Radical Origins to Economic Crises (eBook)

Henri Savall is Emeritus Professor at University Jean Moulin Lyon 3, France and Founding President for the Socio-Economic Institute of Firms and Organizations (ISEOR).

Foreword 5
Preface to the First Edition 7
Preface to the Third Edition 10
Acknowledgements 13
Contents 15
List of Figures 17
Part I: A Pre-Keynes Founder of Modern Economics: Germán Bernácer 19
1: Why Publish This Work on Germán Bernácer, the Great Pioneering Spanish Economist, Now? 20
1.1 Understanding the Crisis in Order to Return to Prosperity 20
1.2 The Influence of Bernácer on Our Work in Economics and Management Science 26
References 35
2: Biography and Testimonies 37
2.1 Bernácer’s Life and Career 37
The Child and the Student 37
His Life in Alicante 38
The Humanist Circle of Alicante 38
The Physicist 39
His Life in Madrid 40
The Vocation of the Economist 40
The Vicissitudes of His Career at the Bank of Spain 41
Bernácer and Economics Research 43
Bernácer and Mathematics 44
His Ending 44
Bernácer Prize 45
2.2 Testimonies 45
An Important Story Background: Robertson 45
Testimonies from Other Contemporary Economists 50
The Wall of Silence in Spanish Academia 53
2.3 Bernácer as a Visionary Forerunner 54
Bernácer and Swedish Thought 55
Bernácer and Keynes 56
A Precedent Story: Keynes and Wicksell 56
Keynes and Robertson’s Article About Bernácer’s Influence on Both Authors 56
2.4 Bernácer’s Contribution to the Foundation of Modern Economics 58
Rejection of Economic Dogmatism 58
Repudiation of Conventional Dogmas 58
Refusal of a New Dogma: Keynesianism 59
Economic Fact Approach 59
Bernácer’s Thought Normative Aspect 62
Bernácer’s General Crisis Theory 64
References 66
Part II: Crisis and Unemployment Theory 69
3: Bernácer’s Critical Analysis of Actual Capitalism: “A Free Economy Without Crisis and Without Unemployment” 70
3.1 Using the “Theory of Disposable Funds” to Interpret Crises and Social Issues (Bernácer 1922) 70
Concept of Disposable Funds 71
General Concept 71
First Restriction of the General Concept 72
Second Restriction of the General Concept 73
Third Restriction of the General Concept 74
Levels of Monetary Disposable Funds 74
Physiology of Disposable Funds 75
Application of Disposable Funds to Individuals 75
The Function of Disposable Funds 76
Disposable Funds and Unearned Incomes 77
Speculation and Speculative Profit 78
Metabolism of Disposable Funds 80
Disposable Funds and Production 81
Compensations and Product Value 81
Income and Demand 83
Case When Disposable Funds Decrease 85
Case When Disposable Funds Increase 87
Creation of Disposable Funds 88
Coinage 88
Issuance of Paper Money 90
Private Credit 93
Solutions to Social Problems 94
Communist System 94
Collectivism 96
Freedom and Property Regime 97
Defects of the Current System and Ways to Correct Them 99
3.2 Definition of Concepts and Analysis Framework 102
Bernácer’s Definition of Functionalism 102
Premises to Illuminate the Presentation 103
Analysis of the Macroeconomic Universe 103
Analysis of a Historically Achieved Regime: Capitalist Market Economy 103
Analysis of Monetary Economics 104
Key Elements of Bernácer’s Economic Analysis 104
Factors of Production and the Law of Value 104
Work 105
Capital 106
Value 107
Money 109
The Monetary Fetishism of Advanced Societies 109
Disposable Funds 110
Hoarding as a Perverse Function of Money 110
Circulation and Distribution of the Product 111
The Vintage of Goods 111
Market 113
Incomes Other Than Salary 114
The Two Markets and the Production Circuit 115
The Production Circuit or the Market for Contemporary Production Includes Demand, Supply, and Market: And the Main Issue Is Equilibrium 117
Demand 117
The Demand Equation 118
Supply 120
Potential Supply 120
Effective supply 122
Variables Governing Production and, Therefore, Supply 123
Physical Production Capacity 123
Production Initiatives 123
Market Equilibrium 124
The Question of Profit 127
A Revenue Accounting Convention 128
The Nature of Equilibrium 129
The Conditions of Equilibrium 130
The Mechanism of the Financial Market and the Interest Rate 131
Financial Market 131
Parallel Market 132
Unearned Income, Speculation, and Hoarding 132
The Financial Market, a Competitor of Contemporary Production 135
The Perverse Effect of the Financial Market on Effective Demand: Leaks in the Contemporary Production Circuit 135
The Effects of the Financial Market on Production, Investment, and Employment or the Problem of Non-profitability Outside Production 136
Market Components 138
Demand for Unearned Income Yielding Assets 138
Supply 139
Financial Market Equilibrium 139
The Interest Rate 142
Basic Opposition to the Theories of Interest 142
The Foundations of the Interest Rate in Bernácer’s View 143
Interest: Exogenous to the Production Circuit 145
Determination of the Interest Rate 145
The Duality of the Interest Rate 146
Disequilibria 147
Virtuality of General Equilibrium or Failures of Automatic Regulators 147
The Effects of International Trade 147
Gold Price Movements 148
Second-Hand Goods Transactions 149
Bernácer’s Equilibrium Model 150
Particularities of Economic Equilibrium 150
General Equilibrium Model Constitution 152
Decreased Form of the Market Equations 153
Complete Market Equations 155
The Notion of Change in Companies’ Working Capital 156
Explanation for Overall Disequilibrium 157
Disequilibrium Emergence 157
Price Fluctuations 157
Unemployment 160
The Causes of Disequilibrium 161
Structural Causes 161
Cyclical Causes 163
Theories of Major Disequilibria 164
Elements of the Theory of Employment 164
Labour Market 166
Rejection of the Classical Theory of Unemployment 167
Technical Progress 167
Bernácer’s Theory of Unemployment 171
The Genesis of Unemployment 171
Hoarding, a Major Cause of Unemployment 173
A Theory of Cycle 175
Cycle Process 175
Upward Phase: Recession. 176
Depression 176
Upward Phase: Recovery 178
Prosperity 179
The Inevitability of Crisis 180
Cycle Mechanism 181
The General Model: Hydrodynamic Analysis 181
The Asynchronous Movements and Asymmetry of the Cycle 184
Catalysing the Rigid Structures of the Cycle 185
Rigid Structures of Cycle Propagation 186
A Main Effect of the Cycle: Universal Waste 188
References 189
4: Monetary Factors of Crisis: Hoarding Versus Investment, Inflation, and Deflation 192
4.1 The Place of Money in Overall Economic Theory 192
Functions of Money 194
General Definition of Money 194
Money and Credit 195
Materiality of Money 196
Dynamical and Temporal Functions of Money, Link Between Accumulation, Perception, and Income Expenditure 198
Accumulation and Collection of Income 198
Corporate Working Capital 198
The Status of Profit 200
Profit, Balancing Market Residue 200
Profit as a Random Income 200
Profit as a Functional Income 203
Profit, Risk, or Uncertainty Income? Link Between the Present and the Future? 204
Role and Disposability of Profit 205
Income Perception and Expenditure 207
Non-consumption or the Ambiguity of the Savings Concept 207
Allocation of Unconsumed Income: Savings and Hoarding 213
The Change Factors of Hoarding 215
Investment, Fixed Capital Formation, and Stocks 218
4.2 Value of Money 222
The Quantity Theory of Money 224
Commented Presentation on Quantitative Theories 225
Bernácer’s Criticism of Quantity Theory of Money 230
Summary of Criticisms of Quantity Theory 233
The Functional Theory of Money 238
Functional Partition of Money Supply 238
The Structure of the Money Supply According to Bernácer 242
Dynamic Theory of Money Value 244
Necessity of Market as Basic Structure for the Social Value of Money 244
Determination of a Dynamic Formula for Money Value 245
Hypothesis of the Absence of Paper Money Issuance 246
The Investment of Savings in Production 247
Definition of the Disequilibrium Coefficient 251
Formula According to the Split Time Method 252
Formula According to the Continuous-Time Method 254
Temporary Conclusion on the General Theory of Money 259
References 260
5: The Interest Rate as a Factor of Instability and Crises 264
5.1 Overview of Bernácer’s Theory 264
Historic and Positive Theory of Interest: Genesis of Interest 265
Existence of Interest in the Precapitalistic Universe 265
Existence of Interest, Regardless of Non-capitalist Economic Regime Structures 266
Failure of the Process of Interest Legitimacy 266
Convergence of Historical Method and Positive Approach 267
The Interest Rate and the Extension of the Theory of Unearned Income 268
The Extension of the Theory of Unearned Income 269
From Unearned Income to the Interest Rate 272
Physiocratic Component 273
Physiocratic History and Contemporary Theories 274
Physiocratic Elements of Bernácer’s Theory 276
History and Present Observation of the Physiocratic Component 277
5.2 The Monetary Component in Bernácer’s Theory of Interest Rate 277
Determination of the Interest Rate 278
Hoarding, Circuit Production, Loss of Power 281
Interest as the Equilibrium Price of a Money Supply and Demand Fraction 281
Money Information Insufficiency 282
The Real Component in Bernácer’s Theory of Interest Rate 282
Physical Capital Productivity 283
Real Non-productivity of Money Capital 284
Renewal of Fixed Capital and Net Investment 285
Is the Interest Rate the Privileged Independent Variable for the Decision to Invest? 286
5.3 Sociological Component 287
Interest, a Thievery of Producers’ Value Creation 287
Interest and Profit: Interest, Ownership of a Surplus by Unearned Income Perceivers 288
Internal Conflict of the Capitalist Class: Unearned Income Perceivers Against Entrepreneurs 291
Nature of the Conflict 291
The Effects of Conflict 293
Interest, Unearned Income from Production on Private Property Means Monopoly 294
Bernácer’s Definition of Interest: A Synthetic and Functional Theory 295
Double Requirement for Interest Existence 296
Existence of a Market for These Assets 296
Ravages of the Unearned Income-Yielding Assets Market 296
Interest: Payment from Production to Return Disposable Funds to Production 297
The Double Functionality of the Interest Rate 297
Qualification of Bernácer’s Theory 298
The Interest Rate, Economic Activity, and Policy 299
The Interest Rate and the Level of General Activity 299
The Interest Rate, Equilibrium, and Employment Level 299
Equilibrium and Time 300
Equilibrium and Employment 302
Wicksell, Bernácer, Keynes, and the Concept of Equilibrium 305
The Interest Rate and Business Climate 306
Explanations for the Two Interest Rates and Fluctuations 307
Bernácer’s Model 308
Comparative Analysis of the Three Theories 309
Other Components of the Cycle Theory 313
The Preponderance of Demand in an Activity Level Setting and in the Course of the Cycle 314
Cycle Process 315
Relation Between Fluctuations in the Interest Rate and Fluctuations in Business 316
Trend Reversal 316
Impossibly Spontaneous Stability of the System 318
The Interest Rate, Product Growth, and Social Progress: Bernácer’s Ethical Dialectics 319
The Purpose of Economic Activity: Social Progress 320
Prospect of Growth in the Analysis 321
The Rate of Interest, Growth, and Progress Disincentive 322
First Effect: Investment Increase 323
Second Fact: Increasing Scarcity of Disposable Funds 323
Bernácer’s Ethical Dialectics 323
The Interest Rate and Monetary Policy 324
The Interest Rate and General Price Level 324
Wicksell’s Theory (1907): “Influence of the Interest Rate on Prices” 324
Bernácer’s Theory: Monetary Stability Against Full Employment: Theory of Secular Inflation 327
A Classic Relic: Preference for Time 328
The Economic Statement 331
Summary Assessment of Bernácer’s Theory 332
Inductive Method Based on Empirical Observation of Facts 333
Economic Policy Objectives 335
Wicksell’s Forgotten Objectives: Full Employment 336
Keynes’s Forgotten Objective: The Stability of Money 336
Summary of the Two Goals or the Incompatibility Between Full Employment and Monetary Stability in the Current Capitalist System 337
Cyclical Action and Its Limits 338
Manipulation of the Interest Rate 338
In Terms of Realism 338
In Terms of Efficiency 338
Balancing Issuance: Complementarity of Monetary Policy 339
Removing Unearned Income and Therefore Interest. 340
The Debate on Funding Sources: Public Expenditures or Credit? 341
The Need for Structural Action 342
References 344
For Further Reading 346
6: Improving Capitalism Through Freedom, Ethics, and Efficiency 347
6.1 General Philosophy of the Economic System Recommended by Bernácer 347
The Three Principles of a Rational Economic System 347
Petitio Principii: The Solution Lies in the Development of Capitalism 348
Summary Model of the Rational System 349
Structural Constraint: Decentralization 349
Individual and Overall Objective: Full Employment 350
Production 350
Structure of Production Units 350
Private Property Status 350
Morphology and Self-Managed Functioning of Production Units 351
Collective Profit of Production Units 352
The Structure and Market Extent 353
Competitive Market: Ideal Structure Reference 353
Spatial Home Structure of the Rational System: The Transnational Market 353
Fixed Capital Formation 354
Public Investment 355
6.2 Circulation and Distribution 356
The Disappearance of the Financial Market and the Organization of the Money Market 356
Absence of the Financial Market in a Rational System 356
Collection of Household Savings 357
Business Financial Management 358
Fixed Capital Formation Financing 358
Working Capital Financing 359
6.3 Distribution 359
Labour, a Unique Source of Income 359
Salary 359
Profit 360
Transfers 360
6.4 Parameters of Bernácer’s Economic Thought 360
Environment, Foundations of Bernácer’s Personality 360
Modesty of the Origin and Life of Bernácer 361
The Influence of Spain’s Contemporary, Political, Social, and Economic History 362
Catholic Tradition: A “Very Catholic” Spain 363
Political and Social Institutions 364
Half a Century of Government Instability 364
Political and Social Violence Was Experienced at Both Individual and Collective Levels 365
At the Individual Level 365
At the Collective Level 365
From Historical Facts to Economic Theory 367
Christian Humanism 368
Positive Aspect: Happiness Achievement 368
Negative Aspect: Denunciation of Social Injustice 370
Limit of Means: Moral Unity and Social Peace 371
Rejection of Ethical Dualism or Integration of Morality in Economic Rationality 371
Rejection of Sociological Dualism and Refusal of Class Struggle 372
Evidence of Realism 373
Refusal of the Dichotomous Interpretation of Social Reality 373
Refusal of Violence as a Means to Achieve Reform 375
Vigour of Solutions or “Radicalism” of the Reform Advocated by Bernácer 375
Reminder of the Reform Pillars 375
The Unearned Income Deletion 375
The Collective Ownership of Natural Heritage 376
Companies’ Autonomous Management 377
Tax Elimination 378
How Bernácer Perceives the Switch From Capitalism to the New Economic Regime (NER) 379
Social Peace and Justice Requirements 379
Bet on the Success of Reform: The Optional Purchase of Unearned Income-Yielding Assets 380
Collection of Natural Unearned Income and Public Finance 381
Collectivization of Unearned Incomes, Lands Unearned Incomes, to Finance Current Public Expenditure 381
Decreased and More Selective Role of the Government as Entrepreneur 381
Collective Needs Planning and Realization Through Loans 384
Provisional Equilibrium Sheet for Reform 384
A Solution That Seems Very Positive: Collectivization of Unearned Income and Public Finance 384
Compatibility Between Social Justice and Efficiency 385
Social and Financial Restoration Order: Disappearance of Speculation and Tax Inequity 385
Clouds on the Horizon: Will the Stability Objective Be Achieved in NER? 387
Conclusions on NER: Neglect of Political Efficacy Conditions 388
Theoretical Realism of NER Implementation 388
Flaws in the Implementation Programme for the Reform 389
6.5 Liberalism 391
Freedom, a Condition for Individual and Collective Morality 391
Freedom Vicissitudes in Economic History 391
Economics Were Originally Free 391
Failure of Capitalism 392
Paths Opened by Capitalism Failure 392
Refutation of the Legitimacy of Government Intervention 394
Intervention Is Exceptional by Nature 395
Socio-Political Obstacles to the Effectiveness of Government Intervention 395
Proposal of Freedom in the Natural Economic Order 397
Liberalism Is Not Capitalism 397
Freedom as a Scientific Postulate 397
Natural Order in the Economic Universe 398
6.6 Bernácer’s Scientific Method 399
Bernácer’s Methodological Options 399
Autonomy Regarding Conventional Wisdom or Triumph of the Critical Spirit 399
Empirical Positivism in the Approach to Economic Fact 400
Bernácer’s Anti-homo Economicus or Deductive Rationality Limitations 400
Refusal of Psychological Analysis and Consideration of Tangible Demonstrations of Psychology 401
Need for Structural Analysis or Objectivation for Economic Analysis 402
Role of Institutions in Economic System Operations 403
Scientific Analogy 403
Bernácer, a Physicist Doomed to Economics 405
Physicist’s Imagery 405
Mechanistic Aspect of His Economic Approach 405
Mathematical Tool: Aptitude and Reluctance 406
Bernácer’s Use of the Mathematical Method Combined with Accounting 406
Limits of the Mathematics Field 407
Reluctance to the Mathematical Method 408
Triumph of the Synthesis or Combination of Methods 409
Theory Dual Supremacy on Analysis Tools and Reality 409
Marks of Concern for Testing: Mathematical or Statistical Tools or Even of Pure Logic subordination to Theory 409
Transcendence of Real Experience or Contempt for Applied Economics as a Minor Field 410
The “Omnimethodological” Perspective or Opening Economics to All Methods 411
Deductive Method, Common Denominator of Every Theory Abstraction 411
Historical Method 412
Bernácer’s Poorly Overcome Intrapersonal Contradictions 413
Bernácer’s Strong Criticisms of Concrete Reality and Refusal of Force as a Means to Impose Radical Reforms 414
Almost “Shameful” Emergence of Mathematics, Psychology, and Sociology in Bernácer’s Thought 414
References 415
7: Conclusion: Advocacy for Bernácer’s Rehabilitation 418
7.1 Summary of Bernácer’s Contribution 418
Shortcomings 418
In Terms of Scientific Research: Relative Solitude and Inadequacy of the Debate 418
In Recommended Action: Reform “Appears” Less Directly Operational Than Keynes’s Policy 420
Bernácer’s Collapse: The Relative Ignorance of His Work 421
Topicality of Problems Raised and Solutions Outlined by Bernácer 421
Contemporary Evidence Supporting Bernácer’s Theory 423
Monopolies Restrict Fair Competition 423
Limiting State Influence 424
Addressing Chronic Under and Unemployment Difficulties 424
De-emphasing Stock Prices and Reinvesting Profit in the Real Economy for Future Growth 424
Perverse Speculation 425
Hoarding: A Defensive Against Future Economic Uncertainty 425
Low or Null Interest Rates 425
Current Major Issues: Speculation, Stability and Economic and Social Organization 426
General Philosophy of Recommended Solutions: An Original Form for Action Between Liberalism, Keynesianism, and Marxism 427
References 428
Annexes 430
Germán Bernácer’s Publications 430
Economics Books (All Written in Spanish) 430
Journal Articles 431
In Spanish 431
In German 432
In English 433
In Italian 433
In French 433
Popularized Articles 434
Conferences and Speeches 434
Book Prefaces 434
Three Handbooks for Use by Business School Students 434
Unpublished Manuscripts 435
For Further Reading 436
Miscellaneous 456
Newspaper Articles About Bernácer 456
Other Sources 456
Index 457