Our favourite billionaire Hugo Salinas Price is back with a run down on all that is wrong with main stream economics.
As always he puts his point across in an easy to understand manner showing what is wrong with using the definite principles of physics in trying to explain human action in economics…
Our world is approaching a financial tipping-point, which may be only months away. When we do reach the tipping-point, the financial collapse will be vast in its destructive consequences and in a matter of a few days our world will change beyond our power of description.
The shadow of the approaching new reality is upon us and we can already perceive its outlines; this allows us to talk of our civilization in the past tense.
Professor Joseph A. Tainter, of the University of California, wrote a most interesting book with the title “The Collapse of Complex Societies”. In brief, the message of the book is that all societies have a habit of organizing themselves, and at a certain point, more and more organization makes them increasingly less attractive to their members. People then begin to leave their native societies and seek out other places to live; or else they lose heart and become unable to defend themselves from less-organized invading barbarians.
Undoubtedly, Tainter’s perception is valid. Most of our world is now very much “over-organized”. Thinking people everywhere are worried and uncomfortable and looking for places where they may find some refuge from the unreasonable exactions of their over-organized societies. The trouble is – where do you go? There are a lot of very peaceful islands out there, excellent places to spend a vacation, but – who really wants to live in “Bali Hai”?
However, there is much more than “over-organization” underlying the present dire situation of our world. It’s not only a question of too much government. A powerful spiritual change has come over humanity. This spiritual change began at the birth of the Age of Science, in the XVIIth Century, when the Englishman Francis Bacon established the rules for the successful investigation of the physical world, known as the scientific method.
The scientific method involves controlled experimentation. When a constant result is observed in controlled experiments, then the scientific method proclaims a scientific truth. Thus, it is a scientific truth that a raw chicken’s egg, placed in boiling water at sea level, will be a hard-boiled egg in 12 minutes.
The scientific method met with huge success, so much so that now humanity has been able to send men to the Moon. Indeed, the trouble is that the physical sciences have been so successful, that today their methodology is being applied in fields that are completely inappropriate for such methodology. Specifically, we refer to “Mainstream Economics” – the “Economics” that is taught today at every single prestigious university in the world.
“Mainstream Economics” is the child of Physics, and it looks and walks and talks like its parent, Physics:
First of all, the central fallacious concept: “The Economy“:
In Physics, when we say “The chicken’s egg” we know exactly what we are talking about. But when mainstream economists talk about “The Economy” each economist, when pressed to do so, will give a different version of what exactly is “The Economy”. So right there, the fallacies take their start. What these “economists” think they are talking about, could probably be stated as “The economic activity of a group of humans who live within the borders of X country.”
But how do our mainstream economists define “economic activity”? They say that economic activity is activity that involves an exchange of money, or perhaps of credit, and thus by definition, economic activity has to be denominated in a number of units of money. Thus, all human choices that do not require the use of money escape the attention of the mainstreamers, because the use of money involves numbers, and numbers are the essence of mainstream economics, as they are of its parent, Physics.
What could possibly be said about an “economy”? About its humans and their activities, in terms of numbers? The application of numbers to a national group of humans, with any hope of arriving at any truth, is utterly impossible.
Numbers may give us an approximation of what is going on in a country, but certainly nothing more. As an example, Mexico is a country with a large number of poor people – perhaps a majority of the population. The “economists” and their buddies, the politicians, lament this undesirable situation and are always promising to do something about it – and that something invariably ends up lining the pockets of the politicians with money extracted by taxation. However, notwithstanding the numerous poor people in Mexico, international polls have shown that Mexico has one of the happiest populations on earth. You see, mainstream economics counts numbers, whereas the polls have registered what is in the hearts of the Mexican people, and you can’t put a price upon the satisfaction of the heart.
Here are some of the babblings of these children of Physics, mainstream economists who apply terms appropriate in physics to human activities:
Terms of temperature, to measure physical heat:
“The economy is [warming, growing warmer, hotter, too hot] ”
“The economy is [cooling off, frozen]”
Terms of speed, to measure physical motion:
“The economy is [decelerating, accelerating, speeding up, slowing down]”
“The velocity of money in circulation”
Terms of mass, to measure physical objects:
“The economy is in [contraction, expansion]”
Terms of physical state (gaseous, liquid or solid, in traditional Physics):
“The demand for [Bonds, Stocks, Commodities] has evaporated.”
“Market for [Bonds, Stocks, Commodities] is in liquidation.”
“The dollar is a solid currency.”
Where the babbling becomes utterly disconnected from any human reality is when the variables are assigned quantities, just as variables are quantified in Physics, and are then combined in mathematical functions to produce indecipherable equations.
Mainstream economists love equations, they adore the simplicity of E=mc2.
But human activity does not operate on the basis of equating one thing with another, it operates by choosing between what is preferable and less preferable, in other words, not by equating things, but by differentiation in power of satisfaction.
The mainstream economists wave equations and their derivatives, graphs, before the eyes of the uninitiated; they claim superior knowledge and become candidates for ascent into the realms of high finance and Central Banking.
The graphs become so important to mainstream economists, that the big economists in Europe have come to regard graphs as reflecting a reality, and if a graph shows that interest rates have declined to zero – well, why not sub-zero interest rates? After all, in Physics, we have temperatures above zero and below zero, so why not have interest rates below zero, as well as what is customary, above zero? Mainstream economists think of their craft as branch of Physics, and are thus dedicated to the control of Society for its own good as good engineers. And so we have the total madness of “Negative Interest Rate Policy” (NIRP).
One of the fundamental elements of mainstream economics is the numerical calculation of a nation’s activity. This preposterous attempt at quantifying, or putting a number on the total human activity of a nation is called the “Determination of GDP, or Gross Domestic Product”.
The silliness of the pseudo-concept of “GDP” becomes quite clear when we see that recently, English mainstream economists arbitrarily decided to improve the numbers they provide to the politicians, and increased GDP by including previously excluded activities, such as incomes from pushing drugs or from prostitution. Next thing you know, they will be assigning prices to the work of housewives in cooking meals, in doing housework and making love with their husbands, by using the average prices for meals (whatever that means) and the wages of housemaids, and the price for hiring a prostitute, and putting all that together to find a numerical price for the activity of a housewife. Multiply by the number of housewives, and you get a number that can be added to GDP. Why not?
The error of displacing Quality, and the preferences which quality of comparative satisfaction gives rise to, and introducing Quantity into human affairs, when it belongs to the realm of Physics, is born of the spiritual decline of humanity. In essence, the flight from Quality is the denial of the existence of Spirit in human beings, whence is born the capacity of each human to value. The mainstream economists, as such, consider humans as simple machines which consume or produce, and treat us as such, in their specious formulas. The valuations or preferences of flesh and blood humans are disregarded because numbers cannot be assigned to them.
Since “Mainstream Economics” is only a sham science that imitates the methodology of Physics, it turns out that “economists” – at the Fed, at the ECB, and at every Central Bank in the world – in fact do nothing “scientific” at all; they do nothing more than impose upon whole nations their own personal value judgments while they destroy the free markets, that are truly impersonal.
The “New Austrian School of Economics”, as presented by Professor Antal E. Fekete on his website, www.professorfekete.com, is true Economics. Based on the original thinking of Carl Menger, the founder of Austrian Economics, this school rigorously avoids the error of following the methodology of the Physical Sciences. Our present “mainstream economics”, like Physics, uses Numbers, as opposed to the “New Austrian Economics” which is based on Principles of Logic. Unfortunately, both the “Austrian Economics” of Ludwig von Mises and the improved “New Austrian Economics” of Fekete are quite out of favor in academic circles today.
“Mainstream Economics” imitates the methodology of Physics because of the enormous prestige that has accrued to Physics over the past four centuries, and is thus leading the world to an economic, political and social collapse which will mark the end of an Age.