Category: Economics

Banks, Economics, Economy 2.0

Chaos Monkeys – Part 2

Steve Kelsey 10 mins read

The financial market is designed to fail.

Looked at as a network design our financial markets are optimised for efficiency. Optimising for efficiency in the financial markets is not optional, it is the inevitable result of competitive pressure. Markets that are fast to react capture the early opportunities and transmit their risks through the network, markets networks that are slow to respond lose out on the best trades and end up with all the risk.

Perversely, the efficiency of the financial market and its various sub-networks, which are designed to transmit risk efficiently across the network, are equally efficient at transmitting failure.  We see this in operation on our news feeds as falling values roll across the world from exchange to exchange, New York to London to Tokyo responding as one. read more

Banks, Economics, Economy 2.0

Chaos Monkeys -Part 1

Steve Kelsey 6 mins read

Why is our economy so unstable? Why do crises overpower our best systems built by our best minds? Or, if you reject the notion of intelligent control in our economic systems, why does a highly evolved system evolve towards chaos rather than stability?

To begin to understand how these instabilities arise let us look at the most recent.

The principle cause of the 2007/8 Global Financial Crisis was deception.

It started with the US Prime market where high-risk low value assets were bundled and re-bundled to obscure their origin and then marketed as low-risk high value assets. That was as crazy as it now sounds post 2007, but there was an underlying principle behind this method that makes a claim for respectability. read more

Civilisational Wealth, Economics, Economy 2.0, Thinking Money

Economics for a civilised world – Part 4

Steve Kelsey 2 mins read

The Price Transformer

The price transformer determines how much of the imaginary wealth equates to the concrete value of real wealth. Price is established during a complex process which involves the following elements

  • The real wealth element, intelligence applied to base matter- conventionally defined as the manufacturing cost.
  • Plus the ‘market’ elements
  • The size of the market-  how many people need the product?
  • The perceived need- is the product an essential medicine or a toy?
  • The Supplier premium- is the supply rationed?
  • The Marketing premium- the price premium delivered by various psychological manipulations?
  • The Competitive premium, how dominant is the company manufacturing the real wealth element?
  • The state of the economy.
  • All of the market factors play a dominant part in setting the price to be paid for the wealth ‘on sale’.  They have no direct connection with the real wealth element of the price and some, e.g. the Marketing premium, are purely psychological. 

Today Brand and Marketing often play a controlling role in setting the price to be paid and can be responsible for the significant premiums that can be charged over the real wealth element.

In conventional economics, price is given great significance, defining the value of a product to the consumer. However, price is entirely subjective and breaks any objective link between real wealth and the market. We have seen this systematic mutation of reality before. read more

Civilisational Wealth, Economics, Economy 2.0, Money, Thinking Money

Economics for a civilised world – Part 3

Steve Kelsey 2 mins read

Money = Imaginary Wealth

Money is potential or imaginary wealth (iW). Money is variously described as a credit or an IOU for resources or the labour that converts resources into wealth. Note that the terms ‘resources’ and ‘labour’ are a convention and are colloquial synonyms for matter and energy intelligently directed by the labourer.  

Money is an invention and has no objective reality. it cannot be assigned a value until until it is converted to real wealth. This is counter to the convention where money is believed to denote value, but money has value only in relationship to real wealth. Money was reinvented many times all over the world. Money is a form of virtual wealth that can be traded for the real thing  at a future date. In this sense money is future wealth, but to be realised the virtual wealth has to be accepted by any provider of real wealth. The acceptability is governed by the wealth provider being able to repeat this process with a third party. Elaborate systems have evolved to ensure that virtual wealth maintains its value over time relative to real wealth.  read more

Civilisational Wealth, Economics, Economy 2.0, Thinking Money

Economics for a civilised world -Part 1

Steve Kelsey 2 mins read

A physics based economic model starts with a physical definition of wealth.

Wealth is the product of applying intelligence to base matter. This process raises base matter to a level of functionality that satisfies a need. Clay becomes brick, bricks build cities. Iron oxide becomes steel, the steel becomes machines. Our civilisation is based on trillions of transformations of this type. 

We cannot measure intelligence as a physical effect, but we can measure the amount of intelligently directed energy employed to embed intelligence in base matter.

We can therefore define wealth in physical terms using read more

Civilisational Wealth, Economics, Economy 2.0, Thinking Money

Economics for a civilised world – Part 0

Steve Kelsey 3 mins read

Economics is an evolving discipline. During my lifetime economics has transitioned from post-war Keynesianism, through the emergence of Neoliberalism in the 80’s  and now stands at a new evolutionary juncture with competing theories and and beliefs. But there is one common thread that links these theories together and that is their focus on money rather than wealth.

Irrespective of theoretical foundations, all economic models concern themselves with fiscal and monetary policy. Fiscal policy focuses on the governments ability to create and distribute money, Monetarist policy focuses on the private creation and distribution of money. But money is a concept with no physical reality. Wealth, by contrast, is entirely about physical reality. Wealth surrounds us in the cities we live in, the products we use, the services we enjoy. But modern economics has little to say about the creation and distribution of wealth. Modern economics makes assumptions that wealth is an end goal, a product of the economic system, but views wealth through the abstract medium of money. read more

Economics

Money V Wealth

Steve Kelsey 11 mins read

Money is a token of transferable value agreed by a society. Society agrees that this money is the only token of transferable value allowable and agrees sanctions that protect this agreement.

Money is issued by the functions authorised by the society, primarily the government and franchised issuers like banks, on behalf of and for the people in a society.

A society is able to buy any resource or service that accepts that societies money without limit. A society cannot run out of money, it can always issue more to meet its needs.

To ensure the unit of value is stable the volume of money available needs to be managed so that it never exceeds the availability of resources or services. read more

Civilisational Wealth, Economics, Economy 2.0, Thinking Money

Civilisational Wealth

Steve Kelsey 8 mins read

Wealth is the application of intelligence to matter.  

The more intelligence we can add to base matter the greater its value. The more widely we can distribute intelligence applied to base matter the greater wealth a civilisation has. The measure of a civilisations wealth is the amount of intelligence it has applied to base matter and how widely this is distributed.

It follows that, for any well managed society, any activity that increases the  intelligence embodied in matter, has high value.

It follows that any activity that inhibits the accumulation of intelligence or the application of intelligence to base matter or rations the distribution of enhanced matter reduces a civilisations wealth. read more