Ethical Issues. Again.
From Peter Radford
Just when I thought it was safe to re-engage with economics I stumble across two more reasons for my blood to boil. Economics is – not to put too fine a point on it – a rotten profession. As in ethically rotten. Not all economists of course. Some try to tell the truth. Or rather not to lie. Others just plod on teaching from texts that omit crucial information.
As in there is no way, no way at all, to tell whether a demand curve actually slopes downwards in the way we are all taught.
No way.
But is that rather crucial fact ever mentioned to undergraduates? Call me skeptical.
There are great complications with the derivation of even this most basic of all economic concepts. Sure it sounds about right. But it cannot be proved. Cannot. Getting rid of those nice neat curves would muck up so much of what economics includes that, in the name of simplicity, the profession continues to ignore the theoretical rot in its foundation and chug on as if all is well.
It isn’t.
It isn’t ethical to teach something that is what amounts to a gut feel as if it were a cast iron law.
I have been reminded of thus by reading Jonathan Schlefer’s book “The Assumptions Economists Make”. It’s worth a read. But be prepared to emerge angry at economists. They tell a lot of fibs and use the concept of simplification as a way of obscuring how little they know, or can prove, about economies.
In his chapter entitled “Utopia” Schlefer tries very hard to give a balanced view of neoclassical theory. He actually has me changing my perception of Stanley Jevons, who comes across as fully aware of the theoretical bind encountered when we move from notions of utility, a vague and murky concept at the best of times, to demand. He be never drew demand curves – they were first used by Marshall a few years later – but he was careful to limit expectations. Nonetheless healing with the Walras and Menger, laid the groundwork for the steady move into unreality by subsequent theorists all of whom, it appears, were intent on making economics more “scientific” and consequently determined to use ever more complicated math in order to appear rigorous.
I have nothing against math. But it ought to elucidate not obfuscate. It ought to help not hinder enquiry. It ought to highlight areas that need to be worked on, not create an image of a project completed despite its errors.
I think truly rigorous theorists know all this.
That makes things worse.
Sometimes I get the feeling that economists chuckle away in private over the horrendous tales they tell. But in public they close ranks and pretend to know something profound.
That won’t do.
It won’t do at all.
It is not wrong to disclose how little you know. Or to reveal the seams of weakness in your current theories. That’s called being scientific. It is how we progress. We correct the problems. We improve the knowledge by being transparent about what we don’t know and inviting others to fill the gaps.
Economists may, or may not, do this in private. They may have a good laugh at the remarkable gaping holes in their theories. And they may well chuckle over the way in which their textbooks don’t even mention these issues.
Ha Ha. The jokes on the public. And the students who emerge thinking they have acquired deep solid insights that are merely whimsical assumptions made along the way in order to “simplify”. Because it feels right.
Thank goodness society does’t look to economics for serious, life changing advice.
Oh. Wait.
The ethical alarm bells should be ringing. But they’re not.
Which is well described in a second book: Charles Ferguson’s “Predator Nation: Corporate Criminals, Political Corruption, and the Hijacking of America.” He is the person who borough us the movie “The Inside Job”, and this book is a continuation of that same theme in more detail.
What galled me about the movie, and galls me even more when I read it again, is the shameful way in which academia has been blurred into the overall elite that runs the country for its own ends. Some very high profile economists are nothing but well paid consultants or advocates. It is impossible – because economics has no ethical rules worth a lick – to tell whether these professors are teaching, researching, or advocating. Or all of the above. They slide from public positions of immense influence back into equally prestigious teaching posts with an oily slickness that corrodes their ethical standing while enriching their bank accounts in equal measure. Both political parties are involved. And for every industry you can find a high profile professor who, it just so happens, has just researched who wonderful that industry is. Or would be if only the government would leave it well alone. Such happy coincidences abound in economics. Apparently.
Read this – I have extracted it from Ferguson’s book:
- “The ascendancy of the US capital markets . . . has improved the allocation of capital and risk throughout the US economy. . . . [The benefits include] enhanced stability of the US banking system . . .more jobs and higher wages . . . less frequent and milder [recessions] . . . a revolution in housing finance.”
- “The capital markets have helped make the housing market less volatile. . . . ‘Credit crunches’ of the sort that periodically shut off the supply of funds to home buyers, and crushed the homebuilding industry . . . are a thing of the past.”
- “The revolution in housing finance has also led to another radical transformation that has been important in making the economy less cyclical.”
- “We believe that the economic performance of the United States over the past decade provides strong evidence of the benefits of well-developed capital markets.”
They are quotes from an article written by Glenn Hubbard and William Dudley in 2004. They reveal a shocking lack of understanding and a wrongheaded faith in market magic totally belied by subsequent events. This was advocacy of deregulation. It could not be justified by theory. Not if true rigor was applied. There were no caveats. No references to the weaknesses in the theory. No caveat emptor clauses.
Hubbard remains as Dean of Columbias’s business school and sits on multiple corporate boards. Dudley succeeded Geithner as head of the New York Fed, where he opined at great length on economic policy. So both retain huge influence. And make good money form their supposed expertise. An expertise that has been exposed in the most brutal way to be suspect.
In what other profession can one fail so openly and completely and continue to practice at its apogee? And be rewarded so well for being so wrong?
What other subject tolerates the omission of key information from its textbooks?
What other subject seeks to keep its students ignorant rather than open them to the limits of its knowledge?
What other subject sells its product as science when in fact it is simply organized opinion?
Can we even call economics a “discipline” when it appears more the consequence of a meandering conversation designed to arrive at a predetermined answer?
And it’s not enough for the notable exceptions to all this to claim they are fighting the good fight. They need to be more thorough in their rejection of the ethical lapses of their colleagues and more strong willed in their attempts to reestablish a good name for economics.
Because at present there isn’t one.
Economics is much worse than that. It ignores land or regards it as a species of capital. You cannot make a more basis mistake than that.
What do you propose we do about it?
1. Do not permit economists to work in places that further private interest, like business schools and economics departments. They should only work in places preoccupied with the common interest. 2. Forbid them to talk about money. Only let economists talk about concrete things, like products and services. Make economics a branch of engineering.
ya know, when you accuse other people of malfeasence [sic], it helps to spell check your blog post…
as in, quote “economists. The tell a lot of fibs and use the concept of simplification as a way of obscuring how l”
shouldn’t that “the” be a “the”?
PS: when you learn how to write, you will realize that the first few paragraphs, much as you like them, are superfluos; get to your point without the factless polemics\
Collective nouns of the sort that are thrown around in economics are vague abstractions no matter how well you spell them; there ain’t no facts in economics, that’s the point.
Perhaps the least-coherent aspect of Keynes’s ‘habitual modes of thought and expression’ in macro-economics is the all-pervasive and ill-considered use of the expression ‘money’. If we limit ourselves just to Non-Cash ‘Money’:
a. If I have a bank current account with a balance of plus 100 dollars (i.e. in credit), and if the Owed-Wealth recorded and administered in that account is deemed to be ‘money’, then presumably I should be deemed to have plus 100 dollars worth of ‘money’, and the bank should be deemed to have minus 100 dollars worth of ‘money’; zero-sum. If not, why not? There is one integral and indivisible item of Owed-Wealth here; recorded as an asset in my books and as an equal and opposite liability in the bank’s books; zero-sum.
b. If I have a bank current account with a balance of minus 100 dollars (i.e. in overdraft), then presumably I should be deemed to have minus 100 dollars worth of ‘money’, and the bank should be deemed to have plus 100 dollars worth of ‘money’; zero-sum. If not, why not? There is one integral and indivisible item of Owed-Wealth here; recorded as a liability in my books and as an equal and opposite asset in the bank’s books; zero-sum.
c. If I have a current account with an overdraft limit of 1,000 dollars and a current balance of minus 400 dollars (i.e. in overdraft), should that count as minus 400 dollars worth of ‘money’ (because that liability will inhibit my propensity to spend), as plus 600 dollars worth of ‘money’ (because that represents my remaining spending power), or as plus 200 dollars worth of ‘money’ (split the difference)?
d. If I have two bank current accounts, each with a balance of plus 100 dollars (i.e. in credit), then presumably that counts as plus 200 dollars worth of ‘money’ for me (and minus 200 dollars worth of ‘money’ for the bank). If I then ‘transfer’ 500 dollars’ from one to the other, so that I have one with a balance of plus 600 dollars (i.e. in credit) and the other with a balance of minus 400 dollars (i.e. in overdraft), should that count as minus 400 dollars worth of ‘money’ (because that liability will inhibit my propensity to spend), as plus 600 dollars worth of ‘money’ (because that represents my remaining spending power), or as plus 200 dollars worth of ‘money’ (split the difference)?
e. If I have a deposit account with a balance of plus 1000 dollars (i.e. in credit), and a current account with a balance of minus 400 dollars (i.e. in overdraft), and my bank offers automated facilities to draw down additional funds from my deposit account to top up my current account if it goes overdrawn, should that count as minus 400 dollars worth of ‘money’ (because that liability will inhibit my propensity to spend), as plus 600 dollars worth of ‘money’ (because that represents my remaining spending power), or as plus 200 dollars worth of ‘money’ (split the difference)?
f. If I have a credit-card account with a limit of 1,000 dollars and a current balance of minus 400 dollars (i.e. in ‘overdraft’), should that count as minus 400 dollars worth of ‘money’ (because that liability will inhibit my propensity to spend), as plus 600 dollars worth of ‘money’ (because that represents my remaining spending power), or as plus 200 dollars worth of ‘money’ (split the difference)?
g. If my house is worth 100,000 dollars, and my mortgage is 40,000 dollars, and my bank offers automated facilities to draw down additional funds from my mortgage account to top up my current account if it goes overdrawn, should that count as minus 40,000 dollars worth of ‘money’ (because that liability will inhibit my propensity to spend), as plus 60,000 dollars worth of ‘money’ (because that represents my remaining spending power), or as plus 20,000 dollars worth of ‘money’ (split the difference)?
h. If I am inundated with offers of credit (e.g. extensions to my mortgage, equity-release schemes, personal loans, credit-card accounts, and bank overdraft facilities), should the ‘funds available’ count as ‘money’ (because those offers represent ‘spending power’)?
i. In each of the above scenarios, do the answers to the questions imply that any macro-economically-worthwhile definition of ‘money’ must include the concept of negative ‘money’, and that any macro-economically-worthwhile ‘monetary’ aggregate must be based on net values (totalling zero)? If not, why not? If so, which conventional ‘monetary’ aggregates reflect the answer? If all of the conventional aggregates ignore the concept of negative ‘money’, how can one justify the macro-economic attention given to such aggregates?
j. In each of the above scenarios, do the answers to the questions imply that any macro-economically-worthwhile definition of ‘money’ must include the concept of funds available (i.e. the gap between each overdraft or credit balance and the corresponding overdraft or credit limit, and indeed credit which I have been offered but which I have so far declined to take up). If not, why not? If so, which conventional ‘monetary’ aggregates reflect the answer? If all of the conventional aggregates ignore the concept of funds available in overdraft and credit facilities, how can one justify the macro-economic attention given to such aggregates?
k. If the only way in which one can generate a non-zero ‘monetary’ aggregate is by counting the asset side of some macro-economically-spurious subset of Owed-Wealth whilst ignoring the equal and opposite liability half, how can one justify the macro-economic attention given to any such non-zero aggregates.
l. Why is it that the most tangible manifestation of ‘monetary’ policy is the manipulation of base interest rates, when non-‘money’ Owed-Wealth often does attract interest, whereas ‘money’ Owed-Wealth often does not attract interest?
m. What is the macro-economic distinction (as opposed to a legal, administrative or slang distinction) between the Owed-Wealth administered as Non-Cash ‘Money’ (e.g. current accounts) and the Owed-Wealth administered in payables/receivables accounts, mortgage accounts, deposit accounts, budget accounts, loan accounts, credit card accounts, bonds, GB Gilts, US Treasuries, other Securitised Owed-Wealth, etc.?
n. How can Non-Cash ‘Money’ be considered to be macro-economically-neutral as a store of intermediate Wealth, when it has a value which varies over time through inflation (after allowing for nominal interest of course)?
o. Why do we refer to a ‘money supply’ (with all the implied macro-economic supply/demand dynamics), when at best we are talking about a ‘money quantity in circulation’ (for which the implied macro-economic supply/demand dynamics do not apply).
Tim:
If you would read Keynes’s Treatise on Money — or my 21st century interpretation of Keynes in the two books I cited in my previous email — yuo would not have to go through the long diatribe that you do. You would understand the importance of liquidity and the use of money contracts — the civil law of contracts — and the sanctity of money contracts in our money using capitalist economy.
Paul Davidson
In response to Paul Davidson:
I offered my questions in good faith. Please try ‘engaging’ with them before telling me I am not entitled to an opinion before reading your own work. Dare I say it, but maybe your own work is part of the conventional-wisdom problem.
I have of course read Keynes’s ‘Treatise on Money’, and his ‘The General Theory of Employment, Interest, and Money’. I would not dream of presuming to an opinion on this issue if I had not done so. I have not had the pleasure of reading your work. I will do so, if I can find copies.
However, neither of Keynes’s works ‘bother’ to define what they expect the reader to understand when they use the expression ‘money’. They both just ‘start talking’ about ‘money’. Perhaps your own work does not suffer from Keynes’s denial.
In my humble opinion, Keynes’s ‘Treatise on Money’ is not a work of macro-economics. It is an exhaustive and comprehensive analysis of the history of routine commercial and financial administration, and completely-irrelevant to macro-economics.
In the General Theory, Keynes provides almost a whole column of index entries related to ‘money’, and over 60 actual references from there to the text. He even dedicates a whole Chapter 17 to ‘The Essential Properties of Interest and Money’. However, none of the referenced texts make any attempt to define ‘money’ as such, and none discuss the presumed macro-economic significance of the presumed distinction between ‘money’ Wealth and non-‘money’ Wealth. Indeed, Chapter 17 does not even discuss ‘money’ as such. It should more accurately have been titled ‘The Essential Properties of Interest and Owed-Wealth (‘money’ and non-‘money’ without distinction)’.
I believe that the distinction between ‘money’ Wealth and non-‘money’ Wealth is (or ought to be) a purely-administrative factor; of interest only to students of the history of routine commercial and financial administration, and completely-irrelevant to macro-economics.
Of course, I am aware of the need for liquidity in the banking system. Indeed, I would argue that that the central banking system already in effect acts as implicit guarantor for every Non-Equity Owed-Wealth liability of every financial institution and state (‘money’ and non-‘money’ without distinction), and that that role should be made explicit. The central banking system (including the global and state banks and regulators from the IMF downwards) should act as borrower/lender of first/default recourse for banks and states. This would eliminate (the need for) inter-bank Owed-Wealth, and would eliminate bank liquidity as a macro-economic factor. In order to moderate the risk implicit in such a facility, the central banking system should itself commission all valuation and auditing standards and processes conservatively on behalf of creditors (rather than allowing politicians, bankers, corporate executives, and financial professionals free reign in their own self-serving interests). Again, in doing so, they should follow the precautionary principle in regulating financial innovation. Indeed, the vast majority of financial innovation (including securitisation of Owed-Wealth such as with GB Gilts, US Treasuries, and other state, commercial and mortgage-backed bonds) should be outlawed in favour of simple inflation-linked current-accounting.
Your reference to ‘the use of money contracts’ is yet another example of what I would argue was a spurious pre-occupation with (potentially ‘unfit for purpose’) historic administrative processes.
For several decades now I hae been trying to explain to my professional colleagues it is not rigor or math that is the problem — it is fundamental axioms that underlies mainstream economics –whether it be called classical efficient market theory or even Samuelson’s Keynesian econoics or even New Keynesian Economics that is the problem.
I have asked my colleagues to follow Keynes’s p. 16 argument that orthodox (today’s mainstream) economists are like Euclidean geometers living in a nonEuclidean world and therefore rebuking lines apparently parallel that do not keep straight. What is required, Keynes noted, is to overthrow the axiom of parallels to get a non Euclidean geometry. “Something similar is required to-day in economics” Keynes wrote.
Unfortunately Samuelson did not have a clue as to what axioms Keynes wanted to overthrow. But as I have pointed out there are three axioms (1) the ergodic axiom, (2) the neutral money AXIOM, and (3) the gross substitution axiom that Keynes threw over. [see my books either JOHN MAYNARD KEYNES in macmillan's series on Great Thinkers in Economics [2007] , or my “trade book” THE KEYNES SOLUTION: THE PATH TO GLOBAL ECONOMIC PROSPERITY [2009] These books show that when you throw over these three axioms it becomes easy to explain the global financial crisis of 2007-2008.
unfortunately none of my heterodox professional colleagues will take the time to read these books!! — Apparently prefereing to sling mud at the conventional mainstream economists instead of fighting them on the fieldd of economic theory and real world economics .
Paul Davidson
I’m looking up these books. But I think that if anything has been proven over the past few years, it is that those who have been proven wrong will choose to ignore the fact and ignore the discussants of that fact. More than this, we see that economic policy is not decided by the rational mind that loves efficiency and honesty, but by the corrupt entrenched interests identified in this post by Radford, in Academia, politics and corporate life.
Economics is a full contact sport. And while I fully expect to be enlightened by the arguments you present, I do not expect to use them in discussions with other academics. As John Kenneth Galbraith once said, “All successful revolutions are the kicking in of a rotten door.” The door of orthodox economics is rotten. … I guess that begs the question “Who will kick it in?” But the point is more that converting the orthodox priesthood hiding behind that door is not the road to change.
Alan: If you will look in my book THE KEYNES SOLUTION:
THE PATH TO GLOBAL ECONOMIC PROSPERITY on pages 173-175, you will read –with direct quotes — how I convinced Nobel Prize winner John Hicks of the error of his ISLM analytical system and finally converted him to reject the ISLM system and accept the idea that the ergodic axiom had to be thrown away for economics to be an analysis of the world of experience. Hicks wrote to me “You have now rationalized my suspicions and shown me that I missed a chance of labeling my own point of view as nonergodic. One needs a name like that to ram a point home”.
Moreover on page 186 of my great thinkers in Economics book entitled JOHN MAYNARD KEYNES I quote Nobel Prize winners Robert Solow and Doug North where each are accepting my argument that real world economic analysis requires the rejection of the mainstream ergodic axiom and the pursuing a nonergodic analysis.
So we can make a dent if we unify arround this nonergodic analysis that follows from Keynes. But as long as heterodox economists each pursues his/her own little hobby-horse analysis, and refuses to rally around and accept a basic nonergodic general theory, then mainstream economists can use a strategy of “divide the opposition and conquer” to maintain their control of the economics as it is taught and professed inpolitical circles.
So I plead with heterodox economists to unify aroung the General Theory Keynes developed by throwing out three fundamental classical axioms. Or as paraphrasing Marx I might say “Heterodox economists of the world unite, you have nothing to lose except your minority status in the economics profession”
Paul Davidson
I was amused by the opening remarks about the downward sloping demand curve. When I began Ph.D. studies my advisor wanted me to devlop such a curve in order to demonstrate the wisdom of an old theorem in public policy (by Jules Dupuit). You can imagine my frustration in the empirical effort!
Tim:
You say you read Keynes’s TREATISE ON MONEY and the General Theory and you do not find Keynes providing any definition of “Money”.
That is shocking for in the very beginning of the TREATISE Keynes argues for a Chartalist definition of money and he writes that Money is whatever the State says discharges contractual obligations. Thus Keynes specifically relates Money and Money Contracts (a legal instrument) with whatever the legal system says discharges contractual obligations!!
How much clearer can that be?? Thus my emphasis on the sanctity of the money contract in the operation of a capitalist economy — which you seem to question.
Paul Davidson
I’m sorry Paul, but you are merely illustrating my point. Neither ‘a Chartelist definition’ nor ‘whatever . . . . . obligations’ constitute a worthwhile definition of anything. This kind of ‘out with the fairies’ thinking would shame a 10-year old in the first year of a critical thinking course. It’s pure blather.
Nominate a monetary aggregate (e.g. M4), then try to ‘engage with’ the following.
Most people in the UK pay their income taxes through PAYE processes (Pay As You Earn). Their employer deducts the tax from the gross-wage, pays the net-wage to the employee, and pays the tax-deducted to the state. Where’s the ‘money’ Paul? Where’s the ‘money contract’? Where’s the ‘quantity’ of ‘money’? Was the gross income ‘money’, before and/or after the payments were made? If not, what use is Keynes’s ‘definition’? If so, why isn’t gross income included in M4 (or whatever you nominated). Indeed, how could gross income become ‘money’, from when in the payment process, and for how long. If the employer paid the tax-deducted to the state, and paid the net-income to the employee, out of an already-overdrawn bank account, when did the negative increment in the negative balance become (negative?) ‘money’. If the employee ‘deposited’ the net-income into an already-overdrawn bank account, when did the positive increment in the negative balance become (positive?/negative?) ‘money’.
Most people in the UK pay their consumption taxes through VAT processes (Value-Added Tax). They pay the gross price to the retailer out of a credit-card account (i.e. and overdrawn account). Again, where’s the ‘money’ Paul? From when to when? Where’s the ‘money contract’? Where’s the ‘quantity’ of ‘money’?
Does it not occur to you that the reason why economists duck and weave around these sort of very basic questions is not because they are fools or knaves (though some I’m sure are both), but because there is nothing there to define and they are too indoctrinated to admit it.
We have moved on from barter and the use of precious cash (e.g. gold coins) to settle debts resulting from trade and employment.
The sole worthwhile macro-economic distinction (as opposed to legal, administrative or slang distinction) between different types of Wealth is not the distinction between ‘money’ Wealth and non-‘money’ Wealth, but the distinction between Owned-Wealth (‘money’ or non-‘money’ without distinction) and Owed-Wealth (‘money’ or non-‘money’ without distinction). More specifically, for the purpose of this analysis:
1. The expression Owned-Wealth is reserved solely for anything which appears in precisely one balance sheet. Each such item is therefore a ‘net-equals-gross’ increment to ‘the wealth of nations’.
2. The expression Owed-Wealth is reserved solely for anything which appears in precisely two balance sheets: once as an asset; and once as an equal and opposite liability. Each such item is therefore a ‘zero-sum’ increment to ‘the wealth of nations’. Indeed, Owed-Wealth is simply a zero-sum book-keeping exercise which ‘keeps the score’ on where we are in our non-barter trading and employment activity. Those who have sold more than they have bought accumulate a net positive balance, and those who have bought more than they have sold accumulate a net negative balance. The aggregate (of course) is zero.
Employers/buyers effectively ‘borrow’ from employees/sellers (recorded by employers/buyers in payables accounts and by employees/sellers in receivables accounts), and the cash/banking processes merely ‘intermediate’ that Owed-Wealth. Thus, the distinction between ‘money’ Wealth and non-‘money’ Wealth is (or ought to be) a purely-administrative factor; of interest only to students of the history of routine commercial and financial administration, and completely-irrelevant to macro-economics.
With Owed-Wealth, there is no ‘IT’. There is no meaningful ‘quantity’ of book-keeping. It is zero-sum administration. Keynes’s paradigm (and yours it seems) is stuck in the minutae of administrative trivia. Economic status comprises assets and liabilities (‘money’ or non-‘money’ without distinction). Economic activity comprises credits a debits (‘money’ or non-‘money’ without distinction). End of!
Tim:
your recommendation that all important financial items should be stated in terms of inflation linked accounting is really a classical version of economics that Keynes was against. You want everything contractually settled in real terms when the real world requires contractually settling every obligation in money terms — and that makes a big difference.
real contracts can be highly destabilizing in the world of experience (despite what classical theory says). Just consider the Great Inflation in the USA in the 1970s. Every major union contract had a cost of living adjustment [COLA] clause. Thus when OPEC foisted oil price increases on the rest of the world in the early 1970s causing the price of all goods transported to market to esculate, COLAs forced employers to raise money wages within a short period of time — causing further increases in the prices of market goods, causing further COLA increases, etc. until Mr. Volker created such a tight money policy to reduce employment and then President Reagan fired the air traffic controllers for striking — thus making union busting socially acceptable. Goodbye COLAs and good by union power to protect workers wages.
I hope you can get copies of my books — for I go into more detail there.
Paul Davidson
Paul,
Where on earth did you get the idea that I believe that ‘all important financial items should be stated in terms of inflation linked accounting’, and that I want ‘everything contractually settled in real terms’? Looking back over what I have written here, the only reference I can find was to ‘simple inflation-linked current-accounting’. By that I meant inflation-linked bank current accounts (i.e. just the ‘book-keeping of Owed-Wealth, without securitisation, to maintain its value over time). I certainly didn’t mention anything to do with inflation-linking wages and/or prices.
Stop building straw men, and then criticising me for what I didn’t say.
What on earth do you mean by ‘tight money policy’? Do you mean ‘high real interest rates’. If so, say so. And what have high interest rates got to do with ‘money’. We pay interest rates on all Owed-Wealth liabilities (like the balances of mortgages and credt-card accounts), and receive interest on most Owed-Wealth assets (like the balances of deposit accounts, UK Guilts, US Treasuries, etc.) but mostly EXCLUDING the balances of current accounts.
You seem to be very keen on others reading your own work, but very slow to ‘engage with’ other’s insights. Just because Keynes (and/or you) said something doesn’t mean it is right. Just because conventional wisdom (including much of Keynes’s work) is (so obviously) wrong, and you disagree with much of conventional wisdom, doesn’t mean that Keynes (and/or you) are therefore right. There are many ways to be wrong. There are a few ways to be (differently) right, and we must all keep an open mind about new insights. I try to.
Tim:
We clearly have a problem of communication.\
To use anexample of yourswhat happens when a customer makes a purchase and “pays” the retailer with a credit card– (and not money?). When a customer “pays” a retailer with a credit card what the customer is doing is accepting a legal loan contract from the credit card company which the customer is suppose to discharge by sending the credit card company a check. The credit card company will pay the customer’s purchase contractual obligation to the retailer.
In the US at least (and I think in the UK as well) the legal system has said that bank money , i.e., checkiing deposits in a banking institution, is immediately convertiblle into legal tender and therefore tendering a check is as good as tendering legal tender and therefore anyone can discharge their loan contractual obligation to the credit card company by sending in a check — provided they have enough on deposit to cover the check amount.
The credit card company pays the retailer the sum of the purchase — again through the use of the check clearing system.
What is so hard to understand about that — and Keynes definition of money as that thing the state declares will pay any contractual obligation.
Furthermore almost all loan contracts specify a money rate of interest and not the real rate of interest. For someone who clains to have read THE GENERAL THEORY, you apparently did not understand page 142 where the money rate of interest, according to Fisher, can be “corrected” for changes in the value of money to yield the real rate of interest. But that requires the analyst to is assume the borrower and lender can forsee the future price level, i.e., the future level of prices are reliably known today. For the future to be known , you MUST impose the ergodic axiom and we are back into the classical world.!! But that means the future is also predetermined!!. Certainly that is not the real world even iif, I think, it is the basis of your argument with me.
Finally , your using of a concept of “owed” wealth assets and owed wealth liabilites are , in my world of experience, primarily accounted for in terms of nominal money contractual sums — and not inflation linked accounts. Only ex post can we know the past inflation linked accounting value of these assets and liabilities..
I am sorry but it is almost impossible to discuss things with you when you are using some very classical economic concepts— especially the assumption , apparently, that the future can be accurately foreseen, i.e, the ergodic axiom. If the future can not be accurately foreseen then it makes no sense to introduce the real rate of interest , except as an expost event.
When you are willing to admit that decision makers in the world of experience “know” that they do not know the future and therefore enter into spot and forward money contracts in an attempt to have some control over future cash inflows and cash outflows, then communication may be possible
Paul
Paul, at #9:
“Unfortunately none of my heterodox professional colleagues will take the time to read [my] books – apparently preferring to sling mud at the conventional mainstream economists instead of fighting them on the field of economic theory and real world economics”.
Tim, responding at #10:
“[Keynes] even dedicates a whole Chapter 17 to ‘The Essential Properties of Interest and Money’. However, none of the referenced texts make any attempt to define money as such, and none discuss the presumed distinction between ‘money’ Wealth and ‘non-money’ Wealth”.
So it seems to me Paul wants to argue on the field of economic theory and Tim on the field of real world economics. I would argue both are necessary, just as two-dimensional complex numbers are necessary to account for the direction as against merely the amount of motion. Economics is of course not merely about money but about the motion of money: currently from poor to rich.
Paul’s problem is the naive word-logic assumption that a ‘line’ of argument will lead to a ‘solution’ enables each line of argument to be played off incessantly against many others. Even if all roads did lead to Rome, our practical difficulty is perhaps lacking the energy to try them and see if they do (if perhaps to a different part of a Rome we don’t know).
Tim’s problem, I suggest, is similarly the wordy Socratic assumption that you have to ask off-beat questions to locate a ‘solution’. The alternative is to LOOK for it, and in the case of mobile fluids like water, electricity or money, to map their channels, phases (c.f. ice, water, vapour, ions) and functions (e.g. carrying power or information) by means of a systems analysis.
My problem is other people not already seeing that a map answers many questions at once, where wordy instructions can be baffling when you can’t see what they refer to.
Paul objects to the ergodic assumption, but neglects to show the alternatives by means of a visualizable example. (Though we cannot assume the probability of a dice throwing six on the basis of how often it has done so before, we can by its remaining six sided, symmetrical and homogeneous: the things that can be changed to influence the outcome, and conversely can be shown to be mistaken – as Keynes showed the neutrality of money to be – on the evidence of past outcomes).
I’m with Tim on the need to define ‘money’ in terms of negatives, but also with Paul’s appreciation of the genuine Keynes, whose General Theory p.234 sees negative interest on the holding of money being “on the right track”. At the same point Keynes seems to be starting where I’ve started here, with “money being, in the estimation of the public, as par excellence ‘liquid’ “.
So what IS economics? In theoretical terms a flow system, in which negativity is rooted in which direction the flow is; with what it DOES depending on whether money carries power or information, and whether, “in the estimation of the public”, information is mistaken for power, thereby programming our actions rather than causing us to act.
At #11, Paul pleads “with heterodox economists to unify around the General Theory Keynes developed by throwing out three fundamental classical axioms”. In my case he is preaching to the converted. But we are 75 years on from Keynes; the world has moved on from the steam to the information age and most people still haven’t a clue how to define information, never mind money; never mind Peter’s “Ethics. Again”.
Who I am most with is Egmont Kakarot-Handtke, who in RWER 56 wanted to “Scrap the Lot and Start Again”. Not with Egmont’s quantitative equations, however; with the systems analysis techniques and programming languages devised for mapping, simplifying and redeveloping the flow logic of information systems. With theoretical methods adequate for the practical task, not with half-baked conclusions.
Tim:
If you had read page 4 of Keynes’s TREATISE on MONEY you would note that he wrote:”Today all civilized money
is, beyond the possibility of dispute, chartalist” . In this first chspter he also defines money as the timg that that the State says discharges contractual obligations.
Enough said about your reading of the relevant literasture.
Paul Davidson
Oh dear, oh dear.
Please refer back to entry #14 in which I wrore:
I’m sorry Paul, but you are merely illustrating my point. Neither ‘a Chartelist definition’ nor ‘whatever . . . . . obligations’ constitute a worthwhile definition of anything. This kind of ‘out with the fairies’ thinking would shame a 10-year old in the first year of a critical thinking course. It’s pure blather.
PLEASE, PLEASE, PLEASE – Nominate a monetary aggregate (e.g. M4), then try to ‘engage with’ the questions I asked in entry # 6.
I’m done. I will not respond to any further contributions from you.