Economics as a Science?
INTERNATIONAL PHILOSOPHERS FOR PEACE CONFERENCE
Capitalism with a Human Face?
Radford University, June 25 to 28, 2004
The Lost Science of Money: World Peace through Monetary Justice
Why Philosophers Should Decertify Economics as a Science
By Stephen Zarlenga
It’s a great honor to address this group and I thank Professor Glen Martin … for inviting me.
What chance do philosophers really have to move the world toward peace? Maybe pretty good. You’re uniquely qualified to evaluate and expose the methods of what’s become a science of conflict – a body of presumed knowledge called “Economics” encompassing many assumptions, half truths and worse that has promoted the conditions for warfare. And while positive viewpoints are found among exceptional economists, such as Herman Daly, still the dominant corrupt interests assure that they rarely get aired, let alone enacted into public policy.
Therefore economics itself must be called onto the carpet and you Philosopher Kings, in Plato’s vision, can have a crucial role in bringing this so called “science of Economics” to heel. Your dominion is to determine what constitutes knowledge and evaluate the methods of gaining it.
As guardians of clear thought you could sound the alarm when economists don’t define basic terminology on which laws affecting billions of people are based. Laws which usually bestow more privilege on wealthy predators.
As referees of valid methodology you could raise bloody hell when an Austrian School economist claims his theories can’t be disproved by mere facts! Or cry “Foul” when they smear Benjamin Franklin, arguing that he supported paper money because he would be paid for printing it!
Philosophers could flash the pinball “Tilt” warning when economists engage in incestuous self congratulation, like the Swedish Riksbank with no connection to the Nobel foundation issuing the so called Nobel Prize in economics. And shout “Time Out” when some economists keep repeating the same arguments that have already been decisively shot down, rising like Zombies to harass mankind.
Not to mention the economists probable misuse of the mathematical equal sign.
In effect philosophers alone have the standing To De-Certify Economics As A Science, pending improvements in definition, methodology, purpose and focus of study.
On the positive side, give your own awards and honors … to those economists and schools whose work unequivocally supports economic justice and the plight of humanity.
If you were to do this in the philosophical realm and the Churches joined in from the moral sphere; legislative reforms become possible much more quickly.
THE SCHOLASTICS WERE MORAL ECONOMISTS
Not long ago – philosophy, religion and economics – were combined in one group – the Scholastics. Church philosophers including Aquinas who were deeply concerned with morality in commercial dealings. They focused on USURY, which was not merely taking interest. It was always permissible to take interest in certain ways, for example the Societas and the Census contracts. Venice used advanced financial forms for centuries without violating usury bans.
The Scholastics distinguished between earning interest, and the detested usury: USURY BEING A MISUSE OF THE MONEY SYSTEM FOR PRIVATE GAIN. Similar to the Islamic concept of Riba. Jeremy Bentham foisted the present misdefinition of Usury on us, as taking more interest than normal – again the importance of definitions.
The Scholastics’ mentor from across the centuries was Aristotle and they drew conclusions based on his work and on observation; but mostly on Logic; which is appropriate for moral questions. Aristotle was the bulwark against usury:
“The most hated sort [of wealth getting], and with the greatest reason, is usury, which makes a gain out of money itself and not from the natural object of it. For money was intended to be used in exchange but not to increase at interest. And this term interest (tokos), which means the birth of money from money is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of getting wealth, this is the most unnatural.” (1258b, Politics)
And that is why all those promoting usury from Bacon to Bentham found it necessary to attack Aristotle.
Now the Economists have kept the Scholastics’ theoretical method but they have ditched morality in favor of utilitarianism; despite their logical approach being more suited to moral issues. Today Economics primary effect is to justify forms of usury and to empower those misusing the world’s money systems.
HENRY GEORGE DESTROYED UTILITARIANISM IN ONE SENTENCE
Over a century ago the great reformer Henry George derided economics as:
“…a science which…seems but to justify injustice, to canonize selfishness by throwing around it the halo of utility…” (Study of Political Economy Lecture p. 6)
And he noted the purposeful corruption of economics:
“…a powerful class whose incomes could not fail to be endangered by a recognition…that what makes them…wealthy is…only robbery, must from the beginning …have beset (political Economy’s) primary step…” (SPE, 140; also see SPE: xxxviii; xxxix;134,and 138)
But except for brief periods in the 20th century (After the Great Depression) the major religions and even philosophers seem scared of the economists. That now changes as the future horrors awaiting society under this new Market Religion become more apparent.
A GREAT PART of the injustice wreaked by economics has been done with poorly defined monetary concepts. AMI offers six conceptual steps to monetary justice.
The 1st step is to accurately identify the nature of money.
The chief failure of economics is its inability, from Adam Smith to the present to properly define money. It’s still argued whether the essence of money is a concrete power in a commodity like gold; or a credit/debit issued by private banks.
Or as we conclude, is money an abstract social power – an institution of the law, having value because its accepted in exchanges due to the sponsorship of government.
IN DEFINING MONEY, METHOD IS CRUCIAL
We have two basic approaches to understanding money: A theoretical method based on logic; and an empirical approach based on experience or history. Practitioners of the two methods normally arrive at very different conclusions. Support for commodity money or private credit money tends to be based on theory, while Historians normally want a much larger role for government.
Alexander Del Mar the great monetary historian wrote “As a rule political economists…don’t take the trouble to study the history of money; it is much easier to imagine it and to deduce the principles of this imaginary knowledge.”
This over-reliance on logic and downplaying of the facts has worsened with students sidetracked into higher mathematics of questionable use.
Aristotle defined money 2400 years ago: “All goods must therefore be measured by some one thing…now this unit is in truth, demand, which holds all things together…but money has become by convention a sort of representative of demand; and this is why it has the name nomisma – because it exists not by nature, but by law (which in Greek was nomos) and it is in our power to change it and make it useless.”
So Aristotle identifies money as a creature of the law - an abstract social institution. Its essence is not tangible wealth, but a power to obtain wealth. This distinction between money and wealth is crucial.
Plato agreed with Aristotle and advocated fiat money for his republic:
“Then they will need a market place, and a money-token for purposes of exchange.”(Republic)
Both Aristotle and Plato noted the paramount principle – the nature of money is a fiat of the law, an invention or creation of mankind. This concept is part of a lost science of money which must be relearned as we enter the 3rd millennium if mankind is to move back from the brink of nuclear disaster, to move away from a future dominated by fraud and ugliness toward a future of justice and beauty.
Significantly, the term “nomisma” is seldom found in early Greek texts. It’s in Herodotus in the 400s BC, but not again until Aristotle, over a hundred years later. This concept of money was probably suppressed in an ongoing struggle between oligarchic forces – a kind of “old Boy Network” relying on personal relations, arrayed against public money, and the developing, more democratic, public sphere of the Greek Polis, which introduced and controlled the nomisma payment mechanism. (LSM, Ch. 1)
THE SECOND CONCEPTUAL STEP – realize that this “PRIVATE VS. PUBLIC” battle for the control of the money power is an ongoing social battle to this day. This struggle determines how well a money system works. A good one functions fairly; helping the society create values for living. A bad one obstructs the creation of values; places special privileges in some hands to the disadvantage of others; promotes unfair concentrations of wealth and power, and disharmony and social strife.
The concept of money – how money is defined – determines whether the system will be publicly or privately controlled. If money is misdefined as wealth, for example gold, then the wealthy will control the monetary System. And if you are only exchanging things, then you are still in the Barter stage.
Credit can legally be made into money, but it’s not itself money. Money is on a higher order than Credit. It is unconditionally accepted as payment. Credit depends on the creditor remaining solvent. Real money does not promise to pay something else.
Furthermore Credit expands when there is a tendency to speculation, and sharply contracts just when most needed to assure confidence. If money is misdefined as credit, then the bankers will control the system.
If money is correctly defined as an abstract legal institution then the society has a chance to democratically use the money system to promote the general welfare.
So there’s a great deal at stake in how money is defined.
THIRD we must see through a mythology of money created to keep the money power in private hands and not used for the benefit of the whole society. This mythology pretends that government has always abused the money power. Please Realize that this is a fiction; that Despite the current prejudice against government, the historical record actually shows that publicly controlled money functions better than private systems. This evidence goes back 3000 years.
HERE ARE TWO very ANCIENT CASES OF this monetary science from Greece and Rome reflecting Aristotle’s nomisma concept:
Plutarch describes Lycurgus 8th century BC monetary reform when Sparta’s wealth became overly concentrated. He banned using gold and silver and used iron slugs for money. Furthermore those iron pieces were dipped in vinegar while hot, to render them brittle and purposely destroy any commodity value that they had as iron! They received their value through legal sanction. This nomisma system lasted over 3 centuries and Sparta became a premier power. Polybius tells it faltered when Spartas involvement in empire reregressed her back to gold and silver money and they lost the science of money.
REPUBLICAN ROME based her money on copper, isolating herself from the East and “disenfranchising” the gold/silver hoards and therefore much of the power of the East. Gold could be traded as merchandise; but without the monetary power, the ability of the East to control Rome’s money was reduced and she had a better chance to control her destiny. Roman Nomisma, were bronze discs legally valued far above their commodity content through the law.
Rome won the Punic wars, but they destroyed her money system and she regressed to Eastern moneys- first to silver, and then Julius Caesar established a gold standard using the weight system of the ancient temples. The growth of plutocracy accelerated; wealth concentrated in its hands and the population degenerated into slavery. Adopting the East’s money caused power and even the Empire’s headquarters to shift eastward to Byzantium.
Economists misinterpreted this shift to gold and silver as progress when it was more likely a breakdown of an advanced nomisma system.
The breakdown of law and money operated negatively, one upon the other for centuries in a downward spiral of societal decay. The concept of money regressed to crude metallism and the science of money was lost again, especially in the West.
RECOVERING THE SCIENCE OF MONEY
The science of money was not fully recovered until the late 17th century in the American Colonies, where it was used successfully to benefit society. And concurrently with the formation of the Bank of England where it was misused for private purposes, spawning warfare and famine. America provides some of the best case histories to understand the science of money. We may go into one or two in the question period.
JUST HOW DID THE SYSTEM GET INTO THE PRESENT MESS? Largely through propaganda and constant undermining of economic thought.
THE FATHER OF ECONOMICS, ADAM SMITH, took a giant leap backward and obliterated any concept of money in the law, by defining money this way:
“By the money price of goods it is to be observed, I understand always, the quantity of pure gold or silver for which they are sold, without any regard to denomination of the coin.”
He regressed the concept of money backwards from being based in law, not just back to a level of unlimited coinage, but all the way back to pure metal by weight, where the concept of money was before the Romans arrived in England!
The Bank of England had advanced to abstract paper money 80 years earlier; not in theory, but in practice. Adam Smith regressed to commodity money, not in practice, but in theory. His theory applied to their practice caused confusion and created mystery to this day. (LSM, Ch. 12) Interestingly, Marx did no better.
What was Smith’s motive? Hard to say. Fredriech List tells us that while Smith was on his deathbed, he had all his papers burned so that no one could figure out his true beliefs.
THE FAILURE OF DEFINITION among economists is legendary. Malthus’ 1827 book Definitions In Political Economy pointed out that “It is quite astonishing that political economists of reputation should be inclined to resort to any kind of illustration however clumsy and inapplicable, rather than refer to money.”
And then a definition of money is conspicuously absent when he offers better definitions for 60 terms!
Today there is a high level campaign to actually remove the concept of money from the English language and substitute it with the concept of credit.
The FOURTH crucial concept is to understand that the attack on government, on society’s one organizational form capable of standing up against the plutocracy began with Adam Smith’s vicious attack on England.
We find that the modern 250 year attack on government originated largely in Adam Smith’s efforts to keep the monetary power within the Bank of England. Smith glorified the Bank and obscured its private ownership calling it as a great engine of state. He attacked English government issued money.
“A revenue of this kind has even by some people been thought not below the attention of so great an Empire as that of Great Britain…But whether such a Government as that of England – which, whatever may be its virtues, has never been famous for good economy; which, in time of peace, has generally conducted itself with the slothful and negligent profusion that is perhaps natural to monarchies; and in time of war has constantly acted with all the thoughtless extravagance that democracies are apt to fall into – could be safely trusted with the management of such a project, must at least be a good deal more doubtful.” (Adam Smith, Wealth of Nations; p.358 – in the Great Books collection, vol. 39)
Smith’s insulting attacks mark the modern beginning of a relentless attack on society – the belittling and smearing of its organizational form – government. The single organization potentially able to block plutocracy’s encroachments. Smith also inadvertently illuminates the major purpose of this attack: – to keep the money power in private hands.
Every day in America we see examples of how this disease has reached epidemic proportions. It has spread from Hayek and Ayn Rand to their intellectual heir Rush Limbaugh and his propaganda radio. Its not entertainment. Its even gone beyond politics and into treason.
HERE ARE THE INDICATED AMERICAN REFORMS, which will also automatically generate positive international results as well.
A) Nationalize the Federal Reserve System as the Bank of England was nationalized in 1946. Reconstitute the Fed within the US Treasury, to evolve into a fourth branch of government.
B)Remove the awesome privilege which banks presently have to create money, and convert all the credit money they have already created into real US government money. At the same time there is a way to turn all of the existing bank credit into real government money, with the banks paying interest on it to our government.
C)Provide for automatic, constitutionally determined government money creation, starting with the 2 trillion $ which that American Society of Civil Engineers tell us is needed to bring our infrastructure up to acceptable levels.
From there we go forward carefully determining how to best run the monetary system, and thoughtfully use Aristotle’s method,
we learn by doing.
Thank you for your attention.
FOR QUESTION PERIOD
The attack on government is serious enough, but it becomes really obnoxious when combined with THE ATTACK ON HUMANITY, as seen in
ADAM SMITH’S SELFISHISHNESS “ERROR”
Following Buckles lead, Henry George identified the false axiom on which Smith’s Wealth of Nations is based:
“Buckles understanding of Political Economy was that it eliminated every other feeling than selfishness.” Wherein Smith ‘generalizes the laws of wealth, not from the phenomena of wealth, nor from statistical statements, but from the phenomena of selfishness; thus making a deductive application of one set of mental principles to the whole set of economical facts. He everywhere assumes that the great moving power of all men, all interests and all classes, in all ages and in all countries is selfishness…indeed Adam Smith will hardly admit common humanity into his theory of motives.’” SPE, 89,90
Consider the negative impact on humanity of Smith’s selfishness assumption: Supporters of his doctrine argue that it is merely in harmony with human nature. But clearly, if Man is defined in such a base manner and systems of laws with their rewards and punishments are enforced along those lines, then over time, they will tend to create a form of humanity in “harmony” with their false conception of an economic mankind.
This de-evolutionary process, encouraging a lower form of humanity has been ongoing especially in the English speaking world for well over 2 centuries. The work of great English novelists such as Charles Dickens or great philosophers like Bishop George Berkeley may have slowed it, but didn’t stop it. Listen carefully to Dickens movie script. Henry George saw exactly where it would lead:
“Nor can we abstract from man all but selfish qualities in order to make as the object of our thought…what has been called ‘economic man’, without getting what is really a monster, not a man.” (SPE, 99) Ecco Homo – circa 2000!
George substituted a different concept for Smith’s destructive error:
“The fundamental principle of human action … is that men seek to gratify their desires with the least exertion.”(P&P, 203)
Then taking a giant step, he poetically described the essence of humanity-
THE “FORCE OF FORCES”:
“It is not selfishness that enriches the annals of every people with heroes and saints… that on every page of the world’s history bursts out in sudden splendor…that turned Gautama’s back to his royal home or bade the Maid of Orleans lift the sword from the altar; that held the Three Hundred in the Pass of Thermopylae, or gathered into Winkelreid’s bosom the sheaf of spears…Call it religion, patriotism, or the love of God – give it what name you will; there is yet a force which overcomes and drives out selfishness; a force which is the electricity of the moral universe; a force beside which all others are weak…I call this force destiny toward human nature – a higher, nobler nature than we generally manifest…And this force of forces – that now goes to waste or assumes perverted forms – we may use for the strengthening, and building up, and ennobling of society, if we but will…”(P&P, 463)