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Four narratives about central banks

from Asad Zaman

The previous post (Three Mega-Events Which Shape Our Minds) explains the importance of history in shaping the world we live in. Historical events (facts) by themselves are not meaningful until they are linked together into a coherent narrative. The mortar which connects the facts must be supplied by our minds, and can never be asserted with certainty. The fact that we can never be certain about the narratives which connect and explain history has led to two polar mistakes. The positivist mistake is to renounce narratives, and focus solely on the facts. This makes it impossible to make sense of history, which deprives us of a rich storehouse of human experience. In effect, it means that we must start afresh every day, since the past makes no sense. The other extreme is the post-modern view that anything goes. Since we can never be certain, all narratives we create to connect and explain historical facts are equally valid. Neither of these extremes is correct. We cannot operate without narratives, because all of our actions are based on goals, and on judgments regarding the relative efficacy of different actions in achieving these goals.  read more

  1. Helge Nome
    June 27, 2020 at 4:42 am

    Central banks have evolved as stabilizers of economies and are proving their worth during the present Covid crisis. Central bankers have learned from successes and failures over the last 100 years or so.

    • June 27, 2020 at 12:11 pm

      For reference from the MMT discussion: ” Asad Zaman’s latest: “Four Narratives about Central Banks”, i.e. free trade, good or disastrous evolution, and conspiracy. I’d opt for the disastrous evolution, due to free trade being a euphemism for free wholesale trade; good evolution built on the change to paper money having been prevented by continuation of usury; and conspiracy to found central banks having been repeatedly recognised, rejected, repeated, demonstrated and found manifestly disastrous (as in two world wars, repeated slumps and today in global warming).”

      Helge, I wish I could agree with you. Governments continuing to “parachute” money to central banks, to allow banks to lend to failing businesses and local governments at interest, shows no evidence of learning, IMHO. What would have, would have been a moratorium on rents, interest, and dividend payments leveraged by repurchase of shares and gambling with other people’s jobs. Or better: being prepared to discuss the option of making this permanent by eliminating the doctrine of corporate personality, supplying everyone’s income as a credit limit and government checking that all that needs doing gets done, thereby justifying or adjusting personal credit limits. That may sound too logical for some, but logic works better than wishful thinking.

  2. Ikonoclast
    June 28, 2020 at 2:03 am

    I agree with Asad Zaman’s linked paper, “The Battle for the Control of Money”. Yes, it is simplified to provide a quick view to the general public. Nevertheless, it is substantially correct in its analysis.

    What is of interest to me is that, as a secular scientific humanist, I can still agree with this paper in so many respects. The institution of interest is not only problematic from an Islamic perspective. It is also problematic from a limits to growth perspective. That is to say it is problematic from the perspective that nature itself places limits on growth. The earth is of a finite size. It has finite stocks and flows of resources and bioservices. There is (or was) a natural balance which we have upset and upset further at great risk to ourselves and our descendants.

    Debt “wants” to grow exponentially. Clearly, it is really creditors who want debt to grow exponentially. They want this out of insatiable greed. A system which wants debt and interest payments to grow indefinitely necessarily mandates indefinite growth of the real economy to pay the interest and pay off the debts. But endless real growth in a finite world is an impossibility. The insitution of interest is itself at fault. To achieve a steady-state sustainable economy, interest itself must be proscribed.

    There is a moral imperative for us to be good stewards of the earth and not to despoil and wreck it. This moral imperative can be demonstrated by both deontological and consequentialist moral philosophies. That is to say (deontologically) God or Allah instructs us to care for the earth and all its inhabitants AND/OR (as consequentialism) an examination of the consequences of exploitation and despoliation (mass deaths and extinctions) illustrates that if we value life (human, animal and plant) then we must not participate in wholesale environmental (and human) destruction.

    Older, traditional virtues must indeed be promoted. Instead of insatiable greed we must practice frugality. Instead of blind selfishness we must promote far-sighted care and cooperation.Instead of rampant inequality we must promote a fair sharing of the world’s “gifts from nature” (which can be taken as any or all of an economic concept, an ecological concept or a theological concept, depending on how you view such matters). Capitalism (and its war-machines) is against these values.

    There has indeed been a trap affecting scientific humanists themselves. (And I am a scientific humanist as admitted.) This trap has been one of scientific positivism on the one hand and self-idolatry on the other. To assume that (some) material knowledge is the sum of all knowledge, as was done in classical, deterministic science was a grave mistake. Conventional economics took up this grave positivist mistake as the West (initially) made a religion of capitalist economics.

    The further progress of science into the complexities of evolution, emergence, quantum non-determinism and complexity theory has or should have made us much more humble again the face of the extraordinary complexity and unknown total nature of the cosmos. The self-idolatry of humanism proceeded in two directions. One was the idolatry of human reason: that human reason could understand everything and that it was acceptable to follow instrumental reason without concern for moral boundaries or unforeseen consequences. The second direction was the idolatry of human needs; that human needs had to placed above all other considerations. But in a connected world, over-satisfaction of human needs leads to external ills of the natural world as well as in any case being bad for humans themselves.

    The philosopher Francis Bacon wrote that “nature to be commanded must be obeyed”. This is a profound insight. We cannot achieve any of those effects where we imagine and seem to be “commanding” nature without obeying nature. Bacon pointed out that nature does almost everything and we actually do very little. “Towards the effecting of works, all that man can do is to put together or put asunder natural bodies. The rest is nature working within.” And overall, in the modern world, we must obey the limits of “commanding” nature or ecologically it will not support us.

    It must be said that Francis Bacon borrowed from and was influenced by the earlier Roger Bacon. We can note in turn that Roger Bacon’s work showed considerable dependence on the work of Alhazen (Hasan Ibn al-Haytham) for the latter’s work on optics. Alhazen was also an early proponent of the idea that a hypothesis must be proved by experiments based on confirmable procedures or mathematical evidence – hence Alhazen proposed the scientific method five centuries before Renaissance scientists.

    The Western world’s dubious innovation was to divorce science and then economics from the whole of nature, from the holistic understanding and appreciation of nature’s all-connectedness and of our place IN nature and the cosmos and NOT ABOVE nature and the cosmos. This dubious innovation needs to be abolished and the rift between man and nature to be healed in some manner for the good of both.

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