Tuesday, June 19, 2012

How the Great Depression Inspired a New View of 'Economics'

by Len Hart, The Existentialist Cowboy

Irving Fisher (February 27, 1867 – April 29, 1947) was an American economist, inventor, and health campaigner, and one of the earliest American neoclassical economists, though his later work on debt deflation is often regarded as belonging instead to the Post-Keynesian school.

Fisher made important contributions to utility theory and general equilibrium. His work on the quantity theory of money inaugurated the school of economic thought known as "monetarism." Both Milton Friedman and James Tobin called Fisher "the greatest economist the United States has ever produced." Some concepts named after Fisher include the Fisher equation, the Fisher hypothesis, the international Fisher effect, and the Fisher separation theorem.

Fisher was perhaps the first celebrity economist, but his reputation during his lifetime was irreparably harmed by his public statements, just prior to the Wall Street Crash of 1929, claiming that the stock market had reached "a permanently high plateau." His subsequent theory of debt deflation as an explanation of the Great Depression was largely ignored in favor of the work of John Maynard Keynes. His reputation has since recovered in neoclassical economics, particularly after his work was revived in the late 1950s and more widely due to an increased interest in debt deflation in the Late-2000s recession.

Fisher produced various inventions during his lifetime, the most notable of which was an "index visible filing system" which he patented in 1913 and sold to Kardex Rand (later Remington Rand) in 1925. This, and his subsequent stock investments, made him a wealthy man until his personal finances were badly hit by the Crash of 1929. He was also an active social and health campaigner, as well as an advocate of vegetarianism, Prohibition, and eugenics.
Then we may deduce the following chain of consequences in nine links:
(1) Debt liquidation leads to distress setting and to (2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes (3) A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be (4) A still greater fall in the net worths of business, precipitating bankruptcies and (5) A like fall in profits, which in a " capitalistic," that is, a private-profit society, leads the concerns which are running at a loss to make (6) A reduction in output, in trade and in employment of labor. These losses, bankruptcies, and unemployment, lead to (7) Pessimism and loss of confidence, which in turn lead to (8) Hoarding and slowing down still more the velocity of circulation. The above eight changes cause (9) complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest. Evidently debt and deflation go far toward explaining a great mass of phenomena in a very simple logical way.
I have been both a central banker and a market regulator. I now find myself questioning whether my early career, largely devoted to liberalising and deregulating banking and financial markets, was misguided. In short, I wonder whether I contributed - along with a countless others in regulation, banking, academia and politics - to a great misallocation of capital, distortion of markets and the impairment of the real economy. We permitted the banks to betray capital into “hopelessly unproductive works”, promoting their efforts with monetary laxity, regulatory forbearance and government tax incentives that marginalised investment in “productive works”. We permitted markets to become so fragmented by off-exchange trading and derivatives that they no longer perform the economically critical functions of capital/resource allocation and price discovery efficiently or transparently. The results have been serial bubbles - debt-financed speculative frenzy in real estate, investments and commodities.
--London Banker,Fisher's Debt-Deflation Theory of Great Depressions and a possible revision
James Tobin argues that the intellectual breakthroughs that mark the neoclassical revolution in economic analysis occurred in Europe around 1870. The next two decades witnessed lively debates in which the new theory more or less absorbed or was absorbed in the classical tradition that preceded it.[13] In the 1890s, according to Joseph A. Schumpeter[14] there emerged A large expanse of common ground and ... a feeling of repose, both of which created, in the superficial observer, an impression of finality -- the finality of a Greek temple that spreads its perfect lines against a cloudless sky. Of course, Tobin argues, the temple was by no means complete. Its building and decoration continue to this day, even while its faithful throngs worship within. American economists were not present at the creation. To a considerable extent they built their own edifice independently, designing some new architecture in the process. They participated actively in the international controversies and syntheses of the period 1870-1914. At least two Americans were prominent builders of the "temple," John Bates Clark and Irving Fisher. They and others brought neoclassical theory into American journals, classrooms, and textbooks, and its analytical tools into the kits of researchers and practitioners. Eventually, for better or worse, their paradigm would dominate economic science in this country.  
Fisher's research into basic theory did not touch the great social issues of the day. Monetary economics did and this became the main focus of Fisher’s work. Fisher's Appreciation and interest was an abstract analysis of the behavior of interest rates when the price level is changing. It emphasized the distinction between real and monetary rates of interest which is fundamental to the modern analysis of inflation. However Fisher believed that investors and savers —people in general— were afflicted in varying degrees by "money illusion"; they could not see past the money to the goods the money could buy. In an ideal world, changes in the price level would have no effect on production or employment. In the actual world with money illusion, inflation (and deflation) did serious harm.
Also see: The Top 10 Most Influential Economists of All-Time

Sunday, June 17, 2012

The Fascist Coup Called 'Corporate Person-hood'

by Len Hart, The Existentialist Cowboy

I was asked to explain why a group of individuals should not have the same freedom of action as a singular individual. And I was told so magnanimously to "...feel free to reference any philosophy journal you wish in your response." My response was to ask WHY and HOW a group --which must act 'collectively' -- acquired what even scientists have called a 'conscience'? I asked for an explanation: how may any "group" and especially a corporation exercise a conscience'?

In fact, no collective, no corporation, no club can --as a collective --exercise 'conscience'. A group --were it a person --would be defined by its inability to act upon conscience, to 'feel' obliged to act in ways that are consistent with an ethical position, a morality, or a secular ethic derived from philosophy or logic. As a result of this hypothetical, I have come to suspect that the very purpose of both corporations and the 'movement' to make persons of them is twofold: 1) to raise huge amounts of cash and 2) to allow them to act FREE of moral restraints --restraints that 'real' persons often trace to 'conscience'!

Groups are not individuals by definition! Groups may act upon a consensus! An individual because he/she is an individual is held accountable for his/her crimes, sins or transgressions against society. That is not the case with groups of any sort nor is it the case with 'corporations'. It was the purpose of Citizens-United to put corporations above all that while granting them 'privileges' --privileges that 'real' persons will never enjoy.

One must not mistake a collective of any sort with the individuals who comprise it. A covey is not a quail; a choir is not 'a' soloist; a single violinist is not an orchestra. Nor can one mistake the sound of a choir with that of an individual soloist. Likewise, a 'pride' can never be mistaken for a single lion nor vice versa. An ant colony is not 'an' ant!

Corporate personhood is a hoax if not a bald-faced lie! And, it has been my experience, that no good has ever come as a result of a lie or the embrace of one. Thus --we come to the reasons that the hoax of 'corporate personhood' was handed down by an increasingly crooked and incompetent court. Corporations have, in fact, used their access to wealth to influence political campaigns in ways that individuals could never do! I speak from experience, having consulted several political campaigns in one of the nation's largest cities.

As an individual, I pay my bills! I don't have anything left over with which to influence politicians of any persuasion ---even Libertarians. But what if I were a large corporation with deep-pockets and even deeper connections to the Republican party? As a corporation I could write off my contributions and get a whopping tax break. The scheme is very nearly perfect but for the fact that corporations --not being persons --could be challenged. The corporate support of a political candidate could not be construed to be 'free speech'. But --never fear --the high court, now dominated by GOP appointees fixed all that!

Corporate contributions are now smiled upon. Corporations may now BUY politicians and perhaps the election itself! That is motivation behind Citizens-United. Being "people" can bankroll politicians in any way they wish. They are no longer constrained. We should not be surprised when corporations attempt and purchase elections outright. The word for this is fascism.

I am reminded of A. Hitler's infamous meeting with Krupp, Thyssen, I.G. Farben (the makers of Xyklon B). Hitler literally auctioned off the Third Reich and offered his services as Fuhrer in residence! Corporate personhood is fascism/nazism given a K-street make-over! But the end result is the same: corporations now have a great light to buy the Rei...uh... the republic! And the 'republic' is given a green light to grant whopping contracts to its corporate sponsors. The government has become a soap-box derby.

The term 'artificial person' is an oxymoron but the GOP would like to have it both ways. With Citizens-United, the GOP could have it both ways: the granting of the rights of individual persons to corporations who retained their ability to raise absurd amounts of cash. 'Real persons' are, by definition, real! Now, however, the corporate right-wing' (fascists) expect us to believe that a 'corporation-cum-person' can be both REAL and --at the same time --artificial --For the purposes of raising cash. Real persons cannot do that. But corporations can and Citizens-United was the right wing solution.

Corporations were at one time only formed in the public interest (build a bridge) and dissolved when the reason for their incorporation was finished. This was a legal protection required to get the job done. But, in any case, it does not make a 'legal abstraction' a 'person'! Fact is --people are biological. A corporation is a legal abstraction, the behavior of which is described in a set bylaws filed with a Sec of State --usually Delaware.

A corporation is better described as a 'contract' outlining the parameters of taxation, commerce, bylaw et al! But CONTRACTS are NOT people either. But there is absolutely nothing that can create people our of mere 'legal abstraction'.

Real persons are conceived biologically in a womb! There is a word for that process but this short note is not about sex. Corporations, by contrast, are pieces of paper filed with a Sec of State somewhere (probably Delaware). Ergo: a 'corporation' is not and never will be a person.

A 'corporation' has more in common with and is more accurately described/compared to a piece of paper than to real, living biological persons to whom John Locke and, later, the American founders, ascribed 'rights'. NO rights accrue to a mere legal abstractions but the 'privileges' that are defined and described specifically in a corporate charter that is prepared in advance by REAL people. Corporations can be constrained, restrained and/or limited by law and several hundred years of precedent.

NO intelligent person believes a 'corporation' is a 'person'. Sir/St Thomas More --arguably the most brilliant confidant of King Henry VIII --most certainly did not believe 'corporations' were 'persons'. More believed, rather, that they were 'conspiracies' and 'conspiracies of crooked rich men' to boot:

"I can perceive nothing but a certain conspiracy of rich men procuring their own commodities under the name and title of the commonwealth.They invent and devise all means and crafts, first how to keep safely, without fear of losing, that they have unjustly gathered together, and next how to hire and abuse the work and labour of the poor for as little money as may be. These devices, when the rich men have decreed to be kept and observed for the commonwealth’s sake, that is to say for the wealth also of the poor people, then they be made laws.But these most wicked and vicious men, when they have by their insatiable covetousness divided among themselves all those things, which would have sufficed all men, yet how far be they from the wealth and felicity of the Utopian commonwealth? Out of the which, in that all the desire of money with the use of thereof is utterly secluded and banished, how great a heap of cares is cut away! How great an occasion of wickedness and mischief is plucked up by the roots! 

--Sir Thomas More (1478–1535), Utopia, Of the Religions in Utopia"
A hurd is not a cow! A covey is not a quail! An ant is not a colony! A stamp collection is not a stamp nor is a flock a sheep.

So there, Mitt Romney! Read and learn. You are --despite having sold your soul to the GOP --a person! But as real persons are often intelligent and because real persons have a vote (one person, one vote) you will --with any luck --never assume to the high office to which you aspire.

Also see: Profits Uber Alles! American Corporations and HItler