The Birth of Modern Economy: Government (Part 1)

A building.

A little long while ago, on the topic of The Birth of Modern Economy: Transaction Evolution, we discussed about the strong link between transaction and specilalization, which has revolutionized our economy and transformed it to the current state.

Thanks to it, unlike our forefathers, we have been empowered with the ability to choose the occupation of our desire and are free to follow our aspiration without having to restrict ourselves to growing crops and raising livestock for the sake of survival (which is exactly what defines the primitive form of our economy, known as “subsistence economy”). This has allowed for far more diverse products and services in circulation, something which we often take for granted. In addition, the introduction of money as the primary medium of transaction/exchange has further made exchanges ever more convenient and universal, and consequently, the frequency of trade has also increased dramatically. All these factors combined are what enables the tremendous growth per capita as witnessed today.

From that side of the view, we can conclude that specialization, transaction and money are indispensable to our growth-inducing economic mechanisms: Capitalism and Free market.

But, that is just the 1st chapter of the never-ending story of our modern economy. That is why, today, we will shift our attention towards a new (but much related) discussion, particularly on government and why we need this bitter sweet medicine as we sail onwards.

So, what is government?

Government is an entity that govens a certain group of people residing within a clearly defined territory. Its purpose is to keep everything under its authority in check/balance.

This sounds grand and admirable, but government is, in reality, not attracting much love and respect. Needless to say, a majority of people are not content with their governments, be it in developed or developing nations. Some wish for change of the locomotive, some wish they could live in a free world without government (basically a state of anarchy). Before all else though, it is only fair to have a proper understanding of the government we despise so much, particularly an understanding on the origin of the government, on why and how the government materialized in the first place.

Just a side note. As you read on, at some point, it might sound like I am merely trying to defend the government and have failed to notice the oppression by some governments on their people, but trust me, I am not and have not. And, even this objectionable act will not alter any part of my writing on this topic because the true purpose is NOT to gather support or opposition towards the government, but to invoke a more rigorous, structured and independent thought process about the subject (my government, your government, their governments), be it support or criticism, and thereby, to arrive at a more meaningful answer/solution rather than closing your eyes and mindlessly following the voice of some random people.

To rephrase what has just been said, my attempt to answer such questions is not with the intention to convert anyone into a pro-government individual. I am placing high value on such understanding because having the desire for changes per se does not necessarily translate into favorable outcomes. There is a reason why every major economic schools of thought support the presence of government in the first place. Of course, there are always disagreements regarding the degree of interventions or regulations, the structure or the functions of government, etc. Nevertheless, they all agree that government (in whatever guises they may take) plays a pivotal role in ensuring long-term survival and prosperity of a society. Why? Simply because a country will fall without a head on its shoulder just like any human will, and this headless situation can easily arise from reckless and abrupt transitions without incorporating long-term strategies to ensure stability and peace. Hence, this article, I hope, will lay the ground based on which one can make a more logical and objective-based judgement/criticism that can reinforce positive changes and buffer negative side-effects during the transitional stage of the government rather than destroying the very foundation of the system of governance that took us centuries to build.

With the aim to achieve this goal, we will focus on gaining a better understanding about government by first imagining the inception of human society and how government was formed in the early age (a rather pseudo-philosophical, opinionated and arrogant approach I admit), and after that, considering the importance of government to our modern economy.

1. Combatting Anarchy and the Laws of Nature: The emergence of government and its shortcomings

It sounds like economic reasons should be enough, so why is there even be the need to dig deep into this phisophical stuffs anyway? Because it seems (to me) that the philosophical branch answering the question “why something exists?” has never been emphasized that much. The problem is that when there is insufficient knowledge about the rationale behind an action or a creation, there is also less appreciation and further investigation that can possibly lead to the awakening of higher order reasoning on the subject matter(which will be greatly beneficial to the overall well-being of a country through smarter and pro-longterm collective decisions). Think about it for a minute. If you do not know how calculus can serve you in life, you are less likely to appreciate learnign it, and you are more likely to find excuses like “I’m never going to use it in real life anyway, so why bother?”, and this was certainly not how prominent scientists arose. The point is if you cannot wrap your mind around the existence of something, you are more inclined towards seeking out its flaws or just thinking slightly of it.

Ignorance in people (as in lack of information) clouds their judgement. In other word, people can easily misconceive when information presented to them is lacking. It turns out that this is mostly the case when it comes to people viewing the entity called “government”. Some people have just not been reminded or made aware of more relevant topics/discussions revolving around the government, basically its essence. These are the type of people that can readily judge and react excessively to any comments discrediting the government. They are the type that is most easily influenced and swung according to the self-interest or will of the others that do not necessarily reflect social optima, and these people are the type that more likely makes unsound conclusion and act upon it without much realization of the ramafications.

Consider the following. Through the course of history, human have witnessed major wars, rise and fall of dynasties, economic miracles and catastrophes, groundbreaking technological discoveries, and many more history-shaping events. Some marked the turning points of the human society, a shift from one era to the next, and some, though they might not have had such profound impact, still nonetheless influenced subsequent events greatly.

There have been both goods and bads, but we like taking credit for the goods and pass the bads around like hot coals, and we often (note that I toned it down a bit for not using “always”) try to find a scapegoat. We ascribe unfavorable events as being caused by the government. We blame our government for going to war (which from economic point of view, using game theory, is actually a very rational action considering the nation’s interest at stake, and we will discuss about it more in the second part of the article), we blame the government for making bad decision, and pretty much blame them for virtually everything that goes wrong in our country throughout history. Of course, if you think hard enough, anything can be traced back to the government, the one who is said to lit the fire. But, how about the goods? And, have we even considered the opposite, i.e. how things will play out in a country without one central government? Would we have been able to achieve better outcomes? Probably not.

Remember that government has continued to exist through thick and thin, prosperity and hardship for a reason (discussed below), and for that exact same reason, there has never been a government-less or head-less country society. You might argue that I am wrong. After all, just look at Antartica or Somalia. Well, you might be right to an extent. Of course, they do not have government in the strict sense, as defined in the formal definition, but there are always some sorts of government-like bodies being constituted. In the case of Antartica, it is jointly governed by several powerful countries, and this is reflected in the Antarctic Treaty System–the system of agreements governing the use of the continent. In the extreme case like Somalia, it is an ailing country completely torn apart by war and famine. Still, there is a transitional government controlling a part of the country, and the other parts are ruled by primitive methods of government (tribal, etc). You can still say there is no government, but is that where you want to spend you life in? No.

The problem is that there has been too much emphasis on “what the government is doing” while much less attention is paid to more relevant topics like “why did they come to be to begin with?“, or ultimately, “why is their presence beneficial to human society?“. These are the complementary questions that matter, to which answers can significantly change our collective behavior towards government for the greater good.

However, providing straightforward answers to such questions is rather a difficult task. But, let’s try to picture a free world, a world relieved of all those annoying restraints people hate so much, a world where no one has to obey traffic light, a world where you don’t have to pay tax, a world without classes, and a world with just all the goodies you love… Well, the bad news is this utopia doesn’t exist. If it existed, it would not be utopia, it would be hell where everyone fought for supremacy, which would just result in a new regime with new government (or whatever new term they coin to mislead people), and most probably, a less efficient and effective one.

Think for a bit. Why and how did government rise into power? Why did we give them power? Because the free world ruled by nature does not favor the weak, and government was originally created to combat this problem, to provide protection on multiple levels, to enforce rules and orders that brings stability conducive to the formation of a functioning society.

The Law of Nature manifested.

Bear eats fish… but that is one dumb fish for jumping into the bear’s mouth on its own like that…

Let us observe what happen in nature. In the wild, there is the so-called “food hierarchy“, also known as the food pyramid or nature pyramid. This is where the strong consumes the weak. Predators consume preys. It has been this way for millions of years. In a group of humans without government, it would play out the same. The strong (physically or mentally or both) would be able to control and oppress the others for their own benefits. The weaker ones would suffer, and the stronger ones would fight for kingship. This is the hard truth, and I believe that at one point, our forefathers sought for a way to get rid of this problem once and for all.

Well, I am no anthropologist. But, through reason and logic, I believe that having suffered and resented the natural order, our ancestors one day came together and formed a government, an entity that oversaw their people and ensured better well-being for everyone in the group. This made possible the establishment, enactment and enforcement of laws to guarantee optimum well-being of their people, to combat against coercion by the physically strong by punishing the ones inflicting harm on the others, etc. Those laws that lay the very foundation of their society were called “the constitutions”. Policies, rules and regulations were then developed to polish the areas untouched by the laws. Common sense and morality followed suit to further fine-tune the society into the one they desired. All these elements form the very fabric of our society, a complex system that manages the flow of power and authority. It protects its peopel within and without. This is however only possible when there is one central government that exercises executive authority, that can enforce, reward and punish. That is why, a government-less country is never recognized as a utopia but as “a state of anarchy“, a situation when the governing body of a country loses its authority, a state in which individuals excercise absolute freedom which leads to public disorder and collapse of a nation. If you want to know what would happen, just run a mini-simulation in your head. Imagine what the worst people you know would do if they knew they would not be punished regardless of their behaviors. This should be very clear even without much explanation.

That is why our forefathers put in their utmost efforts to build, block by block, a robust social structure, one that can ensure order and resist adverse forces.

However, the very fact that government is run by people subjects it to being steered by incentive and self-interest. Not just that, since people are sometimes short-sighted, not every decision is an optimal decision. Not every outcome is played out as intended even decision-making is practiced with goodwill. I have to also admit that we, humans, sometimes just re-enact the same scenario, just on a different stage. There are still times when the strong (the rich and the powerful) bullies the weak (the poor with little privilege). However, unlike in the long gone past when the bullied had no recourse, we are in a much improved state due to the enforcement on laws, rules and regulations, and with policies laid out by the government who holds higher authority and operates under a set of fundamental principles called the consitution. There have also been instances when the bully can be the government itself. But, the system of government evolves as we, human, evolve. As we gain greater wisdom, so does our government, and this so far has brought about the abolition of slavery, racial discrimination laws, gender equality, the legalization of same-sex marriage, etc.

This is an undeniable truth. Of course, relatively speaking, there are always “better” and “worse” governments. That is why “change” is great, but only to the extent that the change is made gradually with well-defined objectives and clear understanding of the repercussions. Why? Why should we consider the limitation of our action? Because no matter how many times it is done, people will always discover imperfections of the government, new or old. Think about the person you like the most and think of highly. Regardless of who they are, if you have known them long enough, you can always find their shortcomings. It is this very nature of ours that makes it even more important that we places our subjectiveness last and objectiveness first. That is, emotion lasts, knowledge and logics first.

Another reason for exercising precaution and long-term thinking is because we like change and a sudden/abrupt one that can immediately meet our demand. But, by now, you should be able to infer that an abrupt change, a sudden transition, will definitely demolish the balance of power, the favorable policies or rules and regulations enforced by the old government, and bring force a period devoid of protection and security and a period when the victims have no recourse. And, depending on various factors (number of opposing factions, foreign intervention, psychologial state of the people, etc) this period can last long enough to tramatize you. Should such a situation arises, it will utterly destroy the economic foundations of free market and capitalism, pulling down the nation to an era of economic regression.

It may sound dismal, but it is what everyone should be aware of. And, I am not here to judge, and what I have written is only to serve as an explanation of why and how governments emerged and why blindly indulging yourselve in the very idea of eradication and revolution is detrimental in the long-run. I guess what you should always bear in mind is that “government” was not a self-created entity, but rather a product of the will of our society to prevent and eliminate the nightmare we have once experienced. As time goes by though, we, the current generation, have forgotten the lessons of the past, and the purposes of our creation, the government, from many generations ago. Thus, this section is intended to raise consciousness on this particular matter, and I hope by now, you have come to at least agreed with me on some of the points mentioned. If that is the case, let us move on to the second part of the article that is probably more relevant to Economind. In this next section, we will look closely into the roles/functions of government within our free market economy and see to what extent their presence can help mould our economy into what it is today.

See you in the second part! Soon!