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A Step Toward Fiscal Sanity

(A Little Less Speculation, PLEASE!)



“Professor Plank of Berlin, the
famous originator of quantum theory,
once remarked to me that in early life
he had thought of studying economics,
but had found it too difficult!…”

John Maynard Keynes (Biography of Alfred Marshall)



“I happened to sit next to Keynes at
the High Table of King’s College a
day or two after Plank had made this
observation, and Keynes told me of it.
Lowes Dickenson was sitting opposite.
'That’s funny,’ he said, ‘because
Bertrand Russell once told me that
early in life he had thought of studying
economics, but he had found it too easy’!”

R. F. Harrod (Life of John Maynard Keynes) 1



I have talked a lot about how our world is really a world defined by each of us. That nothing exists according to immutable facts, but really by interpretation and an important thing called viewpoint. Nowhere is this more apparent than in the world of finance; and that is what this essay is about: how we can shape our own world, to benefit ALL of us.

The hardest things to understand are the things we ourselves create.

Perhaps that’s why one of the greatest Scientist of our time (Max Plank), who cracked Nature’s most intimate secrets, found the science of money so difficult to fathom; or why, on the other hand, Bertrand Russell, who discovered the flaw that threatened to topple mathematics 2 , found that very same science so mundane.

Economics is not Nature’s child, but our own. Perhaps that’s why, to put it in the crude vernacular so common today: “it’s so screwed up”!

Take for instance, the concept of money, the root of all evil; now that’s probably the hardest thing to understand in economics, simply because we ourselves have created it. 3

Let’s start out with an example. Suppose I hired a couple of carpenters to rebuild my house, and I paid them by the hour to do it. One carpenter used the standard ruler to help him take his measurements, and cut to size the wood; in a week he rebuilt my porch.

The other used a special ruler that changed its size every time he took a measurement. After six months he was able to get two boards nailed together! Obviously I had to let him go!

Yet this crazy idea of having a measuring stick that changes its measuring unit every time you look at it, is exactly what our economic system uses in its measuring stick, money.

Money is at the core of economics. A College discipline that goes about it’s science (sic), with a measuring stick made of silly putty; the supposed “monetary units” that change their value according to supply and demand, while what they are measuring is doing the same thing. And economists wonder why they can’t predict anything, let alone keep the whole thing from collapsing.

The whole discipline centers around a concept called value, which to this day no one seems to fully understand; even worse, all economists seem to have a different idea of what it is, according to the school they graduated from. 4

Marx 5 thought the proper underlying value was labor; Jevon’s 6 a thing called 'utility'. But what does value do? Well, that’s not hard to figure out: it allows one commodity 7 to be compared with another; or even more importantly equated with other commodities; it is a measuring stick for all commodities; or a unit of measure, just like the inch or the pound. It allows a price, determined by the supply and demand of the markets, to be affixed to a commodity, which is on a par to everything else being bought or sold in the marketplace. 8

Yet, only in economics does this measuring stick itself vary with the supply and demand itself accrues. Therefore, the measuring stick changes its value just as the items it is measuring change their value according to how many people need them at that time, or how many of them are around at the time.

Now I ask you why? This system isn’t God given; and not even Nature would dream up something so stupid. Only man could dream up such a farcical way to do something so simple and easy. But the huckster isn’t stupid, just greedy! That’s why he has to make something easy, hard; so he can con his way to a profit over and above fair market dealings. 9

That’s why values (in the guise of motivations) do make a difference when dealing with market values; because the whole system was made around the greedy values of those who were out to make as much as they could, without having to lift an extra finger in work. Why work, when leveraging ownership is so much more lucrative? 10

So not only commodity markets exist, but also monetary markets. And the flexible measuring stick was born, as another avenue to confuse and obfuscate, society out of its wealth.

But does it have to be this way? Of course not! We create the rules, because the system can be any way we make it. We can have a single fixed international value, called money, to measure our commodities, that retains its value because it itself is not a commodity that is bought and sold. It will reduce speculation and fraud; and it will bring sanity to the marketplace.

We can bring economics a step closer to being a science, instead of an elaborate guessing game where the world teeters on every decision the stock markets make, and eliminate the double whammy of units of value that are under the control of speculation, and how many of them are available at the time. Let there be but one international, and inflexible monetary unit that is not itself bought and sold in its own market. 11

Let’s take a step toward fiscal sanity, and stabilize the instability of multiple monetary units, by eliminating monetary markets that buy and sell our monetary standard of measure!




FOOTNOTES

To return to note's origin click the footnote number at left



1 The above quotes are taken from Volume Two of “The World Of Mathematics”, by James R. Newman, Simon and Schuster, New York, 1956.



2 He discovered the logical error, named after him, Russell’s Paradox, that showed a grave flaw in set theory, a theory that is essential to pure mathematical studies.



3 In Chapter XIII of his book: “The Logic Of The Sciences And The Humanities”, by F.S.C. Northrup, Macmillan Company, New York,, 1948. F.S.C. Northrop concludes that a theoretical economic dynamics is impossible; in other words, any predictive system that tries to predict the future state of the system is doomed to failure because:

1. An accurate state of the system at any point in time is not possible.
2. No conservation law for the system exists (it's an open system).

Since an accurate state for the system cannot be verified, or even defined; and the system is open, no predictive scheme of any kind is possible.



4 This fact itself shows that value does center on “values’; not measuring values, but prejudiced feeling values after all, although all “Worldly Philosophers” will swear that the two are irredeemably inseparable.



5 See: "Capital" Volume 1, by Karl Marx, Penguin Books, England, 1990. Marx believed that classical economics would finally collapse, due to imbalances, caused by monopolistic distortions of free enterprise. Todays gyrations in the economy may be proving him correct.



6 See: "Theory of Political Economy" by William Stanley Jevons. One source is : “The World Of Mathematics”, see Footnote 1 above for full reference.



7 I am using the simplest definition of “commodity” here, something bought and sold that has what Marx called a “use value”. In other words, it has a capacity to be needed, and therefore becomes a saleable offering in the marketplace.



8 The first money and all succeeding money was a commodity itself, until a few years ago; a precious metal like Gold and Silver. We now use paper money (fiat money), but already people (one group is the Tea Party) worried about the recession and possible default of government loans, are hoarding precious metals as a hedge against runaway inflation, after government default. Thus money as an actual commodity is trying to make its way back fuelled by speculators.



9 See my essay: “The Difference Between ‘What is Right’ and ‘What sells’”



10 Capitalism is all about Capital, wealth, and who owns it. Just think about this every time you pump some gas at the gas pump and see the price wheels turning so fast as your hard earned money is filling the oil merchant’s tank, just because he owns the tank! I’m inclined to think of the phrase my old mother used: “A racket within the law!”



11 For the logicians in the audience: Bertrand Russell showed that set theory could be made consistent if axiomatized through doing away with the “extraordinary” set that allowed itself to be a member of itself. You will recognize this as Russell’s paradox; the paradox that shook the world of mathematics, and showed that consistency is not easy to prove, or produce. Making money itself a commodity, may well be an example of this in the world of economics (if they ever figure out what value really is). However apart from this, just giving money a little more stability as I point out in this essay is a worthwhile enough goal, in this fiscally fragile world we now inhabit.

[Added 3/2/2011]
You might say the economic form of Russell’s paradox is this very thing: Why a commodity’s cost varies according to where it is made, regardless of supply and demand? The answer is simple, monetary markets; they keep the money, or labor, or utility (the intrinsic value) of a commodity different according to location, because the value of the money is different from place to place. In essence what this says is that a commodity’s value is more, or less, according to where it is made; or, that human labor is not all the same, but varies from country to country. This is the basis of “the third world”, or the world of cheap labor, slave labor. Did we really abolish slavery? Monetary markets are keeping it alive, and threatening to destroy the developed world, because the way to riches is sending all your labor needs to a country where the monetary units keep the labor there cheap, compared to the place where you will sell the commodity itself; more “racketeering WITHIN the law.” Even more they put the world under the thumb of speculators bent on making a profit without having to lift a finger in work; speculation that is trading today’s economic stability for the purpose of self-gain. So who says that economic value is not itself created by good old fashioned human values, and not even good ones at that?









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Originally Published:

May 21, 2011

Revised:

July 25, 2014