Subscribe to EIR Online


Economy: Game or Reality?

by Lyndon H. LaRouche, Jr.

March 2, 2006 (EIRNS)—The following statement by Lyndon LaRouche was released today by the Lyndon LaRouche Political Action Committee.

very attempt to measure the performance of a real economy in terms of money, degrades the image of the real economy into the form of a children's game, such as the board game of "Monopoly." To attempt to interpret any scores derived from the nominal values expressed by the course of playing that game, produces a result which has no correspondence to the real world. Nonetheless, the real world which the game's design does not actually measure, does have real values, such that attempts to manage the real-world economy according to the adduced rules of the children's game called "money," will produce a disaster in the real world, sooner or later.

For that reason, while attempts to construct studies of national economies through linear input-output systems such as those pioneered in the U.S.A. by Wassily Leontief, have organized the relevant data in a useful way, linear methods, and the intrinsically incompetent systems associated with the work of ivory-tower specialist John von Neumann, have been shown worse than useless in attempting to manage economic processes during the medium to long term, as the awful case of the August-September 1998 collapse of the GKO bond market merely illustrates the lunatic folly of the cult of financial derivatives generally.

Therefore, as the U.S.'s constitutional credit-system has shown in the best managed periods of that national economy, the effective management of the use of money as a medium of exchange and investment in a real economy, can be regulated, to the effect that the deviation of money-values from relative correspondence to the way the real economy functions, can be greatly minimized by imposing appropriate controls upon the setting of prices, systems of rates of taxation, and regulating the operation of the credit-system.

There is nothing intrinsically lawful economically in profit as a trading margin. Real profit, which is only physical profit, is a gain in total output with respect to total costs, gain which is generated through the impact of applied scientific and related progress in the mode of production and its social organization. Ultimately, it is the ideas derived from the impact of the discovery and application of new universal physical principles which is the only actually sustainable source of a margin of gain for a real economy as a whole. It is, primarily, in the act of discovery of a valid universal physical principle, that all progress in the power of the human species in and over nature occurs, a gain which could not occur in any different mode.

So, over the interval 1945-1966, the regulatory practices traced to the precedents for practice under the Administration of U.S. President Franklin Roosevelt enabled the economies of the Americas and Europe to resist the worst effects of the abuses heaped upon them in other respects. This practice was premised on the measures needed to promote and realize a net gain in the productive powers of labor in the economy as a whole. It was the effects of the successive introduction of a floating-exchange-rate monetary order in the wake of the 1967 floating of British pound sterling by the Harold Wilson government, the ensuing floating of the dollar by the Nixon Administration in 1971, the wrecking of the Bretton Woods system at the 1972 Azores conference, and the orgy of deregulation launched under the 1977-1981 role of U.S. National Security Advisor Zbigniew Brzezinski, which unleashed the general wrecking of the U.S. and the world economy which led into the presently onrushing general breakdown-crisis of the present world monetary-financial system.

My argument, as a working economist, since my conclusions which were established in the field of the science of physical economy by 1952-53, has been based on the practice of interpreting the behavior of the financial system by the standards for measuring economic performance which can be derived only from the standpoint of a physical economy. The significant movements in relative monetary values must then be judged by the standards provided by a physical-economic process.

However, no linear reading of a physical-economic process can be allowed. A real physical economy's success requires a cumulative increase of the physical capital-intensity of investment, per capita of total population, and per square kilometer of total area. This increase of capital intensity is a reflection of the employment of changes in practice derived from the application of discoveries and refinements of applied physical principle to the domains of both production of goods for consumption and improvement of basic economic infrastructure. It is the rate of change expressed by increasingly capital-intensive improvements in that way, which defines what may be treated as a relative break-even level between depletion and progress in the economy.

Looking at matters from the vantage-point of such a science of physical economy, there is nothing mysterious about the inevitability of the breakdown of a world economy under the impact of a shift of the practice of North America and of Western and Central Europe from a capital-intensive mode of scientific and technological progress in agro-industrial employment, to accelerating physical-economic decadence, now nearing breakdown, in a so-called "services economy."

Similarly, while the scientific and technological gains in relevant economies of Asia are important achievements, the fact is that these economies have incurred acute vulnerabilities as a result of predicating their growth in these sectors of output upon a world market which is now about to experience the most calamitous collapse since Europe's Fourteenth-Century "New Dark Age." Not only is the world market on which these Asian economies depend at the verge of a steep and potentially prolonged collapse, but the recent gains in exports by some Asian economies correspond to excessive dependency on the products designed specifically for the American and European markets.

At the same time, the world as a whole faces a kind of what some will call a raw-materials crisis, as the rising demands of populous leading Asian economies create a new factor of marginal physical-cost of production per capita of a type implicit in the work of the subjects of the Biosphere and Noosphere by Russia's celebrated biogeochemist Vladimir Vernadsky. The inevitable rise in expectations among growing Asian populations exemplifies the fact that the threatened shortage of relatively rich primary resources within the Biosphere requires both revolutionary changes in modes of securing supplies and in the form of revolutionary increases in the relative productivity of labor. Nowhere is this approaching crisis more clearly shown than in the deadly threat of the rapidity of the decline in future supplies of presently exploited potable fossil-water potential of the planet.

These considerations confront us at a moment when the world's present economy is on the verge of the greatest financial collapse in modern history. Exactly when this will occur remains uncertain, but the crisis could break out tomorrow morning, or be postponed for a short while, perhaps a few months, but not much more. Only sweeping changes in world monetary and financial policy, and only a radical turn away from the idea of a "services economy" would enable the world to avoid an otherwise inevitable global breakdown crisis. The examples to be considered are, foremost, the way in which U.S. President Franklin Roosevelt took an economy which had crashed by one-half under his predecessor, President Herbert Hoover, and produced the greatest economy the world had even known within about a dozen years. We have the case of the first twenty years of Europe's post-1945 economic recovery, especially Germany, and the impetus given by the early years of President Charles de Gaulle's selection of special science-driver programs.

If we come to our senses, the world is now on the verge of the emergence of a new kind of Eurasian continental development program. The first cycle of this development would span about two generations—fifty years, of twenty-five years each. During this time, Europe, especially continental Europe, and the U.S.A. would place great emphasis on a new system of long-term credit at fixed rates, for the capital improvements needed to build up Asia's economy, as the challenge of China's growing needs typify this.

For example: Inside the U.S.A. itself, I have put on the table before the U.S. Congress and relevant industries and trade-union organizations, a massive program of investment in basic economic infrastructure in mass transportation and power producing capacities. This pivots on reassigning the vital machine-tool-design capacity, chiefly concentrated in the auto industry, for other urgently needed products of infrastructure, a quality of demand which can be efficiently supplied only by a highly developed, and broadly based machine-tool-design capability. Using the methods we experienced under President Franklin Roosevelt, the possibilities are great, provided we act now to prevent existing productive potential from going to waste.

None of this could be achieved under a continuation of the current trends for so-called "globalization." "Globalization," which would never have been tolerated by the generations of the adult population of the 1950s and 1960s, would be a form of imperialism, like that under the alliance of Venetian financier-oligarchy and the crusading Norman chivalry, from which Europe freed itself, to launch modern civilization, only by the wrecking of the Venetian-Norman system through a New Dark Age of the Fourteenth Century. The national cultures of peoples, cultures naturally expressed by the institutional norms of the sovereign nation-state, are indispensable for any durable avoidance of a plunge into such a dark age on a planetary scale.

Meanwhile, the mastery of a growing marginal depletion of so-called primary resources could not occur except under the impact of a science-driver-oriented economy, away from what has been regarded lately as a "services economy." Under such a recovery program, the ideology of monetary theory will be pushed aside as an episode of mass cultural insanity within the span of modern history as a whole. Money systems will be subordinated to their proper function, as regulated systems which facilitate the exchange of goods, and nothing more than that. Physical science, as the practice of lawful change which is in accord with the discovered lawfulness of the universe, will replace monetary theory as the basis for economic policy-shaping.

Back to top