The purpose of economics is to help us understand how best to allocate and use resources to achieve an optimum level of output.
Monetary economics judges performance with indirect measures. It uses a measure of aggregate monetary value of individual items of output as a proxy for real value. It makes no attempt to make any adjustment for the changes in the value of output when monetary items are aggregated together in the hand of an individual. Nor does it accommodate many external costs such as stress or depletion of resources. And there are very significant parts of the economy that it fails to measure.
This paper proposes Resource Economics, a new economic model that incorporates principles of emotional wealth generation. It supplements existing principles of material wealth generation. The proposal revolves around a particular view of the structure of society outlined in section 3 below. The rest of the paper sets out concepts which explain some of the principles behind the view.
In combination, the two disciplines provide a better set of tools to manage an economy, in the same way that weather forecasting is improved when using individual location measurements (such as temperature and pressure) are used in combination with satellite imagery.
This paper limits its commentary to specific aspects of Resource economics, namely the objective of an economy, its structure and its measurement. It is not intended to deal in any way with its substance.
Resource economics looks at how resources are used. It judges performance by reference to the quality of life delivered to the people who are served by the economy. Resource economics should achieve more efficient usage of resources, with respect of quality of life. It too has many weaknesses, including measurement difficulties, and fewer management tools for producers.
Resources are people, raw materials (including properties such as sun energy from and including the land, sea and air), and know-how. In today's thinking, managing an economy means structuring productive resource. In the case of people, it means motivating them to maximise output. Over the century, resources have been so combined and refined that it is no longer sufficient to view resources as being as being the sum of all raw materials at our disposal. It is even questionable whether we should continue to view raw resources as being at our disposal.
As resources, people have a unique role. We are resources of production, and beneficiaries of the production at the same time. The value of our output must be evaluated against against the personal costs we pay for its production. The costs of production include the human costs that arise when we structure society in a way that achieves advanced levels of output.
Since we look at economics from an exclusively human perspective, it makes sense to evaluate its output in human terms. In resource economics, output is measured in terms of quality of life. To provide a link with monetary economics, we divide quality of life of members of society into material and economic wealth.
2. The Objective of the Economy
Society is a group of people living and working together, with a view to achieving more together than each can achieve alone. The objective of an economy is to deliver society's gains for the members of the society that it serves. It structures people to extract and manipulate resources. In monetary economics, the overwhelming priority of an economy is to produce consumable output. In resource economics, gains relate to all aspects of quality of life.
The target of a perfect economy is to identify the optimum mix of output that members of society choose to consume. It should produce no more and no less than they want, using the least number of resources in that production. The calculations become challenging in respect of people, who both produce and consume output. If total output is equitably available to all members of society, then as output expands, the percentage cost of each item relative to the whole will drop. This increases demand for that item, and work for the producer, generating fresh demands. It is no trivial task to judge what percentage of the population's time is required to satisfy cumulative demand for individual items, where the demand itself is dependent on the percentage of the population's time applied in providing that demand.
As an economy becomes more specialised, the more removed suppliers become from end consumers, the more resources are used to fill the production pipe line. Increasing amounts of resources sit in the production pipe line waiting to be converted to a state fit for consumption. This increases the risk of resources being fed into the pipe line which end up not being used. It also increases the time lag required to rebalance the economy, where it becomes apparent a rebalancing is required. Booms rage with an unstoppable momentum. Recessions become deeper and harder, and last longer.
3. The Structure of the Economy
Discussions about how Resource economics helps resolve individual economic issues are outside the scope of this paper. But one aspect which is discussed is how society is structured, and its impact on society's effectiveness.
Society is structured to achieve its raison d'etre of collaboration. Society is set up to achieve more material and emotional wealth for its members than each could achieve alone. This thesis asserts that the objective of society is to maximise the aggregate material and emotional wealth of its members.
Society's structures seek to steer the behaviour of its members, replete with our rational and emotional drives. Different structures have different levels of impact on behaviour. An efficient society is one whose structure is conducive to effective collaboration with minimum resources. An effective society is one that manages to achieve effective collaboration.
This thesis proposes a conceptual structure of society against which we can measure the efficiency and effectiveness of collaboration. The proposed structure comprises both a behavioural framework in which society operates, and a set of behavioural patterns of its individual members. Examples of the behavioural framework, referred to as the Pillars of Society, are trust, truth and justice fashioned by laws and culture. Examples of individual behavioural patterns are prejudice, hate, corruption, kindness and integrity. It is hypothesised that there is a relationship between the effectiveness of society and its behavioural framework. The structure determines our style of living, with its influences on quality of life, and also our production, with its own influences on quality of life.
The way society implements its structure is through a series of formal and informal rules and accepted practices that govern or influence our behaviours. Laws are set by national and local government. Customs are set by culture and practice of different communities. We belong to multiple communities, each with its own set of rules and expectations, some of which conflict with each other. Within the established rules are a series of balanced systems that perpetuate behaviour patterns. The concept of deterrence that demands “more than an eye for an eye” bestows unlimited rounds of mutual blinding between communities or groupings once the first eye ball starts to roll. It keeps itself alive. Without some sort of dampening process, it would escalate to mutual annihilation. The concept is dampened when its impact starts to affect enough people who are, jointly, in a position to moderate the behaviour. The impact of these balanced systems in the different cultures and communities needs to be understood, to identify those which reduce the efficiency of society at large, and to help judge what to change to weaken the more destructive elements of the cycles.
There is new thinking set out in this proposal. The hypothesis is that the framework for society is a series of behavioural rules and patterns that are driven by human needs and aspirations. In analysing the efficacy of the structures, these human drives are explored. Relationships are revealed between the framework and the economic output. It is believed these relationships are the key to establishing reliable, objective measures of economic performance which incorporate emotional wealth.
4. Quality of Life
If there is ever a sole focus of an economy, it is the enhancement of quality of life of the members of society it serves.
For the purposes of this thesis, quality of life is defined as the aggregate combination of material and emotional wealth of members of society. Extensive work is being carried out in this area. Largely equivalent terms are wellbeing, happiness, fulfilment and emotional wealth. The problem with all these terms is they already have a different meaning to different people. This makes it particularly important to define what is meant when using the term. In this thesis, we use the term “emotional wealth” because it does not already have the same connotations as the other words and is perhaps less misleading. It is also hoped to provide a psychological link with conventional economics. But the terms can be used interchangeably, at least until the words start to be used consistently and with well defined meaning.
4.1 Emotional wealth
Emotional wealth describes how well we achieve what we want from life. Each person has different constitution and experience, so wants different things. But this thesis believes that humans have sufficient attributes in common to be able to provide a working approximation to emotional wealth which is at the very worst no more fallible than using the measure of money.
Included in emotional wealth is the sense of belonging, security, feeling of worth, quality of relationships, sense of purpose, levels of self-respect, levels of perceived respect by others and a great many other factors that bestow on people a sense of contentment, fulfilment, satisfaction, peace or overall sense of well-being. The structure of society impacts on many of these perceptions, both directly and indirectly. The model must avoid being swayed by powerful transitory emotions, such as sadness or happiness (which is why the term Happiness needs careful definition when used in this context) to provide a balanced measurement. A woman experiences the most extreme of emotions from one of almost unendurable agony during labour to one of serenity and almost divine elation immediately after birth, all within a 60 second period. It must also accommodate our differing stages of life. Fulfilment to someone who is well into retirement means something very different to a school pupil not long into adolescence facing exams that determine the course of their entire future. Unhelpfully, emotional wealth can be directly affected by someone's situation relative to someone else's.
4.2 Aggregating emotional wealth
Emotional wealth works in a different way to material wealth. There is no limit to the amount of material wealth that can be acquired. Each ounce added to a portfolio of gold is an extra ounce of material wealth. But the marginal emotional wealth added to overall emotional wealth changes depending on the start point. An extra £1m wealth to someone who already owns £1bn in net assets probably adds nothing to the billionaire’s emotional wealth, whereas an extra £1,000 to 1,000 of the most impoverished people in society almost certainly does.
In resource economics, the distribution of wealth takes on a direct role in determining economic performance, whereas it is of only peripheral relevance to monetary economics. In both disciplines of economics, assessment needs to be made of the effectiveness of incentivising people. The assessment has regard to impact the incentive have on overall emotional wellbeing.
In a sense, material wealth is actually just a means to an end. We acquire wealth to provide for our security and well-being, not to gaze at it. Since material wealth is merely a conduit to emotional wealth, it is arguable that consideration of material wealth becomes of secondary relevance. But that misses the point. We base our economy on money, since it is by far the best tool we have for the job. So even though it is arguable that material wealth has no relevance outside its contribution to emotional wealth, it is not helpful to do so. Although it runs the risk of adding apples to oranges, the aggregate wealth of an economy must reflect both its aggregate material wealth and its aggregate emotional wealth.