A while back I posted a note from Bertrand Russell about the mythical thinking that bedevils the public understanding of finance. Very few people learn about economics, despite its universal relevance in an industrialised society. Those who do tend to learn a version that glorifies the economic status quo. Russell speculated that the subject is so little understood because ‘superstition and mystery are useful to the holders of financial power’.
Recently I happened across a remark from Paul Samuelson that gives confirmation of a sort to Russell’s speculation. Samuelson is one of the most influential figures in postwar economics. He was the first American winner of the Nobel Prize and his textbook Economics: An Introductory Analysis is the bestselling title in the discipline. Most people who know about Keynes, for example, know what Samuelson told them in Economics.
In an interview for a film about Keynes, Samuelson is quite frank about the need for superstition and mystery:
I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, [then] in every short period of time. If Prime Minister Gladstone came back to life he would say ‘uh, oh what you have done’ and James Buchanan argues in those terms. I have to say that I see merit in that view.
Quoted in L. Randall Wray, Modern Money Theory (Houndmills: Palgrave, 2012), p.200
Samuelson frames the need for superstition in terms of the threat from ‘anarchistic chaos and inefficiency’ that would break out if people realised that you didn’t have maintain ‘discipline in the allocation of resources’. In this view the citizen body is a child that cannot reason for itself and must be kept in line with useful lies of various kinds – tidy your room or the monster under the bed will get you, balance the budget or the bond vigilantes will get you.
Since Samuelson made those remarks in 1995 the old time religious conviction that budgets have to balance has been largely rehabilitated. Politicians spend a lot of time telling us that there’s no more money, that we have to tighten our belts, and so on.
Of course there are limits on the amount of currency a state can sensibly issue. But as Ann Pettifor points out in Just Money, we can afford what we can do. We could do a lot more than we are currently doing but we are hampered by various misconceptions and finance and money. If we are capable of reason then we won’t behave like children in an ice cream parlour, but like citizens in a democracy. There won’t be anarchistic chaos, there’ll be substantial public control over the economy through decisions about the allocation of credit.
No wonder superstition and mystery are proving so persistent.
Ann Pettifor’s new book, Just Money: How Society Can Break the Despotic Power of Finance, published this week by my imprint Commonwealth, sets out to demolish the myths that surround and protect the current monetary-political settlement. It is available on Kindle and via Paypal from the Prime Economics website.