‘Economics’ – the worst term-hijack ever?

Continuing the theme of the dangers of term-hijack, is the current usage of the term ‘economics’ the worst term-hijack ever?

In almost all references to ‘economics’ these days, it’s clear that the term is meant to mean ‘money on a large scale’. ‘Microeconomics’ relates to pricing goods within a country, and similar themes; ‘macroeconomics’ typically relates to pricing as a means of managing supply and demand in world trade. Money makes the world go round; economics measures those movements of money over time.

But it’s a term-hijack.

If you go back a couple of centuries, you’ll find that ‘economics’ has a radically different meaning. Its literal translation from the Greek is ‘the management of the household‘. Up until the middle of the 19th century, the word ‘economist’ had the exact same meaning as the present-day term ‘home-maker’.

Somewhen around that time, someone presumably needed some means to describe trade, both within the nation and between nations. I’ve no idea who this ‘someone’ was, and whether it actually happened a few decades earlier – those details don’t much matter. What does matter is that they latched on to the metaphor of ‘the nation as household’ – but they only meant ‘the money of the household’, not the household as a whole.

In other words, a term-hijack: a small subset purporting to be the whole. Monetary transactions are indeed an aspect of managing a household; but they’re not the whole of managing a household. Managing the money of a household is rarely easy, but in many ways it’s the easiest part of managing a household… for example, as John Lennon famously put it, “money can’t buy me love”, the love that would hold a family together. And in most cultures money is by no means the most important aspect of the household, relevant only in ‘external trade’ – hence the concept of the ‘breadwinner’, the role which obtains those resources that cannot be produced within the household itself.

So here we have a term-hijack that describes money as the only significant part of managing the ‘household’ of the nation. What are some of the consequences of that mistake?

One obvious example is that, as many feminist economists have pointed out, much of what used to be called ‘women’s work’ disappears from the nation’s accounts of ‘economic activity’. Huge differences in the national picture appear when we rethink economics “as if women counted”. Since ‘household’-type tasks are only classed as ‘economic activity’ if money changes hands, bizarre distortions will often appear at present. For example, if two families look after each others’ children, paying each other the exact same amount – in other words, an overall zero-sum – both transactions are classed as ‘economic activity’. But if they each look after their own children, no money changes hands, so no activity is deemed to have occurred – hence the absurd notion that home-parents don’t ‘work’.

(I will admit that I get quite angry when I hear a woman say “I don’t work, I’m only a mother”: parenting is some of the hardest work there is, and what’s that word “only” doing in the sentence anyway, for heavens’ sake??)

When we scale it up to ‘the nation as household’, the distortions get even worse. Volunteering has no value, because no money changes hands. A forest has no value until it’s cut down and sold as timber; the only way we can argue that there might be some value in leaving it alone is if we assign some arbitrary monetary value to the future timber – in effect, a kind of opposite to depreciation – or to, say, the potential income from potential tourists who might want to visit the uncut forest. That there might be value in its own right, the pleasure in quiet, “the ash-grove how graceful / how plainly ’tis speaking / the wind through its branches / is language for me” – that counts for nothing at all in the international standards for economics, such as the United Nations System of National Accounts that’s used by the World Bank and others to assign rankings of nation against nation.

But wait, because yes, it does indeed get worse. Crime doesn’t pay, we’re told; but unlike those household tasks, it does get included in the national accounts. Money changes hands on the black market, the grey market, in corruption or outright theft: that means that it’s ‘economic activity’, with appropriate estimates assigned. And crime – or, for that matter, war, or any other kind of natural or man-made disaster – is ‘good’, because it causes destruction, which means there’s more ‘economic activity’ to repair the damage. Crime is also good because it leads to prison – and prisons are big business in the US, for example, with now 1% of the entire population held behind bars at any given time. Conversely, peace and tranquillity are bad news – because if nothing needs to be repaired, there’s less ‘economic activity’.

Then take a look at GDP (Gross Domestic Product) – the most commonly-quoted of what purports to be a nation’s well-being. The standard formula for GDP (the ‘expenditure method’) is:

GDP = consumption + investment + (government spending) + (exports – imports)

So in effect, GDP is a measure of monetary income for the period in context – usually a single year. Yet it’s only income – just the ‘profit’ side of a profit-and-loss balance – and any fool can fake up a fine-looking profit, especially in the short-term, if all of the costs incurred for that ‘profit’ are ignored. Worse, there’s no concept of ‘natural capital‘, no distinction between farming (which can be sustainable) versus mining (which can’t, by definition). Comparing nations against nations, a country with a higher per-capita GDP is generally presumed to be a ‘better’ nation; but GDP will appear greater in those nations which take no account of their destruction of their own environment – a point which finally emerges in more realistic metrics such as GPI (‘Genuine Progress Indicator‘), which shows that in real ‘profit and loss’ terms the US and many European countries have been in steep decline for the past thirty years.

In essence, GDP is a measure of the scale and rate at which money changes hands – nothing more than that. So does this mean that it’s really a measure of the wastefulness of a society, indicating the scale at which items need to be replaced? Or of the nation’s fragility, because of the increased numbers and complexities of interactions using money as a control-mechanism? Or, as a corollary, the lack of self-sufficiency, indicating the lack of ability to resolve needs ‘in-house’? Many people might laugh at Bhutan’s ‘Gross National Happiness‘ metric, for example, but in many ways it’s a lot more realistic, and a lot more meaningful, than GDP’s misleading notion of money as the sole measure of ‘success’.

Much the same applies in business: money is seen as the measure of success. But it tells us nothing about how we get to that ‘success’; and it’s a lag-indicator, not a lead-indicator – a derivative measure of past activity, not usable guide-metric – so it tells us nothing about what we can or should do to direct the course of the enterprise. It’s an important measure for those who parasite on the enterprise, perhaps, but that’s about it… For those who work in the enterprise, we need metrics which actually mean something, such as those which monitor the enterprise’s ‘ability to do work‘; but money alone is not one of those metrics.

For most people, unaware of the term-hijack of ‘economics = money’, bleak realities such as these would ordinarily be invisible – yet these results of the term-hijack are the exact reason why we’re in so much trouble in real economic terms.

Economics is literally ‘the management of the household’. Management of the household money is indeed one aspect of that ‘management of the household’ – but it’s not the only view of that household, and it’s often not the view that really matters. That applies whatever scale of enterprise or ‘household’ is in scope: a ‘mom-and-pop’ store, a larger company, a multinational, a global corporation; a home, a community, a city, a nation, a world. And the moment we forget that fact – the moment we allow the term-hijack to blind us to the deeper richness, the deeper complexity of the context – we’re in deep, deep trouble.

Term-hijacks matter. ‘Economics’ is probably the worst term-hijack of all, but every term-hijack has the potential to cause disastrous consequences. So watch for them, everywhere – and challenge them every time you see them.