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Whether considered boring, irrelevant or impossible to understand, economics and economists are held in poor regard by most people. However, a knowledge of how to create wealth is essential if we want to enjoy abundance. We need to be able to understand the claims made by politicians and policymakers so we can challenge them when necessary if wealth creation is to remain possible in the future. We all want abundance yet the subject of how this is best achieved is distorted into incomprehensibility by most politicians and the mainstream media within the Matrix.
In this episode of “Living outside the Matrix” Dr mark Thornton helps bring some clarity to a subject shrouded in jargon and obfuscation. He illustrates the differences between mainstream (Keynesian) economics and the Austrian school. I submit that the Austrian school is right on the money. It is the economics of peace, freedom and abundance, and therefore is not to be found within the Matrix of mind control. In most western nations these days just like in the film ‘The Matrix’ you are like a human economic battery, economically exploited for your sweat equity.
A Definition of Economics
Curiously, economics is a concept that has defied a universally accepted definition. One of the earliest and most influential economists Adam Smith, in his classic “The wealth of nations” (1776) defined what was then known as ‘political economy’ as “an inquiry into the nature and causes of the wealth of nations”. Alfred Marshall in his textbook Principles of Economics (1890) defines it as “…a study of man in the ordinary business of life. It enquires into how he gets his income and how he uses it. Thus, it is on the one side, the study of wealth and on the other and more important side, a part of the study of man.”
These days it is most often defined as “a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services.” But for reasons we shall explore, it isn’t really a science in the strict sense of the word because it is a study of human behaviour driven by choices that are not falsifiable. They cannot be nailed down – as it were – because human choices and preferences are always individual and subjective according to personal circumstances.
I define economics as “The study of principles of human behaviour concerning the exchange of values (goods, services and money), and the socio-political conditions required for the creation of wealth.”
Economics of the Matrix
Mainstream economics within the Matrix is generally referred to as ‘Keynesian’. John Maynard Keynes (1883 – 1946) was a British economist from Kings College, Cambridge and considered the most influential economists of the 20th century. He gave his name to mainstream macroeconomic theory.
This school of economic thought advocates much of what modern governments do and it provides a cloak of credibility and justification for the collectivists and socialists who wish to ‘re-distribute’ wealth, and claim to want to eradicate poverty while ignoring the facts of how to create wealth. Indeed, advocating policies that make wealth creation less likely, as opposed to more likely. Welcome to the Matrix. As always, some thought and consideration is necessary to think our way through the maze of misinformation and obfuscation. Critical thinking and examination of the issues are essential in finding our way out of the Matrix where our economic energy is harvested on tax farms called countries.
Keynesian Economic Principles.
Although the economic mainstream involves other schools of thought as well, the general mix is broadly Keynesian. I am not saying that mainstream economics is exactly Keynesian, but the general mix that guides the policy choices of governments is largely Keynesian. In a nutshell, these principles are…
- Implicitly, property rights are not universally recognised and respected, only to a degree. You can own what property the state allows you to own, but the state can seize it from you at will either by taxation, compulsory purchase or other arbitrary decrees.
- A centrally planned economy with an imposed fiat currency. Some semblance of a free market is tolerated yet the concept of central banking and the fixing of interest rates (the price of money) is excluded from the free market. A fiat currency is one issued by decree – that means you have to use it by order of the government. Without a free market in money, strictly speaking, there is no free market. This is why what we have today in the western world is called a mixed economy.
- Regulation of the economy (a controlled economy – not a free market) by government intervention.
- A belief in the need to ‘stimulate’ the economy by deficit spending. This means borrowing and increasing the public debt. Although Keynes also advocate reducing taxes to stimulate demand this is like trying to keep your cake and eat it too! The money has to come from somewhere, usually by confiscation in the form of taxes, or these days by creating money out of thin air using the printing press in the form of ‘Quantitative Easing’ (QE).
- An almost obsessive belief in the necessity of prediction, along with the use of elaborate computer models. In spite of which crashes are not successfully predicted – at least not publicly.
- Inherent in mainstream economics is the implicit assumption that the interests of the state supersede the interests of the individual. The individual is subordinated to the state. This means that you have no right to live for your own sake and to keep what is rightfully yours. It is important to recognise the implicit philosophical assumptions within the Matrix!
Austrian economics is a small school almost ignored by the mainstream (in the Matrix) and yet upon close examination, it is not hard to see that its foundational principles are exactly what is needed for the creation of wealth. Furthermore, this has been proven again and again throughout history as we observe the correlation between political and economic freedom with wealth creation and prosperity, such as with the USA in the 19th Century and post World War 2 Germany. Also, history shows us the correlation between a lack of political and economic freedom and economic failure. Soviet Russia and modern-day Venezuela are two obvious examples of the latter.
This school of thought was founded in Vienna in 1871 by Carl Menger (1840 – 1921). Its central theme is that the coordination of human effort can be achieved only through the combined decisions and judgments of individuals and cannot be forced by an external agency such as a government. It advocates freedom of association, a respect for property rights, and the abolishment of central banks.
The Principles of Austrian Economics
- A respect for property rights is the foundation stone for a wealth creation and economic activity. Without property rights no other rights are possible, and without the right to own and keep what we produce there is no incentive to produce anything or offer any services in exchange for personal gain. Without production, there are no goods to exchange and no wealth can be created. Wealth creation rests upon the production of goods. The production of goods rests upon a respect for property rights.
- A free market is the other essential foundation of a successful economy and wealth creation. Through supply and demand, the free market determines price, the measure of value, and enables the efficient allocation of capital, resources and labour. It allows people to exercise their own independent choices based upon their own unique personal knowledge of their best interests and ensures most efficient production of the goods people want. Prices are knowledge surrogates.
- Sound money. Austrian economics advocates a gold standard so that the measure of monetary value remains non-inflationary. This means that the yardstick of value remains constant – a self evidently desirable and necessary goal.
- Austrian economics sees itself as a study of human behaviour and not strictly speaking a science, because human choices cannot be shown to be falsifiable. This means that any individuals choice cannot be shown to be incorrect or wrong. It is simply the choice that they made. Tomorrow they may make a different one, and that one won’t be wrong either.
- Only individuals choose. Cost and utility are a subjective evaluation of each individual human choice.
- Markets are spontaneous orders. A product of human action but not of human design. You cannot create and control a market, it is what happens, an evolutionary process that emerges out of the choices of all participating individuals. Markets are self-organizing and adaptive. Austrian economics does not advocate government regulation. It should also be noted that one regulation always leads to another, and another, and another. This is demonstrably inevitable. Regulations always hinder entrepreneurs and wealth creating initiatives.
- The Austrian school is not so preoccupied with prediction due to the unpredictable nature of human choices. However Austrian economists have successfully predicted all the major economic crashes and downturns from 1929 to 2008.
- Austrian economics is not a set of policies.
Listen to the Podcast or watch the Youtube video to hear more from Dr Mark Thornton.
The Ludvig Von Mises Institute at https://www.mises.org
The Foundation for Economic Education at https://fee.org
The American Institute for Economic research at https://www.aier.org
“Economics in one lesson“by Harry Hazlitt. I thoroughly recommend this classic book. It is an excellent read for anyone aspiring to understand economics. Easy to read and easy to understand – it’s brilliant.
“The failure of the new economics” also by Harry Hazlitt. This is a line by line commentary and refutation of one of the most destructive and convoluted books of the century: John Maynard Keynes’s “General Theory of Employment, Interest and Money”.
“Human Action” by Ludvig Von Mises. A classic summary of sane economics.
I hope you have enjoyed this post/podcast and got some value from it.
Feel free to join the conversation and leave a comment below.
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