The depression cycle
There was a depression cycle beforethe end of the gold standard. For200 years, from the early 1700’s to the 1930’s, financial panics followed bydepressions were a regular feature of the US and European economies, occurringevery 20 to 30 years. This is partof the backdrop to our current crisis, and it might be good if it could beincluded in your discussion.
As an economics student in the ‘60’s some like-minded fellowstudents and I examined the buildup of debt loads and the decline in the rateof profits on productive assets over the course of depression cycles, and observed that that US levelswere rapidly approaching those last seen in 1929. Our professors were adamant however that the problem ofdepressions had been solved and that another one such as had happened in the‘30’s would never again be allowed to occur. (They were also firm about not wanting to discuss our assumptions and conclusions with us.) Wespeculated on how long the mechanisms they bragged about could postpone whatwe saw as the inevitable, but none of us guessed it would be 40 years!
You point to the role of war spending, including the ColdWar, and the explosion of oil use as factors in the last 40 years of run-up indebt. These are things I haven’tconsidered as much as I might have. But from my perspective, I saw the end of the gold standard and thestep-by-step dismantling of financial regulations and constraints as being drivenby the determination not to allow another depression, by allowing capital to beabsorbed in ever more fantastic financial structures backed ever less and moretenuously by the real economy – and increasingly resembling Ponzi schemes.
Considering this as one of the motives behind the changes that were made in the financial structure over the past 75 years would add something to your analysis.
(An aside: I turned away from the economics profession, sensing that it had no place for me, and after some years in business, industry and the labor movement went back to school for a PhD in physics, but I have remained an amateur observer. Some years later I met a professor who had survived the ‘50’s in an obscure labor education program at U of I Urbana, who told me that virtually all economics faculty who had shared Martinson’s framework of looking at money as representing claims on human labor had been purged from the universities during the ’50’s, resulting in a unanimous consensus in the academic economics profession that the value of a thing was nothing more or less than what you can get for it! This he claimed involved several thousands of economists, without regard to their politics, many, including department chairs, by outright firing. Thus the reluctance of our professors to engage with us may have represented not so much conviction as fear!)
(A footnote on this: in 1968 this consensus, arrived at by mass purging of dissenting views, was enshrined by the establishment of a Nobel Prize in Economics!)
We are in a depression cycle now, and will be for the next decade.
Chris: Interesting… !! It reminds me of Stalin’s purges in the sciences… in particular biology.
In the west we’ve had… “Economic Lysenkoism”. http://en.wikipedia.org/wiki/Lysenkoism
… with Keynes as the celebrated “useful idiot”…
Funny; I think it was a spam (or unobservant reader) that “woke this thread up again”. But I agree with plato (ooh, that sounds goood!:); the original posts from 2008 are very interesting reading!
Yes, these spammers (now deleted from the thread above, so you can’t see it), for whatever reason, post to older threads, usually over a year old. I’m not sure what the strategy is but they often dredge up some very interesting discussions like this one.
I am intrigued by the “purging” of the economics profession described above. Sounds about right; there were a lot of what Bill Bonner calls “world improvers” kicking around in the 50’s and 60’s who were enormously successful in removing undesirable strains of thought from the US, with economics being among their most successful ventures.
When everybody is thinking alike, nobody is thinking at all. Or something like that.
I find this odd and out of sync with my personal experience. And we know that anecdotal experience does not hold sway over data, but people keep referring to the Keynesian school of though as having “won” and being the primary gospel of economics taught “these days”. (As a country we were extraordinarily socialistic in the early 50s) But, everyone I know who went to graduate school for business or economics in the 80s tell me they were taught that Keynes was a socialistic fool. They learned Hayek, von Mises et al. Currently, the econ professors I know are all free market gospel singers who quote Milton Friedman as the final point of any discussion.
Is this disparity a geographical issue or has the tide turned but people are confused about when it happened??
I consider Keynes, Hayek, and Friedman (et al.) to be cut form the same cloth in the sense that each constrains their analysis to exclude the other two Es. I respect their profound and substantial differences from within the perspective of the Economy, but none of them include limits in energy or resources as limiting boundaries in their views on the world.
There were quite a number of economic researchers who developed a quite rigorous view of the combination of economics and energy, but they were never allowed to advance very far and many of them were indeed essentially purged from our schools of thought. Beginning with Frederick Soddy in the 1920’s and proceeding to Georgescu-Rogen in the 1970’s and Herman Daly today, there has been ample thinking along these lines but you’d be hard pressed to find even a handful of business schools that even utter their names, let alone teach their views.
Great post but its too leanthy toor read.