Hi, I'm Matt. I'm a financial economist in training researching financial markets & institutions. My other research interests include political economy and economic history.

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A response to “Sacred Economics by Charles Einstein.”

My friend posted this video to my Facebook. She seems concerned that my economics training is making me be too much a defender of the system. I try to be critical, but reasonable, about the system, as I hope my prior posts demonstrate. But here is a (mostly) uncritical defense of the modern global economy, in response to this video.

I see a big problems with the logic : the underlying and not directly stated premise is that the “money economy” was impossed on society, perhaps by the Illuminati or something. I believe, and I think history evidences, that money, as a medium of exchange, was an inevitable consequence of an increasingly complex civilization. If I want to trade with someone hundreds of miles away, it is much less risky and easier to send a piece of paper (or transfer bits and bytes via the Net) then to send a load of gold. Plus, barter (gifting) is practically impossible at a significant distance. It is also grossly inefficient. Why do we trade? Because resources are spread around the globe. Should we tell some country who only has copper and little arable land, “just find a way to eat it?”

Now, if Mr. Einstein wants us to go back to tribal life, I think he is ignoring the entire path of human history. Also, I think he is ignoring the fact that most people, especially non white folks, are much better off today then they were hundreds of years ago. And, unlike tribal times, we aren’t at the mercy of hungry bears and (as much) natural disasters. Also, this story assumes (A) the past was a happier time (in aggregate) and (B) we can ignore every piece of evidence showing humans to be (outside a small “clan”) utterly selfish beings and who if asked will somehow just do the “right” thing. Now, I am concerned about the effect we are having on our planet, but I am also concerned about the billions of people still living short impoverished lives. And, these days, my concerns for the latter outweigh those for the former. Economics is about SHARING scarce resources in an efficient manner, not about MAKING resources scarce. This is a straw man set up by Mr. Einstein as a counter-position to his repackaged barter based economy of some mythic golden past.

Finally, he gets basic monetary economics wrong. Interest bearing debt does not necessarily grow faster than wealth. If the interest rate is 1 %, for example, and the inflation rate is 2%, then the debt will be eliminated simply through inflation. This hurts those “evil” debt holders, but helps the debtors. Over time, we experience periods of inflation and deflation, and if the central bank is doing its job, this does not shock our economy too much.

  1. docstocks posted this