As you would expect, both the mainstream and the specialist media have been giving us minute-by-minute, blow-by-blow coverage of the financial crisis which began with the British government’s 23rd September “fiscal event”.
Unfortunately, this coverage and analysis is founded on a conventional school of economic thought which insists – rather, simply assumes – that all economic events can be explained in terms of money alone.
This assumption is fallacious. The fact of the matter is that we can immerse ourselves entirely in monetary theories and financial analyses until the proverbial “cows come home” without understanding more than the surface manifestations of the underlying situation.
As a corrective, let’s remind ourselves of something that ought to be self-evident. This is that the economy is a system which delivers those material products and services which together constitute prosperity. Money is simply a proxy for these products and services, a means of exchange and distribution which does not, of itself, determine the availability of this material prosperity.
This ‘money-only’ fallacy delivers false comfort, in at least two ways.
First, it enables us to explain away the current crisis in terms of idiosyncrasies – there’s a surface narrative which assures us that, if we can avoid the kind of bungling in which the new British leadership has become enmeshed, we can similarly avoid the kind of crisis now unfolding in the United Kingdom.
We might, indeed, be persuaded that even Britain can find a way out of this crisis through ‘rationalization’, which, in this case, might mean ‘finding rational people to manage its economic affairs’.
Now that growth has reversed
The second source of false comfort is the mistaken assumption that finding the right blend of fiscal and monetary policies can deliver the nirvana of perpetual growth.
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