Economics and science
Doris Phelps (“Scientists and economists” Sept-Oct ERA Review) raises a question – is economics a science?
The economy – or what we call the economy – is an artificial, man-made system, superseding direct bartering, for convenient trading of goods and services using tokens and symbols called money as indicators or measures of comparative value. Money units are set by fiat but the value of units in trade or exchange is variable and determined by the market, in other words by mob psychology and the so-called “invisible hand” of greed and self-interest.
The system has positive feedbacks in the form of interest, especially compound interest, and fractional reserve banking, creating money as debt out of nothing so is inherently unstable and subject to continuing inflation and recurrent booms and busts. With feedback the artificial money world expands at a rate unrelated to the real material world it is supposed to represent and a disconnect develops between the two. This situation is compounded by the fact that some things, entertainment for example, are ephemeral and others, such as coal and oil, change character in use. While parts of the material world lose value, change form or disappear, the originally representative parts of the money world remain unchanged.
In effect we live in two worlds, a real material world of the things we need and use to survive and enjoy life and an artificial world of money. Money has little or no value or use in itself. You can’t eat it, drink it or wear it. Most of it exists only as ink marks on paper or bits in a computer. Money is simply an abstract instrument giving the holder a right to make future claims for goods and services. The right can exist through legislation, agreement or established custom. However it carries no guarantee or assurance that goods and services will be available when sought or that original market values will apply. Values can change and money units, having no defined or absolute value, can become worthless, especially as the disconnect between the artificial money and real material worlds widens.
Science, in the real material world is based on the immutable natural laws of physics and chemistry with fixed and defined units of measure. Economics, in the artificial world of money, is based on questionable assumptions of human behaviour with undefined and variable units of measure. There is no science in economics.
Bruce Dinham is an ERA member living in SA