CHANGING LIFE PARADIGM IN A CHANGING WORLD
The Choson Dynasty, also known as the Yi Dynasty, was born in the fourteenth century by transforming the long rooted Buddhism of the Goryeo kingdom into a Confucian moral oriented life paradigm. For 500 years it maintained the social and individual order of life vertically and horizontally. Social reformer Jeong Do Jeon staged a revolution and successfully enthroned General Yi Song-gye in 1392 as the first ruler of the Yi dynasty.
Goryeo’s Buddhism and Yi dynasty’s imported Confucian religion brought a revolutionary change in the political system and citizen’s life for more than 500 years during the Yi dynasty, until it gradually mixed with western Protestantism and capitalism in the early 20 century. Capitalism based upon the spirit of Protestantism rapidly changed a lifestyle in Asian countries, including Korea, by providing people with an opportunity to accumulate wealth. The concept of self interest motivated people into a diligent and industrious way of life. The continuous process of wealth accumulation, the paradigm of an individual, society and nation as a whole, drastically experienced a big change in lifestyle with higher level of income and consumption.
China, Japan, Korea, India and Singapore emerged as challenging economic powers to European countries such as the United Kingdom, Germany, France and Italy. The volume of international trade from Asia’s importing and exporting businesses surpassed the level of the European Union and the United States. Incidentally, its GDP increased in accordance with the higher rate of economic growth than the average rate in Europe, and global attention naturally shifted to Asian economic powers.
The capitalistic system expounded in the Wealth of Nations by Adam Smith greatly contributed not only to individual interest, but also to a nation’s wealth. By virtue of an efficient allocation of natural resources, efficient distribution of factor of production guided by “Invisible Hand” market price, determined by supply and demand. However, the moral and ethical sentiments, that were equivalently weighed with the self- interest concept in the mind of Adam Smith, have been inadvertently neglected in the process of trade and transaction among economic agents.
Market failure externalities were not able to meet an aggregate demand and an aggregate supply in balance, which resulted in the great economic crisis in 1929. The laissez faire system failed to equate supply with demand, as was guided by Say’s Law (Supply creates its own Demand), producing the uncontrollable number of unemployment, bank failure, individual business failure and closure of so many factories across the country. It needed a change in the system and John Maynard Keynes brought a change by introducing the necessary intervention of government in the market system to create sufficient effective demand to satisfy supply.
Keynes’ “General Theory of Employment, Interest and Money” played as an atomic bomb to overcome the 1929 economic crisis and satisfied the people’s hunger, by providing policy tools and fiscal and monetary policy, to stabilize the stagnant economy. Keynesian remedy was globally adopted to make developing countries get into a developed and industrialized age, by using government interference in the market. The purpose is to fill the gap between supply and demand, by means of “multiplier effect” in investment and credit expansion in the short run. But in the long run, many countries who boosted their economy by pumping an effective demand, according to the Keynesian model, could not sustain its long run rate of economic growth. The ratio of increasing debts of consumers and businesses to Gross Domestic Product left the nation in a struggling state. Consumption and investment, that are needed to maintain the targeted rate of economic growth, stay far behind. Capitalism, founded by the Individual self-interest motivation, is changed to a collective interest remedy by Karl Marx’s capital theory, which will be covered later on.
Individual preference, wants, customs and religion are also changing as history experiences many aspects of human behavior over 2,000 years. America is also experiencing a big change in its way of life brimmed with Protestantism. Very recently, the tradition of Christmas is changing its mode. Many groups of citizens began to protest against the Christian culture’s dominance in the daily life of America. In the state of Pennsylvania, voters by majority moved to change Christmas Day into a Sparking Day. In the state of Minnesota, the Supreme Court ruled to ban the use of Poinsettia flowers in decorating offices or public places. In Maryland, the state government, by the approval of its voters, decided to eliminate printing the word “X-Mas day” on the calendar. In the State of South Carolina, the religious organization “Samarian Wallet”, established by Rev. Billy Graham long ago to raise funds and help poor people around the world, was shut down by the order of the state government. Now a national LGBT group is filing a suit against the government not to allow prayer to God in public places and reading scriptures from The Bible, which will draw public attention in the nation in the time to come. These are dramatic changes in our life.
The current system is also in the wind of change, as we experience high unemployment rate, increased numbers on welfare, no job opportunities, the widening gap between the rich and the poor (now ranging from 5%-95% to 1%-99% up from the previous 20%-80%). 5% of all conglomerates controls over 80% sales and profits. Several global economic powers such as US, China, Germany, India, Japan, UK, Singapore, etc. will dominate over the global trade, the global capital and finance. Individual creative power is increasingly more important in laying the foundation for social fabric, while big power nations are engaged in the brute struggle for competition. The class struggle of big capital over small capital, big corporation over small firm, group intelligence over individual one is getting out of control in this globalized society. A paradigm of self interest from the initial capitalism is challenged by collectivism and social welfares, and the powerless individual is forced to rely on collective bodies like the government or big corporations to make a living. An individual generates all creative ideas and the group that consisted of adding up such individuals exercises most power. There are favorable benefits to talented, gifted individuals. How about the majority of people who does not have such a talent? If they are united to take collective actions, it would be great. If not, how do they generate power and can we trust the government for securing their rights and privileges?
What’s the catch? In the following, it may be necessary for me to review the historical background of the major capitalism systems that have been dominating our daily lives for the past 250 years. Starting from the British Industrial Revolution, this was intended to improve conditions of human economic life, thereafter our system evolves from “Laissez-faire” by Adam Smith, collective socialism by Karl Marx, Keynesian government intervention, to stabilizing business cycle by expanding credit and manipulating tax policies, to global capitalism to increase the global economic stability. Starting with a small government under the initial stage of capitalism to big government today, competition between small nations and big nations, big capital and small capital, struggle between upper income and lower income class, share struggle between labor and capital are all gearing for a better world in which we have to live.
An imminent change in the wind may be the reunification of the divided Korea by people’s revolution, as was implied in the movie “The Interview”. Its solemn aim was to ignite the historical revolution using a camera and some questions in the interview with the dictator of North Korea Kim Jong Eun, to bring freedom, peace, and democracy for 24 million innocent North Koreans who have been isolated for the past 65 years. If the movie served its purpose in the time to come, it will mean great change on Earth and in the Korean peninsula. It could contribute to paradigm change in the minds of people surrounding the peninsula; not only for peace, but also for a dramatic economic development in the region. Industrial revolution and a birth of capitalism and proletarian revolution by Karl Marx, Keynesian revolution, globalization and internet revolution, peace revolution in the Korean peninsula, along with religious revolution, will shape a new paradigm in our way of life in the next decade.
Dr. Adam Smith wrote the Wealth of Nations in 1766 on the Laissez-faire classical capitalism, but Dr. Smith was not an economist. He was a philosopher on moral and ethics. He was Dean of the Moral and Ethic Dept. of Glasgow University, and a graduate from Oxford. He was born in Scotland and lived with his mother, died at the age of 63 unmarried. He was respected along with Sir Hume as a spokesman of moral and ethics for the British Empire. Because of his wandering habit in a sleeping gown through the town, and walking very slowly without focus, only looking over the mountain far away, he was called vermicular. He taught at Glasgow on natural law, moral and ethics.
Being frustrated by the chaos of mercantilism, he tried to establish social order and harmony by an economic theory that motivates people to work hard under the system in which merchandise is bought and sold at a price determined by interplay of supply and demand in the market, as volume of transaction rises and complicates the process of trade. He needs a market-determined price, a parameter, to lead the buyer and seller to close a deal. The price will lead transaction order regardless of volume or time, and transaction will be conducted smoothly by “invisible hand” price parameter. When he taught natural theology, he emphasized the man’s sublime impulses toward order and harmony in the confusion of the cosmos. His vision ranges from elegant lives of the leisure class to brute struggle for existence in the meanest form-rapacity and cruelty. Based upon his book “Wealth of Nations,” published in 1766, Smith encourages hard work for self–interest. From his book, the basic capitalism was presented creating market price, supply and demand, “Invisible Hand.” His many discussions with Benjamin Franklin gave him much data on America. The basic tenet of his capitalism is freedom for competition. Self interest without government intervention will, given market price, maximize his own satisfaction and factors of production-labor, land, and capital will be most efficiently utilized by producers to maximize profit, given prices of rent, wage and interest rate. With the minimum role of government departments, such as education, defense, highways, security, police, all natural resources are at a minimum cost put into production for the most efficient output. Consumer satisfaction and corporation’s maximum profit, via free competition, with a concentration on self interest, wealth of a nation by an invisible hand is maximized. Harmony and order between consumer’s self interest and entrepreneur’s profit motivation with morality will, in the end, lead to national wealth. Smith’s motivation was on “self-interest” with hard work. Hard work needs time. Therefore, Richard Baxter (1615-1691) in his published book “Crime of Wasted Life” told us that time is a life. Time, is therefore, very valuable as life, do not waste it. Time is money. If we use time as efficiently as possible, we save money and make money with concentration only on our self-interest with morality. Max Webber (1864-1920) attached primary importance of frugality and saving to the advancement of capitalism. In his book “Protestantism and Capitalism” he termed wasting time is committing a sin against the will of God. Capitalism advances when consumer and entrepreneur live and work with the spirit of Protestantism.
Christian spirit leads us over materialism. Contrary to this argument, Werner Sombart (1863-1941) encouraged more consumption and luxuries to advance capitalism. Emphasis on consumption or saving shifted back and forth in the previous writings of economists as in today – Adam Smith on more supply of goods and services by producing more as Say’s law stipulates (Supply creates its own Demand) and John Keynes diagnosed the economic crisis in 1929 because of an insufficient demand, and applied fiscal and monetary tools by government intervention to fill the gap between supply and demand, and his solutions brought a light.
The outcome of Laissez-Faire capitalism made England and many countries in Europe rich and prosperous. It, however, generated high unemployment rates and a wider gap between the rich and the poor. More production required more machines and more labor in an unequal proportion. Higher demand for labor increased wages; higher wages given rate of profit reduced the rate of profit. Automation and high technology reduced the demand for labor, resulting in the lower labor share of GDP in comparison to the capital share to be reduced. Classical capitalism suffers from high rate of unemployment and deep polarization between the class of proletarian and bourgeois in the continent of Europe.
Karl Marx (1818-1883) along with Friedrich Engels (1820-1895) began to criticize an going capitalism for its malfunction in the mass production of unemployment. In 1848 Marx declared Manifesto deploring the mass poverty in Europe because of defect capitalism invented by Adam Smith. He protested the popular uprising of people in the continent (Belgium, Berlin, Paris, Italy, Vienna), due to the huge loss of employment. Inheriting the logic of Hegel’s dialecticism that every idea bred its opposite and two merged into a synthesis. In turn, it produced its own contradiction. Applying the same logic into the mode of production, he generated dialectical materialism. Individualism based on self – interest capitalism now shifts into collectivism and socialism.
In collaboration with his compatriot, supporter and colleague, Friedrich Engels, Karl Marx manifested himself as a religious figure to rank with Christ, Mohammed, and presented the 2500 page book Das Capital shocking the whole world. Engel, the shadow of Marx, thus became a sort of Saint Paul, or John in the Bible. The law of motion which his model of capitalism revealed may still be visible in American capitalism- indeed, they are. The class struggle between capital and labor, between Big Corporation and small, bourgeois and proletariat, between big capital and small are a reality with which we are facing today. Accumulation process- Primitive Accumulation, Circulation of Capital, Distribution and Redistribution of Surplus Value are well noteworthy to delve into. Marx does not see accumulation as the result of a rising protestant ethic of thrift, as was suggested by Max Weber. Nor is accumulation of the result of abstinence on the part of individuals seeking to satisfy a subjective preference for future consumption at the expense of consumption in the present, as is argued by neo-classical bourgeois economics based on utility theory. For Marx, it is of the essence of CAPITAL that it must be accumulated, independent of the subjective preferences or religious belief of individual capitalists. The coercion on individual capitalists to accumulate operates through the mechanism of COMPETITION. This competition is different in nature from competition in prices in Smith’s capitalism. Because capital is self-expanding VALUE. Initially accumulation takes place through the transformation of the relations of production (Primitive Accumulation) to create wage of labor with methods of production. Accumulation is not, however, a relationship between the production and capitalization of Surplus value. It is also a relationship of REPRODUCTION. For the CIRCULATION OF CAPITAL, this is examined by Marx in capital II, and in Capital I. REPRODUCTION is examined in embodying simple reproduction in which VALUE, and SURPLUS VALUE relations remain unchanged. To make reproduction on an expanded scale, it is necessary to recognize that organic composition of capital may or may not rise. In each case, a definite proportion must be established in value and in use, value terms between sectors of the economy and this is examined in the REPRODUCTION SCHEMA.
In Capital III, Marx analyzes accumulation from the perspective of the DISTRIBUTION AND REDISTRIBUTION OF SURPLUS VALUE AND CAPITAL. For early stages of development, the basis for accumulation is in the concentration of capital. At the later stages, CENTRALIZATION AND CONCENTRATION OF CAPITAL is the dominant method by which the use of ever increasing sizes of capital is organized. This presupposes an advanced CREDIT SYSTEM. Without credit, accumulation cannot achieve productivity increase. Consequently a divergence between the accumulation of capital in production and of capital in the FINANCIAL SYSTEM is created. This is the basis of fictitious capital and can lead to the INTENSIFICATION OF ECONOMIC CRISES when accumulation fails to overcome the obstacles confronting the continuing expansion of the PRODUCTION OF SURPLUS VALUE. In addition, the centralization of capital and the uneven pace of accumulation itself are to be associated with uneven development of economics and societies. Accordingly, the accumulation process is never simply an economic process but also involves the general development of social relations including COLONIALISM, IMPERIALISM, AND CHANGING ROLES OF THE STATE, as has always been stressed with the Marxian tradition. For Marx, the accumulation process would never be a smooth, harmonious expansion. At times, it would be interrupted by crises and recessions. But the barriers to capital accumulation are never absolute but are contingent upon the intensification of the contradictions of capitalism.
The analysis of the development of such an intensification of contradictions is studied by Marx in terms of the law of the tendency of FALLING RATE OF PROFIT. Here Marx distinguishes himself from Ricardo for whom a falling profitability depends upon productivity decline in agriculture, and from ADAM SMITH for whom a limited extent of the market is crucial. Marx examines the effects of accumulation upon the working class. With machinery and machinofacture, other methods of production are compelled into extreme forms of EXPLOITATION to remain competitive. Machinery and machinofacture itself create a RESERVE ARMY of LABOUR and with it the General Law of Capitalist.
In the Marxian tradition those who, like Lenin, argue that MONOPOLY is the intensification of and not the negation of competition, have held the necessity of capital accumulation. Under-comsumptionists contend that economic STAGNATION is caused by less consumption of goods and services. Accordingly, deficiencies in market levels of DEMAND become the focus of attention (as is the case for KENESIAN THEORY). Luxemburg is most frequently cited in this context although she also emphasized the role of MILITARISM. Baran and Sweeny are more recent representatives of this line of thoughts. Others, in the neo-Ricardian or Sraffian tradition follow Marx by taking accumulation as axiomatic. COMPETITION merely serves to equalize RATE OF PROFIT AND WAGES. WAGES are taken as the focus in determining the PACE OF ACCUMULATION, which is threatened when wages rise and profits decrease in the absence of PRODUCTIVITY INCREASE.
Reviewing thoughts of Karl Marx and Adam Smith, we are equipped with the individual self-interest approach and collective approach by Karl Marx to tackle the incoming DEFLATIONARY cycle today. When collective actions by government cannot solve the stagnant high unemployment rate, we tend to argue the important role of creative power by individual thinking, and when the individual becomes powerless in giving solutions to the social issues, we call for government actions. Without individual consumers, no business corporation can survive and no production can sustain. In this sense, individual freedom for opportunity, protection for competition by government and collective action for collective goods should be balanced and never be differentiated, along with individual accountability, regardless of choices of system.
Hubert Hojae Lee, Ph.d in Economics
Commissioner of Human Rights
Economic advisor to Benjamin Hubert International Group
President, Korean American Foundation USA