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The Roots of Economics -- And Why it has Gone So Wrong

by Kamran Mofid

Kamran Mofid, PhD (Econ) was born in Tehran, Iran, in 1952. In 1986 he was awarded a doctorate in economics from the University of Birmingham, U.K. He is Founder-Convenor of Inter-faith Perspective on Globalisation for the Common Good. His many books and articles include: Development Planning in Iran: From Monarchy to Islamic Republic (1987); The Economic Consequences of the Gulf War (1990); and Globalisation for the Common Good (2002). In 2002 he founded an annual international conference "An Inter-faith Perspective on Globalisation for the Common Good." His email address is This article is Chapter 4 of Promoting the Common Good: Bringing Economics & Theology Together Again by Marcus Braybrooke & Kamran Mofid, a dialogue between a theologian and an economist. Published by Shepherad-Walwyn (Publishers) Ltd., 2005. Used by Permission. . This material was prepared for Religion Online by Ted and Winnie Brock.

Good economists know, from work carried out within their discipline, that the foundations of their subject are virtually non-existent . . . Conventional economics offer prescriptions for the problems of inflation and unemployment which are at best misleading and at worst dangerously wrong . . . Despite its powerful influence on public life, its achievements are as limited as those of pre-Newtonian physics . . . It is to argue that conventional economics offers a very misleading view of how the world actually operates, and it needs to be replaced.

An equally accomplished economist, Mark Lutz, in his book Economics for the Common Good observes that:

Modern economics is thc science of self-interest, of how to best accommodate individual behavior by means of markets and the commodification of human relations . . . In this economic world view, the traditional human faculty of reason gets short-changed and degraded to act as the servant of sensory desires. There is no room for logic of human values and rationally founded ethics. Human aspirations are watered down to skilful shopping behavior and channeled into a stale consumerism. One would think that there must be an alternative way to conceptualize the economy.

So what is economics? What are its roots? And why has it gone so wrong? In what follows I shall attempt to shed some light on these questions.

Economics has its origins in ancient Greece and its roots in ethics. Amartya Sen, in his significant study, On Ethics and Economics, demonstrates that, in its recent development, a serious distancing between economics and ethics has brought about one of the major deficiencies in contemporary economic theory. Sen argues that modern economics could become more productive by paying greater and more explicit attention to the ethical considerations that shape human behavior and judgement. He observes a surprising contrast between the self-consciously non-ethical character of modern economics and its historical evolution as an offshoot of ethics.

The ethics-related tradition of economics goes back at least as far as Aristotle. It has been argued that Aristotle deserves recognition as the first economist, two thousand years before Adam Smith. Aristotle distinguished between two different aspects of economics: oikonomikos or household trading, which he approved of and thought essential to the working of any even modestly complex society, and chrematisike, which is trade for profit. He declared the latter activity wholly devoid of virtue and called those who engaged in such purely selfish practices ‘parasites’. His attack on the unsavory and unproductive practice of usury held force virtually until the fifteenth century, when John Calvin’s writings started greatly to influence the study of economics.

The extension of Calvinism to all spheres of human activity was extremely important to a world emerging from an agrarian mediaeval economy into a commercial industrial era. Calvin accepted the newborn capitalism and encouraged trade and production, while, most importantly, opposing the abuses of exploitation and self-indulgence. Industrialization was stimulated by the concepts of thrift, industry, sobriety and responsibility that Calvin promoted as being essential to the achievement of the reign of God on earth.

However, in the eighteenth century, with the publication of Adam Smith’s masterwork, The Wealth of Nations, there was a quantum leap in many aspects of economics. Now chrematisike became the driving force and primary virtue of modern society -- a point to which I shall return later.

As Sen points out, at the very beginning of The Nicomachean Ethics Aristotle relates the subject of economics to human ends, referring to its concern with wealth. He sees politics as ‘the master art’ which must direct ‘the rest of the sciences’, including economics, and ‘since, again, it legislates as to what we are to abstain from, the end of science must include those of the others, so that this end must be the good for man.’

Furthermore, according to Sen, the study of economics, though directly related to the pursuit of wealth, is at a deeper level linked to other studies which involve the assessment and enhancement of more basic goals. Quoting Aristotle, Sen notes that, ‘the life of money-making is one undertaken under compulsion, and wealth is evidently nor the good we are seeking; for it is merely useful and for the sake of something else.’ Economics relates ultimately to the studies of ethics and politics, a point of view further developed in Aristotle’s Politics.

The Penguin History of Economics defines economics as ‘a science which studies human behavior as a relationship between ends and scarce means with alternative uses’. I have collected some further definitions from the Web:

The branch of social science that deals with the production and distribution and consumption of goods and services and their management. . .

The science that deals with the production, distribution, and consumption of the worlds resources and the management of state income and expenditures in terms of money.

Economics is the study of how men and society end up choosing, with or without the use of money, to employ scarce productive resources that could have alternative uses, to produce various commodities and distribute them for consumption, now or in the future, among various people and groups in society. It analyzes the costs and benefits of improving patterns of resource allocation. Economics is the study of the use of scarce resources to satisfy unlimited human wants.

The study of how individuals and societies choose to allocate scarce productive resources among competing alternative uses and to distribute the products from these uses among the members of the society.

The study of choice and decision-making in a world with limited resources.

The science that deals with the production, distribution, and consumption of wealth, and with the various related problems of labor, finance, taxation, etc. [Webster’s New World] www.

The study of how people use scarce resources to satisfy unlimited wants.

The study of how scarce resources are allocated among competing uses.

The science of the allocation of limited resources for the satisfaction of human wants.

Study of how individuals, businesses and governments use their limited resources to satisfy unlimited wants.

Economics is the study of ways in which people make a living; it considers the social organization by means of which people satisfy their wants for scarce goods and services.

Study of how people choose to use scarce resources to satisfy their needs and wants; a study of choice.

The science that deals with the production, distribution, and consumption of commodities

The study of how persons and society choose resources which have alternative uses, to produce various commodities over time and distribute them for consumption now and in the future, among various people and groups in society. www,

The social science that studies how individuals, firms, governments, and other organizations make choices, and how those choices determine the way the resources of society are used.

Economics provides the language, principles and a way of thinking to help people unravel why they have to make choices.

The study of supply and demand in markets and how they allocate scarce resources.

The study of how resources are distributed for the production of goods and services within a social system.

The study of how to distribute scarce resources among alternative ends.

The study of how limited resources, goods, and services are allocated among competing uses. --

It is clear from the above that economics is perceived as a science concerned with scarcity, competition, production, consumption and the satisfying of unlimited desires. There is no reference to abundance, co-operation, sustainability, justice, compassion, humanity, morality or spirituality. No wonder it has brought us such a bitter harvest!

Economics defines ends and means primarily in material terms -- essentially in monetary terms. Non-material, non-monetary values are considered subjective and therefore outside its scope. By stating that economic means are finite and scarce, economic theory accepts a natural element of competition for these resources. The textbooks tell us that man naturally competes for scarce and limited material resources. Happy is the man who is able to consume these resources, unhappy is the one who is not.

The assumptions underlying the so-called ‘economic laws’ were developed at a time when religion was being separated from science. The accepted world view was becoming secularized; the sacred was being replaced by a belief in matter. Economic theory was affected by the great scientific discoveries in physics, biology and psychology, and economic laws were presented with the same authority as laws of nature. Newton and Descartes described reality in terms of a more or less fixed number of ‘building blocks’, of ‘things’ subject to measurable laws such as gravity smartly put together so that they operated, as it were, mechanically. The world of matter was seen as a mere machine, to be used by man exercising his reason and free will. This world view has come to be known as ‘scientific materialism’.

Over the last two centuries these principles have become firmly enshrined in our capitalist legal systems, domestically and internationally. For example, the international laws governing the main multilateral agency for international trade, the World Trade Organization, are based on Ricardo’s concept of ‘comparative advantage’, the idea that nations, by specializing yet keeping their borders open, will benefit from unfettered competition. This idea arose in a seventeenth-century Europe which had invented the nation state to deal with the opportunities provided by colonial expansion.

With the emergence of the nation state, monetary systems and policies were developed based on the notion of a scarce money supply linked to gold and silver, the value of which was controlled by the nation. The artificial measurement of money scarcity, when the churches relaxed their restrictions on interest-bearing lending (denounced as ‘usury’ for many centuries), introduced an official element of competition among those in need of funding. Those with money could set the rules governing how scarce resources should be invested. Now enshrined in corporate and banking law (and underpinning what we know as ‘capitalism’), these rules favor those with wealth over those who have nothing. The vast majority, the ‘have nots’, have ever since been locked into a vicious cycle of competition for scarce capital.

National political agendas continue to be determined by interest groups dominated by commerce and industry which are locked into old paradigms. The power of national authorities and national democratic institutions has been gradually eroded by the globalization of industry, finance, technology and information.

The bodies that rule our global economy today, the G8 (the world’s industrialized countries), the IMF and the World Bank (together known as the ‘Washington consensus’) prescribe for the world a neo-classical recipe of privatization, decentralization, deregulation and other market liberalizations, assuming that our common interests are best served by the invisible hand of the market.

Critics of this faith are silenced by powerful arguments that government interference in markets will lead to inefficient and wasteful government bureaucracies. They claim that history has shown that the libertarian or laissez-faire approach allows markets to increase wealth, promote innovation and optimize production -- at the same time as regulating itself flawlessly. The fact that human beings persist in behaving ‘irrationally and uneconomically’, in terms of the market model, does not, they claim, invalidate that model: we simply have not yet learned to appreciate the benefits of competition.

Yet we can clearly see all around us that our economies are inherently flawed. The gap between rich and poor keeps growing in all societies, and also among the countries of the world. Environmental degradation seems irreversible. The drug trade and new forms of slavery prosper. Corruption and corporate fraud are widespread; stock markets are turning into global casinos. War is increasingly ‘economic’, motivated by either the lack of or the protection of wealth. If the global economy does prosper, it is at the expense of the air, the earth, the water, our health and our rights to employment.

A further cause of disquiet is the mathematisation of human behavior and the desire for predictive models. This is an important point in my argument as the over-reliance upon mathematical formulae is at the root of why economists have become detached from ethics, spirituality and theology in their professional studies. I will try to shed some light on this issue.

The use of mathematics in economics books and articles is very complex, no doubt very impressive. Along with physicists, economists seem to be those who rely most on advanced mathematical models, but there would appear to be a paradox here. Mathematics being synonymous with rigor and precision, how is it that it plays such a role in a discipline where vagueness reigns? The answer probably lies in the roots of this vagueness. Because the economic and social world is so difficult to grasp schematically, to reduce to simple laws, the temptation is to take refuge in fictitious worlds, in models which have little to do with what can actually be observed but which lend themselves to endless mathematical refinement. The most important of life’s criteria and its purpose are ignored because economists are unable to fit them into their calculations for measurement.

How did mathematics come to assume such a dominating position in modern economics, with such a disastrous consequences? The blame can fairly and squarely be put at the door of Paul Samuelson.

In 1947 Samuelson, an assistant professor of economics at the Massachusetts Institute of Technology, published Foundations of Economic Analysis, a book which is considered to be the seminal work in the integration of mathematics and economics. While some economists had employed mathematics to some degree prior to this, Samuelson laid the groundwork for the complete ‘mathematisation’ of economics.

A natural consequence of this was the marginalization of areas of research that could not be modeled using formal mathematics. By the early 1970s there had appeared a genuine chauvinism that belittled work not deemed to be serious enough, as measured by its mathematical content. This trend attracted increasing numbers of physicists, mathematicians and engineers into economics, which in turn nudged the level of ‘mathematicality’ up even further. Mathematicians were attracted to economics because it was mathematical in nature, and the field became even more mathematical because of their participation.

As I have said, the adverse effect of this trend is the neglect of fundamental issues by mainstream economists because they are deemed to be incapable of mathematical formalization. Thus, notions of justice or ethical behavior, which are not quantifiable, have no role in the current economic framework. The notion that firms seek to maximize profits is a cornerstone of economic analysis (and a sound one, as most firms do behave this way), but it begs the question what firms ought to do, based on ethical and moral grounds. Most economists spend no time at all exploring this alternative dimension of economic behavior simply because it is not mathematically tractable.

To summarize, trends both internal to the discipline (such as the increased reliance on formal mathematics) and external (such as changes in political discourse) have moved the profession away from any attempt to deal with the ethical and moral dimensions of economic issues and policies. This trend has robbed the profession of a rich line of research that we have only recently starring to skirt around in our own research agenda.

It seems clear to me that the time has come for economics to change direction and to find a path which does not deviate from true human values. The obviously contrived nature of neo-classical economics has begun to attract many calls for change. One of the most vocal has come from university students. This is music to my ears. It is something I would very much like to share with you.

In the spring of 2000 an interesting dichotomy between theory and reality in economics teaching appeared in France when economics students from some of the most prestigious universities, including the Sorbonne, published a petition on the internet urging fellow students to protest against the way economics was being taught. They were against the domination of rationalist theories, the marginalization of critical and reflective thought and the use of increasingly complex mathematical models. Some argued that the drive to make economics more like physics was flawed, and that it should be wrenched back in line with its more social aspects.

They called the economics they were being taught ‘autistic’ -- divorced from reality -- and called for a post-autistic economics that would ‘rescue economics from its autistic and socially irresponsible state’. Autisme -- economie, the Post-Autistic Economics (PAE) movement, was born.

Their letter of petition for change received important recognition when the French government agreed to set up a special commission to investigate its complaints. Below is the text of the petition, originally circulated in France in 2000 and now adopted by many other students in counties around the world.

Open letter from economics students
to professors and others responsible
for the teaching of this discipline

We declare ourselves to be generally dissatisfied with the teaching that we receive.

This is so for the following reasons:

1. We wish to escape from imaginary worlds!

Most of us have chosen to study economics so as to acquire a deep understanding of the economic phenomena with which the citizens of today are confronted. But the teaching that is offered, that is to say for the most part neoclassical theory or approaches derived from it, does not generally answer this expectation. Indeed, even when the theory legitimately detaches itself from contingencies in the first instance, it rarely carries out the necessary return to the facts. The empirical side (historical facts, functioning of institutions, and study of the behaviors and strategies of the agents ...) is almost nonexistent. Furthermore, this gap in the teaching, this disregard for concrete realities, poses an enormous problem for those who would like to render themselves useful to economic and social actors.

2. We oppose the uncontrolled use of mathematics!

The instrumental use of mathematics appears necessary. But resort to mathematical formalization when it is not an instrument but rather an end in itself, leads to a true schizophrenia in relation to the real world. Formalization makes it easy to construct exercises and to manipulate models whose significance is limited to finding the good result (that is, the logical result following from the initial hypotheses) in order to be able to write ‘a good paper’. This custom, under the pretence of being scientific, facilitates assessment and selection, but never responds to the question that we are posing regarding contemporary economic debates.

3. We are for a pluralism of approaches in economics!

Too often the lectures leave no place for reflection. Out of all the approaches to economic questions that exist, generally only one is presented to us. This approach is supposed to explain everything by means of a purely axiomatic process, as if this were THE Economic Truth. We do not accept this dogmatism. We want a pluralism of approaches, adapted to the complexity of the objects and to the uncertainty surrounding most of the big questions in economics (unemployment, inequalities, the place of financial markets, the advantages and disadvantages of free-trade, globalization, economic development, etc).

4. Call to teachers: wake up before it is too late!

We appreciate that our professors are themselves subject to some constraints. Nevertheless, we appeal to all those who understand our claims and who wish for change. If serious reform does not take place rapidly, the risk is great that economics students, whose numbers are already decreasing, will abandon the field en masse, not because they have lost interest, but because they have been cut off from the realities and debates of the contemporary world.

We no longer want to have this
autistic science
imposed on us.

We do not ask for the impossible,
but only that good sense may prevail.
We hope, therefore, to be heard very soon.

The French students’ cries for change were heard by the media. Le Monde, in an article of 13th September 2000, asked whether the teaching of economics in universities should nor be rethought, and other French newspapers and magazines, as well as TV and radio stations, soon joined in the argument. The number of signatures on the petition rose significantly. The perceived seriousness of the controversy increased when, at the end of June 2000, a group of economics professors published their own a petition, backing the students and offering further analysis and evidence of the need for reform.

As is their wont, the neo-classical establishment -- those with most to lose -- began to cry foul. They tried to dismiss the petition as a Trotskyite conspiracy, espoused by Le Monde. Most of the backlash, as might have been expected, came from the neo-classical establishment in the US. What followed was an attempt to discredit the PAE by implying that the students were anti-intellectuals opposed to the ‘scientificity’ of neo-classical economics. The accusations, however, did not stick. The dissenters were top students who had done the maths and found it did nor add up! This bankrupt and outdated form of attack, discrediting the messenger because you do not like the message, backfired. After malicious attacks were made at a major conference at the Sorbonne, a large group of economists convened to celebrate the fiftieth anniversary of the mainstream La Revue Economique and spontaneously deferred to issues raised by the reformists.

Among many in other countries who were inspired by the French students’ rallying call were groups of PhD candidates and other students of economics at Cambridge and Oxford universities, who issued their own manifestos which recommended ‘Opening Up Economics’. Similar groups have arisen elsewhere in Europe, the Americas and Australia.

Clearly we have to revisit the old assumptions. Are the laws of economics really uncontrollable? Spiritual teachers tell us that we make up reality; likewise it must be we who make up the economy. For better or for worse, businesses and economies don’t function separately from our decisions; without us they wouldn’t exist. If we want a better economic system we have to look deeply at who we are and how we live.

As an economist with a wide range of experience, I do appreciate the significance of politics, trade, banking, insurance and commerce -- and of globalization. I understand the importance of wealth-creation -- but wealth must be created for a noble reason. I want to have a dialogue with the business and economic community. I want to listen to them and be listened to. Today’s business leaders are in a unique position to influence what happens in society for years to come. With this power comes monumental responsibility. They can choose to ignore this responsibility, and thereby exacerbate problems such as economic inequality, environmental degradation and social injustice, but this will compromise their ability to do business in the long run. The world of good business needs a peaceful and just world in which to operate and prosper.

In order to arrive at this peaceful and prosperous destination we need to change the basis of neo-classical economics to rake account of the common good. Many of the issues which people grapple with, or which their governments advocate, have economics at their core. The creation of a stable society in today’s globalized world should not be ignored in favor of purely economic considerations of cutting costs and maximizing profits. There are other fundamental values which must not be put aside.

John Maynard Keynes looked forward to a time when people in advanced economies would step back from traditional economic imperatives and feel free to concentrate on how to live wisely, agreeably and well. The purpose of the economy, according to Keynes, is to control the material basis of a civilized society, enabling its citizens to explore the higher dimensions of human existence, to discover their own full potential. In our world of prosperity for the few, we seem to have got that backwards. Lives are restricted by harsh working conditions and the common assets of a community are degraded in the pursuit of endless economic growth.

Economics must once again find its heart and soul. It must reconnect with its original source and once again become rooted in ethics and morality. The huge controversy which surrounds modern commercial activity arises because it does not adequately address the needs of the global collective, and so marginalizes or excludes the powerless. Surely, in the interests of all, this has to change? There needs to be an explicit acknowledgment of universal values such as fairness, altruism, empathy and solidarity if economics is to work for the common good. Economics as practiced today cannot by any stretch of the imagination claim to be for the common good. A revolution in values is needed. Economics and the business community must at the same time embrace both material and spiritual values.

Given the state of our world today, with its extremes of progress and poverty, it seems that modern economics so elaborate and difficult to comprehend, so saturated with mathematical jargon and abstruse models and theories, has failed to deliver the happiness it promised because it has failed to satisfy people’s real, spiritual needs. We have to reverse this. Let us nor continue to construct a global society that is materially rich but spiritually poor. Let us work towards a globalization for the common good by uniting spirituality and theology with economics.

Spiritual Views Rediscovered

As we all know, spiritual traditions describe reality in terms rather different from those of traditional economic theory. The latter is concerned primarily with a mere fragment of human behavior, our ‘economic’ actions, those which can be quantified in terms of money. The spiritual approach is to view reality holistically, to look at all the human actions -- and even thoughts -- that make up our being and society. Sander Tideman, a founder and executive chairman of Spirit in Business, a network promoting ethics and spirituality in the business world, has written extensively on this issue, and my own reflections below rely on his insights.

In economics textbooks human beings are seen as isolated consumers and producers interacting in markets driven by the pursuit of monetary gain. In spiritual traditions people are viewed as part of a larger whole with which they can communicate by opening their hearts and minds.

The new understanding of reality is systemic, which means that it is based not only on the analysis of material structures but also on the analysis of patterns of relationships among these structures and of the specific processes underlying their formation. This is evident not only in modern physics but also in biology, psychology and the social sciences. The understanding of modern biology is that the process of life essentially is the spontaneous and self-organizing emergence of new order, which is the basis of life’s inherent abundance and creativity. Life processes are associated with the cognitive dimension of life, and the emergence of new order includes the emergence of language and consciousness.

Most economic strategies are based on the possession of material things such as land, labor and capital. What counts is how much property we own, how much money we have and how many hours we work. The ideal for many people is to own enough land and capital so that we don’t have to sell our rime. This strategy, which will be recognized by many of us in developed countries, is based on the assumption that land, labor and capital are all there is, that the real world is a closed-end system. Spiritual traditions and modern sciences claim the opposite. They recognize the unlimited potential of every sentient being, the potential to be whole and enlightened. Our minds create and pervade everything, hence physical reality is accessible to the spiritual.

Let us first examine this ‘being’ side of our existence. What kind of beings are we? Happy or unhappy? Altruistic or selfish? Compassionate or competitive? Modest or greedy? Driven to seek short-term pleasure or to seek meaning, a higher purpose, a longer-term state of happiness? These are important questions on which economic theory and spiritual traditions hold different views.

Economists have accepted the principles of selfish individualism: the more the individual consumes the better-off he will be. He consumes out of perpetual needs which, if unmet, will make him innately unhappy. Economic growth is achieved when individuals consume more and more, demand boosting output. There is no room for altruism where an individual may incur costs for no conceivable benefit to himself. This approach sees co-operation as a mere reciprocal arrangement among individuals. Individual sacrifices on behalf of the community are seen as an insurance policy: they will ensure that the individual will have a right to be helped by the community in the future.

We can all understand the need for a value such as compassion because of our mutual interdependence in an increasingly diminished and interconnected world, but spiritual traditions point to another, more profound and personal dimension to compassion. They advise us to make altruism the core of our practice, not only because it is the most effective insurance policy for our future, but specifically because the real benefit of compassion is that it will bring about a transformation in the mind of the practitioner. It will make us happy.

All religions promote love, compassion, altruism and service. A very good example is Sikhism, as Bhai Sahib Mohinder Singh will show in his Epilogue.

But how can we practice altruism if our real nature is selfish? Compassion can only work if our nature is receptive to an altruistic attitude, if somehow compassion is in harmony with our essence so that we actually enjoy being compassionate. If we are inherently selfish, surely any attempt to develop a compassionate attitude would be self-defeating?

Most religions state that mankind’s nature is basically good -- that our kind is kind. Buddhism explains that there is no independently existing self that is either good or bad. Our selfish motives are based on the illusion of an independent self which separates us from others. We may have selfish traits, they may even dominate us, but they can be removed with practice. And since we are connected to the world, since there is no disconnected self, the practice of compassion is most effective.

Modern scientific disciplines such as biology, psychology and medical science have started to study the effects of empathy on the human mind and body, on our health and relationships. Not surprisingly, they are discovering that compassion is of tremendous help to our sense of wellbeing. A compassionate frame of mind has a positive effect on our mental and physical health, as well as on our social life, while the lack of empathy has been found to cause or aggravate serious social, psychological and even physical disorders. Recent research on stress shows that people who seek only short-term pleasure are more prone to stress than those who seek a higher purpose, who seek meaning rather than pleasure.

Meaning generally is derived from actions such as serving others, going beyond immediate selfish needs. The fact that disregarding one’s own short-term needs results in longer-term happiness turns the neo-classical economics notion of selfish individualism upside down.

The economist Stanislav Menchikov, as Tideman in Compassion or Competition has noted, remarks that:

The standard, neoclassical model is actually in conflict with human nature. It does not reflect prevailing patterns of human behavior . . . If you look around carefully, you will see that most people are not really maximizers, but instead what you might call ‘satisfiers’: they want to satisfy their needs, and that means being in equilibrium with oneself, with other people, with society and with nature. This is reflected in families, where people spend most of their time, and where relations are mostly based on altruism and compassion. So most of our lifetime we are actually altruists and compassionate.

What does all this mean for our economy? Economic thinking is primarily focused on creating systems of arranging matter for optimal intake of consumption. It assumes that the main human impulses are competition and consumption, and it has side-stepped spiritual and moral issues because those would involve qualitative judgments on values and other intangibles that go beyond its initial premises. But, by assuming that the more we consume the happier we are, economists have overlooked the intricate workings of the human mind.

At the root of this belief in the market lies a very fundamental misconception. We have not really understood what makes us happy. Blind faith in economics has led us to believe that the market will bring us all the things we want. We cling to the notion that contentment is obtained by the senses, by sensual experiences derived from the consumption of material goods. This feeds an appetite of sensual desire. At the same time we are led to view others as our competitors, scrabbling for the same, limited resources as we are. So we experience fear -- the fear of losing out, the fear that our desires will nor be satisfied.

We can observe that the whole machine of expanding capitalism is fueled by two very strong emotions: desire and fear. They are so strong that they appear to be permanent features of our condition. Yet many religious traditions have taught us that, since these emotions are based on ignorance, a misconception of reality, they can be removed by the true understanding of reality. According to religion, happiness is an inner or divine experience available to anyone, rich or poor. Fundamentally, there is nothing that we lack. By developing the mind, our inner qualities, we can experience perfect wholeness and contentment. If we share with others, we will find that we are not surrounded by competitors: others depend on us as we depend on them.

We need to recreate economic theory based on an understanding of what a human being really is and what makes him happy. As long as economics is based on a partial or wrong image of man and his reality, it will not produce the results we need.

In a sense, the redesigning of economic theory has already starred. In order to explain the persistent tension between economic theory and practice, and recognizing that conventional economics does not help us in our pursuit of happiness, old assumptions are being challenged. As a result, certain intangibles -- such as values based on our more noble human impulses -- are gradually entering the scope of leading thinkers, including historians, social scientists, businessmen and bankers -- and even economists.

Nobel Prize-winning economist Douglass North says:

The theory employed, based on the assumption of scarcity and hence competition, is not up to the task. To put it simply, what has been missing [in economic theory] is an understanding of the nature of human coordination and cooperation.

The 1998 Nobel Prize in Economics was awarded to Amartya Sen, who defines economic development in terms of the free supply of basic necessities such as education and health care. He contends that as long as the contemporary world denies elementary freedoms to the majority of its populations, planning for economic development is useless. He has thus restored an ethical dimension to the discussion of development. Sen writes, in Development as Freedom:

Along with the working of markets, a variety of social institutions contribute to the process of development precisely through their effects on enhancing and sustaining individual freedoms. The formation of values and social ethics are also part of the process of development that needs attention.

The 2003 Nobel Prize in Economics was awarded to Daniel Kahneman and the late Amos Tverski, both leading experts in behavioral finance. The latter challenged the Efficient Market Hypothesis, the dominant paradigm based on a mechanistic world view. As an extension, the nascent field of neuroeconomics seeks to ground economic decision-making in the biological substrate of the brain. Recent findings have provided direct empirical and quantitative support for economic models that acknowledge the influence of emotional factors on decision-making behavior.

This was already clear to the economic historian David Landes when he noted that, ‘If we learn anything from the history of economic development, it is that culture makes all the difference.’ Just because markets give signals does not mean that people respond timely or well. Some people do so better than others; it depends on their culture. And culture is nothing but the aggregation of values.

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