THE UNIQUE CHARACTER OF INVESTMENT MONEY
If we follow the history of the modern economy development, one cannot help noticing that the U.S.A. began turning into an international economic superpower since the moment it started to pursue a full-scale investment policy first in Europe and later in Asia. But this policy became realistic for the U.S.A. (with the help of money emission) only after President Roosevelt strengthened the Federal Reserve’s position by removing gold from internal circulation (in 1971 all currencies were removed from ‘The gold standard").
American financiers learnt to use investment money as a working instrument and to derive profits in a most efficient way. Why wait for capital to accumulate from added value if the value is called added because it discounts production costs. Added value, if it is channeled for investment, includes the cost of uncreated production and work which has not yet been done. In a general sense, investment money corresponds to the cost of undeveloped natural resources and unfulfilled creative potential of people. Investment money can be just emitted and sold by injecting into the economy as cheap credit.
American financiers became the first to use the principle of the higher-than-anticipated investment and consumer growth created by monetary instruments to push economic development forward. Thanks to a full-scale investment policy implemented on the world market, the position of the U.S. dollar and the American economy have been firming for a long time. Other countries bought raw materials and energy resources, equipment and materials, new modern technologies from the American business with investment (credit) dollars. The real business built new production facilities and created new goods filling the money supply with real commodity content.
Investment in applied science, in inventive activity, in education, etc. was increased thanks to a growing demand for more efficient technologies. Technological progress started growing at an unheard of pace. The U.S.A. in the future was doomed for a significant competition growth for its national products following the investment and new technologies expansion.
The producing sector of the economy always looks to ways to cut internal costs in conditions of tough competition wars. This means that the maximum production automation is introduced (meaning technologies which replace people are installed) and cheaper labour is sought. The largest production facilities are taken out of the country. All the factors cannot but lead to a higher unemployment and falling effective demand.
Economic crises occur due to an imbalance between production and consumer possibilities, when the aggregated value of produced goods exceeds the aggregated income of the bulk of the population (here we mean hired force, not business owners). Under the current financial system, oriented primarily for the immediate business needs, the inception and development of crises is only a matter of time.
Having seen that monetarism fails to regulate the economy, western governments resorted to the system of famous economist John Keynes. Under the Keynesian theory, there is an inverse negative relationship between the inflation level and the level of employment (Phillips curve), and the government must fulfill its regulating role with the help of fiscal policy and monetary injections from the budget into ailing industries to provide employment and economic growth.
But later practice showed that the replacement of market regulation of the macroeconomy with its state management produces only a short-lived positive effect. In 1973-1975, there was a huge global economic crisis accompanied by inflation and unemployment growth (contrary to the Keynes’ theory).
Due to the processes, the international economic science again turned to the monetary policy principles, in accordance with which banking institutions are the core instrument of economic regulation, and changes on the monetary market are transformed into changes on the services and goods market. The financial sector started producing and distributing credit money not only with the aim of investing in the industry but also to provide households with purchasing ability.
In the 1990s, leading monetarist-economists said that ‘a new economy’ was formed which helped get rid of ‘economic cycles’ thanks to the banking system. The financial sector of the economy, using the mass crediting system, as well as playing with the refinancing rate and inventing securities backed with no one knows what, turned into an independent type of business, cut from the real production.
Of course, heads of the financial sector were fully aware that the monetary policy led to a crisis but it is very difficult to reject this type of business. Swapping painted values for real ones is a magnificent business. One should not forget either that economic crises help financial structures’ heads become richer. During the economic crisis of 1929-1935, top oligarchs of the time (the Rothschilds, the Rockefellers, the Morgans, the Kennedys, etc) increased their fortunes many times. For instance, Josef Kennedy’s fortune increased 25 times between 1929 and 1935. Now the same thing is happening, but on a larger scale (ref. Top-50 list (page 33) arxiv.org/pdf/1107.5728v2).
The 20th President of the U.S.A., James Garfield, said: “Whosoever controls the volume of money in any country is absolute master of all industry and commerce... And when you realize that the entire system is very easily controlled … by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.”
Tough competition in combination with a limited effective demand inevitably leads to lower profits of the producing sector of the economy, and its representatives switched to bourse games and speculating with securities. Besides, the process of artificial monopolies creation has picked up speed via pushing competitors from the market by “friendly’ acquisitions and raids. When monopolies are created, market economy stops working. Thus, the oil price has risen more than 6 times since the start of the century as a result of monopolistic price rises and bourse speculations! The economy began degrading into a superspeculation. Superprofits in such conditions are created with the help of financial bubbles.
Nevertheless, there is something we have to thank the current financial system for. It was the system which demonstrated in practice the unique ability of money - to get filled with real value in circulation. If we issue uncovered currency units and distribute them between the producing sector of the economy and individuals, it will create new material values, which would exceed the virtual value of the issued money. The current financial system can be regarded as a stage on the way to a better and more harmonious economic model.
American financiers learnt to use investment money as a working instrument and to derive profits in a most efficient way. Why wait for capital to accumulate from added value if the value is called added because it discounts production costs. Added value, if it is channeled for investment, includes the cost of uncreated production and work which has not yet been done. In a general sense, investment money corresponds to the cost of undeveloped natural resources and unfulfilled creative potential of people. Investment money can be just emitted and sold by injecting into the economy as cheap credit.
American financiers became the first to use the principle of the higher-than-anticipated investment and consumer growth created by monetary instruments to push economic development forward. Thanks to a full-scale investment policy implemented on the world market, the position of the U.S. dollar and the American economy have been firming for a long time. Other countries bought raw materials and energy resources, equipment and materials, new modern technologies from the American business with investment (credit) dollars. The real business built new production facilities and created new goods filling the money supply with real commodity content.
Investment in applied science, in inventive activity, in education, etc. was increased thanks to a growing demand for more efficient technologies. Technological progress started growing at an unheard of pace. The U.S.A. in the future was doomed for a significant competition growth for its national products following the investment and new technologies expansion.
The producing sector of the economy always looks to ways to cut internal costs in conditions of tough competition wars. This means that the maximum production automation is introduced (meaning technologies which replace people are installed) and cheaper labour is sought. The largest production facilities are taken out of the country. All the factors cannot but lead to a higher unemployment and falling effective demand.
Economic crises occur due to an imbalance between production and consumer possibilities, when the aggregated value of produced goods exceeds the aggregated income of the bulk of the population (here we mean hired force, not business owners). Under the current financial system, oriented primarily for the immediate business needs, the inception and development of crises is only a matter of time.
Having seen that monetarism fails to regulate the economy, western governments resorted to the system of famous economist John Keynes. Under the Keynesian theory, there is an inverse negative relationship between the inflation level and the level of employment (Phillips curve), and the government must fulfill its regulating role with the help of fiscal policy and monetary injections from the budget into ailing industries to provide employment and economic growth.
But later practice showed that the replacement of market regulation of the macroeconomy with its state management produces only a short-lived positive effect. In 1973-1975, there was a huge global economic crisis accompanied by inflation and unemployment growth (contrary to the Keynes’ theory).
Due to the processes, the international economic science again turned to the monetary policy principles, in accordance with which banking institutions are the core instrument of economic regulation, and changes on the monetary market are transformed into changes on the services and goods market. The financial sector started producing and distributing credit money not only with the aim of investing in the industry but also to provide households with purchasing ability.
In the 1990s, leading monetarist-economists said that ‘a new economy’ was formed which helped get rid of ‘economic cycles’ thanks to the banking system. The financial sector of the economy, using the mass crediting system, as well as playing with the refinancing rate and inventing securities backed with no one knows what, turned into an independent type of business, cut from the real production.
Of course, heads of the financial sector were fully aware that the monetary policy led to a crisis but it is very difficult to reject this type of business. Swapping painted values for real ones is a magnificent business. One should not forget either that economic crises help financial structures’ heads become richer. During the economic crisis of 1929-1935, top oligarchs of the time (the Rothschilds, the Rockefellers, the Morgans, the Kennedys, etc) increased their fortunes many times. For instance, Josef Kennedy’s fortune increased 25 times between 1929 and 1935. Now the same thing is happening, but on a larger scale (ref. Top-50 list (page 33) arxiv.org/pdf/1107.5728v2).
The 20th President of the U.S.A., James Garfield, said: “Whosoever controls the volume of money in any country is absolute master of all industry and commerce... And when you realize that the entire system is very easily controlled … by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.”
Tough competition in combination with a limited effective demand inevitably leads to lower profits of the producing sector of the economy, and its representatives switched to bourse games and speculating with securities. Besides, the process of artificial monopolies creation has picked up speed via pushing competitors from the market by “friendly’ acquisitions and raids. When monopolies are created, market economy stops working. Thus, the oil price has risen more than 6 times since the start of the century as a result of monopolistic price rises and bourse speculations! The economy began degrading into a superspeculation. Superprofits in such conditions are created with the help of financial bubbles.
Nevertheless, there is something we have to thank the current financial system for. It was the system which demonstrated in practice the unique ability of money - to get filled with real value in circulation. If we issue uncovered currency units and distribute them between the producing sector of the economy and individuals, it will create new material values, which would exceed the virtual value of the issued money. The current financial system can be regarded as a stage on the way to a better and more harmonious economic model.