the 'real' vs the 'symbol' economy
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NAME: JEPTER LORDE
SUBJECT: INTERNATIONAL POLITICS AND POLITICAL ECONOMY
TOPIC: Distinguish between the ‘real’ economy and the ‘symbol’ economy, drawing on two examples from the current global political economy.
“Underlying most arguments against the free market is a lack of belief in freedom
itself”, the quote is attributed to Milton Friedman noted academic and economist. It
is this lack of belief in freedom, freedom to question and interrogate by the
individual, which has led to the unfortunate demonising and vilifying of a system
that when well run can offer rewards to those who wish to participate. It was in the
Biblical city of Jericho, a centre for salt trade, where free trade flourished during
the seventh millennium B.C. providing a place, resources and exchange to take
place in what can be simply described as an economy. This essay will seek to
establish the basis upon which the economy is structured by examining the ‘real’
economy and the ‘symbol’ economy, distinguishing between them and drawing
examples from the current global political economy.
CONTENDING THEORETICAL APPROACHES
Given the present sophistication of the current global economic construct,
emphasis has been placed on the relationship of the actors within the previously
mentioned walls of Jericho. It is therefore important for the economy to be
expressed acknowledging the contending views. The neoclassical economic
interpretation is that the economy is a market or a collection of markets composed
of impersonal economic forces over which individual actors, including states,
corporations and consumers, have little or no control. Former New York Times
economic commentator Leonard Silk described it as:
“For economists the economy is nothing more than a collection of
flexible wages, prices, interest rates, and similar forces that move up
and down allocating resources to their profitable use as buyers and
sellers rationally pursue their own interests. Such an economic
universe is a self-regulating and self-contained system composed
solely of changing prices and quantities to which individual economic
actors respond.”
Gilpin (2001) holds a countervailing view to the sterile, abstract definition given
by Silk, he posits a political economy interpretation defining the economy as a
socio-political system composed of powerful economic actors or institutions such
as giant firms, powerful labour unions, and large agribusinesses that are competing
with each another to formulate government policies on taxes, tariffs, and other
matters in ways that advance their own interests. It must also be noted the most
important of these powerful actors are national governments.
Given the contending views offered by Gilpin and Silk it is clear that the economy
although known cannot be easily defined or can it? On the one hand the players are
seen as rational buyers and sellers pursuing their own self interest, on the other,
powerful economic actors, firms and businesses lobbying government to advance
their own cause. The definitions need not be contending but serve as a demarcation
of two very influential economic forces. (Kenneth Boulding 1971) offers further
clarity and defines the economy as that part of (his) three-part total social system
comprising the benevolent, the malevolent and the integrative sub-systems in
which is organized, through exchange, deals with exchangeables. The economy is
such a total social system in which ‘symbol’/money and ‘real’/factor economies
link cogently to determine the stable circular interrelationships between these.
THE REAL ECONOMY
The ‘real’ economy, thus, is the means with which the state is able to achieve
employment resulting in a greater distribution of wealth and overall growth. This is
achieved by the establishment of the firm and it is within the construct of the firm
that the combining of the factors of production take place. In economics the
creation of the firm can be based on neoclassical institutionalism. This theory
assumes that institutions consistently seek to further their economic interest based
on this belief institutions are created primarily to solve economic problems and
will result in increased economic efficiency; for example, a reduction in
transaction costs. It is this reduction that increases the accumulation of wealth and
the reinvestment needed for expansion. (Gilpin 2007) It is the recapitalisation that
has resulted in China sustaining growth at average seven percent annually.
Essentially what China has achieved is the successful twinning of an economic
nationalist approach with the ‘real’ economy and the firm at its centre resulting in
the possible affirmation of it being next world super power.
THE SYMBOL ECONOMY
That part of the economy belonging to the malevolent sub-system that causes
market exchange in speculation, volatile and unethical activities, known to many as
the symbol economy is further castigated as lacking the importance of morals,
ethical preferences and menus of the general economic relationships. These
fundamentals should be adhered to in order to achieve, what is described, as cogent
synthesis of the ‘real’ and ‘symbol’ economy (Sen 1990). This cogent synthesis
was lacking in 2008 when the investment bank Lehman Brothers raised the alarm
concerning its ability to continue as a going concern. Speculation and greed was
the descriptive used to identify the collapse and began what is seen today as the
worst global financial crisis to grip the sector. The symbol economy should seen as
serving the real economy, the firm having the means to combine inputs in a manner
that is efficient produces the good which is sold at a profit, that profit is used for
expansion via the financiers through loans, shares, issuance and bonds. What the
world observed occurring, however, was finance capital serving its myopic and
insatiable appetite for greater and greater reward.
THE CONTENTION
David Harvey was stern in his assessment, after identifying human frailty, lapsed
regulation, improper economic theory and culture as being some of the
contributing factors to the debacle. He narrows the focus to capital especially
finance capital and the internal contradictions of capital accumulation. He posits
that capital never solves its problems it moves it around; on reaching a barrier
instead of abiding with its limit according to Marx it uses financial innovation to
achieve growth. This innovation in turn empowers the financiers who get greedy,
by this time finance is able to earn substantial profits via innovation of products
within its sector. These profits attract labour seeking the highest reward. The result
the ‘real’ economy suffers by not having the labour and technical skills and the
availability of capital which is at this time seeking its highest reward.
THE CURRENT GLOBAL POLITICAL ECONOMY
Clearly the "symbol" economy is the world of statistics, money, legal
arrangements, stocks, movement of capital etc. The "real" economy include factors
of production, land, labour and all the other physical manifestations of human
economic activity for example the firm. If an analogy could be drawn the real
economy is represented by the players, coaches, officials, trainers, and the
personnel necessary to conduct a game. The “symbol” economy is represented by
the spectators in the stands who are making bets on the outcome. This analogy is
flawed, of course, because in a game, it is absolutely forbidden for the gamblers to
influence the outcome-for the simple reason that manipulating the outcome spoils
the game.
In the economic world, the gamblers on Wall Street or in the case of Barbados Bay
Street regularly involve themselves in the outcome of the 'real' economy. Of
course, it can be argued that whenever the economic gamblers do involve
themselves in the real economy, they destroy just as certainly as would be the case
in sport. This probably means there is a need to set higher ethical standards for
play. Possible sustainable economic development is wishful as long as gamblers
are accorded more power in industrial and more importantly in developing
societies than someone who could design the first mechanised cane harvester. Be
very clear about this fact, by their very nature, finance actions by the 'symbol'
economy can only destroy--as our friends on Wall Street, London, Asia and Russia
demonstrated in 2008. This latest stock market collapse cost trillions of dollars in
losses, doubled the debt of the US economy and rendered millions unemployed
overnight. There is a need to redesign and rebuild a sustainable economy, not by
reactive draconian regulation that overly constrains the market but by systematic
reduction in the power of the symbol economy, this can only be achieved if
consumers free themselves from depending on only regulation- ask, question and
interrogate (Friedman 1989). The belief is the ‘symbol’ economy will still be
allowed to bet on the economy, but it will NOT be able to influence the outcome.
WORKS CITED:
Boulding, K.E. 1971. “Economics as a moral science”, in F.R. Globe ed. Boulding: Collected Papers, Vol. 2. Boulder, CO: Association of University Press.
Friedman, M. 1989. “Quantity Theory of Money”, New Palgrave: Money, op cit. pp. 1-40.
Gilpin, Robert. 2001 “Global political economy: understanding the international economic order”, Princeton University Press: New Jersey.
Harvey, David. 2006 “Limits to Capital”, Verso: London.
Harvey, David. 2010. “The Enigma of Capital”, Oxford University Press: New York.
Sen. A.K. 1990. “On Ethics and Economics”, Oxford, Eng: Basil Blackwell.
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