[PEN-L:4726] Re: Trond's Debt/Asset polarization model

[JOHN CROSS <CROSS@xxxxxxxxxxxxxx>]

>Subj:	[PEN-L:4686] Re: Trond's Debt/Asset polarization model
>
>Date: Wed, 12 Apr 1995 02:56:35 -0700
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>From: Trond Andresen <Trond.Andresen@xxxxxxxxxxx>
>Subject: [PEN-L:4686] Re: Trond's Debt/Asset polarization model
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>Patrick Bond says (Hi, Patrick, good to hear from you again):
>
>> Trond, your recent post that the debt cycle `caused' stagnation from
>> the late 1970s appeared to me as a cart before the horse. The
>> argument I've been more closely drawn to is that the emerging problem
>> of overaccumulated capital in the advanced industrial countries found
>> a temporary means of displacement into financial circuits.
>
>Yes, by why was the "overaccumulated capital" there in the first place,
>and why was it a "problem"? Accumulation is a consequence of agents
>financially reinvesting a sufficient share of the proceeds of earlier
>similar investments. Accumulation leads to exponential growth of
>financial assets on one side, corresponding debts on the other.
>"Displacement into financial circuits" is a futile attempt to re-invest
>this overaccumulated cash somewhere else. I think that the horse is
>before the cart.
>
>To John Cross: Do you wish to communicate, or show off? If so: Is pen-l
>the right audience?
>The original proposal here on pen of reviving the slogan of a Jubilee
>by relating it to the arrival of a new millenium (turn of the year
>2000) wasn't mine. Anyway, I support it, not because of religion (I am
>an atheist), but since it is gives an additional argument to enhance
>the struggle for reduction of debt burdens, esp. for 3W countries. It
>will of course be only one aspect of the on-going struggle, not a
>sesam-sesam. OK?
>
>
>To Barkley and Jim:
>
>I read you this way: Antique societies were so different, mainly
>because they didn't produce a social surplus, that the problem of
>indebtedness was qualitatively more serious then, than today. People had
>to borrow for life-sustaining consumption in bad times etc.
>
>I agree and I disagree. I agree in the sense that polarization leads to
>extreme crisis in a society that produces no surplus.
>
>I disagree in the following sense: The mechanism of financial
>accumulation is the same today, exponential growth in assets and
>corresponding debts. The difference is that real growth has also been
>exponential - and probably more so - so that the net debtor sector of
>the economy has - until the couple of last decades - seen an increase
>in living standards. Allow me a (slightly modified) quotation from the
>paper I am working on:
>
>	Consider the following scenario: We have a positive inflation
>	rate, a higher nominal mean interest rate ("interest" here used
>	in the widest sense - any type of returns on financial
>	investment), and also a (not too low) savings rate among the
>	well-to-do such that in spite of inflation the "polarization
>	rate" (growth rate of real aggregate net assets for net
>	creditors) is positive, although low. Since the polarization
>	rate is low  in relation to the inflation rate, nominal
>	aggregate wages (the sum of wages in the financial sector and
>	in the rest of the economy) will grow. Furthermore,  let us
>	assume that the workforce also grows, but somewhat slower than
>	aggregate nominal wages, such that the average workperson also
>	experiences a positive, albeit lower, nominal wage growth. If
>	productivity increase is such that real output grows faster
>	than aggregate demand, the increasing workforce will also
>	experience real wage growth.
>
>	It then follows that a long-range trend of average increase in
>	living standards, as observed after World War II and until the
>	70'ies, does not as such exclude the presence of polarization
>	in this period. The difference between the first golden decades
>	and the last two may be related to the negligible slope of an
>	exponential function in the early phase, as opposed to the
>	steeply increasing slope later.
>	
>	What is invariant, however, is this:  Under any combination of
>	inflation rate, productivity increase and nominal wage
>	increase, and whether overall employment waxes or wanes: If
>	polarization is present, it will be accompanied by a relative
>	increase in cash flows and employment in the financial sector.
>	Growth in the financial sector is a clear indicator for
>	polarization.
>
>	Observe that when (slow) polarization is happening, inflation
>	will be very effective in camouflaging the polarization
>	process.
>
>	My strong focus on  money and finance must not be understood
>	such that  "the real economy" is considered unimportant. The
>	primary concern of economics is of course - or at least should
>	be - real economic goals.  But when the described financial
>	phenomena run their course regardless of real economy
>	developments, and sooner or later also influence real economic
>	indicators negatively, one has to focus strongly on money and
>	finance. And all reasoning based on the polarization scheme
>	until now has been, and may indeed be, done completely
>	independent of growth rates in productivity and real output.
>
>End quote.
>
>Btw, here is the Aristotle quote that Barkley referred to:
>
>	"...There are two sorts of wealth-getting, as I have said; one is
>	part of household management, the other is retail trade: the
>	former is neccessary and honourable, while that which consists
>	in exchange is justly censured; for it is unnatural, and a mode
>	by which men gain from one another. The most hated sort, 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, which means the birth of
>	money from money, is applied to the breeding of money because
>	the offspring resmebles the parent. That is why of all modes of
>	getting wealth, this is the most unnatural......"
>
>	Aristotle: "The Politics"
>
>Not stupid, these ancients.
>
>
>Trond
>-------------------------------------------------
>| Trond Andresen  (Trond.Andresen@xxxxxxxxxxx)  |
>| lecturer                                      |
>| Department of Engineering Cybernetics         |
>| The Norwegian Institute of Technology	        |
>| N-7034 Trondheim, NORWAY		        |
>|				                |
>| phone (work)	+47 73 59 43 58                 |
>| fax	(work)	+47 73 59 43 99                 |
>| private phone +47 73 53 08 23                 |
>|                                               |
>| http://www.itk.unit.no/ansatte/Andresen,Trond |
>-------------------------------------------------
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