A fervent plea on behalf of the wretched of the earth for 2012 and beyond
from Geoff Harcourt
The interrelated capitalist world is in a state of crisis, unstable and almost out of control. The orthodox theory behind the lunatic policies being followed has little connection to the actual world it is meant to interpret and explain. Social unrest, prejudice, racism, self-interest, lack of compassion, anarchistic or worse forces are being unleashed: all the outcome of finance capital being out of kilter with industrial and commercial capital.
What can persons of good will and humane attitudes do about this? First, we need to fashion new sensible theories which illuminate and explain our world, which recognise unbridled capitalism for what it is, a powerful organ of production and accumulation but basically ir-rational and cruel to those least able to protect them-selves, endogenously creating inequality and unfair-ness. So, secondly, we need to recommit ourselves to regaining full employment and a more equal and equi-table distribution of income and wealth. We need also to create green friendly infrastructure to help cope with the reality of climate change and global warming; and to design institutions that minimise the impact of greed-induced risk taking in financial and other markets to overcome the excesses of short-term behaviour, to bring to the fore again the possibilities of sane long-term development, first sensed by Adam Smith and stressed again by Maynard Keynes in his last writings and speeches before his death in 1946. We need to take on board Kalecki’s desire that standards of life would gently rise over time for all citizens, while accu-mulation would be guided by long-term needs as well as to sustain full employment. In this way perhaps the present madness of self destruction may be, if not tamed completely, at least brought under reasonable control.
Let this be our hope for 2012
Originally published in the World Economics Association Newsletter
I totaly aggree. Being actually a Ph.D student in economics and living in a neoclassical academic world, while I’m stuck with rational modeling, I understand and observe that maximisation of self-interest never lead to a better world for all.In fact, while in our little pretty modelling world, we can reach to a what we seek with “extremely pragmatic” assumptions, at the end I generaly feel realy uncomfortable to support my results as they generaly omit equity for all and miss always the part that what we discuss is not a laboratory experiment. As an economist, I have a deeply intense feeling of injustice in this world that we, as economists, are contributing.
“I understand and observe that maximisation of self-interest never lead to a better world for all.”
Please explain your observations and how they result in this conclusion, especially given your strong assertion “never.”
“my results … generally omit equity for all…”
Why do they omit equity? Do you disagree that positive economics has inherent ethics?
I agree with your last sentence, if “we” means the majority and not all.
Well: the objectives you have outlined are very pertinent and important. But how do we achieved them.
Do not we need to come up with a different economic theory which is based on realities rather than Neo-classical theory which is only a science fiction!
I am glad you mentioned Kalecki. I wish at least 5 per cent of students of economics would look at his writings. There is a lot to learn from him.
We do not need to “come up” with a different economic theory, since “geo-classical” theory has existed for over a hundred years.
Though very true, we cannot ignore the ecological effect of every working age person on planet earth being fully employed making plastic fantastics with a life span of six months from point of sale. Functional economists need to describe what standards planet earth can support before calling for rising standards of living as an abstract term.
Health, fun, food, shelter, education, clean air water and soil, freedom, happiness; these are standards totally ignored in 99.9% of standard economic literature and education.
Most economists have become irrelevant simply because they don’t even know that the cosmos is expanding faster then the speed of light or how to think of a reality where the economy is a subset of civilization, which is a wave function with roots in sub atomic waves.
Modern economics has become an isolated discipline purposefully unaware of physical reality or modern science.
“the cosmos is expanding faster than the speed.” Please cite your source for the evidence.
“The Hidden Reality” Brian Greene
Nothing can travel through space faster than the speed of light. Expansion faster than light leads to interesting thought experiments. Let us say we split a beam of polarized light and reflect half of it backwards so that both beams are leaving us at the speed of light. Brian is not the only one talking about these things. The idea of parallel universes has been an acceptable topic since about 2000, as far as I know.
I’d love to leave a relevant comment but the Editors censor me every time.
???
Sorry about the censorship comment. I got this Blog confused with the WEA where everything I have posted has been rejected.
There is one very simple reason economics can’t make sense of the real world. It is because you all studiously IGNORE the simple dynamic of “twice-lent money”.
Here it is, explained in 54 seconds of animation:
http://www.moneyasdebt.net/Twice-lent_money_excerptMAD3.html
Here it is explained in detail:
http://paulgrignon.netfirms.com/MoneyasDebt/Analysis_of_Banking.html
Can anyone in this huge list of “experts” refute my theory?
How about you Merijn? Care to take it seriously enough to attempt a refutation?
In the hard sciences, a theory that cannot be refuted becomes the operable theory.
How about we apply the same standards of proof to economics? If you can’t refute my proof then you MUST accept it as operable theory.
I’m appalled that despite dear old Geoff Harcourt so clearly drawing the appropriate conclusions from looking at the appalling facts, we still have Fred Foldvary trying to obscure his message by denying the facts and hence the need for the conclusions:
“We do not need to “come up” with a different economic theory, since “geo-classical” theory has existed for over a hundred years”.
If I had any respect for your position before, Fred, this has killed it. You ought to be ashamed of yourself.
Paul, what you need to learn is that there is more than one way of skinning a cat, more than one way of explaining the dynamic you refer to as “twice-lent money”, more than one explanation of silence. In my case at least you are missing the point. I don’t see any need to refute your point because basically I agree with it, though I wouldn’t express myself in the same way. (I have a different understanding of money). Despite its relevance, don’t up think it would have been more courteous and constructive to relate Geoff’s comment to your theory rather than to change his subject to your own?
There is in the economics academy a deeply ingrained bias against the theories of Henry George, deliberately instilled by vested moneyed interests, so of course anyone who believes there is merit in that “geo-classical” school will receive absolutely no respect. See Mason Gaffney’s “Corruption of Economics” for more details.
Fred, as it seems the term “geo-classical” is your invention, it is not surprising I thought you were referring to “neo-classical”. Evidently you weren’t, so for that I apologise. Reading round, I found a very interesting article “Neo-classical Economics as a Stratagem against Henry George” at
http://homepage.ntlworld.com/janusg/coe/cofe02.htm. News to me. I would be very interested to hear other people’s reactions to this.
Okay, got it. That IS Mason Gaffney, so even more interested to see other reactions.
Dave wrote: “don’t up think it would have been more courteous and constructive to relate Geoff’s comment to your theory rather than to change his subject to your own?”
Hello Dave,
Geoff wrote: “The orthodox theory behind the lunatic policies being followed has little connection to the actual world it is meant to interpret and explain.”
I wrote back: “There is one very simple reason economics can’t make sense of the real world. It is because you all studiously IGNORE the simple dynamic of “twice-lent money”.”
Isn’t that an explicit CONNECTION?
Geoff wrote: “What can persons of good will and humane attitudes do about this? First, we need to fashion new sensible theories which illuminate and explain our world.”
I replied to say that I have just such a theory for your consideration and I might add, delivered with precisely the motives referred to. If no one can refute it, then why look elsewhere? How much more direct a connection to Geoff’s article could you possibly want?
You’d prefer we just go on talking and writing about what we SHOULD do someday while continuing to studiously IGNORE the simple dynamic of “twice-lent money”?
You go on to say you don’t want to refute my theory, because you agree with me. Everyone likes to hear that. But what is it that you agree with? Do you agree that this is a mathematical proof that ANY kind of “money” as “a single uniform commodity in limited supply” (gold ,silver, fiat cash, bank credit) is the ROOT PROBLEM?
That means that the “sensible theory” Geoff is calling for is new “theory of money”. And I have that to offer as well, already made into a full-length animated motion picture.
At least on this blog I get to tell you that. At WEA my comments are deleted.
Obviously the editors there consider that someone claiming to have an answer, mathematically proven, is to be studiously ignored. “The “dismal science” INDEED!
Paul, it seemed and seems to me rude to attack Geoff’s opening criticism of orthodox economics by asserting that we “all STUDIOUSLY ignore” your argument. That’s not true of me and (as most of the folk on this blog are critical of orthodox economics), I suspect its not true of others. I also think the discussion here has moved on, damning the dishonesty of the orthodox theory and trying to keep in touch with events.
So why is Geoff encouraging the orthodox majority economists to look for new sensible theories? Perhaps he was encouraging them to look for yours (and mine)! For the reason I have looked elsewhere is that one needs to see a dynamic from at least three points of view to pin down not just its causality but also its function and what alternatives there are. So though I agree that treating money as a commodity is ONE of the root problems, I actually think people thinking differently (so e.g. some can appreciate the significance of maths and history and others can’t), and specialist economists having failed to learn about dynamic error-correcting logic, information-based control and theory as in some sense self-fulfilling prophecy, are probably more significant when it comes to producing acceptable solutions.
I’m sorry you feel hard done by, Paul, but its nothing new or personal. Look up the story of Oliver Heaviside, preferably in Bell’s Development of Mathematics, pp.413-5.
It should be noted – as more and more people ARE noting – that we do not HAVE to create money as debt, even though that’s mostly how money came about in the last 500 years of capitalism.
We can, and have, issued debt-free money, in this country 14 times since Lincoln did it first with the first legal tender Act of 1862-1865, producing $450 million in United States Notes, not issued from a Central Bank, or borrowed, but simply produced by Congress, directly, under Art. 1 Sec. 8 of the constitution. Congress, can, should and must end the practice of government borrowing its own currency. It is the sovereign right of every federal government to “coin (its own) Money”. We have given that away to a semi-private cartel, which is only public to the extent that government itself has become privatized.
This move will not solve all our economic problems, but it is impossible to solve them without doing this. The debt is mathematically and structurally impossible to pay off.
Scott, I entirely agree, and as I remember that’s more or less where Paul ends up. But if money is debt-free, what is it? My conclusion is that it is a credit limit, which insofar as it is earned or spent increases the credit limit of the recipient. If anyone can understand that but see a better way of putting it, please do so.
Dave -
Ron Paul wants to base the money supply on gold, which is an entirely different thing from our current fiat money currency. You can have fiat money that is created by debt, like we have now, or fiat money that is debt-free, which we have also had since 1862, and still have, about $250 million in circulation (not counting the two $5 U.S. Note bills I bought on eBay!). There is no limit, theoretically, to the amount of debt-free money Congress can issue. This scares people because of inflation fears. But so? We actually need inflation in the deflated infrastructure sectors of the economy to provide jobs and things like a new energy grid etc. we desperately need. There is no credit limit because the money is not based on credit. It is true sovereign money.
Scott, we are agreed on the need for debt-free money, but the fact is you DON’T have fiat money created by debt: it is created by fiat, viz the “bank” lending us IOUs for securities (originally gold) it doesn’t have. The big con is that thereby we become indebted to the bank; that when we buy a house the bank buys our indebtedness to the vendor. But the bank has “bought” our debt with empty promises to pay, so it has no real claim on us; all it has actually done is printed an IOU for the necessary credit limit.
The vendor in effect gives us the house on credit, and is subsequently reimbursed by the community when he spends our IOUs up to their credit limit. The debt, in short, is to the community, not the bank, and is normally repaid by doing something useful for it, i.e. earning one’s keep. The credit limit is subdivided when it issued as notes. If one has a $100 bill that will usually enable on to get UP TO $100 worth of goods “on tick”; especially if the bank has validated you as a good risk and government has legislated such use of credit notes.
But note how this obtaining goods on credit and the responsibility for trying to help regenerate it by doing necessary work is personal to us, and likewise to companies for the jobs they are doing, including development and regenerating infrastructure). It is the banks recycling credit notes already returned and accounted for which gives rise to Paul’s “twice-lent” money. and our need for something like Citizen’s Incomes as against selling our labour. The crunch, though, is what Jeff Z. is saying about self-fulfilling prophecies at #26 below. If we believe lies we’ll get what they imply. We need a true understanding of money which makes sense of the facts, not just “money is true sovereign money”.
Hi Scott, I basically agree but I would like to point out that cowrie shells, dentalia shells, salt, silver, gold, fiat cash, and bank credit are all “single uniform commodities in limited supply” the value of which is inversely proportional to the quantity in circulation. Sovereign money is no different in that respect, unless its value is enforced by universal price controls, which means the elimination of a free market.
The value of a private borrower’s credit is only as good as the borrower’s ability to pay it back. And analogously, the long term value of sovereign money is dependent on the sovereign TAXING it back, a sovereign balanced budget. As its value is dependent on paying it back to the government, it is debt-money just as bank credit is. The significant difference, one I wholly endorse, is that, this way, 100% of what government spends could be spent on serving the taxpayers, not serving the banks with interest payments on money that governments can create for themselves.
Well, now I basically agree with you too :)
But taxes are another story. I could make a credible case, I believe, that we don’t need taxes at all with Greenback debt-free money, plus what’s already in the CAFRs (all 184,000 of them). So, then maybe it would be clearer that debt-free money is just m-o-n-e-y. It is really not the same because, as you recognize, we don’t have to pay interest on it to issuing banks.
If you get the chance, take a look at the $5 note on wiki: http://en.wikipedia.org/wiki/United_States_Note. You’ll see a key difference is there is not issuing bank on the left side, just a note that this Note is legal tender. Big difference.
Paul, you might find the next interesting:
“We draw two main conclusions. First, as a historical matter, you cannot understand the changes in private sector leverage over the 20th century without explicitly accounting for debt dynamics. The tendency to treat changes in debt ratios as necessarily the result in changes in borrowing behavior obscures the most important factors in the evolution of leverage. Second, going forward, it seems unlikely that households can sustain large enough primary deficits to reduce or even stabilize leverage. … As a practical matter, it seems clear that, just as the rise in leverage was not the result of more borrowing, any reduction in leverage will not come about through less borrowing. To substantially reduce household debt will require some combination of financial repression to hold interest rates below growth rates for an extended period, and larger-scale and more systematic debt write-downs.”
http://rortybomb.wordpress.com/2012/02/23/guest-post-by-jw-mason-the-dynamics-of-household-debt/
Frederick Soddy discusses this subject of debt free money printed by the government in “Wealth, Virtual Wealth and Debt” with the subtitle, “The Solution of the Economic Paradox” (I especially like the subtitle).
Paul is very close to Frederick’s description. The original debt is incurred by printing sufficient new cash to settle all accounts and start over with no change in legally explainable positions. At this point the quantity is managed to maintain price stability and value of savings.
Bankers are relegated to an accountancy and financial judgement role while lending from the actual cash on hand. Here we must jump to seeing the economy as a subset of civilization, which is constrained to operating on the solar budget according to thermodynamic principles. Although Frederick Soddy predates our more modern physics, which is beginning to place consciousness as integral partner in the micro sub-atomic and macro cosmos, his first steps toward incorporating real financial value and printed money with thermodynamics remain valid, in my often hesitant and groping ways of thought on these subjects.
Great comments and agree the world of financial capital is completely out of kilter with commercial and industrial capital. In the neoclassical myth we barely need to acknowledge the by now “in our faces” inequality…yet each day we are greeted with media and financial markets reported accolades for yet more austerity measures imposed on the most unequal.
My cognitive dissonance levels went completely off the meter when I read yesterday that Obama is now planning to lower the top tax rates in the US even further… (thankyou Mr Geithner)
When will the denialism of the current mainstream orthodoxy finally end?
@ Alice,
Probably never. Murdoch can always find somebody who will shill – another effect of inequality.
If I may I would like to pose a question. Almost everyone on this site has moved beyond the idea of commodity money. But is that true of the population of the world at large?
The reason I ask is this. If money is what people believe it is, and trust it is, then if EVERYONE believes and trusts that it is commodity money, isn’t that how it will work? Won’t this hold even for bank created money (i.e. fraction reserve lending), for pure government fiat without private bank intervention? That is, even if it is pure fiat or whatever, because most people believe it is commodity money, it behaves as if it is commodity money even if it isn’t?
So we have a vocal segment of the population in the U.S. demanding a balanced budget and fiscal restraint (whatever other hardships that will cause – which would be many), because THEIR understanding of money is DIFFERENT? It seems we have a division. Will money behave differently for those segments because their beliefs differ, or will one be strong enough to swamp the latter for practical purposes?
Yes – Murdochs shills are an effect of inequality – in the same way the wealthy have extraordinary resources at their disposal to lobby governments, produce false models for governments, protect the already mightily disconnected financial sector – which to my mind can be compared to the Nazi Occupation of France in WW2 whereby ordinary French citizens were called on to “tighten their belts, endure austerity and rationing, be thrifty and inustrious etc whilst most of the produce of occupied France – materials, metals, meat and livestock and grain were hauled out to Germany in trucks…..
In the end they even ripped up the tram system for metals and the timber paving for the timbers
Is this any different to what today’s mighty financial empires impose on whole nations now? They are nothing more than an occupying nation and should be resisted at every turn.
Alice, just to make the definition explicit … Fascism is rule by corporations.
Jeff Z., Ignoring that spending for destructive purposes is a significant driver of governmental deficits, the strong argument for budgetary balance does not originate in present day accepted economic theory … Deficit spending avoids the ire of living taxpayers and thus insulates decision makers from reality and undermines democracy, which is the social method humans use to translate individual perceptions and knowledge into collective social choices.
Geoff, I agree and so did the Pope back in 1985 when he was a Cardinal presenting a brilliant, if properly understated paper on Church and Economy. We need new ideas and new theory for new policy to support a new pradigm supporting a sane socioeconomic system for a humane culture. You can see the new theory of Fundamental Economics and Natural Values (“Awareness & Value”) at The Greenbook site It now includes new, corrected equations and expanded commentary with brief descriptions of the new Green Community Credit System and a new hard commodity currency system featuring a new metal alloy that makes sense for this modern world. I look forward to your comments, critiques, and questions. Thanks & Blessings — M
Scott B; You are confusing credit and debt. For a comprehensive explanation, see my new theory of green “Economics & Value” at The Greenbook blogsite.
PS: Until the realistic description of our human world of interaction (including the ethical dimension and the inescapable law of interdependent interaction, karma) is a generally accepted fact of economics, there will be no solution or cure for the ecocidal madness of plutonomics, etc..