The Wisdom of Ants: A Short History of Economics

307 Pages·2012·1.49 MB·English

by  Shanka Jaganathan

Tranquebar Press Shankar Jaganathan Shankar Jaganathan is
passionate about economic history, sustainability practices and
corporate governance. A chartered accountant and law graduate,
he has varied experience in corporate, academic and social sectors
in a career spanning twenty-five years. A select list of the entities
and institutions he is/was associated with includes Wipro, Azim
Premji Foundation, Indian Institute of Science, Union Bank of
India, Oxfam India and Narsee Monjee Institute of Management
Studies. He currently divides his time between corporate
consulting for rapidly growing entities, teaching, research and
writing. He is also an independent director on the boards of
Indian corporates and NGOs, and teaches at leading management
schools.
Shankar is the author of Corporate Disclosures: 1553-2007: The Origin of
Financial and Business Reports, published by Routledge in 2008. This book was
selected by the Indian Society of Training and Development, New Delhi for
commendation in 2010 and was awarded a cash prize.
The Wisdom of Ants: A Short History
of Economics
by
Shankar Jaganathan
Tranquebar Press
An imprint of westland ltd
Venkat Towers, 165, P.H. Road, Maduravoyal, Chennai 600 095
No. 38/10 (New No.5), Raghava Nagar, New Timber Yard Layout, Bangalore 560 026
23/181, Anand Nagar, Nehru Road, Santacruz East, Mumbai 400 055
93, 1st Floor, Sham Lal Road, Daryaganj, New Delhi 110 002
First published in Tranquebar by westland ltd 2012
Copyright © Shankar Jaganathan, 2012
All rights reserved 10 9 8 7 6 5 4 3 2 1
ISBN: 978-93-82618-01-0
Inside book formating and typesetting by Ram Das Lal Printed at Thomson Press India Ltd This book is
sold subject to the condition that it shall not by way of trade or otherwise, be lent, resold, hired out,
circulated, and no reproduction in any form, in whole or in part (except for brief quotations in critical
articles or reviews) may be made without written permission of the publishers.
Dedicated to
Mr Azim Premji,
The Visionary Philanthropist.
Actions speak louder than words.
Contents
Foreword by Mr Azim Premji
Introduction
Part I: The Origin
Need Legs to Stand: The Basic Prerequisites 2
Part II: A Short Biography of Economics
Ethically Immersed: A Long Infancy 400 BCE to 1500 CE
Socially Shackled: A Brief Childhood 1300 to 1776 CE
Market Based: A Promising Youth 1776 to 1929 CE
Ideologically Designed: A Rich Adulthood 1929 to 2009 CE
Part III: Looking Ahead
A Nobel Science: The Decisive Edge
A Steadying Anchor: Value-based or Value-neutral?
The Last Horizon: Economic Democracy
Postscript: Reflections and Conclusion
Appendix
Annexure: Classification of Winners
Acknowledgements
Foreword
Critics of the capitalist model have long been concerned about economics
dominating all aspects of our lives and crowding out other important
considerations, be they social, political or ethical in nature. This extreme
economic focus is seen to reduce the humane connect between individuals in a
society and make them less responsible to each other. The widening income and
wealth disparity, coupled with a deep social divide, has only heightened the
anxiety of these critics. On the other hand, there are people who have been blind
supporters of the capitalist, free-market model, believing it to be the path to all
kinds of well-being.
The 2008 financial crisis has certainly prompted many to re-examine the basic
premises of the prevailing economic models. Even people in the extremities of
the two camps have been engaged in debate and exploration.
As an interested observer not belonging to either of these groups, I have often
wondered if economics is a subject that should be left to the specialists.
Economics no longer deals with technical issues that touch the periphery of our
lives, and that can be left to the sole care of specialists. By impacting human life
in multiple ways and at multiple points, I think economics has come into the
popular domain uninvited. Given its entry, I believe every individual has an
obligation to think for themselves and contribute to setting a basic economic
agenda for their society.
The choice between alternative economic paths is quite sharp and has a
significant influence on most important issues in society. In addition, the
alternatives are built on very distinct foundations. At the core, the choices
revolve around finding the balance between a few key issues: for example,
promoting self-interest vs. altruistic behaviour as the primary driver in society;
creating a competitive vs. cooperative environment; choosing between the social
good and individual good; and using economics with the definiteness of a
physical science vs. the tentativeness of a social science. As is apparent, these
are difficult and complex choices.
There is certainly helpful reading material available for any ‘non-economist’
to think through these issues, but not much of this material has the historical
sweep of Shankar Jagnathan’s book, The Wisdom of Ants: A Short History of
Economics .
The Wisdom of Ants is a book on the ‘philosophy’ of economics, which is
panoramic in view, historical in approach and conceptual in nature. By looking
at a long time-span of three millennia, and across all major civilizations, cutting
across diverse ideologies and relating them to the challenges of the twenty-first
century, this book fills a critical gap in our popular discourse. While this book
may not provide any new or definite answers, and each one of us may have
different views on the issues, it does raise a set of relevant questions and
captures alternative approaches in answering them. I liked in particular the
narration of historical episodes: resolving the value paradox, the three contests
between the demand-side economists and their supply-side counterparts spread
over two centuries, and the birth of the Nordic economic model. The simplicity
of these narrations, rich in detail and strong on emotions makes them memorable
and conceptually vivid.
I commend this book to all interested citizens who want to form their own
views on economic issues rather than borrow the views of others (despite the
fame or renown of their proponents). I think forming our own views, and not
borrowing those of others is at the core of creating a thinking society, which in
turn is at the core of creating a better society. So, even on economic issues, we
must take up this responsibility of thinking and forming our own views, and not
‘outsource’ it to the professional economists. This is not to say that amateurs
(like me) should be deciding the mechanics of the economic system or driving it.
But as interested and affected parties we definitely have the right, if not the duty
to set the charter for the economics professionals.
The charter that I personally subscribe to is the development of a just,
equitable, humane and sustainable society and I hope that the economists (and
everyone else) consider this seriously.
Azim Premji
Bangalore
Introduction
‘It is the story that matters, not just the ending.’
– Paul Lockhart
A strange paradox is at play. Contrary to the expectations of many who view the
emergence of economics as an answer to the problems of scarcity, this discipline
rather than decreasing in importance with the wealth at our command, has
increased. Not only has its prominence grown, but economics is also invading
other spheres of human life. Garry Becker, the Nobel laureate, said, ‘“Economic
imperialism” is probably a good description of what I do.’ This comment was in
the context of his work on examining issues like marriage and the decision to
have children using an economic lens. By equating the decision to have children
with buying consumer durables, he imperialistically expanded the domain of
economics by shrinking the scope of other social sciences.
The increasing influence of economics in many spheres of human life is not a
fringe phenomenon, and has slowly but surely influenced mainstream thinking.
Stemming from this is the widespread support for ideas that place the market as
the primary decision-making apparatus in society. Given this increased
importance accorded to the economic lens in viewing human life, it is worth
examining the factors that have led to this situation. The Wisdom of Ants
attempts to trace the journey of economics from relative obscurity to its current
dominant role in human history.
The evolution of Homo economicus as we travel back in time is fascinating.
We see that many concepts which are widely accepted today, were previously
ignored, criticized, discouraged and scorned. Similarly, the importance given
today to economic issues such as promoting personal wealth creation, was absent
in the past as multiple other ethical, religious and social considerations
clamoured for mindshare. The rise of economic issues above the maze of ethical,
religious and conceptual hurdles over the last three millennia is captured in the
first part of the book. The three main concepts – private property, social sanction
for selfcentred individualism and a materialistic outlook – are marked as the key
features that elevated economics to its current dominant status.
The notion of private property emerged in spite of the ethical obligation to
share without receiving anything in kind. Further, unlike the animal kingdom
where only possession is recognized, the idea of titles to property surfaced in
human society. The title holders derived benefits even in the absence of
possession, providing an incentive for enterprising individuals to exert more in
order to gain property and have a comfortable life. This was perhaps the birth of
entrepreneurship.
As some individuals accumulated wealth, religious mandates laid a duty of
charity on them, to share their surplus wealth with their less-resourceful
brethren. Lending and borrowing would have been an acceptable alternative to
charity, as they would have protected vulnerable human life without making
unilateral transfers. However, prevailing religious practices often prohibited
receiving interest on loans, thereby limiting lending. Interest was seen as usury,
a sin that represented uncharitable behaviour by the lender.
Nevertheless, human beings are innovative. In the middle of the second
millennium, human ingenuity came up with logic to justify interest payments,
marking a prominent way in which selfcentred behaviour became socially
sanctioned.
Concurrently, this diluted the religious mandate to support brethren. Permitting
interest payments further accelerated wealth generation. Greater wealth
translated to an increase in demand for the quality, quantity and variety of goods
and services. By itself this may not have led to anything significant, but for the
emergence of a new philosophy that quantified happiness and equated it to the
utility of the goods and services consumed. This propelled economics to the
centre stage of social debates.
How can a single book encompass all the ideas and history of a discipline as
diverse as economics? It may not be possible, yet a brief, multi-faceted
canvassing of this discipline’s history can help us understand some of the most
important ideas in economics and economic thinking. More importantly, it can
provide the backdrop to the evolution of economic ideas over the course of
human history, something which is dealt with extensively in the second part of
this book.
Initially, economics began to come into its own as a realm of ideas in related
disciplines like ethics and public administration. As we examine the period 400
BCE to 1500 CE for economic ideas, we discover that private property was
accepted, but social consent for selfcentred individualistic behaviour was not yet