Their Economic Activities And Legal Entities example essay topic

Sam Vaknin's Psychology, Philosophy, Economics and Foreign Affairs Web Sites Roberto Calvo Macias, a young author and thinker from Spain, once wrote to me that it is impossible to design a coherent philosophy of Economy without accounting for the (sad) fact that we are mortals. This insight is intriguing. It is not that we refrain from Death in dealing with matters economic. What are estate laws, annuities, life insurance policies - but ways to cope with the Great Harvester But this, admittedly, only scratch the non-profound surface of the question. The industrial revolution taught us that humans were dispensable.

The process of production was reduced to minute functional units that people could learn in minutes. Only the most basic skills were required to successfully endure this learning curve. Thus, for as long as humans bred, the supply was inexhaustible. Humans became entirely replaceable, interchangeable (and alienated, in the process). Motion pictures of the period (Metropolis, Modern Times) portray the industrial worker as a nut in a machine, driven to the verge of insanity by the repetitiveness of his work.

Yet, this view of human resources is fast becoming extinct in the rich Western countries. Training periods have lengthened, expert knowledge has taken over, the main value added is information. Humans represent a sizeable investment in education. They are no longer an inexpensive resource. With this realization, there came about a revolution in economic relations. Absurdly, inhuman totalitarian regimes (especially Fascism and Communism) were the first to emphasize the importance of the human factor in the total set of means of production.

The concept of scarcity was extended (by virtually all the economic systems today) to apply to human resources. All resources are scarce. Economy is the science of trading off: giving up one resource in order to ge more of another. The concept of opportunity cost is the first that students of economy encounter. The classic approach included natural endowments in the group of scarce resources. The human element was barely perceived as yet another natural resource.

Now it is. The size of the population, its life expectancy, its quality of life, health, education, income are all important. Economy is the branch of psychology which deals with behaviour patterns and with mental processes which relate to material wealth, with the opportunities to obtain it ( = access to it) and with the processes and mechanisms underlying its attainment. Because material wealth can be expressed quantitatively, this specific branch acquired a mathematical nature, a twist not present in other branches of the human sciences. As such, it is highly surprising that so little formal thought was given to the issue of mortality (which is what makes the human resource scarce).

The legal profession is positively obsessed with Death. This is why economic activities are relegated to separate legal entities. The founders of a company are mortals the company itself, immortal. This is why the concepts of last wish, legal testament, estate and inheritance are so strong: they survive the person, they have an existence all their own. Economic theories, on the other hand, generally assume that humans are immortal and that their economic activities and legal entities which embody them have an infinite horizon. To some extent, this is justified by peoples behaviour and by observing the social institutions that they form.

People engage in very long term activities even when they are very old. No 80-year old inventor will give up his royalties just because he long surpassed his life expectancy and is about to die imminently. This is true even if he has no off-springs. No businessman will stop accumulating wealth just because he has enough for two lifetimes.

No consumer will cease consuming simply because he has all that he needs to properly function. The life expectancy horizon is ineffective because w all deny the prospect of death. This denial mechanism is exceedingly strong in all of us we suppress the fact that we will die one day and that many of our activities, efforts, battles and pursuits look absolutely outlandish from this vantage point. So, economy mimics and reflects human defensive mechanisms: it is long term, infinite in scope. Surprisingly, as Mr. Calvo Macias commented, the more temporally finite the organization the more dynamic it is. Religious establishments, which ostensibly trust in the after-life (a form of immortality) are procedurally rigid, ossified, frozen.

This is also characteristic of states. The longer their past and the longer their perceived future (the Reich of a Thousand Years) the more morbidly paralysed these entities and their institutions. Dynamism is closely associated with finiteness and with the perception of mortality when it is coupled with rebellion. The rebel does not accept his own imminent demise.

He fights back by being dynamic, that is, through the process of creation. The battle between creation and death is drawn along the lines of mortal fear. And, so, we can distinguish two types of economic players: those who accept death and those who reject it. The first type is characterized by fear and anxiety as the driving force the second by deep seated denial and false confidence. Those aware of their mortality display a decrease in economic activity with the onset of old age.

They tend to attach a greater weight to their income the more recent it is. They discount future income and attach negligible weights to it. They tend to think short term as they grow older, towards the end of their lives they refrain from any economic activity bar trading, speculation, arbitrage, brokering and investments in financial assets. They become less risk averse as time passes. Those who deny the crawling end still demonstrate an emotional attachment to wealth and to its accumulation at an old age.

They do weigh income in accordance with its expected maturity (the more futuristic the income the less weight it carries) but they still attach some weight to it. Dividend Discounting Models in stock valuation assume an INFINITE stream of future dividends, discount it, add the results to get the CURRENT price of a stock. Stock in the New York Stock Exchange (NYSE) are trading now at a p / e (price to earnings) multiple of 18. Assuming a 35% average tax on dividends and on capital gains this means a person has to wait 28 years to recoup his investment. Taking into consideration risk free income (the interest payments that the person could have received had he invested the money in Treasury Bonds) the effective multiple is really 60 and above.

Investors are willing to wait 60 years and more in order to receive their money back plus a reasonable return. This is the quintessential denial of the finiteness of life. These two types clash and conflict. As they do, they generate the very fabric of market economies as we know them today. Players are trading risks, speculating, investing in projects, buying stocks all based on a hidden philosophies of life and death.

It is this that we trade amongst us when we do: our own mortality.