By Michael F. Hoexter, Ph.D.
Principles of Mixed Economies and Their Study
The challenge goes out to all of those who claim to know something about the macro-economy and society more generally to refute, dispute, modify or amend these principles listed below. Additionally, after public discussion, having arrived at a perhaps-truer version that accords with the evidence, to go on and challenge in their professional and everyday lives unreal and dysfunctional beliefs about how our economies and human civilizations actually work.
1) Economics as taught in most major universities has had the tendency to emphasize the desire of individuals for personal material gain and the satisfaction of inscrutable individual wants over the social dimensions of economic life.
2) The prototypical individual in mainstream economics, “Economic Man” or homo oeconomicus, is assumed to be a prodigious calculator of his or her own advantage, so prodigious that it would be impossible for people to execute the calculations ascribed to them.
3) The characteristics of “Economic Man” promoted by the supposedly neutral discipline of economics does not correspond to either the micro-level experience of individuals in economies nor does it create a stable framework for understanding the functioning of the macro-scale institutions of economic life.
4) Using these erroneous assumptions, the mainstream institutions and profession of economics have tended in reality to reinforce and even encourage the asocial and anti-social tendencies of people.
5) Human beings are social animals with a genetic endowment that predisposes people towards building social relationships but our genome and its expression also include some asocial and anti-social impulses, which have been celebrated and magnified by conventional economics.
6) Biological selection (survival to the next generation) for humans and other social animals, occurs on multiple levels, both on the level of the individual and on the level of the group.
7) In addition to the drive to form social relationships, the physiology of human beings (as in other living organisms) requires constant input of energy and chemical nutrients to live, grow and reproduce.
8) Because of these energetic requirements, biological drives compel human beings to find, consume and manipulate sources of usable energy and nutrients that become the primary basis of human goals and purposes.
9) More complex social goals are derived from, though not identical to, basic social and asocial biological drives.
10) Human beings’ highly-developed ability to manipulate objects has led to people transforming natural environments for human use, most particularly in the building of shelter, public architecture, cities and roads as well as in agriculture, forestry, and fisheries.
11) Social cooperation and an increasingly sophisticated division of labor have accelerated this ability to transform natural environments for human use.
12) Economics/political economy is in part the study of how people singly and in groups use limited means and various means of communication to achieve these individual and social ends/purposes.
13) People are not always aware of the purposes or ends they seek to achieve nor, if they are aware, do they necessarily set out in a methodical or planned way to achieve these purposes.
14) Economics/political economy, in conjunction with other social sciences, is also the study of the actual, sometimes circuitous, path that people take to act upon the world and society to achieve their purposes, including their natural emotionality, sociality, perceptual limitations, national/regional material culture, and real abilities to calculate and compare potential outcomes.
15) Some ends or purposes are private purposes exclusive to a given individual, some are common purposes that are virtually the same in every individual, while others are group purposes or goals, that only emerge in social aggregates of a given size.
16) The purposes of groups and the purposes of their members can coincide but at points can also conflict.
17) The pursuit of similar individual goals or purposes by different people at the same time can cause conflicts as people compete over available social and natural resources.
18) The purposes and interests of human groups are not identical to the sum of the individual interests of each of its members. Each social group displays in aggregate emergent properties that evolve as part of the interaction of the group’s members, properties which are not necessarily present in each individual member in isolation.
19) Human groups have grown in size over the course of evolution and currently most humans participate in a layered composite of social groups that vary in size from a couple or family to all of humanity.
20) For the last 5000 years, the institutions of the state have become the most developed means of social coordination to achieve large group or common purposes.
21) Macroeconomics is the branch of economics that has attempted to describe and optimize large-group economic phenomena and large group interactions in the economy, in particular as regards the impacts and actions available to governments and groupings of governments.
22) Politics, which in larger groups is most often attached to government, is a means to determine what is the aggregate interest of a given social group. Polities, the social groups where politics occurs, have historically originated by sharing a language or common ethnicity.
23) Politics and the institution of government are means of social coordination that can under many circumstances avoid open violence and bloodshed, restricting or canalizing anti-social tendencies that are also part of the human constitution.
24) The attempt to isolate an “economics” independent of politics starting in the late 19th Century has distracted economists from rational consideration of the role of politics and the institutions of government within the economy, as well as the interaction of their policy prescriptions with the political realm as it actually exists.
25) Economics as taught in most universities in the early 21st Century restricts itself for the most part to the study of markets with the assumption that markets exist as a detachable and independent component of society and the economy, distinct from government and politics.
26) Markets or proto-markets with supporting functions from governments have, to date, been the most developed means of social coordination to achieve private individual purposes.
27) Markets are social institutions by which two parties with divergent roles, a buyer and a seller, find each other and exchange a good or service of value to the buyer at a price that is in the short run agreeable to both parties involved.
28) Markets assume the pre-existence of a currency accepted by buyers and sellers as a representation of value.
29) Most often issued or administered by governments, monetary systems have developed over the past 5000 years to account for debts and as a medium of exchange of goods in markets used by both governments and private actors.
30) As economies have evolved, so have monetary systems, with the most recent transformation in monetary institutions occurring with the emergence of fiat currencies in the 1970’s.
31) Capitalism, our current economic system thoughout much of the world, is predicated upon the predominance of market exchange where the goal of economic activity is the accumulation of monetary units via sale of goods or sale of assets, all denominated in units of currency.
32) Capitalism has been an extremely dynamic economic system that has spurred unprecedented rapid growth in technological development
33) Capitalism has also led to substantially increased material wealth in many societies, the distribution of which varies greatly within those societies and also between societies, over space and time.
34) Market communication and activity are sensitive to levels and changes in prices of desired goods and fixed assets as well as the availability of goods, services and assets overall.
35) Numerical pricing of goods and services enable people to compare the offerings of various goods and to establish ranking of which of their desires or needs can or ought to be fulfilled at any one time.
36) With the aid of stabilizing social institutions including government, markets in capitalism are a flexible and adaptable social institution, combining creativity and destructiveness.
37) Via the activities of entrepreneurs and entrepreneurial activity in general, markets encourage opportunistic use of existing social and natural conditions to achieve goals desired by a segment of the public.
38) Without the provision of public goods, for the most part by government, such as a legal system, a currency, education system and transportation infrastructure, modern markets could not function.
39) Markets are prone to fluctuations, fads, and panics, as the motivation for personal gain and the encouragement of risk taking in the hope of gain, interact with various forms of social influence, non-synchrony between economic sectors, and natural and social limits to any given economic trend.
40) Financial markets and markets for tradable real assets are, in particular, prone to catastrophic failures due to periodic panics combined with the development of excessive indebtedness of market participants over time.
41) Without decisive political leadership, well-designed and implemented regulations and taxation regimes designed to orient market participant behavior towards broader social goals, markets in the capitalist economic system encourage self-seeking behavior and tend to exaggerate social and economic inequality.
42) Those who have lower and middle incomes have the highest propensity to spend what income they receive, while those with higher incomes and greater wealth have a lower propensity to spend per unit currency received.
43) Those with a higher income and wealth have the greatest ability to save a portion of their income, as, by definition, they have the ability to satisfy their basic needs with a smaller fraction of their income.
44) Because of the tendency towards concentration of wealth and assets in capitalism, there is also a tendency towards shortfalls in overall demand for goods and services, as wage levels stagnate or diminish yet continued economic growth requires increased buying power.
45) A “mixed economy” is the most accurate description of major national economies as they have developed over the past 300 years, where there is a functioning state and widespread market exchange. Non-mixed economies include the few remaining state-dominated command economies (North Korea, Cuba) and “failed state” economies (Somalia).
46) A mixed economy is the co-existence of a viable government apparatus with a market system in which a substantial portion of productive assets and financial wealth are in private ownership.
47) The roles of government and private economic actors in the broader capitalist mixed economy are distinct and one cannot entirely replace or displace the other.
48) In a mixed economy, the roles of government and market can be complementary, competitive or conflicting.
49) The government’s monopoly position in the area of legislation, jurisprudence, law enforcement, regulating a common currency, and ownership of public property complement and benefit, under most conditions, the private sector as a whole.
50) Mixed economies can, on the one hand, contain large state-owned industries combined with the propensity to nationalize industries for the perceived public benefit or, on the other hand, virtually no state-owned industries and an ideological commitment to avoid public ownership of industries.
51) The political component of a mixed economy can be formally democratic or autocratic, with the latter ranging from dictatorships of the Right to those of the Left.
52) Informally democracies and autocratic governments can also have the characteristics of oligarchies, plutocracies, or, more recently, corporatocracies, where wealthy individuals or corporations have inordinate informal power, stemming from wealth and social influence over the political elite.
53) Private sector financial institutions and banks are, in many of the wealthiest national economies, some of the most likely corporations to function as informal rulers in contemporary corporatocracies.
54) The quality of governance in a mixed economy (and in any society) depends on the level of development of the institutions of government, the mechanisms for accountability of government, and the commitment of government actors and the polity to rule of law. Additionally the quality of information available to government actors and the public shapes their ability to respond to real social and external challenges.
55) Actions of government in a mixed economy can serve different interest groups to varying degrees depending on a combination of overarching ideological commitment to a social contract, the level of organization of various interest groups outside of government including industry, banking, labor, farm groups, and political parties, as well as direct relationships and channels of influence between these groups and the political class.
56) In cases where the social contract formally denies that a mixed economy can function well or should exist at all, government support for and patronage by economic interest groups will often proceed indirectly, haphazardly, or surreptitiously.
57) A purely interest group-oriented, clientelistic economic stance by government in a mixed economy can work against the refereeing and scorekeeping functions of government.
58) Defining government’s role purely as refereeing and scorekeeping can lead to denying government support for critically important or vulnerable industrial sectors and social groups in a given national economy.
59) A well-characterized understanding of how government should function in a mixed economy remains one of the primary tasks of economists and social scientists more generally.
60) Disputes between various economic schools now currently represented in the academy and in the media (“Austrian”, various schools of Keynesian, neoliberal, neoclassical) are always in reality disputes about which kind of mixed economy is better or ideal, not, as sometimes claimed, whether or not to have a mixed economy.
61) Those economic schools and their followers that assume away the role of government in the economy produce a model of the economy that is inadequate to understanding the real dynamics of the economy with its interaction of public and private sectors.
62) The “mixed economy” concept provides a framework whereby the actions of all sectors of the economy can be observed alongside each other and in interaction with each other.
63) A “mixed economy” framework of study enables variations in international and trade policies between nations to be joined meaningfully with study of the other aspects of the economy.
64) For every national economy there exists three great sectors: the private sector (often represented by markets), the public sector (the government), and the “rest of the world”.
65) One economic actor’s (person, household, business, government or national economy in total) monetary cost is another’s monetary income.
66) Similarly, in aggregate, one economic sector’s (public, private, or “rest of world”) monetary net cost or deficit is another sector’s monetary net income or surplus.
67) Saving, net profit, budget surplus or current account surplus mean that one economic entity’s monetary income exceeds its monetary costs within a given period of time when referring respectively to individuals, businesses, governments, or national economies.
68) Within a given national economy not all sectors (public, private, or “rest of world”) viewed in total can run net surpluses = save = increase overall profit = increase their monetary wealth at the same time: when one sector in total increases its monetary wealth another must run a net deficit. A technical way to describe this is “stock-flow consistent macroeconomic accounting of flows of funds”.
69) In modern economies with fiat currencies, the public sector is the only sector with the potential capacity to consistently run deficits without impoverishing itself or the nation as a whole.
70) In particular in regimes with fiat currencies, the public sector and government institutions more generally can therefore act as an economic “shock absorbers” working to counteract or ameliorate the trends in the private business cycle (countercyclical action).
71) The public sector can dampen shocks that occur endogenously (inside) in the economy itself as well as exogenously (outside) in the multiple social and natural systems upon which economic and human life depend.
72) Institutional prerequisites for government to have the capacity to act as a shock absorber include having the facilities to issue and control a sovereign currency or having the backing of a currency-issuing government or central bank which will absorb government deficit spending in the form of monetization of deficits or their repayment via currency issue.
73) For a given national private sector to grow in net monetary wealth as a whole, either the “rest of the world” must run a deficit with that country (there must be a current account surplus) or the government of that country must run a budget deficit (either monetized as national debt or simply “printed” and spent by government) or both.
74) A monetary economy in which all economic actors, public and private, domestic and foreign, are attempting to be net “savers” at the same time is an economy which will rapidly shrink, as the incomes of all the hopeful “savers” would rapidly reduce, as all actors are restricting their outlays, pushing many towards and below the threshold of subsistence and out of the monetary economy altogether.
75) Efforts to reduce public debt or balance government budgets in perpetuity for any given nation necessarily are predicated upon one of the following outcomes: a permanent trade surplus with the rest of the world, permanently elevated levels of taxation or a combination of both a permanent trade surplus and higher taxes and fees.
76) One of the critical stabilizing functions of government is using foresight, i.e. planning, to achieve the public purpose, whether defined in democratic, oligarchic or autocratic terms.
77) The concept of a mixed economy allows for definition of which economic sectors, functions, and historical time where planning is a suitable mechanism as well as where it has limited effectiveness.
78) The use of planning in a judicious manner within a mixed economy does not inevitably lead to a command economy or to diminution of the wealth of the private sector as a whole.
79) In some cases, where government fails to plan or is prevented from planning, private actors/oligarchs will engage in a form of social planning that is amenable to their own private ends but ignores or conflicts with broader social interests.
80) Government actors/the public sector in their planning function can attend to tasks and costs unaccounted for by market actors/the private sector, including medium- and long-term trends that are not yet registered as goals, risks or pricing factors on markets.
81) Governments/the public sector can also attend to concerns of households that lack sufficient monetary means to influence and shape markets to their own purposes.
82) A mixed economy can ideally combine stability and social cohesion with the dynamism and creativity of capitalist markets.
83) Tensions exist between capitalist markets and the government administrative and planning component of a mixed economy which might eventually lead to the formation of a new type of economic system, of a benign or less than benign character.
84) One of the dangers in a mixed economy is the complete capture of government by an economic elite, either under the guise of “free market” ideology or via open practice of political patronage.
85) Another danger is the take-over of the entire economy via the military and administrative functions of the state, suppressing economic initiative in the private sector.
86) Ultimately an understanding of the role of the state and of private actors in the economy more generally can help policymakers and the public avoid producing a malignant form of the mixed economy.
87) Furthermore, critical tasks facing humanity in the next decades require social institutions that enable concerted human action so as to act effectively to enable human survival and flourishing.
Michael F. Hoexter, Ph.D.