Economics and the Inner Man: The World According to Solomon, Keynes and Fernandez

By James Ratcliff, on August 7th, 2008

Food shortages, food riots and skyrocketing food prices: the global food crisis has turned into one of the big stories of 2008. Not to fear: behind every headline and cover story lurks an expert—usually an economist—with a list of “promising solutions.”

“Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist,” John Maynard Keynes quipped in his General Theory, written during the Great Depression. If Keynes were alive today, he would say that practical men and women are the slaves of the latest expert to hit the talk-show circuit.

According to a U.S. News & World Report cover story on the global food crisis, “While 25,000 people are now dying daily of hunger, the United States throws away 96 billion pounds of food each year, or 320 pounds per person.” I didn’t throw away an ounce of food last year, so that means someone threw away 640 pounds—my statistical share and his.

In a perfect economic system, those 640 pounds of surplus food would have been redistributed to children like Yesinia and Lupita in Matamoros, Mexico. In all likelihood, there are 12 million African AIDS orphans in more immediate danger of starvation than these two neglected children. But when you’re 14 and 11, your mother has recently died and your father is an unemployed drug addict, you need help too, even if you’re only a few miles from the U.S.A.

The night I ran into Freddie Fernandez on the U.S. side of the border, Yesinia and Lupita were on my mind. All Freddie wanted was a dollar; he just picked a bad time to ask.

“Look at yourself!” I said. “Don’t tell me you can’t do some kind of work. Besides, a dollar isn’t going to solve whatever is wrong with you.”

“You don’t know how much I’m suffering,” Freddie said.

“Suffering!” I answered. “Go to Africa if you want to know what suffering is—or walk across the bridge to Mexico. I can show you suffering children right across the border.”

Freddie is an Eric Roberts look-alike who has a wife and two young children in Puebla, Mexico. He has been living on the streets of Brownsville, Texas, for more than a year. One week ago, I didn’t think there was any hope for him.

It’s My Life, Isn’t It?

For John Maynard Keynes, the ultimate purpose of economics was to provide society with a material basis that would allow people to discover their full potential. He dreamed of a day when advanced economies would enable people to focus on how to live wisely.

“Is the fulfillment of these ideas a visionary hope?” Keynes asked in the 1930s. “Are the interests which they will thwart stronger and more obvious than those which they will serve?”

In a pop song that made it to world’s largest stage—the Super Bowl halftime show—Jon Bon Jovi gave expression to those “stronger and more obvious” interests:

It’s my life

It’s now or never

But I ain’t gonna live forever

I just wanna live while I’m alive

It’s my life.

Three thousand years before Bon Jovi’s Super Bowl halftime show, King Solomon of Israel put the “It’s my life” life to the test. Solomon tried it all: he built houses and planted vineyards; he made gardens and orchards for himself. He had greater herds and flocks than anyone in Jerusalem before him. He accumulated precious things: silver, gold and women.

To put Solomon’s pursuit of happiness into a modern perspective, it may help to remember that when Texas billionaire Howard Hughes was the wealthiest person in the world, he paid annual rent on a couple of bungalows at the Beverly Hills Hotel for the exclusive use of his favorite starlets. In a comparison that defies the modern imagination, Solomon accumulated 700 wives and 300 concubines—all at the same time.

“So I became great and excelled more than all who were before me in Jerusalem,” Solomon wrote in the Book of Ecclesiastes. He came to his senses before it was too late. “Wanting more is useless—like chasing the wind,” he concluded at the end of an experiment in hedonistic living that makes Howard Hughes look like an altar boy.

Playing the role of king, philosopher and economic theorist to the ancient state of Israel, Solomon pondered the mysteries of economic life. “In the day of prosperity be joyful, but in the day of adversity consider: surely God has appointed the one as well as the other, so that man can find out nothing that will come after him.”

Solomon’s advice to future generations: “Remember now your Creator in the days of your youth.” Yes, we should all remember our Creator—and we should be suspicious of theorists that make predictions based on economic models.

This Visionary Hope

Where are we in history? What are our alternatives? Can economics bring about a Keynesian future in which economic freedom enables all people on earth to discover their full potential?

In The Undiscovered Self, Carl Jung wrote about the need of “a deep-seated change of the inner man, which is all the more urgent in view of the mass phenomena of today.” Jung concluded, “If the individual is not truly regenerated in spirit, society cannot be either, for society is the sum total of individuals in need of redemption.”

“Economics must once again find its heart and soul,” says Kamran Mofid, an Iranian-born economist who founded the Globalisation for the Common Good Initiative. Jung would have added, “If individual economists are not truly regenerated in spirit, economics cannot be either.”

That is not as unlikely an idea as it might appear to be. The night Freddie Fernandez asked me for a dollar, I thought there was no hope for him. But a few days ago, Freddie asked me to contact his mother, Amy, in Florida. Neither she nor Freddie’s family in Mexico had heard from him in over a year.

I spoke to Amy yesterday. What did she want me to tell her son? “We want him to be well—to take over his responsibilities,” Amy said.

Freddie found his heart and soul once again; he talked to his mother today for the first time in more than a year. He has taken the first step toward reassuming his responsibilities as a husband, father and son.

Jung was right; society can only be regenerated one person at a time. Keynes and Mofid are equally right; what good is economics if it doesn’t have a soul? It isn’t my life after all: life is a gift from God. When enough people truly understand that, society will be well—and able to take over its responsibilities as a society.

Is the fulfillment of these ideas a visionary hope? Perhaps. But it is a hope that puts me on the same side of the argument as Solomon, Keynes and Fernandez.

And that is exactly where I want to be.



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Hyperinflation: The Inevitable Result of Government-Manged Money

By J.D. Seagraves, on August 7th, 2008

Last Wednesday, Gideon Gono – Zimbabwe’s equivalent of Federal Reserve Chairman Ben Bernanke – issued a $100 billion note.

What can you buy for $100 billion in Zimbabwe? Not quite one loaf of bread.

Zimbabwe is experiencing 12,500,000% inflation – 12.5 million percent. How does inflation get this far out of control? Who can be blamed for it? According to the nation’s dictator, Robert Mugabe, “entrepreneurs” are to blame.

This is, of course, an absurd allegation. How can entrepreneurs possibly cause inflation? “By raising prices,” you might say. But if the total supply of money within an economy is stable, then an entrepreneur raising prices in one industry would necessitate prices falling in another industry. And that’s assuming people were willing to pay the higher prices, for they would be unable to if they lacked the money.

Entrepreneurs can cause a shift in prices, whereby prices rise in one industry and fall in another. But they can only do this in response to the actual desires of people. After all, if I have a shoe store and try to charge US$10,000 for a pair of $20 loafers, people simply will not buy from me – they’ll go to a competitor of mine. Thus, I can’t possibly cause inflation.

“But what if all of the shoe-store owners collude to raise prices?” This is an impossibility, of course, because even if all the existing shoe-store owners did collude to raise prices by, say, 10%, there would be nothing to stop new shoe stores from opening and charging lower prices. There would, however, be an incentive for new entrants to the market, so in the absence of government intervention, this is undoubtedly what would happen.

Now we’re starting to get to the real culprit: the government. If the free market is left undisturbed, then there can be no monopolization of industry, as the example above demonstrates. But let’s just keep going with the example and imagine that somehow a monopoly on shoes – or even a more vital product, such as gasoline – were achieved. Could this cause inflation? If gasoline were more expensive, wouldn’t that have a ripple effect throughout the economy causing all prices to rise?

That’s what we’re told, but it too is an absurd argument. After all, if there is no new money in circulation, prices in the aggregate cannot rise. If the price of gasoline went up, then prices would have to go down elsewhere – even in gasoline-dependent products and industries. People simply cannot spend more money than they have, and thus, something has to give somewhere.

And now we reach the real crux of the matter: prices can only rise, in the aggregate, when there is new money in circulation. What’s more, prices will inevitably rise as more new money is created.

In the U.S., we’ve had massive build-ups in the money supply under former Fed Chairman Alan Greenspan and Bernanke. Prices haven’t gone up nearly as much as we might have expected them to because the new money flowed into real estate in the early nineties, and then tech stocks in the late nineties, and then real estate once again. Now the bubbles have burst and that new money is making it into commodities of real value – like oil and gold.

Last Friday, Zimbabwe – by fiat – revalued its currency so that $10 billion are now equal to $1. We Westerners can look at this Third World country in mockery, but the same thing essentially happened to the U.S. in the aftermath of the Revolutionary War. That’s why the founders put a prohibition on “bills of credit” (debt-based paper money) in the Constitution which also says that only gold and silver can be legal tender.

Strangely, I don’t remember the constitutional amendment that overruled either provision.

So while we may laugh at Mugabe and his people’s plight, my guess is it won’t be so funny when the same thing happens to us. Just as David Ricardo said, “money that costs nothing will eventually be worth nothing.” Changing the number of zeros on a bill does not change this timeless principle.



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