Creditary economics. Adhocracy.

["John Gelles" <johng@xxxxxxxxxx>]

        Geoffrey Gardiner wrote on PKT forum, 11 April 01:
        [Numbers added for convenience]

   1. "The first principle of creditary economics is that the
        division of labour and the practice of granting credit
        were born as Siamese twins. ...

   2. "If the state does not provide a money system, the
         public will do it for itself, and for much of history the
         bill of exchange has fulfilled that purpose....

   3. "The holder of a coin [or any legal tender] is a person
        who has provided goods and ... is a creditor of society.
        The debtor is anyone who recognises the debt by
        supplying goods in return for the coin.

        [This instantly turns "anyone" into a holder -- and so
        a creditor as well as a debtor. Shades of Godel, Escher
        and Bach, recursion, and an endless view of ourselves
        in aligned mirrors face to face and back to back.]
        ...
   4. "Nowadays the bank note is in the same category.
        It too is an anonymous debt... even though it looks
        like a state debt, and even though the Bank of
        England religiously keeps assets to the same value
        as the note issue to back them.
...
   5. "A failure to pay a debt can have a multiplier effect,
        causing more failures.

   6. 'The granting of new credit can have a multiplier effect,
        as the new debt can be used to create secondary debt.
        That is, the money created can be lent again and again
        until it is destroyed by being used to reduce debt."

   7. "Real investment will tend to reduce prices. Therefore
        real investment will tend to reduce GDP. This effect
        must be countered by the creation of new credit.

   8. "If a worker saves his wages he is financing his own
        production and depriving the market of the where-
        withal to buy it. (Negating Say's Law.) The creation
        of new credit for consumers can overcome this gap.

   9. "Increased taxation does not reduce overall demand,
        it merely changes the direction of demand disruptively.

 10. "Lowering official interest rates reduces the endowment
        effect [profit based on loaned owner capital] for banks,
        and they have to compensate by increasing their margins
        between their lending and borrowing rates.

 11. "Every act of lending by a bank automatically creates
        the deposits which will balance it. Therefore every act
        of real investment which is financed by newly created
        credit automatically creates the savings to fund it.

 12. "The encouragement of saving automatically encourages
        an equal amount of borrowing. There is no reason at all
        why the borrowing should be solely for the purpose of
        real investment. Among the many assets it may finance
        are [debt reduction], work in progress, stocks, or
        consumer credit....

 13. "The way to encourage real investment is to create a
        favourable environment for it, not by encouraging
        saving.

 14. "The 'Trade Cycle' is a creditary phenomenon and
        should be called 'The Credit Cycle'.

 15. "Asset price inflation caused by the creation of credit
        for the purchase of existing assets will cause general
        inflation. [This has been called the wealth effect.]

 16. "I have been careful not to say that banks create
        credit/money [without the help of others]. They
        cannot do it alone. There has to be a borrower, and,
        in most cases, there has to be someone prepared to
        sell to that borrower. So the creation of money is a
        tripartite affair. There is an exception:  when banks
        pass through their books the entries to charge and
        allow interest, there will be an increase in the money
        supply equal to the amount of interest which is
        charged to overdrawn accounts. (Banks would be
        less willing to do that if they had to categorise such
        loans as non-performing.)

 17. "This is a brief summary which we hope will be
        replaced by weightier tomes.... I think the
        precursors of all these ideas can be found in
        Keynes.

 18. "My own view is that the market economy has
        no fourth dimension, it cannot plan forward;
        the command economy needs to run by people
        who can plan forward wisely, but there are no
        such people."

==== End certain points made by Gardiner
          Begin my critique and plea for adhocracy ====

   1.  Creditary economics may possibly some day be
        simulated by computer program. The simulation
        may prove that sustainable financing of a full
        employment, high wage, high and growing
        minimum standard of living economy, is possible.
        Possible, that is. without adhocracy and strategic
        planning by democratic lawmakers and executives
        -- drawn from a pool of people of which there are
        none according to point 18, above.

   2. Intuitively, I doubt the proof will be forthcoming.

   3. It may be true that "democratic effective strategic
        planning" is an oxymoron.  If so, the "better"
        autistic model, being attempted by creditary
        economists, (as the wiser group compared to
        monetary economists or neo-liberals,) may be
        needed.

   4. If I am right AND "they" are also right, then no
        quick solution to economic problems is "out
        there".  The only solutions will be endless trial
        and error attempts, NOT converging on an
        optimal human condition.

   5. If convergence is possible, my adhocracy will
        achieve it.

   6. My Keynes-Lerner adhocracy emphasizes
        Gardener's point 9:  Taxes do NOT decrease
        demand UNLESS government spending is
        effectively prevented from spilling money
        into demand channels -- this, by way of
        following and taxing back all new demand
        that government spending creates: a kind
        of nightmare for accountants, tax writers,
        and taxpayers.

            a. In, other words, taxes are not the best
        way to control inflation or prevent stagflation.

            b. But savings can be the best way --
        because these can be required to be
        deposited in a special account that cannot
        be lent to others to add to demand and put
        pressure on price. Such accounts can be
        inflation protected as are certain US bonds.

            c. See Gardiner point 12, above, which is
        addressed by my special account (called an
        Individual Estate Account, or IEA, in fuller
        descriptions of a Keynes-Lerner system.)

            d. Admittedly, taxes, too, could be treated
        in the same way; but people prefer to accumulate
        wealth when their only other option is to pay taxes.

   7. Once my adhocracy has an effective control
        over inflation, it can seek to have lawmakers
        spend money to improve infrastructure, educate
        the workforce, finance competition, prosecute
        monopoly, clean the environment, provide
        free universal health care, and guarantee
        full employment.

   8.  Endless uncertainty in fighting disease,
        natural disaster, human imperfection, etc.,
        will leave ample room for genius to continue
        the struggle against pain, suffering, accident
        and envy.  No one who tends to the sorrow
        of individuals will lose their job. But many who
        seek autistic solutions to life's uncertainties
        may be persuaded to see in the grandeur of
        art that for which science is not yet ready.

            John Gelles
            www.1944.org/emrt-contents.htm
            www.1944.org/credotary-econ.htm
            www.1944.org/round-table.htm