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Eight Days A Week

(An Alternative New World Order)

Written by: Geert Callens

Eight Days A Week

Author: Geert Callens

You cant judge a book by looking at the cover (Willy Dixon).


When the moneys all gone Its all or nothing now (Cher).

Abstract

In order to contract a thing, one should surely expand it first.


In order to weaken, one will surely strengthen first.
In order to overthrow, one will surely exalt first.
In order to take, one will surely give first.
This is called subtle wisdom.
Lao Tzu
We will have time to reach the Millennium Development Goals worldwide
and in most, or even all, individual countries but only if we break with
business as usual.
United Nations Secretary-General Kofi A. Annan.
The financial crisis of 2008 that started in the USA and swept over Europe and other
industrialized countries, proves that it is really necessary to break with business as usual.
Economic activity should be aimed at fulfilling the needs of the people. Economic
growth allows for the fulfilling of more needs of more people. In this book, I clearly
demonstrate that profit for private business is a consequence of that economic growth.
Unfortunately, the economy has gone astray: profit a consequence has become a
goal on itself. A human being is only economically important in two ways: as a production
factor, generating added value for the employer; and as consumer, with money to spend. The
rest are considered, in the words of Henry Kissinger, as dispensable eaters.

Eight Days A Week

Author: Geert Callens

The real cause of this misconception is that most people - even economists themselves
- are ignorant about how the economic process really functions, what the social origin and
purpose of profit are. With this book we hope to put an end to this ignorance.
In the period after the Second World War, the focus has been on creating ever more
new needs of the same already affluent people. This has resulted in the ever increasing
vertical gap between the haves and the have-nots, an over-cropping of natural resources,
especially of nonrenewable fossil energy, and even to a new arms race in space induced by
the United States, as Such forces will be needed, US intelligence and the Space Command
agreed, because globalization of the world economy will lead to a widening economic
divide1 and deepening economic stagnation, political stability, and cultural alienation, thus
provoking unrest and violence among the have-nots, much of it directed against the United
States. The space program fell within the framework of the officially announced Clinton
doctrine that the United States is entitled to resort to unilateral use of military power to
insure uninhibited access to key markets, energy supplies, and strategic resources2.
Africa was cut off from international trade once the Suez channel was constructed,
South America once the Panama channel was constructed. The majority of the people in those
countries were thus considered as dispensable eaters, without any right to their own natural
resources. Dictators and a rich, greedy elite in those countries, as well as wars, were very
convenient in order to protect the colonial and postcolonial international order.
Now in 2008 we have come to a point in human history which has been predicted by
great minds, such as Buckminster Fuller in his last book Critical Path. The Roman Empire
disintegrated as it had reached the borders of the, at that time, known world and because it

Wasnt globalization officially supposed to increase material welfare, also for the people in the
Third World? I think some world leaders are speaking with a double tongue.

Eight Days A Week

Author: Geert Callens

failed to establish a new internal social order. This could very well happen to the
industrialized world in these times.
The United Nations Millennium Development Goals are a noble initiative to include
underdeveloped countries as equal partners in the world economy. As I demonstrate in this
book, this is also in the interest of the industrialized world. Achieving the United Nations
Millennium Development Goals would surely induce economic growth, and thus profit for
private business. Unfortunately most industrialized countries are faced with economic,
financial and social problems themselves, and I am afraid that 2015 is way too late.
In most books on economy, war is considered as an external factor, a seizure in the
normal socioeconomic evolution. In this book we will integrate the phenomenon of war in the
economic reality. In doing so, we will get a very sharp image of what is really going on. And
this strategy will allow us to formulate an alternative that, at first glance, might look crazy,
but not crazier than the past 500 years of history.
We will formulate a proposal that breaks with business as usual, and that could very
well lead to a win-win-win-situation for business, governments and private persons alike. It
would furthermore allow meeting the objective to spend 0.7% of the GNP for aid to the Third
World countries, as well as the Kyoto norm. The secret power of this proposal lays in the fact
that it focuses on man as man, and not as mere production factor or consumer.
In the annexes, the topics discussed are related to some important evolutions in other
sciences.

Noam Chomsky, Failed States, p. 10.

Eight Days A Week

Author: Geert Callens

Preface

History will have to record that the greatest tragedy of this period of social
transition was not the strident clamor of the bad people, but the appalling
silence of the good people.
Dr. Martin Luther King, Jr.

We are on the verge of global transformation. All we need is the right major
crisis and the nations will accept the New World Order.
David Rockefeller, Council on Foreign Relations.

Nothing is more difficult to tackle or more dangerous to execute and has less
chance of success than the introduction of a new order.
Niccol Machiavelli, Il Principe.

The American people dont read.


Allen Dulles.
(Allen Dulles was a career spy, a Wall Street lawyer, a CIA director. He was
fired by JFK after the 1961 Bay of Pigs fiasco in Cuba. Dulles was also a
Warren Commission member who took charge of the investigation on the
assassination of JFK.)
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Eight Days A Week

Author: Geert Callens

Problems cannot be solved at the same level of consciousness that created


them.
Albert Einstein.

Dieses Buch wird villleicht nur der verstehen, der die Gedanken, die darin
ausgedrckt sind - oder doch nliche Gedanken - schon selbst einmal gedacht
hat.
(This book will probably only be understood by those who have already
thought themselves the thoughts or at least similar thoughts as the one
expressed in this book.)
Ludwig Wittgenstein3, Tractatus Logico-philisophicus, Vorwort.

In the year 2005 the unemployment in Germany reached a post World War II record: 5
million people without a job. In order to guarantee employment and to counter the
delocalization of production facilities towards countries with lower wages, the trade unions
have accepted to increase the working time back to 40 hours for the same level of wages.
France introduced the 35-hour workweek years ago, when Mitterand was president, but under
Sarcozy the government has plans to increase the working time. There are also intentions for
cuts in spendings on education by increasing the number of students per class to 35. There is a
lot of resistance from the people against these plans. The post World War II baby-boom
generation gets older and people tend to live longer, which puts pressure on the social security
system, expenditures for healthcare and the systems of pensions. People should work longer
in order to increase the level of activity. It is as if time is turned back in the social and
economic world.

Philosopher and linguist, born in Austria from Jewish parents. At grammar school one of his fellow
students was Adolf Hitler. The story goes that Ludwig once boxed Adolfs ear. Imagine he didnt do that.
Then maybe Adolf and Winston Churchill would have been remembered as a painters, and World War I would
still be remembered as the Great War as the Second World War would never have happened.

Eight Days A Week

Author: Geert Callens

In the year 2005, sixty years after the end of World War II, some important historical
facts where remembered and got world-wide coverage in the media. Auschwitz was
liberated 60 years ago. A number of important world leaders, as the American vicepresident Dick Cheney, were at the commemoration service, solemnly declaring that what
happened there should never happen again. More than one million people where killed in that
camp. Most people do not know that the concentration camps were not only extermination
camps, but also suppliers of slave laborers to factories that where controlled by American
companies. I.G. Farben was part of the American Standard Oil company, controlled by the
Rockefellers. It had a plant near Auschwitz. The British and American allied forces knew that
there were concentration camps and what was going on there, but they never did an attempt to
stop the transport of prisoners by, for example, bombing the railways towards these camps, as
they did with civilian targets is Germany. Also the I.G. Farben plant or other American
owned factories of General Motors and Ford were never bombed.
At the end of World War II Dresden was destroyed by British and American bombers.
The fire-bombs that where used were designed to produce as many victims as possible among
the civilians. The military and industrial infrastructure, on the other hand, was left intact. But
most people do not know that the main purpose of this raid was to impress the Soviet soldiers
who were advancing from the east towards Berlin and could see the blaze from a distance of
100 kilometers. Churchill wanted to give the Soviets an idea of the firing power of the
Western Allied forces. Some political and military leaders of the Western Allies had even
figured out a plan that, once Nazi Germany would have surrendered, they would enroll

Eight Days A Week

Author: Geert Callens

German divisions into the Allied forces and then attack the communistic Soviet Union, a
supposed ally in the war against Nazi-Germany4.
A lot of book has been published on the irrationality and incredible madness of war
and genocide. I can suggest you to read the following very interesting books:

Friedrich, Jrg, 2002, Der Brand Deutschland im Bombenkrieg 1940-1945,


Propylen Verlag, Mnchen, Germany.

Pauwels, R. Jacques, 2000, The Myth of the Good War The USA in World War
II, Lorimer, Halifax, Canada.

These books and a lot of documentaries on TV give a detailed description of the


historical facts of World War, but mostly they fail to uncover the real causes: why did all this
happened? What is the historical background of all this suffering and killing?
In this study we will try to find this historical background. The reader is warned: it is
not a nice story, we are all both victims of the situation but also accessory to it, against our
own will.
The real cause is that most people - even economists themselves - are ignorant about
how the economic process really functions. With this study we hope to put an end to this
ignorance and to this madness.
In most books on economy, war is considered as an external factor, a seizure in the
normal socioeconomic evolution. In this book we will integrate the phenomenon of war in the
economic reality. In doing so we will get a very sharp image of what is really going on, and
this strategy will allow us to formulate an alternative that at first glance might look crazy, but
not more crazy than the past 500 years of history.
The alternative consists of three parts

The Myth of the Good War, J.R. Pauwels, pp. 141-151.

Eight Days A Week

Author: Geert Callens

A plan to come to sustainable growth on global level.

A plan for a new division of labor, resulting in a spectacular increase of


employment and in productivity.

A plan for a better collection of taxes, so the taxes on labor and the cost of labor
can decrease, even the taxes on profit for private companies.

All of this could very well lead to a peaceful world, a more stable and inflation free
economy, and more stability on the financial markets.

Eight Days A Week

Author: Geert Callens

Table of content

1
Information
1.1
Matter
1.2
Energy
1.3
Matter and energy together
1.4
Information
1.5
Ratio and information
2
The hidden mechanisms behind the world history
2.1
On the origin of money (Financial archeology)
2.2
Emerging democracy
2.3
International trade
2.4
An intermediate conclusion
3
The hidden mechanisms behind the world-economy
3.1
Some remarks concerning the economy
3.1.1
Crisis, what crisis?
3.1.2
Why economic growth?
3.1.3
Positive balance of trade
3.1.4
Profit
3.2
Automation versus unemployment
3.3
Periodicity of some economic entities
3.3.1
The Evolution of the profit-ratio
3.3.2
Evolution of money-growth and inflation
3.3.3
Evolution of unemployment
3.3.4
Conclusion
3.3.5
Relation between recurrence and paradigm
3.3.6
The economic dogma
3.4
Basic Theory
3.4.1
Satisfaction of needs: Driving force of the economic process
3.4.2
Profit as a consequence of growth
3.4.3
The social purpose of profit
3.4.4
An idealistic view on economy
3.4.5
Positive balance of trade
3.4.6
Conclusion
3.5
Direct consequences of the basic theory
3.5.1
Evolution of the profit-ratio
3.5.2
Distribution of profit as driving force or brake on economic growth
3.5.3
Zero-growth and its consequences
3.6
Explanation of the Economic Reality (and some other realities)
3.6.1
The consumer society
3.6.2
Unemployment
3.6.3
Concentration of wealth
3.6.4
Protectionism
3.6.5
On the origin of wars
3.6.6
To be or not to be, thats the question
3.6.7
Inflation
3.6.8
The North-South relationship
3.6.9
The banking industry
3.6.10
War against terror in order to defend The Sixth Freedom
3.6.11
Summary
4
The alternative
4.1
Boundary conditions

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29
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56
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128
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134
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139
151
172
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195
200
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4.2
Qualitative growth
4.3
The Third World
4.4
The dual active-recreational society: the fourth wave
4.4.1
A complicated problem
4.4.2
A possible solution
4.4.3
The quaternary sector.
4.4.4
The other alternative
4.5
A naughty addendum
5
Epilogue
6
Schematic synopsis
Appendix A Some Notions on Communication Theory
A.1
The process of communication
A.2
Information
A.3
Shannons Law
A.4
Signal-spaces and paradigms
A.5
Effective Communication
A.6
Trade-off between time and energy
A.7
Implications on education and science
A.7.1
Education
A.7.2
Science
A.8
Conditions for effective communication
A.8.1
Unambiguous Coding
A.8.2
Time and energy
A.8.3
Signal-space
A.9
A thought to brood on
Appendix B Economy, Science and Morality
B.1
The evolution towards the present paradigm
B.2
Towards a new economic paradigm
B.2.1
Critics on the mechanistic world view
B.2.2
A new world view is emerging
B.2.3
Transitional problems
B.3
Moral considerations
Appendix C Economy and dissipative structures
C.1
Energy and entropy
C.2
Dissipative structures
C.2.1
The origination of dissipative structures
C.2.2
The evolution of dissipative structures.
C.2.3
The relation between the micro and the macro level
C.2.4
Symbiosis
C.3
Socioeconomic systems
C.4
Dissipative structures, communication and creativity
C.4.1
Extension of Shannon's communication-model
C.4.2
Scientific evolution
C.4.3
Evolution of the brains
Appendix D Imagine
D.1
Justification of the methodology
D.2
A model for describing social evolution
D.2.1
Some introductory remarks
D.2.2
Model of social evolution
D.2.3
Illustration
D.2.4
Possible transitions and visions of the future
D.3
The other alternative.
D.4
Some metaphysical considerations
Appendix E Economy and Control System Theory
E.1
An Economic Flatland
E.2
A multidimensional view on economy

Author: Geert Callens

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Author: Geert Callens

Information

A writer tries to convey a message to the reader by means of his text: he wants to
communicate, to transfer information. This book does not break with this tradition. As it will
probably be read by people with different backgrounds and education, I will start with a short
discussion on the concept of information by positioning it in a larger framework of
socioeconomic domains and this over a period of several centuries:

Science

Economy, the means of production and the question who is rich?

The phenomenon of war, the why of war and the means of warfare

I hope this can enthrall the reader and stimulate him to do some further thinking on his own.
1.1

Matter
Many scientists consider the conservation laws as the most fundamental laws of

physics. In the 18th century the French chemist Antoine Lavoisier was the first to formulate
such a law, the law of conservation of matter or mass, which stated that, in a chemical
reaction, the total amount of matter of the reaction compounds remains constant. This law was
expressed in a more general form as follows: the total amount of matter in a closed system
remains constant. If you burn a candle, it will get shorter and disappear, but the molecules of
which it is made do not annihilate: they will settle down as dust and smut particles in the
room and on your clothes.
Linking this law of conservation of mass to the historical evolution of the economic
system, we can say that in agricultural societies matter, more specific land, was the most

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important production factor. The first kind of people that where very, very rich were those
who possessed matter in the form of land (aristocracy, owners of plantations in the colonies
oversea....) or were engaged in the processing of matter (merchants, mining companies).
Wars and battles were almost always related to the possession of land, because of
what was growing on the land or what was underneath the surface of the land, and to get
control of the people living on that land as labor-force, very often forced to labor. Just think
of the many wars on the European continent and the period of colonization of territories on
other continents.
These wars were fought with material means: clubs, swords, spears, bows and arrows,
battleships powered by galley-slaves, later came energy powered means of warfare like firing
weapons, canons, sailing ships. And this evolution to energy driven means of war brings us
back to science.
1.2

Energy
In science, the law of conservation of energy was a next milestone. By the beginning

of the 19th century, scientists had realized that energy occurs in the different forms of kinetic
energy, potential energy, and thermal energy (heat), and that it can be converted from one
form to another. As a consequence of this insight the law of conservation of energy was
formulated by the German scientists Hermann von Helmholtz and Julius Robert von Mayer,
and the British physicist James Prescott Joule. This law, which states that the sum of kinetic
energy, potential energy, and thermal energy in a closed system remains constant, is now
generally known as the first law of thermodynamics.
During the Industrial Revolution energy began to play an important role as means of
production. So there came a time that the very, very rich people were those who had control
over the energy resources (Rockefeller, Arab Sheiks...) and the processing of energy.
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And wars were fought in order to secure this control over the energy resources. The
weapons used in these ware became more and more energy driven: more powerful bombs,
canons with a larger range, ships with steam engines or diesel engines, air-planes
1.3

Matter and energy together


Later Albert Einstein formulated his famous equation E = Mc, where E stands for the

amount of energy (expressed in kilogram*meter/second), M for the amount of mass (in


kilogram) and c the speed of light (in meter/second). The speed of light is seemingly one of
the basic constants in Nature. This simple equation states the transformability from matter to
energy, and according to recent experiments in a physics laboratory, also vice versa. So the
two laws were combined in the law of conservation of matter and energy together.
It is important to note that even in ancient times this relation between matter and
energy was vital:

In the time of the very, very rich landlords energy was also needed in order to
produce the material affluence: solar energy is needed to grow crops, physical
labor is needed to prepare the land, to make irrigation canals, to harvest the fruits
of nature. Next to water, solar energy was the most important ingredient for plants
to grow. Energy was needed to process and transform the matter.

Similarly, in order to produce, store and distribute energy, matter is essential.


Windmills transformed the kinetic energy of the wind to useful rotation.
Manpower and wind energy were used to transport the goods.

Even in our modern times there is a mutual dependency of matter and energy: you
need drilling equipment and pumps to go after the oil, you need oil barrels and
pipe-lines to transport the oil, generators to produce electricity, batteries to store it,
copper wires to transport it...
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So clearly, also in an economic perspective, energy and matter are interrelated. The
one cannot be processed without the use of the other.
We stress the fact that it took aristocracy ages of warfare in order to get to their level
of extreme wealth. But those who have built their empire on energy succeeded in their
endeavor in a period of little more than a century, a century marked by a number of world
conflicts in order to get control over the supplies of fossil energy on this earth.
1.4

Information
Now at the beginning of the 21st century one of the richest man on Earth is neither a

landlord nor an oil-baron. Bill Gates has built his fortune in a period of a few decades and he
did this in the business of information processing. So we could consider information, or
knowledge, as a third essential means of production, next to matter and energy.
In this respect it is important to stress the fact that information or knowledge was also
very important in the earlier matter or energy based societies.

People needed the necessary knowledge and skills for an efficient agriculture, to
exploit ore and to process it to metals. They had to have the experience of
transforming natures energy resource like wind and water and later the fossil fuels
into useful energy.

In our present computer controlled society information needs matter and energy:
one need material objects in order to store information, to process it, to visualize it
and to broadcast or transmit it: books, CDs, PCs, displays, communication
networks. And in order to transmit or process information, energy is needed.

Even in the field of warfare information has become an important asset, if not the most
important one.

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First of all the public at home has to be brainwashed in a gigantic media campaign
so they unconditionally accept the war for the general good and the national
security, whatever that might be. The pressing of a certain worldview upon the
people is based on information that is made ready to digest, but very often it seems
that, when the war is over, this information has no relation with truth whatsoever:
it is rather des-information in order to deceive the own population of the real
reasons of the war. Think about the weapons of mass destruction in Iraq5.

The smart weapons and the cyber-soldiers rely more and more on information
and communication technology. It is no longer a matter of numerical supremacy in
soldiers, tanks and ammunition, but to be able to make the right decisions on the
right moment in order to make an efficient (first) strike.

In scientific and economic perspective, information seems to be the third essential


factor, next to matter and energy. But especially in the field of economics information is
something very special when you compare it with the other two. When I sell you a material
good, you give me some money in exchange for it. After the economic transaction you have
the material good and I have the money. And then I have to go to work in order to produce
more of that material good in order to sell more of it. When you fill your car with gasoline,
the oil company gets some dollars in exchange, but then that company has to replenish their
supply by drilling for more oil, refine it and transport it. In both cases there is an economic
exchange of matter or energy for money, and the matter and energy clearly switch owner.
You are the owner or I am the owner, but not both of us.
When I sell you a certain quantity of information at a certain price, then after the
transaction you own the information, and I have some more money, but I still have the

Noam Chomsky, Failed States, pp.24-27.

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same amount of information as before the transaction: you own it, but I still own it too. I can
sell that information to a third person, a fourth, etc I did not loose the information, I can
keep going on selling it. In this respect one can say that information is a very special form of
commodity: it can be sold without the need for replenishment. And even when you ask a
relatively modest price for it, you can become a very, very wealthy person like Bill Gates
with his system software and office products for PCs, but also like Umberto Eco or Dan
Brown with the books they are writing, reaching millions of readers.
On the next page you find a schematic overview of this discussion. Based on this
overview one could suspect that information is a third essential means of production, next to
matter and energy. So one could ask the question if there exist a law of conservation of
information or knowledge. You might try to burn all books on mathematics and science, but
after a period of time the laws of Nature will be rediscovered anyhow.

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Eight Days A Week

Time

Author: Geert Callens

Science

Economy

War

Laws of conservation

Means of production

Who is rich?

Why

Means of

Matter

Land

Aristocracy,

Territory

Clubs fire-weapons

Oil sheiks

Control over energy

Energy-powered weapons

Rockefeller

resources

Bill Gates

Force of a worldview

Satellites, smart weapons,

upon the people

cyber-soldiers

landlords
E=mc

???

Energy

???

Energy sources

Information
(Knowledge)

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Eight Days A Week

1.5

Author: Geert Callens

Ratio and information


Any information processing system, be it automated or not, uses a certain logic on a

set of data in order to come to a conclusion. Also human beings do this.


The logic that is used can be correct or wrong. Obviously, using the wrong logic will
not result in a correct conclusion. Human beings claim to be rational, especially in the
academic world, and it is rather easy to find the faults in a line of reasoning. But on the other
hand we never seem to agree on main topics in economy even in the academic world and
politics: everybody claims to be sincere and to tell the correct things. Maybe there is more
than one ratio?
But ratio is only one part of the picture. Data are as important and unfortunately
more difficult to control, as it is not just a question of being correct or wrong. This is rather
easy to verify by controlling the facts. Next to correctness, data have another aspect: are the
data complete or not? And is all the information we use in our logic relevant? In other words,
is there redundant information in our data set that might confuse us?
In the following table we show what the result is of a perfectly correct logic on a set
of data:
Data are

Correct

Incomplete

Complete

Redundant

Wrong conclusion

Correct conclusion

Not necessarily the


correct conclusion

Incorrect

Wrong conclusion

Wrong conclusion

Not necessarily the


correct conclusion

We will only come to the correct conclusion when we use the correct logic on correct
and complete and not redundant data. That is why in court, the witness has to tell the truth,
the whole truth and nothing but the truth.
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Written communication is, just as verbal communication, a sequential process: one


cannot transfer the meaning of the message at once - as it is with visual communication - but
one has to do it word by word. One has to use a certain sequence in the things one says or
writes. This sequence is of great importance, as it can facilitate or thwart the transfer of the
message, depending on how the receiver assimilates the first ideas transferred.
Good communication is not self-evident, but rather a rarity. In Appendix A we pay
attention to some basic notions on information theory and the process of communication. In a
nutshell we'll give a description of this process of communication, the conditions that must be
fulfilled in order to achieve effective transfer of information, and what can happen if these
conditions are not fulfilled. These topics have nothing to do with the real subject of this book,
but we advise the reader to pay them some attention, as we will use them quite frequently in
the course of the story.
In that appendix we describe the concept of signal-space: the paradigm or the frame of
reference that determines the way a person perceives the world, what he accepts for real and
why he sometimes is unable to grasp certain aspects of truth, as they fall outside his signalspace.

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The hidden mechanisms behind the world history

In order to understand the present times, one should study the past.
In order to understand the past, one should study the present times.
And Jesus went into the temple of God, and cast out all them that sold and
bought in the temple, and overthrew the tables of the moneychangers, and
the seats of them that sold doves,
And said unto them, It is written, My house shall be called the house of
prayer; but ye have made it a den of thieves.
St. Matthew 21-12,13.

In this chapter we will go into some more detail on the history from 1500 AD onward,
and we will try to reveal some important recurring mechanisms in human history.
2.1

On the origin of money (Financial archeology)


During the Middle Ages gold and silver coins where used as means of exchange in the

economic system. The very rich people did not keep their money at home, but with a
goldsmith. For the rent of space in a safe they paid a fee to the goldsmith. In return they
received a certificate on their name, which they could use as proof of their credit-worthiness
in an economic transaction. They also had to pay for every deposit or withdrawal they made
on their account.
But in order to complete the economic transaction, the gold and silver had still to be
physically transported from the goldsmith of the buyer to the goldsmith of the seller. And
then there where people like Robin Hood, who robbed the money transports.
The goldsmiths got the idea to issue certificates on bearer. This dramatically reduced
the physical transport of gold and silver, as the people started to use those certificates instead

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of the real money as means of payment. They did this in the knowledge that they could
always exchange the certificate for real money - gold and silver - with the goldsmith who had
issued the certificate.
The goldsmiths noticed that the people did not bother to collect the gold and silver
anymore, and that their income on deposits and withdrawals had declined dramatically. So
they got the idea to issue more certificates than they had coverage in precious metals. They
could not use these extra certificates themselves, this would be a too obvious fraud. And there
were always people who collected part of their real money in deposit. No, the goldsmiths
printed 5 times more certificates than they had coverage, and lent these at a certain interest to
people in need of money. So they earned money on something they did not own. One can
raise questions on the morality of this practice, but the system seemed to have a positive
effect on the economy, as it induced economic growth. This mechanism is probably one of the
triggers for the Industrial Revolution, next to the following topic.
2.2

Emerging democracy
In those days the aristocracy was the power-structure in society. The king or the local

aristocracy autonomously decided on the level of taxes the people had to pay. Very often they
used the technique of re-minting: gold and silver coins collected as taxes were melted, a less
precious metal was added and new coins were stamped. So they could spend more money
than they had collected as taxes. Inflation was created. They did this in order to increase their
budgetary capacity, e.g. in order to finance a war against another king, the payment of the
administrative, juridical and military apparatus needed in order to guarantee that the
population paid the taxes to the aristocracy.
In England something happened which could very well have reshaped the course of
history in a dramatic way. The people revolted against King Charles I, who was decapitated
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(1642), and they installed a republic with an elected parliament. During this republican period
under Cromwell there was a real tyranny, very much similar to the period of Robespierre in
France after the Revolution. People were induced to spy on each other, and a lot of innocent
people were executed. After some time the people of England decided to return to the
monarchy, but under the condition that the new king would accept the Bill of Rights. This Bill
stipulated that the power of the king should be subordinate to the authority of the Parliament,
chosen by and representing the people well, part of the people as only the well-off citizens
could vote.
This king William started - as was the tradition - a new war with France. But the war
was dragging along and cost a lot of money. At a certain moment William was short of
money, so he asked Parliament for a tax increase. The people grumbled and were more than
sick of the never-ending war, so the elected members of Parliament were only willing to vote
a tax-increase of three million pounds. The king was still in need of two million pound more.
He tried to borrow the remaining sum, but could only raise half of the amount, forcing the
interest rates to very high levels.
So King William was faced with a big problem. In 1691 a certain William Paterson
got the brilliant idea to start with a central bank in order to manage the monetary affairs of the
king. A starting capital of 72,000 pounds in gold and silver was collected, and then the bank
printed 162/3 times more paper certificates than they had coverage, for an amount of
1,200,000 pound. That money was lent to the king at an interest of 81/3 %. The yearly interest
was thus greater than the originally invested capital!
The king could continue his war with France by spending the lent money to warships,
ammunition, horses, paying the soldiers, food for the horses and the soldiers... But against this
sudden influx of money in the economic system, there was no similar increase of economic

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production, and according to the law of supply and demand prices started to soar up, so also
the cost of living. There was a hyperinflation.
The population recognized that they could buy less with that paper-money. They lost
their confidence in those certificates. So they went to the goldsmiths - who in the mean time
had become bankers - in order to exchange the certificates for real gold and silver. The ones
who came first were lucky, and then there was no more gold and silver in the safes of the
bankers, so the banks went bankrupt. The first Bank of England also crashed.
You see, hardworking people who produced real economic value, who provided jobs
to others, who paid taxes and then also tried to save some money for their old age, well these
people were taken in. Just as in 1929 and 2008. What is the difference between a hedge fund,
that loans money in order to speculate on the stock market, and a bank that issues more loans
than it has deposits?
Morality of the story so far: when people can decide in a rational way to go to war or
not, and when they are directly confronted a priori with the real cost of a war, then people are
more peace-likely. But since those times, wars have always been indirectly financed by the
creation of paper money out of nothing, and lending this money to those in authority. The
creators of the money earned a lot, so those in authority, who supported this mechanism,
could also have some part of it in order to finance their (re-)election campaign. The common
people where confronted with inflation, their savings were eroded. They paid for the war in an
indirect way during the war and long after the war was over.
In England and the USA, the Bank of England6 and the Federal Reserve are private
banks, with a private shareholder structure. In other countries, fortunately, the central bank is

The Bank of England was nationalized in 1946, but since then dividends were still paid to private
shareholders. The nationalization could go along as in 1944 the International Monetary Fund and the Bank for

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under political and social control, and the creation of money follows more or less the real
economic evolution.
Only two presidents of the USA have ever tried to stop this mechanism of creating
money out of nothing, by pulling the authority of issuing money to the government, away
from the private central bank, as is even stipulated in the 16th amendment of The American
Constitution: Abraham Lincoln and J.F. Kennedy. You know what happened to both of them.
Under the British mercantile system, colonies were supposed to supply raw materials
like cotton, which were then processed in the English mills into fabrics, which where then
exported, so the British Isles could pay for the import of their food and other necessities.
Control over cotton in those days was considered just as crucial as control over oil in these
days7.
One of the first things President Lincoln did after he came to office, was to close the
USA borders from free trade in order to stimulate the domestic industrial production8. In that
time money was issued by private banks. Lincoln decided that money should be issued by the
government: the famous greenback notes. The two measures resulted in his death, he was shot
by John Wilkins Booth. What was the motive for this murder and who was behind Booth? On
the website http://home.att.net/~rjnorton/Lincoln74.html six theories are formulated, and it is
very well possible that the truth is a combination of two or more of these theories.
The fourth theory is rather interesting:

International Settlements were established during the conference of Bretton Woods: the mechanism of creation
money out of nothing was lifted to a global level.
On the website http://www.prosperityuk.com/prosperity/articles/kerby.html you find the story of a bill
proposed by captain Henry Kerby in the British House of Commons on December 22nd 1964 in order to
withdraw the power to issue money from the Bank of England and to bring this under the authority of the
government.
7
Noam Cholsky, Failed States, P. 93.
8
Mahatma Ghandi did the same in India by introducing the spinning wheel in every household and
starting local salt production from sea water. He was shot too.

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Lincoln's assassination was the result of a conspiracy of powerful international


bankers.
This theory is that Abraham Lincoln was killed as a result of his monetary
policies. John Wilkes Booth would be seen as a hired gun. In its simplest
terms, the theory is that Lincoln needed money to finance the Civil War. He
was offered loans at high interest rates by bankers in Europe led by the
Rothschilds. Rather than accept the loans, Lincoln found other means to fund
the war effort.
More importantly, the British bankers opposed Lincoln's protectionist policies.
Some Englishmen in the 1860s believed that British free trade, industrial
monopoly and human slavery travel together.
Lincoln's policies after the Civil War would have destroyed the Rothschilds'
commodity speculations. After the war, Lincoln planned a mild Reconstruction
policy which would have enabled a resumption of agriculture production. The
Rothschilds were betting the other way on high prices caused by a tough
Reconstruction policy toward the South.
Lincoln was viewed as a threat to the established order of things, and he was
assassinated as a result. The goal was to weaken the United States so the
Rothschilds could take over its economy. An article titled The Rothschilds'
International Plot to Kill Lincoln was published October 29, 1976, in New
Solidarity.

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President J.F. Kennedy was reluctant to send more ground troops to Vietnam. He also
took the decision that the government should issue the money, backed by the value of silver9.
He was shot too by, well yes, by whom? According to the Rolling Stones in their song
Sympathy for the Devil: After all who shot the Kennedys, it was you and me. Actually the
system you and me have been born in, living in, the system that we endure.
On the website http://www.john-f-kennedy.net/thefederalreserve.htm you can find an
article written by Anthony Wayne on this matter. Here are some highlights.
On June 4, 1963, a virtually unknown Presidential decree, Executive Order
11110, was signed with the authority to basically strip the Federal Reserve
Bank of its power to loan money to the United States Federal Government at
interest. With the stroke of a pen, President Kennedy declared that the
privately owned Federal Reserve Bank would soon be out of business. The
Christian Law Fellowship has exhaustively researched this matter through the
Federal Register and Library of Congress. We can now safely conclude that
this Executive Order has never been repealed, amended, or superceded by any
subsequent Executive Order. In simple terms, it is still valid. United States
Notes were issued as an interest-free and debt-free currency backed by silver
reserves in the U.S. Treasury.
Source:
http://usrarecurrency.com/1963$5UnitedStatesLegalTenderNoteSnA51298086
A.htm

http://www.john-f-kennedy.net/thefederalreserve.htm

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1963 $5 United States Legal Tender Note FR-1536 (front and back)

President Kennedy was assassinated on November 22 1963, and the United States
Notes he had issued were immediately taken out of circulation. Federal Reserve Notes
continued to serve as the legal currency of the nation. According to the United States Secret
Service, 99% of all U.S. paper currency circulating in 1999 are Federal Reserve Notes.

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2.3

Author: Geert Callens

International trade
The power structure of a country can force its own people to accept the paper money it

has issued as legal tender, but in the international trade a piece of paper - even with the head
of a king or a president on it - is of no value at all, it is just a piece of paper.

Cover of a book describing the history of the East India Company.


Take notice of the flag!

The English East India Company was one of the first multinationals on Earth. In the
beginning, they traded with other countries and continents by installing trade-posts along the
sailing routes to India and the Far-East. They did not have enough gold and silver as working

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capital to finance their trade, so barter was used, or a certain commodity was used as
intermediate medium of exchange. Shortly we will return on this.
The original purpose of the trade-posts was to be able to take fresh supplies of water,
food and slaves during the long journey to India. Also the trading posts had to be supplied
with goods for local trade. The space that became available on the vessels was loaded with
locally produced goods and slaves. With the voluntary, bribed or forced co-operation of the
local chefs (warlords), plantations were created to produce locally. The estates functioned
based on slave-labor and the suppression of the local population or the nearby tribes. A nice
example of what the real and ultimate intentions of the EIC were, is the island St Helena in
the Atlantic Ocean, where later Napoleon was sent in exile. On that island, in the 1670s, the
total population was forced to work as feudal serfs in the plantations of the EIC, or they were
added as cheap recruits to the EICs private garrisons10.
Thomas Malthus worked in London for the central intelligence agency of the East
India Company. He kept some figures on the world-wide activities of the company. At that
time one knew already that the Earth was not a flat plane and thus not infinitely large, but a
globe with a finite surface. He found out that while the economic production increased over
the years with an arithmetical progression (1 2 3 4...), the population increased with a
geometrical progression (1 2 4 8...). Together with the evolution theory of Darwin this
resulted in the notion of the survival of the fittest: there will never be enough material wealth
for everyone. So there will always be haves and have-nots. And according to the
Protestant moral of that time this was Gods will, and the have-nots had only themselves to
blame for their unfortunate situation, the haves were the lucky chosen ones. Fact is to get
complete control over the natural resources on Earth before someone else does. In On Power

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and Ideology Noam Chomsky describes this as The Fifth Freedom11: the freedom that some
countries grant themselves to get complete control over the natural resources of minerals and
energy supplies of other countries, even with the use of force and coercion. In this book we
will even formulate a Sixth Freedom: the freedom that some interest groups grant
themselves to create money out of nothing in an illegal way in order to finance the Fifth
Freedom.
The local population was thus isolated from their own natural resources, and in some
places even massacred, as they did not want to co-operate with the system. Rebellion was
often the result, so the East India Company had to impose their law and order by private
militias, paid by the Company itself. And the cost of this private militias started to get so high
because of the local rebellion, that it started to erode the profits of the Company. During the
first half of the 19th century, the privately-owned East India Company had full control over
India. In 1850 the colony was transferred to the Crown: the East India Company decided to
give all the land they controlled as colonies to the state - the community, the people.
However, with the tacit assumption that the burdens were for the community, while the
profits were still for the Company.
Young men were called in the army - paid by the community - that send them to the
colonies in order to do some peace-keeping and fight the local rebels. The Belgian king
Leopold II did a similar thing with Congo, which first was his private province. Only after it
became a Belgian colony, missionaries were sent. Before that it was not necessary, or they
were not welcome as Nosy Parkers.

10

John Keay, The Honourable company, p. 179


The American Constitution was designed in order to protect the people of the new world against its
own leaders, who might turn into despots as the monarchs of the old world. So four important freedoms were
explicitly stipulated in the Constitution: freedom of speech, freedom of religion, freedom from want, freedom
from fear.
11

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But the East India Company kept one colony for itself, as it seemed feasible to
eliminate the original local population completely: the United States of America. Two small
anecdotes:

The American brothers Elihu and Thomas Yale had made their personal fortune as
members of the East India Company. Elihu donated a large amount of money to
his old school, then known as His Majestys College of Connecticut. In 1718 the
grateful trustees renamed it Yale College in his honor. Later it became Yale
University.

The American flag is made with the flag of the East India Company in mind. The
flag had thirteen stripes, and the Union Jack was replaced with thirteen stars, the
initial number of states in the confederation.

Buckminster Fuller wrote the following interesting lines on this important event in
American history:
George Washington took command of the US. Continental Army under an elm
tree in Cambridge, Massachusetts. The flag used for that occasion was the East
India Company's flag, which by pure coincidence had the thirteen red and
white stripes. Though it was only coincidence, most of those present thought
the thirteen red and white stripes did represent the thirteen American colonies ergo, was very appropriate - but they complained about the included British
flag's superimposed crosses in the blue rectangle in the top corner. George
Washington conferred with Betsy Ross, after which came the thirteen white,
five pointed stars in the blue field with the thirteen red and white horizontal
stripes. While the British government lost the 1776 war, the East India
Company's owners who constituted the invisible power structure behind the
British government not only did not lose but moved right into the new U.S.A.
economy along with the latter's most powerful landowners.
By pure chance I happened to uncover this popular unknown episode of
American history. Commissioned in 1970 by the Indian government to design
new airports in Bombay, New Delhi and Madras, I was visiting the grand
palace of the British fortress in Madras, where the English first established
themselves in India in 1600. There I saw a picture of Queen Elizabeth I and the
flag of the East India Company of 1600 AD with its thirteen red and white
horizontal stripes and its superimposed crosses in the upper corner. What
astonished me was that this flag (which seemed to be the American Flag) was
apparently being used in 1600 AD, 175 years before the American Revolution.
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Displayed on the stairway landing wall together with the portrait of Queen
Elizabeth I painted on canvas, the flag was painted on the wall itself, as was
the seal of the East India Company12
The East India Company, whose flag I have shown to be the origin of ours (the
US flag) was a private enterprise chartered by the British. Quite clearly the
East India Company didn't lose the American Revolution. The British
government lost the Revolution, and the East India Company swiftly moved
large amounts of its capital into US America.
B. Fuller, Critical Path, pp. 78, xxii-xxiii

Flag of the East India Company

First flag of the USA, sewn by Elizabeth


Griscom Ross in 1776for
George Washington

The big Anglo-Saxon family fortunes in the USA were made in the China-trade. In
this trade opium was used as intermediate medium of exchange in order to buy tea and chinaware (porcelain). The fast American clippers sailed first to the countries where poppy was
cultivated like Turkey and India to collect the raw product or the processed opium, then sailed
to China where the opium was discharged and tea and china-ware were loaded, so they could
sail back to the USA with some more respectable goods. Also cheap Chinese labor-forces
were transported, as long as they were willing to pay in order to get to the land of promise.
They were used as cheap labor force during the construction of the railways. Apparently,
trade in human beings, looking for a better way of living, is of all times.

12

As if they were more permanent than the Queen. Popes, queens and kings, presidents and politicians
come and go, but the company remains the same.

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The flow of opium into China started to irritate the Emperor of China, who saw his
people slip away, so he put a ban on the import of opium. According to the original American
Constitution, the USA had a militia system, only aimed at self-defense. There was no standing
army and no Navy for an offensive overseas war. So the Anglo-Saxon lite of the USA then
persuaded their friends in England to start a war against China. British gunboats were sent to
Shanghai in order to persuade the Chinese to change their mind. The regular army of a
country was used in order to restore the trade in narcotics! The free opium trade was even
ratified by the treaty of Nanjing (1842).
Japan is another fascinating example. Just as China and the Islamic world, it
was one of the most isolated societies in the world. Between 1639 and 1854
only one western ship per year was allowed to enter a Japanese harbor. Then
followed the famous episode of commander M.C. Perry, who in 1854 from the
bridge of his cruiser forced Japan to open its harbors for western ships. The
period after this event resembles the transition the countries of Eastern Europe
had to go through after the fall of the Berlin Wall. Between 1859 and 1865 the
prices in Japan rose with a factor 613! The political system was undermined, the
shogun lost his authority, and the emperor took the political power in his own
hand. The decision to modernize the country was taken overnight. This shocktherapy was later called the Meiji-revolution of 1868.
Daniel Cohen, Globalization and its adversaries, p. 107.

At the onset of the 20th century Russia, was to be the new province of the
international free-traders. At that time Russia was one of the major countries in the world
without a central bank14. But the Czar of Russia very well knew what happened in China, so
he said Njet. He refused to open his borders for the so-called free international trade and
to install a private national bank.

13

Most likely due to the introduction of paper money.


The Great War (WW I) was going on, and in order to finance its war expenditures Germany
borrowed money from the German Rothschild bank, the British borrowed money from the English Rothschild
bank, and the French borrowed money from the French Rothschild bank. The Federal Reserve Bank was
established in the USA in 1913. Two lobbyists in this endeavour were the Englishman J.P. Morgan, banker but
also sales agent for the weapon industry, and Paul Warburg, both working on behalf of the Rothschilds.
14

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Two American bankers George Herbert Walker and Averell Harriman got the idea to
put some money in the hands of a fellow named Lenin in order to back his Bolshevist
revolution. William B. Thompson, director of the Federal Reserve Bank, traveled in
December 1917 to Russia to donate a check of 1 million dollars to the Bolshevistic party!
This money was used by the Bolshevists to buy American Remington weapons. And
apparently the idea seemed to work. The Czar and his family were murdered. The Russian
people were promised that, if they worked very hard, Russia would evolve to a heaven on
earth for the laborers and the farmers. Maybe they would not see the paradise themselves, but
their children certainly would, or maybe their grandchildren.
In reality the totalitarian communist regime, with one party who controlled the
political system, the economy as well as the labor-unions - striking was not allowed -,
terrorized its own population, millions of non-adapted persons and intellectuals were killed.
Private property was not allowed. There was no freedom of speech, the media were
centralized and controlled by the communist party. The people were brainwashed. Dissident
opinions or criticism on the system were not allowed. During the period in between the First
and Second World War, American engineers helped the Soviets in order to build up their
heavy industry production infrastructure, without giving much consideration to human dignity
and ecology. Just read George Orwells Animal Farm.
But for those who financed the project the return was substantial, and the system
seemed to work: let the people work hard for little money and promise them that, if they kept
on doing this, they would once have heaven on earth. So they looked for another country
where they could introduce that very same system in another camouflage. After the First
World War Germany was at its last gasp due to the heavy payments it had to make to the
allied forces who won the war. A certain Prescott Bush - son in law of the already mentioned

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George Herbert Walker, and grandfather of the present president Bush - together with some
Anglo-American bankers, organized financial support to a small political movement headed
by a fellow named Adolf Hitler15.
By the early part of the 20th century, control of the Bank of England had
passed to Montagu Norman, a somewhat secretive man of right wing
sympathies. Norman was an early supporter of the Nazi movement and soon
moved to finance Hitler's rearmament. Eric Butler tells us:
Le Canard Enchain for August 1939 published the following interesting
item: In 1933 there appeared in Holland a book, written by a certain
Sidney Warburg, which quickly disappeared from booksellers windows. In
it the author stated that in the preceding year, 1932, he had attended
meetings in the United States of financial gentlemen who were seeking
means of subsidizing Hitler. It appears that among those present were Sir
Henry Deterding, representatives of Morgan's bank, Mr. Montagu Norman
(governor of the Bank of England), and representatives of the Mendelsohn
Bank.
Mr. Montagu was openly in favor of supporting the new Hitler movement
by 1931. By 1935 the Bank was openly pro-Nazi, as revealed even in the
Financial News of May 15 of that year.
In Our Crowd, Stephen Birmingham tell us that Sidney Warburg was a
pseudonym for Max Warburg, a prominent German banker and a close
friend of Hjalmar Schacht (the head of the German central bank under
Hitler).
Howard Katz, The Warmongers, pp. 77-81.

But we have very good news on this matter: the book has been recovered, and the
financial support was indeed given to Hitler:

15

See also http://www.guardian.co.uk/world/2004/sep/25/usa.secondworldwar

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Hitler US-Support?
The publishing company Drmer Knaur from Mnchen in Germany
announced that they found a book written by the American banker Sidney
Warburg, where he states that American bankers have donated millions of US$
to Adolf Hitler as a support for the organization of his Nazi-party. Warburg,
who was co-owner of the bank Kuhn Loeb en Co. from New York, describes
the three meetings he had with Hitler on behalf of American bankers, the Bank
of England and oil-companies in order to discuss the ways in which Hitlers
political movement could be financed.
Warburg declared that Hitler received via Kuhn Loeb 10 million dollar in
1929, another 15 million dollar in 1931 and 7 million dollar when he managed
to seize the power in 1933. The book was published in Holland in 1933, just
before Warburg died, but it disappeared during the war after the translator and
the editor were killed.
tthh

De Standaard, September 25th 1982.

And yes, it seemed to work again. Again a country with a one-party system and people
who worked hard for very little. If they did not want to collaborate, they were interned in a
labor camp or even in an extermination camp. Hadnt Malthus said there would not be enough
for everyone? American companies made use of the slave-labor that that the prisoners had
to do. They paid a fee to the Nazi-party, who in exchange guaranteed maximum surveillance
and minimum nutrition for the laborers. But the biggest part of the income was used by the
Nazis for the further development of their own power-structure and weapon industry. In
England, America and other countries many of the economic and financial upper-class
admired the economic miracle that was going on in Germany. What they did not wanted to
see was the following:

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Map of extermination camps and labor-camps in Nazi-Germany and occupied


territories.

At a certain moment Hitler - who was only chosen as a front-man as long as he was
useful for the Anglo-Saxon captains of finance - realized that the system worked, and he
decided to go for it on his own and for the glory of Germany. After the invasion of Poland, he
treacherously attacked Russia in order to find lebensraum for the Germans eastward.
In the early stages of the war, Harry Trumans16 view was simple: If we see
that Germany is winning we ought to help Russia and if Russia is winning we
ought to help Germany and that way let them kill an many people as possible,
what political scientist Timothy Crawford calls a pivotal strategy [to] prolong
war.
Noam Chomsky, Failed States, p. 122.

16

A dedicated Malthusianist.

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But Hitler also ordained that the companies could export their financial profits only in
small amounts to the home-country - for most of the companies this was the USA and
England. He also arranged a deal with Stalin in order to feel safe on his eastern border. Both
very well knew the ins and outs of the matte.
So Hitler became persona non grata for the Anglo-Saxon captains of industry and
finance, he had to be removed. There was a media campaign of gigantic proportions in
America in order to change the public sentiment from pro-Germany to anti-Germany and
from anti-war to pro-war. After the Japanese attack on Pearl Harbor - the highest political and
military leaders of the USA very well knew in advance when and were the attack would take
place17 - the American soldiers once more went to a war for freedom and democracy.

Averell Harriman as VS-ambassador in Moscow (1943-46) with Stalin, Unle Joe.

It is a remarkable coincidence that Averell Harriman, George Herbert Walker and


granddad Prescott Bush all graduated from Yale University, and that they were members of

17

This will be discussed in more detail later in this book.

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Eight Days A Week

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an obscure secret society, Skull and Bones18, just as dad George Bush Sr. and son George
Bush Jr., and many other known persons in the American political and financial upper-class.
In 1903, the Yale Divinity School started a program of schools and hospitals in
Shanghai, and you may guess just once who used to work there as a young fellow. Indeed,
Mao Zedong was among the staff. Indeed, the very same Mao Zedong, who with his
cultural revolution wanted to transform China into a paradise for laborers and farmers
according to the well-tried recipe of a one-party system, heavy industrialization, the
elimination of the intelligentsia, a genocide on his own population, and to the total neglect of
ecology and human dignity.

18

In the film The Good Shepherd you can see how the CIA was formed out of this secret "club" of

students.

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Picture of Nixon and Prescott Bush himself. The facial expressions and
body language speak for themselves. I wonder

when this picture was made: after some initiation rite? The hat seems to be crucial,
even the color seems to matter. Nixon lost the presidential elections from
Kennedy.

where this picture was made: who are those two other fellows and all those fellows
on the wall?

President Nixon got Mao out of his isolation and George Bush Sr. was appointed the
first ambassador in China. On the subject of Nixon I only want to say one thing. After the
soap-bubble burst on Wall Street in 1929 and the following Great Depression during the
1930s, Roosevelt tried to put things back to order with his New Deal, and the financial system
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was strictly controlled by the government. A banker had as much decision power as a
postmaster over the price of post stamps, he could not decide autonomously on the level of
interest for loans or savings. These were dictated by the government. Pension funds were
allowed to invest only in government bonds with a low but secured yield. The mechanism for
the creation of money was strictly controlled: increase in the money supply should go hand in
hand with real economic growth. The gold-standard was restored and for years the dollar had
a rather fixed international exchange rate. Well, that mister Nixon abandoned all these
measures: the value of the dollar was no longer tied to the value of gold and pension-funds
were again allowed to invest in shares of private companies.
On the evolution of the value of the dollar I give you the following charts:
Value of the US. Dollar 1790-1978.
(In terms to buy basic raw materials)
Reciprocal of Wholesale Price index, 1910-14 = 100, Logarithmic scale in cent

(The figure is rather obscure, so I suggest you to buy The Warmongers. One day it
will be mandatory reading for students at high school.)

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The chart traces the value of the United States dollar since its adoption by the
Continental Congress in the 1780s. Study of this chart suggests that every time
a sharp deprecation of the currency occurs (e.g.: 1812, 1861, 1917, 1942,
1966), we have a war, and every time a major war breaks out, we have a
significant depreciation of the currency.
Howard Katz: The Warmongers, p 3.

Wildest inflation historically comes with periods of war.


1780s: Revolutionary war - War of 1812 - 1860s: Civil War - 1914-18: WWI - 1940-45: WWII 1950s: Korean War - 1960s: Vietnam War...
After each major war in the country's history, there has been slightly less of a price drop. Indeed,
after World War II there was no significant drop19. For 80 years the general price trend - abroad as
well as here - has been upward.

The figure shows the historical ups and downs of wholesale prices. Each war is
clearly marked by a peak... As an omen for the future, note one crucially

19

During the Second World War the national debt in the USA increased with 598%, in Japan with
1.348%, in France with 583% and in Canada with 417%! National debt owned to some private banks.

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significant fact: after World War II there was no decline in prices at all
comparable with what had followed previous wars20....
Paul Samuelson: Economics, p 270-271.

Indeed, after the Second World War, the USA did not return to the militia system, as
prescribed by their Constitution, but they started to act as policeman on world-level. Lacking
a real enemy to fight, they declared a former ally and product of the Anglo-Saxon financial
lite the USSR as new enemy, a threat to our freedom and democracy. This resulted into
the Cold War and a crazy arms race, financed by a constant erosion of the purchasing power
of the population and sky-high budget deficits in most Western countries.
As the dollar was accepted internationally as legal tender, but as a matter of fact is
made by the Federal Reserve from paper and ink, you can see that over the years there has
been a creeping erosion of the purchasing power of companies and private persons to the
advantage of the captains of high finance. You should check the following web-site where
you can see the shareholder structure of the Federal Reserve system.
http://www.mindcontrolforums.com/federalreserve.htm
I let you to be the judge of the evolution of your own pension-fund and capital stock.
When George Bush Sr. former director of the CIA, the first ambassador in China
after the Ping-Pong diplomacy of Kissinger and Nixon - was president, one of his geopolitical
partners, with whom he also arranged some lucrative deals, was a certain Saddam Hussein,
leader of the Baath party, president of Iraq. Saddam also came to power after a revolution in
1963, backed by the CIA under President Kennedy. Again the leader of a unitary state and
murderer of his own people. He was useful for the USA because of his vendetta with Iran.
Here we also see the mechanism that is used to turn a former ally into an enemy when he

20

This omen will be explained later in this book.

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decides to go for it on his own. As a matter of fact he was deluded into the First Gulf War
when he informed the American ambassador in advance that he would annex Kuwait historically a former province of Iraq, but separated from Iraq by the British - and the
ambassador told him the Americans were not interested in that local affair.
But things turned out differently. Iraq was beaten up very badly, and imposed a ban on
export of oil, except for food and medicines. There was enough oil on the world market at that
time, the prices were under pressure, so it did not harm to take one of the biggest oil
producers temporarily out off the world-market. Hadnt the Iron Curtain fallen down and
hadnt Siberian and Caspian oil become available on the world market?
But dad Bush allowed Saddam to stay. After all, he had the perfect regime, a
dictatorship. Until he made some errors. Making oil deals with Russia and France was
acceptable, but dropping the US$ as means of payment in the oil-trade and switching to the
EURO was one step too far. So he had to be removed from the stage. And he could be
removed, as another player had come on stage in order to play the role of the villain, with the
approval of the hawks in the government of Bush Jr.: Osama Bin Laden and his Al Qaeda.
In the Belgian newspaper De Morgen I once read an article about the former CIA
agent Gary Bernsten, who was active in Afghanistan during the liberation of that country.
He has written a book about this: Jawbreaker. He states that the CIA knew that Osama Bin
Laden was hiding in the mountains of Tora Bora at the time of the American attack against
the Al Qaeda bastion, but still Osama Bin Laden could (or was allowed?) to escape. It is a
known fact that Bush Jr. did some economic deals with the bin Ladens before he became
president of the USA.
We are on the verge of global transformation. All we need is the right major
crisis and the nations will accept the New World Order.
David Rockefeller, Council on Foreign Relations.
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I could continue with stories on Mobutu and uranium in Congo, the so-called Marxist
revolution in Ethiopia in order to overthrow Haile Selassie21, Kabila and coltan and tin in
Eastern Congo, Liberia and oil in West Africa22. But enough on this: the mechanism is always
the same.

The financial support to a revolutionary movement in order to overthrow a regime


that does not agree with the trading rules that the international captains of finance
are trying to impose.

The installation of a totalitarian regime, suppression of freedom of speech and the


intelligentsia.

People have to work hard, but can not accumulate personal wealth for themselves.

Genocide on part of the population.

21

The revolution was led by Mengistu Haile Mariam, hundred of thousands opponents were
eliminated, a labor party was installed.
22
Very often, geologists precede soldiers in a military conflict, be it an organized popular rising, a
revolution, or a so called war for freedom.

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From time to time a former dictator-friend is turned into an enemy, and a war for
freedom and democracy is fought once more, paid by the creation of fiat money
on which interest is due to the international captains of finance.

After the war the borders of the countries are redrawn so that the seeds of new
future conflicts are already sown.

I would like to remind all aspirant freedom-fighters and revolutionists all over the
world to a lesson the Native Americans have learned during the colonization of their land:
White men speak with double tongue!. If you are contacted by someone who says that he
represents an organization - be it official, secret or private - that is sympathetic to your case,
be very careful. There is no such a thing as a free lunch! You will be presented the bill later
on. Just think of the Bolshevik revolutionists accepting one million dollar from the director of
the American Federal Reserve bank, think of the Taliban in Afghanistan being supported by
the Americans in their fight against the USSR
2.4

An intermediate conclusion
History is usually written down by the winners of the war, and the real facts are very

often disguised, sometimes even turned upside-down. On the subject of writing history as a
scientific discipline I give you the following lines:
The unfortunate peculiarity of the history of man is, that although its
separate parts have been examined with considerable ability, hardly anyone
has attempted to combine them into a whole, and ascertain the way in
which they are connected with each other. In all the other great fields of
inquiry, the necessity of generalization is universally admitted, and noble
efforts are being made to rise from particular facts in order to discover the
laws by which these facts are governed. So far, however, is this from being
the usual course of historians, that among them a strange idea prevails, that
their business is merely to relate events, which they may occasionally
enliven by such moral and political reflections as seem likely to be useful.
Henry Thomas Buckle.
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The perceptive reader will notice more in this book than simply an attempt to
predict a particular war. It involves the use of prediction in the field of history
and thus takes a crucial step in turning this subject into a science.
Karl Marx attempted to turn history into a science, but he did so by externals,
by adopting (inappropriate) doctrines from the physical sciences - such as
materialism and determinism/fatalism - rather than by an application of the
method of science. Science must proceed by generalization from the facts of
experiences to formulate a theory concerning causal relationships and then by
deduction to particular instances of the theory (hopefully in the future) which
will either substantiate it or refute it.
Some subjects - such as metaphysics - are unable to qualify as sciences
because they soar up in the realms of abstractions, never coming down to
reality. History had the opposite problem: it never has been able to get off the
ground but remains satisfied with the chronicling of unconnected facts.
H. Katz, The Warmongers, pp. 265-266.

The preface of this book The Warmongers is very, very interesting.


Throughout the history of man, a struggle has raged between those
philosophies proclaiming the necessity for men to live according to the
decisions of a higher authority, and those philosophies which have identified
man's nature as requiring the independent use of an individual's rational
faculties.
Most of man's story has been dominated by the proponents of the authoritarian
philosophy. The material progress of the 19th and 20th century is a result of
the founding of the United States of America, representing the culmination of
years of struggle and development of the individualistic English rational
philosophers. While the United States broke free of the decadence of the Old
World Power and authoritarianism, it remained free for only a short while,
succumbing to civil war, WW I and WW II.
How the secular proponents of the authoritarian philosophy, the shepherds of
mankind, have led our nation into these disasters and their present plan is the
subject of this book. Whether they are able to ensnare America in a world
confrontation in 1981 or 1985 will largely determine the course of humanity
for the next several centuries.
Our age will see a resolution of this great struggle. If the victorious philosophy
is the correct one, then mankind will rapidly advance into the space age of the
future. If the incorrect philosophy temporally triumphs, then societies will
recede to a feudal style to wait for a re-emergence of rationality.
Should the shepherds fail in their plans, then forces which have been
building up since 1946 will sweep them aside for the foreseeable future possibly for ever.
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On the question of motive, secular level proponents of authoritarianism seek


power and riches - goals which have always been sufficient for them to justify
whatever methods they have used. Their philosophic counterparts, however
have always claimed they were seeking the good of mankind - perhaps for the
same reason a shepherd looks after his sheep. Whatever their motives, what is
of greatest concern to us is that their secular plans are conducted on secret.
Why? Would they lead mankind to the slaughter?
This book demonstrates that such plans do exist and that they are kept hidden
from the public views.
Stephen A. Zarlenga, Editor in Chief, preface to the book The Warmongers,
written by Howard Katz

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Interesting additional reading:


http://www.tarpley.net/bushb.htm

A revealing book by Webster G. Tarpley &


Anton Chaitkin on the Bush-dynasty, free
available on the Internet. The three first
chapters are a must!

Katz, Howard, 1979, The Warmongers,


Books in Focus Inc, New York.

A book describing the mechanism of the


creation of money, and how this mechanism
was used in all the USA wars (detailed
analysis till Vietnam).

http://orifiel.mywalhalla.net/index.html?sutto
n.htm

Two very interesting web-sites on Skull &


Bones, the financing by Anglo-Saxon banks
of the communist revolution as well as
Hitler, and much, much more. Based on the
research done by Antony Sutton, professor
economic history at Stanford. He was
dismissed in 1973 after the publication of a
popular version of his findings. Mandatory
reading!

http://ftp.castel.nl/~degug01/businessasusual
mainframe.htm

I have included some pages from these sources, more specific on how the USA
entered the First World War (this was originally called the Great War, as historians could not
foresee that there would be a second one coming, even more devastating than the previous
one).
We start with some interesting reading from the first chapter of a book on George
Bush Sr. that never made it to the bookstores, but which is freely available on the Internet:
George Bush (Sr.), The Unauthorized Biography.
(http://www.tarpley.net/bushb.htm)
As war loomed in 1914, National City Bank began reorganizing the U.S. arms
industry. Percy A. Rockefeller took direct control of the Remington Arms
company, appointing his own man, Samuel F. Pryor, as the new chief
executive of Remington.
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The U.S entered World War I in 1917. In the spring of 1918, Prescott Bushs
father, Samuel P. Bush, became chief of the Ordnance, Small Arms and
Ammunition Section of the War Industries Board. Samuel Bush took national
responsibility for government assistance to and relations with Remington and
other weapons companies.
This was an unusual appointment, as Prescott's father seemed to have no
background in munitions. Samuel Bush had been president of the Buckeye
Steel Castings Co. in Columbus, Ohio, makers of railcar parts. His entire
career had been in the railroad business, supplying equipment to the Wall
Street-owned railroad systems.
The War Industries Board was run by Bernard Baruch, a Wall Street speculator
with close personal and business ties to old E.H. Harriman. Baruch's brokerage
firm had handled Harriman speculations of all kinds.
In 1918, Samuel Bush became director of the Facilities Division of the War
Industries Board. Prescott's father reported to the Board's Chairman, Bernard
Baruch, and to Baruch's assistant, Wall Street private banker Clarence Dillon.
Robert S. Lovett, President of Union Pacific Railroad, chief counsel to E.H.
Harriman and executor of his will, was in charge of national production and
purchase priorities for Baruch's board.
With the war mobilization conducted under the supervision of the War
Industries Board, U.S. consumers and taxpayers showered unprecedented
fortunes on war producers and certain holders of raw materials and patents.
Hearings in 1934 by the committee of U.S. Senator Gerald Nye attacked the
Merchants of Death - war profiteers such as Remington Arms and the
British Vickers company - whose salesmen had manipulated many nations into
wars, and then supplied all sides with the weapons to fight them.
Percy Rockefeller and Samuel Pryor's Remington Arms supplied machine guns
and Colt automatic pistols; millions of rifles to Czarist Russia; over half of the
small-arms ammunition used by the Anglo-American allies in World War I;
and 69 percent of the rifles used by the United States in that conflict.
Samuel Bush's wartime relationship to these businessmen would continue after
the war, and would especially aid his son Prescott's career of service to the
Harrimans.
Most of the records and correspondence of Samuel Bush's arms- related
section of the government have been burned, to save space in the National
Archives. This matter of destroyed or misplaced records should be of concern
to citizens of a constitutional republic. Unfortunately, it is a rather constant
impediment with regard to researching George Bush's (Sr.) background: He is
certainly the most covert American chief executive.
Now, arms production in wartime is by necessity carried on with great security
precautions. The public need not know details of the private lives of the
government or industry executives involved, and a broad interrelationship
between government and private-sector personnel is normal and useful.

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But during the period preceding World War I, and in the war years 1914-1917
when the U.S. was still neutral, interlocking Wall Street financiers subservient
to British strategy lobbied heavily, and twisted U.S. government and domestic
police functions. Led by the J.P. Morgan concern, Britain's overall purchasing
agent in America, these financiers wanted a world war and they wanted the
United States in it as Britain's ally. The U.S. and British arms companies,
owned by these international financiers, poured out weapons abroad in deals
not subject to the scrutiny of any electorate back home. The same gentlemen,
as we shall see, later supplied weapons and money to Hitler's Nazis.
That this problem persists today, is in some respect due to the control over
the documentation and the history of the arms traffickers23.
World War I was a disaster for civilized humanity24. It had terrible,
unprecedented casualties, and shattering effects on the moral philosophy of
Europeans and Americans.

Some other interesting reading from a book that really made it to the bookstores. I
found it in a bookstore in Los Angeles in 1982:
We can now, perhaps, better understand how men foment war for economic
motives. The covert aristocracy continues many of the traditions of the old
medieval aristocracy. Wealth may not be its only goal, but it always requires
an economic base. It would not be an aristocracy if it did not live in great
wealth without working. Wealth and power are inextricably mixed for this
class, which cannot lose one of these elements without losing the other.
It is hard to conceive of a man who will cold bloodedly send another human
being (let alone thousands or millions) to die only for his material self interest;
few could do this if they understood the situation in those terms. But when the
motive is strong, most men's capacity for self-delusion is infinite. By whatever
process, they come to believe that the war which advances their wealth and
power is absolutely essential for the salvation of mankind. It is true that J.P.
Morgan and Company dishonestly maneuvered the United States into a war
which greatly swelled their pocketbooks, but it is also true that they believed
that the extension (and preservation) of the Anglo-Saxon way of life hung in
the balance. Once a man's self-interest is involved, he can usually find some
ideal in terms of which to justify his actions.
We can also see how men who might be deterred from war by an increase in
taxes are not deterred by the loss of life and liberty. In time of war a hysteria
23

One of the first actions Bush Jr. took when he became president was to give the current president
(himself) the right to block the possibility that the archives of previous presidents could become available to the
public, even when these previous presidents agreed on publication, and this in the interest of national security.
24
A massive genocide on the soldiers of Belgium, France, Germany, Austria, England, the USA,
Australia, New Zealand But well, didnt Malthus predict there would never be enough material wealth for
everybody?

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grips the nation. The public debate is governed primarily by emotion with very
little space left for reason. The average man is propagandized with songs,
slogans and heroic statements. In this frame of mind, even human life itself
becomes cheap.
But the issue of a tax increase to finance the war - although far less threatening
man's values than the loss of life - shifts the debate to a far different level. In
our society, we are used to treating economics as a rational subject. While men
may be highly irrational in other areas, they pride themselves on their
calculated rationalism in the field of economics. Shift the subject to the cost of
the war, and suddenly the average man is no longer swept away by heroic
songs or eloquent speeches. He can not calculate the value of a human life, but
he can calculate the value of the tax increase you are passing along to him.
And as small as this value is in the scheme of things, he sees that the war is not
worth it.
Interestingly, two years after the establishment of the Bank of England, the old
practice of coin clipping and alloying base metals with the gold - which had
gone on since virtually the invention of money - was ended by a reminting of
the debased coinage. With the new method of exploitation in place, there was
no need for the old. Power to debase the currency thus passed from the king
(representing the old aristocracy) to the banker (representing the covert
aristocracy), and there it remained to this day.
Furthermore, this explains why there is a great deal of injustice directed inward
during wartime and why in many respects the society returns to a condition
approximating that of the Middle Ages. It explains why freedom of speech is
often violated in time of war, why forced labor is introduced (especially for the
military), why dissent is not tolerated and why unsound financial policies are
followed. These things are not means to win the war; in fact they operate to
weaken the society and make for a less efficient war potential. For the ruling
group which desires the war, they are the end itself, and the war is the means
to bring them into being.
H. Katz, The Warmongers, pp. 39-42.

I admit that this description of 500 years of history is very condensed but at the same
time as I hope very revealing to you, especially for the people in the USA: your
purchasing power has been eroded and your Constitution has been violated and sacrificed
time after time to the interests of those it was intended to protect you from. Remember that,
and tell you children, your grandchildren and your grand-grandchildren
Bill Clintons presidency resulted in balanced budgets, even surpluses, lowering the
level of your national debt. George Bush junior brought the USA back into record deficits,
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both for the budget and the balance of trade, with the financial crisis of 2008 as a direct
consequence. Is that in your interest, or your childrens interest? Or the National Interest of
some financial lite, who is really not American at all!
All the facts and connections can be verified by checking the Internet and reading
books. This text is the essence of a research on the relation between the economic evolution
and the phenomenon of war, a study of the past and the present that took me 25 years of my
life. Sorry if my tone was sometimes a little bit sarcastic and bitter. I agree that this study is
not really academic, that some of the sources I quote are not academic or not impartial. But
you have to admit, the guys I am trying to pinpoint are neither academic nor impartial either.
Most of the historical facts I mention are surely true, some of the assumptions can not be
made really hard. However, I am pretty sure that you have enough circumstantial evidence
in order to start a trial and ask for nothing less than impeachment.
You will also have to admit that this chapter is not un-American nor anti-American. It
is written in the spirit of the Founding Fathers, who have fought with their lives against an
oppressing and exploiting aristocratic system. They have given you your most valuable
National Treasures: your Declaration of Independence and your Constitution. Take them
back, and forget about the Patriot Act.
In the next chapter we will return to some more academic subjects and discuss the
economic roots of war. In doing so we will enfeeble some economic dogmas on which the
present geopolitical and geo-economic system has been built. This will then allow us to
formulate some workable alternatives for the madness the world has been going through the
last 500 years.

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The hidden mechanisms behind the world-economy

In this chapter we will try to unravel the hidden mechanisms behind the worldeconomy, more specific the relation between economic evolution, with the recurrence of
recessions and depressions, and the phenomenon war. In doing this we will tare down some
generally accepted theories and concepts, especially on the subject of profit.
On the subject of the evolution of the profit-ratio of private companies, we refer to the
work of the Belgian economist J.P. Van Rossem that was published at the end of the 1970s.
One cannot deny the fact that in the whole western economy the profit-ratio
(the ratio between the realized profit and the capital invested in order to realize
that profit) has decreased steadily since World War II. This does not imply that
companies make less profit. It only says they have to invest more in
machinery, buildings and energy to realize the same level of profit...
Calculations show that the average profit-ratio in Belgian economy has
declined from 15.86% in 1953 to a level of 7.62% in 1977...
Nobody has ever maintained that the profit-ratio should decline, just as a stone
drops when he is released. One can think of measures to increase that profitratio. However, when we analyze for example the evolution of the average
profit-ratio in Germany from 1880 till 1976 (West-Germany after 1954), we
can conclude that the profit-ratio has increased only in two periods of time: the
first time between 1915 and 1919, the second time between 1941 and 1944. In
other periods of time the profit-ratio has shown a declining trend...
In the past, the profit-ratio has increased substantially only during World War I
and World War II.
J.P. Van Rossem, Knack, January 1979, p 119.
We can represent the evolution in time of the profit margin with a saw-tooth shaped
curve: longer periods of decrease are alternating with short periods of fast increase (figure
3.1). The period of fast increase happens to coincide with the occurrence of a war. Is this pure
coincidence or is there a logical explanation to it? Well, the denominator of the fraction

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profit/invested capital decreases due to the massive destruction of infrastructures during a


war, while the numerator increases as prices can increase due to the lower level of supply of
elementary livelihood. There is no longer fierce competition on the market.

Figuur 3.1: Evolution of the profit ratio

Is there an alternative for war in order to increase the profit-ratio?


3.1
3.1.1

Some remarks concerning the economy


Crisis, what crisis?
Since the oil crisis in the 1970s economy has never been the same as before, the

Golden Sixties were over. The economic system of most industrialized countries has gone
through several more or less severe recessions, manifesting themselves as trade deficits,
budget deficits, low economic growth or even a decline in economic production, inflation,
high level of unemployment, bankruptcies of industrial companies and financial companies...
The economist Ravi Batra characterizes recessions and depressions as follows:
A recession usually lasts for one to three years, during which the rate of
unemployment, while rising, is generally below 12 percent. When a recession
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lasts for more than three years, and/or the rate of unemployment lays between
12 percent and 20 percent, the economy may be said to be suffering from a
depression. When unemployment remains high and business stagnates for six
or more years, the nation's plight may be called a great depression. Thus
depending on its severity in depth and length, the downstring of the business
cycle may be defined as a recession, depression or a great depression.
Ravi Batra, The Great Depression of 1990, p 117.

In times of economic crisis individual people, social groups and countries try to
protect their own position, the rights and status they have acquired over the years, their
privileges... and they often do this at the expenses of other persons, groups and countries.

Countries adopt protective measures to limit the import of cheaper or better


products from other countries in order to protect their own employment. This is
done by imposing import quota or tariffs, by imposing technical or quality
standards in order to protect the consumer.

Employers impose wage-ceilings to employees and laborers in order to secure or


increase their profits, with the argument that those higher profits will induce more
investments and thus will lead to higher employment in the future. In Germany
companies and labor unions have agreed to have more working hours per week for
the same wages in order to stop the export of labor to lower wage countries.

Employees and laborers with a job criticize the unemployed because they cost a lot
of money to the government so taxes are too high, while the unemployed
themselves criticize the foreign workers because they deprive them from a job.

Industrial companies move their production units to countries where the wages are
substantial lower than in their own country, with unemployment and thus loss of
purchasing power in their own country as a side-result. Even high-tech jobs like
software development are shifted to lower wage countries like India and Malaysia
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On the other hand, one can say that the output per capita of the economic process is
now greater than in the Golden Sixties. The material prosperity and consumption is now
higher than in the 1960s. In some branches of the economy there is even over-production and
saturation of the market. It is necessary to create new needs for new, ever more sophisticated
products. There is a strong saturation in the market of electrical apparatuses and consumer
electronics for home and kitchen, so producers have to recourse to the marketing of electrical
screwdrivers, specialized handhold vacuum cleaners for curtains and other gadgets.
When we consider all these signs of material abundance, we can ask ourselves the
question: is there an economic crisis at all? And if there really is a crisis, what is the true
nature of that crisis? How does it come that the economic prosperity, built up during the
fifties, sixties and early seventies, now seems to be so vulnerable? What went wrong? What is
the cause for this turn of fortune? There seems to be a remarkable difference between this
crisis, where the majority of the people still can buy vital products, and the Great Depression
of the thirties, when almost everybody experienced the crisis as a shortage of vital goods and
products as food, clothes and housing. Most economists are even convinced that a recurrence
of such a disaster in these days is virtually impossible. But then a minority of them tries to
warn us that a depression could turn into a new great depression, even more severe than the
one that hit the USA and Europe in the thirties25. I think the financial crisis of 2008 could very
well lead to such a great depression, unless we break with business as usual.
We can also notice a trend to more inequality in the distribution of incomes and
wealth among social groups and classes inside the industrialized countries, as well as between
those industrialized countries and the Third world countries, despite the growth of the

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economy and the world trade. One can even say that the greater the economic growth, the
greater the inequality in income, as higher incomes increase faster than lower incomes26. In a
newsletter of the PROUT organization we read:
Last month, United for a Fair Economy issued Shifting Fortunes: The Perils
of the Growing Wealth Gap in America, a report that features the latest
findings of economist Edward Wolff of New York University, a leading
authority on wealth distribution.
This is what the report found:

Most households have lower net worth, adjusting for inflation, than they did in
1983, when the Dow was still at 1,000.

From 1983 to 1998, the S&P 500 grew a cumulative 1,336 percent. But the
wealthiest households reaped most of the gains.

Since the mid-1970s, the top 1 percent of households have doubled their share of
the national wealth. The top 1 percent of U.S. households now have more wealth
than the entire bottom 95 percent.

The top 1 percent of households control 40 percent of the wealth. Financial wealth
is even more concentrated. The top one percent control nearly half of all financial
wealth (net worth minus equity in owner-occupied housing).

Microsoft CEO Bill Gates owns more wealth than the bottom 45 percent of
American households combined. In the fall of 1997, Gates was worth more than
the combined Gross National Product of Central America - for you geography
buffs, that's Guatemala, El Salvador, Costa Rica, Panama, Honduras, Nicaragua
and Belize. By the fall of 1998, Gates' $60 billion was worth more than the GNPs
of Central America plus Jamaica and Bolivia.

25
26

Ravi Batra, The Great Depression of 1990, pp. 145-146


B. Fritsch: New means of Power, p 24

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The boom has been a bust for millions of Americans. The inflation-adjusted net
worth of the median household fell from $54,600 in 1989 to $49,900 in 1997.
Nearly one out of five households have zero or negative net worth (greater debts
than assets), an increase from the 1980s.

Workers are earning less, adjusting for inflation, than they did when Richard
Nixon was president. Average weekly wages for workers in 1998 were 12 percent
below 1973, adjusting for inflation. Productivity grew nearly 33 percent in the
same period.

Families have sunk deeper into debt. Household debt as a percentage of personal
income rose from 58 percent in 1973 to an estimated 85 percent in 1997. Total
credit card debt soared from $243 billion in 1990 to $560 billion in 1997. Credit
card limits have risen to the point that the average person can charge more than
eight times what they already owe. As of 1997, almost 60 percent of American
households carried credit card balances - balances that average more than $7,000,
costing these households more than $1,000 per year in interest and fees.

There is little question that wealth concentration presented in this report is being
fuelled by corporate greed. And the resulting wealth inequality poses serious
threats to our democracy and civic life.

(Focus on the Corporation, a weekly column written by Russell Mokhiber and


Robert Weissman)

Third World countries are hit even more severely by the economic crisis: those
countries are most often the suppliers of the raw materials and energy needed in the
production process of the industrialized countries. But that production process starts to
stammer, there is no verve anymore, the real level of production is much lower than the
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maximum capacity. So the demand for raw materials and energy products declines, and this
puts pressure on the prices for these products. A lot of under-developed countries have longterm loans running with western banks to finance the development of their economy and their
infrastructure, often solely concentrated on the export of those raw materials and energy
products and not on the development of an economy to fulfil the needs of their own
population. Because of the decline in the prices they get, they are unable to pay back their
loans, in some cases not even the interests. They pay the interests with new loans. This
situation can shake the international banking system when countries stop to redeem their
loans. And most industrialized countries have a very high debt level themselves. But still
banks give them credit - the more the better - as creditors are a main source of income for
them.
In the course of history, there have been many economic crises. What is the cause of
an economic crisis? Do they have some characteristics in common? Can we learn something
from history? What was the solution for those crises? Are these solutions still applicable, and,
if not, what are the options open to us? We can say one thing for sure: it is a world-wide
crisis, affecting the industrialized as well as the developing countries. So a world-wide
approach of the problem is needed! For this reason we ask the reader to consider himself as a
cosmopolitan, free from any nationalistic feelings or prejudices, a globalist in the real sense
of the word..
3.1.2

Why economic growth?


In most textbooks on economy, economic growth is considered as a necessary

condition in order for the economic process to run smoothly. Growth is supposed to give
people a better income and standard of living. But the funny thing is that the more growth, the

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wider the gap between rich and poor grows. After centuries of growth, there are still poor
people, their number is growing, their misery also.
The economic growth was substantial during the Golden Sixties, which are considered
as a period of an economic boom. As already mentioned, the output of the economic process
is now higher than during the sixties. One could think that relative growth is more important
than the absolute level of production in determining the state of economic health of society.
But why is economic growth so vital? This question is seldom stated or answered in those
textbooks. Economic growth is considered as something self-evident, not to be put to
question. The nature of that growth - quality of life versus quantity of consumption - has only
recently emerged as a topic worth to be discussed. Indeed one has become aware of the fact
that a lot of dangers and inconveniences for mankind have been created by the interventions
in nature by men themselves. As a result of the increased technical capabilities of men,
actions and reactions which used to spread over hundred or more years are now concentrated
in decades. This implies that the effects of human activity on the environment have become
more intense: more pollution, CO2 emission, global warming...
Concepts like the gross national product, used to measure a nation's wealth, can be put
to question, as only economic activities which can be expressed in terms of money are
included in it: when you hit a tree with your car and you have your car repaired, then this adds
up to the GNP. Other activities, like growing your own vegetables, are ignored. Taking care
off older or sick persons at home is not an economic activity, while putting them into a
hospital or a rest home increases the GNP.
But if growth is really so vital to the economic process, what options for further
growth do we have? Is uninhibited growth possible, or are there limitations to what can be
achieved? What is the nature of these limitations? Which groups have the greatest benefits

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when there is substantial growth? Is zero-growth a possible option? And what are the
economic and social consequences?
Moreover, what is the unit of the entity economic growth? We can express distance
in meters, miles, yards, inches, etc.; time can be expressed in seconds, hours, days, years, etc.;
speed in kilometers per hour or meters per second; weight in kilograms, pounds, etc.;
electrical current in ampere... In newspapers and economic studies, economic growth is
usually expressed as a percentage. But a percentage is not a unit in itself: it merely indicates a
relative change realized over a period of time (a year, a quarter of a year) with respect to the
absolute value of the GNP realized in the previous time period (expressed in currency unit:
US $, EURO).
So clearly the unit of economic growth is currency unit per time unit
(US $ per year, EURO per year...).

Later on you will understand why I state this so explicitly.


3.1.3

Positive balance of trade


In those same textbooks on economy, a positive balance of trade is considered as

favorable for the economy of a country. Why? If a positive balance of trade is so favorable, it
is logical to assume that every single country will try to obtain this. But is it possible for
every country to succeed in this objective? If not, does it make sense to put this as an
objective? By the way, what is the meaning of national borders? In the course of history, one
can recognize a trend toward ever-larger economic entities - from the Greek polis towards the
European Community -, while economic and political borders are pulled down. What is the
explanation for this evolution? And where will it lead us?

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On the other hand, in times of recessions, economic nationalism predominates


international solidarity, governments take protective measures - tariffs and quota. The
economic obstacles from older days are erected again. Is this to protect the employment in
their own country, or are there other motives for this reaction? In a longer period of recession,
one can also see that nationalistic feelings emerge, making political integration virtual
impossible. In extreme cases the evolution towards larger economic and political entities is
even reversed: empires disintegrate, like the USSR.
Moreover, what is the unit of the entity balance of trade? Generally a balance of
trade is expressed in a currency unit, with the tacit assumption that it is over the period of one
year.
So clearly the unit of balance of trade is currency unit per time unit,
the same unit we use to measure economic growth.

Later on you will understand why I state this so explicitly.

3.1.4

Profit
The notion of profit has a very important role in our economic system. In this section

we will discuss the origin of profit. We will also listen to two extreme opinions: that of a
businessman and that of a neo-Marxian economist.
Profit seen by the businessman
From a businessman's point of view, we can describe profit as follows:

A company realizes a turnover by marketing a certain product or service.

In order to do this, it has fixed and variable costs.


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Turnover minus the variable costs gives us the contribution.

Contribution minus the fixed costs gives us profit before taxes.

Profit before taxes minus the taxes results in profit after taxes.

Of course there are a lot of tricks in order to lower the profit before taxes - and thus
the taxes - by using methods of depreciation, making certain costs tax-deductible, etc..., all in
a legal way. Sometimes the laws are even adapted for this purpose. So in this sense cash flow
is a better measure for profit than profit itself. So when you read profit in this book, think of
it as cash flow: it is less compressible than profit, and it has the same unit - unit of currency
per unit of time. And think of cash flow as a flux of money flowing into a company, just as a
positive (negative) balance of trade can be considered as a flux of money flowing into (out of)
the country.
Part of the turnover can be realized in the home market, another part could be realized
abroad. Part of the profit can be considered as a result from turnover in the home-market, the
other part as the result of export activity.
Wages and salaries are part of the fixed and variable costs. So the profit of a company
is a function of the wages and salaries it pays. If these are increased, the profit will apparently - decrease, and vice versa. But is this always true?
During the 1970s and early 1980s the economy of most West-European countries was
no longer what is used to be: the level of profit was too low, the return on investment was not
rewarding anymore. The return on investment is the ratio between the profit made and the risk
bearing capital invested. In particular, the profit-ratio in those days was lower than the high
interest-rate one could get from low-risk investments as government-bonds or saving accounts
due to the two-digit inflation of those days. So the incentive for private persons to invest in
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business was rather low, companies had difficulties in finding new funds on the money
market, so they had to go to the bank to negotiate a loan, which had a strong negative impact
on the working accounts of the companies.
Countries like Belgium are dependent on export, as the home market is relatively
small and a lot of energy and raw materials have to be imported in order to feed the
production process. As the wages and salaries at that time were too high compared to those of
foreign competitors, it was difficult for companies to be competitive in these export markets.
People were laid off as a result of the decline in turnover and production. With the help of
government regulations and legislation, a policy of moderation and even reduction of wages
was pursued. Wages were no longer automatically increased when the cost of living had gone
up. All these measures were aimed to consolidate or strengthen the position of the own
economy in the international trade scene, so that, in the long run, the profit figure of
companies would increase, especially that part of the profit resulting from export activities.
This extra profit was then supposed to be an incentive toward new investments, which in turn
would create new jobs. For the same reasons, some countries - like the USA under the Reagan
and Bush Sr. administration - changed their tax legislation, reducing the maximum level of
taxation in order to favor private business and reward successful entrepreneurs. The dilutees
of society were supposed to wait until the wealth would have trickled down to their level, of
course in diluted form.
But on the other hand we can say that as a result of the national policies of wage
control and tax reform, the real purchasing power of the majority of the population decreased
while the inequality of the distribution of wealth increased, resulting in a lower level of
consumption. So a lot of enterprises actually realized less turnover in their home market, so
the part of the profit resulting from that turnover decreased. Facts confirm this statement: in

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Belgium the turnover in retail-business for a particular month in the year went down for
several years after the government started their policy of wage control in the early 80s, the
real purchasing power of the population went down with approximately 2% each year (figure
3.2.). You have to read the figures from left to right in order to account for seasonal
influences.

Figure 3.2:

Turnover retail-business in Belgium (index 100 = 1970)


1982

1983

1984

January

128

123

119

February

127

119

116

March

148

136

129

April

150

131

124

May

140

129

128

June

145

135

130

July

126

117

114

So, in order for the economic policy to be effective, the loss in turnover (and profit)
resulting from the lower purchasing power in the home market had to be compensated by an
extra increase of the export. Indeed, in an article in a newspaper of those days one can read
that the economic activity, measured by the industrial production and the consumption of
electricity, was increasing. But the private consumption was still declining. The economic
activity was supported solely by export and by the increase of stocks of semi-manufactured
articles. At that time there was no indication of the expected increase in investments.
But what if the extra export of goods and services is not enough to compensate for the
loss in turnover in the own country? And what if the other countries are faced with the same
problems and have decided to apply the same economic policy of moderation? Could it not be
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that all employees and enterprises in all those countries suffer from reduced wages and
shrinking turnover? What is it good for to try to stimulate extra investments if there is no
purchasing power, neither in the home market nor in foreign markets, to buy the products that
could be produced with the extra production capacity?
One was well aware of this problem in most branches of industry. In 1978 the
chairman of the Belgian employer's organization has warned the politicians that it is
absolutely necessary for private consumption to increase in order to get out of the economic
crisis. An entrepreneur does not only want to produce, he also wants to sell his products.
One could indeed imagine that the economic policy of moderation and reduction of salaries
and wages could lead to the crumbling off of the economic process and our material
prosperity. All these phenomena are interrelated and could lead us into a vicious spiral: lower
wages, lower purchasing power, lower turnover, less investments because of excess in
production capacity, more unemployment, still lower wages... Where does this process stop?
Would it not be possible that, in the long run, this economic policy will lead us to a disaster
because of its short-sightedness?
What is profit? What is the origin of profit?
There seems to be a problem with profit, the money-maker that makes our capitalistic
world go round. But what is profit, and how is it created? For a lot of people, not the least for
businessmen, profit exists, has always existed, and will exist forever. To put profit to question
is the same as putting life to question. It is a fact that we live and that profits are made. So let
us make the best of our lives and of profit. To think about it only leads to a headache.
In this study, however, we will not be content with this point of view: we will try to
find the origin of profit. This will lead us to a deeper insight in the economic process so that
we can grasp the true nature of the economic crisis. We have discussed already how a
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businessman sees the origin of profit as turnover minus costs. Even the Belgian neo-Marxian
economist J.P. Van Rossem, who could discuss the problem more detached, ascribes a major
role to profit in the economic process, although he gives it another origin.
If one likes it or not, but also in a so called mixed economy, where there is
intervention in the economy by the government, profit is still the driving force
of the economic process. As long as entrepreneurs can make profit, they will
create jobs for blue- and white-collar workers. By direct taxation of the profits
made by the companies and the salaries earned by the employees, and by
indirect taxes on consumption goods, the government acquires financial means
to run its own affairs... In a mixed economy it is perfectly feasible for
companies to maximize profit and for government to maximize welfare, but,
all things considered, the means the government needs in order to realize its
goals are dependent on the profit made by the private companies. For this
reason I say that profit is the driving force of the economy... How does profit
occurs, where does it come from? Nobody will deny that profit is the
difference between turnover, realized by selling products or services, and the
costs made to produce these. But this does not explain the social origin of
profit. Next to the government, there are two parties with conflicting interests
in our economic system. On the one side we find the entrepreneurs, who are
the owners of the means of production and who hire labor-force. On the other
side there are the employees and laborers, who do not own any means of
production, but who sell their own labor-force. As long as the businessmen
think it will yield profit, they will hire labor-force to produce goods... There
are many ways to calculate the value of the produced goods. One method is to
express this value in terms of the energy - mechanical or human - needed to
produce these goods efficiently. So the value of a product could be expressed
in kilo-watt-hour. Usually, however, the value is expressed in the local
currency (EURO, US $,...). The transformation from values expressed in
energy to currency is a rather complicated process, described in the theory of
energy-value... The labor-force the blue- and white-collar workers sell to
entrepreneurs and the government is a special kind of commodity: under
certain conditions it can yield profit to the one who buys it. Here also, it is
possible to express the value of this commodity in terms of the energy,
efficiently used for the reproduction of labor-force (the value of the goods the
laborers and employees buy is a measure for the value of their labor-force). It
is possible that there exists a positive difference between the value of the
goods the employees produce and the value of the labor-force they sell. This
difference is what the economists call the surplus value, which, if it is realized,
will be the profit for the entrepreneur. This implies that we can divide a
working day in two parts: on the one side, the laborer spends part of his energy
in the reproduction of his own labor-force he sells; on the other hand, he
spends part of his energy for the production of surplus value, to the advantage
of the employer. If then the employer succeeds in selling the products, then he
will realize the surplus value of these products as profit.
J.P. Van Rossem, Knack, January 31 1979
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In reading this analysis, we can ask ourselves several questions:

Is it really a fact that employees and employers have conflicting interests at all
times?

How is it possible that there exists a positive difference between the value of
goods workers produce and the value of the labor they sell to the employer?

What are the conditions in order for the employer to realize the surplus value, i.e.
to succeed in selling his products?

Does this analysis gives us a better explanation for the origin of profit than the
businessman's point of view, or does it just shifts the problem?

As the following paradoxes illustrate, it is not so unrealistic to ask these questions.


First paradox
In the discussion on profit seen with the eyes of a businessman, it seemed that an
increase in wages and salaries for the employees would lead to lower profits for the company.
According to a neo-Marxian economist, employers and employees have conflicting interests.
Are these statements correct? Statements on economy are often hypothetical and academic.
The following story, however, is a historical fact.
In 1953 my friend the late Walter Reuther, then president of the United Auto
Workers, was about to meet with the board of directors of General Motors to
form a new and timely post-World-War-II labor pact. At that time the first
new- scientist-prototyped computers were being assembled, put in running
order, and fine-tuned by Walter Reuther's skilled machinists. Walter had all his
fine-tuning machinists put the following problem into their computers: In
view of the fact that most of General Motors' workers are also its customers, if
I demand of General Motors that they grant an unheard-of wage advance plus
unprecedented vacation, health, and all conceivable lifetime benefits for all of
its workers, amounting sum-totally to so many dollars, which way will General
Motors make the most money: by granting or refusing? All the computers
said, General Motors will make the most profit by granting.
Thus fortified, Walter Reuther made his unprecedented demands on General
Motors' directors, who were elected to their position of authority only by the
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stockholders and who were naturally concerned only with the welfare of those
stockholders. Reuther said to the assembled General Motors board of directors:
You are going to grant these demands, not because you now favor labor
(which, in fact, you consider to be your enemy), but because by so granting,
General Motors will make vastly greater profits. If you will put the problem
into your new computers, you will learn that I am right.
The directors said, Hah-hah! You obviously have used the wrong computers,
or have misstated the problem to the computers. Soon, however, all their own
computers told the directors that Walter was right. They granted his demands.
Within three years General Motors was the first corporation in history to net a
billion-dollar profit after paying all government taxes - with their profits
increasing steadily thereafter for twenty years.
R. Buckminster Fuller, Critical Path, p xxviii

This may all seem rather unrealistic, but it is a true story. What is the underlying
reason for this, at first glance, surprising turn of events? What model was used to program the
computer? What can a computer do more than an assembled board of directors? Could it be
that something is hidden here that could help us to solve the economic crisis in the
industrialized world? In any case, this story clearly shows us that the interests of employers
and employees should not necessarily clash, and that an increase of wages for the employees
does not always lead to lower profits for the company. But it is also dangerous to conclude
that a huge increase in salaries for employees in industrialized countries will rescue the
economy. When socialists gained the elections in France in the early 1980s, their economic
policy during the first years of legislation was based on increasing the purchasing power of
the lower-end income classes by granting them higher wages and social benefits. But the
result was that those people started to buy, among other things, video-recorders imported
from Japan: the extra purchasing power was spent on products imported from abroad, making
the trade balance negative and putting pressure on the Franc.

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As an intermediate conclusion, we can only state that under certain conditions an


increase in wages and salaries can have a positive effect on the economic process. These
conditions will be discussed in great detail later on in the book.
Second paradox
The businessman thinks of profit as the difference between turnover and the cost
involved in producing and selling products or services. Even neo-Marxian economists have
their own, more complex explanation for the origin of profit. As quoted before, they see profit
as the result of the realization of surplus value, the difference between the value of the
products the workers produce and the value of their labor.
But let us imagine the earth we live on - or the whole universe for that matter - as one
big system, composed of several interacting smaller subsystems. Suppose a certain company
is such a subsystem. Then we can see the rest of the overall system - the earth or the whole
universe minus that one company - as the complementary subsystem. If then that one
company makes a profit (or a positive cash flow), does that mean that the complementary
subsystem is making a loss (a negative cash flow)? We can ask ourselves the question if profit
is made at the expense of others? Or is it possible that in a closed economic system as the
earth or the universe, every single subsystem can make a profit? If so, how is this feasible? Or
must we admit that our ideas about the real origin and nature of profit are wrong? Perhaps the
description of profit from a businessman's point of view has led us to the wrong perception of
what profit really is and how it originates in an economic system larger than just one
company or one country.
There are also some flaws hidden in the neo-Marxian description of profit as a result
of surplus value. Van Rossem tells us ...a positive difference is possible..., but how is it that
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subsystems of the world in one big subsystem: World-Industries Inc. On the one hand we can
say that every family man is an employee of this big company: he makes his contribution to
the production of goods and services, and in return he receives a salary. On the other hand, he
and his family are consumers of products and services marketed by World-Industries Inc., and
they have to pay a price for these. The amount of money the household can spend, however,
cannot be higher than the salary the father receives by selling his labor-force. OK, they
could buy things on credit, but one day they have to pay back the loan with interest, so in the
long run the amount of money they spend cannot be greater than the salary they receive.
Stated in another way: World-Industries Inc. would realize less turnover than the sum of
money they paid as salary to their employees. And salary is just one of the cost items in a
working account. How could this World-Industries Inc. make a profit? Is profit possible after
all? Or does one subsystem-company makes profit at the expenses of another subsystem?
According to the concept of evenly rotating economy formulated by the economist
Murray Rothbard, when everything is perfectly known by everybody, technology is
stabilized, and management is perfect, then the economy evolves to a stationary state and
profit tends to decline to zero. Paul Samuelson has expressed the same as follows: Suppose
we lived in a dreamworld of perfect competition, where we could read the future perfectly
from the palm of our hands and where no innovations were permitted to disturb the settled
routine of things. Then the economist says, there would be no profit at all! (P. Samuelson,
Economics, p 621)
I do not agree with these statements. Economists try to let us believe that profit is not
possible in the first place. I have never found a positive proof of this statement in all the books
and articles that I have read on economy. So in a way it is an academic dogma, an axiom. But
then everybody wants to make a profit. It is like Eros and Thanatos: everybody does it but

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nobody wants to talk about it. But there is nothing wrong with sex or dying, neither with
profit: they are all natural.
The question if profit is possible after all will be answered in section 3.4. describing
our Basic Theory, where we will demonstrate that profit is indeed possible without losses for
other subsystems, even in a situation of perfect competition and perfect knowledge and
without need for innovations, if certain conditions are met. We will describe the real nature
and origin of profit in a manner totally different from the businessman's or the neo-Marxian
economist's point of view. In order to do this, we will introduce an important agent in our
description: time. In doing this, our picture of the economy will become dynamic instead of
static.
Let us return to the story of the employee of World-Industries Inc. for an additional
paradox. As a good family man, who works very hard, he is able to put some money aside on
a savings account. The bank pays him interest on the amount of money he has saved. Where
does that extra money come from? Well, the bank does not just treasure it up, it grants a loan
to a person, a company - or even a country - at a higher rate it has to pay to the family father.
All right, but that person or company has to pay back the loan, with interest. Where do they
get the extra money? By making money, you say. OK, but how is that money made? Stated
in another way: how is it possible that the amount of money can increase? And how is this
decided and by whom? Is it just a matter of printing bank notes? And what about inflation
then? These questions, again, will be answered later on.
Moreover, what is the unit of the entity profit? Generally profit is expressed in a
currency unit, with the tacit assumption that it is over the period of one year.
So clearly the unit of profit is currency unit per time unit,
coincidentally the same unit we use to measure economic growth and balance of trade.
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Later on you will understand why I state this so explicitly.


3.2

Automation versus unemployment


To stay competitive and increase productivity per employee - or decrease labor cost

per produced unit - a lot of companies have invested in automation in production and in
administration. On itself, this evolution can only be approved off: clerks and secretaries are
relieved from the burden of dull administrative routine, laborers do not have to work in
dangerous conditions anymore as robots can do their job.
One could indeed ask the question: which percentage of people working in industry
and government is really productive? Imagine how many people are employed in government
departments, institutions and even private companies who make no or very little contribution
to the production of goods and services, but who are just physically present at their work,
killing time by playing social games. Paul Lafargue described this situation hundred years ago
very accurately as active unproductivity27. Indeed, is this not a form of hidden
unemployment? What is the difference between, on the one hand someone being really
unemployed and receiving unemployment benefits, and on the other hand the unproductive
employee receiving a salary? Would it not be better for society as a whole to let those people
stay at home, and let them enjoy the goods and services without them making a
contribution to the economic process? This could result in savings in energy-consumption,
transport-costs, cost of medication and health care... This would also lead to extra
employment in the recreation business. It would benefit the trading balance of the country as
a result of less energy consumption.

27

Paul Lafargue, The Right to be Idle.

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One could indeed wonder if man is destined to work! A lot of useful and pleasant
things could be done with the time that would become available if all companies would be reengineered with the principles of Dr. Hammer and if robots and computers would be
introduced on a large scale and if hidden unemployment would be dissolved. Are we evolving
toward the Homo Ludens after all? Is there a society at hand in which a minimum of human
effort will be needed in order to produce the necessary goods and services and where
everybody will be entitled to enjoy the abundance?
On the other hand, a lot of unskilled persons lose their job because of the introduction
of automation, while there is a great demand for people with technical skills in order to
design, produce, maintain, program and operate those robots and computer systems. The
productivity per capita of the persons with a job increases, but the productivity of the people
who have lost their job drops to zero. So what is the effect for the society as a whole, what is
the productivity per person, irrespective of the fact that he is employed or not? And what can
we do about all those people who are unemployed? Is there a society at hand in which a
minimum of human effort will be needed in order to produce the necessary goods and
services and where only a minority will be able to enjoy the abundance - the owners of the
means of production and, in second degree, the technical skilled persons -, while the other
ones will live in a situation of permanent poverty because they are no longer needed in the
production process: a high labor-force reserve - i.e. unemployment - keeps the wages of those
who are working low. A society where the outcast will receive only the basic necessary goods
in order not to die from starvation or to start a revolution, and where the established power of
the elite will be maintained by a strong internal military force and by selling or even free
distribution of intoxicating drugs, so that the poor can build up their own world of fantasy
(panem et circencem)? Havent there been already civilizations of this kind in the course of

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time? Doesn't that make you think of George Orwell's 1984 and Aldous Huxley's Brave New
World?
We have formulated a lot of questions in this chapter. Our intention was to draw a
picture of the nature and the complexity of the present economic situation. On the other hand,
we wanted to point out some inconsistencies and paradoxes in the established way of thinking
about economy. In the next section we will widen our horizon and look at the evolution of
some economic entities over a longer period of time.

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3.3

Author: Geert Callens

Periodicity of some economic entities

I'm just sitting here watching the wheels


go round and round.
(John Lennon)
History teaches us that mankind has nothing learned from it.
(Anonymous)
Those who do not remember the past
are condemned to relive it.
(Santayana)

In section 3.1. we have made some remarks on the economic crises of the past
decades, and we have pointed at some paradoxes and contradictions between the economic
policy and the results of that policy, indicating the impotence of the present decision makers
to do something about the situation. As the Belgian historian Chris Vandenbroeke wrote:
The dilemma with regard to the actual problems - the nature and the size of the crisis, the
measures and corrections to take in order to adjust the present economic policy - clearly
shows the failure of a short-term vision. Never before have one heard so many contradictions,
resulting in a decreasing credibility in pure scientific economic research. Who is to be
believed in this maze of suggestions and recommendations? How is it possible that adepts of
Milton Friedman and those of Keynes advocate totally opposing measures? Instead of looking
for a quick solution, would it not be better to sit back and make a basic analysis of the present
social and economic relations... We should not pay too much attention to new and temporal
phenomena, but we have to look for stable and ever returning patterns in the course of time.
Only with this perspective will it be possible to discover significant factors. In the short term,
every event seems to be of great value to explain the course of things. One has to take a long
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historical context to look from a distance and to put things in their proper context. (C.
Vandenbroeke, Purchasing Power in Flanders, pp. 10, 22.)
When looking for material to write this section, we were struck by the fact that there is
so little statistical information available describing the evolution over longer periods of time several hundred years - of economic entities such as unemployment, inflation, profit-ratio's,
industrial production, investments, etc. We have found fragments of information for several
countries, but unfortunately all from different periods of time or only very short periods. This
is probably due to the fact that one has started only recently - from the end of 19th century to keep records of these entities in an organized way.
The French economist Jacques Attali has made an attempt to describe the dynamics of
economic evolution over a longer period of time28, unfortunately without any reference to
facts and figures. The Belgian historian Chris Vandenbroeke has compiled some very useful
statistic material over several hundred years, but limited to Flanders, the northern part of
Belgium. Fortunately we have found very valuable and interesting material on the history of
the US economy in the books of Ravi Batra (The Great Depression of 1990) and Howard
Katz (The Warmongers). This book has been inspired for a great deal by their writing.
It is also very remarkable that most authors of textbooks on the history of the economy
of a country or a group of countries limit their scope to periods in between wars, as though a
war is just a fracture in the normal evolution of the economic process, without being part of it.
For most economists, war is just an exogenous factor.
Nevertheless, we have been able to draw some conclusions out of the scarce historical
material. We will try to construct a picture of the evolution in time of some basic economic

28

Attali, Jacques, 1984, La Figure de Fraser, Fayard, Paris.

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entities, based on facts and extrapolation. The resulting picture will then be explained later
on, using a model that will be developed in the next two chapters.
3.3.1

The Evolution of the profit-ratio


On the subject of the evolution of the profit-ratio of private companies, we refer once

more to the work of the Belgian economist J.P. Van Rossem.


One cannot deny the fact that in the whole western economy the profit-ratio
(the ratio between the realized profit and the capital invested in order to realize
that profit) has decreased steadily since World War II. This does not imply that
companies make less profit. It only says they have to invest more in
machinery, buildings and energy to realize the same level of profit...
Calculations show that the average profit-ratio in Belgian economy has
declined from 15.86% in 1953 to a level of 7.62% in 1977...
Nobody has ever maintained that the profit-ratio should decline, just as a stone
drops when he is released. One can think of measures to increase that profitratio. However, when we analyze for example the evolution of the average
profit-ratio in Germany from 1880 till 1976 (West-Germany after 1954), we
can conclude that the profit-ratio has increased only in two periods of time: the
first time between 1915 and 1919, the second time between 1941 and 1944. In
other periods of time the profit-ratio has shown a declining trend...
In the past, the profit-ratio has increased substantially only during World War I
and World War II.
J.P. Van Rossem, Knack, January 1979, p 119.

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Figuur 3.3: Evolution of the profit ratio

We can represent the evolution in time of the profit margin with a saw-tooth shaped
curve: longer periods of decrease are alternating with short periods of fast increase (figure
3.3). The period of fast increase happens to coincide with the occurrence of a war. Is this pure
coincidence or is there a logical explanation to it?
3.3.2

Evolution of money-growth and inflation


Inflation is an important indicator for the evolution of the economic process and it is

closely related with the rate of money-growth: excessive growth in the money supply leads to
a spiral of increasing prices. In the book of Ravi Batra we can find several charts and figures
describing the evolution of these economic entities for the US economy since the 18th
century. The chart 3.4. is a good rsum.

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Figure 3.4. Inflation and money growth per decade (in %)


180

180

165

165

150

150

135

135

120

120

105

105

90

90

75

75

60

60

45

45

30

30

15

15

Moneygrowth

0
-15

-15

-30

-30

-45

Inflation

1750 1770 1790 1810 1830 1850 1870 1890 1910 1930 1950 1970 1990
Time

-45

Note the increasing trend of the peaks.


The next peak is to be expected in the decade after 2000

Here we can see that both inflation and money-growth have evolved according to a
strict periodic pattern, which was only disturbed after the Civil War. Every third decade there
has been a peak in both the rate of inflation per decade and the rate of money-growth per
decade. It is very important to stress the fact that the trend of the peaks is increasing: during
the 20th century every single peak is higher than the previous one! In systems theory this is a
clear indication of an unstable process! IN the words of Ravi Batra: Finally, the moneygrowth cycle implies that capitalism is fundamentally unstable and that the creation of
institutions as the Fed cannot stabilize it. They are mere palliatives that in the long run
actually destabilize the system. What is needed is not a perfunctory cure, but fundamental
economic reforms. (Ravi Batra, The Great Depression of 1990, p 93.)
Periodic oscillations with an increasing amplitude ultimately lead to the breakdown of
the system. Or the system stops to exist, or it is forced to transform into a system with another
dynamic.
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As with the evolution of the profit-ratio, we find a striking coincidence between war
and peaks of inflation, or deprecation of the currency. We refer once more to Howard Katz
and Paul Samuelson:

Value of the US. Dollar 1790-1978.


(In terms to buy basic raw materials)
Reciprocal of Wholesale Price index, 1910-14 = 100, Logarithmic scale in cent

Figure 3.5. Purchasing power of the dollar.


(The figure is rather obscure, so I suggest you to buy The Warmongers. One day it will be
mandatory reading for students at high school.)

The chart 3.5. traces the value of the United States dollar since its adoption by
the Continental Congress in the 1780s. Study of this chart suggests that every
time a sharp deprecation of the currency occurs (e.g.: 1812, 1861, 1917, 1942,
1966), we have a war, and every time a major war breaks out, we have a
significant depreciation of the currency.
Howard Katz: The Warmongers, p 3.

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Wildest inflation historically comes with periods of war.


1780s: Revolutionary war - War of 1812 - 1860s: Civil War - 1914-18: WWI - 1940-45: WWII - 1950s: Korean
War - 1960s: Vietnam War...
After each major war in the country's history, there has been slightly less of a price drop. Indeed, after World War
II there was no significant drop. For 80 years the general price trend - abroad as well as here - has been
upward.

Figure 3.6. Inflation in the USA.

The figure 3.6. shows the historical ups and downs of wholesale prices. Each
war is clearly marked by a peak... As an omen for the future, note one crucially
significant fact: after World War II there was no decline in prices at all
comparable with what had followed previous wars...
Paul Samuelson: Economics, p 270-271.

When two phenomena A and B show a correlation, then A could be the consequence
of B, or B could be the consequence of A, or both could be the consequence of a third
phenomenon C, or A and B could at the same time be each others cause and consequence.
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Once more we stress the fact that in the period before World War II the dollar returned
to its normal value after each war, while after World War II the depreciation of the dollar
went on at a substantial rate. Both the coincidence with war as well as the changed pattern of
the value of the US $ after World War II will be explained in this book.
3.3.3

Evolution of unemployment
Since the first oil crisis in 1973, most industrialized countries in the western world

have faced periods of more or less high levels of unemployment. This recalls older persons of
the years before the Second World War. Also in previous centuries, economic crises were
marked by high levels of unemployment. Due to the surplus of labor-force, one can assume
that real wages and purchasing power will not increase in times of crisis, but rather will keep
their level or even decrease. One could take the evolution of real wages as an indication for
the evolution of unemployment. In the work of Chris Vandenbroeke (Purchasing Power in
Flanders, p 163) we find some charts on the evolution of the real purchasing power of wages
in Flanders in previous centuries (figure 3.7.).

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Figure 3.7. Purchasing power in Flanders


Above: Purchasing power of a laborers wage expressed in liter wheat (1) and barley (2)
Under: Purchasing power of a laborers wage expressed in liter rye (1) and buckwheat (2)

In this figure we can see a fluctuating evolution. We can assume that peaks coincide
with periods of low unemployment and descents with high unemployment. Here we also
notice a periodicity of approximately 60 years in the return of the peaks (1500, 1620, 1680,
1740) and the descents (1590, 1650, 1710). The same holds for the economy of America.: In
the US economy there has been at least one recession every decade, and a great depression

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every third or sixth decade in the sense that if the third decade managed to avoid a depression,
then the sixth decade experienced a cumulative effect - an all-out disaster. (Ravi Batra, The
Great Depression of 1990, p 118.)
It is also remarkable that the real purchasing power in Flanders did not start to
increase substantially with the Industrial Revolution of the 19th century, but only after the
First World War, when the principle of one-man-one-vote was introduced in the political
system of Belgium.

3.3.4

Conclusion
With only scarce information at hand, we still can see that economic entities fluctuate

periodically in time, and that there is a correlation between their evolution. We also note a
relation with the occurrence of war. Economic crises and wars seem to be related. In this
study on the dynamics and evolution of the economy we will not avoid to include war in our
analysis. But before we end this section, let us try to understand why recurrence occurs. In
doing so, we will call for a generally known concept: our paradigm.

3.3.5

Relation between recurrence and paradigm

A script is essentially the blueprint for a life course...


Their lives are walked in blindness, following someone else's dictates, which
lead them to destruction.
Claude Steiner, Scripts People Live.
Throughout history, human beings have felt the need to construct a frame of
reference for organizing life's activities. The need to establish and to explain
the hows and whys of daily existence has been the essential cultural ingredient
of every society. The most interesting aspect of a society's world view is that
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its individual adherents are, for the most part, unconscious of how it affects the
way they do things and how they perceive the reality around them. A
worldview is successful to the extent that it is so internalized, from childhood
on, that it goes unquestioned.
J. Rifkin, Entropy, A New World View, p. 5.

A society functions according to a certain paradigm, which is based on a set of


premises more or less in accordance with reality. Several social groups in society set
objectives and act toward those objectives according to these premises. If some premises do
not agree with reality, but, on the contrary, are based on a wrong understanding or
interpretation of reality or even on ignorance, then the performed actions will not lead to the
desired objective. Instead, one will be faced with unexpected obstacles. This could lead to
problems, frustration, even aggression and crisis.
Because one has started from the wrong premises, one will most likely look for the
causes of the failure in the wrong directions. Otherwise one would have started in the right
direction from the beginning! One will make the wrong diagnosis. One will even point to a
scapegoat as a reason for failure.

When a society functions according to a paradigm that is not in accordance with


reality, and when, in spite of the crisis, it still follows the same line through, when it does not
learn the necessary lessons and when it does not adapt its paradigm, then that society will
again and again be faced with the same kind of crises - even with increasing intensity -, it will
again and again go through the same scenario (scripts in transactional analysis, karma in
eastern philosophies), just as the principal character in an ancient Greek drama: The tragic
error in tragic drama is walking in blindness so that the tragic hero who intends to accomplish

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a certain result with his actions accomplishes the exact opposite. (Claude Steiner, Scripts
People Live, p 60-61)
The cause for recurrence and periodicity in economy can be found in the fact that the
current economic paradigm is not in accordance with reality. The ever-repeating cycle of
economic crises and wars can only be interrupted if we succeed to transcend the limitations of
the present paradigm and if we can expand or even transcend our paradigm, cut the wrong
dimensions and add new correct dimensions to it, so it is more in tune with reality.
Does all this implies that events are predetermined and that we have to be their
helpless victims? Not really! All it means is that things move in terms of
predictable cycles that keep occurring time after time until their true cause is
discovered. Once we know their cause, we can stop them. After all, humanity
has broken disastrous cycles in the past and will do so in the future as well.
This is how all evolution occurs. We keep enduring recurring problems of one
sort or another, until they become intolerable; then someone discovers their
true cause and helps us break the cycle. Afterwards a new cycle takes over.
However, in view of the longevity of the patterns described in this work, it is
clear that disrupting them will not be easy. Nothing short of fundamental
reforms will work.
Ravi Batra: The Great Depression of 1990, p 94.

And this is what this book is all about. First we will evolve a model that will help us to
explain the recurrence of economic crises, the relation with war, the paradoxes of section 3.1.
and a lot of other phenomena. The model will then allow us to formulate an alternative to
break the recurrence. So, I think economics really could become a hard science after all...
once we have returned to hard currencies and real democracy.

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3.3.6

Author: Geert Callens

The economic dogma


Economy has always been defined as the social science dealing with the problem of

choice in a world with limited resources, a world where the factors land, capital,
workforce, raw materials, energy - are scarce: Butter or guns. Malthus, who as central
information-gathering agent kept statistics for the East India Company, found that, as
population grew with a geometrical progression while resources only grew with an arithmetic
progression, scarcity would increase. There always would be a fundamental inadequacy of
life support on planet Earth, so only the fittest would survive economically resulting in an Us
or Them attitude. To my very surprise this EIC started to play a very important role when I
was compiling my study. I am even pretty sure it still exists as a company in one form or
another.
Within this scarcity, the economic agents individuals, companies... - are supposed to
aim for the maximum benefit for themselves, to act out of pure self-interest. Classical
economic theory, neo-classical theory, Marxist theory or neo-Marxist theory, they all start
from these same basic assumptions.
In the classical general equilibrium theory, the law of supply and demand and the
market take care that the price level for each product and service evolves to its optimum
value. There is no moral judgement to make on this pure rational and morally impartial
Invisible Hand. On the contrary, moral considerations could lead to regulations interfering
with the market mechanism and to a less than optimal economy.
One of the benefits in the capitalistic world is profit for the private companies. From
a businessman's point of view, we can describe profit as follows:

A company realizes a turnover by marketing certain products or services.

In order to do this, it has fixed and variable costs.


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Turnover minus the variable costs gives us the contribution.

Contribution minus the fixed costs gives us profit before taxes.

Profit before taxes minus the taxes results in profit after taxes.

But there is something very strange with this profit, as according to the economists
themselves profit is not possible at all. According to the concept of evenly rotating
economy formulated by the economist Murray Rothbard, when everything is perfectly
known by everybody, technology is stabilized, and management is perfect, then the economy
evolves to a stationary state and profit tends to decline to zero. Paul Samuelson has expressed
the same as follows: Suppose we lived in a dream-world of perfect competition, where we
could read the future perfectly from the palm of our hands and where no innovations were
permitted to disturb the settled routine of things. Then the economist says, there would be no
profit at all!
So in order to keep on making profit in the capitalistic world, where only the fittest
survive, one has to set one of the following mechanisms into action, or a combination of
them, resulting in a deviation from the optimal equilibrium. The actions are listed as
bullets in an order that is economically irrelevant, and I am sure you are able to add a few
more yourself. In this book you will find many practical examples of these mechanisms):

Mechanisms in order to realize the same turnover with less variable costs: increase
productivity, more automation in order to reduce the direct labor costs and to
increase output per man-hour; mechanisms to guarantee cheaper input of raw
materials and energy.

Mechanisms in order to distribute the fixed costs over a greater turnover by


increasing the scale of production and by acquiring new markets.
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Mechanisms so that customers buy from you and not from your competitor:
innovation, product advantage compared to the competition, advertising.

Mechanism in order to create ever new products or variations on existing products


and to be the first one to skim the market.

Mechanisms in order to eliminate the competition: mergers and acquisitions,


regulations.

Mechanisms in order to make the customer to buy your product over and over
again: too expensive printing cartridges, built in wear-and-tear, genetic
manipulation of planting seeds.

Mechanism in order to force the customer to buy the product from you and you
alone (monopoly, autarky).

Mechanisms to pay less tax, or even better none at all.

Mechanisms in order to divert costs from your account to someone elses, or even
better to many others (pollution).

Mechanisms in order to divert money from the pockets from the others into your
own pockets.

and when all of the above mechanisms are no longer effective, in order to save the
system from total collapse: mechanisms to start the game all over again from the beginning
(same players shoot again). Unnecessary to say that the mechanism that you can set into
motion depends on your span of control.
This us-or-them-but-not-both-together-attitude, based on the assumptions of
fundamental ever-increasing scarcity and zero-profit in perfect equilibrium, has resulted in the
economic world-paradigm as we know it today. Just read the newspaper and watch the news
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on television, but dont you dare to make a moral judgement as toute est au mellieur dans le
mellieur des mondes, to speak with Voltaires optimistic Candide.
Well, both assumptions are wrong. And as the mechanisms described above are based
on these wrong assumptions, they are becoming more and more irrational as you go down the
list.
If one takes a look at history, economic depressions are a result of lack of turnover,
lack of customers, i.e. lack of people with economic needs and with money to spend. The
people with money to spend have already more than they need. The people not having what
they need do not have any money to spend. So in a sense there is scarcity, but only scarcity of
customers, not of products.
Economists try to let us believe that, in the first place, profit is not possible at all
without the use of one or more of the mechanisms described above. I have never found
positive proof of this statement in all the books and articles that I have read on economy. So
in a way it is an academic dogma, an axiom, based on the economists inability to explain the
real social origin of profit. But then everybody wants to make a profit. It is like Eros and
Thanatos: everybody does it but nobody wants to talk about it. But there is nothing wrong
with sex or dying, neither with profit: they are all natural.
The question if profit is possible after all will be answered in this book, where we will
demonstrate that profit is indeed possible without losses for others and without using one or
more of the mechanisms listed above, even in a situation of perfect competition and perfect
knowledge and without need for innovations, if certain conditions are met. We will describe
the real nature and origin of profit in a totally different manner than the businessman's or the
neo-classical or the neo-Marxian economist's point of view. This new insight leads to a new
world-paradigm, which results in a very clear understanding of the economic and political

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history of the world as well as the present economic, financial and political reality. And above
all it will lead us to the solution of economic and political crises, a solution that is rational
and moral at the same time, and permanent. There is another mechanism that works.

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3.4

Author: Geert Callens

Basic Theory

How wonderful that we have met with paradox. Now we have some hope
of making progress.
Niels Bohr

In this section we will evolve a general and coherent model to describe the economic
process. This model will be very simple, even suspiciously simple. However, it will allow us
to explain the economic reality in great detail: all questions and paradoxes from section 3.1.
can be answered with this model, the recurrence of economic entities and their correlation
discussed in section 3.3 will also be explained. This argues for the validity of the model.
According to F. Vandamme, professor at the University of Gent, one should consider the
following characteristics in order to make a general evaluation of a theory29:

The systematization of the theory. The level of abstraction and the universality of
the theory are closely related to this.

The number of phenomena that can be explained by this theory compared to the
complexity of the theory.

Control: diversity of confirmation and falsification.

Objectivity, i.e. the acceptation of the theory by experts in the field concerned.

I think only the last item could be a real (or fictive?) problem.

29

Fernand Vandamme, Economy and Philosophy of Science, p 81-82

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3.4.1

Author: Geert Callens

Satisfaction of needs: Driving force of the economic process


To start with, let us consider a society that lives in isolation from other societies. You

may think this is a severe constraint. But remember, think as a cosmopolitan! We can think of
this society as a system, composed of several smaller subsystems interacting with each other:
private persons, companies, political and social pressure groups, countries... The people living
in this society have material needs. These needs can be of individual or collective nature. The
economic process is supposed to fulfill these needs: raw materials, energy and human effort
and creativity are combined in order to produce and distribute goods and services.
As barter proved to be inefficient30, an intermediate medium of exchange is
introduced: money. This money can take several forms: pebbles, shells, cattle, metal, gold,
jewels... even paper! Money does not need to have an intrinsic value to use or to consume it.
Money, as money rather than a commodity, is wanted not for its own sake but for the things it
will buy. A person accepts money because it is generally accepted in the society he lives in.
He accepts it because he knows - or hopes - that other persons will accept it when, later in
time, he wants to exchange it for goods or services. It is just a matter of social convention and
of confidence, more specific confidence in the future value of that money: that other persons
still will accept it and that it still will have the same value. Later on in this book, we will see
that one could make - and has made - abuse of that confidence.

30

Paul Samuelson, Economics, p 274-276, Barter versus the use of money.

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3.4.2

Author: Geert Callens

Profit as a consequence of growth


A student in economy has to struggle through several courses at university. They can

be classified in two fields:

Economy, divided in macroeconomics and microeconomics. Productivity is one of


the key words. Growth of productivity is the objective31.

Business administration. Profit is one of the key words. Maximization of profit is


the objective.

The relation between these fields and the premises on which the theories are built are
rarely discussed or questioned at university: how do all these theories on economy fit
together, what laws are valid on one level but not on another, can one extrapolate from one
level to another...? Students in economy study these courses in the first place in order to be
able to reproduce the material the way the professor likes it and to get a degree, not to put
things to question. If they would do so, they would question the authority of the professor,
which might jeopardize their degree and their academic career.

Basic theory
As already promised, we now introduce time in our description of the economic
process. Let us assume that in the society we study, the output of the economic process at
time t1 has a certain level of production: x bread, y shoes, z prams... Against this level of
production, we have an amount of money in circulation. The ratio of the amount of money in
circulation to the level of production determines the average price-level of the products and,
on the other hand, also the purchasing power of a certain amount of money.

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The purchasing power of a subsystem in our society - in particular an individual


person - is determined by the percentage of the total amount of money in circulation it can
accumulate, because this determines the percentage of the total production of goods and
services it can acquire.
Let us further assume that in the present stage of economic development there is not
enough production to fulfill all material needs. People make an effort to increase production
by combining more energy, raw materials and human effort and creativity in the production of
goods and services. At time t2, a period of time dt after t1, the output of the economic process
has increased with a certain amount: x+dx bread, y+dy shoes, z+dz prams... are produced. If
the amount of money in circulation can not be changed - we almost wrote manipulated because a certain scarce good is used as money, then the average level of prices must go
down. With the same distribution of the amount of money as before, at time t1, this implies
that at time t2 the purchasing power of every subsystem and every individual has increased:
with the same amount of money they can buy more things. In particular, we can say that the
purchasing power of money that was put aside has increased: with the money saved at time t1
one can buy more goods and services at time t2 than at time t1.
If the amount of money could be adjusted, then one could keep the same average price
level by increasing the amount of money in circulation with the same rate as the level of
production has been increased32: the growth of the economic production is then translated into
a growth in the amount of money in circulation. We can consider this increase in the amount

31

I can recommend the article Neo-classical Micro and Macro Economics, Science or Silliness written
by Michael Albert, to be found at http://www.parecon.org/writings/neoclasseco.htm
32
See also Ravi Batra, The Great Depression of 1990, p 83.

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of money from time t1 to t2 as profit for the society, realized over the time-interval [t1,t2],
and thus expressed in currency unit per time unit.
The way this increase of the money-supply or profit for society is distributed among
the several subsystems of the society determines the respective changes in purchasing power
of those subsystems: profit for companies, part paid as dividends for shareholders and part as
earnings retained in the business, higher wages and salaries for employees and laborers,
increase in pensions, interests on savings accounts... with the restriction that the sum of all
increases in purchasing power is equal to the increase of the amount of money in circulation
or the profit for the society as a whole due to increased production. Here we can see the real
origin of profit realized by companies:

Profit realized by companies is part of the profit for society and thus is a
consequence of the growth of the economic production.
(Remember: profit and growth are both expressed in currency unit per time
unit).

This is a very important conclusion. However it is very difficult to find a trace of it in


economic textbooks. As already stated, most economists even say that profit is not possible at
all: Suppose we lived in a dreamworld of perfect competition, where we could read the
future perfectly from the palm of our hands and where no innovations were permitted to
disturb the settled routine of things. Then the economist says, there would be no profit at all!
Only after an intense research we have found a short comment on the relationship between
profit and economic growth in a book written by the Dutch economist J. Pen: ...the social
benefits are a burden for profits, who are corroded already by the decline in economic

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growth33. However, this conclusion that profit is a consequence of economic growth will
play an important role in this book, especially because it will lead us to the explanation for the
paradoxes and questions of section 3.1. and the solution for the economic crisis.
Next to freezing the amount of money in circulation or keeping the same average level
of prices, there is also a third possibility: the amount of money in circulation could increase at
a higher rate than the economic production. We will postpone the very interesting discussion
on this possibility until section 3.6.7.
3.4.3

The social purpose of profit


In the previous section we have discussed how growth of the output of the economic

process leads to profit for society as a whole. This profit for society, expressed in terms of
goods and services or in terms of money, is divided among the different subsystems in
society: dividends for shareholders, earnings retained in business, higher wages and pensions,
interests on savings accounts... In periods of considerable economic growth it is very well
possible that all private companies make a profit, that all employees and laborers receive
higher salaries and wages and pensions, that depositors receive interests on their savings, and
that banks receive higher interest on loans than they have to pay on deposits. We do not have
to assume imperfect competition, imperfect management, non-transparent markets and
innovations in order to justify the existence of profit, as some economists do.
Profit of a company is part of profit of society and is thus to be considered as a
consequence of economic growth. The social goal of profit is twofold:

In the first place it is a reward to enterprise and innovation: companies and


entrepreneurs who combine raw materials, energy and human effort and creativity

33

J. Pen, Look, Economy, comment with the picture on p 54

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in an efficient way and who produce goods and services fulfilling real needs of
society and its subsystems, are rewarded with a profit. In this sense, we can say
that profit is a stimulus to avoid injudicious use of raw materials and energy:
inefficient companies, with high costs of production, or who are making products
not in demand, are punished with a low or even negative profit and eventually will
go out of business. Efficient companies, on the other hand, with low production
costs or making a product in great demand, will make more profit. They will stay
in business or even be able to expand their activity.

On the other hand we can see profit as the stimulus for entrepreneurs to design,
produce and market products fulfilling real needs in society. To realize this, they
hire people and they pay them a salary for their services. Employees can then
fulfill in their needs and of those depending on them by spending money, buying
goods produced by the entrepreneurs.

Here we see a mutual dependency between employers and employees. In his last book
Critical Path, the late R. Buckminster Fuller has described this concept of mutual dependency
as precession: i.e. the mutual interaction, voluntary or involuntary, among two subsystems
belonging to a greater overall system of a higher level. B. Fuller has illustrated the concept
with a simple metaphor: the theory of the rubber cylinder34.

34

B. Fuller, Critical Path, p 141

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Figure 3.8. a Cilinder at rest

Figure 3.8. b. Cilinder stretched out

Let us consider a cylinder with a rubber middle part, rigid disc ends and filled with
water (figure 3.8.a). When we pull the two opposite disc ends away from one another, the
middle part of the cylinder contracts in a series of concentric circles of diminishing radius
perpendicular to the line of our pulling (figure 3.8.b). This is because the volume of the water
can not change: so when the cylinder is made longer, then the middle part must contract. So
the middle part and the ends of the cylinder are tied to each other by the medium water. A
displacement of one of them (the discs) results in the displacement of the other (the middle
part).
So next to the result that was deliberately achieved (the pulling apart of the discs), a
not-intended perpendicular side effect occurs (the contraction of the middle part). One could
have obtained the same result by doing just the opposite: by contracting the middle part, the
discs would move further apart. This means that pulling the discs or contracting the middle
part have the same result. In pursuing the result, is it then important, after all, which one of
both actions has been performed: pulling the discs, contracting the middle part, or a
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combination of both? We also notice that when we would have used a thinner medium - air or
some gas - there would have been less coupling between the displacements of the discs on the
one side and the contraction of the middle part on the other side: part of the interaction is lost
in the elasticity of the medium, as air is much more compressible or expandable than water.
Let us now return to economy. By trying to obtain more profit (pulling the discs
apart), the employer allows more people to fulfill their material needs (contraction of the
middle part) as he produces and sells products and services and pays salaries. Could it be
possible that the opposite rule is also valid, as with the rubber cylinder? Will profit increase
(discs moving further apart) when more people are given the means to fulfill their material
needs (contracting the middle part)? I suppose you recall the first paradox from section 3.1.4,
the story of General Motors. From that story one could assume that the opposite rule is indeed
valid. The underlying mechanism will be explained in the section 3.5.2., based on the basic
assumption that profit is a consequence of growth.
If we follow this line of reasoning, we could ask ourselves the question: what is the
medium that links employers and employees? And what happens if that medium becomes
thinner? Does the mutual interaction still work then? For the first question I would suggest
the following answer: needs for goods and services. The employers produce and market goods
and services fulfilling needs of the society. The employees sell their labor to the employers
in order to receive a salary and to be able to fulfill their needs for goods and services. The
second question, on the medium becoming thinner, will be handled in great detail in section
3.6.

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An idealistic view on economy


We could describe economy as a process in which raw materials, energy and human

effort and creativity are combined for the production of goods and services in order to fulfill
collective and individual needs. In this process, profit is at the same time a consequence of as
well as a stimulus for growth of the economic production.
In this view, fulfillment of needs for goods and services is the driving force of the
economic process and not profit, as was even stated by a neo-Marxian economist in section
3.1.4. However, this ideal situation is turned upside down in real life: profit, a consequence,
has become a goal on itself. As we shall see in section 3.6. this shift in emphasis has caused
us a lot of trouble.
3.4.5

Positive balance of trade


In the first paragraph of this chapter, we made the assumption of a society living in

isolation from other societies. You may say this is not very realistic as most countries today
are involved in the international trade scheme. In section 3.1.3. we wondered why a positive
balance of trade is considered to be good for the economy of a country. A country has a
positive balance of trade when it exports more than it imports, when it produces more than it
consumes so the revenues are higher than the expenditures in its international trade. One
could consider a positive balance of trade as profit for that country realized by its trade with
other countries over a period of time, and thus expressed in currency unit per time unit, the
same unit as profit and economic growth.
This profit for the country is also distributed among the country's different
participants in the international trade, just as profit for society as a consequence of
economic growth is distributed among the different subsystems of society. On the other hand,

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we can consider a negative balance of trade as a loss for the country in its trade with other
countries.
This profit or loss for the country, resulting from its trade with other countries,
accumulates with the profit for society resulting from internal economic growth. When the
internal economic growth stagnates, because of saturation of the market or because the needs
of the subsystems with money-to-buy are saturated and the subsystems with real needs have
no money-to-buy, then companies can still make a profit by exporting their products to other
countries.
We can conclude that profit for society and thus also profit for a company can be
considered as the consequence of two factors:

On the one side the internal economic growth in the society.

On the other side a positive balance of trade in the society's trade with other
communities.

Here we see the reason why economists attribute such a great importance to a
substantial growth rate and a positive balance of trade.
When faced with saturation of the internal market, it is obvious that countries will
concentrate on the second factor in order to avoid a situation of zero-growth35: they will try to
have a positive balance of trade with the other countries. In the assumption that the world is
flat, and thus an infinite plane, it is perfectly feasible for every country to have a positive
balance of trade: there is no argument to contradict this. However, since several centuries we
know that the earth we live on is a globe, and a globe has the annoying feature of being finite!
The finite number of countries on this finite globe can be divided in two classes:

those with a positive balance of trade

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those with a negative balance of trade

The sum of the surpluses of the positive balances of trade must always be equal to the
sum of the deficits of the negative ones. This assumes that the balances of trade of all
countries are calculated in the same way. This equilibrium is a direct consequence of the fact
that our globe is finite. We stress the fact that the equilibrium between balances of trade is not
static, but rather dynamic: the balance of trade of a country can show a surplus at one time,
and a deficit at another time. But there has to be an equilibrium between the surpluses and the
deficits at all times. It is also a fact that not all countries can have a positive balance of trade
over the same period of time.
As already stated we consider ourselves in this study as world citizens. So let us make
abstraction of the borders between countries, this means that we consider the earth as one
great economic entity. In this view there is no trade with the outside world, so there can be no
positive balance of trade, so profit for society and profit for companies can only be a
result of the growth of the world-economy.
3.4.6

Conclusion
In this very important section we have unveiled the social origin of profit. We have

discussed that profit for a company as well as for society as a whole (a country or the earth) is
to be considered as a consequence of the growth of the output of the economic process. We
have learned that fulfillment of material needs is the driving force of that economic process.
Profit is at the same time the stimulus to start this process and to keep it running, as well as a
result of it.

35

We will discuss zero-growth and its implications in great detail in the section 3.5.3.

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This point of view is quite different from that of a businessman, who thinks of profit
as the difference between turnover and costs, and also different from that of some economists,
who see profit resulting from the realization of surplus value, in one way or another. Our
point of view, however, is not in contradiction with these two.
Our point of view embraces the other two and explains that a positive difference can
exist between turnover and costs - even with all companies united in World Industries Inc. -,
that a surplus value can be realized and that interest can be earned on a savings account. The
necessary condition for all of this is economic growth.
3.5
3.5.1

Direct consequences of the basic theory


Evolution of the profit-ratio
In section 3.3 we have discussed the periodic evolution of some economic entities. We

have seen that the profit-ratio of enterprises evolves according to a saw-tooth curve: long
periods of slow decline alternate with short periods of substantial increase of the profit-ratio.
To our regret, we have also noticed a correlation with the occurrence of war. What is the
reason for this evolution and what has war to do with profit? Once more we refer to the work
of the Belgian economist Van Rossem. However, we do not agree with everything he says:
our remarks follow after his line of reasoning.
One cannot deny the fact that in the whole western economy the profit-ratio
(the ratio between the realized profit and the capital invested in order to realize
that profit) has decreased steadily since World War II. This does not imply that
companies make less profit. It only says they have to invest more in
machinery, buildings and energy to realize the same level of profit...
Calculations show that the average profit-ratio in Belgian economy has
decreased from 15.86% in 1953 to a level of 7.62% in 1977...
Nobody has ever maintained that the profit-ratio should decline, just as a stone
drops when it is released (comment 1). One can think of measures to increase
that profit-ratio. However, when we analyze for example the evolution of the
average profit-ratio in Germany from 1880 till 1976 (West-Germany after
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1954), we can conclude that the profit-ratio has increased only in two periods
of time: the first time between 1915 and 1919, the second time between 1941
and 1944. In other periods of time the profit-ratio has shown a declining
trend...
In the past, the profit-ratio has increased substantially only during World War I
and World War II: the enormous destruction of capital goods and infrastructure
had led to a substantial increase of the profit-ratio, as the profit-ratio is the
ratio between profit and the invested capital (comment 2). This does not
necessarily imply that war is the only way to increase the profit-ration. There
are other less cruel measures one can take, but these are nevertheless also
painful. A severe decrease of wages in combination with a continued
technological progress could lead to a substantial increase of the profit-ratio.
(comment 3).
J.P. Van Rossem, Knack Magazine, January 1979, p 119
Comment 1
According to the concept of evenly rotating economy formulated by the economist
Murray Rothbard, when everything is perfectly known by everybody, technology is
stabilized, and management is perfect, then the economy evolves to a stationary state and
profit tends to decline to zero. As Van Rossem indicates, the profit-ratio has apparently the
tendency to decline in times of peace. Why? The profit-ratio is the ratio between profit and
invested capital. As discussed in the section 3.4.2, we can see profit realized by a company as
part of the profit for society, which is a consequence of the growth of the output of the
economic process.
In a stable, industrious and peaceful society ever more material needs can be fulfilled
by the effort of all participants in the economic process. As the economic production grows,
the real income of the population increases and more of their material needs can be satisfied.
But this does not mean that the consumption will grow at the same rate as their income: as the
income level increases, people tend to save more36. The higher savings allow for more

36

P. Samuelson, Economics, Chapter on 'Saving, Consumption and Investment', p 209

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investments. An investment is essentially the abstaining from direct consumption in order to


provide for more consumption in the future37: money is put aside to spend it on raw materials,
energy, human effort and creativity in order to produce new and better capital goods such as
machinery and factories, so that productivity can be increased and more consumption goods
can be produced in the future. Increase of productivity in order to cut production costs is
needed because prices are under pressure as more material needs are fulfilled and the relative
affluence increases. So the supply of saved money is accepted eagerly by the business
community in order to increase the stock of capital goods.
As material needs become ever more fulfilled, absolute growth and thus profit for
society will decline. As profit for society and thus profit for private business decreases,
and the capital invested increases, then the profit-ratio must go down. However, if the profitratio has the tendency to decrease, from what level did it originally came from (plus infinite)
and how deep can it fall (till zero or even negative)? As Van Rossem noticed, the profit-ratio
decreases in periods of political and social stability in between wars, while it increases before,
during or after a war. This increase in times of war is explained in the next comment.

Comment 2
In a stable, industrious and peaceful society we can say that the profit-ratio has the
tendency to decrease. In order to change this pattern, we can think of several possible
alternatives.
The first alternative is a war. According to Van Rossem, the profit-ratio (profit divided
by the capital invested) increases during and after a war due to the destruction of capital
goods. We think this is correct, but incomplete. After a war, the society has returned to a high

37

P. Samuelson, Economics, p206

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level of material needs: there is great demand for basic goods like housing, food, clothes...:
there are again opportunities for economic growth! These opportunities for growth and thus
higher profit for society lead to higher profits for private companies than during the period
before the war. As there is great demand for products and low supply, there is no fierce
competition so prices are not under pressure. Destruction of capital goods (reduced
denominator) as well as the return to a high level of material needs for basic products
(increased numerator) result in an increase of the profit-ratio. Unfortunately enough, war
seems to be a very efficient tool to obtain this.
There is, however, a second alternative. We will introduce this alternative in comment
3 and elaborate it in the next section.

Comment 3
Van Rossem has stated correctly that a world war is not the only way to bring the
profit-ratio back to a higher level. But we think he is wrong when he says that other less cruel
measures are also painful and that a substantial cut in wages could result in higher profits.
The latter statement might be valid for one company (according to its working account) or for
the economy of one country over a short period of time, but on the long run this cannot be
true for the whole world seen as one economic entity. On the contrary! To prove this
statement, we refer to section 3.1.4. where we discussed profit:

Problems with profit, where we criticized the policy of moderation and wagecuts as a possible solution for the economic crisis in the western industrialized
countries;

First paradox, where a historical fact proved that a raise in wages does not
necessarily leads to lower profits;
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Second paradox, where we criticized some commonly accepted theories on the


social origin of profit.

In the next section we will combine all these ideas and statements together with our
basic theory in one thesis: distribution of profit as driving force of - or brake on - economic
growth.

Additional remark
You may object that profit ratios in times of peace not always decline, as in the 90s,
when some companies have published top profit-ratio figures, resulting in tremendous heaps
of cash and takeovers of other companies. This is indeed the case if one looks only at
individual companies. But if one takes into account that the purchasing power of the middle
class has been eroded in the last 40 year, while top multinationals manage to pay no taxes at
all, we can say that the profit-ratio of the society as a whole has the tendency to decline. Even
with this declining profit ratio, some entities manage to increase their profit ratio at the
expense of other entities. But this can be justified based on the dogma that, after all, profit is
not possible, so somebody has to pay the price for someone elses profit.

3.5.2

Distribution of profit as driving force or brake on economic growth


Let us again study a particular society. Suppose that the output of the economic

process is growing: ever more material needs of ever more people in that society are fulfilled.
Over a period of one year the growth has a certain level: the increase in the volume of goods
and services produced. This increase corresponds with the profit for society or the total
increase in purchasing power.

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This profit for society is divided among the different subsystems in our society:
dividends for share-holders, retained earnings for companies, increased wages for employees,
higher pensions and social payments, interests on savings accounts, etc. The several
subsystems in society see their purchasing power increased according to the percentage of the
total profit for society they are assigned or they can acquire.
An increase in purchasing power of a subsystem whose material needs are already
fulfilled to some degree - compared to other subsystems - will induce only a small or even no
increase in consumption expenditure of that subsystem. On the contrary, that subsystem will
save the major part of the extra purchasing power it has acquired. It will invest the saved
money by placing it on a savings account or by acquiring government bonds - i.e.: low risk
investments - or it will invest directly or indirectly in private companies - i.e.: risk-bearing
capital.
Depending on the level of the expected profit-ratio, which reflects the return on riskbearing capital, compared to the interest of the low-risk investments, it will decide to invest in
shares or in government bonds. Investments in shares lead to growth in capital goods (office
buildings, factories, machinery,...), while investments in government bonds lead to growth in
public goods and services (roads, bridges, defense industry,...). Both can give a contribution
to future economic growth. However, if the private consumption does not increase, then the
ever increasing stock of capital goods will be used far below its maximum capacity, so
demand for new capital goods will also drop and economic growth will slow down. The profit
ratio will decrease. To illustrate this, we refer to an interview with the economist Ernest
Mandel, professor at the University of Brussels: These reasons together indicate how
difficult it is to solve the economic crisis. Everything one does to expand the market and to
increase the purchasing power of the population undermines the profit of the companies. And

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everything one tries to improve the profit-ratio of the companies undermines the purchasing
power and thus the sales potential. To solve both problems simultaneously seems to be very
difficult and it will take a long time. (Interview with E. Mandel in Knack, March 14th 1984.)
We are surely not so pessimistic as professor Mandel when he says that it will be
extremely difficult and will take a long time to solve both problems of over-production and
low profit-ratio at the same time. Indeed, an increase of the purchasing power of a subsystem
in society whose basic material needs are far from fulfilled leads to an immediate increase of
consumption expenditure: that subsystem will spend the total increase of its purchasing power
to buy goods and services. If this happens in a situation where the production capacity is not
used at full capacity, then the output of the economic process can increase without need for
new investments. So it is perfectly feasible that a substantial increase in purchasing power of
a subsystem with great material needs will lead to an increase of turnover and thus to a higher
profit for society and thus to higher profits for private companies in absolute terms. As the
level of capital goods does not have to increase, this means that the profit-ratio will increase!
On the one hand we have stimulated the direct consumption and the economic growth, on the
other hand we did not have to do investments to increase the production capacity.
Here we have found the explanation for the first paradox in section 3.1.4. The board of
directors of General Motors had three alternatives:

It could divide the total profit of that year among the shareholders as dividend.

It could decide to pay no dividend but to invest the retained earnings in extra
production capacity.

It could grant the demands of the union.

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The shareholders already drove a car, and probably would not spend the extra money
they received as dividend to buy another car, and surely not a GM car but rather a Bentley or
a Rolls Royce. An increase of the production capacity did not make sense, as there was
already capacity in excess. By granting the demands of the union and because they had set an
example to other companies in the region and all over the USA, GM had created a large
market in their own country by increasing the purchasing power of the laborers. They had
induced possibilities for future increase in turnover and profit for the next twenty years.
As Lester Thurow says in the foreword to The Great Depression of 1990 by Ravi
Batra: Essentially the economic process is like that of the wolf and the caribou. If the wolves
eat all the caribous, the wolves also vanish. Conversely, if the wolves vanish, the caribou for a
time multiply but eventually their numbers become too great and they die for lack of food.
Producers need consumers and if producers deprive workers of their fair share of production
income they essentially deprive themselves of the affluent consumers they need to make their
facilities profitable.
The reader who is familiar with control systems theory will recognize in this
discussion the concept of feedback. By returning the output of a process in one way or another
back to the input of that very same process, one creates a mechanism to control the system.
By feedback of the profit for society - a result or output of the economic process - as changes
in purchasing power to the several subsystems in society, a change in the consumption and
spending pattern of society and its subsystems is induced - input of the same economic
process. This affects the very structure of the economic process itself and the future growth
and profit for society. This feedback mechanism has a quantitative effect (the size of the
growth) as well as a qualitative effect (the nature of the growth: what kind of products and
services will be in greater demand).

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Growth is considered to be closely related to the transformation of the structure of the


economy: growth only occurs under the impulse of ever new changes in the structure of the
economy, i.e. under the impulse of changes in the consumption pattern of the population,
changes in the organization of the branches in industry and changes in technology. On the
other hand we can say that this transformation of structure is not an autonomous process and
that it is not only determined by technological progress. When economic growth leads to an
increase of the income per capita, then we can see significant shifts in the demand for several
kind of products. When the income increases, the demand for some products increases more
than for other products.
We also know from control systems theory that an injudicious feedback policy could
make a process unstable. This instability is manifested by increasing and, in the long run,
excessive oscillations, which ultimately will lead to the breakdown of the system. If one
knows the dynamics of the system by means of its state-variables and systems-equations, then
it is theoretically possible for a certain subset of systems to find the best feedback policy in
order to bring and keep the system to a certain state one has set as a goal. If however the
dynamics of the system are not completely known, then one can still use heuristic rules.
These are rules of thumb, not based on a complete and correct understanding of the system,
but on partial knowledge, experience, common sense, intuition... Under certain circumstances,
which are often not explicitly known, they can lead to a result that is acceptable.
Based on our discussion on the effect of the distribution of profit on future growth, we
could formulate the following heuristic rules to control the economic process:

Rule 1: If the stock of capital goods is used at full capacity or close to that, then
we can induce investments by granting most of the profit for society to companies
and shareholders (E.g. reduced taxes on profit or, even better, financial support for

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investments). The new investments will lead to an increase in production capacity


and, in time, to an increase of the consumption for the whole society. To invest is
to abstain from immediate consumption in order to be able to consume more later
in time.

Rule 2: If the stock of capital goods is used at a level substantially below its
maximum capacity, then we stimulate consumption by granting most of the profit
for society to those whose material needs are far from fulfilled. E.g. reduced taxes
on lower wages, higher taxes on profit or a higher capital gains tax. The increase
in consumption will lead to economic growth and more profit without having to
invest in capital goods. The existing stock of capital goods will be used more
efficiently and the profit-ratio will increase.

According to the conditions of the time being, we apply Rule 1 or Rule 2. The reader
familiar with economy will recognize great similarities between these rules and the principle
of Keynes, although they are not identical.
Keynes observed that businesses perform a two-pronged function: as producers
they supply goods, but they also pay incomes to households in the form a
wages, rents, interests, and profits. The households in turn spend money to buy
goods from businessmen. There is thus a circular flow, with incomes flowing
from producers to consumers and then from consumers back to producers. As
long as businessmen can sell all their goods at a reasonable profit, this circular
process continues uninterrupted. But several hitches may arise. A part of an
individual's income is saved and deposited with financial institutions, a part is
taken away by government in the form of taxes, and a part spent on foreign
goods in the form of imports. These are what we may call leakages from the
total expenditure, and they tend to keep aggregate demand for goods short of
the aggregate supply. Counterbalancing these leakages are the three injections
to total expenditures - business borrowing for investment, government
spending, and exports. If the leakages are matched by injections, total spending
matches the total value of goods produced, and the economy may be said to be
in equilibrium, that is, it has no tendency to move up or down. If the leakages
exceed injections, aggregate demand falls short of aggregate supply and some
goods remain unsold, so that businessmen are forced to trim production and
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hence their employment of labor; in the opposite case of the injections


exceeding leakages, production and hence employment tend to rise.
This, in simple terms, is the well-known Keynesian process of national income
determination. In this system aggregate demand plays an active role, and
aggregate supply a passive role in the sense that the latter converges to the
former. High national income and hence high employment call for high
aggregate demand. The corollary is unmistakably clear: during years of low
demand, the economy suffers from high unemployment and hence recessions
or depressions. The policy prescription is also unmistakably clear: in order to
cure unemployment, the government should step in and raise aggregate
spending in the economy by means of fiscal and monetary policies.
Fiscal policies involve the weighing of government expenditure versus tax
receipts. During a depression, fiscal policy calls for a budget deficit, i.e. for
government expenditure to exceed tax revenue; but with inflation, the cure lays
in a budget surplus.
Monetary policy, by contrast, affects the economy indirectly - through its
effects on business investment. Keynes argued that monetary expansion
encourages investments, while a contraction discourages it. Hence during a
depression, the monetary policy has to be expansionary, but during inflation,
contractional.
Keynesian economics is thus the antithesis of the neoclassical ideology, for the
government is now cast in the role of a constant watchdog indispensable to
continued prosperity. The appeal of Keynesian theory lay in the fact that not
only did it properly diagnose the economic ills, but it also advocated policies
within the reach of governments.
Ravi Batra, The Great Depression of 1990, p 80-82

Here we also recognize the principle of feedback: the government uses its income
(taxes, a result of the economic process) as input to that same economic process. The rules we
have suggested however are of a more general nature: it is not only the consumption pattern
of the government that can influence future economic growth, but of all subsystems in the
economic process.
The heuristic rules of Keynes have been applied with great success after World War II
in countries with a mixed economy. Indeed, the substantial economic growth after the war can
not only be considered as a post-war recovery. Most western countries adapted a system of
mixed economy in which government had an active role and thus created a dynamic growth
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pattern based on the principles of Keynes. The prime objective of the governments was to
create full employment and to stimulate material prosperity for all. They installed all kinds of
systems to redistribute and equalize incomes, they took fiscal and monetary measures to
stimulate or slow down the economy in order to level out the normal business cycles of
booms and recessions. Private business accepted the social policy of redistribution and the
unions accepted the policy to invest in new technologies to improve productivity. The actions
of both groups together with government spending converged into the accelerated dynamic
growth during the 1950s and especially the 1960s38.
But the government spending had a side effect. If taxes were not sufficient to finance
the public investments, the social programs and the defense programs, a lot of governments
started deficit-spending: they loaned money on the money market. The banking industry was
eager to take these loans at a higher rate than they had to pay their depositors. Politicians were
not thinking further then their next re-election and they liked to play Santa Claus to their
voters. Banks were making money with these loans, and industry and labor unions were
happy with the government spending. So in the 1990s most industrialized countries were
faced with very high accumulated budget deficits.
Since the mid 1970s, the application of the principles of Keynes did not yield the
expected results anymore39 and the theory has been criticized by many distinguished
economists. How does it come that these rules, once very effective, no longer seem to work?
When using heuristic rules, or when the dynamics of a system are not completely known, one
should keep in mind that these rules can only be applied successfully within certain
boundaries, not necessarily known to us. In the first place, disturbances affect the normal

38
39

H. Van Der Wee, The Broken Circle of Affluence, p 30-32


R. Batra, The Great Depression of 1990, p 72

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functioning of a system. The consequences of these disturbances are not always predictable.
Small disturbances can usually be neglected, as their impact on the system is much smaller
than the control policy applied to the system. Large disturbances, however, could have a
severe corruptive impact on the dynamics of the system. In the second place, some state
variables could undergo such a great change that they go into saturation, i.e. they reach their
limit value. As a consequence of this, the system does no longer obey to the same rules
anymore, its dynamics have changed, non-linearities might occur. In both cases we can say
that the application of the known heuristics will not result in the expected objective, but on
the contrary might even lead to an end-result opposite to the desired result or even worse to
the breakdown of the system.
So we only have to find out which corruptive disturbances affect the economic
system and where saturation did occur. This is the subject of the section 3.6. But first we will
examine some characteristic features of an economy with zero-growth.
3.5.3

Zero-growth and its consequences


When we study the evolution of economy in Western Europe, one of the most striking

phenomena is the emergence of industry, which led to the end of the Ancien Rgime and the
start of a period of substantial economic growth known as the Industrial Revolution40. What
was the cause for this undoubtedly most important caesura in the pattern of social and
economic development? A lot of books have been written on this subject, with all kinds of
explanations and causal relations between phenomena. One can easily get lost in this maze of
intellectual effort. A striking evaluation of this plodding in historical research was made by
Alvin Toffler: Now, three hundred years later, historians are still unable to pinpoint the

40

C. Vandenbroeke, Purchasing Power in Flanders, p 56

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cause of the Industrial Revolution. In this section we will make a modest attempt to find a
single and simple explanation for the sudden occurrence of economic growth after a long
period of quasi zero-growth. We will do this with our basic theory at hand.
In this basic theory we have given an idealized definition of the economic process:
raw materials, energy and human effort and creativity are combined in order to produce goods
and services in order to fulfill collective and individual needs in society. The satisfaction of
needs is the driving force in this process, the medium in the rubber cylinder. When the
existing needs are satisfied and no longer grow, because of stabilization in the population and
because the people are satisfied with what they have - saturation of an internal state-variable
of the system - then we have an economy with zero-growth: the output of the economic
process stagnates. This situation can also occur when raw materials, energy or creativity, the
means to produce goods and services, are lacking - saturation of input variables to the system
- or when the economic process brings so much pollution or social inharmonies with it that
further economic growth is undesirable or even impossible - saturation of output variables,
disturbances.
Another cause for zero-growth could be oppression and exploitation: oppressed people
are less motivated to work harder or to produce more than necessary, as they can not enjoy
the fruits of their own labor. Any surplus they produce is taken away from them by the
oppressing class or system. Civilizations and societies with zero-growth have existed before,
e.g. great parts of Europe during the Middle Ages and the Ancien Rgime, and still do exist.
Think of some primitive tribes in Africa and South-America.
As we start from the assumption that there is no economic growth, then according to
our basic theory there is no profit for society: at a certain moment in time it is not possible to
fulfill more needs than before. A population could adapt this situation by free will - e.g. if

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they choose to work for a living and not to live for working - or zero-growth could be
imposed upon them in one way or another by the political system. In that society we suppose
a system of trade with money as a medium of interchange. We assume the total amount of
money in circulation as fixed, and thus a stable average price-level. When certain people
produce more than necessary to fulfill their own immediate needs, they can keep their surplus
instead of consuming it. They can keep their surplus in the form of goods or money, they
save. At a later moment in time they can consume or exchange the goods they saved or spend
their saved money. But those saved goods and that saved money have kept the same value as
when they were put aside! In particular we can say that the purchasing value of the saved
money has not increased: in a zero-growth economy money can not create money! Indeed,
during the Middle Ages people secured their money (gold, silver) by depositing it with a
goldsmith and they had to pay for that service: they paid for the security against theft. In our
days, we receive interest on our saved money as the banks manage to make money with our
money.
Societies who have lived in a state of zero-growth since ancient times and have only
recently come into contact with the western banking system have great difficulties in
understanding how one can create money with money. B. Fuller has illustrated this as
follows: None of these water-people understand the western world's banking and creditfinanced business. As a consequence four Chinese families run all the banking businesses of
Java and Sumatra and Indonesia in general. These Southeast Asians say the banker cannot
lend them the wind before the wind blows41.
In our society with zero-economic-growth, people can provide in their living in
several ways:

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By producing themselves everything they need: food, clothes, housing...

By having a more or less specialized contribution in the economic process and


exchanging it for goods produced by others or for money, so they can pay for the
specialized contribution of someone else.

By receiving money or goods from others if they make no active contribution to


the economic process themselves: others yield part of their income because of
solidarity (for the elder, the sick, the handicapped...), because of credulity (for the
clergy...) or because they are forced by law or coercion (aristocracy, thieves,
taxes...)

A certain subsystem in our society with zero-growth can increase its purchasing power
in two possible ways:

In a justified way, by making a greater contribution in the total production of


goods and services.

In an illegitimate way: by undermining or diverting the purchasing power of other


subsystems. In section 3.6. we will discuss in great detail how this can be done.

As long as it is possible for certain groups in a zero-growth society to acquire more


purchasing power at the expense of others, by abuse of power or by the credulity of the
people, then there is no stimulus for growth, even if the major part of the population lives in
permanent need for basic goods. Those of the ruling class have enough to fulfill their needs
and to secure their privileged position. The oppressed ones have no defense: they can only

41

B. Fuller, Critical Path, p 13-15.

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endure the situation submissively. Think of the serfs in the early Middle Ages and the people
in some Third World countries now.
However, such a situation cannot last forever, no single group can exercise social
supremacy forever. Tensions occur between the different subsystems in society, and these
will eventually lead to a new social order. This transition can evolve peacefully in a
controlled way, or take the form of a violent revolution (installation of parliamentary
democracy in England, French Revolution, the Independence War...). After such a social
transformation we see that the rights of the oppressors are restricted and that those of the
oppressed ones are improved: the new social order is consolidated by means of new
regulations and laws (Magna Charta, Code Civil, the American Constitution ...).
Those who provided in their living by withdrawing purchasing power from other
subsystems are then faced with a difficult choice:

They can live from their capital, if they still have any left after the period of social
transition. But this means that, on the long term, they are cutting the branch they
are sitting on.

They can make their own contribution to the economic process. But how does one
spell the word work (shiver-shiver)?

They can try to live from the support given to them voluntarily by others who
make their own contribution to the economic process. But this is a rather uncertain
option considering their way of living in the past.

So, suddenly the situation of zero-growth does no longer seem to be so interesting


anymore for this group of people. But as the society is organized a little bit more righteously
and the poor subsystems do no longer have to yield so much purchasing power to the
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parasitic subsystems, a quantitative and qualitative change in consumption pattern occurs


resulting in growth of the demand: a larger market is created. Initially the economic process is
not prepared for this change, but by investments in production means it is possible to adapt
the system to the new level of demand. Who can provide the means to make these
investments? Here lays an opportunity for those who were able to rescue part of their savings
and who hate working themselves. By investing indirectly (lending money to others) or
directly (starting a business) in means of production and by hiring people to work for them,
they stimulate the consumption and the economic growth so profit for society can be realized.
This profit for society is divided among the different participants in the economic
process, so the capitalists can make money out of money and the proletarians can acquire
the means to fulfill in more of their material needs. Again we see here the principle of the
rubber cylinder: the interests of the former oppressors and oppressed ones are in essence the
same, although they are unaware of it.
This process of mutual dependency runs smoothly as long as the economic needs, the
medium that ties them together, are not satisfied. But what happens if those needs are more
and more fulfilled, i.e. the medium in the cylinder becomes thinner, or if those who have still
basic needs are kept out of the economic process and cannot acquire any purchasing power?
Will we then not slip back to a situation of zero-growth with all its consequences for profit?
And is it possible to avoid such a regression? These problems will be discussed in great detail
in the remainder of this book. We can end this section with a conclusion:
The Industrial Revolution, characterized by its economic growth, and
capitalism have evolved out of the Ancien Rgime as a result of the emerging
democracy. Stated in a more general way: more democracy leads to more
material prosperity for more people.

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Most historians are convinced that economic and social evolution are a consequence
of scientific and technical innovations: the plough and the horse-collar lead to the expansion
of agriculture in the Middle Ages, the steam-engine was the basis for the Industrial
Revolution... We think, however, that these discoveries and innovations and their practical
use on a larger scale are themselves consequences of growing expectations of the people in
times of social and political (r)evolutions. Technological innovation is only an intermediate
agent in this process. Necessity is the driving force of creativity.
Some researchers, such as W.W. Rostow42 have stressed the correlation between
increasing material prosperity and the establishment of democracy. I agree with this
statement, but I would even dare to say that more democracy is the cause, more material
prosperity for more people is the consequence.
In section 3.6. we will discuss some other interesting results of the emergence of real
democracy... and how certain people have found new ways to bypass democracy in order to
divert purchasing power from other people into their own pocket. It will show to be really
legally, but very piggily.

42

W.W. Rostow, Stages of Economic Growth.

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Post Scriptum I. In his book Globalization and its Adversaries, Daniel Cohen notices
in a rational and amoral way, that colonizators who succeeded in exterminating the local
population also succeeded in creating affluent societies: the USA, Canada, Australia, New
Zealand while there where they did not succeed in the complete extermination, the
economy has failed: South Africa, Congo, India, Indonesia, Latin America
Mr. Cohen, the latter countries didnt fail because their native population was not
exterminated, but because their native population was not an equal partner in the economic
process, there was no democracy! They were used as cheap labor force, without any
purchasing power, so they could not contribute to internal economic growth, only to exports.
So profit for society and profit for business was dependant on the international markets
controlled by the Commonwealth of the British Empire and later by the American Empire!
Cant you see this? It is not a matter of extermination, but of granting economic and political
rights!

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Post Sriptum II: In Noam Chomskys Failed States (p 215-216) we can read the
following lines: Ferguson and Rogers were describing early effects of the powerful
coordinated backlash against the crisis of democracy of the 1960s that deeply concerned the
Trilateral Commission, which coined the phrase. The commission consisted of prominent
liberal internationalists from the three major industrial regions: North America, Europe, and
Japan. The general perspective is illustrated by the fact that the Carter administration was
mostly drawn from their ranks. The worrisome crisis under discussion was that the 1960s had
given rise to what they called an excess of democracy: normally passive and marginalized
sectors women, youth, elderly, labor, minorities, and other parts of the underlying
population began to enter the political area to press their demands. The crisis of
democracy was regarded as even more dangerous by the components of the elite spectrum
to the right of the

commission and by the business world in general. The excess of

democracy threatened to interfere with the well functioning system of earlier years, when
Truman had been able to govern the country with the cooperation of a relatively small
number of Wall Street lawyers and bankers.
In September 2008, we all know the consequences of this cooperation of a relatively
small number of Wall Street lawyers and bankers to the Bush administration. Wouldnt it be
better to exterminate dispensable lawyers, bankers, philosophers, economists and
politicians for the general good of all mankind? I really think an an excess of democracy
is vital to the survival of mankind on this globe.

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3.6

Author: Geert Callens

Explanation of the Economic Reality (and some other realities)


The cause of the present economic crisis lays in the small demand for goods
which are produced. From every branch in industry one hears that the stocks
are piled up, there is no demand, no consumption. So it is not surprising that
prices are declining and unemployment is increasing, which results in lower
wages and salaries... What are the options to solve this problem?... We must
urgently seek for new markets in order to sell or exchange our products.
De Lichtstraal43, November 27 1886, Newspaper of the Belgian catholic labor
organization at the end of 19th century.

In the two previous sections we have evolved our basic theory and have discussed
some immediate consequences of it. In this section we will introduce a new agent in the
economic process: mankind with some of his shortcomings
3.6.1

The consumer society


In our basic theory we have stated that profit for private business is part of profit for

society, which by itself is a consequence of the growth of the output of the economic
process.
If the basic needs in society are not yet fulfilled, then justified economic growth is
possible, private business can make an honest profit and the people can fulfill ever more
needs thanks to their increasing purchasing power. The rubber cylinder is filled with water
and there is a strong coupling between the two phenomena. The energy, raw materials and
human effort and creativity are well spent. Products are usually of a durable quality and
designed to last for a long period of use.
When however after a period of continued growth the basic needs of housing, food,
clothes etc. are more and more fulfilled, and no new needs are created, then the economic

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growth stagnates: less houses are built, people cannot eat more and more... For some products
there is only a substitution market. Due to the free-market competition, prices are under
pressure In this situation of slow economic growth or even zero-growth, people could still
improve productivity and technology in order to produce the same amount of products and
services with less human effort. The time saved could then be used for more pleasant things
than work, like more creative recreation or education.
But in this economic situation profit for society is declining, thus also profit for
private business, in particular the return on invested capital: money creates less money. If
there is zero-growth, there is even no profit, and money surely cannot create money. As we
have seen in the previous section, not everybody is happy with this new state of affairs, in
particular those people who earned their living from the interest they received on their capital.
Very often those people have also direct or indirect control over the economic policy-making
decision process. Instead of introducing a general reduction of working time and accepting
the present level of production, sufficient to fulfill the needs of everyone, economic growth is
stimulated by creating new demands: people are talked into buying ever new and more
sophisticated products and services they really do not need, all of this under the cloak of
improving the quality of life and keeping up with the Jones. In order to be able to buy these
new products, people work the same amount of hours as when there were still basic needs. It
may be noted in passing that marketing - the systematized research, planning and organization
of the introduction of a product into the market - has started to play a major role in the
economic process of the USA at the end of the 1940s and during the 1950s, at a time when the
basic needs were again fulfilled after a period of recession in the 1930s and after World War
II.

43

In English: The Lightbeam, a very appropriate title for a magazine.

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Yet in this short time, marketing has achieved the image of society's savior, in
the minds of many, and society's corrupter in the minds of others. Marketing's
good deeds have been described in various ways:
Aggressive marketing policies and practices have been largely responsible
for the high material standard of living in America. Today through mass lowcost marketing we enjoy products which were once considered luxuries and
which are still so classified in many foreign countries. Advertising nourishes
the consuming power of men. It creates wants for a better standard of living. It
sets up before a man the goal of a better home, better clothing, better food for
himself and his family. It spurs individual exertion and greater production...
This creation and stimulation of desire has put more people to work and, in
turn, made their desires possible to fulfill.
Others take a dimmer view of marketing's contribution to society:
For the past 6,000 years the field of marketing has been thought of as made
up for fast-buck artists, con-men, wheeler-dealers, and shoddy-goods
distributors. Too many of us have been taken by the tout or con-men; and all of
us at times have been prodded into buying all sorts of things we really did not
need and which we found later on we did not even want. Occasional perusal of
contemporary supermarket shelves reveals unequivocally that manipulation of
packaging, labeling, and promotional appeals far exceeds product change.
P. Kotler, Marketing Management, Analysis, Planning and Control, p 4-5
As usual in recent years, the 2004 electoral campaigns were run by the public
relations industry, which in its regular vocations sells toothpaste, lifestyle
drugs, automobiles, and other commodities. Its guiding principle is deceit. The
task of advertising is to undermine the free markets we are taught to admire:
the mythical entities in which informed consumers make rational choices
Furthermore Veblen pointed out long ago, one of the primary tasks of business
propaganda is the fabrication of consumers, a device that helps induce all
he classic symptoms of state-based totarialism The basic observation is as
old as Adam Smith, who warned that the interest of merchants and
manufacturers are to deceive or even to oppress the public as they have done
on many occasions.
Noam Chomsky, Failed States, pp. 220-221.

Next to the introduction of marketing techniques in the economic (and political)


process, the creeping inflation since World War II had its own contribution towards the
consumer society: as people saw the purchasing power of their money steadily decreasing,
they were tempted to spend it immediately or even to buy on credit. So they bought those new
products they really did not need.
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Those not-essential goods are produced. This has two immediate consequences. In the
first place this means that part of the labor force is employed in fields of business producing
and marketing those products. Instead of being content with the more basic goods and work
less hours, both man and wife take a full-time job in order to acquire these nonessential
goods, because they were persuaded that these will improve the quality and status of their
lives. The economy runs smoothly: there is a substantial growth-rate, profits and return on
investment are high, money creates money, wages and salaries can increase.
In the second place, we can say that more raw materials and energy are used than
strictly necessary. To keep the economic process running, goods of less quality are produced:
they are designed to last for a limited period of time, so they need to be replaced after a while.
Basic products like food are packed in fancy boxes in order to capture the attention of the
consumer. This leads to ever increasing piles of waste and depletion of energy resources.
Companies spend huge budgets on advertising campaigns in order to convince the consumer
to buy their new products, promising them a far better quality of life.
This obsession with growth has also been sold to the public by the political authorities
as economic growth is the only way to insure that material wealth will trickle down to the
poor. We do not need political or social reforms for you to enjoy what the rich people have.
All we need is improved productivity and economic growth. As F. Capra illustrates44 this
trickle-down model of growth has long been shown to be unrealistic. We can indeed notice
a trend to more inequality in the distribution of incomes and wealth between groups and
classes inside the industrialized countries, as well as between those industrialized countries
and the Third world countries, despite the growth of the economy and the world trade. One

44

F. Capra, The Turning Point, p 225-226

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can even say that the greater the economic growth, the greater the inequality in income, as
higher incomes increase faster than lower incomes45.
We can indeed say that the economy has deteriorated: by creating new and stimulating
existing needs far beyond what is necessary or even healthy, the economic growth is
stimulated in order to make more profit, to make money out of money. Raw materials, energy
and human effort are combined in the production of not-essential goods and services, with as
side-effects an increasing level of pollution, both material - piles of waste, acid rain, the
heating of the atmosphere,... as well as mental - stress, disturbed social and family
relations... Profit, in essence a consequence of economic growth, has become a goal on its
own. And this is the error which could lead to the destruction of the western industrialized
world46.
We can ask ourselves quite rightly the question if this evolution is fair towards the
generations to come. Due to our artificially stimulated level of consumption they will be faced
with great difficulties in order to develop the resources of the earth, they will inherit a
polluted world. I can recommend the book Entropy, A New Worldview, by J. Rifkin as an
interesting discussion of this problem.
And is our conduct fair towards the people of the Third World countries? Instead of
using the available raw materials, energy and human effort to produce goods in order to fulfill
their basic needs, we use them to make non-essential products to fulfill created and stimulated
needs in the rich industrialized countries. In addition we see that the land in those Third
World countries is cultivated mechanically on a large scale, and that the crops are exported to

45
46

B. Fritsch: New means of Power, p 24


K. Lorenz, Our Last Chance, p 160-161

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the rich countries, while the profits go the few rich families in those poor countries47. As their
natural food is no longer cultivated and because of the mechanization of the agriculture, the
rural population migrates towards the cities, hoping to find a job there. This leads to the
enormous ghettos in Third World cities and to illegal immigration to the rich countries, where
these illegals are first used as cheap labor forces, but as their number keeps growing, the
own population starts to support legal actions to send these illegals back.48
And above all, is this fair towards ourselves and our children? Later in this study we
will show that this conduct could and will lead to a disaster in the near future if we do not
change our attitude. This policy of stimulated growth based on created needs can continue as
long as the people have a blind confidence in the future. As long as the stimulated needs are
not fulfilled or new needs can be created to buy non-essential products, and as long as the
material conditions are met to support this economic growth - energy, raw materials,
infrastructure, acceptable level of pollution - then indeed one could say that the sky is the
limit. In the 1950s and 1960s, based on the expectation of uninterrupted growth,
entrepreneurs kept a high level of investments, even if there were short declines in certain
components of demand. Due to the same expectations of continued growth, the people
proceeded at the same high level of consumption, even when there were short periods of
reduced income. But what happens if indeed this confidence in growth is blown, e.g. by a
crash of the stock market or an international conflict? What if there are problems with the
supply of raw materials and energy? What if the burden of pollution gets too high?

47
48

See Noam Chomsky in On Power and Ideology, where he discusses The Fifth Freedom.
While capital is allowed to cross borders without any limitation.

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3.6.2

Author: Geert Callens

Unemployment
The 1950s and 1960s in Europe and the USA were characterized by substantial

economic growth and almost full employment. West European countries had even to attract
foreign workers from southern Europe and Northern Africa to do the dirty and heavy work
(coal mines, steel industry,), as their own people went for better paid and cleaner jobs in
the chemical industry and the car assembly. In the 1980s we were faced with the highest level
of unemployment since the crisis that preceded World War II.
International Labor Organization: Causes for unemployment are not yet
clear.
The ILO expresses the feeling that the real causes for unemployment are not
yet clearly defined and thoroughly examined. According to its director Francis
Blanchard it could well be that the failures in many programs to increase the
employment could be the result of a wrong diagnosis of what is called the
economic crisis.... In a special report Employment in the world of this UNorganization, specialized in problems related to labor and employment, more
questions are left open than answered. Economists tell diverging or even
conflicting stories about the crisis... According to the ILO report the two oil
crises do not completely explain the present economic situation, although they
surely had a negative influence...
De Standaard, February 27 1984.

In this paragraph we will explain the emergence of unemployment with our basic
theory at hand. Later on in this text we will also formulate the solution for this problem.
As long as there is confidence in the future, people keep or increase their level of
consumption, so the output of the economic process can grow year after year if one makes an
intelligent use of the economic policy (heuristic rules) formulated in section 3.5.2. Private
business can realize profit. In the beginning the profit margin (profit divided by the invested
capital) is high, so entrepreneurs are tempted to invest ever more, they are easily granted
loans by the banks. Business runs smoothly not only for consumer goods but also for
investment goods. Companies and private persons pay taxes, so the government has sufficient
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money to develop social welfare programs and to invest in the construction of roads and other
public utilities. Everyone is happy: the governments, the employers, the employees, the
unions, those living from social welfare, those living from the money they make out of
money, the bankers..., they all share from the profit for society which results out of the
economic growth. In a later section on the pram-industry we will extrapolate this situation
until its real impact becomes crystal clear.
However, this confidence in the future can be shocked in several ways. As discussed
in the previous chapter, the profit margin has the tendency to decrease. As a result there is
less motivation to invest money in risk-bearing activities: there are less investments, so
economic growth in this field of business will slow down. In the second place a political event
(sudden rise of oil-prices, military conflict, elections with an unexpected result) could result
in a lower confidence in the future, so people return to a lower level of consumption as they
stop to buy the most non-essential goods and postpone the purchase of a new car. As people
in the western industrialized countries have such a high level of consumption compared to
those in the Third World countries, they can easily adapt their consumption pattern
downwards: they see that other people come off worse. They stop buying non-essential goods
in order to save something for the rainy days to come.
As the population spends less money, but on the contrary saves more, a great deal of
the purchasing power is not used, so the market for consumer goods stagnates or even shrinks.
The extra savings could be used to finance investments, but there is no incentive due to the
decreased level of demand and the lower profit ratio. When the decrease in consumption in
the home market is not compensated by other possibilities for turnover (e.g. export to other
countries), then a lower level of industrial production will be the result. When there is no
redistribution of the available work by reducing the working time per laborer, then this will

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inevitably result in lay-offs or wage-cuts for employees in the field of business which are
affected by the reduced level of consumption.
Because of the increase of unemployment after a period of full employment, and
because of the reduced economic growth, people loose their confidence in the future even
more... and before we realize the scope of the problem, we are faced with a vicious spiral:
again the principle of feedback, but this time destabilizing, as the level of unemployment
keeps on growing. An economic recession is born.
This very same process has been described more than a century ago by P. Lafargue in
his book The Right to be Idle which he wrote as a reaction to the Marxist slogan Right for
Labor.
A disastrous dogma
A strange madness has captured the laboring class in the capitalistic countries.
This madness has brought along enormous individual and social suffering
during the last two centuries. This madness I speak of is the love for labor, the
furious passion to work, even till the exhaustion of vitality of the individual
and his descendants...
Deceived by the fallacious theories of economists, the proletariat has
surrendered soul and body to the vice of labor, and in doing so they throw
society into an industrial crisis of overproduction. Because there is excess of
things to buy and not enough people to buy these things, mills and factories are
closed and laborers suffer from hunger and cold. The proletariat, drugged by
the dogma of labor, does not understand that the excessive labor they imposed
themselves in times of so called prosperity is the cause of their present misery.
P. Lafargue, The Right to be Idle, pp. 65-66

Since the mid 1990s there seems to be again a slight economic growth in some
European countries, however without substantial increase in employment. This is an
indication that the gap between the rich and the poor is getting wider. As history teaches us,
unemployment in the lower end of social classes is the perfect soil for nationalism, racism,
extremism and fascism, and thus also for war. Later in this chapter we will see how this

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vicious circle of loss in confidence in the future, decreasing industrial activity and increasing
unemployment usually has been broken in the past. In the next chapter we will discuss a valid
alternative to this method.
From this paragraph we can conclude that an economy based on over-consumption is
like a souffl: as long as all conditions are perfect, as long as there is confidence in the future,
it will rise. But as soon as something goes wrong with the external conditions or saturation
occurs, the whole thing collapses: the process has become unstable and uncontrollable. The
reason is obvious: the economic process is no longer based on real, incompressible needs or
demands but on cultivated, expanded and thus compressible needs and whims. The rubber
cylinder is no longer filled with water, but with air, so the regulating coupling between
pulling the ends (trying to make a profit) and the contraction of the middle part (helping other
people in fulfilling more of their needs) is lost. And this coupling is lost in both directions!
In terms of system theory, this means that an internal variable of the process - needs has gone into saturation. As a result, the dynamics of the system have changed, so the
heuristic rules of Keynes no longer work. On the contrary, they have a destabilizing impact on
the system. We need to adapt our control policy... or we could change the system.
Based on this discussion, we can stress once more the fact that satisfaction of needs is
the driving force of the economic process, and not profit!
3.6.3

Concentration of wealth
In the previous section we have discussed how a drop in aggregate demand can lead to

a lower economic growth rate or even a drop in the GNP. When the GNP fails to keep pace
with the growth in the labor force, the level of unemployment increases, resulting into a
recession or a depression. But according to the economist Ravi Batra a catalyst is needed in

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order to trigger the deterioration of a recession or a depression into a great depression. The
following lines are a compilation of his book The Great Depression of 1990.
Capitalism is defined as a social, economic and political system where the
means of production - industry, banks, natural resources, etc. - are owned by
private corporations and individuals, where the political system operates in the
interests of such owners, and where the distribution of national income is
determined by them. It is closely associated with the free enterprise system,
which may be defined as one where businessmen, the owners of the means of
production, are free to maximize their profit (p. 74).

So, in the capitalistic system, profit for society goes mainly to the entrepreneurs, the
businessmen, the private companies, the owners of the capitol - whoops, sorry - capital, the
rich.
Since the rich have a higher propensity to save than the poor, concentration of
income in a few hands induces an increase in aggregate savings (p. 132) ...
When wealth becomes concentrated, three effects normally occur.
First the number of persons with few or no assets rises. As a result the demand
for loans increases because the borrowing needs of the poor and middle
income groups far exceed those of the affluent.
Second, since the poor and the middle class, who are in a majority, now have
fewer assets, the borrowers in general become less credit-worthy than before.
If a bank rejects risky borrowers, its financial structure remains sound. But in
an environment where credit-worthiness has generally deteriorated, most banks
cannot afford to be choosy, especially when they have to pay interest on their
deposits. Only a prudent bank then avoids making risky loans. Thus, as the
concentration of wealth rises, the number of banks with relatively shaky loans
also rises. And the higher the concentration, the greater the number of potential
bank failures.
A side effect of the growing wealth disparity is the rise in speculative
investments. As a person becomes wealthy, his aversion to risk declines. As
wealth inequality grows, the overall riskiness of investments made by the rich
also grows. It essentially reflects the human urge to make a quick profit (pp.
135-136)...
Under capitalism wealth disparity tends to rise in the long run. A time comes
when this disparity, and the concomitant number of shaky banks, becomes so
great, that any recession can cause a collapse of the financial system49. The

49

2008!

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bursting of the speculative bubble, another consequence of the inequity, only


adds fuel to the fire. Money supply, aggregate demand, output, and
employment then move in a downward spiral, and an ordinary recession turns
into a depression (pp. 138-139)...
Many businesses then vanish, the public loses confidence in the banks, and
unemployment climbs to levels unprecedented in recent memory. In other
words, a one time drop in demand is not enough to cause the depression (p.
134).

Excessive concentration of wealth is also needed in order to turn a recession into a


depression.
In order to maximize the yield on their capital, a lot of people with higher incomes in
the US no longer deposit their salaries on a savings account with a fixed but moderate interest
rate - and some insurance of refund in case of bank failure - but they invest it directly on an
account of one of the many investment funds - without any guarantee of refund in case of a
crash at Wall Street. In order to pay for their living expenses they then simply sell part of
their shares now and then. So the major part of their savings and thus future purchasing power
is invested in speculative investments. No wonder the stock market increases, as a lot of
money is diverted to Wall Street, even without any firm economic basis to justify this
increase... besides the law of supply and demand of stocks, of course.
3.6.4

Protectionism
In section 3.1.3. we asked ourselves the question why a positive balance of trade is

considered to be good for the economy of a country. We found the answer to this question in
the basic theory we have outlined in section 3.4: the surplus of a positive balance of trade is to
be considered as profit for the country, which accumulates with the profit for society resulting
from internal economic growth.

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When internal growth stagnates because of saturation of the home market or because
of lack of purchasing power with major groups of the population, then business can still make
profits by exporting their products to other countries. In order to do this, they have to be
competitive with the industry from other countries. But what happens when these foreign
markets also become saturated, so that prices are under pressure as a result of the fierce
competition? In order to keep their market share in the foreign markets, companies can try to
lower their labor cost, sometimes with the help of the wage control policy of the government.
But this will result in lower purchasing power and less turnover at the home market, so the
internal growth will slow down even more. The loss in profit as a result of the lower internal
economic growth must then be compensated by more export in order to increase the surplus in
the balance of trade. Another popular measure countries often adapt is to devaluate their
currency in order to make their own products cheaper compared to those of other countries, so
that export will increase and import will decrease, with a more positive balance of trade as
end-result. But then the import of raw materials and energy becomes more expensive, which
results in higher production costs: a devaluation of the currency must then be accompanied
with a strict wage control policy, indeed resulting in lower purchasing power, etceteras,
etceteras, etceteras ...
If a country's foreign trade is focused on other industrialized countries faced with the
same economic problems (stagnation of the internal consumption) and applying the same
economic policy, then this policy will not result into a lasting solution of the problem, on the
contrary. Let us imagine all those countries as being part of one economic system, then it is
obvious that the whole system (i.e. all countries) will be subject to an economic crash as
described in the previous sections (the souffl). The internal demand of the whole system is
undermined and cannot be compensated by extra export of goods as the outside world of our

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system (the Third World countries) does not have the purchasing power to acquire those
products, which are not even adapted to their needs.
No need to worry: countries or a group of countries return to the protectionism of
former days. Products from abroad are subject to import tariffs and quota or severe technical
requirements. Some of the western countries are very ingenious in finding new measures to
discourage the import of foreign products. Those countries argue that those measures are
taken for the general good and to protect the employment in their own countries. But is this
really the reason? Does protectionism hurts only the other countries, their industry and their
employees? For a thorough analysis of protectionism we refer to Howard Katz. During his
argumentation he often refers to the relation between protectionism and war, a topic we will
discuss in great detail later in this section.
Autarky is economic isolation, the sealing off of a group of people from any
trade or economic relationship with others. Like war, paper money and
prescription, it benefits one part of society at the expenses of everyone else, yet
is defended by appeals to sacrifice for the good of the whole.
If we will keep firmly in mind that the whole has no existence apart from the
individual people who make it up, then we can understand that such calls for
sacrifice are simply demands that one person sacrifices himself to another. One
man must spend his time in the army, while another gets rich on Government
contracts; one man must suffer the deprecation of the currency on a fixed
income while another gets rich by paying off his debts in dollars of less value;
one man must risk his life while another sits behind a desk in Washington.
Of course, during such periods of sacrifice there is a great pretense that the
sacrifices are to be fair. But the sacrifices are never fair. Indeed, since the
whole point of the war is for the power structure to exploit the people, the
sacrifices are not intended to be fair. If it were not for the unfairness and the
benefits flowing to certain powerful persons thereby, the war could not be
worth it to anyone and would probably not occur. As professor Charles A.
Beard pointed out: Of course it may be shown that the 'general good' is the
ostensible object of any particular act; but the general good is a passive force,
and unless we know who are the several individuals that benefit in its name, it
has no meaning. When it is analyzed, immediate and remote beneficiaries are

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discovered; and the former are usually found to have been the dynamic
element in securing the legislation50.
This general rule applies accurately to tariffs, quotas, commodity agreements
and other assorted paraphernalia which serve to intervene in the free flow of
trade across national borders. We repeatedly hear the cry of the labor union (in
rare agreement with management and stockholders) urging to buy American.
The argument is that, if we buy American-made goods in preference to foreign,
it will increase the number of jobs in America, raise our standard of living and
benefit the whole country.
The error in this can be seen most easily if we go back to the time when tariffs
and quotas were applied, not only between countries, but between different
parts of the same country. It was only in the 19th century that the Zollverein,
or custom union, was adopted in Germany so that goods could exchange
between any two parts of the country without interference. Similarly, the US.
Constitution prohibited states from putting tariffs on goods from other states.
If it is beneficial to America to wall herself off economically from the rest of
the world, then it must be beneficial to New York State to isolate herself
economically from the rest of America. Similarly, it would be even better if
New York City cut off all trade with the outside. If this idea is correct, the
height of prosperity could be achieved if the island of Manhattan would refuse
to trade with anyone else in the world.
If we carry an idea to its logical extension we can often see a fallacy in it
which would otherwise escape us. If Manhattan were to isolate itself, it would
starve within a few weeks. There would be a mass exodus (or starvation) and
when the smoke had cleared several decades later, all that would be left would
be a handful of farmers scratching out a bare living from the rocky soil.
The general principle is that trade is a good. It must be a good because it
occurs voluntarily; if it did not benefit both parties, it would not take place.
Thus, the more trade, the better. When someone interferes with our trade, we
become poorer. The special interests who advocate autarky in our society
today only propose minor interferences with trade, with the effect that the
resulting losses are not noticed (as the isolation of Manhattan would be).
When Americans buy Japanese goods, it does not throw American workers out
of a job any more than New Yorkers' purchases of Californian goods throws
New York workers out of jobs...
If a Japanese firm (or the American firm across the street for that matter) offers
the same product that you are producing at a lower cost, it is true that, in the
short run, this may put you out of a job. This is part of the incentive which
consumers use on producers to induce them to move into the areas appropriate
to their special skills, thus getting the maximum advantage from the division of

50

The offices of the Carlyle Group are on Pennsylvania Avenue in Washington DC, midway between
the White House and the Capitol building, and within a stone's throw of the headquarters of the FBI and
numerous government departments.

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labor. If a group of Japanese can produce color television sets more efficiently
than you, then it is better that they be producing television sets and that you be
doing something else. In general terms, it is better that those people who can
grow oranges best grow oranges, those who can build TV sets best build TV
sets and those who can operate computers best do so, etc.
The irony is that, if a social planner were trying to design an economic system
whereby each person worked in the area best suited to his special skills, he
would probably design a militaristic-authoritarian system with a central
authority testing everyone and ordering them into appropriate jobs. Yet the
simple measure of leaving people free in their economic choices accomplishes
this goal far more effectively than an authoritarian system ever has and does so
without the use of coercion.
What the autarkists are proposing is that they have the right to make television
sets (and be paid for this), even when the consumer does not want those
television sets (and similarly for other goods). If this proposal were applied
generally, it would lead to a situation where those better at growing oranges
are fixing high tension wires and those better at writing music are planting
corn. Our response to those people should be to say: You have no right to
force us to pay more for television sets just because you want to receive a
higher wage. If you can't make television sets more efficiently than the
Japanese, the fault is with you; you do not deserve (and will not long retain)
your higher standard of living. If you want to earn more than the Japanese, find
something you can do better than they can.
So there is no benefit to America from tariffs or quotas or other aspects of
autarky, rather the reverse. And there is a clear loss to the American consumer
who intends to purchase a restricted good. Americans who want to buy color
TV sets in 1979 will find prices generally higher because of the 40% quota
recently pressed upon Japan.
The advocates of tariffs, etc. will usually concede these principles in the long
run, but argue for a tariff to counter the short-run effects of a fluctuation in
trade. One might think from this that the country is free of tariffs and quotas
most of the time and that most of those which are put on have provisions
causing them to expire within a few months. But is not the case. Once the tariff
advocates have pressured Congress into adopting one of their measures, they
never advocate its repeal. Actually, the long run is composed of a succession
of short runs. Just as the people who pledge themselves to a balanced budget
over the long term but a deficit for this year run a perpetual deficit, so the
people who advocates tariffs as a short-term measure keep perpetual tariffs.
Man always lives in the present, and if he decides on something for the
present, he will have it all the time.
Neither is it true that free trade costs jobs in the short run. A fluctuation in the
conditions of trade may throw some people out of work, but for the
government to respond by autarky causes the loss of more jobs. When trade is
free, decisions are made by thousands, perhaps millions, of consumers. Since
people change their buying patterns slowly, any shift in jobs which results will
be gradual, and the industry will have time to adapt. But a tariff is put on by a
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single body51 (the government) and is not gradual. Thus the shift in economic
behavior, and hence in jobs, is sudden. If Holland retaliates for our tariffs on
her steel by putting tariffs on our glass products, then the loss of jobs in the US
glass industry is sharp and sudden. There is no time to adjust.
The assumptions of the autarkist are arrogant and immoral. When a man
decides to make his living by offering a product on the free market, he is
competing for our favor. He has no right to compel us to buy his product,
which is what is happening when compulsion is used to add a tariff to his
competitor's product. He only has the option to make a good enough product
that we will find it to our interest to buy it at his price. His employment in this
line of work is conditional upon our consent. He only has a right to work in
that field, if we choose to buy his product. He has no right to make a product
and demand that people buy it or force them to buy it.
Yet that is what tariffs are. They constitute a demand by the producer of the
good that he has a right to be employed in that line. If people prefer another
product, he will interfere with their freedom by taxing (a tariff) or banning (a
quota) that product. People who infringe on the freedom of others have no
moral claim to it themselves.
When the US Government imposes a tariff on Japanese goods, it is hurting
American consumers of those goods in order to benefit the American
producers. Modern liberals often talk about autarky as though it were a
problem of international relations and as though each nation gained a benefit at
the other's expense when it imposes restraint on trade. But the example above
of the completely isolated Manhattan shows that this reasoning is in error.
When America imposes a tariff on Japan, it is sacrificing the large majority of
American consumers to the minority or American producers; when Japan
retaliates with a tariff, it is sacrificing its Japanese consumers to the Japanese
producers. Two nations erecting tariff barriers against each other are each
cutting off its nose to spite its face.
Tariffs began when a criminal gang acquired additional power and became a
feudal dukedom and then realized that, rather than rob the merchants who
passed by all at once, it was better to rob a fixed percentage each time and
leave the merchant enough to stay in business and come back next year. Tariffs
are a complete triumph of might over right - totally unjustifiable, but a tribute
to the stubborn conservatism with which the human race clings to any and all
institutions. Modern autarky is another proof that patriotism is the last refuge
of a scoundrel. When these people urge us to buy American, they are claiming
both our wealth and our freedom as a sacrifice to their interests.
H. Katz: The Warmongers, Appendix I (Autarky versus free trade) pp. 249254.

51

...which can be more easily infiltrated and manipulated than thousands and thousands of producers
and customers...

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Besides, when all countries start to take protective measures, then this will result in
economic warfare, which could even escalate into a real military war. What follows now is a
foretaste of what we shall discuss in the next section of this chapter.
Moving ahead to consider World War II, it appears at first glance that there
were real reasons for fighting, unrelated to paper money. Hitler was an evil
man with aggressive designs. He had to be stopped. But a close look will show
us a more complex situation; first consider the Pacific theater.
The US-Japanese sector of World War II was caused by a third aspect of paper
money, relating to international trade52. Governments can force their own
citizens to accept paper as a legal tender, but they are not able to force
foreigners to accept it. This creates a problem; when I sell something to a
citizen of another country, what should I ask from him in payment?
If both countries are on a gold standard, the problem is solved. For example, if
the US $ is 25.8 grains of gold and de French franc is 5.16 grains of gold,
clearly five franc equal a dollar. If I sell something to a Frenchman, then I
must ask five times as many francs from him as I would ask dollars.
But if the countries are not on the gold standard, the problem is more complex.
The franc will still have value to some Americans - those who wish to import
from or travel in France - and I can sell the francs to those Americans, but it is
not clear what they will pay me. What they will pay depends very much on
how badly they want the French goods. In this case there will be a market
where people exchange foreign money, and the number of francs which are
equal to one dollar will vary from day to day according to supply and demand
(depending on how many people want to buy French goods and what French
prices are doing relative to American prices). On one day a franc might
exchange for 19 cent, on another day for 18 cent, or again for 20 cent.
Because the rate of exchange varies from day-to-day this is called a system of
floating exchange rates, as opposed to a gold standard where the exchange rate
is fixed.
The system of floating exchange rates brings extensive vested interests into
play as follows: Suppose I am an American steel producer selling steel to
people in California for $300 per ton. Suppose a Japanese steel producer can
make and ship steel to California, allowing himself a reasonable profit, for
100,000 yen a ton. If the exchange rate between dollars and yen is 500 yen,
equals one dollar, then the Japanese firm can charge 200 dollars a ton and
undersell me in the California market. He will get the business, and I will not.
On the other hand, if the exchange rate is 200 yen equals one dollar, he will
have to charge 500 dollars per ton to make the same profit. Thus I can
undersell him and get the business. The same reasoning applies to many other
products. Clearly it can be very important to businessmen in both countries just

52

The first and second aspect will be discussed in a later section of this chapter.

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what the exchange rate is, and when the rate is fluctuating every day, it
drastically affects their profits.
When a business suffers a disadvantage because of fluctuation in the foreign
exchange rate, it is likely to run to the government to ask for a special favor to
offset the disadvantage. In the example above, where the exchange rate was
disadvantageous to the Japanese firm, their government gave them special
subsidies (taken from the rest of the Japanese people) to enable them to sell
steel at competitive price in America. When the exchange rate is in the other
direction, the American firm is likely to ask that a special tax be put on all
goods coming from out of the country - a tariff - or ask that the quantity of
goods coming from outside be limited by law - a quota. It does not matter that
tariffs and quotas injure the American consumer by forcing him either to pay
more for foreign goods or to buy higher priced American goods. Even though
many more consumers are injured by tariff and quota legislation than
producers are helped by it, Congress rarely fails to put the special interests of a
particular industry above the interests of the American people in this regard.
Under a system of floating exchange rates, international trade becomes a cutthroat business. First the exchange rate moves; then injured businessmen in
one country demand a subsidy to compensate. Elements in the other country
retaliate with a quota. Then the rate moves back, but the producers do not want
to give up their subsidy. People yell, unfair competition. There is a general
rising of tempers as these groups discover that their basic interests are in
conflict.
The raising of tempers does nothing to aid international harmony, but there is a
worse effect. In a period of floating exchange rates and increasing tariffs and
quotas, nations which are self-sufficient may suffer a reduction in their
standard of living. But nations which are not self-sufficient are put in an
impossible bind. A country that cannot produce enough food for its people,
like Japan or England, must sell manufactured goods abroad in order to pay for
the goods it imports. If foreign countries prevent this by a barrier of tariffs or
quotas, the country will starve. In that case it may resort to war to conquer
agricultural areas so that it will be assured of a food supply.
Cordell Hull, Secretary of State under F.D. Roosevelt, was well aware of this
phenomenon as he stated: Unhampered trade dovetailed with peace; high
tariffs, trade barriers, and unfair competition with war. Though realizing that
many other factors were involved, I reasoned that, if we could get a freer flow
of trade - freer in the sense of fewer discrimination and obstructions - so that
one country would not be deadly jealous of another and the living standards of
all countries might rise, thereby eliminating the economic dissatisfaction that
breeds war, we might have a reasonable chance of lasting peace.
Richard Gardner tells us: He (Hull) had written to Secretary of State Lansing
that the chief underlying cause' of the conflict which began in 1914 could be
found 'in the strenuous trade conquests and bitter trade rivalry being conducted
prior to the outbreak of the war.
H. Katz, The Warmongers, pp. 69-71.
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Howard Katz illustrates the relation between economic rivalry and war as follows:
This factor was a contributing cause of World War I, which we did not
examine as it did not relate to American entry. Let us now consider it in
relation to World War II. When a country isolates itself economically by
tariffs, quotas and the like, it is in a condition called autarky. In the Dark Ages
every village or castle lived in autarky; that is, they had no economic
intercourse with their neighbors.
Japan is an industrial nation which does not grow enough food for its people. It
must sell its products abroad in order to pay for food and raw materials. In the
early 1930s the western nations abandoned the gold standard (England in
1931, the USA in 1933, France in 1935); there followed a period of floating
exchange rates and increasing autarky. As Noam Chomsky points out:
Western economic policies of the 1930s made an intolerable situation still
worse, as was reported regularly in the conferences of the Institute of Pacific
Relations (IPR). The report of the Banff conference of August 1933 noted that
the Indian government53, in an attempt to foster its own cotton industry,
imposed an almost prohibitive tariff on imported cotton goods, the effects of
which were of course felt chiefly by Japanese traders, whose markets in India
had been growing rapidly'.... Japan, which is a rapidly growing industrial
nation, has a special need for mineral resources and is faced with a serious
shortage of iron, steel, oil, and a number of important industrial minerals under
her domestic control, while on the other hand, the greater part of the supplies
of tin and rubber, not only of the Pacific area but for the whole world, are, by
historical accident, largely under the control of Great Britain and the
Netherlands. The same was true of iron and oil, of course. In 1932, Japanese
exports of cotton piece-goods for the first time exceeded those of Great
Britain. The Indian tariff, mentioned above, was 75 percent on Japanese cotton
goods and 25 percent on Britain goods. The Ottawa conference of 1932
effectively blocked Japanese trade with the Commonwealth, including India.
As the IPR conference report noted, Ottawa had dealt a blow to Japanese
liberalism.
Japan did not have the resiliency to absorb such a serious shock to its
economy. The textile industry, which was hit most severely by the
discriminatory policies of the major imperialist powers, produced nearly half
of the value of manufactured goods and about two thirds of the value of
Japanese exports, and employed about half of the factory workers... It was in
no position to tolerate a situation in which India, Malaya, Indochina and the
Philippines erected tariff barriers favoring the mother country, and could not
survive the deterioration in its very substantial trade with the United States and
the sharp decline in the China trade. It was, in fact, being suffocated by the
American and British and other Western imperial systems, which quickly
abandoned their lofty liberal rhetoric as soon as the shoe began to pinch.

53

Still a British colony at that time!

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England, like Japan, is an industrial nation, which cannot grow enough food
for her people and must sell manufactured goods in order to buy food from
abroad. England dealt with the problem of autarky by a policy of imperialism conquering weaker countries around the world and using them as sources of
food. This provides a convenient excuse for war, which in turn will create a
need for paper money. It is not surprising that 20th century Japan adopted the
policy of 18th and 19th century England - securing trading areas by military
conquest of weaker countries. Americans have been taught that Japan was the
aggressor in World War II; this is true, but the US did not exactly lure her to
the side of peace. William L. Neumann points out:
When an effort to set a quota on imports of bleached and colored cotton
cloths failed, President Roosevelt finally took direct action. In May of 1936 he
invoked the flexible provision of the tariff law and ordered an average increase
of 42 percent in the duty on these categories of imports. By this date Japan's
cotton goods had begun to suffer from other restrictive measures taken by
more than half of their other markets. Japanese xenophobia was further
stimulated as tariff barriers rose against Japanese goods, like earlier barriers
against Japanese immigrants, and presented a convincing picture of western
encirclement. The most secure markets were those which Japan could control
politically; an argument for further political expansion.
Japan conceived the idea of the Greater East Asia Co-prosperity Sphere, a free
trade zone in eastern Asia wherein Japan would provide the manufactured
goods and several other countries would provide the food and raw material under Japanese domination of course. Royama, a leading Japanese liberal of
the time, wrote that his country's aim was: ... not to conquer China, or to take
any territory from her, but instead to create jointly with China and Manchukuo
a new order comprising the three independent states. In accordance with this
program, East Asia is to become a vast self-sustaining region where Japan will
acquire economic security and immunity from such trade boycotts as she has
been experiencing at the hands of the Western powers.
We begin to see that the Pacific theater of World War II might have been
avoided had the Western powers, including the US, not imposed trade
restrictions, including the closing of the Californian market, on Japan. Political
pressure to close this market stemmed directly (in the manner described above)
from the abolition of the gold standard in 1933.
In fact, we can go further and state that Japan not only could have dissuaded
from making war on America: she positively had to be dragged kicking and
screaming into the attack on Pearl Harbor. Many Americans wondered at that
time (and subsequently) whether Japan was crazy? How would she hope to
defeat the USA? Japan was not crazy. Here is the story54.

54

See also http://www.geocities.com/Pentagon/6315/pearl.html and Noam Chomsky, Failed States, p.


84, where he describes that by November 1940, more than one year before Pearl Harbor, the USA had already
made plans to bomb Tokyo and other big cities in Japan cities made of rice-paper and wood - with fire-bombs,
and that there would be no hesitation about bombing civilians.

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Japanese expansion was blocked by what she called the ABCD countries America, Britain, China and the Dutch - three of which were enemies of
Germany; so Japan allied with Germany on the principle that the enemy of my
enemy is my friend. Meanwhile investigations by the Nye and Pujo
Committees here in the US brought out many facts surrounding the US entry
into World War I. This created a large isolationist sentiment, a group of
Americans who would no longer believe their government and who were
violently opposed to any American involvement in a European war.
As Roosevelt began to realize the importance of stopping Hitler, he was faced
with the fact that a substantial body of opinion would simply not believe him.
And we can be sure that this isolationist sentiment (which had a good historical
foundation in America's traditions) was encouraged by Nazi sympathizers.
Although this was not a majority, Roosevelt knew enough not to try to take a
divided country into war with Germany - exactly the policy which had been
such a disaster two decades before.
It would be nice to say that FDR heroically rose to the challenge and rationally
persuaded the American people of the evil of Hitler and of the essentials
difference between World War I and World War II. But this is not the case.
Roosevelt chose to get into a war with Germany through their alliance with
Japan.
By one restrictive action after another, he began to block Japanese plans for
expansion in the Far East, confronting them with the alternative: make war on
America or give up the entire plan for the Greater East Asia Co-Prosperity
Sphere. At the same time he left Pearl Harbor unprotected as an inviting target
- hoping that the Japanese would take the bait and pull a sneak attack as they
had done to initiate the Russian-Japanese war. Three days before Pearl Harbor
the New York Times commented editorially:
Japan is facing international economic siege and she is very vulnerable...
Scarcely able to sustain herself in foodstuffs, she is heavily dependent upon
imports of other raw materials. For such industrial and military necessities as
petroleum, iron, steel, aluminum, lead, zinc, copper, tin, machine tools, wool
and cotton she relied chiefly upon the United States, the British Empire and the
Netherlands Indies, nations which are now enforcing against her a rigid
economic blockade.
Admiral Theobald, in his book The final Secret of Pearl Harbor, explains that
the US Intelligence had cracked the Japanese code prior to World War II. A
select number of machines had been built (the Purple machines) to decode the
Japanese messages. The messages sent from Tokyo to the Japanese embassy in
Washington in November and early December 1941 - all available to
Roosevelt - leave no doubt in the mind of any reasonable person that an attack
was planned. Yet Pearl Harbor, a point of obvious vulnerability, was not
warned and was not even given a Purple machine.
The commander of Pearl Harbor would have done better to have read the New
York Times than to have waited for orders from Washington. Interviewing an
American diplomat involved in the Japanese negotiations in his column for
December 4 1941, Arthur Krock asked: How would you state the prospects
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now? and received the answer: It is conceivable that the Japanese will move
aggressively at any time. The Times of Sunday morning, December 7; would
have told him that civilians were being evacuated from Manila (like Honolulu,
then the capital city of an American territory) and the paper of December 1
would have brought him the opinion of the First Lord of the British Admiralty
that there existed very grave danger that the war at sea may extend to the Far
East... if Japan breaks with and attacks the United States...
If the American people did not know Roosevelt's intentions, the Japanese
leaders did. They must have reasoned as follows: Roosevelt wants to fight
Germany. If we strike first and deal a knockout blow to the US Pacific Forces,
Roosevelt will have his German war. Then he will be anxious to make peace
with us so he can concentrate on Europe. We can negotiate favorable terms
with America which allows us the flow of raw materials we need to continue
our Asia Wars. Dangerous? Yes, but there was little alternative. Roosevelt had
just cut off Japan's source of scrap steel; she had only 15 months supply. Oil
was crucial. While the business or labor elements which had originally
supported the Greater East Asia Co-Prosperity Sphere might have been willing
to abandon it had they known that it would involve war with the United States,
control had passed to dedicated militarists who were not willing to make such
a decision. This is the reason America fought the Pacific theater of World War
II.
Unfortunately, these facts, well known to serious students of the subject, are
not taught in our schools. Too many people are unwilling to believe that their
hero, Franklin Delona Roosevelt, deliberately let thousands of American
soldiers die in a surprise attack, of which he had advance knowledge. Those
who purposely close their eyes to reality are like sheep, destined to die for
someone else's end. Americans who would not face the truth about World War
I died unnecessarily in the Pacific theater of World War II and in Vietnam.
And if we of the present generation are not ready to face the truth as it is
(rather than as we wish it to be), in a few years we will again be dying in an
unnecessary war to further the goals of someone who wants to take away our
freedom.
Howard Katz, The Warmongers, pp. 72-77.

Or as Santayana has said at the beginning of section 3.3: Those who do not remember
the past are condemned to relive it. In the next section we will explain the phenomenon war
with our basic model at hand.

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3.6.5

Author: Geert Callens

On the origin of wars

We start this section with a story which at first glance seems rather unrealistic and
even ridiculous. But it will prove to have a clear link with reality. The story will lead us to the
notion of disinvestment goods.
The story of the pram industry
In this story we imagine ourselves living in a closed community: a small country, with
the strange and unpronounceable name Htrae, completely surrounded by high mountains.
There is no contact with the outer world. The society of Htrae has sufficient raw materials,
energy and technological know-how in order to fulfill the population's basic needs for
housing, clothes, food... and prams. Thanks to the know-how and creativity of the engineers
and the scientists the means of production are well developed, so that very little human effort
is needed in the production process. Men need to work only 20 hours a week while their
wives, or vice versa, can stay at home and take care of their family, unless they want to go out
work themselves. There is plenty of leisure time for both sexes. All the needs of everybody
are amply fulfilled. The population is stable and we have a situation of zero-growth.
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But a group of persons in this small country is not very happy with this state of affairs.
In previous years, when the needs were not yet fulfilled and the economy was still growing,
they used to earn their living by investing their money or by lending it to other people and
receiving an interest: they created money out of money. The profit they made was part of the
profit for society which resulted from the economic growth. As the economic growth has
stopped now, they have no longer an income: money can no longer create money. This
implies that, in order to provide in their living, they should either spend their capital or find a
job and produce goods or services in demand by others. They could also depend on others for
their living. However, the laws in this country are very strict but fair: to convert wealth from
others to one's own use in an illegitimate way is considered as a crime, and the punishments
for violation of this law are very severe.
So this group of persons is faced with a problem. They are well aware of the fact that
the income they had in former days was a consequence of the economic growth. So they
decide to induce economic growth in some way or another. However, the growth potential in
the field of consumption goods and hence in investment goods is nil. The people of Htrae
cannot be tempted to consume more than they need. By the way, they all have studied The
Right to be Idle by Paul Lafargue at school. So our group of ex-money-makers decides to set
up a secret conspiracy against their fellow citizens and they make up a plan to develop the
pram industry to gigantic proportions. This is, of course, not an easy thing to do, but they put
so many effort in promoting and implementing this plan that they indeed succeed.
Several years later, thousands and thousands of prams leave the assembly line each
year. A pram is made of several components (wheels, axles, frame, cover, cushions,...), made
of all kinds of raw materials (metal, wood, cotton, plastic,...). In order to produce the prams as
cost-effective as possible new machines are developed and produced. The activities in the

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pram industry and the supply industries absorb a lot of resources: energy, raw materials and
human effort by laborers, engineers and scientists are needed in large quantity. Working time
has to be doubled from 20 to 40 hours a week, so half of the men working in other industries
can now work in the pram business. The slogan The Right to be Idle is now taboo and
replaced by Right for Labor.
One has also installed an organization of women, the Ymra. These women have as
their only duty to go walking with the prams. They are even paid for doing this, they are real
professional promenaders. As there are not enough babies in Htrae compared to the number of
prams, they have to put a doll in the pram. So the doll industry also knows an unprecedented
boom. The Ymra is very well organized, it has a strict hierarchical structure: women with a
higher rank wear longer earrings, more bracelets and shoes with higher heels. Those women
who do the actual walking, of course, wear flat shoes.
The prams are given a lot of maintenance so they are operational 24 hours a day. At
regular intervals in time they are replaced with new and better models, even before they are
worn out. The people in the pram industry are very good in lobbying, one even gossips that
they pay bribe to the politicians, but this has never been proved by facts. Of course there is a
Secretary of State responsible for spending taxpayers money as rationally as possible in
order to buy the best prams available and to keep the Ymra operational. Production is running
at full capacity, industrial output grows year after year, and profits, as part of profit for
society, are substantial.
As a matter of fact, we are faced with a situation which is the logical extension - by
way of speaking - of the consumer society and which makes even less sense. Energy, raw
materials and human effort are wasted in the production of a good (prams) and a service
(walking with these prams) which are absolutely not needed and which fulfill not even a

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cultivated need. I am sure the reader doesn't need a Ph.D. in economics in order to realize that
this situation is absurd, and that our little country Htrae better should get rid of the excessive
pram production and the Ymra, return to a 20 hours working week and fall back to the
production of useful goods and services, a production which is sufficient in order to fulfill the
needs of all, even the women in the Ymra, the men working in the pram industry and those
who are earning their living by making money out of money and are reluctant to work
themselves. By doing this, they would save raw materials and energy for later generations and
they would save time for themselves, time they could spend on more interesting activities.
However, the situation changes drastically when a pass through the mountains is
discovered and contact is made with other societies. The economic system of Htrae no longer
is a closed one: trade with the outer world becomes possible. In addition the people of Htrae
have found out that two of those other societies dislike each other and that they manifest their
feelings in a rather peculiar way: they run into each other with prams until those prams are
destroyed. So, suddenly the people of Htrae have found a substantial new market for their
pram industry: the demand for prams from these outer societies is so great - they no longer
have to make the prams themselves so then can concentrate on riding them into destruction,
what a saving in time! - and both societies are always eager for the newest models. They are
willing to sacrifice a lot for these prams: energy, raw materials and goods are withdrawn from
their own population in order to pay for the prams.
So our little society in the mountains continues with the excessive production of prams
as there is great demand for them. The inhabitants (and taxpayers) of Htrae no longer criticize
the pram-industry and the Ymra, they work 40 hours per week, they earn a good wage and
can afford to buy things imported from those other countries. Their material well-being has
increased substantially. The professional promenaders in the Ymra are also satisfied: they

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have an occupation, they are paid for it and they can afford themselves fancy clothes and
luxury goods. The Secretary of State keeps his job. The economy keeps growing, so the
people earning their living by making money out of money are also happy. The pram-industry
seems to be the driving force of the economy, the source of all material abundance. It
provides jobs to a major part of the population and by exporting the prams our little country
can import goods, raw materials and energy from other countries. There is a general
consensus among the government, the labor unions, the industry, the banks and the women in
the Ymra (see illustration 1 below).
There is of course the risk that those other two societies might resolve their dispute, so
they would no longer need so many prams. The economy in our little country is indeed very
vulnerable. No need to worry: special emissaries are sent to those other countries in order to
talk about peace (see illustration 2 below). They even allow price increases for the products
imported from those other societies so that they can sell ever more prams. As a consequence
the imported products become more expensive for the people of Htrae, who see their
purchasing power eroded.
By the way, a similar evolution could have been possible even if the pass across the
mountains would not have been discovered. By dividing the society of Htrae in two or more
groups and setting them up against each other so that they would go to the battlefield with
prams, the demand for those prams would be induced, so the economic growth could have
been stimulated artificially, and it would still be possible to create money out of money. The
raw materials, energy and human effort in order to produce those prams and keep the Ymra
operational would then be taken away from the population of Htrae itself. But due to the
internal struggle, one could say that there is no longer one single society surrounded by
mountains, but two, three... so the stupidity of the situation is not so obvious.

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So far for this strange story of the pram-industry. We remember that it is fairly easy to
show that such an out-of-proportion pram industry is useless in a closed economic system, but
that it is also rather easy to defend the usefulness of it in an open economic system. One only
does have to make appeal on a few manifestations of human weakness: lust for power, greed,
ambition... Assuming that the earth is flat and thus infinite, then no economic system could be
closed: for every finite society there exists an infinite outer world with whom energy and raw
materials and goods can be exchanged. But as already stated in section 3.4.5, where we
discussed the balance of trade, we know that the earth is a globe and thus finite. In section
3.1.1 we promised to think of ourselves as world citizens. When we see the earth as one
closed economic system - one little country surrounded by high mountains of infinite space -,
then we can understand that it is indeed irresponsible to spend so much energy, raw materials
and human effort in order to make so many useless prams, which are only used to make
parades and to ride them into destruction. Still those silly things do happen on earth! Why?
And how is this possible?
Illustrations
In this section we will give some examples which clearly show that the story of the
pram-industry we invented is surprisingly close to reality. The following pages are borrowed
from The Challenge written by the former French politician and writer J.J. Servan-Schreiber.
He published his book in 1981 during the economic crisis that followed the oil crisis of 1973.
So maybe these lines could learn us something of things that may happen in the near future,
as were are now, in 2008, once more faced with an oil crisis, a financial crisis, and most likely
an deep economic depression.

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Illustration 1: The Glory of Weapons (pp. 170-175)


The Third World is corroded by its hunger for weapons. The enormous homicidal
machinery is in full expansion. There seems to be no way back. As oil prices are increasing,
the industrialized countries need more export in order to pay for their import of energy. One
of the easiest ways is to sell ever more weapons to ever more countries.
90% of the French and British production of weapons is intended for export to Third
World countries. During the last 10 years the growth figures of the export of weapons by
France was twice that of any other commodity. In 1978 the international trade of weapons
showed the following figures:

Billion $

USA

12

48.0

USSR

26.9

France

11.2

1.2

3.9

3.7

Italy
UK

All industrialized countries fight for new markets and contracts, brokers make
fortunes in negotiating secret deals. The most tragic thing about this trade is that most western
weapons are sold to countries which are already in great debt, countries who are unable to
feed their own population and who undermine their own economic development.
With the money paid for one tank, about 400,000 $, one could build modern silos to
preserve 100,000 tone rice, which would allow for extra saving in rice of about 4,000 ton each
year. One pound of rice is enough for the daily food of a person. The price of one airplane is
enough to invest in 40,000 small pharmacies in Third World villages. Indeed one can say that
those countries buying the weapons are on the wrong way, but meanwhile western industry

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makes the profits. The industrialized countries deliver machine guns, planes and tanks on
command, and in doing so they let other pay for their military defense. The French general
Cauchie expressed this with the following words during a congress on European pram whoops, excuse me for the slip of my pen - weapon-industry: Not only does the total
capacity of the European weapon industry far exceeds the potential European market, it also
can no longer exist if European governments do not increase their budgets for military
expenditures... So in order to keep military industry running, Europe has to find other buyers,
it is forced to export weapons.
The foreign currencies a country receives is just one of the consequences of exporting
weapons. By making larger series of the same type of weapon, the own defense becomes
cheaper as development costs and investments can be spread over more units. Without export
of weapons (82 billion FF. in 1980), the French defense budget would have to be increased
with 20 to 25 billion French francs...
Thirty countries of the Third World spend more than 30% of their GNP on defense,
this is more than Europe; in 1960 this figure was 'only' 13%. Egypt had the world record in
1974 with 40% of its GNP.
Third world countries even started their own weapon-industry: combat-planes are now
built in Argentina, Indonesia, Pakistan, Chili, North- and South-Korea, the Philippines,
Taiwan, Vietnam, Colombia, Thailand, India and Brazil...
Most of these countries have gained their independence by the use of weapons. To
them, the possession of and the control over weapons is a symbol of new pride and selfesteem in front of the rest of the world. Everyday one can hear voices in the western countries
saying that the independence of a country is closely related to its safety, thus to its
weapons. How could one then prevent the leaders of the Third World countries to take care of

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their independence in the same way? On the contrary, they are even encouraged, as the
weapon-trade does not know any political borders and yields such a high profit. The
discrepancy between the military expenditures of the Third World and their level of
development can only lead to self-destruction for those countries, as the need for new and
better high tech weaponry keeps on growing. If they buy their weapons or they make them
themselves, in either case this policy erodes the economy of the country, because a lot of
financial resources and human effort and creativity are wasted instead of being used in the
development of an economy to fulfill the basic needs of the population.
In India, for example, the national economy is restrained by the lack of telephone
lines. The weapon industry, on the other hand, has its own communication and transport
system. In 1980 Indira Gandhi made the following statement concerning nuclear weapons: If
necessary for the general good of India, we must be able to control the most modern
techniques. We cannot afford our country to be unprepared. But at the same time she asked
herself this question: In joining this race for weapons, does India increase or destroy its
security?
The answer to this question for her and the whole world was given by the selfdestruction of the Iranian empire. The growth of the military budget under the reign of the
shah was impressive: 241 million $ in 1964, 4 billion $ in 1974 and 10 billion $ in 1977!
But why? The shah explained to Anthony Sampson: I hope that our American and
European friends will understand that there is no longer a difference between Iran and France,
Britain or Germany. It is considered as normal that France spends so much for its defense, so
why not Iran too? Our power in the Persian Gulf is now ten times stronger than the one of the
British ever has been.

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In 1978 the army of Iran was twice that of the British. It had almost 3,000 tanks
(France had about 1,000 tanks at that time). Their navy had the largest fleet of Hoovercrafts.
Their air-force was the fourth in size of all countries, in 1976 it had a budget of 12 billion $.
Only the most sophisticated equipment was enough for the shah. At the end of his reign he
ordered 290 Phantom bombers, 33 light F-5 interception planes, 80 F-14 supersonic combatplanes and 160 F-16 planes. Often the weapons were already outdated by the time of delivery.
Iran then sold them to Pakistan and ordered new ones.
The shah had made up his mind to install the worlds most modern army in his country
with the help of his military advisers of the American weapon industry. He succeeded in this
project. Nixon and Kissinger had decided to give the shah everything he asked for (see also
illustration 2 below).
But what is an army without technical and logistic support? In order to provide these
the shah started a program for the installation of seven air-force bases and six marine bases
for the navy. The sophisticated weaponry also demanded for highly trained personnel. Next to
two to three pilots a supersonic combat-plane demands about 30 technically trained persons
for maintenance. A country like Iran, with more than half of its population being poor
farmers, is not able to deliver the necessary pilots, navigators and technicians in a short period
of time. The whole supply of trained personnel was absorbed by the army, leaving the
industry and agriculture with the untrained ones.
During that period some businessmen made fortunes - 45 families controlled 85% of
industry and business - and corruption was present in all layers of society. Contracts were
always accompanied with commissions or bribes to be paid to intermediate persons and
officials. At the start of the military program in Iran, senator William Dulbright made the
following comment after a visit to the country in 1976: I have been in Iran and I saw a very

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poor country. There are a few rich, but most of the people only believe in revolution. I think
we do not serve this country by selling weapons to it. A few years later senator Edward
Kennedy made a similar statement after a visit to the region: Teheran has started to change
its economic potential into a military one. He also urged the American government to review
its policy in the Gulf, which was based on the excessive military power of the shah. Richard
Helme, the American ambassador in Teheran, expressed his concern on the growing presence
of American military advisers and agents of the weapon-industry.
During this one-sided development, the agriculture of the country was neglected,
although more than 75% of the population were farmers. People without land and without an
income left the countryside and went to the cities, hoping to find a job. Instead they formed
the basis for the revolution which was preached to them by Ayatollah Khomeini.
It is interesting to note that this enormous military force has served nobody, not the
shah, not the American public, only the American weapon industry. The only result was that
this one-sided development has eroded the regime of the shah and that the western influence
in this part of the world is no longer welcome. But if one studies the order-book of the
western weapon-industry today, one sees that the western world has learned nothing out of
this story.

Illustration 2: Keep the fire simmering (pp. 79-80)


Kissinger has kept Metternichs secret in mind. His example and inspirator had indeed
a peculiar way of handling diplomatic affairs: he told one thing to the Russian Czar, another
to the king of Prussia, and still another to the king of France. He knew that each one of them
would keep the secret to him and that years could pass before they would find out what he
had said to the others. So in the mean time...

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Kissinger has applied the same formula: one truth for Sadat in Egypt, one for Assad in
Syria, another for Feisal in Saudi-Arabia - and the real confidentialities were for the shah in
Iran. Kissinger was sure that they did not trust each other so they would not exchange their
secrets. So he would remain the master of the game, at least for some time.
And so it happened. When two of the rulers in the Gulf area did talk to each other and
found out that Kissinger had told them different stories, then this situation was resolved by
simply saying that they must have misunderstood him. But after a few rounds of this merrygo-round, the indiscretions on the Kissinger-talks accumulated, so they created more distrust
than confidence in the American policy.
The secretary, however, has never hidden his real intentions. He was not really
interested in a deal on the price of oil. His real concern was to develop a strong military force
in Iran against the Soviet Union, in order to protect the Arabian oil fields and to secure the
transport of oil to the west.
As the Iranian income from oil increased year after year, the shahs hunger for more
and better weapons kept growing. The price was even irrelevant. The Pentagon was ordered
to give him everything he asked for. But after some time Iran could no longer pay the bill. In
1974 Kissinger and the shah found a simple solution to this problem: the price per barrel was
increased. In this way Iran's income from oil was increased, so it could order more weapons,
while Kissinger promised that America would have no objections when the shah imposed one
price increase after the other. In 1974 50% of the American export of weapons went to Iran....
while people in America, Europe and all over the world had to pay more and more for their

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energy, money which was used to buy weapons (prams) which had no use at all55, money
which ultimately was diverted to the weapon-industry as profits.
I hope that these two historical analyses have illustrated the story of the pram-industry
and that the reader now has a full understanding of who is interested in the excessive
development of the pram-industry. In the remainder of this section we will return to our basic
economic model in order to explain this situation.
Disinvestment goods
In a normal economic system one can divide the goods and services which are
produced in two categories:

Consumption goods: these are intended to be consumed or used by you and me.
They satisfy a real or a cultivated need of mankind.

Investment goods: these are not consumed by you and me, but they are useful or
necessary in the production and distribution of consumption goods or other
investment goods (machinery, communication and transport infrastructure...)

In the initial phase of the evolution of an economic system, both categories contribute
to the economic growth and thus to profits. They allow to make money out of money. When
needs are not yet fulfilled, the category of consumption goods can grow, and this growth in
turn stimulates the growth in the field of investment goods, as long as the material conditions
of energy and raw material allow further growth. As long as the growth rate and the return on
investment are sufficient, there is no problem.

55

Except for the war between Iran and Iraq. Have you ever understood the reason why they were
fighting? Saddam Hoessein was backed-up by the USA government at that time. Divide et impera?

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But we have already discussed the consequences of a lower growth rate and of the
accumulation of capital goods: profits are eroded, the return on investment is lower,
unemployment increases... Initially this can be solved by stimulating the economic growth:
the government can start programs to build new roads, new needs can be cultivated, etc. But
these measures have their limits. And as we have discussed in section 3.3.1, the profit ratio
has the tendency to decline in time of peace.
Let us forget for a moment that we are world citizens and place ourselves in the
position of a person who earns his living by making money out of money. We are faced with
the following problem: the return on investment of our capital is too low, so we are forced to
use that capital in order to live. We will now outline a possible solution to this unfavorable
situation, a measure which has been the solution to an economic crisis on several occasions in
the past. But we will also argue that this kind of solution has become obsolete. Instead we will
outline an alternative later in this book, an alternative which is feasible... and which is
probably the only possible solution.
The profit ratio is equal to the profit (numerator) divided by the invested capital
(divisor). Profit is too low due to the slow economic growth. The invested capital is too high
due to the accumulation of ever more machinery and industry buildings. So the solution of the
economic crisis seems to be obvious: we should return to a situation where there are again
real opportunities to grow so the numerator can increase, and where the level of invested
capital is reduced so the divisor is smaller. The question remains: how do we get to this
situation?
Well, we could start with the development of a third category of goods in our
economic system next to consumption goods and investment goods: the category of
disinvestment goods. Initially, this new category would give us the opportunity to stimulate

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the economic growth in an artificial way by producing and marketing these disinvestment
goods, and then, when this field of business is sufficiently developed and starts to show signs
of saturation itself, to use these goods for two purposes:

Primo: to return society into a situation where there are again real needs and thus
potential for growth, so that money can create money.

Secundo: to destroy the excessive supply of investment goods, i.e. to disinvest on


a large scale, the larger the better.

The profit ratio would increase at once. The reader probably has figured out already
what is meant here with the term disinvestment goods: the goods produced by the weapon
industry and the services taken care of by the army, goods and services which are not really
needed in such a massive quantity and could be compared with the pram-industry and the
Ymra in our story of Htrae. But they are very useful in stimulating the economy when
consumption goods and investment goods are in a period of zero-growth, they create jobs so
the problem of unemployment can be handled in an artificial way for some time, and, on the
long run, they can solve the economic crisis as described above: war.
As K. Lorenz has stated it: It is a mistake to think that the world is ruled by
politicians. Behind them stands the true and only rulers of the world: big business. The arms
race ever continues on both sides of the Iron Curtain, despite all conferences and disarmament
talks, not because the Russians and Americans are afraid of each other, but because the
industry earns a lot of money out of it.56

56

K. Lorenz, Our Last Chance, p. 119.

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At this point we can again formulate the following conclusion: the arms race
and wars are used (fomented) to preserve the mechanism of creating money
out of nothing.

You might make the following objection: if capital goods are destructed, then we all
become poorer. Yes indeed, but the question is who is we all? In a peaceful growing
economy, people can afford to save, to put some money aside in for example a pension fund,
on a saving account, in government bonds. It is striking that after a financial crisis like the
Great Depression pension funds were restricted in the way they invested the money of the
millions of people: they could only make very secure investments in real estate or government
bonds. But then comes a time people tend to forget that these pension funds are allowed
once more to invest in risk-bearing stocks. As the good money of millions of people is
diverted to the stock exchange, and because of the law of supply and demand, the stock
market becomes a bull market, it goes up and up, and secure money is diverted to insecure
investments. People start to follow the market and put also other savings in the stock market,
and even a major part of their monthly income goes to the stock market. And the people who
sell the stocks receive a lot of good money. So if there is a major destruction of capital goods,
who then is the big looser. 2008, rings a bell?
In order to justify that the tax-payers money is invested in the field of disinvestment
goods, one has used arguments as employment, security and the threat of the communist
world or terrorists57. It is a dangerous evolution that, in spite of more economic uncertainty,
there is one branch in industry which is not affected: the military industry. Per definition,
there can be no overproduction in this field, as one is sure to find a buyer for the goods
produced: the government. Under President Reagan the defense budget of the USA has

57

Enemies which has been created by the financial lite themselves!

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increased year after year, while the NATO has imposed a yearly increase of 3% on the
contribution made by the allies. And the deeper the economic crisis in civil production the
greater the pressure on politicians to increase military expenditures in order to create jobs.
This resulted in an acceleration of the arms race, which increased the risk for war, as these
weapons were sold to all kinds of unstable regimes all over the world. And this also results in
higher budget deficits, so governments has to loan more money, and certain groups in society
earn quite a lot of money by selling loans. In the summer of 2007, Bush Jr. proposed to
increase the export of weapons to the neighboring countries of Iran in order to increase the
safety in the region. And very coincidentally shortly thereafter there was a crash on the
stock-markets.
I hope I have enfeebled the argument of employment by showing the stupidity of it in
the story on the pram-industry. The argument of more security neither stands the critics.

Important note:
In a first version, which I completed in 1985, I had included the remainder of
this section?. But then came the disintegration of the USSR, so I really thought
at that moment that the Cold War was over. But due to recent political and
financial evolutions the USA President Bush Jr. plan of August 2007 to
invest more in the defense of countries in the Middle East - I have come
to the conclusion that the following lines still should be an integral part of this
book. The reason for my changed perception of reality will become clear in the
remainder of this book. So read them as if we were still in the 1980s, as things
- as they are and not as some people would like us to believe they are - really
haven't changed that much.

Over the past two decades the US Defense Department and the military
industry have succeeded in creating a series of public hysterias about national
defense in order to be granted regular increases in military spending. To do so
military analysts have perpetuated the myth of an arm race in which the
Russians are ahead of the United States. In reality the United States has been
leading the Soviet Union in this insane competition ever since it began. Daniel
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Ellsberg has shown convincingly, by making available classified information,


that the American military knew it was vastly superior to the Russians in
strategic nuclear weapons throughout the 1950s and the early 1960s. American
plans, based on this superiority, contemplated first use of nuclear weapons - in
other words, initiating a nuclear war - and several American presidents made
explicit nuclear threats, all of which were kept secret from the public.
In the meantime the Soviet Union has also built up a massive nuclear force,
and today the Pentagon is again trying to brainwash the American people into
believing that the Russians are ahead. Actually there is now a balance of
power; equivalence in armament is a fair description of the current situation.
The reason why the Pentagon is again distorting the truth is that it wants the
American military to regain the kind of superiority it had from 1945 to about
1965, which would enable the United States to make the kind of nuclear
threats it was making then.
Officially the American nuclear policy is one of deterrence, but a closer look at
the present American nuclear arsenal and the new weapons being designed
shows clearly that the Pentagon's current plans are not aimed at deterrence at
all.
Their only purpose is a nuclear first strike against the Soviet Union. To get an
idea of the American force of deterrence it is sufficient to consider the nuclear
submarines. In the words of President Jimmy Carter, Just one of our relatively
invulnerable Poseidon submarines - less than two percent of our total nuclear
force of submarines, aircraft, and landbased missiles - carries enough warheads
to destroy every large and medium-sized city in the Soviet Union. Our
deterrence is overwhelming. Twenty or thirty of these submarines are always
at sea, where they are virtually invulnerable. Even if the Soviet Union sends its
entire nuclear force against the United States, it cannot destroy a single
American submarine; and each submarine can threaten every one of its cities.
Thus the United States at all times has the power to destroy every Russian city
twenty to thirty times over. Seen against this background, the current increase
in armament clearly has nothing to do with deterrence.
F. Capra, The Turning Point, pp. 254-258.
Clinton planners (STRATCOM) advised further that Washington should
portray itself as irrational and vindictive if its vital interests are attacked,
including the threat of first strike with nuclear weapons against non-nuclear
states. Nuclear weapons are far more valuable than other weapons of mass
destruction, STRATCOM noted, because the extreme destruction from a
nuclear explosion is immediate, with few if any palliatives to reduce its
effect. Furthermore, nuclear weapons always cast a shadow over any crisis
or conflict, extending the reach of conventional power. Again, the strategic
doctrine is not new. For example, Carters defense secretary Harold Brown
called on Congress to fund strategic nuclear capabilities because with them,
our other forces become meaningful instruments of military and political
power, which must be available everywhere in the Third World because,
largely for economic reasons, there is increased turbulence from within as
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well as intervention form the Soviet Union the latter more a pretext than a
reason, a fact sometimes frankly recognized.
Under the Bush [jr.] administration, the threats have become even more
serious. Bush planners extended Clintons doctrine of control of space for
military purposes to ownership of space, which may mean instant
engagement anywhere in the world.
Noam Chomsky, Failed States, pp. 10-11.

From this discussion58, we clearly see that more weapons do not necessarily lead to
more security, on the contrary! Besides, security against who? Was there really an enemy to
the western world or has one been created? In the western countries the communist countries
were depicted as the potential aggressor we should defend ourselves against, with the
enormous weapon industry and military infrastructure as a consequence. But why, for
example, would the USSR have attacked Western Europe? West European countries have
little or no natural resources (energy and raw materials). Instead they have a dense population
used to a high level of consumption compared to the former communist countries. Most
western countries are faced with deficits in their budgets and some of them have negative
balances of trade. What economic reasons would the Soviet Union have had to annex Western
Europe? They have enough reserves of energy and raw materials themselves, which they
would then have to divide among more people. The Russians very well knew that it was better
to exchange these resources for western technology and products. To conquer Western
Europe in order to acquire this technology would have been of no value to the Russians.
Russian scientists and engineers were not less competent than their American or WestEuropean colleagues. Innovation and creativity for civil production were simply not
stimulated and rewarded in that totalitarian regime! If Western Europe would have fallen

58

See also Noam Chomsky, Failed States, sections on Risking Ultimate Doom and Apocalypse Soon,

pp. 8-18.

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under communist domination, then creativity would also have atrophied. It was in the interest
of the Soviet Union to leave Western Europe for what it is: a very useful trading partner.
In my view, there were only two reasons which might have caused the Soviet Union to
start a war. The first one was because it was obstructed in its development by the Western
boycott on technology transfer, inspired by the Committee on the Present Danger created in
the beginning of the 1980s by president Reagan and his advisors. Due to this boycott the
Russian economy was slowed down in its exploitation of the natural resources (natural gas,
oil, raw materials...), so it might have been tempted to get this technology where it can be
found59. The second reason is pure military: because it felt threatened. This is not new in
history, you know.
You were taught in school that the United States entered World War I because
of German violation of the rules of the war. German submarine warfare was
killing Americans at sea60. In addition, Germany had been the aggressor. Her
attack on Russia and her invasion on neutral Belgium put her clearly in the
wrong. However, this is history from the viewpoint of Allied propaganda. The
cause of World War I is more complicated.
When Serbian nationalists killed the Austrian Archduke, Austria had to assert
herself. This was wrong - the Serbs had a right to independence - but holding
an empire together necessarily involves doing wrong. The Austro-Hungarian
empire was tottering, and failure to show strength would have encouraged
other rebellious acts and led to its break-up. Russia61, which had ambitions for
an empire of her own in the Balkan, then mobilized to support Serbia. The
Russian mobilization cast the die for a world war.
Germany was in a tight spot - surrounded and outnumbered by a RussianFrench alliance. Her only ally was Austria-Hungry. Had the Austro-Hungarian
empire dissolved, it would have left her alone. Better to fight now with more
nearly equal odds than later, by herself. So when Russia mobilized, Germany
knew the time had come for action. Since she was the weaker party, her only
chance was to attack first, gaining the element of surprise.

59

Compare this with the situation of Japan before World War II.
The Americans at that time transported weapons and American civilians on the same vessels to
England. Was this on purpose, in order to trigger a reaction from the Germans and to create an excuse to join the
war in Europe?
61
Still ruled by the Czar at that time.
60

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When Germany attacked Russia, France, spoiling for revenge for her defeat in
the Franco-Prussian war of 1871, declared war on Germany. The German
attack on Russia was an excuse, not a reason. Similarly, when Germany
violated Belgium's neutrality, England found her excuse in a war which she
could have easily avoided.
K. Katz, The Warmongers, pp. 23-24.

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3.6.6

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To be or not to be, thats the question


This armament race, induced by the weapon industry, had of course another direct

consequence: ever more raw materials and energy are used in the production of ever more
prams or disinvestment-goods. The growth in this category of business provided profits and
jobs to a lot of people, who otherwise would be forced to find another, maybe less paid job to
earn their living. But the goods that these people need for their living are now also available,
even with all the energy, raw materials and human effort wasted in the production of these
prams. If one would reduce the production of these prams, there would be more resources
available to fulfill more needs of more people, while those working in the branch of the
disinvestment-goods even would not have to work at all! One should even give them more for
not working at all then for working in the pram-business! Why don't people see through this
situation? Or are they still deluded by the ideas of Malthus?
Thomas Malthus was professor in political economy at the East India Company
College. In charge of the East India Company he compiled an inventory of the natural
resources of the whole earth. By then one was aware of the fact that the Earth is a globe and
thus finite, so the job could be done. With a flat infinite earth, this would of course not have
been possible. Based on these recordings, he made the following observation: the population
was increasing with a geometrical progression, while the production of goods and exploitation
of natural resources was increasing with an arithmetic progression. Based on these two
conclusions of that time, he predicted increasing tensions in the world. Half a century later,
Darwin formulated his survival of the fittest and struggle for life theory. Based on the
theories of Malthus and Darwin, among others, a basic attitude was created in the western
world which could be expressed as you or me, but not both of us together!
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Those in supreme power politically and economically as of 1980 are as yet


convinced that our planet Earth has nowhere nearly enough life support for all
humanity. All books on economy have only one basic tenet - the fundamental
scarcity of life support. The supreme political and economic powers as yet
assume that it has to be either you or me. Not enough for both. That is why
those in financial advantage fortify themselves even further, reasoning that
unselfishness is suicidal. That is why the annual military expenditures by the
USSR, representing socialism, and the USA, representing private enterprise,
have averaged over $ 200 billion a year for the last thirty years, doubling it last
year to $ 400 billion - making a thus-far total of six trillion and 400 billion
dollars spent in developing the ability to kill ever-more people, at ever-greater
distances in ever-shorter time.
B. Fuller, Critical Path, pp. xxii-xxiii

On the subject of the East India Company Bucky, as he was called by his friends,
tells us the following interesting story:
The East India Company, whose flag I have shown to be the origin of ours (the
US flag) was a private62 enterprise chartered by the British. Quite clearly the
East India Company didn't lose the American Revolution. The British
government lost the Revolution, and the East India Company swiftly moved
large amounts of its capital into US America.
B. Fuller, Critical Path, pp. xxii-xxiii

If you can't beat them join them. Just think it over.


However, since the days of Malthus science and technology have evolved so
drastically that with ever less energy and materials more and more can be accomplished. B.
Fuller has given several examples of this evolution from the use of water over the building of
houses to the production and distribution of electricity on a world scale. He ends his discourse
with the following conclusion:
This clearly confirmed the reasonability of my working assumption that the
accelerated ephemeralization of science and technology might someday
accomplish so much with so little that we could sustainingly take care of all
humanity at a higher standard of living than any ever experienced, which
62

In typing this, I first made a typing error: I forgot the 'r'. My spell checker suggested 'pirate' as
alternative. Funny, isn't it?

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would prove the Malthusian only you or me doctrine to be completely


fallacious...
Neither the great political and financial structures of the world, nor the
specialization-blinded professionals, nor the population in general realize that
sum-totally the omni-engineering- integratable, invisible revolution in the
metallurgical, chemical, and electronic arts now makes it possible to do so
much more with ever fewer pounds and volumes of material, ergs of energy,
and seconds of time per given technical function that it is now highly feasible
to take care of everybody on Earth at a higher standard of living than any have
ever known.
In order to realize this one has only to apply already existing technologies and
use the resources that are now wasted to make weaponry and to realize profitfor-the-few instead of creating high-quality-livingry-for-all.
It no longer has to be you or me. Selfishness is unnecessary and henceforth
unrationalizable as mandated by survival. War is obsolete.
B. Fuller, Critical Path, pp. 148-149, xxv.

But still there are people who use the resources of the earth in order to improve their
own already vast material position at the expenses of others and to strengthen their power.
This is described in a very lucid way by B. Fuller in the chapter Legally Pigally of his last
book Critical Path. He gives a good overview of the origin, the development, and... the
legalization of the phenomenon exploitation. On this subject, we can also recommend The
Warmongers by Howard Katz and Intellectuals and the State, On Power and Ideology and
Failed States by Noam Chomsky as very sharp analyses of the situation.
Next to the scientific and technological evolution described by Fuller, we can also
stress the fact that demographic evolution has changed since the days of Malthus. Studies
have shown that with increasing material development of a society the growth-rate of the
population declines.
Demographers have discovered that the significant pattern is a transition
between two levels of stable populations that has been characteristic of all
Western countries. In pre-modern societies birth rates were high, but so were
death rates, and thus the population size was stable. As living conditions
improved during the time of the Industrial Revolution, death rates began to
fall, and, with birth rates remaining high, populations increased rapidly.
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However, with continuing improvement of living standards, and with the


decline in death rates continuing, birth rates began to decline as well, thus
reducing the rate of the population growth. The reason for this decline has now
been observed worldwide.
Through the interplay of social and psychological forces, the quality of life the fulfillment of material needs, a sense of well-being, and confidence in the
future - becomes a powerful and effective motivation for controlling
population growth. There is, in fact, a critical level of well-being which has
shown to lead to a rapid reduction in birth rate and an approach to a balanced
population. Human societies, then, have developed a self-regulating process,
based on social conditions, which results in a demographic transition from a
balanced population, with high birth rates and high death rates and a low
standard of living, to a population with a higher standard of living which is
larger but again in balance, and in which both birth and death rates are low.
F. Capra, The Turning Point, pp. 227-228.

However, the Malthusian vision is assimilated so deeply in our western way of


thinking, that scarcity has been institutionalized so to speak. This is really the greatest
obstacle for the design-revolution Fuller refers to. Indeed, scarcity means business: one can
ask a higher price for a scarce good, while the prices of abundant goods are low. So the myth
of scarcity must be kept high in order to protect the western capitalistic model. Tons of fruits
and vegetables are destroyed each year in the European common market in order to keep
prices at a level. The supply of meat, milk, butter and wine is greater than demand, it costs the
European tax-payers millions and millions of whatever currency in order to preserve or even
destroy these surpluses.
An electricity or oil-company is only interested in forms of energy which reach the
consumer through a teller and which require an expensive infrastructure. B. Fuller describes
how he holds several patents which could have had significant contributions to the savings of
materials and energy. Big business is not interested in developing these patents to products,
instead they have tried to freeze them - i.e. to take them away from all of humanity - by
buying them. The implementation of these patents would be to the advantage of the
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consumers and of humanity as a whole. But natural resources would become less scarce and
thus less expensive, so profits would decline in some fields of business. In the same way we
observe that the production of long lasting goods with high quality is something of the past.
Because of scarcity? No, on the contrary, because of the abundance! Well, at least in the
western industrialized countries. The growth of the economic process must be induced in an
artificial way.
Scarcity also means struggle for life and thus insecurity, which in turn is used to
justify the highly profitable pram industry. Security is sold to the tax-payer, whose savings
are eroded by inflation and high taxes due to high budget deficits. The financial effort a
democracy must impose upon itself in order to maintain a substantial army and weapon
industry can only be sold to the tax-payer if one can point to an external enemy, who is
seeking to take away our freedom and our material well-being. For this purpose, a former ally
is sometimes turned into an enemy, or an enemy is created out of the blue.
B. Fuller, sometimes called the planet's friendly genius, has formulated this as follows.
Assuming that an atomic war would mean that both sides would lose - ergo it
would not occur - the USSR determined to outnumber and thus overpower the
USA in the design and the production of conventional air and sea armaments
and in the training and maintenance of a vastly greater standing army,
whereafter they felt they could negotiate constructively for the establishment
and maintenance of peaceful world-around conditions.
It must be remembered that, in their 1920s-formulated, successive-multistaged
five-year industrial planning, the Russians had assumed a World War II to
occur in the early 40s, at which time it would become evident to the privateenterprise world that socialism could be successful - which private enterprise
had always said would be impossible - ergo, the private-enterprise-dominated
countries would start a war to destroy socialism but would do it in a highly
deceptive manner by having a Nazi propaganda offensive launched against the
German industrial cartels, which would suddenly be turned against the USSR.
This is exactly what happened. The Germans first made the USSR their ally.
When well into Poland and at the Russian border, the Nazis turned
treacherously against the USSR. The entire anti-USSR strategy of the
'Cliveden set' miscarried when, soon thereafter, the USSR and the USA
became allies.
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No one in the USA can understand the bitterness as yet existent in the USSR
over the million of USSR troops and civilians killed by the Nazis, more than
25 million person. The USSR could not understand the USA's rearming of the
Germans, with whom the USSR was much more concerned as a world War III
enemy than with the USA as such an enemy.
The Russians had assumed in their five-year planning that when World War II
terminated, they could be able to divert all their high industrial productivity
toward advantaging all their people in order to prove that socialism could
produce an economically desirable life-style equal to or better than provided
by capitalism. Again the Russian planning became thwarted when Western
capitalism, which has been socialized by FDR's New Deal, realized at the
cessation of World War II that it could not carry on without the vast
government procurement program which is associated only by war. To cope
with this situation the capitalists invented World War III, which they called
The Cold War. The Russians queried of the US, their supposed ally, Who are
you going to fight? and the USA answered, You63.
This meant that the USSR would have to focus all its high-science-andtechnology on producing armaments for decades of around-the-world cold
warring, in the conduct of which both the Russians and the USA would have to
avoid direct, all-out interconfrontation. With the joining of supreme-powers
war by direct military confrontation, neither side could withdraw without allout surrender. However, all-out intercontinental atomic war would mean the
end of human life on Earth. Therefore, the USA and the USSR, in testing their
respective strengths, would have to operate indirectly against one another
through their respective puppet nations, hopefully intent on drawing forth the
secret weapons in the others arsenal. Thus we have the North versus the
South Koreans, the Vietnamese versus the Vietcong, the Israeli versus the
Arabs, etc
The Russians decided early on that atomic warheads would not be used
because the rocket delivery times traveling at 14,000 miles per hour were such
that with radar traveling at 700,000,000 miles per hour, both sides would know
ten minutes before being struck that the enemy had fired their atomic warheads
- ergo, both sides would have plenty of time to send off all their atomic
warheads, and both sides would lose. So while deceptively continuing the
atomic-warhead race with the USA, the USSR committed itself realistically to
producing the strongest navy in history. The USA politicians kept the USA

63

See also Noam Chomsky, Failed States, pp.123-124: British intelligence had also found supersecret appreciations of the Soviet Union as the next enemy that were circulating in Washington. In may 1945,
as the war against Germany ended, Churchill ordered war plans to be drawn up for Operation Unthinkable.
His stated objective was the elimination of Russia, Aldrich writes A few years after the end of World War
II, British assessments began to change. By 1951, the retiring director of navel intelligence, Vice Admiral Eric
Longley-Cook, informed the innermost circle [that] the stolid Russians were a force for stability in the world
system, seeking to further their objective by psychological or economic means but not a general military
offence . He suggested that the main threat to strategic stability and indeed the survival of the United
Kingdom came from America, which is preparing for a shooting war with the Soviet Union from which the
United States would be secure, while Britain might be destroyed.

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populace feeling military secure because they could point out that the USA
was developing far more atomic warheads than the USSR. The USA was doing
so because big oil money, which successfully lobbied Washington's Capitol
Hill energy policies - knowing that petroleum would ultimately be exhausted fostered atomic-warhead production in order to build up the atomic technology
industry (in the development of which the US-people's government had spent
over $ 200 billion) and its nuclear scientist personnel whom they, the worldpower-structure organizations, would need to employ in operating the atomicenergy plants and the electrical-distribution network as world petroleum
supplies dwindled. They would need the energy meters in order to continue
exploiting the capitalist world's energy needs.
B. Fuller, Critical Path, pp. 191-192.

By the the Cold War campaign in the 1950s64, the people in the Western industrialized
countries were deceived in order to justify the enormous pram-industry, which served the
interests of certain interest groups in society. But inducing fear for the enemy by misleading
propaganda was just one of the means to serve these interests. In order to extend an enormous
weapon industry and to keep a large army operational one has to spend money, quite a lot of
money. We will now see by what means these projects has been financed.

3.6.7

Inflation
In the previous section we discussed the why of war based on our economic model.

When needs for products and services reach a certain level of saturation so that people no
longer buy more and more, or people still in need do not have the purchasing power, then
economic growth will stagnate, so money can no longer create money. In that situation, a war
can be used in order to reduce the level of capital invested (destruction = disinvestment) and,
at the same time, to return the society to a level where there again are basic needs and thus
potential for growth: the profit-ratio will increase and money can once more create money. By

64

The film Atomic Caf is a very lucid account of this period in American history!

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the introduction of protectionistic measures like tariffs and quota, aimed to protect the own
already saturated market for the benefit of the own producers, countries depending on the
export of manufactured goods in order to pay for their import of energy, raw materials and
food are cut from their markets. They are then faced with the choice of internal social
conflicts, which can jeopardize their internal power structure, or an external conflict, in which
the aggression is ventilated toward the outside world.
We have already a presumption of who will benefit from a war in the first place. But
how do these people succeed in leading a society into such an adventure? One instrument is
of course war propaganda and the manipulation of the media in order to deceive the people
about the real nature of the war. Indeed, economic recession and unemployment are the
perfect soil for nationalism, racism, extremism and fascism. It is rather easy to point to an
external enemy as a scapegoat. I wonder whether Bush has read the following lines.

The psychological base of war.


There is a belief - widespread in our society - that feeling any emotion of
hostility is a wrong or immoral thing. People who accept this belief do not like
to admit their hostile emotional states, even to themselves. Such a person will,
of course, feel anger and hate. Human emotions are automatic responses to the
outside world. If a man perceives something which is evil and a threat to his
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values, hostility (and often fear) is automatic. It is part of his make-up as a


human being.
Such responses are not in themselves bad. In a good person the hate will be
directed at evil and will act as a psychological motive for him to fight the evil
and preserve his values. But when people deny their hate, pretending to
themselves that it does not exist, then the hate ceases to be under rational
control.
The most familiar example of this is the man who grovels before his superiors
and takes out his aggression on his subordinates or his wife and children.
Instead of feeling hate for the person who has caused his frustration, he simply
hates the weakest available party. This is not in accord with justice. It is not a
rational policy; and it will do nothing to deter future frustration. But this man
cannot subject his hate to a rational process because he will not even admit that
it exists. (One may see many examples of this type in the Armed Forces.)
Another example may be found in certain members of minority groups who are
servile to those who have the power in our society and take out their hostility
in criminal acts against random passers-by. Again this does nothing to deter
the injustice to which these groups are often subject.
The result of this is that a huge number of people are walking around with
irrational hostility - a free-floating hate caused by events in their personal lives
but not directed at the rational object of their frustration. If a politician can
reach out and channel that hate, he will strike a deep public chord and win a lot
of support.
The following method for channeling hatred has a long and successful history:
Look out there, the politician says, There is The Enemy. He is not like us.
He harbors vicious and aggressive designs against us. He is evil.
If one studies history, one is struck by the number of times that this syndrome
dominated countries so that each of them became The Enemy to the other.
Each element in the syndrome has a function:
The enemy is outside:

This allows the politician to unite all elements of the


society. There is no one to fight back.

He hates us:

This alleviates the guilt which people feel because


the truth is the opposite, and the essence of this kind
of personality is the belief that any hatred is immoral.

He is different:

Thus easier to hate. Again one is struck by the


frequency with which countries fight those who are
similar to themselves. The Germanic tribes of
Western Europe, all basically similar in culture, who
have bitterly fought each other since they overran the
Roman Empire are one example. The Greek citystates are another.
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He is evil:

Author: Geert Callens

Thus worthy of hate.

Howard Katz, The Warmongers, pp. 114-115.

A first mechanism to get hold of the wealth of the people


Another instrument can be found if we go back in the history of England.
As previously noted, every major war in American history has been
accomplished by a large depreciation of the currency. Is this correlation a
coincidence? Or is there a relationship involved? Do wars cause the currency
to depreciate, or is it the other way around?
We remember that a depreciation of the currency is the result of an increase in
the supply of money (very rarely do we find a significant change in the supply
of goods) and that is almost always caused by some form of paper money
system. To answer these questions let us return to the early history of paper
money - in particular the founding of the Bank of England almost 300 years
ago.
In the 17th century, England was undergoing the most significant political
change since the days of ancient Rome. The people were beginning to stand up
and demand their rights against the king. It was the first stirring of democracy.
In 1642 Parliament rebelled in the name of the people. They fought a civil war
against King Charles I, defeated him and cut of his head.
This first attempt at democracy was unsuccessful and the monarchy was
restored in 1660, but a second revolution, less violent and less radical, resulted
in the ouster of King James in 1668. William and Mary were invited to take his
place. Before Parliament gave the crown to William they required that he
assent to a bill of rights which established the supremacy of the Parliament
over the king...
William was a popular king, a Whig and a Protestant, as opposed to James, a
Tory and a Catholic. And William immediately brought the country into war
against the French. This war continued for several years; then in 1693 an
important thing happened. The people refused to pay for the war!...
The taxes which Parliament was willing to levy raised three million pounds but
left the king two million pounds short. He tried to borrow but only succeeded
in obtaining half of the amount, meanwhile driving interests rates up to absurd
levels.
At this point we can begin to see the operation of an important social force.
When democracy entered the history of a major European power - most
particularly establishing the principle that the people could only be taxed
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through their elected representatives - it acted as a force for peace. It did not
do this for any idealistic reasons. There is no evidence that the 17th century
English were less warlike than other peoples. They loved the bands and the
parades and the uniforms of war; they hated the outsider; they erased from
their minds the suffering of their countrymen and glorified the killing of the
enemy - just like all other people of that time and this.
Where democracy acted as a force for peace was not in regard to any spiritual
motives, but in the very practical motive of cost. War is expensive. War, in
effect, is mass destruction. Every war must be paid for, and it must be paid for
by the people of the country doing the fighting (wars financed by loot and
booty being a figment of some militarist's imagination). Under a monarchy or
dictatorship the people have no say over expenditures. Taxes are seized from
them against their will. But in a democracy they vote (or choose
representatives who vote) their level of taxation.
The people's seizure of political power coupled with the average person's
unwillingness to pay the cost of war showed itself in 1693 to be an important
new political force - a force for peace. It could have brought a new era to
world history. But a method was found to circumvent this force...
The British Parliament of 1693 was up against a new political force. Politicians
had discovered the people's unwillingness to pay for war. The solution was to
deceive them about the costs...
During his troubles with Parliament Charles I had tried to seize the gold which
the people had deposited with the Crown for safekeeping. Thus, when his son
Charles II was restored to the throne in 1660, people began to take their gold to
private goldsmiths. The goldsmith would issue the depositor a certificate, or
receipt, for the gold which he had on deposit.
A clever goldsmith discovered an advantage to issuing bearer receipts. When
John Jones brought in 100 pounds in gold coin, then the goldsmith, instead of
issuing receipts for 100 pounds payable to Jones, would issue receipts payable
to bearer (i.e. anybody holding them) which would say: This certifies that there
is in deposit with Gerald the goldsmith 100 pounds in gold coin, payable to the
bearer on demand. These bearer receipts were more convenient (easier to carry
and store) than gold. In addition, they conveyed an immense advantage to the
gold-smiths. Anyone who held them could use them in lieu of money (sic)...
Goldsmiths who issued these bearer receipts - and here is the interesting part found that most of the people never bothered to redeem them. If a smith had
received 1,000 pounds of gold and issued 1,000 pounds of receipts, it was
likely that no more than 50 pounds would be cashed at any one time before
more gold was deposited. For 100 pounds to be cashed at once was very rare.
So a goldsmith got the following idea: if I can start with 200 pounds in gold, I
can print additional receipts up to say 1,000 pounds. Since it is unusual for a
demand to come in for more than 10% of the gold at any one time, I will be
safe. I cannot keep the additional 800 pounds in receipts for myself; that would
be too obvious a fraud. I will lend them out at interest. Thus I will receive the
interest on 800 pounds as an additional profit. So without doing any saving, the
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goldsmith was able to earn the interest on a great deal of capital. For every
pound he could convince people to deposit with him, he was able to print four
pounds in receipts, lend this out and receive interest on it. Thus the 17th
century goldsmith became a banker, engaged in the practice of making loans.
Eric Butler sums up the situation: ...In other words, the goldsmiths were
swindling their customers by lending, or pretending to lend, what they did not
posses....
William Paterson's plan of 1691 was to apply the basic idea of the goldsmithbankers, to create paper receipts (bank notes) in excess of the gold in deposit,
and to lend these receipts to the king. This was the creation of a national bank The Bank of England - which was to be in the exclusive business of lending
money to the government65.
Paterson organized a group of London's leading financiers and together they
put up 72,000 pounds in gold and silver, using this as a base on which to print
paper notes. They were not content with issuing four or five times as many
bank notes as they had gold - the common practice of the time.
They issued 162/3 times as many, for the total of 1,200,000 pounds, and lent
this sum to the king at 81/3 % interest. Without the trick of the goldsmiths,
Paterson would have received interest payments of 600 pounds per year, but
with it he received 100,000 pounds per year - a sum grater than his original
capital!...
At this point a new motive for war has been created. The government is
desperate for funds and is willing to resort to unsound financial methods methods which could not be tolerated in peace. The banker creates money out
of nothing, lends it to the government and profits from the interest. War is of
great financial interest to the bankers.
The perceptive reader may raise an objection: I see how the king got the
money he needed. But after all, war is not fought with money. What is needed
are real goods: horses, arms, foods, transportation, etc. If we could create real
goods by simply printing paper notes, then, in war or peace, why should
anyone bother to work? Paterson provided the paper notes for the war, but who
provided the real goods?
The answer is that the English people of the time provided them: the same
people, who through their elected representatives had refused to provide the
goods via taxes, wound up providing them through the paper money.
When the king spent William Paterson's Bank of England notes, using them to
acquire real wealth, that much wealth was taken from the people of England.
When they went to their markets, they found that a given amount of money
would buy less. In short, there was a deprecation of their currency.
Here we have a second motive for war, or more precisely, the removal of what
would otherwise be a motive for peace. Bank issues of paper money hide the
cost from the people. In the final analysis the people must pay for the war;
65

The origin of high budget deficits.

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there is no one else who can manage such sums. When the war is financed
through taxation, the cost is presented to each person in advance, and he is able
to make a rational decision: is this war, and the benefits to be gained from it,
worth the additional burden?
But when the war is financed by depreciating the currency via paper money,
the true cost is hidden from the people and becomes apparent only afterward.
In this case, the costs are not judged according to a rational standard; rather
people act on the basis of emotions and mystical notions of power and glory.
Thus, paper money provides a motive for war in two ways66:

The true cost of the war is hidden from the people so that they cannot make a
rational decision whether or not to bear it.
Through the operations of paper money the bankers make huge profits. Since very
large paper issues are only associated with war, then if the banker can foment a
war, he can enjoy these profits.

The principle of 1693 was continuously repeated. In the history of nation after
nation, subsequent to the attainment of democracy, the people never
shouldered the costs of a war in the direct and rational form of taxation. It was
always imposed on them by deception via paper money.
Thus there is a close correlation between paper money and war...
H. Katz: The Warmongers, pp. 14-21.

So far Howard Katz in his revealing book The Warmongers67. In this study he gives a
complete overview of the wars in which the United States of America were involved until
Vietnam. He reveals for each of these wars who has had the most financial advantage and at
who's expenses. He also analyzes present day politics and clearly shows who is really in
control behind the screens. At the end of this book he gives a very interesting discussion on
the American Constitution, how it was carefully designed in order to avoid all the abuses of
power as in the old continent - where people were exploited by their own rulers - and how the
Constitution was violated each time America was involved in a war, under the pretext that it

66
67

The third one has already been discussed: Autarky.


See also Batra, The Great Depression of 1990, pp. 14-20

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was necessary to sacrifice individual freedom for the general good, to protect the free world
against foreign aggressors.
In America there are two kinds of law. There is the ordinary law, made by the
government and acting as a constraint on the people, telling us that we must do
this or that and threatening us with penalties if we do not comply. But there is
another law, the people's law which operates on the government, that is, the
Constitution: the people made the Constitution to act as a constraint on the
government, telling it what it may do and threatening its officials with
penalties if they do not comply.
In addition to providing the moral basis for government, the process of framing
principles in a constitution and leaving the application of those principles to a
continuing body has a further advantage. It allows the question of government
to be considered in the manner conducive to the most effective use of the
human mind - the framing of abstract principles according to rational
considerations and the deduction from those principles of specific application
to meet specific circumstances. Perhaps this is why, when we look at the
provisions of the US Constitution, we are struck by their genius, and when we
look at the times in history when we have deviated from the Constitution, we
are ashamed and apologetic. Most particularly, war is a time when the human
mind is at it worst. Every war generates a wave of emotion which blots out
rational action. This is relevant to an anti-war movement because the
Constitution contains a number of provisions designed to guide the nation to
war in the most rational way, provisions which are routinely flouted in a war
manufactured by the banker-conspiracy to help subordinate us. These are:
1. the prohibition of paper money;
2. the requirement that Congress declare war68;
3. the absence of any Federal conscription power;
4. the militia system.
H. Katz, The Warmongers, p. 228-229.

By the way, would it not be possible to finance our pram-industry in the same way as
the king of England financed his war? Buckminster Fuller claims that the Cold War was
invented and fomented after World War II in order to justify the very expensive nuclear
research and the arms race - both very profitable for certain groups in society - in the eyes of

68

... and not the president or the government.

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the people in the western world. It was indeed after the second World War that the United
States abandoned their traditional policy of isolation and neutrality - as stipulated in the
Constitution. At that time they did not disbanded their army as they have done after previous
wars. Now we can fully understand the evolution of the purchasing power of the American
dollar as shown in section 3.3.2:

The large deprecations are the result of manipulation of the dollar by using paper
money in order to hide the cost of war from the people and at the same time to
withdraw purchasing power - real wealth - from them to finance the war. Before
World War II America has disbanded the army after every war and has returned to
the militia system and to the gold standard, so the purchasing power of the dollar
was restored at the same level as before the war.

The continuous erosion of the purchasing power of the dollar since the 1930s is
due to the manipulation of the dollar, not only to hide the cost of several wars to
the tax-payer, but also to finance the arms race and to hide the cost of keeping an
enormous army and secret service operational worldwide. Not only the American
people has paid for the arms race, but the whole western world, as the dollar is
generally accepted in international trade (for how long?).

From this discussion we have learned that inflation is a perfect instrument in order to
siphon off purchasing power from one subsystem in society to another. In a situation of low
or zero economic growth, where there is no profit for society and thus no increase of
purchasing power for society as a whole, certain groups can still acquire more purchasing
power at the expense of others. They even succeed in creating money out of nothing. These
tactics are not so visible and violent as the one used in the old days, when people were forced
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by their oppressors-rulers to finance the war and the army, but they yield the same result: it
still remains exploitation of one group in society by another.
Interestingly, two years after the establishment of the Bank of England the old
practice of coin clipping and alloying base metals with the gold - which had
gone one since virtually the invention of money - was ended by a reminting of
the debased coinage. With the new methods of exploitation in place, there was
no need for the old. Power to debase the currency thus passed from the king,
representing the old aristocracy, to the banker, representing the covert
aristocracy, and there it remains to this day.
H. Katz: The Warmongers, p. 41.
At this point we can once again formulate a conclusion: More democracy leads
to more peace. Reduction of democratic rights carries the seeds of war.

A second mechanism to get hold of the wealth of the people


Inflation is one method to get hold of the wealth of the ordinary people in order to pay
for the war. But there are really no limits to the imagination of those in real command of
geopolitical affairs. Here is a second method: the introduction of income tax in the USA since
World War I.
The supreme leaders of the American Revolution were of the southern type George Washington and Thomas Jefferson. Both were great landowners with
direct royal grants for their lands, in contradiction to the relatively meager
individual landholdings of the northern Puritan colonists.
With the revolution over we have Alexander Hamilton arguing before the
Congress that it was not the intention of the signers of the Declaration of
Independence that the nation so formed should have any wealth. Wealth,
Hamilton argued - as supported by Adam Smith - is the land, which is
something that belonged entirely to private individuals, preponderantly the
great landowners with king-granted deeds to hundreds and sometimes
thousands of square miles, as contrasted to the ordinary colonists'' few
hundreds of acres of homestead farms69.

69

Try to understand the American Civil War with this in mind.

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Hamilton went on to argue that the United States government so formed


would, of course, need money from time to time and must borrow that money
from the rich landowners' banks and must pay the banks back with interest.
Assuming that the people would be benefited by what their representative
government did with the money it borrowed, the people gladly would be taxed
in order to pay the money back to the landowners with interest. This is where a
century-and-a-half-long game of wealth-poker began - with the cards dealt
only to the great landowners by the world power structure.
Obviously, very powerful people had their land given to them by the king and
not by God, but the king, with the church's approbation, asserted it was with
God's blessing. This deed-processing produced a vast number of court
decisions and legal precedent based on centuries and centuries of deed
inheritances. Thus, landlord's deed evolved from deeds originally dispensed
from deeds of war. Then the great landlords loaned parcels of their lands to
sharecropping farmers, who had to pay the landlords a tithe, or rent, and
interest out of the wealth produced by nature within the confines of the
deeded land. The landlord had his tithing barn within which to store the
grains collected in the baskets (fiscus is Latin for basket; thus the fiscal year
is that which winds up within the basketed measuring of the net grains
harvested). The real payoff, of course, was in regenerative metabolic
increments of the botanical photosynthetic impoundment of Sun radiation and
hydrocarbon molecules' structuring and proliferation through other hydrogenic
and biological interaccommodations70. Obviously none of this natural wealthregenerating and -multiplying was accreditable to the landlords.
When I was young, there were people whom everybody knew to be very
wealthy. Nobody had the slightest idea of what that wealth consisted,
other than the visible land and the complex of buildings in which the wealthy
lived, plus their horses, carriages and yachts. The only thing that counted was
that they were known to be enormously wealthy. The wealthy could do
approximately anything they wanted to do. Many owned cargo ships.
However, the richest were often to prone to live in very unostentatious ways.
Of course, money was coined and the paper equivalents of metallic coinage
were issued by the officers of banks of variously ventured private- capitalbanking-type land systems. Enterprises were underwritten by wealthy
landowners, to whom shares in the enterprises were issued and, when
fortunate, dividends were paid. Rich people sometimes had their own private
banks - as, for instance J.P. Morgan and Company. Ordinary people rushed to
deposit their earnings in the wealthy people's banks.
For all the foregoing reasons nobody knew of what the wealth of the wealthy
really consisted, nor how much there was of it. There were no income taxes
until after World War I71. But the income tax did not disclose capital wealth. It
disclosed only the declared income of the wealthy. The banks were capitalized

70
71

What Bucky is telling: there was an added value produced by the Sun.
This may surprise you, but later on you will read the reason for this.

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in various substantial amounts considered obviously adequate to cover any and


all deposits by other than the bankers involved in proclaiming the capital
values. These capital values were agreed upon privately between great
landowners based on equities well within the marketable values of small
fractions of their vast king-deeded landholdings.
The rich get richer and the poor get children was a popular song of the early
1920s72. Wages were incredibly low, and the rich could get their buildings built
for a song and people them with as many servants for another song. But, as
with uncalled poker hands, nobody ever knew what the wealthy really had. I
was a boy in a comfortable off family, not a wealthy family - not wealthy
enough to buy and own horses and carriages. To me the wealthy seemed to be
just fantastically so.
This brings us to World War I. Why was it called the First World War? All
wars until this time had been fought in the era when land was the primary
wealth. The land was the wealth because it produces the food essential to life.
In the land-wealth era of warring the opposing forces took the farmers from the
land and made soldiers of them. They exhausted the farm-produced food
supplies and trampled down the farms. War was local.
In 1810, only five years after Malthuss pronouncement of the fundamental
inadequacy of life support on planet Earth, the telegraph was invented. It used
copper wires to carry its messages. This was the beginning of a new age of
advancing technology. The applied findings of sciences brought about an era
in which there was a great increase of metals being interalloyed or
interemployed mechanically, chemically, and electrolytically. Metals greatly
increased the effectiveness of the land produced foods. The development of
non-rusting, hermetically sealed tin cans made possible preservation and
distribution of foods to all inhabited portions of our planet Earth. All the new
technology of all the advancing industry, which was inaugurated by the
production of steel in the mid-nineteenth century, required the use of all the
known primary metallic elements in various intercomplementary alloyings. For
instance tin cans involved tin from the Malay straits, iron from West Virginia
mines, and manganese from Southern Russia.
The metals were rarely found under the farmlands or in the lands that belonged
to the old lords of the food-productive lands. Metals were found often, but not
always, in mountains all around the world, in lands of countries remote from
one another. Mine ownerships were granted by governments to the first to file
claims.
It was the high seas, intercontinental, international trafficking in these metals
that made possible the life-support effectiveness of both farming and fishing.
The high-seas trafficking was mastered by the world around line-of-supply
controllers - the venturers and pirates known collectively as the British
Empire. This world-around traffic was in turn financed, accounted, and

72

A contemporary version goes like this: The poor stay poor, the rich get rich. That's how it goes.
Everybody knows that the boat is leaking and that the captains lied.

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maximally profited in by international bankers and their letter of credit, bills of


exchange, and similar pieces of paper. International banking greatly reduced
the necessity for businessmen to travel with their exported goods to collect at
the importers' end. Because the world-around-occurring metals were at the
heart of this advance in standard of living for increasing numbers of humans
all around the world, the struggle for mastery of this trade by the invisible,
behind-the-scenes-contending world power structures ultimately brought about
the breakout of the visible, international World War I.
The war was the consequence of the world-power-structure outs becoming
realistically ambitious to take away from the British ins the control of the
world's high-seas lines of supply. The outs saw that the British Navy was
guarding only the surface of the sea and that there were proven new inventions
- the submarine, which could go under water, and the airplane, which could fly
above water - so the behind-the-scenes world-power-structure outs adopted
their multidimensional offensive strategy against the two-dimensional worldpower-structure ins. The invisible-power-structure outs puppeted the
Germans and their allies. The invisible-power-structure ins puppeted Great
Britain and her allies. With their underwater strategies the outs did severely
break down the ins line of supply.
J.P. Morgan was the visible fiscal agent for the in power structure, operating
through Great Britain and her allies. The 1914 industrial productivity in
America was enormous, with an even more enormous amount of untapped US
metallic resources, particularly of iron and copper, as backup.
Throughout the nineteenth century all the contending invisible world power
structures invested heavily in U.S.A.-enterprise equities73. Throughout that
nineteenth century, the vast resources of the U.S.A. plus the new array of
imported European industrial tooling, the North American economy
established productivity. The U.S.A. economy took all machinery that had
been invented in England, Germany, France, and Europe in general and
reproduced it in America with obvious experience suggested improvements.
In 1914 World War I started in the Balkans and was joined in Belgium and
France on the European continent. The British Isles represented the
unsinkable flagship of the high-seas navy of the masters of the world oceans'
lines of supply. The unsinkable flagship commended the harbors of the
European customers of the high-seas-line-of-supply control. If the line of
supply that kept the war joined on the European continent broke down
completely, then the outs would be able to take the British Isles themselves,
which, as the flagship of the ins would mean the latter's defeat.
In 1914, three years before the U.S.A. entered the war, J.P. Morgan, as the
Allies fiscal agent, began to buy in the U.S.A. to offset the line-of-supply
losses accomplished by the enemy submarines. Morgan kept buying and
buying, but finally, on the basis of sound world-banking finance, which was

73

Remember Great Britain loosing the American Independence war but the East India Company swiftly
moving its interests to the U.S.A.

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predicated on the available gold reserve, came the point at which Morgan had
bought for the British and their allies an amount of goods from the U.S.A.
equaling all the monetary bullion gold in the world available to the ins
power structure. Despite this historically unprecedented magnitude of the
Allied purchasing it had only fractionally tapped the productivity of the U.S.A.
So Morgan, buying on behalf of England and her allies, exercised their
borrowing credit to an extent that bought a total of goods worth twice the
amount of gold and silver in the world available to the ins. As yet the
potential productivity of the U.S.A. was but fractionally articulated. Because
the ability to pay later credit of the Allied nations could not be stretched any
further, the only way to keep the U.S.A. productivity flowing and increasing
was to get the U.S.A. itself into the war on the ins' side, so that it would buy
its own productivity in support of its own war effort as well as that of its allies.
By skillful psychology and propaganda the ins persuaded America that they
were fighting to save democracy. I recall, as one of the youth of those times,
how enthusiastic everyone became about saving democracy. Immediately
the U.S.A. government asked the British and their allies, What do you need
over there? The ins replied, A million trained and armed men, and the
ships to carry them to France, and many, many new ships to replace the ships
that have been sunk by submarines. We need them desperately to keep
carrying the tanks and airplanes, weapons, and munitions to France. The ins
also urgently requested that the U.S. Navy be increased in strength to equal the
strength of the British Navy and therewith to cope with the German
submarines, while our British Navy keeps the German high-see fleet bottled
up. We want all of this from America.
America went to work, took over and newly implemented many of the U.S.
industries, such as the telephone, telegraph, and power companies, and
produced all that was wanted. For the first time in history, from 1914 to 1918,
humanity entered upon a comprehensive program of industrial transformation
and went from wire to wireless communication; from tracked to trackless
transportation; from two-dimensional transport to four-dimensional74; from
visible structuring and mechanical techniques to invisible - atomic and
molecular - structuring mechanics.
Within one year the million armed and trained U.S.A. soldiers were safely
transported to France without the loss of one soldier to the submarines75.
Arrived in France, they entered the line of battle. With the line of supply once
more powerfully re-established by the U.S. Navy and its merchant fleet, it
became clear that the ins were soon going to win.
J.P. Morgan, now representing the allied power structures' capitalist system's
banks as well as serving as the Allies' purchasing agent, said to the American
Congress, How are you going to pay for it all? The American Congress said,
What do you mean, pay for it? This is our own wealth. This is our war to save

74
75

Yes, four, two dimensional on the surface of the oceans, one under water and one in the air.
They were scheduled to die in the fields of Flanders, not to die a useless death at sea.

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democracy. We will win the war and then stop the armaments production.
Morgan said, You have forgotten Alexander Hamilton. The U.S. government
doesn't have any money. You're going to pay for it all right, but since you don't
have any money, you're going to have to borrow it all from the banks. You're
going to borrow from me, Mr. Morgan, in order to pay these vast war bills.
Then you must raise the money by taxes to pay me back76.
To finance these enormous payments Mr. Morgan and his army of lawyers
invented - for the U.S. government - the Liberty Loans and Victory Loans.
Then the Congress invented the income tax.
With the U.S. Congress's formulating of the legislation that set up the scheme
of the annual income tax, we the people had, for the first time, a little peek
into the poker hands of the wealthy. But only into the amount of their taxable
income, not into the principal wealth cards of their poker game.
During World War I, U.S. industrial production has gone to $178 billion. With
only $30 billion of monetary gold in the world, this monetary magnitude
greatly exceeded any previously experienced controllability of the behind-thescenes finance power structure of the European Allies.
World War I over, won by the Allies, all the countries on both sides of the
warring countries are deeply in debt to America. Because the debt to the
U.S.A. was twice that of all the gold in the ins world, all the countries
involved in World War I paid all their gold to the U.S.A. Despite those
enormous payments in gold all the countries were as yet deeply in debt to the
U.S.A. Thereafter all those countries went of the gold standard.
B. Fuller, Critical Path, pp. 78, xxii-xxiii

A third mechanism to get hold of the wealth of the people


In the section on the origin of war, we have seen how in the early 1970s the shah of
Iran was allowed to continue his excessive military spending by increasing the price of oil,
with the consent of the USA : purchasing power of all the people all over the world was
diverted into the pockets of the American weapon industry. As oil is one of the main energy

76

You might think there is one step too much: why a loan? Wouldn't it be cheaper and more rational if
taxes were raised so the government could then pay directly for the warfare without first lending money from the
bank, so Mr. Morgan could not make a profit on his loan. But as already stated, the cost of the war is never
presented a priori to the people in a direct, rational way - taxes directly related to the war - but the cost is a
posteriori presented in an indirect way: the first introduction of income taxes in American history and the
depreciation of the currency when the U.S. Government started to spent the money created out of nothing.

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resources in the economic production process, this has lead to a world-wide inflation that
lasted for about a decade, so the erosion of purchasing power was even enforced.
After the disintegration of the USSR in the 1990s, the southern former USSR states
around the Caspian seas got their independence from Russia. The Americans swiftly took
interest in the vast supplies of oil and natural gas in that region: American oil companies
moved in and American military bases were installed in those countries.
A plan of European companies to build a oil-pipeline from the Caspian sea through
former Yugoslavia to the Adriatic see was thwarted by the war in the Balkans in the 1990s, in
which three ethnic groups who had lived peacefully together for 40 years after WWII were set up against each other: Muslims, Orthodox Christians and Roman Catholic Christians.
As Julius Caesar said: Divide et Impera.
After September 11th 2001, Afghanistan was attacked under the pretence that Bush
wanted to get hold of Osama Bin Laden and that the Taliban a former USA ally at the time
the USSR was in Afghanistan should be defeated. The Americans never got hold of Osama,
but the war was very convenient in order to get control of the region and to build a pipeline
from the Caspian sea to the Indian ocean.
After the first war against Iraq, that country was allowed to export only a limited
amount of oil, just enough to be able to pay for the import of food and medicines. After the
second war against Iraq, the Americans got full control over the oil-supplies of Iraq.
Now the USA controls the major supplies of oil on Earth and the price of oil is
soaring to unprecedented heights, so the price of electricity and natural gas will follow this
trend. All the people of the world have to pay more for their transport and their heating or airconditioning, the cost of production will increase: we are facing once more a period of
hyperinflation. This is completely in line with what Ravi Batra has predicted in section 3.3.2.

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Figure 3.4. Inflation and money growth per decade (in %)


180

180

165

165

150

150

135

135

120

120

105

105

90

90

75

75

60

60

45

45

30

30

15

15

-15

-15

-30

-30

-45

1750 1770 1790 1810 1830 1850 1870 1890 1910 1930 1950 1970 1990
Time

Inflation

Moneygrowth

-45

Note the increasing trend of the peaks.


The next peak is to be expected in the decade after 2000

I'm just sitting here watching the wheels


go round and round.
(John Lennon)
History teaches us that mankind
has nothing learned from it.
(Anonymous)
Those who do not remember the past
are condemned to relive it.
(Santayana)

We are once more paying the bill of the war a posteriori, while some companies like
Haliburton (Dick Cheney) and The Carlyle Group (Bush sr.) are making a huge profit out of
this.

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3.6.8

Author: Geert Callens

The North-South relationship


The two previous sections dealt with the phenomenon of war as an offshoot of an

economic crisis: the saturation of the market, high unemployment, the accumulation of too
many capital goods, the introduction of protectionist measures and the high profitability of the
pram-industry, financed by taking away purchasing power from the people through
manipulation of the currency, all these ingredients constitute a perfect soil for the seeds of
war. During the Cold War period, we usually thought of the tensed relations between NATO
(more specific the USA) and the Warsaw-pact (more specific the USSR) as a possible cause
for war. But this was just propaganda in order to justify the enormous military expenditures
by the NATO allies, not a real threat. The relation between the rich Northern hemisphere and
the underdeveloped South, however, is much more explosive than the East-West contrasts and
could lead us to a real conflict.
In 1972 Robert McNamara published his first historical message: There is
now an economic burst between the North and the South. This flaw constitutes
a very deep cleavage in the sociological crust. It will result in tremendous
storms and earth quakes. If the Northern part of the world will not try
everything in order to narrow the gap between the very successful North and
the very poor Southern part of the world, then at the end of the road nobody
will be secure anymore, regardless the size of our arsenals and troops...
In his introduction to a study made by specialists of different nationalities
Willy Brandt has written the following: Our commission was unanimous in
its conclusion that a revision of the relations between the two parts of the
world is very urgent. The economic system that has been operational since the
Second World War has now led to a situation where it holds more
disadvantages for the Third World countries than advantages. A complete new
equilibrium must be found, a new international economic order. This is a
historical mission...
In 1960 Franz Fanon wrote already: We must continue to convince the
capitalistic world that the basic problem of this time is not to be found in the
struggle between communism and capitalism. The Cold War, the conventional
and nuclear arms race must stop at once. One should on the contrary invest all
the resources, which are now wasted on the arms race, in the underdeveloped
countries and give them technological and financial help. The destiny of the
whole world is dependent on this.
J.J. Servan-Schreiber, The Challenge, pp. 156, 301, 135-136.
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The situation between the Northern and Southern hemisphere is now indeed very
tense, even explosive, especially with this created War Against Terror which is aimed at
Islamic people, and not in the least because of the enormous evolution in communication
technology. Due to the fast and easy transfer of and access to information, the earth we live
on seems to get smaller, more compact, than it used to be. We could compare this situation of
the world now with that of most European countries in the 19th century.
In those days European countries had a small elite of very rich people with under them
a mass of poor illiterate people without any possessions or political power. There was no
middle class as we have now. The poor people had little knowledge of the mechanisms by
which the rich secured the extreme wealth they lived in. But because of the industrialization it
was necessary to give the laborers a minimum of education in order to read and understand
written orders and instructions. In doing so, the poor were given access to a new form of
information: they could read books and papers. Those books usually dealt with life in the
upper classes, as there was little literature about the lower classes. So through these books the
lower classes got an insight in the world of the rich, they became aware of another world and
they started to question the situation: Why do we have nothing and they have everything?
Why don't we have the right for some material well-being? After all, it is we who do the work
and they enjoy the fruits of our labor! Social reformers started to write books on this matter
and through pamphlets this emerging consciousness started to find its way to the lower
classes in society, who started to organize themselves in political parties and unions. This new
evolving consciousness has led to the class-struggle, which in some countries has led to
violent revolutions and drastic political reforms.

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Most West-European countries have been able to avoid such revolutions by


administering by driblets more democratic rights and material welfare to the lower classes. As
discussed in section 3.5.2. on distribution of profit as driving force of economic growth, this
transfer of purchasing power to the people most in need of material goods has resulted in an
enormous stimulus for the economic growth - and in more profit for the upper classes! We
could say that Marx and Keynes go hand in hand in this matter. Because of the gradual
distribution of economic welfare among all social classes, one has been able to control the
tensions between those classes, for the better of all.
Nowadays we have a similar situation worldwide with tensions between the rich
industrialized world and the poor Third World countries. In the underdeveloped countries the
majority of the population lives in extreme poverty and in need of the basic goods and utilities
to survive. In the ghettos of the large cities in Asia, Africa, South- and Central-America
millions of people live in permanent need for food and medical care. But due to the fast
evolution of technical communication media, especially television, films and the Internet,
those people are informed about the situation in the rich countries. In Mexico City for
example, families with seven or more children live in sheds built of trash and corrugated
asbestos, girls of fourteen years old sell their body - the only thing they have - on the street
because the father does not earn enough money to support his family. But very often those
families have bought a second hand television set. And then they watch American soap operas
like Dallas and Dynasty and they see the extreme luxury some Americans live in. Not every
person in the USA lives like JR. Ewing, but on their television set the poor family in Mexico
City does not see the unemployed workers in Detroit and other industrial centers, they do not
see the tramps living on the streets of LA and looking for food in the trash cans, there are no
series on television about these people. They do not know that since the beginning of the

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Reagan administration in the early 1980s the minimum wages in the USA have fallen by one
third in real terms.
So a new consciousness is emerging in the Third World countries: How does it come
that people in the North enjoy such material wealth while we can't even find enough food and
clothes and proper housing? Don't we have a right for these basic goods? This insight is even
sharpened because these people are well aware of the fact that the industrial process in the
North is based on import of cheap energy, raw materials and semi-manufactured articles from
the Third World countries and export of expensive finished goods, investment and
disinvestment goods towards the underdeveloped countries. And who has control over these
prices? Besides, only a small portion of the population in the Third World countries takes
advantage of this worldwide over-cropping. The majority of the people in the underdeveloped
countries is not able to buy the products they produce themselves. In tropical countries where
Nature is abundant people didn't had to work very hard. But then the colonists came, who
took possession of their land and started monoculture. The local people were cut from their
own natural resources, so they were forced to work for the landlords at minimum wages, too
low to live, too high to die. So, in a way, the Middle Ages were exported to the Colonies. This
situation is similar to the one of most European countries in the 19th century.
Deceived by the false theories of economists, the proletarians have
surrendered their body and soul to the curse of labor, and in doing so, they
have lead society into an industrial crisis of overproduction. Because there is
excess of supply of goods and shortage of people able to buy, factories and
mills are closed and laborers suffer from hunger and cold. The proletarians,
drugged by the dogma of labor and not knowing that their excessive labor in
times of so-called prosperity is the cause of the crisis and their own misery,
they should run to the granary and shout: We are hungry, we want food.
Although we have no money and are beggars now, it is we who have harvested
the grain and selected the grapes.
They should attack the warehouses of monsieur Bonnet in Jujurieux, the
inventor of the 'industrial convents' and yell at him: Monsieur Bonnet, here
are your clear-starchers, your silk-throwsters, your spinners, your weavers.
They shiver in their patched cotton clothes, although they have made the silk
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clothes that you have sold to the whores of Christianity. The poor girls worked
thirteen hours a day so they had no time to dress up. Now they are unemployed
and have the time, but they cannot afford the silk clothes they have made for
others. As soon as they had lost their milk-teeth, they have dedicated their
lives to your fortune, while living in poverty themselves.
P. Lafargue, The Right to be Idle, pp. 65-66.

A small minority in the underdeveloped countries is able to live in extreme wealth,


while at the same time they have the money to acquire the political and military means in
order to suppress their own population. This situation holds two dangers. First, think of what
could happen if the suppressed population manages to overrule the possessing class and
acquires control over that military apparatus, as actually happened in Iran? A former ally of
the western industrialized countries can turn into an opponent. Secondly, think of what could
happen if the rulers in those countries become aware of the aggressive feelings of their own
population toward the rich and try to secure their own position by diverting the aggression
towards another country, against the rich Northern part of the world? What if those countries
cut off the supply of energy and raw materials vital to the economic process of the
industrialized countries? Is there really no other way besides military action and suppression
in order to resolve this explosive situation?

Once more we end this section with a conclusion: Democratization of


information can lead to more equality and more prosperity for more people.

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3.6.9

Author: Geert Callens

The banking industry


The smarting imbalance between the saturation in the rich northern part of the world

on one side and the extreme poverty in the southern part on the other side not only carries the
danger for a global war. It could also result in severe difficulties for the capitalistic banking
system, as they have granted excessive loans to Third World Countries in order to finance
megalomaniac projects, project which are not in the interest of the local population, but which
yield profit for western companies like Haliburton. The book Confessions of an Economic
Hitman written by John Perkinsis a very good analysis of this policy: poor countries are
talked into big infrastructural projects in order to bring them to a debt level that they will
never be able to pay back. So they become puppet states of the USA as they have lost their
political and economic independence. The following facts illustrate the scope of the problem
and also its evolution in time:
The four largest American banks have granted loans to Brazil for an amount
that is more than their own capital. Other international banks have also
engaged in this adventure. Brazil has a debt of 57 billion dollar and has to pay
a yearly interest of 13 billion dollar. Demands for new loans are rejected, as
they would only serve to pay the interests. So Brazil has suddenly become
'unhealthy' for foreign capital. It still has a dangerous weapon: blackmail.
Think of what would happen to the western banking system if a country like
Brazil would refuse to pay back its debts. In 1980 the total debt of the Third
World countries had reached the astronomic figure of 350 billion dollar. Until
1974 these countries paid back their loans on a regular basis, but not anymore.
J.J. Servan-Schreiber, The Challenge, p. 160.
We are facing a disorder in the international monetary and banking system.
Because of the immense debts of the Third World countries (650 billion dollar
already in 1984) a lot of financial analysts fear for a disaster, as those countries
will not be able to pay their debts. Some have even stopped paying interests on
loans! Besides, in order to pay back their debts, those countries would have to
have such excessive surpluses on their balance of trade for longer periods of
time, that this would result in a structural imbalance in the world economy.
Interview with professor E. Mandel in Knack, March 14 1984.
The ten largest banks have more than 50 billion dollar on loan to developing
countries. This sum amounts to roughly 100% of their shareholders equity; if
all the loans went into default, the banks' capital would be wiped out.
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Time, August 29 1988.


But there is a second phenomenon, less known to the public but even more threatening
to the banking system. Due to the saturation of the markets and the resulting pressure on
prices, companies that want to stay in business are forced to invest in order to improve their
productivity and to make acquisitions in order to increase the scale they are working on and to
gain market-share. Not all of these investments and acquisitions can be financed by using
retained earning or by attracting new risk-bearing capital from stock-holders. So companies
are forced to take loans from commercial banks. And these banks are eager to sell loans, to
make money out of money in order to be able to pay back the interest to their depositors.
These banks often neglect to do a thorough risk analysis. But when the expected economic
growth does not come and turnover is not what it ought to be, then these companies are in
trouble to fulfill their financial obligations toward the banking world. This in turn results into
a difficult time for these banks, as they have used the money of other people, their depositors,
to make these loans.
Almost 1,500, or roughly 11% of the 13,700 commercial banks in the US are
still on the Federal Deposit Insurance Corporation list of troubled institutions.
Many of these banks are already doomed, and hundreds of others could be
sunk by a continued rise in interest rates, which means that they would have to
pay more to depositors.
Time, August 29 1988.
In the USA one can see thousands of cases which remind us of the early 1930s,
farmers who can no longer pay their mortgage and so loose their land and
equipment, resulting in an endless loop for the local economy: loss of
purchasing power, other businesses going down, less tax-revenues for local
communities...
But these are the small farmers. Think of the level of debts the large
multinationals are living with, billions and billions of dollars... This makes the
banking system very vulnerable, here lays the real danger. I would not predict
a total collapse of the financial system. But surely we will see an evolution to
more regulation and more financial support from the government, paid for by
the tax-payer, in order to divert the financial crisis. The American government
cannot afford to let the Chase-Manhattan bank to go down the drain, for the
Chase-Manhattan bank is the American government. So the crisis of the
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private banking world will be reshaped into a larger public deficit, paid for by
every American.
Interview with professor E. Mandel in Knack, March 14 1984.

The severity of the situation at that time was well understood by the US government.
Father George Bush, who inherited the problem from Ronald Reagan, made up a plan to set
aside 285 billion dollar to rescue the 'savings and loans industry', whereof 157 billion dollar
will come from tax-payers' money. And in 2008, Bush jr. asked for 700 billion dollar from the
tax-payers!
This whole evolution can easily be understood in terms of our basic theory. As the
economic system in the western world suffers from saturation and fierce competition, while at
the same time the Third World countries and the former Comecon countries do not have the
purchasing power to buy the surpluses of the rich countries, the world economy stagnates. In
a zero-growth economy, one can no longer create money out of money, so banks can no
longer make a profit: it is impossible for them to receive a higher interest on the loans they
make than the interests they have to pay on the deposits they have collected. What could
cause such a positive difference? If the banking world keeps to such a difference between
interests on loans and interests on deposits in times of zero-growth, then this can only be
accomplished by extracting purchasing power from other socioeconomic entities, such as
companies, private families, other industrialized countries or Third World countries.

The multilateral agencies have become net takers of money from Latin
America. Commercial banks lent 6 billion dollar of new money to the
continent last year. But they extracted more in interest - around 26 billion
dollar...
Both this hemorrhage of cash, and the inability of most governments to take
tough economic measures, has squeezed the continents growth. Only Chile and
Columbia have grown by more than 3% in each of the past three years. It is no

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coincidence that those two countries now spend the lowest proportion of their
export earnings on debt-service.
The Economist, February 11th 1989, p. 83.

This clearly illustrates that in a situation of low or zero economic growth, the banks
with their money-making mechanisms have a destabilizing influence on the economic
process: the economic crisis is sharpened, which can result in negative growth, and this is in
nobody's interests, not even the banks'!
3.6.10 War against terror in order to defend The Sixth Freedom
After the disintegration of the Communistic East block and the end of the Cold War,
the USA was suddenly faced with a problem: the military industry, responsible for the major
part of scientific research and employment, had lost their raison dtre. And what to do with
the CIA and the NSA?
So a new enemy had to be created
The achievements of Bush administration planners is inspiring Islamic
radicalism and terror are impressive.
The senior CIA analyst responsible for tracking Osama bin Laden from 1996,
Michael Scheur, writes that bin Laden has been precise in telling America the
reasons he is waging war on us. None of the reasons have anything to do with
our freedom, liberty, and democracy, but have everything to do with US
policies and actions in the Muslim world. Scheur notes that US forces and
policies are completing the radicalization of the Islamic world, something
Osama bin Laden has been trying to do with substantial but incomplete success
since the early 1990s. As a result it is fair to conclude that the United States
of America remain bin Ladens only indispensable ally77. From his detailed
study of Al Qaeda, Jason Burke draws a similar conclusion. Every use of
force is another small victory for bin Laden, he writes, creating a whole new
cadre of terrorists for a cosmic struggle between good and evil, the vision
shared by bin Laden and Bush.
Noam Chomsky, Failed States, p. 23.

77

And vice versa.

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You have to admit it, the solution they have engineered is phenomenal, as they
succeeded to hit three targets in one stroke.

The Islamic Taliban in Afghanistan, former allied freedom fighters in the war
against the Russian occupation, were redesigned into an international, invisible
and elusive enemy, so the new War Against Terror could go one indefinitely.
Osama Bin Laden and Saddam Hussein, two former business partners of Bush Sr.
en Bush Jr. were promoted to enemy No 1 (in whatever order you want) of the four
American Freedoms (freedom of speech, freedom of religion, freedom from want,
freedom from fear).

The wars in Afghanistan and Iraq against terrorism and for democracy were very
convenient to get absolute control over the world supplies of fossil fuels (the Fifth
Freedom). Osama Bin Laden is still not found, neither are the weapons of mass
destruction in Iraq, but well, you cant have everything in life.

And once the fundamentalist Islams will be defeated, a new area of profit will be
created for the Sixth Freedom, the freedom that some people impute themselves
in order to create money out of nothing.

In order to clarify the last target, lest us elaborate on Islamic religion. In the Islam it
is considered to be a sin against the will of Allah to live from the interests of money (usury).
Only saved money, not the interest, and the proceeds of own labor are allowed as means for
subsistence. So in most Islamic countries this religious prescription has prevented the
development of a banking system as we know it in the western world: the very religious
people kept their money at home. Because of this, a new form of banking system has evolved
in some Arabic countries.
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In keeping with the Koran's ban on usury, Islamic bankers have devised an
unorthodox interest-free system. It is not only gaining acceptance at home but is forcing conventional Western banks eager for Muslim dollars to adapt
some of their own entrenched rules...
The institutions in all these countries share a common guiding principle.
Instead of receiving a fixed return in the form of interest, depositors share the
risk of investment with the bank and split the resulting profits - or bear part of
the losses. To apply that principle, however, Muslim bankers have been forced
to devise a bewildering array of investment plans. Under mudaraba, banks
lend money, and clients provide management expertise for a project: the two
partners then split any profits on a pre-agreed basis, but losses are born by
the bank alone78. Murabaka enables banks to buy commodities and resell
them to borrowers at a higher price. Under Musharaka banks and clients
jointly contribute capital to a project, and share either the rewards or the
losses. In all of these arrangements, as Indian economist Mohammed
Nejatullah Sidiqi puts it, the banks cease to be lenders and become partners
in enterprise79.
Newsweek, May 7th 1984.

Hence, in this system interests on savings are not paid automatically: money does not
create money out of nothing. Interest on money, i.e. increase of the amount of money, is
balanced by real economic production: the successful completion of a project, the creation of
added value, economic growth. In the western banking system, on the contrary, money itself
has become a commodity with a price: the interest one receives for a deposit or pays for a
loan. In that system there can be creation of money without real economic added value. This
may lead us to inflation, so purchasing power is diverted in a very sly way from one group in
society to another. As we have discussed in great detail in section 3.6.7, together with
Howard Katz, our banking system holds a real danger for war.

On the one hand people are not directly confronted with the cost of the arms race
and of warfare when governments finance military expenditures with the creation
of money instead of raising taxes.

78

Really, can you imagine your bank doing this?

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On the other hand certain groups can earn a lot of money, if they succeed to
stimulate the arms race, by selling weapons as well as loans to the government. It
is an interesting and revealing exercise to unravel the clew of interests of arm
producers, the banking world and politics.

The War Against Terror was designed in order to defend the Sixth Freedom. And
also the Fifth Freedom.

79

The beginning of the end of active unproductivity.

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3.6.11 Summary
We now end this rather long analysis - I hope you have enjoyed yourselves - of the
present economic situation with a rsum of the most important topics and relations
discussed.
In the industrialized countries there is at the same time material abundance and
saturation of the markets, unemployment, a growing inequality in income and wealth: this
results into a stagnation of the economic growth. Together with the enormous accumulation
of capital goods over the years, this leads to lower profit ratios. In former times, war was very
often the offspring of such an economic depression in the capitalistic world. After a war,
due to the massive destruction with the aid of disinvestment goods, the society returned to a
state of greater needs for material goods and a lower level of capital goods, so the profit ratio
would jump to a substantial higher level.
Inflation, one of the symptoms of an economic crisis, increases the danger for war in
two ways. On the one side, the real cost of the arms race is kept secret for the tax-payer. On
the other hand, certain groups in society can make huge profits by creating money out of
nothing and lending it to the government, who need the money for their military expenditures.
As these groups usually have rather close connections with the producers of these weapons,
they have a double interest in this affair. There is indeed a strong coupling between the
financial world, the weapon industry and the political power, as President Eisenhower once
said80.

80

Haliburton, Carlyle Group

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Due to the increased protectionism there are ever more economic tensions among
industrialized countries themselves. And last but not least we have the ever growing gap
between the rich northern and the poor southern hemisphere in the world.
Taking all this into consideration, we can conclude that something has to be done
about the situation. War as a solution to an economic crisis is no longer possible. In the good
old days, wars were fought with conventional weapons, so the destruction - the disinvestment
- was limited in space and in time. The Day After such a conflict, those who survived could
start to rebuild the economic system. Nowadays, a lot of countries have nuclear weapons or
have the knowledge to produce them. The destructive power of these weapons is not limited
in space and in time. Larger parts of the world would become inhabitable for longer periods
of time due to radioactive fallout and nuclear winter, there would be many more victims in an
extreme short period of time, which increases the risk for epidemics. After a nuclear conflict
it would take a very long time for the economy to regain a moderate level of production. By
the way, for whom would the economic system be rebuilt? And who would do it? With
conventional wars, the persons who took advantage of the situation kept far away from the
battlefields, they even did business with both fighting parties. But could they survive a
nuclear war now? And if they could, who would provide them with the abundance they now
live in?
So, to be effective in solving the economic crisis, is must be a conventional war. But
with the spread of nuclear know-how and material all over the world, who can guarantee this?
Due to the increased effectiveness and precision of cruise missiles and other assorted
weaponry, there is an increased probability that nuclear weapons will be used in case a
country tends to loose a conventional war. Is there really no other way out of this MADness?

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In the next chapter we will argue that indeed there is an alternative for war and
military adventures (the capitalist way) or for violent revolution (the communist way): there
is a third way to get out of this mess. The economic crisis can be solved in a very simple,
elegant and human-friendly way. The solution that will be outlined surely results in new
opportunities for economic growth for the industrialized countries and at the same time
dissolves the tensed situation among industrialized countries and the smarting imbalance
between North and South. It's so easy you know.
People asking questions lost in confusion
Well I tell them there's no problem only solutions
Well they shake their heads and look at me as if I lost my mind
I tell them there's no hurry...
I'm just sitting here doing time
I'm just sitting here watching the wheels go round and round
I really love to watch them roll
No longer riding on the merry-go-round
I just had to let it go
John Lennon, Watching the Wheels.

We will indeed once more fool around with time in a very surprising manner that will
meet the aspirations of a great deal of people.

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The alternative

You may say I'm a dreamer


But I'm not the only one...
John Lennon, Imagine

4.1

Boundary conditions
In the previous chapter, we have seen that an economic crisis in the western

industrialized countries with all its symptoms of unemployment, erosion of the purchasing
power, arms race, risk for war etc. is caused, as a matter of fact, by the material abundance we
live in - at least most of us. As our needs are relatively well satisfied, compared to other parts
of the world population, we can easily reduce our level of consumption when our faith in the
future is shaken some event like an oil crisis, a crash in the financial world, a military
conflict, a preprogrammed terrorist attack... But this reaction, which is normal and even sound
at the individual level, causes a reduction of turnover and employment for the economy as a
whole. Besides, due to the excessive use and abuse of raw materials and energy in our
consumer society, these production factors are becoming more and more scarce, and we are
left with a more and more polluted environment. This saturation of internal state variables
(needs), input variables (raw materials and energy) and output variables (goods, pollution)
results into a change in the dynamics of the economic system, characterized by a decline of
the economic growth.

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We have argued that, in theory, a society with zero economic growth is possible. On a
smaller scale it is even feasible in practice: primitive tribes in Africa and South-America,
and religious communities in the USA like the Amish have this kind of society, with as most
important features lack of aggression internally or towards the others, cooperation with one
another, sharing with each other and the subjection of personal ambition to the objectives and
the ideals of the group. To apply this system with its features in our patriarchal and
individualistic western world, characterized by competition and aggression, would ask for a
drastic change in our mentality: now most people work for themselves or for the small group
they are related to, if necessary against other groups and individuals. Some people even live
off the labor of others; and in times of crisis we look for a scape-goat to blame and to whom
we can direct our aggression.
We have to be realistic in this matter: it is not possible to impose a drastic change in
attitude on people overnight, it is a process that takes generations. A society with zero
economic growth, where there is no exploitation and where the technological attainments are
not used to increase consumption, but instead to reduce working time, so people have more
time for creative leisure time, such a society is not yet at hand in the near future. So, in
formulating our alternative, we will have to take the present stage in the evolution of mankind
into account as a boundary condition.
Therefore, let us examine if there are any possibilities to stimulate the economic
growth in a positive and justified way. In doing this, we might find an alternative to war - the
capitalistic way out of an economic crisis for the last four centuries - or revolution - the
communist way-out of a socioeconomic crisis during the last centuries.
From our Basic theory we know that profit for companies is part of profit for
society, which is a consequence of economic growth. The absolute level of economic

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production is in this respect irrelevant: in a country where everyone is a billionaire, where


nobody is spending any money but everybody is hoarding it, the economy will go through a
recession or even a depression.
In the rest of this study we will elaborate some alternatives in order to stimulate
economic growth in a justified way:

qualitative growth instead of quantitative growth

give people with real needs more purchasing power

give people whos needs are amply fulfilled more time in order to consume more,
not necessarily more goods, but rather more services.

We will end this chapter with a naughty addendum in order to come to a more fair
collection of taxes.

4.2

Qualitative growth
In the first place we can say that even in the industrialized countries there are still

possibilities for justified economic growth, at least if we divert the nature of the economic
growth.
In the previous decades, the focus was on quantitative economic growth: ever more
cars on ever more highways, ever more electrical gadgets in the households, ever more
prams. Due to the fierce competition - in itself a result of the excessive consumption and
the saturation of the market - those products are made as cheap as possible, they are designed
to last for a preprogrammed amount of time, they are outdated in no time, and they end their
life on top of ever increasing piles of waste..., all this in order to create a substitution market
so the economic process can keep on going and growing.
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An alternative to this quantitative growth is qualitative growth: better cars that last
longer, are safer and consume less fuel, more durable clothes, better housing, healthier food, a
cleaner environment, a better health care... The higher quality of these goods and services,
rightly expressed in higher prices, also results in an increase of the output of the economic
process. So this implies profit for society and thus profit for private business. The profit is in
the better quality, not in the higher quantity. With qualitative growth, based on more durable
products, less raw materials and energy is used in the production process, less waste is
produced as the products can be used longer. So, from an ecological point of view, qualitative
growth makes sense. This new orientation of economic growth demands a change in the
purchasing pattern of the Jones, of you and me. Instead of buying ever more products we do
not really need, tempted as we are by advertising, we should adopt a more critical point of
view toward producers and demand products of a higher quality. The increasing influence of
consumer organizations is in this respect a interesting evolution. A lot of companies have
become quality minded, as they have become aware of the fact that better quality and safety
adds value to the product and that the consumers are willing to pay a higher price for it.
Everyone can stimulate this evolution by purchasing products of higher quality that last
longer: then the producers will have to follow the market. This goes for shoes, for cars, for
clothes,... The satisfaction one has from quality products is much higher than from their cheap
counterparts, and in the long run they are more economical and ecological as they last longer.
But before people are willing to make this change in purchasing pattern, they first
have to regain their faith in the future, which is now shaken due to the economic crisis, the
high unemployment and the increased political insecurity. In the previous chapter, when we
discussed the consumer society and unemployment, we have seen that faith in the future is
essential in order for the economy to run smoothly in a society where the basic needs of food,

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clothes and housing are fulfilled for the majority of the people. The economic crisis we face is
not a good soil to restore this faith in the future. As long as people are worried about the
future, they will economize on their spending, they will buy cheaper products of poor quality,
so producers will make these products.
Because of the saturation of the markets in the western world, the lack of faith in the
future and the ecological considerations, quantitative growth is no longer possible or
desirable. Qualitative growth is an alternative in the long run, but not immediately feasible.
What other possibilities for economic growth do we have besides the branch of the
disinvestment-goods?

4.3

The Third World


Do you remember the story we described in section 3.1.4. about General Motors,

which has lead us to the theory of the rubber cylinder? If not, we suggest that you read once
more the section First Paradox in that chapter and the section on Distribution of Profit as
Driving Force of Economic Growth in section 3.5.2, because in those lines we have already
formulated the solution to the economic world crisis: all elements for our alternative have
been discussed yet. In this rather short chapter we will only recapitulate already known
concepts and relate them into an overall picture.
Some interest groups in society can not live in a situation of zero-growth, as they can
no longer create money out of money. They get wicked: they use inflation, floating currency
exchange rates and high budget deficits in order to divert purchasing power from other groups
toward their own pockets, they stimulate the growth of the pram-industry in order to sell
security against the enemy - real or even imaginary -, they even dare to manipulate the public

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opinion in order to start a real war and to bring the society back into a situation where there
are again real opportunities for growth.
Okay, let us accept this as an additional boundary condition to our solution, a fact that
is beyond our control but has to be taken into account. In section 3.4.1. we stated that
satisfaction of needs is or ought to be the basis of the economic process. Satisfaction of needs
is the goal. Satisfaction of ever more needs of ever more people leads to economic growth,
which means profit for society. This can then be distributed over the several socioeconomic
groups in society: among others profit for companies and interest on invested capital. Profit is
at the same time consequence of as well as driving force towards more economic growth, i.e.
more satisfaction of needs.
After World War II, emphasis was primarily on ever more created needs of the same
amount of already affluent people in western countries. But let us, on the contrary, focus on
ever more people! What had caused the increased growth in turnover and profit for GM in the
1950s and 1960s? What had caused the substantial economic growth in Europe and the USA
after the Second World War? As discussed in section 3.5.2, these were induced by the
diversion of purchasing power to the people in real need. Those people did not hoard the
money, but spent it immediately, and in doing so, they made economic growth and more
profit for business possible. On several occasions in the course of history this principle has
given a justified impulse to the economic system and the profit ratios of the private
companies. If we look at the world as it is today, can't we find people in need of basic
products so that we can pull once more the card of the rubber cylinder? Three quarters of
humanity lives in conditions of extreme poverty, 800 million people live in absolute poverty.
Each day hundreds of thousands of people are starving to death or are dying from lack of
basic health care.

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1979 was the UN year of the child. As a matter of fact, of the dead child. 30
million children younger than 5 died from starvation in that year. The others,
who survived, suffer from eye-diseases and affections of the nervous system,
caused by lack of proteins in their 'diet'. 80% of all children in the world suffer
from this. 500 million Asians, 140 million Africans, 90 million people in Latin
America have not enough drinking water. Two thirds of humanity suffers from
time to time from diseases caused by drinking polluted water.
J.J. Servan-Schreiber: The Challenge, p. 128.

A substantial and direct diversion of purchasing power from the saturated


industrialized countries and the very few rich in the Third World countries toward these poor
people can at the same time save the western economy from a total collapse, as well help
those people in the Third World to fulfill the basic needs of drinking water, food and health
care. This would also reduce the tensions between North and South, as well as between the
competing industrialized countries who skim each other markets. And above all, it would take
the wind out of the sails of those who are convinced that only a jolly good war can solve the
economic crisis. The level of security in the world would increase and there would no longer
be need for an excessive pram-industry in order to stimulate economic growth.
So what we need is a worldwide Marshall-plan, in which the industrialized countries
would give substantial financial, technical and logistic support to the Third World countries,
supply them with the means and the know-how in order to satisfy the basic needs of their
population, and treat them as equal partners in the international trade by giving them fair
prices for their raw materials and their energy resources. No need to say that it is essential that
the financial help should not disappear to the Swiss bank accounts of corrupt politicians and
officials of those countries, but really must reach the people in need. This calls for more
democratic rights and installation of unions in the Third World countries in order to prevent
the rich getting richer and to allow the poor to acquire some purchasing power.

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What America was for the destroyed economies of Europe and Japan
immediately after the war, that is what the industrialized countries mean to the
Third World today. The ideas of the Marshall-plan were at the same time
simple and ingenious. After the war, America could have let Europe and Japan
in a state of destruction and take advantage from its strong economical and
technical lead in order to increase its supremacy. But in doing so, America
would have weakened itself. In a world half destroyed, America's production
capacity would have been of no use. Europe was in no way an equal partner. In
economical terms, America would have become an island, surrounded by a sea
of misery and poverty. It would have forgotten the mistake of 1919, which lead
to the great depression, to fascism and finally a new war.
The team that outlined the Marshall-plan was well aware of the priorities for
America: to help other countries in order to help itself. When America
supplied means for recovery and development to Europe and Japan, it derived
profit from this help to the same amount or even more than those who received
that help. The world had discovered a new law of survival, development and
interdependence in the international scene.
Nowadays there exists the same interdependence between the industrialized
countries and the Third World. But the application of the principle must be
different, as times and nations have changed since then.
In the years after the war, the Marshall-plan has given financial help to
countries who had the technical know-how and the basic infrastructure to
rebuild their industries. Provided with the means, they were able to do the job
themselves... America saw how these countries regained their strength and
again became active partners in the international trade scene.
From then on began a period of permanent economic growth and expansion as
never before in history. This period lasted for 30 years, and due to the effect of
the positive feedback of the affluent society, the financial help of the Marshallplan was paid back a hundred-fold to the USA. The established rules of the
eternal game in international trade were overthrown: it was no longer a game
of give and take, but one had applied a higher system, in which both the giver
and the receiver gained at the same time. The development of one party had a
positive influence on the development of the other. This was an economic
principle of a higher order, from which all parties involved could benefit.
All? Well, at least those in a certain closed group of countries. The rest of the
world did not seem to exist, was neglected. And that part of the world had no
means to speak for themselves or to stand up for their rights.
Today, we can say that the western world will not regain its economic growth
by itself; it will suffocate, its internal social order will disintegrate if it does
not change its point of view towards the Third World and if it fails to guide
these countries on the way of development. This is the only way in which the
industrialized world can regain its former dynamic. The new law of survival
and interdependence has spread all over the world.
J.J. Servan-Schreiber, The Challenge, pp. 317-318.

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In the Third World lays hidden an enormous potential for economic growth on a
global scale. The potential, if realized, can result in profit for humanity as a whole and, in
particular, for the industrialized countries and those who love to see their capital breeding like
rabbits without working themselves. Their interests, our interests and the interests of the
people who now live in poverty and starve to death are one and the same!
A worldwide Marshall-plan to speed up the development of the Third World countries
will also result in a much more stable world-economy. The different countries will have a
more balanced level of welfare, so there will be less risk for a sudden collapse of the
consumption level in the rich countries: there will be no saturation in one country and
shortages in another one at the same time. A general increase of the standard of living in the
developing countries will also solve the problem of excessive growth of the population on
earth. For this, we refer once more to Fritjof Capra.
Demographers have discovered that the significant pattern is a transition
between two levels of stable populations that has been characteristic of all
Western countries. In pre-modern societies birth rates were high, but so were
death rates, and thus the population size was stable. As living conditions
improved during the time of the Industrial Revolution, death rates began to
fall, and, with birth rates remaining high, populations increased rapidly.
However, with continuing improvement of living standards, and with the
decline in death rates continuing, birth rates began to decline as well, thus
reducing the rate of the population growth. The reason for this decline has now
been observed worldwide.
Through the interplay of social and psychological forces, the quality of life the fulfillment of material needs, a sense of well-being, and confidence in the
future - becomes a powerful and effective motivation for controlling
population growth. There is, in fact, a critical level of well-being which has
shown to lead to a rapid reduction in birth rate and an approach to a balanced
population. Human societies, then, have developed a self-regulating process,
based on social conditions, which results in a demographic transition from a
balanced population, with high birth rates and high death rates and a low
standard of living, to population with a higher standard of living which is
larger but again in balance, and in which both birth and death rates are low.
The present global population crisis is due to the rapid increase of population
in the Third World, and the considerations outlined above show clearly that
this increase continues because the conditions for the second phase of the
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demographic transition have not been met. During their colonial past the Third
World countries experienced an improvement in living conditions that was
sufficient to reduce death rates and thus initiated population growth. But the
rise of the living standards did not continue, because the wealth generated in
the colonies was diverted to the developed countries, where it helped their
population to become balanced. This process continues today, as many Third
World countries remain colonized in the economic sense. The exploitation
continues to increase the affluence of the colonizers and prevents the Third
World population from reaching the standard of living conducive to a
reduction of their rate of growth.
The world population crisis, then, is an unanticipated effect of international
exploitation, a consequence of the fundamental interrelatedness of the global
ecosystem, in which every exploitation eventually comes back to haunt the
exploiters. From this point of view it becomes quite apparent that ecological
balance also requires social justice. The most effective way to control
population growth will be to help the people in the Third World achieve a level
of well-being that will induce them to limit their fertility voluntary. This will
require a global redistribution of wealth in which some of the world's wealth is
returned to the countries that have played a major role in producing it.
An important aspect of the population problem, which is generally known, is
that the cost of bringing the standard of living of poor countries to a level that
appears to convince people that they should not have excessive numbers of
children is very small compared to the wealth of the developed countries. That
is to say, there is enough wealth to support the entire world at a level that leads
to a balanced population. The problem is that this wealth is unevenly
distributed, and much of it is wasted.
F. Capra, The Turning Point, pp. 227-229.

Practical realization
The primary goal of this book is to show to a broader audience that it is of the utmost
importance for the rich industrialized countries to divert part of their welfare to the people in
the developing countries, both to solve the economic crisis in the capitalistic world as well as
to reduce the economic and political tensions in the world and to avoid the possible outburst
of a war. For a description of a blueprint for a worldwide Marshall-plan, we gladly refer to A.
Toffler and J.J. Servan-Schreiber. We will just give a short outline of the basics of such a
plan.
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First of all, we emphasize that massive help for the development of those countries
does not mean the implementation of heavy centralized industries, which are characteristic of
the second wave in Europe, to speak with Toffler. The examples we have seen in the 1960s
and the 1970s clearly show that such a policy leads to a greater dependence for the Third
World, more exploitation, to greater internal contrasts in those countries, to excessive growth
of cities and ghettos, and to the disruption of their social, economic, agricultural and
demographic structures. The developing countries have suffered from political colonialism
until after the Second World War. Those who have tried to imitate the western world in their
development since their political independence, are now faced with a new form of economic
colonialism, as they are dependent of the economic situation in the industrialized countries for
the prices they receive for their raw materials. A worldwide adoption of the western economic
model based on excessive consumption would also stress the possibilities of the ecosystem to
its limits and certainly lead to an ecological disaster, as we can see already in several
countries.
The economic help should rather be characterized by decentralization and consist of
small-scale level projects. First of all there is great need for education in the Third World especially for women -, focused on the direct needs of the population, in order to impart the
elementary principles of hygiene, health care and birth control, taking into account local
customs. At the same time agriculture must be developed, not in the direction of monoculture
for export, but to supply the local people with sufficient and diversified food, so that the
migration to the cities and the development of ghettos can be stopped. We do not preach the
return to a strict agrarian society as in former centuries. Modern tools and techniques should
be applied such as

irrigation

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bio-engineering in order to reduce the use of pesticides and chemical fertilizers

fermentation and use of solar energy in order to supply in the local energy needs

ecological integrated industries where as little waste as possible is produced, and


where waste is recycled

application of computer- and communication technology in order to spread knowhow to remote places

As A. Toffler and J.J. Servan-Schreiber clearly demonstrate, these agrarian societies


are very well suited to implement these technological attainments, so they do not need to go
through the process of heavy industrialization. To speak with Toffler: they can skip the
second wave and evolve to the third wave in a very short time, if given the proper help and
education to the local people. Of course, fair prices for the products coming from the
developing countries is a mandatory condition in order to stop the economic colonialism,
characteristic for the second half of the 20th century. But there also must be a reduction of the
internal imbalance in the distribution of wealth in the developing countries themselves:
human rights and working conditions must be improved, the organization of the labor force in
unions must be allowed, there must be a redistribution of the property of land...
And what about the funding and organization of such an immense project?
At this moment the immense budgets for defense obstruct the realization of
such a plan. In 1987 the worldwide spending on defense and war have
surpassed one thousand billion dollar: more than the annual income of the one
billion poorest people on earth. Three quarter of this spending is done by the
industrialized countries. To these facts one has to add the enormous
intellectual capital that is wasted in this business. Half a million researchers
with a university degree work full-time on the development of new weaponry
systems81. They could use their talents for other purposes. With the money the

81

The USA is complaining of their trade deficit with Japan. In Japan they make consumer products and
investment goods in demand all over the world, while the USA has concentrated its efforts on the perfection of

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world spends on defense on one day, one could establish an effective program
against the expansion of the deserts. The expenditures of ten days would
suffice to supply all slumps in the Third World cities with drinking water,
sewerage and sanitary. Half a day would be enough to restore the tropical
woods, to fight erosion, to save vital water supplies and to purify severely
polluted underground water layers. Where else should one look for the
funding?
Interview with the French agronomist Ren Dumont in Knack, September 6th
1989.

Well... we might even allow for some little inflation in the industrialized countries, as
an investment!
And who would have to supervise the design and implementation of such a plan? As
discussed by B. Fuller in Critical Path and The Group of Lisbon in Limits to Competition, big
business and big banking have become supra-national, while the political decision making is
still done in the old-fashioned way by several hundred local pseudo-democratic and even
totalitarian governments. Indeed, in order to implement an economy designed to satisfy the
real needs of humanity it is time to install a world parliament and government based on real
democracy, with real decision-making power and no veto right for some privileged countries.
The question remains who would you accept to be your president-king-emperor? A Jew? A
Christian? A Hindu? A Muslim? A Buddhist? A Taoist? An Asian? An Indian? Or an
Aboriginal? White? Black? Yellow? Red? or Blue?

disinvestment goods nobody needs any longer. So who's to blame? Or are they doing once more an effort to
create new markets for these disinvestment goods?

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The dual active-recreational society: the fourth wave


Daniel Bell, who used the term for the first time, saw the post-industrial
society as a knowledge based society. This term is useful to describe what
could be a third area in economic history. After the agricultural era, with
land as most important means of production, came the industrial era, with
human labor as most important source of economic activity, an era that Marx
labeled the era of added value. We now live in a time in which knowledge is
the most important means of production. This view has the merit that it gives
the post-industrial society a historical dimension, which is not far from the
equivalent of the end of history82, as it is difficult for us to imagine what a
fourth era of human society might be.
Daniel Cohen, Globalization and its adversaries, p. 60.

A few critical remarks on this view:

The description of economic eras that we have given at the beginning of this book
seems more appropriate than the one of Cohen. In the agricultural era human labor
was very important, even more important than during the industrial era with its
energy driven machines.

Concerning the end of history, let us try to look further than our economic nose
is long, and focus on man as man, and not as man as means of production or as
consumer. And maybe we will find a fourth era in human civilization, the
beginning of a totally New World Order, but then an order which is advantageous
to all of mankind, and not only the ones who assign themselves the Fifth and
Sixth Freedom.

82

Like in Francis Fukuyamas The End Of History.

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I can accept that most people will find it difficult to yield part of their wealth or
purchasing power toward the Third World countries or low-wage countries. But this process
is already going on anyhow: a lot of industrial companies and service companies like callcenters and software development have moved to lower-wage countries, while most of the
western countries are faced with a too low level of activity in order to guarantee the pensions
and social security system for the post World War II baby-boom generation. But according to
my humble opinion something can be done about this. And the proposed solution is very
agreeable to us all: we just give the people more time to consume more, especially in the
recreational area, while at the same time we increase the profit-ratio of the companies.
We will have time to reach the Millennium Development Goals worldwide
and in most, or even all, individual countries but only if we break with
business as usual.
United Nations Secretary-General Kofi A. Annan.
Impossible to break with business as usual ? Just proceed reading!
4.4.1

A complicated problem
There has been a time when in most countries people had to work 6 days a week, with

10 or more working-hours per day. Only the Sunday was reserved for Our Lord. For the
majority of the world-population the division of the week now consists of 5 working-days of
8 hours plus, for many of them, 2 extra hours for commuting from and to the working-place.
And then there are the 2 weekend-days.

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Day 1 till 5

Day 6 till 7

Active

Off

(panem)

(circencem)

This arrangement has some disadvantages on several domains.


Mobility
In many countries you can see every morning and evening of a working day the
structural traffic jams of people commuting in their private cars in and around the big
agglomerations where work is concentrated. Also public transport is overloaded and people
are literally squeezed into the wagons of trains and metro-cars and in busses. To avoid that in
the near future we will all stand still in our cars or suffocate in the train-wagons or busses,
heavy investments are needed in the sectors of public transport and the construction of roads.
In some countries highways are constructed on a dual level or under the ground. Some
countries invest heavily in fast trains. Both measures need rather expensive investments. Due
to the present world-wide economic situation most governments do not have the budgetary
capacity to take adequate measures. In some countries they barely succeed in maintaining the
present infrastructure. Higher taxes have a negative influence on private consumption, and
thus on the economic growth. During the rush-hours the mobility infrastructure is overloaded,
but for the rest of the day it is used to a much lower degree. Part of the trains and busses is not
used at all. Therefore further investments seem to be foolish.
From Friday-evening on you can see then the migration to the holiday-resorts and
weekend-houses in the countryside, on the coastlines or in the mountains. Roads are again
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overloaded with people leaving the cities for the weekend. This problem of mobility causes a
lot of daily stress for most of the people during working-days as well as during the weekend.
It lowers the quality of life and has a very negative influence on the productivity of the
transport of goods and the economy as a whole. It is a waste of time and money for private
persons and professionals alike. And cars in a traffic-jam pollute more than cars that can drive
along.
Economic efficiency
There is also a structural imbalance for the efficiency and the useful load of the
production infrastructure, the public infrastructure and the recreational infrastructure. The
means of production like factories and office-buildings are used only 5 days a week and
during the 2 days of the weekend they are idle, not productive, empty. On the other hand there
is in many regions a need for new industrial areas, to create new jobs. But this means less
space for housing, land for agriculture, recreational areas and natural parks. In some branches
of the economy with continual production, like the petrochemical industry or the ports, there
is activity 7 days a week, at the cost of higher wages for the weekend-work.
The infrastructure of schools and universities is also not used to its full capacity as
they are empty during the weekend. Shopping centers are overcrowded on Saturday with
people and their cars, but during working days they are often an oasis of peace and rest,
unless they are located near offices, where they are frequented only during lunch hours or
after the working hours. In some countries shops are already open around the clock and in
other countries the big commercial companies demand the governments to legalize flexible
working hours so they do not have to pay extra for weekend work and evening-work. This at
the expense of the quality of life of the employees, who have to work out solutions for
practical problems such as babysitter, transport of children to and from school, and also at the
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expense of the small independent shopkeepers who have to adapt their business-hours if they
do not want to loose their customers. Sport infrastructure and cultural infrastructure is used
only during the evening hours on working-days and of course during the weekend.
Personal quality of life
This division of time has also some disadvantages on the personal level.
When you buy furniture or a washing-machine, these are usually delivered at your
home during working hours on a working day, so you have to take a day off from work. When
there is some work to be done at your home by a plumber or electrician, some roofing or
painting has to done, then the professionals come to your house during the normal working
hours and you have to sacrifice holidays for these practical matters. There is also a problem
with the accessibility of public and private services like the townhouse, the post-office, the
bank, the social security office, the dentist, the doctor,... whose opening-hours synchronize
with your normal working hours. So another day off is sacrificed. Some of these services have
opening-hours till 6.00 PM or on Saturday-morning, but this means extra costs and a burden
for the employees.
In this stressful society a lot of people want more quality of life, are fed up with the
rush-rush way of life. They want a better balance between time for commuting and actual
working time; they want more time for recreation and their family.
Public finances
Most governments have financial problems due to the situation of the world-economy
and the demographic evolution. Their budgetary capacity is dependent on economic growth
and the level of activity or the unemployment of their population.

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The economic growth of a country is supported by two components: internal economic


growth and the surplus of their trading balance as a result of export to other countries.
Countries are dependent for their export on the economic situation of their trading partners,
and for most countries the situation is not so good. In order to be competitive the cost of
production and the wages should be lowered, but this erodes the purchasing power of the own
population and thus the internal economic growth.
The post World War II baby-boom generation is getting older and life expectancy has
increased considerably in recent years, so in most countries the public and private systems of
retirement-pensions will be under great pressure. In some countries people are already warned
that they will have to work longer in order to increase the level of activity in order to keep the
public and private pension-systems viable. On the other hand it is difficult for older people to
get a well-paid job in this fast evolving technological society.

4.4.2

A possible solution
This seems to be a Gordian knot. Solutions seem to be expensive or even unpayable,

they will lead to higher taxes or inflation, and they will never be acceptable for everyone in
society. Many of these measures will be a burden on the environment (more roads, more
industrial zones, less space for nature and leisure-time...) and create new problems.
And then you have the blissful optimist who once sang There are no problems, only
solutions and People say Im crazy doing what Im doing, you know, the guy who sent the
immortal song Imagine into the world.
Before his successful solo-career John Lennon was member of the Beatles, a band
which compiled an impressive series of 27 N 1 hits.

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In their songs you can discover a lot a social, personal and spiritual wisdom, (Let It
Be, The Long and Winding Road... ), and one of these songs might well enter the history as
the Ode an die Freude of this century:
Eight Days a Week
Ooh I need your love babe,
Guess you know it's true.
Hope you need my love babe,
Just like I need you.
Hold me, love me, hold me, love me.
Aint got nothin but love babe,
Eight days a week.
Love you ev'ry day girl,
Always on my mind.
One thing I can say girl,
Love you all the time.
Hold me, love me, hold me, love me.
Aint got nothin but love babe,
Eight days a week.
Eight days a week
I love you.
Eight days a week
Is not enough to show 1 care,
Ooh I need your love babe,
Eight days a week ...
Love you ev'ry ...
Eight days a week. Eight days a week. Eight days a week.

Let us indeed try to manage our time in a more creative way. How could we organize
an eight-day-week? Maybe we could arrive to what I would call the dual active-recreational
society.

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Well, imagine(!) that one part of the active population and the kids at school and
university are active the first 4 days, and that they are off the next 4 days, and the other part is
off the first 4 days and active the next 4 days.

Day 1 till 4

Day 5 till 8

Active

Off

(panem)

(circencem)

Off

Active

(circencem)

(panem)

Group 1 of the population


Group 2 of the population

As a matter of fact, every physical socioeconomic entity would be divided into 2


logical entities that are alternating active and idle, so the physical entity would be used at
full capacity. This would indeed result into a dual society, but not a vertical one with people
with a job and people without a job, haves versus have-nots, but rather into a sort
horizontal timesharing system across the whole of society of actives and not-actives, and
with less have-nots.
Imagine all the people
Sharing all the world...
John Lennon, Imagine
And what is left of our Gordian knot?

Structural traffic jams in the morning and the evening would be considerably
reduced without need for huge investments in roads and public transport. They
both would be used in a more optimal way every day of the week and every hour
of the day.

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Transport of goods would be leveled out in time and would be more productive as
there would be less traffic-jams. Professional, recreational and private transport
would be more leveled out in time

Air-pollution could be reduced due to better transport efficiency

Factories, offices, schools, hospitals, recreational facilities would be used at full


capacity. This means a higher productivity, a higher profit-ratio (profit/invested
capital)

The level of activity would increase considerably, also for the older but still
young-of-heart part of the population that still can make a valuable contribution to
a productive society. Their experience is indeed of great value for the younger
ones.

This would introduce a system in which there is a backup for every job, which is
advantageous for companies. Nobody is indispensable and there would be a better
transfer of knowledge and skills.

Public and private services would always be accessible during normal businesshours for part of the population. No need for overwork in the evening or work on
Saturday.

People would be able to spend more quality time with their family, for recreation
and sports. This proposal meets the demand for less working-time and more
leisure-time that lives among most of the people. People with a holiday resort or a
sailing-boat would be able to make more use of it.

Absenteeism from work due to sickness or burnout syndromes would be reduced,


with as consequence a positive effect on the cost of labor and cost of the social
security and health care systems.
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For a lot of people it offers the opportunity to combine work with study, without
having to go to evening-school after a hard day of work. Or to start their own
business.

There is no need for expensive investments in new infrastructure to implement


this. On the contrary, the infrastructure of roads, offices, factories, schools, trains,
busses, leisure-time infrastructure is already available but not used at full capacity.
Unemployment would decrease and taxes could be lowered.

As the infrastructure could be used at full capacity, the production of goods could
be increased without need for investments. The new division of working time
would result in more consumption, but not necessarily of products but rather of
services, especially in the recreational business. This means that the GNP of a
country, the employment and the export could increase, resulting in a better
balance of trade and lower budget deficits.

And what would be the cost of all of this? Nothing is maybe too optimistic, but we
might end up with a better utilization of all kinds of infrastructure without having to do large
investments and without need to increase taxes. It is more a matter of organization than of
infrastructure, a different way of organizing our life.
Of course it is necessary to do further investigations on the social and economic
benefits of this proposal. This should be done in a social debate, coordinated by a team of not
only economists and managers, but also sociologists, engineers, labor unions, organizations
representing small entrepreneurs, pedagogues, youth-organizations, political parties,
governmental services, and this in co-operation with international organizations like the
UNO, ILO, UNCTAD, IMF...
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Many questions remain to be answered.

Is it possible that one country could implements this alone, or should it be done on
a continental level or on global level? I dont think it matters. The shop of the
country would be permanently open for business, and even now countries are
situated in different time-zones on the globe and some of them are islands. So
every country can make its own arrangements, even region by region.

What is the influence on wages, on the one side what employers have to pay and
on the other side what employees can earn?

What is the influence on energy consumption and pollution? Surely the electricity
consumption would be more equalized over the week, so the consumption peaks
and dips would be leveled out. The total production of electricity could be
increased, while investments in higher production capacity or in the distribution
network could be postponed. Immediately a higher profit-ratio for electricity
companies! Or lower prices?

Maybe a working-day of 9 hours is socially acceptable if there is less traffic-jam


and a weekend counts 4 days? So every day of the present seven-day-calendar
half of the population would work 9 hours a day. For the employees this means a
reduction in working time of 21%, while the useful load of factories and offices
would increase with 57%! (see simulation at the end of the section)

Unemployment would evaporate instantly. In the future one could use the number
of working hours per day in order to fine-tune the economy. Imagine, time as
means of investment. Indeed, isnt time money, as they say in English?

What would be the effect on crime figures and violence in society, when more
people would be able to find a job and have enough leisure time?
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Is there a need for a new calendar system or is it feasible with the present seven
days a week calendar? According to me the present calendar system is just fine, it
is just a matter of organization, of time management. On a certain week part of the
population would start their work-period on a Monday and work till Thursday, the
other part of the population would then work from Friday till Monday, so the first
group would then take over on the next Tuesday, etc. The start of a work-period
for a person would shove up one day each week.
This becomes clear when you look at the simulation at the end of this section.

How does this proposal fit in the trend towards globalization and with the transfer
of production facilities and services, like call-centers and software-production, to
the lower-wage-countries?

When can it be introduced? Very often social changes of this magnitude have been
introduced after a major war (5 days working week, the general right to vote...).
More on that subject later on, but I dont think we have to wait for such an event.
We better do it at the beginning of a school-year. The family-unit should indeed be
the central focus-point in this social (r)evolution.

And another N 1 of the Beatles is We can work it out!


This proposal might induce some resistance from religious factions. But which one?
For the Muslims Friday is the day of prayer, for the Jews the Saturday is the holy Sabbath, for
the Christians Sunday is the day reserved for the Lord... It is difficult to satisfy everyone with
that many religions...
On the other hand every day in the week could be a day for prayer, contemplation or
meditation for part of the population... Isnt religion a private matter between an individual
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person and his Creator? And the self-employed people, well they can decide themselves how
they will arrange their time.

I have discussed this idea already with a lot of people, and I found out that once they
realize that time is just a convention, they understand the scope of the idea and what the
impact could be on society and their personal life. Most of them said they wished this regime
was already implemented, but at the same time they were very skeptical about the willingness
of political leaders to do something about it, or of other people to accept this new way of
living.
The greatest single obstacle to the resolution of great problems in the past was
thinking they could not be solved - a conviction based on mutual distrust.
Psychologists and sociologists have found that most of us are more highly
motivated than we think each other to be! For instance, most Americans polled
favor gun control but believe themselves in the minority. We are like David
Riesman's college students, who all said they did not believe advertising but
thought everyone else did. Research has shown that most people believe
themselves more high-minded than 'most people'. Others are presumed to be
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less open and concerned, less willing to sacrifice, more rigid. Here is the
supreme irony: our misreading of each other83.
M. Ferguson, The Aquarian Conspiracy, pp. 447-448.

Or as John Lennon has formulated in his song Imagine:


You may say I'm a dreamer
But I'm not the only one
I hope someday you'll join us
And the world will be as one

One? Well, rather a dual society, but then not a vertical one with haves at the top
and have-nots at the bottom, but a horizontal one in which the burden for making the
panem and enjoying the circencem are evenly distributed. A New World Order, but then
to the advantage of everybody.

83

Induced by the mass media, as very clearly illustrated by Noam Chomsky in Failed States, in the
section Public Opinion and Public Policy, pp. 228-236.

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The least common multiple of 7 and 8 is 56. So let us consider a 56 day period
Present situation

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56

Week

Day

Week 1

Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday

Week 2

Week 3

Week 4

Week 5

Week 6

Week 7

Week 8

Hours
facilities
are used

Total hours (sum)

Future situation
Working- WorkingWorkingHours
hours/
hours/
hours/ facilities
person
person
person are used
group 1
group 2

8
8
8
8
8

8
8
8
8
8

8
8
8
8
8

8
8
8
8
8

8
8
8
8
8

8
8
8
8
8

8
8
8
8
8

8
8
8
8
8

8
8
8
8
8

8
8
8
8
8

8
8
8
8
8

8
8
8
8
8

8
8
8
8
8

8
8
8
8
8

8
8
8
8
8

8
8
8
8
8

320

320

Reduction of working hours per person:


Increase in hours facilities are used:

9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9

504

9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9
9

252

252

21,25 %
57,50 %

Intermediate conclusion:

Short of labor force


Economic efficiency would increase considerably

Final conclusion:

Some fine-tuning is needed, but looks very promising

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4.4.3

Author: Geert Callens

The quaternary sector.


During the course of history, the economic and social landscape went through an

enormous evolution. Until the early Middle Ages, the major part of the population was
working on the fields as serfs, later came the mediaeval towns with the craft-guilds and the
commercial guilds, who took care of the industrial production and the trade.
Due to the advancing mechanization since the Industrial Revolution less and less
people needed to work in the agricultural sector (the primary sector), and more people were
employed in the industry (the secondary sector). By the use of automation like the assemblybelt, less people were needed in the industry and employment in the secondary sector
decreased, while more and more people worked in the service industries (the tertiary sector).
So far the classical division of employment which is used by economists: people are
employed in the primary, the secondary or the tertiary sector. But this point of view lags far
behind reality, primarily because this vision fails to focus on man as man, it just sees people
as a means of production.
It is my solemn conviction that man is not created only to work. All work and no play
makes Jack a dull boy. Most people do not go to work because they like it, but in order to
make a living in order to fulfil their needs. And once they make enough money, they spend a
substantial part of it on things and activities they really like: a good dinner in a restaurant,
going to the movies, listen to music, do some sport, a visit to the sauna, a trip to an exotic
island, in brief: they want to enjoy themselves during their leisure time.
And this brings us to the quaternary sector (I admit, not directly an original name):
the set of human activities that involves leisure time in the widest sense of the word: the hotel
and catering industry, the cultural sector, the film and music industry, tourism, sport, This

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sector exists84, its turnover and employment are already gigantic in these days, fortunes are
made by entertainers and sportsmen. And when the eight days a week regime would be
introduced, the economic importance of this quaternary sector could increase considerably,
and become more important than the other three sectors combined. It could generate a
substantial economic growth and thus also profit for society and for companies, so there
would be no need anymore for the sector of disinvestment goods.
4.4.4

The other alternative


On the subject of the evolution of the profit-ratio of private companies, we refer to the

work of the Belgian economist J.P. Van Rossem.


One cannot deny the fact that in the whole western economy the profit-ratio
(the ratio between the realized profit and the capital invested in order to realize
that profit) has decreased steadily since World War II. This does not imply that
companies make less profit. It only says they have to invest more in
machinery, buildings and energy to realize the same level of profit...
Calculations show that the average profit-ratio in Belgian economy has
declined from 15.86% in 1953 to a level of 7.62% in 1977...
Nobody has ever maintained that the profit-ratio should decline, just as a stone
drops when he is released. One can think of measures to increase that profitratio. However, when we analyze for example the evolution of the average
profit-ratio in Germany from 1880 till 1976 (West-Germany after 1954), we
can conclude that the profit-ratio has increased only in two periods of time: the
first time between 1915 and 1919, the second time between 1941 and 1944. In
other periods of time the profit-ratio has shown a declining trend...
In the past, the profit-ratio has increased substantially only during World War I
and World War II.
J.P. Van Rossem, Knack, January 1979, p 119.

84

I even think that this sector is historically the oldest sector.

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We can represent the evolution in time of the profit margin with a saw-tooth shaped
curve: longer periods of decrease are alternating with short periods of fast increase (figure
4.1). The period of fast increase happens to coincide with the occurrence of a war. Is this pure
coincidence or is there a logical explanation to it? I think that by now you understand the
correlation.
And is there an alternative for war in order to increase the profit-ratio? I think eight
days a week might do the job! It is a win-win-win-situation for governments, business and
families. It combines The Right for Labor of Karl Marx and The Right to be Idle of his son in
law Paul Lafargue.

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Eight Days A Week

4.5

Author: Geert Callens

A naughty addendum
On the international financial markets 180 dollar is daily traded per man,
woman or child, and this with a world population of 5.6 billion people. The
world trade in commodities is about 4,000 billion dollar per year. One does not
need a computer to calculate that only 1 % of the exchange in foreign
currencies has still something to do with the international trade in
commodities. The rest is pure trading, with as sole purpose portfolio
management and the satisfaction of a gambling instinct.
Armand Van Dormael, The Power behind Money, p. 7.

One of the measures proposed by NGOs in order to accelerate the development of the
Third World countries is the Tobin-tax: a very small tax on large international financial
transactions, with two purposes:

to create more stability on the financial markets, which would ultimately lead to
less fluctuating currencies and more economic stability;

to raise funds for the development of the Third World countries.

History teaches us that it is very difficult to organize a tax-system that is fair and has
no loopholes, and that fiscal engineers always find cracks in it, so that the people who can
afford to pay these fiscal whiz-kids pay less taxes than the other people. A world-wide control
organism should then be created in order to monitor that the Tobin-tax is paid correctly. And
this creates once more what P. Lafargue has described as active unproductivity: a lot of
people who cost a lot of money, but who have no active contribution whatsoever to the
production of real goods and services. Therefore I propose the following alternative for the
Tobin-tax.
On one of the UNCTAD conferences I heard former vice-president of the United
States Al Gore suggest to introduce the American accounting-rules for companies all over the
world, so it would be easier to make a clear assessment of the health of companies. There was
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at that time a lot of protest from the part of the NGOs, as they saw this proposal to be too
much in line with the trend of globalization of the world-trade and the world-economy: it
would be easier for American companies to decide which foreign companies to acquire, in
which countries to invest, etc.
I think however this is not a bad idea, at least when it is linked to the following rule:
all companies in the world should use the same start-time and end-time for their financial
year. And with time we do not mean local time, but Greenwich Meridian Time (GMT).
The argument for this is as follows: now multinationals set up constructions in which
most of their subsidiary companies (Ci), located over many countries and continents, or even
within the same country, have financial years with different start-time and end-time.

Calendar year X
C1

Calendar year X + 1

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter 3 Quarter 4


Financial year C1

C2

Financial year C2

C3

Financial year C3

C4

Financial year C4

In the 4th quarter of calendar year X the company C1 buys for a great amount parts,
semi-manufactured goods or end-products from its sister-company C2. In doing so,
the profit of company C1 goes down, and it will pay less taxes.

In the 1st quarter of calendar year X + 1 the company C2 buys for a great amount
parts, semi-manufactured goods or end-products from its sister-company C3. In
doing so, the profit of company C2 goes down, and it will pay less taxes.

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In the 2nd quarter of calendar year X + 1 the company C3 buys for a great amount
parts, semi-manufactured goods or end-products from its sister-company C4. In
doing so, the profit of company C3 goes down, and it will pay less taxes.

In the 3rd quarter of calendar year X + 1 the company C4 buys for a great amount
parts, semi-manufactured goods or end-products from its sister-company C1. In
doing so, the profit of company C4 goes down, and it will pay less taxes. Etc.

As a result of this carrousel, multinationals manage to pay less taxes or even no taxes
at all: the generated cash-flow is transferred from company to company and goes around the
world, without ever resulting in a profit that can be taxed. And this holds a double unfairness:

In most countries nowadays, the tax-burden is carried by the working-class people,


there is very little tax-contribution from the part of the companies, especially the
multinationals, and there are very little taxes on big fortunes.

And due to lower declared profits, a lower dividend is paid to the many small
shareholders, while CEOs and members of the board of these multinationals
assign themselves gigantic remunerations and stock options.

And the funny thing is that in some countries, like Belgium, the co-ordination centers
of the multinationals, who optimize this system of tax-evasion, receive even extra fiscal
advantages compared to other companies.
I am convinced that the proposal to synchronize the financial years of all companies
all over the world would result in enough fair taxes so that:

the already long-time proposed target to spend 0.7% of the GNP in aid to the Third
World countries could be met quite easily;
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the taxes for individuals could be lowered, especially the taxes on wages and
salaries;

and that even the taxes for companies could be lowered.

On the other hand, this proposal will lower the costs of the tax-controlling systems and
of the organizations trying to detect fiscal fraud, as the system of transfer pricing and
invoice carrousels will no longer yield the same result anymore. It would even be totally
impossible.
Some bookkeepers, accountants and fiscal consultants will get the cold shivers while
reading this proposal, but you have to agree with me: on the long term, honesty is the best
policy!

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Epilogue

In all times and all cultures, among all races and all religions there have always been
people who considered themselves as bermenschen and the others as Untermenschen,
whom they could exploit as slaves, serfs, cheap labor-force and as cannon-fodder, destined to
die for the interests of the power lite. Even people of their own creed, race and country were
sacrificed. This has resulted in the society as we know it today: a dual society with haves
and have-nots, among countries as well as within countries.
In this book we have tried to prove that there is an alternative point of view: there are
only Nebenmenschen. And we also propose a dual society, but then not a vertical dual
society, but rather a horizontal dual society in which everybody makes a productive
contribution in the generation of wealth, but is also entitled to enjoy the fruits of his own
labor: the burden and the delights are shared more equally. And this is to the advantage of
both bermenschen and Untermenschen. We refer once more to the work Howard Katz.

War and the covert aristocracy.


In the Dark Ages, when feudal lords kept the vast majority of people in
serfdom, war was a necessary institution to preserve the structure of society.
This is because in that type of society the people suffered such incredible
hardships and injustices at the hand of the nobility that, despite the extent to
which they were bound down by fear of authority and by superstition, there
was always a severe danger that the people would rise up and destroy their
feudal lords.
To prevent the hostility of the people from being turned against the nobility
(who were the source of their suffering), the nobles constantly fomented wars.
This directed hostility outward against an outsider (whom it was safe to hate)
and prevented rebellion against the lord. Thus, two feudal lords at war with
each other were, in fact, both maintaining their domination of the respective
peasants.
Our society does not have feudal lords, but similar principles apply. We made
a valiant attempt in the 17th and 18th century to get rid of the aristocracy. We
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succeeded only in part. In The Paper Aristocracy85, an aristocracy was defined


as a small elite who, through control of the government, have obtained special
privileges in law and are thus enabled to live as parasites on the labor of
others and who by means of this exploitation... amass large amounts of
unearned wealth.
The desire for unearned wealth is very old. While it would be unduly
pessimistic to say that it is inherent in human nature, it is certainly true that it
is very widespread among the population - especially among the practically
oriented, worldly type of person. The lowest expression of this desire is the
common criminal, whose range of thought only extends to a few months and
years.
But the same desire actuated by more powerful minds has given rise to social
systems where robbery and exploitation are systematized and legalized and
where resistance to the robber is a crime. Such was the social system of the
Dark and the Middle Ages where a tiny minority exercised complete material
domination over the population. They bound the men to the land in order to
steal the product of their labor; they raped the women; they administrated the
'law' which they had instituted. In this society the practice of torture was
commonplace, and the life of a peasant was cheap.
The proclamation of the rights of man by the English Parliament of 1688 and
the French assembly of 1789 did not fully end this unhappy state of affairs.
The aristocracy could no longer openly assert its special privileges, but the
desire for unearned wealth and accompanying benefits did not die so easily.
When the old feudal aristocracy was destroyed, another group of men set about
to achieve its goals by different means.
While the principle of the feudal aristocracy was open and explicit, the
principle of the new aristocracy is hidden. It is a covert aristocracy, and in this
regard we may divide human history into three periods:
1. Open Aristocracy. Exploitation by the aristocracy was publicly affirmed
and defended. This period ended in the 17th century in the Anglo-Saxon
countries (one may take 1642 or 1688 as the date) and later in the other
European countries.
2. Covert Aristocracy. The exploitation had to go underground and operate
by deceit. This is the stage of most countries in the world today.
3. The Society Based on Justice. This third period is still in the future when
exploitation will cease and when each man will receive the product of his
own labor86.
The bankers87 are the main (but not the only) element in our covert aristocracy.
Using many of the tried and true principles of the aristocracy

85

Another book written by Howard Katz.


Millions of workers, working for nothing. You better give 'em what they really own (Jojn Lennon).
87
Fortunately not all bankers, but rather a small lite who for centuries has made kings and presidents.
86

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(authoritarianism, statism and the use of an intellectual priesthood to deceive


the public) they have created a system whereby they live off the labor of the
vast majority.
In 1688, when the old aristocracy was toppled in England, the new aristocracy
was on hand. We have seen how democracy is inherently a force for peace. But
war, the standby of the old aristocracy, became an important device for the
new. Through the creation of the Bank of England, war and paper money
became inextricable mixed in a way which allowed the bankers - and their
other associated vested interests - to seize the wealth of the people. In this
sense there is a ruling group in America - and in every other country in the
world - today.
We can now, perhaps, better understand how men foment war for economic
motives. The covert aristocracy continues many of the traditions of the old
medieval aristocracy. Wealth may not be its only goal, but it always requires
an economic base. It would not be an aristocracy if it did not live in great
wealth without working. Wealth and power are inextricably mixed for this
class, which cannot lose one of these elements without losing the other.
It is hard to conceive of a man who will cold bloodedly send another human
being (let alone thousands or millions) to die only for his material self interest;
few could do this if they understood the situation in those terms. But when the
motive is strong, most men's capacity for self-delusion is infinite. By whatever
process, they come to believe that the war which advances their wealth and
power is absolutely essential for the salvation of mankind. It is true that J.P.
Morgan and Company dishonestly maneuvered the United States into a war
which greatly swelled their pocketbooks, but it is also true that they believed
that the extension (and preservation) of the Anglo-Saxon way of life hung in
the balance. Once a man's self-interest is involved, he can usually find some
ideal in terms of which to justify his actions.
We can also see how men who might be deterred from war by an increase in
taxes are not deterred by the loss of life and liberty. In time of war a hysteria
grips the nation. The public debate is governed primarily by emotion with very
little space left for reason. The average man is propagandized with songs,
slogans and heroic statements. In this frame of mind, even human life itself
becomes cheap.
But the issue of a tax increase to finance the war - although far less threatening
man's values than the loss of life - shifts the debate to a far different level. In
our society, we are used to treating economics as a rational subject. While men
may be highly irrational in other areas, they pride themselves on their
calculated rationalism in the field of economics. Shift the subject to the cost of
the war, and suddenly the average man is no longer swept away by heroic
songs or eloquent speeches. He can not calculate the value of a human life, but
he can calculate the value of the tax increase you are passing along to him.
And as small as this value is in the scheme of things, he sees that the war is not
worth it.
Interestingly, two years after the establishment of the Bank of England, the old
practice of coin clipping and alloying base metals with the gold - which had
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gone on since virtually the invention of money - was ended by a reminting of


the debased coinage. With the new method of exploitation in place, there was
no need for the old. Power to debase the currency thus passed from the king
(representing the old aristocracy) to the banker (representing the covert
aristocracy), and there it remained to this day.
Furthermore, this explains why there is a great deal of injustice directed inward
during wartime and why in many respects the society returns to a condition
approximating that of the Middle Ages. It explains why freedom of speech is
often violated in time of war, why forced labor is introduced (especially for the
military), why dissent is not tolerated and why unsound financial policies are
followed. These things are not means to win the war; in fact they operate to
weaken the society and make for a less efficient war potential. For the ruling
group which desires the war, they are the end itself, and the war is the means
to bring them into being.
H. Katz, The Warmongers, pp. 39-42.

Fortunately, in all times and all cultures, among all races and all religions there has
always been people who considered themselves and all other people as Nebenmenschen.
They have tried to express this in all kind of manners: rational and scientific, but also in all
kind of arts: novels, poetry, paintings, sculptures, music, films As examples we quote two
masterpieces. John Lennons Mind Games seems to be a modern version of Ode an die
Freude, written by Friedrich von Schiller and put on music by Ludwig von Beethoven in his
9th symphony.

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We're playing those mind games together


Pushing the barriers planting seeds
Playing the mind guerrilla
Chanting the mantra peace on earth
We all been playing those mind games forever
Some kinda druid lifting the veil
Doing the mind guerrilla
Some call it magic the search for the grail
Love is the answer and you know that for sure
Love is a flower you got to let it, you got to let it grow
So keep on playing those mind games together
Faith in the future outta the now
You just can't beat on those mind guerrillas
Absolute elsewhere in the stone of your mind
Yeah we're playing those mind games forever
Projecting our images in space and in time
Yes is the answer and you know that for sure
Yes is surrender you got to let it, you got to let it go
So keep on playing those mind games together
Doing the ritual dance in the sun
Millions of mind guerrillas
Putting their soul power to the Karmic wheel
Keep on playing those mind games forever
Raising the spirit of peace and love
(I want you to make love, not war,
I know you've heard it before)
John Lennon, Mind Games

German
O Freunde, nicht diese Tne!
Sondern lasst uns angenehmere
anstimmen, und freudenvollere!

English
Oh friends, not these tones!
Let us raise our voices in more
Pleasing and more joyful sounds!

Freude, Schner Gtterfunken,


Tochter aus Elysium,
Wir betreten feuer-trunken,
Himmlische, dein Heiligtum!
Deine Zauber binden wieder,
Was die Mode streng geteilt;
Alle Menschen werden Brder,

Joy, fair spark of the gods,


Daughter of Elysium,
Drunk with fiery rapture, Goddess,
We approach thy shrine!
Thy magic reunites those
Whom stern custom has parted;
All men will become brothers
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Wo dein sanfter Flgel weilt.

Under thy gentle wing.

Wem der grosse Wurf gelungen,


Eines Freundes Freund zu sein,
Wer ein holdes Weib errungen,
Mische seinen Jubel ein!
Ja, wer auch nur eine Seele
Sein nennt auf dem Erdenrund!
Und wer's nie gekonnt, der stehle
Weinend sich aus diesem Bund!

May he who has had the fortune


To gain a true friend
And he who has won a noble wife
Join in our jubilation!
Yes, even if he calls but one soul
His own in all the world.
But he who has failed in this
Must steal away alone and in tears.

Freude trinken alle Wesen


An den Brsten der Natur;
Alle Guten, alle Bsen
Folgen ihrer Rosenspur.
Ksse gab sie uns und Reben,
Einen Freund, geprft im Tod;
Wollust ward dem Wurm gegeben,
Und der Cherub steht vor Gott.

All the world's creatures


Draw joy from nature's breast;
Both the good and the evil
Follow her rose-strewn path.
She gave us kisses and wine
And a friend loyal unto death;
She gave lust for life to the lowliest,
And the Cherub stands before God.

Froh, wie seine Sonnen fliegen


Durch des Himmels prcht'gen Plan,
Laufet, Bruder, eure Bahn,
Freudig, wie ein Held zum Siegen.

Joyously, as his suns speed


Through Heaven's glorious order,
Hasten, Brothers, on your way,
Exulting as a knight in victory.

Seid umschlungen, Millionen!


Diesen Kuss der ganzen Welt!
Brder berm Sternenzelt
Muss ein lieber Vater wohnen.
Ihr strzt nieder, Millionen?
Ahnest du den Schpfer, Welt?
Such'ihn ber'm Sternenzelt!
ber Sternen muss er wohnen.

Be embraced, Millions!
Take this kiss for all the world!
Brothers, surely a loving Father
Dwells above the canopy of stars.
Do you sink before him, Millions?
World, do you sense your Creator?
Seek him then beyond the stars!
He must dwell beyond the stars.

And last but not least, in all times and all cultures, among all races and all religions
there has always been people whom we could describe as NIMBYs (Not In My Back Yard):
people who are not concerned about what happens to their fellow human beings (war,
genocide, poverty, pollution), as long as it does not occur in their back yard. Eight days a
week, it could well be the start of a new phase in human evolution, towards a society based on
justice.
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In this book we have pushed some barriers and hopefully we succeeded in planting
some seeds into the mind of the reader.

Next to consumption goods and investment goods we have introduced the notion
of disinvestment goods in order to incorporate the occurrence of war in the
description of the economic process.

Next to the four fundamental freedoms described in the American constitution


(freedom of speech, freedom of religion, freedom from want, freedom from fear)
and the Fifth Freedom described by Noam Chomsky (the freedom that some
countries grant themselves to get complete control over the natural resources of
minerals and energy supplies of other countries, even with the use of force and
coercion), we have introduced the Sixth Freedom: the freedom that some interest
groups grant themselves to create money out of nothing in an illegal way in order
to finance the Fifth Freedom.

Next to the classical division of economic sectors (agriculture, industry, services),


we have added a fourth sector, the leisure time industry, which could well become
the most important one in our 4+4 days a week regime.

I hope this has expanded your vision of the world, your paradigm, and that you now
can see current world-affairs in a wider context. In appendix A we will elaborate this concept
of paradigm, and describe how paradigms originate and evolve. In the other appendices we
will use this to knowledge to describe the evolution of the economic paradigm in relation to
the evolution of other hard and soft sciences. And this should stimulate the reader to change
his thinking from geopolitical terms into more Gaia-political terms.

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Schematic synopsis

Current geo-political and economic paradigm, based on wrong premises.

Consider things in a rational way, no moral considerations are needed. After all, amoral is not the same
as immoral.
Charles Darwin:
o Survival of the fittest.
Thomas Malthus:
o Resources increase at an arithmetic rate, population at a geometrical rate. So resources per
capita decrease.
o Get control of resources of other countries.
o Reduce population.
o Wars, pogroms and genocides (women and children first) meet both objectives perfectly:
Children have more years to live than adults, so they need more resources. The
younger they die, the more resources are left for others.
Women can bear children. Men can not do this, they need women to procreate.
Men can be used as slaves, cheap labor or cannon fodder.
No problem if people get killed on both sides: more resources per capita are left.
Profit is not possible according to economists:
o Evolution of profit ratio: declining in times of peace due to free competition and accumulation
of capital goods.
o Actions to increase profit ratio:
Consumer society: induce demand for non-essential products and services.
Disinvestment goods (armament industry):
When not used:
o To stimulate growth (they contribute to the GNP, just as
consumption goods and investment goods, or a broken window).
Once used:
o To reduce level of invested capital (lower denominator of profit
ratio).
o To increase demand for goods (higher numerator of profit ratio).
Joseph Schumpeter: creative destruction.
o In his mind: creative action destroys old techniques and businesses (CD replaces LP and audio
tape, MP3 and iPod make CD obsolete).
o According to others: destroy in order to recreate and rebuild (Haliburton and The Carlyle
Group).
All men are equal, but some are more equal than others, so there are always winners and losers, it is
us or them.
Rationally and amorally spoken, war meets all requirements perfectly! So this can not be immoral. It is
for the good of us!
So let us start first, a preemptive strike is better than no strike, even if there is no real reason for it. One
could always provoke a reason.
Furthermore, financing war by fiat money is very lucrative for some people, while the silent majority
does not realize that inflation and higher taxes erodes their incomes, accumulated savings and pensions.
Multinationals pay very few taxes due to system of transfer pricing.

Just study the past, look at the newspapers and the news on TV, makes you wanna cry.
Whish your heart was made of stone.

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New Gaia-political and economic paradigm, based on correct premises.

Consider things in a rational way and moral way. Rationality combined with amorality leads to
immorality.
Modern evolution theory: species are dependent on each other for their survival.
o Foxes eat chickens, but do not raise chickens. More foxes leads to less chickens.
o People eat chickens and raise chickens. The more people, the more chickens!
Thomas Malthus was right for only a short time-span. Over a longer period of time Pierre Francois
Verhulst is right, with his well known S-curve (the logistic population growth model, 1838).

In poor societies with high death rate for children and no social security or pension system, a
family needs lots of children in order to guarantee a comfortable old age.
o In rich societies, with low death rate for children and a social security and pension system,
there is no need for a lot of children, so the birth rate declines, the population levels out, and in
some rich countries even declines.
Profit for companies is part of the profit for society, which is the result of economic growth.
o Distribution of the profit for society over the socioeconomic participants determines future
growth:
Socioeconomic participants with still needs to fulfill will consume and induce future
growth.
Socioeconomic participants with less needs will not necessarily consume more and
will not necessarily induce future growth.
Sustainable growth in a compassionate society for all in stead of consumer society for the happy few.
All men are equal. And it is us and them.
o 4 + 4 = 8 days a week:
4 days work for half of the population.
4 days leisure time for the other half of the population.
Alternating, so infrastructure is used completely 8 days a week. No need for
investments in order to boost the profit ratio.
No unemployment, less crime.
Peaceful world society.
Inflation free world society.
Fair tax collection when all companies all over the world use same fiscal year in their accounting
system (in Greenwich time, not local time), so transfer pricing is no longer possible.
o

Heaven is here on Earth, if you want it.

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Some thoughts to brood on.

An old Jewish story goes like this. A man dies. In the world beyond he is allowed to
choose himself between heaven and hell88, which is, indeed, rather exceptional. The man does
not like to take the risk to buy a pig in a poke, so he asks for a short visit to both places before
making a decision.
First he is shown hell: a beautiful decorated room with long tables dressed with the
most delicious food and drinks. Then a door is opened and the guests of Beelzebub enter the
room, all dressed in magnificent clothes. But all persons seem to have the same handicap:
both their arms are stiff, they cannot bend them, so they cannot reach to their mouth. From the
moment they see the food, they rush toward the tables. In doing so they push each other aside
with one arm and try to grab everything they can with the other, much more than they can eat.
But then they fail to bring the delicious food to their mouth, and out of anger and despair,
they start to hit each other with the duck l'orange and that sort of things. As Jean-Paul Sartre
would say : L'Enfer, c'est les autres.
After this event, the man is given a glimpse of heaven: exactly the same scene. The
same beautiful room with the same tables full of delicacies. Again the guests enter the room,
dressed in exquisite clothes and again with two stiff arms. Each soul calmly walks towards
the table, they all carefully select a piece of food... and reach it to the mouth of the person
next to them. All this happens in a serene atmosphere. They all enjoy the delicious banquet.
So here we could say: Le ciel, c'est les autres.

88

Heaven is where the policemen are British, the cooks are French, the mechanics German, the lovers
Italian and everything is organized by the Swiss. Hell is where the cooks are British, the mechanics are French,
the lovers Swiss, the policemen German, and everything is organized by the Italians.

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Where do we go from here?


There is nothing wrong with being wrong because one uses the wrong premises.
Nobody is prefect, everyone makes mistakes. So a reconciliation commission like in South
Africa after the Apartheid regime could be a good step.
But keep on doing wrong deliberately when knowing one is wrong, and knowing what
the correct premises are, is a criminal offense.
So, let us inform all the people all over the world what the correct premises are that
could and should lead to a new Gaia-political and economic paradigm, and an Alternative
New World Order favorable for all of mankind. And most of all, let us elect politicians and
presidents who support this new world view.
But in the bubble89 of the White House, sometimes you learn the wrong lessons
of history and fail to recognize this reality. You become so focussed on
protecting the president, you dont realize youre rolling the dice and losing
control of the problem (p. 229)
The national media can help change our political culture as well. There is
much they do right, but it is often overshadowed by what they do wrong.
Network news has been loosing viewers in recent times. There are many
reasons, including the proliferation of news sources, many now tailored toward
specific audience interests. But one important reason, I believe, is that the
networks are stuck in the past. Their national news desks remain focused on
covering the horse race of the permanent campaign, not only during election
years but continually, emphasizing controversy, and talking about whos
winning and losing in Washington rather than really digging into the big issues
Americans care about the economy, health care, education, crime, war, and
peace.
To break out of their slow ratings decline and their creative rut, the news
media need to learn to think in new ways. The American public hungers for
truth not just as it relates to petty partisan squabbles and the controversy of
the day, but larger truth, including the hard truths we too rarely hear
emphasized on television or see written prominently about in our major
newspapers and magazines. The network that can find a way to shift from
exclusively emphasizing controversy, the conventional horse race and imagedriven coverage to give a greater emphasis to who is right and who is wrong,

89

In Appendix A we will elaborate the concept of bubble.

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who is telling the truth and who is not, and the larger truths about our society
and our world might achieve some amazing results in out fast-changing media
environment. Ill bet Im not the only viewer who would be energized by
programming like this. The political drama is entertaining for me, as for most
politicos, but Americans would be better served and more responsive to news
that focuses more on the larger truth (p. 321).
The Bush administration will soon recede into history. Future historians will
debate the longterm consequences of the fateful decisions made by President
Bush and his chief advisors for years to come. But I hope all Americans will
participate in the conversation about what we can learn in regard to the right
and wrong ways to govern from the last eight years of our shared history. It
can be difficult, even painful, to look on our own mistakes. Its tempting to
focus on the obvious triumphs or ignore the history altogether in out constant
quest for a better tomorrow. But Im convinced theres much to be gained from
thoughtful, candid, and probing self-examination and that requires an honest
look at what happened (p. 323).
S. McClellan, What Happened, Inside the Bush White House and
Washingtons Culture of Deception.
I hope this book has contributed to a better tomorrow, as it is an honest look at what
happened. But now its up to you, yeah you! Share this book with all the people you care for,
dont leave it on the bookshelf as The history book on the shelf is just repeating itself, as in
the song Waterloo of ABBA.
If you dont have any idea for a bithday or a Christmas present, just give this book as a
gift. If you reach just 2 other persons, and they also reach 2 persons and so on well, after 20
iterations you can reach out to 220 = 1,048,576 persons. And if you start with 3 other persons,
and they also reach 3 other persons and so on, well, after 20 iterations you can reach out to 320
= 3.486.784.401 persons, half of the world population! Dont leave the intiative to the
government or politicians, dont wait for their solution, as it will cost you a lot of money.
In the preface of his book Failed States, Noam Chomsky refers to the book America
Beyond Capitalism written by Gar Alperovitz:
The selection of issues that should rank high on the agenda of concern for
human welfare and rights is, naturally, a subjective matter. But there are a few
choices that seem unavoidable, because thy bear so directly on the prospects
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for a decent survival. Among them are at least these three: nuclear war,
environmental disaster, and the fact that the government of the worlds leading
power is acting in ways that increase the likelihood of these catastrophes90. It is
important to stress the government, because the population, not surprisingly,
does not agree. That brings up a fourth issue that should deeply concern
Americans, and the world: the sharp divide between public opinion and public
policy, one of the reasons for the fear, which cannot casually be put aside, that
the American system as a whole is in real trouble that it is heading in a
direction that spells the end of its historical values [of] equality, liberty, and
meaningful democracy
The will of the public is banned from the political arena.
Noam Chomsky, Failed States, p.1, 225.

And this will lead to the end of your welfare. But Eight Days a Week could very well
be the solution to your problems. Just give it a fair chance.

90

I would like to add the financial and economic meltdown to this list.

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Appendix A Some Notions on Communication Theory

Watch your thoughts, they become your words.


Watch your words, they become your actions.
Watch your actions, they become your habits.
Watch your habits, they become your character.
Watch your character, it becomes your destiny.

A.1 The process of communication


Communication is the process of transfer of information from one point in space and
in time - the source to one or more other points - the destinations.
This process of transfer of information takes place within a communication system.
The elements of a communication system are represented in the following figure.

Source

Coding
Modulation

Channel

Demodulation
Decoding

Destination

Figure A.1. The elements of a communication system

The source produces the information in a certain way: the message. This message can
be a sequence of signs (characters, symbols...). This message is transferred to the destination
via the communication channel, which bridges the distance in space and in time between
source and destinations.
Very often the message in its original form is not suited for immediate transmission
over the channel. An intermediate process is needed to match the physical outlook of the
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message to the characteristics of the channel, and this, of course, without altering the
information content of the message. This intermediate process can consist of coding and
modulation. With coding all the elements of the original message are replaced on a one to
one basis with elements of another set of signs. In the modulation process, one or more
characteristics of a carrier, suited for transmission over the channel, are altered according to
the values of the signs in the message. The resulting signal is then transferred over the
communication channel. At the destination side, the reverse process takes place: the received
signal is demodulated and decoded before the message can be presented to the destination.
To illustrate this, we can describe verbal or written communication between two
persons in terms of this model. The sender wants to transfer some idea or some notions to the
receiver. As telepathy is the exception rather than the rule, the sender has to use coding and
modulation: he expresses his thoughts in words and sentences (coding), which he can then
pronounce (modulation of a stream of air during exhalation, which produces variations in
pressure in the air) or write down (modulation of a piece of paper). When the variations in
pressure in the air reach the ear of the destination or the piece of paper is handed over to the
destination, that person hears or reads the words (demodulation) and makes a deduction of
what the other person wanted to say (decoding).
We emphasize that the transformation from a concept into a word or a sentence - and
vice versa - is not always unique: a concept can be described in several ways and words or
sentences can be interpreted in several ways. This is the first problem that can arise during the
communication process: sender and receiver use different coding/decoding rules. The
information is mutilated: the message arrives incorrectly, misunderstood.

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A.2 Information
In the previous section we used the word information without giving much thought to
the concept behind that word. Indeed, information has become an ordinary word in our world
of televisions, satellites, Internet and computers. But what does it stand for? Few people ask
themselves: What is information? Obviously, information is something immaterial, a
creation of the mind: we cannot touch it, it does not smell, we cannot eat it... How can we
define it - qualify it? And how can we measure it - quantify it? Let us consult some experts in
this field. The following discussion is based on the book Communication Systems, written by
Professor B. Carlson.
The concept information can be defined and treated in a pure mathematical way. This
is done in what is called information theory, a scientific discipline that originated in the 1940s
thanks to pioneering work by C.E. Shannon.
In the previous section we have described information as that which is produced by
the source in order to be transferred to the destination. This implies that, before the transfer
was done, the information was not available to the destination. Otherwise the transfer of
information would be of no value to the destination. Let us proceed with this line of thought
and take the following example. A man has planned a trip from San Diego to Chicago by
plane the next day. In order to know what clothes he has to take with on his journey, he calls
the weather bureau in Chicago. Suppose he gets one of the following weather forecasts:

The sun will rise.

It will rain.

There will be a tornado.

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The information the person receives is obviously different in the three cases. The first
message has no information content at all, as we are pretty sure that the sun will rise the next
day, even without that forecast. As it does not rain every day in Chicago, the weather forecast
for rain gives some more information to the man, information he did not have before he made
the phone call to the weather bureau. The third message gives him even more information, as
tornadoes are rather unusual for the region.
We notice that the messages are listed in order of decreasing likelihood and increasing
information content. The more unlikely a message is, the more information it contains. So we
could say that information has something to do with uncertainty, more specific: the
uncertainty for the destination of what the message will tell him.
Let us now take a look at the other end of the communication process. For the sender,
the information content is a measure for freedom of choice among many possible messages. If
the sender has a great freedom of choice among many possible messages, then there is a great
deal of uncertainty with the destination as for what message will be sent. If on the other hand
there is only one possible message and thus no freedom of choice for the sender, then there is
no uncertainty with the destination and there is no information transferred in the message.
If we consider information from the viewpoint of freedom of choice for the source, or,
on the other side of the channel, as uncertainty for the destination, it is clear that the value of
information is related to probability (likelihood). Messages with a high probability, indicating
little choice for the sender and little uncertainty for the receiver, contain a small amount of
information; on the other hand, messages with a low probability contain a lot of information.
Based on these considerations, one can formulate the concept of information
mathematically as follows. Consider a source that can produce several messages. Let A be
one of those messages and Pa the probability that A will be selected for transmission (with Pa
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somewhere between 0 and 1). Consistent with our discussion above, we write the information
content associated with A as a function of Pa:
Ia = f(Pa)
where the function f(.) is to be determined.
As a first step toward finding the function f(.), intuitive reasoning suggests that the
information content should be a positive quantity:
Ia = f(Pa) > 0 for Pa between 0 and 1

(1)

Secondly, the information content of a message, which is almost certain to be selected,


is very small:
lim f(Pa) = 0
Pa 1

(2)

I.e.: when Pa approaches 1, f(Pa) becomes infinitesimally small.


Furthermore, if we consider two messages A and B with different probabilities to be
selected, the one with the lowest probability has the largest information content:
f(Pa) > f(Pb)

when

Pa < Pb

(3)

These conditions we impose on the function f(.) are a direct consequence of our
discussion above. There are many functions fulfilling the requirements (1), (2) and (3).
However, we impose a fourth condition. Let us consider the transmission of two messages
which are statistically independent. When a message A is transmitted an information content
Ia is delivered to the destination. When a second, independent message B is transmitted with
an information content Ib, then the total information content received by the destination is
likely to be the sum of the two information contents of the two messages: Ia + Ib. To
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understand this, one can imagine the two messages A and B to being produced by a different
source.
Suppose that the two messages came from the same source, then we can define the
compound message C = AB. If A and B are statistically independent, then
Pc = Pa*Pb

('*' stands for product or multiplication)

so
f(Pc ) = f(Pa*Pb )
and because
Ic = Ia + Ib
we can say that
f(Pa* Pb) = f(Pa) + f(Pb)

(4)

It is mathematically proven that there is one and only one function, which satisfies all
four conditions, namely:
Ia = logb (1/Pa)
(Logarithm with base b of the inverse of the probability)
To refresh your memory of mathematics:
n = logb N

is equivalent to b = N
n

n = log10 N is equivalent to 10 = N
2

As an example we can say that log10100 = 2 because 10 = 100.


The base of the logarithm determines the unit in which the information content is
expressed. When we take b = 2, then the unit is the bit (binary digit). As an example we
consider a source which can produce only two messages A and B with the same probability of
occurrence Pa = Pb = . In this case:
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Ia = Ib = log2(1/ ) = log2(2) = 1 bit.

Each message of that source gives us one bit of information. Tossing head or tail with
a coin or throwing odd eyes with a dice gives us exactly one bit of information.
We stress the fact that the probability to throw head or tail with a coin or odd eyes
with a dice is under the assumption that the coin or dice is not loaded. The probability of a
message is always conditional, and so is its information content. The destination must have
some knowledge in advance of the fact that it is an honest coin or dice. This knowledge
determines the probability of occurrence that the destination will give to the different
messages and thus the information content of those messages.
What we have to remember from the discussion above is:

The information content of a message is function of its probability.

An unusual message - one with a low probability - contains a lot of information.

The information content of a message is relative in the sense that it is conditional


on the foreknowledge of the destination: the theory of relativity contains a lot
more information (news) for a high school student than for a university student in
physics, as their foreknowledge is different.

A.3 Shannons Law


An important law in information and communication theory is the law of Shannon,
named after C. E. Shannon. In the previous section we have defined the information content
of a message as a function of its probability. The source wants to transmit a message with a
certain information content. We can ask ourselves the question if this can be done instantly, or
is there a limit on the speed of transmission?

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Communication and information theory learns us that a communication channel has a


limited capacity C to transmit information. This capacity is an upper limit for the rate R at
which an information content I can be transmitted without errors. The rate R, defined as the
information content I (expressed in bits) divided by the time T needed for transmission
(expressed in seconds), cannot be greater than the capacity C:
R=I/T<C

(bits / second)

This expression is known as Shannon's law. As a consequence, we can state that a


minimum amount of time is required to transmit a certain information content I over a
channel with capacity C:
T > Tmin = I / C

(seconds)

The greater the information content we want to transmit, the greater the amount of
time we will need to do so: the source needs more time to transmit, the destination needs
more time to receive and to digest the information. As the information content is a function
of the probability of the message, we can say that it will take more time to transmit an unusual
or unlikely message than to convey something that is self-evident in the eyes (or ears) of the
receiver.
As the probability of a message and its information content are conditional with
respect to the foreknowledge of the destination, we can conclude that it will take more time to
transmit the same message to one destination than to another, one with more foreknowledge.
It will take more time to explain the theory of relativity to a high school student than to a
student in physics at university: as the university student has a broader view on physics, his
channel to receive is wider and the information can be transmitted in a more compact form
(see also next section).
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We remember a very important rule: the time needed to transmit information is


greater when the message is less likely to the receiver of it, and thus dependent on the
foreknowledge of the receiver.

A.4 Signal-spaces and paradigms


In the previous section, the reader might have been a little overwhelmed by the use of
mathematical formulas. It was really not essential for the understanding of this book to go in
such a detail. But we have a very good reason for doing so, as we will explain later in this
appendix. In this section we will again use mathematics, not with formulas but with abstract
concepts such as multi-dimensional spaces.
The reader surely has heard or read about Pulse Code Modulation (PCM) and digital
storage and transmission of data. As an example we can think of a compact disc, where music
is not stored as an analog or continuous signal - as it used to be on the vinyl rock 'n roll
records we bought years ago - but in the form of a sequence of discrete (separate) ones and
zeros, the famous bits. The key to this technical achievement is the fact that a continuous
signal (as music or speech) can be represented or coded by a finite number of discrete values,
can be stored and transmitted in that form, and that out of that coded form the original
continuous signal can be reproduced.
This phenomenon was described mathematically by H. Nyquist, who proved the
following theorem:
A continuous signal s(t) with bandwidth B can be represented unambiguously
by sampling it uniformly at a rate, which is greater than or equal to twice the
bandwidth of the signal. The sampling gives us a string of values, which
represent the signal unambiguously.

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The bandwidth of a signal is a measure for the rate at which the signal changes in the
course of time, and is expressed in Hertz (Hertz = 1/second). A signal, which changes faster
in time, has a greater bandwidth. We can grasp this Nyquist theorem intuitively as follows:
consider a continuous signal s(t), with bandwidth B Hertz (figure A.2.).

Value
s(t)
r(t)

s1

s2

s3

s4

s5

s6

s7
Time

P: sampling period

Figure A.2: Sampling of a continuous signal.

We sample this signal periodically, i.e. we register the values of that signal at regular
intervals in time: s1, s2, s3... The string of values s1, s2, s3 ... we get from sampling gives us
some information concerning the signal s(t), but does not necessarily identifies that signal
unambiguously. Sampling of other signals might also result in the same string of values. In
the figure, for example, the same string of values represents also the signal r(t). So there is
uncertainty as to which signal we have sampled.

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But when we increase our sampling rate - let's say double it, as in figure A.3. - our
sampling points are doubled over a period of time: our string of values becomes denser (more
values per second), and it gives us more information on the signal. The uncertainty on which
signal the string represents gets smaller, because this string can represent fewer signals. In the
figure A.3. one can see that the signal r(t) is no longer represented by the string of values s1,
s2, s3...

Value
s(t)
r(t)

s1 s2 s3 s4 s5 s6 s7
Time
P: sampling period

Figure A.3: Sampling of a continuous signal at a higher rate.

If we increase our sampling rate to twice the bandwidth of the signal, i.e. 2B, then the
signal s(t) is the only signal with bandwidth less than or equal to B which can be represented
by the string of values s1, s2, s3 ... which contains 2B values per second. There is no longer
uncertainty about the signal. The minimum sampling rate 2B is called the Nyquist rate.

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Another way to grasp this theorem is to recall the last time you went into a
discotheque. Very often one uses stroboscopes in order to create a psychedelic atmosphere. A
stroboscope produces a chopped beam of light, a sequence of short flashes of light. So all
the bodies dancing on the tunes of Jumpin' Jack Flash seem to move in a hacked way, as the
continuous movement is sampled by the chopped light-beam, and it is difficult to see who is
who and where. But when the frequency of the stroboscope is increased to a certain level, the
movement of the bodies becomes smooth: the sampling rate is then higher than the threshold
value.
Let us now consider a source of information that produces signals having a bandwidth
not greater than B Hertz. Suppose we monitor this source for a period of time T. Any signal
s(t) produced in that time can be represented by stating 2B values per second. During the
whole time-interval T the signal is then unambiguously represented by D = 2BT values s1,
s2,... sD. This has led the people involved in information and communication theory to
introduce the concept of signal-space. The signal s(t) can be represented by a vector S in the
multi-dimensional space with D = 2BT dimensions. In this signal-space, one can define an
orthogonal base of unity vectors, an orthonormal grid. The vector S is uniquely defined in this
grid by its D co-ordinates s1, s2,... sD . We can represent all signals with bandwidth B or less
and a duration time no longer than T seconds by a vector in that multi-dimensional signalspace. This signal-space can be seen as the abstract representation of the actual source of
information. Each signal the source can produce is represented as a vector (an arrow) in this
signal-space. This sounds all rather abstract. Let us try to give an example with D = 2 and D =
3 (Figure A.4).

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X3

X2

s2

s3

S
s2
s1

X1

s1

X2

D=2
X1

D=3

Figure A.4: Signal spaces with dimensions 2 and 3.

In the case D = 2 the signal-space is a plane with grid (x1, x2). A signal is represented
by a vector with co-ordinates (s1,s2). It is also possible to give a picture of a three-dimensional
signal-space, but beyond that... It is rather difficult to visualize a space with four or more
dimensions, although this is mathematically perfectly feasible.
We can summarize as follows: our source with bandwidth B Hertz produces in a timeinterval of T seconds a signal s(t) which can be represented as a vector S in a multidimensional space with dimension D = 2BT and orthogonal grid (x1, x2... xD). The vector S
can be decomposed in his components according to the unity vectors:
S = s1.x1 + s2.x2 + ... + sD.xD
Let us now consider the side of the receiver. Here we can define the signal-space of
the receiver in an analog manner. The receiver is able to receive signals with bandwidth B'
Hertz. Signals that last T seconds can be represented in a multi-dimensional signal-space with
dimension D' = 2B'T.
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The signal-space of the sender (receiver) determines which messages it can send
(receive). For a human sender/receiver one could draw a parallel between the concepts
paradigm and our signal-space. A person's paradigm determines how he perceives the world
around him and what messages he is able to formulate or to understand.
We know already that we can consider language as the vehicle of the thought
process, as Wittgenstein has put it. We find this important point of view also in
the work of the linguist Benjamin L. Whorf: Thinking is done in the language
itself: in English, in German, in Sanskrit, in Chinese, etc. Every language is a
big structured system on its own. The expressions of it are culturally
predestined. An individual not only communicates by language, he also
analyses nature, observes and relates phenomena, directs the process of
thinking and builds his consciousness with the help of language....
We have already discussed this relation between thought and speech when we
quoted Wittgenstein. We have seen that the process of thinking is canalized for
a great deal by language. Whorf speaks of a system of structures, of forms in
language determining the way of thinking: our thoughts are molded by
linguistic forms and rules, different from language to language...
Whorf's teacher and colleague Edward Sapir, another representative of the
early American science of language, said: People not only live in an objective
world, or in a world we call society. They also live in the world of their
particular language, which became the medium of expression in their society.
An Eskimo woman will see her world in another way than the physicist
Werner Heisenberg will see his. A trained astronomer will look at the sky in a
different way than a farmer living in the mountains. This is because of the
different languages they speak. In reality, a person's perception of the real
world - his world - is molded unconsciously for a great deal by the language he
speaks. As Wittgenstein has put it in his book Tractatus Logico-philosophicus:
The borders of my language are also the borders of my world....
Benjamin L. Whorf has expressed the same as follows: One has discovered
that the linguistic system of a language, in other words its grammar, not only
functions as a system for reproducing thoughts, but that it plays an active role
in the creation and molding of thoughts, that it is just like a skeleton - a grid that guides the thought process of an individual. The creation of thoughts is not
an independent, rational and objective process, but, on the contrary, is
influenced for a great deal by the grammar of the language and a person's
vocabulary. We see the world according to the rules given to us by our mother
tongue. The world presents itself to us as a kaleidoscopic flow of impressions,
to be organized and systematized in our mind by means of the linguistic
system in our mind.
W. Fuchs, Thinking with Computers, pp. 41-43.

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We hope that these considerations on language and communication have helped you to
understand and accept our parallel between the notions signal-space with its orthonormal grid
and paradigm. When a person receives information he will always try to relate it with things
he is familiar with, he will decompose the signal s(t) in its elementary components s1.x1 +
s2.x2 + ... + sD.xD according to the orthonormal grid of his (often limited) signal-space or
paradigm.
A.5 Effective Communication
Based on the previous discussion we can define effective communication as follows:
communication between sender and receiver is effective if all possible messages the sender is
able to produce can also be received correctly by the receiver.
In our representation with the signal-space this implies that the signal-space of the
receiver at least should include the signal-space of the sender91. If, for example, the dimension
of the sender (suppose D = 3) is greater than that of the receiver (suppose D' = 2), then
effective communication is impossible a priori. The sender could produce a signal S = s1.x1 +
s2.x2 + s3.x3, while the receiver could only recognize two components: the third component
would be invisible to him, it would not fit in his signal-space. This problem has been
described in a very lucid way by Edwin A. in his story of Flatland.
In this story a square, trained in mathematics, tells about an experience it had with the
third dimension. Before we let the square tell his story92, we will first give some background
information. All inhabitants of Flatland are flat; they can perceive only the two dimensions of
their flat world. They all have geometric shapes. The hero of our story is, as already

91

In reality, unfortunately, it is the other way around: people who have something interesting to say
usually have a greater signal-space than their audience.
92
We have based our version of the story on Modern Mathematics by W. Fuchs

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mentioned, a square. His wife is, as all female persons, a thin rectangular. Laborers and
soldiers have the shape of a triangle, office workers are square-shaped and public officers are
regular pentagons (sic). Finally there are the priests who are polygons with so many sides one
can hardly see their corners. They pretend to be circles, which represents the nec plus ultra of
perfection in Flatland.

Woman

Laborer

Soldier

Office
worker

Public
officer

Priest

One day a strange thing happens to our square: a sphere comes out of the blue, as
this creature from the world of three dimensions happens to pass the plane of Flatland. This
visitor is perceived by the square as a circle, able to make himself smaller or greater.

But let us tell the square his own story:

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I went to the stranger to invite him to take place, but I was struck with amazement by
what I saw. He changed his size in a way I had never seen before. As I wanted to be sure of
what I saw, I ran to him, and started to feel all over his body - very impolite of me, I agree. I
could not feel any corner. Never in my life had I met a more perfect circle. He did not move
while I turned around him and touched him everywhere I could. Then he started a dialogue,
which I will try to reconstruct here.

Stranger: Are you finished?


Me:

Forgive me my rudeness, noble sir, I do not want to be impolite, but your


appearance makes me nervous and curious. But could you first tell me, where do
you come from?

Stranger: Well, from space of course, where else should I come from?
Me:

I beg your pardon, sir, but aren't we in space here?

Stranger: My dear, what do you know about space, tell me, what is space to you?
Me:

Space is infinite length and width.

Stranger: Ah, there we are! You do not even know what space is. You can only think in two
dimensions. But I came to show you the third dimension: there is also height next to
length and width.
Me:

You must be joking. We also speak of length and height or width and thickness, and
we give four names to the two dimensions

Stranger: I do not mean three names, but really three dimensions.


Me:

Could you show me or explain to me in which direction that third dimension,


unfamiliar to me, can be found?

Stranger: I came from that direction. It is above and underneath us.


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Me:

Author: Geert Callens

You mean north and south, I presume.

Stranger: No, that is not what I meant. I mean a direction in which you cannot see, because
you do not have an eye in your side.
Me:

Excuse me sir, but if you take a look you will see that I have a sound eye in the
intersection of my two sides.

Stranger: Yes, I see it, but to look in space you do not need an eye on your perimeter, but on
your surface, that is on what you probably call your interior. In Spaceland we call
that your surface.
Me:

An unseen eye in my interior! In my stomach? You are pulling my leg.

Stranger: I am not in the mood for that. I tell you that I came from space, from the land of
three dimensions from where I looked upon your plane, that what you call space to
yourself. From there I could see everything what you call a body, a surface enclosed
by three or more sides. I saw your houses, churches, even your wardrobe and your
cash-box, also your inner body, your stomach; everything was visible to me.
Me:

That is all easy to say for you, sir.

Stranger: But not easy to prove, you mean. But I will prove it to you. When I came to here, I
saw four of your sons, the pentagons, in their room with their two cousins, the
hexagons. I saw your youngest kid, the hexagon, talk to you for a while, then he
went back to his room. After that I arrived here. How did I do that, could you make
a guess?
Me:

I assume you entered through the roof.

Stranger

No, no, your roof has been repaired recently and there is no hole in it. I told you
already that I came from space. Aren't you convinced of it by what I told you about
your kids?

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Me:

Author: Geert Callens

You could have informed yourself before coming here.

Stranger: (absent- mindedly) How could I explain it to this fellow? Wait, I have an idea. If
you see a straight line, how many dimensions do you think is has?
Me:

The gentleman treats me as if I was an ignorant, who does not know anything from
mathematics, someone who thinks that a line has only one dimension. No sir, we
squares know better. A woman, although we call her a line, is in reality and
scientifically spoken a very thin rectangular, with two dimensions, a length and a
width, or thickness.

Stranger: But the fact that she is visible means that she has still another dimension
Me:

As I told you already, we see the length, and we assume the width, which is,
although very small, still measurable.

Stranger: You do not understand me. When a line would only have length and no thickness,
she would not occupy space and so she would be invisible.
Me:

I must admit that I do not understand what you mean.

Stranger: Height is a dimension for me, just as length and width are dimensions for you. But it
is difficult to see for you because in your Flatland heights are so small.
Me:

Sir, it is easy to control your statement. You say I have a third dimension. A
dimension has a direction and can be measured. Then measure my height and show
me its direction, then I will be convinced. Otherwise....

Stranger: (thinking) That is impossible, how can I explain it?Well, listen very carefully.
You live in a plane. What you call Flatland is the flat surface of what I could call a
liquid, and you move in that plane without being able to escape from it or sink. I am
not a flat figure, but a body. You call me a circle, but in reality I am an infinite
number of circles, one on top of the other and with diameter varying from 0 to 10

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inches. When I cross your plane, an intersection is created, which you rightly call a
circle. Even a globe - as I am called in my world of origin - must present himself as
a circle to the people of Flatland. Your two-dimensional world is too thin to contain
me. I can only show you a tiny slice of myself, a circle... But I see that you do not
believe me. Watch me very carefully. I will go up. You will see this, as my circles
will get smaller until only a dot is left, and then I will disappear completely.

I (the square) could not see that he was going up, but the circle indeed became
smaller until it vanished before my eyes. I rubbed my eyes to be sure I was not dreaming. But
it was no dream. From the depths of nowhere came the hollow voice of the stranger: You
see, I have disappeared completely, are you convinced now? Take care, I will slowly return
and you will see my intersection with your plane getting bigger.
Although I saw the facts before my eyes, the reason of them was totally obscure to me.
All I could understand was that he had made himself smaller, disappeared, then came back
and finally made himself bigger again. When he had regained his original size, he sighed
deeply, as he noticed the bewildered look on my face indicating I still did not understand.
After a while I heard him saying to himself: I will try to explain it by analogy.
Globe:

Tell me, mister mathematician, when a dot would travel over a distance in the
direction north, and it would leave a shining mark, how would you call that mark?

Me:

A line segment.

Globe:

How many ends does a line segment have?

Me:

Two.

Globe:

Suppose this line segment moves parallel to itself from west to east, so that every dot

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of that line segment leaves a shining mark. Then a diagram is formed. How would
you call it?
Me:

A square.

Globe:

How many sides does a square have, and how many corners?

Me:

Four sides and four corners.

Globe:

Now try to imagine the following. Think of the square of Flatland moving upward
and parallel to itself.

Me:

What, to the north?

Globe:

No, not to the north! Upward, so it leaves Flatland. Think of every dot of your inner
surface moving upward in that direction. Is that clear to you?

I had to control myself, the square said, because I felt the urge to attack the stranger
and to kick him back into the space he came from, out of Flatland anyway, just to get rid of
him. But I managed to stay outwardly calm.
Me:

What kind of figure is developed by that move? I am sure there must be a name for it in
the language of Flatland!

Globe:

Oh sure, that is very simple. But by the way, you shouldn't call the result a figure. It is
better to speak of a body. I will describe it to you by the method of analogy. We start
with a dot, and because it is a dot it has only one end. A moving dot generates a line
segment with two ends. A moving line segment generates a square with four ends. Now
you can answer your own question: 1, 2, 4 are elements of a geometrical progression.
What is the next element?

Me:

Eight.

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Globe:

Author: Geert Callens

Correct! The moving square generates something you do not have a name for, but we call
it a cube, with eight ends. Are you convinced now?

Me:

And does that creature have sides, just as corners or ends as you call them?

Globe:

Of course, but not what you call sides, but what we call sides. You would call them
bodies.

Me:

And how many sides or bodies does this so-called cube have?

Globe:

How could you ask! A dot has no sides, a line segment has two sides, by way of
speaking, and a square has four sides. 0, 2, 4 are elements of an arithmetical progression.
What is the next element?

Me:

Six.

Globe:

Exactly. You see, you have answered your own question. The cube is surrounded by six
sides, this means by six creations as yourself. Is everything clear now?

Me:

You monster, impostor, dream or devil, I will no longer bear your insults! You will die
or I will die!

And I threw myself on him.

In another book you can read the following version of this close encounter of the third
kind (Ferguson, Marilyn, 1985, The Aquarian Conspiracy - Personal and Social
Transformation in the 1980s, Paladin Books, London.)
In the durable Victorian fantasy, Flatland, the characters are assorted
geometric shapes living in an exclusively two-dimensional world. As the story
opens, the narrator, a middle-aged Square, has a disturbing dream in which he
visits a one-dimensional realm, Lineland, whose inhabitants can move only
from point to point. With mounting frustration he attempts to explain himself that he is a Line of Lines, from a domain where you can move not only from
point to point but also from side to side. The angry Linelanders are about to
attack him when he awakens.

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Later that same day he attempts to help his grandson, a little Hexagon, with his
studies. The grandson suggests the possibility of a Third Dimension - a realm
with up and down as will as side to side. The Square proclaims this notion
foolish and unimaginable.
That very night the Square has an extraordinary, life-changing encounter: a
visit from an inhabitant of Spaceland, the realm of Three Dimensions.
At first the Square is merely puzzled by his visitor, a peculiar circle who seems
to change in size, even disappear. The visitor explains that he is a Sphere. He
only seemed to change size and disappear because he was moving towards the
Square in Space and descending at the same time.
Realizing that argument alone will not convince the Square of the Third
Dimension, the exasperated Sphere creates for him an experience in depth93.
The Square is badly shaken:
There was a dizzy, sickening sensation of sight that was not like seeing; I saw a
Line that was not a Line; Space that was not Space. I was myself and not myself.
When I could find my voice, I shrieked aloud in agony, Either this is madness or
it is Hell.
It is neither, calmly replied the voice of the Sphere, It is Knowledge94; it is Three
Dimensions. Open your eyes once again and try to look steadily.
Having had an insight into another dimension, the Square becomes an
evangelist, attempting to convince his fellow Flatlanders that Space is more
than just a wild notion of mathematicians. Because of his insistence he is
finally imprisoned, for the public good. Every year thereafter the high priest of
Flatland, the Chief Circle95, checks with him to see if he has regained his
senses, but the stubborn Square continues to insist that there is a third
dimension. He cannot forget it, he cannot explain it.
So far for the story of the square in Flatland. You can read some other funny
adventures of the square in The Fourth Dimension written by Rudy Rucker. Rudy even
discusses parallel two-dimensional worlds, and how one world would look like seen from
the other one through a peep-hole. Weird!
We see that there is a total lack of effective communication between the two: the
sender (globe) is not able to explain the third dimension to the receiver (square). Even if

93

The Sphere pushed the Square out of Flatland into Spaceland. Imagine yourself being pushed into
Space-Time-land? Why are you there, when youre everywhere! Always!
94
Gnosis, direct personal experience.

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sender and receiver have signal-spaces with the same number of dimensions, the problem of
non-effective communication can still arise. We illustrate this with an example (Figure A.5.).

X3

s3

s2
s2

X2

X2

D=2
X1

D=2

Figure A.5: Two signal spaces with D = 2 and just one dimension in common

The sender, at the left, produces the signal


S = s2.x2 + s3.x3
The receiver, at the right, can only recognize the component s2.x2 of that signal,
because the other component lays outside his signal-space. There is loss of information.
In general, we can state that effective communication between a sender and a receiver
is possible96 only within the intersection of their signal-spaces. Transmission of information

95

Actually an ordinary polygon, pretending to be a perfect circle.


is possible but does not necessarily occurs. The two parties must be aware that there is an
intersection. Two fans of the Rolling Stones, who never met before, are waiting for the bus to come: they will
not start to speak about the Stones, but about the weather, as they are both standing in the rain.
96

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outside their common signal-space is not possible by the communication process itself, as was
demonstrated in the discussion between the globe and the square. To speak about language
presupposes a language, Wittgenstein wrote. This implies that, in a way, one can not teach
the use of a language, not in the way one teaches to play a piano. What I mean is this: I can
not transcend language by the use of language itself 97. In our abstract representation with
signal-spaces, this means that it is impossible for the sender (globe) to transfer the extra
dimension he has to the receiver (the square) only by means of the communication process.
This conclusion has important consequences for education and science in general. We will
discuss these consequences in a later section.

97

Just as one cannot transcend Ratio by the use of Ratio itself.

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A.6 Trade-off between time and energy


It takes time and energy in order to transmit information from sender to receiver. One
of the basic features of communication systems is the trade-off between time and energy
needed in order to transmit information:

By using more energy, one can save on the time needed, i.e. one can transmit the
information in a shorter period of time.

By allowing more time for the transmission of information, one can save on
energy, i.e. one needs less energy in order to transmit the information.

The time T (seconds) needed for transmission of a certain quantity of information I


(bits) is also related to the bandwidth B (Hertz) of the communication channel. When the
bandwidth of the channel is larger, then the capacity C (bits/second) of the channel is larger,
so the rate of transmission R = I/T (bits/second) can be larger (see section A.3.). More bits of
information can be transmitted per unit of time, so less time is needed to transmit the quantity
of information I.
In a communication system there are always non-intended disturbances - noise which interferes with the actual signal being transmitted. This makes it a little bit more
difficult for the receiver, as he does not know which part of the signal he receives is the signal
actually sent by the sender, and which part is due to noise - or other senders who deliberately
disturb the real signal. In communication theory one has proven the following relation, known
as the Hartley-Shannon law:
C = B * log (1 + S/N)
where
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C is the capacity of the channel (bits/second)

B is the bandwidth of the channel (Hertz)

S is the power level in the signal (Watt)

N is the power level in the noise signal (Watt)

Author: Geert Callens

So one has several options in order to increase the capacity C of the channel and to
decrease the time T needed in order to transmit a certain quantity of information I.

One could increase the bandwidth B. In our model sender and receiver have their
respective signal spaces. One could see the overlapping of the signal-spaces as a
measure of the bandwidth: more overlapping means a greater bandwidth, so less
time and/or energy is needed. But this increase in overlapping usually asks for
some initiative and co-operation of the receiver, which, unfortunately, usually also
asks for some coercion (see the cost-benefit analysis in the next section).

One could reduce the noise level N, eliminate the disturbing signals, but this is not
always obvious, especially with communication among human beings: who is
telling the true signal and who is telling the false signal?

One could increase the signal level S. Indeed, sometimes people start to yell at
each other when their message does not seem to get through. But as we have seen
in the story of Flatland, this does not necessarily improve the communication.
When the signal sent falls outside the intersection of the respective signal-spaces,
then no amount of yelling will improve the communication. If one tries to transmit
Hi-fi music over a telephone-wire with a limited bandwidth, then the quality of the
music at the receiver's end will not become Hi-fi just by increasing the volume on
the stereo equipment at the sender's end.
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So in communication between human beings - bestowed with free will, sometimes


evolved into stubbornness - these options are not so obvious. But as engineers are - as the
word implies - sometimes very ingenuous, they have found a technique in order to circumvent
a lot of these problems in technical communication systems. If you take a picture - a snapshot
- of a certain part of the surface of the earth from a plane, the picture is usually rather hazy
due to the distance: the real signal is attenuated too much, so a lot of the details are lost. But
by flying over the region with a constant speed and capturing data of a rectangular region
which moves over the surface of the earth, then information on one particular detail - e.g.
point P - on the surface is contained in the signal over a longer period of time - the time for
the plane to fly from A to B (figure A.6.). By applying the technique of convolutial on the
recorded signal it is then possible to construct a detailed picture of the area covered.

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Figure A.6: A reconnaissance plane recording an area

The US Army has used this technique in order to get detailed pictures taken out of a
plane or a satellite of countries considered being the enemy to the people of the USA, and it is
also used in PC technology. Next time you scan a picture into your PC, try to understand what
you see on your screen: during the scanning process a rather hazy image appears on the
screen of your PC, but then the PC takes some time in order to process the received signal,
which results in a very sharp image. You can even choose the resolution you want. If you
want a high resolution - a high information content - the scanning and processing will take
more time: you have to scan the image at a slower speed and the PC needs more time for the
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processing of the raw image to the clear image. So the trade-off between informationcontent, energy and time is not only valid in the transfer but also in the manipulation of
information.
In this book we have tried to use the same technique: we have studied some facts and
events from the obscure past - sometimes at a rather slow pace in order to get the most out of
it - and interrelated them to each other - convolution - in order to get a clear view on the past
and the present.

A.7 Implications on education and science


Effective communication between sender and receiver is possible only in the
intersection region of their signal-spaces. When a sender transmits a signal with a component
outside the signal-space of the receiver, the latter is not able to grasp this component. In this
section we will apply this conclusion in two special forms of communication: education - as
communication between teacher and student - and science - as communication among
scientists and between scientists and Nature.
A.7.1 Education
Education is the process of molding peoples mind, more specific the shaping of their
signal-space, the way they perceive the world and react to it. One can ask the question: how
does the paradigm of a person develop? A little child has a limited view of the world, a grown
person has a broader perception of it, and, as we have seen in the previous section, this
perception can differ from one person to another. So the question can be formulated as
follows: how does a person's signal-space expands? What is the trigger for this growth? And
how does it come that one person succeeds better in this than another person?
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As discussed before, this expansion of the signal space is not possible by the
communication process itself. Imagine someone who has never eaten or even seen a mango,
and you want to explain to him what a mango tastes like. You can try to describe the fruit and
compare it to other types of fruit. This description, however detailed, will never be accurate
enough to specify a mango and its taste. The one and only effective way is to give the other
person a mango, so that he can see, feel, smell and finally taste it. By personal experience
(action) the person can expand his signal-space, can add a new dimension to it. Karl Bhler
has always stressed the fact that observation has to be considered as an activity. This is true
for every action of cognition and exploration98.
A mother can tell her child: Take care not to touch the fire, as it will hurt you, but
the child will not be able to appreciate (decode) the message if it did not had the experience of
pain before, and if it has not yet learned to associate the words fire or hurt with physical
pain. The signal-space of the child must have been expanded by own experience of pain in
order for the child to understand what the mother says. As Ortega y Gasset has formulated it:
The body is the policeman and the teacher of the mind99.
If own, sometimes painful experience would be the only way to expand their signalspace, people would build up only a rather limited signal-space, in the first place determined
by their own direct surroundings. However, the signal-space is expanded for a great deal by
education: the teacher imparts knowledge to the student. But he is not able to do this by the
process of verbal communication alone. By this communication process he can only make
relations with - linear combinations of - concepts already familiar to the student. He can not
impart concepts totally new to the student just by talking about them: these concepts are

98
99

K. Lorenz, Our Last Chance, pp. 60-61


W. Fuchs, Thinking with Computers, p 45

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contained in his signal-space, but not in the student's one. The teacher - as a sender - has a
larger signal-space100 than the student - as a receiver. Effective verbal or written
communication in one direction from teacher to student is not possible. Or the teacher has to
do something and show what he means, or the student must give his full participation and
make an effort to expand his signal-space, so he can receive the message101. By repeating,
reformulating and applying the concept, the student can show towards the teacher that he has
understood the material correctly or that he misunderstood it. Effective communication from
student to teacher is perfectly possible because the signal-space of the teacher - in general contains the signal-space of the student. Education is, in essence, feedback-communication
from student to teacher.
The true teacher knows you can't impose learning. You can, as Galilee said,
help the individual discover it within. The open teacher helps the learner
discover patterns and connections, fosters openness to strange new
possibilities, and is a midwife to ideas. The teacher is a steersman, a catalyst, a
facilitator - an agent of learning, but not the first cause.
M. Ferguson, The Aquarian Conspiracy, pp. 320-321.

Everyone who has studied probably has had at one time or another the experience of
going through a course or a textbook, making neither head nor tail of it. By making an effort spending energy - and going through the course once more - spending time - the insight grows
and the material becomes familiar. By feedback of his perception towards the teacher by
means of exercises, rehearsals and examinations the student can prove that he understands the
material. Perhaps he will not succeed at once so he has to retry. The expansion of his signalspace does not come by itself: it requires energy and time to do it.

100

In his field of experience.


This is the reason why we have included some mathematics in this appendix: to help you realize that
effort is needed in order to assimilate something unfamiliar.
101

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It is human nature to be rather opportunistic - if not to say lazy - in spending energy


and time: there must be a reward in order to do so. With most individuals external motivation
is more dominant than internal motivation. Why would a person put time and energy in
learning? This is done after making a cost-benefit analysis. The person asks himself,
consciously or unconsciously, the following questions:

What will I gain if I put the effort in expanding my signal-space, if I try to make
myself familiar with the new concepts? This could be a certificate, a grade,
promotion, acknowledgment.

What will it cost if I do not put the effort in it? This could be reexamination, no
certificate, no grade, lay-off, disapproval...

If the reward and/or the punishment seem important enough to the person, then he is
willing to put the time and effort in learning in order to expand his signal-space. If they do not
seem important enough, he probably will not make the effort.
Here we can see an explanation for the decreasing quality in the education system and
the lower education level of social minority groups: due to the economic recession, the high
level of unemployment with young people and the lack of perspectives for a well-paid job,
there is less motivation with a lot of students to put effort in their studies.
The signal-space of a person is formed for a great deal during his education at school.
Once he has left school, he will still expand his signal-space, but predominantly in those
directions that will bring benefits to him and avoid costs. This means in directions indicated
to him by his job. Other directions require an effort without promise of any immediate gain:
they do not catch his attention, he is not willing to spend time and energy on them. This is

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sad, because the rewards/punishments are not always immediately visible. Often they only
appear after a long time. This shortsightedness can have strong implications later in time.
We can also understand the concepts selective cognition and prejudice in this
context. When a person is confronted with something or somebody in a first, superficial way,
he will usually form himself quickly a first impression: he projects his perception on already
known dimensions in his signal-space - pegs to hang things on. Later impressions on the same
thing or person are related to the dimensions already known, and thus are biased by the first
impressions. Elements of the message that fit on the existing pegs are accepted and thus
reinforce the first superficial impression, while components strange to the first impression or
even in contradiction with it and which do not fit in the frame are ignored, even if one thinks
of himself as basically an intellectual.
In this section we have seen how important education is. Costs and benefits are crucial
in this process. The system is based on rewards and punishment. The molding of the signalspace of individuals and consequently also the paradigm and value-system of a society is
basically done at school and university. Having control over the process of education or the
media is the same as having control over the direction in which a society will think and act102.
Demagogues of all times - and of this time - have always been aware of the
fact that man sticks to the ideals he gained during childhood.
They knew - and know - how to manipulate this. If one once had a discussion
with an indoctrinated person, one clearly sees that he screens all counterarguments and discards all other values with an extreme light-heartedness...
It is most peculiar how a fanatic person adopts such a feeling of personal
freedom from this unconditional surrender to a certain doctrine. He identifies
himself completely with the values and ideals he has been impregnated with.
He does not see the strait waistcoat he is wearing. He does not see that he has
lost the most essential feature of human beings: the freedom of thought.
K. Lorenz, Our Last Chance, pp. 139-140.

102

Noam Chomsky, Failed States, the section on Institutionalizing State-Corporate Control, pp. 236241. The long-term-consequences for the society could be severe.

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A.7.2 Science
One could define science as the whole set of human activities aimed at gaining insight
in reality, Nature. The nature of reality is of an infinite complexity and variety. In our model
of the communication process, we could represent reality as a signal-space with an unknown
number of dimensions, a great deal of them still unknown to us. Every scientist communicates
with reality from his own signal-space: he questions reality, he performs experiments, and he
gets answers from reality, the results of his experiments, which he will try to fit in his signalspace. No scientist will dare to claim that his signal-space contains that of reality. Although
his insight can grow, he is still limited in his view of reality. As Merleau-Ponty has
formulated it: So long as I keep before me the ideal of an absolute observer, of knowledge in
the absence of any viewpoint, I can only see my situation as being a source of error. But once
I have acknowledged that through it I am geared to all actions and all knowledge that are
meaningful to me, and that it is gradually filled with everything that may be for me, then my
contact with the social in the finitude of my situation is revealed to me as the starting point of
all truth, including that of science and, since we are inside truth and cannot get outside it, all I
can do is define truth within the situation103.
Based on the work of Edward de Bono we can make some interesting remarks on the
subject of progress of scientific research seen as an activity and as a process of
communication. Mr. de Bono has written some very interesting books on the subject of
creativity. One of these books is The Use of Lateral Thinking, in which he compares scientific
activity with digging holes. The reader will find it easy to draw a parallel between the
concept signal-space and the holes of Mr. de Bono.

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It is one thing to suggest that new ideas are useful, profitable and exciting, but
quite another thing to suggest that something deliberate can be done about
having new ideas. No one would disagree with the first suggestion, but most
would doubt the second.
There are two opposite ways of improving a process. The first way is to try to
improve it directly. The second is to recognize, and then remove those
influences that inhibit a process. If a car does not seem to be moving fast
enough, the driver may either press harder on the accelerator or he may make
sure the brake has been fully released. To design a car that goes faster the
designer could either put in a more powerful engine, or reduce the weight and
air resistance that slow the car down.
It may be more useful to study stupidity in order to understand intelligence. It
may be easier to see what the stupid person lacks104 than to see what the clever
person has extra. Instead of trying to understand why one person invents, it
may make more sense to see why other people do not. If it is possible to obtain
some insight into what prevents the emergence of new ideas, either in general
or in a particular person, then it may be possible to improve the ability to have
new ideas.
Lateral thinking is made necessary by the limitations of vertical thinking. The
terms lateral and vertical were suggested by the following considerations.
It is not possible to dig a hole in a different place by digging the same hole
deeper. Logic is the tool that is used to dig holes deeper and bigger, to make
them altogether better holes. But if the hole is in the wrong place, then no
amount of improvement is going to put the hole in the right place. No matter
how obvious this may seem to every digger, it is still easier to go on digging in
the same hole than to start all over again in a new place. Vertical thinking is
digging the same hole deeper; lateral thinking is trying again elsewhere. The
disinclination to abandon a half-dug hole is partly a reluctance to abandon the
investment of effort that has gone into the hole without seeing some return. It
is also easier to go on doing the same thing rather than wonder what else to do:
there is a strong practical commitment to it.
It is not possible to look in a different direction by looking harder in the same
direction. No sooner are two thoughts strung together than there is a direction,
and it becomes easier to string further thoughts along the same direction than
to ignore it. Ignoring something can be hard work, especially if there is not yet
an alternative105. These two sorts of commitment to the half-dug hole may be
regarded as commitment on invested effort and commitment of direction.
By far the greatest amount of scientific effort is directed towards the logical
enlargement of some accepted hole. Many are the minds scratching feebly
away or gouging out great chunks according to their capacity. Yet great ideas

103

M. Merleau-Ponty, Le Philosophe et la Sociologie, pp. 136-137.


All fans of Malthusianism back to school!
105
I hope this book has convinced you that there is an alternative!
104

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and great scientific advances have often come about through people ignoring
the hole that is in progress and starting a new one106. The reason for starting a
new one could be dissatisfaction with the old one, a temporal need to be
different, or pure whim. This hole-hopping is rare, because the process of
education is designed to make people appreciate the holes that have been dug
for them by their betters. Education could only lead to chaos if it were to do
otherwise. Adequacy and competence could hardly be built on the
encouragement of general dissatisfaction with the existing array of holes. Nor
is education really concerned with progress: its purpose is to make widely
available knowledge that seems to be useful. It is communicative, not creative.
To accept old holes and then ignore them and start again is not as easy as being
unaware of them and hence free to start anywhere. Many great discoverers like
Faraday had no formal education at all, and others, like Darwin or Clerk
Maxwell, had insufficient to curb their originality. It is tempting to suppose
that a capable mind that is unaware of the old approach has a good chance of
evolving a new one. A half-dug hole offers a direction in which to expend
effort. Effort needs a direction and there are few more frustrating things than
eager effort looking for a direction. Effort must also be rewarded by some
tangible result; the more immediate the results, the more encouraged is the
effort. Enlarging the hole that is being dug offers real progress and an
assurance of future achievement. Finally, there is comfortable, earned
familiarity with a well-worked hole...
Oilmen do not perhaps find it so difficult to appreciate the paradox that sitting
about deciding where to dig another hole may be more useful than digging the
same hole deeper. Perhaps the difference is that, for an oilman, digging costs
money, but for scientists and industrialists, not digging is more expensive.
Without a hole, how can a mind exert its well-trained effort? The shovels of
logic lie idle. There is no progress, no achievement. Today, achievements has
come to be ever more important to the scientists. It is by achievement alone
that effort is judged, and to pursue his career a scientist must survive many
such judgments.
No one is paid to sit around being capable of achievement. As there is no way
of assessing such capability it is necessary to pay and promote according to
visible achievements. Far better to dig the wrong hole (even one that is
recognized as being wrong107) to an impressive depth than to sit around
wondering where to start digging. It may well be that the person who is sitting
around and thinking is far closer to digging a much more valuable hole108, but
how can such a thing be judged until the hole is actually started and the result
becomes visible109?

106

I hope this book has convinced you that there is an new hole!
The Malthusianism hole.
108
Me, based on Buckminster Fullers Critical Path.
109
So join the club, an distribute this book!
107

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In the long run it may be far more useful to have some people about to achieve
the right thing than have everyone actually achieving things of lesser worth,
but there are few who are willing to invest in mere possibility. In the present
system who can afford to think? Who can afford the non-progress of abortive
thought?
An expert is an expert because he understands the present hole better than
anyone else except a fellow expert, with whom it is necessary to disagree in
order that there can be as many experts as there are disagreements - for among
the experts a hierarchy can then emerge. An expert may even have contributed
towards the shape of the hole. For such reasons experts are not usually the
first to leap out of the hole that accords them their expert status, to start
digging elsewhere. It would be even more unthinkable for an expert to climb
out of the hole only to sit around and consider where to start another hole. Nor
are experts eager to express their expertise as dissatisfaction with the hole, as
dissatisfaction is too eagerly expressed, and often more forcibly, by many
others who have not earned the right to be dissatisfied. So experts are usually
to be found happily at the bottom of the deepest hole, often so deep that it
hardly seems worth getting out of them to look around.
Because the mind is happier enlarging by logic an existing hole, because
education has encouraged this, and because society has elected experts to see
that it is done, there are a lot of well-developed holes continually enlarging
under the impact of logic effort. Many of the holes are extremely valuable in
terms of the ore of practical knowledge that is removed from them. Others are
a waste of effort.
There is nothing wrong with a hole that is a waste of effort. At least there is
nothing wrong with its location, though the size may be extravagant. There
ought to be many more such holes in original places. Many of them might well
be a waste of effort, but some of them could turn out to be extremely useful.
But to start such holes more people would have to escape the powerful
commitment there is to the dominant hole.
The effect of the dominance of old and apparently adequate ideas is often
underestimated. It is assumed that an old idea should be regarded as a useful
stepping-stone to something better until that something better turns up. This
policy may be practical but it can inhibit the emergence of new ideas. If a good
cartoonist has captured with a few dominant lines the impression of a face, it is
extremely difficult to put that impression aside, look at the face again and
come up with a new way of expressing it.
Sects, which assemble on mountaintops on predicted days of doom to await the
end of the world, do not come down on the morrow shaken in their ideas, but
with a renewed faith in the mercifulness of the Almighty. New information
that could lead to the destruction of an old idea is readily incorporated unto it
instead, for the more information that can be accommodated, the sounder the
idea becomes. It is like putting some drops of quicksilver on a surface. If you
make one drop larger and larger, it approaches neighboring drops, and as soon
as it touches them, they loose their identity and become shifted bodily into the
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larger drop. As with dominant ideas, the big drop always swallows up the
smaller one; it is not a matter of compromise...
Dominant ideas need not always be so obvious for them to exert just as
powerful an organizing influence on the way a person thinks and approaches a
problem. Old and adequate ideas, like old and adequate cities, come to polarize
everything around them. All organization is based on them, all things are
referred to them. Minor alterations can be made on the outskirts, but it is
impossible to change the whole structure radically and very difficult to shift
the center of organization to a different place.
Edward de Bone, The Use of Lateral Thinking, pp. 21-26.

So far Edward de Bono in one of his books on creativity. The picture he draws of
scientists sitting in their different holes describes in a very lucid but accurate way the
syndrome of science: too much specialization leads to problems of communication among
scientists of different disciplines and even among scientists of the same discipline. It also
leads to the fixation of scientific thinking in very rigid patterns. So you may now better
understand the following quote:
Problems cannot be solved at the same level of consciousness that created
them.
Albert Einstein.

You have to transcend the limitations of your signal-space, your paradigm, your frame
of reference, take a birds eye view over the field of holes.
A.8 Conditions for effective communication
We have discussed a few basic concepts on the subject of information and
communication theory in this appendix. Now we can formulate some conditions that must be
satisfied in order to achieve effective communication. If one of these conditions is not met,
problems will arise for sure.

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A.8.1 Unambiguous Coding


The transformation of a concept into a word in order to describe that concept, and vice
versa, must be unambiguous in both directions. This is usually not the case with every day
speech. A concept can be described by more than one word, often with a slight difference in
meaning. A word can also cover more than one concept. So there is a chance of mutilation of
information: the receiver can give another meaning to the word than was intended by the
sender. In colloquial speech, however, there is enough redundancy built in, so the receiver is
able to deduct the right meaning of the message out of the context. There is also the
possibility of feedback-communication: the receiver in turn can respond to the sender so the
sender can determine by this feedback that the concept or message was interpreted correctly
or was misunderstood.
A source producing symbols that are not absolutely essential to convey information is
said to be redundant. The redundancy of English text, for example, is estimated to be about
50%. Yu shld b abl t red ths evnto svrl ltrs r msng. We have built a lot of redundancy in this
book, certain concepts and relations were stressed again and again and were described from
different points of view. By doing this, we hope that the essence of the message will have
been understood by the reader.
A.8.2 Time and energy
Due to the limited capacity of a communication channel, one needs a minimum
amount of time to convey a certain quantity of information. This amount of time is greater
when the information-content of the message is greater. The amount of information, and thus
the time needed, is greater when the message sounds more unlikely. In order to receive new
information one has to do an effort. So if the receiver does not spend enough time and energy
in receiving and processing the message, then effective communication will not be possible.
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We warn the reader that a lot of information contained in this book probably looked
unfamiliar at first glance. Please spend enough time on it and make an effort. A second
reading of this book, in whole or in part, after a period of reflection might be useful.
A.8.3 Signal-space
Effective communication between sender and receiver is possible only in the
intersection of their signal-spaces. In this book a number of signals were transmitted to the
reader which might fall outside his signal-space, or which might even clash with his fixed
opinions and way of thinking. It is up to the reader to evaluate those signals in a critical but
open-minded manner, and, eventually, to expand his signal-space. At several stages in this
book we have discussed the rewards or punishments that could follow if the reader does make
or refuses to make the effort to abandon some prejudices and fixed opinions.

A.9 A thought to brood on


In this appendix we have gained some insight in the process of communication. Much
to our regret we have to conclude that a lot can go wrong when two people communicate:

There is not always an unambiguous relationship between what is meant and what
is said.

The receiver does not always give enough time to the sender to convey his
message.

The sender is afraid to start the communication in the first place, as he is afraid
that his message will not be understood as he thinks it should (self-censorship).

The signal-space of the receiver might be too narrow to grasp the full content of
the message: he receives what he can or likes to receive.
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The receiver is not always willing to spend the time and effort to expand his
signal-space in order to receive more signals if he does not see any direct gain of it
especially in the age of video-clips and TV commercials.

In designing a technical communication system, the designer of it will take care that
these problems do not occur. He is situated, by way of speaking, at a higher level than the
components of the communication system. He is at the outside of the system, so he can
impose his directives to the sender and the receiver in order to achieve effective
communication between both of them (Figure A.7.).

Designer

Sender

Receiver

Figure A.7. A designer can impose his directives onto the sender and the receiver.

A human being is at the same time a sender and a receiver of information. If


somewhere in the universe, at a higher level, there is a designer of our communication system
- a Master Builder - we can conclude that, from an engineering point of view, he did a lousy
job! The communication process between human beings does not function properly: people
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do not give each other enough time to explain new ideas, a lot of people argue to prove they
are right instead of having a discussion to solve the problem, new ideas are shattered on walls
of unbelief, indifference and resistance...
Maybe there is no Master Builder? Or did He deliberately design such a lousy
communication system by giving us free will instead of imposing His own will...?

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Appendix B Economy, Science and Morality

If history teaches us one thing, it is the fact that the production of the intellect
is changing according to the production in the material world.
K. Marx, F. Engels, Communist Manifest.
No socioeconomic system can last long unless it rests on an appealing
ideological structure. In this regard, capitalism is no exception. And as with
every elitist system, its ideological thread is sound in theory, but tenuous in
reality....
We have already seen that in an acquisitive era intellectuals come forward to
offer theories justifying the supremacy of the acquisitors. To many
intellectuals, it seems to matter little how specious their justification is, as long
as it serves their purpose110.
Ravi Batra, The Great Depression of 1990, pp. 74, 75.
B.1 The evolution towards the present paradigm
We have learned something very strange out of this analysis of the economy: we have
to give to others and share with others in order to enrich ourselves. We can imagine that most
people will have difficulties in accepting this seeming contradiction. This conclusion clashes
with our linear way of thinking. The board of directors of General Motors did not need a lot
of time to reject the proposals of the union leader W. Reuther: If the cost of wages increases,
then our profit will go down!
This is an example of linear or causal thinking: increase of the wages is the cause, a
decline of the profit is the immediate result, full stop! This way of thinking has very deep
roots in western society, without us being fully aware of it.
Throughout history, human beings have felt the need to construct a frame of
reference for organizing lifes activities. The need to establish and to explain
the hows and whys of daily existence has been the essential cultural

110

Economy, an ideology in disguise.

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ingredient of every society. The most interesting aspect of a society's world


view is that its individual adherents are, for the most part, unconscious of how
it affects the way they do things and how they perceive the reality around
them. A worldview is successful to the extent that it is so internalized, from
childhood on, that it goes unquestioned.
J. Rifkin, Entropy, A New World View, p. 5.

The paradigm, which constitutes the basis of our western industrialized society and
determines its functioning, arose in the 17th and 18th century, under the strong influence of
scientists and philosophers such as Bacon, Descartes and Newton. After 300 years we are still
living off their ideas.
Francis Bacon laid the groundwork for the machine paradigm with a savage
attack on the worldview of the ancient Greeks... Bacon took stock of the Greek
worldview and concluded that, for all its pompous claims, it had not adduced
a single experiment which tends to relieve and benefit the condition of man.
Bacon saw the world with different eyes. He didn't want to sit around
contemplating nature. He wanted to find a methodology for controlling it. For
the Greek, the science of learning was intended to ask the metaphysical why of
things. Bacon on the other hand, thought that a science of learning should be
committed to the how of things111. Now the true and lawful goal of the
sciences is none other than this: that human life be endowed with new
discoveries and powers... Francis Bacon, who argued that we should begin
building in the human understanding a true model of the world, such as it is
in fact, not such as a man's own reason would have it to be. Bacon goes on to
make it clear that a new method for dealing with the world is in order, one that
can enlarge the bounds of human empire, to the effecting of all things
possible. The new method Bacon alludes to is the scientific method, an
approach that would separate the observer from the observed and provide a
neutral forum for the development of objective knowledge. According to
Bacon, objective knowledge would allow people to make command over
things natural - over bodies, medicine, mechanical powers and infinite other
things...
According to Descartes the key to understanding the world, to decipher its
hidden secrets, to controlling it for human purposes was to be found in one
word: mathematics. As I considered the matter carefully, it gradually came to
light that all these matters only are referred to mathematics in which order and
measurement are investigated, and that it makes no difference whether it be in
numbers, figures, stars, sounds or any other object that the question of measure
arises. I saw, consequently, that there must be some general science to explain

111

Why not both?

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that element as a whole which gives rise to problems about order and
measurement. This, I perceived, was called universal mathematics. Such a
science should contain the primary rudiments of human reason, and its
province should contain the primary rudiments of human reason, and its
province ought to extend to the electing of true results in every subject... To
speak freely, I am convinced that it (mathematics) is a more powerful
instrument of knowledge than any other that has been bequeathed to us by
human agency, as being the source of all things!... Descartes has succeeded in
turning all of nature into simple matter in motion. He reduced all quality to
quantity and then confidently proclaimed that only space and location
mattered. Give me extension and motion, he said, and I will construct the
Universe... Descartes gave human beings the faith that they could unravel
the truths of the world and become its masters.
Newton then provided them with the tools they needed to do it. Newton
discovered the mathematical method112 for describing mechanical motion. He
argued that one law could explain why the planets move the way they do and
why a single leaf falls from the three in the matter it does. Subjecting all of
nature to the laws of mathematics, Newton proclaimed that all the phenomena
of nature may depend upon certain forces by which the particles of bodies, by
some causes hitherto unknown113, are either mutually impelled toward each
other, and cohere in regular figures, or are repelled and recede from each
other...
The mechanical worldview dealt exclusively with material in motion, because
that was the only thing that could be mathematically measured. It was a
worldview made for machines, not people. By separating and then eliminating
all of the qualities of life from the quantities of which they are part, the
architects of the machine paradigm were left with a cold, inert universe made
up entirely of dead matter. It was a short journey from the world as pure matter
to the world of pure materialism, as we shall see...
J. Rifkin, Entropy, A New World View, pp. 19-23.

Influenced by the success and the scope of problems which could be solved in physics
and applied sciences by the use of the theories and principles of Descartes and Newton,
people started to look at the world as if it was a machine, a clockwork, composed of several
discrete components: the building blocks of the universe. If the problem to be solved was too
complex to describe it as a whole, then it was decomposed into smaller units, until a level was

112

Linear differential equations.

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reached were the existing scientific formalism could be applied. The properties of the total
problem were reduced to those of the parts it was composed of. In this mechanistic worldview
one started to see the world as a machine, an automaton, in which a certain cause produces a
single and predictable result.
This way of thinking was adopted in and out of season by other scientific disciplines:
in psychology, medicine, biology, chemistry, organization theory, sociology and economics
the scientists started to work according to the Cartesian way of thinking: in order to be an
objective observer take distance from the subject of study, concentrate on what can be
measured and quantified, unravel the complex unmanageable problem to a set of smaller
problems and tackle them one by one (specialization) by studying them in terms of cause and
effect in order to gain insight in the total problem. The more a scientist of the soft sciences
could adopt this Cartesian methodology, the higher he was ranked among his colleagues.
The mechanical paradigm proved to be irresistible. It was simple, it was
predictable, and above all it worked. Here, it appeared, was the long-sought-for
explanation of how the universe functioned. There was an order in things, and
that order could be ascertained by mathematical formulas and scientific
observation.
Still, as European scholars looked around them, they wondered why the
normal activities of people in society often seemed so muddled and chaotic.
The erratic behavior of people and the imperfect workings of government and
the economy didn't seem to square with the well-ordered mechanical
explanation of the world that Bacon, Descartes and Newton had put forth. The
dilemma was quickly resolved: if society was misbehaving, then it could only
be due to the fact that it was not adhering to the natural laws that govern the
universe.
The only thing that was needed, then, was to figure out exactly how the natural
laws applied to human beings and social institutions and then apply them.
Obviously, this would be a long and difficult process - but no longer an
impossible one, because the universal laws were now known...

113

Indeed, the law of gravity as formulated by Newton describes the phenomenon, but it does not
explain it! Scientists are very often satisfied with a mathematical description of a phenomenon (the how), and
they do not investigate the underlying mechanisms (the why).

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History was now seen as a progressive journey from the rather disordered and
confused state that society found itself in to the well-ordered and wholly
predictable state represented by the Newtonian world machine.
Two men immediately set about the task of discovering the relationship
between these universal laws and the working of society. John Locke brought
the workings of government and society in line with the world machine
paradigm, and Adam Smith did the same with economy.
Like most intellectuals of this period, Locke was deeply impressed with how
the mechanical model had made sense out of a seemingly incomprehensible
world. But why, he asked himself, were the affairs of human beings so
chaotic? The answer, he concluded, was that the natural laws of society were
being violated because the social order was built upon irrational traditions and
customs that originated from the theocentrism that had ruled for too long. With
the aid of reason, Locke set out to determine the natural basis of society. He
immediately concluded that religion could not form the social foundation
simply because, by definition, God is unknowable. How can the unknowable
be the proper basis for government? And so, in a monumental break with his
philosophical predecessors, Locke argued that, while religion could rightly be
a private concern of each person, it could not serve as the basis for public
activity...
Here Locke provided an argument that has continued to dominate the modern
worldview down to the present. Once we cut through useless custom and
superstition, argued Locke, we see that society, being made up solely of
individuals creating their own meaning, has one purpose and one purpose only:
to protect and allow for the increase of the property of its members. Pure selfinterest thus becomes, in Locke's formulation, the sole basis for the
establishment of the state. Society properly becomes materialistic and
individualistic because, Locke maintains, reason leads us to conclude that this
is the natural order of things. By the law of nature, each individual is called
upon to act out his role of social atom, careering through life, attempting to
amass personal wealth. There is no value judgment to be made here: selfinterest is simply the only basis for society...
Like Locke, Adam Smith was enamored of the mechanical world view and was
determined to formulate a theory of economy that would reflect the universals
of the Newtonian paradigm. In The Wealth of Nations, Smith argues that, just
as heavenly bodies in motion conform to certain laws of nature, so too does
economics. If these laws are obeyed, economic growth will result. But
government regulation and control over the economy violated these immutable
laws by directing economic activity in unnatural ways. Thus markets did not
expand as rapidly as they could and production was stifled. In other words, any
attempt by society to guide natural economic forces was inefficient, and for
Adam Smith, efficiency in all things was the watchword...
Smith, like Locke, believed that the basis of all human activity is material selfinterest... Smith explicitly removed any notion of morality from economics, just
as Locke had done with social relations. Any attempt to impose morality on
economy simply lead to violation of the invisible hand, which Smith
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asserted was a natural law that governs the economic process, automatically
allocating capital investment, jobs, resources, and the production of goods.
People could use reason to understand this law, Smith allowed, but just as
human beings cannot control gravity, they cannot improve on the invisible
hand... Believing that men and women are basically egoists in pursuit of
economic gain, Smith's theories subordinate all human desires to the quest for
material abundance to satisfy physical needs. There are no ethical choices to be
made, only utilitarian judgments exercised by each individual pursuing selfinterest...
The mechanical world paradigm experienced its greatest triumph in the
aftermath of Charles Darwin's publication On the Origin of Species in 1859.
Darwin's theory of biological evolution was every bit as impressive as the
scientific discoveries of Newton in physics. It could well have pushed the
mechanical worldview off center stage and claimed hegemony for itself as a
complete new organizing principle for society. It never happened. Instead
Darwin's theories became an appendage to the Newtonian world machine. The
full implications of Darwin's discoveries were never really explored. Instead,
some of the more superficial trappings of his theory were immediately taken
hold of and exploited in a way that further legitimized the mechanical
worldview.
Social philosophers like Herbert Spencer seized on Darwin's theory of the
evolution of species as a kind of proof positive of the existence of progress in
the world. Spencer and the so-called Social Darwinists turned the concept of
natural selection into the concept of survival of the fittest. In doing so, they
provided further support for the mechanical world view, that holds that selfinterest leads to increased material well-being, which leads to increased
order.
J. Rifkin, Entropy, A New World View, pp. 23-30.

And that is why it is so difficult for us to accept that we first have to give to others
before we can receive more ourselves. This seemingly altruistic view clashes with the
mechanistic paradigm that we have imbibed with our mother's milk. As J. Rifkin told us at the
beginning of this chapter:
Throughout history, human beings have felt the need to construct a frame of
reference for organizing lifes activities. The need to establish and to explain
the hows and whys of daily existence has been the essential cultural
ingredient of every society. The most interesting aspect of a society's world
view is that its individual adherents are, for the most part, unconscious of how
it affects the way they do things and how they perceive the reality around
them. A worldview is successful to the extent that it is so internalized, from
childhood on, that it goes unquestioned.
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As discussed in appendix A on communication theory, it is very difficult for us to


receive messages that do not fit in our paradigm, our signal-space, and even more difficult to
evaluate their meaning and their value, especially if we are unaware of our own paradigm. We
hope that J. Rifkin has succeeded in making us aware, as opposed to unconscious, of the fact
that there exists such a thing as the Newtonian or mechanistic paradigm, which is one of the
foundations of our western civilization and its economic and political system. We could not
have done the job better, so we have permitted ourselves to incorporate a large part of his
work in this study in order to preserve his line of reasoning as much as possible.
In the next section we will confront the present mechanistic paradigm that originated
out of Newtonian classical physics, with some notions and results from modern experimental
and theoretical physics. We will do this with the excellent support of Fritjof Capra, who has
written some very interesting books on this matter. It will show, as well in physics as in other
sciences - especially the human sciences - that the mechanistic paradigm needs more than a
facelift: our world view has to be rebuild from the basics on (as opposed to unquestioned).

B.2 Towards a new economic paradigm


In this section we will criticize some features which are essential to the mechanistic
world-view (unity-vectors of that signal-space):

The blind faith in the absolute infallibility of reason.

The reasoning in terms of cause and effect only.

The reductionistic approach, by which the features of the whole are reduced to
those of the composing elements.
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The specialized approach, by which problems under study are isolated from their
surroundings.

The myth of the objective observer.

The demand that science should be free of values and morality.

The failure to see that apparent opposing entities can form a unity.

We will demonstrate that a new world view is emerging out of modern physics. We
will discuss the main features of this new paradigm as well as the implications on other
sciences and economics in particular.
B.2.1 Critics on the mechanistic world view
In the previous section we have seen how the western way of thinking has originated
from Newtonian physics. By this new way of reasoning and experimental verification, great
progress has been made in sciences and technology during the past centuries, at least, as long
as one remained within certain boundaries. When at the beginning of the century, physicists
started to probe the interior world of matter, searching for the elementary building blocks,
they were confronted with new phenomena and experimental results they could no longer
describe with the classical theory of mass in motion.
Questions about the essential nature of things were answered in classical
physics by the Newtonian mechanistic model of the universe which, much in
the same way as the Democritean model in ancient Greece, reduced all
phenomena to the motions and interactions of hard, indestructible atoms. The
properties of these atoms were abstracted from the macroscopic notion of
billiard balls, and thus from sensory experience. Whether this notion could
actually be applied to the world of atoms was not questioned. Indeed, it could
not be investigated experimentally.
In the twentieth century, however, physicists were able to tackle the question
about the ultimate reality of matter experimentally. With the help of a most
sophisticated technology they were able to probe deeper and deeper into
nature, uncovering one layer of matter after the other in search for its ultimate
building blocks. Thus the existence of atoms was verified, then their
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constituents were discovered - the nuclei and electrons - and finally the
components of the nucleus - the protons and neutrons - and many other
subatomic particles.
The delicate and complicated instruments of modern experimental physics
penetrate deep into the sub-microscopic world, into realms of nature far more
removed from our macroscopic environment, and make this world accessible
to our senses. However, they can do so only through a chain of processes
ending, for example, in the audible click of a Geiger counter, or a dark spot on
a photographic plate. What we see or hear are never the investigated
phenomena themselves but always their consequences. The atomic and
subatomic world itself lays beyond our sensory perception.
It is, then, with the help of modern instrumentation that we are able to observe
the properties of atoms and their constituents in an indirect way, and thus to
experience the subatomic world to some extent. This experience, however, is
not an ordinary one, comparable to that of our daily environment. The
knowledge about matter at this level is no longer derived from direct sensory
experience, and therefore our ordinary language, which takes its images from
the world of senses, is no longer adequate to describe the observed
phenomena. As we penetrate deeper and deeper into nature, we have to
abandon more and more of the images and concepts of ordinary language. On
this journey to the world of the infinitely small, the most important step, from a
philosophical point of view, was the first one: the step into the world of atoms.
Probing inside the atom and investigating its structure, science transcended the
limits of our sensory imagination.
From this point on, it could no longer rely with absolute certainty on logic and
common sense. Atomic physics provided the scientists with the first glimpses
of the essential nature of things.
F. Capra, The Tao of Physics, pp. 37-39.

By expanding their field of observation with technological means, physicists found


that the mechanistic model of Newton was no longer valid in the realms of the infinite small
and when very high velocities were reached. Therefore they were forced to adopt totally new
ways in order to interpret their experimental results, they had to elaborate complete new
theories. With these new formalisms they were able to describe and to explain the phenomena
they had found in their experiments.
Today we know that the Newtonian model is valid only for objects consisting
of larger numbers of atoms, and only for velocities which are small compared
to the speed of light. When the first condition is not given, classical mechanics
have to be replaced by quantum theory; when the second condition is not
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satisfied, relativity theory has to be applied. This does not mean that Newton's
model is wrong, or that quantum theory and relativity theory are right. All
these models are approximations, which are valid for a certain range of
phenomena. Beyond this range, they no longer give a satisfactory description
of nature, and new models have to be found to replace the old ones - or better,
to extend them by improving the approximation.
F. Capra, The Tao of Physics, p. 28.

As the scope of our perception is limited due to the senses, and we are dependent on
technological means in order to expand that scope - means which are available only after
technology has reached a certain level of evolution -, and because the language we use to
describe things is based on our macroscopic observations and experiences, we must conclude
that our knowledge of the world is, in essence, limited, regardless our ability to think
rationally.
Rational knowledge is thus a system of abstract concepts and symbols,
characterized by the linear, sequential structure which is typical of our thinking
and speaking. In most languages this linear structure is made explicit in the use
of alphabets which serve to communicate experiences and thoughts in long
lines of letters.
The natural world, on the other hand, is one of infinite varieties and
complexities, a multidimensional world which contains no straight lines or
complete regular shapes, where things do not happen in sequences, but all
together: a world where - as modern physics tells us - even empty space is
curved. It is clear that our abstract system of conceptual thinking can never
describe or understand this reality completely. In thinking about the world we
are faced with the same kind of problem as the cartographer who tries to cover
the curved face of the earth with a sequence of plain maps. We can only expect
an approximate representation of reality from such a procedure, and all
rational knowledge is therefore necessarily limited.
F. Capra, The Tao of Physics, pp. 14-15.

We can compare this situation very well with a computer program. In a computer
program, a certain algorithm or logic is applied to a set of data, the results of observation, in
order to reach a certain result, a conclusion, an action. If the algorithm is wrong, then
obviously the result will be wrong. Also if the data are incorrect, the result will be wrong,
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regardless the correctness of the algorithm. But this is also the case if the data are incomplete!
Ignoring or being unaware of part of the facts leads to the wrong conclusion. In this sense,
telling (or being told) half of the truth is more dangerous than telling (or being told) a lie. A
lie can be detected just by controlling the facts. But with half of the truth, the facts are correct,
but some information was deliberately omitted. A conclusion to think about. We will return to
this subject later on.
We also have to review the method of formulating everything in cause-effect
relationships and of reducing the characteristics of the whole to the features of its
components.
In quantum theory individual events do not always have a well-defined cause.
For example, the jump of an electron from one atomic orbit to another, or the
disintegration of a subatomic particle, may occur spontaneously without any
single event causing it. We can never predict when and how such a
phenomenon is going to happen; we can only predict its probability. This does
not mean that atomic events occur in completely arbitrary fashion; it means
only that they are not brought about by local causes. The behavior of any part
is determined by its non-local connections to the whole, and since we do not
know these connections precisely, we have to replace the narrow classical
notion of cause and effect by the wider concept of statistical causality. The
laws of atomic physics are statistical laws, according to which the probabilities
for atomic events are determined by the dynamics of the whole system.
Whereas in classical mechanics the properties and behavior of the parts
determine those of the whole, the situation is reversed in quantum mechanics:
it is the whole that determines the behavior of the parts.
F. Capra, The Turning Point, p. 76.

Just as blind faith in the Ratio was shaken, the notion of scientific objectivity could
not stand the tests during this century. The practice of isolating problems under study from
their surroundings also proved to be wrong.
Quantum theory thus reveals a basic oneness of the universe. It shows that we
cannot decompose the world into independently existing smallest units. As we
penetrate into matter, nature does not show us any isolated basic building
blocks, but rather appears as a complicated web of relations between the
various parts of the whole. These relations always include the observer in an
essential way. The human observer constitutes the final link in the chain of the
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observational processes, and the properties of any atomic object can be


understood only in terms of the objects interaction with the observer.
This means that the classical ideal of an objective description of nature is no
longer valid. The Cartesian partition between I and the world, between the
observer and the observed, cannot be made when dealing with atomic matter.
In atomic physics, we can never speak about nature without, at the same time,
speaking about ourselves.
F. Capra, The Tao of Physics, p. 57.

The idea that scientific work could be free of values and morality proved to be an
illusion, as even scientists themselves agree on. Next to Fritjof Capra we also quote the late
Nobel-prize winner Konrad Lorenz.
In transcending the Cartesian division, modern physics has not only
invalidated the classical ideal of an objective description of nature but has also
challenged the myth of a value-free science. The patterns scientists observe in
nature are intimately connected with the patterns of their minds, with their
concepts, thoughts, and values. Thus the scientific results they obtain and the
technological applications they investigate will be conditioned by their frame
of mind. Although much of their detailed research will not depend explicitly
on their value-system, the larger paradigm within which this research is
pursued will never be value-free. Scientists, therefore, are responsible for their
research not only intellectually but also morally. This responsibility has
become an important issue in many of todays sciences, but especially so in
physics, in which the results of quantum mechanics and relativity theory have
opened up two very different paths for physicists to pursue. They may lead us to put it in extreme terms - to the Buddha or to the Bomb, and it is up to each
of us to decide which path to take.
F. Capra, The Turning Point, p. 77.
The man of science should not lose himself in the illusion that he can be
independent from the ruling public opinion. The difficult times we are facing
in the world are the result of a shift in the sense of reality with the majority of
the people in the civilized western world. Peter Berger and Thomas Luckmann
have made a study on the social construction of reality and showed that
persons hold only those things for real and important which are real and
important in the society they live in and actually work in.
K. Lorenz, Our Last Chance, p. 144-145.

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And to end this trial we can say that classical physics always had difficulties with the
fact that opposing entities or phenomena could form a unity.
The exploration of the subatomic world has revealed a reality which repeatedly
transcends language and reasoning, and the unification of concepts which had
hitherto seemed opposite and irreconcilable turns out to be one of the most
startling features of this new reality... Examples of the unification of opposite
concepts in modern physics can be found at the subatomic level, where
particles are both destructible and indestructible; where matter is both
continuous and discontinuous, and force and matter are but different aspects of
the same phenomenon. In all these examples... it turns out that the framework
of opposite concepts, derived from our everyday experience, is too narrow for
the world of subatomic particles. Relativity theory is crucial for the description
of this world, and in the relativistic framework the classical concepts are
transcended by going to a higher dimension, the four-dimensional space-time.
Space and time themselves are two basic concepts which had seemed entirely
different, but have been unified in relativistic physics. This fundamental unity
is the basis of the unification of the opposites concepts mentioned above. Like
the unity of opposites experienced by the mystics, it takes place on a higher
plane, i.e. in a higher dimension, and like that experienced by the mystics, it
is a dynamic unity, because the relativistic space-time unity is an intrinsically
dynamic reality where objects are also processes and all forms are dynamic
patterns.

Figure B.1. The intersection of a torus and a plane

To experience the unification of seemingly separate entities in a higher


dimension we do not need relativity theory. The figure B.1. represents an
example, involving a transition from two to three dimensions.

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It shows a doughnut ring cut horizontally by a plane. In the two dimensions


of that plane, the surface of the cut appears as two completely separate discs,
but in the three dimensions they are recognized as being part of one and the
same object114. A similar unification of entities which seem separate and
irreconcilable is achieved in relativity theory by going from three to four
dimensions. The four-dimensional world of relativistic physics is the world
where force and matter are unified, where matter can appear as discontinuous
particles or as continuous fields. In these cases, however, we can no longer
visualize the unity very well. Physicists can experience the four-dimensional
space-time world through the abstract mathematical formalism of their
theories, but their visual imagination - like everybody elses - is limited to the
three-dimensional world of the senses. Our language and thought patterns have
evolved in this three-dimensional world, and therefore we find it extremely
hard to deal with the four-dimensional reality of relativistic physics.
F. Capra, The Tao of Physics, pp. 134-136.

A lot of the criticism we have formulated on the wrong use of Newtonian physics can
also be applied on other sciences, as they also operate on rationality, causality, reductionism,
specialization, objectivity and claim to be free of values. This is particularly the case with
economics.
The triumph of Newtonian mechanics in the eighteenth and nineteenth century
established physics as the prototype of a hard science against which all other
sciences were measured. The closer scientists could come to emulating the
methods of physics, and the more of its concepts they were able to use, the
higher the standing of their discipline in the scientific community. In our
century this tendency to model scientific concepts and theories after those of
Newtonian physics has become a severe handicap in many fields, but more
than anywhere else in the social sciences. These have been traditionally
regarded as the softest among the sciences, and social scientists have tried
very hard to gain respectability by adopting the Cartesian paradigm and the
methods of Newtonian physics. However, the Cartesian framework is often
quite inappropriate for the phenomena they are describing, and consequently
their models have become increasingly unrealistic. This is now especially
apparent in economics.
Present-day economics is characterized by the fragmentary and reductionistic
approach that typifies most social sciences. Economists generally fail to
recognize that the economy is merely one aspect of the whole ecological and
social fabric; a living system composed of human beings in continual
interaction with one another and with their natural resources, most of which

114

Image the reaction of the Square if a creature like this would have visited Flatland.

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are, in turn, living organisms. The basic error of the social sciences is to divide
this fabric into fragments, assumed to be independent and to be dealt with in
separate academic departments. Thus political scientists tend to neglect basic
economic forces, while economists fail to incorporate social and political
realities into their model...
The fragmentation and compartmentalization in economics has been noted and
criticized throughout its modern history. But at the same time those critical
economists who wished to study economic phenomena as they actually
existed, embedded within society and the ecosystem, and who therefore
dissented from the narrow economic viewpoint, were virtually forced to place
themselves outside of economic science, thus saving the economic fraternity
from dealing with the issues their critics raised. For example, Max Weber, the
nineteenth-century critic of capitalism, is generally regarded as an economic
historian; John Kenneth Galbraith and Robert Heilbroner are often thought of
as sociologists; and Kenneth Boulding is referred to as a philosopher...
Another economic aspect of economic phenomena, crucially important but
severely neglected by economists, is the economys dynamic evolution. In
their dynamic nature the phenomena described by economists differ
profoundly from those covered by natural sciences. Classical physics applies to
a well-defined and unchanging range of natural phenomena. Although it has to
be replaced by quantum and relativistic physics beyond this range, the
Newtonian model remains valid within the classical domain and continues to
be an efficient theoretical basis for a large part of contemporary technology.
Similarly, the concepts of biology apply to a reality that has changed very little
over the centuries, although knowledge of biological phenomena has
progressed considerably and much of the Cartesian framework is now
recognized as too restrictive. But biological evolution tends to proceed over
long time spans and, in general, does not produce entirely new phenomena but
rather advances through a continual reshuffling and recombination of a limited
number of structures and functions. The evolution of economic patterns, by
contrast, takes place at a much faster pace. An economy is a continually
changing and evolving system, dependent on the changing ecological and
social systems in which it is embedded. To understand it we need a conceptual
framework that is also capable of change and continual adaptation to new
situations. Such a framework is sadly lacking in the work of most
contemporary economists, who are still fascinated by the absolute rigor of the
Cartesian paradigm and the elegance of Newtonian models, and so are
increasingly out of touch with current economic realities.
F. Capra, The Turning Point, pp. 194-196.

Isabelle Stengers and Nobel Prize winner Ilya Prigogine have also formulated their
critics on the transposition of concepts and ideas from the world of inert matter to the
dynamic, ever changing, and, in essence, unpredictable social reality.
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In view of the complexity of the questions raised here, we can hardly avoid
stating that the way in which biological and social evolution has traditionally
been interpreted, represents a particularly unfortunate use of the concepts and
methods borrowed from physics - unfortunate because the area of physics
where these concepts and methods are valid was very restricted, and thus the
analogies between them and social or economic phenomena are completely
unjustified.
The foremost example of this is the paradigm of optimization. It is obvious that
the management of human society as well as the action of selective pressures
tends to optimize some aspects of behaviors or modes of connections, but to
consider optimization as the key to understanding how populations and
individuals survive is to risk confusing causes with effects.
Optimization models thus ignore both the possibility of radical transformation
- that is, transformations that change the definition of a problem and thus the
kind of solution sought - and the inertial constraints that may eventually force
a system into a disastrous way of functioning. Like doctrines such as Adam
Smith's invisible hand or other definitions of progress in terms of
maximization criteria, this gives a reassuring representation of nature as an allpowerful and rational calculator, and of a coherent history characterized by
global progress. To restore both inertia and the possibility of unanticipated
events - that is to restore the open character of history - we must accept its
fundamental uncertainty.
Prigogine, Stengers, Order Out of Chaos, p. 207

We will return to this in detail in appendix C. In the following section we will describe
how a new vision is arising out of modern physics, we will pay attention to its main
characteristics and its implications for other sciences, in particular for economics. Further
more, we will also discuss the difficulties and the despair that go with the genesis of a new
paradigm.
B.2.2 A new world view is emerging
So in the first half of this century, faced with the results of their experiments,
physicists were forced to change their signal-space, the language in which they
communicated with nature and with each other. They had to learn a totally new language,
they had to look for new unity-vectors.

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Thus Heisenberg wrote: The violent reaction of the recent development of


modern physics can only be understood when one realizes that here the
foundations of physics have started moving; and that this motion has caused
the feeling that the ground would be cut from science.
Einstein experienced the same shock when he first came in contact with the
new reality of atomic physics. He wrote in his autobiography: All my
attempts to adapt the theoretical foundation of physics to this knowledge failed
completely. It was as if the ground had been pulled out from under one, with
no firm foundation to be seen anywhere, upon which one could have built.
The discoveries of modern physics necessitated profound changes of concepts
like space, time, matter, object, cause and effect, etc.; and since these concepts
are so basic to our way of experiencing the world, it is not surprising the
physicists felt something of a shock. Out of these changes emerged a new a
radically different world-view, still in the process of formation by current
scientific research.
F. Capra, The Tao of Physics, pp. 41-42.

This new paradigm is rather new for people in the modern Western world - but at the
same time it has been known for ages to the people in the Eastern cultures, and it has also
been known in the western world in former times. However, it has been overshadowed by the
Cartesian way of thinking for centuries and thus has not been able to build a strong scientific
reputation, as the Newtonian worldview has been able to do. But now certain features of the
New World view start to show very clearly.
The two basic themes of this conception are the unity and interrelation of all
phenomena and the intrinsically dynamic nature of the universe...
In the New World view, the universe is seen as a dynamic web of interrelated
events. None of the properties of any part of this web is fundamental: they all
follow from the properties of the other parts, and the overall consistency of
their mutual interrelations determines the structure of the entire web...
All natural phenomena are ultimately interconnected, and in order to explain
any one of them we need to understand all others, which is obviously
impossible...
Because of the relativistic nature of subatomic particles, we cannot understand
their properties without understanding their mutual interactions, and because
of the basic interconnectedness of the subatomic world we shall not understand
any one particle before understanding all others...
F. Capra, The Tao of Physics, pp. 11, 276, 277, 190.
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From this discussion, we see that the new world view does not claim absolute
rationality, but on the contrary accepts the limitations of our means of observation as a
boundary to our ability to gather knowledge: there is a reality beyond the boundaries of our
perception, our signal-space, even the sum of all our individual signal-spaces. In the next
section we will return to this. One has also dropped the concepts of elementary building
blocks as well as the reductionistic and fragmentary approach in sciences.
In contrast to the mechanistic Cartesian view of the world, the worldview
emerging from modern physics can be characterized by words like organic,
holistic, and ecological. It might also be called a system view, in the sense of
general systems theory. The universe is no longer seen as a machine, made up
of a multitude of objects, but has to be pictured as one indivisible, dynamic
whole whose parts are essentially interrelated and can be understood only as
patterns of a cosmic process...
The systems view looks at the world in terms of relationships and integration.
Systems are integrated wholes whose properties cannot be reduced to those of
smaller units. Instead of concentrating on basic building blocks or basic
substances, the system approach emphasizes basic principles of organization.
The activity of systems involves a process known as transaction - the
simultaneous and mutually interdependent interaction between multiple
components115. Systemic properties are destroyed when a system is dissected,
either physically or theoretically, into isolated elements. Although we can
discern individual parts in any system, the nature of the whole is always
different from the mere sum of its parts116.
Machines function according to linear chains of cause and effect, and when
they break down, a single cause for the breakdown can usually be identified. In
contrast, the functioning of organisms is guided by cyclical patterns of
information flow known as feedback loops. For example component A may
affect component B; B may affect C; and C may feed back the influence to A
and thus close the loop. When such a system breaks down, the breakdown is
usually caused by multiple factors that may amplify each other through
interdependent feedback loops. Which of these factors was the initial cause of
breakdown is often irrelevant...
This systems view is also called the holistic view, from the Greek holos
(whole): one tries to understand reality in terms of integrated wholes whose
properties cannot be reduced to those of smaller units.

115

In this respect we can see Buckminster Fullers precession as a special form of transaction, see
section 3.4.3, describing the metaphor of the rubber cylinder.
116
This is the synergetic principle. It was originally formulated by B. Fuller.

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F. Capra, The Turning Point, pp. 21, 66, 286-289.

Marilyn Ferguson also stresses the importance of the systems view in science and in
cultural life in general.
Aldous Huxley117 was also an early supporter of Ludwig von Bertalanffy, a
German biologist, who framed a science of context he first called
perspectivism, later General Systems Theory. This theory, which has grown
steadily in its influence in many different disciplines, sees all of nature including human behavior - as interconnected. According to General Systems
Theory, nothing can be understood in isolation but must be seen as part of a
system.
M. Ferguson, The Aquarian Conspiracy, p. 54.

A very fundamental consequence of this interconnectedness of all phenomena and the


resulting self-consistency is that opposites can be complementary. In this respect we repeat a
quotation from the Tao of Physics, and let Fritjof Capra himself formulate some additional
thoughts to it.
The exploration of the subatomic world has revealed a reality which repeatedly
transcends language and reasoning, and the unification of concepts which had
hitherto seemed opposite and irreconcilable turns out to be one of the most
startling features of this new reality. This seemingly irreconcilable concepts
are generally not the ones the Eastern mystics are concerned with - although
sometimes they are - but their unification at a non-ordinary level of reality
provides a parallel to Eastern mysticism. Modern physicists should therefore
be able to gain insights into some of the central teachings of the Far East by
relating them to experiences in their own field.
F. Capra, The Tao of Physics, p. 134.

Indeed, the notion that seemingly opposite phenomena can be complementary and
form a unity, which can only be experienced if one transcends the limitations of normal
perception - as illustrated by Capra with the example of the torus -, this notion can also be
found in eastern philosophies.

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Niels Bohr was well aware of the parallel between his concept of
complementary and the Chinese thought. When he visited China in 1937, at a
time when his interpretation of quantum-theory had already been fully
elaborated, he was deeply impressed by the ancient Chinese notion of polar
opposites, and from that time he maintained an interest in Eastern culture. Ten
years later, Bohr was knighted as an acknowledgment of his outstanding
achievements in science and important contributions to Danish cultural life;
and when he had to choose a suitable motif for his coat-of-arms, his choice fell
on the Chinese symbol of t'ai-chi representing the complementary relationship
of the archetypal opposites yin and yang. In choosing this symbol for his coatof-arms together with the inscription Contraria sunt complementa, Niels
Bohr acknowledged the profound harmony between ancient Eastern wisdom
and modern Western science...
From the notion that the movements of the Tao are a continuous interplay
between opposites, the Taoists deduced two basic rules for human conduct.
Whenever you want to achieve anything, they said, you should start with its
opposite. Thus Lao Tzu:
In order to contract a thing, one should surely expand it first.
In order to weaken, one will surely strengthen first.
In order to overthrow, one will surely exalt first.
In order to take, one will surely give first.
This is called subtle wisdom.
On the other hand, whenever you want to retain anything, you should admit in
it something of its opposite:
Be bent, and you will remain straight.
Be vacant, and you will remain full.
Be worn, and you will remain new.
F. Capra, The Tao of Physics, pp. 145-146, 103.

This systems view, that emerged from modern physics in the first part of this century
but has been known for millennia in major philosophies, is intruding upon economic sciences
too.
In the first place we have found in the preceding considerations the confirmation of
the view of life expressed at the beginning of this appendix, the view that formed the basis for
our alternative to solve the recurrence of economic crises and that also was the key to solve

117

Author of Brave New World.

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the first paradox in section 3.1.4 on profit. By temporary abandon purchasing power in favor
of those most in need, we insure ourselves a better income in the future. In this respect we can
stress that the interests of employers and employees or rich industrialized countries and poor
Third World countries should not necessary be in conflict with each other.
In the second place, we see that a holistic approach of the economic problems leads to
totally different conclusions and measures to take than the fragmented and reductionistic way
of thinking. An economic entity - be it a company, a branch in industry, the economy of a
country,... - can not be seen as an isolated unit, but, on the contrary, should be considered as a
subsystem of a larger system and in permanent interaction with the other subsystems of that
overall system. The economy of a country or the world as a whole can not be understood in
terms of the characteristics of one subsystem, such as the profit ratio of a company or the
balance of trade of a country. The whole system has other properties than its components, and
it is rather the whole system that determines the functioning of its parts than the other way
around. The following example will illustrate this. Employees of a company do not
necessarily purchase the products of their own company. In this case, a decrease in wages will
not affect the turnover of that particular company, so as a direct result the profit will increase.
But if we consider the world economy as a whole, then the employees involved in the
production and distribution of goods and services are also the consumers of those very same
goods and services: a decrease of the wages will certainly have an influence on turnover and
on profit, and not necessarily a positive one! Fortunately, the concept of feedback and its
effects start to become familiar to a certain group of economists.
Alas, economy is not so simple as often thought. One can certainly consider
two levels: the level of the individual systems - the micro-level - and the level
where those individual systems interact in a society - the macro-level. The dayto-day practice in a company or a household cannot teach us how these
companies or households should behave. What is considered good for one

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individual system is not necessarily good for all, on the contrary. A few
examples will illustrate this.
If a company in trouble demands decrease of wages and lower taxes, this
makes sense on the micro-level. But if all companies follow the same line, then
the result will be opposite to the expected goal. The purchasing power will
decrease, and, as a direct consequence118, also the turnover and the profits of
companies. Even worse: the structure of demand will change as the purchasing
power of households and government will adapt to the lower level of
purchasing power. The households will start to buy goods of lower quality, a
quality that is no longer produced by the own economy, so those goods will
have to be imported119. So the products of higher quality produced by the own
economy will suffer, people will be laid off and production capacity will be
idling. We also have to take into consideration that an increase of wages
combined with the same level of expectation of material well-being will
decrease the necessity in a household for both partners to work. Often
economists think the other way around. However, it is obvious that if a head of
family earns more, from an economic point of view the partner will be less
inclined to work outdoors. But if the salary of the head of the family decreases,
the other members of the family will start to look for a job, so on the macrolevel unemployment will increase.
So a general increase in wages will reduce the demand for work from
households, a general decrease on the contrary will increase that demand. It is
a fallacy that a decrease in wages will reduce unemployment for the economy
as a whole - the macro-level. The rule works only on the micro-level.
Professor T. Palasthy, Knack Magazine, March 7th 1984.
B.2.3

Transitional problems
When the new world view began to take shape in physics at the beginning of 20th

century, there were a lot of communication problems among physicists and certainly between
physicists and scientists of other disciplines, if not to speak of the general public. Nowadays,
these new insights have become commonplace among physicists, at least so far as it concerns
problems strictly confined to physics. However, they have not completely trickled down to
other sciences and surely not to the life of everyday.
Thus most of todays physicists do not seem to realize the philosophical and
spiritual implications of their theories. Many of them actively support a society

118
119

Feedback!
From lower wage countries like China.

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which is still based on the mechanistic, fragmented world-view, without seeing


that science points beyond such a view, towards oneness of the universe which
includes not only our natural environment but also our fellow human beings.
F. Capra, The Tao of Physics, p. 298.

The system view and its characteristics have surely not yet reached the minds of those
who have the power and the authority to take political and economic decisions on the microlevel or on the macro-level. In that respect, it did not take much time for the board of directors
of General Motors in Detroit to reject the proposals of Walter Reuther120. But a computer can
manage a larger number of relations between a lot of variables in a short period of time. So
with the help of a computer one can construct econometric models which can handle much
more complex problems than a linear, one-dimensional profit and loss account of a company.
A computer that runs an econometric model is all by all a stupid calculus machine. Human
intellect has to feed it with data and instructions to manipulate those data. The process of
creative thinking and the proposal of new hypotheses have to be done by a human being. The
union leader W. Reuther must be credited for having formulated a daring and a priori
rejectable proposition. However, this proposition has been verified in theory a posteriori, and,
moreover, it has proved to work in practice!
This process of creative thinking has been described in a very clarifying way by
Edward de Bono in his book Lateral Thinking, as already discussed in appendix A. He states
that scientific labor is essential composed of vertical thinking: nature and reality are studied
based on a certain model - a framework, a paradigm, a signal-space, a hole - handed to us by a
few highly gifted individuals. As J. Rifkin has formulated in the beginning of this chapter:
Every worldview has its architects - those who sketch out the blueprint that the rest of us end
up filling in. Or digging out, as de Bono would formulate it. He represents scientific activity

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as the digging and enlarging of holes shown to us by those architects: we penetrate deeper and
deeper into the matter, but always on the same place, in the same direction and with the same
tools and techniques. To formulate the same in terms of our model on communication
described in appendix A: we keep going on making ever new linear combinations with the
same information-unity-vectors from the signal-space, in which we feel so comfortable.
But sometimes during this digging-session it happens that we strike upon a hard layer,
so we fail to get any deeper: the phenomena we are facing can no longer be framed in our
signal-space, or even worse, they are in contradiction with established concepts and opinions.
The tools and methodology we use are no longer fitted to the hard reality. We then can try
to adapt these tools, we can refine or tune the theory to include the exceptions in order to get
through the hard layer, but this policy does not necessarily leads us to the expected result.
Another approach is not to stay in the same hole, but, on the contrary, to leave it and
to start to dig a new hole on another place, based on sheer luck or on some intuitive line of
reasoning. So we first move in one or several horizontal directions before we start to dig
again. Hence the term lateral thinking. It is very well possible that we do not have the
expected result on the new spot, but one can also imagine that the new hole - the new point of
view, the new paradigm - indeed allows us to dig deeper in reality than the old one. The
chosen spot can seem totally illogical to us a priori, just because it does not fit in the existing
hole. But a posteriori it might proof to be the right approach to the problem: we can explain
more phenomena using the new paradigm, it is more in tune with reality.
The philosophy of ancient Greece was cerebral and speculative, i.e. almost
exclusively metaphysical and descriptive. The theory was not made hard by
practical evidence. But from Newton until 1900 science has known the
supremacy of the pre-experiment: The laws of nature and theories were
formulated based on previously done experiments. So these theories were in

120

See First paradox in section 3.1.4 on profit.

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essence statistical. But after 1900 began a period of the post-experiment:


science starts from intuition and mathematical peculiarities to formulate
theories and hypotheses, which are experimentally verified later on, in some
cases even decades later - think of the work of Planck, Einstein, Bohr and de
Broglie.
Hence the following statement of Einstein: A theory can be sanctioned by
experiments, but there is no way that leads from the experiments to the
formulation of a new theory.
J.B. Quintyn, A Cultural Journey Through Biology, Mathematics, Cosmology,
Theory of Relativity, Cosmogony, p. 181.

It is a historical fact that the greatest realizations and innovations in science are made
by individuals who dared to think laterally, against the established academic ideas, and who
formulated their hypotheses on the basis of intuitive perception, and not by those who only
worked in a vertical academic direction, confining themselves to generally accepted concepts
and theories, and who were neglecting or, even worse, rejecting the experimental evidence
that proved they were wrong.
It is frightening to see that even in the field of scientific judgment there are
already signs of self-immunization. This is apparently a consequence of the
massification of science: too many scientists are no longer receptive for new
ideas. This process of self-immunization in science could well lead to a
shrinking of our philosophical knowledge and heritage.
K. Lorenz, Our Last Chance, pp. 151-152.

It is only when he is faced with phenomena that cannot be explained within his wellknown paradigm that a scientist might be spurred on to change his signal-space. Necessity is
the driving force of creativity. He might experience such a situation as a crisis: he realizes
that the present theory is failing, but he does not know yet in which direction to look for a
solution. But at the same time he has the opportunity to enlarge his view.
The Chinese, who have always had a thoroughly dynamic worldview and a
keen sense of history, seem to have been well aware of this profound
connection between crisis and change. The term they use for crisis - wei-ji is composed of the characters for danger and opportunity.
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F. Capra, The Turning Point, p. 7.

However, the transition from the old to the new paradigm does not happen overnight.
A certain amount of time and effort is needed. First an individual or a small group has to have
the intuition, the creativity and the guts to start to dig a new hole on a different place, with the
risk to fail and thus to loose their scientific authority. In a way these pioneers have to
transcend themselves. They have to learn a new language, they have to give shape to a new
signal-space in order to speak to nature and to each other. And finally they must try to
communicate their new ideas to those who are still thinking in terms of the old paradigm, they
have to stimulate the others to come out of the old paradigm, in which they feel so warm and
comfortable, in order to explore new and unfamiliar domains. This is not an easy thing to do,
on the contrary, sometimes it is a dangerous adventure.
Tradition tells that as a result of a hostile religious and social reaction,
philosophers were accused of atheism and were either exiled or put to death.
This early recall to order may serve as a symbol of the importance of social
factors in the origin, and above all the growth, of conceptual innovations.
Prigogine, Stengers, Order out of Chaos, p. 39.

As explained in appendix A on communication and education, those who are still in


the old hole must do an effort on their own to learn the new way of thinking. Together with
Marilyn Ferguson we refer once more to the story of Flatland.
In the durable Victorian fantasy, Flatland, the characters are assorted
geometric shapes living in an exclusively two-dimensional world. As the story
opens, the narrator, a middle-aged Square, has a disturbing dream in which he
visits a one-dimensional realm, Lineland, whose inhabitants can move only
from point to point. With mounting frustration he attempts to explain himself that he is a Line of Lines, from a domain where you can move not only from
point to point but also from side to side. The angry Linelanders are about to
attack him when he awakens.
Later that same day he attempts to help his grandson, a little Hexagon, with his
studies. The grandson suggests the possibility of a Third Dimension - a realm

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with up and down as will as side to side. The Square proclaims this notion
foolish and unimaginable.
That very night the Square has an extraordinary, life-changing encounter: a
visit from an inhabitant of Spaceland, the realm of Three Dimensions.
At first the Square is merely puzzled by his visitor, a peculiar circle who seems
to change in size, even disappear. The visitor explains that he is a Sphere. He
only seemed to change size and disappear because he was moving towards the
Square in Space and descending at the same time.
Realizing that argument alone will not convince the Square of the Third
Dimension, the exasperated Sphere creates for him an experience in depth121.
The Square is badly shaken:
There was a dizzy, sickening sensation of sight that was not like seeing; I saw a
Line that was not a Line; Space that was not Space. I was myself and not myself.
When I could find my voice, I shrieked aloud in agony, Either this is madness or
it is Hell.
It is neither, calmly replied the voice of the Sphere, It is Knowledge122; it is Three
Dimensions. Open your eyes once again and try to look steadily.
Having had an insight into another dimension, the Square becomes an
evangelist, attempting to convince his fellow Flatlanders that Space is more
than just a wild notion of mathematicians. Because of his insistence he is
finally imprisoned, for the public good. Every year thereafter the high priest of
Flatland, the Chief Circle, checks with him to see if he has regained his senses,
but the stubborn Square continues to insist that there is a third dimension. He
cannot forget it, he cannot explain it.
M. Ferguson, The Aquarian Conspiracy, pp. 68-69.

On the subject of the limitations of language and the consequences of these in times of
changing values, M. Ferguson tells us the following.
In the late 1930s a Polish count, Alfred Korzybski, pointed out yet another
aspect of consciousness - language. Language moulds thought, he said, laying
out the principles of General Semantics. We confuse it with reality; it creates
false certainties. With words we try to isolate things that can only exist in
continuity. We fail to see process, change, movement. If we are to experience
reality, Korzybski and his followers said, we must acknowledge the limits of
language.

121
122

The Sphere pushed the Square out of Flatland into Spaceland.


Gnosis, direct personal experience.

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In Wisdom of the Heart, essays published on the eve of World War II, Henry
Miller warned of the difficulty of expressing new realities within the limits of
our language: There exist today all over the world a number of modern spirits
who are anything but modern. They are thoroughly out of joint with the times,
and yet they reflect the age more truly, more authentically than those who are
swimming with the current. In the very heart of the modern spirit there is a
schism. The egg is breaking, the chromosomes are splitting to go forward with
a new pattern of life. Those of us who seem most alien... are the ones who are
going forward to create the life as yet inchoate. We who are affected cannot
make ourselves clear... This is the era when apocalyptic visions are to be
fulfilled. We are on the brink of a new life, entering a new domain. In what
language can we describe things for which there are as yet no new names? And
how describe the relations? We can only divine the nature of those to whom
we are attracted, the force to which we willingly yield obedience.
M. Ferguson, The Aquarian Conspiracy, p. 53.

The economists and politicians who still base their ideas on the mechanistic
worldview are faced with a very hard layer in their hole.
It is a striking sign of our time that the people who are supposed to be experts
in various fields can no longer deal with the urgent problems that have arisen
in their areas of expertise... As we examine the sources of our cultural crisis it
will become apparent that most of our leading thinkers use outdated
conceptual models and irrelevant variables.
F. Capra, The Turning Point, pp. 5-6.

Even economists agree on this.


Current economic thought reflects what can only be called a massive state of
confusion... This is really unfortunate because faulty economic thought
frequently leads to economic disasters.
Ravi Batra, The Great Depression of 1990, pp. 84, 117.

It is time that those economists and politicians climb out of their hole and start to help
digging on the place which is indicated to us by the system-theory way of thinking. We
believe it would be a very interesting and rewarding project to study the ideas and
conclusions, which are outlined in this book on a rather intuitive basis and with limited
resources, in a more scientific and methodological way. The rewards are surely worth the
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effort. If it is true that a voluntary redistribution of wealth could be an alternative for


economic and financial crises, class struggle or for wars, then this crisis offers us the chance
to solve the economic crisis in the industrialized countries and the Third World countries as
well as to reduce the political and economic tensions in the world and thus the risk for war,
and to install a compassionate New World order.
The danger or the costs involved if we dont make the effort are also known to us: the
not so brilliant outlook of a military confrontation on world scale between different economic
and political power structures. Hence, it seems to be worthwhile to spend the effort, but then
it has to be done very urgently and on a large scale. It will be of the utmost importance to
convince those who are still struggling with the hard layer in their hole to leave their outdated
paradigm and to help to construct a new value system adapted to the holistic world view.
Cultural transformations of this magnitude cannot be prevented. They should
not be opposed but, on the contrary, should be welcomed as the only escape
from agony, collapse, or mummification. What we need, to prepare ourselves
for the great transition we are about to enter, is a deep reexamination of the
main premises and values of our culture, a rejection of those conceptual
models that have outlived their usefulness, and a new recognition of some of
the values discarded in previous periods of our cultural history. Such a
thorough change in the mentality of Western culture must naturally be
accompanied by a profound modification of most social relationships and
forms of social organization - by changes that will go far beyond the
superficial measures of economic and political readjustment being considered
by todays political leaders.
During this phase of revaluation and cultural rebirth it will be important to
minimize the hardship, discord, and disruption that are inevitably involved in
periods of great social change, and to make the transition as painless as
possible. It will therefore be crucial to go beyond attacking particular social
groups or institutions, and to show how their attitudes and behavior reflect a
value system that underlies our whole culture and that has now become
outdated. It will be necessary to recognize and widely communicate the fact
that our current social changes are manifestations of a much broader, and
inevitable, cultural transformation. Only then will we be able to approach the
kind of harmonious, peaceful cultural transformation described in one of
humanitys oldest books of wisdom, the Chinese I Ching, or Book of Changes:
The movement is natural, arising spontaneously. For this reason the
transformation of the old becomes easy. The old is discarded and the new is
introduced. Both measures accord with time; therefore no harm results.
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The model of cultural dynamics that will be used in our discussion of the
social transformation is based in part of Toynbees ideas about the rise and fall
of civilizations; on the age-old notion of a fundamental universal rhythm
resulting in fluctuating cultural patterns; on Sorokins analysis of the
fluctuation of value systems; and on the ideal of harmonious cultural
transitions portrayed in the I Ching.
The major alternative to this model, which is related to it but different in
several aspects, is the Marxist view of history known as dialectic or historical
materialism. According to Marx, the roots of social evolution lay not in a
change of ideas or values but in economic and technological developments.
The dynamics of change is that of a dialectic interplay of opposites arising
from contradictions that are intrinsic to all things. Marx took this idea from the
philosophy of Hegel and adapted it to his analysis of social change, asserting
that all changes in society arise from the development of its internal
contradictions. He saw the contradictory principles of social organization as
being embodied in societys classes, and class struggle as a consequence of
their dialectic interaction.
The Marxist view of cultural dynamics, being based on the Hegelian notion of
recurrent rhythmic change, is not unlike the models of Toynbee, Sorokin, and
the I Ching in that respect. However, it differs significantly from those models
in its emphasis on conflict and struggle. Class struggle was the driving force of
history for Marx, who held that all important historical progress was born in
conflict, struggle, and violent revolution. Human suffering and sacrifice was a
necessary price that had to be paid for social change.
The emphasis on struggle in Marxs theory of historical evolution paralleled
Darwins emphasis on struggle in biological evolution. In fact Marxs favorite
image of himself is said to have been that of the Darwin of sociology. The
idea of life as an ongoing struggle for existence, which both Darwin and Marx
owed to the economist Thomas Malthus, was vigorously promoted in the
nineteenth century by the Social Darwinists, who influenced, if not Marx,
certainly many of his followers. I believe their view of social evolution
overemphasized the role of struggle and conflict, overlooking the fact that all
struggle in nature takes place within a wider context of cooperation. Although
conflict and struggle have brought about important social progress in our past
and will often be an essential part of the dynamics of change, this does not
mean that they are the source of this dynamic. Therefore, following the
philosophy of the I Ching rather than the Marxist view, I believe that conflict
should be minimized in times of social transition.
F. Capra, The Turning Point, pp. 15-17.

We will return on this in appendix D. So it will be very important to convince those


people and interest groups who see war as a lucrative business that their attitude and their way
of thinking is outdated: by their own efforts to develop the weapon industry to such a high
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qualitative and quantitative degree, they have made war impossible a priori: war leads to
complete self-destruction! They have defeated their own objectives. Let us hope that by now
they have started to realize this fact, and if this is the case, that they are shown the way
towards the alternative. They can still make a positive contribution in the practical realization
of the alternative as they have quite some influence in the political and economic decision
making process.

Ring the bells that still can ring.


Forget your perfect offering.
There's a crack in everything.
That's how the light gets in.
Leonard Cohen, Anthem.
B.3 Moral considerations
The economic principles and the conclusions outlined in this study are based on the
systems view, the holistic way of thinking. This was clearly demonstrated in the previous
section. But these ideas have also a more profound and even spiritual foundation.
The lesson we have learned from the story with the rubber cylinder and from the
paradoxical but true story on GM has been shown to be in line with concepts from modern
physics and the system view, but also with lines which are already thousands year old:
In order to contract a thing, one should surely expand it first.
In order to weaken, one will surely strengthen first.
In order to overthrow, one will surely exalt first.
In order to take, one will surely give first.
This is called subtle wisdom.
Loa Tzu

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The philosophy that we first have to give to the people in need in order to enrich
ourselves can be traced back to Taoism wisdom of ancient times. But the same rule can also
be found in a lot of other religions, if not to say all.
An old Jewish story goes like this. A man dies. In the world beyond he is allowed to
choose himself between heaven and hell123, which is, indeed, rather exceptional. The man
does not like to take the risk to buy a pig in a poke, so he asks for a short visit to both places
before making a decision. First he is shown hell: a beautiful decorated room with long tables
dressed with the most delicious food and drinks. Then a door is opened and the guests of
Beelzebub enter the room, all dressed in magnificent clothes. But all persons seem to have the
same handicap: both their arms are stiff, they cannot bend them, so they cannot reach to their
mouth. From the moment they see the food, they rush toward the tables. In doing so they push
each other aside with one arm and try to grab everything they can with the other, much more
than they can eat. But then they fail to bring the delicious food to their mouth, and out of
anger and despair, they start to hit each other with the duck l'orange and that sort of things.
As Jean-Paul Sartre would say : L'Enfer, c'est les autres.
After this event, the man is given a glimpse of heaven: exactly the same scene. The
same beautiful room with the same tables full of delicacies. Again the guests enter the room,
dressed in exquisite clothes and again with two stiff arms. Each soul calmly walks towards
the table, they all carefully select a piece of food... and reach it to the mouth of the person
next to them. All this happens in a serene atmosphere. They all enjoy the delicious banquet.
So here we could say: Le ciel, c'est les autres.

123

Heaven is where the policemen are British, the cooks are French, the mechanics German, the lovers
Italian and everything is organized by the Swiss. Hell is where the cooks are British, the mechanics are French,
the lovers Swiss, the policemen German, and everything is organized by the Italians.

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Is it not a fact that we create a hell on earth for ourselves and the others by being
greedy, by collecting as much as possible for ourselves, much more than we really need or
even are able to consume in a lifetime. This attitude causes all kinds of prodigality and all
kinds of conflicts among countries, social classes, cultures... conflicts that nevertheless, in the
long run, lead towards a redistribution of the wealth anyhow, as history teaches us. Aren't
redistribution and sharing of wealth before a conflict arises a much more humane and rational
alternative?
In most religions we can find criticism on excessive consumption while sharing with
the poor is considered to be a virtue. The pursuit of excessive wealth while at the same time
letting others starve to death is described as immoral and vicious. This is also a major
conclusion of this study: an imbalance between subsystems in society - social classes and
geographic classes or countries -, due to the fact that one group has much more than the
others, leads to tensions and problems, both inside the subsystems, because of saturation of
the markets, as among the subsystems, because of the striking contrasts in material wellbeing. But we have also shown that a redistribution of material wealth towards those most in
need leads to more wealth for more people and ultimately towards a world with fewer
conflicts inside and among socioeconomic subsystems.
We can ask ourselves the question if the founders of these religions were the skilled
economists of their time, as some economists of today are considered to be the high-priests of
economic politics. By the way, what is religion? Is it just a collection of rules and dogmas,
which must be accepted and obeyed without questioning, in order to subject oneself to an
unknown and mysterious divine being and to be able to rest on ones laurels in the world
beyond? Or is it a tool of repression, to make the people obedient and afraid of the mighty
church? Or is it opium for the people? And how did these rules originated? We obviously

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once more reached a point in this book were we are formulating more questions then we are
giving answers. But again we will try to suggest an answer to these questions.
First of all we dare to say that physical pain, just as fear, has a positive function for the
survival of living beings. Indeed, imagine ourselves to be born without the stimuli of physical
pain. In that case most of us would not have survived childhood or at least have suffered
serious injuries in growing up: some would have eaten part of their tongue, others would have
cut their fingers or mutilated their face in learning to eat with knife and fork. We can even
question the possibility of life and propagation at all without physical pain: without pain,
humanity probably would have become extinct. Pain is a signal for the human being that
something is wrong. It is a feedback signal from its surroundings via his body to his mind and
consciousness that something is not as it should be, that he is doing something wrong to
himself or that something wrong is happening to him. If he neglects this signal, he is taking
the risk to destroy himself or to get serious injuries and mutilations. As Ortega y Gasset has
put it: The body is the policeman and the teacher of the spirit.
A society shows a lot of similarities with a living organism. In order to survive, a
society has to follow certain rules. These rules can be known or unknown. If these rules are
not obeyed, then this will manifest as pain for the society. In this respect we can see all the
phenomena associated with economic crises such as unemployment, high budget deficits,
inflation, pollution, danger of war etc., as signs that we are on the wrong track. These
feedback signals are trying to warn us: Look out, danger! You are going the way of selfdestruction!
If we are confronted with signals that indicate to us that we are on the wrong way,
then it is rather shortsighted of us to neglect them or just to cure those symptoms. As
Paramahansa Yogananda has formulated it: Merely to allay pain, without eliminating the

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cause of it, would be to allow the disease to increase without warning, because pain is the
trouble signal, not the trouble itself. To try to solve unemployment by increasing military
expenditures or by creating other useless tasks will not solve the crisis. To grant more
economic advantages to business in order to increase profit ratios without introducing
fundamental changes into our economic system and without adopting a new attitude towards
the Third World will not lead us to a lasting solution of the economic crisis.
Similarly we can say that the private company is not the unit of survival of the
socioeconomic system. What survives is the private-company-in-its-environment! An
enterprise that reasons and acts only in terms of its own survival - at the expenses of others will ultimately destroy its environment... and hence also itself, as it has destroyed his raison
d'tre. As suggested in section 3.1, an economic policy based on wage reductions in order to
create better conditions for private business will lead to the collapse of that very same system,
as it is based on excessive consumption.
By his own, sometimes painful experiences man learns what to do and what not to do
in order to survive together with his environment and surrounding. If each individual would
have to go through all possible experiences in order to learn the lessons of life, then he would
have little chance to survive. Transfer of practical experience from one generation to another
is important: the older generation hands down knowledge of the snakes that are poisonous, the
mushrooms we can and cannot eat, the animals that are dangerous, our elders teach us that we
have to watch the traffic very carefully before we cross the street... We learn from errors
made by former generations. A lot of these rules are simple and self-evident and thus rather
easy to transmit and to accept. The idea of physical pain on itself is already a sufficient
argument. Other rules are not so obvious and much more difficult to hand down, especially in
a world where everything is related to each other and where certain rules valid on the micro-

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level no longer apply on the macro-level! In this case the pain does not necessarily manifest
itself immediately, it can take some time before there are signs that things go wrong. The
relationships between that pain and the wrong actions of the past are not always clear: the
trouble-signal may manifest itself on the macro-level for the society as a whole, so one does
not see that the actions of a small group in society are the real cause of the problems that
affect the society as a whole.
In the previous sections, we criticized the blind faith in rationality: because our field
of perception is limited anyhow, our rationality is also limited.
The belief in the certainty of scientific knowledge lays at the very basis of
Cartesian philosophy and of the worldview derived from it, and it was here, at
the very outset, that Descartes went wrong. Twentieth-century physics has
shown us very forcefully that there is no absolute truth in science, that all our
concepts and theories are limited and approximate. The Cartesian belief in
scientific truth is still widespread today and is reflected in the scientism that
has become typical of our Western culture. Many people in our society,
scientists as well as non-scientists, are convinced that the scientific method is
the only valid way of understanding the universe. Descartes method of
thought and his view of nature have influenced all branches of modern science
and can still be very useful today. But they will be useful only if their
limitations are recognized. The acceptance of the Cartesian view as absolute
truth and of Descartes method as the only valid way to knowledge has played
an important role in bringing about our current cultural imbalance.
F. Capra, The Turning Point, pp. 42-43.

Rational knowledge of man on the subject of his interactions with his fellow human
beings has always been partial, and will always be partial, although he may expand his
knowledge.
Exact sciences, however important and admirable they might be, are still a
one-sided approach of nature and reality. They focus exclusively on what can
be quantified and expressed in mathematical expressions. On the subject of
values they have nothing to say. But, as a consequence of this sheer
quantitative approach, a great part of reality remains hidden for mankind. This
one-sidedness can have dramatic consequences, especially in the fields of
economy, sociology, psychology, history, study of literature, etc.
M. Wildiers, De Standaard, March 10th 1984.
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At each stage in the evolution of human knowledge, part of the characteristics and
mechanisms of the relations between human beings, of the functioning of human beings in
their surrounding, and of their interaction with their environment have remained obscure to
rational thinking. It is impossible for us to know everything. And thus, as a result of the fact
that some mechanisms and principles of reality remain hidden to our rational thinking,
problems arise, causing pain and suffering on the individual level as well as on the level of
society.
However, during the ages there always seem to have been individuals who were gifted
with a profound vision on the functioning of man and nature, prophets, individuals who could
as if it were transcend the limitations of their own small world and who could understand
relations and mechanisms active on a plane higher than that of the individual person or the
local community. Out of this vision they then deduced rules for the people in order to
supplement the limited rational knowledge of their time and to avoid pain and suffering.
However, these rules could not always be transferred on an intellectual basis. According to
the possibilities and needs of time and the stage of evolution of mankind, these rules have
been formulated and taught to the people in the form of moral prescriptions, embedded in
some religious system. In this respect we see that the rules formulated by the patriarchs of the
Jewish people contain the basic principles on hygiene and diet124. The rules formulated by the
Hindu-priests contain the description of how to stick to a healthy diet in a tropical climate.
Next to moral guiding rules for the individual, such as the Ten Commandments, most
religions also provide a framework for the functioning of society, even the economy. If this
framework is followed, it is said to lead to prosperity for both the individual and the society

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as a whole. Violation of these rules is called a sin. In this respect we can say that a sin is not a
violation of the will of God, but a crime against ourselves, our fellow human beings and
Nature. At the end of the road, we will be the victims of our wrong actions.
Proceeding with this line of reasoning, we could define religion as a system of rules,
both for the individual person as for society as a whole, designed to avoid personal and social
pain and suffering. The pursuit of happiness is indeed the basis of most religious and
philosophical systems, whether they assume the existence of a Supreme Being or not - so also
Humanism. So religion is not something to practice once a week or on regular times of the
day in order to follow the rules and to salve once conscience, just as one practice a sport from
time to time in order to keep the body in shape. It is something to live by each moment of the
day.
In 1902 William James, the great American psychologist, redefined religion
not as dogma but as experience - the discovery of a new context, an unseen
order with which the individual might achieve harmony.
M. Ferguson, The Aquarian Conspiracy, p. 49.

The guiding principles of a religion are not a substitute for rational and scientific
attained knowledge, but on the contrary should be considered as a supplement to this
knowledge, which always will remain partial. So both science and religion have their raison
d'tre, they are not mutually exclusive but rather complimentary.
Mystics understand the roots of the Tao but not its branches; scientists
understand its branches but not its roots. Science does not need mysticism and
mysticism does not need science, but man needs both.
F. Capra, The Tao of Physics, p 297.

By the way, here's a deep one:

124

Meat and diary products should be kept separately. The European Commission has made a directive

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To believe is to accept without experimental proof.

Not to believe is not to accept, but also without experimental proof.

So what matters is experimental proof!

Somehow the founders of most religions seemed to have gained a more profound
insight in the functioning of society and nature than their average fellow human beings. But in
transmitting their wisdom, they were faced with two major obstacles. First there were the
shortcomings of the communication process itself, so they were forced to formulate their
wisdom as religious prescriptions, often in the forms of stories and tales, and to present
heaven and hell as reward and punishment. And secondly, they had to take into account the
failings that the individual adopts when he interacts with his fellow human beings without
considering himself as an integrated part of a larger system, such as greed, egotism, excessive
ambition and lust for power... In contrast with political and social reformers such as Marxists
and socialists, the founders of religious systems have seldom tried to establish a new ideal
structure of society, as they were aware that any such a structure degrades to an instrument of
corruption and exploitation if the people that function in that structure on its several layers are
far from ideal. This holds for capitalism as well as for communism and socialism, but also for
the established churches themselves! The latter have reached their period of expansion and
maturity long after the founders had established their religious principles, so the essence of
the teachings was already fading: moral prescriptions based on intuitive wisdom and
reflection were replaced by dogmatic doctrines, in the first place intended to assure the
continuity of the (power of the) church and the political power structure. Parts of the doctrines
were taken out of their context to prove the supremacy of one race over the other and as an

of this rule for restaurants.

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excuse for exploitation, torture and war..., well, just recall your lessons in history at high
school and see the news on television.
The advice of the religious founders was focused on self-improvement in order to
create a better world: when each individual works on his own faults then society - as the
resultant of many individuals - will follow for sure. They proposed a change bottom-up
instead of from the society towards the individual.
We urgently need to redefine our system of values on the level of society, but perhaps
even more on our own individual level. This is also one of the conclusions of Herman Van
Der Wee, Belgian professor in the history of economy, at the end of his book The Broken
Circle of Affluence.
The establishment of a new international economic order is not limited to the
problem of fulfillment of material needs only. Other aspirations of man must
be met. Fr. Hirsch has drawn our attention to the ever-increasing tensions that
exist between the material and social effects of the affluent society. As
material needs are ever more fulfilled, there seems to be a growing number of
social needs and social tensions. A new kind of social competition has arisen:
people want to take a better position on the social ladder in order to stay
ahead of the crowd. But in essence this results in an enormous waste of
energy and resources: the infrastructure in order to meet this new demand for
social upgrading and differentiation demands a permanent and ever increasing
investment in the production of goods and services that are not essential. This
also leads to the consolidation of inequality. The solution can only be found in
the transcending of material aspirations by mankind. A spiritual dimension, an
existential Weltanschauung must be added to the material craving... Social
systems that are focused only at the optimization of economic growth and
neglect the spiritual and existential aspirations of individuals will never be able
to bring complete satisfaction... The solution to these tensions cannot be found
on the level of society only. A new world is not only created by revolutions
and the establishment of new social systems, but essentially in the heart of
each individual... A new internal revolution is needed, a new ideology in order
to stimulate the development of society and the world. The Western countries
have, in this regard, the material and spiritual possibilities to be innovative, to
open new horizons for a better world where rationality, creativity and equality
can be combined in a new harmony. This is the ultimate challenge of this
crisis.
H. Van Der Wee, The Broken Circle of Affluence, pp. 400-401.

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This challenge will be the subject of appendix D.


We hope that in this chapter we have succeeded in refuting the ideas of John Locke
and Adam Smith and that the reader has become aware of the fact that pure self-interest is
not and should not be and can not be the only basis for the structuring and the functioning of a
social and economical system, but that, on the contrary, moral and spiritual considerations
should be an integral part of the principles on which future social and economic order will be
built.

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Appendix C Economy and dissipative structures

A lot of people think that the history of the world is predestined and that it has
a goal. In reality the evolution follows unpredictable routes. On this reflection
we have based our belief in the possibility of creativity, freedom and, above
all, sense of responsibility of mankind.
K. Lorenz, Our Last Chance, p 10.
One reason the idea of historical determinism has traditionally invited so much
hostility can be traced to a popular misconception. True, the concept means
that history follows a set pattern; that society evolves and undergoes
transformations in tune with a discernible rhythm. But it does not imply, as is
commonly believed, that humanity cannot make its own destiny; nor does it
signify fatalism and resignation before the might of the Providence. All
historical determinism means is that, while man indeed is the architect of his
own fate, he has to operate within bounds determined by a higher principle:
Nature.
R. Batra, The Great Depression of 1990, p. 24.

In system theory, it has been shown that for a certain set of systems, one can force
them to evolve to a predefined end-state by applying a control-policy. But the path towards
that end-state is usually fluctuating: the several state-variables, output-variables and also
the control-variables oscillate around certain values. These oscillations are determined by the
system equations (eigen-values, eigen-frequencies). This is the case for systems in the
linear region. But if some state-variables show signs of saturation, non-linearities can
occur, resulting in seemingly chaotic behavior. So both statements by K. Lorenz and R. Batra
have their region of validity. And here's the reason why.
C.1 Energy and entropy
Western society has been influenced for a great deal by Newtonian physics and the
advance of the method of science. From the 17th and 18th century onward, as contrasted with
the Hellenistic way of thinking, scientists confined themselves to the study of what can be
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measured, quantified and expressed in mathematical expressions - mathematical expressions


which then allowed them to make predictions of the experimental results. This mathematical
approach towards reality has had great influence on the way man perceived the world.
For Aristotle, physics was the science of processes, of changes that occur in
nature. However, for Galileo and the other founders of modern physics, the
only change that could be expressed in precise mathematical terms was
acceleration, the variation in the state of motion. This led finally to the
fundamental equation of classical mechanics, which relates acceleration a to
force F:
m.a =

dr
m .
dt

(1)

Henceforth physical time was identified with the time t, that appears in the
classical equation of motion. We could view the physical world as a collection
of trajectories, such as the figure C.1. shows a one-dimensional universe.
A trajectory represents the position X(t) of a test particle as a function of time.
The important feature is that dynamics make no distinction between the future
and the past. Equation (1) is invariant with respect to the time inversion t -t
: both motions A, forward in time, and B, backward in time are possible.
However, unless the direction of time is introduced, evolutionary processes
cannot be described in any nontrivial way.
Ilya Prigogine, From Being to Becoming, p. 2.

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X(t)

X(t)

Figure C.1.

World lines indicating the time evolution of the coordinate X(t)


corresponding to different initial conditions:
(A) forward in time; (B) backward in time.

So classical physics described an invariable world, a world without qualitative


evolution, where time is just a mathematical variable: the physics of being, as Prigogine has
labeled it. This is manifested in the law of conservation of energy, which states that the total
quantity of energy in the universe cannot change: energy can change from one form to
another - e.g. kinetic energy can change into potential or electrical energy and vice versa - but
the sum of all forms of energy remains the same.
Since the end of the 18th century, one has started to make distinction between useful
and not-useful energy, as not all transformations of energy are possible. In this respect we can
say that the transformation of kinetic energy into potential energy and vice versa cannot go on
forever, as some of the kinetic energy is lost as heat or thermal energy due to friction, and this
heat cannot again be transformed to potential energy. So in the course of time the amount of
potential and kinetic energy will decrease while the amount of useless thermal energy will

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increase. To describe this irreversibility, one has introduced the concept of entropy next to
that of energy.
As already mentioned, dynamics describe processes in which the direction of
time does not matter. Clearly, there are other situations in which this direction
does indeed play an essential role. If we heat part of a macroscopic body and
then isolate this body thermally, we observe that the temperature gradually
becomes uniform. In such processes, then, time displays an obvious onesidedness...
The second law of thermodynamics as formulated by Rudolf Clausius
strikingly summarizes their characteristic features. Clausius considered
isolated systems, which exchange neither energy nor matter with the outside
world. The second law then implies the existence of a function S, the entropy,
which increases monotonically until it reaches its maximum value at the state
of thermodynamic equilibrium:

dS

dt

... The second law of thermodynamics, then states that irreversible processes
lead to a kind of one-sidedness of time. The positive time direction is
associated with the increase in entropy.
Ilya Prigogine, From Being to Becoming, pp. 5, 6.

Entropy can be considered as a measure for disorder: in an isolated system, that has no
interaction with other systems, the disorder will increase in the course of time, structures are
degraded. In such an isolated system there will never again arise ordered structures just by
themselves. If, for example, hot water and ice are put together in a thermally sealed container,
then after some time one will have lukewarm water. And never again will one find ice and hot
water together in that same container if it is left by itself.
A clockwork, for example, is a relatively isolated system that needs energy to
run but does not necessarily need to interact with its environment to keep
functioning. Like all isolated systems it will proceed according to the second
law of thermodynamics, from order to disorder, until it has reached a state of

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equilibrium in which all processes - motion, heat exchange, and so on - have


come to a standstill.
F. Capra, The Turning Point, p. 291.

In nature, however, one does not only see this evolution from order to disorder or
chaos. Certain systems and organisms show strong tendencies towards more order.
Sometimes very complex structures and forms of organization become manifest. As an
example we can think of the evolution of an impregnated ovum towards a human being.
These evolutions, which in a way are also irreversible, seem to be in contradiction with the
entropy-law.
But we must stress the fact that the law of entropy is valid in isolated systems, which
have no exchange of matter nor energy with their surrounding world. As a matter of fact, such
systems are rather unusual and very often of a technical origin, created by man. In nature we
will rather find closed and open systems.

Closed systems exchange only energy with their surroundings, and no matter.

Open systems can exchange both energy and matter with other systems. Open
systems have the possibility of continuously importing free energy from the
environment and to export entropy. This means that entropy, in contrast to isolated
systems, does not have to accumulate in the systems and increase there. Entropy
can also remain at the same level or even decrease in the system (figure C.2).

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deS

diS>0

Figure C.2:

An open system in which diS represents entropy production


and deS represents entropy exchange between system and
environment.

So the evolution towards more order in an open or closed system is not in


contradiction with the second law of thermodynamics. An open or closed system interacts
with its surrounding and thus can be considered as an integral part of a larger system.
According to the second law of thermodynamics, entropy or disorder can continually increase
in the larger system if this is an isloated system., while order can increase in one or more of
its subsystems. And if the overall system is not islolated, but open or even closed, order could
even increase in all of its subsystems!
The book Entropy, A New Worldview of Jeremy Rifkin is in this respect wrong, as he
fails to recognize that the entropy law is only valid in isolated system, and the Earth is a quasi
isolated system: there is energy exchange with the rest of the Universe, as radiation of the Sun
is absorbed, used in all kind of physical, meteorological and biological processes, and law
valued thermal infrared radiation is expelled back to the Universe as heat. And there is even a
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small amount of matter that is exchanged: meteorites enter the atmosphere and satellites and
other space craft is sent into orbit or even to other planets. But this is can be neglected. The
Earth is an open system, with the Sun as its main energy source.
But how does this happen that not-isolated systems can increase their internal order?
Is there an underlying mechanism that governs this evolution? This question has fascinated
generations of scientists, as it is related to the question on the origin of the world and the
origin of life. According to the reductionistic approach in science, based on classical physics,
the origin of life is a result of sheer luck, and living organisms should be considered as an
accident, a pathological phenomenon in a pure materialistic dead world. By accepting pure
coincidence as the initial cause of life, every further questioning on the meaning of life
becomes irrelevant.
Classical thermodynamics was focused primarily on isolated systems in their state of
equilibrium - where entropy has reached a maximum and increase of entropy has stopped and on systems which are very near to this state of equilibrium - in which a deviation from
this equilibrium was considered as a temporal disturbance and in which evolution could only
lead towards the equilibrium state itself. During this evolution, the increase in entropy is very
small, the deviations from the equilibrium are small, so one can assume linear relations
between the increase of entropy and the different variables of the system. As a result of this
linearities, the mathematics to describe these systems are rather easy and well understood.
This explains why scientists have confined themselves for so long to the study and
exploration of this part of thermodynamics: they had found themselves a hole and they had
the tools to dig it deeper. We just mention two results that came out of this digging process,
and which will proof to be very important in the course of this discussion.
In 1931, Lars Onsager discovered the first general relations in non-equilibrium
thermodynamics for the linear, near-to-equilibrium region. These are the
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famous reciprocity relations. In qualitative terms, they state that if a force - say
one (corresponding, for example, to a temperature gradient) - may influence
a flux two (for example, a diffusion process), then force two (a
concentration gradient) will also influence the flux one (the heat flow)...
The general nature of Onsager's relations has to be emphasized. It is
immaterial, for instance, whether the irreversible processes take place in a
gaseous, liquid, or solid medium...
A second general result in this field of linear, non-equilibrium thermodynamics
bears mention here. We have already spoken of thermodynamic potentials
whose extrema correspond to the states of equilibrium toward which
thermodynamic evolution tends irreversibly. Such are the entropy S for
isolated systems, and the free energy F for closed systems at a given
temperature. The thermodynamics of close-to-equilibrium systems also
introduces such a potential function. It is quite remarkable that this potential is
the entropy-production P itself. The theorem of minimum entropy production
does, in fact, show that in the range of validity of Onsager's relations - that is,
the linear region - a system evolves towards a stationary state characterized by
the minimum entropy production compatible with the constraints imposed upon
the system....
The stationary state toward which the system evolves is then necessarily a nonequilibrium state at which dissipative processes with non-vanishing rates
occur. But since it is a stationary state, all the quantities that describe the
system, such as temperature concentrations, become time-independent.
Similarly, the entropy of the system now becomes independent of time.
Therefore its time variation dS = 0 vanishes. But we have seen that the time
variation of entropy is made up of two terms - the entropy flow deS and the
positive entropy production diS. Therefore dS = 0 implies that deS = - diS < 0.
The heat or matter flux coming from the environment determines a negative
flow of entropy deS, which is, however, matched by the entropy production
diS due to irreversible processes inside the system. A negative flux means that
the system transfers entropy to the outside world. Therefore at the stationary
state, the systems activity continuously increases the entropy of its
environment. This is true for all stationary states. But the theorem of minimum
entropy production says more. The particular stationary state toward which the
system tends is the one in which this transfer of entropy to the environment is
as small as is compatible with the imposed boundary conditions...
Linear thermodynamics thus describe the stable, predictable behavior of
systems tending toward the minimum level of activity compatible with the
fluxes that feed them.
Prigogine, Stengers, Order out of Chaos, pp. 137-139.

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For non-scientists this may all seem rather esoteric. But in the third section of this
appendix things will become clear when we will stress the importance of these conclusions in
relation with the evolution of socioeconomic systems.
Recent studies in thermodynamics have crossed the border of systems near to
equilibrium. In systems that are in a state far from equilibrium, the relations between the
different variables of the system are rather non-linear and one is confronted with phenomena
of a totally different nature. In linear systems, in a state near to equilibrium, the irreversible
process of increase of entropy can only lead towards the equilibrium. In non-linear systems,
in a state far from the equilibrium, this is not the case.
According to the second law of thermodynamics, isolated systems evolve toward the
state of thermodynamic equilibrium, regardless their initial state. Due to the supply of energy
and matter from the surrounding systems, open and closed systems can evolve towards a state
which is not the thermodynamic equilibrium, but which is notwithstanding stable: an
equilibrium of a higher order. This principle has been studied in great detail by Professor Ilya
Prigogine of the University of Brussels, who was granted the Nobel Prize chemistry in 1977
for his pioneering research and the elaboration of the theory of dissipative structures.
C.2 Dissipative structures
The study of the behavior of open and closed systems in states far from the
thermodynamic equilibrium has resulted in a new branch in thermodynamics, which
transcends classical thermodynamics and where non-classical concepts are used such as
history of a system, order and stability as a result of fluctuation, consecutive instabilities and
catastrophes in systems, and coherence of a system as a whole.

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C.2.1 The origination of dissipative structures


Open and closed systems interact with their surrounding world: they both exchange
energy with other systems, open systems also exchange matter. In irreversible processes in
isolated systems near the state of equilibrium, entropy increases while ordered structures are
destroyed. In open and closed systems, on the contrary, which are in a state far from
thermodynamic equilibrium, ordered structures can evolve spontaneously - this mechanism
will be explained later in this section. These ordered structures are called dissipative
structures. These are structures which themselves maintain energy and matter penetration by
way of exchange with the environment and which give rise to the self-organization of
globally stable structures over extended periods of time125.
By extracting energy and matter - i.e. ordered structures - from their surrounding
world and by degrading these, using their components as input in their internal process of
self-renewal, these systems are able to maintain their state far from the thermodynamic
equilibrium, so that a stable structure originates. During this process entropy (disorder) is
produced, which is then dissipated towards the surrounding systems in the form of
degenerated matter (waste) and degenerated energy (heat)126. The construction and
maintenance of such an internal organization and order is done at the expense of the
surrounding systems: there is a permanent interaction with the outside world needed in order
to extract highly ordered energy and matter from them and to expel low valued waste and
thermal energy towards those same surrounding systems. However, the construction of such
an internal order is, within certain boundaries, independent from the surrounding systems: the

125

E. Jantsch, The Self-Organizing Universe, p. 29.


Think of your own body as a dissipative structure: you eat delicious food, which smells good and
tastes good and looks good, which is digested in your body ... and which is then dissipated as something that
is lukewarm and stinks. But this material, in turn, can form the input for other living organisms: plants, etc.,
which in turn end their life on your table!...
126

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system itself has a certain autonomy with respect to the outside world in the way it organizes
its internal structure. So the dissipative structures are also called self-organizing systems.
Besides this duality of autonomy from the outside world for the organization of its
internal order on the one side, and permanent interaction and exchange of energy and matter
in order to feed the construction and maintenance of that structure on the other side,
dissipative structures are subject to still another - at first sight - paradox: their stability in a
state far from the thermodynamic equilibrium. Dissipative structures continuously extract
ordered structures from their surrounding world in order to organize and maintain their
internal structure. This policy prevents them from slipping down towards the static
equilibrium state where entropy (disorder) is at its peak, where the increase of entropy has
stopped, where time and evolution have stopped and where the system is dead so to speak. On
the contrary, the system keeps on functioning in a state far from equilibrium. At the same time
self-organizing systems tend to have a high degree of stability, but this is not a static stability
as with the thermodynamic equilibrium, characterized by invariableness and stiffness, but
rather a dynamic stability, in which the overall structure of the system remains the same while
there is permanent change in its components. This process of permanent changes occurs
according to rhythmic oscillations: organized dynamic structures are a result of rhythmic
patterns.
The dynamic stability of a self-organizing system on the macro-level is based on
permanent oscillations on the micro-level. These oscillations on the micro-level play also a
basic role in the origination itself and the evolution of dissipative structures. When the
deviations from the equilibrium state reach a certain level, for example due to positive
feedback, this can result in a qualitative change in the nature of the system itself.

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The system stabilizes in a new organization structure quite different from its nearequilibrium state and characterized by higher energy extraction from its surrounding world
than in the former equilibrium. The new order that has originated in this way can be of a
temporal or a spatial nature. In temporal dissipative structures, the passing of the threshold
triggers the system to leave the equilibrium state so it comes in a loop: the system keeps on
going through the same cycle according to a fixed pattern and in a fixed amount of time, both
specific for the origination structure the system has reached.

Figure C.3: Limit cycle behavior of the Brusselator. The same periodic
trajectory is obtained for different initial conditions (1, 2, 3). The letter S
represents the unstable steady state (this means that if the system is in state S,
even the smallest disturbance is enough in order to force the system to leave
that state! (4)

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C.2.2 The evolution of dissipative structures.


The fluctuations that caused the origination of a dissipative structure out of a region
near the equilibrium state do not cease to exist, but, on the contrary, constitute the basis for
further evolution of the system from one stable organization structure towards another. In a
way, a dissipative structure is stable within certain boundaries of these fluctuations. If they
become too large, then the system can become unstable, which might result in a
reorganization.
When the system is disturbed it has the tendency to maintain its stability by
means of negative feedback mechanisms, which tend to reduce the deviation
from the balanced state. However, this is not the only possibility. Deviations
may also be reinforced internally through positive feedback, either in response
to environmental changes, or spontaneously without any external influence.
The stability of a living system is continually tested by its fluctuations, and at
certain moments one or several of them may become so strong that they drive
the system over an instability into an entire new structure, which will again be
fluctuating and relatively stable. The stability of living systems is never
absolute. It will persist as long as the fluctuations remain below a critical size,
but any system is always ready to evolve.
F. Capra, The Turning Point, pp. 310-311.

The study of the stability of a certain system is not an easy task, especially when
unknown or unpredictable corruptive phenomena are in the play. But still we can formulate a
very interesting rule on this subject.
Nevertheless, one general result has been obtained, namely a necessary
condition for chemical instability: in a chain of chemical reactions occurring in
the system, the only reaction stages that, under certain conditions and
circumstances, may jeopardize the stability of the stationary state are precisely
the catalytic loops - stages in which the product of a chemical reaction is
involved in its own synthesis.
Prigogine, Stengers, Order out of Chaos, p. 145.

This general conclusion will proof to be of great value when we discuss the evolution
of socioeconomic systems later on in this appendix.
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In a region of stability, the behavior of the system is determined by a certain syntax,


and is, to a certain degree, predictable. When the system migrates from one stable
organization structure (region of stability) towards another, it remains in a transit zone for a
short period of time. And it is typical in such a transit zone that the system has the choice
among at least two different organization structures it can evolve to. Therefore this transit
zone is also called a bifurcation zone. This choice for the system introduces chance into the
picture: it is not always predictable which one of the several possible options the system will
choose in such a bifurcation point, so one cannot predict the precise evolution of the system in
this region of instability. Remark the contrast with the predictability in the region of stability!
In this respect we can say that a certain dissipative structure is just one phase in the
evolution of a dynamic system, in which longer deterministic stability zones alternate with
shorter probabilistic bifurcation zones. In these bifurcation zones the system has the
freedom of choice for its further evolution, and the further it has evolved from the equilibrium
state, the more options it can or has to choose from.
A second property of a system in a transit zone, next to the freedom of choice among
at least two options, is the principle of maximum entropy production. A particular aspect of
this self-determination is the principle of maximum entropy production which holds near the
unstable phases, in which a new structure forms. During the transition, entropy production
increases significantly, whereas close to an autopoietic stable state it tends towards a
minimum. In other words, the system does not spare any expense for the creative build-up of
a new structure - and justifiably so as long as an inexhaustible reservoir of free energy is
available in the environment.At first, high energy penetration and maximum entropy

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production act as stabilization criteria whereas after the establishment of a basic structure
there is a gradual shift toward a criterion of minimum entropy production per unit of mass127.
A system can evolve through several organization structures, which become more and
more complex. The structures further away from the dead equilibrium state are
characterized by a greater extraction of energy and matter from the surrounding world and an
increasing production of entropy, which is dissipated towards that same surrounding world.
Due to the increased complexity of the organization, a greater flow of information is needed
in order to assure the coordination of the several components and subsystems. And this
increased information flow, by itself a result of the increased complexity, can also stimulate
evolution: complex structures evolve quicker than simple ones. And due to the increasing
number of options in the bifurcation points, ever more organizational structures can arise:
there is an evolution from simplicity and unity towards complexity and diversity at an everincreasing speed128.

C.2.3 The relation between the micro and the macro level
Dissipative structures cannot exist on their own: they need their environment from
where they can extract energy and matter from it in order to feed their internal processes and
to where they can expel degenerated products (waste and heat). So one has to consider these
systems as part of a larger encompassing macro system.
On the other hand, a dissipative structure itself can be composed of several
subsystems, which by themselves are also dissipative structures and which feed their internal
processes by sharing the amount of energy and matter that the overall system has extracted

127

E. Jantsch, The Self-Organizing Universe, pp. 50, 141.

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from its environment... or by extracting the necessary resources from other structures within
that overall structure.
This leads us to the notion of a leveled structure, in which each unit on a certain level
is at the same time part of a structure of a higher level and by itself composed of several
structures of a lower level. In this leveled structure there is interaction and interdependence
among components on the same level and across levels.
Many aspects of the relationships between organisms and their environment
can be described very coherently with the help of the concept a stratified
order, which has been touched up earlier. The tendency of the living systems
to form multi-leveled structures whose level differ in their complexity is allpervasive throughout nature and has to be seen as a basic principle of selforganization. At each level of complexity we encounter systems that are
integrated, self-organizing wholes consisting of smaller parts, and, at the same
time, acting as parts of larger wholes. For example, the human organism
contains organ systems composed of several organs, each organ being made up
of tissues and each tissue made up of cells. The relationship between these
system levels can be represented by a system tree.
F. Capra, The Turning Point, p. 303.

In this leveled order of dissipative structures each system is linked with its
environment by the exchange of energy and matter and by feedback-loops, both stabilizing
and destabilizing. This allows for a very complex evolution. The circumstances in which the
system of a micro level evolves are determined by the macro level. But the evolution of the
macro level itself is the resultant of the evolution of the underlying micro level. So both levels
influence each others evolution. This is called co-evolution.
In such a stratified order, certain rules that are valid on one level can be overthrown
on another level. So it is very well possible that the same action yields opposing results on
two different levels: an action, which is good on one level, can be bad on another level. These

128

Cfr. the principle of ephemeralization formulated by B. Fuller in his Critical Path.

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considerations may seem rather strange for the minds of the people in the west. On the other
hand, they are very characteristic for several eastern philosophies.
C.2.4 Symbiosis
A dissipative structure extracts the energy and matter, needed for its existence and
evolution, from its environment. This environment can be the surrounding world of the
encompassing system, or it can be another subsystem within the overall system.
In the latter case we could think of the situation as if the one system is parasitizing on
the other. If, however, the one system is extracting too much energy and matter from the other
one - if it exploits the other to the limit - then this system destroys its own source of vital
resources, and thus endangers its own existence and evolution.
In a balanced ecosystem animals and plants live together in a combination of
competition and mutual dependency. Every species has the potential of
undergoing an exponential population growth but these tendencies are kept in
check by various controls and interactions. When the system is disturbed,
exponential runaways will start to appear. Some plants will turn into
weeds, and some animals into pests, and other species will be
exterminated. The balance, or health, of the whole system will be threatened...
Detailed study of ecosystems over the past decades has shown quite clearly
that most relationships between living organisms are essentially cooperative
ones, characterized by coexistence and interdependence, and symbiotic in
various degrees. Although there is competition, it usually takes place within a
wider context of cooperation, so that the larger system is kept in balance. Even
predator-prey relationships that are destructive for the immediate prey are
generally beneficent for both species. This insight is in sharp contrast to the
views of the Social Darwinists, who saw life exclusively in terms of
competition, struggle, and destruction. Their view of nature has helped create a
philosophy that legitimates exploitation and the disastrous impact of our
technology on the natural environment. But such a view has no scientific
justification, because it fails to perceive the integrative and cooperative
principles that are essential aspects of the ways in which living systems
organize themselves at all levels.
F. Capra, The Turning Point, pp. 301-302.

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As it is very well possible that opposing rules may be valid on the micro level and the
macro level, we should not be surprised if individual greed and self-interest lead towards the
creation of pests and the destruction of the overall system, while on the other side altruism
of individuals and groups can have a positive influence of the system as a whole, ergo also on
those who give. When two subsystems are competing for the available energy and matter
necessary for their survival and evolution, this might result into conflict and struggle. But this
could also lead towards a forced evolution. From time to time during its evolution, every
organism is forced to create a new environment for itself, because the old one is occupied by
another one. These circumstances could be on of the reasons why species evolve to a higher
level129.
The system is forced to be creative in order to secure its own survival. In doing so, it
can evolve towards a situation which, as a matter of fact, might be better than the previous
one. As an introduction to the next section, we will apply this idea on a socioeconomic
system.
England is supposed to be the country where the Industrial Revolution started.
Very often historical studies mention only the positive aspects of this
evolution. But essential to the start of the Industrial Revolution was the
impotence of England at the end of the 18th century to compete with its
neighboring countries. Compared to Flanders, England was no longer of
economic importance. It was standing at a crossroad: or it had to give up its
economic, political and military supremacy to other countries, or it had to
change its economy very drastically by the introduction of technological
innovations. There was no other way to compete with countries with a low
level of labor-cost. The introduction of the spinning-machine, the shuttle and
the steam engine in industry induced a radical change in the life of laborers
and in the economy as a whole. The resulting substantial increase of
productivity was a new agent in the economic process, so competition was no
longer only a matter of the level of labor-cost...
C. Vandenbroeke, Purchasing Power in Flanders, pp. 56-57.

129

K. Lorenz, Our Last Chance, p. 48.

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C.3 Socioeconomic systems


A lot of the ideas and concepts on dissipative structures, discussed in the previous
sections, have been implicitly used in this book. We have no intention to repeat all of this. We
will confine ourselves to the most striking similarities between dissipative structures and
socioeconomic systems. We think that these could form the basis for a further detailed study,
which is beyond the scope of this book.
On several occasions in previous chapters we have looked upon enterprises, social
groups and countries as if they were systems constructing and preserving their internal order.
In order to do this, energy and matter are extracted from the surrounding world and used to
feed the internal processes while degraded energy and matter are dissipated towards the
environment (thermal and other kinds of pollution). Perhaps we could consider the striving
for profit as the realization of more internal order - and dissipating more entropy towards the
environment - while making a loss is the equivalent of increased internal chaos or entropy. In
this respect the question we have formulated in section 3.1.4 - whether profit is possible and
whether one system makes profit at the expense of loss for another system - could be
compared to the question how it is possible that some systems succeed in increasing their
internal order in a universe where the overall entropy seems to increase.
In an isolated economy (autarky) with zero-growth, there can indeed be no profit. But
countries are open systems: they exchange matter and energy with their surrounding world: an
individual country can increase its internal order, it can make a profit for society. And when
we consider the earth as a whole, then we can speak of a closed system: only exchange of
energy is possible with the outer world, but still it can increase its internal order, it is
possible to make a profit for all of humanity! We will return on this very soon.

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In this respect we can also understand the evolution of the profit-ratio as described in
section 3.3.1. In times of war, which surely is a bifurcation zone, the profit-ratio increases
suddenly, just as there is maximum entropy production near unstable phases in the evolution
of dissipative structures. The profit-ratio shows the tendency to decrease in between wars, just
as the entropy production tends to a minimum in the stable region of a dissipative structure.
We have also stated that a socioeconomic entity has no raison dtre on itself, but
should be considered as a subsystem that has a certain role to play inside a system of a higher
level and in interaction with other entities within that system. The notion of co-evolution
between the micro-level and the macro-level has been introduced in the basic assumption of
our economic model that profit (micro-level) is a consequence of growth (macro-level), and
that the way how profit is divided among socioeconomic subsystems on the micro-level
determines future growth on the macro-level. The way socioeconomic subsystems evolve is
conditioned by the evolution of the overall system, but at the same time we can say that the
overall system is the resultant of the underlying subsystems. From this co-evolution follows
the idea that seemingly conflicting interests - higher wages for employees versus higher
profits for employers - can form a unity if we consider them from the level of the overall
system. Rules which are valid on the micro-level can yield the opposite result if applied to the
macro-level.
From the interplay of opposites follows the periodical behavior of economic entities.
Within certain boundaries of the fluctuations, the economic system evolves according to a
stable, well-defined and even predictable pattern: it has a strong dynamic stability. So one can
understand the periodicity and the recurrence of most economic entities as shown in section
3.3: the system keeps on going through the same cycle according to a fixed pattern and in a
fixed amount of time.

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Disturbances and fluctuations can be neutralized by applying negative feedback


mechanisms. If we consider the economy of a country in its initial stage, where the
elementary needs are not yet fulfilled, as after a war, then we can see reciprocity relations.
The principle of the rubber cylinder described by B. Fuller in section 3.4.3 is, as a matter of
fact, nothing else than the principle of reciprocity introduced in the theory of thermodynamic
systems by Onsager: in a young economy the pursuit of profit and the satisfaction of needs
have a mutual influence on each other. By trying to increase his turnover and his profit, a
businessman hires employees, so these are now in a condition that they can satisfy their
needs; and in the other way around, by increasing the wages of the employees, so their
purchasing power increases, the companies can make a greater turnover and more profit. The
feedback mechanism has a stabilizing influence and is used to fine-tune the economy
(Keynes). One thinks in terms of equilibrium and continual growth and progress (equilibrium
of supply and demand, complete employment,...).
But, alas, the necessary condition for the system to become unstable - the catalytic
loop mentioned in the previous section - is also fulfilled. One of the state-variables of the
system plays a role it its own synthesis: profit is at the same time a result of economic growth,
while the distribution of profit determines future growth and thus future profit. So, when the
fluctuations of certain variables become too large, due to the positive feedback-loops - the
rich becoming richer and the poor becoming poorer - then the whole socioeconomic system
becomes unstable, the oscillations grow130 to such an amplitude that certain variables go into
saturation, non-linearities occur so that the systems internal dynamics change drastically. A
bifurcation zone is reached. The former model of the economic process is no longer adapted
to the economic reality, as a new socioeconomic system has evolved.

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Under the watchful eyes of the Keynesian policy-makers, capitalism seemed to


be operating smoothly for a full quarter of a century following the Second
World War. There were mild collapses occasionally, but no duplication of the
1929 tragedy131. But just when the war against economic crises seemed to have
been won, another intractable problem, potentially more dangerous than large
scale unemployment, cropped up and has persisted since 1969 - namely the
coexistence of inflation with a high level of unemployment. This problem
eluded Keynes, for there is supposed to be a trade-off between unemployment
and inflation in the Keynesian system: both cannot rise or decline at the same
time. As yet there is no consensus among economists - there hardly ever is - as
to how the new challenge should be met. The problem admits of no simple and
politically feasible solution132.
R. Batra, The Great Depression of 1990, p. 72.

In this respect we can understand why there have been so many different economic
schools in the course of history: the economy does not exist, so there can be no economic
theory that is valid in all circumstances and for all times. One should rather think of it as a
temporal stage in the evolution of a dynamic system.
Economists tend to freeze the economy arbitrarily in its current institutional
structure instead of seeing it as an evolving system that generates continually
changing patterns. To grasp this dynamic evolution of the economy is
extremely important, because it shows that strategies which are acceptable at
one stage may become totally inappropriate at another.
F. Capra, The Turning Point, p. 236.

As discussed in the previous section, we can propose a stratified order to describe the
socioeconomic systems:

Spaceship earth.

Political and economic power-blocks.

Countries.

Socioeconomic groups (branches of industry, unions,...).

130
131

See the charts in section 3.3.2 from The Great Depression of 1990 by Ravi Batra.
But 2008 surely is a new bifurcation point!

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Socioeconomic entities (families, companies,...).

Individuals.

Author: Geert Callens

Most of these systems are open: they exchange matter and energy with their
surroundings. Only the system of the highest level is closed, as the Earth exchanges mainly
energy with the Universe (useful solar energy is taken in while low-valued thermal energy is
dissipated outwardly) and no or very little matter is exchanged. In this stratified order, each
subsystem tries to construct its own internal order by extracting useful energy and matter
from its outside world and by expelling entropy and disorder to its outside world. This outside
world can be the system of a higher level, a lower level or the same level.
In the latter case we can say that one subsystem is parasitizing on another one. As the
exploited system is obstructed in its striving for more internal order, or even worse, as its
order is destroyed by the extraction of energy and matter and by the entropy dissipated by the
other system, we can say that this surely will not happen by free will: there will be oppression
of one system by the other, oppression that might even be imbedded in the legal system133.
This parasitism, based on oppression, cannot go on forever. Tensions arise between the
exploited and the exploiting socioeconomic subsystems, and these tensions increase as the
internal order of the exploited system is more and more hampered, so its very survival is at
stake.
When these tensions exceed a certain level, a zone of instability and turmoil is
reached, a bifurcation point characterized by the fact that the systems have the choice - in a
way to speak - from at least two options. One option could lead to the integration of the two

132
133

Eight days a week?


See Buckminster Fuller, Critical Path, chapter Legally Pigally.

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subsystems into a new system, which then extracts the matter and energy needed for its
evolution from a third system. The situation of parasitism, exploitation and oppression
continues: internal parasitism is then replaced by external parasitism. Lower classes in
the two merged systems are granted more rights and material wellbeing as a reward for their
support during the turmoil, while exploitation becomes an export product. But after a period
of stable evolution, problems will rise once more due to the depletion of matter and energy in
the third system or the increasing tensions between the third system and the other two. Again
integration of the third system can occur, etc.
In this respect we can understand the evolution towards socioeconomic power-blocks
of ever increasing magnitude, parallel with the arising of democracy in the western world.
Nowadays we can recognize as major socioeconomic power-blocks the capitalistic western
world, the former communistic countries, the Asian emerging economies, and the poor
southern hemisphere, that functions as source of cheap raw materials and energy, without
being able to increase its own economic internal order. Now, at the beginning of the 21st
century, mankind has reached the physical borders of its ecosystem. This holds the danger
that the western world could fall back from a system of external parasitism to a system of
internal parasitism: as matter and energy can no longer be extracted from other subsystems,
the different subsystems within a power block might try to increase their order at the expense
of other subsystems: power-blocks could then disintegrate134 instead of integrate to a system
of a higher level, social evolution is then reversed in time. The society falls back to a lower
level of evolution, with less democratic rights and less material well-being for all the social
classes, except, of course, those in command, the military and the intellectual priesthood.

134

Is this respect we can understand the fall of the Roman Empire, as it failed to install a new internal
socioeconomic order once it had reached the borders of its physical world, borders which were imposed by the
level of communication and transport technology at that time.

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But if a certain group of subsystems feed their internal processes by importing energy
and matter from their outside world, then there is no need for internal exploitation, oppression
and parasitism within the system. If we apply this on the highest level of our stratified order,
spaceship Earth, then we can see that a world society with social justice and without
parasitism and oppression of one subsystem over the others is only possible if the subsystems
import all or most of the energy they need from outside the Earth. The establishment of solar
energy and renewable energy from wind and tidal waves, hydroelectricity as the basic
energy source for our social and economic system is not only an ecological must, but also a
necessary - although not sufficient - condition in order to evolve to a society with social
justice, where all socioeconomic entities can live with each other without mutual aggression,
parasitism or oppression. Ecology, development of the Third World countries and the cry for
peace (make love, not war), which have been supported on an intuitive basis by generations of
young people since the Summer of Love of 1967 and the Flower Power movement, are
inseparably linked to each other. And now they seem to be scientifically supported by the
systems view of life, which has originated out of the theory of dissipative structures and
self-organizing systems.
The systems view of life is an appropriate basis not only for the behavior and
the life sciences, but also for the social sciences, and especially for economics.
The application of systems concepts to describe economic processes and
activities is particularly urgent because virtually all our current economic
problems are systemic problems that can no longer be understood via Cartesian
science.
Conventional economists, whether neoclassical, Marxist, Keynesian, or postKeynesian, generally lack an ecological perspective. Economists tend to
dissociate the economy from the ecological fabric in which it is embedded, and
to describe it in terms of simplistic and highly unrealistic theoretic models.
Most of their basic concepts, narrowly defined and used without the pertinent
ecological context, are no longer appropriate for mapping economic activities
in a fundamentally interdependent world.
F. Capra, The Turning Point, p. 431.

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In order to elaborate this new vision in science, economy and society, it is of


paramount importance that a joint effort is made out of different academic disciplines,
ignoring the traditional and institutionalized boundaries. A birds eye view over the field of
holes in needed. Today, we urgently have to extract out of the synthesis of every scientific
discipline the key elements, and incorporate them in a harmonic and cosmic overall picture...
To accomplish this endeavor demands for a cyclopean mind, as it transcends the capabilities
of a single human being. This intellectual and cultural effort can only be tackled with a
reasonable chance for success by a group of scientists and researchers135.
On the other hand, we must not ignore the importance of individual efforts as sources
of renewal within rigid and outdated structures.
We believe that models inspired by the concept of order through fluctuation
will help us with these questions and even permit us in some circumstances to
give a more precise formulation to the complex interplay between individual
and collective aspects of behavior. From the physicists point of view, this
involves a distinction between states of the system in which all individual
initiative is doomed to insignificance on the one hand, an on the other,
bifurcation regions in which an individual, an idea136, or a new behavior can
upset the global state
Be it biological, ecological, or social evolution, we cannot take as given either
a definite set of interacting units, or a definite set of transformations of these
units. The definition of the system is thus liable to be modified by its
evolution. The simplest example of this kind of evolution is associated with the
concept of structural stability. It concerns the reaction of a given system to the
introduction of new units able to multiply by taking part in the system's
processes.
The problem of the stability of a system vis--vis this kind of change may be
formulated as follows: the new constituents, introduced in small quantities,
lead to a new set of reactions among the systems components. This new set of
reactions then enters into competition with the systems previous mode of
functioning. If the system is structurally stable as far as this intrusion is
concerned, the new mode of functioning will be unable to establish itself and

135

J.B. Quintyn, A Cultural Journey Through Biology, Mathematics, Cosmology, Theory of Relativity,
Cosmogony, p. 191.
136
Eight days a week?

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the innovators will not survive. If, however137, the structural fluctuation
successfully imposes itself - if, for example the kinetics whereby the
innovators multiply is fast enough for the latter to invade the system instead
of being destroyed - the whole system will adopt a new mode of functioning,
its activity will be governed by a new syntax.
Prigogine, Stengers, Order out of Chaos, p. 206, pp. 189-190.

137

... the system is structural unstable (it is!) and ...

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C.4 Dissipative structures, communication and creativity


C.4.1 Extension of Shannon's communication-model
In appendix A we have introduced some basic notions on information and
communication theory. Our line of thoughts was based on the information theory elaborated
by Shannon and others. We have explained and illustrated several topics, such as

The information content of a message, determined by its probability of occurrence.

The capacity to transmit information over a channel and the minimum time and/or
energy needed in order to transmit a message.

The concept of signal-space as the abstract representation of the paradigm of a


person or a society.

But this theory has its limitations: it only deals with stable communication
structures in the sense that, once the signal-space of sender and receiver are given, these two
can only communicate within the intersection of their two signal-spaces. The communication
model evolved in appendix A is applicable on the transfer of information that fits in an a
priori defined and rigid structure. This is indeed the case for most technical communication
systems. Living organisms, and man in particular, are able to handle stimuli and signals which
do not fit in their initial signal-space, and they can even adopt the structure of their signalspace in order to encompass this new information. This dynamic process of expansion of
signal-spaces is not covered by the Shannon-model described in appendix A. So we were
forced to illustrate this with the help of the metaphor of digging holes of Edward de Bono. We
then also made allusion of the existence of a new hole that would help us in understanding the
origination of a new hole. In electronics this is called bootstrapping. In Integrated

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Electronics on page 277 we read: The term arises from the fact that, if one end of a resistor
changes in voltage, the other end of it moves through the same potential difference; it is as if
the resistor were pulling itself up by its bootstraps138.
In the classical theory, communication is mainly considered as a one-way transfer of
information from the source to the destination. The transmitted message falls within a
predefined and rigid structure (syntax). Furthermore, this process of transfer of information
leaves the sender and receiver unchanged. When for example the destination has received a
message with a certain probability of occurrence and thus a certain information content, then
the chance for another transmission of the same message remains the same: next time the
same message is received the destination receives the same value of information.
Carl Friedrich von Weizscker has defined information as that which generates new
information139. According to him, the purpose of communication is not only the sheer
transfer of information from sender to receiver, but also to influence the receiver and to
induce a certain change in his behavior. The receiver can then react in a way which is not
predefined in his signal-space: new information-unity-vectors are created. His son, Ernst von
Weizscker, calls this kind of information pragmatic information. This pragmatic
information is composed of two aspects: confirmation and novelty (see figure C.4).

138
139

I find this a rather amusing thought. A levitating resistor?


E. Jantsch, The Self-Organizing Universe, p. 50-53.

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Pragmatic
Information

100%
0%

Figure C.4:

Shannon Weaver

Novelty
Confirmation

0%
100%

Pragmatic (effective) information is composed of the two components


novelty and confirmation, and reaches a maximum when both
components are balanced. After E. von Weiszcker (1974).

Confirmation is that part of the information that fits within and thus strengthens the
existing knowledge of the receiver: confirmation completely falls within the existing signalspace of the receiver, so no new insights or ideas are transmitted. Confirmation does not
induce any changes with the receiver, so the pragmatic information content is nil.
Novelty, on the contrary, is information which lays completely outside the signalspace of the receiver and in most cases will confuse that receiver: the stimuli and signals he is
faced with are perceived as erratic and chaotic, as he cannot project them on known concepts,
on already established information-unity-vectors of his signal-space a that time, he does not
know how to handle the new information. So, complete novelty has no pragmatic information
content either.
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Confirmation and novelty are complementary aspects of pragmatic information: when


one of the two is high, the other is low. Only a combination of confirmation and novelty
results into a reasonable pragmatic information content, and in between the two extremes lays
a combination which yields a maximum of pragmatic information, i.e. can have a strong
influence on the behavior of the receiver.
With the help of Erich Jantsch we can describe how a person's signal space is
expanded, and we do this in terms of the theory of self-organizing systems.
We may now easily establish the connection between this model of pragmatic
information and the ordering principles at work in equilibrium and nonequilibrium structures (Figure C.5).

Entropy production

Pragmatic
Information

Dissipative structures
Autopoiesis

Equilibrium
structures
Instability
threshold
100%
0%

B
Equilibrium
Novelty
Confirmation

0%
100%

Figure C.5:
Dissipative structures transform novelty into confirmation, whereas equilibrating structures tend
towards maximum confirmation. Dissipative structures may evolve through states characterized
by maximum novelty (instable threshold) to new states characterized by a balance between
novelty and confirmation (autopoiesis). In this transition, the entropy production reaches a
maximum (area A), whereas in autopoiesis it tends toward a minimum (area B).

A hundred per cent confirmation corresponds to a system in thermodynamic


equilibrium. That pragmatic information becomes zero at this point is the
correlate of the impossibility of bringing about any directed effect in
equilibrium. A hundred percent novelty, in contrast, may be interpreted as the
instability phase in which stochastic processes cease to confirm the old
structure and have not yet established the new structure. Everything happening
in this phase is novel. In between, in the balance between novelty and
confirmation, we find the domain of autopoiesis.
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The scheme according to figure C.5. also allows the representation of the
change in entropy production occurring when a new dissipative structure is
born. Entropy production140, is this context, is nothing else but the production
of structure, implying at the same time more information and more
confirmation. Immediately beyond the chaos of the instability threshold
maximum entropy production is needed to attain a certain degree of
confirmation. Area A in figure C.7. has to be won very quickly by hard
work141. After the formation of an autopoietic structure, however, the system
oscillates in a balance between novelty and confirmation and has to do work
only to the extent that novelty must be coped with continuously, as
exemplified by area B in the time unit. This work, or entropy production, never
becomes zero because the structure is kept busy by novelty entering through
the exchange with the environment. In the scheme, it is pushed toward the left
so that maintaining the balance requires ever new work (movement towards
the right in the scheme). In this way, novelty is continuously transformed into
confirmation. Cognition is not a linear process, but a circular process between
the system and its environment.
E. Jantsch, The Self-Organizing Universe, pp. 52-53.

A lot of the considerations that we have formulated in appendix A can be understood


in these terms. There we have said that there is no transfer of information possible outside the
intersection of the signal-spaces of sender and receiver. Now we can expand this view: if
there exists already a certain intersection between the two signal-spaces, and there is the
intention with both communication partners and they are willing to spend the energy and time
to transfer novelty into confirmation, then communication can result into an increase of the
region of intersection142. This increase of the intersection of the signal-spaces in turn results
into better communication opportunities and also an increase of the individual signal-spaces
of both parties. Both their paradigms have been expanded thanks to exchange of their
mutually exclusive information-unity-vectors. Isnt this the proof that interdisciplinary

140

More entropy is less structure. I think Jantsch meant here that energy is needed in order to create
more structure. In doing so, the high valued energy is degraded to entropy, which is then dissipated. So, in this
sense there is entropy production, but also consumption of energy. This remark of me is in line with the rest of
his explanation. I have added this remark in order to counter organizations which adhere the principle of creative
destruction, like the Haliburton company and the Carlyle Group.
141
I hope one day you will join us!

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research is a must, while specialization, in the long run, leads to pure confirmation, to
mummification, to intellectual death?
Communication is possible only where the cognitive domain of autopoietic
systems overlap sufficiently. In intellectual discussions, too, a dialogue of the
deaf only too often results. The other system has to have the possibility, in
energetic and functional respects, of partially realizing the same dynamics.
Communication is not giving, but the representation of oneself, of one's own
life, which evokes corresponding life processes in the other. This is the way in
which living systems communicate with each other.
E. Jantsch, The Self-Organizing Universe, pp. 203-204.

So we can recognize the origination of an irreversible process: the expansion of the


signal-space of all parties involved in the communication process by the continuous
transformation of novelty into confirmation.
In the fourth of the books in which Carlos Castenada transmits the world view
of the shaman Don Juan of the Mexican Yaqui Indians, there is a striking
parallel and generalization of this principle. According to Don Juan, reality is
divided into two aspects, one of which (the tonal) comprises the regularities of
a world ordered by our concepts, whereas the other (the nagual) represents the
unexpected. The latter aspect may be mastered by creative thought and action
and by spontaneous decisions (i.e. by free intuitive will). Thus the task of life
is the never ending transformation of the nagual into the tonal, of novelty into
confirmation. The British Nobel Laureate in Physics, Brian Josephson (1975),
has pointed out that this implies a new expression for the directedness of time,
for the irreversibility of life processes.
E. Jantsch, The Self-Organizing Universe, pp. 228-229.
But indeed, in order to let the process of expansion of its signal-space take place, the
receiver must be willing to do the effort to gain new experiences and to transform these into
confirmation.
Each system has to make its experiences by itself, has to cope by itself with its
structural problems and has to itself secure the energy flow to unfold its life...
True learning is never rote learning, but always stimulated experience by
oneself.
E. Jantsch, The Self-Organizing Universe, p. 205.

142

More I cannot say! What more can I say?

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In this respect we can see that having an open mind towards novelty is the same as
having an open mind towards life itself. To isolate oneself from novelty and new ideas and to
base ones opinion purely on confirmation can only lead to mummification, to rigidity, to
intellectual death.
C.4.2 Scientific evolution
The insights we have gained in our discussions on dissipative structures and selforganizing systems as well as previous considerations on pragmatic information, novelty and
confirmation can be applied to describe how scientific ideas evolve in the academic world.
Based on their scientific research and the results of their experiments, scientists deduct
general rules and principles, which in turn constitute the fundamentals of a scientific theory.
Further experiments are then set up and their results interpreted in terms of that theory. The
aspect confirmation rules over novelty, novelty is as much as possible reduced to
confirmation, which increases the authority of the theory. In terms of dissipative structures,
we can say that established science is the region of stability, where determinism is
dominating. Unfortunately, it often happens that novelty, which cannot be reduced to
confirmation within the ruling theory, is ignored or even rejected.
There are striking examples of facts that have been ignored because the
cultural climate was not ready to incorporate them into a consistent scheme.
The discovery of chemical clocks probably goes back to the nineteenth
century, but their result seemed to contradict the idea of uniform decay to
equilibrium. Meteorites were thrown out of the Vienna museum because there
was no place for them in the description of the solar system.
Prigogine, Stengers, Order out of Chaos, p. 307.

But with the help of technological means, the scientist increases his field of
observation, he can expand the intersection of his signal-space with Nature. In doing so, he is
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faced with ever more phenomena and experimental evidence which can not be reduced from
novelty into confirmation. The ruling theory, which is like a stable and even rigid
organization pattern, is faced with an increasing pressure of facts, so that after some time a
small number of scientists start to question the validity of that theory. Then science goes
through a crisis, it has reached a bifurcation point it its evolution. It is a striking feature of
such a transformation period that a lot of attention and energy is spent by the
confirmationists in trying to save the theory, while others, the noveltists, are vigorously
examining the new phenomena and searching for a new consistent theory. Basic principles,
which were once commonly accepted knowledge, are put to question. This usually happens
by individuals or small groups, and totally unorganized or uncoordinated. If often falls out of
the control of the establishment. As with thermodynamic dissipative structures, several
options are possible: scientists can start to dig a new hole on several places. Chance and
intuition play an important role in this.
The holistic knowledge of the systems own evolution which corresponds to
re-ligio and which may already be observed in chemical dissipative structures,
may be called in-tuition, which is literally learning from within. Intuition is not
structural knowledge, but knowledge of ones own historical process. In this
way, intuition becomes the only factor to guide direction when in processes of
fast change, the orientation by means of stored information and by means of
interpreting the exchange with the environment all fail.
E. Jantsch, The Self-Organizing Universe, p. 220.

Initially, the collective resistance and criticism from those who still adhere the well
elaborated holes and established theories because of their academic nature and the
unacademical approach of the others is a brake on the individual attempts for an intellectual
renaissance. But once one of these new theories becomes more and more structured and
successful in explaining experimental results, then the academic world is willing to accept it.
More and more scientists start to work on it, so it is elaborated to a well-proportioned theory.
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Again we enter a stable region, were all experimental results will be described in terms of the
new theory. Novelty has become transformed into confirmation.
So we can see scientific evolution as a succession of longer regions of stability,
characterized by collectivity, rationality and determinism, alternating with short bifurcation
regions, where individual creativity, intuition and very often chance prevail.
C.4.3 Evolution of the brains
The main feature of the evolution of life from the most primitive organisms towards
the present day Homo Sapiens is the evolution of the brain and the neural system143. All the
stages of this evolution are still present in any human being. According to the American
neurophysiologist Paul D. MacLean one can see the brain as being composed of three parts
(the thriune brain), each with their own structure, features and information-processing
capacity. Each of the three parts has evolved during a certain stage in the evolution of living
organisms.
First there is the part that developed about 250 to 280 million years ago, together with
the reptiles (the reptilian brain). One of the main characteristics of this part of the brain is the
difficulty to process new information, it cannot handle new situations; it is, so to speak,
genetically pre-programmed and it does not provide the ability to learn. Emphasis is
completely on the processing of the aspect confirmation of information. This part of the brain
uses very little energy.
In the second place there is the limbic brain, that originated together with the first
mammals about 165 million years ago. This part has already a limited capacity to handle new

143

E. Jantsch, The Self-Organizing Universe, p. 165-169.

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stimuli, but at the same time it is considered to be the cause of the fact that most human
beings stick too long to certain prejudices and ides fixes.
And finally, there is the neo-cortex, which originated together with the primates (apes
and human beings) 50 million years ago. In this part of the brain lie the powers to abstract, to
reason, and to transcend the limitations of the immediate environment, in the sense that man
develops the mental power to change the world around him according to his will (selfreflexive mind). Totally new information can be processed, new information (ideas) can be
created. This part of the brain uses most of the energy. It is a striking feature with man that
this part of the brain is more developed than with any other living being, and, although the
brain constitutes only a small part of the total weight of the human body, it takes the major
part of the total consumption of oxygen and energy. This is in complete agreement with the
model described by Jantsch: transformation of novelty into confirmation demands a lot of
energy. With the evolution of living organism towards higher forms, the consumption of
oxygen in the brain has increased. Conversely, would it then be possible to stimulate the
mental evolution of an individual or of humanity as a whole, if the supply of oxygen to the
brains could be increased in one way or another?
As already mentioned, the three different types of brain are present in the human
brain. According to which type prevails, an individual person shows creative tendencies and
has an open mind to new ideas - creative people are usually very open minded and have a
good sense of humor - or he shuts off the unfamiliar and hostile outside world and
concentrates himself in confirmation (prejudices): The brain destroys in several steps of
abstraction part of the information - that part which cannot be expressed in the mental

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situation model144. We may also say that confirmation is increased at the cost of novelty if
novelty cannot be coped with145.146
I hope I have been able to stimulate your neo-cortex and your appetite for novelty.
And that you fully understand this statement from Albert Einstein: Problems cannot be
solved at the same level of consciousness that created them.
We repeat here some lines from our section on the relation between recurrence and
paradigm. When a society functions according to a paradigm that is not in harmony with
reality, and when, in spite of the crisis, it still follows the same line through, when it does not
learn the necessary lessons and when it does not adapt its paradigm, then that society will
again and again be faced with the same kind of crises - even with increasing intensity -, it will
again and again go through the same scenario (scripts in transactional analysis, karma in
eastern philosophies), just as the principal character in an ancient Greek drama: The tragic
error in tragic drama is walking in blindness so that the tragic hero who intends to accomplish
a certain result with his actions accomplishes the exact opposite147.
The cause for recurrence and periodicity in economy can be found in the fact that the
current economic paradigm is not in accordance with reality. The ever-repeating cycle of
economic crises and wars can only be interrupted if we succeed to transcend the limitations of
the present paradigm and if we can expand or even transcend our paradigm so it is more in
tune with reality.

144

Signal-space!
Selective cognition leading to prejudices.
146
E. Jantsch, The Self-Organizing Universe, p. 178.
147
Claude Steiner, Scripts People Live, p 60-61
145

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Appendix D Imagine

Imagine there's no heaven


It's easy if you try
No hell below us
Above us only sky
Imagine all the people
Living for today...
Imagine there's no countries
It isn't hard to do
Nothing to kill or die for
And no religion too
Imagine all the people
Living life in peace...
Imagine no possessions
I wonder if you can
No need for greed or hunger
A brotherhood of man
Imagine all the people
Sharing all the world148...
You may say I'm a dreamer
But I'm not the only one
I hope someday you'll join us
And the world will be as one
John Lennon
As this book runs towards its end, we would like to spend a few pages to review and
summarize some topics already discussed. In doing so, we will come to conclusions and
thoughts which did not fit in the previous chapters and appendices, but which will show to be
an essential part of this book. We also will give our imagination free rein and formulate some
predictions of things which might happen in the near future.

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D.1 Justification of the methodology


I think some readers might have thought at the beginning of this study: Dja vu, he is
going the neoclassical way of economy. Others will have found occasions to label the author
as a somewhat late-developed Marxist, as he criticizes capitalism, profit, creation of money
out of money, and the consumer society. Still other readers will have been irritated by the
slow and rather schoolish takeoff in the first chapters. It is only from section 3.6 onward that
the story goes crescendo to arrive at a fortissimo in appendix B and C: Oh no! We are in the
wrong paradigm!
It is just because of the needed shift in paradigm that we have spent so much attention
in appendix A on the process of communication and that we have evolved our basic theory so
slowly: it takes time and energy for both the sender and the receiver in order to transmit a new
paradigm with the help of the linear process of written communication. I hope the reader will
forgive me for putting a strain on his patience. And finally, there will be those who will be
offended by the unscientific approach. I would like to defend the method used with the
following argumentation. Indeed, it is a different approach than other studies dealing with
economy... or is it sociology... or political history... or moral philosophy... or polemology?
Scientific studies, in the classical sense of the word, usually discuss one of these topics in
isolation, and therefore show major deficiencies.
Authors of these studies limit themselves carefully and even scrupulously to their own
academic field of research and specialization in order not to compromise their academic
reputation. The boundary areas and interfaces with other disciplines are very often neglected,
and if they are taken into account, they are defined once at the onset of the study and then
forgotten or considered to be static, unchanging, and exogenous. In this respect, we stress the
fact that since Locke and Smith, economists have banned the aspects of morality and social
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justice out of their field of study under the pretense that these concepts cannot be quantified in
an objective and rational way. These aspects of reality are considered to be the concern of
other, rather soft sciences such as sociology and moral philosophy. We, the economists,
can only give scientific advise on pure economic matters in a society where resources are
limited and where people act in a rational way in order to maximize their material wellbeing. Phenomena such as oppression, exploitation and war are very carefully neglected. But
on the other side, historians, sociologists and moral philosophers do not always have the
necessary economic background in order to see the impact of the economic system on their
field of study and vice versa. So interfaces and boundary areas between different scientific
disciplines are usually neglected, as they are not understood. And if an individual scientist
dares to cross the border, he is very often excommunicated by his fellow scientists, without
being accepted by another discipline. He becomes a gypsy, an outlaw.
Furthermore, in these classical studies a reductionistic and fragmented approach is
used. One field of study, such as economy, is already too complex and vast for this approach.
So it is unraveled in a multitude of smaller disciplines, theories and specializations - to
catalog them is already a discipline by itself! -, all studying a small part of the big economy.
So economists are forced to introduce assumptions and approximations which should replace
the interfaces with other specializations in the field of economy. But once these idealized
approximations and assumptions are defined, such as free competition and open markets and
informed, rational consumers, they are neglected when it comes to putting things into practice
by politicians and businessmen. Conclusions valid on one level of the economy - a private
company - are applied without scruples on a higher level - the economy of a country -,
because they suit the aspirations of certain elements in society to enrich themselves.

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We also have the strong impression that all these economic theories and disciplines do
not fit together in a coherent way. They all may be valid when certain specific boundary
conditions are met, but there is only one reality: so one could at least expect the boundary
conditions to be consistent with each other. I am pretty well sure that if one would try to
integrate all economic disciplines into a coherent model, one would find a lot of
incompatibilities and internal discrepancies: there is no consistency, its just patchwork. So
most of the books, which discuss a subject as this one in the traditional reductionistic way,
very seldom manage to explain things in a coherent manner, but rather describe them and give
only time-limited stand-alone explanations of a few phenomena. In order to explain things to
the bone, one should first see the overall picture.
The greatness of Hellas lays in the fact that one tried to order all this fragmented
knowledge, that one tried to unite the multitude of phenomena in one overall picture called
natural philosophy. Indeed, the highest goal of the Greek philosophy was to construct a
cerebral and harmonic model of nature and reality. The basic feature of all Greek
philosophers is the fact that they were seekers of unity.
We stress the fact that the core of philosophical activity is the double effort of
synthesis and generalization, this is the unification and harmonization of all things and
phenomena. We have to underline that synthesis and generalization are not the same, but two
succeeding stages of study and research. Already in 1936 Alexis Carrel raised the alarm in his
book Man the Unknown when he noticed that a lot of scientists were trained to a high degree
of specialization at universities, while very little attention was given to generalization and
synthesis. With this, he meant generalization of one field of science. But this is the first step.
Today we have to go a step further, as the synthesis of one field of study is no longer

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sufficient. We have to extract out of every science its basic principles and unite them into a
coherent, self-consistent overall picture of the world149.
So, in this book we have tried to follow this holistic approach. Starting from one
basic assumption - profit as a consequence of growth - we have elaborated in a logical way a
model of the economic process, without introducing any further assumptions, but also without
banning certain aspects of the real world as it is, and not as one would wish it to be, to
paraphrase Bacon. In doing this, we have taken care to avoid internal contradictions. Every
field of study that would like to gain the quality label scientific should be put to this acid
test of self-consistency.
Furthermore, in the two previous appendices we have seen that our conclusions in the
subject of economy are consistent with the worldview emerging out of other sciences, in
particular physics. In evaluating a scientific study, one should not only consider its internal
structure and its relations with the observed phenomena, but also how it integrates with
science as a whole. One should not underestimate the importance of this dimension. We even
seriously wonder if this dimension does not far surpass all other.
Such a holistic approach of the economic reality can only be an interdisciplinary
effort. A study by only economists would be too narrow.
Fortunately, some economists have already realized that evolutions and new views
from other sciences can have a significant contribution to their field of study. Ravi Batra has
been inspired to a great extent by the philosopher Prabhat Ranjan Sarkar, while the French
economist Jacques Attali has based his book La Figure the Fraser on the theory of selforganizing systems. It is a daring experiment and, at the same time, a synthesis of five of his

149

J.B. Quintyn, A Cultural Journey Through Biology, Mathematics, Cosmology, Theory of Relativity,
Cosmogony, pp. 27, 191.

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(Attali) earlier books. He is not afraid to make a strong cocktail with as ingredients economy,
anthropology, culture, sociology and physics. Attali seems to dislike economists who think in
short terms and limit their field of attention to recent balances of trade, growth figures and
rates of inflation. Attali, also an economist, rather looks for patterns characteristic for every
social order, patterns which exceed the scope of the prime rates.
By consciously letting ethical aspects to intrude into our line of reasoning, we have
been automatically guided towards phenomena such as overcropping of natural resources,
degradation of the environment, exploitation of social groups and other countries, and war.
We have not called upon objectivity to ban these topics in order to keep the study
academic, rational and amoral, or upon simplicity in order to keep the problem
manageable. On the contrary, we have incorporated these aspects in the overall picture. In
doing so, our insights have grown, have become broader, deeper, brighter.
And finally, one could criticize this study on its basic assumption - profit or cash flow
as a consequence of growth. As a whole, this study is self-consistent, but it is not firmly
based. Indeed, we did not give a real scientific proof of our basic assumption. We have used
a very simple line of reasoning in order to let the reader intuitively accept it. However, in
defense of the basic assumption we would like to postulate three arguments.

The dimension analysis fits: profit and economic growth - in absolute terms - are
expressed in the same unit: unit of currency per unit of time (E.g. US$ per year).
In physics this is considered as a clear indication that there is a relation. Usually
economists tend to express growth figures in percentages and profit in currency
units. But a percentage is relative to an absolute value, and both growth and profit
are realized over a period of time!

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The model that we have evolved out of the basic assumption has allowed us to
explain economic reality (and a lot of other realities) in great detail without need
for further assumptions and without need for discarding social phenomena.

The model is free of internal contradictions.

Based on these considerations, we dare to say that the approach used in this book is
more scientific than those of most academic economists, who work reductionistic, fragmented
and free of' moral considerations. If we say scientific, we think of the hard empirical sciences
such as physics. Physicists are already a long time aware of the fact that one can approach
reality only with the help of models and theories, and that the value of the models and
theories is determined by the amount of experimental phenomena one can explain with these,
and not by the volume of paper one can fill with them. And if one experimental result is in
contradiction with the theory, then the theory and not the experiment is sanctioned. Reality is
always above theories and models. I think very few economists would dare to put their
models to such an acid test. Furthermore, if an experiment is physics turns out differently than
expected from the theory, the consequences are usually limited in space and in time. When an
architect builds a house, he is hold responsible for the quality of the house. When an engineer
designs a bridge and the bridge collapses, then he is responsible. But when putting economic
theories into practice by political and economical leaders of a country, then the scope of these
experiments is much greater, the consequences can be felt for a long time, and human
beings are involved! I think this asks for a little bit more sense of responsibility, morality and
reality! As Ravi Batra has expressed it when he discusses Reaganomics: It is as if semantics
and rethorics were going to generate an economic miracle and frustrate the law of
mathematics.

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I hope that our basic assumption and the method I have used have gained some credit
in the eyes of the reader. In the next section we will integrate our economic model together
with other considerations from section 3.6 and appendix C in a more general model
describing social evolution.
D.2 A model for describing social evolution
No substantial part of the universe is so simple that it can be grasped and
controlled without abstraction. Abstraction consists in replacing the part of the
universe under consideration by a model of similar but simple structure.
Models ... are thus a central necessity of scientific procedure.
Arturo Rosenblth, Norbert Wiener.
We should not be surprised when even our most solid theories are overthrown
from time to time by the discovery of a new order of phenomena. Indeed, the
complexity of nature always surpasses our most daring thoughts and
imagination. Scientists are definitely very bold when they want to draw parts
of the Cosmic Plan using logic and intuition. The miracle is that they
sometimes even succeed.
Louis de Broglie.
D.2.1 Some introductory remarks
As promised, we will now integrate some conclusions that we have already made in an
overall picture: a model that describes, explains and even predicts the dynamics of social
evolution. The model will predict the dynamics, not the outcome. There still is the possibility
of choice during this region of instability, this bifurcation point, and thus we are responsible
as we still hold the dices in our hand. As an introduction to this model we first give the word
to Howard Katz, who has some interesting remarks in this respect.
War and the covert aristocracy.
In the Dark Ages, when feudal lords kept the vast majority of people in
serfdom, war was a necessary institution to preserve the structure of society.
This is because in that type of society the people suffered such incredible
hardships and injustices at the hand of the nobility that, despite the extent to
which they were bound down by fear of authority and by superstition, there
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was always a severe danger that the people would rise up and destroy their
feudal lords.
To prevent the hostility of the people from being turned against the nobility
(who were the source of their suffering), the nobles constantly fomented wars.
This directed hostility outward against an outsider (whom it was safe to hate)
and prevented rebellion against the lord. Thus, two feudal lords at war with
each other were, in fact, both maintaining their domination of the respective
peasants.
Our society does not have feudal lords, but similar principles apply. We made
a valiant attempt in the 17th and 18th century to get rid of the aristocracy. We
succeeded only in part. In The Paper Aristocracy150, an aristocracy was defined
as a small elite who, through control of the government, have obtained special
privileges in law and are thus enabled to live as parasites on the labor of
others and who by means of this exploitation... amass large amounts of
unearned wealth.
The desire for unearned wealth is very old. While it would be unduly
pessimistic to say that it is inherent in human nature, it is certainly true that it
is very widespread among the population - especially among the practically
oriented, worldly type of person. The lowest expression of this desire is the
common criminal, whose range of thought only extends to a few months and
years.
But the same desire actuated by more powerful minds has given rise to social
systems where robbery and exploitation are systematized and legalized and
where resistance to the robber is a crime. Such was the social system of the
Dark and the Middle Ages where a tiny minority exercised complete material
domination over the population. They bound the men to the land in order to
steal the product of their labor; they raped the women; they administrated the
law which they had instituted. In this society the practice of torture was
commonplace, and the life of a peasant was cheap.
The proclamation of the rights of man by the English Parliament of 1688 and
the French assembly of 1789 did not fully end this unhappy state of affairs.
The aristocracy could no longer openly assert its special privileges, but the
desire for unearned wealth and accompanying benefits did not die so easily.
When the old feudal aristocracy was destroyed, another group of men set about
to achieve its goals by different means.
While the principle of the feudal aristocracy was open and explicit, the
principle of the new aristocracy is hidden. It is a covert aristocracy, and in this
regard we may divide human history into three periods:
1. Open Aristocracy. Exploitation by the aristocracy was publicly affirmed
and defended. This period ended in the 17th century in the Anglo-Saxon
countries (one may take 1642 or 1688 as the date) and later in the other
European countries.

150

Another book written by Howard Katz.

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2. Covert Aristocracy. The exploitation had to go underground and operate by


deceit. This is the stage of most countries in the world today.
3. The Society Based on Justice. This third period is still in the future when
exploitation will cease and when each man will receive the product of his own
labor151.
The bankers are the main (but not the only152) element in our covert
aristocracy. Using many of the tried and true principles of the aristocracy
(authoritarianism, statism and the use of an intellectual priesthood to deceive
the public) they have created a system whereby they live off the labor of the
vast majority.
In 1688, when the old aristocracy was toppled in England, the new aristocracy
was on hand. We have seen how democracy is inherently a force for peace. But
war, the standby of the old aristocracy, became an important device for the
new. Through the creation of the Bank of England, war and paper money
became inextricable mixed in a way which allowed the bankers - and their
other associated vested interests - to seize the wealth of the people. In this
sense there is a ruling group in America - and in every other country in the
world - today.
We can now, perhaps, better understand how men foment war for economic
motives. The covert aristocracy continues many of the traditions of the old
medieval aristocracy. Wealth may not be its only goal, but it always requires
an economic base. It would not be an aristocracy if it did not live in great
wealth without working. Wealth and power are inextricably mixed for this
class, which cannot lose one of these elements without losing the other.
It is hard to conceive of a man who will cold bloodedly send another human
being (let alone thousands or millions) to die only for his material self interest;
few could do this if they understood the situation in those terms. But when the
motive is strong, most mens capacity for self-delusion is infinite. By whatever
process, they come to believe that the war which advances their wealth and
power is absolutely essential for the salvation of mankind. It is true that J.P.
Morgan and Company dishonestly maneuvered the United States into a war
which greatly swelled their pocketbooks, but it is also true that they believed
that the extension (and preservation) of the Anglo-Saxon way of life hung in
the balance. Once a mans self-interest is involved, he can usually find some
ideal in terms of which to justify his actions.
We can also see how men who might be deterred from war by an increase in
taxes are not deterred by the loss of life and liberty. In time of war a hysteria
grips the nation. The public debate is governed primarily by emotion with very
little space left for reason. The average man is propagandized with songs,
slogans and heroic statements. In this frame of mind, even human life itself
becomes cheap.
151
152

Millions of workers, working for nothing. You better give 'em what they really own (John Lennon).
They have their PR-men and -women travelling all over the world globe, backed up by some news

agencies.

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But the issue of a tax increase to finance the war - although far less threatening
mans values than the loss of life - shifts the debate to a far different level. In
our society, we are used to treating economics as a rational subject. While men
may be highly irrational in other areas, they pride themselves on their
calculated rationalism in the field of economics. Shift the subject to the cost of
the war, and suddenly the average man is no longer swept away by heroic
songs or eloquent speeches. He can not calculate the value of a human life, but
he can calculate the value of the tax increase you are passing along to him.
And as small as this value is in the scheme of things, he sees that the war is not
worth it.
Interestingly, two years after the establishment of the Bank of England, the old
practice of coin clipping and alloying base metals with the gold - which had
gone on since virtually the invention of money - was ended by a reminting of
the debased coinage. With the new method of exploitation in place, there was
no need for the old. Power to debase the currency thus passed from the king
(representing the old aristocracy) to the banker (representing the covert
aristocracy), and there it remained to this day.
Furthermore, this explains why there is a great deal of injustice directed inward
during wartime and why in many respects the society returns to a condition
approximating that of the Middle Ages. It explains why freedom of speech is
often violated in time of war, why forced labor is introduced (especially for the
military), why dissent is not tolerated and why unsound financial policies are
followed. These things are not means to win the war; in fact they operate to
weaken the society and make for a less efficient war potential. For the ruling
group which desires the war, they are the end itself, and the war is the means
to bring them into being.
H. Katz, The Warmongers, pp. 39-42.

On the subject of history as a scientific discipline, Mr. Katz quotes H.T. Buckle. Our
comment follows his remarks.
The unfortunate peculiarity of the history of man is, that although its
separate parts have been examined with considerable ability, hardly anyone
has attempted to combine them into a whole, and ascertain the way in
which they are connected with each other. In all the other great fields of
inquiry, the necessity of generalization is universally admitted, and noble
efforts are being made to rise from particular facts in order to discover the
laws by which these facts are governed. So far, however, is this from being
the usual course of historians, that among them a strange idea prevails, that
their business is merely to relate events, which they may occasionally
enliven by such moral and political reflections as seem likely to be useful.
Henry Thomas Buckle.

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The perceptive reader will notice more in this book than simply an attempt to
predict a particular war. It involves the use of prediction in the field of history
and thus takes a crucial step in turning this subject into a science.
Karl Marx attempted to turn history into a science, but he did so by externals,
by adopting (inappropriate) doctrines from the physical sciences - such as
materialism and determinism/ fatalism - rather than by an application of the
method of science. Science must proceed by generalization from the facts of
experiences to formulate a theory concerning causal relationships and then by
deduction to particular instances of the theory (hopefully in the future) which
will either substantiate it or refute it.
Some subjects - such as metaphysics - are unable to qualify as sciences
because they soar up in the realms of abstractions, never coming down to
reality. History had the opposite problem: it never has been able to get off the
ground but remains satisfied with the chronicling of unconnected facts.
H. Katz, The Warmongers, pp. 265-266.

In the remainder of this section, based on previous chapters and appendices, we will
do a modest attempt to construct a general framework to describe the course of history. In the
last section of this appendix, we will stress the all by all sometimes very practical sides of
metaphysics.
D.2.2 Model of social evolution
Based on our discussions on economy in chapter 4, on our considerations on the
systems view of life in appendix B, and on Professor Prigogine's theory of dissipative
structures discussed in appendix C, we will now try to construct a model, a framework, in
order to describe the basic dynamics of the evolution of human society.

Let us divide according to a certain criterion society in a number of subsystems.


Each subsystem can be divided itself in smaller subsystem. Later in this section we
will give two examples of how we could do this.

Each of the subsystems tries to achieve a certain goal: satisfaction of needs in


order to survive inside the larger overall system (urge to survive).

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In doing so, material and energy are taken as input from other subsystems and
used to feed the internal processes, while useful and wasteful output is produced,
consciously or by accident, toward those other subsystems. All the subsystems are
imbedded in the overall system - Nature with all its resources of energy and raw
materials.

There is a dynamic interaction between the several subsystems: the output of one
subsystem can be the input of another subsystem.

Although the processes and dynamics at the lower levels may seem chaotic and
unpredictable, as decisions are made independently by thousands of small
subsystems, the overall system still evolves according to an orderly, rhythmical
pattern with a certain periodicity. In systems theory one speaks of the eigenfrequency or characteristic frequency of a system153.

When this dynamic interaction between the subsystems shows a constant pattern
over a longer period of time, we can speak of a social structure (the stability zone
of a dissipative structure).

The urge to survive in man is manifested as satisfaction of needs, search for


security and even egotism and greed, but it can also appear as love, altruism
(toward family, country, humanity as a whole) and creativity.

This urge to survive, together with free flow of information as catalyst, induces an
evolution in the social structure from one quasi stable structure (quantum-level) to
another, characterized by more material well-being, more democracy, more

153

E.g. a swing has his own frequency; if one applies a rhythmical force on that swing with the same
frequency as the eigen-frequency, then the swinging is sustained. If the frequency of the external force does not
match with the eigen-frequency, then the swing will slow down and come to a standstill.

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equality for more people in a larger economic entity and with more and faster
throughput of information.

During this evolution, the transition of one social structure to the other is the result
of growing imbalances among subsystems in the overall social structure. These
imbalances ultimately lead towards a bifurcation point, a state of crisis, unstability
and uncertainty, where the interactions among the subsystems are restructured, and
also leads to changes in the internal process of those subsystems themselves,
resulting in a new pattern, which will again be constant over a longer period of
time, a new social structure.

But as society goes through the bifurcation point, there is also the possibility to
fall back to a lower quantum-level of social organization.

Evolution of social classes.


Let us take as subsystems the social classes in society. With the model described
above, we can understand the leveling of social classes: over the ages there has been an
evolution from a social structure with a very small upper-class, with living conditions
relatively better than the larger lower class, while there was no middle-class, towards a
structure with a large middle class whose living conditions are much better than those of the
former upper-class.
Satisfaction of needs and greed were the driving force of the dynamic interplay
between the subsystems, in casu social classes, which, due to the principles of feedback, has
resulted into economic growth: ever more input (raw materials, energy, human effort) is
processed to ever more output (goods, services, but also pollution), while some of the
subsystems can take more and other less advantage out of the growth.

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By the growing satisfaction of needs in one of the subsystems, and because the pursuit
of profit keeps on functioning as goal on itself (greed), this leads to growing imbalances and a
period of exploitation begins: one subsystem parasites on the other, it tries to secure its own
position at the expenses of the others.
Due to this exploitation, and because the aspect satisfaction of needs of the urge to
survive also keeps on functioning in the subsystems which are exploited, tensions occur
among the subsystems. With information-flow as catalyst, this results in one way or another
(see infra) towards a reorganization of the social structure - a quantum leap -, by which the
exploited subsystems gain more rights and the privileges of the oppressors are reduced a little
bit. Both subsystems integrate into a system of a higher level with a new internal dynamic and
a new social order. More material well being, more democracy and more freedom for more
people.

Evolution of geographical classes.


Let us now take as subsystems geographic areas. With our model at hand and with the
evolution of the social classes as given in the first example in mind, we can now understand
the evolution towards ever growing economic and thus political entities.
By the growing satisfaction of needs in one subsystem, there may arise saturation of
the market. Or it may also occur that the resources of raw material, land and energy, needed
as input for the economic process of the subsystem, get depleted. So another subsystem is
colonized in order to create new markets and/or acquire new resources of energy and raw
materials so the economic process in the first subsystems can keep on growing.
In the early stage of the colonization, the stage of the explorers and pioneers, growth
can occur for both subsystems, as new techniques and know-how are exchanged between the

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two. But after some time there might again arise saturation in the first subsystem. As the
aspect greed of the urge to survive keeps on functioning, the colonization leads to straight
exploitation, with all its characteristics of oppression and violence. This preserves also the
social structures in the colonizing systems as it feeds the internal process and allows some
social classes in it to enrich themselves considerably, while the lower classes can pick some
grains.
But the aspect satisfaction of needs of the urge to survive keeps on functioning in the
oppressed subsystems: so tensions occur between the geographical subsystems. With
information-flow as catalyst this results into a reorganization of the relations, where the
former colonized areas are integrated together with the colonizer into an economic entity of a
higher level, with more equal distribution of wealth and more political democracy and
equality.
In this respect, we can understand the evolution of the medieval castle, whose
residents colonized the surrounding farmers and serfs by selling them security and
protection - especially against themselves, the trick of the Mafia is indeed very old - in
exchange for food and other goods, over the industrialized countries of the 18th and 19th
century, with England as major colonial force, to the economic and political power-structures
of these days. What will be the next step in this evolution?
D.2.3 Illustration
We now quote J.J. Servan-Schreiber, who gives us a description of the present day
situation on the international political and economic scene. We recognize the basic
mechanisms of our model: saturation of input (raw material, energy) and output (markets,
demand), parasitism (colonialism, imperialism), growing imbalances among subsystems and
the resulting tensions.
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Solutions and lures.


The major development of the industrialized world occurred during the years
after the Second World War. This fast economic growth was possible because
it could exploit the natural resources of the Third World countries
systematically and because it could sell its own products in these new markets.
But this period runs towards its end. And this end has arrived so suddenly, as
no one has foreseen it or was prepared for it: hence the turmoil, the tragedies,
and the crises of today. The industrialized countries are obliged to export ever
more products in order to pay for the import of raw materials and energy,
essential in its industrial process. But to which countries can they export? All
markets are more than saturated. The economic war is raging, Japanese154
products flood America and Europe, while these two fight on each other's
markets and against Japan - all this in order to be able to export more. Each
time a clever and better-equipped exporter conquers a new market, this is done
at the expense of others in the sense that employment is lost for them. The
international trade among industrialized countries is no longer sufficient to
support the necessary economic expansion. All industrialized countries
together are heading towards an economic depression. That is the situation
now. The end of the road is near. What now?
Regression could be appealing... There are already people dreaming of a
bucolic society... Indeed, it is necessary for all of us to adopt a new way of
living. But regression would also mean fewer hospitals, schools, less social
security and well paid jobs... Regression, as a matter of fact, means a reversion
to a situation of underdevelopment... If we do not want to go this direction,
then a new way, a new development must be searched for155.
J.J. Servan-Schreiber, The Challenge, p. 176.

We will return on this danger of regression later in this section.


D.2.4 Possible transitions and visions of the future
As already stressed on several occasions in this study, the transition of one social
structure to another is the result of ever growing imbalances among subsystems. The tensions
resulting out of these imbalances ultimately lead towards one of the three following ways of
transformation. Only the first two, having the aspects greed and satisfaction of needs of the
urge to survive as driving force, have been recognized by Locke, Smith, Malthus and Marx.

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and Chinese

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The first way: by a revolution from the bottom of society against the top and
directed to the inside of society, the oppressed ones succeed to overthrow the
established parasitizing order. This way of transformation is driven by the aspect
satisfaction of needs of the urge to survive. This could be called the Marxist way.

The second way: by fomenting war from the top of society towards the outside
or even the inside-, the established order tries to secure its privileges by
anticipating the revolution of the lower classes and by diverting the aggression in
the form of a war towards an external enemy, so that other regions can be
conquered and colonized. This could be in a form of economical imperialism,
where the colonized country remains politically independent. Often this is
accomplished by making internal concessions: the lower classes of the own society
are granted some more rights as a reward for the support they have given in the
war against the enemy. In this respect it is interesting to note that the country with
the oldest pseudo-democratic traditions and the least violent social revolutions has
also built up the largest colonial empire: England. In this evolution, the aspect
greed of the urge to survive is the driving force. This could be called the
capitalistic or imperialistic way.

The third way: by eliminating consciously and in a controlled manner the


tensions between the subsystems - social classes as well as geographic classes or
countries. This transformation should be tackled from the top - changed politics, a
democratic world government - as well as from the bottom - changed moral values
- and from within - changed pattern of consumption in the rich countries - as

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towards the outside - a world-wide program to help the Third World in its
development.

In doing so, we should let us guide by an ecological awareness, and the aspects love
and creativity of the urge to survive should prevail over greed and self-interest instead of
being hollow slogans. These higher aspects of the urge to survive become manifest when the
individual person succeeds in transcending his own little ego and the interests of his own
group (family, social class, country, race, religion...). A lot of people are already a long time
aware of this fact. Some lines written in the 1980s:
The first and most safe step in this new evolution is to adapt modesty; the first
effort lays within ourselves. We have to conquer our own ego... The 40 pages
of the report are introduced with a personal, polite and above all solemn letter
of Sheik Yamani, president of the committee on long term strategy. In these
pages are outlined the guiding principles in order to establish a new order in
the world, as a replacement of the order that was enforced by the Western
countries on the former colonies after the Second World War. An order which
now, three decades later, has proved not to function anymoreThe main issue
of the document of Taif is no longer oil and its price per barrel, but which
vision for the future is needed for the world as a whole. As a matter of fact, it
discusses the need for a rebirth, a new renaissance. Power structures
disapproving or fighting or ignoring each other stand helpless. The world has
to learn to cooperate, but never before has one been so afraid of each other...
The document of Taif156 is not a rigid program, but rather a cry for help, a
message, pointing all of us to our responsibility. In the first place the western
countries: they can no longer act as despots, but they should rather be a partner
and work together with the other countries towards the erection of a new world
order...
J.J. Servan-Schreiber, The Challenge, pp. 290, 11, 12.

With the next social transformation, which is very near and necessary, the whole