Monday, October 15, 2012

A tale of two theories of economics

One theory of economics says that the greatest satisfaction of human needs, comes about when people voluntarily exchange with each other, this theory requires neither government intervention (in fact, calls against it) nor does it require the government to employ professional economists.

The other theory of economics says that the government must employ professional economists to measure, analyze and control the economy by using fiat-money creation to have a monopoly control on credit and therefore to have a critical control over the financial/banking sector of the economy; this theory of economics says that the government can spur or prime the economy by borrowing lots of money from the money-creator-economists/bankers and spending it like a drunken-sailor.

Guess which theory of economics is most favored by politicians and economists employed by the government?
Guess which theory is responsible for economic "bubbles"/recessions/depressions?


  1. This comment has been removed by the author.

  2. How are recessions and depressions not part of capitalism without the state (i.e anarcho-capitalism)?

  3. I assess depressions/recessions as a market-recalibration, which is recognized as a lull or slow-down in consumption, and thus production also lags as consumption falls.

    I assess this recalibration as necessary because producers have acted upon errant/artificial market signals, that indicated to them, a certain amount of savings (by consumers) in the marketplace which is an indicator that consumers have excess funds that they are using to invest, either because there are many profitable investments to be had, or because of future expectations of consumption (actually, these are the nearly the same thing, said in different ways).

    If consumers are saving in order to provide for future consumption, then it is an opportunity for producers to invest in additional products and production capabilities, so as to take advantage of that future capacity of consumption. How does a producer know that consumers are saving? Because like all markets, finance/banking is (in theory) about supply & demand; if people are saving, then there are more dollars available for banks to lend; if the banks have excess money to lend and they are competing for borrowers, then they lower interest rates to attract business. Therefore, the reduction of the interest rate, is a market signal that consumers are saving, which is a market signal for producers to invest in additional production capacities to provide for that future consumption.

    But what if that future consumption never takes place? What if that apparent savings of consumers in the market, did not actually occur? Then producers find themselves, having invested in additional production capabilities and yet consumer demand remains constant (but up until this point, everything has appeared to the economists to be great, greater investment, greater employment, a boom-market).

    After producers invest in additional production capabilities, and they find that their goods/services do not have an actual demand in the market place, they have to let those additional production capabilities lie fallow & they have to lay-off workers. The producers have over-invested, or invested in excess of market demand. Because of the lay-offs, consumers have even less demand, and so begins the recession.

    But why did producers over-invest? Why did they misinterpret the market-signals? Where did those artificial market signals, that there was savings in the economy come from?

    I assess that it occurred through state-sponsored central-banking. The creation-of-new-money to lend to the State gave the appearance of savings; the lower-interest rate by the central-bank's fiat-money-creation provided the incentive to over-invest. When producers realize their mistake, they down-size their operations to conform to actual market conditions; a recalibration.

    Does this answer your question sufficiently?