A historicist, Leftish, critical essay on macroeconomics


Smith devised the justificationist branch of economics, which extrapolated its content out of a few, oft false and simplistic, verbal axioms aka “substantive propositions”, many of which were invented by Smith; thus Krueger says of Smith’s “substantive proposition”: “The proposition that resources seek their most profitable uses, so that in equilibrium the rates of return to a resource in various uses will be equal”, the Nobel Laureate Stigler once wrote, “is still the most important substantive propositions in all of economics”. This is why modern economists are wont to have a reverence for Smith. Among the more ridiculous of these verbal axioms: “Order, not chaos, would result if individuals were left to their own devices in Adam Smith’s conception of the economy”. As it is with many of these experts, Smith was caught by the sophists at a young age. Thus he is described as being brought up fatherless and as a “sickly infant”, and “kidnapped by marauding vagrants when he was 3 years old”, and suffering the infant disease Colic, “throughout his life”. As it is with experts caught this early, Smith was “an adolescent genius” at the age of fourteen.
It is said, not unaccountably, that Smith’s " professor of moral philosophy" had a “profound, never to be forgotten” impact on Smith. Alan Krueger boldly admits that Smith had in fact “gained notoriety” from his first book, The Theory of Moral Sentiments. Krueger heaps another well-timed insult by saying that Adam Smith’s writing resembles the prose seen in Gulliver’s Travels, a kindergarten fiction book; yet the economists say that Smith is “the father” of their brand of economics !

A precursor to the “game theorists”, another set of “experts” who earned their bread by pandering false theses based on nationalism, Smith spoke of nation’s “enlightened self-interest” – it was a politicization of economics – he defined the nation as an economic entity, and wrote the foreword for quacks of later who would put the responsibility for monetary activities on irresponsible (in inflation context) central banks that could justify any policy with the excuse of nationalism. Before this point, big stateless private banks like the Medici bankers, at least cared about reputation thus maintained zero inflation. Problems ail both systems, however, such as usury and stifled growth (read Gesell’s Natural Economic Order, it points out the solution).

Central banks “solved” the problem of stifled growth by printing new money, which money, in not being evenly distributed among the people, reflected nothing but a type of “legalized” counterfeiting. The Central Bank, by arbitrary printing money in the name of patriotism, gave birth to militarism; printing money without caring for its logical distribution renders the idea of “free markets in capitalism”, rather illogical, leading to the absurd situation of struggling tiny players and “too big to fail” big players – inefficient herds whose debts are simply excused.

The evil of statist economics has led to the worst situation (Bretton Woods II, chapter 14). Given the secretive, self-“regulating” deals inside and outside of shadowy bodies like the BIS – our world of central banks effectively functions like the ancient era of tribute economies; e.g.: big state might say, to small state, something like: “We’ll nuke you unless you buy our state bonds”. Or a puppet politician might be planted, who will buy such state bonds. The state bond says, “The small state paid 1 billion for 1 bond, big state will buy back the bond later”… But of course, the big state never pays back the small!

Though the Fed was “on a gold standard,” as was the pre-WW2 norm – its owners had printed far more dollars than what their gold reserves allowed. By 1929, the volume of dollars in the market had swollen, for, throughout the booming 1920s, the Fed had lent to lending banks at low interest rates (debasing the dollar and eroding the value of the common Americans’ savings). So, towards the end of 1929, the Fed’s backers engineered (perhaps semi-accidentally) a mega-recession, namely, the infamous Great Depression. “Rakovsky refers to the Great Depression as the “American revolution", deliberately precipitated to break the “classical American,” for taking political power.” “With a group of Congressmen and Senators, Long believed the Federal Reserve’s policies to be the true cause of the Great Depression. Long made speeches denouncing the large banking houses of Morgan and Rockefeller centered in New York that owned stock in the Federal Reserve System. He believed that they manipulated the monetary system to their own benefit, instead of the public’s benefit”.
Generally, the reason for a “recession” is simply a rise in productivity. As Gesell explains – “If the returns from houses fall, no more houses are built, since no one will give money for new real capital. How then can cheap houses ever be built? If the returns from building houses and other real capital falls, the money employed in such things withdraws. Thus, just when men are industrious and inventive, when harvests are good, when many products are available to multiply houses and factories – this is the time that money, which should only facilitate exchange, chooses to withdraw and wait. And because money withdraws, a crisis occurs – demand for wares is lacking, and prices fall.”
At this turn, as Silvio Gesell notes, the wealthy purchasers, expecting prices to fall further, watch the market, waiting for the “embarrassment of the ware-sellers” to go up, to snatch their wares at lower prices, spending not until they get “the best deal”. This is why recessions snowball, as prices keep falling yet nobody buys due to how all money-men await better deals! The reason for a recession is, thus, the reticent nature of commodity money (money used for things other than exchange, for example, used for saving) – which functions not primarily to facilitate exchange, but primarily to parasitically increase the profit of its masters at the true economy’s expense.
As Gesell says, “under commodity money, men must periodically live as beggars.” The Great Depression was not like any other recession. It hurt much more due to the huge amount of dollars spent in the preceding decade, which was known as “Roaring 20s”. That, coupled with the suffocating Gold Standard – made the Great Recession, unlike any other modern recession. The excesses of the 1920s hurt when it became obvious that “many of the “assets” on bank balance sheets held in the Allied countries, were actually unrecoverable Treaty of Versailles loans”. New dollars weren’t printed so that the people could carry out transactions, even though the usury economy is such that it needs a constant printing of new money. Loans were denied, even though the usury economy is such that it is addicted to credit… at least get rid of usury, we’ve asked; even that, usually, is not permitted!
While inflows into the people’s monetary pool ceased in the Great Depression, outflows from the same pool took many forms. The money supply was contracted to two-thirds of its pre-crisis volume, causing an acute shortage of the money that is needed for transactions; and greed for buying the assets of the cashless desperate folk, with private piles of hoarded dollars, was perhaps what extended the evil syndrome. In America alone, 12 million people are said to have died in the course of the Great Depression, a significant number. The Great Depression might have begun as an American syndrome, but spread across the worldwide realm of gold standard.
During this era, herds of finance guru, led by the British banker Montagu Norman, travelled across the earth, claiming that “the great depression [thesis] is impossible to cure without national central banks [antithesis].” Thus, ca. 1935, the finance gurus globally fitted central banks all across the world; the pΦs had attained a bridgehead in world finance.
By the mid-1930s, the utility of commodity (gold) theory of money was little; high inflation was often publicly perceived, the old ploy of printing more money than allowed for by “gold reserves”, was often suspected. With that in mind, the expert finance gurus decided to profitably abandon the gold standard without taking into account the other problems associated with money. The plan was not to replace the failed money with ‘Free-Money’, but with parasitically modulated money.
Yet Gesell had once warned: “As long as paper-money remains what it is meant to be, a medium of exchange, everything works smoothly. Paper-money used for any other purpose is not worth the paper upon which it is printed. What is the inevitable result of a “monetary reform” that leaves untouched the misuse of money, a medium of exchange – as a medium of saving? A “reform” of this kind would bring the possibility of the greatest fraud ever practiced upon mankind… After such “reform”, people would sadly believe that their salvation lay in the gold standard.” And indeed the Gold standard, abandoned everywhere in the run-up to WW2 – an eye-wash pseudo-reform carried out to “dupe” Gesellians – would return after WW 2.
Before that the gold standard was ended by Montagu Norman, the Bank of England’s self-appointed “currency dictator of the world”. Within a few years in the early 1930s, the global economy was forced off the gold standard; this was practically a robbery of the people, and it facilitated an overdose of military spending, brought in a “war economy”, thus catalyzing WW II. What were the consequences of switching off the gold standard? No more would counterfeiting be checked by gold reserve “requirements.” And nobody could trust the values of other nations’ moneys, which came under suspicion for counterfeiting linked inflation – resulting in the rise of isolated currency blocs, and the degenerative break-up of international trade. Polite international trade became impossible. Nations like Germany faced a huge resource crunch through the 1930s. The last blow to peace was this financial jokery, subsequent to which ultranationalists like Hitler usurped respect by blaming America and international finance – even though himself financed by it. It seems that, at this point of time (to be precise, at the point of time the BIS (chapter 14) was established) – a crazy tradition emerged, whereby the value of nationalist moneys were fixed by “exchange rates”, in a semi-arbitrary process which can be called “realeconomics”, just how it is with “realpolitik”. Owing to the Fed’s role in the Great Depression, the “need to hate America” became pervasive among Europe, leading to problems…

After WW2

The campaign of the Logical Positivists turned out to be merely a distraction, a smoke screen meant to conceal the primary analytical war group, the Fabian socialists, who, hidden in ambush behind shaky axioms, infiltrated the western regimes and engineered policies of a deceitful nature. “We favor an imperialistic foreign policy as a conduit for “international reform”, these urban dandies said. They scored hits in the “developing” world – (meta-)Jinnah and (meta-)Nehru of Pakistan and India respectively, and (meta-) Awolowo of Nigeria, all associated with Fabian socialism, came up with various novel political crimes, like starting up the effectively anti-worker “Non-aligned Movement”, overseeing the split of India and Pakistan, etc. Another key Fabian socialist was Maggie “Magnum” Thatcher.
In the closing stages of World War 2, to address the people’s unresolved worries regarding the postwar global financial system, a summit was called at Bretton Woods. Slowly but surely, the issue of the main but secret conduit behind WW2, came to fore. The Bank for International Settlements (BIS) had been functioning as the international pΦs’ means for intimidation and collection of tribute, and for maintaining the rule of realpolitik. After WW I, the BIS had been set up to transfer the German reparations payments (as per the Treaty of Versailles). Formed in 1930, the BIS had, as the main proponents of its establishment, two famous personalities, Montagu Norman and Hjalmar Schacht. “The charter for the bank was drafted at the International banker conference in 1930”. “The original board of directors of the BIS included two appointees of Hitler, as well as the director of IG Farben, and Baron von Schroeder, the owner of the J.H. Stein Bank, the bank that held the deposits of the Gestapo”. And now, “the BIS became the crux of a fight that broke out when the Norwegian delegation at Bretton Woods put forth evidence that the BIS was guilty of war crimes, and put forth a motion to dissolve the bank”.
This resulted in an exchange of blows “between, on one side, many European nations, the American, and the Norwegian delegation, led by FDR, Morgenthau and White; and on the other side, the British delegation [pΦ agents], headed by John M. Keynes and Chase Bank representative Dean Acheson, who tried to veto the dissolution of the bank”.
"As a result of allegations that the BIS had helped the Nazis loot assets from occupied countries during World War II, the United Nations Monetary and Financial Conference recommended the “liquidation of the Bank for International Settlements at the earliest possible moment.”
“This dissolution was never accomplished”.
The boss of BIS was the boss of all (central banks, which were, in turn, the bosses of the nations of the world), including M-H; as Adam Lebor of Telegraph writes, “the BIS’s reach and connections were vital for Germany. So much so that, throughout WW2, the Reichsbank continued paying interest on the monies lent by the BIS”. Maxon/M-H’s financial facilitator, as it may seem, was: “Thomas McKittrick, an American banker and president of the BIS”… but of course, the various professional classes – the “doctors”, bankers and capitalists, each aware of only his own “good” duty and blind to the problematic whole, were at fault. "Under the “Harvard Plan”, McKittrick was in contact with Nazi industrialists, working towards what the declassified US documents describe as a “close cooperation between the Allied and German [M-H] business worlds”. Keynes, the Fabian socialist, “went to Morgenthau to prevent or postpone the dissolution of the BIS, but the next day the dissolution of the BIS was approved”… “The British delegation [pΦs] did not give up, however, and the dissolution of the bank was still not accomplished when Roosevelt died. In April 1945, the new president Harry S. Truman and the British suspended the dissolution, and the decision to wind up the BIS was officially reversed in 1948”. Though winning this skirmish, the finance gurus were burnt for now; they fell back to the friendly lines of the “gold standard”, taking the wise decision of retreating to strike later when the coast was clear – and this they would do in the 1970s.
By 1946, the Bank of England was nationalized; the new lair of the pΦs would become – it must become – the Federal Reserve – because of how, in Bretton Woods, it was agreed that the dubious “As good as gold” pledge was to be attributed to the dollar – that is, the dollar’s use as a “one-world” reserve currency was justified by how each dollar was, at any time, exchangeable with a certain measure of gold.
“Keynes thought the world better off with the elites of the British empire running it, while White sympathized with the global working class freeing itself from Britain’s empire”. Though the American delegate White won, his Rooseveltian new deal/socialist type views would prove unpopular among America’s finance gurus, and the American Empire would prove, after the Nixon Shock at least, even worse for the global working class than Britain’s gold standard-caged Empire had been.
A senior official of the Bank of England commented: “One of the reasons Bretton Woods worked was that the US was the most powerful country at the table and was able to impose its will on the others, including an often-dismayed Britain”… “One senior official at the Bank of England described the deal reached at Bretton Woods as “the greatest blow to Britain next to the war”, largely because it underlined the way in which financial power had moved from the UK to the US”. In this shift from the UK to the US also – the O-p*s had lost WW 2.
No more would Mr. De Winters be able to challenge the power of his wealthy second wife. White, the head of the US delegation, was relatively pro-pΨ, however; for example, “he believed passionately in the success of the bold Soviet experiment with socialism”. And although “the participants at Bretton Woods largely agreed on White’s plan”, the “IMF” which came up was little like the IMF which had been envisioned by White. Besides, after White’s untimely death, the N-pΦs emerged to abuse the US-centric system, to exploit it to implement N-pΦ hegemony in international economics, through Washington-based tools like the International Finance Corporation, created by the World Bank in 1956, and the International Development Association (1960), whose critics argue that it was “designed to head off a broader based system headed by the United Nations”.

Cold War era:

In the west, a new “currency regime” was upheld by the Washington finance gurus:
“Bretton Woods created a triangular system: the US would use the financial system to trade at a tremendous profit with developing nations, expanding industry and acquiring raw materials. It would use this surplus to send dollars to Europe, which would be used to rebuild their economies, and make the US the market for their products. This would allow the other industrialized countries to purchase products from the Third World”.
The final result of this iniquitous system was failure: “When this triangle became destabilized, Bretton Woods entered a period of crisis which ultimately led to its collapse.”

By 1971, the number of “as good as gold” dollars held by the world had swollen. The Feds had published more dollars than they had gold in reserve.
Hudson: “By 1971 the U.S. dollar’s gold cover – legally 25 percent – was nearly depleted, and the dollar could no longer be redeemed for gold at $35 an ounce. It seemed that the Vietnam War had cost America its world financial position, just as World War I had stripped Britain and the rest of Europe.” But just when they seemed about to fall, the N-pΦs engaged in high trickery. In 1971, the dollar finally abandoned the gold standard. Although the dollar’s excuse for being a “reserve currency,” i.e., gold exchangeability, ceased – what happened next was proof of great problems: the dollar remained the “reserve currency”.
The rest of the world would still accept the dollar, leading to Bretton Woods II.
Central banks all over the world held dollars, knowing not what to do with them. Prof. Hudson’s Super Imperialism: The Origins and Fundamentals of U.S. World Dominance explains how this obliged the world’s central banks to use their surplus dollars to buy U.S. Treasury bonds:
“These purchases fund the U.S. Government’s budget. In going off gold, [the N-pΦs] created a new international financial system, a double standard, a dollar-debt standard. The larger America’s trade deficit grows, the more dollars end up in the hands of the world’s central banks, and the more money they recycle back to the U.S. by buying U.S. Treasury bonds, whose interest rates have steadily fallen”. Michael Hudson: “What the U.S. has really got a free ride on is its military spending. For over half a century, ever since the Korean war, the U.S payments deficit has been largely spent on military. The countries want to stop the Americans from surrounding them with military bases to force them to take the dollar. They’ve had enough.” “The sophistical maxim of the philosopher who said that all that exists is rational,” as the German historian Gregorovius said, “becomes here merely an absurdity.” In this situation, arbitrary “settlements” could and would be made. Hudson: “In the 1991 Gulf War, America got its allies to bear most of the costs. After all, U.S. diplomats claimed, wasn’t the war fought to protect Kuwait and Saudi Arabia from Iraqi attack – to protect Europe’s oil and gas supplies from an aggressive grabber? Wasn’t it therefore fair to ask the Saudis and Kuwaitis, along with the Germans, British and other countries to bear the lion’s share of the cost of the oil war fought for “their own benefit?”
“Europe and the Near East agreed to pay, and their central banks turned over some of the excess U.S. Treasury bonds they had accumulated by having sold goods to America. Whereas formerly it rested on gold, central bank reserves are now held in the form of U.S. Government IOUs that can be run up without limit. America has been buying up Europe, Asia and other regions with paper credit – U.S. Treasury IOUs that it has little intention of ever paying off. There is little the world can do about it, except abandon USA and create their own financial system”. Clearly the idea of “free market capitalism” was anything but that, with the “commodity money” myth being such that the dollar, despite being inconvertible with gold, became U.S.A.‘s top export.
It led to the worst – “Dooley, Folkerts-Landau, and Garber, have referred to the monetary system of today as Bretton Woods II . They argue that in the early 2000s, the international system is composed of a core issuing the dominant international currency [the dollar], and a periphery. The periphery is committed to export-led growth based on the maintenance of an undervalued exchange rate. In the 1960s, the core was the USA and the periphery was Europe and Japan. This old periphery has since “graduated”, and the new periphery is Asia. The core remains the same, the United States. The argument is that a system of pegged currencies, in which the periphery export capital to the core that provides a financial intermediary role, is both stable and desirable [to the reigning N-pΦs, who can’t see the profit of economic equality], although this notion is controversial”. It is nearly being suggested that, if the N-pΦs export dollars whereas all other countries work hard and export products, it is “fair”…
Though, in the Eastern Bloc as well, the idea of "workers’ utopia" deviated from the ideal – mostly, meddling by foreign capitalists was to blame.