This book is the first of two volumes encapsulating Carmine Gorga’s lifetime research in economics. Dr. Gorga is a political scientist1 who has been contributing to economic thinking for nearly 60 years.
Introduction
Carmine Gorga’s efforts summarized in this book constitute a logical formulation of a philosophy for economic systems, elaborated by operational principles. His formulations are distinct from many mainstream economics ideas. But to this reader, the structure of his economics has a logical consistency not found in many well-known economic theories. This is because Gorga brings focus to the economic process, the just implementation of economic policy, and a unique balance of economic rights and responsibilities. He emphasizes property rights, opportunity rights, and equitable distribution of gains produced within an economy. Before you get the wrong idea, the equitable distribution of gains is determined by the inputs of those producing the gains. There is nothing for “free riders” in his economics. (That does not mean he disregards social safety nets; it is that they are not central to his propositions.)
In this review, I will attempt to point out important areas that Gorga addresses in Concordian Economics, Volume 1.
Disaggregation of Savings
Gorga’s entry into economic research can be marked by his 1965 consideration of a revision of a well-known John Maynard Keynes economic model. The original Keynes model is summarized by the equations:
Y = C + I
S = Y – C
S = I
Y = income; C = consumption; I = investment; and S = savings.
Although this is mentioned briefly in early pages (16 and 18), it is not fully introduced until Chapter 4. Gorga’s insight was that wealth is comprised of two distinct factors: productive wealth and hoarding. He defines productive wealth as being involved in the production of goods and services. In contrast, wealth that is hoarded is used for such things as financial speculation not related directly to production and purchases of luxuries that exceed what is needed to support production. Such luxuries include the purchase of expensive cars when inexpensive cars would provide transportation to work and extravagant items such as mansions and large yachts that far exceed working people’s nominal living and recreational requirements.
(Note: Dr. Gorga has assured me in a private discussion that he has no qualms with luxury. My interpretation of his theory is that luxury consumption is not productive. I do not think he agrees, so let’s leave it at that.)
Wealth and Savings
Gorga goes into a detailed discussion of the reluctance of Keynes to define savings or investment as independent variables in his model. From page 56, footnote 2:
In the General Theory (pp. 183-184), Keynes in fact stressed that: “Savings and Investment are the determinates of the system, not the determinants. They are the twin results of the system’s determinants, namely, the propensity to consume, the schedule of the marginal efficiency of capital and the rate of interest.”
The entire discussion in 4.2 Section I (pages 54 to 59) details the ambiguities in Keynes’ description of his model and further confusion in the interpretations of others. Read at your own peril. I have not yet digested much of it and have skipped on to 4.3 Section II (pages 59-63). Here, Gorga starts with the definition of savings as “all wealth which can neither be consumed nor can be confused with investment.” (page 59) From this, Gorga adopts the definition that savings = hoarding.
This leads to a new model:
Y =C + H
I = Y – H
I = C
Y = income; C = consumption; I = investment; and H = hoarding.
This resolves a major problem with the initial model. It eliminates the dependent and poorly defined variable savings from the model and introduces a new definition of investment that constitutes all productive consumption, whether by consumers or entrepreneurs (investors).
The Paradox of Thrift
This model revision entirely avoids the familiar Paradox of Thrift that Keynes and others have so famously expostulated.2 Gorga points out that the consumption of needed goods and services is a driver of economic growth and real wealth in a way that the consumption of “non-productive items” is not. The first consumption is actually an investment in the real economy. Conversely, extravagant consumption or financial speculation may not be an investment at all but may constitute a form of hoarding. (This is my interpretation, and the added emphasis is mine.)
(Note: It is important to remember that some speculation is productive. When an entrepreneur hazards a venture for a new process or product, that is speculative. Not all such ventures succeed. The unproductive classification is reserved for such things as financial speculation unrelated to producing goods and services or buying idle land or jewelry, for example.)
This insight regarding separating the concept of savings into investment and hoarding is related to that of Richard A. Werner,3 who developed the theory of disaggregation of credit.4,5 In this theory, Werner recognized that credit can be issued for productive purposes (furthering the production of needed goods and services; it can also be issued for financial speculation and unproductive purposes. (Unproductive purposes: see the preceding paragraphs.)
The Economic Process
Gorga has reduced the economic process to three primary functions: production, distribution, and consumption. These three functions also become the focal elements of his structure for economic policy. Gorga assigns the purpose of economic policy to be the establishment of economic justice. He states that his thinking involves
… a return to the millenarian concern with economic justice, which from Aristotle to the present has been composed of “distributive” justice and “commutative” justice. (page 21)
Gorga defines four factors of modern production (page 23):
- Land and natural resources.
- Labor, … manual labor, intellectual labor, (spiritual?) labor as in entrepreneurial leadership.
- Money in the form of financial capital, and;
- Tools in the form of physical capital as in plants and equipment.
Gorga observes that control over these factors can never be “equitably” distributed among all individuals. He proposes that they be distributed proportionally according to merit (my word). By merit, I refer to Gorga’s inference that distribution is earned. He writes:
Human beings, as well as specific plots of land, are endowed by our Creator with different measures of quantities and qualities. It is natural we are going to get unequal results.
What we need, and what the world stands for, is equality of opportunity.
Forms of Capital
I write this section to point out that I infer from Gorga’s work that there are four forms of capital. (Gorga does not say this; it is my inference.) They are related to his four factors of production. Specifically, the four forms of capital are
- Natural resources – land, commodities, and energy
- Human resources – labor, as detailed in the previous section
- Financial resources – money and credit
- Real resources – physical items such as buildings and equipment
The apportionment of these forms of capital is a central problem that I see Concordian Economics trying to address.
Economic Rights and Responsibilities
Gorga maintains many of the factors of production today have access through privilege:
Each one of these privileges – historically rooted mostly in conquest and plunder – has to be turned into a universal right for everyone, if we ever want to build a just and ordered society. (page 24)
Gorga proposes that rights to opportunities must be available to everyone. With those rights come related responsibilities necessary for the continuing opportunity for access. He summarises these rights and responsibilities in a table on page 246:
The elaboration of these rights and responsibilities occurs in more than one place in the book. I especially like that in Chapter 9, Part II, pages 135-139.
Access to Land
Gorga writes:
This is a natural right belonging to all of us just in virtue of our humanness. Land and natural resources are our original commons. (page 135)
In return for this right:
… is through the exercise of the responsibility to pay taxes for the exclusive use of these resources … with a corresponding reduction of taxes for … man-made improvements on the land.7 (page 135)
This penalizes the hoarding of idle land. It is a Georgian8 concept.
Access to Credit
The concept of disaggregation of credit formulated by Richard A. Werner3 is related to Gorga’s formulation, although, to my knowledge, Gorga’s formulation was independently derived. Gorga proposes that credit for the real economy and financial speculation should be totally separated. Conceptually, this is like the separation of commercial deposit banking from investment banking that existed from 1933 at least to about 1970 under the Glass-Steagall Act of 1933.9
Gorga writes:
We all have the right to access national credit. Since national credit is the power of a nation to create money, and since the value of money is given by the value of wealth left over by past generations and the creativity of every person in a nation, national credit is the last frontier, the last commons. (page 136)
Access to national credit, available only to the real economy, would be made at cost by a government-controlled banking structure. Although Gorga does not state a relationship, I see parallels to public banking.10 Investment banks, securities firms, and speculators would be excluded from direct access to the public banking system to the extent they did not produce real goods and services. A key element of this proposal is that it completely isolates the hoarding of financial resources from those needed to produce real goods and services. It also insulates the real economy from speculative bubbles and crashes.
Access to the Fruits of One’s Labors
Gorga proposes that the fruits of one’s labor are a just wage plus the opportunity to participate in capital appreciation. He cites the widely used Employee Stock Ownership Plans as a model.11
I think he intends earned employee stock ownership to be a requirement for a firm accessing national credit.
Access to the Fruits of One’s Property
The ownership of an enterprise must be protected, “with limits” (page 137), from merger and acquisition consolidations that can disenfranchise employ owners as well as put their work at risk. Gorga allows stock to be bought and sold on the market, but the implication is that such transactions are within the domain of employee-owner control.
Economic Equilibrium
The term ‘economic equilibrium’ is mentioned a few times in the book. But Gorga clearly conceives economic systems as dynamic and not in static equilibrium, at least most of the time. Early in the book, he gives a synthetic model conceptual structure for an economic system (page 39, which I have modified12):
p* = fp(p, d, c)
d* = fd(p, d, c)
c* = fc(p, d, c)
where
p* stands for the rate of change in total production
d* for the rate of change in the values of distribution of ownership rights
c* for the rate of change of total expenditure
The determination of the functions involved in this analytical structure seems challenging, to say the least. However, my expectation is that sufficient macroeconomic empirical observations can move toward more specificity. This is a radical departure from many modern economists’ rational expectations and representative agent modeling. The failure of mainstream economic models to anticipate economic disruptions, such as crashes, is reason enough to evaluate non-equilibrium approaches to economic modeling.
Top Down Macroeconomic Modeling
I have included this section to show how this book made me think of relationships between Dr. Gorga’s work and areas of post-Keynesian economics with which I am familiar. This section may be skipped by those not interested in this detail or those with more expertise in this area is greater than mine.
Gorga outlines a process of analyzing macroeconomic systems using observable data, such as those found in national accounts.13 This is different from the popular approach of recent decades of building macroeconomic models from microfoundations. A leader in developing the microfoundations approach was Robert Lucas. In 1976, he wrote the following justification for microfoundations:14
In short, it appears that policy makers, if they wish to forecast the response of citizens, must take the latter into their confidence. This conclusion, if ill-suited to current econometric practice, seems to accord well with a preference for democratic decision making.
Lucas was the 1995 Nobel Laureate in economics for work on applying the hypothesis of rational expectations for developing economic policies. For more on how the microfoundations approach originated, see the Weintraub15 review written in 1977.
Post Keynesian Economics
A few economists continued to extend top-down Keynesian macroeconomics in the latter decades of the 20th century. Notable among these were Hyman Minsky16 (theory) and Wynne Godley17 (theory and econometrics). Godley made an important contribution to econometrics with the development of applications using sectoral financial balances.18 From Wikipedia:
The approach is used by scholars at the Levy Economics Institute to support macroeconomic modelling and by Modern Monetary Theorists to illustrate the relationship between government budget deficits and private saving.[4][5] (Ref. links are from Wikipedia.)
Other economists have extended the work of Minsky and Godley into the 21st century (in addition to those linked in the Wikipedia excerpt). Two of these are Steve Keen and Marc LaVoie. In 2007, Marc LaVoie and Wynne Godley published a book, “Monetary Economics: An Integrated Approach to Credit, Money, Income, Production and Wealth.”19 This book (now with a 2nd edition) is a direct top-down challenge to the microfoundations approach. It dealt with the stock-flow consistent analysis of entire economies and predicted the Great Recession of 2008-09, which no micro foundations research saw coming.
Steve Keen developed a mathematical formalism for Minsky’s instability theory published in 1995.20 From that, he led a project that developed a process flow modeling program (called Minsky) that models macroeconomic processes dynamically. An example of a recent simple use of the Minsky program involves demonstrating a model of how banks create credit.21
Relationalism
A theme of this book is that “rationalism” must be converted to “relationalism”. Gorga makes clear that he is dismissing the predominant rational expectations concepts that have permeated mainstream economics since John Muth presented the approach in 1961.22 The meaning of relationalism is that linear modeling that has consumed the attention of most economists must be replaced with functions that can represent the interaction of primary observable macroeconomic variables with each other. As presented in a preceding section on economic equilibrium, this involves studying system dynamics and leaving the comfort of assumed equilibria.
Summary
This short review does not explore many of the innovative concepts that Carmine Gorga has developed. I hope it has given enough insight that readers here will be encouraged to read the book. The book is easy to read. It is repetitive enough to tie various related themes together, but not enough to be tedious. The underlying strength of the book is the well-developed philosophy of Concordian economics. The added value is in the theoretical structures that are developed. The frosting on the cake is the various practical relationships of theory to existing situations in our economy over the past decades and today.
In the preface, Dr. Gorga states, “Capitalism and Socialism are sublimated into Concordianism.” I would modify his statement to: Concordianism provides a changed structure for Capitalism that eliminates the need for Socialism.
Concordian Economics, Vol. 1, Tools for Economists and Social Scientists, by Carmine Gorga (2023). Publisher: Springer Nature Switzerland, Gewerbestrasse 11, 6330 Cham, Switzerland. This book is part of the series Springer Studies in Alternative Economics.
https://link.springer.com/book/10.1007/978-3-031-47320-3
ISSN 2731-5908 ISSN 2731-5916 (electronic)
ISBN 978-3-031-47319-7 ISBN 978-3-031-47320-3 (eBook)
Footnotes
1. Carmine Gorga, Ph.D., Fulbright Scholar, is president of the Somist Institute, a research organization in Gloucester, Massachusetts (USA). His post-graduate degrees are from the University of Naples (Political Science Ph.D., 1959) and from Johns Hopkins University (International Relations MA, 1962). He was a Council of Europe scholar, Italo-American Association (Rome, Italy, 1959), and a Fulbright Scholar (United States, 1961). Dr. Gorga is the author of 17 published books, with the 18th Concordian Economics, Volume 2, expected to be published in 2024.
2. Vermann, E. Katrina, “Wait, Is Saving Good or Bad? The Paradox of Thrift”, Page One Economics, Federal Reserve Bank of St. Louis, May 2012. https://research.stlouisfed.org/publications/page1-econ/2012/05/01/wait-is-saving-good-or-bad-the-paradox-of-thrift/.
For a more in-depth view of Keynes’ thinking, read “Notes on Mercantilism, The Usury Laws, Stamped Money and Theories of Under-Consumption“, The General Theory of Employment, Interest and Money, 1936, Book VI, Chapter 23.
https://www.hetwebsite.net/het/texts/keynes/gt/chap23.htm
3. Richard A. Werner is a Member of Linacre College, Oxford, and is a university professor in banking and finance. In addition, he is a founding chair of Local First, a community interest company establishing not-for-profit community banks in the UK. He is a longtime advocate for the economic benefits of distributed banking systems. For many years, he was a member of the ECB Shadow Council. In 1995, he advanced the concept of ‘quantitative easing’ in Japan (defined as an expansion in credit creation, published in the leading daily newspaper, the Nikkei, on 2 September 1995). He is the author of the best-selling book “Princes of the Yen” (2003), which is still an important read today. He is one of the few economists who warned well in advance that the Great Financial Crisis of 2008-09 was coming.
4. Werner, R.A., “Towards a Quantity Theory of Disaggregated Credit and International Capital Flows”, The Royal Economic Society Annual Conference in York (1992).
5. Werner, R.A., “Towards a New Monetary Paradigm: A Quantity Theorem of Disaggregated Credit, with evidence from Japan“, Kredit and Kapital, vol. 30, no. 2. July 1997, Berlin: Duncker & Humblot. pp.276·309.
https://eprints.soton.ac.uk/36569/1/KK_97_Disaggregated_Credit.pdf
6. This version of the table is from EconIntersect files and has been used in essays by Carmine Gorga published in EconCurrents.
7. My reading of this inserts an inferred adjective “productive” before “man-made improvements.” This would imply, for example, that for the residential use of a plot of land, the local assessment of the value (to be deducted from the original land value) of any building would have a community limit. A mansion on the same land wouldn’t receive an assessment reduction any larger than an established tax district limit for adequate “necessary” housing. Necessary housing would be determined by the square footage “required” per occupant. Thus, a 1500-square-foot home occupied by four people might meet the community standard for necessary or adequate housing and receive the maximum residential assessment deduction. The same house in another year occupied by only one person would receive a smaller deduction. Also, a 3000-square-foot house occupied by four people would have a larger net assessment than the smaller house.
8. Henry George was a 19th-century political economist, philosopher, politician, and journalist. He advocated the economic value of land and natural resources as part of the common property of all people. The commons should, therefore, be compensated via taxation for the economic value of the holder of such land and resources. He also advocated that the economic value of work should be owned by those (capital and labor) who produced the work. He advocated for public ownership of “natural” monopolies. See Wikipedia – https://en.wikipedia.org/wiki/Henry_George.
9. Maues, Julia, “Banking Act of 1933 (Glass-Steagall)“, Federal Reserve History, Federal Reserve Bank of St. Louis, November 22, 2013. https://www.federalreservehistory.org/essays/glass-steagall-act.
(The rigor of the separation of deposit banking from investment banking slowly eroded over the decades of the 1970s, 80s, and 90s until the entire 1933 act was repealed in 1999.)
10. Brennan, Michael and Keliher, Macabe, “Public Banks“, Democracy Policy Network, © 2024 Democracy Policy Network. https://democracypolicy.network/agenda/open-country/open-economy/public-banks.
A public bank is a financial institution owned by a national, state, municipality, or public entity. It is an enterprise under government control. There has been a state public bank in the United States since the Bank of North Dakota was founded in 1919. https://bnd.nd.gov/public/.
The BND was founded to provide local businesses, primarily farmers at that time, with financing for local enterprises at nominal rates using state tax revenues as equity. This was necessary at the time because high usury rates by private banks were often driving farmers, especially wheat growers, into bankruptcy. The BND still funds local enterprises today and survived the Great Financial Crisis of 2008 without a hiccup since they were separated from the speculative private banking system.
11. “ESOPS“, Info Sheet from The Washington College of Law Georgetown Law, not dated.
12. Caveat: I have interpreted the equations provided in the book and changed the representations for clarity. If future discussions with Carmine Groga indicate I have misinterpreted his thinking, my representations will need to be changed.
13. National Accounts, Wikipedia. https://en.wikipedia.org/wiki/National_accounts.
14. Lucas, Robert, “Econometric Policy Evaluation: A Critique” (1976)(PDF). In Brunner, K.; Meltzer, A. (eds.). The Phillips Curve and Labor Markets. Carnegie-Rochester Conference Series on Public Policy. Vol. 1. New York: American Elsevier. pp. 19–46. ISBN 0-444-11007-0. Archived (PDF) from the original on November 5, 2021.
15. Weintraub, E. Roy, “The Microfoundations of Macroeconomics: A Critical Survey,” Journal of Economic Literature, Vol. 15, No. 1 (March, 1977), pp. 1-23. https://www.jstor.org/stable/2722711.
16. Hyman Minsky, Wikipedia. https://en.wikipedia.org/wiki/Hyman_Minsky.
17. Wynne Godley, Wikipedia. https://en.wikipedia.org/wiki/Wynne_Godley.
18. Sectoral financial balances, Wikipedia. https://en.wikipedia.org/wiki/Sectoral_balances
19. Godley, Wynne and Lavoie, Marc, “
20. Keene, Steve, Finance and economic breakdown: modeling Minsky’s “financial instability hypothesis”, Journal of Post Keynesian Economics, Vol. 17 No.4, pp 607-635.
21. Keene, Steve, “Money from Nothing“, Building a New Economics, June 13, 2023. https://profstevekeen.substack.com/p/money-from-nothing
22. Muth, John F., “Rational Expectations and the Theory of Price Movements“, Econometrica, Vol.29, No.3 (July, 1961) pp.315-335. https://citeseerx.ist.psu.edu/document?repid=rep1&type=pdf&doi=948a6261d8fc75496416ddf463fdb46cd171da32.
Disclosure
I have had a continuing interaction with Dr. Carmine Gorga for more than ten years. I have edited his essays that were published on Global Economic Intersection from shortly after its inception in 2010 until we sold the website in 2021. This interaction has continued for the thirteen essays he has published since 2021 on EconCurrents. Dr. Gorga has included me among the acknowledgments in the book.
