The false God - Economics
They’ve got it all wrong
In the “olden days” before economics became the false God that now dictates what can happen and what can’t, people used to ask, “Do we have enough ‘stuff’, and enough people, to do what is needed to be done?” Today the question asked is, “Do we have enough money and can we afford to do what needs to be done?”
This is not a new phenomenon, of course, but over the last couple of centuries it has been those demigods like Adam Smith, Jean Batiste Says, and the Milton Friedman’s who have misled everyone by ignorantly, or deliberately, ignoring the customer.
In finance and economics, in Government circles, everyone talks about “investors”, about “capital”, about equity, about share markets, bond markets, interest rates, and of course, “economic growth.” Everything seems to be conditioned on production, even the accepted measure for a nation’s wellbeing uses the Gross Domestic Product – the GDP, as its indicator.
Why is this so? Production is irrelevant if it isn’t going to be consumed. Surely, consumption is a far more important aspect of any economic cycle?
It is absolutely pointless to produce anything unless it is going to be consumed.
Everyone focusses on how to make a profit, but everyone seems to ignore the fact that every dollar of “profit” comes from consumption. It does not come from production. And as always – the customer is the consumer – and ultimately, the customer is always the people.
It doesn’t matter what the product or service is – whether it’s a bridge, or a bomb, or a bottle of milk, it is only going to be consumed if it is used by people.
A bridge is part of society’s infrastructure aimed at providing a service for the people. A bomb is the essential for killing and promoting war, and warfare is really just politics by another means. A bottle of milk is a symbol for supporting life, and that should be the purpose of any genuine Government.
Consumption is the single most important factor in every economy? It is what, virtually, every business is dependent on. And it is the factor that most Governments seem to have no genuine understanding of its importance.
Adam Smith came up with his mystical theory of an “invisible hand” to, somehow, always balance things out, so that an equilibrium will occur. Says came up with a theory that if you produce something the demand will, somehow, automatically appear. Neither of these soothsayers had any real concept of mass production, let alone the imagination to conceive of today’s toxic financial products that are capable of laying waste to every economy in the world.
Freidman, of course, was the preeminent advocate of the “free market” concept, claiming that a market untouched by regulation will always be self-regulating because, Smith’s “invisible hand” will make sure everything will balance out. He, probably more than anyone else, is responsible for the conception of those toxic financial products that are now, with a nominal value in excess of three quadrillion dollars, virtually, beyond the control of anyone.
What none of these demigods bothered to think about was, “Where are all the customers supposed to get the money to buy all the things that were produced?”
If they did think about it at all their answer would probably have been, “by working”, or “by borrowing from a money lender”.
What other choice did a customer have, unless he or she were born with “a silver spoon in their mouth,” in which case they sponged off their heirs?
But always, without fail, our demigods refused to address the question of, “Where does the money come from, who has the authority to create money, and what is the purpose for having a money system in the first place?”
The one and only purpose for having a money system in any society, is to create ‘something” that represents a convenient and acceptable medium of exchange.
Money is not a “store of wealth”. It is useless until it is exchanged for something that is needed, or wanted. Obviously, the more money one has the more choices are available, but the “richness” of life does not depend on how much money one has.
Provided the “token” used for money is universally accepted within the given society, and it comes with a guarantee that it is not a false “token,” it pretty much doesn’t matter what sort of token is used to represent “money”.
Essentially, a money system is a public service created for the benefit of the society. It allows the convenient flow of day to day trading throughout the nation. It is also an essential responsibility that the citizens of the nation choose to authorise their Government to provide.
The issue that is always avoided is, how do we get the purchasing power into the hands of the customer? It doesn’t matter whether the customer spends a million dollars or ten dollars, somehow, the money in a society has to get to the customer to balance the money on the production side, including the profit margin.
So far, the only universally accepted way has been for the customer to get a job, and to tie that debt noose around their neck. But, with advancing technology, and the mantra of “efficiency” and increased profitability, the job market is being eroded. When the history of the last 200 years is studied objectively, it becomes clear that the thrust of progress has been to produce more with less labour. The advent of the computer chip greatly accelerated the progress and the next step seems to be the application of AI, artificial intelligence.
So, for the last two hundred years, progress has been aimed at putting people out of work. It is an unfortunate fact that “work,” and borrowing, happens to be the greatest sources of “purchasing power” for the vast majority of people on this planet. If we are going to let AI take over even more of the “work functions” previously handled by people, how are the displaced people going to become customers?
It should be obvious to anyone that this ongoing drive to reduce labor costs and increase profitability, is a self-defeating exercise. This especially applies to cutting services to the people least able to gainfully acquire purchasing power.
Every dollar a Government spends directly contributes to the profitability for the “gamblers”, as in fact, is the correct term for “investors”. The economic and finance “experts”, and most Governments, simply don’t realise this. These “experts” who are still wallowing in the decrepit 19th century theories of Smith and Says, see Government spending as an “evil” thing that has to be reduced. They claim that any expenditure above whatever revenue a Government can extort, must be eliminated.
In truth, every independent nation automatically has monetary sovereignty. That of course, doesn’t apply to the Eurozone when the countries sold out their sovereignty to the European Central Bank. What monetary sovereignty means is that the Government of those nations has the sole authority, and responsibility, to create and issue their nation’s supply of “money”. In actual fact, there is no need for any such Government to resort to taxation. A monetary sovereign nation cannot go broke, it cannot become insolvent, and it cannot be bankrupted, and it really doesn’t have to borrow money from anyone. A monetary sovereign Government can always fund any program to which the people are prepared to allow their Government to commit itself.
Unfortunately, in today’s weird world of economics, everything is geared to financing production, marketing, publicity, distribution, infrastructure, but virtually nothing is focussed on financing the customer. Basically, the only approved way for the customer to gain purchasing power is to get a job and place a debt noose around their neck, while the Government taxes the hell out of them at every opportunity. It is a ludicrous situation, made steadily worse by automation, off shoring, and now, robotics.
For years we have been told there is no such thing as a free lunch, and the customer has been told, “If you want to eat, get a job and work for it.”
Finance and economics focus on supporting the gamblers, under whatever label they are given, whether it is an “investor”, an entrepreneur, or a start-up. The sole purpose of any and every commercial undertaking is always to make a profit. If there is no potential for a profit, nothing will be attempted.
One of the many unknown facts about Australia is that it is a monetary sovereign, self-governing Dominion of the UK. This status was bequeathed on Britain’s newly created and enlarged colony of the Commonwealth of Australia in 1900. It probably occurred quite unknowingly by the British Parliament, courtesy of Section 51(xii) and 51(xiii) of Clause 9 of their 19th century British Act. Despite the additional fact that the British Act is still in force and has never been repealed, no Government other than the Fisher Labor Government of 1911, has had the intestinal fortitude to make use of this magnificent gift. Andrew Fisher, with the persuasive support of King O’Malley, created the original Commonwealth Bank of Australia, as a wholly owned people’s Bank, to provide the bulk of the funding needed by the Government at that time. It survived from 1911 to 1923 when it was effectively killed off by the Bruce/Page Tory Government.
That is the one and only time in Australia’s history that we have had any politicians willing to stand up to the private banking cartels that now control Australia’s economy and Australia’s money supply.
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Should you be interested, a new book is about to be published titled, "Where to, Australia?"
This is a new and challenging book that is divided into two Parts - the first Part explains the reasoning and philosophy behind each chapter of a new and better political system that is contained in the draft of a new Constitution. The Second Part of the book is the draft Constitution itself.