[GJM] #857, Dirk J. Bezemer, Wilhelm Lautenbach, And PROF. DR. HEINER FLASSBECK On The Optimum Policy (TOP)
Rodney Shakespeare
rodney.shakespeare1 at btinternet.com
Wed Feb 6 02:50:57 MST 2008
Dear All,
Referring to Wes Burt's email on Lautenbach and Flassbeck.
LaRouche (Executive Intelligence Review) policy undoubtedly uses national bank-created interest-free money (presumably in the form of loans rather than debt-free 'printed' money) for the construction of large-scale infrastructure projects --- e.g. public capital and environmental projects -- but not for the spreading of private capital. Thus, in practice, LaRouche policy could increase rich-poor division.
Moreover, the LaRouche interest-free use use is insufficient because interest-free loans (with collateral or collateral-substitute taken) should also be used for:--
a) micro-credit
b) small farms and businesses
c) medium and large corporations if thereby wider ownership is furthered.
d) student loans.
See www.binaryeconomics.net
All of this, of course, should be administered by the banking system (which may charge administration cost) in circumstances of a limitation of the banking system's present ability to create money out of nothing, add interest and direct it at anything except the development and spreading of productive capacity. This would be done by a gradual rise to 100% banking reserves.
All of this is very important because LaRouche fails to spread the ownership of productive capacity ( whereas a) to d) above do spread ) -- which is a pity because the Executive Intelligence Review has a group of analysts and editors who are among the shrewdest in the world.
The GJM analysis of the impending global financial crisis is broadly the same as that of the EIR but GJM has the much broader, and much better developed, solution.
I thank Wes Burt for drawing our attention to some of this subject appearing on the gang8 list not least because it is about time that gang8 stopped making their usual vicious attacks on the GJM, me and binary economics, and stopped their usual sneering about any proposed use of interest-free loans for productive capacity. As Wes indicates the way forward is rapidly moving in the direction of interest-free loans for productive capacity and gang8 had better wake up to it (NB their discussion on Say's Law is some indication that they may be waking up a little but they have not yet woken up sufficiently to even get round to making the coffee).
With a global financial collapse on the cards it is essential to have an analysis which explains the collapse (and we have that analysis -- -- in outline it was expressed on PressTV) and the long-term solution (similarly outlined on PressTV).
I have no objection to Wes -- should he wish -- forwarding this email to gang8.
Rodney Shakespeare.
----- Original Message -----
From: wesburt at juno.com
To: d.j.bezemer at rug.nl ; Discussion at globaljusticemovement.net ; FixGov at yahoogroups.com ; chdouglas at yahoogroups.com
Sent: Tuesday, February 05, 2008 11:38 PM
Subject: [GJM] #857, Dirk J. Bezemer, Wilhelm Lautenbach,And PROF. DR. HEINER FLASSBECK On The Optimum Policy (TOP)
Hi Folks,
I am deep in debt to Dirk J. Bezemer
for inviting our attention to two German
economists who have pretty well brought
to completion my understanding of how
the three decade "economic miracles"
of post war Japan and Germany were
terminated in the 1970s. They both
misapplied the thirty centuries old J., C.,
M., P., and Atheist principal of Subsidiarity
(decentralization) to their public policy on
human development. Just as U.S. business
men have, since 1895, misapplied the
same principle to US public policy on
human development.
Please enjoy Dirk's introduction, the
"principle of subsidiarity," and the EIR
interview of DR. HEINER FLASSBECK.
I have not talked with Lyndon H. La Rouche
about this subject since we were class mates
at Northeastern U. in 1947. His thinking on
this subject got him: into the Federal Pen
under Bush I, pardoned by Bill Clinton, and
ever since, a low profile working on his
Executive Intelligence Review.
~~~~~~~~ Insert #1 of 3 ~~~~~~~~~~~
From: "D.J.Bezemer" d.j.bezemer at rug.nl
To: gang8 at yahoogroups.com
Date: Mon, 04 Feb 2008 21:32:44 +0100
Subject: [gang8] Lautenbach and Flassbeck
Dear Gang,
Reading today an uNCTAD report I got
to know its excellence. This snowballed
on to Wilhelm Lautenbach, '30s German
economist in the Listian tradition, who
argued on the brink of the move to
Hitlerism for "generating productive
credit" to solve the unemployment crisis.
I include links to a Flassbeck interview
and a talk on Lautenbach - Unfortunately,
they are both from sites by the nutty
La Rouche movement. Flassbeck's own
site www.flassbeck.de is also good
though mostly in German.
Any thoughts on these kindred spirits?
Dirk
http://larouchepub.com/other/2003/3015wil_laut_bad_sch.html
http://www.larouchepub.com/other/interviews/2004/3144dr_h_flassbeck.html
~~~~~~~~ Insert #2 of 3 ~~~~~~~~~~~
Economic Justice For All, 1986,
(Pastoral Letter On Catholic Social
Teaching and the U.S. Economy)
On page 55 we read:
"The need for vital contributions from
different human associations ---
ranging in size from the family to
government --- has been classically
expressed in Catholic social teaching
in the "principle of subsidiarity":"
"Just as it is gravely wrong to take
from individuals what they can
accomplish by their own initiative
and industry and give it to the
community, so also it is an injustice
and at the same time a grave evil
and disturbance of right order to
assign to a greater and higher
association what lesser and
subordinate organizations can do."
In other words: "Taxes are theft and no
family subsidies except twelve years of
public education and welfare." That
sounds familiar!!!!!!!. Where have we
heard that?
~~~~~~~~ Insert #3 of 3 ~~~~~~~~~~~
http://www.larouchepub.com/other/interviews/2004/3144dr_h_flassbeck.html This interview appears in the November 12, 2004
issue of Executive Intelligence Review.
INTERVIEW WITH PROF. DR. HEINER FLASSBECK
German Economist Backs FDR,
Calls for New Bretton Woods
The economist Prof. Dr. Heiner Flassbeck
was Germany's deputy finance minister in
1998-99, during the early phase of the first
Schröder government, and is now chief
economist of the United Nations Conference
on Trade and Development (UNCTAD),
based in Geneva. Flassbeck has become
known for his strong attacks on the European
Union's deflationary Maastricht Treaty, now
strangling Europe's economies, and his
public calls for a "New Bretton Woods," a
"multilateral international monetary system
with fixed exchange rates." He also proposes
huge infrastructural investment programs in
order to boost the world's real economy.
That is not at all surprising, since Flassbeck
studied in the tradition of the famous German
economist Wilhelm Lautenbach, who, in 1931,
had proposed the German version of President
Franklin D. Roosevelt's "New Deal," a
government-steered investment program to
overcome the Depression of the 1930s by
creating real wealth and jobs. On Oct. 21,
Flassbeck was interviewed in his Geneva office
by Michael Liebig and Hartmut Cramer. The
interview has been translated from German.
EIR: Mr. Flassbeck, where do you see the
main components of the systemic cluster-
risk in the present worldwide financial and
economic system?
Flassbeck: The main current risks I see are
"in the immense American current-account
deficit on the one hand, and the refusal of
the Europeans, on the other hand, to
contribute to the growth of the world economy.
Therefore, a very severe crisis of the
international financial system is preprogrammed.
Without exaggeration: The Europeans in the
last 20 years-actually already since the
beginning of the '70s, when they were "released"
from the Bretton Woods System-have
systematically refused to play any role in the
growth of the world economy. But without
expansion, the world economy cannot function
reasonably.
EIR: How do you evaluate the Maastricht Treaty,
which prevents, and even strangles economic
growth? What is, in your view, the background
to "Maastricht," and its so-called "Stability Pact"?
Flassbeck: Basically, Maastricht is the logical
continuation of the policy of the Bundesbank
[Germany's central bank] in the 20 years before
this treaty was signed. After 1971, when the
Bretton Woods System was ended, the Bundesbank
completely lost sight of the world economy and
practiced a primitive "monetary nationalism," as
von Hayek called it back in the '30s. And this
basic national monetaristic direction was then
tranferred to Maastricht. This is naturally deadly.
In principle, the European Monetary Union and
the euro represent a big opportunity, because
we now no longer have any speculative financial
flows inside Europe, and the inner-European
currency casino was closed down. But on the
other hand, the present monetary constitution of
Europe is absolutely not adequate for solving the
problems of the European economy. Quite the
contrary; it contributed to causing them. With
Maastricht, the national monetaristic dogma
was imposed upon the whole of Europe.
EIR: In the meantime, the failure of the Stability
Pact has become evident, as can be seen in
black and white, in the falling investment
figures and rising unemployment figures.
What possibilities do you see, to eliminate
this corset of the Maastricht Stability Pact?
Flassbeck: Presumably this will only happen
with the full outbreak of the present crisis.
Also in the '20s and beginning of the '30s it
was, unfortunately, only after the climax of
the world economic crisis, that a shift in
thinking was possible. By way of Maastricht,
we in Europe were forced to pursue a
deflationary policy. I fear that this will be
continued-up to the point that, to quote
the economist Wilhelm Lautenbach, even the
entrepreneurs or the neo-classical ideologues
have to grasp the fact that it cannot go on
this way. Only then will people see the need
to shift to an expansive economic policy.
Maastricht has destroyed the decisive option
offered to us by the market economy: to
overcome economic crises and other
structural disparities by way of an expansive
credit policy. In the U.S., this was done.
This outlet was closed by Maastricht.
Therefore, we Europeans are now condemned
to go the wrong neo-classical, or neo-liberal
way, called: "Tighten your belt!" But this
wrong path leads deeper into the crisis,
because with that approach you cannot
solve the problem, but instead, you strangle
the economy ever more.
Naturally, you can compensate for a
deflationary economic policy, as is being
done now, with increased competitiveness,
at least for a certain time. But this then
results in extreme current-account balances:
high surpluses in Europe, and the record-high
American deficit, which in the end can only
be compensated for by a strong devaluation
of the dollar. Only then, will the European
delusion, that problems can be solved by
means of deflation, evaporate.
EIR: Could you be more precise concerning
American financial policy? You say it is
credit-expansive, but obviously, in a quite
undifferentiated way. It is not investments
into the physical economy that are being
stimulated, but rather the financial system
as such, and consumer spending. Can you
explain, what, in your view, is going wrong
in the U.S. economy?
Flassbeck: The American policy of credit
expansion was not always merely
consumptive and unstructured. During
the '90s, investments increased enormously,
even if many of these investments were
made in the field of electronics and computer
equipment. But for sure, not all of these
were wrong investments.
I see the problem in the fact that, since
the "stock bubble" burst three years ago,
we have not had any significant dynamic
of investment in the U.S. any more. At the
same time, we have a high consumption
dynamic, which is not justified by anything,
and therefore can't be sustained. Incomes
didn't increase, and consumption was
promoted primarily by the monetary policy
of the Fed and other measures by the
government. This policy should be now
replaced by one where the market generates
increasing investments and incomes, as
well as through an orderly savings rate,
since the savings rate in the U.S. is
dangerously low. Any additional shock,
no matter whether caused by high oil
prices or rising interest rates, could
now lead to a situation whereby America's
consumers normalize their savings quota
"overnight," so to speak-and that would
be a catastrophe for the American, and
therefore, the world, economy.
EIR: Recently, you have repeatedly warned
that the present international monetary
system harbors the danger of a grave
crisis, for example a big devaluation of
the U.S. dollar. Could you, in this light,
explain again your estimate of the present
state of the world financial system, and
your strong public call for a New Bretton
Woods system?
Flassbeck: Paradoxically, we see right
now the emergence of a highly curious
"Bretton Woods System." By that I mean
the emergence of a huge dollar bloc, in
which Asia, and also large parts of Latin
America, are pegging their currencies
unilaterally to the U.S. dollar. This is
being done in a unilateral way, without a
multilateral system, and therefore, it is
not the New Bretton Woods system which
I am calling for.
The reasons for the emergence of this
dollar bloc are easy to understand, as
we have documented in the just published
UNCTAD annual report: For many developing
and threshold countries, the unilateral
pegging to the dollar is the only means
to create stable currency relations and
thereby create reasonable conditions of
investment. But this means, at the same
time, that the entire burden of the present
imbalance, and clearing it up, falls on those
parts of the world whose currencies are still
floating versus the dollar-and that is
mainly Europe.
In a very short period of time, Europe,
therefore, has to face the choice of either
living with a massive up-valuation of the
euro-and thereby massively endangering
its export markets-or, paradoxically,
intervening against an up-valuation of
the euro. This is what the Asians did, and
of course Europe can do this too, in order
to prevent an up-valuation of the euro. But
in that case, this curious "Bretton Woods"
would emerge-but one without multilateral
rules. In fact, we then would have a worldwide
dollar bloc. But this would only end up in
America's practicing stronger protectionist
measures, because otherwise it could not
bring down its current account deficit, and
could not even prevent a further increase of
this deficit.
EIR: That then forces the argument, that
Europe should actively pursue the creation
of a durable New Bretton Woods. In the U.S.,
this is being done by the economist and
politician Lyndon LaRouche. In Italy, the
Parliament over the last two years, several
times-and in a non-partisan way-has
urged the government to actively pursue
the creation of a New Bretton Woods. You,
Mr. Flassbeck, have clearly and publicly
called for a New Bretton Woods-a multilateral,
international monetary system with fixed
exchange rates. How is it that the debate
for a New Bretton Woods has not yet reached
"critical mass"?
Flassbeck: I believe that Europe, since the
"liquidation" [an East German ironical
metaphor for destruction] of the Bretton
Woods system at the beginning of the '70s,
simply has not understood its international
role, and the enormous opportunities which
a stable international monetary system
offers to promote economic growth. Whoever
was in power in the European countries did
not recognize the significance of a functioning
international monetary system for the growth
of the entire world economy, and that of their
own countries. I also don't have the impression,
that presently the "established" politicians,
who like to quarrel about almost everything,
understand in any way, what is at stake here-
not only economically, but also politically.
In addition, the European central banks, above
all the Bundesbank and now the European
Central Bank [ECB], are completely refusing
to cooperate internationally. They suffer under
the delusion that they can conduct an
"autonomous" monetary policy. But this
is not possible in a globalized world. Nobody
can presently pursue an "autonomous"
monetary policy, not even the U.S. Federal
Reserve, which, in my experience, did a
better job at that than the ECB.
EIR: Could one therefore say, that the
European central banks, and the ECB,
by way of Maastricht, are forcing the
countries of Europe to conduct a policy
of deflation domestically, and externally,
are blocking a rational reorganization of
the world financial and monetary system?
Flassbeck: Yes, you could say that. By
being absent in the field of economic
policy, and with their pressure in the
direction of a restrictive financial policy-
especially concerning the real economy-
the central banks are pursuing a
deflationary course of action. Consequently,
the national governments see no other
chance than to undercut each other,
concerning the level of their costs and
taxes. And that must lead to an impasse.
I have to stress here, that the governments
"see" it this way, which does not mean
that they don't have the chance to act
differently. With Maastricht, all possibilities
for a credit-expansion policy on a European
and national level are, in effect, "forbidden."
This absurd mixture, taken together with the
refusal to assume international responsibility,
will push Europe, as I believe and have
written about several times, into an extremely
severe situation: Europe will be confronted
with the devaluation of the U.S. dollar and
the up-valuation of the euro.
EIR: Do you think that, at the point that in
Europe, the economic, social, and political
effects of the crisis, which we monitor daily,
become fully manifest, there will be a chance
that people will finally realize that things
cannot go on this way?
Flassbeck: In Germany, too, people will stop
discussing secondary and tertiary political
questions, and will finally also take into
account the entire world and the realities
of the world economy. But presumably, this
will happen only-it's sad, but true-when
the crisis has gone so far, that people have
to recognize: It cannot go on this way!
EIR: Do you see the possibility that other
actors, like the United States, but also Asia-
China, Japan, East Asia, India-Russia, or
Brazil could take initiatives in the direction
of a New Bretton Woods?
Flassbeck: I think that practically all those
countries are rather open to a New Bretton
Woods. In principle, they are ready to go in
this direction. There are already regional
initiatives everywhere; in Asia, there is an
intensive debate going on about monetary
policy, because it is clear that cooperation
is necessary. In Latin America, too, the
discussion of a new monetary system is
beginning, because it is being recognized
there that the unilateral pegging to the U.S.
dollar cannot work in the long run, and that
multilateral regulation is required. And then
we have the big euro bloc.
In fact, there are only three or four currencies
left. Obviously there are also other bills of
paper money being printed, but they don't
have any real significance for the world
economy any more. Besides the Swiss
franc and the British pound, none of the
"small currencies" has any real significance.
Almost all "small currencies" are pegged to
the few "big currencies." That's the trend in
a globalized world economy.
EIR: But you certainly don't mean this in
terms of the proposals of Robert Mundell
and his circles, who propagate a strange
"world currency." Isn't the present trend,
after all, going more in the direction of the
former European Monetary System [EMS],
but this time on a worldwide scale?
Flassbeck: Yes, that is exactly what we need.
I regard the EMS definitely as a model for a
new world monetary order. In the next 100
years, presumably we will not have a "world
currency," but nevertheless, right now, we
do need multilateral cooperation in currency
questions. We need the mutual obligation
of all states-not only the unilateral obligation
of weak states toward the strong ones, but
also the willingness of the strong states to
help the weak ones.
This became very clear in Latin America,
and also during the so-called "Asian crisis."
Let's take the example of the uncontrolled
devaluation of the Brazilian currency, the real.
The exchange rate of the real was just being
floated, instead of going for an orderly
devaluation, which at a certain point, had to
be stopped, in order not to ruin Argentina.
But the Brazilian real was being floated freely,
until it had dropped much too low, much
lower than would have been justified by the
data of the real economy. Therefore, a huge
crisis in Argentina was unleashed-with
worldwide repercussions. This, in my
estimatation, is almost a classical example
of how not to do it. The orderly devaluation
of a currency, which sometimes may be the
only way to solve a severe crisis, is totally
different from the free floating of a currency
after having given up the unilateral peg to
the dollar.
EIR: Back to the New Bretton Woods, a
model of which, in your opinion, could be
the original EMS from 1979.
Flassbeck: Absolutely. But I think the "old"
Bretton Woods was much better, since it
defined more clearly, under what exact
circumstances a currency should be
devalued or up-valued; this stupidly was
not done with the EMS. The EMS rather
relied on the "financial markets," and it
was argued that, in respect to exchange
rates, something has to be done only
when a currency comes "under pressure."
That this is not correct, was shown in the
case of France, which in 1992, despite
considerable pressure from the financial
markets, did not devalue its currency, in fact.
In a New Bretton Woods, one has to define
very clearly, as was done in the old Bretton
Woods from 1944, when, and where, external
economic imbalances exist. Naturally, these
imbalances have to be recognized officially,
and to do so, we today have much finer
instruments at our disposal. But, if there
are indications of the fact that, after a strong
real devaluation, a country has lost its
competitiveness, that country must return
to an exchange rate which corresponds to
the state of its real economy. For that, there
are simple and reasonable rules, which have
to be used multilaterally, though. But if this
multilateralism does not exist, we will get
unilateralism, which is what we are seeing
right now.
As I already mentioned, the developing and
newly industrializing countries, in fact all
countries that are weak, are trying to obtain
current-account surpluses. It is only this,
which gives them the strength to peg their
exchange rates unilaterally to another
"strong" currency. Since they understandably
do not want to be engaged in free floating,
they have to try, from a position of strength,
to fix the exchange rate of their currencies.
This is precisely what China is doing at the
present time; other countries are doing it too.
In one sense, this is a rather intelligent
solution, since this way you prevent yourself
from becoming a slave of the international
financial markets. Besides, this way you
create very favorable conditions for exports,
as well as very favorable conditions for
investments domestically. But this cannot
be done in the whole world, since the world
as a whole, obviously, cannot create current-
account surpluses.
EIR: Let's come back to the situation in
Europe, and especially to Germany. You
talked about a shocking repetition of the
behavior of the '20s and early '30s, in
respect to what has happened during
the last years in Europe in general, and
Germany in particular.
Flassbeck: With the dominant policy of
"belt-tightening," we, in principle, are
doing the same thing that, during the '20s
and the early '30s, was considered to be
the only means to overcome the economic
crisis. Just by saving more and cutting
expenditures anew, the governments
believed then they would be better able
to compete internationally, and in this
way get out of the crisis by pulling
themselves up by the bootstraps. That
didn't function, and can't function. This
approach can only and always lead to
deflation. And it provokes a counterreaction
of other countries or economic blocs-
as will happen today with 100% certainty.
If it does not come in the form of a
competitive devaluation, as in the early '30s,
then it will come in the form of a massive
up-valuation of one's own currency-we
will see this with the euro.
A big, relatively closed region like Europe,
has to have its own strength for growth.
The domestic market has to flourish; there
have to be investments in the real economy;
people have to have money to buy; and
there must be private consumption-only
then does an entire economy grow. Just
yesterday, the six German economic
institutes presented their common report,
in which they state that Germany's economy
this year produced an export surplus of 30
billion euro. Of course, this is a big "boost"
for the economy, but even this has not
sufficed to pull Germany out of the crisis.
This shows, as I see it, how deep we are
already in the deflationary crisis. Despite
this "boost," income expectations of the
overwhelming majority of Germans have
not increased. People don't believe that in
the foreseeable future their incomes will
rise again-and as long as they don't
believe in that, there will be no way out
of the crisis.
EIR: In 1931, in the very midst of the
world depression, the economist Wilhelm
Lautenbach in Germany proposed a
program for boosting the economy, with
very big infrastructure projects as its
top priority. Today, similar ideas,
concerning present national and
transnational infrastructure projects
exist in form of the "Delors Plan," the
"Tremonti Plan," and the "Eurasian
Land-Bridge," none of which, however,
has gotten off the ground. What
chances do you see for a way out of
the crisis, if such public investment
programs, which clearly create real
wealth, productive jobs, and are not
merely comsumer-oriented, were to
be realized?
Flassbeck: Eventually, the realization of
such projects will be the only measure
which will work. There simply is no other
way-today, as also then, at the time of
the worldwide economic crisis. At the
point the deflation has manifested itself,
one has to become active in the economy
in a credit-expansive way-according to
the rule: The stronger the policy of
deflation was before, the more expansive
the policy has to be now-in order to turn
the deflationary powers around. Right now,
we see in Japan how difficult this is: Only
China's huge economic growth-a gigantic
program for promoting the exports of the
Japanese economy-prevented Japan from
falling into a very big crisis-but it has not
rescued Japan yet. In overcoming deflation,
therefore, one has to think and act in huge
dimensions. As I said, the 30 billion euro
export-surplus in Germany this year was
not sufficient to transfer the spark of the
exports to increased domestic demand.
In such a deep crisis as the present one,
more is required than an infrastructure
program financed by the state, although
there is no way around that. At the same
time, there has to be a normalization of
income-expectations-i.e., the return to a
reasonable wage policy. We have to turn
away from the deflationary wage dumping
that we see now in Germany, be it in the
form of longer working hours-which is
nothing but wage cutting-or many other
forms, for instance, the cuts in the social
system. All of this is promoting deflation.
The more strongly such a deflationary
policy is pushed, the more hopeless it
appears to be to get out of the crisis.
EIR: You are obviously calling for an
expansive economic policy like
Lautenbach's, or like Franklin D.
Roosevelt's New Deal, for Germany
and Europe now. How do you see, in
this context, recent proposals to use
Germany's Stability Law of 1967 as a
lever, since this law not only contains
a whole series of potential actions,
but also of obligations to act?
Flassbeck: When the present export
boom is gone-and it will evaporate-
the conditions under which the
Stability Law for state-sponsored
measures to initiate economic
growth can be used, will emerge
in a much stronger way than now.
Because after the export boom is
over, we will again fall down to zero
growth, and unemployment will
increase even more. Therefore it
will be mandatory then to use the
Stability Law. But we have to
recognize that Germany's 1967
Stability Law today is in contradiction
to the Stability Pact and the Maastricht
Treaty.
EIR: Then it is merely a question of
mobilizing the political will to
change this?
Flassbeck: Yes, certainly. In the end,
one can always do what is necessary,
if one has the political will to do so.
But today, the hurdles are set much
higher with a Europe which, in my
eyes, has a wrong monetary
constitution, since it blocks an
active autonomous economic policy
of a country. Therefore, it is much
more difficult for a single European
country today, even if, like Germany,
it is one of Europe's biggest, to
"break out."
EIR: The alternative therefore, would
be either: Stability Law, or Stability Pact?
Flassbeck: Yes, you could see it that way.
The Stability Law was ignored for a long
time. Honestly speaking, the European
Stability Pact is also being ignored right
now. Eventually, politics has to be
pragmatic, and neglect these "juridical
hurdles"-and that is what will happen.
EIR: In order to stimulate the discussion
about an active anti-deflationary policy
of promoting growth and development,
the already mentioned economist Wilhelm
Lautenbach is of key significance. You
are one of the few experts on Lautenbach
in Germany. How was Lautenbach unique?
Fassbeck: In my eyes Wilhelm Lautenbach-
one doesn't know if before Keynes, after
Keynes, or together with Keynes-saw
with an unbelieveable clarity (and sometimes
with an even greater clarity than Keynes
himself), the connections within an economy
as a whole. This applies especially to the
save/invest paradox. In principle, Lautenbach
understood the entire economic system
much better than 99.9% of all the economists
in Germany who came after him. It is fatal
and tragic, that the discrediting of Lautenbach
already started in the '50s; at that time, it was
said that there was no longer a time of crisis,
and therefore, Lautenbach was no longer
needed. He was called the "German Keynes,"
and together with Keynes, Lautenbach was
also ruined.
But Lautenbach's thinking can absolutely
not be reduced to the complex of an economic
crisis. In reality, he developed an economic
theory which is valid for all economic conditions,
not only for times of crises. His theory is simply
able to explain the dynamic development of an
economy, investment, much better than the
neo-classical, neo-liberal theory.
EIR: In addition, Lautenbach's memorandum
of September 1931, The Possibilities for
Boosting Economic Activity by Means of
Investment and Expansion of Credit, is not
only unique in respect to analyzing a crisis
correctly, but also to overcoming it effectively.
What about stimulating a real debate about
this question today, a debate which was
strangled for a long time, but which is being
forced upon society in this time of crisis?
Flassbeck: We will get this debate, I am
totally sure. It cannot be blocked. But in
Germany right now, because of the existing
conditions imposed by the media and
scientific community, one cannot conduct
this debate without being immediately
branded as an esoteric outsider.
How many relatively well-known economists
representing my position still exist in Germany
today? You can count them on the fingers of
one hand. In this climate, such an economic-
political debate cannot emerge, let alone be
conducted in a competent way. But I am sure
that this will change, because otherwise,
there is no way out of the crisis. Very clearly,
this was shown by the developments of this
year in Germany. If you get such a huge
expansive promotion of exports to foreign
countries, and even that is not enough to
put the country back onto a path of growth,
then you know how serious the situation
really is. In such a situation you definitely
need much more than a mere program of
credit expansion; then you need a complete
shift in the thinking of the political class
and its accompanying media.
EIR: How do you explain this paralysis,
dogmatism, and complete one-sidedness
of the economic-theoretical debate in Germany?
Flassbeck: This has a lot to do with the
fact that Lautenbach was systematically
ignored in Germany. Remains of Keynesian
thinking, which still existed at the end of
the '70s, were eradicated by the uncritical
takeover of monetarism. This, in turn, is
connected to the fact that Germany's
university system does not at all favor
"maverick thinking," "outsider-thinking,"
or "other-thinking," but exactly the opposite.
The principle of cooptation in German
universities has the effect of always
reproducing just the same schools of thought. Thinking goes only in one direction, instead of promoting an open, broad debate. Additionally, the associations in Germany, especially those of the entrepreneurs, are permanently pumping a lot of money into society, in order to steer the discussion in a certain direction. They seem not to notice the fact that in this way they are only damaging themselves in the end.
EIR: Are you thinking in this connection of well-financed organizations like the "Initiative for a New Social Economy," or the "Convent of Citizens"?
Flassbeck: These are only two of the many initiatives, which are all pushing in the same direction. They want to suppress any alternative thinking in Germany, and cover it with a mainstream, which only reflects something that one could call "pre-Keynesian thinking," or "thinking of the '20s." What is really astonishing about this is, that the entrepreneurial associations, which are promoting this thinking with a lot of money, are ultimately doing harm to themselves. Because it is their membership, above all the middle-sized entrepreneurs, who, in the end, suffer the consequences of this thinking. Just as the workers are suffering from the effects of the present deflationary policy.
~~~~~ End Dr. FLASSBECK ~~~~~
The following monetary time line could be charted
only by the model of an industrial economy shown
in Figure 4&8 attached to note #856 to John Gelles.
From 1776 to 1895, the USA was indeed the "last best
hope of mankind."
~~~~~~~ Insert Figure 2-3h.gif ~~~~~~~~~~~~~~
~~~~~~~~~~~~~ End Figure 2-3h.gif ~~~~~~~~~~~~
Kind regards,
Wes Burt
TOP and TWP are cognoscible by sixth graders from
Fig. 7-9.gif on Dr. W. Curtiss Priest's web site:
<http://www.epie.org/cyber-soc/default.htm>
TOP = 100% Capitalism --- TWP = 0 to 50% Capitalism
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