Monday, April 20, 2015

If All America Only Knew What Some Americans Used To Know ... We'd Never Have To Worry About Our Deficit In Fiat

   (Commentary posted by Roger Erickson)
Please America, listen up.

You can't miss this illuminating summary of Marriner Eccles found ... of all places ... buried in a neglected college textbook!
pp: 504-557 in

I'm only part way through, but it's a bombshell of observations driving home the point that what some of us know can be totally neglected by the bulk of us ... for multiple generations! Early on it quotes Shakespeare's Polonius, and just keeps getting better.

This fascinating book-chapter carries common sense to new heights, and skirts on the edge of multiple system sciences, and even all the way out to pseudo-religions like orthodox macro economics.

Let's start with Polonius. "By indirection, find direction." That's meant as a sly double-entendre in a Shakespeare play, but it's used as a direct, methodological insight in this book chapter. It's also remarkably similar to a famous IBM mantra about software development: "For every intractable problem ... there is a solution, and that solution will involve another level of indirection."

Who knew that every single organizational task facing growing aggregates - including the organization of currency systems - involves re-organizing to employ expanding levels of indirection? Only people considering autocatalysis?

Maybe we should just abandon the old class-based or "Royal" approach to economics as methods by which elites manage the rubes? That's Central Planning by any other name. Let's just throw out economics, and replace it with the more fundamental approach of ecological autocatalysis. Please?

Now let's turn to Marriner Eccles himself. In 1930, as President of the Utah Bankers Association since 1925, and owner of multiple banks and businesses in Idaho and Utah, Eccles already knew that the entire US economy was imploding. To understand why, he felt compelled to ask himself tough questions, and to actively consider un-learning most of what he'd been taught.
"Night after night I would return home exhausted by the pretensions of knowledge I was forced to wear in a daytime masquerade."
That's where references to Cotton Mather and his commentaries about farming & industry, credit & currency, production & consumption crop up (pun intended).

Like others before him, who recognized that autocatalytic systems (e.g., social species, such as humans and their human cultures) cooperate, and gain the amazing, institutionalized return-on-coordination, Eccles soon concluded on his own that
actual savings = actual investment, when optimized, and that 
actual production = actual consumption when optimized.

Well Duh! say the ecologists, but then ecologists tend to ignore how much royalty-instilled economics our citizens must unlearn, to even start optimizing the adaptive rate of our own human cultures & our own economy. In Eccle's words,
"The very essence of capitalism implies a debtor-creditor relationship ... to save successfully, someone has to borrow what is saved ... bankers, the arch symbols of capitalism, are the greatest borrowers ..."
And that little trivia about optimal production = optimal consumption? For Pete's sake, one look at an ant colony or beehive reveals the power of teamwork among social species.

'When inventories rose there appeared to have been too much production, but that was "in reality, underconsumption when judged in terms of the real world instead of the money world." '
So even by 1930 some still realized that the "money world" was just a method for tracking and denominating parts, but by no means all, of the real world? 

Will prior blunders never cease! Why must grandchildren re-learn lessons their grandparents learned the hard way, and their parents either forgot, or weren't taught? How many times will this particular cycle repeat, before we decide to permanently capture this and other, easily learned, lessons?

A foolish population and their grandchildren's options are soon parted. 

That's the old lesson about parasites, about the divine right of crooks and scoundrels, and about the class-based hegemony undermining all democracies everywhere.

"What passed as a 'lack of confidence' was really nothing more than an investors recognition of the fact that new plant facilities ... [were] over built when judged in terms of the effective demand consumers could make on the output of that plant."

So supply and demand can appear to be uncoupled if feedback from consumers to producers is either too slow or merely under sampled? So much for supposed "business intelligence." Macro economics is mostly about how smart an aggregate allows its collective self to be.
'Moreover, the only way economic growth could could continue was if the changing balance of consumption and savings .. could "provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery." With this Eccles not only had grasped the bookkeeping essential of elementary macro economics, but he realized the dynamic properties as well. '
'The wrong ratios of consumption to savings could cause the growing system to plow itself into the ground. It was Roy Harrod's 1948 book on economic dynamics that first explained in formal terms the paradox of self-destructive macroeconomic growth.'

This is amazing. So common sensical bankers - and even a few ostracized economists - once wandered into the most basic axioms of all system sciences? What happened? The offending economists and bankers were later excommunicated by their brethren in the halls of ideological orthodoxy, for betraying the divine right of the aristocracy to be fundamentally wrong about EVERYTHING? 

ps: why pay $42 for a windbag to over-explain common sense, first practiced by a banker who didn't bother going to school, other than the school-of-hard-knocks? Why isn't such information freely available to all citizens, as an adaptive, aggregate necessity, not as a knowledge acquisition tax?

And here's another kicker.
'Eccles also figured out the "fallacy of composition." What was good for the bankers in a depression was bad for everyone else: "By forcing the liquidation of loans and securities to meet the demands of depositors, were we not helping to drive prices down and thereby making it increasingly difficult for our debtors to pay back what they had borrowed from us?" '
Gosh! When will US citizens be educated enough to realize that they are "prosumers?"

Eccles to the Utah Bankers Association: "... hard work means more production, but thrift and economy mean less consumption. Now reconcile those two forces, will you?"
Even by 30 pages in, there's much more, on the topic of nationalizing the Federal Reserve to balancing dynamic national budgets. There's too much to quote here, so I'll give a flavor of the insights in a summary quote.
'In 1937 [Treasury Secretary Morgenthau] gave a budget-balancing speech before the Academy of Political Science, which Roosevelt had actually helped draft. Eccles was outraged, beside himself at the duplicity and stupidity of it. The economy was diving and Eccles thought he had been bringing FDR around to some compensating deficit spending. ... On Nov 10, 1937, in the afternoon, FDR had seemingly approved of a shift in fiscal policy toward the deficit. That night Morgenthau dropped his bomb (to the accompaniment of some drunken laughter in the audience).

Eccles [later] wrote: "The contradictions between the afternoon and evening ... made me wonder at this time whether the New Deal was merely a political slogan or if Roosevelt really knew what the New Deal was. This is an ungenerous comment, yet it faithfully reports what I felt at the time." 
Shortly thereafter ... FDR turned and supported an increased deficit. ... [FDR] didn't care, because he didn't have to.'

Even half way through, this book chapter drives home the reality that those who don't know their grandparents own history, are easily condemned to repeat it.

“Isn’t it about time that we learned this simple truth? Is it so hard to understand that when an individual owes money, he generally owes it to another individual, but when a nation owes [its own currency] it owes it to itself?* When an individual pays a debt, he pays it to someone else. When a nation pays a [T-Bond] debt, it pays it to its own people.” Marriner Eccles, 1938 **

Isn't it time that all US students learn such a simple truth, by age 10?

Past time.

And finally, another useful image. Banksters throughout banking history have repeatedly been caught trying to control the net currency supply, for personal gain, regardless of how much it hurt the nation which such Control Frauds parasitize. They can always stash the supposedly valuable currency in off-shore accounts, even if the nation they parasitize collapses.

And once currency supply is emancipated, through adoption of fiat currency? Then, the same Control Frauds simply transition their game. Currency supply itself is not purposefully manipulated. Instead, the fraud narrows to a focus on unbalancing the distribution of incomes, so that the same effect is gained without disturbing the alarms raised when wild swings in currency supply occur. [And remember, old frauds may be easily revisited the instant a compliant electorate once again becomes ignorant enough to be duped in the same old ways, all over again.]

We're left with a recurring question. Is it true that Neo-Liberals can't understand the Fallacy of Scale? Or true that kleptomaniacs can't help themselves? The answer seems obvious, and we can again find direction through indirection. In a truly recombinant culture, there will always be some residual number of NeoLiberals, kleptomaniacs and other Luddites. It's our job to NOT promote concentrations of any sociopathy to overly infest positions of authority, where they can have excessively negative effects on emerging aggregate policy.


* ps: And then ONLY because we choose to peg currency issuance to sales of bonds - as a archaic, useless tax on currency issuance, no matter how small.

** ps: ps: The honest, intelligent banker Marriner Eccles never did see eye to eye with the American Bankers Association, as subsequent letters show. We need more people like Marriner Eccles. We have them, of course. We're just not sending them into government anymore, nor to run the ABA. There are always many things we have to start doing differently. History shows that there's no point in waiting to institute intelligent change, only harm. When we change, only 3 outcomes (worse, same, better) can occur, and two of them are bad ... yet change we must. Our task is to select wisely, not to fail or refuse to select.


paulmeli said...

How does one "know" the truth?

Corruption is the main reason these ideas remain hidden. Until we attack the root cause…corruption…we won't make meaningful progress.

A lie travels halfway around the world before the truth gets it's shoes on.

Roger Erickson said...

I guess experience PLUS courage PLUS honesty.

The truth is always the most parsimonious explanation of current evidence.

Roger Erickson said...

Imagine all the thousands of college students who had to read this text book ... only to have the contents go in one ear and out the other.

Peter Pan said...

You have to know your audience. The authors and publishers of college textbooks are epic failures at this.

Roger Erickson said...

How true, Bob.

And, for democracy to work, audiences have to know their authors.

Otherwise, they can't extend SELECTION, and have to repeat history multiple times ... the hard way.

Peter Pan said...

What do I need to know about you, Roger?

Roger Erickson said...

Only you know what your (& your aggregate's) context demands, Bob.

John Hemington said...

The problem we now face is much more challenging. The neoliberal thought collective has managed to capture and manage the perception of reality of the average citizen, convincing them that collective action is no longer appropriate or necessary. As atomized individual capital markets into themselves, each person is in competition with every other individual capital market and success or failure in this free-for-all competition is entirely on the shoulders of the individual competitor.

This is only enhanced and aggravated by technological advances such as smart phones and software which encourage isolated communication and faux online communities. The historical human urge toward collective action, be it community, union, club, political party or nation state is now being claimed to be unnecessary and even harmful to economic development. GDP, be it individual or national is now the sole driving force toward which we are all being pushed. And if many fall by the wayside, so-be-it, after all it was their own fault for being insufficiently competitive and able to adapt to changes.

The system is never to be blamed and only the powerful are to be saved from calamity. The neoliberal elite and their policies are never to be questioned -- even in the event of systemic collapse such as occurred in 2008.

Neoliberalism has, in a brief 35 year period, become the dominant religion of our age, and it brooks no dissent. It is based on on double-speak, lies, deceit, non-accountability of the powerful (be they human or corporate) and appealing myths of freedom and individual responsibility. And sadly, most Americans have bought into the propaganda.

Tom Hickey said...

@ John Hemington


Roger Erickson said...

Not all of us have bought in to the NeoLooting model, John.

We have to be confident. Bitterness isn't enough.

We know it can't last. Just as people said back in the 1930s, we have to save these people from themselves.

John Hemington said...

I hope that I never said that everyone has bought into the neoliberal myth, nor am I bitter – just concerned. I’m most concerned about the seeming generalized ignorance most people have about what is the cause of their economic, social and cultural distress – both on the left and the right, but also the great mass in the middle. I’ve done quite a bit of research on this over the past several years and my take is that the greatest threat of neoliberalism is its general invisibility to the public at large – including the intelligent public – which tend to see small parts of the whole and end up blaming the wrong parts of the system and the wrong people for the dysfunctions they see and experience.

Roger Erickson said...

We're in agreement.

Now all we need are effective methods .... for making a dent in public thinking ..... sooner rather than later.

Peter Pan said...

When marginalized people stop blaming themselves, the narrative will crumble.

Method to get individuals to stop blaming themselves for systemic problems: propose a practical socioeconomic alternative.

Roger Erickson said...

Actually, no, Bob. There's overwhelming evidence (basically, all of history) saying that there's a subtle yet absolute & self-defeating flaw in what you just said.

What really happens? We embrace diversity and solicit many more alternative routes.

"Never tell people how to do things. [Help define] what [we need to achieve] and they will surprise you with their ingenuity."

We need a consensus Desired Outcome ... not tactics masquerading as national policies, milestone goals and Desired Outcomes.

Roger Erickson said...

Or, I apologize if that's what you meant all along.

Tom Hickey said...

Occupy had it right. What we are doing as a nation is not working. We need to change the conversation to be about setting up to challenges and seizing opportunities instead of top down hierarchical imposition of a plan that only benefits a few and is sinking the rest.

This becomes especially acute when young people in aggregate don't see a desirable or even taxable future for themselves.

The solution of TPTB was to suppress dissent and end the conversation before it got legs and built up enough momentum to threaten the status quo.

Peter Pan said...

I wouldn't begin by telling marginalized people what to do. I'm saying that the status quo does not work for them. Therefore they should have an incentive to come up with alternatives that would better meet their needs. They should, but in large measure they don't. They either blame themselves or are unable to imagine alternatives. The narrative being promoted tells them that it is their fault and that there is no alternative.

The number of marginalized people who follow blogs such as MNE are few. So much of your audience is missing. Will they be able to pick up your message on their own? Will they need someone to rally around, in the usual playbook where a few become leaders (active) and the majority remain passive?

When I speak of marginalized people, I am referring to the unemployed, the poor, the homeless, the suicidal. They are by no means the only group whose interests lie outside the status quo, nor are they politically active or aware. These two factors tend to result in them being told what to do. When they receive help, it is on their behalf. When change occurs, they remain as passive recipients.

Peter Pan said...

Tom Hickey said...

The message is being delivered by many means and different people and groups will resonate with different presentations. For example, Russell Brand is reaching a lot of people that blogs like this probably never will. A lot of the message of the Sixties and Seventies was carried by the music.

Peter Pan said...

Off topic yet related:

Tom Hickey said...

Thanks for the link, Bob. I didn't realize that technocracy was initially about using units of energy as a unit of account. This is Chris Cook's position today.

Technocracy was a progressive engineering movement founded by Howard Scott and Walter Rautenstrauch and centered at Columbia University School of Engineering. The movement believed that engineers were better suited to running society than were businessmen. Wall Street's continued focus on modern mass production was seen as evidence that they lacked the skill to efficiently direct modern technology. Technocrats wanted to do away with the capitalist price system in favor of one that used an energy theory of value. Scott argued that energy certificates equal to the amount of power available for production should be issued to each citizen, who would then be required to spend them in the free market. Saving energy would be discouraged in the belief that it created an undesirable imbalance between production and consumption. The technocracy movement spawned numerous discussion groups around the country, but Scott's temperament and failure to develop a political action plan to support his theories (in addition to the revelation that he had overstated his credentials) deflated the movement. Nevertheless, Technocracy added to an ongoing discussion about the proper control of technology. It warned of a split between American culture and industrial civilization, and an imbalance between man and nature, production and consumption. Technocracy also influenced future thinking about the role of energy in economic recovery.

I think there is a good argument for replacing mainstream economics with technocracy in this sense wrt to policy formulation. Then world is going to have to move in this direction fast, or else we'll all be toast, literally. The poles are melting more quickly than projected and the ocean is maxing out as a heat sink while also become acidic.

Scientists have been screaming about the assumption of exponential growth being ridiculous for some time. Robert Gordon argues that growth may be over for developed countries like the US.

But the emerging world is coming on line fast with an appetite to replicate the developed world. The developing world's population is much greater than that of the developed world and there are already huge environmental issues developing.

"Technocrats" argue that without a technological fix, this trend will be unsustainable since there seems to be no way to stop it politically now that the process is in motion.

John Hemington said...

Anyone seriously interested in the nature and impacts of neoliberalism today should get two books by Philip Mirowski (of Notre Dame). They are, Never Let a Serious Crisis Go To Waste, and The Road From Mont Pelerin: The Making to the Neoliberal Thought Collective.

Mirowski has written what are probably the two definitive works on neoliberalism and both are excellent and highly informative.

Roger Erickson said...

Note that Eccles himself ended on a gloomy note.

"... the wrong road was taken every time we had a chance to alter course ... "

That fits depressingly well with the slow pace of European thought ... being forced kicking & screaming to a similar conclusion.

Yet Evolutionary history shows that a logical course WILL be taken.

But apparently ONLY after all the wrong decisions are thoroughly explored first.

Does it HAVE to be this bloody costly? It's up to us to select better ways.

Complaining to those leading us off of cliffs will never work fast enough. "Leading" always means leading by example ... for better or worse.

Tom Hickey said...

"Americans will always do the right thing — after exhausting all the alternatives"

Attributed to Churchill but probably not his.

Roger Erickson said...

Yes, but I'm now confident that someone said something analogous, even before Imhotep.

Probably before humans. :(

Roger Erickson said...

Since Google closed the G+ service, the first link is gone.

The quote comes from here,a College Textbook.

Is apparently in Eccles at the U Utah paper archives. Not digitized yet.