This extract is taken from the discussion paper. Download the publication here An-economic-paradigm-for-stable-sustainable-development
Every financial expense is also a financial income and every financial debt is also a financial asset, by definition. Say’s Law for a monetary economy is based on these obvious facts. The essence of Say’s Law is that the expenses for the production are also exactly the incomes needed to make it possible to buy everything that has been produced.
Expressed in such terms Say’s Law is valid, by definition. However this does not guarantee that all the incomes in a monetary economy are actually used for consumption or that all the goods which have been produced are demanded. Consequently Say’s Law is not always valid if expressed as; “The supply creates its own demand”.
Although the important difference between the potentially possible demand and the actual demand has been recognized the monetary and fiscal policies are still both inefficient and potentially dangerous due to the absence of a sound incentive structure in the economy.
Despite the occurrence of a relatively high rate of unemployment in most countries, the fact is that the number of societally beneficial and profitable work tasks is, and always will be, unlimited.
Furthermore, financial assets, like for example money, are symbols that can always be created at will, in sufficient amount, to make it possible to pay for all work that can be done.
Finally, there is no law of nature preventing the rules in the economic system to be designed in a way that reward a sufficiently high demand, consumption and employment and at the same time reward investment, production and supply to a sufficient degree so that consumer price inflation is avoided.
One step in the right direction could be the use of stabilizing feedback control, for example of the market price of the stock of real assets, as a means of harnessing the rate of credit expansion and securing the financial system.
Recessions and depressions resulting in high, involuntary unemployment are just as unnecessary as they are harmful, in the light of the financial and logical facts mentioned above. However, due to an unsuitable, unpsychological and ineffective economic policy which has created a more or less harmful incentive structure in the economy, there has almost always been an unnecessary waste of capital, both of real capital and of natural capital but worst of all of human capital, sometimes reaching absurd levels.
No law of nature prevents a societally beneficial redistribution of purchasing power in the economy through a regular repayment of money, in equal amounts to all. The redistribution can, with advantage, be financed through an equal percentage tax on every wage income and/or fees on harmful emissions, in a fair and equal manner.
These simple facts ought to be sufficient to guide every honest economist to a reassessment of the basic principles of the prevailing economic policy which, despite generations of accumulated experience, is still lacking sufficient knowledge (wisdom) to solve one of its most elementary tasks; namely to prevent the origination of self-inflicted economic imbalances and endogenous crises. Unnecessary crises causing vicious circles of decreasing demand and increasing unemployment, resulting in an unfairly allotted suffering, where those who are the least guilty of the origination of the crises often are the hardest afflicted by their harmful effects and where those who have the power to control the economy seem to be totally devoid of accountability.
Copyright © 2010 The Swedish Sustainable Economy Foundation May be copied if source is acknowledged