Economic and financial crises: a new macroeconomic analysis.

Abstract

Confronted with the most serious economic and financial crises since the 1930s, economists should feel the need to question their approach to economic analysis as well as the conceptual background of mainstream economics. Their mathematically sophisticated models, whether neoclassical, new classical, Keynesian, or New Keynesian, have clearly proved to be incapable of avoiding, let alone explaining, the devastating crises that are hampering our economies both nationally and internationally. The reason for this failure lies in their poor understanding of the logical laws governing our economic systems based, as they are, on bank money. As surprising as this might appear, inflation, involuntary unemployment, sovereign debts, financial bubbles, and global economic recessions are all negative effects of a single original cause: the erroneous conception of bank money. The import of this claim can only be evaluated once it is recognized that the emission of bank money is what characterizes all our economies. In the absence of banks, only pre-capitalist economies would exist. Without bank money, neither monetary nor financial intermediations would be possible, and the terms ‘inflation’, ‘deflation’, ‘financial bubble’, and ‘sovereign debt’ would be meaningless. Yet, this is not to say that these pathologies are the unavoidable consequences of the discovery of double-entry bookkeeping and the creation of banks. Banks make it possible to build an economic system based on the accumulation of capital. Whether such a system is an orderly or a disorderly one depends on whether it conforms or not to the nature of money, income, and capital. Bank money in itself is not the cause of any pathology; rather, it is the way money is kept distinct from or is mixed up with income and capital that determines whether the result is pathological or not.