Economics looked at differently … and understandable for everyone
The economic reality system (ERS) presents itself as an introduction to economic insight approaching the matter in another way than is usually done; as a consequence it is important to know what precisely constitutes the other character. The traditional angle of incidence for an introduction to economics departs from the needs of people; which are fulfilled by the working of the (free) market where supply and demand interact. In that approach the role and the ‘indispensability’ of money is evident, for markets work with prices, and those are expressed in money. The scarcity of whatever product – replaceable or not – is nothing to worry about but a first-rate circumstance to raise the price, waste is only a problem, if its cost cannot be escaped by passing it on to society.
There are quite some needs – in the social sphere (warm food at home, a listening ear) and the public sphere (good public infrastructure) – that are not fulfilled by money or by market action, but they are nevertheless very important and / or vital for each individual, because they are an essential part of reality but stay mainly out of view in the angle of incidence of the market.
Looking through the ‘market’ glasses at the societal system, one inevitably overlooks again and again activities and flows that cannot (at all) be explained in a convincing way by the functioning of the market(s). The past few decennia have given rise to a number of variants of the classical accepted economics with different accents, and so we have got acquainted with terms like social, green, ecological, sustainable, solidary, and even non-autistic economics. Each of those prefixes to the word economics points to the defective functioning in the long run of what one currently understands by ‘economy’ and the very narrow individualistic vision it proclaims.
Back to the original meaning of the term ‘economics’
If we go back to the original meaning of the word economics, we do not need all those prefixes, for the word has a Greek origin and is based on the words oikos (= house) and nemein (= to govern) or nomos (= law, rule). ‘Housekeeping’ (domestic rule) is the most faithful translation of the word, and it is evident that in a household social, green, sustainable, and solidary aspects are part of its keeping. In the course of time the meaning of economics has been narrowed and currently only refers to transactions of goods and services exchanged for money; it no longer comprises all the flows that are decisive for the well-being of an individual while that is the yardstick men use to measure the quality of their well-being.
Two characteristics for a good model
In order to set up a good model which households can use to get a sound and orderly structure and a correct assignation, it should comprise all (!) flows of goods and services. The economic reality system gets its ‘different’ character among others from a complete structured inventory of all flows in the societal system; also the mere flows of money and the ecological flows that are not subject to bartering.
The ‘different’ character is further on defined by a second aspect: avoiding artificial divisions. By looking at economy as an omnipresent activity of supply and demand, the accepted economics amount to the division of the market players in producers versus consumers, and a number of related divisions in two (artificial) groups like: enterprises – family households, employers – employees, etc. Those divisions do not overlap completely, lead to indistinctness and make the societal system look quite complicated. For instance the term enterprises stands for economic entities, while the term employer can indicate an enterprise as well as a person, and usually the word producers means private enterprises, but government institutions also produce a lot (mostly services).
The most important disadvantage of the division in those groups, however, is that every group is associated with a specific function, and in the further reasoning the members of a group are expected to act and think only in terms of the main function they fulfil: producers that only think in quantities they would like to produce without taking into account the suppliers on which they depend, or the investments needed, or the consumers that merely react on prices without reckoning with their income or considering health and ethical aspects.
Three essential functions for every entity
Individuals or economic entities cannot simply be associated with one single function for they fulfil several different roles / functions at the same time, and consequently their acting and behaving within the societal system is defined by weighing aspects connected with those functions. The three functions in case are: producing, consuming, and (financial) investing. The most ‘striking’ of those three roles or their combination makes us name in common speech an economic entity a producer, a consumer, a holding, a bank or a government institution. The economic reality system presents a universal model valid for the structure and the functioning of all the economic entities, in which the above named three functions are integrated. That universal model does not prevent us from using in common speech the obvious traditional names for the different groups, namely: households, enterprises, social and non-profit sectors, financial sector, government, etc.
Result of the different approach
In the economic reality system (ERS) the ‘market’ glasses are replaced by wide-angle ‘flow’ glasses. By making the inventory of all flows, we get a scheme in which the social, economic, political, and ecological spheres are united.
That character implies that no specific working-principle takes an a priori effect; the functioning of the market is not excluded, however, the attention is drawn to the functioning of the societal system aiming at the maximum well-being of all individuals.
The combination of making the inventory of all flows in the societal system plus the analysis of how all economic entities share the same three essential functions has resulted in the universal enterprise model (UEM).
The current impression and conception that society is very complex, has been replaced,
thanks to the UEM, by a transparent and complete survey and a clear insight.