Plato on The Causes of the Economic Decline

What’s happening in the economy? I believe we are seeing the unravelling of an artificial economy that is being filtered down to the real economy that underlies it. Nobody knows where the real economy is, so there is no way to know how much farther the chaos has to go.

What do I mean by the real economy vs. the artificial economy? The real economy is predicated on real values – actual assets that underlie wealth. The artificial economy is a confidence game. It takes the core economic reality, that the value of an object is determined by how others perceive it, and separate the two items.

Perception is all there is to valuation. I believe it was FDR who took the dollar off the gold standard (might have been Nixon) and when he did so, one of his cabinet members, so I have heard, called it the end of western civilization. Interesting statement. From that point forward the connection of the dollar to economic reality became increasingly tenuous. It didn’t have a hard, valued, tangible asset that people understood to keep it stable. All it had was the brains of the financial world.

The great seduction of this era is the rapid movement of wealth. The faster it can move, the more you can make and the more people can make it. Now wealth is only a blip on a computer screen. But the underlying assets of the wealth became increasingly harder to find.

The kicker lies in the fact that people make more money moving wealth than creating it. The lumberjack and carpenter make much less on the sale of furniture than the retailer. The gold miner rarely makes what the banker makes. So the temptation is always to take a job moving money around.

On Wall Street that led to every manner of vehicle for moving computer digits from one computer to another and taking a fee for doing so. This is a caricature, but it points to the tendency and to the fact that nobody knows the underlying real value of our economy.

It all seems to have unravelled in the mortgage industry, where mortgages were bought and sold so many times, multiplying fees in so many ways, that nobody can find the value of the underlying asset. Perhaps our government just made the deal of the century, buying an awful lot of really cheap mortgages. Perhaps the houses will end up being worth much more than the government is paying for them. We’ll see. But right now, nobody knows.

Plato spoke in the Republic of the City at Fever Pitch. he said that when people “give themselves up to the unlimited accumulation of wealth…” they have made a choice that moves the “causes of almost all the evils in States, private as well as public.” St. Paul warned Timothy that the love of money is the root of every kind of evil.

Perhaps that is because the love of money makes perception king and puts the world in the hands of the manipulators of words. Perhaps it is because the love of money breaks the connection between the human being and reality.

Only a farm can keep us rooted.

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One Response

  1. Hi, Andrew. “Plato” caught my eye.

    This thing you call the “artificial economy” I call the financial economy. What you call the “real economy” I call the productive economy.

    The Statistical Abstract refers to the “financial” and “non-financial” sectors, which severely understates the importance of production.

    I like your thoughts here. But it is misleading to speak of an “artificial” economy, when it can wreak such havoc as we have seen.

    Art

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