Home > Uncategorized > The Great Transformation of economic theory

The Great Transformation of economic theory

from Asad Zaman

In the Origins of Central Banking, we discussed how the Bank of England was created in 1694 to provide funding for a war with France. The success of this institution was noted, and it was replicated across Europe, so that Central Banks came into existence to finance the nearly continuous wars between European powers that characterized the 18th Century. The 19th Century was unusual in that European powers set aside differences to create a Hundred Years of Peace (1814 to 1914), in order to go on a spree of global colonization and conquest. The transition from war to peace also created a transformation in economic theories from Mercantilism to Free Trade. Some aspects of this transition are discussed below.

The Root of All Evil

An essential aspect of the Great Transformation from traditional, paternalistic societies to market societies involves re-engineering human motivations. The lust for money does not normally rank high as a driver of human behavior.   read more

  1. Helge Nome
    October 29, 2019 at 5:23 pm

    “The transition from war to peace”
    Really? Peace for whom? Certainly not the subjugated peoples.

  2. Econoclast
    October 29, 2019 at 8:03 pm

    “The transition from war to peace”
    Asad is using the word “peace” to mean the absence of war, not its synonym, “tranquility”, a condition certainly not relevant to the oppressed colonized. For them any meaning of peace is an abstraction. If you read the whole essay he says it better: “the 19th Century, where European powers avoided wars with each other, and concentrated on colonizing the globe”
    In this, “peace” means avoiding war. The other meaning of peace (e.g., nonviolence) certainly is not peace for “subjugated peoples” or any other oppressed by violent power abuse.
    Asad’s entire essay is a good one, worth reading.

    • October 30, 2019 at 11:00 am

      Yes. One may have some quibbles about its interpretation of the century of peace, Asad, but as broad-brush treatment this is pretty good.

  3. October 30, 2019 at 11:26 am

    The deeper underlying serious problem is that obvious connections like those between wars and finance were lost when economics jettisoned history, in the vain effort to create a “SCIENCE” of economics which would produce universal invariant laws, like the laws of physics, not subject to historical context.

    • Frank Salter
      October 30, 2019 at 1:47 pm

      This is disingenuous. Whether you like it or not, all action in the real world IS subject to the laws of physics. As such it will be analysable mathematically. The fact that economists choose inappropriate approaches and failed to follow the scientific method is obvious. Then even when presented with analysis not invalidated by the empirical evidence they fail to understand what that means.

      • October 30, 2019 at 2:40 pm

        Please read Lawson on the Nature and State of Modern Economics to find out why you are wrong –

      • Frank Salter
        October 30, 2019 at 3:02 pm

        To claim that I am wrong without explaining why you believe that is not useful. I stand by every statement I made.

    • October 30, 2019 at 4:11 pm

      Pretty invariant is the law that in order to keep living, one must eat. Almost equally invariant is the fact that, lacking a peacock’s feathers, more than half the monetary economy is devoted to men keeping their women happy displaying the like of pretty clothes, fine rings, posh cars and splendid houses. I’ve not seen the significance of that noticed by any economist!

      • Calgacus
        November 1, 2019 at 6:29 am

        I’ve not seen the significance of that noticed by any economist!

        Veblen. Conspicuous Consumption.

      • November 1, 2019 at 3:32 pm

        Thanks, Calgacus. Finding Veblen has been pretty rare in Britain. I’ve read of him and have now ordered his book, ‘The Theory of The Leisure Classes’, but Conspicuous Consumption seems to posited of the Leisure Classes, and mating is not just confined to them!

  4. Robert Locke
    November 1, 2019 at 9:03 am

    Reading nonhistorians’ comments about history is never enlightening. Europe in the 19th century was preoccupied with social revolution (the red specter) and great power rivalry, and there were lots of wars springing out of these two factors, like the international efforts to suppress revolution in central and eastern europe 1848-49, the war between France and Austria, 1859, bringing about Italian Unity., the war between Prussia and Denmark, 1864, that permitted Prussia to annex Schleswig-Holstein, the war of 1866 between Austria and Prussia, that unified Germany under Prussia, the North German Confederation, the war of 1870, between France and Germany, that created the German Empire, proclaimed in the Hall of Mirrors at Versailles in 1871, leading to intense great power rivalry that produced the alliances that brought on WWI.

    All this garbage about market capitalism has nothing to do with wars in Europe. It is a British story, which, because of the American victory in WWII has permitted that story to dominate the narrative.

  5. Ken Zimmerman
    November 1, 2019 at 2:23 pm

    I’ll go with Robert. European history isn’t my area of study, but it is Robert’s. While all that Asad describes of Europe was happening, the US was going through several revolutions. A political one that turned to war about the future of slavery in America. A move from a mostly rural population to one living in cities. From pre-industrial to industrial in manufacturing. A reduction in illiteracy, From a protectionist economy and trade to a free-trade economy. Not all history is about economics. In fact, when looked at a whole, very little history is about economics.

    • Craig
      November 1, 2019 at 3:57 pm

      “Not all history is about economics. In fact, when looked at a whole, very little history is about economics.”

      Correct. History has always been driven most basically by an austere, ungracious and economically illegitimate public or private control of the paradigm of money and finance.

      The paradigm of Debt Only has always been elementally de-stabilizing. Monetary Gifting, intelligently implemented, is its mega paradigm changing resolution.

      We haven’t come to be dominated by Finance Capitalism without reason.

  6. Robert Locke
    November 2, 2019 at 12:47 pm

    Sartre said writtten history has a sense of inevitability, lived history does not. People in the first world war accepted that to die for ones country was expected, and they did so without great complaint. The leaders who took people to that war expected totally different outcomes than the ones they got — their own destruction with the fall of their regimes. When one lives history he/she lives the unexpected, your inventing history Craig.

    • Craig
      November 2, 2019 at 4:17 pm

      No I’m not. In the first place I’m NOT saying de-stabilization of economies, nations and civilizations by the paradigm of debt Only is inevitable….because there IS an alternative, a more conscious, more insightful alternative, and that is a pattern change in finance and the money system. Paradigm changes are permanently progressive cognitions regarding ENTIRE pattern changes, not fishbowl “paradigms” like business management which are only compartmentalized aspects in areas of human endeavor that additionally miss the mark of the area (money and finance) that actually needs analysis.

      Has anyone here ever entertained the idea that private for profit money creation ONLY in the form of debt is a glaringly dominant monopoly paradigm and additionally NOT a legitimate business model at all? It’s not even a legitimate public utility…unless it’s firmly aligned with and guided by the new concept namely grace as in gifting. Wake up.

      Sartre was referring to the fact about history that I have posted here before. That is, that it is mostly a record of humanity’s unconscious actions…unless we take Santayana’s perspective. Read Hudson’s recent research about debt for instance. And then apply the human psychological insights and consciousness raising techniques of the world’s major wisdom traditions…and you’ll have a truly conscious understanding of history’s potentials.

      • Robert Locke
        November 3, 2019 at 8:24 am

        When one lives in the United States he/she understands Greta Garbo’s remark about: “When I return to America, for 14 days, I feel like I’m throwing my life away.” She meant the continued obsession of Americans with money is throwing your life away. What you are calling the hall mark of civilization, is just an American peculiarity. I live in Europe surrounded by the achievements of urban civilization, and rural loveliness, with populations that work hard at retaining them. When I walk across the street and look up at the art nouveau buildings, I rejoice that people in this city do not tear them down to build a Trump Hotel and parking lot. It would not cross the mind of these Germans to do so. Don’t make Anglo-American values universal in history.

      • Ken Zimmerman
        November 3, 2019 at 2:19 pm

        Craig and Robert, wonderful conversation. American civilization, as such is not only young but also lacks any proper foundation in culture building. American culture is barely a hundred years old. As John Wayne said, America is wild. America began as the Republican dream of a gathering of aristocrats whose only experience with democracy was reading academic texts and dreams of good will and peace among men. It solved none of the big problems of the American colonies – slavery, women’s rights, civil rights in general, equal application of the law, poverty, etc. But it sounded good on paper. From its beginning American was a divided country. Divided between great wealth and miserable poverty. Between native immigrant (Scotch-English) and newer immigrants. Between the native immigrants and later immigrants, and the indigenous peoples, between urban and rural, between educated and unschooled, between greed and conservative, between commercial character and craftsperson, between extreme individualism and extreme community, between religious dogma and liberty, equality, and public policy, and of course between regionalism and nationalism. No wonder at all America is a mess, even today. Most European nations faced many of the same problems. Resolving these in bits and pieces over 700-1000 years, with no little use of force and war, and periodic relapses. In a thousand years perhaps, America will have what you see and love in Europe. Perhaps not. The first incongruity here is that due to several accidents of history, some involving European adventures in colonialism and war, America, immature and careless as it was became in 1945 the strongest military and economic nation in the world. Dominating world affairs for now 75 years. In this position America has made many mistakes, but certainly no more than Great Britain, Germany, and Russia. In a few years the nostalgia for that domination may be profound. The second incongruity is that America, more than any nation in the history of capitalist economic arrangements has pushed the structure and requirements of capitalism ahead of the structure and requirements of democracy. That’s created great consternation, not just in America but around the world.

      • Craig
        November 3, 2019 at 11:00 pm

        Who ever said anything about the wonderfullnes of America’s obsession with money? That’s just another deflection from what I was actually posting about. Money is a wonderful tool…so wake up about the best way to use it to make everyone and every competitive enterprise secure and the system free flowing….so we can all contemplate the Good and build a culture of wisdom…like Europe has continually tried and failed to do….because they and everyone else is so friggin’ habitually chitter chatter and figure, figure, figure erudite that they can’t think paradigmatically…..even when the personal, mathematical and temporal policy effects of doing so are spectacularly of such greater positive effect than any other suggested policies so seldom posted here can offer up. It’s tiresome.

        I keep trying to get everyone here to show me wiser philosophy and better policies to help us monetarily, financially and hence economically. All I get is crickets and (inaccurate) critiques. You guys should be bandwagoning with me here. C’mon.

      • Ken Zimmerman
        November 4, 2019 at 11:12 am

        Craig, I see I need to be more direct with you. People invent ways to mark-up and use money depending on what they believe is important. Not what you or any other outside adviser determines is important or meaningful for them. No one, including you should ever assume to take that right from people. They will not react politely. America is an example of people, now very angry after having that right taken away, by neoliberal politicians and economists. And their anger is growing. If you believe in the scheme you’ve proposed, believe it will make economic arrangements fairer and maybe even help solve some of the big problems we face, like climate change, I suggest you begin to make that case directly to people. Historically, academics do a poor job of such work. Lecturing instead of conversing, leading rather waiting to be led, and always giving directions. I suggest you stop focusing on academics and begin focusing on the peoples whose lives your plan will disrupt. But don’t expect them to accept what you say at face value. And don’t expect them to like you. They’ve been fooled by others before.

      • Robert Locke
        November 4, 2019 at 9:12 am

        The story goes that when a Brit discovers great poverty some place, he/she says, “how sad,’ but when an American sees this poverty he/she says “what can we do about it.” Craig, in you zest to do somethiing about the world, don’t destroy the artifacts of a civilizatization that gives substance to our daily meaning.

      • Craig
        November 4, 2019 at 10:28 pm

        “Craig, in you zest to do somethiing about the world, don’t destroy the artifacts of a civilizatization that gives substance to our daily meaning.”

        I’m not doing that in any way in anything I’ve ever posted here. In fact, as I made clear in my last post I’m attempting to maintain, enable and create the artifacts of civilization “so we can all contemplate the Good and build a culture of wisdom.”

        “People invent ways to mark-up and use money depending on what they believe is important. Not what you or any other outside adviser determines is important or meaningful for them.”

        That is undoubtedly true, and they’ll be free to do so after the program I’m advising is implemented….and as a sovereign the government will be free to tax the hell out of and otherwise regulate any price rises that are merely arbitrary attempts to game the new (universally cost saving and monetarily beneficial) program and end the obvious benefits of that program if they persist in such greedy and anti-social actions.

        Such direct and immediate benefits that I’m advocating will be obvious enough to the individual and quite quickly to commercial agents, even if they aren’t apparent to economists, pundits and chatterers here. Social Security has resisted regressive attempts to get rid of it for 90 years, and has become “the third rail of politics despite the fact that it was a mere reform. A paradigm change will make anyone who opposed it look like all the Ptolemaic cosmologists and nomadic witch doctors and tribal chiefs looked when those paradigm changes took root.

        So I’m not stopping anyone from committing economic suicide via consumer contempt but neither would I just sit idle-ly by while those with twisted or non-existent ethics tried to destroy a gracious system. Shame on me.

        And please do not lecture me about cultures as I’m already in full agreement with the legitimate insights to be found in anthropological research. Why don’t you focus more on the pattern/culture of the money system and its civilizationally long monopoly paradigm? It might be enlightening.

      • Ken Zimmerman
        November 5, 2019 at 12:49 pm

        Craig, whether your proposals are enlightening to me is irrelevant. You propose to change peoples’ lives greatly, without asking their permission to do so. I suggest you negotiate with the millions whose lives will be changed, you say for the better. But I don’t think they’ll take your word for it.

      • Craig
        November 5, 2019 at 4:24 pm

        Incorrect. I’m proposing/asking them to consider they be able to purchase a $200k house for $50k with a loan at 0% interest, a $50k electric car for $12.5k, $40k solar panels for $10k, double their earned income ability to purchase whatever, give them a secured $24k worth of additional purchasing power every year for their entire adult life and finally think about contemplating the various aspects of the natural philosophical concept of grace as in love in action in every other part of their lives.

        And after perhaps a few moments of incredulity, a couple months of dividend payments and the ability to purchase everything with a 50% discount even the most conservative, libertarian or “know nothing” erudite liberal will go for it because in the words of one of my favorite childhood cartoon characters “they might be dumb, but they ain’t stooopid!”

        It’s cynicism that is irrelevant, not the new paradigm concept of monetary grace as in Gifting.

      • Ken Zimmerman
        November 6, 2019 at 11:42 am

        Craig, none of this is your choice to make. It is the choice of those “little” people with whom you need to negotiate. I frankly don’t know how they will react. But it will likely not be as you expect.

      • Craig
        November 6, 2019 at 4:13 pm

        Yes, well thanks for enlightening me in that regard. You might do a quick little study of the signatures of imminent and accomplished paradigm changes and, why, once they are comprehended/personally experienced, they become the new primary and dominant idea.

      • Ken Zimmerman
        November 7, 2019 at 2:43 am

        Present your proposals to some “applied” economic planning meetings. See if you get any nibbles to explain it more fully in local meetings, with detail about how these local planners can use them. That’s one way to start the changes you want to happen. Email us the results.

      • Craig
        November 7, 2019 at 3:50 am

        That is exactly what I shouldn’t do because it would be doing exactly what I’ve been doing here for several years, that is going no where, because it will run smack dab into either their conservative or liberal orthodoxies and mind filters or be an opportunity for them to figure, figure, figure on what I said instead of simply looking at the immediate effects of the policies I’m recommending.

        No, I’m going directly to the individual who even though they may have either biases and/or lack of knowledge about how economic theories are formulated….can see the obvious benefits of a simple operation at retail sale makes his income go twice as far as it did yesterday with my 50% discount/rebate policy.

        I’ve tried to contact Andrew Yang’s campaign to alert him to how the 50% discount/rebate policy would double the freedom dividend, everyone’s earned income, every business’s potential revenue etc. etc. They and every other campaign is interested in donations. A new idea is long down the list. That’s why MLK and Gandhi went mass movement. Politics is so full of craven political partisan power, ethical cowardice and mealy mouthed reform it can’t be trusted…until their political survival is an imminent reality.

      • Ken Zimmerman
        November 7, 2019 at 10:19 am

        Right now, with many national governments in turmoil or paralyzed local planners are proving to be the source of workable, or at least not unworkable ideas and willingness to look into all options to deal with the governance, infrastructure, sustainability, and survivability problems staring the world in the face. They are the ones to which new ideas should be offered. New ideas like yours. As for this blog, correct me if I’m wrong, but there seem to be no local planners commenting. Certainly local planners have biases, but they are, in my view as a group less biased than any economist, mainstream or heterodox. Their reasons for accepting or rejecting your suggestions would center on their practicality and usefulness, not their theoretical or methodological purity. I bet there are such planners right in your own region. Why not begin with them?

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