Without knowledge of the past there is no future

Without knowledge of the past there is no future

by Wim Grommen

This article “Without knowledge of the past there is no future.” was published in dutch in Civis Mundi, magazine for political philosophy and culture, director / editor of Civis Mundi: Prof. Dr. Wim Couwenberg. Civis Mundi aims to promote a scientifically- responsible  reflection on the foundations, ground problems, the establishment and functioning of our society in national and international context.

Current problems associated with the end of the third industrial revolution

Humanity is being confronted with the same problems as those at the end of the second industrial revolution such as decreasing stock exchange rates, highly increasing unemployment, towering debts of companies and governments and bad financial positions of  banks. Every production phase or civilization or other human invention goes through a so called transformation process, a transition.

In this article I will use one such transition to demonstrate the position of our present civilization.

Third industrial revolution

When we consider the characteristics of the phases of a social transformation we may find ourselves at the end of what might be called the third industrial revolution. Transitions are social transformation processes that cover at least one generation (= 25 years). A transition (Source : Prof. dr. ir. Jan Rotmans) has the following characteristics:

  • it involves a structural change of civilization or a complex subsystem of our civilization
  • it shows technological, economical, ecological, socio cultural and institutional changes at different levels that influence and enhance each other
  • it is the result of slow changes (changes in supplies) and fast dynamics (flows)

Examples of historical transitions are the demographical transition and the transition from coal to natural gas which caused transition in the use of energy.

A transition process is not fixed from the start because during the transition processes will adapt to the new situation. A transition is not dogmatic.

Four transition phases

In general transitions can be seen to go through the S curve and we can distinguish four phases:

  1. a pre development phase of a dynamic balance in which the present status does not visibly change
  2. a take off phase in which the process of change starts because of changes in the system
  3. an acceleration phase in which visible structural changes take place through an accumulation of socio cultural, economical, ecological and institutional changes influencing each other; in this phase we see collective learning processes, diffusion and processes of embedding
  4. a stabilization phase in which the speed of sociological change slows down and a new dynamic balance is achieved through learning

Three drastic transitions

When we look back over the past two centuries, we see three transitions taking place with far-reaching effects.

1.      The first industrial revolution

The first industrial revolution lasted from around 1780 tot 1850. It was characterized by a transition from small scale handwork to mechanized production in factories. The great catalyst in the process was the steam engine which also caused a revolution in transport as it was used in railways and shipping. The first industrial revolution was centered around the cotton industry. Because steam engines were made of iron and ran on coal, both coal mining and iron industry also flourished.

FirstIndustrialRevolution

The beginning of the end of this revolution was in 1845 when Friedrich Engels, son of a German textile baron, described the living conditions of the English working class in “The condition of the working class in England“.

2.      The second industrial revolution

The second industrial revolution started around 1870 and ended around 1930. It was characterized by ongoing mechanization because of the introduction of the assembly line, the replacement of iron by steel and the development of the chemical industry. Furthermore coal and water were replaced by oil and electricity and the internal combustion engine was developed.

ElectricGrid

Whereas the first industrial revolution was started through (chance) inventions by amateurs, companies invested a lot of money in professional research during the second revolution, looking for new products and production methods. In search of finances small companies merged into large scale enterprises which were headed by professional managers and shares were put on the market. These developments caused the transition from the traditional family business to Limited Liability companies and multinationals.

After the roaring twenties the revolution ended with the stock exchange crash of 1929.

3.      The third industrial revolution

The third industrial revolution started around 1940 and is nearing its end. The United States and Japan played a leading role in the development of computers. During the Second World War great efforts were made to apply computer technology to military purposes. After the war the American space program increased the number of applications. Japan specialized in the use of computers for industrial purposes such as the robot. The acceleration phase of the third industrial revolution started around 1980 with the advent of the microprocessor. By now computer and communication technology take up an irreplaceable role in all parts of the world.

ThirdIndustrialRevolution

Effects of three industrial revolutions

The first (and second revolution) transformed an agricultural society into an industrial society where mechanization (finally) relieved man of physical labor. The craft industry could not compete with the factories that put products of the same or even better quality on the market at a lower price. The result was that many small businesses went bankrupt and the former workers went to work in the factories. The effects of industrialization were seen in the process of rapid urbanization of formerly relatively small villages and towns where the new plants came. These turned into dirty and unhealthy industrial cities. Still people from the country were forced to go and work there. Because of this a new social class emerged: the workers, or the industrial proletariat. They lived in overcrowded slums in poor housing with little sanitation. The average life expectancy was low, and infant mortality high. The elite accepted the filth of the factories as the inevitable price for their success. The chimneys were symbols of economic power, but also of social inequality. You see this social inequality appear after each revolution. The gap between the bottom and the top of society becomes very large. Eventually there are inevitable responses that decrease this gap. It could be argued that the Industrial revolutions have created the conditions for a society with little or no poverty.

The third revolution transformed an industrial society into a service society. Where mechanization man relieved of physical labor, the computer relieved him of mental labor. This revolution made lower positions in industry more and more obsolete and caused the emergence of entirely new roles in the service sector.

Industrial revolutions and stock market indices

The Dow Jones Industrial Average was first published halfway through the second Industrial Revolution, in 1896. The Dow Jones Industrial Average (DJIA) Index is the oldest stock index in the United States. This was a straight average of the rates of twelve shares. A select group of journalists from The Wall Street Journal decide which companies are part of the most influential index in the world market. Unlike most other indices the Dow is a price-weighted index. This means that stocks with high absolute share price have a significant impact on the movement of the index.

StockMarket

The S & P Index is a market capitalization weighted index. The 500 largest U.S. companies as measured by their market capitalization are included in this index, which is compiled by the credit rating agency Standard & Poor’s.

What does a stock exchange index like DJIA, S&P 500 really mean?

In many graphs the y-axis is a fixed unit, such as kg, meter, liter or euro. In the graphs showing the stock exchange values, this also seems to be the case because the unit shows a number of points. However, this is far from true! An index point is not a fixed unit in time and does not have any historical significance.

An index is calculated on the basis of a set of shares. Every index has its own formula and the formula gives the number of points of the index. Unfortunately many people attach a lot of value to these graphs which are, however, very deceptive.

Set of shares

An index is calculated on the basis of a set of shares. Every index has its own formula and the formula results in the number of points of the index. However, this set of shares changes regularly. For a new period the value is based on a different set of shares. It is very strange that these different sets of shares are represented as the same unit. After a period of 25 years the value of the original set of apples is compared to the value of a set of pears. At the moment only 6 of the original 30 companies that made up the set of shares of the Dow Jones at the start of the acceleration of the last revolution (in 1979) are still present.

Formula

Even more disturbing is the fact that with every change in the set of shares used to calculate the number of points, the formula also changes. This is done because the index which is the result of two different sets of shares at the moment the set is changed, must be the same for both sets at that point in time. The index graphs must be continuous lines. For example, the Dow Jones is calculated by adding the shares and dividing the result by a number. Because of changes in the set of shares and the splitting of shares the divider changes continuously. At the moment the divider is 0.132319125 but in 1985 this number was higher than 1. An index point in two periods of time is therefore calculated in different ways:
Dow1985 = (x1 + x2 + ……..+x30) / 1

Dow2013 = (x1 + x2 + …….. + x30) / 0.130216081

In the nineties of  the last century many shares were split. To make sure the result of the calculation remained the same both the number of shares and the divider changed. An increase in share value of 1 dollar of the set of shares in 2013 results is 7.7 times more points than in 1985. The fact that in the 1990-ies many shares were split is probably the cause of the exponential growth of the Dow Jones index. At the moment the Dow is at 14659 points. If we used the 1985 formula it would be at 1908 points.

Constantly changing set

The most remarkable characteristic is of course the constantly changing set of shares. Generally speaking, the companies that are removed from the set are in a stabilization or degeneration phase. Companies in a take off phase or acceleration phase are added to the set. This greatly increases the chance that the index will rise rather than go down. This is obvious, especially when this is done during the acceleration phase of a transition. From 1980 onward 7 ICT companies (3M, AT&T, Cisco, HP, IBM, Intel, Microsoft) , the engines of the latest revolution were added to the Dow Jones and 5 financial institutions, which always play an important role in every transition.

Pyramid scheme

This is actually a kind of pyramid scheme. All goes well as long as companies are added that are in their take off phase or acceleration phase. At the end of a transition, however, there will be fewer companies in those phases.

Will the share indexes go down any further?

Calculating share indexes as described above and showing indexes in historical graphs is a useful way to show which the industrial revolution is in.

The third industrial revolution is clearly in the saturation and degeneration phase. This phase can be recognized by the saturation of the market and the increasing competition. Only the strongest companies can withstand the competition or take over their competitors (like for example the take-overs by Oracle and Microsoft in the past few years). The information technology world has not seen any significant technical changes recently, despite what the American marketing machine wants us to believe.

During the pre development phase and the take off phase of a transition many new companies spring into existence. This is a diverging process. Especially financial institutions play an important role here as these phases require a lot of money. The graphs showing the wages paid in the financial sector therefore shows the same S curve as both revolutions.

Investors get euphoric when hearing about mergers and take overs. Actually, these mergers and take overs are indications of the converging processes at the end of a transition. When looked at objectively each merger or take over is a loss of economic activity. This becomes painfully clear when we have a look at the unemployment rates of some countries.

New industrial revolutions come about because of new ideas, inventions and discoveries, so new knowledge and insight. Here too we have reached a point of saturation. There will be fewer companies in the take off or acceleration phase to replace the companies in the index shares sets that have reached the stabilization or degeneration phase.

Will history repeat itself?

Humanity is being confronted with the same problems as those at the end of the second industrial revolution such as decreasing stock exchange rates, highly increasing unemployment, towering debts of companies and governments and bad financial positions of  banks.

History has shown that five pillars are indispensable for a stable society: Food, Security, Health, Prosperity, Knowledge. Transitions are initiated by inventions and discoveries, new knowledge of mankind. New knowledge influences the other four components in a society. At the moment there are few new inventions or discoveries. So the chance of a new industrial revolution is not very high. At the end of every transition the pillar Prosperity is threatened. We have seen this effect after every industrial revolution.

The pillar Prosperity of a society is about to fall again. History has shown that the fall of the pillar Prosperity always results in a revolution. Because of the high level of unemployment after the second industrial revolution some societies initiated a new transition, the creation of a war economy. This type of economy flourished especially in the period 1940 – 1945.

Now, societies will have to make a choice for a new transition to be started.

Without knowledge of the past there is no future.

Wim Grommen

This article was published in dutch in Civis Mundi (The Netherlands 2012). Civis Mundi aims to promote a scientifically- responsible  reflection on the foundations, ground problems, the establishment and functioning of our society in national and international context.  Director / Editor of Civis Mundi: Prof. Dr. Wim Couwenberg

Comments

  1. JAY says

    It would be interesting to find out how much wages management makes from articles like this what a prize for the community that shares wealth a gamble revolution in exchange.

  2. j.a. says

    Experiment on the exchange market either trade the entire market value or random select shares listed now value the government earnings compaired to the portfolio of selected listed companies the value should be equall to the citizen and that of the political representive this makes sense when the wealth and not the product is in flux that should make gains as development so there can never be a huge division between rich and poor as all are aquall good and bad just consequences of action multinational to small business dont panic this is just a experiment survey.

  3. j.a. says

    Yeah that is legit if we can calculate the industries for development and set up a plan of action above the rest it is possible to fullfill the desire of the alternative from the mainstream current problems activists should take the gamble sometimes there is only one chance make or break time and a national public bank for credit lets lobby our political leaders for a better change towards society and nations as a whole these are early days stay tuned for more exciting developments.

  4. says

    Humanity stands at the threshold of our Crux of Being, looking toward the potential of Becoming what we all once were in distant times past. We can tumble down the Trough of Hell or we can become the great Humanity of a Golden Age. Though the culture of our present age is much dumber due to the Liberal, socialistic, communistic mindset to propagandize our children and grandchildren through the silly, inane Pop Culture; we face pure Hell due to our lack of effort to strive once again. We are totally slothful and the media is selling it on a daily basis. We need to learn to stand up against the posturing and positioning of the bums who are attempting to divide us against each other so they, through a third-party slant to win by eliminating 80% of us through their strategy, become the singularity. We had best wake up and stand for the potential of Human Greatness or face the stone age once again.

    • Starheater says

      Hello Ron

      I’m sure that those who are at the top are trap in a bag full of problems. Did they want this situation? I don’t think so. Do they are capable of doing better then what they do presently? I doubt it.
      More, I don’t think that we will face stone age again, not with all the bad things that few of them prepare. Now, to eliminate 80% of the population is very hard to do, it’s more easy to tell then to do. And for your last phrase, I agree with you, the only problem is HOW?
      Shout loud and clear on radio program, tv, ect… even if peoples react, what can they do? Reduce the population? I don’t believe in this theory.

      You know well that many scenarios have been launch in the population in general, like an asteriod, world wide war, and all that stuff. I dont think that any of those will happen.
      All the trouble will comme from Israel, that’s what the Bible say, if you prefer those who read the Bible and have the knowledge to explain the prophecies. Russia, China are on the scene, will thay be those who will attack Israel? I think that they could do so, they are friendly with the Arab and other country that are against Israel, there are suppose to battle in the plaine of Meguido (Armaghedon) according to the Bible. The army will be great in number, 200 billions of soldiers. The alliance of those soldiers will not be victorious, those with Israel that will win, they will buried the dead for months, dont know if it is after the battle or else.
      In Revelation you will find the precise number (I hope, I have a french old version of the Bible, I dont know if this is mention in the new Bible).

      Now if the Bible is true, the plan they had to kill 80% of the global population will not arrive.

      God Bless Ron

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