At MacroMania there is a quote from Andre Gide:
Believe those who are seeking the truth. Doubt those who find it.I like those two sentences, and these two:
Those, who are strongly wedded to what I shall call “the classical theory”, will fluctuate, I expect, between a belief that I am quite wrong and a belief that I am saying nothing new. It is for others to determine if either of these or the third alternative is right.
Richard Cantillon (French: [kɑ̃tijɔ̃]; 1680s – May 1734) was an Irish-French economist and author of Essai Sur La Nature Du Commerce En Général (Essay on the Nature of Trade in General), a book considered by William Stanley Jevons to be the "cradle of political economy"...
Three fragments from one paragraph in the Wikipedia article:
Addressing the mercantilist belief that monetary intervention could cause a perpetually favourable balance of trade, Cantillon developed a specie-flow mechanism foreshadowing future international monetary equilibrium theories. He suggested that in countries with a high quantity of money in circulation, prices will increase and therefore become less competitive in relation to countries where there is a relative scarcity of money.
Cantillon also held that increases in the supply of money, regardless of the source, cause increases in the price level and therefore reduce the competitiveness of a particular nation's industry in relation to a nation with lower prices.
Cantillon did not believe that international markets tended toward equilibrium, and instead suggested that government hoard specie to avoid rising prices and falling competitiveness.
I have removed the word "Thus" from the beginning of the second fragment and the word "However" from the beginning of the third. These words connect the latter fragments to what comes before in a way that requires me to stop and think about the relationships between fragments. I don't want to do that. It's a distraction.
I want to think about the ideas within the fragments. Here, let me focus on the ideas:
It's
all one idea, isn't it: Inflation at home makes a nation less
competitive in international markets. (Don't focus on "the supply of
money" as the cause of inflation; that is a separate topic. The key idea
in the fragments above is that one of the effects of rising prices is the
tendency toward trade deficits.)
For me, the idea was obvious, once I thought of it. But it took me a very long time to think of it. Since the inflationary '70s, when I got interested in the economy, this paragraph from Wikipedia is I think the first time I ever saw the idea laid out with a little emphasis.
Oh, yes, I recall Thomas Palley, back in 2017, saying
Moreover, the last four decades have seen several episodes of extended dollar over-valuation that have caused large trade deficits that have done great damage to U.S. manufacturing.
"Dollar overvaluation" is not the same as inflation, but it has a similar impact on prices. I took Palley's sentence as confirmation of my thought that inflation makes a nation less competitive in international markets. Not that I had the idea before Richard Cantillon, of course. I'm not that old. But I only recently found the Cantillon paragraph at Wikipedia.
The Cantillon paragraph
only seems to emphasize inflation's impact on trade because I am focusing on
that aspect of it. At the source, the three fragments shown above are
followed by two additional sentences that are not related to inflation. One
sentence is on Cantillon's view that the balance of trade can be
improved "by offering a better product". The other considers
mercantilism as the possible source of Cantillon's "preference" for a
favorable balance of trade.
The paragraph after the one considered here moves on to consider Cantillon's theory of interest. Wikipedia
does not emphasize the impact of inflation on international trade. We're lucky we got the three sentences we got.
There has been a lot of discussion in this country (and elsewhere I suppose) about our trade deficits, and a lot about inflation, but almost none (that I have seen) pointing out our trade deficits as a consequence of inflation.
If you want to call something "the Cantillon effect", it should be this.
A Google search for econ led me to the Economics page at arXiv, a collection of econ papers. In that archive I found the landing page for Macroeconomic and financial management in an uncertain world: What can we learn from complexity science? (PDF, 23 pages) by Thitithep Sitthiyot of the Public Debt Management Office, Ministry of Finance, Thailand.
I know I'm not supposed to judge a book by its cover, but the title of this paper induced me to download the thing. Glad I did. I got as far as the Introduction where I read
Section II discusses five selected but critical shortcomings of existing knowledge in macroeconomics and finance.
That's what I want to present today. This is from the opening paragraph of Section 2:
The main shortcomings in macroeconomics and finance have to do with models and assumptions. For macroeconomics, the model that is being widely used by economists to analyze and forecast the effects of economic policies on the economy is known as the Dynamic Stochastic General Equilibrium or DSGE model. This model has been heavily criticized by many scientists outside the field of economics and by a number of economists that many assumptions imposed in the DSGE model are not consistent with empirical observations.
In a footnote at that point, Sitthiyot
says: "Ormerod (2006) refers to Kenneth Arrow, the winner of the
Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel
in 1972, who regards the DSGE model as being empirically refuted." The
paragraph resumes:
This paper chooses to discuss three main assumptions imposed in the DSGE model that do not fit with what happen in reality, namely, the equilibrium state of the economy, the external random shocks as the only factor that could affect the system, and the representative agent with rational expectations.
I like this paper because it is well organized, and because it gathers and presents specific complaints. Below I present a shortened version of the five critical shortcomings given in Section 2 of the paper:
The main shortcomings in macroeconomics and finance have to do with models and assumptions. For macroeconomics, the model that is being widely used by economists to analyze and forecast the effects of economic policies on the economy is known as the Dynamic Stochastic General Equilibrium or DSGE model...
1. Models
This paper chooses to discuss three main assumptions imposed in the DSGE model that do not fit with what happen in reality, namely, the equilibrium state of the economy, the external random shocks as the only factor that could affect the system, and the representative agent with rational expectations.
1a. The Equilibrium State
As its name suggests, the DSGE model assumes an equilibrium state of the economy. Casti (2010) illustrates that, in the real world, an economy where supply and demand are in balance never happens even approximately. According to Helbing (2015), economic system is unlikely to be in equilibrium at any point in time. Rather, it is expected to show a complex non-equilibrium dynamics. Ball (2012) notes that the equilibrium assumption originates from microeconomic theory as an analogue of equilibrium physical systems such as gases which have stable and unchanging states. The physical sciences, however, have long moved on to describe non-equilibrium process such as weather system but economics has not...
1b. The External Random Shocks
Kirman (2010) argues that, by and large, the fluctuations of the economy are the result of interaction among agents who make up the system and not due to some exogenous shocks. Kirman also refers to Sornette (2003) who makes a similar point that a stock market crash is not the result of short-term exogenous events but rather involves a long-term endogenous build-up with exogenous events acting merely as triggers. The idea that endogenous factors could gradually cause the system out of equilibrium is not entirely new, however. It has long been recognized and studied by many disciplines such as physics, biology, ecology, and sociology...
1c. The Representative Agent with Rational Expectations
In addition, the DSGE model assumes that the whole population in the economy can be represented by a representative agent with rational expectations who tries to maximize expected utility at any given period subject to inter-temporal budget constraint. It is as if one person’s thought can be used to represent the way in which everyone else in the entire economy thinks. Clearly, the model ignores the interaction among different agents comprising the economy and positive feedback which could cause emergent phenomena.
There is more. I am trying to present the minimum that shows Sitthiyot's approach and the concept presented in the paper. (The outlining, in bold text, is mine, added to be sure I captured all five points in this short overview.) Section 2 continues:
2. Assumptions
While the drawbacks of macroeconomics are due mainly to the model and assumptions, the problem in finance has to do with assumptions. There are two assumptions this paper chooses to discuss. The first assumption often imposed in finance is that price changes are independent... The second assumption is about the distribution of data.
2a. Price Changes are Independent
The first assumption often imposed in finance is that price changes are independent. One could think of tossing a fair coin as a metaphor. The results coming out of a coin tossing are independent from each other. The coin does not have a memory whether it landed head or tail in the past... In reality, changes in prices are not independent. Financial data have a property of path dependence or long memory. Normally, big changes are followed by big changes, the so-called clustered volatility...
2b. The Distribution of Data
In addition to the assumption that price changes are independent which is not consistent with empirical observations, financial data do not follow normal distribution as assumed in modern finance. Rather, it exhibits power law distribution with fat tails. According to Haldane and Nelson (2012), the power law distribution with fat tails implies that the probability of large events decreases polynomially with their size while, in the normal distribution world, the probability of large events declines exponentially with their size, making large events increasingly rare at a rapid rate. In contrast, under power law distribution, these large events are much more likely.
To provide a numerical example of how risky it might be if one assumes normality of distribution of data, this paper refers to a study conducted by Benoit Mandelbrot using daily index movement of Dow Jones Industrial Average during the period of 1916-2003. Based on Mandelbrot’s empirical findings, normal distribution implies that there should be fifty-eight days when the Dow moves more than 3.4% while in fact there are one thousand and one. In addition, normal distribution predicts six days where the Index swings beyond 4.5% whereas there are three hundred and sixty-six days according to the empirical observations. And lastly, the Index that swings more than 7% should come once every three hundred thousand years as predicted by normal distribution while the twentieth century already observed forty-eight days. It is crystal clear based on this empirical evidence that assuming that data have normal distribution would highly underestimate risk.
That's all five points. Gathering them together makes them easy to understand and makes a strong critique of economic thought. And I have to say the presentation of Mandelbrot's numbers is awesome!
Two pages from Rome's Fall Reconsidered, a Google Book.
"Latfundia" is "big farms" or "large landholdings", super-big and super-large. In those days, land was wealth.
Is it not interesting that he is not presenting us with a list of factors that were leading Rome to its destruction? On the contrary, he points out one predominant factor, the latifundia, the concentration of wealth, ruining both Rome and the provinces...
We looked at Melania on 25 Feb:
In AD 404 Melania freed 8000 slaves out of a total of 24,000 on sixty farms, villas or hamlets which she owned in the vicinity of Rome.
Melania had income comparable to the imperial revenues.
That last line struck me when I read it (in the '80s maybe) so that I never forgot it. With my memory. But Seneca blows that out of the water when he says A large tract of land, formerly sufficient for a whole nation, is now barely enough for a single lord!
And Cicero blows Seneca out of the water, quoting a tribune who says there are less than two thousand property owners in the whole of Rome!
It's a good question. The answer: Not very much. The fall is rapid. When you hit bottom, however, you can be stuck there for a long time.
//
So, which is it? The latifundia, or the corruption? Simkhovitch answers that question on the next page:
In that very same ode Horace tells us why he takes so desperate a view of things. The great deeds of the Romans were the deeds of a sturdy farmer race, of the "mascula proles rusticorum militium, docta versare glebas Sabellis ligonibus" -- and these farmer's sons existed no longer. If they could not maintain themselves on their farms, still worse were the chances for a respectable existence in Rome; there they lost what little they had and became demoralized, dependent paupers.
The two complaints, the two Roman explanations of their own decline and disintegration reduce themselves, therefore, to one single explanation. For it is clear that the latifundia and corruption are but different aspects of the same social phenomenon. If the moral disintegration was due to the disappearance of the self-supporting, self-respecting farmer class, and the inordinate wealth and fantastic luxury of the small upper class, the latifundia were but a real-estate expression of the same phenomenon. The place of innumerable small farms was taken by extraordinarily large estates -- the latifundia.
//
Google's
Ngram Viewer is a gold mine. I can search for usage of a phrase, then
search thru the source books going back to 1800 to find it in use in a
Google Book. And a lot of these old Google Books are marked "Full Book
Available". And a lot of those old books say things worth repeating.
When the Romans first emerged from the mist of fable, they were already a race of land-owners who held their property in severalty, and, as the right of alienation was established, the formation of relatively large estates had begun.
The "right of alienation" means you can legally buy and sell land. Ownership "in severalty" means you
can do it. When
people own land, and can buy and sell it, you would expect to see
some "relatively large estates" arise, as Brooks Adams describes, as
part of a natural process, the concentration of wealth. A natural or, at
any rate, a legal process.
Among the first facts we know of ancient Rome, Adams says, is that the concentration of wealth was already under way. When we get past the myths and legends, he says, the first thing we know about Rome is concentration of wealth.
When some people are acquiring land, others are becoming landless; in Rome's agricultural economy, landless and poor.
Branko Milanovic, a few years back, read and took notes on Francis Fukuyama's book The Origins of Political Order. He writes:
I noticed among my notes a number of Fukuyama’s views on economics, many directly critical of some mainstream nostrums... I decided to bring up Fukuyama’s several economic statements, with only minimal commentary from me.
First among these economic statements is "Against 'property rights fetishism' (Fukuyama’s term)". Milanovic quotes Fukuyama:
In a Malthusian economy where intensive growth is not possible, strong property rights simply reinforce the existing distribution of resources.
Milanovic covers more of Fukuyama's economic statements. Then, wrapping things up, he writes:
At the end, another concept that I really liked, handsomly-termed, “the iron law of latifundia” or large real estates: “the rich tend to get richer in the absence of state intervention” (p. 368)
Today we consider the time that begins with Brooks Adams's "When the Romans first emerged from the mist of fable, [the ordinary family] held perhaps twelve acres", and ends with evidence supporting Fukuyama's "iron law of latifundia".
I don't use the word angst and I don't know anyone who does. But the word popped into my head while I was writing this, so I looked it up. It looks like the right word:
"a feeling of deep anxiety or dread, typically an unfocused one about the human condition or the state of the world in general."
Like Jimmy Carter's malaise, but a stronger dose.
Over time, "the formation of relatively large estates" in ancient Rome progressed to the point where the wealthy were getting hungry for power and the poor were growing restless. The angst of the poor turned the popular mood against the king. The rich would take advantage of the popular mood to gain support for regime change, crush the kingdom, and establish a republic. Wikipedia's Conflict of the Orders page confirms that there was class struggle:
The Conflict of the Orders, sometimes referred to as the Struggle of the Orders, was a political struggle between the plebeians (commoners) and patricians (aristocrats) of the ancient Roman Republic lasting from 500 BC to 287 BC in which the plebeians sought political equality with the patricians.
The Roman Kingdom was a thing of the past. The Conflict of the Orders occurred in the Roman Republic. It was not resolved quickly because the underlying problem was so deeply troubling.
But the Conflict of the Orders arose almost
immediately after establishment of the Republic. It
did not arise from problems created by the Republic. It arose from
problems that had developed in the time of the Kingdom. It arose after
the regime change because regime change did not solve the problems, and
people had to take action.
The angst that found vent
in the Conflict was the same angst that had turned people against
the king in the days of the last king (or kings) of Rome. The fact that
the Conflict arose so soon after the regime change is evidence that the
angst of Rome arose during the monarchy, turned the popular mood
against the king, and created a political environment in which revolution could
succeed. Angst led to revolution, not revolution to angst.
You will notice that the Conflict of the Orders is described as a political struggle for political equality. The angst, however, had economic roots. The Conflict was class struggle. Yet it is described today, and it was doubtless described at the time, as a political struggle.
Political solutions cannot solve economic problems. That is why the Conflict of the Orders lasted more than 200 years. My guess, it was the Roman nobility that insisted on calling the Conflict a political issue. If the poor knew better, their voice was muffled by the wealthy.
The Roman "mist of fable" extends back not to the Empire nor to the Republic but before them to the Kingdom founded by Romulus at the age of 18, the story goes, and after killing his twin brother.
Wikipedia points out that "no contemporary records of the kingdom" survive. So the story (not the history) is that Romulus was Rome's first king. And Tarquin (Lucius Tarquinius Superbus) was the seventh and final king of Rome.
Something else from Wikipedia's Roman Kingdom page: Apparently the first king and the last king have something in common: rape. Regarding Romulus, Rome's first king, they write:
Romulus was behind one of the most notorious acts in Roman history, the incident commonly known as the rape of the Sabine women. To provide his citizens with wives, Romulus invited the neighbouring tribes to a festival in Rome where the Romans committed a mass abduction of young women from among the attendees.
Regarding Tarquin, the last king, they write:
The seventh and final king of Rome was Lucius Tarquinius Superbus... Tarquin's reign is remembered for his use of violence and intimidation to control Rome, and his disrespect for Roman custom and the Roman Senate.
Things were not going well in Tarquin's
time. Wikipedia doesn't say, but I would bet the economy was in trouble.
And then things got worse:
Tensions came to a head when the king's son, Sextus Tarquinius, raped Lucretia, wife and daughter to powerful Roman nobles. Lucretia told her relatives about the attack, and committed suicide to avoid the dishonour of the episode.
The two rape stories have very different endings. For Rome's first king:
War broke out when Romulus refused to return the captives. After the Sabines made three unsuccessful attempts to invade the hill settlements of Rome, the women themselves intervened during the Battle of the Lacus Curtius to end the war. The two peoples were united in a joint kingdom, with Romulus and the Sabine king Titus Tatius sharing the throne.
The Romulus story has a happy ending: The victims
intervened to stop the war. The warring parties joined forces. The
warring kings shared the throne. Things went well for the first king of
Rome. Things went even better a few years later, when the
Sabine king died and Romulus was again the only king.
The ending was not so happy for Rome's last king:
Four men, led by Lucius Junius Brutus, and including Lucius Tarquinius Collatinus, Publius Valerius Poplicola, and Spurius Lucretius Tricipitinus incited a revolution that deposed and expelled Tarquinius and his family from Rome in 509 BC...
Brutus and Collatinus became Rome's first consuls, marking the beginning of the Roman Republic.
Not a happy ending for Tarquin. My first thought, reading that tale: It is funny that Wikipedia says
Four men, led by the first one and including the other three incited a revolution...
But then I noticed that Brutus and Collatinus, who became the first consuls, were two of the four who incited the revolution. Brutus and Collatinus profited by their act by becoming consuls. That is as unacceptable, in my view, as President Nixon appointing his own successor, and that successor granting Nixon a Presidential pardon.
Thinking about this further, it occurs to me that means, motive, and opportunity were present:
The Sabine rape story ends with the victims intervening and the kingdoms merging. The story has a happy ending for Romulus and Rome.
The Lucretia rape story ends with Lucretia stabbing herself to death. Brutus was prepared:
According to legend, Brutus grabbed the dagger from Lucretia's breast after her death and immediately shouted for the overthrow of the Tarquins.
It makes a good story. But no one immediately calls for the overthrow of government unless it suits his plan.
I find means, motive, and opportunity behind the fall of the kingdom and the rise of the Roman Republic.
Consider again what Brooks Adams said: "When the Romans first emerged from the mist of fable, they were already a race of land-owners..."
If we take myth, legend, and the mood of the people as evidence, we can say with some confidence that the concentration of wealth was under way since the time of Rome's first king, and that it had become problematic by the time of Rome's last king.
Romulus, first king of Rome,
established the senate as an advisory council with the appointment of 100 of the most noble men in the community.
So there was inequality from the start. There were nobles in power, from the start. And land was held "in severalty" with the "right of alienation" from the start (or soon after).
In the time of the Roman Kingdom, nobility had a presence and inequality was growing.
The historian Arnold J. Toynbee defined "breakdown" as the point at which the disintegration of civilization begins. Toynbee wrote
the ... schism of a society along lines of class is not only peculiar to civilizations but is also a phenomenon which appears at the moment of their breakdowns and which is a distinctive mark of the periods of breakdown and disintegration, by contrast with its absence during the phases of genesis and growth.
Toynbee said
the fundamental cause of the breakdowns which precede disintegrations is an outbreak of internal discords...
Internal discord -- class conflict -- is the cause of the breakdown and disintegration of civilization.
Among the first facts we know of ancient Rome, Adams says, is that "the formation of relatively large estates had begun."
By the time the Roman Kingdom gave way to the Roman Republic, internal discord and class conflict were rampant. The fact that Rome's last king was unpopular is evidence that inequality and poverty had been problematic for a long time.
The fact that the revolution was successful is evidence that Rome's people supported the change in government. The fact that Rome's people supported the change in government is evidence of their dissatisfaction with existing conditions, and of their angst.
Angst does not arise overnight,
not to the point where it supports revolution. The Roman Kingdom started
angst-free, with a popular king. Conditions were so good that the
Romans could kidnap the women of the neighboring town, and the women
said "that's okay." Conditions were so good that the neighboring
town and its king wanted to join up with Rome. Conditions were that good.
That was the beginning.
At
the end, at the time of the rape of Lucretia, conditions were so bad
that when Brutus grabbed the dagger and called for the overthrow of the
king, the people were okay with it.
Somewhere between the
first king and the last king, internal discord arose. Class conflict
arose. It was the first indication of the breakdown of civilization.
Yes, it was the nobility that profited by inequality, not the king. But
the king got the blame.
It seems to vary:
That makes sense. An age takes as long as it takes. It works, because the definition of the word allows for differing lengths of different ages:
The "age" is the length of time the historical age existed. Makes sense to me. They even have singular and plural forms where the same definition applies. So you could have the Middle Ages, which is plural because it contains "early", "high", and "late" stages:
My reasoning fails. There are three ages in the Middle Ages, the first being the Early Middle Age. But no, it is the Early Middle Ages.
Yeah, it sounds better with the "s" on "age", but that's only because that's the familiar version. Why? Because that's how people say it, and that's how it is used. I'm sure it is not because if you say "early middle age" people think you are talking about people rather than historical periods. (I sure hope you think I'm trying to be funny, not just that I'm crazy.)
I don't really have a problem with the "s" on "Early Middle Ages". That's what it's called, and it sounds right. And people know there is just one of them, even though you say "ages". But I do have a problem with "Dark Ages".
Even Keynes, when he said "Yes, it was called the Dark Ages, and it lasted four hundred years", he used the plural. What, an "age" is 100 years, and there were four of them in the Dark Ages?
I don't think so.
I know, people use the plural when they talk about historical ages. I know. I usually don't object. I do it, too. I was doing it today. That's why I got thinking about it.
I think when people say "the Dark Ages" they mean the time after the fall of Rome, the early days of Europe before nations started to jell.
Yeah, me too. But not being a history buff, I didn't know that our Dark Ages was not the only Dark Ages. Before our Dark Ages was ancient Rome. Before ancient Rome was ancient Greece. Before ancient Greece was a Dark Ages:
The Greek Dark Ages is the period of Greek history from the end of the Mycenaean palatial civilization around 1100 BC to the beginning of the Archaic age around 750 BC.
Before the Dark Ages before Greece, there was the Mycenaean civilization:
Mycenaean Greece (or the Mycenaean civilization) was the last phase of the Bronze Age in Ancient Greece, spanning the period from approximately 1750 to 1050 BC.
Homer wrote about them:
Various collective terms for the inhabitants of Mycenaean Greece were used by Homer in his 8th-century BC epic the Iliad in reference to the Trojan War.
Before Mycenaean civilization? There was the "Helladic" Bronze Age. ("Age" singular, by the way.) According to the Wikipedia article,
The Early Helladic (EH) period (c. 3200–2000 BC) was a time of prosperity with the use of metals and a growth in technology, economy and social organization. The Middle Helladic (MH) period (c. 2000–1700/1675 BC) faced a slower pace of development...
The end of the Middle Helladic, together with the Late Helladic, make up the Mycenaean civilization. Let me stick my neck out and say that maybe the "slower development" part of the Middle Helladic was a dark (or dim) age that came before the Mycenaean civilization.
See how that works? By this quick look back on it, there were two or three Dark Ages. No doubt there were other Dark Ages, along with other civilizations, that are not captured here.
I think our
use of the phrase "Dark Ages" (plural) to describe the one Dark Age that
followed the fall of Rome makes people think that there only ever was
one Dark Age. But clearly there was more than one. Thinking there was only ever one Dark Age is a huge, huge mistake, because when you get a Dark Age, you lose a civilization.
So the point of this post is that from now on, when I talk about one Dark Age I will say "Dark Age" (singular). Only when I am talking about more than one Dark Age will I use the plural, "Dark Ages".
I had to go thru this. I hope it was worth your time.
A review by R. Latta of The Law of Civilization and Decay, the Brooks Adams book written in 1895. The 3-page review is from The International Journal of Ethics, Volume 9, Number 4, July 1899. The Journal was published by the University of Chicago Press. Links include:
Or you could just go to JSTOR for the July 1899 issue and download the review from there.
Sometimes,
approval can be effusive (unrestrained, excessive) and flowery. If you
want concise approval, you're better off reading a negative statement.
R. Latta's opening sentence is concise:
Mr. Adams believes that he has discovered a law which governs the movement of human society in its "oscillations between barbarism and civilization."
The words suggest that Latta himself does not believe Adams has "discovered a law". And it's all downhill from there, as Latta presents Adams's view:
... as society becomes consolidated and centralized, energy expresses itself not as Fear but as Greed, and a new type of man becomes dominant, the economic man, who is unimaginative, sceptical, unwarlike, inartistic, a monster of voracity with the cleverness of a fiend and without a redeeming quality. Every race must come to this sooner or later, and ultimately "intensifying competition appears to generate two extreme economic types,-the usurer in his most formidable aspect and the peasant whose nervous system is best adapted to thrive on scanty nutriment." (P. x.) This condition may last for a time, until it is "ended by war, by exhaustion, or by both combined, as seems to have been the case with the Eastern Empire; or, as in the Western, disintegration may set in, the civilized population may perish, and a reversion may take place to a primitive form of organism." In this last case, the energy of the race is probably exhausted, and it must wait to be refreshed by the infusion of barbarian blood.
Adams
wrote of "farmers" and usurers; Latta says usurers and "peasants". Nice trick: Latta
downgrades farmers to peasants, and implicitly attributes the insult to
Adams.
At least Latta doesn't miss the usurers. That's the important part, the growth of usury. Today we call it "financialization". Many people deny that it is a problem.
Brooks Adams, grandson of John Quincy Adams, knew it was a problem in 1895.
 |
| Graph #1: Nonfinancial Debt Relative to Nominal GDP. When debt increases, the interest cost also increases. We think of "usury" only in terms of interest rates. But a high level of debt has the same effect as high rates. |
The graph shows debt increasing relative to GDP. The solid red lines indicate years. The dashed red lines show the level of debt as a percent of GDP for 1895 and for 2020.
Brooks Adams wrote The Law of Civilization and Decay in 1895. Nonfinancial debt that year amounted to 58% of nominal GDP. In 1848, the year he was born, the Debt-to-GDP ratio was half as high. Less than half.
In 2020, the last year shown on the graph. the Debt-to-GDP ratio reached 293%. That is five times what it was in 1895, and more than ten times what it was in 1848.
We can't let it keep going up. It is already causing problems. If we insist on having policies that encourage the use of credit, then we must have policies that encourage the repayment of debt. In addition, the economy is fragile because debt is so high. Therefore, in addition to encouraging the repayment of debt, our policies probably should help out a little. For example: tax credits that reduce the income tax we owe if we make extra payments on our debt.
If we really want to fix the economy, this is the way.
