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Monday, 07 May 2018 17:50

The Mental Prison of Mainstream Economic Dogma

Written by Arindam Basu
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'Are people hopelessly stupid—or do they take some perverse and sick pleasure in being slaves?'

Though it's a rhetorical question, I think it's worth bearing in mind just how difficult it is to break out of a mental prison.  Such a prison is created by the dogmas of mainstream economics which misleads both academics and the general public.  Were it just one or two dogmas, the jailbreak would be easy - but unfortunately we are dealing with at least half-a-dozen.  What's worse, many of them are implicit: they are not openly stated or discussed.  As if this was not bad enough, the main alternative school of economics, (Marxism) simply replaces some dogmas with other ones and retains the rest.

And as the German philosopher Stirner noted:

''If an age is imbued with an error, some always derive advantage from the error, while the rest have to suffer from it.'

That sums up our plight.  I'll list of some of the errors:

 

Dogma #1 - Fully flexible prices.

 The Reality - Prices have a lower limit set by cost.

 

Dogma #2 - Fully flexible wages. 

The Reality - Wages are inflexible downwards, primarily because employers don't want to undermine the morale of employees by cutting their pay.

 

Dogma #3 - Full employment

 The Reality - Outside the World Wars, modern economies (i.e. mechanized, industrial ones) do not operate at full capacity, because the financial credit loaned by the banks is only a fraction of real credit - since it is not in their interests to loan more.   (And by fraction, I mean something close to 1/4 or even less). [Beyond this observation, full employment of labour is neither necessary nor possible for a technologically developed country; i.e., we can provide for all of our needs without employing the whole of the population so there is not enough meaningful work to go around. - Ed]

 

Dogma #4 - Governments face financial constraints, (the 'not enough money' assertion).

The Reality - Governments have coinage sovereignty and therefore can always create money in whatever quantities required.

 

Dogma #5 - The velocity of circulation of money.

The Reality - A given sum of money can never liquidate more than an equal quantity of costs, because it no longer exists as consumer purchasing power thereafter.  [The velocity of the circulation of money theory only applies to second-hand sales or, potentially and partially, to the spending of profits - Ed]

 

Dogma #6 - Supply creates its own demand.

 The Reality - 

“Categorically, there are at least the following five causes of a deficiency of purchasing power as compared with collective prices of goods for sale: 1) Money profits collected from the public (interest is profit on an intangible); 2) Savings; i.e., mere abstention from buying; 3) Investment of savings in new works, which create a new cost without fresh purchasing power; 4) Difference of circuit velocity between cost liquidation and price creation which results in charges being carried over into prices from a previous cost accountancy cycle. Practically all plant charges are of this nature, and all payments for material brought in from a previous wage cycle are of the same nature; 5) Deflation; i.e., sale of securities by banks and recall of loans.”

 (Major Douglas, The New and the Old Economics)

Last modified on Monday, 14 May 2018 01:57

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3 comments

  • Comment Link Arindam Sunday, 03 June 2018 05:37 posted by Arindam

    An economy operating at full capacity would have neither unemployment nor advertising. It would have no unemployment, since the entire workforce would either be at work or being trained for work. It would have no advertising since, being at full capacity, it would not be able to spare resources for marketing.

    I think it's fair to say that in most countries, both unemployment and advertising are present - one might even say, omnipresent. Therefore economies do not operate at full capacity.

    [The very fact that companies have to advertise indicates that they have difficulty selling what they already produce - and this deters them from maximising production.]

    The key characteristic of a war economy is that production required by the State is not constrained by finance. If the government in a war economy seeks greater production of tanks, for example, it will create the money required for producing these, (or obtain it through the sale of war bonds to the banks).

    A 'consumer war economy' - would imply that any production sought by consumers would, likewise, not be subject to financial constraints. Obviously, such a thing does not exist at present - since the consumer is bound by serious financial constraints - in the form of his income and borrowing capacity. He certainly cannot create money without falling foul of the law - and although he can certainly create personal bonds, it is doubtful whether he can sell them.

    To fully appreciate how far we are from full capacity, it is worth considering what happens when financial constraints governing production are almost eliminated. For example, when Nintendo released Super Mario Maker, gamers all over the world could create Super Mario levels and upload them - at minimal expense, (provided they could afford the game - so there was still a minor financial constraint in place). The result?

    More Than A Million Super Mario Maker Levels Have Been Uploaded In A Week
    http://www.nintendolife.com/news/2015/09/more_than_a_million_super_mario_maker_levels_have_been_uploaded_in_a_week

    Even if we assume that 99% of these levels were worthless (a rather questionable assumption as it is), that still amounts to 10,000 in a week. By way of comparison, a typical Mario game has less than 100 levels.

  • Comment Link Dork of Cork Tuesday, 22 May 2018 04:36 posted by Dork of Cork

    Disagree with point 3.
    Economies now do operate at full capacity but as consumer war economies rather then formal war economies.
    Energy is lost massively through depreciation of consumer tanks (cars) and very large distribution loses (transport inputs) rather then final human consumption.

  • Comment Link Robert Searle Friday, 18 May 2018 05:36 posted by Robert Searle

    If Social Credit were to ever be taken seriously at scale it would have to include ultimately the importance, and relevance of supercomputers, and indeed, quantum computing in the banking system. These could be programmed to deal with changes notably in the Free Market Price (or subsidised Price if neccessary). Hence, Transfinancial Economics...similar to SC.

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