The bachelor thesis has been written in an attempt to combine knowledge about economic interdependencies and the commonly unknown economic view of free economists (,Freiwirtschaft‘) including the following:
Various economic views reaching from Mercantilism to Keynesian economics and Monetarism to present a basis for further evaluation of the topic (,Literature Review‘ Chapter 1)
Chapter 2 dealt with basic economic rules, e.g. the non-accelerating inflation rate of unemployment (NAIRU) in an attempt to prove the prevalence of unemployment, inflation and others in modern economies
Money and its various, partially contradictory definitions, interest and compound interest and growing financial assets (vs. real economy) regarding the latest financial crisis (Chapter 3)
Besides quantitative textbook research in chapters 1 to 3, chapter 4 includes personally conducted qualitative research asking members of the free economists‘ movement for some of the basic consequences that emerge from the currently running capitalistic economic system:
Societal tensions within industrialised countries (growing gap between rich and poor)
The connection between environmental abuse and capitalism
Growing national debts (which is currently big in the news =)
The industrialised world vs. developing and third world countries
Reasons for financial crises and business cycles in general
What does not become clear from the above is the author‘s belief in the founder of the Freiwirtschaft Silvio Gesell and that his view of the matter played a leading role throughout the thesis. In an attempt to analyze and synthesize the economic world order and to then compare it to the free economists view to prove the current instabilities and to give an alternative to the current system.
The findings of the thesis can be summarized as follows:
A demurrage on money is needed to break the downward rigidity of interest rates
This, in turn, would increase the velocity of money
Which could lead to the abolishment of price instability
Which could - depending on the marketplace - abolish unemployment
Generally, the marketplace in any economy could eventually respond to reality, e.g. a saturated market has a negative growth, so the financial assets are able to lose in value correspondingly.
Table of Contents
Background
Introduction
Methodology
Chapter 1
Literature Review with the Macro-facts
Mercantilism
Physiocracy
Classical Economics
Say’s Law
Neoclassic and Marginalist School
Marxist School
Keynesian Economics
The theory of Keynes
The theoretical framework of Keynes theory
Monetarism
Equation of exchange and velocity of money
The quantity theory of money and prices
Towards the end of Chapter 1
Chapter 2
Some evidence for microeconomic inefficiencies
Unemployment, Price (in)stability and Business cycles
Inflation vs. Deflation
The Phillips Curve
The non-accelerating inflation rate of unemployment (NAIRU)
Chapter 3
The ‘Free’ Analysis for the prevalence of inefficiencies
The investment decision
Money and its different definitions
What happens if money fails to deliver one of these functions?
Interest and Compound Interest
Growing Financial Assets
Chapter 4
An evaluation of macroeconomic consequences
Growing societal pressures
The ‘Story of Stuff’
Governments and their debts
Capitalistic, shifting and non-capitalistic economies
The current financial crisis and business cycles
The Discussion
Some ideas for the future
Research Objectives and Themes
The dissertation aims to analyze inherent inconsistencies within the macroeconomic framework by evaluating mainstream and non-mainstream schools of thought. It investigates how capitalistic structures, particularly regarding money, interest rates, and financial assets, contribute to microeconomic inefficiencies and macroeconomic instability, ultimately providing practical implications for future economic improvements.
- Comparison of mainstream macroeconomic theories and the heterodox "free economy" approach.
- Evaluation of microeconomic inefficiencies such as inflation, deflation, and unemployment.
- Investigation of the relationship between interest-driven redistribution and the growing wealth gap.
- Analysis of the environmental and societal consequences of growth-dependent capitalist systems.
- Examination of the role of money as a store of value versus a means of exchange in modern financial crises.
Excerpt from the Book
The ‘Free’ Analysis for the prevalence of inefficiencies
S&N (2005) argue in their introductory part on ‘Ensuring Price Stability’ that real wages and price levels are reaching inexperienced heights. The figure illustrating this is taken from Brown & Hopkins (1957) and shows the English price level and real wages since the Middle Ages. The last decades are updated by S&N. The figure reveals evidence for the thesis which will be made later on, that Work is falling behind Capital.
The diagram furthermore reveals that up until the Industrial Revolution price level and real wages were negatively correlated. Only from the Industrial Revolution onwards both terms started to head into the same direction - that is upwards. However, post-WW2 correlations of price level and real wages (here is the example of the UK, which can be transferred on every major open market economy in generic terms - here the only important correlation) are nothing short of alarming. Since then the gap has been constantly growing and presents itself at an all-time high with – admittedly – high increases in real wages but even more drastic increases in the price level - consequently inflation. The comment on the described figure of S&N (1998, 2005) is ambiguous and misleading stating thus: ‘Note the meandering of the real wage prior to the Industrial Revolution. Since then, real wages have risen sharply and steadily.’
That is undoubtedly true but it must be recognised that inflation increased in the same vein, and, according to this statistic, clearly stronger supporting the arguments of free economists that Work is falling behind Capital. The neo-liberal process (despite low inflation!), briefly described in Chapter 2 before, triggered by Milton Friedman reinforced the meagrely regulated, free flow of capital for the sake of the majority of the workforce.
Summary of Chapters
Chapter 1: Provides a historical literature review of macroeconomic schools of thought, ranging from Mercantilism and Classical Economics to Keynesianism and Monetarism, identifying their inherent "blind spots."
Chapter 2: Analyzes microeconomic inefficiencies such as inflation, deflation, and unemployment, exploring why these stabilization processes are prevalent in modern capitalist economies.
Chapter 3: Utilizes the heterodox "free economy" approach to analyze the prevalence of inefficiencies, focusing on investment decisions, the definitions of money, interest rates, and the growth of financial assets.
Chapter 4: Evaluates macroeconomic consequences, including income disparities, environmental pressures, and the role of government debt, supported by primary empirical research.
Keywords
Capitalism, Macroeconomics, Money, Interest Rate, Financial Assets, Inconsistencies, Free Economy, Redistribution, Inflation, Deflation, Unemployment, Economic Growth, Business Cycles, Wealth Accumulation, Debt.
Frequently Asked Questions
What is the primary focus of this dissertation?
The work focuses on analyzing inherent inconsistencies within the modern macroeconomic framework, particularly how capitalism and its reliance on interest and growth lead to systemic failures.
What are the central thematic fields explored?
The central themes include the evolution of economic schools of thought, the mechanics of money and interest rates, income redistribution, and the long-term sustainability of capitalistic growth.
What is the primary research question?
The dissertation seeks to prove that macroeconomic instabilities are not random but are systematic results of the current incorporation of capitalism into the macroeconomic framework, specifically through the mechanisms of money and interest.
Which scientific methodology is applied?
The study employs a mixed-method approach, primarily using secondary source research to develop theory, supplemented by quantitative data from a questionnaire conducted with 15 members of the "Initiative for a Natural Economic Order."
What topics are covered in the main body?
The main body covers historical economic theories, evidence of microeconomic inefficiencies (unemployment/inflation), the "free economy" critique of money and interest, and broader macroeconomic consequences like wealth concentration and global financial crises.
Which keywords best characterize this work?
Key terms include Capitalism, Macroeconomics, Money, Interest Rate, Financial Assets, Economic Growth, and redistribution.
How does the author define the "monetary spiral"?
The author describes it as a cycle where financial assets grow disproportionately to real GDP, necessitating constant credit expansion, which leads to increased indebtedness for the state, enterprises, and households.
What is the significance of the "Josephs-pfennig" example?
It illustrates the exponential nature of compound interest and its potential to grow indefinitely, which the author argues stands in stark contrast to the finite resources of the Earth.
- Quote paper
- Maximilian May (Author), 2009, Capitalism - Money Interest and Assets, Munich, GRIN Verlag, https://www.grin.com/document/177463
