The International Financial Order

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I was invited to give a speech on that topic to the Sec­ond Meet­ing of Min­is­ters of Finance of the CELAC in Quito, Ecuador today (Novem­ber 29 2013). In it I out­lined Keynes’s Ban­cor pro­posal from Bret­ton Woods, explained why White’s plan was adopted instead, sup­ported the pro­posal by Zhou Xiaochuan, the Gov­er­nor of the Cen­tral Bank of China, to insti­tute Keynes’s scheme, and pro­posed that Latin Amer­ica could try a regional ver­sion of the same via the Bank of the South.

About Steve Keen

I am a professional economist and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous debts accumulated in Australia, and our very low rate of inflation.
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20 Responses to The International Financial Order

  1. Steve Hummel says:

    Excel­lent analy­sis and I agree with every­thing except for the following.

    First, Finance con­trols and always has con­trolled nation states, so both at the time of Bret­ton Woods as well as now allow­ing indi­vid­ual nations to “con­trol” their own destiny.…would undoubt­edly resulted in as much if not more chaos than we see today.

    Sec­ondly, we still have to deal with the fact that, con­trary to accepted “wis­dom”, the finan­cial sys­tem and con­se­quently the eco­nomic system.…..is not only NOT sta­ble, but rad­i­cally mon­e­tar­ily UNsta­ble. So we have to awaken to that fact and fix it.…terminatedly.

    It is obvi­ous to all but the utterly blind that the asym­met­ri­cally pow­er­ful busi­ness model is finance. There are rea­sons for this. Monop­oly on credit cre­ation is one, and sim­i­larly self inter­ested but less appar­ent is the restric­tive forms and pur­poses
    for which credit is issued by Finance.…at all. These are (form) loans ONLY and (pur­poses) production/work for pay ONLY. Now some would say that gov­ern­ment “gives”, but what they actu­ally do is take AND give which ends up being a sys­tem­i­cally ornery tak­ing and nig­gardly giv­ing. These same are fond of say­ing that gov­ern­ment over spends, but that’s only partly right. What it actu­ally does is over spend.…because it doesn’t DIRECTLY GIVE TO THE INDIVIDUAL. Which brings us to the real solution.….actual mon­e­tary Grace, the free gift (uni­ver­sal div­i­dend) .…instead of an eco­nomic or finan­cial coun­ter­feit of that con­cept and policy.….and of course, because we want to actu­ally and real­is­ti­cally con­trol (as in start, change and stop, but not intrude in a costly or idi­otic way) the entirety of the finan­cial and eco­nomic sys­tems which DO have to deal with the adven­ture inher­ent in the tem­po­ral uni­verse as well as the less gra­cious aspects of human nature.….an
    ongo­ing, peri­odic, and math­e­mat­i­cal means of equat­ing indi­vid­ual incomes and prices to main­tain the pos­si­bil­ity of eco­nomic equi­lib­rium (a com­pen­sated retail discount).

  2. Steve Hummel says:

    Vam­pires are myth­i­cal crea­tures. How­ever, as a metaphor for both cur­rent Finance and humanity’s half brained pro­cliv­ity for half brained think­ing about solu­tions it is not only apt, it is cogent.

    And the solu­tion to BOTH the vampire’s sit­u­a­tion AND our cur­rent cri­sis and own indi­vid­ual intel­lec­tual short­com­ings is metaphor­i­cally and real­is­ti­cally just as correct.

    Drive a stake (mon­e­tary Grace) through the heart of the undead, obses­sive, unbal­anced and uncon­trolled corpse (Finance and human half brained ten­den­cies) and cut off its head (non-symmetrical nature of Finance and non-integrated human intel­lect) so it never rises again and can finally be inte­grated by, receive and act with the Wis­dom of Grace.

  3. Steve Hummel says:

    Also posted here:

    http://rwer.wordpress.com/2013/12/01/shocking-breaking-young-economists-discover-that-lower-income-leads-to-lower-consumption/#comment-41563

    I’m on board with eco­nomic weather forecasting….if the indi­vid­ual AND the sys­tem are BOTH set free by a suf­fi­cient uni­ver­sal div­i­dend and com­pen­sated retail dis­count. There is only free­dom amongst bar­ri­ers in the tem­po­ral uni­verse and uncer­tainty is only a bur­den for the neurotic….or the pow­er­ful who are cur­rently in “con­trol”. But I repeat myself.

  4. Steve Hummel says:

    I admire your work Pro­fes­sor Keen, but all the Keynesian/Minskyian “solu­tions” will do is re-create the insta­bil­ity parad­ing itself as sta­bil­ity, the “great mod­er­a­tion” or what­ever you want to call that actual insta­bil­ity, that we’ve had for the last 80+ years. I’m sorry, but the Min­sky insta­bil­ity hypoth­e­sis only iden­ti­fies a human men­tal effect not a sys­temic cause, because the real cause is the con­tin­ual neces­sity to bor­row in and attempt to (unsuc­cess­fully) equi­li­brate the econ­omy and hence keep it “in the air”. Min­sky is right about “sta­bil­ity” beget­ting insta­bil­ity, but again, that only enlight­ens us about a human fail­ing. The econ­omy IS con­tin­u­ally unsta­ble, it’s just that Key­ne­sian or any other kind of con­tin­ual injec­tion of money into the econ­omy (except, curi­ously, a DIRECT pay­ment to indi­vid­u­als) obscures the basic dis­e­qui­lib­rium between total indi­vid­ual incomes and total prices.…and incurs costs which only exac­er­bate the more fun­da­men­tal dis­e­qui­lib­rium described by Dou­glas. ? Don’t let your icon­o­clasm end with only DSGE. Look a lit­tle closer, like at the rela­tion­ship between the labor costs (indi­vid­ual incomes) and total costs and hence total prices SIMULTANEOUSLY created.

  5. Steve Hummel says:

    Why would econ­o­mists pre­fer to leave con­trol, espe­cially if it is actu­ally “control“of the econ­omy and money sys­tems in the hands of a self inter­ested elite, instead of plac­ing that ulti­mate con­trol into the many hands of indi­vid­u­als col­lec­tively, not with gov­ern­ment, but with their suf­fi­cient pur­chas­ing power money-vote? It can only be because of mis­un­der­stand­ing, habit or, for those econ­o­mists also employed by the above self inter­ested elites, per­haps all three. Man must live free. That is an his­tor­i­cally observ­able fact. Yes, he some­times can be cajoled into believ­ing enslave­ment is free­dom, or even irre­spon­si­bly prefer/allow oth­ers to dom­i­nate him for a sea­son, but dom­i­na­tion is prob­lem­atic itself because it always cor­rupts and then main­tain­ing that covert or even self delud­edly jus­ti­fied dom­i­na­tion requires overt dom­i­na­tion. And so “the cen­ter will not hold.”

    Free­dom is essen­tial. The indi­vid­ual is MORE impor­tant than the sys­tem by itself. Indi­vid­ual free­dom must always be our first and last con­sid­er­a­tion, in eco­nom­ics, money sys­tems and in every endeavor.

  6. Steve Hummel says:

    Re-posted from Real World Eco­nomic Review blog here:

    http://rwer.wordpress.com/2013/12/01/spain-and-the-long-run-accelerator-edition/#comment-41583

    Your blog post is very true, and what we also need to keep in mind is that the black market/under the table econ­omy is undoubt­edly thriv­ing in Spain and else­where in Europe just to make life liv­able. My wife is from Roma­nia where under the com­mu­nists and even after­ward, the under the table deal was honed to an art form. This is not nec­es­sar­ily a “knock” on Roma­ni­ans or the Span­ish or any­one else in Europe, Amer­ica or any­where else who is forced to live in a sys­tem that dom­i­nates them. It is prob­a­bly more a sign of their strong sense of self preser­va­tion and prac­ti­cal intel­li­gence. Econ­o­mists and the finan­cial author­i­ties would prob­a­bly do well to emu­late such prac­ti­cal­ity, if not for the free flow­ing of the sys­tem or the free­dom of the indi­vid­u­als within that system.…then for their own self preser­va­tion. Why? Because even­tu­ally even these means of indi­vid­ual sur­vival will be inadequate.

  7. Steve Hummel says:

    Also posted on Ellen Brown’s Google group forum:

    https://groups.google.com/forum/#!topic/public-banking/mg-yBvRfRao

    There are so many good ideas in Geoff Davies book it’s hard to take excep­tion to it. The only thing he doesn’t get right is that you have to strike the beast in the heart to kill it. You will fight a thou­sand bat­tles and lose the war to it if you do not under­stand that the secret to killing it is.…to use the money sys­tem it, itself already employs.…to trans­form it. Killing by transformation.…is utter and com­plete. Gradualism.…is a los­ing strat­egy!!! Par­tic­u­larly when Mankind faces mul­ti­ple con­verg­ing crises. Trans­for­ma­tion first! Self deter­mined restraint and reform later! I speak in BOTH the most prac­ti­cal pol­icy terms AND in the ideas, val­ues, pur­poses and expe­ri­ences of the world’s great­est Wis­dom tra­di­tions. Pol­icy, if it accu­rately reflects and aligns with the con­den­sa­tions of human Wis­dom WILL HAVE THE SAME TRANSFORMATIVE EFFECTS ON THE SYSTEM as those ideas have on indi­vid­u­als, and those pol­icy effects.…WILL BE INSTANTANEOUS AS WELL!!! Why? Because BOTH trans­for­ma­tive ideas AND trans­for­ma­tive poli­cies THAT REFLECT THEM.…ARE TRANSFORMATIVE.…INSTANTANEOUSLY!!!

    The only thing nec­es­sary is to under­stand that Grad­u­al­ism will never win, and that align­ing trans­for­ma­tive ideas and their pol­icy reflections…is the bat­tle and the war won. It mat­ters less that the war be long or short.…only that it is won…and winnable.

    Killing by trans­for­ma­tion is the only win­ning strat­egy in the war to end the enslave­ment of a debt only finan­cial par­a­digm, and mon­e­tary grace is its policy.

  8. Euan Taylor says:

    Steve,

    I really enjoyed your pre­sen­ta­tion. It really added to my recent read­ing of “The Bat­tle of Bret­ton Woods”. How­ever there was one aspect that I am strug­gling to get my head around and hope that you could clarify.

    In your def­i­n­i­tion of money, you did not say that money has value as a tax voucher. Peo­ple sub­ject to a tax under an author­ity will require that money to pay their tax unless the tax­man accepts other forms of pay­ments. This final value gives value to all other trans­ac­tions but also lim­its the value to a juris­dic­tion. Infla­tion and defla­tion becomes a dynamic process of tax voucher cre­ation, veloc­ity in the sys­tem and destruc­tion through pay­ment of tax. Eco­nomic prob­lems would emerge through analy­sis of the sys­tem for excess or lack of cre­ation, bot­tle­necks in flow and excess or lack of destruc­tion (taxes).

    Even when look­ing at Bit­coin, I see the value as a method of elec­tronic exchange (that Bit­coin under­cuts other meth­ods such as credit cards by 2–3%). If this final value propo­si­tion was removed (for exam­ple by an even cheaper method of exchange), Bit­coin would lose its competitiveness.

    If Ban­cor does not have an end value in and of itself, does that not mean that there is an inher­ent insta­bil­ity in that sys­tem? The Ban­cor sys­tem may still be bet­ter than a sin­gle reserve cur­rency such as USD but it would not nec­es­sary be the com­plete solu­tion and have its own advan­tages and disadvantages.

    I under­stand that any cur­rency could have deriv­a­tive value by under­ly­ing reserves but this seems to be also unsound foun­da­tions. The result would be that an inter­na­tional Ban­cor would also have sta­bil­ity issues? In this case, a reserve cur­rency like the USD or Ren­minbi or Euro would have some advan­tages and per­haps the diver­sity would be its own hedge against risk?

    The prob­lem between cur­ren­cies would be resolved by risk man­age­ment (how­ever imper­fect) and match­ing of expo­sures (how­ever imperfect).

    It would be great to under­stand your thoughts on this.

    Regards,

    Euan

  9. Rentier Fungicide says:

    As Eun Tay­lor asks, national cur­ren­cies are backed by the author­ity and coer­cive power of the national state. If accep­tance of Ban­cor is vol­un­tary, is it not unstable?

  10. Rentier Fungicide says:

    Mr. Tay­lor — sorry about that, I meant “Euan”.

  11. Steve Hummel says:

    Re-posted from Real World Eco­nomic Review blog and Ellen Brown’s Pub­lic Bank­ing Google group:

    What if, just what if “equi­lib­rium eco­nom­ics” is no longer pos­si­ble because a con­ven­tion of cost account­ing (that all costs must go into prices) com­bined with a ratio­nally ben­e­fi­cial eco­nomic fac­tor like the pro­gres­sion of tech­no­log­i­cal inno­va­tion make it com­pletely math­e­mat­i­cally unrealistic/impossible to attain equi­lib­rium? Which would it be rational/possible to change?

    This would make free mar­ket the­ory itself…a mis­nomer. That is action/policy would in fact be nec­es­sary for a truly free market.…to exist.

    What if even­tu­ally (or even now) profit, free enter­prise, pri­vate prop­erty and human free­dom itself might no longer be able to exist.…unless we changed an aspect of the sys­tem that effects it at all times?

    What if chang­ing this rule and real­iz­ing this mis­taken the­o­ret­i­cal given would re-balance both the econ­omy in gen­eral as well as the most pow­er­ful busi­ness model now extant? Would we be will­ing and able to make the cor­rect changes? In the name of free­dom, I would hope so.

    It is some­times a funny world. Like, not as we assumed.

  12. Steve Hummel says:

    The fol­low­ing is a thread from Ellen Brown’s Pub­lic Bank­ing forum ini­ti­ated by myself with the same post from here just above. It should be instruc­tive to pro­gres­sive econ­o­mists and eco­nomic advocates.

    What is to be done?

    http://www.businesssp

    SB: I would sug­gest the replace­ment of the cap­i­tal­ist busi­ness model with
    mar­ket syn­di­cal­ism, oth­er­wise known to econ­o­mists as WDEs, or
    “worker-directed enter­prises,” in which the work­ers own and man­age the
    enter­prise, and prof­its from the enter­prise devolve to them. As the
    enter­prise grows wealth­ier through mech­a­niza­tion (as dis­cussed in the
    arti­cle), increased prof­itabil­ity devolves greater wealth to them,
    incen­tiviz­ing them to encour­age mech­a­niza­tion — to min­i­mize the divi­sion
    of prof­its. This is not some airy-fairy dream — there are cur­rently
    more than 10,000 mar­ket syn­di­cal­ist enter­prises already oper­at­ing
    suc­cess­fully in the United States.

    The tra­di­tional cap­i­tal­ist model is deeply flawed in many ways, and this
    is one of them. Mech­a­niza­tion only encour­ages the con­cen­tra­tion of
    wealth in cap­i­tal­ist economies, which in the United States and Europe
    has now reached a cri­sis stage. It does this by encour­ag­ing the
    cap­i­tal­ist to throw as many work­ers out of work as pos­si­ble, increas­ing
    unem­ploy­ment, and thereby dri­ving down wages — increas­ing the
    con­cen­tra­tion of wealth in the cap­i­tal­ists’ pocket. The poten­tial for a
    down­ward spi­ral is already being seen omi­nously in the United States.

    A num­ber of years ago, I did a back-of-the-envelope look at Microsoft,
    and what would have hap­pened had it been a mar­ket syn­di­cal­ist enter­prise
    instead of a cap­i­tal­ist enter­prise. Instead of one man, now sit­ting on
    the largest sin­gle pile of privately-held wealth in the his­tory of the
    world, all the 30,000 peo­ple who had ever worked for Microsoft over the
    years would now be worth about $3 mil­lion on aver­age. How much richer
    would Seattle’s econ­omy be, with 30,000 mil­lion­aires run­ning around
    spend­ing their mil­lions in wealth? Add to that the many thou­sands more,
    work­ing for Boe­ing, Ama­zon, Star­bucks, etc., and you can begin to get
    the pic­ture of what a mar­ket syn­di­cal­ist econ­omy in Seat­tle COULD have
    looked like.

    Add to that, the improve­ment in eco­nomic effi­ciency result­ing from the
    vir­tual elim­i­na­tion of finance-capital ren­tier­ing (cur­rently var­i­ously
    esti­mated at between 8% and 30% of the cur­rent US GDP) in an econ­omy in
    which pub­lic bank­ing dom­i­nates, and you can begin to get a feel for what
    is pos­si­ble — if we could just push tra­di­tional cap­i­tal­ism over the cliff.

    Me: I’m sorry, that is nei­ther the cor­rect route nor the fastest way to decen­tral­ize the econ­omy as a whole. Plac­ing the power to deter­mine who remains in busi­ness into the “many hands” of indi­vid­u­als via a pol­icy of eco­nomic democ­racy, i.e. a citizen’s dividend.…does that instan­ta­neously to the real power in the system…finance. Then…you can attempt to de-centralize the busi­ness entities…if you can get enough peo­ple inter­ested in actu­ally tak­ing con­trol. Most will prob­a­bly want to devote the major­ity of their time and atten­tion to other more self deter­mined activ­i­ties. If not, then let those who want to do it. But if you apply the cor­rect solu­tion to the cor­rect most prob­lem­atic entity (finance) FIRST, peo­ple will be eco­nom­i­cally free.…to choose whether to work or not. That way, in a tech­no­log­i­cally advanced econ­omy you don’t com­mit the stu­pid­ity of enforc­ing a work state on everyone.

  13. Steve Hummel says:

    Just got the fol­low­ing email from Real World Eco­nomic Review:

    Hence­forth com­menters on the RWER Blog will be lim­ited to 5% of the last 1000 com­ments. We have been encour­aged by other com­menters to adopt this policy.

    Cur­rently you have con­tributed 10.8% of the last 1000 com­ments. We look for­ward to receiv­ing your com­ments again when that fig­ure drops below 5%.

    Regards,

    Edward Full­brook
    editor

    To which I replied:

    Per­cent­age is a good way to deci­pher a ratio, but a poor way to reg­u­late Wisdom.

  14. TruthIsThereIsNoTruth says:

    you are at about 90% of com­ments for this blog and about –100% in terms of mak­ing any sense.

    wake up

  15. Steve Hummel says:

    There is so much orthodoxy.…everywhere. Not just in eco­nom­ics, but in the so called hard sci­ences as well. And the biggest ortho­doxy of them all is that sci­ence itself can bring us holis­tic answers. It can’t, it won’t, how can it, it’s only half of the whole of a human mind­set. The frag­men­ta­tion of Moder­nity is almost total. Sci­ence is the idol­a­try that reli­gion was 500 years ago. Do I beat my drum for reli­gion? Hell, it’s just another frag­mented part of the mod­ern human psyche.

    No, it’s Wis­dom, the inte­gra­tive mind­set that will save Human­ity from it’s frag­mented, self inter­ested, author­i­tar­ian, puri­tan, con­fused and hap­less ortho­dox idio­cies. I sug­gest peo­ple start using more than half of there brain’s abil­i­ties, and I’m sup­posed to wake up. I rest my case.

  16. Steve Hummel says:

    It is a mis­take to con­flate per­sonal virtues with the solu­tions to our eco­nomic and money sys­tems. Per­sonal virtues will ALWAYS be relevant…PERSONALLY. How­ever, to con­flate aus­ter­ity as a solu­tion to a sys­tem whose prob­lem is actu­ally that it inher­ently does not cre­ate enough indi­vid­ual income to make the sys­tem func­tion correctly…is irra­tional. Add to this the fact that due to tech­no­log­i­cal inno­va­tion being wed to a profit mak­ing sys­tem, absolutely means that even less indi­vid­ual jobs/incomes will be gen­er­ated in the future, and we can see that this prob­lem is not going to go away.

    Gift­ing indi­vid­u­als with money is not only the solu­tion, it is the inevitable solu­tion. Puri­tans of either an eco­nomic or moral reli­gious nature need to just get over them­selves in this regard. Curi­ously if the right mon­e­tary and eco­nomic solu­tion is applied the need for ethics and per­sonal virtues will be even more impor­tant than they have always been.…individually. Both reli­gion­ists and econ­o­mists, appar­ently miss these facts and realities.

  17. Steve Hummel says:

    The puri­tan turns joy into reli­gion and the econ­o­mist turns the abun­dance of tech­nol­ogy into aus­ter­ity. Well, that’s what hap­pens when you make the expe­ri­ences asso­ci­ated with God so out of reach of Man and you fail to con­front the asym­met­ri­cal power of the finan­cial sys­tem as well as its self inter­ested men­tal restric­tions on the forms that credit issuance can take.

    Of course wis­dom says that the expe­ri­ences of god are nat­ural and avail­able and you don’t have to jump through pre-scientific hoops to have them or their benefits.…just pur­sue them; and it also says that if tech­nol­ogy has tem­po­rally and eco­nom­i­cally enabled the align­ment and reflec­tion of the pin­na­cle expe­ri­ence of God, namely Grace, which is just another word for abun­dance and the joy of freedom…then go for it.…instead of miss­ing that fact and its pol­icy neces­sity by habit­u­ally regur­gi­tat­ing legit­i­mate and yet lesser con­sid­er­a­tions like employ­ment and/or profit.

  18. koonyeow says:

    Great to see that Min­sky in Min­sky is becom­ing sec­ond nature, Steve. I per­son­ally would only rec­om­mend Latin Amer­ica to indus­tri­al­ize cau­tiously, as many coun­tries over there still have pos­i­tive eco­log­i­cal remainder.

    http://en.wikipedia.org/wiki/List_of_countries_by_ecological_footprint

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