15) THE ECONOMIC CONCEPT OF FUNDAMENTAL IMPORTANCE
1) POLITICS AND PHYSICAL GEOGRAPHY
New York City is a good example of how a very important factor in the politics of an area is determined by it's physical geography.
The basic free-enterprise model of economics is based on the Law of Supply and Demand. As a city grows outward, if the market mechanism is allowed to work, housing costs will be determined by the same market mechanism that sets other prices and wages, and workers will be able to afford homes on their wages.
It sounds very logical and it is. The market is a self-regulating mechanism which sets appropriate prices of goods by the Law of Supply and Demand. It is very difficult to disagree with the wisdom of this model of how the economy should operate.
But there is a catch. This free-enterprise economic model presumes that the city will grow outward on an idealized flat plain. But the reason that the city is there in the first place may be that the landscape is something other than a flat plain.
It makes sense to build a city around a good harbor. The trouble with that is that the water of the harbor will take up space that cannot then be used for building. This actually interferes with the free-enterprise model seen above. It distorts the model by reducing the space available to build housing. This drives up the cost of land, relative to the other costs and wages.
If the distortion in the free-enterprise model is enough, there will be workers whose labor is needed but will not earn enough to afford housing based on the market mechanism. The result will typically be informal of makeshift or over-crowded housing that exists outside the market structure.
This necessary housing that exists outside the market structure, due to the distortion of this model by the driving up of the price of land relative to the rest of the market structure by some physical barrier such as a harbor, even though that may be the reason that the city is there in the first place, is less-politely known as a slum. In the past in New York City, it took the form of tenements.
The mechanism of market economics, based on the law of supply and demand, seems to make perfect sense. But it doesn't take account of the possibility that there may not be that idealized flat plain for the city to grow outward on, which will keep the cost of land and thus housing operating within the market structure.
It doesn't have to be a harbor. A city may have grown up around a castle or fortress that was built on a hilltop. But that hill, if it takes up space that cannot be used for housing, it will drive up the price of land and thus housing relative to other costs and wages. That will make it more difficult for many people to afford a place to live because it distorts the market mechanism.
Have you ever noticed that Republicans and Conservatives tend to live in places where the cities are indeed on idealized flat plains so that market mechanism looks like it works well? Democrats and Socialists tend to be found where there is some kind of natural barrier to the growth of cities, even though that may be the reason that the city is there in the first place, that would leave so many people unable to afford to live within the market structure.
How much of a coincidence can it be that, in America, Democrats are concentrated along the coasts, where the major cities are not only historically based around harbors but there is also mountains hindering urban growth, the Appalachians in the east and the Sierra Nevada and Cascades in the west?
In America's Republican "Heartland", in contrast, cities are much more likely to have access to an idealized flat plain to grow outward on. This makes it appear that the market mechanism works just fine, with no need for government "interference". The Democrat-Socialist position is that government involvement in the economy is necessary not to prevent the market from working, but to make sure that it keeps on working because there are many factors that can distort it. In New York City, that took the form of housing projects and rent controls.
This is also why Democrats tend to be concentrated in urban areas, while Republicans are concentrated either where large cities have an idealized flat plain to grow outward on, or where there are no large cities anywhere nearby.
The reason that New York City is so strongly Democrat is that about 30% of the city's metropolitan area is taken up by water. This is what distorts the market mechanism by driving up the price of land, and thus housing, relative to other costs and wages. Without government "interference" in the economy, there would be many people whose labor is needed, who have jobs, but would not be able to afford a place to live within the mechanism of the market structure.
It is much easier to be a Republican in places like Phoenix or Omaha, where there is more of that idealized flat plain for the cities to grow outward on, and the free-enterprise market mechanism based on the law of supply and demand, seems to work well.
Another factor is power. The market mechanism pays workers according to what there labor is worth in the same way as the law of supply and demand for goods. This sounds perfectly logical, workers will have the incentive to improve their skills in order to earn more, just as manufacturers have the incentive to improve their products in order to sell more. This forms a slope from low earners to high earners.
The trouble is that this aspect of the economic model is distorted by the fact that money inevitably equals power. People with money, and thus power, will use their money to affect changes so that still more money comes their way, at the expense of those lower on the pay scale. The slope will get steeper so that is is no longer in harmony with the Law of Supply and Demand.
If there is less consumer spending, because the lower-paid majority do not have enough money to spend, a recessionary spiral can get started because it makes no sense to produce products if people do not have the money to buy them. More workers are let go and the spiral continues. This can bring about the deadly spiral of "The rich get richer and the poor get poorer until the economy crashes for lack of consumer spending by the majority of the population".
The Democrat-Socialist solution is to have the government not interfering with the market mechanism, but to see that it continues unhindered by making sure that workers have enough purchasing power to keep the economy going. This counteracts the "drift" toward the rich getting richer and the poor getting poorer due to money inevitably equaling power.
Still another factor is what is known as gentrification. When an area becomes an attractive place to live, it may attract wealthy people. This sounds like a good thing but it can also drive up prices so that people who have lived there all of there lives can no longer afford it.
This is why New York City is known for it's system of rent controls. This must be done very carefully because if a building owner cannot make a profit then it doesn't make any sense to be in business. But the idea is to prevent people from being suddenly uprooted from where they have long lived because landlords can charge more for rent now that wealthy people have discovered the neighborhood.
The idea is not to stop the market from working, but to make sure that it keeps on working. It is clear how much of a role physical geography plays in this.
2) NATIONAL AND ECONOMIC IDEOLOGIES AS SUBSTITUTES FOR RELIGION
The modern idea of the nation-state is a relatively recent development. Around the beginning of the Twentieth Century there were many people in remote areas who were not sure, and were not greatly concerned with, which nation they belonged to. The tribe, ethnicity or, religion was more important.
In ancient times, people did not go to war for their nation. It was for the religion, or the king who they believed was anointed by God. The nation was just the group of people who followed that God. The idea of going to war just for the nation in itself, without being defined by any god, would be somewhat absurd.
In 1859 the book, "On The Origin of Species" was published and was an immediate success. It became the foundation of the Theory of Evolution. I do not see it as disproving the existence of God in the least. It explains how the principle of "natural selection" operates, there is variation in a species of living things by random mutation, which I think cosmic rays contribute to, and the "survival of the fittest' principle means that those members of the species with the most beneficial mutations are the ones most likely to survive long enough to reproduce, and thus to pass along their genes.
It sounds perfectly logical and I, as a Christian, have never had a problem with it. The success, growth and, failure of businesses operates in the same way, "Only the strong survive". The weak go out of business to make way for the strong, so that the entire system keeps getting stronger.
The book doesn't explain, or really try to explain, how life got started in the first place. But it quickly became the intellectual foundation of people who didn't believe, or didn't want to believe, in God. Every thinking person has to give some consideration as to how we came into existence, and this book seemed to provide a way to do it without God.
Across Christian Europe, faith in God declined. But humans are designed to believe in God and when we don't believe in God we just put something else in his place as our focus of identity and life. There is that old principle that "If you really want to be a great leader, find a bunch of atheists and give them something to believe in".
Atheists often point out how destructive things have been done in the name of God. That is unfortunately true but the "something else" that replaces belief in God, because we are designed to believe in something, can be destructive too.
I see 1871, twelve years after the publication of "On The Origin of Species", as a critical year in the development of the modern world for two reasons.
The first reason is nationalism. As explained above, the concept of the nation-state as one's primary identity is a relatively recent development. But by 1871, evolutionary ideas had spread throughout Europe. Then something shocking happened. It doesn't seem shocking today but it was at the time.
The Franco-Prussian War began between the French Empire and the German-speaking state of Prussia in north central Europe. Prussia had already shown itself to be the dominant German-speaking state as they gradually moved toward unity, inflicting defeat on rival Austria several years before.
What is so unusual, and really took the French by surprise, is that the historically Catholic southern German-speaking states joined Protestant Prussia, centered around Berlin, against historically-Catholic France.
I see this as the first major instance that nationalism, here based primarily on language, had predominated over religion. This is what brought the German-speaking states across central Europe together, with the exception of Austria, and, upon victory, the German Empire, ruled by the kaisers, was actually proclaimed at Versailles.
Germany had been precluded from uniting for so long due to the division between Catholic and Protestant but now that had changed. France seemed to realize how the loss of religion was not in it's favor and constructed the Basilica Sacre Coeur (Sacred Heart) on the highest point in Paris. The Franco-Prussian War of 1871 was not just between the French Empire and the new German Empire, it was also between religion and nationalism as the primary point of identification.
The same conflict brings us to the second reason that 1871, twelve years after the publication of "On The Origin Of Species", was a critical year in the development of the modern world.
During the upheaval of the Franco-Prussian War, a group called the Paris Commune was able to seize control of Paris. The Paris Commune was what could be called a proto-Communist group. Communism is not considered to have officially begun until the October Revolution of 1917 but it did have predecessors, specifically the Paris Commune and the 1910 Mexican Revolution.
Before being suppressed two months after seizing power, the Paris Commune was extremely destructive. They seemed to be trying to destroy everything that represented the existing order in France. This followed the pattern, of course, of the French Revolution which began 82 years before.
There used to be a palace that enclosed the courtyard of the Louvre, the Tuileries Palace. The Arc de Triomphe du Carrousel was the entrance arch to the palace. Early in Napoleon's military career, he had been captain of the guard at the palace.
The Paris Commune, known also as the Communards, destroyed the palace using flammable liquid and tried to destroy the entire attached Louvre. The Hotel de Ville, Paris City Hall, met the same fate as did other important structures like the Palais Luxembourg, which is now the upper house of the French Legislature.
The stone structure of the Hotel de Ville remained and it was rebuilt. The Palais Luxembourg was repaired. The stone structure of the Tuileries Palace remained but the decision was finally made to raze it.
1871 was thus the beginning of religion being replaced as the primary identity of a people by nationalism and political ideologies. People are designed to believe in God and experience has shown that, if they lose that belief, they will just replace God with something else.
It may be unfortunately true that a lot of destruction has been done in the name of God but it is also true that a "something else" that replaces God can be even more destructive. What ideologies like Nazism and Communism basically did was to take people who, for the most part, no longer believed in God and did a magnificent job of giving them something else to believe in.
How many people have you known that their nation or political ideology is, in effect, their "religion"? I see it as all being traceable back to the publication of "On The Origin Of Species", and the misconception that it somehow proves that there is no God.
3) THE MIDLANDS AND THE ECONOMICS OF THE INDUSTRIAL REVOLUTION
The Midlands region of England is the area where people first began working out all of the changes brought about by industrialism. It turned out that actually making things in factories was the easy part. Adapting to the economics was much more difficult and, while we have made a lot of progress, we are still trying to get it just right.
What happens is that society itself becomes part of the factory system, and administering it is a lot like running a machine in a factory. In a free-enterprise system, factory owners naturally want to maximize their profit by charging as much as they can for the product while paying their workers as little as possible. But that it where the complications begin. If all factories follow that strategy the workers will not have enough money to buy the products that they, as a whole, are producing. Since it does not make sense to produce goods that are not going to sell, and since factory owners are reluctant to lower prices, they will cut back on production. But that will mean letting go of workers who will then have even less money to buy goods, and the spiral continues until the economy possibly crashes.
That is what happened in the U.S. in 1929. There was a lot of excess productive capacity available after the end of the First World War. It was used to produce a fantastic array of consumer goods, during the bountiful era known as "The Roaring Twenties". But the trouble was that the workers, who were also ultimately the consumers, were not earning enough money to buy all of the goods that were being produced. Factories began cutting back on production of the goods that were just piling up in warehouses, and it spiraled into a devastating crash. The U.S. came close to a similar crash on two other occasions, in 1987 and 2008.
There was also such a thing as paying workers too much. Just ask anyone who lived in England during the late 1970s. When workers are paid too much, the economy just adapts by way of inflation. The money in circulation is a reflection in value of all of the goods and services being produced. If more money is printed and given out, goods will just get more expensive. Workers in one industry would see other workers getting raises by going on strike, and they would follow. In 1979, inflation in Britain reached a very dangerous 27 %.
Most governments prefer just a little bit of inflation, maybe 2 %, because it acts as a cushion against deflation, which is worse than inflation. Deflation means that prices are dropping, and it doesn't make sense to make anything if the money it brings in will be less than what it cost to make it by the time it is sold.
The philosophy of the Industrial Revolution was simple, to let the machines do the work instead of people. But the implications were unfortunately much more complex. We literally define success as putting people out of work. If it takes six people to do as task, and we find a way to do it with two people, that is considered as making progress. But than what are the four people supposed to do to earn a living?
Clearly, the philosophy of the Industrial Revolution calls for some kind of mutually-supportive socialism since the very objective of the economy comes down to putting people out of work. But then human nature enters the picture in a way that it never did in pre-industrial society. What about incentive? Moving the Industrial Revolution forward requires more ideas. The machines, while decreasing the overall need for workers, still requires knowledgeable people to build and maintain them. But why should anyone bother if they are going to get paid for not working because machines are doing the work for them?
That means that there must be a balance out there somewhere that would fit society just right. But where is that balance between socialism and pure free-enterprise? It comes down to how much workers are paid to produce goods relative to the cost of the goods that they are producing. We saw in the examples above how paying workers either too much or too little can be very dangerous to the economy. This is something that we never had to deal with before the Industrial Revolution came along.
Part of the problem is that we do not have a true market economy. People have bought and sold at markets for thousands of years. But prices were not fixed. What was paid was based on haggling. Prices would thus continuously adapt to demand in traditional marketplaces. But when we set a national-scale market, prices are fixed and often cannot adapt fast enough for best matching of supply and demand. This is especially true as stores and suppliers are naturally reluctant to lower prices because it cuts into profit.
The trouble with finding the best balance between wages and prices is who do we ask? Ten people might have ten different opinions. People who are making money naturally want to keep it that way. Why should they have to pay taxes to support people who will then see no reason to have to work? But then shouldn't people who work hard all day be able to live relatively comfortably on their wages? Shouldn't there be support for those out of work since the very objective of an industrial economy is to put people out of work? Isn't it true that the more difficult it is to live by the rules the more people there will be who don't live by the rules, and lack of social support will only mean more people in prison? How much sense does it make for the government to spend a lot of money to defend the country against potential attack, but the people are on their own if they get sick or injured?
But then the trouble with that is that the economy is complicated. In fact, it is as complicated as we are. The economy is like a 360 degree circle with people inside, looking in all directions, but none seeing the entire circle. Some can see how easing taxes on business will likely enable it to expand, thus creating more jobs. Others can see that not benefiting workers enough will endanger businesses because they will not be able to buy all of the goods that are being produced, which invited a recessionary spiral or an outright crash.
But few people can see the big picture of 360 degrees. It comes down to the simple question of which is more important in an economic transaction, the buyer or the seller? Those on the right support the seller, those on the left the buyer. But isn't it like asking which shoe is more important, the left or the right shoe?
It is so difficult to get just the right economic balance because of how we react. The best economic position is in the center, meaning that buyer and seller are of equal importance. But we are almost always too far to the left or right. When we try to correct it, we react by going too far in the opposite direction. Then we correct that by going too far back to the original direction. There is the tendency to think that if a little bit of socialism works well, and it does, then a lot of socialism will work even better, except that it doesn't.
Economics is a complex realm, as opposed to a simple realm. The difference is that, in a complex realm, two opposing statements, such as two economic positions, may both be true. Whereas, in a simple realm, a statement must be either true or false. I define the difference between a religion and a philosophy as religion being the simple realm, either there is a god or there isn't, and philosophy being the complex realm, where two apparently opposing statements may both have merit. Things to do with the universe of inanimate matter are in the simple realm, but things to do with human beings may be in the complex realm. The best in economics, in my opinion, is not to choose between right and left but to find the best way to weave them together.
Industrialism is inevitably associated with secularism. When a person works in the fields, they deal with what God has created all day. When a person works in a factory, they deal with what man has created all day, and some find it easier not to believe in God. Notice, for example, that America's "Bible Belt" is in the most agricultural region of the country. Charles Darwin was from the Midlands and his theory of adaptation by natural selection very much looks like an industrial process of continuous improvement. Although it does not explain, or really try to explain, how living things began from inanimate matter and I, as a Christian, do not see how it in any way disproves the existence of God.
But humans are designed to believe in something and the Industrial Revolution brought new economics with it. First Capitalism, and then Communism as a reaction against the harshness, unfairness, and destructiveness of early Capitalism. How many people have you known whose "religion" was their political or economic philosophy? Nationalism also became a new substitute for religion. The modern idea of the nation-state is a relatively recent development. It used to be that the religion or the tribe was almost always more important. But how many other people have you known whose nation is their "religion"? The great wars of the Twentieth Century were mostly over these substitutes for religion.
This making a religion out of political-economic philosophies certainly slowed the never-ending search for the most effective balance between the side of the buyer and that of the seller. The industrial nations once had some adhering to Capitalism and some to Communism. The overall trend ever since is that both sides have been moving toward the center, but nations had nuclear missiles pointed at each other over rival economic systems..
Have you ever thought about the effect that an economic system has on the character of people? Free-enterprise is based on competition to bring about the best in products. The trouble with that, once again, lies with human nature. A lot of people cannot compete without being nasty. The result is that, while competition brings about the best in products, it also brings out the nastiness in people. The emphasis on switching to a new brand if it beats it's competitors invites fickleness. The inevitable disparities in wealth between fellow citizens invites coldness to the less-fortunate.
But leftward economics, with the emphasis more on egalitarianism with less inequality, invites resentment. Why should you have the right to have something or be able to do something that I can't?
Which one is worse? It depends, as always, on one's opinion.
The original industrial societies of the west have long since gone on to the next step, that of a service economy. Industrial production, on a large-scale has moved to other countries. But there has to be an industrial economy before there can be a service economy. The wages of the service economy must be supported by the wages of the industrial economy. This means that, in a service economy, both wages and prices will be high while, where the majority of the people are working in manufacturing or agriculture, both wages and prices will be relatively low.
By no means has all industrial work gone overseas to lower-wage countries. It is more profitable to have large-scale bulk manufacturing done overseas but as demand gets ever-more specialized, industry gets more smaller orders than fewer larger orders. It makes less sense to send smaller, more specialized orders, overseas. In addition, if the cost of fuel is rising it does tend to make everything else more expensive but that is especially true for goods produced far away so that it makes more sense to make them closer.
My economic theory is that the best comes from effectively weaving left and right together in a search for the best of both with the worst of neither. So much that humans do, such as test scores and physical abilities, plot as a bell curve with the greatest number of people being near the center. That means that if economics is a true meritocracy, with equal opportunity for everyone, the economic distribution of wealth should also plot as a bell curve, with the most people being in the middle of the middle class. When the system has gone too far left or right it should show up as a distortion of the bell curve.
We can compare it to the humps of camels. Since charts of human abilities virtually always tend to form a bell curve, that is what the economy of a real meritocracy should look like, with most people in the middle class. This looks like the one hump pf the dromedary, or Arabian camel. But if money is allowed to equal power, so that more money is pulled toward those who are already wealthy outside of meritocracy, the economic distribution will be distorted toward the two humps of the bactrian camel, more rich people but also more poor people, with a diminishing number in the middle.
Having everyone equal generally destroys incentive to work but the peril or inequality is that money inevitably equals power. Those with money and power use it to pull the structure of the economy in their direction, meaning that the rich get richer not by increasing overall production but by the poor getting poorer. But the rich generally depend on the working masses to buy the products that they produce. Pulling the economic structure toward the wealthy brings a temporary increase in their wealth but also invites a recessionary spiral, or even an outright crash, by not leaving enough money in circulation to buy all of the goods and services that are being produced.
The way I see it, economics can be illustrated by the simple method of multiplying two numbers, that sum to ten, in search of the maximum product. One side of the scale represents pure Communism and the other side pure Capitalism. Mild socialism is in the center. If we multiplying 1 x 9, or 9 x 1, we get the undsirable results of either pure Capitalism or pure Communism. 8 x 2 = 16. 7 x 3 = 21. 6 x 4 = 24. It is when we get to the center, 5 x 5 = 25, that we get the best economic results. Since one side represents the seller, and the other the buyer, this shows that the two sides are equal.
Another component of my view of economics is the four workers. Every worker fits into one of the following categories, with knowledge being considered as a product.
1) Those who make things.
2) Those who fix things.
3) Those who move things.
4) Those who run things.
This Model of the Four Workers considers disseminating knowledge as "making" and selling something as "moving" it. But the model could possibly have two more workers added, "making" knowledge, as opposed to material products, as 2, and "Those who sell things" coming after "Those who move things. Security and military are tools of "Those who run things".
The goal should be to emphasize as many workers as possible being as high as possible, with as many as possible actually making what is needed while the lower categories having only as many workers as is really necessary. The trouble with a free-enterprise economy with not enough oversight is that it will tend to "drift" toward more and more workers not actually producing anything. Even when things are produced, things that are really necessary should be emphasized over "artificial" necessities. An example of an artificial necessity is cars. In most societies it is very advantageous to have a car, but only because society has allowed it to be set up that way.
A sign that something is wrong with the economy is spiraling, and this will show as a distortion of the bell curve. For an economy to really be a meritocracy, spirals must be avoided. People can get on an upward spiral, because money tends to equal power and they can use their power to send more money their way, although it is outside the meritocracy on which a free economy is supposed to be based. People can get on a downward spiral because of worsening credit they have to pay more for everything and can never get out of poverty no matter how hard they work. The economy as a whole can get on a recessionary spiral because workers are not being paid enough to be able to afford to buy all of the goods and services that are being produced, factories cut back on production meaning that workers have even less money and the spiral continues. The economy as a whole can also get on an inflationary spiral because workers are being paid more than their labor is really worth and, as prices rise, they are given pay raises to keep up but this only keeps the destructive spiral going.
People moving for economic opportunity forms another spiral. When people leave one place because of declining fortunes, those remaining still have to pay the taxes to support an infrastructure that was intended for more people. That prompts still more to leave and thus continues the downward spiral. When people move to a place, it is the most enterprising and dynamic people who are usually the ones to move, and that creates an upward spiral that draws in still more people, until rising prices slows the trend according to the Law of Supply and Demand.
Another spiral involves buildings. A large building is more efficient than a small one. But that is true only if the building can be completely occupied. If it can't, the tenants that are there have to pay to support a building that was intended for more people or businesses. That prompts some to leave, continuing the downward spiral.
These spirals counteract the principles on which the free economy is to operate, that of meritocracy and supply and demand. I thus see avoidance of a spiral as a primary economic goal. There will be movement from one place to another, according to supply and demand, but the basic operation of the economy is distorted in a negative way by this spiral effect.
Yet another destructive spiral is people warning that there is going to be a recession. When people hear that there is a recession on the way, they may curtail their spending to save money. But then that lack of consumer spending is what brings about the recession, and it turns out to be self-fulfilling.
One of the most notorious spirals is the investor bubble. People with money to invest see the price of some commodity rising, and figure that they can make money by buying now and selling later, after the price has risen appreciably. The trouble is that other people, maybe many other people, are thinking the same way. This causes the price to continue to rise, but not because of the genuine Law of Supply and Demand. It is an artificial bubble that, sooner of later (hopefully sooner) is going to burst, and a lot of people may lose a lot of money. The loss may be enough to have a serious effect on the entire economy.
Among the profound changes brought about by the Industrial Revolution was our concept of time. An agricultural society lives by the calendar. Crops must be planted and harvested at the right time of year but the time of day is not important. Industrial societies, in contrast, live by the clock rather than the calendar. Workers have to be at the factory in time to start their shift, but the time of year was generally unimportant.
A new order of things means displacement for the old order. Bristol had long been England's most important port but the new larger ships that were made possible by the development of the steam engine did not maneuver easily into Bristol's Avon River. Liverpool became the new most important port, and a canal gave Manchester access to the sea. It actually depended on Britain's relations with Europe. When relations were less-than-friendly, Liverpool was the most important port because it faced away from Europe. But if relations were friendly, then Southampton had the advantage because it faced toward Europe.
Birmingham was only a town when the Industrial Revolution began, but it outgrew all of the older cities around it. This was because a new property order was necessary and it was easier just to build a new city around it then to change the property order in existing cities. This can be seen in that the two largest cities on the Great Lakes are Toronto and Chicago, both of which had their downtown erased by cataclysmic fires. But this turned out to be "creative destruction" in the long term, because it provided a chance to start the property order over. The greatest example of the periodic necessity of starting the property order over is Paris. Without the extensive Nineteenth-Century renovation of Napoleon III, it certainly wouldn't be the city that it is today.
But the most profound change to society was certainly the new class system that replaced Feudalism. It was hierarchical, just as Feudalism was, but the factory owners were the new upper class over the vast majority of people who were commoners. The upper class wanted to keep the privledges for themselves and, in my opinion, did what they could to keep the commoners down.
When democracy became widespread the upper class mostly supported rightward economic policies, trying to convince voters that we would all be better off if the lower classes defer to the wealthy. This brought about Marxism, or Communism, which was originally intended for England. I don't think that England, with it's background of the Protestant individualism which brought about the Industrial Revolution in the first place, was ever really suitable for Communism but I am sure that Karl Marx never imagined that his economic theory would be enshrined first in Russia.
Anyway, the Midlands is where people first began sorting out all of the implications and economics of the new industrial society. If only it was as simple as actually making the goods in the factories.
4) CITIES OF CONFLICT
This isn't about a war zone. Actually it is about the future of Toronto.
A great city can be made by conflict. Not conflict where the city is, but conflict somewhere else that makes the city the new center of gravity. There are two examples of cities that became among the largest cities in the world due to conflicts somewhere else that I think apply to Toronto today, and where it might be going in the future.
The first is Moscow. A thousand years ago, there was nothing to indicate that Moscow should ever be a great city. But then events came along that changed things, These events did not take place in Moscow, or have anything to do with Moscow, but took place far away.
The Great Schism of 1054 took place over controversy between eastern and western Christians over how much authority the pope should have. The eastern part of the church split away to form the Eastern Orthodox Church. The center of this church was the Hagia Sophia, in Constantinople, and this was where the split took place.
But in subsequent centuries Byzantium, of which Constantinople was the capital, was threatened by Moslem conquerors known as the Ottomans. They ultimately conquered the city in 1453.
The reason that the Eastern Rite of the Catholic Church, which split away in 1054 to form the Eastern Orthodox Church, was due to the great impression that it made on Valdimir of Kiev. It was him who chose it as the religion of what is known as the Kieven Rus, which was the predecessor of Russia, as well as Ukraine.
After the fall of Constantinople, although it remained the official center of the Eastern Orthodox Church, it needed a new practical center of operations. The obvious choice would be Kiev. As the name implies, it was the center of the Kievan Rus, which were now the bearers of Eastern Orthodox Christianity.
But there was a problem with that. Kiev had suffered devastating destruction in a Mongol invasion of the Thirteenth Century. It would not fully recover it's importance as a city until the Nineteenth Century. It was this Mongol invasion that brought the Kievan Rus to an end.
What ended up happening is that the center of Eastern Orthodox Christianity ended up moving further north, to a previously- not very important place called Moscow, which became the capital of Russia as well. Moscow became known as the "Third Rome". The papacy was based in Rome. When the split of 1054 occurred, Constantinople became the "Second Rome". With the conquest of that by the Ottomans, and the destruction of Kiev by the Mongols, Moscow became the "Third Rome".
However the Rurik Dynasty was replaced by the Romanovs, founded by Peter the Great, and had St. Petersburg especially built as their capital. This moved the center of gravity away from Moscow.
But that ultimately changed due to conflict. St. Petersburg was close to the other countries of Europe. When the Romanov Dynasty was overthrown by the Bolsheviks in 1917, they moved the capital back to Moscow.
It was not that they sympathized with the Ruriks, or necessarily thought that Moscow would be a better capital that St. Petersburg. After all, St. Petersburg was a special place to the Bolsheviks because that was where their revolution had begun. It was simply that Russia had been at war with Germany and the Central Powers and Moscow was further away, at a safe distance from the conflict.
For the second time, the center of power had been moved to Moscow not because of anything that had been done there but because of conflict elsewhere. Today, it is the largest city in Europe if the Asian side of Istanbul is not counted.
The second example of the creation of a great city by conflict elsewhere is New York.
New York was once smaller than Philadelphia and there was nothing to indicate that it should become the largest city in the U.S. It was briefly the capital of the country, until it was moved to the specially-built Washington D.C.
What really made New York was conflict elsewhere. The first such conflict was the U.S. Civil War of 1861-65. That war threw America's center of gravity to the north, which had emerged victorious in the war, rather that to the south.
After the end of the Civil War, there were waves of immigrants to America. First Italians, and then Polish and other eastern Europeans. When they came to America, they went to the north rather than the south. Ellis Island was in New York, rather than Charleston. Without the Civil War there was no reason why New York, or the northern United States, should be the primary destination over the south.
The Irish immigrants that had come before the Civil War had focused on Boston, rather than New York. Boston was also in the north but New York had been closer to the action in the Civil War and that had increased it's importance. After the Civil War, New York became overwhelmingly the initial destination for immigrants to America. But it was due entirely to conflict elsewhere.
Have you ever thought about how interesting it is that the staff of the Empire State Building, in New York,
sends a father's Day card every year to the staff of the Reynolds Building, in North Carolina?
This is because the design of the Empire State Building was based on the design of the Reynolds Building.
But, if not for the Civil War, there would have been no reason why the Reynolds Building couldn't have been the Empire State Building, which was the tallest building in the world for over forty years.
In a similar way, have you ever wondered why, when the Statue of Liberty was given to America as a gift by France it was put in the north, at New York City on an island just off the coast, rather than in the south?
The reason can be traced to Fort Sumter, an island just off the coast of Charleston in South Carolina, where the first shots of the U.S. Civil War were fired. This is where the State of Liberty might have gone if those shots had not been fired. New York was made by conflict elsewhere.
With New York established as America's primary destination for immigrants, and with the method of transportation still being by ship, two more great steps came for New York with the World Wars driving millions and millions of immigrants it's way. It's attraction of the immigrants to America was diluted only with the ascent of air travel as the primary means of transportation. It became just about as easy to arrive in Los Angeles. But it also made it easier for Asian immigrants to choose New York.
Air travel also had an effect on Canada. It changed the primary destination of immigrants from Montreal to Toronto, which was inland. I landed in Montreal by ship and remember when it was larger than Toronto.
Toronto gained from the language controversy in Quebec, and the political uncertainty caused by two separation referendums, as companies decided that it was better to locate their headquarters Toronto. Even the Bank of Montreal moved to Toronto. Immigrants to Quebec did not want to be monitored to make sure that they were learning French rather than English.
Today, Toronto is again in a position to grow due to conflict elsewhere. That conflict is the new hostility to immigrants in the United States. It is driving people who would have settled in the U.S. northward. So many have already crossed the border into Canada, and Toronto is the largest city in Canada.
Toronto has the opportunity to take the next step upward in growth, like Moscow and New York before it, if that is what Toronto wants.
The obvious barrier to the growth of Toronto is property prices. Several hundred people move into Toronto every day. The present property prices seem to have eased a little bit recently, but are still very high. Unlike the bubble of real estate prices in 1989, that crashed in 1990, this seems to be a real demand for living space, and not an investment-bred bubble.
If Toronto really wants to grow into one of the few largest cities in the world, now is it's chance. I am not quite sure that this is what Toronto wants but, if it is, another new "center" might be necessary, like a new North York or a new Brampton.
5) PRICES IN MOSCOW
The economics of Moscow is an excellent illustration of how the concept of The Three Fundamental Costs operates.
HOUSING AND THE IDEALIZED FLAT MARKET PLAIN
The basic free-enterprise model of economics is based on the Law of Supply and Demand. As a city grows outward, if the market mechanism is allowed to work, housing costs will be determined by the same market mechanism that sets other prices and wages, and workers will be able to afford homes on their wages.
It sounds very logical and it is. The market is a self-regulating mechanism which sets appropriate prices of goods by the Law of Supply and Demand. It is very difficult to disagree with the wisdom of this model of how the economy should operate.
But there is a catch. This free-enterprise economic model presumes that the city will grow outward on an idealized flat plain. But the reason that the city is there in the first place may be that the landscape is something other than a flat plain.
It makes sense to build a city around a good harbor. The trouble with that is that the water of the harbor will take up space that cannot then be used for building. This actually interferes with the free-enterprise model seen above. It distorts the model by reducing the space available to build housing. This drives up the cost of land, relative to the other costs and wages.
If the distortion in the free-enterprise model is enough, there will be workers whose labor is needed but will not earn enough to afford housing based on the market mechanism. The result will typically be informal or makeshift or over-crowded housing that exists outside the market structure.
This necessary housing that exists outside the market structure, due to the distortion of this model by the driving up of the price of land relative to the rest of the market structure by some physical barrier such as a harbor, even though that may be the reason that the city is there in the first place, is less-politely known as a slum. In the past in New York City, for example with about 30 percent of it's area taken up by water, it took the form of tenements.
The mechanism of market economics, based on the law of supply and demand, seems to make perfect sense. But it doesn't take account of the possibility that there may not be that idealized flat plain for the city to grow outward on, which will keep the cost of land and thus housing operating within the market structure.
THE THREE FUNDAMENTAL COSTS
But there is one of the few most important cities in the world that does have an idealized flat plain to grow outward on. That city is Moscow. Russia has more of one commodity than any other country in the world and that commodity is land. We can easily see this by how Moscow is spread out, at least away from the city center area, and certainly has more green space within the city limits than any other comparable city.
We know that prices tend to be higher in cities and the reason is simple. The Law of Supply and Demand makes land more expensive in crowded cities and the the higher cost of land finds it's way into the cost of everything else. A store in a city will have to pay higher rent than one in a smaller town and that higher rent will have to be supported by the higher prices of the goods sold in the store.
But then why is Moscow, with an abundance of surrounding land to spread out on that other global cities could only dream of, just so expensive? It is one of the few most expensive cities in the world.
The answer offers an excellent example of what I refer to as "The Three Fundamental Costs". We saw this in the posting by that name on the World and Economics Blog, August 2011.
My economic model has four successive stages.
The first, and most fundamental, stage is the Law of Supply and Demand, what people want as opposed to how much of that commodity is available.
The second stage, and based on the first stage, is the Three Fundamental Costs. These are a factor in all modern economic transactions. These Fundamental Costs are 1) The cost of land, 2) The cost of transportation and, 3) The cost of communication.
We see the first, the cost of land, in how things tend to be more expensive in cities. The second, the cost of transportation, is visible in how when the price of fuel rises it makes everything else more expensive. The internet has drastically reduced the third, the cost of communication.
The third stage of my economic model is wages and prices. These may seem to most people as the most fundamental costs but actually include the second stage, the Three Fundamental Costs. Wages and prices are, like the second stage, based on the first stage, the Law of Supply and Demand.
The fourth stage of my economic model is the political stage. This is where politics enters the picture, slanting the economic structure to the right or left, in accordance with government policies or the wishes of voters. Most of what we saw in the recent posting about economics, "The Midlands And The Economics Of The Industrial Revolution", was about the political level.
THE FOUR SUCCESSIVE STAGES OF ECONOMICS
1) The Law of Supply and Demand
2) The Three Fundamental Costs
3) Wages and prices
4) The Political Level
Cities form in the first place because two out of the three Fundamental Costs support cities. Having people and businesses close together reduces the second and third of the Fundamental Costs, transportation and communication. It is the first of the three costs, land, that opposes city growth.
Usually it is the increasing prices in a city as it grow that puts the limits on it's growth. When prices in the city get too high, people and businesses will seek to operate elsewhere, where costs are lower. But another aspect of the economics of Moscow is, in addition to why it is so expensive even with an abundance of land, it continues to grow. Today it is the largest city that is entirely within Europe.
The reason that Moscow is so expensive, yet continues to grow, is neatly explained by the concept of the Three Fundamental Costs. Moscow, unlike most other great cities, has abundant surrounding land. The internet has greatly reduced the cost of communication. But what really counts in Moscow is the second of the Three Fundamental Costs, the cost of transportation.
Moscow is so expensive because, while it's location well away from other cities and bodies of water give it abundant available space, it also makes it more expensive to transport things to and from Moscow. Moscow is by far the largest city in the world with no seaport anywhere nearby. While, again, that means that Moscow has plenty of space in which to spread out, it makes transportation considerably more expensive because land transport, per item, tends to be more expensive than sea transport.
We see that, unlike the First Fundamental Cost, the cost of land, the cost of transportation supports urban growth. That is why Moscow continues to grow, because of the costs of transporting to and from Moscow, it lowers costs just to make things there. In other major, and expensive, cities, high costs tend to limit the growth of the city but in Moscow it promotes growth. This shows how this model of "The Three Fundamental Costs" works, and how the deciding factor in Moscow is the second of the three.
6) AMERICA AND THE FULFILLMENT OF MARXIST THEORY
Although it may be unexpected, America has actually succeeded in fulfilling Marxist theory which, in my opinion, has too much going for it to simply dismiss.
Other recent economic postings have included "The Midlands And The Economics Of The Industrial Revolution" and "Prices In Moscow".
I see America as the national manifestation of the Reformation. The land of individualism and free enterprise that sprang from the ideal of the Reformation that anyone could read the Bible for themselves and start their own church. The people could then think for themselves and decide which one was best.
It seemed to be the diametric opposite of the collectivism of the theories of Karl Marx that would be introduced in the Nineteenth Century. But my conclusion is that it is America's free enterprise and individualism that made it possible for Marxist theory to be fulfilled and, contrary to conventional economic thinking, America is actually the place where it was fulfilled.
To begin our understanding of how this can possibly be, let's consider why we refer to economic viewpoints as either "left" or "right". Left, in it's extreme form, refers to Communism. The more moderate left, toward the center, refers to socialism. In a similar way, the right can mean far-right capitalism or near-right capitalism which would include some social benefits and redistribution from the left.
But the reference to right or left is entirely arbitrary, and the terms could just as easily be reversed. The concept of right and left actually originated when members of Britain's parliament would sit to either the left or the right of the aisle, depending on their political and economic views.
What I would like to do is to replace these arbitrary terms with two that more accurately represent what they mean. Why don't we replace "left" with "lateral" and "right" with "vertical"? The view of the extreme left is indeed that everyone is lateral, at the same level, because they are economically equal. In contrast, the economic inequalities of the far right are vertical in the same way that the extreme left is lateral.
In my view the best economic system is not to choose one or the other but to weave the two together. The economy is like a cloth. The buyer, represented by the left, and the seller, represented by the right, are of equal importance. A cloth consists of an equal number of horizontal and vertical threads. The threads in the two perpendicular directions hold each other together, known as the warp and woof of the cloth. The lateral and vertical of the economy, which is what we now refer to as left and right, work in exactly the same way.
I have a simple arithmetical model of how economics operates, and where we get the most benefit. If we multiply two numbers that sum to ten, we see that the greatest product is right at the center, 5 x 5. Extreme right capitalism could be described as 1 x 9, and extreme communism as 9 x 1. Neither gives good results and both sides have long been moving toward the center.
This model of numbers actually forms a bell curve, which is so representative of everything that humans do, from test scores to physical abilities.
The reason that so many people have economic viewpoints on the vertical or lateral ( right or left ) is that the economy is complex. It is as complex as we are. It is much easier to see only in one direction or the other than to see the full picture.
Another factor is religion. Humans are designed to believe in something. When we don't fully believe in God any more, we just make a religion out of something else. How many people have you known whose nation or political view is really their "religion"? But this only makes it more difficult to find the most productive, and best for all, economic balance.
I have a new way of looking at the theories of Karl Marx. I conclude that the fulfillment of Marxist theory can be seen in, of all things, computer technology.
The workers of the world did not unite and take over the means of production, as Marx had envisioned. But he was somewhat vindicated by the crash of Capitalism in 1929, as well as the somewhat lesser crashes of 1987 and 2008. He might have been pleased with the implementation of minimum wage and workplace safety laws, labor unions, unemployment benefits and social security, and especially mandatory public education. All of which, with the exception of labor unions, was virtually unheard of in the Nineteenth Century when Marx wrote his theories.
We look at the theories of Marx in socio-economic terms. But what if there was another side to the theory, that of technology, even if Marx himself did not see this? Some of the fulfillment of Marxist theory certainly was in the socio-economic sphere, as the above mentioned reforms. But the other side, the technical side and it's global social effects, had to wait for the advent of computers and the internet.
Computer and phone technology has empowered the masses like nothing else, even though it is produced by companies owned by wealthy capitalists. Wikipedia, for one, seems to be straight from the pages of Marxist theory. It is the collective encyclopedia of the masses, operated by donations and open to anyone who wishes to contribute. All shareware and free applications on the internet, open to all and not driven by profit motive, also fall into this category.
The nation-state has not faded away, at least not in the way that Marx supposedly envisioned. In the more than century and a half since the days of Marx, nationalism has been stronger than ever before. My theory is, again, that people are designed to believe in something and if they drift away from religion, substitutes like nationalism will take it's place.
But yet national borders also mean less today than ever before. Trade and travel goes around the world. It is possible to wake up in any country one morning, and go to bed in any other country that night. You can log onto a web site virtually anywhere on earth, with the national borders in between being absolutely meaningless.
But my view is that the latest manifestation of Marxist theory is this phenomenon of collective global internet, known as "the cloud". The basic meaning of the cloud is that the data that you store, and increasingly the applications that you use, are not stored on your computer but are "out there somewhere" in the cloud. This blog is an ideal example of the cloud. It is not stored on my computer. I presume that the content of this blog is kept at Google's HQ in Mountain View, California, but it could be on any server farm anywhere.
Marx sensed what would come. The Nineteenth Century in Europe was a time of revolution, particularly the series of revolutions in 1848, and he presumed that the inevitable changes that he saw would be brought about in the same way. We could say that half of the fulfillment of his theory was by way of the social reforms listed above. But the communication technology of the time was limited to telegraphs relaying Morse Code. Marx could not possibly have imagined the computer revolution which would one day manifest the other half of this fulfillment.
He also did not see that while the technical side of his theory would be fulfilled, and it would greatly empower the masses that Marx saw as exploited and ill-treated, it would be brought about by very wealthy capitalists. The difference, with which Marx would be at least partially pleased, is these capitalists would not be from an entrenched upper class, but would be college kids who got an idea, quit school to work on it, and found themselves as the billionaires which would, ironically, bring about the remaining fulfillment of Marxist theory.
The best model for a modern economy is a cloth. There are threads running perpendicular to one another, referred to as the warp and the woof. That is why I would like to refer to the two sides of the economy, representing buyer and seller, as "lateral" and "vertical", instead of "left" and "right". Just as a cloth is strongest when there are equal numbers of lateral and vertical threads, so is the economy as we saw in the simple arithmetical model above.
To support the lateral threads we need the vertical threads, and to support the vertical threads we need the lateral threads. The successful fulfilment of Marxist economic theory, the lateral threads, required the computer companies started by capitalists which were vertical threads. This, in turn, required the internet which was set up by the government, which is the lateral threads. This fulfillment of Marxist theory in turn empowers people as individuals, which are vertical threads. Anyone today can gain a following online with no need of approval or support from any traditional establishment.
The economic cloth best holds together when the lateral and vertical threads are equal. Each intersection between a lateral and a vertical thread represents a transaction between a buyer and a seller.
7) WHY CALIFORNIA IS SUCCESSFUL
If California was an independent country it would have one of the largest economies in the world. I can see why it is so successful and it is a reflection of my economy model that the best results come from neither right nor left but by best weaving the two together. We saw this recently in the posting on this blog, "America And The Fulfillment Of Marxist Theory".
Economics revolves around transactions between buyers and sellers. The right seems to think that the seller is more important while the left seems to think that the buyer is more important. Part of the difficulty is the complexity of economics. Our economics is as complex as we are. it is much easier for any one person, usually biased by their own position in the economy, to see either one side or the other, rather than the total picture.
This centrist economic model of mine can be illustrated by simple arithmetic. Suppose that we multiply two numbers that sum to ten, seeking the highest result.
1 x 9 = 9
2 x 8 = 16
3 x 7 = 21
4 x 6 = 24
It is when the two sides are equal, 5 x 5 = 25, that we get the best result, and that represents economics at the center. The unsatisfactory 1 x 9 = 9 represents either far-right capitalism or far-left Communism.
I would prefer to refer to the two sides as "lateral" and "vertical", instead of left and right. The lateral of the left means that the far-left wants everyone to be equal, or lateral. The vertical of the far-right means that great inequalities are not only tolerable but desirable.
I actually see America as the country that, far from disproving the validity of Marxist economic principles, has actually fulfilled them. The collectivist theories of Karl Marx have been widely denounced, but yet have too much going for them to completely ignore. But the same can be said of the capitalistic model, associated with economists like Adam Smith.
I see both as being correct because economics is actually a complex realm where two seemingly contradictory statements can both be valid. What both of these contradictory economic models have done is to see only one side of the big picture. Both are actually valid, but are looking in opposite directions at the surrounding economy. The worst results, as the history of the last century or so makes clear, come from choosing one and ignoring the other. The best results will come from finding the best way to weave the two together.
California revolves around two poles, each representing an opposite side of the economy. The weaving of the two together is what makes the state so successful. No other U.S. state, and few political entities in the world, have such a dipolar balance. These two sides can be seen as the individualistic, or capitalist, and the collectivist, or Marxist.
Los Angeles represents the individualistic aspect of California. It introduced the world to the car culture, which liberated people from complete dependence on their local communities. This was most likely to happen in the anti-establishment atmosphere of America's west. People came to America from Europe in search of freedom, but then those that were especially adamant about individualistic freedom repeated the immigrant journey westward. The cars of Los Angeles are descended from their covered wagons.
Los Angeles is also the birth place of the internet, at UCLA. This further freed people from their local communities by making it easy to both socialize and to earn a living online. Los Angeles was not about doing away with the establishment or the community altogether, but about taking much of their power and giving it to the individual.
But then there is San Francisco, the other of California's two poles. The internet companies of Silicon Valley, from Facebook to blogs like this one, represent the collective side of the economy. I see Marxist theory as ironically actually being fulfilled by modern computer technology. Wikipedia is like something right out of Marxist theory. Social media apps effectively make the whole world into one community.
But this community comes not from doing away with capitalism, as Marx saw, but by weaving the two sides together like the lateral and vertical threads of a cloth, and that is what California succeeds at doing.
8) THE FATE OF DEMOCRACY
It has been thirty years since 1989 and it is about time that we had a look at something, the fate of democracy in the world. The truth about democracy is that it is faltering.
Does anyone remember the momentous events of 1989? It looked like the triumph of democracy. An entire "New World Order", in the words of U.S. president George Bush Sr., was beginning. While it was indeed a new world order, we can see now that 1989 was the peak, rather than the permanent triumph, of democracy.
The personification of democracy today is Aung San Suu Kyi. Not so long ago she was the world's hero, standing against a dictatorship that had long imprisoned her because it perceived her as a threat to it's control. But now that she is effectively in power, in her country of Myanmar, she has gone from the world's hero to the world's disappointment. The freedom and democracy that was hoped she would bring has not materialized. Her honorary Canadian citizenship, as well as a number of other awards that she had earlier been given, have been revoked.
That does not bode well for democracy in general.
After 1989, nations across the world used to at least go through the motions of being democracies, now that is no longer the case. China has removed presidential term limits. Israel has defined itself as "The nation-state of the Jewish people", which subtly moves it away from being a democracy in terms of it's non-Jewish population.
If anyone in my local area remembers my early writing on Bible prophecy, including the still-available book, "The End Of The World" that was published just before 9 / 11, I had long written about the perils of how we just expect too much from democracy and our concept of freedom.
At that time, even just after the momentous events of 1989 when a wrote a typewritten booklet called "Politics And Prophecy", I knew that democracy would have to fall into decline. My reason was simple and it involved the fulfillment of the Bible prophecies of the End Times. The world was destined someday to fall under the rule of the Antichrist, which would be the greatest dictator it had ever seen. The only way that could come about was if democracy were to falter.
Look at the Arab Spring, which was very much a reflection of the events in eastern Europe of 1989, but 20 years later. How many of the national revolutions, with the possible exception of Tunisia where it began, can be said to be anywhere near as successful as democracy advocates had hoped?
In Egypt the long-time military leader, Hosni Mubarak, was overthrown by popular revolution. Mohamed Morsi ended up as the newly-elected president. But he attempted to seize more power, which would have effectively made him into a dictator, and ended up being removed. Now, the country is back to another military leader.
Many hoped that the overthrow of Moammar Gaddafi, the longtime leader of neighboring Libya, would bring about freedom and democracy there. But, as I wrote in the posting "A Few Words About Libya" that is on the world and economics blog, that has not happened. Libya is now divided between east and west and on the verge of civil war. It turns out that it needed a dictator like Moammar Gaddafi to hold the country together.
What happened to the end of the Cold War in 1989? Now we are into the "New Cold War", except that rival economic systems are no longer a factor.
The idea of democracy originated in ancient Greece. Democritus form whom it is named also came up with the idea of atoms. But I see the democracy in the world today as largely a Protestant creation. It presumes that people will think for themselves and put a high priority on being well-informed, which are typical Protestant values.
Protestants generally put the rights of the individual before the group, which is in contrast to most of the rest of the world. But democracy, in the modern sense, is intended for the individual well-informed voter to form his or her own opinions, and makes little sense if everyone is just going to follow the group.
There has been the establishment and the community ever since there has been civilization, but the average individual had little power. What democracy has done is to take some power away from the establishment and away from the community and given it to the individual. But that is Protestant thinking, typical to northern Europe and North America, but not to the world as a whole.
One factor in democracy is the laws. My observation is that a crucial difference between democracies and dictatorships is the wording of the laws. The laws in democracies tend to be precise and well-defined while those in countries that are considered as dictatorships have laws that are more vague and open to interpretation. A country with a law against such as "threatening the social order" is almost sure to end up as less-than-free because the powers-that-be can use the law to silence anyone that they perceive as a threat to their power.
Another factor seems to be for a nation to have more than one top university. A nation seems to have an easier path to democracy if there are multiple top universities, such as Oxford and Cambridge or Harvard and Yale, with some rivalry between them. This has the effect of dispersing power, rather than concentrating it.
Yet another factor in democracy is the so-called "Resource Curse", which is also known as the "Paradox of Plenty". It may seem to be a blessing to a nation to be rich in natural resources, but it can also be perilous. The curse is that people in resource-rich lands paradoxically tend to end up worse off than those in nations with few resources. Resources bring in money but, due to human nature, that tends to breed corruption rather than helping people. Wealth from resources can also be used by a government to enforce it's rule and power. Governments of nations without such wealth are more dependent on the will of the people to remain in power, and thus are more likely to be democracies.
Sometimes strong leaders are necessary. The democracies of today had to be bound into nations by strong leaders before they were ready to be democracies. America underwent it's strong leader binding phase under English kings before gaining independence. But nations like Iraq and Libya, put together by colonial powers, will not be ready to be democracies before completing a lengthy strong leader binding phase. Removing that leader, as we can see, will bring chaos rather than democracy.
Democracy is usually interpreted to mean freedom, with the idea that people are at their best when they are free. But there are two slants on freedom, "Freedom To" and "Freedom From". Two obvious examples are smoking and guns. Should people have "Freedom To" smoke or to own guns, or should they have "Freedom From" secondhand smoke and having people with guns around them? Believers in democracy agree that freedom is better, but the exact slant of that freedom is open to question.
One thing that was absolutely essential for modern democracy is mass education and news publications. Ruling requires education and if only an elite few are educated then democracy as we know it is impossible. This required first the Renaissance, with it's branches and manifestations, and then the invention of the printing press.
The scientific branch of the Renaissance was the Enlightenment. The religious branch was the Reformation. The technical branch was the Industrial Revolution and the political branch was the French Revolution.
Democracy means continuous change. There is always an opening for political candidates with a better way to run society. There is no place or need for democracy if everything is always going to stay the same. Democracy has continuous improvement as it's objective.
Another reason that I say modern democracy is a Protestant creation is that Protestants traditionally have a dim view of the world. Protestantism is about everyone being free to read the Bible for themselves, in their own languages. In the Bible, "the world" is generally portrayed as a foolish and sinful place that, for the most part, has failed to follow the Word of God.
But, as it turns out, this dim view of the world is a positive. When a society has reverence for the way that things have always been done, there is no reason to make progress. But the Protestant way of looking at things opened the mind to seek better ways of doing things.
The result was progress, Protestants are the most progressive people in the world. The Industrial Revolution began in the Protestant countries of northern Europe after the Reformation. Countries like England and Scotland, which had been mostly backwaters on the world stage while Catholic, soon vaulted to global predominance.
We might say that the goal of democracy is to preserve freedom by eliminating the possibility of a dictator seizing power. There has never really been a dictator in a Protestant country. The typically Protestant think-for-yourself individualism makes a society more difficult to manage than if following the crowd was the norm but it also makes it much more difficult for a dictator to arise.
Hitler was from Catholic Austria and his initial power base was in Catholic southern Germany, not the more Protestant north. The Nazis' agenda was to fulfill the intended destiny of the Holy Roman Empire, which was a creation of the papacy to bring Europe together and confront the wayward Christians of the east. That was why Nuremberg, which had been the center of the Holy Roman Empire, was so important to the Nazis.
As a general rule, we might say that a primary social difference between Protestants and Catholics is that Catholics try to put the community before the individual, while Protestants try to put the individual before the community. We can see in our weekly visits to European cities that traditionally Catholic cities tend to keep the old and the new buildings well-separated, so that a building will "fit in" with it's surroundings, while in traditionally Protestant cities the old and new are right next to each other because to much emphasis on "fitting in" is not good for freedom.
How is it that the American Revolution turned out so utterly different from the French Revolution that followed it, especially since the two countries had become such close allies? The American Revolution was a major step to what the world sees today as freedom and democracy. The French Revolution, in stark contrast, ultimately ended in the prototype of the modern dictator named Napoleon. Could it be because the founders of America were Protestants, with a lot of Puritan influence, with that think-for-yourself mentality, while France was traditionally Catholic and despite it's revolution's intense hostility to the Catholic Church, was accustomed to following an authoritative pope and priesthood?
It could even be that the personal popularity of the popes, since the election of John Paul II in 1978, could be a factor in the decline of democracy worldwide. The Catholic emphasis on communalism erodes the individualism that, while it does make a society more difficult to manage, is necessary for democracy.
We saw in the recent posting, "Nationalism And Economic Ideologies As Substitutes For Religion", that people are designed to believe in something and, when they no longer believe in God, they just replace Him with something else. This does not make it any easier for democracy to work at it's best. Have you ever wondered why anyone running for office, even a minor local office, is given such extreme scrutiny nowadays, that doesn't seem to make sense? It is because, in our secularized society, political leaders have taken the traditional place of religious leaders.
We should not treat democracy like it is a religion. We presume that a society is better off being free and democratic, but that is still an open question and the optimum level of freedom may be different for different cultures and societies.
9) THE MARKETPLACE ECONOMY AND CATACLYSM
The virus crisis offers a lesson in economics. How are the usual economics of supply and demand affected by some cataclysm?
Supply and demand determines prices. When supply is low and demand high, prices rise. When supply is high and demand low, prices drop. When some good, service or, commodity would bring high prices then there is incentive to develop and market it. Labor is a necessary commodity so workers have incentive to work harder and learn more skills, in order to earn more.
A free enterprise economy thus keeps itself in check with the "invisible hand" of the marketplace. This is usually considered as much more efficient than a centrally planned economy. Everyone has incentive to put forth their best effort, in order to maximize their earnings. Because people, as a whole, will work harder for themselves than they will for someone else.
All seems well and good. There is little doubt that this model is effective. The question is what happens when something interferes with it?
The first thing that interferes with this free enterprise model is politics. The trouble is that money inevitably equals power. The system rewards work and effective study with more money, but that money brings political power. Those with political power can use that power to steer more money to themselves. The system thus ceases to be a pure meritocracy. The rich get richer and the poor get poorer, not due to labor but to political power.
The next thing that interferes with it is simple demographics. The rich tend to have few children, while the poor tend to have many in order to ensure support in old age. But this concentrates wealth and spreads poverty.
Another thing that inevitably distorts the economic model is physical geography. The simple marketplace economic model governs housing. Workers will be able to afford a place to live on their wages. But the model presumes that there is an idealized flat plain for a city to grow outward unhindered on, and this is very often not the case.
A city might be built around a good natural harbor. But the harbor takes up space that cannot then be used for housing. A city might have a mountain or hill within it that takes up space. The city might be built on a peninsula, or where two rivers meet.
The resulting land shortage will distort the marketplace by driving up the price of land, and thus the cost of housing, relative to wages. There are thus workers whose labor is needed but who cannot afford a place to live on their wages. The result, in too many cities, is the creation of overcrowded, makeshift or informal housing, that is less-politely known as slums. It is easy to see that slums tend to be found especially in cities with constraints on their physical geography.
We saw how New York City is just one example of the marketplace economic model being distorted by physical geography constraints in 1) POLITICS AND PHYSICAL GEOGRAPHY in the compound posting on this blog, "Economics", November 2019.
What I wanted to discuss today, prompted by the virus crisis, is the effect of cataclysm on the marketplace economic model. Many can make almost a religion out of their faith in a "Laissez-Faire" marketplace model, free from any governmentintervention. But how does this simple model hold up when some cataclysm comes along?
Amazingly Donald Trump, a well-to-the-right U.S. Republican, is putting trillions of dollars into supporting consumer spending during the virus crisis. The "Laissez-Faire principles would result in catastrophe reminiscent of 1929 if the consumer spending that supports the economy collapsed.
A national economy is not a zero-sum game. We cannot "run the economy like a business" that can hire and let people go at will. Money circulates through the economy like blood through the body. Constricting the flow at any point affects the entire body. We must preserve the consumer spending of everyone or it puts the economy at risk.
George W. Bush, also a well-to-the-right Republican, admitted as much by sending everyone U.S. $500 checks in 2008. But it wasn't enough to stop the economy from crashing due to lack of consumer spending.
It was lack of consumer spending that led to the devastating economic crash of 1929. The assembly line manufacturing process had been perfected, and factories were producing a vast amount of goods from cars to radios. But workers were not being paid enough to be able to buy all of the goods that were being produced and they were just piling up in warehouses. Factories began cutting back on production, meaning that workers had even less money, and it spiralled into a devastating crash.
Instead of this Laissez-Faire, government hands off, the economy, it is necessary to steer the economy through all of these factors that can distort the marketplace model.
This virus crisis highlights the absolute folly of coupling health care and free enterprise. With a contagious disease we want to get anyone with symptoms checked and treated as soon as possible. That is not going to happen if they are worried about whether they are covered and how much it will cost. Many people will avoid being checked and spread the disease much further and faster.
Universal health coverage, from this point on, is absolutely mandatory. I wonder if this is why the U.S., the only western country without automatic access to health care, soon became the country that was most afflicted by this virus.
There is inevitably inequality in a marketplace economy because it is a meritocracy and forced equality destroys incentive. But this has to be tempered by the fact that the poorer people are, the more likely they are to be carriers of a contagious virus.
In the free-enterprise marketplace economic model, income is based on a person's labor. But, as we can see, this simple model does not handle cataclysm well.
Wouldn't it be better to have some guaranteed income so as to stop the economy from crashing if millions of people suddenly lost their jobs through no fault of their own? This would also help people to be better educated, and to update their skills, and would keep many people out of prison, which has a very high price both culturally and economically.
This virus crisis can be seen to verify the validity of my centrist economic model, the ideal place being halfway between left and right. It can be illustrated with a simple economic model.
Suppose that we multiply two numbers that sum to ten.
1 x 9 = 9
2 x 8 = 16
3 x 7 = 21
4 x 6 = 24
It is when we get to the center, with the two sides equal, 5 x 5 = 25, that we get the best result. In terms of economics one side represents the seller and the other the buyer. 1 x 9 = 9 represents the very poor results achieved from either pure capitalism or pure communism. The right represents the seller and the left the buyer, it is best when both are considered as equal.
The reason that the economic views of so many are well to the left or the right is simplicity. Our economy is complex. It is as complex as we are. That makes it difficult to see the big picture. It is easier to see just to the left or the right.
Another factor concealing the apparently obvious fact that the economy consists of interactions between buyer and seller, with both being of equal importance, is religion. Humans are designed to believe in something. When our faith in God decreases, we tend to replace Him with something else. How many people have you known whose political-economic philosophy, or their country, is really their "religion"?
A summary of my economic theory is the posting on this blog, "Summary Of Economic Theory", March 2013.
10) MONEY AND ELECTRICITY
This is not about the cost of electricity. It is about the future of money. Not about economics, which is the handling of money, but of money itself.
At first humans survived by hunting and gathering, usually always moving around. Civilization supposedly began, in different places, when people noticed that if they dropped the seeds of plants, or the leftover parts of the plants that included seeds, and returned sometime later, there would be copies of the plants growing. This was the beginning of agriculture, and fixed settlements to raise crops rather than the nomadic way of life. Other factors in the beginning of civilization was learning to count, to record information by writing, and to control fire.
The real beginning of civilization was when enough food was being raised to free some people from working in agriculture so that they could work on producing other goods. People started with bartering, trading one good or service for another. Each worker had their specialty and would trade what they produced for what they needed. This leads people to produce things that other people will actually need.
But bartering in such a manner is extremely awkward and inconvenient. It makes it much easier to use some kind of currency or money. Goods and services that are produced are exchanged for money which is then exchanged for the goods that the producer needs.
Anything can serve as money, as long as people agree that it is valuable. Precious metals were an obvious choice to use as money. Of course, metals like gold and silver are only valuable because people think that they are valuable. A vital requirement for anything to be used for money is that it be not bulky and physically easy to transport and use.
Nothing, whether good or service or money, is guaranteed to have value. It is valuable only if people think it is valuable. If people no longer thought gold was valuable then it would no longer be valuable. The economic value of anything is simply what people are willing to pay for it.
Economics, involving goods being purchased with money, is only about "scarce" goods or services, meaning that there may not be enough to meet demand. "Abundant" entities, such as air, sunlight and, usually, water, that do not have to be produced or mined, are not covered by economics. A water bill is usually to cover the cost of pumping and purifying, rather than for the water itself.
Precious metals, which may be made into coins, are useful for currency but only up to a point. Precious metals themselves are scarce, which is part of the reason for their value. As the economy grows using the metals as currency becomes more and more difficult.
When precious metals are used for currency their value is the value of the metal itself, which we refer to as "intrinsic value". The next step is to adapt a currency that is representative of value, but does not have the value in itself. This is known as fiat money and includes paper money and coins made of much-less valuable metals, typically copper, zinc or, nickel.
With the currency representing the value of all the goods and services produced in the country, but having no intrinsic value in itself, it is absolutely essential for the people to have confidence in the currency. One way that nations have facilitated this confidence is to back the currency with something that does have intrinsic value, usually gold. This is known as the "Gold Standard", and used to be popular. I remember from childhood the news that President Richard Nixon had taken the U.S. off the Gold Standard. No nation uses the Gold Standard today, the "gold" that backs the currency is the sum of the goods and services produced in the economy.
Recently data has come into use as currency, in the form of Bitcoin and other cryptocurrencies. There is still a lot of skepticism about it and thus far El Salvador is the only nation to make Bitcoin legal tender. But these currencies do not belong to any nation.
However I believe that cryptocurrencies are a step toward the future. Electricity is actually the ideal currency, not data but electrical power. Using electricity as money would bring us back to a currency that is not representative of value, that actually has intrinsic value.
Electricity is valued everywhere and by everyone. It is not easy to transport from place to place but it's transmission network already exists. There is differences in the voltages and cycles per second that is used across the world but those differences are few. Voltage can readily be transformed and, as far as I can see, every country uses either 50 or 60 cycles per second.
Electricity does become less efficient if transmitted over very long distances. The currency would not be electricity itself but tokens that would be immediately redeemable for electricity. It would be the "Electric Standard", rather than the old Gold Standard.
I see electricity as the ideal currency and cryptocurrencies are a step in that direction. It is only the historical momentum of using our present representative currencies, and the fact that global electrification is relatively new, that has held back the use of electricity as currency.
Oil, or tokens redeemable for oil or fuel, could also be used as currency. But oil is a natural resource that is unevenly distributed. Unlike electricity, oil cannot be generated at will in any nation. The ever-increasing use of electric cars only makes electricity still more attractive as a currency than oil.
I am sure that, if the world could go on for long enough, we would arrive at a day when tokens redeemable for electricity are used as money. If widespread electrification was hundreds of years old we would be there already.
11) THE END OF COMMUNISM AND THE 2008 MARKET CRASH
Here is something that I cannot see has ever been written about the U.S. economy. Why don't we see the link between the end of Communism as we know it, the dismantling of the Soviet Union, and the 2008 economic crash in the U.S.?
There have been three crashes in the U.S. economy since the beginning of the Twentieth Century, in 1929, 1987 and, 2008. Have you ever noticed that the economy never crashed as long as Soviet Communism was a strong force? It actually seems like Communism was helping to support the U.S. economy. It was the 1929 crash that made Communism a major world system, as an alternative to capitalism. Communism was fading at the time of the 1987 crash, and was gone at the time of the 2008 crash.
All three of these economic crashes came after two consecutive terms of a conservative Republican presidential administration. The leftover industrial capacity from the First World War brought about the "Roaring Twenties", a time of prosperity and national confidence. With newly-perfected assembly line manufacturing factories turned out an array of goods, from cars to radios.
Under the principles of capitalism factory owners naturally wanted to charge as much as they could get for their goods, as well as paying workers as little as possible, in order to maximize profit. But that left the workers without enough money to buy the goods that they were producing, which were just piling up in warehouses. Factories began cutting back on production, which meant that workers had even less money, and it spiralled into a devastating crash.
In the late 1970s inflation was running wild. While the 1929 crash had been caused by going too far to the right, not paying workers enough, this inflation was partly caused by going too far to the left, and paying workers too much. Millions of unionized and well-paid factory workers were getting paid more, according to the Law of Supply and Demand, than their labor was really worth, and the economy adjusted by way of inflation.
Margaret Thatcher in Britain, and then Ronald Reagan in the U.S., purposely induced a nasty recession because that was the only way to stop inflation. The plan worked and inflation was low by the mid-1980s.
But the defeat of inflation gave Ronald Reagan and his team excessive confidence in rightward capitalism and he held to his conservative agenda for too long. The result was the 1987 crash. The underlying cause, once again, was the reduction in consumer spending as "the rich get richer and the poor get poorer".
By the new millennium America's right was full of confidence that the future belonged to them, after the collapse of Communism and the scandals of the Clinton era. George W. Bush was far to the right, the rich got richer and the poor got poorer, until it collapsed in 2008. The government tried to stem the collapse by mailing out US$500 checks.
The trouble this time was houses, rather than the manufactured goods of 1929. A vast number of houses were built in the southwest and Florida that people couldn't afford. The government bought about half of all mortgages and small banks almost always sell their mortgages to large banks or the government.
The idea behind the government buying mortgages, and then bundling them into securities to sell to investors, is that the original lender will then have the money to loan out to another home buyer, instead of waiting for the mortgage to be repaid, so that more people can buy homes.
The trouble with transferring debt like this is that it takes away the original lender's incentive to make sure that the borrower is able to repay the loan. Mortgages were being originated with the attitude "I'll get my commission and by the time they default it will be somebody else's problem". This is what led to the 2008 crash. Millions of people, with their real wealth reduced by the government's rightward economic policies, were given mortgages for a lot more money than they should have been given, considering their ability to repay.
So how does Communism and the former Soviet Union factor into this? The wealth gap in the United States, the difference between the rich and the poor, was at it's narrowest in 1973, at the height of the Cold War. Without the Soviet Union as a global economic ideological competitor America tends to go too far to the right. That is why these three economic crashes happened before Communism became a major world system, while it was fading, and after it was gone, but never while it was a strong competitor. This explains why there was nearly sixty years between the first and second crash, but barely twenty years between the second and third.
Just a reminder that the notorious inflation of the 1970s was not just because of millions of unionized factory workers being overpaid, as described above. A major part of it was the result of Richard Nixon taking America off the Gold Standard. Here is a link to the original posting describing that:
www.markmeekeconomics.blogspot.com/2014/01/the-euro-gold-standard-and-jimmy-carter.html?m=0
12) THE MANIPULATION OF OIL PRICES FOR POLITICAL PURPOSES
I am not the first person to suspect that the price of fuel is sometimes manipulated for political purposes. The price of fuel is so important because most goods have to be transported and when fuel gets expensive it makes everything else expensive.
Oil can clearly be used as a weapon. I remember going to school in 8th grade, age 13, in the dark because OPEC shut off oil exports to countries that had supported Israel in the Yom Kippur War. The clocks were changed in an effort to save energy.
The first thing that comes to mind regarding the price of oil being manipulated for political purposes is the 1980s. The Soviet Union had invaded Afghanistan, which was a Moslem country. OPEC pumped a lot of oil out of the ground, which really dropped it's price on the world market.
While the drop in prices was painful for the OPEC countries it was even more painful for the Soviet Union, which was dependent on the revenue from oil exports, although it never joined OPEC. It is widely believed that the sharp decline in oil revenue was a major factor in the end of the Soviet Union, and Communism as we knew it.
Now we are in another crisis, actually several crises at once. The price of fuel is becoming intolerable. We are back to 1970s-style inflation (maybe we could revive Disco music or bell-bottom pants to go with it). Part of the reason for the present inflation is certainly governments giving out money for pandemic relief, but much of it is due to the cost of fuel making everything else expensive.
At the same time we are in perhaps the greatest crisis of all. That crisis is climate change. We are destroying this planet by burning fossil fuels. However electric cars are catching on, they seem to be the only way to avert catastrophe. There was recently an alarmed meeting of world leaders in Glasgow about climate change.
Has anyone wondered if these very high fuel prices have been purposely engineered to hurriedly push the world toward electric cars?
The sanctions on Iran over it's nuclear program also merit further investigation. Keeping Iranian oil off the world market greatly benefits other oil-producing countries, particularly western ally Saudi Arabia. Could it be that the west, especially the U.S., maintains these sanctions on Iran in return for the Saudis' cooperation when it is necessary to manipulate the price of oil for political purposes?
13) THE DAY OF THE WORKER
The news nowadays brings back memories of being a teenager in the 1970s. Inflation, strikes and unions. But the difference today is in employment. In the late 1970s unemployment was a problem, there were many people who couldn't find jobs or the job they wanted. Today the situation is reversed, there are businesses that can't find workers.
Minimum wage has generally been increased to the point that it is a livable wage if one is working full-time. This was most certainly not the case in the 1970s.
We could call our day "The Day Of The Worker".
One character that has always intrigued me is Karl Marx. In no way am I what would be called a "Marxist" but yet Marx has too much going for him to just dismiss him. When I was in London I was planning to visit his grave, at Highgate Cemetery, but I never got around to it.
My conclusion is that we could picture ourselves as being inside a circle. The circle is our economy. It is difficult for us to really grasp the big picture of our economy because it is as complex as we are. It is far easier for us to look at either the left or the right of the economy, because that is so much simpler than seeing the entire picture. Every economic transaction has a buyer and a seller, the left represents the buyer while the right represents the seller.
Karl Marx didn't see the entirety of the economic circle. He was brilliant at describing what he saw, but he saw only the left side of the circle. Marx ignored the right side of the circle, but he still has too much going for him to just dismiss him.
The leaders of the world's major economies recently got together to plan a minimum tax of 15% on multinational corporations. Unlike in the past the corporations were to be taxed according to the laws of the countries where they did most of their business, not where their headquarters were located. In no way did this completely vindicate Karl Marx, but it would have given him reason to smile.
This tendency to only see one side of the economic circle is self-perpetuating. One side sees to the right, but then the economy moves too far to the right. That makes it easier to justify moving to the left, but then the economy moves too far to the left. This prompts a move back to the right, and the process keeps repeating over and over. We zig-zag between left and right instead of moving in a straight line.
Since every economic transaction requires both a buyer and a seller, there is no reason to think that one is more important than the other. Left and right are of equal importance. One may, at a given time, seem more important than the other, but that is only because we have gone too far in the opposite direction. Our economy is as complex as we are and that makes it so much easier to see in one direction or the other, rather than grasping the entire picture.
Another important factor in economics is religion. Humans are designed to believe in something. When they slide away from belief in God they will just replace Him with something else. One of those replacements is economic philosophy. How many people have you known whose "religion" is their political-economic philosophy? This includes Communism and Nazism.
But people having a particular view of economics as their "religion" makes it that much more difficult to come to the best economic balance of left and right.
Suppose there was a shoe store that advertised the left shoe as being the most important, while a competitor insisted that the right shoe was more important. We would consider it as nonsensical, it is easy to see that both shoes are of equal importance. Shoes are simple and it is easy to see the big picture that both shoes are of equal importance. But our economy is not so simple, in fact it is as complex as we are. It is not as easy to see that both sides are really of equal importance.
The Law of Supply and Demand is generally considered as the best practical basis for an economic system. When governments try to set prices it usually results in a "black market" where people can get what they want but at "real" prices. The great economic question is should the economy just be left alone to operate on the Law of Supply and Demand, a situation sometimes referred to as "laissez-faire", or "leave it alone", or should there be some modifications to the Law of Supply and Demand?
There are six issues that arise with the basic Law of Supply and Demand that I see as necessitating it's modification. The Law of Supply and Demand works as the basis of an economic system, but not as the entire system.
First the Law of Supply and Demand is intended as a meritocracy. Workers will earn more money if they work harder and acquire skills that are in demand. This inevitably means unequal wealth distribution because forced equality diminishes incentive. People will work harder for themselves than they will for someone else.
The issue arising with the unequal wealth distribution that is necessary in a meritocracy is that money inevitably equals power. Those who have money use the resulting power to get themselves more money, not by producing or working harder but by taking what would have gone to those with less money.
A meritocracy must be linear, more work + more valuable skills = higher earnings. This means that, while wealth will not be equally distributed, every citizen must have equal political power, although not purchasing power. This is the principle in democracy of every person getting one vote.
But the reality is that money not only brings purchasing power, but also the power to influence society. The first thing that comes to mind is tax havens and the many ways that people have come up with to avoid taxes. The result is that, as is often said in a capitalist system, "The rich get richer and the poor get poorer", until the economy crashes from the lack of consumer spending as the U.S. economy did in 1929, 1987 and, 2008, and before that multiple times under the raw capitalism of the Nineteenth Century.
Second the Law of Supply and Demand is a simplistic device and it is necessary for a meritocracy to be linear. Spiraling gets started that distorts the meritocracy. Spiraling is a form of money equaling power.
For society to really be a meritocracy, which is what the Law of Supply and Demand is all about, every citizen must have equal opportunity. But people almost always live in neighborhoods with others of similar income levels. The trouble with this, as far as meritocracy goes, is that neighborhoods with higher incomes tend to have better schools, not to mention advantages like better health care and better access to nutritious food.
This means that people do not have the equal starting opportunity that a meritocracy requires. A child has no control over which neighborhood they are born in. This requires some modification to maintain a meritocracy that will get people to work their hardest.
Another example of spiraling is how lower income people often pay more for things. In America it is called "The high cost of being poor". An obvious example is credit score and interest rates. When a person is late with payments it lowers their credit score. Then when they borrow money, for a mortgage or car loan, it is more expensive because they must pay higher interest rates.
This precludes the economy from being a true meritocracy.
Third is the physical landscape of a city. The Law of Supply and Demand works as the basic foundation of the economy. But it must be understood that it is a simplistic model that cannot function effectively entirely on it's own. The model presumes that there is an uninterrupted landscape that the city can spread out on and that property and housing prices will fall into place according to the free market.
The reality is that a city rarely exists on such an idealized flat plain. Cities are usually built around a physical feature such as a good natural harbor. The harbor takes up space that cannot be used for housing. This drives up the price of housing, relative to wages and other prices, so that there are workers whose labor is needed but who cannot afford a place to live on their wages, at least not within the market structure.
The result is overcrowded or substandard housing that exists outside the market structure, and is less-politely referred to as a "slum". An ideal example is the tenements that were seen in New York City. The reason is that about 40% of the total New York metropolitan area is taken up by water that cannot be used for housing.
Fourth is one thing that the simple Law of Supply and Demand was not designed for, and does not handle well, is a cataclysm of some kind. Not an economic cataclysm, which has happened often enough, but something from outside the economy.
There is no better example than how the economy has been upended by Covid. The Law of Supply and Demand, by itself, cannot keep the economy going while afflicted by Covid. It requires government intervention in the economy.
It is not a meritocracy if workers are idled through no fault of their own. It necessitates giving everyone who cannot work some kind of basic income. If workers are told to quarantine then how are they supposed to support themselves? If they have no money it risks crashing the economy through lack of consumer spending.
This pandemic has at least partially vindicated Karl Marx.
Fifth is the very definition of progress. Have workers stopped to think that the purpose of progress in the economy is to put them out of work? If a task requires six workers and a way is found to do the task with only three workers it is considered as making progress. But then what are the other three workers supposed to do to earn a living?
It puts a dent in the idea of meritocracy when workers are put out of work through no fault of their own, although it is practically necessary for progress.
Since my childhood I am amazed at all of the seemingly secure lines of work that have joined the dinosaurs.
Most ads in newspapers used to be drawn with a pencil and being good at drawing was a highly marketable skill. Those days are long gone.
In high school I took print shop, setting manual type, for two years.
I later studied photography, using chemical film and a darkroom.
There used to be ads everywhere for correspondence courses in electronics, which would certainly only become more important in the future. Sure enough electronics have only become more important. But knowledge of how to fix electronics is of limited use today because most everyday electronics are rarely repaired. Electronics have become miniaturized to the point of being disposable. If your phone were to break you would almost certainly just get another one rather than getting it fixed. This is especially true with progress continuously being made in phone technology.
Landline phone service used to be a vast industry. But I remember thinking once, as a child, that phones are connected by wires and television by antennas, when it would be better if it was the other way around. Today it is the other way around and landline phones seem almost as obsolete as the telegraph.
I remember when ordinary factory jobs were considered as secure. But time revealed that not only could the work be done at lower cost overseas, but that an ever-increasing proportion of factory work could be done by machine or robots.
Now there are not only self-driving vehicles, eliminating the need for drivers, but more and more mindwork, such as legal and accounting work, can be done by software or AI.
What about auto mechanics? Although it will take time the internal combustion engine is well on it's way to joining typewriters and the Pony Express.
Recessions do serve a purpose in eliminating workers that the economy does not really need. Do some readers remember when gas stations had people to pump your gas for you, so that you didn't have to get out of the car? It just seemed like they went away in a recession and never came back.
Many conservative politicians have run for office saying "Elect me and I will run the country like a business". The trouble is that a country isn't a business. A business can hire and let go of workers to suit it's needs. But a country can't. A country is much more limited than a business in that it must provide a basic living for all it's citizens. A country cannot just let go of it's citizens in order to save money.
Sixth is, again, striving to see the big picture of the economy, meaning that left and right viewpoints are of equal importance. There are simple realms and complex realms. A simple realm is where any statement must be either true or false. Mathematics is a simple realm. A complex realm is where two opposing statements can both be true. Philosophy and economics are both complex realms. The trick in economics, over the long term, is not to choose left or right but to balance the two so that we get the best of both and the worst of neither.
Socialism has been made into such a dirty word in some quarters. It is easy to forget conditions in the raw capitalism of the Nineteenth Century. Minimum wage laws, mandatory public education, limits to working hours and overtime pay, unemployment insurance and, public health care are socialism. Communism is government control of the economy, while socialism could be defined as "modified capitalism". Socialism is based on the free market, but not allowing it to operate alone.
In the free market alone manufacturers will naturally try to sell their products for as much money as possible while trying to pay their workers as little as possible, in order to maximize profit. The trouble with that is it may leave the workers without enough money to buy the things that they are producing.
That is what caused the devastating economic crash of 1929. Using the industrial capacity left over from the First World War factories turned out fantastic numbers of goods, everything from cars to radios. This was the decade known as the "Roaring Twenties". The trouble was that workers were not being paid enough to be able to afford the goods that they were producing, which were just piling up in warehouses. Factories began cutting back on production, meaning that workers had even less money, and it spiralled into an absolutely devastating crash.
The economic crash of 2008 happened in a similar way except that it was caused by houses being built that people couldn't afford, rather than factory goods. Have you noticed that America's three great crashes over the last century, in 1929, 1987 and, 2008, have all come in the second term of a two-term conservative Republican presidency?
But the left in economics has it's downside too. Has anyone ever noticed that inflation and the number of people working in manufacturing both peaked in 1979? I am sure that it is not a coincidence.
Unions in the 1970s made sure that millions of industrial workers were very well-paid. The trouble was that they were getting paid more than their labor was really worth, according to the Law of Supply and Demand. The economy adjusted by way of inflation.
1979 was the worst year. Inflation in Britain reached a very dangerous 27%. Margaret Thatcher, in Britain, and Ronald Reagan, in America, purposely induced a nasty recession because that was the only way to stop inflation.
Inflation is not only due to economic factors. The price of fuel, if it rises, makes everything else more expensive. Inflation can cause a recession by raising the cost of production. But deflation, the widespread dropping of prices, is worse than inflation because it takes away the incentive to produce. Most governments aim for an annual inflation rate of about 2%, as a cushion against deflation. All that the government really has to do to bring about inflation is to print more money. We don't usually stop to think about it but it is pay raises, unless accompanied by an increase in production, that causes inflation.
Today we are back to inflation but it is not because of unions and pay raises. It is because of the assistance given out because of the pandemic, combined with the drop in production that the pandemic caused.
The present shortage of workers, as opposed to a shortage of jobs, is why we are back to news of unions and strikes. It is because workers can get away with it. Reagan and Thatcher relentlessly went after unions in the 1980s, determined to weaken their power, but now the worker shortage is bringing the power of unions back. There was just a major hospital strike not far from where this is being written.
Finally let's have another look at "The Marx Cloud". Karl Marx was nothing like completely right, he was looking at only one side of the complete picture, but he does deserve some credit.
THE MARX CLOUD
I have a new way of looking at the theories of Karl Marx. I conclude that the fulfillment of Marxist theory can be seen in, of all things, computer technology. Since the end of the Cold War, Marx has been viewed as one of the great losers of history. He was nowhere near completely right in his predictions, yet was on to something and cannot be ignored. When I was in London, I thought of visiting his grave in Highgate Cemetery but never got around to it.
The workers of the world did not unite and take over the means of production, as Marx had envisioned. But he was somewhat vindicated by the crash of Capitalism in 1929, as well as the somewhat lesser crashes of 1987 and 2008. He might have been pleased with the implementation of minimum wage and workplace safety laws, labor unions, unemployment benefits and social security, and especially mandatory public education. All of which, with the exception of labor unions, was virtually unheard of in the Nineteenth Century when Marx wrote his theories. Samuel Gompers could be seen as America's reflection of Marx. Religion, the "opiate of the masses" certainly has not faded away as expected by Marx. But it is true that the western countries, at least, are more secular than they were in the days of Marx.
We look at the theories of Marx in socio-economic terms. But what if there was another side to the theory, that of technology, even if Marx himself did not see this? Some of the fulfillment of Marxist theory certainly was in the socio-economic sphere, as the above mentioned reforms. But the other side, the technical side and it's global social effects, had to wait for the advent of computers and the internet.
Computer and phone technology has empowered the masses like nothing else, even though it is produced by companies owned by wealthy capitalists. Wikipedia, for one, seems to be straight from the pages of Marxist theory. It is the collective encyclopedia of the masses, operated by donations and open to anyone who wishes to contribute. All shareware and free applications on the internet, open to all and not driven by profit motive, also fall into this category.
The nation-state has not faded away, at least not in the way that Marx supposedly envisioned. In the more than century and a half since the days of Marx, nationalism has been stronger than ever before. My theory is that people are designed to believe in something and if they drift away from religion, substitutes like nationalism will take it's place.
But yet national borders also mean less today than ever before. Trade and travel goes around the world. It is possible to wake up in any country one morning, and go to bed in any other country that night. You can log onto a web site, or make a call, or send an email virtually anywhere on earth, with the national borders in between being absolutely meaningless.
But the latest manifestation of Marxist theory is this phenomenon of collective global internet, known as "the cloud". The basic meaning of the cloud is that the data that you store, and increasingly the applications that you use, are not stored on your computer but are "out there somewhere" in the cloud. This blog is an ideal example of the cloud. It is not stored on my computer. I presume that the content of this blog is kept at Google's HQ in Mountain View, California, but could be on any server farm anywhere.
Marx sensed what would come. The Nineteenth Century in Europe was a time of revolution, and he presumed that the inevitable changes that he saw would be brought about in the same way. We could say that half of the fulfillment of his theory was by way of the social reforms listed above. But the communication technology of the time was limited to telegraphs relaying Morse Code. Marx could not possibly have imagined the computer revolution which would one day manifest the other half of this fulfillment.
He also did not see that while the technical side of his theory would be fulfilled, and it would greatly empower the masses that Marx saw as exploited and ill-treated, it would be brought about by very wealthy capitalists. The difference, with which Marx would be at least partially pleased, is these capitalists would not be from an entrenched upper class, but would be college kids who got an idea, quit school to work on it, and found themselves as the billionaires which would, ironically, bring about the remaining fulfillment of Marxist theory.
My observation is that the best economic model is not one that is right or left, but the one which best weaves right and left together.
The link to the following posting is if you want to read about just how ironic economics really is:
www.markmeekeconomics.blogspot.com/2014/11/the-influx-of-wealth-into-britain.html?m=0
14) THE PRIMARY CURRENCY DENOMINATION
This has been added to the compound posting "Economics", November 2019.
Each country has it's denomination of currency, dollars, euros, pounds, pesos, and so on. What I mean is the one that is most-used. The dollar, for example, is the denomination of American currency but hasn't been the primary denomination in decades.
The primary denomination changes over time due to inflation. A good place to see what the primary denomination is can be found at ATMs. What is the denomination dispensed by ATMs? That is the primary denomination of that country.
The denomination of American currency is dollars, but the primary denomination is twenty dollars. In a high percentage of economic transactions involving cash the buyer will hand over the primary denomination, and get lesser denominations back as change.
The primary denomination is virtually always issued as bills, rather than as coins. A sure sign of a shifting primary denomination is for a country to switch lower denominations from bills to coins.
A long time ago in America, maybe in the 1950s, a dollar was indeed both the denomination and the primary denomination. As change there were quarters, 25 cents, dimes, ten cents, and nickels, 5 cents.
Today the primary denomination is twenty dollars. Five dollar bills are the new quarters. One dollar bills are the new nickels.
The primary denomination shows up in other ways. The total price of a meal in an ordinary restaurant, including drink and tip, tends to be right around the primary currency denomination. If adults, of ordinary economic status, bet on a sports event the amount most likely to be bet is the primary denomination. The average price of admission to a show or event for two tends to be right around the primary denomination.
But the best indicator of what the primary denomination is can be seen as the bills ordinarily dispensed from ATMs.
15) THE ECONOMIC CONCEPT OF FUNDAMENTAL IMPORTANCE
This section has subsections.
This is about the destructive boom and bust cycles that plague the economy. When I landed in the U.S. as a child, there was a large open field nearby and one of the first things I did was to look around that field. I found several pieces of wood that were of similar length and attempted to construct a tepee like one of the ones that I had seen on television.
Now, I consider such a tepee as an ideal model of a modern economy. This type of structure consists of several lengths of wood placed upright with one end on the ground so that they meet and can be tied together at the top, forming a cone-shaped structure. Cloth or animal skins can be placed around the outside of the structure for warmth and protection from the wind and rain. When it comes time to move, the structure can be easily dismantled and transported to a new location.
INDEPENDENT AND DEPENDENT SECTORS OF THE ECONOMY
Now think of the different sectors of the economy today. There are what I will call the "independent sectors" and the "dependent sectors". The independent sectors of the economy revolve around basic necessities that we cannot do without and will always require. These are primarily food, clothing and, housing.
There are, as I see it, many more dependent sectors. There are the ones that are not as absolutely necessary to life as the dependent sectors. These include computers, communications, transportation, the military, education, government, finance, entertainment and, sports.
The purpose of this posting is to convey my explanation of the economic "bubbles" that grow and cause financial havoc when they inevitably burst. This is one of the great drawbacks of capitalism, it's boom and bust cycles.
The danger begins when one sector of the economy begins growing at a faster rate than the other sectors. This is not always a bad thing as long as it is caused by genuine progress. The truth, however, is that artificial booms are usually driven by a rush of investors to what they perceive as the latest hot new thing.
We must remember that one sector of the economy, as a proportion of the economy, can only grow at the expense of the other sectors. When investors put more money into one of the sectors than is justified by genuine technical or social progress, we get a distortion in the economy that we commonly call a "bubble". When this happens, sooner or later it tends to burst.
An economy is most stable when all of it's primary sectors grow together, at least in proportion to genuine progress. Investors, anxious to get in on a quick money maker, do not take this big picture into account, sometimes with eventually catastrophic results. There has been more than one real estate bust caused by the concept that property values will go on rising forever without stopping to realize that for this to happen, workers in the other sectors of the economy that are the ones buying the properties would have to have their earnings increasing that the same rate that the property values are increasing.
This means that for property values to go on increasing indefinitely, the other sectors of the economy must also be increasing at a similar rate. If this is not happening, the workers in these other sectors will not have enough money to keep driving up property values and sooner or later, those values must return to realistic levels.
I want to introduce the concept that, while these destructive bubbles can occur in either the independent or the dependent sectors of the economy, they do so for different reasons. There will always be the economic sectors that produce and market the basic necessities like food, clothing and, housing. The most important factor limiting the growth of these sectors is the income of people as a whole.
Put simply, all people require food, clothing and, shelter. But if someone were to suddenly increase their income by a factor of three, they probably will not buy three homes, instead of one, three times as much clothes and, three times as much food. Rather, they will tend to buy similar amounts of these goods but of higher quality.
Thus, growth of the independent sectors of the economy will focus on quality, more than quantity, and the limiting factor of this growth is the income of workers in the other sectors of the economy. The independent sectors must exist because they represent basic necessities but are constrained from growing faster than the dependent sectors.
THE CONCEPT OF FUNDAMENTAL IMPORTANCE
To avoid destructive bursting of bubbles in the future we must remember that the dependent sectors of the economy, which produce and market goods and services that are not absolutely necessary to life, have a certain "Fundamental Importance" to the economy as a whole.
When investors rush to a certain dependent sector of the economy, they risk pushing the money in that sector beyond that amount which is proportional to the sector's fundamental importance. This will inevitably result in a boom and the inevitable bursting of the resulting bubble.
There is no better example of this than the Dot Com Bust in 2000. Windows 95 did wonders for the computer sector and investment poured in throughout the late 90s. The trouble was that it was not matched by that sector's fundamental importance to the economy. Of course computer technology is here to stay, but we tried to push too far, too fast and the result was the bust.
ECONOMIC RULES OF FUNDAMENTAL IMPORTANCE
Here are my rules of logic concerning the fundamental importance of the dependent sectors of the economy. Destructive bubbles in the economy result when investment pouring into one of these sectors is out of proportion to it's fundamental importance.
Computer technology can do wonders. But we must not forget that the purpose of it is to manage information. Therefore, the subjects which the computers manage information about must necessarily be considered as more important than the technology itself. It would not make sense to build a sector of the economy to manage information about other sectors unless those other sectors were more important than the sector that was constructed to manage information about them. Thus, an economy with computer technology as it's most important sector makes no sense.
The communications sector relays information. But the sector that relays information about the other sectors must necessarily be considered as of less fundamental importance than the sectors that it relays information about. It does not make sense to build a sector of the economy to relay information about other sectors of the economy unless those other sectors are considered as fundamentally more important than the sector that relays information about them. Thus, an economy with communications as it's most important sector makes no sense.
The purpose of the transportation sector of the economy is to get us from Point A to Point B. This must mean that the fundamental importance of this sector must be less than those sectors whose activities take place at Point A and Point B. Thus, an economy with transportation as it's most important sector makes no sense.
The purpose of the financial sector of the economy is to extend credit to the other sectors. This means that it must necessarily be considered as less important than those other sectors and an economy with finance as it's most important sector makes no sense.
The purpose of the educational sector of the economy is to provide the knowledge and training necessary to the other sectors of the economy. Therefore, it must be considered as inherently of less fundamental importance than those other sectors and an economy in which education is the most important sector makes no sense.
The purpose of the health sector of the economy is to keep people healthy so that they can work efficiently in the other sectors of the economy. The purpose of the military, law enforcement and judicial sectors of the economy are to protect the people working in the other sectors of the economy. The purpose of the government sector of the economy is to administer the other sectors so that they can operate at the best efficiency. The purpose of the entertainment and sports sectors of the economy is to entertain people who work in the other sectors during their free time. Therefore, an economy with any of these sectors being considered as it's most important makes no sense.
You can see how the different sectors of the economy very must resemble several lengths of wood places together to stand upright in a tepee. The stability of the structure would be compromised if one of the pieces were to grow disproportionally to the others. As long as the sectors grow together, there are practically no limits to growth. By keeping this in mind, we can avoid the destructive boom and bust cycles that have plagued the idea of free enterprise.
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