TCS Daily

The Limitations of Economics - Part 2

By Jon N. Hall - March 28, 2009 12:00 AM

Continued from Part 1...

Neither economics nor any of the other "social sciences" have achieved anything that even begins to compare with the undeniable triumphs of the "hard sciences".

But then the social sciences can't be expected to have the solidity of the hard sciences. After all, the social sciences deal with the most complex mystifying phenomena in the known universe -- mind, society, government and economy. So if social scientists are insecure about whether they're really scientists or not, they can take comfort in knowing that what they're studying is the really tough stuff. Even so, that doesn't mean they get to claim for themselves the mantle of science. For they must admit that minds remain as screwed up as ever, societies are breaking apart, governments are still dysfunctional, and the soft science of economics couldn't provide us a soft landing. Insofar as making a better world through the application of social science, the results are disappointing.

None of this is to suggest that the social sciences are bunk or that we should ignore them or throw them out. The social sciences are in their infancy, and we have to expect that they'll be wrong some of the time. We have little choice but to address thorny things like the economy and make as much sense of them as we can. We need the social sciences; we can't manage civilization with physics. If economics doesn't have the rigor and certitude of physics, so what, it comes with the territory. We must listen to the professionals while realizing they could be wrong. (For the record: I myself admire a number of living economists: Thomas Sowell, Arthur Laffer and Don Luskin, to name a few. But there are others I find downright crazy, even dangerous.)

We bring up the limitations of economics because of the new economic era America has just entered: The Age of Trillion Dollar Deficits. With such sobering sums on the table, economists need to display a little "epistemological modesty." Now, more than ever, economists need to be candid about their ability to measure and predict. Indeed, now is the time for economists to be more provisional, circumspect and cautious in their prescriptions. After all, economists didn't keep us out of recession.

Eventually, the American economy just might recover. And if it does, that will illustrate another criterion of science in which economics is deficient: provability. A real science must only deal in things that can be put to the test, either verified or falsified. But it's doubtful that any economist would be able to demonstrate that the recovery was due to the Trillions Congress spent or in spite of it. Perhaps a stronger more durable recovery would have happened had Congress done nothing. It's rather like the argument about what caused the improvement in Iraq: Was it the Surge or the Sunni Awakening? It's hard to know what would have happened if what had happened hadn't happened. However, if government were to do nothing, we'd pretty well know that any ensuing recovery wasn't due to government action.

Also, economists won't know how long the recovery will last. Surely, spending Trillions is bound to do something. But will it fix the economy for the long haul, or just buy us a temporary reprieve? Perhaps the stimulus would only have bought a brief respite before another deeper plunge, such as happened in 1937. Which suggests that what we should be doing is restructuring the economy for the long haul, strengthening the economy's basic underpinnings, not going from crisis to crisis putting out fires.

Because government and economy are the subjects of sciences, when politicians assert that "only government" can fix the economy, they are making a scientific statement.

So let's put it to the scientists, the economists: Is that really true? Is it really impossible for the private sector economy to correct itself?

Jon N. Hall is a programmer/analyst from Kansas City.


Note to the author; society, government and economy are NOT phenomena in the universe
They are man-made institutions.

What’s required is NOT "epistemological modesty", but NOT EVADING in-your-face knowledge
One such (piece of) knowledge is; Men have NO UN-CHOSEN obligations.

Another is; most Government programs FORCE UN-CHOSEN obligations on men.

reminds me of Marx
Reminds me of Marx in that he claimed to be 'scientific'. But when his predictions consistenly were proven wrong, people still slavishly follow it. So it doesn't much matter if social sciences get it right or not, people often follow in spite of contrary evidence.

Karl Marx and Jean Baptiste Lamarck...
Marx was certain in 1848 that Communism could recreate human social behavior by ruthlessly imposing itself on its citizens...because Jean Baptiste Lamarck argued in 1809 that features imposed by the environment were passed onto the next generations as natural structures and behaviors through a process called "organic evolution" idea that was fundamentally disproved by Charles Darwin in 1859 and Gregor Mendel in 1866.

But Karl Marx really did believe his social theories were fully validated by the science of the day...and he was completely wrong. Marx would not have made that same mistake today and he would smack modern Communists in the head...because most of them never actually read his book.

Our own economists have been equally certain that they could model our market behavior and financial capitalism and they have been wrong about that too. Just as wrong as Marx. It follows that for global civilization to rely on the top-heavy decisions of our politicians and their super-rich friends is to risk everything.

The way it stands today what can kill any of us might kill us all. If, for example, this economy depends on the health of our 20 largest banks...and they might never recover...then we need 50,000 very small banks (actually Credit Unions) instead.

If 20 of them get too creative, too bold and they fail then we will hardly miss them. If 200 of them get very creative, bold and they succeed then we might learn from them. But for the rest of our banks...let them lend us our mortgages, lend us the money we need to send our kids to college, hold our credit card debt and underwrite the working capital for our profitable small companies. Otherwise, let our banks be very boring and reliable. Let each of those 500-1000 households that own these Credit Unions benefit when their partnerships move from strength to strength...without working for other people and without being exploited by strangers.

Biology is a science...
Men...I suppose...are not phenonmena of this Universe? Subject to all of the laws of physics, chemistry and biology? Are you saying because humans do things that we do not understand...that those things are fundamentally beyond our ability to deal with?

Weather is also pretty complicated and the climate has not yet been modeled very well. Nevertheless, the atmosphere is clearly a phenomenon of the Universe.

This does imply that we should not bet our lives on singular models of such complicated behaviors. We have cultures to tell us what to do...and we should have lots of those.

Most of us should probably not live in New Orleans if we want to survive as a species...and for a lot of reasons other than hurricanes.

"Many scientists and philosophers are convinced that free will doesn’t exist at all."
"The results were clear: those who read the anti-free will text cheated more often! (That is, they pressed the space bar less often than the other participants.) Moreover, the researchers found that the amount a participant cheated correlated with the extent to which they rejected free will in their survey responses."

"On the other hand, the results fit with what some philosophers had predicted. The Western conception idea of free will seems bound up with our sense of moral responsibility, guilt for misdeeds and pride in accomplishment. We hold ourselves responsible precisely when we think that our actions come from free will. In this light, it’s not surprising that people behave less morally as they become skeptical of free will. Further, the Vohs and Schooler result fits with the idea that people will behave less responsibly if they regard their actions as beyond their control. If I think that there’s no point in trying to be good, then I’m less likely to try."

"Although that isn’t particularly surprising—people want to believe they have free will—something pretty interesting emerges when you look at the smaller group of people who say that our universe is deterministic. Across all of the cultures, this substantial minority of free will skeptics were also much more likely to say that people are responsible even if determinism is true. One way to interpret this finding is that if you come to believe in determinism, you won’t drop your moral attitudes. Rather, you’ll simply reverse your view that determinism rules out moral responsibility."

"People who explicitly deny free will often continue to hold themselves responsible for their actions and feel guilty for doing wrong. Have such people managed to accommodate the rest of their attitudes to their rejection of free will? Have they adjusted their notion of guilt and responsibility so that it really doesn’t depend on the existence of free will? Or is it that when they are in the thick of things, trying to decide what to do, trying to do the right thing, they just fall back into the belief that they do have free will after all? "

Man is a phenomena in the universe - thus so are his creations
Your comment is akin to saying that a beaver dam is not part of nature.

Las Vegas is one of man's equivalents to a beaver dam, as are the Federal Reserve System, the Miss America Pageant and the economy.

Technical Question
If my mortgage has been 'sliced, diced and securitized' and sold around the world, who gets my mortgage payment?

If my mortgage payment contributes to that securitized mortgage package, how does my money find its way there? If my money can find that securitized mortgage, why can't anyone else?

I ask because I keep hearing the excuse that no one can find and evaluate the mortgages in the mortgage backed security.

How do mutual fund companies manage a fund with hundreds of stocks and bonds?

"We can only conclude that government is intrinsically coercive and that the Randians, in criticizing the libertarian view of the state, are acting incompatibly with their own views of private property rights and nonaggression. Supposedly, they agreed with libertarians on these matters, but when push comes to shove, they jettison this common ground in behalf of
statism. Whatever became of laissez faire capitalism when it applies to competition for providing safety and protection services?"
"Schwartz replies that private defence agencies constitute back alley operations. With them, there will be no objective law. Decisions will be based
on whim. He speaks of: “The subjectivity of anarchism, where one can seek adjudication from any back alley court which dispenses frontier justice and
which is unconcerned with such niceties as rules of evidence.” Why back alley? The Pinkertons, the Burns Guards, other private guards operate right out in the open. Is the Supreme Court of either Canada or the United States, with which I am most familiar, so concerned with legal niceties? For many years, the U.S. Supreme Court ruled that consensual homosexual behaviour behind closed doors in the privacy of your own house is illegal. Even certain consensual heterosexual acts are or were illegal in various states of the union. Nowadays, they rule that it is a crime to discriminate against gays."
{Flexible 'objectivity'?}

"If there is a rape on the public sidewalk, who in a position of authority, who is able to do something about this, loses money? Nobody. If there is a rape in a department store, that enterprise will be avoided by customers. Who do such enterprises hire to make sure there are no rapes? They hire private police to make sure that doesn’t happen. Let there be one rape in Macy’s, they are in deep, dark trouble. But should this outrage occur in an area covered by the city police, the mayor isn’t going to be worried unduly."

I notice that when a rape or a murder occurs on a college campus, the University is very concerned about solving the case. What motivates the 'objective third party' to solve the case?

Stealing from the unborn and flushing it down the toilet = feelgood liberal crap
"Surely, spending Trillions is bound to do something. But will it fix the economy for the long haul, or just buy us a temporary reprieve?"

Really it's "stealing trillions of dollars from those who can't even vote yet (and aren't even born yet) and pissing it away on feel good liberal crap."

Yeah, it will do something. Probably somewhere between bad and worse. The only question I have is whether the bad to worse effects will be rapid so as to be recognizable or so gradual that we will all bleed out and not even notice it.

The gradual scenario scares me because the typical American, a proud (they have high self esteem you know) graduate of union-destroyed public schools, is more equipped to support that nonsense religion we call multiculturalism than (s)he is to critically think about the steaming crap sandwich Congress just served to them and their descendants.

Hope and change is not a recipe for mitigating the mess for which our government is largely to blame. However, suing a few congressmen for gross incompetence and collecting damages would be a decent start. Call that the "people's clawback" after that disgraceful demonstration of "AIG bashing."

I feel better now.

Your mortgage hasn't been sliced and diced
The claim that they can't find and evaluate the mortgages is bull. What they can't evaluate is the value of some of the more exotic species of securities that they merrily created and sold among themselves.

Your mortgage was packaged up with a hundred or a thousand other mortgages. That package was then sliced up into pieces. The servicing piece, usually held by the bank that issues the mortgage, collects your payment and subtracts a servicing fee from it. It then sends your principal payment to the holder of the capital piece. It then adds up the interest paid by all the mortgages and pays out to the pieces that are entitled to the interest.

Assuming there are five tranches to divide the interest, the first tranch gets all of its due interest first, then the second tranch gets any that is left, and so forth, until you get down to the last tranch, which collects only the remainder, if any.

Hence, if there are no defaults, all the tranches get paid. But if twenty percent of the mortgages are in default the last tranch gets nothing. Some of these things were cut up into ten interest entitled tranches, so that last tranch gets nothing if ten percent of the mortgages go into default, which is not uncommon. The estimates under which subprime mortgages were issued quite normally assumed six percent defaults, and that was back when housing was still booming.

After all the tranches are sold things really get interesting, for the holder of those tranches sometimes bought insurance against varying levels of default from AIG. Instead of holding the insurance policies some of them combined those policies with the insurance policies on a bunch of other tranches based on a bunch of different assemblages of mortgages and sold the resultant securities to third party.

Your tax money is now being used to make good on all those insurance policies because they became worthless when it was realized that AIG didn't have a couple of hundred billion in assets to back the ones that have thus far gone bad.

My opinion is that the bankers who bought those hyper-complex derivatives to put in their vaults as capital to back the accounts of their depositors should be torn apart by mobs and fed to dogs. The government regulators who slept at the switch while they were buying them should be be put in the pen with the dogs to wait patiently in terror for the dogs to regain their appetites. I would leave it to someone more than me to specify the appropriate punishment for Barney Frank and Chris Dodd and all the staffers of the House and Senate Banking Committees, plus all the Treasury Secretaries and heads of the FDIC and SEC since about 1992 when the deal was made that started Fannie Mae and Freddie Mac seriously growing and providing leadership for all of this.

Most of the initial trillions will be stolen from the holders of government bonds
You wrote "Really it's "stealing trillions of dollars from those who can't even vote yet (and aren't even born yet) and pissing it away on feel good liberal crap."

The only conceivable solution to this mess that doesn't result in politicians being tarred and feathered, or worse, is inflation on a large scale. The bond market will eventually resist buying more US bonds, at which point the Treasury will have to create new dollars to pay for government spending and for interest on the old debt.

At some point bond markets will rapidly lose faith in US bonds. When the rush for the exits occurs interest rates will rise very high and very fast, reducing the value of the old bonds whose interest yield will then be low and whose principal value to maturity will be nil because the principal will be paid off in depreciated dollars.

Our grandchildren will mostly suffer due to much slower economic growth for a long time, resulting in lower future standards of living than they could have enjoyed if our current day politicians could have been disciplined and moral enough to behave less like ravening jackals devouring a carcass.

That's assuming people don't turn in disgust to politicians like Barack Obama who promise magical, cost free, redistribution solutions, like reducing health care costs by spending much more, to dull the pain. . .

Oh, they already did that.

We're doomed.

The other solution to this mess
Elect enough people who will promise to "repudiate the debt of our irresponsible elders" and then carry through on it.

Yeah, it will mean the permanent reduction in our supposed AAA+++ one step below God status in repaying our debts, but the alternative is more of the same lying by the political class and more leeching by the parasite class.

Repudiate the public debt! Now there is real hope and change!

the other solution....problem
The problem with that would be that the US would then officially be a banana republic; they would no longer be able to keep up the pretense of responsibility. But then again, it doesn't hurt the self-esteem of petty latin american caudillos, so why should it bother US political crooks? As long as they have power, it's all that counts.

What?!? You mean we are NOT a bananna republic?
We have a ruling class which seeks to hurt descenters. It seeks to punish those who actually follow their laws.

Regarding the USA, it's leaders are generally recognized to be habitual, institutional liars. It deliberately and systematically devalues its currency. It promises the ever increasing underclasses the property of the shrinking success class.

Also, the USA elects cult leaders with no experience except for being shakedown artists. Its media is effectively (and so all but officially) an arm of the government. It threatens to gag descent under the name of "fairness" and "respect."

So, do tell me what is the difference between where we are headed and say Chavez's Venezuela?

I concede the point to you. But maybe we could at least say a sort of new combination of Venezuela and the old USSR.

Marjon says there will NEVER be ANY rape on ANY sidewalk under "anarchy"
You wrote “I notice that when a rape or a murder occurs on a college campus, the University is very concerned about solving the case. What motivates the 'objective third party' to solve the case?”

Why don’t you talk about a rape on a sidewalk in “anarchy” Marjon? How does the Third Party KNOW that the “private party” who “owns” the sidewalk on which the “rape” occurred isn’t trying to hush-up the case? After all, the “owner” of the sidewalk has as much incentive to “solve” the case as to “hush” it up and “dispose off” the body. You ignore THAT possibility because it doesn’t support the conclusion you want to draw.

That’s what you EVADE, b’coz you KNOW that the answer will blast your case for “anarchy” to pieces.

Keep on lying. I recall that only recently have rapes been agressively prosected.
The local 'objective third party' monopoly would always try to blame the victim.

"The Accused", based on a true story:
"A rape victim, enraged at the light sentence her attackers received on account that she was of "questionable character" goads a female prosecutor to charge the men who literally cheered the attack on."

Let's not forget how your objective third party lied about the Duke lacrosse players.
State monopoly on force is the ONLY BEST way?

You promote “ANYBODY can use PREMEDITATED DEADLY force whenever the “feel” like it” as the panacea
for ALL the ills of the current system.

So, the onus is on YOU to prove that your system is better.

Since, you are also SOMEBODY, it follows that you promote “anarchy” so that YOU can PERSONALLY use PREMEDITATED DEADLY force whenever you “feel” like it, on whomever you “feel” “Wronged” you.

There is no escape from THAT conclusion Marjon, unless you now declare that you are a NOBODY.

This is YOUR lie.

I have PROVEN market based security IS BETTER.
YOU plug your ears and go LA ....

you “feel” like it, on whoever you “feel” “Wronged” you.

Your ad hominem attacks show you have NO proof.

The $64 question
This is what it all boils down to: "So let's put it to the scientists, the economists: Is that really true? Is it really impossible for the private sector economy to correct itself?"

It would be simplicity itself. All we'd have to do would be nothing. All the markets could crash indefinitely. Dollars, being the fiat currency you all describe, could go the way of Hungarian pengos.. becoming worthless. Credit would be frozen until we came up with a new unit of value.. no doubt one based on something more substantial than one nation's empty promise to pay.

I think most people understand that. Only thing is, no one wants to do it. Society would have to collapse before the next society could be built.

And considering that things pretty much still look like normal, nobody wants to try that utopian experiment. It would be like voting for a Communist style revolution, where everything gets destroyed before anything new can be built. We all vote instead for RESCUE.

Is there a weak link in this chain?
I admire the simplicity in your argument. Just let everyone who's too big to fail to fail.. and then see what we have left to rebuild on.

I used to bank at a little mom and pop bank. They got bankers' awards every year for being the most prudent bank in Washington, DC. They were stodgy, made loans only to people they knew personally (that is, in the neighborhood), never went out on a limb and, of course, stayed very small. But they kept their doors open and served their community. My kind of bank (yours, too).

But imagine if we just let the entire market in hedges and securities implode. It would be like setting off an antimatter bomb. All that supposed "value" ceasing to exist in one long instant of destruction!

I would imagine something like this might provoke a run on the US Treasury, as people clamored to cash out of their T-paper. And of course, Uncle Sam would have to appear on the treasury steps and tell the angry crowd "Sorry, folks. I'm a bit embarrassed at the moment."

We'd probably end up going back to something like lumps of gold, and circulating coins for exchange (as our own Founding Fathers intended!). But would this be a step forward? In the mean time, while we were waiting for worth to return, society would plunge below barbarism and into the depths of the jungle.

For nearly all of humanity, there would be no money at all, not even play money.

weak link
This is just more of your normal fear mongering.
You go to extremes of your own unjustified nitemares to scare other people.
Most banks are OK, if the bad ones fail, it doesn't follow that 'for all of humanity there would be no money'. That's hyperbole.
And yes, it would be a step forward if the stupid government gave up its monopoly on money.

$64 question
To say that "all the markets could crash indefinitley" is only a reflection of your fearful nature, not any sort of reflection of reality.
Society doesn't have to totally crash in order to have a stable currency. They could do it easily, by first stopping the prining of the fiat currency, then giving up the government monopoly on it, so that competeing sound currencies could prevail.
It's also not utopian it just means that solid currency is better than fiat ones. There is no claim that it will lead to paradise on earth or any utopian ideal.

Why not use gold?
You arguments are only designed to soothe. They don't address the main issue.

Any switch from the dollar-- the entire world's default currency and main store of value-- to a currency based on gold (or on any other standard that was finite and bounded, giving it integrity) would cause the instant collapse of the badly overdrawn dollar. It would be in NO one's interest to do that. Everyone has their life savings tied up in US dollars. And if the money basis for society were suddenly thrown into chaos, world wars that destabilized every aspect of life would be the immediate result.

And I'm not just describing what would happen with the "little people" of the world, those of us who merely make our purchases in dollars. I'm talking as well about the macro world of finance. All the big dogs define their relationships with one another in dollars. And they really don't care about fine philosophic points. Their relationships can continue intact whether the dollar is shrinking, growing or going sideways. The thing that matters is who owns more of whatever it is they're counting than all the other guys.

So I can agree with you up to a point. The finite nature of gold (that is, the fact that governments can't just make more of it when they please) is a plus. It would create good discipline. On the other hand, when an economy grows-- that is, when total wealth increases-- you need to have a concomitant growth in the money supply, to reflect that growth. If you don't, you get deflation. That is, not enough money, chasing too much value.

The ideal solution would be to have responsible and honest stewards of the money supply, doling it out carefully as events dictate. But more often than not, the folks in charge don't do a very good job. Look at Alan Greenspan, for example. We used to think he was doing a dandy job. But at the close of his tenure, we saw all the flaws in the system he'd been hiding. Dollars were being created, to no one's surprise, as political favors to one and all within society. "Rich" voters are happy voters. Yay, more dollars!

I can't say what a better monetary policy would look like. But I do know one thing: we need a bridge. We need a careful path by which we can get from HERE to THERE.

An unjustified nightmare?
Your scenario has us all just casually deciding one day to ditch the dollar and get into goldbacks. To imagine that such a momentous transition would be wrinkle free calls for a tremendous lack of imagination. The world would shudder on its axis.

If we were to allow the largest banks to collapse, the smaller ones would all follow, in a cascading chain. Without the rescue of huge sume of more printed money, everyone's savings would be wiped out. Are you thinking FDIC would rescue your CDs and checking accounts? Think about what FDIC is.. just more printed promises.

That would leave you, and everyone else, with just what you had in your pocket at the time. Not good.

"And yes, it would be a step forward if the stupid government gave up its monopoly on money."

It's done that already. Our next door neighbors in Cary, NC have already printed up "Cary dollars" for use in local bartering. So many people have lost their jobs that local merchants are accepting these tokens as legitimate IOUs, to be paid back in dollars as soon as people get back on their feet.

That makes them sort of as good as US dollars, that aren't even as good as IOUs when you think about it. They used to be silver certificates. Now they're just Federal Reserve notes, to be paid back on demand with.. more dollars.

This is also just your false supposition that if the big ones collapse, the small ones would follow. Didn't you just see on the news how Wells Fargo Bank has been doing really, really well? In fact they say MOST of the banks are OK, but those who thought they were too big to fail, and knew they would be bailed out, of course had the incentive to take more chances than those without political connections.

Also, I didn't say we would 'casually decide one day' to change to a gold standard. Mavins who know about the technical matters of that have know how to do it for years, and say it can easily be implemented. Only big government don't want it, nor the IMF. Apparently you can't even be in the IMF if you're on a gold standard, that's why Switzerland went off in 1992.

Fiat currency BENEFITS authoritarian states, but it's a detriment to people.

use gold
Your allegation that, "if the money basis for society were suddenly thrown into chaos, world wars that destabilized every aspect of life would be the immediate result." is just more baseless scarmongering. Indeed, if the world saw that there was proper standard, it would increase trade.

The technical issues like how much paper money re increases in productivity, delfation, etc. have all been worked out ages ago, and there's no problem with any of it. If fact during the 200 years or so that England had a gold standard, there was some deflation over the period, along with an incredible increase in productivity and wealth.

'We' didn't think Greenspan was doing a dandy job, but you and the MSM did. I and others, like the Austrian economists always condemned his easy credit policies.

House of cards
"Didn't you just see on the news how Wells Fargo Bank has been doing really, really well? In fact they say MOST of the banks are OK," bla bla..

What a dope. Wells Fargo just had $25 billion handed to them by the federal government. Now they say they expect to post a three billion dollar profit for first quarter 2009. You don't see any connection there?

They were dead on their feet! The only thing that saved them from the dustbin was YOUR money and MINE. Without an ongoing bailout effort, the entire global financial system will collapse like the house of cards it is. Not just big banks and little banks.. your actual bank balance.

Because it's all just "federal reserve notes", just like it says on the money. There's no substance behind it. We can switch over to gold any time we like. But first we have to let the dollar collapse. And that means that you, me, Bill Gates.. we're all FLAT BROKE.

No one wants to do that just yet. So what the general public, the commercial banking industry and everyone else you can think of is going for is a huge bailout from public funds. Only Europe objects.. and they say, quite rightly, that our greatest effort should be on rewriting the rule book for the people whose game got us all into so much trouble.

You can't get there from here
What you fail to appreciate is just how far we've strayed from the use of a precious metal to represent wealth. It may have worked okay for a while, but we're way, way out on another limb right now. Sawing off the limb we're all sitting on-- the use of fiat money-- would result in everyone's fiscal death.

Had Britain stayed on the gold and sterling standard and not gone to war, all the gold and sterling in circulation would have continued to remain in the hands of the gentry. And the common people, having no gold or sterling, could have gotten along buying their lumps of coal with coppers.. just as they'd always done. So you're right.. if you were fortunate enough to be born a member of the gilded class, it would have worked out just fine for you.

Except for two things. First thing:

It wasn't GOLD that was responsible for the growth in Britain's wealth. It was the fact that they were plundering half the world of its riches. The Royal Navy brought gold, cotton, food, jewels, timber and every other form of wealth in they could possibly use.. at the very nominal cost of maintaining a military force that could blow the bejeesus out of anyone who objected.

Plus, they created markets by forbidding the Indians, for example, from manufacturing clothing. So everyone's clothes had to come from Birmingham and Leeds, with cotton bought cheaply from India and then shipped back dearly, as clothing. What made Britain rich was the exercise of a mighty state in oppressing the peoples of the world through superior force. Not so much the fact that they stole a lot of gold while they were at it.

The other thing was this: Britain had come to its limit of expansion but still had more wars to fight. Plus, modern mechanized warfare was far more expensive than the old kind, that only required that you impress a few thousands of farmhands into military service, ship them to the battlefield, and hand them out some bows and arrows. But to conduct the new form of warfare they had to do things like conquer the Middle East to provide the oil they needed to run the fleet. And build more tanks and machine guns than any of the other players. So Britain suddenly had a great and pressing need for MORE MONEY THAN ACTUALLY EXISTED.

That's the same reason we need more money now.. to maintain the entire globe as our personal empire.

Find a graph of expansion in the US money supply. Compare it with a graph showing expansion in military spending. I think you'll appreciate the similarity.

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