Questions regarding the reemerging push for a return to a gold standard and our discussions of earlier Austrian school of economic theories abound.

Such discussions especially flourish during major financial crises.

Certainly, gold has been viewed by civilizations for some five thousand years as stable and desirable. Why? Simple – man cannot easily destroy it, nor create it. It has been considered both wealth and money.

It certainly meets both ancient and modern economics’ criteria for wealth. To a lesser degree, it meets the definitions for money.

First, it is a medium of exchange. Almost everyone agrees to trade if gold is involved.

It serves as a store of value. In other words, gold cannot only serve as money, but it is actually a tangible representation of wealth.

It is a standard of value. People can agree that one ounce of gold is equal to a fixed amount of some other good or service.

Since it is rare instead of plentiful, that standard remains in tact as long as people agree. Richard Nixon unilaterally arranged for the United States to leave the gold standard in 1971 for political and economic interests. Gold prices “floated” against other currencies, and no country since then has remained on a gold standard.. Nonetheless, gold has been and can remain a basis for contracts, debts and other private or national obligations.

Finally, it is a unit of account. That simply permits us to set prices, costs, or profits. In short, any money, whether gold or silver or fiat (paper) money issued by a government, gold can fulfill that function.

Without too much difficulty, gold can also simply exist to guarantee the use of fiat money. That places a currency on the gold standard, and simply means that a government certifies that it has enough physical gold (as in Fort Knox or the IMF vaults in New York) for every dollar of fiat money it issues.

Your, or a country’s credit, is limited by the amount of gold owned.

Enter the problem.

It may be simplistic, but bears repeating. It is, after all, the reason why economics came into being in the first place. Supply and demand.

The fundamental law of economics assumes that mankind wants an almost limitless amount of goods or services. That includes everything from basic foods to intangible things like religion.

Those “wants” may have both positive and negative effects.

In a world where all physical goods are limited, if supplies are finite while wants are unlimited, we instantly see the basis for having to make choices. The choices can be resolved in civil manner by trade or, in the extreme, by war.

Therein lies the fundamental problem of gold as a backing for fiat money, or as a direct global currency.

There simply is not enough gold on the planet, existing above ground or yet to be mined, to back all the fiat currencies that have been created to accommodate the continually rising population in this world.

Better yet, if we applied simple supply and demand laws, the price of gold would reach enormous proportions compared to the universally accepted world standard of the equivalent US$700 per ounce at today’s values. Careful, please, the price may rapidly move or down from that level!

We know reasonably well how much gold there exists on the planet. We also know approximately who owns how much, both in physical gold and in reserves still to be mined. With the expected gold craze to continue, major exploration and mining companies are hoping to bring those underground reserves to daylight to join in the speculative fever of potentially recovering gold.

For example, Northgate Minerals Corporation (TSX: NGX, AMEX: NXG) announced September 8, 2008 that it found new mineral reserves at its Australian site, including some 140,000 ounces of gold. In their press release, the company stated that the find “will extend the current mine-life by an additional 18 months until the fourth quarter of 2011.” (biz.yahoo.com). (www.northgateminerals.com)

If you do simple math and use today’s value at $700/oz., that results in some $98 million. At a cost of some $20/oz, that results in a nice profit for the company and its shareholders.

However, that amount pales on a macroeconomic level.

It would make little difference on a world-wide basis for the United States, the International Monetary Fund, South Africa, Russia or Canada as countries. Russia, for example, recently announced continued progress in its Kamchatka gold discoveries.

Trans-Siberian Gold’s Asacha mine is estimated to process some 608,000 ounces of gold over the expected six and a half year life. It has not yet commenced drilling. The company is traded on the London stock exchange. (TSG-L)

In short, the supply of gold is reasonably fixed with only relatively small increases foreseen in the near future.

We can also reasonably predict general industrial and commercial uses for gold, such as electronics, medicine and personal jewelry.

With normal supply and demand predictable, the excess demand for speculation drives the price on the international gold market. It is a speculator’s and gambler’s heaven!

There are good and bad aspects to a national or world-wide gold standard.

Making gold convertible into a certain amount of dollars, yen, Euros or whatever would certainly restrict the amount of money each nation could spend. As such, it would artificially impose a certain financial prudence on the part of government issuance of fiat money. It would be likely to sharply curtail spending and investment.

It should certainly cause policymakers to think twice before wasting assets in such futile endeavors as wars not designed merely to defend a nation’s borders against intruders.

However, a return to the gold standard would impose a limit on growth, and thus on employment. History shows that unemployment was far more extensive under the gold standard than without it. Despite the speculation, irresponible credit use and eveb criminal activity, no one can challenge the tremendous growth in entrepreneurship worldwide sice the Reagan and Clinton administrations.

Whether it is the Federal Reserve or another central bank, interest rates would still have to be adjusted – even in a 100% gold-backed currency - to maintain that currency’s value relative to the arbitrary value agreed to and set upon an ounce of gold.

It all ultimately depends whether you want to put your trust in your fellow man (or woman) based on a shiny metal to back your country’s currency or on a piece of paper backed by the “full fait and credit” of the United States or any other country.

If you truly believe more in gold than in the ultimate productivity of the dollar, the yen or the countless others, by all means buy some gold directly through any one of dozens of legitimate gold currency dealers. Not issued by any bank, but backed directly by the gold you purchase, some of that gold is denominated in Dinars or Dirhams or Rials. Islam does not believe in interest or usury, but fixed fees. Remember, though: the value of your gold could rise or fall, depending on what the market dictates.

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The emphasis of the role of government in education predates the establishment of the United States as a country. As early as 1642, a year before the founding of Harvard, laws of the Massachusetts Bay Colony broke with English tradition of purely private education and introduced a role for the state. The law essentially suggested that the colony’s government would assume the duty of teaching children if parents failed to do so.

A century later, the new Congress of the United States enacted the Northwest Ordinance of 1787. It set forth the role and obligation of the state in education. Article 3 of the Ordinance stated that

Religion, morality, and knowledge, being necessary to good government and the happiness of mankind, schools and the means of education shall forever be encouraged.

Early in the 19th century, Horace Mann took a leading role in the advancement of public education. Both as a Senator from Massachusetts and later as Secretary of the State Board of Education in 1837, Mann was instrumental in establishing textbooks and libraries, doubling the wages of teachers, and securing state aid for education. He argued that the country’s wealth would increase by educating the public and should be borne by the taxpayer. He was immensely successful in the task. Mann ultimately became president of Antioch College in 1853, six years prior to his death.

The fundamentals for universal public education were established and accepted on both a private and state level. However, it took nearly three quarters of a century, in 1935, for direct federal government loans to be debated. First, government student lending began on the state level when Indiana initiated the waiver of fees to students who successfully competed in statewide tests.

By 1944, the Serviceman’s Readjustment Act (commonly known as the G.I. Bill) was passed. It was the first legislation to provide direct aid for students on the federal level. The bill was amended and expanded following the Korean and Vietnam conflicts. Now called the Montgomery G.I. bill, it forms a crucial benefit to men and women voluntarily joining the military services.

The next half century saw a rapid rise in various federal, or federally-guaranteed, student loans and grants. Loans are to be repaid at subsidized low interest rates, while grants are outright gifts, requiring certain criteria and qualifications.

Some examples include:

• National Defense Education Act was launched after Russia orbited Sputnik I in 1958. It was centered on science, mathematics and language. The federal program is now called the Federal Perkins Loan program for low-income students with ten years to repay at five percent interest.

• The Health Professions Educational Assistance Act 1963 for medical and health program students was later broadened to add scholarships in addition to loans.

• The most significant and sizeable is the Federal Stafford Loan Program. It was initially passed by Congress in 1965 as the Guaranteed Student Loan Program. The program used private banks and other lenders, guaranteed by the federal government.

• Outright grants, such as the 1965 Educational Opportunity Grant Program and the 1972 Basic Educational Opportunity Grant, now known as the Pell Grant, consist of outright gifts to students in low income brackets. Eligibility is based strictly on need.

Later yet, government educational funding started to be offered to middle and upper income families such as the 1978 Middle Assistance Act and the 1981 PLUS loans.

Finally, loan consolidations and the William D. Ford Direct Student Loan Program of 1993 expanded loans available directly from participating schools.

As the population increased, and students availed themselves of the increasing variety of grants and loans, so did defaults on student loans.

A report published in October 2007 by Education Sector, an independent non-profit, non-partisan think tank, shows that student loan default rates were approximately five percent. Twenty percent, the largest percentage of those defaulting, owed $15,000 or more after attaining a four-year undergraduate degree.

According to the report,

Black students who graduated in 1992–93 school year had an overall default rate that was over five times higher than white students and over nine times higher than Asian students. … Hispanic students’ overall default rate was over twice that of white students and four times higher than Asian students. (www.educationsector.com)

The current financial crisis offers some serious food for thought.

Most significant is that, unlike mortgages, student loans have no underlying asset value. While defaults on mortgages have the backing of real estate – no matter if it has depreciated in market value – student loans are unsecured. Recourse to recover default payments may exist through attachment of wages and other measures, including tracking of an individual through IRS records, but has no tangible value except the student’s future earning power.

Despite the high-risk exposure, private firms in the student loan industry, such as SML Corporation, generally known as “Sallie Mae,” realized some $18.5 billion in derivatives sales in 2007. According to Bloomberg.com on October 22, Sallie Mae lost $185.5 million for the third quarter, compared to $344 million year-to-date. The company increased contingencies for bad student loans by some 31%. It also had extraordinary legal expenses in connection to a failed sale of the company to a third party. The stock declined from a high of $48.24 to close at $4.50 October 22, year-to-year.

According to Bloomberg, SLM “is partly insulated from the crisis because the company’s loan portfolio is 82 percent government guaranteed. The U.S. Department of Education is offering funding for those loans through July 2010.”

SLM Corporation owns or manages some 10 million student loans in addition to its ancillary businesses of college savings accounts and collection agencies. It was originally formed in 1972 as a “government-sponsored entity” similar to Fannie Mae and Freddie Mac. It became a totally independent company in 2004.

The question remains: if SLM Corporation’s management underestimates its potential student loan defaults and overestimates its cash and asset positions, will the federal government be in yet another “bailout” mode?

The history of government’s historic and stated position regarding education is clear. It remains for legislators to determine how best to reduce or eliminate student loan defaults.

Stephan is a former department chair for economics and taught at various colleges and universities at both graduate and undergraduate levels. If you would like Stephan to answer your economics-related questions, read his post “Got an Economics Question?” and submit your questions in the comments area there.

What is the difference between the Austrian business cycle theory and monetarism, and which one do you think is a more accurate description of how the economy works?

The first part is fairly easily explained, since much material is written on both. The second part is much more difficult and subjective.

By way of background, the Austrian school is generally based on the economic theories of Ludwig von Mises (1881-1973) and Friedrich A. von Hayek (1899-1992). The latter received the Nobel Prize for economics in 1974.

Monetarism, on the other hand, is primarily based on the seminal works of Dr. Milton Friedman (1912-2006) in the Chicago school who received his Nobel Prize in 1976.

All three economists were avid defenders of freedom and capitalism.

In brief, the Austrian schools’ business cycle theory describes fluctuations in an economy based principally on intervention in the country’s money supply, resulting in inflation or deflation. In turn, this occasions recession or growth. Interference in the money supply is reflected in the level of interest rates and directly affects the level of borrowing in the economy. That level of borrowing reflects “rational economics.” Rather than relying on inductive reasoning, the Austrian school depends on deductive thought and a continuous cycle of business. The cycle, however, is not steadily predictable.

Both schools view monetary theory in the maintenance of full employment, inflation, growth and stability.

However, Milton Friedman elaborated further and suggested that money growth should be limited to a relatively stable increase of roughly three to five percent per annum. This directly contradicts the Keynesian assumption that monetary policy should be demand driven, therefore insinuating a direct political solution.

The quantity of money, then, can reasonably predict the growth of production or inflation in an economy according to Friedman. He did not, however, stipulate the Federal Reserve, often opining that central banks err regularly in their attempts to control money supplies.

The key difference between the two schools is that the Austrian school believes in cycles of business and prefers to adjust its monetary policy accordingly. Friedman, on the hand, believes that adherence to steady monetary growth without constant adjustment creates better results on a macroeconomic basis.

Unfortunately, during the last two decades – and especially during the current crisis - the U.S. Federal Reserve failed to follow Dr. Friedman’s theory of monetary aggregates. Instead of following his prescription of stable growth in the neighborhood of three to five percent per year, money was allowed to fluctuate throughout the period. It reached as much as 19% earlier this year, then slowed rapidly to two percent.

The results were pre-ordained and inevitable. Yet responsibility cannot simply be laid at any one individual’s feet.

Alan Greenspan served as chairman of the Fed from 1987 – 2006. Despite his popularity under four successive presidents, from Reagan to George W.Bush, Greenspan – and now successor Ben Bernanke - is largely blamed for the current worldwide liquidity crisis.

Certainly low cost of money and credit fueled both growth and speculation under his chairmanship. However, unforeseen circumstances like the Savings & Loan crisis, the Enron and WorldCom scandals, the World Trade Center attacks, and finally an administration that fostered the wars in Iraq and Afghanistan were destabilizing influences on Fed policy and contributed heavily to the eventual burst of speculative “bubbles.” Greed and fear were as responsible as government policies.

The main fault of Greenspan’s administration of monetary policy was to focus more on growth and inflation rather than on stability. Instead of bowing to the federal and private sector’s headiness for growth and “easy money,” a strict adherence to Friedman’s guidelines might not have led to the spectacular growth achieved. On the other hand, it might have avoided the excessive borrowing or speculation underlying today’s liquidity crisis.

It is hard to envision the Austrian school’s reliance on business cycles as performing any better than simple adherence to Friedman’s monetary policy recommendation. Even with a hard-asset economic base such as gold, speculation and suspension of convertibility during times of war can result in similar dislocations. See a fuller discussion of potential modern gold standard applications in the analysis by Cato Institute’s Lawrence White.

The trouble with both systems – and with economics in general - is that the theories for stability, growth, inflation, currencies, not to mention social issues, assume a fairly strict adherence to established guidelines and principles.

More honored in the breach rather than the observance, those guidelines or principles of an economic theory all too soon fall prey to the vagaries and convenience of politicians and the public will.

Politicians, of course, are generally more concerned with votes than with the correctness of an applied theory.

This election year is no different. The international liquidity crisis makes it a more difficult one, especially with uninformed, acrimonious candidates and an electorate bathed in ignorance and fear. The class division engendered by the euphemisms of “Main Street” versus “Wall Street” would cause a devout Communist to smile with delight! Unfortunately, it reluctantly calls into question the very principle of freedom and democracy, its costs, and its responsibilities.

Stephan is a former department chair for economics and taught at various colleges and universities at both graduate and undergraduate levels. Read his full bio at and submit your economics-related questions to his post “Got an Economics Question?”

I could not agree more.

For example, how much attention has been paid to the fact that our closest neighbor, Canada, is having its 40th parliamentary election on October 14?

Neither the Liberal nor Conservative Party has a majority in the parliamentary system.

The economy, of course, is topmost on the agenda.

In the Toronto Star, the paper raised the question whether Canada is likely to experience similar problems in its housing boom. The upsurge in housing lasted for more than ten years, although it has somewhat cooled off even before the Bearn Stearns, Merrill Lynch, Lehman Brothers, and AIG debacles.

According to Jim Adair of Realty Times,

Tighter lending guidelines for developers and a lower level of investor participation have reinforced a more cautious approach among home builders. …Households, for their part, are not over leveraged. Home equity as a share of real estate assets has been steadily building this decade, as price appreciation outpaces the rise in mortgage obligations. Canadian households also have little direct exposure to sub-prime lending, which has accounted for only about five per cent of domestic mortgages in recent years, compared to over 20 per cent in the United States. (www.realitytimes.com)

Reflecting the fears and uncertainties of Wall Street, however, the Toronto stock exchange (TSX) on October 2 saw a fall of more than 800 points, following on the events of Monday, September 29.

Further adding to market malaise,

On October 1, 2008, the United States Securities and Exchange Commission issued Release No. 58703 announcing the extension of the temporary easing of restrictions on issuers repurchasing their securities. Issuers listed on a U.S. national securities exchange (U.S. Exchange) are temporarily exempt from the application of certain share repurchase rules under the Exchange Act Rule 10b-18. TSX has granted and is extending similar temporary relief to TSX listed issuers that are also listed on a U.S. Exchange. (www.tsx.com)

That SEC rule extension virtually encourages Canadian companies to repatriate subsidiaries with U.S. exposure.

Other key items on Canada’s election agenda include the environment, the arts, infrastructure, and the nation’s role in Afghanistan.

Unlike the United States with it two-party political system, Canada’ multi-party parliamentary structure assures that dissident or minority parties’ concerns are widely aired. The dual-language nation also airs its major parties in both French and English debates. Interestingly, while some 30% of Canadians didn’t plan to listen to either the Canadian or the American vice-presidential debates, more than 60% of those polled had planned to watch both. The debates were both aired on October 2.

Stephan is a former department chair for economics and taught at various colleges and universities at both graduate and undergraduate levels. If you would like Stephan to answer your economics-related questions, read his post “Got an Economics Question?” and submit your questions in the comments area there.

The answer is both true and false and maybe.

Yes, the immediate goal of the meeting last week was to establish a single currency for the Mideast. In that sense, the new currency would be similar to the euro, where various countries have joined under a common umbrella.

No, there were no (public or published) talks of an oil-based currency, which would effectively replace the U.S. dollar as the principal currency of oil trade.

Maybe? The idea of replacing the US dollar with an oil-based currency is not new. The late Saddam Hussein, various Iranian leaders and others have often broached the idea.

As early as 1987, financier George Soros in his book The Alchemy of Finance outlined just such a plan.

A single, oil-based currency would require the agreement of the various Middle Eastern heads of state as well as further agreement by OPEC.

Recent U.S. financial disasters do not rule out such an eventuality. However, the cumbersome and institutional process required should not add fuel to existing speculation.

The single currency issue addressed (without the use of oil) is planned for slightly more than two years hence. However, instability in world financial markets may prompt more rapid agreement to reach the goal.

The Arab oil ministers meeting agreed in principle to establish a single currency. While there was no mention of oil or another commodity backing the potential currency, there is some speculation that the euro, rather than the U.S. dollar, could be designated for oil trades.

Stephan is a former department chair for economics and taught at various colleges and universities at both graduate and undergraduate levels. If you would like Stephan to answer your economics-related questions, read his post “Got an Economics Question?” and submit your questions in the comments area there.

I would like to hear your thoughts on the subject of “economic thought vs. business thought.” Is there such thing? If yes, should this distinction be made?

He raises the question in concert with an initiative he is proposing, intended to start a discussion about the current state of business, called, “A Wake-Up Call for the Business Nation.” It ties in very nicely with the focus of economics.

What, if any, is the interrelation between economic and business thought?

In its most basic form, economics can generally be reduced to the study of choices among the uses of limited or scarce resources with unlimited demands.

On the other hand, there is a plethora of definitions for “business.” Broadly, business is generally discussed as people joining together to achieve greater productivity focused on one or more goals, either on a profit or non-profit basis from the American standpoint.

Simply doing something, such as photography or writing, that does not result in a sale is considered as a hobby by the IRS and, thus, does not constitute a “business.”

Dr. Peter Drucker suggests that a business has as its “purpose to create a customer (so that) any business enterprise has two – and only two – basic functions: marketing and innovation.”

Less academic but well-known and regrettably too often misquoted is President Calvin Coolidge’s comment that “the business of America is business.” What the president actually said in 1925 is, “After all, the chief business of the American people is business. …Of course, the accumulation of wealth cannot be justified as the chief end of existence.”

Just as western economics still largely acts on the assumption of the concept of Homo economicus, so does business seem defined and propelled around the economic principle of “maximization.” In most western – and, increasingly, Asian – businesses, that translates to maximization of profits, whether denominated in dollars, yen, rupees, rial, renminbi, or countless others.

“Business” may be thus be considered as carrying out some of the major functions of economics. However, the shortcomings of one translate to the shortcomings of the other.

Is religion or the pure pursuit of science, for example, part of economics? Certainly, since both need to make decisions regarding the use of scarce resources.

Of course, both have been turned into “businesses.” Witness the growth of the Catholic Church and its fueling of empire-building and wealth control over the centuries, or the churches in the United States that can command billions of dollars on television advertising or political campaigns.

Too often, science has been turned from a mere exploration of mankind’s cerebral potential to a dollars-and-cents business. Witness international drug companies, to mention but one example.

The financial fallout from the Wall Street panic of September 15 will, no doubt, have massive worldwide repercussions far from the financial sector. Blame is already cast by politicians and pundits alike.

Unfortunately, few seem to address that the basic fault lies not within specific individuals or institutions or political parties.

The basic fault lies in the fact that neither the teaching of economics nor of business places much emphasis on the nature of man. It focuses entirely too much on the generation and maximizing of profits and how to achieve them rather than on the human application of the benefits or disadvantages that can be achieved through business.

Both the private or governmental sector need to address those very basic questions that are currently largely ignored in favor of ultimate “maximization.”

What do we really need and how do we best achieve and distribute a “satisfycing” amount of the essentials that all human beings require?

The time is ripe for a new theory that effectively integrates natural and human values with mankind’s behavior without the myopic pursuit and maximization of profit.

Stephan is a former department chair for economics and taught at various colleges and universities at both graduate and undergraduate levels. If you would like Stephan to answer your economics-related questions, read his post “Got an Economics Question?” and submit your questions in the comments area there.

A second part of the study could be completed with graduate students, about to embark with a plethora of knowledge of economics, ready to face the “real world” of jobs in the workplace.

What better place than to conduct such a study than in the pages of Amateur Economists where we could entertain a question and answer debate?

As part of the exercise the students would, of course, have to discern for themselves the various definitions of the Latin phrase, consider the implications of answering in the negative or affirmative, and provide an honest self-inventory of their personal preferences and self-perceptions.

Do today’s economics students consider themselves “rational, self-centered, perfectly informed individuals who want wealth and avoid unnecessary labor?” as Adam Smith, John Stuart Mill, Vilfredo Pareto, and others discussed the model?

How do people, especially economists, see themselves?

How do they perceive their religious beliefs in light of the “Homo economics” model?

How does conventional European economics differ from its counterparts that espouse different philosophies, yet seek to answer the same questions of finite resources facing an infinite demand?

A discussion, if it occurs, would likely raise the very question of “maximization” as it is generally taught in economics classes and texts.

Moreover, it may be interesting and enlightening to read in a nutshell a synopsis of Islamic economic fundamentals as a start.

In a recent paper two Islamic scholars, Toseek Azid and Mehmet Asutay (Bahauddin Zakariya Universiy, Pakstan, and Durham University, U.K., respectively) point out that Maqasid al-Sharia (Koranic law, including economics and banking), or the objectives of the Shari’ah, aim to fulfill the objectives of human well-being. As a basic premise the authors suggest that “It, therefore, rejects the neo-classical postulate that human beings are in their intrinsic nature self-interest maximizers.”

This, of course, is diametrically opposed to current predominant economic thought. It is perhaps most closely approached by the late Nobel Prize winner, Herbert A. Simon.

Maximization of utility is also rejected by Sharia thought. The authors thus ask quite plausibly “if we suppose that all persons are egoists – they act for personal ends - what sense does it make to speak of ethics?”

While Islamic economics shares the belief that “the agents of the different sets of the economy are inherently selfish” the authors believe that “the attitude is changing towards the social and economic benefits through participation and cooperation.”

“A continuous process of … training of the society is required, which is only possible if we have an ideological system … that should not be biased towards any segment or set of the society and economy.” (Azid, Toseek, and Asutay, Mehmet, “Does ethico-moral coalition complement to economic coalition?” HUMANOMICS 23.3 (2007): 153-173)

Over the last quarter century, much of economics has been influenced by Herbert Simon’s ideas. He questioned the idea of economic behavior that intended to seek only the optimum result for each economic agent. Further, he suggested that individuals or even organizations could not obtain or process the massive information available to reach ultimate rational decisions. Instead, he suggested that decisions only need to be “good enough” to assure reasonable or acceptable results.

The question of “satisfycing,” rather than maximizing, has been a steadily growing trend, not only for philosophers, but for political adherents, as well. This has been especially true of Islamic adherents in Europe.

On September 22, 2007, the first Islamic political party in Europe was formed in Finland, the Finnish Islamic Party (FIP). Municipal elections will occur next month. The new party hopes to qualify to participate in national parliamentary elections in 2011. It currently has valid signatures for roughly a thousand of five thousand signatures required. The party was established by native Finns.

With the growing trend in Islamic populations throughout Europe, it is not inconceivable that Islamic economics and finance, as well as Herbert Simon’s ideas, may find greater acceptance. On the other hand, Islamic concepts may well be more and more co-opted into traditional European and American models.

Stephan is a former department chair for economics and taught at various colleges and universities at both graduate and undergraduate levels. If you would like Stephan to answer your economics-related questions, read his post “Got an Economics Question?” and submit your questions in the comments area there.

Is there a dominant economic worldview in the Western society? If so, what is it? If not, what worldviews are the most popular/employed?

With the Democrat and Republican conventions upon us, no doubt we will be hearing more than we want about a “time for change.” Although the words may be different, the essence will be a replay of past conventions of both parties. The call for change has come from all major parties and throughout many decades.

Franklin Delano Roosevelt, using much of the thinking of John Maynard Keynes, moved the country to adopt a greater role for government in its economic decisions.

Ronald Reagan, espousing the ideas of Nobel Prize recipient Milton Friedman, became the effective spokesman for the “me” generation.

Both Democrat and Republican conventions will ceaselessly invoke the religious symbolisms which translate into votes.

All will have an impact on the United States and on the world.

The political conventions, however, should focus amateur (and professional) economists on the intellectual discussions that have been raging in the economic community as to whether men and women are essentially “Homo economicus” or something else. Moreover, the debate needs to point out the inherent contradictions between the principle of “Homo economicus” and the espoused religious beliefs.

Economics as a specific study has been nascent for roughly two centuries, since philosophers and early economists like Adam Smith, David Ricardo, and John Stuart Mill, among others, tried to define and quantify how best mankind could achieve the maximum result from any economic activity. They painted a rational, self-centered, perfectly informed individual who wants wealth and avoids unnecessary labor.

That picture is still held up as the ideal economist, designed to maximize his or her physical well-being.

Incredibly, this model more than contradicts the religious beliefs of the time as well as today.

Certainly a majority of people in the western world, influenced by European thought, subscribe to this view. Unfortunately, mankind is hardly rational nor perfectly informed, yet nearly ninety-five percent of mankind admits to a belief in a deity. Many billions are adherents of the Judeo-Christian-Muslim beliefs system. In not one is the definition of “Homo economicus” held out as an admirable trait.

Why, then, should economics as we know it stress the concept of maximization?

That question has resulted in continuing battles among economists, including Nobel Prize winners Franco Modigliani and Herbert Simon. It is more than a fine distinction between maximum gains derived from economic activities and simple satisfaction. Simon suggests, for example, that most people are not focused on maximizing gains but rather simply on meeting their particular level of satisfaction.

Achieving satisfaction appears more reflective of and beneficial to mankind, especially in the non-western world. Satisfaction, rather than maximization, should be much more emphasized to students of economics.

Does this mean a reevaluation of our concepts of mankind?

Of course!

At a time when the world as a whole is imperiled by the by-products of maximization – pollution, deforestation, continued poverty and starvation – it is perhaps the economist, working hand-in-hand with political and religious leaders on a world-wide basis, to avert continuing problems.

It may also require a much wide acceptance of non-traditional recipients of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

Stephan is a former department chair for economics and taught at various colleges and universities at both graduate and undergraduate levels. If you would like Stephan to answer your economics-related questions, read his post “Got an Economics Question?” and submit your questions in the comments area there.

Readers have many questions. Undoubtedly, you will too.

I’ve always subscribed to the maxim that the only stupid question is the one you didn’t ask.

Here’s your chance to prove that you’re not stupid. Ask me.

There are, of course, a few guidelines. Fortunately, you won’t find too many.

Obviously, I want to answer questions about economics, not why the sky is blue.

Of course, I don’t want porn, filth, smut, or anything that our editorial staff or readers will find offensive. Go visit the millions of sites where those things are acceptable.

Try to keep your questions to a sentence or two. Please don’t try to write a question the length of James Joyce’s novels.

I’m not afraid of controversial questions. Just make sure they deal with the economics of an issue.

If you’ve been following the economic talks of the various political candidates during this election year, you should find tons of questions that the normal media doesn’t ask.

Do you have a pet peeve in economics? Maybe I can find an answer for you.

Ever wondered why we grow enough food to feed everyone in this world, yet we don’t? The answer may surprise you.

What’s so “dismal” about the “dismal science”? Nothing, if you know who first coined the phrase.

Do you have to believe in economics even if you’re not a card-carrying capitalist? You bet! Marx or Lenin or Chairman Mao all dealt with the issue in their own way.

My favorite question? What is a widget, anyway?

As the saying goes, if you laid all the economists end to end, they would never reach a conclusion. So it may be with Amateur Economists. Chances are your questions will lead to a lively, stimulating debate. The questions are yours. The answers come back from a real person, not a preprogrammed computer format. Come back often to see how No Widgets Here answered your question.

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Stephan Zimmermann is former department chair for economics and taught at various colleges and universities at both graduate and undergraduate levels. He was also a private economic consultant for firms ranging from entrepreneurial ventures to multinationals. Stephan studied at the University of California at Berkeley, Cambridge University, and the Monterey Institute of International Studies. He is currently retired and devotes his time to writing both fiction and nonfiction.

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Economics has neatly quantified the question of supply and demand. On a factual basis, we can reasonably predict the growth of world population, ceteris paribus. Other sciences have determined a general level of nutrients, usually measured in calories, required for the average human being to exist. Still others can show how much food we can produce, given acreage, climate, and the potential for inclement weather conditions.

The sum of independent, impartial analysis shows clearly that much of the world’s population is more likely to die from disease or war, including nuclear, than from long-term starvation.

Debates ranging from global warming to energy, biotech, poverty, hunger, disease, and education, among others, are too often described as “crises.” This is certainly true of the current recognition that oil is a reasonably predictable finite supply, while existing and future demand can increase or decrease, depending on individual people’s choices.

In the short run, of course, the oil “crisis” will no doubt have a substantial impact on world agriculture. Economics can measure (or predict) what is likely to occur as prices rise or fall, as crops are switched, or as government policies change.

As farmers opt to change to corn production to feed the biofuel craze to help offset global warming, certain other crops usually grown on the same acreage are likely to increase in price. In Germany, for example, the price of barley doubled from 2005 to 2007. Further increases and switches out of barley and hops can be anticipated. Beer in Germany is as much a staple as tortillas are in Mexico. Economic impacts can be easily measured and calculated, down to such items as beer or tortillas.

Grain production, including corn, soybeans, and other cereal grains, have reached record prices and are expected to continue at least through 2009, according to USDA estimates.

The good news for American consumers: the same report indicates that retail prices are likely to be affected with an increase of less than ten percent of the change in corn prices. While there will be an obvious price impact, it is clear that the United States does not face an imminent “food crisis” as so many would-be pundits like to predict.

The same cannot be said for various consumers around the world. Since conventional economic wisdom measures prices in terms of American dollars, it is clear that certain segments of the world’s population, especially farmers in Third World countries, will suffer. Grain prices that might have been marginal before adding the costs of the current crude oil spike are likely to be unsustainable.

It is not the agricultural output of the world that may cause starvation but the simple acceptance of modern economic theories, such as the use of “free enterprise” as a world standard and goal.

Government policy controls fare little better. China’s economic policies during Chairman Mao’s “Great Leap Forward” and “Cultural Revolution” resulted in some twenty to thirty million deaths from starvation. They were largely unreported at the time.

In July, Argentina, one of the world’s top suppliers of soybeans, defeated by one vote a government proposal by President Cristina Fernandez-Kirchner to impose a proposed increase on the tax on its nations’ farmers to 44.1%. That proposal led to a nationwide farm strike in Argentina.

According to RIA Novosti political commentator Andrei Fedyashin, “It became clear in early April that the farmers’ strike in Argentina - soy, maize, and wheat producers - was creating a threat to the world economy. … By the end of March, bread, pasta, poultry, and milk started disappearing from shops in many cities, including Buenos Aires. Beef was almost gone. For a country where more beef is consumed than anywhere else - 74 kg per capita in one year (compared to about 46 kg in the United States and a little over 16 kg in Russia) - this was quite an ordeal.”

Whether individual nations choose to adopt a free enterprise approach or one of government control, it again sheds light on the nature of mankind and its perception.

Economics may quantify certain effects in the private market or government-regulated or dictated policies.
It cannot help to end regional hunger or starvation.

Stephan is a former department chair for economics and taught at various colleges and universities at both graduate and undergraduate levels. Read his full bio at and submit your economics-related questions to his post “Got an Economics Question?”