Home > Economics, Finance and money > Wall of illusions

Wall of illusions

I have just finished reading Karl Polanyi’s “Great Transformation”, and it is poignant to see the parallels between our current situation and the early part of the 20th Century.

Polanyi’s view is that the free-market should be a servant to Society, not its master. The economic and political tensions throughout the nineteenth and twentieth century are viewed as responses by society to tame and limit un-abandoned free-market policies.

Polanyi was referring to “market-economy” as the market for land, labour and money, whereby these “fictitious commodities” are traded (and therefore priced / valued), as if they were real commodities:

“A market economy is a self-regulating system where everyone is assumed to behave in a way that maximizes money gains. It assumes that in the market supply price will equal demand price. Money is assumed to exist, and the market sets prices. There are markets for everything from goods and services to labor, land, and money. In this ideal system there is not external regulation of prices, demand, or supply.”

Source: Polanyi – Great Transformation

The two key concepts in defining a market economy are firstly that people should be incentivised to act in self-interest (as the assumption is this then benefits society) and secondly that to achieve the utopian vision all aspects of control or regulation of land, labour and money should be abandoned. The true free-marketeer craves de-regulation of the three “fictitious commodities” in order that the market can then price them purely through the mechanism of exchange. Therefore, every man has his price! Society is then a conglomeration of mercenary exchanges by mercenary actors.

It is easy to forget that the relentless pursuit of international trade and liberal Capitalism as defined above was heavily embedded throughout the nineteenth century. Far from a very modern invention, the world had embarked on a grand experiment throughout the Victorian era. So how did it fare back then?

Polanyi describes an era where relative peace in international terms was held together thorugh the Gold Standard, and the military notion of the Standard of Power (whereby Britain could defend against an alliance of the next two most powerful nations). At the national level a liberal state was doing its utmost to implement the utopian self-regulating market. To outside appearances a relative calm existed, but to Polanyi this because inherent tensions were pushed under the surface:

“A hundred years peace [1815-1914] had created an insurmountable wall of illusions which hid the facts.
No people could forget that unless they owned their food and raw material sources themselves, or were certain of military access to them, neither sound currency nor unassailable credit would rescue them from helplessness.”
p198 (my emphasis)

“Within the single nations the tension remained latent as long as world economy continued to function” p228

But towards the end of the nineteenth century the world economy started to fracture. National resistance against the liberal state’s free-market methods was coupled with a breakdown of international finance.

The first world war failed to address the inherent problems as many nations tried to kick start the Laissez-Faire agenda, culminating in the boom and bust of the late 1920s. In his view protectionist policies emerged in the 1930s as a reaction to the failure of un-fettered Capitalism. In their own different ways the New Deal, Communism and Fascism were the social responses to the collapse of International Capitalism; a way for society to re-assert it’s primacy over the market.

The second world war all but eliminated Fascism, and instead left the two models of Communism and the social Democratic approach. The mixed economy of the West saw it through its heyday of the 50s/60s but started to wobble in the 70s. Since the 80s, however, the liberal economic model crept back in to the frame. In a way it was the resurgence of this utopian free-market that crushed Communism in the East, whilst covertly mutuating the semi-protectionist mixed economies of the West.

In its current guise of Globalisation, the free-market has reigned supreme; with Russia, China, Asia etc. adopting this model from the 1990s onwards. The twin pillars of self-interest and de-regulation as the Modus Operandi of Laissez-Faire. But at what price? Perhaps latent tensions exist today, much as they did as the world entered the twentieth century. Polanyi lists the sources of friction as follows:

– Unemployment
– Class divides
– Currency pressures / exchange rates
– Imperialist rivalries

As we take stock of the recent financial crisis, it is important to keep track of these potential flash-points. Unemployment is rising in many countries yet the wealth / income gap widens. The cost of living is increasing yet wages are stagnating. And the contest for dwindling resource supplies in and around the middle-East could provoke tensions between the imperial giants of China and America.

The friction between the market system and society is growing day by day; whether in North Africa, the middle-east or Southern Europe. The Wall of Illusions is starting to crack and crumble, and we dare not wish to peek beyond it.

Does the world have the stomach for another revolt against the global Laissez-Faire pillage? And if so, what kind of form will it take this time?

——- Update 9/9/2013

Summary of Polanyi’s work is found here:


“Land, labour and money are crucial to the efficient functioning of a market economy. Appropriating the functions of these alters and harms central social mechanisms governing human relations.”

  1. June 7, 2011 at 12:26 pm

    “Does the world have the stomach for another revolt against the global Laissez-Faire pillage? And if so, what kind of form will it take this time?”

    It appears to be taking the form of a demand for democracy.
    In the Arab world they may get bought off by so-called ‘representative’ democracy, but in Spain & Greece it’s a demand for ‘real’ democracy.
    They may not be agreement as just what ‘real’ democracy is, but there’s a lot of dislike/distrust of professional politicans & parties.

    This all looks good to me.

  2. June 7, 2011 at 1:29 pm


    Good to see you on here! You can write more than the BBC will let you write too!

    If Polanyi were alive today he’d probably be defining the uprisings as symptomatic of the social struggle against the market system (i.e. promotion of self-interest and de-regulation). Not for democracy per se.

    The revolts are against Kleptocratic regimes which have subjected the masses in society to the ravages of market forces (hence unemployment and the price of food being a key issue).

    Polanyi saw the resolution to the laissez-faire breakdown as methods whereby society tried to protect itself, even if it meant sacrificing individual freedoms. In other words the implementation of highly regulated social structures; whether Protectionist New Deal, Communism or Fascism.

    Democracy was just the means whereby the economically liberal ideology could subvert the post war Social Democratic truce between regulation & free trade.

    It is not Democracy as such that we and these people need, but protection from the dangers of unfettered markets. The lesson of the 20th Century is that society’s self-protection mechanism could end up being quite brutal to individuals, and to individual freedoms.

    And it is concerns such as this which lurks beyond the “wall of illusions”.

  3. David Lilley
    June 8, 2011 at 9:25 pm

    I am a little confused by the above. We stand on the shoulders of giants. We don’t flip back to a text from some 80 years ago.

    Marx stood on the shoulders of Smith and Mill and raised the bar a little but was confused by Hegel (who wouldn’t be).

    When talking about free markets and capitalism we forget that the replacement “state interventionism” goes back some 150 years. Money did not give you the power to send children up chimneys. Marx’s capitalism had been replaced before he wrote of its demise via revolution.

    I think many are confused about democracy also. It is first and foremost a place where there is freedom of speech and freedom of thought. It is successful because the best argument gets aired and wins the day. We therefore make the best decisions more times than the wrong decisions. It is also the only system where government can be changes without violence.

    David Lilley

  4. June 9, 2011 at 8:13 am

    Hi David

    Certainly we should be grateful for free speech and freedom of thought and expression. However, listening to the mainstream views of Osborne, Balls, Steltzer et al shows how narrow the public debate is on the subject of finance and economics. I’d be more inclined to agree with you about the quality of public thought and discussion if people like Michael Hudson were allowed to appear on say Newsnight:


    Yes, state intervensionism has been around for a while, but Polanyi sites this as a means for society to maintain cohesion against the frictions caused by free-markets. As the Hudson article states, state intervension is being dismantled in almost all walks of life, except where it is needed to bailout failing private debts. This is further explored in my earlier post on the Predator State.

    Returning to the book, Polanyi’s Great Transformation was written just after the Second World War. His perspective is important both in trying to make sense of the problems that dogged the nineteenth and twentieth centuries (a view that isn’t voiced much in mainstream history today), as well as in understanding possible economic, social and political tensions that could well reoccur in the near future. My post aims to summarise the key warning signs of these upcoming tensions. The longer the bilking of our nation by predatory finance the harsher the lash back could be.

    If you’ve not read it then I do recommend the book. In the meantime, if you have any suggestions for valuable texts to read then I and others would warmly welcome them.



  5. Anonymous
    June 10, 2011 at 1:35 am

    Thank you for your reply.

    I will get back to you.

    David Lilley

  6. David Lilley
    June 10, 2011 at 1:37 am

    Thank you for your reply.

    I will get back to you.

    David Lilley

  7. June 10, 2011 at 12:06 pm

    David Lilley,

    The economics profession has failed miserably.
    They can’t adequately explain economic crises.
    Keynesians resort to ‘animal spirits’ & Austrians to wrong monetary policy.

    However, in my opinion, the analysis of Marx & subsequent marxists is holding up well.
    Marx’s famous book Das Kapital was subtitled ‘A critique of political economy’.
    ‘Political economy’ is the break from the classical economists (Smith & Ricardo).
    ‘Economists’ explained that each factor of production (land, labour, capital) gets its just reward (rent, wages, interest/profit).
    Marx was out to show how wrong this view is.
    The classical economists inconsistently used a labour theory of value.
    This too clearly showed that all value comes from labour & that therefore profit was essentially exploitation of labour.

    Marx worked out the inconsistencies in the labour theory of value.
    This gives Marxists an objective understanding of value & forms the basis of crisis theory that’s endogonous to capitalism.
    Unfortunately the economics profession hitherto has embraced marginal utility as a theory of value & hence has no objective foundation to value & crisis theory.

    Why are they not objective enough to accept the ‘best’ theory?
    Simply because of the role of ideology.
    The dominant ideology reflects the ideas of the dominant interests in society.
    And the type of society we have (Marxists refer to this as the superstructure) reflects the underlying economic base.
    A capitalist system will have an ideology that suits its interests, not whether they are right or wrong.

    And as for Marx not understanding Hegel, I think Marx was quite right to ‘stand Hegel on his feet’, because Hegel thought ideas drove history when the evidence to date has been the reverse, history & the unconscious developement of the productive forces has hitherto driven ideology.

    It is actually communism (the collective control of the means of production) that offers humanity the ability to shape the world consciously.

    The enlightenment has yet to happen.

  8. June 10, 2011 at 12:31 pm


    The point Polanyi makes about markets ultimately destroying nature is spot on.
    It also takes us back to Malthus & Marx.
    Marx was right, as it turned out, to dismiss Malthus AT THAT TIME.
    But Marx did have the supply-side contraints built into his analysis in volume III & the law of the declining rate of profit.
    Perhaps Marx was too optimistic to see socialism replacing capitalism before an ecological collapse.
    Malthus does seem to very much in the ascendency.
    But the answer to me is the same: socialism.


  9. David Lilley
    June 10, 2011 at 9:32 pm

    I have just read Murray Rothbart’s critique of Poanyi’s Great Transformation in Wikipedia. I suggest that you all do the same.

    For those of you inclined to Marxism you must read volume two of Karl Popper’s The Open Society and its Enemies.

    I read everything by Popper when studying mechanical engineering over 30 years ago. I read a lot of other stuff but being inclined to logic and reason nothing else compared with Popper.

    The world is a lot better today than at anytime previously. Polanyi may be an apologist for Marx trying to find an fix for why revolution didn’t follow from capitalism. But the simple answer is that state interventionism replaced capitalism. In the UK the state spends 51% of all spend and that means it takes nearly at least 40% off the wealth creators and borrows the rest.

    David Lilley

  10. June 10, 2011 at 10:55 pm


    I fully agree with the Austrian perspective of symmetry of risk & reward (privatised profits & privatised risks), as in:

    “Central banking and fractional reserve banking under a monopoly fiat money system is a form of state-sponsored, legalized financial fraud, antithetical to libertarian principles and ethics.”

    But of course the current Predator state is happy to liberalise land and labour but not money. Yet another example of them picking and choosing aspects of the Austrian school or Keynesianism, but only the aspects that suits it.

    I’ve taken a quick look at the following:

    And will review it further over the coming days. The main thrust of the criticism seems to be that Polanyi over glamorises the primitive culture. There are a few parts of the book that make reference to pre-Capitalist cultures, but Polanyi uses this to contrast the changes that occurred in society not to make normative comparisons.

    Another point is made is follows:
    “Polanyi therefore proposes to take labor out of the free market”

    I don’t think Rothbard has actually read Polanyi! Or if he has, he shows a certain intellectual weakness in failing to understand what Polanyi was stating. Polanyi didn’t want to eliminate market forces all together. And he certainly wasn’t an apologist for Marx. Instead his prescription was to limit the two “anarcho-capitalist” pillars of “self-interest” & “de-regulation”, i.e. through state interventionism.

    On these two aspects I will have to part company with the Austrian’s. I’m inclined to follow Veblen, Polanyi & JK Galbraith in disputing the merits of out right individualism. The state may have monopoly powers in many respects, but at least it is an elected and accountable monopoly.

    Bottom line: individuals may come, and individuals may go, but society abides.

  11. June 12, 2011 at 11:02 pm


    Thanks for the comments. I’ll be honest and say that I’m still keeping an open mind on the ideal structure going forward. I can declare, however, a rejection of the “liberal” free market solution for much of the reasons that Polanyi states; i.e. that “absence of regulation of land, labour and money”, plus an expectation that “self-interest be the very glue of social cohesion” are flawed.

    Which does lead me to a point you raised on another post which I’ll briefly follow up here, given its relevance. Polanyi is one of the key people I was going to cite as proposing a “Theory of crises”. Polanyi sees the free market as an unnatural utopia which reaches crisis point when land, labour & money are over liberalised. Society then fights back (see discussion on “Predator State” thread too.

    I’ll assemble a fuller list in the next few days 🙂

  12. David Lilley
    June 13, 2011 at 8:40 pm

    It is so sad that folk still talk about Marx today. I consider that his only lasting legasy in the thinking world will be his discovery that where is always boom and bust. And in the larger world he gave birth to millions of “vulgar” Maxists who often couldn’t read, didn’t understand any of it but tagged on because they had a teleologicol interest in redistribution of wealth. That is they were selfish. But mostly they were fools and they spilt a lot of blood.

    Many people have experienced socialism and are very glad to see the back of it. Even in the UK we gave socialists the opportunity to replace democracy with labour tyranny when we introduced universal sufferage at a time when 84% of the wealth was owned by 10% of the population. They would obviously win the majority of the votes and have power forever. Except that the three occassions that they have had power they have bankrupted the counrty and lost power. And after three terms they have given us a national debt that will take 50 years to clear.

    Ask yourself, is it not better that we have good government/management rather than simple a mandate to redistribute wealth.

  13. June 13, 2011 at 10:16 pm


    It is a shame that you intersperse your comments with ad hominem rhetoric. Not quite the courteous conduct of someone who aspires to scientific rigour.

    From an economic policy point of view the New Labour Gvt merely continued the Neo Liberal model inherited from the Major / Thatcher years. There’s actually a gnats whisker between the main parties on the real economic and financial policies of the day.

    The national debt is a consequence of a consumption economy stoked along with prolific trade deficits. Blair / Brown / Balls were actually architects of sweeping financial de-regulation, and this is the true cause of our economic woes. Evidence for the prosecution lies on page 271 of Reinhert & Rogoff’s “This time is Different” whereby the authors offer a model of financial crises based on 800 years of data covering 80 countries or so:


    As I’ve said before. An incorrect diagnosis of our financial problems could lead to disastrous policy prescriptions.

  14. June 14, 2011 at 8:23 am


    I’ve always respected your insightful comments & your search for the truth.
    It will be good if we can get some more of the truth-seeking open-minded bloggers from Paul Mason’s blog onto this site.
    I’m sure there’ll be enough disagreement amongst us all to have a good debate & question our positions.

    You’ve got be thinking about Marx & Malthus now.



  15. June 14, 2011 at 10:11 am


    I’d be interested to hear your thoughts on integrating Marx and Malthus. This topic overlaps with the earlier post “Is economics a science?” where the importance of energy & resources are discussed.

    Malthus’s concerns about resource difficulties didn’t factor in the enormous fossil fuel bounty. As this begins to plateau and then decline then population growth & per capita energy consumption will be stressed.

    This author has written an excellent introduction to the issues:


    “Energy is not the only thing which provides value in an economic system. But it is the “master resource” without which nothing else gets done.”

    Feel free to follow this topic on the previous post, as there are some relevant articles linked there and some ongoing discussions.

    – Hawkeye

    P.S. Would be great to get get more people from the BBC blogs over here as the format is dreadful and not conducive to decent debate.

  16. June 14, 2011 at 12:41 pm

    Another excellent article from Prof Michael Hudson:


    “Financial strategists do not intend to let today’s debt crisis go to waste. Foreclosure time has arrived. That means revolution – or more accurately, a counter-revolution to roll back the 20th century’s gains made by social democracy: pensions and social security, public health care and other infrastructure providing essential services at subsidized prices or for free.”

  17. June 14, 2011 at 8:46 pm


    As you probably know Marx was a fiece critic of Malthus.
    Maybe because Marx wanted to focus on the fact that it was capitalism that enslaved humanity.

    The simple way to integrate is supply-side constraints = falling profit = attacks on working class conditions = revolution.

    A supply-side revolution , if you will.

    It’s also worth remembering that part 3 of Volume III of Das Kapital ‘The Law of the Tendential Fall in the Rate of Profit’ assumes these external growth constraints.
    Population is fixed & absolute surplus value is fixed, in otherwords there’s only so many labour hours available.
    For the rate of profit to not fall requires an every growing slice of the cake (fixed in size) to go to the capitalists.
    If we assume peak oil & higher energy costs, the fall of the rate of profit is reinforced.
    Capitalism breaks down.

    Of course we could have a Mad Max world instead of socialism (or Mad Marx world for David Lilley).
    Luxemburg’s socialism or barbarism.



  18. David Lilley
    June 14, 2011 at 10:01 pm

    I couldn’t find the term “ad hominem” in Collins dictionary.

    I suspect that you are refering to my use of the term “vulgar” Maxist.

    A “vulgar” adherent to a theory is one who has got the theory all wrong. You can hold a “vulgar” view of many things and I will have a few.

    We keep going forward in the comments above talking about laissez-faire and capitalism when we have been very much post capitalism for some 150 years.

    Lets go forward on the basis that we live in an interventionist state and the big question is “big state or smaller state?”

  19. June 15, 2011 at 6:00 am


    As a communist I don’t want any state, big or small.
    The common ownership of the means of production requires direct democracy.
    Direct democracy means the people are both executive & legislative.
    There is no ruling class.
    A state is the rule of one class other others, by force or the threat of force.
    In a classless society there is still government.
    There will probably be councils in every parish to which all can attend & all can vote.
    Delegates, not representatives, might be sent to the town council.
    Then there’s the county council, national council & world council.
    There’s no bluprint.
    The democratic control of the means of production could take many forms.
    Classless & production based upon need not profit are the key points.



  20. Adrian
    June 15, 2011 at 11:33 am

    “Does the world have the stomach for another revolt against the global Laissez-Faire pillage? And if so, what kind of form will it take this time?”
    What are you talking about? States are in such a dire state because they borrowed too much money. They are spending too much money on stupid regulations and benefits. They aren’t doing Laissez-faire measures. They raise taxes and print more money.

    A laissez faire measure would be for Greece to default or destructure their debt, privatize their public sector, deregulate and lower their taxes. Greece needs less state, not more state.

    If you want an example of laissez-faire look at the country of Georgia.

  21. June 15, 2011 at 12:12 pm


    I accept the point that our current economy is not a pure Laissez-Faire as outlined, say, by the Austrian / Libertarian vision.

    I have described the current model as the worst bits of Capitalism, Communism and Feudalism; using James Galbraith’s term as a Predator State, see this post here:


    However, not withstanding this, the two key pillars of the Free-Market mantra are “self interest” and “de-regulation”. Polanyi cites these two aspects as the major causes of social tensions. It this approach (coupled with pilfering by elites) that has caused the mess.

    As for your prescriptions on Greece, which are you suggesting; default or austerity? One path is Austrian, the other Neo-Feudalism.

  22. Mine Mine
    June 15, 2011 at 12:35 pm

    Good to see amongst all this that the UK just donated 1.3billion USD to Africa for kids jabs. Not that I’m against donating money to Africa in principle but when our country simply does not have the money then now is not the time to do this; and especially for political showcasing

  23. June 15, 2011 at 1:26 pm

    Mine Mine

    Well strictly speaking the UK tax payer just gave 1.3bn USD to the (private) pharmaceutical sector.

    It’s called “Socialism in reverse”, or a Predator State if you will.

    See my comment before yours and follow the link!

  24. June 15, 2011 at 5:25 pm

    Hi David

    Nice question “big state or smaller state?”.

    But perhaps this is too simplistic. You raised a point earlier about “surely better to have good Gvt/management”, and I think this is more appropriate.

    For instance, can we correctly correlate Gvt size with effective outcomes? I would cite Germany and many Scandinavian countries as examples where large (but effective) Gvt results in high employment, high standards of living and high wages.

    How does the Liberal theory explain this purely by assessing the size? Surely we actually need a measure of good Gvt?

  25. David Lilley
    June 21, 2011 at 1:29 am


    You are a communist? How can this be?

    I thought the free world lost all its communists when the peasant president, Kruchevhe, wrote his autobiography in 1967. The British Communist Party disolved and latter the Italian and the French.

    The history of Christianity is the history of “apologists”. Those who put a patch over the cracks. The Schoolmen and Aquinas culminating in Soreen Kiskitgart who gave us the ultimate patch “we are not saying Adam and Eve or six days or any of that, it is a faith, He is there for you if your beleive”.

    There are three kinds of knowledge in the world; belief, opinion and objective knowledge. But there is only one truth, corresopondance with the facts. You might say it is 2pm and another might say it is 3pm but the truth is correspondence with the clock. If the sun is full in the sky it is not night. If communism didn’t follow capitalism them the Maxist theory failed.

    Please explain your apology or just get with it. State intervenionism replaced capitalism some 150 years ago and universal sufferage has given all the power to the majority replacing the golden rule of democracy the the best argument rules.

  26. June 21, 2011 at 8:26 am


    You are right that state interventionism followed Laissez-Faire. But as my article describes this was a compromise that society & the “market system” reached in the West between 1930 – 1980. The current set-up is a Jeykyl & Hyde contortion of State Intervention (for the lending class) but the subjucation of market forces to everyone else. Please read the Hudson link above.

    Democracy has ushered in this covert contortion, as my article states. But if you still think we live in a free world, you need to look around you:

    “In the 20th century, both Skinner and Sartre attempted to provide a constructive account of how humanity can rise above embedded flaws in the current make up of society. It was a battle of ideologies; about what truly defines us as humans. In a tragic sort of way, they both won. At the superficial level we were sold on the free spirit ticket. But the modern manifestation of freedom is actually closer to a “freedom to shop”, a “freedom to get in to debt up to our eyeballs”, a “freedom to be manipulated by those dangling carrots before our eyes”. Quite ironic given that the original meaning of liberty was to be free from the bondage of debt and external control.”


  27. David Lilley
    June 24, 2011 at 11:31 pm

    It is nice chatting to you.

    My wife did A level French and read “The Plague” by Camus as part of her studies but she was unaware that it was a parody on the Nazi occupation of France. This may be a vulgar theory of mine and it may not be true.

    I did “bomb” (fast read looking for the value) Sartre (“Being and Nothingness”) and B.F. Skinner and everything that moved but nothing came close to the rigure and logic of Popper and the likes of Hume.

    From Locke to Popper we have dominated philosophy with the emipical way.

  28. David Lilley
    June 24, 2011 at 11:50 pm

    Hume must have felt good when he demonstrated that you cannot derive “ought” statements from “is” statements and was able to trash every contemporary book on religion. Or to trash induction “the law or cause and effect”.

    Popper must have felt good when he trashed the posivitivists and gave us the falsifibility criterion to demarcate between science and pusedo-science giving us the ability to rubbish Freud, Yung, Adler, Marx and many other theories with a quick litmus test. “If it cannot be tested it is not science”.

    We go forward. We have millions of scientists working on 100,000 of front lines and comming up with the goods.

  29. David Lilley
    June 25, 2011 at 12:11 am

    And amongst all this glory in cosmology (understanding the world we live in) you ask me to read Hudson. And all I see is straight conspiracy theory.

    Russell tried and tried and was one of the greatest minds of the twentieth century. He wrote over 100 books but left nothing to further the cause of our understanding of the world we live in. Marx would get 3 out of ten by comparison.

    Science has given us a massive cake and continues to provide for us via those that make use of its results and give us cancer cures and ipods etc. But all you can concentrate on is the division of the cake.

    We should remember the story of the hen that made the cake that no-one would help make but they all wanted a slice of it.

  30. June 27, 2011 at 1:51 pm

    Hi David

    I think I follow where you are coming from. This discussion might be better cited in our debate on “is economics a science”. In the meantime:

    The growth of the cake – I hope to write a fuller piece on “what is wealth and how do you make more of it” in the coming weeks, suffice to say that the punchline is that wealth is a function of energy /work. Yes, science has helped to some extent but not in the pure sense that science can CREATE, it can only uncover or exploit what is exists in the real world – it is not above the law of nature, or its own higher authority. As an engineer you must appreciate the significance of Thermodynamics and the use of energy to create useful work. Our current wealth owes far more to hand-on scientists such as Carnot, Kelvin & Clausius than it does to Popper and his off-spring. I have offered a test of falsifiability of this proposition on the “science” thread.

    The division of the cake – yes, to some extent the Hudson article is mainly concerned with allocation of wealth. His thesis is that wealth is becoming more concentrated, and that this is deliberate strategy, an “asset grab” and not a genuine reflection of “fair allocation of economic surplus”. As for whether Hudson peddles conspiracy theories, then please bare in mind that an academic scientist has declared Hudson (himself an eminent professor of economic history) as one the 12 economists who correctly predicted the financial crisis of 2008:


    If mainstream economists did not provide a model for predicting the crisis, yet a dozen economists (who all shared in common an emphasis on accounting flows and the growth of the financial sector in relation to the real economy) accurately did, then which group are better scientists??

  31. David Lilley
    June 30, 2011 at 9:59 pm


    I have read much of the above uni-muenchen paper and it is generaly sound.

    I came to your site via the BBC Paul Mason blogg (he replaced Stephanie Flanders as the Newsnight economics editor whilst she has big economics credentials whilst Paul studied music and politics).

    I entered your site on the “is economics a science?” page to demonstrate that it was.

  32. David Lilley
    June 30, 2011 at 10:14 pm

    Economics is a science (let’s forget the Platonic term “real”) but accountancy is just orderly number crunching with strict rules such as “it must balance”. The accountant can tell you whether you are making a profit or a loss but he cannot tell you how to improve your business. He can do your accounts with no knowledge of what your business does, whether it is a household, a business or a sovereign.

    He can make no comment on economics other than to say as he does in the paper above that “you have forgoten to look at the balance sheet.

  33. David Lilley
    June 30, 2011 at 10:35 pm

    All recessions are brought on by a bubble bursting. The bubble inflates at its fastest rate just before bursting as more investors pile into a growing asset and this is accelerated if there is easy money/cheap credit.

    We had just seen the dotcom bubble burst costing the US 2m jobs. Alan Greenspan fixed things by dropping interset rates 11 times in a row and put on 7m jobs whilst creating at the same time a world-wide housing asset bubble.

    No accountant, crunching numbers all day in the same humble manner that a Quik-fit fitter replaces tyre all day could comment on this. They have never heard of Alan Greenspan for a start.

    May I write an article for your site as I keep running out of space.

  34. July 7, 2011 at 9:53 am

    Hi David

    Yes, easy money & cheap credit got us into this mess no doubt.

    But what is money & credit, if not a mere accounting relation anyway. If you enjoyed the Bezemer paper then here is another one that explores the notion of money as an accounting relation:


    As offered on the other thread, you are more than welcome to prepare a full article outlining your views if you wish, and so please email me on russell_bradshaw at yahoo.co.uk to discuss further.

    All the best,

    Hawkeye (the forensic statistician)

  35. Doctor NAvarrus
    July 26, 2011 at 9:55 pm

    Mr. Hawkeye:

    Nice discussion, i really enjoyed it,

    Mr. Lilley

    Marx wrote this piece of wisdom more than 150 years ago, Popper was still in cosmos.

    “Talk about centralisation! The credit system, which has its focus in the so-called national banks and the big money-lenders and usurers surrounding them, constitutes enormous centralisation, and gives this class of parasites the fabulous power, not only to periodically despoil industrial capitalists, but also to interfere in actual production in a most dangerous manner— and this gang knows nothing about production and has nothing to do with it.” [1]

    You can say it louder but not in a more poetic tone. Any human being with curiosity, neutrality and comprehension of the mechanics of money can only agree with that.

    If Popper had knew biologist Humberto Maturana´s work about the living systems (the santiago theory) he would have agreed with him that in the fight for survival, the living systems need cooperation just as individualism is needed(he calls it egoísmo altruista o altruismo egoísta). Cooperation means socio-economical aceeptable inequality and there, the share of the cake is as fundamental as an equllibrate diet is for the the welfare of the body.

    Nor Marx neither Popper were gods. But for sure, both have something valuable to teach us. Let´s compile it.

    Still a lot to learn, Mr. Lilley ! Popper also doubted


  36. July 27, 2011 at 6:34 am

    China doubled in size in the 50s and 60s. Sinkiang and Tibet.

    America has been hollowed out.

  37. July 27, 2011 at 8:14 am

    Doctor Navarrus

    Glad you enjoyed the discussion. I hope to create an environment where people can share ideas and even contrast views in an open and insightful way.

    That quote from Marx is very apt and could have been written 6 months ago! Many people presume that Marxism / Communism was pro centralisation but this is clearly a contortion of his views. (Much in the way that people don’t realise that Smith was completely against the shareholder model of business ownership).

    I have not heard of Humberto Maturana or the Santiago theory. Can you suggest any good articles / references on the subject?

    The tension between co-operation & individualism is an intriguing pre-analytic viewpoint, and one which subtlely runs through the Polanyi book.

    A related construct that I have toyed with in my mind (but yet to write about) is the innate tension within human nature between “producing” and “consuming”. Both defined in the true thermodynamic sense; consumption is entropy increasing, such as the pleasure / reward received through the destruction of something useful (eating food / a log fire for warmth / driving my car), whereas production is entropy decreasing, therefore the active creation of something useful for oneself or others to enjoy (hunting for food / cooking a meal / improving one’s garden or home / doing an honest day’s work etc.). In my mind a healthy human is one where there is a fair balance between consuming & producing (therefore entropically in equililbrium, i.e. a stable and sustainable state). To only produce is to become little more than a slave, but to only consume is just as destructive for the soul (hence why money doesn’t always make people happy).

    I’ll aim to expand on this in the coming weeks.

    All the best

    – Hawkeye

  38. October 7, 2011 at 8:25 pm

    David is almost a troll. “It is so sad that folk still talk about Marx today.” Really? To talk about the most insightful analyst of capitalism In the midst of the greatest crisis capitalism has ever faced?


    “Marx’s great achievement was to demonstrate how all phenomena which appear to everyday bourgeois consciousness as simple deviations, contingent deformations and degenerations of the ‘normal’ functioning of society (economic crises, wars, and so on), and as such abolishable through amelioration of the system, are necessary products of the system itself – the points at which the ‘truth’, the immanent antagonistic character of the system, erupts.”

  39. October 7, 2011 at 10:04 pm

    Hi Martin

    How eloquently and courteously put.

    So if I understand that quote right, Marx showed that the biggest threat to a system is usually the system itself? In regards to Capitalism, then the cause of crisis is endogenous.

    David Harvey’s Limits to Capital emphatically deconstructs the inherent tensions, like no other book I have read.

    Following one dogma or another fanatically could indeed be dangerous. Whether from the Left or the Right. As my post “Predator state” shows, all schools of thought have been co-opted and contorted. Economics has the unique quality of bastardising the real contribution of almost all great thinkers (whether Smith, Ricardo, Malthus, Marx, Keynes and Hayek), and silencing it’s most damning critics too (e.g. Frederick Soddy, Nicholas Georgescu-Roegen).

    Mainstream Economics is so far from being a science (see following post), and that is the greatest tragedy of our time.

  1. November 4, 2011 at 10:09 am
  2. October 18, 2017 at 4:18 am

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: