Changing the economy, changing the paradigm
The power and complexity of modern economic systems, with their financial flows, distribution networks, supply chains and production processes, can no longer be understood by the linear deterministic thinking inherited from the 19th century. Growth is in the genes of the global economic system. And yes, this is a difficult time, however it is also a time of great opportunity.
To get a better understanding of the current situation let’s have a look at some key economical characteristics.
1. The paradigm of the economy
Neoliberal
Neoliberal economics is characterised by lower taxes, central bank independence, free trade, open borders and deregulation. It takes place within a monetary framework where gold is replaced by the dollar as the single reserve currency.
Neo-liberalism took over from Keynesianism and it is characterised by greater freedom for markets, finance, and business, as well as greater flexibility of labour and social protection. Competition is intended to be a driving force for innovation and the state is called upon to play a role in creating a favourable framework for the development of private enterprise.
Keynesian economics
Keynesianism is an antidote to neoliberalism and was born in the late 1930s and early 1940s. It was named after Keynes, who saw an economic crisis caused by the banking crisis. Keynesian economics is characterised by a greater state intervention in economic affairs. This is the case, for example, of the policies of recovery through public spending and social security.
If neoliberalism advocates the virtues of the market, Keynesianis advocates the virtues of the state. If neoliberalism is optimistic, Keynesism is pessimistic. Neoliberalism wants to liberate market forces, while Keynesianism says it wants to defend the weak.
According to Keynes, economic policy is an essential factor for prosperity and employment. The role of the state is to stimulate investment, consumption, and employment, which is “aggregate demand”. The state must therefore have the financial room to manoeuvre to be able to spend and boost economic activity.
In the Keynesian system, three periods can be distinguished: the investment, the consumption and the savings period. For Keynes, the actual real question is whether one can avoid the actual “shocks” that trigger economic crises.
Because according to Keynes, crises are initially caused by exogenous “shocks”, which can be climatic, geographical, political, social or financial. But they can also be caused by endogenous “shocks”, which are shocks internal to the economy. They result from the volatility of the expectations of economic agents.
However, for Keynes, economic crises are not new, they have always existed. The “Great Depression” of 1929 is probably the most famous, but there are many others. And for them economic crises are cyclical phenomena. They have always existed and will always exist unless we find a way to prevent and avoid them.
2. The world economic crisis was inevitable
The world economy has reached such a level of development that it cannot continue without crises. Economic crises are inevitable and that is a fact.
The economic crisis of 1929 was due to the intervention of all the world’s central banks to prevent commercial banks from failing. In doing so, the central banks contributed to increasing poverty and prolonging the actual crisis. But they had no choice: they had to contain the effects of the stock market crisis on the whole economy.
All central banks in general have the same attitude and that is why the 1929 crisis persisted for years and did not end until other crises occurred.
But also, it is certain that central banks intervene to prevent commercial banks from going bankrupt. Otherwise, they would be devoured by their creditors. The failure of a commercial bank causes a decrease in the money supply and therefore a decrease in production and consumption.
This is the cause and why the economic crisis persists and it’s a price to pay for the intervention of central banks.
The German economist Silvio Gesell wanted to fight inflation by introducing a tax on things that wear out quickly, in order to reduce money circulation.
But this tax is ineffective in preventing capital accumulation. Experience shows that when the interest rate falls, there is no longer a limit to the demand for credit. When loans are at low interest rates, capitalists lend at high interest rates. The demand for credit becomes colossal, and this until the interest rate rises again.
While Gesell’s aim was to reduce the demand for credit in order to lower interest rates, the opposite effect occurs. However, one should not forget that the realisation of investments is conditioned by the accumulation of capital, to do this one must lend. If you don’t lend, there is no investment, and that’s the main problem.
Banks are obliged to lend to companies that apply for credit. Companies buy capital and labor but cannot deliver the goods to the market, so they lend the goods to other companies, which respond in the same way and so one. We are thus witnessing an increase in the demand for credit. This is a well-known phenomenon: monetary credit produces inflation: Banks only lend resources that exist in society. Credit produces money, and banks lend out money that they have not created. Thus, credit is a source of inflation.
3. The world’s political and economic leaders have failed to regulate the monetary system.
One reason is that the actual problem is not understood.
The current monetary system is based on the credit of money, which is money generated by private banks. It has not been regulated because credit is a source of crisis. When interest rates rise, there is a financial boom and inflation. When interest rates fall, there is an economic slowdown and recession.
And where is the stability and security?
Stability cannot be found in a system based on money created by private banks that make profits through credit. However, a monetary system based on gold would regulate crises.
Indeed, the problem with the current monetary system is that private banks are able to create money. The solution is to introduce a monetary system that does not rely on the creation of money by private banks, but on the creation of money by a central bank based on gold. Further a monetary system based on gold has already been used for centuries.
The gold-based monetary system was used by nation states from the Middle Ages to the end of the 19th century. And it was abandoned when private banks took over.
So, it is fair to say that: Gold is not a source of crisis and recession. But a source of stability and security. Therefore, a monetary system based on gold is more equitable.
As a gold-based monetary system would not allow private banks to anticipate their profits by creating money. These are the practices that overall lead to crises and recessions. Furthermore, the gold-based monetary system would not allow the creation of inflationary debt. This inflationary debt is the actual cause of the current crisis.
What are some of the key aspects of a gold-based monetary system?
It does not generate profit; it preserves the interest of all citizens, and it does not generate injustice.
We could stipulate that the current crisis is a crisis of confidence.
3. The world’s political and economic leaders have failed to regulate the monetary system.
One reason is that the actual problem is not understood. The current monetary system is based on the credit of money, which is money generated by private banks. It has not been regulated because credit is a source of crisis. When interest rates rise, there is a financial boom and inflation. When interest rates fall, there is an economic slowdown and recession.
And where is the stability and security?
Stability cannot be found in a system based on money created by private banks that make profits through credit. However, a monetary system based on gold would regulate crises.
Indeed, the problem with the current monetary system is that private banks are able to create money. The solution is to introduce a monetary system that does not rely on the creation of money by private banks, but on the creation of money by a central bank based on gold. Further a monetary system based on gold has already been used for centuries.
The gold-based monetary system was used by nation states from the Middle Ages to the end of the 19th century. And it was abandoned when private banks took over.
So , it is fair to say that: Gold is not a source of crisis and recession. But a source of stability and security. Therefore, a monetary system based on gold is more equitable.
As a gold-based monetary system would not allow private banks to anticipate their profits by creating money. These are the practices that overall lead to crises and recessions. Furthermore, the gold-based monetary system would not allow the creation of inflationary debt. This inflationary debt is the actual cause of the current crisis.
What are some of the key aspects of a gold-based monetary system?
It does not generate profit; it preserves the interest of all citizens, and it does not generate injustice. We could stipulate that the current crisis is a crisis of confidence.
4. Has globalisation changed its face?
It is now the globalisation of debts, losses, and risks, as well as remuneration and profits.
And it is also the globalisation of capital and labour, which has no borders and no state.
Globalisation is now a business.
So why do we not understand that this ‘crisis’ is not only financial? How can we fail to understand that the ‘crisis’ is in fact a data revolution of the world economy?
We are currently witnessing a transformation of capitalism, free trade, and globalisation. And the fact is that the current crisis is a crisis of regulation by the state and by the financial markets, as well as the general markets.
If we want to go even a step further it is a crisis of regulation by the United States, by Europe, by international financial institutions, by globalisation, by profits and private interests.
Today we are at a pivotal moment. This current crisis can lead to the regulation of the state, the market and the financial markets, and therefore to a new globalisation: a social and political globalisation. This new globalisation will not be free trade, nor free movement of capital, products, and goods. It will be a globalisation of laws such as: labour law, trade law, tax law, commercial law, and investment law.
The crisis may also lead to the end of the nation state, to a globalisation without nation states, but instead a globalisation of the domination of private companies and financial markets. It can even lead to the end of social and political democracy in European nation-states and in the world.
The future of democracy and globalisation is at stake in this crisis. The solution to the problems arising from this crisis can only be political. It can only be a return to social and political democracy, to popular sovereignty, to the nation state.
The events of recent years have shown the importance of democracy. It is a way of life, a form of social organisation that allows everyone to live together and flourish in its own respective way.
