There's a lot being written today about how fragile our economy is and how it misses the mark in taking care of people. I, let alone the average person, have trouble conceiving of the incredible vibrancy of the economy, its ability to produce and expand wealth, and the fact that it is simply unstoppable. Although I was born at the tail end of the 30s depression, I was influenced by my parents experiences during that very hard decade. It took me quite a while to realize that the depression, while certainly the result of an incredible drought combined with the misuse of tariffs, was deepened and lengthened by misjudgments on monetary policy made at the Federal Reserve and more specifically by tax policy.
We always have to have starting points in any discussion that put the discussion in context. The starting point in economics and empirical science both go back to feudalism. Feudalism ruled the world in all of recorded history. The reason was quite simple. First, we need land to grow the food we need to survive. To do that, we have to come together into communities. Because our minds produce recall with a continuous picture of ourselves which becomes the "I" that is us, and because we need a positive picture of ourselves to act in reality, we have egos which come into conflict when we gather together into communities.
In addition, there are things in reality for which we have no recall, the two principle ones being the question of where we and the reality in which we exist came from, the second, why is it that we act the way we do. We have to answer these questions, and because we come together in communities to satisfy our need for food, we have to agree on answers so that we are not continually clashing our egos over the questions. The answers to these questions become the rules of behavior that control our egos, keep them in place as we attempt to work together, and remove those who simply cannot live together with us, those who would hurt and destroy us.
They are incorporated into the religions that ruled feudal societies.
As to the structure of feudal societies, the classification of the ruling class came about quite simply. Because, as we emerged from the ruins that brought down the prehistoric civilization that is responsible for the megalithic buildings that populate the planet, the climate was colder and the amount of land available for cultivation was less, food-producing land became very valuable, something to fight over. History is nothing more than an account of the continuous battles over the land that produces our food. While the majority of the members of any community wished to peacefully farm the land, other communities were making do with less, experiencing weather problems, or simply wanted more to accommodate a growing population.
This, of course, led to the constant conflicts that are the wars of the history books, wars fought over resources. In order for communities to protect themselves from others who would seize their land, slaughter their men and rape and enslave their women, the most able members of the community had to take charge and these became the rulers and nobility. With the religious leaders attending to the belief system and the strong attending to protecting the community from both outsiders and those violating the belief system, and also tending to the common needs of the community like roads, a class grew up that didn't spend its time growing food. Thus, an unspoken agreement was made that those who grew the food would support those who tended to the community's spiritual needs and protected the community from outsiders while caring for the community's common interests. The second story of history is the ruler's abuse of the resulting power they held.
The result was a chief ruler, a person with the competence to accomplish the job, a bunch of lesser rulers who aided the chief ruler, and a bunch of retainers. These people owned the land and the farmers worked the land, living on structures built on the land and retaining a portion of what they grew to feed themselves, passing the rest along to the feudal lords, if we convert the process to England and talk about the English feudal system, which was basically representative of the process. I use England because its history stretches back to the beginning of history (see column 38-05) and, being an island, it was isolated from neighbors who could put an army together and easily invade.
Until the black death plague, which started the breakup of feudalism with the private ownership of land leading to production and our prosperity, most of the population of England was born in a specific place, never traveled further than ten or twenty miles from that place, worked from sunup to sundown and then went to bed, attended church faithfully on Sunday, and were buried where they were born when they died. They all lived in conformity with the consensus view handed down by the religious and civic leaders and the punishments for violating the rules were not only strict, they were public and extremely painful so they would serve as lessons to any others in the community who would violate the consensus rules of the community. Those with separate belief systems were isolated from the community, and because the production of resources was labor intensive, slavery was practiced, although in communities such as England where slavery violated the moral norms, it was practiced offshore on boats and in resource producing colonies (yes, that included the cotton producing US south which, even after the United States was formed, was indentured to England's mortgage banking system).
The invention of production changed everything (see column 40-05). The societies Marxists view as class based gradually became a societies based on prosperity. When people are prosperous, they have time to look around, examine their surroundings and make decisions about how they want to live. The way the mind operates, the creation of an ego that has to restrain its actions in order to live together, begins to look at others and self-awareness allows each of us to put ourselves in the positions of those we see around us. Because we started from a zero point, with the many having little and the few having much, the result of feudalism, we began to realize that prosperity was a means for the many to have a lot. We are driven by picturing ourselves in the position of those with little to expand production so that those with little can have more. As a result, in the three centuries since production was invented, prosperity has spread to a sizable portion of the planet and continues to do so.
Prosperity brings with it major changes. Because people become prosperous and have time to participate in the decisions affecting the community as a whole, feudalism gradually gives way to representative forms of government. Slavery simply disappears. The production that produces prosperity takes too much talent to exclude anyone from the education required to maintain and increase it. The increasingly cheaper goods means that all in a community should share in the production. The newspapers in the United States endlessly harp on how the rich are getting richer and the poor are getting poorer, but when I was a youngster, the poor were those living in wooden shacks without running water or telephones. Today the poor in the United States, as a part of the government's support system, have their food and housing needs met, have telephones as a medical right, while 73% have cable or satellite, 75% own a vehicle and 75% also have air conditioning.
However, production made a major change in how resources are distributed. Before production was invented, people worked the land and kept a portion of their crop for themselves. After production was invented, people earned salaries and had to provide for themselves. As noted in column 27-05, competition among nations forced salaries down to a point they couldn't support the people, breaking the contract the leaders had with the people to provide them with protection in exchange for their work. This led to the creation of Marxism, which is basically a philosophy that says the haves of the world exploit the have-nots, a feudalistic viewpoint that simply isn't true in a production based society where the goal is to increase the prosperity of everyone. Marxism will exist as long as there are those without and it has become a path to wealth and power for the few who realize that overthrowing prosperity is the only way to gain power in the increasingly representative world prosperity produces. Marxism is a neat fit with religious dictators whose only hope of staving off representative governments is poverty because those societies remain feudalistic and Marxists know that the only way to gain control is to return to feudalism. Thus, they advocate the high taxes and strict government regulation that is a proven formula for bringing prosperity to a standstill.
Which brings us to the economics of a production based world. Fifteen years ago, Germany was one of the strongest economies in the world. Today, it's a basket case. The government has raised taxes and regulated employment so that it is virtually impossible for a business to fire someone. As a result, businesses don't hire anyone, they outsource production to other countries. The US, with the strongest economy the world has ever seen, is constantly criticized for its deficit in trade balances with other countries, but the press rarely states that those deficits move right back into the US in the form of financial investments, financial interests outside the US unwilling to invest in stagnant economies, and it never mentions the fact that all of the deficit consists of money created out of thin are by the Federal Reserve. Meanwhile, the critics continue to enjoy the cheap products the money produces and harp on foreign sweatshops, where people are not only using those dollars to feed and cloth and house themselves, but to build the infrastructure their countries need to become prosperous.
Fifteen years ago, Estonia, Ireland and Iceland's economies were in the wastebasket. Today, as a result of the elimination of high taxes and the removal of overly restrictive regulation (regulation in the common good is always necessary), the three countries have the fastest growing economies in the world, and their populations, in virtual poverty before, are now enjoying the same prosperity we in the US enjoy. Meanwhile, countries like France and Germany, mired in taxes and regulations, can only spend their time in Brussels attempting to pass laws that would require these three countries to raise their taxes and increase regulation. Meanwhile, in the US, calls are made to raise taxes to cover the costs of Katrina when those costs do not equal the increased revenue that has occurred since the 00 tax cuts. It's simply an attempt to destroy our prosperity and return us to feudalism.
Another source of production criticism comes from Enron-like situations, where new forms of production are attempted and fail completely. Remembering specifically the Enron situation, all those pensions that were lost hadn't existed five years before they vanished. However, that's not the real lesson of Enron. All money is lent into existence. That is how our money is created. The purpose of the Federal Reserve is to match the amount of money to production so that it can produce the production while at the same time not becoming so excessive that it destroys production with inflation, the situation where there is more money than production. As production grows, the trick is to keep the medium of exchange equal with expanding production.
However, lending money into existence creates an interest burden. Contrary to popular belief, interest is not the way the rich soak the poor, it is a method of objectively directing created money into productive channels. If the channel is productive, it will produce the prosperity to pay the interest. If not, it won't pay the interest and the production will cease, the created money seeking better solutions. This leads to oversight groups such as Dun and Bradstreet that make assessments about how successful an endeavor is. If an endeavor is working, it gets a good credit rating and the money it borrows is cheap. If it looks like the endeavor is not going to be successful, it gets a bad credit rating and the money becomes very expensive, forcing the endeavor to close up shop and abandon its efforts. It's a very simply process and it works wonders in creating prosperity.
In Enron's case, and many others, however, a condition came into play that is not based on free market operations. The US Congress, overriding the shareholder owners of endeavors, limited the amount of salary they could pay the people that run their companies. Believe me when I state that it only takes one person, and I use person sincerely become some of the most effect CEOs recently have been women bringing creative processes into the marketplace, one person can turn an endeavor on a dime, turn a losing proposition into a big winner. When a company is losing, its stock is in the crapper. When it is winning, its stock takes wing, it becomes extremely valuable. When Congress limited salaries, the only way shareholders could attract the best talent was to offer absurd stock options that would enrich successful executives without rewarding unsuccessful executives.
There was a hidden problem with this, however. Returning to Enron as an example, the stock had risen disproportionately. The people running the operation had millions and millions of dollars in paper value so long as their stock option dates could pass and they could cash the options in the marketplace. It was imperative that the value of the stock remain high. However, while Enron created interesting processes that will improve our prosperity over the long haul, it attempted too much too early, and its income began to falter. The first thing that happens when a stock company's income falters, its credit rating falls and the amount it has to pay for borrowed funds increases. This sets up a downward spiral in its stock. This, the executives at Enron, and in fact, many other stock companies in the dot com bust, did not want to let happen. As a result, they started to cook the books, create the false appearance of income so they could cash out in the end before the crash. The executives at Enron even went so far as to put restrictions on the sale of its stock by its employees. It was not only planning to bilk the public, it was bilking its own employees in the process.
This is unacceptable in the marketplace, and brings us to the similarity of the situation with empirical science. I won't go into the complex scheme the Enron executives developed to cook the books, but the one thing it required was a consensus view that this was the right thing to do. I don't know how many executives were involved, but it had to be a substantial number, and they all had to acknowledge, if not openly, at least with nods and winks, that what they were doing was right. The sole reason they did this was, they benefited, not only materially from the cashing of stock options, but mentally, by keeping positions of authority.
The economy, vibrant and hopefully unstoppable, is made up of vested interests with the same set of expected benefits. Everyone that participates expects to benefit monetarily and most of us get our sense of self-worth from doing whatever we have chosen to do, well. We sleep at night with the knowledge that we have returned to the marketplace what we have taken out and we are free to use what we have taken out to make the choices that in turn contribute to the marketplace. I may sell shoes, but the income I get from selling shoes pays for a house, a car, food and clothing, and all of the things I like to do. I may not end up the month with anything in my bank account, but in a feudalistic society, the existence of food, day-to-day existence, depended on weather and the successful defense against outside intruders. I am a lot better off because I can take a trip, see the world, watch it on television, simply stated, my horizons are much broader than the simple folk embedded in feudal societies. The old saying after World War II, how do you keep 'em down on the farm after they've seen gay Paree, is definitely true.
So we live in an economy that is essentially invisible to us, one that exists solely on the basis of the silent consensual agreement that we contribute and we take out. However, we are ignorant of the basic nature of the economy, and, as in Germany, and now England, we accept the arguments from people who want to be our feudal lords that we should raise taxes and increase regulation, and when we put those leaders in power and they carry out their goals of destroying our consensual economy, we sink slowly into a dependence that leads to our self-destruction.
Replacing the church, empirical science sits astride and supports these attempts. Trial and error have consistently overridden the attempt to return us to feudalism, with Edison's inventions, J.P. Morgan's support after Rockefeller Sr neutralized him, and the millions of efficiencies contributing to the production process constantly raising our level of prosperity. But the attempt never falters, and empirical science, with its obsessive refusal to address the most important issues in our reality, the questions of the mechanical nature of force and motion, will eventually stifle the trial and error originality that has made our economy as vibrant as it is, leaving us at the mercy of those who would take over and become the new nobility in a feudal society which would control us as the world grows cold, the amount of food becomes less, and we eventually perish. Instead of addressing the real issues, empirical science concerns itself with salaries, grants and status, contributing absolutely nothing to the economy or our well-being.
We live in an invisible world of religious belief, empirical science, that doesn't address our real needs and prevents us from actually attempting to challenge reality, and it is, well, there's no other way to say it, it is sad.
Peter Bros is the author of the 9 volume Copernican Series and is President of The Far Museum of Dallas, an actual history museum, which will house its collection of 50,000 rare Eastern Mediterranean manuscripts and artifacts together with actual history displays and tours in a full-sized replica of the Egyptian Temple at Dendera to be built in the Dallas Ft. Worth area. Email:peterbros@therealskeptic.com