Jan 25, 2012

The Top 10 Flaws of Neoclassical Economics

By Damon Vrabel / filmsforaction.org

Neoclassical economics has severe flaws.  But since the field is captive to the monopolistic money and banking system, it is very difficult for economists who are aware of this to speak up.  If they were to speak about the flaws, their careers would be severely limited.  Only the most narrow economists who reinforce the status quo of the debt-based monetary system get rewarded.  But they are building an insane system.  They continue putting their faith in a false religion that passes for science—a religion that says globalism and infinite scale are "good" as the system continues conquering new territory and consuming the planet.

1. Money monopoly = free market

Neoclassical economics calls our current system under a private monetary monopoly a free market.  Of course nothing could be further from the truth.  The monetary system is an overlay on top of the economic system.  Economic systems create value through market activity, but the monetary system on top of them determine who captures that value.  Neoclassical economics completely ignores the overlay and the fact that it is controlled by an entrenched private monopoly.  

2. Ignores that money comes from nothing but debt

Economics does not address the fact that all money comes from debt.  It assumes that base currency (M0, core money) is just a free-flowing medium of exchange that apparently comes from the US Treasury.  It does not.  It comes from the Federal Reserve backed by debt.   

3. Ignores the artificial scarcity condition

Economics ignores how a debt-based monetary system imposes scarcity on countries and populations.  There is never enough money to pay back all the debt, so everyone is forced to jump on the hamster wheel, scrambling to find more money to pay back debt.  This dynamic is perpetual.  It never stops until the system crashes.  It need not be this way. 

4. Equates net worth with value creation

Economics ignores how the financial class and others serving the upper end of the capital structure capture more money simply because they have entrenched power.  They extract value.  They do not create it.  Economics is correct that participants in the economic system create value, but it misses the fact that the monetary system on top of the economic system determines who captures that value.  

5. Assumes free, rational, economic actors by ignoring power differential of debt

The power differential caused by the monetary system is ignored by economics.  This is the only reason the system is erroneously called a “free market.”  The monetary system is entirely centripetal, sucking all power to the center, the top tiered financiers.  People are in servitude in a very controlling market, not a free market.

6. Ignores the instability of having a pure debt-based monetary system

Economists ignore that the economic system is guaranteed to boom, bust, and eventually end because the monetary system on top of it is completely unstable and fundamentally flawed.  It depends upon increasing debt.  It cannot increase forever, and it can collapse to zero since people have no sovereign money.

7. Ignores the wealth illusion

By not addressing the issue of debt-based money, economics fools people into believing the digits in their bank accounts represent wealth.  The fact is they represent a conditional liability, i.e. somebody else’s debt.  This becomes obvious during deflation.  The illusion is reinforced during inflationary periods. 

8. Ignores perpetual exponential growth

Economists inconceivably ignore the most severe flaw of the monetary system that drives our economic system—it requires exponential growth.  This guarantees eventual failure, but neoclassical economics conveniently assumes that problem away.

9. Ignores perpetual increasing scale

As a result of perpetual exponential growth, institutions in the system continually get bigger and bigger.  We saw this as the economic system made towns, counties, and states irrelevant through the last century, and we are now seeing it as mega banks and corporations are now making national governments irrelevant.  People are now living as tiny cogs in a machine of incomprehensible scale.  Everything in life has been monetized, so things that don’t generate bank credit get devalued (spirituality, psychology, rest, joy, play, etc). 

10. Ignores perpetual increasing velocity

Another problem from exponential growth is perpetually increasing velocity.  The system has to chug faster and harder as it continues to grow.  This means human life has to chug faster and harder.  The most obvious manifestation of this is the endless, hectic commutes every morning to jobs we despise.  We feel frustration, sometimes rage, toward our fellow commuters.  That is just one small example of how systemic velocity affects the human spirit.  

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Economics
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