I was drawn into these thoughts following a recent visit to the UK.
Their citizens seem to be grumbling they haven’t enough cash in their
pockets with their government pressing on with austerity measures.
Yet the Chancellor, George Osborn, observes that as inflation has
fallen slightly most people are better off than a few months ago. But
other observations show the average person is spending less
(perceiving hardship) so actually accumulating a little more capital:
but one cannot directly eat, drink or smoke capital.
Further, in the UK, real wages have not kept up with inflation over
the past two years so the people are feeling poor. I felt the UK
represented a microcosmic image of most developed countries across the
world — hence this opinion piece.
I know that since the breakup of the ‘Gold Standard’ in 1933 we have
lived more and more on credit — some would say better and better as
our debt increased: they cite better housing (bought through
mortgages) and newer cars (bought on credit). But such debts can’t
continue unabated, we must pay them off from our incomes, and if our
incomes are eroded by inflation and the growth of everyday prices then
some of us will surely become bankrupt. Lives will be shattered as
foreclosures grab houses and cars. Always it is the poor who are
preferentially deprived through the actions of banks and government.
There are many arguments between economists as to the benefits of
following the directions of Keynes and the monetarists; allowing
prices to determine everything as suggested by the Austrian School
(such as Hayek), or even to concur that Marx developed excellent
economic arguments by determining both a product and a money cycle.
The Australian Professor, Steve Keen, debunks many of the standard
theories in favour of the mathematics of chaos. He notes that most
governments are throwing money at the Marxian tri-party of
producer-banker-buyer. So governments are giving away our money to the
banks rather than directly relieving debtors.
This messy business is keenly felt in the UK as it struggles at the
edge of the EU/Eurozone problems. There are difficulties with the
major international banks who work out of ‘the City’, and with the
resistance of High-street banks to lend to new businesses. Meanwhile,
many medium and large businesses in the UK are cash rich and who, like
many individuals, are simply hording cash. Few know what the future
economy will look like, so saving is the order of the day. Meanwhile
most small businesses and entrepreneurs are starved of cash as the
banks will not offer funds.
I have some sympathy with Big Business — it is they who create the
potential for us all to demand goods. And it is our demand that
equates to economic wealth, not supply. So it all begins with us as
individuals. We demand goods, and use money to lubricate the process.
Then having acquired stock we may process it, add our value, and sell
it on to others who are demanding.
What we must guard against is greed. Marx decided it was not good for
society to accumulate capital as a goal; on the other hand, using
capital as a lubricant was a valid use of money. I am not so sure that
the increasing bailouts by governments are really useful, as later
this debt must be paid-off. It is not yet guaranteed that we are
returning to a Keynsian growth scenario, as Krugman would have us
believe. Nor is the Austrian School modern mainstream, as collectively
we have too weak a belief in allowing free pricing to determine
So, yes, the UK is a microcosm of the woes of many countries at the
present time — its income disparity is increasing, as in many
developed nations (their Gini coefficients are increasing). My own
country, Germany, looks to be a rock solid economy, but one may
observe difficulties in policy theory and application. And the EU, as
well as other large economic blocs in the Americas and Asia, faces
micro and macro difficulties. I do not see any immediate resolution
until we have removed the general debt as Steve Keen proposes. That
will take a long time and there will undoubtedly be many more
Frank-Jurgen Richter is founder and chairman of Horasis, a global
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