Friday, July 23, 2010

A Complete History of Economic Thought

Economic thought can be broken down into three distinct periods. The first is lodged between the twenty two hundred years starting with the height of Greek civilization in 500 BC and ending in the early 1700s with the coming of the industrial revolution. This epoch is populated with the political philosophy of the likes of Socrates, Plato and Aristotle as they attempted to define liberty, justice, property rights and law. These ideals provided a theoretical foundation for economic thought in the coming years.

The second period of economic thought evolved because of the industrial revolution and ended in 2002. During this era Adam Smith, David Ricardo and Thomas Malthus combined the political philosophy of the Greeks with the new profit driven concepts of capitalism. This unwieldy combination of political ideals and financial concepts never evolved to become a science.

During this dark period philosophers believed that savings and increased productivity created a higher standard of living for future generations. It was conjectured that debt could increase a nation’s standard of living in the short term but must be avoided as a long term panacea.

Along with these other misconceptions there was the delusion that the debasement of a currency by a wise and equitable government could create a misallocation of resources that rewards political “favorites”. Simpletons like Thomas Jefferson, Edmund Burke, and Alexis de Tocqueville wrote tomes about this government manipulation and suggested that it was a form of tyranny.

Today these well intentioned treatises are viewed as nothing more than Voodoo economics. Most of these “dismal” economic philosophers have been relegated to the dust bin of history.

The simplistic thinking of our ancestors changed in 2002 as our government and our financial system merged into a single entity. This symbiosis has allowed the science of government directed financial management to replace the theoretical “invisible hand” of Adam Smith. It is fostered by the bounty of the endless money that is created by our Federal Reserve and then funneled directly into our financial system.

There were a few master theorists that foresaw our current managed economy.

While Jefferson, Burke and de Tocqueville were writing about ideals, Karl Marx was using ideas to plan a future economy. He explained why capitalism can’t work and why the government must intercede.

Joseph Stalin commandeered Marx’s concepts and showed us a glimmer of our future as he managed an empire that had seemed unmanageable in the past. Papa’s deliberate style of management used his military to direct his populace through the emotion of fear.

Our elected officials have taken this egalitarian ideal one step further. Instead of using just the emotion of fear to direct an economy, our politicians utilize the fear and the greed of speculators to gently push our economy to new heights.

Today we take this government “stimulus” for granted. Stalin’s economic direction is replicated by economic enticements by our government run financial sector.

Thanks to the Federal Reserve money is constantly pulled from our non productive savers to create new bubbles of economic growth. This growth is not enabled by theoretical capitalistic ideals but with scientifically micro managed "free markets" run by Wall Street economists.

The government stimulus creates permanent economic plateaus very similar to the one predicted by Irving Fisher of Harvard in 1929 with accompanying economic moderation as predicted by Professor Bernanke of Princeton in 2004.

Only these permanent exuberant periods or “bubbles” as they are sometimes called will be the solid foundation for future growth.

The philosophy and ideals of the past have been replaced by hard science.

This economic renaissance is like a roller coaster with all of the falls eliminated and replaced with permanent plateaus supporting prolonged periods of prosperity courtesy of the economic science of our government run financial system.

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