Chaos-Onomics: Strangely Attracted to the Truth
chaos-onomics.com
Apr 9
It is impossible to understand the history of economic thought if one does not pay
attention to the fact that economics as such is a challenge to the conceit of those in
power.
...economic history is a long record of government policies that failed because they
were designed with a bold disregard for the laws of economics.
Ludwig von Mises
From the beginnings of civilization as we know it in the Tigris/Euphrates and Nile river valleys, economics has been the study of man's creation and use of the surplus generated by organizing his efforts. In those fertile river valleys massive surplus grain could be grown and used to trade. A leader's success or failure, as documented in the story of Joseph and the Pharaoh in the Book of Genesis, was dependent, in part, on correctly managing that surplus. While man has extended his economic vocabulary and thereby obscured most of the simple truths behind impenetrable thickets of jargon, the rules of the game haven't changed much in the past few thousand years, manage the surplus well and you stay in charge, let people think you aren't managing it well and you've got trouble. An able politician summed it up well a few years back, "it's the economy, stupid".
This basic observation of human relations, that in general and over the long term, growing societies will tend towards systems of political economy which produce the most, most efficiently, is sometimes lost in the study of the foibles of Kings and Caliphs and the new idealistic language of political movements over the past 200 years. However, even there, the drive for "freedom" or more accurately for our purposes, economic liberalism, in a sense can be seen as a reaction to a system of production thought inadequate for the wants (not needs which would be much easier to achieve in a material sense but much harder to ration in a political sense) of the people. The Cold War was, in a sense, the battle of two competing visions of surplus management systems.
Thus the call of The end of History by Francis Fukuyama when the communist system collapsed in the USSR and China started leaning towards a more free market approach. In his view, the perfect system of surplus management had been found. It is, I believe, this sense of completion of the evolution of a political model which lends certain elements of our leadership an air of certainty. Unlike Fukuyama, I don't think the current US model will prove (has proven) particularly utile for the world as a whole as the lack of perceived competition leads to excesses by those in charge, as evidenced by rising corporate malfeasance in the 90s. My partner on this site and good friend Stephen Plant and I sometimes refer to the "Italian marble syndrome" as a sign of trouble. In our careers on Wall St every time we saw a trading firm move from modest surroundings to more plush offices, particularly when the Italian marble was laid in the foyer, problems were almost sure to mount. In that sense the mansions of, for example, the Tech CEOs like Ellison and Gates, represent the "Italian marble", a sign that profits, the moneyed quantification of surplus, are being squandered.
As you might guess from my writings, I don't think we have found the perfect system of surplus management or even if such a system, once instituted would persist without decay. While the elastic money system of most modern Central Banks provides a tool for bringing forward some of the effects of future production, extending the effects of credit to a whole nation while keeping the management thereof in few hands, thereby giving those leaders who used it a great competitive advantage, ultimately economics is still the same game that the Egyptians faced, meeting the material wants of the people. Thus when I wrote of the excited state decaying into a ground state a few days ago, my point was that fiat money systems unchecked by competitive pressures, such as occurred during the 90s, weigh on the system of surplus management, in the form of debt, making it less efficient at sharing the wealth. This should lead (and has already) either to competition in the form of the Euro, which will once again act as a check and balance or preferably, from my perspective, a hard and honest money standard.
As I sit typing these closing lines, watching the pictures of US forces in Baghdad, I wonder just how efficient the new system will prove to be. Saddam's many palaces speak of excess and the wants of the people being depressed. Hopefully, the new leaders will prove more adept at managing the oil surplus and those wants, I imagine that was their bet all along. Unfortunately, just as in Afghanistan, the locals just don't know when to quit. If too much surplus management goes into fighting the rebels, and generating "good will" among the newly converted, then, in an economic sense, the "investment" (ah the lovely ways economists can euphemize war) might not prove profitable. |
