Fifty Nine False Assumptions of Mainstream Neo-classical Economics
Below are listed fifty nine assumptions which underlie mainstream neo-classical economics. These assumptions are basic things believed to be true or taken for granted as inevitable or sensible, but which, in fact, are false.
This is a matter of considerable importance because if only one assumption is false (or, at the most, two or three assumptions are false) then the whole structure of mainstream neo-classical economics becomes invalid.
However, Binary Economics becomes easily understood if the fifty nine false assumptions are one by one, and simply, reversed (as briefly seen in the orange text).
The false assumptions of mainstream neo-classical economics are:-
1. Scarcity is an inevitable part of the human condition. (It is not inevitable).
2. High taxation is necessary. (That is false).
3. Labour physically creates all, or a large part, of the wealth. (That is false — it creates part. Of all the false assumptions this is among the most pernicious.)
4. The ‘free market’ is free. (It is unfree).
5. The ‘free market’ is efficient and allocates resources efficiently. (It is inefficient).
6. The outcomes of the ‘free market’ are always just. (They are unjust).
7. Homo economicus is an accurate description of human psychology. (Homo reciprocans is better).
8. Conventional economics is an all-encompassing science of objective process and universal value and further improvement to economics is impossible. (That is false — further improvement is possible).
9. It is a matter of small importance that the banking system creates money out of nothing sufficient for the repayment of the principal of a loan but not of the interest. (It is of huge importance and the implications must be addressed).
10. The ‘free market’ consists of states of equilibrium: when there is disequilibrium there will always be a return to equilibrium. (That is plainly false).
11 There Is No Such Thing As a Free Lunch (any improvement for the poor inevitably involves a detriment to the rich). (That is false — binary economics is not a zero sum game).
12. The ‘free market’ upholds private property for all. (It does not).
13. It does not matter who owns the capital, particularly productive capital. (It matters hugely).
14. The ‘free market’ implements Say’s market Theorem (Law) that producers and consumers should be the same people. (It does not implement the Theorem).
15. Somebody who voluntarily looks after a sick child or adult does no work in the economic sense. (Try doing it ! ………)
16. Interest is inevitable and always necessary. (Reasonable administration cost is inevitable and necessary: interest is not).
17. Ethics/morality is not part of economics. (This is madness).
18. The poor are poor because of lack of effort and lack of skill (rather than lack of productive capital, lack of access to capital credit and suffering the burden of interest). (Have a think about this and then you will realise its great untruth).
19. Inflation is not caused by the banking system. (Oh yes it is!).
20. Financial savings are necessary before there can be investment. (They are not necessary because, today, money is created out of nothing by pressing computer buttons).
21. Physical savings are necessary before there can be investment. (This is generally untrue because materials are available. Prices for things can rise but that only increases cost. Also substitutes are often available).
22. Labour and welfare payment will always suffice. (They most certainly do not suffice….).
23. It is not necessary for every person to have an independent income. (This is completely untrue).
24. The level of interest rates is all that is necessary to manage an economy properly. (What matters is who or what creates the wealth and who gets the benefit of the creation).
25. Wide ownership is not necessary. (It is absolutely necessary).
26. Student loans should bear interest. (Why should such loans bear interest?)
27. Public capital projects should be funded by borrowing interest-bearing money. (Interest-free (repayable and cancellable) loans halve, even quarter, the cost).
28. Micro-credit lending should bear interest. (Why? Collateral and repayment are required, but why interest?)
29. Environmental capital projects should bear interest. (Certainly not).
30. An economy requires two lots of financing — one for production and one for consumption. (N.B. Only one lot of financing is necessary if it is simulfinancing as in binary economics).
31. There is no such thing as society. (Oh please! Why don’t mainstream economists grow up?)
32. Personal debt is healthy for an economy; as also national debt. (This is codswallop…..Because of the need to repay interest, people in debt have less consuming power than those without debt).
33. There is no power imbalance between actors (participants, including individuals) in an economy. (Whoever first thought of this has never lived an ordinary life).
34. Social and economic justice on the one hand and efficiency on the other are incompatible. (Wrong! In binary economics the justice and efficiency are compatible and intertwined).
35. Economic history is irrelevant. (Really? The trouble with mainstream economists is that they never learn anything).
36. Outdated economic theory (Adam Smith, 1776, basically conceived before the industrial revolution had got under way), suffices to guide modern economic theory and practice. (The modern analysis of binary economics is badly needed).
37. The important things in economics are anything except the development and spreading of productive capacity so as to make producers and consumers the same people thereby enabling a Say’s Theorem (Law) balance of supply and demand and also enabling the forwarding of social and economic justice. (This is the biggest lie of all….).
38. Banks should be able to offer mortgages (as distinct from administering national bank mortgages). (The whole subject of housing needs to be reviewed and new policy considered).
39. Economic inequality is desirable; the greater the ratio between top earnings and bottom earnings, the better. (Another lie not least because the rich do not (and cannot) spend all their earnings).
40. ‘Trickle down’ economics works. (It does not! The rich are incapable of spending all their wealth so they accumulate it).
41. Rising house and stock market prices are necessarily a sign of genuinely increased wealth. (That is not so — they usually only reflect newly-created money being put into anything except the spreading of the productive economy).
42. Economic cycles are inevitable. (It is not so).
43. Individual greed is good and institutionalised greed is even better. (This is homo economicus at work).
44. Countries should raise money at interest on the international markets. (No).
45. Countries should not be autonomous; they should be controlled by others. (They should be independent).
46. A country’s assets should be owned by outsiders. (This lie stops a nation’s people owning their own assets and getting the benefits thereof).
47. A country’s money supply should originate in the banking system rather than the national bank. (When it originates in the banking system it is not put to proper purpose and interest is added).
48. Employee shareholdings and involvement do not improve efficiency. (Oh yes they do!)
49. Political democracy does not require economic democracy. (All the talk about ‘democracy’ amounts to a lie unless the economic aspect is considered).
50. Even though today’s banking system money is created out of nothing there is a time value to borrowed money. (If the money is created out of nothing, it has no time value…..)
51. Environmental matters are extraneous and impose extraneous cost. (Good heavens! These madmen (they are usually men) are destroying the world and they don’t care!)
52. Not only ethics but belief in God should be eschewed. (Ethics is certainly essential if we are to hold up our heads as human beings).
53. Economics is essentially a separate subject which does not have to take account of other subjects. (Oh yes it does! And binary economics takes account of physics, ethics, biology, history, psychology and many other subjects).
54. The creation of money out of nothing and the addition of interest does not require even more creation and even more debt. (Oh yes it does!).
55. Population growth is inevitable. (It is not inevitable. Moreover, smaller populations do NOT necessarily have a diminished ability to create wealth.)
56. An understanding of technology is irrelevant to economics. (It is highly relevant).
57. Jobs can be exported. (If they are exported, the spending power of the jobs is removed from the domestic economy).
58. Domestic manufacturing does not matter. (It matters very much).
59. Education and training suffice for economic needs. (They do not suffice — wide capital ownership is also necessary).
The binary landscape
However, Binary Economics becomes easily understood if the fifty nine false assumptions of prevailing economics are one by one, and simply, reversed (v. the orange reversals above).
Quite soon, it becomes apparent that a different picture is emerging and then, long before all the false assumptions have been reversed, it is brightly clear that a totally new landscape — the Binary landscape — has emerged.
Next page: Summary Diagram