Re: What is Creditary Economics?

["Gunnar Tomasson" <gunnar.tomasson@xxxxxxxxxxx>]

Gary:

In its most basic sense, "creditary" economics is the financing side of Adam
Smith's "division of labor".

That is to say, "credit" is an integral counterpart of any decision by two
or more individuals to pool their resources for "production" - "credit"
arrangements agreed up front determine each individual's claim to a share in
resulting "output" down the road.

And, while "credit" can assume many forms - custom, handshake, contract,
'money', etc. - its essential nature is always and necessarily the same,
namely, it is a means whereby two or more individuals can pool and transform
their resources - human and natural - into "output".

The traditional mainstream/monetarist/post-keynesian view of "credit" is
entirely different, as highlighted by the associated concept of "saving".

For in the mainstream/monetarist/post-keynesian tradition, "saving" denotes
"credit" instruments and NOT resources which have been, or may be, pooled
for "production".

A case in point.

I just finished reading Joseph E. Stiglitz' book on 'Globalization and Its
Discontents' and, while his heart is in the right place, the residual
effects of his conventional economics training are readily apparent, for
example, in the following passage on "savings rates":

"While China demonstrated that capital market liberalization was not needed
to attract funds, the fact of the matter was that, given the high savings
rates in East Asia (30-40% of GDP, in contrast to 18% in the United States
and 17-30% in Europe), the region hardly needed additional funds; it already
faced a daunting challenge in investing the flow of savings well."  (pp.
66-67)

And what is one to make of this?

At the IMF and World Bank, this way of looking at things translates into
advocacy of The Washington Consensus, whose "solution' for low "savings
rates" is to raise interest rates and cut back on any fiscal deficit to
reduce government sector "competition" for whatever "savings" are available.

Stiglitz is right on target in condemning such "economics", but he is
off-base in ascribing the IMF's prescriptions along these lines to "market
fundamentalism" or "ideology".

For, being at the crossroads where orthodox academic economics encounter the
real world, the IMF would be remiss in NOT prescribing higher interest rates
and fiscal austerity for member countries, whose low "savings rates" are
construed to represent an important part of their troubles.

That is where Creditary Economics comes in - not as academic ideology or
market fundamentalism, but as an approach to world economic and financial
issues rooted in common sense which, to expand on Mark Twain's point, is not
too common among contemporary economic scholars.

Gunnar


----- Original Message -----
From: "Gary Santos" <evs@xxxxxxxxxxxx>
To: ""Gunnar Tomasson"" <gunnar.tomasson@xxxxxxxxxxx>
Sent: Saturday, April 12, 2003 2:21 PM
Subject: What is Creditary Economics?


> Gunnar,
>
> If you have the time, what is "creditary economics"? I'm no eco-major and
> what I know is only through personal reading and common sense. Is there a
> "basic" paper or article that expounds on its basic principles?
>
> Thanks,
>
> Gary
>
>