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.