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Samuelson and Keynes – laid foundation for today’s markets!

June 26, 2012

Economics is made operational with sound ‘money’…and ‘money’ needs to be more than an imaginary number to survive as a global proxy for value!

Paul Anthony Samuelson (1915-2009)
 John Maynard Keynes  (1883-1946)
The history of economics is concerned with production of goods from our natural resources. After we create goods from nature we can expand our wealth into services and eventually activities. As we expand and grow our economy we all experience prosperity and a better lifestyle. Sound ‘money’ is essential to accomplish these results. Sound ‘money’ is the key to valuation of goods, services, and commodities. What has happened, however, to create our current irrational monetary system? Where did the economics profession go wrong with their view on ‘money’? When did this happen and why will imaginary ‘money’ create irrationality and a collapse in values?

The two most influential economist’s in modern times have been John Maynard Keynes (1883-1946) and Paul Anthony Samuelson (1915-2009). Keynes was British and Samuelson was American. Both of these economists adopted a mathematical doctrine for evaluating and analyzing economic operations (called neo-classical economics). The economic models which emerged from the mathematical ideas of these two economists has created our current monetary/economic system. Numbers and math have allowed economists to create various types of econometric models to analyze and manipulate economic behavior in the greater marketplace. These mathematical models…derived mostly from the mindset of Keynes and Samuelson…have permeated the thinking of most economic studies these past 70 years. Much of this theory has been beneficial for global growth but it also has led to a GREAT misconception and misunderstanding. Are we now at the point where Economics needs to be reconstructed from core principles?

The mathematical ideas of Samuelson led to the ideas which eventually created all our INDEX models which we now observe and use. All our currencies are now mostly INDEX numbers (a weighted mathematical calculation) which are used to compare each currency unit with alternative currency units. The DOLLAR index is one of the most watched calculations in the Forex marketplace. The other index currencies that have emerged as significant are the Euro, Yen, Pound, Franc, and Yuan. In addition to our index currency units all our other market monitors are now INDEX calculations. Some of the most watched are the S&P 500 index, the Dow 30 index, the NASDAQ Composite index, the FTSE 100 index, and the Wilshire 5000 index. Each of these are mathematical calculations meant to represent what agents in the marketplace are doing with their ‘money’.

All these indexes tend to work as proxies for economic VALUE for a time period. The problem with all these imaginary index calculations, however, is that they promote a subjective and an irrational behavior in the greater marketplace. Now that our monetary unit is merely a ‘number’ with no psychological tie to physical reality, the marketplace can manipulate all VALUES with no objective reference points or stable price points for our goods, commodities, and proxies for wealth. Most of our assets today are VIRTUAL assets (concepts within the computer screens). We now have ETF’s for practically every commodity on this planet. What, however, is an ETF? Isn’t it an imaginary concept used as a proxy for the VALUE of some underlying physical commodity?

Let’s take the popular ETF called GLD. This ETF monitors the VALUE of gold and is used to represent what market participants are doing as they buy and sell this commodity. Today, we can use high frequency computers to trade GLD in real-time. What is the real VALUE of gold, however, in the marketplace? Since we now trade the commodity called gold with index numbers and virtual concepts, we can witness the volatility of this commodity as traders click their buy/sell orders on their HFT computers. The VALUE of gold today is represented by the subjective decisions of traders who create this VALUE by their mouse clicks in real-time.

Since our ‘money’ today is merely an imaginary NUMBER ($1.00 for example), all VALUE in the marketplace is now created subjectively by the irrationality and subjectivity in the global marketplace. All this is done using HFT computers operating at near the speed of light. We witness the fluctuating changes in the values of each stock, commodity, and financial asset as traders speculate, invest, and trade each virtual asset. Keep in mind that virtual assets are really imaginary and do not represent real physical wealth. We use these imaginary representations of value as our global savings and our store of value over time. Is this a sound SYSTEM for our future, however? Can imaginary units of value (called virtual money units) create a stable and sound foundation for economic growth and prosperity?

I would suggest that our current mathematical economic system (and all the econometric models) are much too subjective and irrational to create real prosperity or a growing wealth structure for our future. History demonstrates that traders and consumers need a stable and sound monetary unit if they are going to invest and save for the longer term. Prior to 1971, our monetary unit was psychologically stabilized with a tie and definition to gold. And if we go back to the founding of our monetary system (1792) we can witness that our monetary unit was defined in terms of a real physical commodity (silver). You can review this history by going to the Coinage Act of 1792 and reading about this history.

Prepare for the coming GREATER DEPRESSION and then a new economic philosophy and system. The end of the world is really based mostly on our false economic system and the false economic concepts which we must live with and use. Economics needs to be updated and restructured to reflect the new realities of Dualism and the spiritual nature of reality. A new economic MODEL is needed for our new global planet. Consciousness is spiritual in nature and the study of economics now needs to understand spiritual issues. That is my missive for today. Enjoy and think about this evolution which has developed since 1971!

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