Written by Econintersect Guest
— this post authored by Keith Calder
The monetary system is all about aggregates. This doesn’t fit in very well with an ideology based on individualism. The problem is solved by mainstream economists having no idea how the monetary system actually works.
Bankers make money by shifting their debt products. To maximise profit they need to shift as many as possible.
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On a BBC documentary, comparing 1929 to 2008, it was said the last time US bankers made as much money as they did before 2008 was in the 1920s.
Pay special attention starting at 18 mins.
The bankers loaded the US economy up with their debt products until they got financial crises in 1929 and 2008.
As you head towards the financial crisis, the economy booms due to the money creation of bank loans.
The aggregate/macro effects aren’t too clever. I don’t think you can get to the macro of the monetary system from the micro. Mainstream economists certainly haven’t.
Economists do identify where real wealth creation in the economy occurs, but this is a most inconvenient truth as it reveals many at the top don’t actually create any wealth.
This is the problem.
Much of their money comes from wealth extraction rather than wealth creation, and they need to get everyone thoroughly confused so we don’t realise what they are really up to. They need to confuse making money and creating wealth, so all rich people look good. This is what has happened at the most fundamental level.
You really have to massage the economics to get this result. It does its job, but it’s useless as economics.
Everything had been going well for 5,000 years and then the classical economists turned up. Those at the top had been living in luxury and leisure, while other people did all the work. The last thing they needed was “The Enlightenment” as people would figure out what was really going on.
When they did start to work out what was going on, this had to be hidden again. The Classical Economists had a quick look around and noticed the aristocracy were maintained in luxury and leisure by the hard work of everyone else. They haven’t done anything economically productive for centuries, they couldn’t miss it.
The classical economist Adam Smith wrote:
“The labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers.”
There was no system to provide benefits in those days, and if those at the bottom didn’t work they died. They had to earn money to live.
It was always far too dangerous to allow econiomics to reveal the truth about the economy. How can we protect those powerful vested interests at the top of society? The early neoclassical economists hid the problems of rentier activity in the economy by removing the difference between “earned” and “unearned” income and they conflated “land” with “capital”.
They took the focus off the cost of living that had been so important to the classical economists as this is where rentier activity in the economy shows up. The landowners, landlords and usurers were now just productive members of society again. Today no one realises that housing costs should be low, not high.
Everyone who uses neoclassical economics trips up over the “cost of living”, even the Chinese. Hiding what real wealth creation is does have some big drawbacks.
Lucky, I have come up with an equation.
Disposable income = wages – (taxes + the cost of living)
Someone from the CBI (Confederation of British Industry) has just seen the equation. (I let them have a quick peek.) Two seconds later ….. they realised the UK’s high housing costs push up wages, and are actually paid by the UK’s employers reducing profit.
UK’s high housing costs make UK labour very expensive compared to elsewhere in the world, and it makes it very expensive to do anything in the UK. Employees get their money from wages. Employers pay the UK’s high housing costs in wages, thus reducing profit. When you know what it is, you can see why they are so resistant to change.
The equation comes from Michael Hudson’s work. He usually looks at things from the workers perspective, and I have looked at it from the employers perspective. No one cares about workers, so I had to give it a tweak.
Finally, Professor Richard Werner has said:
“…… neo-classical economics, as dominant today, has used the deductive methodology: Untested axioms and unrealistic assumptions are the basis for the formulation of theoretical dream worlds that are used to present particular ‘results’. As discussed in Werner (2005), this methodology is particularly suited to deriving and justifying preconceived ideas and conclusions, through a process of working backwards from the desired ‘conclusions’, to establish the kind of model that can deliver them, and then formulating the kind of framework that could justify this model by choosing suitable assumptions and ‘axioms’. In other words, the deductive methodology is uniquely suited for manipulation by being based on axioms and assumptions that can be picked at will in order to obtain pre-determined desired outcomes and justify favoured policy recommendations. It can be said that the deductive methodology is useful for producing arguments that may give a scientific appearance, but are merely presenting a pre-determined opinion.”
I think Michael Hudson has come to a similar conclusion
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