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volume II: Synopsis

Section V: Applied Divinity

page 37: Economics

The root of effective religion is effective economics, since the dissipative nature of life requires that we must all consume to live. Although capital based means of production are excellent for generating wealth, they tend to favour the concentration of wealth and fail in distribution. Good religion seeks not only to establish the environment necessary for the creation of wealth, but also to maximize the stability of society by making certain that everyone gets enough to live well. Economics - Wikipedia

The activities at the heart of economics are production, trade, and consumption. Trade is the network that connects producers and consumers. Trade may be direct, barter, or more generally, indirect, involving money. Instead of swapping a sheep for a goat, one sells the sheep and buys a goat with the proceeds. The monetary value of sheep and goats is decided in markets. Markets, if they are working properly, find a fixed point (a price) that balances the individual and collective desires and choices of buyers and sellers., Trade - Wikipedia

War is also an economic activity, and we can identify a spectrum of economic activity running from fair trade to war, the antithesis of fair trade. Ideal fair trade is free and just. Free meaning that traders may meet and deal with one another at their own initiative. Just meaning that force, deception and inside knowledge are not used to gain unfair advantage. Insider trading - Wikipedia

Modern economics dates from the time of Adam Smith's Wealth of Nations. Smith spoke of the creative nature of economic activity as an 'invisible hand' which identifies self-interest with the common good. In evolutionary terms, there is a fitness advantage in cooperation which explains why trade and trading networks tend to expand.

For each of us involved in economic activity there are costs (like the tedium of going to work) and benefits (pay, gossip, self-esteem and so on). The productivity of an activity is the ratio of cost to benefit. Cost-benefit analysis - Wikipedia

Smith drew attention to the improvements in productivity arise from the division of labour and the use of capital goods (machinery, including software and intellectual property) to facilitate production. The natural religion project is itself a capital formation of intellectual property designed to improve our production of satisfaction. Each of us is deeply embedded in an environment of machines to facilitate our lives, but we must control the machines rather than vice versa if we are to control our lives.

Each individual striving for increased productivity contributes to the overall increase in productivity by incremental improvements to the methods of production. The operation of this invisible economic hand at the human scale is an instance of its operation at all scales. It embodies the simple fact that in a networked system local improvements can spread very quickly to the whole network, thus enabling it to bootstrap itself to higher levels of productivity.

The 'classical' economics deriving from Smith and his descendants bases its analyses on a search for economic equilibria, but the reality of business cycles shows that the real system operates far from equilibrium. To understand these cycles, we need to look at the relationship between money and reality. Classical economics - Wikipedia

One of the most effective contributions to economic productivity is money. Money is a channel that communicates value by a simple count, a number of monetary units (eg dollars). Monetary values can be manipulated using ordinary arithmetic to enable us to see the advantages and disadvantages of complex deals. Money - Wikipedia

Monetary models of economic events are helpful if the monetary valuations assigned to goods are realistic. Standard economic theory holds that we assign monetary value by markets, where the buyers and sellers of particular goods can reach agreements. Experience has shown, however, that markets can fail to establish realistic valuations, sometimes with catastrophic results.

Many classical economists held that the various 'invisible hands' make the economic system self regulating, but Great Depression and the Global Financial Crisis, which both arose from lack of regulation, have demonstrated that this is not the case. Lenders, including bank depositors, must be protected from loss by requiring the banks to maintain prudent capital reserves and lend only to borrowers with demonstrable ability to repay. If this is not the case, lenders will naturally refuse to provide credit and the system of monetary exchange will fail for lack of cash flow. Great Depression - Wikipedia, Financial Crisis Inquiry Commission, Late-2000s financial crisis - Wikipedia

Money is a public communication network, like public roads and the public internet. As with the roads, control of the monetary system requires knowledge of the cashflows in various channels. Unfortunately many people, corporations and governments treat money as private property and are very secretive about their financial dealings. It is becoming clear, however, that the stability of the economic and political systems and the control of organized crime require clear public knowledge of the major cash flows in the world.

We assume that the stability of a community is related to its power of dealing with problems as they arise. This power in turn depends on what proportion of the population have the resources and the will to actively contribute to the preservation of their community. Such resources relate, in turn, to the returns each individual gets from being a member of the community. If the rewards are perceived to be inadequate, people may be motivated to withdraw their support and secede from the economic and political organisation.

The normal workings of the capitalist system tend to concentrate wealth. It is necessary for the common good, that this tendency to concentration is countered. Democratic societies tend to develop a taxation and social security system which recognises that we are all parts of a larger body. Our overall health depends both upon the health of individuals in society and the health of the public networks for the transmission of people, goods, information and value. Tax - Wikipedia, Social security - Wikipedia

(revised 27 May 2013)

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Further reading

Books

Click on the "Amazon" link below each book entry to see details of a book (and possibly buy it!)

Bernstein, Peter L, The Power of Gold: The History of an Obsession, John Wiley and Sons 2000 'Bernstein's account of gold's past 20 years is particularly good - he was an executive at the Federal Reserve of New York, which handles foreign exchange for the Federal Reserve system.' Anthony Vice, Nature 409:136 11 January 2001. 
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Buchan, James, Frozen Desire: the meaning of money, Farar, Strauss and Giroux 1998 Jacket: 'In Buchan's view, money is civilization's greatest invention. ... As Buchan explains, money is "frozen desire" - and because money can fulfill any mortal purpose, for many people the pursuit of money becomes the point of life. In a learned and elegant survey, Buchan illuminates the many different views of money across the centuries. ... Whether or not money is humanity's greatest invention, its meanings reveal a great deal about human nature; in showing us what we think of money JB shows is who we are.' 
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Hawken, Paul, and Amory B. Lovins, L. Hunter Lovins,, Natural Capitalism : Creating the Next Industrial Revolution, Back Bay Books 2000 Traditional capitalism, the authors argue, has always neglected to assign monetary value to its largest stock of capital - namely the natural resources and ecosystem services that make possible all economic activity, and all life. Natural capitalism, in contrast, takes a proper accounting of these costs.' 
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Keynes, John Maynard, The General Theory of Employment, Interest and Money, Macmillan 1936-1964 The classic twentieth century economics text that revealed that there are more ways to get an economy to grow than simply balancing the books.back
Levi, Margaret, Of Rule and Revenue, University of California Press 1988 Jacket: A magnificent book, one of the best blends of rational choice theory and historical analysis I've seen ... [Levi's] resolute focus throughout on rulers' efforts to balance extraction of revenues against the compliance of their polities organises this vast collection of material into a tight, compelling account.' Russell Hardin 
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Schumacher, E F, Small is Beautiful: A Study of Economics as if People Mattered, Blond & Briggs 1998 'The most obvious facts are the most easily forgotten. Both the existing economic order and too many of the projects advanced for reconstructing it break down through their neglect of the truism that, since even quite common men have souls, no increase in material wealth will compensate them for arrangments which insult their self respect and impair their freedom. A reasonable estimate of economic organisation must allow for the facf that, unless industry is to be paralysed by recurrent revolts on the part of outraged human nature, it must satisfy criteria which are not purely economic' R H Tawney Religion and the Rise of Capitalism 
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Smith, Adam, The Wealth of Nations: An Inquiry into the Nature and Causes, Modern Library 1994 'First published 1776. The eighteenth century classic that laid the foundation for modern political economy. Here Smith descibes the work of the 'invisible hand' which guides a group of people freely acting in accord with their human nature to form an orderly and coherent social structure. The bible of laissez faire (let it be) capitalism.' 
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Wiles, Peter John de la Fosse, Economic Institutions Compared, Basil Blackwell 1977 Jacket: 'In this large and polymathic book, Professor Wiles looks at the various economic systems "with a dry eye, and at arm's length". His dispassionate analysis of how systems and institutions function and interact ecompasses the Advanced Capitalist Economy, The Soviet-type Economy, Underdeveloped countries and much more. This is perhaps the first textbook of its kind to deal fully and in context with the Yugoslav system, French Planning, Full Communism, the kibbutz, the hippie phenomenon.' 
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Links
Adam Smith An Inquiry into the Nature and Causes of the Wealth of Nations 'But the annual revenue of every society is always precisely equal to the exchangeable value of the whole annual produce of its industry, or rather is precisely the same thing with that exchangeable value. As every individual, therefore, endeavours as much as he can, both to employ his capital in the support of domestic industry, and so to direct that industry that its produce maybe of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.' Book IV Chapter II back
Adam Smith - Wikipedia Adam Smith - Wikipedia, the free encyclopedia 'Adam Smith (1723 – 1790 ) was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations. The latter, usually abbreviated as The Wealth of Nations, is considered his magnum opus and the first modern work of economics. It earned him an enormous reputation and would become one of the most influential works on economics ever published. Smith is widely cited as the father of modern economics and capitalism.' back
Capital (economics) - Wikipedia Capital (economics) - Wikipedia, the free encyclopedia 'In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process. Capital is distinct from land in that capital must itself be produced by human labor before it can be a factor of production.' back
Classical economics - Wikipedia Classical economics - Wikipedia, the free encyclopedia Classical economics is widely regarded as the first modern school of economic thought. Its major developers include Adam Smith, Jean-Baptiste Say, David Ricardo, Thomas Malthus and John Stuart Mill. Adam Smith's The Wealth of Nations in 1776 is usually considered to mark the beginning of classical economics. The school was active into the mid 19th century and was followed by neoclassical economics in Britain beginning around 1870, or, in Marx's definition by "vulgar political economy" from the 1830s. The definition of classical economics is debated, particularly the period 1830–70 and the connection to neoclassical economics. The term "classical economics" was coined by Karl Marx to refer to Ricardian economics – the economics of David Ricardo and James Mill and their predecessors – but usage was subsequently extended to include the followers of Ricardo. back
Cost-benefit analysis - Wikipedia Cost-benefit analysis - Wikipedia, the free encyclopedia 'Cost–benefit analysis (CBA), sometimes called benefit–cost analysis (BCA), is a systematic process for calculating and comparing benefits and costs of a project for two purposes: (1) to determine if it is a sound investment (justification/feasibility), (2) to see how it compares with alternate projects (ranking/priority assignment). It involves comparing the total expected cost of each option against the total expected benefits, to see whether the benefits outweigh the costs, and by how much.' back
Economics - Wikipedia Economics - Wikipedia, the free encyclopedia 'Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek οἰκονομία (oikonomia, "management of a household, administration") from οἶκος (oikos, "house") + νόμος (nomos, "custom" or "law"), hence "rules of the house(hold)". Political economy was the earlier name for the subject, but economists in the latter 19th century suggested 'economics' as a shorter term for 'economic science' that also avoided a narrow political-interest connotation and as similar in form to 'mathematics', 'ethics', and so forth.' back
Financial Crisis Inquiry Commission Financial Crisis Inquiry Commission Report 'To view the report of the Financial Crisis Inquiry Commission, you can download the report in full or download a section of the report by clicking on the links below. You can also order the Commission's authorized and official versions of the report by clicking on your preferred option in the box on the right.' back
Great Depression - Wikipedia Great Depression - Wikipedia, the free encyclopedia 'The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s. It was the longest, most widespread, and deepest depression of the 20th century.' back
The Wealth of Nations - Wikipedia The Wealth of Nations - Wikipedia, the free encyclopedia 'An Inquiry into the Nature and Causes of the Wealth of Nations, generally referred to by its shortened title The Wealth of Nations, is the magnum opus of the Scottish economist and moral philosopher Adam Smith. First published in 1776, it is a reflection on economics at the beginning of the Industrial Revolution and argues that free market economies are more productive and beneficial to their societies. The book is a fundamental work in classical economics.' back
Insider trading - Wikipedia Insider trading - Wikipedia, the free encyclopedia 'Insider trading is the trading of a corporation's stock or other securities (e.g. bonds or stock options) by individuals with potential access to non-public information about the company. In most countries, trading by corporate insiders such as officers, key employees, directors, and large shareholders may be legal, if this trading is done in a way that does not take advantage of non-public information. However, the term is frequently used to refer to a practice in which an insider or a related party trades based on material non-public information obtained during the performance of the insider's duties at the corporation, or otherwise in breach of a fiduciary or other relationship of trust and confidence or where the non-public information was misappropriated from the company.' back
Late-2000s financial crisis - Wikipedia Late-2000s financial crisis - Wikipedia, the free encyclopedia 'The late-2000s financial crisis (often called the Global Recession, Global Financial Crisis or the Credit Crunch) is considered by many economists to be the worst financial crisis since the Great Depression of the 1930s. . . . The financial crisis was triggered by a complex interplay of valuation and liquidity problems in the United States banking system in 2008.' back
Market - Wikipedia Market - Wikipedia, the free encyclopedia 'A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services (including labor) in exchange for money from buyers. It can be said that a market is the process in which the prices of goods and services are established.' back
Money - Wikipedia Money - Wikipedia, the free encyclopedia Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context.[1][2][3] The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past, a standard of deferred payment.[4][5] Any kind of object or secure verifiable record that fulfills these functions can serve as money. Money originated as commodity money, but nearly all contemporary money systems are based on fiat money.[4] Fiat money is without intrinsic use value as a physical commodity, and derives its value by being declared by a government to be legal tender; that is, it must be accepted as a form of payment within the boundaries of the country, for "all debts, public and private". back
Social security - Wikipedia Social security - Wikipedia, the free encyclopedia 'Social security is primarily a social insurance program providing social protection or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. . . . The right to social security is recognized in the Universal Declaration of Human Rights and the International Covenant on Economic, Social and Cultural Rights.' back
Tax - Wikipedia Tax - Wikipedia, the free encyclopedia 'To tax (from the Latin taxo; "I estimate") is to impose a financial charge or other levy upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities. Taxes consist of direct tax or indirect tax, and may be paid in money or as its labour equivalent (often but not always unpaid labour).' back
Trade - Wikipedia Trade - Wikipedia, the free encyclopedia 'Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and services. Later one side of the barter were the metals, precious metals (poles, coins), bill, paper money. Modern traders instead generally negotiate through a medium of exchange, such as money. As a result, buying can be separated from selling, or earning. The invention of money (and later credit, paper money and non-physical money) greatly simplified and promoted trade. Trade between two traders is called bilateral trade, while trade between more than two traders is called multilateral trade.' back

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