Reciprocal System #571 "The Road to Permanent Prosperity" ch21-From Theory to Practice B

Transcript

hello everyone and welcome to my channel this is an educational Channel and we generally take a look at Great theories of everything all-encompassing theories cosmologies and um you know try to highlight them and show how it can be used go in depth and um figure out what makes some tick today is our 571st video that we've done on the reciprocal system of theory from Dy Larson dwey B Larson and Mr Larson was an American engineer who lived in the 20th century he died back in 1990 uh left a lot of great books on physics and chemistry and astronomy um and metaphysics and two books on economics we're looking at one of those books today it's called the road to permanent prosperity it's basically a book on macro economics and uh all aleron's books are based upon the same general theory and uh it's mostly encapsulated in his first fundamental postulate that he articulated back in 1959 the universe is composed entirely of one component motion existing in three dimensions in discrete units and with two reciprocal aspects space and time and um Larson applies this to economics um along with you know the scientific method basically larsson's economic system is an economic system in motion um its reciprocal aspects I guess rather than space and time are production and consumption and um he starts out with uh starts from really the first principles I guess work or starve you must produce something um and he rails against all of the sociological economics going around such as um you know people trying to come up with something for nothing schemes minimum wage uh you know taxation schemes uh that generally just move money around um they give money to some people by taking money away from others and uh as he articulated here we're in chapter 21 of this book called from Theory to practice and uh in yesterday's episode he talked about how you know your economic system has to be set up upon sound premises uh just like your scientific like if you were an engineer and you were building a bridge you know you can say oh I'd like my bridge to be this particular color or this particular design or whatever um but first you have to design a bridge that is in harmony with the laws of physics and then after that you can start worrying about the other stuff so Larson is trying to put our economic system in line with the laws of physics and he contends that you can um set it up such that um some judicious um monitoring uh can allow you to have a system of permanent Prosperity where the economic system is humming and it uh has a natural boom and bus cycle but um through some um minor interventions you can um really dampen the amplitude ude of those booms and busts and pretty much put your system on an even ke uh where it just works and uh Larson's other book on economics is called the road to Full Employment he also has some prescriptions in that book um to eliminate the employment problem so I figure these books are fairly worth looking at at these are problems that we have in our society currently so um you know another voice of um possible solutions might fit in here especially given that it is based on a generalized theory that um you know applies to all subjects okay we are um about to start here in the middle of chapter 21 from Theory to practice if you'd like to um go back to the beginning of this book start from uh the top about six or seven weeks ago um go back and uh start with chapter one uh if you'd like to get a more uh complete description of larsson's Universe of motion and the F fundamental postulates and what uh ramifications are and how they are applied watch any of my 47st 474 videos on the subject I go into it a little bit deeper uh they're all really different so uh choose one or more um many and you can get many different perspectives on it um but uh today we're going to just go right into the text and um of uh the road to permanent Prosperity chapter 21 from Theory to practice part two it is true that some of the basic principles may have no practical application in certain economic organizations the economic laws governing money and credit for instance are meaningless in a barter economy but they are on the same economic statute books they are on the economic statute books just the same and they are immediately and fully applicable whenever money or credit is introduced the often repeated statement that quote no theoretical conclusions in economics are valid for all times in all places is merely an excuse for the failure of poorly constructed theories to cover their entire field basic principles that are not equally valid for all economic systems and for all times and places are either incomplete or erroneous next we note that these principles of economic science are mutually consistent a feature in which conventional economic theory is weak indeed the lack of integration of economic theory is one of its most outstanding defects each individual aspect of economic life has been treated separately as if it as if it were contained in a special watertight compartment of its own microeconomics is at odds with macroeconomics supply and demand reasoning for example has been applied without regard for the limitations on total effective demand that are imposed by the current volume of production with the very serious consequences that were discussed earlier the resulting inconsist consistencies are largely responsible for what KES called quote the Deep divergences of economic opinion between fellow economists which have for the time being almost destroyed the Practical influence of economic theory and will and will until they are resolved continue to do so end quote last and most important these principles of economic science are in full Accord with all of the facts and statistics that are being compiled in every increasing volume by governmental and private agencies facts and figures which completely riddle many of the theories that are being Advanced under the banner of one or another of the current orthodoxies as statements of fact these principles are completely independent of our approval or disapproval some of them conflict very definitely with widely held views as to what ought to be but we invite nothing but trouble if we refuse to recognize facts that are distasteful and persist in patterning our actions on false assumptions the facts are not hard to find there is some excuse for errors and misconceptions in a field such as the study of atomic structure where no means of direct observation are available and the data obtained by indirect means are incomplete and rather uncertain but most economic facts facts are readily accessible unfortunately too many economists simply refuse to look at them certainly one of the most striking features of economic thought at the present time AB wolf wrote in an assessment of the situation that is equally valid today quote is the prevalence of sheer mathematical logic without a shred of factual data and he quoted the opinion of Wesley C Mitchell that quote much of our Pure economics is little more than a futile Indoor Sport not all of the professional economists are satisfied to accept this state of affairs in which the theory of their discipline is almost entirely divorced from the realities of life and is only a species of mental gymnastics critics within the ranks are plentiful and the need for a more fruitful approach to economic problems is freely expressed but these denters are too close to the picture to see it in the Pro proper perspective they are unable to recognize that something more than reconstruction of their theories is necessary that what is needed is major surgery the complete separation of the scientific aspects of economic uh economics from the sociological aspects and the development of a true economic science the new economic science based on the findings of this present work has furnished the exact consistent and universally applicable set of basic principles that has been recapitulated recapitulated in this chapter here in concise form is the fundamental knowledge that is needed in order to lay out a workable program for reaching our economic objectives with this information at hand we we are now ready to take up a consideration of the Practical aspects of the various problems in the pages that follow the measures previously proposed for the Improvement of General economic conditions will be analyzed and the possible contribution that each is capable of making toward economic stability will be determined some additional measures of an appropriate character suggested by the facts brought out in the analysis will also be presented and discussed on the basis of this study a complete program for business stabilization will be recommended a program which will eliminate booms and recessions and will permit the economy to operate on a permanent high level now um in yesterday's episode uh the first half of this chapter Larson uh went into and basically recapitulated many of the major points that he makes throughout the book but especially his 17 economic principles that he maintains are mathematically exact and um so if You' want kind of a a quick summary of kind of Larson's take on uh the economic uh his economic program uh go back to yesterday's episode and uh and uh in the second half you can check out all of his 17 uh basic principles okay moving on the conclusion reached in this study the conclusions reached in the study do not constitute an economic plan in the usual sense there has been such a deluge of plans in recent years that the ordinary citizen is beginning to show signs of alarm when an advocate of a new scheme of this kind appears on the horizon the primary purpose of this work is to identify and Define the requirements that an economic plan of any kind must meet in order to accomplish the purpose for which it is designed in essence therefore it is not a plan but a yard stick for judging plans of course in order to follow up the theoretical findings to their logical conclusions the yard stick is actually utilized so that the final recommendations can be made explicit and in detail but it should be understood that no claim is being made that these are are the only measures that will attain the desired results in most cases several alternative measures are identified as suitable for the particular purpose in View and the final recommendation is merely a matter of choice among these Alternatives it is also possible that other practical measures which meet the theoretical requirements laid down in the earlier chapters will uh still more I I believe that word should be will more satisfa uh still more satisfact uh let's try this sentence again it is also possible that other practical measures which meet the theoretical requirements laid down in the earlier chapters still more satisfactorily than these than those recommended will ultimately be devised in as much as this study was undertaken on the basis of the reasonable premise that the precise and well-developed methods of the physical sciences would be able to accomplish results beyond the reach of the less accurate tools of the socioeconomic uh economists there is no occasion for surprise when we actually do find simple and obviously correct answers to some of the major problems that have baffled the economic profession what has been astounding however is the way in which these answers stand out in bold relief as soon as we make a careful and systematic survey of the pertinent facts in their proper economic setting even before we have had an opportunity to enter into any exhaustive analysis so it is with the study of depressions as soon as we started set down an accurate description of the operation of the economic system uh Preparatory to beginning analysis it was apparent that the flow of purchasing power around the economic circuit is continually being Modified by transactions involving inputs into and withdrawals from certain reservoirs along the line immediately be it became clear that this is the key to the whole problem of course considerable Spade work was required in order to clarify the details of the operation of the price mechanism and the characteristics of the business cycle but the cause and cure of depressions were already evident before the quests had hardly started it is evident from the information developed in the forging pages that the the cause of economic stability economic instability in all of its manifestations money inflation deflation booms recessions depressions and the business cycle in general is an artificial variability in the flow of the circulating medium due to irregular inputs into and withdrawals from the money and credit reservoirs the obvious remedy is to take compensatory actions which will counterbalance the net excess of the reservoir transactions and will maintain a flow of money purchasing power into the markets which will always be equal to the amount generated by the production of goods each of the various practical means of accomplishing this result will however have some collateral effects on the economy that will need to be taken into consideration in making a selection from among the available methods and there are also certain basic points that should have special attention in this connection first it should be clearly understood that the business cycle is simply an alternation of money inflation and deflation it consequently follows that any measure which is effective against money inflation is a measure that can be used to control the cycle complete stabilization requires control of deflationary as well as inflationary Tendencies but the anti-inflationary measures can usually be reversed for this purpose it should also also be recognized that the collateral aspects of these measure measures are irrelevant from the control standpoint the objective is a regulation of the flow of money purchasing power and the nature of the tool utilized for this purpose is immaterial monetary measures fiscal measures Direct Control measures control of foreign transactions are all tools that are available for use but none of these has any unique feature that is indispensable fiscal measures such as variable tax rates could be used for the purpose in which case none of the others would be required or a program of some other kind could be adopted in which case the F fiscal measures would be unnecessary the only re requirements are one that we know exactly what kind of a control over the money Purchasing Power Stream is needed two that we have some effective method of exercising such control and three that we have adequate facilities for measurement and monitoring so that the compensatory action can be applied in the exact amount required but even though the collateral aspects of these various possible control measures are irrelevant from the standpoint of the control operation itself there may be very important they may be very important in other respects the whole benefit of the stabilization program would be lost if adverse side effects of the control measures are as serious as the economic instability itself or if these measures have some features that are highly objectionable to the public at large the task of the practitioners of Applied economic science the economic Engineers we might say is to analyze the various possible measures that have been suggested or that they may be able to be uh may be able to devise and to determine which of these is capable of accomplishing the desired objectives with the least disruption of economic relationships while we are recognizing that money inflation deflation and the business cycle in general are all one problem and can be controlled controlled by one suitable measure or set of measures it is equally important to realize that employment is a separate and distinct problem that must be handled by measures of a totally different character it is true that under existing conditions the business cycle has an effect sometimes a very drastic effect on employment but our findings are that there is no necessary or direct connection between the two a failure to recognize this fact is to a large extent responsible for the conspicuous lack of progress towards solution of these two serious problems the discussion of economic controls in the remainder of this volume will be confined to matters having a bearing on stabilization question some of the proposals that will be discussed also have other aspects that relate to employment rather than and business stability but these issues were considered in detail in the road to full employment in as much as the findings of this work with respect to employment are in direct conflict with the current economic thought which regards unemployment as the essence of depression of the depression and may also seem to conflict with the undeniable fact that depressions do generate unemployment it may help to clarify the nature of these findings if we compare the control of the business cycle with an analogous task in the physical field control of humidity it is generally understood that the relative humidity in a dwelling is an important factor in the comfort of the inhabitants and where possible variations are great some control measures are desirable in studying the situation we find that there is a definite conclusion sorry a definite correlation between humidity and temperature that is an increase in temperature decreases the relative humidity and vice versa this is the same kind of a correlation as that which exists between the business cycle and employment when the business cycle analogous to temperature is in the rising stage unemployment analogous to relative humidity decreases in the downward stage these Trends are reversed it follows that if we wish to keep the relative humidity at some suitable level we could accomplish this by controlling the temperature we would then be doing essentially the same thing that that is now being done in the economic field where the current approach to the unemployment problem relies almost entirely on inflationary measures for stimulating business activity in the physical situation it is easy to see that this problem of controlling the humidity by varying the temperature would be absurd when the room is cold and clammy an increase in temperature is quite appropriate since this brings both temperature and humidity into the desired range but applying the same corrective in a hot and humid situation would create a high temperature problem worse than the humidity in this case it is obvious that although humidity can be controlled by regulating the temperature this is a very poor way of accomplishing the desired result the efficient and effective method is to keep the temperature at a comfortable level and to control the humidity independently by adding or withdrawing moisture similarly in the economic situation we can reduce unemployment by means of money inflation but here again this is a very poor way of accomplishing our purpose as money inflation has some very undesirable effects furthermore an inflation of this nature must inevitably be followed Sooner or Later by deflation so that in the long run the beneficial effect on employment will be nullified as in the physical situation the efficient and effective procedure is to set up two separate controls maintaining market prices at equilibrium level at the equilibrium level by stabilizing the flow in the money Purchasing Power Stream and controlling employment independently by purely employment measures okay that is the end of chapter 21 from Theory to practice um so uh I guess Larson will be uh talking about his uh proposals here in the rest of the book I believe there's uh five more chapters and chapter 22 is called dealing with recessions and I guess it's a little bit too late to get started with this now and since I was almost falling asleep a couple times during the uh current broadcast uh perhaps I might want to hang it up right now now and uh start fresh tomorrow when we return so uh thanks for tuning in today have a