or perish. 

Comparative advantage like natural selection is an idea that seems simple and compelling to those who understand it, but about which intelligent people somehow manage to get confused time and time again and find this particular idea impossible to grasp. Of course, they say that they understand it but they regard it as oversimplified or invalid in the modern world. It is a harder concept than it seems, because like any scientific concept it is actually part of a dense web of linked ideas. It is truly, madly, deeply difficult. But it is also simple & compelling to those who understand it, utterly true, immensely sophisticated ... and extremely relevant to the modern world”. Paul Krugman

Today, the current and generally accepted wisdom appears to require an economy to grow, year-on-year, otherwise it may be considered to be ‘stagnating’ or   ‘in recession’ . However, while we might assume that all the components of the model shown above may wish to contribute to economic growth, albeit for possibly very different reasons, we possibly need to clarify between what may be real growth, in terms of production and people, and artificial growth associated with monetary inflation and debt, which is next topic of discussion.