Breathing Life into Economics

May 2013

Circulation is a challenge to modern economics, except perhaps when it comes to circular arguments! Its continual allusion to economic life as if it were some kind of machine  means the most it can understand by circulation is that of oil or water when introduced from outside and kept circulating by a pump. The problem is not solved by circular flow diagrams and the analogies to central heating systems much favoured by engineers who have taken up economics. These still need external stimuli both to begin and to continue.

Circulation in the human being is altogether different. There circulation is an aspect of being. To be sure, the embryo that will become a child can be said to have had its circulation started by its mother. But so it was for her also. Unless we are to identify or at least posit the original `kick start` of humankind, for all practical purposes and as far as our effective  time horizons go, we need to get used to understanding circulation simply  as part of being.

Or, as economists might say, as something endogenous, inherent to economic life. Without circulation there can be no economic life; without economic life there can be no circulation. Ergo, circulation and economic life are synonyms for one another.

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These have not been wasted thoughts, a discourse that led nowhere except back to its starting point. Understood as inherent, circulation becomes the very thing with which all economic life, all economic relationships, have to comport. From trade to capital, if any aspect of economic life is not understood in terms of and as expression of circulation, we will not understand economics. Nor will economic  life reveal its deeper secrets. As economists, we will remain superficial, trivial, banal.

We will not, for example, be able to get what Maynard Keynes, the English economist, was pointing to when in 1923 he distinguished between industrial circulation and financial circulation. Or what Rudolf Steiner means when  he contrasts `purchase money` and `loan money`, the money that counterparts goods and the money that counterparts innovation, creativity, initiative.

Just as one can look up to a rainbow, so one can look down upon it. Just as it arches over, so it can cradle under. The first view is afforded by normal sight; the second needs imagination. Luckily, sight belongs to the seer, not to the things observed. So we are not constrained by `normal` vision only. Circulation similarly sits between two worlds. The world that affects it – as when it is impeded. And the world to which it gives effect: to be healthy both trade and capital must flow.

In the case of the human being, this is respiration, in whom the pulse stands in relation to breathing in the ratio of 4:1. We manage circulation by managing respiration.

But what is respiration in the realm of economics? How does trade breathe? How does capital breathe? Answer this question and the true metaphor for economic life will have found its expression.

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Respiration embraces both inspiration and expiration. There was no good that was not born of some inspiration – be it the inspiration to invent it, to produce it or to bring it to the person in need. But nor is there a good that does not expire, wear out, get used up. This is not true of ideas, however: a wheel will in time disappear, but the wheel will never be forgotten.

If we want to give true expression to economic life we must begin with inspiration and end with expiration. Even capital expires. Properly understood, it dies into inspiration. It enables ideas, intuitions to exist economically, not just conceptually.

Money, too, has to come into being and go out of being. Not as a thing-in-itself, but as a reflection of economic life. As a device, a contrivance, an instrument whereby we overcome today`s abstract existence in the only way we can while remaining consistent to our modern selves – by beginning in the abstract.

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Capital needs to expire when the idea it has made possible has been realized. Money needs to expire as and when the goods it represents expire. Today this is mostly done by `market correction`, as in 1987, or by fiat confiscation as in Cyprus recently. But always when there is no possibility to do otherwise; when the cover is seen no longer to be there and when no amount of talking up the market can disguise the worthlessness of its paper.

One day, one hopes, we will be able to make these adjustments deliberately, consciously, scientifically. We will learn to leave the gaming table before convictions of invincibility and ‘it can only happen to others` set in. And before we forget that the notion of something for nothing – whether it be overt gambling or margin calling – has no economic reality. At best it is a redistribution of existing values. Except for the casino owner`s profit, it is neither the creation nor the using up of values.

We play the game because we cannot see (or do not care to see) the fortunes of the other players in it. We do not pay attention when with currency valuations we export our problems, or with bank bailouts we refund banks` shareholders with taxpayers` funds. Or when pension funds amass several times more capital than the physical economy can absorb or put to real economic use. We don’t care because we don`t see.

But the opposite is also true: if we would open our eyes, the chances are we would begin to care.