Towards an economic theory of capitalism - MACRO supply and demand

This afternoon I discovered an interesting publication on the web entitled 'Tragedy and Hope - A History of the World in our Time'. It was published in 1966 by professor Carrol Quigley (an American historian and theorist of the evolution of civilizations) who taught at Georgetown University in the US in the 1960s and is reported to be a mentor for former US President Bill Clinton.

Within the pages of 'Tragedy and Hope' Quigley has articulated an essential aspect of the behaviour of money versus goods between geographical areas in the capitalist context:

“Capitalism, because it seems profits as its primary goal, is never primarily seeking to achieve prosperity, high production, high consumption, political power, patriotic improvement, or moral uplift. Goods moved from low-price areas to high-price areas and money moved from high-price areas to low-price areas because goods were more valuable where prices were high and money was more valuable where prices were low. Thus, clearly, money and goods are not the same thing but are, on the contrary, exactly opposite things. Most confusion in economic thinking arises from failure to recognize this fact. Goods are wealth which you have, while money is a claim on wealth which you do not have. Thus goods are an asset; money is a debt. If goods are wealth; money is non-wealth, or negative wealth, or even anti-wealth.”[*]

In these times the truth of the above statement appears obvious. Cheap goods are definitely moving from low-priced areas in China and South East Asia (in particular) to fully-industrialised nations where they fetch a much higher price. Money, in the form of capital, has been flowing out of the rich western nations and moving to the 'low-priced areas' around the globe.

The trouble is, that although Quigley's theory has the strong ring of truth to it, his theory contradicts the basic micro-economic theory of supply and demand. Foundational economic teachings have made it clear that it is the demand for individual goods that are impacted by price level, and that the price level is (largely) set by the level of consumer demand. However, Quigley writes about a wide range of goods in a particular geographic areas and not about any particular good.

I assume, therefore, that Quigley is implying that international currency manipulation is a key part of the operations of the world capitalist system. A low value for domestic currency makes goods (and services) cheaper for international buyers, and vice versa.

Capitalism's foundation therefore must rely on processes of unequal exchange where the 'price mechanism' for goods is largely determined by the relative value of the currency they are purchased in.

"It is quite impossible to understand the history of the twentieth century without some understanding of the role played by money in domestic affairs and in foreign affairs, as well as the role played by bankers in economic life and in political life" is Quigley's understatement.

Deregulation did not turn out to be 'no regulation' after all. It appears to have simply meant leaving the management of the world economy largely to the whims of a global and organised cartel of private banks (ie the central banks).

"The power of the State must be invoked for restoring economic freedom just as it has been invoked for destroying economic freedom."
Hilaire Belloc, The Restoration of Property, 1936

REFERENCES:

Quigley ‘Tragedy and Hope’ 1966. http://sandiego.indymedia.org/media/2006/10/119975.pdf

Also see:

Finance leaders fail to resolve currency dispute

Martin Crutsinger, Saturday, October 9, 2010, Associated Press

http://www.activistpost.com/2010/10/finance-leaders-fail-to-resolve.html

Forest Conservation and the Rise of the 1%

Over here we have debate on the decades-long upsurge in inequality, fueled by the increasing share of income going to the top 1%.  Over there we have the politics of forest prevention, specifically the push by the state of Colorado to weaken roadless protection in order, among other things, to try to suppress forest fires.  What’s the connection?

The main purpose of the roadless areas directive is to keep land available for wilderness designation.  The guiding philosophy of wilderness is that large swaths of forest, desert and other ecosystems need to be left alone to provide the sort of habitat, recreation and research that can exist only in the absence of large-scale human interference.  Keeping out roads is a way of putting a ceiling on that interference.

One aspect of wilderness is permitting a natural fire ecology.  Periodic fires are part of the system, so they should be allowed to burn off excess fuel and permit the rotation of tree species.  (Fire-resistant species thrive in the wake of a fire but are eventually displaced by more susceptible competitors, until another fire begins the cycle again.)  The expectation has been that more of these smaller fires will reduce the number of monster burns.

It hasn’t worked out quite that way.  One reason is climate change, which is slowly redrawing the ecological map of North America.  Some land that used to be forest is destined to be savannah or even drier, and fire, abetted by disease, is often the agent of change.

But something else has happened, much more rapidly: large numbers of the newly rich have chosen to build their second (or nth) homes in remote areas of Colorado, Wyoming, Montana and other mountain states.  They like the magnificent vistas and opportunities for recreation provided by public lands, as long as they can own their own private chunk next door.  Naturally, they have the means to fly back and forth, so distance is not a problem .

What is a problem is fire.  Even the small fires envisioned in wilderness philosophy threaten their lovely dachas.  In remarkably bloodless language, the Times summed up this dynamic:

But he [Glenn Casamassa, a US Forest Service supervisor] said the West, and maybe Colorado in particular, has also changed significantly in the intervening years. More people are living near national forests. An outbreak of pine-killing bark beetles that has its epicenter in Colorado and several major fires over those years that roared out to touch the edge of urban life have also changed thinking about intervention in the wild.

And that’s how it is.  If a proposed financial regulation runs afoul of the 1%, out it goes.  If closing a tax loophole brings their rate up to everyone else’s, no go.  And if wilderness gets in the way of their weekend getaways, then this requires “changed thinking” among forest managers.

Plutocracy does have consequences.

Would President Gingrich Hire Christina Romer as Economic Advisor?

Christina Romer presented an excellent discussion on the effects of fiscal policy with this closing line:

The one thing that has disillusioned me is the discussion of fiscal policy. Policymakers and far too many economists seem to be arguing from ideology rather than evidence. As I have described this evening, the evidence is stronger than it has ever been that fiscal policy matters—that fiscal stimulus helps the economy add jobs, and that reducing the budget deficit lowers growth at least in the near term. And yet, this evidence does not seem to be getting through to the legislative process. That is unacceptable. We are never going to solve our problems if we can’t agree at least on the facts. Evidence-based policymaking is essential if we are ever going to triumph over this recession and deal with our long-run budget problems.

Gingrich isn’t exactly known for seeking reality based advice, which is why this stunned me:

Newt Gingrich said Sunday that an “age of austerity” is the wrong solution for the economy and would “punish” the American people. He said he prefers “pro-growth” policies instead. The comments appear to pour cold water on the modern Republican belief that austerity and growth go hand in hand.

I just wish we could take the latest from Newt seriously!