Economics through the eyes of a whole organism physiologist

Antagonists or Partners?

There are two principal hormones that influence the concentration of sugar in the blood, insulin and glucagon. Insulin, familiar in the context of diabetes, lowers blood sugar, while glucagon, less well known, raises it. Beginning students are tempted to consider the two as antagonists, since they have opposite effects on blood sugar. But that is a mistake, as the concentration of these hormones in the blood is the wrong frame of reference.

Sugar (glucose) is the fuel that many tissues use to power their metabolic work, and insulin facilitates the entry of sugar into those cells or, in other words, insulin shifts some of the sugar from the blood into the tissues so they can use it. Inevitably, therefore, blood sugar concentration drops and could fall to dangerously low levels if it were not replaced. Here is where glucagon comes onto the scene. Glucagon converts sugar precursors stored in the liver into glucose, which then enters the blood, thereby replacing the sugar that was taken up and used by the tissues. Thus, rather than being antagonists, the two hormones work as partners getting the needed sugar into the tissues that depend upon it, and keeping it coming.

I thought of this parallel from physiology when, a few weeks ago, Pope Francis issued his first major communication, Evangelii Gaudium. In it he criticized some of the features of the way the capitalist economy, so dominant in our world, operates. (It is noteworthy that his predecessors had issued even stronger criticisms.)  Francis’ remarks were interpreted by several commentators as being “socialist” or “Marxist”.  It is as if, like insulin and glucagon, socialism and capitalism were somehow opposed to one another – had to be opposed. It’s something everyone “knows”. But, as with insulin and glucagon, much depends upon your frame of reference.

In brief, capitalism is a system which increases the size of the “pie”. It is the best such system for doing this that we know of. And, with a growing world population, increasing the size of the pie is clearly an important thing to do. Socialism, by contrast, is concerned mainly with distributing the pie. As with glucagon and insulin, the two systems need to be seen as partners, working in concert with one another – capitalism making more available, and socialism, distributing it in accordance with a society’s values.

What, in the last analysis, is capitalism? What is it about capitalism that enables it to increase the size of the pie?

It is surprisingly difficult to find a good definition of this thing that everyone talks about – capitalism. I do not believe it would be appropriate to characterize it by simply describing everything that goes on in the current world economy since, as we shall see, much of that activity, while enabled by, or growing out of capitalism, is not integral to it. The best definition that I have been able to find is simply that capitalism is a system of production in which some of the output of that system is fed back into the system to make it more efficient. And, by “more efficient” I mean that a given output requires less input, e.g., less effort, energy, or resources. Or, to put it the other way about, for the same input, the system produces a greater output. There is a further feature of such a system that, while not integral to capitalism per se, is essential for it to operate as just described. That is incentive. There has to be some motivation, and given human nature as we know it, that means that the innovator must share in the productivity gains his/her innovation produces.

As I mentioned above, not all of the activities that we observe in the operation of our economy exhibit the features integral to capitalism. Today’s corporate mergers might be one example of how capitalism operates, inasmuch as the merged companies can produce the same output with less input (e.g., less middle and top management or better purchasing power to acquire the input resources).This seems to have been the case, for example, with airline mergers, whatever else one may think of them. By contrast, corporate raiding would not be an instance of capitalism, inasmuch as nothing is produced by the raid. It is simply brigandage in modern dress.

One of the input costs to any human production process is, obviously, labor – employment – people. The replacement of people by robots in manufacturing is, once again, an example of capitalism playing out in accordance with its inexorable logic. Robert Reich in his book Super Capitalism cites examples of company after company that chose to do what they considered the “right thing” for their employees, i.e., putting their interests on the table as corporate strategies were developed and implemented. Clearly that would work fine if everyone played by the same rules. But if there are no rules, then companies making those employee-oriented decisions inevitably lose out to their competitors who are able to put their product into the market at lower cost than the pro-employee companies. As Reich points out, the market ultimately drove even those pro-employee companies to adopt the same brutal tactics as their competitors. The key point there is “playing by the rules”. Rules, in some quarters, are considered destructive of the power of capitalism to grow the pie, or even an instance of what is denigrated as socialist. But that is absurd.  All social organization needs rules.  You can’t simply drive on whichever side of the road you choose.  You can’t go on red and stop on green.  The operation of the economy – any economy – is no exception.

In a very real sense employment is not only a cost of organized effort; it is, as well, one of its outputs or purposes. This may seem surprising, and even, to some, unacceptable. Nevertheless it is not “anti-capitalist”, for the enterprises operating under a capitalist system can certainly choose to optimize human employment just as, in a different sense, they optimize physical product. It is worth remembering that perhaps Henry Ford’s greatest insight was the realization that his employees could be his customers. He was certainly not a flaming liberal.  Nevertheless, his corporate strategy is a notable instance of how employee purchasing power can be one of the outputs that can be optimized in a capitalist enterprise.

It is too often forgotten that one of the purposes of social organization (e.g., government) is precisely employment. From the time of the Pharaohs onward, a major objective of government has been employment (that and war).  That is probably close to what Calvin Coolidge meant when he famously said “The business of government is business”. Without business, there can be no employment, and without employment, the citizens of a country have no purchasing power, and that means no access to all the necessities of life. But this is not inevitable and cannot be accepted as such. As the Jesuit order stressed at its 1974–1975 General Congregation, “We can no longer pretend that the inequalities and injustices of our world must be borne as a part of the inevitable order of things”.

To circle back to where we started, if glucagon and insulin can be thought of as rough counterparts of capitalism and socialism, respectively, the first thing one notes is that the body regulates both processes. It needs both, but it cannot prosper if one or the other runs unfettered. There are tumors of the pancreas (where both hormones are made) that can produce an excess of one or the other, bypassing the body’s regulatory controls. When that happens disease results. Any discrete population, such as a country, can be thought of very much like a body. Its smooth running requires controls. Too much regulation is bad, as well, and the trick, as always, is to find the middle road. And, as with physiology – to use the correct frame of reference.

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