Famous Economics Experiment has been Asking the Wrong Question for 60 Years
A recent article caught my attention, "Famous economics experiment reproduced thousands of times" (by Whitney Clavin, California Institute of Technology).
The article, and the study it's based on, call attention to the highly problematic nature of popular discussions of economic theory in the United States today. Rather than endless discussion about supply and demand and free markets, it would be far more useful to study the vast global economic benefits of a Moon-Mars colonization program. To do this competently, the axiomatic problems of modern economic thought need to be highlighted, removed, and replaced.
The article in question opens,
"In an open marketplace, such as a farmers' market where produce and other goods like candles and flowers are exchanged for money, the ideal prices for both consumers and sellers will quickly emerge… This phenomenon, which is related to the law of supply and demand, was demonstrated experimentally starting in the 1960s... Now, nearly 60 years later, Caltech economists have analyzed data from 2,000 repetitions of these experiments, from researchers around the world, to demonstrate for the first time [this] is reproducible on large scales."
I could think of some far more productive and useful studies for these researchers to dedicate their time to. As Lyndon LaRouche spent most of his adult life emphasizing, discussions about economics are far too dominated by studies and speculations about markets and buying/selling behavior. Those studies have their place (I guess), but the far more interesting (and far more important) question is that which Mr. LaRouche tackled, what is the science of economic value and long-term growth?
From that standpoint, is there any relation between open market prices and true economic value?
This is an opportunity to highlight an August 2005 paper by Mr. LaRouche, “LaRouche Comments on Professor Hankel and Himself” (published in EIR, Sept. 2, 2005), where he addressed the issue of price in some depth. He wrote,
"The effect of those indicated errors in the thinking of the usual economists and relevant others, is that the monetarist and related pricing theories commonly used heretofore, have nothing to do with what might be considered as an actual economic science, or even a merely sane method of management of governments and their associated economies. They have more the character of debates over doctrines among the factions within some pagan religious cult, a cult based upon superstitious belief in sympathetic magic, of doctrines crafted with the apparent intention of persuading the slave to accept his destiny, rather than representing any thoughtful attempt to demystify the paradoxes of national economy in the real world of today. Economic reality lies in the physical outcome of the applied powers (i.e., discovered universal physical principles) employed on behalf of the physical expenditures required to produce that thus-increased physical outcome. The role of money, as an instrument of exchange and credit, must be efficiently subordinated to the real-economic (i.e., physical) objectives of national economic policy."
The ABCs of Physical Economic Science
Mr. LaRouche wrote about the “real-economic (i.e., physical) objectives” of economic policy more times than I can probably count, but his 1984 economics textbook is always a good reference to go back to, So, You Wish to Learn All About Economics? with an emphasis (respecting the subject of this article) on chapter 4, "The Definition of Economic Value."
If you don't own a copy, definitely pick one up for ten bucks (ebook available here or print on demand here).
A scientific definition of economic value requires treating the whole economy (national, regional, or international) as a unity, and studying it as a thermodynamic system which produces its own energy of the system requirements to maintain its operations—a closed thermodynamic system. For an economy studied in this way, the energy of the system isn’t energy, per se, it’s the physical goods needed to maintain the population and the productive process of the economy at a constant relative level of technology and living standards. Food, electricity, automobiles, clothing, machine tools, water infrastructure, roadways, and so on—these are both the products of the productive process, and the inputs required by the productive process (the energy of the system is identified as V + C + D in LaRouche's analysis—see animation below). Only a limited section of the labor force is directly involved in the production of all the physical goods used by society, the productive operatives. Everything produced above the energy of the system requirements is net operating profit (S’), which is the free energy available for investments to raise the economy to levels above the status quo maintained by the energy of the system.
This defines the most simplified version of the process that must be isolated before any scientific assessment of economic value can be made, the utilization of a portion of the energy of the economic system (produced in a prior economic cycle) by the productive operatives to produce the energy of the system, plus free energy, for the next economic cycle.
Individuals participating in open markets in rural or inner city America might converge on a market price for oranges and opioids, but what does that tell you about the ability of the entire economy to sustain the population and grow?
For the economy (viewed in these thermodynamic terms) there is no steady state, the economy is always either moving in an entropic or negentropic direction—the notion of “sustainability” (the rebranding of “zero-growth”) is a dangerous myth.
Any economy that tries to maintain a fixed level of existence—a zero-growth policy—will be using up the relatively highest quality natural resources available, resulting in transitions to lower quality and/or less accessible (i.e. more expensive) deposits of those resources. This means that the economy has to exert more effort to produce the same energy of the economic system requirements, just to maintain the economy at existing levels—greater portions of the energy of the system are consumed in the productive process, and a larger allotment of the productive labor force is required to produce the same level of output as the previous cycle (leaving less workers available for necessary overhead). Less and less of the total output is available for free energy investments, and, eventually, the energy of the system can no longer even be produced, forcing the economy into a collapse mode—the “sustainable” (zero growth) economy marches towards an entropic breakdown.
To overcome the effects of the depletion of a given set of resources, the continued existence of any economy requires technological progress—resulting in increases of the productive powers of the labor force—and scientific revolutions—redefining mankind's relation to the natural world and so-called natural resources. (Space program anyone?)
This is the only scientific basis to define economic value, and, thereby, the way to approach pricing from a scientific standpoint.
For the productive operatives segment of the labor force to operate at a level of physical productivity sufficient to keep the economy in a negentropic mode, they must be able to afford both the capital goods (C) employing sufficient levels of technology and the consumer goods (V) required to sustain their households—including their household’s production of a new generation of a productive operatives capable of utilizing current and future technologies (the disastrous nature of globalization and cheap labor policies become fully evident when economics is properly understood from this standpoint [see footnote 1]).
As Mr. LaRouche states in the above-cited 2005 paper,
"The determination of price must be governed by first consideration to the conditions of life and work of the total national labor force, with its associated households, not only within respective nations, but, more and more, on a global scale. This determines the idea of the magnitude of private income as complemented by essential public and related services to households. This estimation of the total physical price of labor, so defined in terms of households, is compared with the product of the labor of those households: basic economic infrastructure, agriculture, manufacturing, and essential services, including those supplied by government. This configuration must be described from the standpoint of several factors, including physical-capital formation, and rates of generation of and application of science-driven technological progress. The further refinement of the division among those assorted components, should be programmatic. Such a program has two leading, overlapping distinctions. Division of labor, within and among these categories, as defined according to the requirements of fulfilling an adopted national mission of a certain rate and direction of physical-economic increase of the productive powers of labor. The mission-orientation of national economic and related policy is not present to future, but future to present: a sane society creates the basis for a future which the present must overtake."
And, a bit earlier, in the same paper,
"The development of these broad objectives is required for a dynamic approach in policy-shaping, to improving the physical productive powers of labor per capita and per square kilometer of territory. On this and related accounts, the best experience of the past shows that government can become informed to the degree that it can foresee general lines of forward development of technology, and can assemble the expert advice through which to assess the general rate at which such progress might be enabled to occur. The U.S. space-program, as it operated through the manned Moon-landing program, is a demonstration of the way in which science-driver ‘crash programs’ have the effect of a ‘spill-over’ into increased potential productivity of labor within the economy at large."
The vast economic benefits of the Apollo Moon-landing space program have been demonstrated in both conventional economic analysis (e.g., “The Economic Impact of NASA R&D Spending,” Chase Econometrics, 1976 ) and from Mr. LaRouche’s standpoint (e.g., “How defense and space programs drive economic growth,” EIR Quarterly Economic Report, fourth quarter 1986; “Space: The Ultimate Money Frontier,” EIR, February 5, 1996).
The mission oriented crash program to put mankind on the Moon drove the development of a vast array of technological breakthroughs, which were then made available for general manufacturing use throughout industries not related to the Apollo program. In terms of Mr. LaRouche’s approach, these new technologies were incorporated into the designs of new capital goods (C), increasing the productive powers of labor of the productive operatives who utilized the more advanced capital goods during the productive process.
Interestingly, while the aerospace/defense sector of the economy showed a 90% growth in new capital goods purchases under the Moon landing driver program, the non-aerospace/defense sectors grew more, at 130% [see footnote 2]. When done right, space missions can drive the entire economy to higher levels!
Back to the Moon, and Onward to Mars
President Trump's revival of a manned mission to the Moon has the potential to become the most important crash program to drive the economy forward. In 2009, Mr LaRouche began re-advocating for a global effort for the industrial development of the Moon and human missions to Mars, as the keystone program of a new global economic order led by the collaboration of sovereign nations, overtaking the control of the the globalist financial system rooted in the city of London. That mission is still key today.
Market prices are what they are, but studies of such shouldn't be called economics. The important issue is true physical economic value, defined by contributions to the negentropic growth that's necessary for human survival. It is time for LaRouche's science of economics to govern policy, otherwise the US population will continue to pay the price for bad policies.
LaRouche: True Value of Apollo, and a 50-Year Moon-Mars Mission
 Mr. LaRouche includes some discussion of this in his August 2005, “LaRouche Comments on Professor Hankel and Himself” (published in EIR, Sept. 2, 2005),
“The advantages some Asia nations appear to have secured through globalization of ‘free trade,’ involve setting the prices of their exports to the world market below the level of national export income required to relieve the economic oppression, which is often worsening presently, among those, or similarly situated other nations' poor. This aggravation of poverty of the great mass of the poor, reflects the effects of the margin of price-advantage for export by these nations, on which those nations actually depend, presently, for a marginal factor which past economics convention has termed ‘primitive accumulation’: the augmentation of the relative income of the nation, through the looting of a relatively enormous part of its own, or other nations' territory and population.”
 Specifically comparing the decade of the 1950s to the decade of the 1960s, as discussed in “How defense and space programs drive economic growth,” EIR Quarterly Economic Report, fourth quarter 1986 (page 65).
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An hypothesis regarding the creation of free energy:
Case 1: In an economy with no technological growth, small amounts of free energy can be created over some production cycles by absorption of unemployed people, or a large generation of youth, into the existing modes of production; it will then take the temporary form merely of excess inventories of goods over and above those consumed during a production cycle; but as more and more labor is diverted into unchanging basic production because of resource exhaustion, the inventories will disappear and be replaced by shortages, eventually eliminating “D” as you show, those who represent overhead.
Case 2: In an economy in which scientific invention and technological progress is occurring but the government is taking no role in stimulating or supporting this, the existence of free energy in a production cycle (although goods inventories will exist, obviously) will become evident in the form of excess workers in some physical economic sectors, who in subsequent production cycles will shift more and more into higher-technology forms of production in one sector or another, and/or will shift their employment into “D”, where they are researching and engineering the emerging technologies; and this process will tend to occur slowly because this progress will wait upon the excess workforces becoming evident in some sectors and successful sale of higher-technology products in others, so it will occur over successive production cycles.
Case 3: In an economy where government organizes a scientific crash program or programs, workers will be shifted out of some sectors into the new science-driver mission before it is evident that they are free energy in those sectors, and before it is known “practically” that the crash program itself will generate free energy. Effectively the decision will be made to use free energy which is not yet evident as such, overwhelmingly by shifting workers from production of C and V market baskets into D, and when it is not yet clearly indicated what form of production the free energy will create, whether it will be C, V, a combination of both or remain for a cycle or two in D. A simple, exaggerated example of this is the WWII mobilization where the market basket standard of living of Americans, or V, was definitely reduced – even though they were not being subjected to the destruction of war here – to stock D and create new forms of C. Auto and commercial truck vehicle production stopped, which was important to many sectors particularly agriculture; electrical engineers and line workers en masse went into “war work” (a reduction of C for the real economy) but fortunately the electricity sector was very robust; some other consumer goods production stopped, etc. And with the flow into D (ignoring the flow of soldiers to the war) there came radar, other relativistic-beam and transistor technologies, initial computers, isotope separation plants, jet engines and other aerospace advances, naval nuclear reactors and so forth.
Case 3 exhibits a willful decision to create free energy immediately for an economic system which is not producing it (or not producing that much of it) in the current production cycle or an immediately foreseeable production cycle. It appears to be utilizing future free energy to generate present “free energy” now. And so the character and power of that free energy cannot be identified by looking at the present economy in which it will be generated. Rather there is a platform or springboard in the present economy which can be identified as the source of free energy in one, present form, to generate free energy in higher, not yet existent forms. Paul G.
That’s a very good point to raise Philip, thanks, I’m glad you noticed it. I try to keep these articles on the shorter side, even if that means not explaining all aspects. I wanted to illustrate a couple ways the respective values could change, but these animations certainly don’t encapsulate all possible scenarios.
In the entropic mode, I had the productive labor force increasing as a percentage of the total labor force as expressing a desperate attempt to counteract the declining productive powers of labor and the increasing costs of production. This would result in fewer workers available for useful and necessary overhead (teaching, health care, etc), which would further accelerate the collapse (as expressed in the falling total population level). In a simplistic modeling scenario, you might envision the society shifting back towards subsistence farming, where each household applies nearly all their labor simply trying to grow the food and provide for their own household’s survival. However, an economy that reached a higher state wouldn’t be able to simply shift back to that lower state, but would go through a catastrophic collapse instead.
In the negentropic mode, I had the economy shifting from a post-industrial demographic to an reindustrialized demographic (in order to show some amount of change occurring in the values), so the productive labor force increased from about 25% to about 50% (but not continuing to grow after that), which Mr LaRouche says is the approximate ratio you would want in a healthy economy.
First on the issue of money, Mr. LaRouche’s quote is exactly correct-
“The role of money, as an instrument of exchange and credit, must be efficiently subordinated to the real-economic (i.e., physical) objectives of national economic policy.”
The reality is that wealth comes before money, where wealth is defined as that which keeps us alive,, money and even credit do not, unless money and credit serve the production of wealth.
National economic policy requires under the Federal Constitution that the value of the dollar, as defined by Congress, needs to be in line with the promotion of the general welfare, which means the support of life, liberty and the pursuit of happiness. Thus upon the notion that all men are created equal, the value of a dollar needs to be consistent for all people.
Thus the issue of implementing ‘National Credit’ for such projects in support of the general welfare must be based upon that mechanism that properly puts money in its proper place, such that it can serve, life, liberty and the pursuit of happiness and not just the interests whose interest is interest.
The lesson of the Great Depression is incumbent here. In May 1933 FDR declared National Emergency where that emergency concerned under 7 USC Sec 601 over agriculture, where
the government took over the marketing rights of farmers, and under 7 USC Sec 602 was
instructed to pay "Parity Prices’ to farmers, per Fifth Amendment taking clause requiring just compensation for taking those marketing rights from farmers.
Unfortunately FDR followed ‘free-market’ & ‘supply and demand’ beliefs to try to implement Parity, by forced government sponsored destruction of physical wealth in the interest of money
interests. This needs to be understood as it is important, and basically FDR extended the crisis, which could have been solved in relatively short time,
It was the crisis of World War II that forced the proper implementation of Parity, without production quotas, by forcing the setting of a 90-110% Parity Price window, thus the markets were regulated, and a true dollar was had for the nation.
This true dollar, was that physical production of wealth was valued such that the producers of such value could purchase the goods and services of manufacturing and service sectors of society.
This is important because the Great Depression was caused not by the collapse in commodity prices due to free trade imports to which agriculture was the largest purchaser of capital goods in the country. Thus the agriculture could no longer keep the factories open and thus the collapse was spread through the system.
The collapse in prices was a collapse in “Earned Income” creation relative to production of real wealth. When the nation does not produce ’Earned Income" meaning income that is not fractionated by debt obligations, then the nation, both privately and publicly must borrow money to keep things afloat.
This is not speculation but economic fact found in the record of the nation, where the real cause for the end of the Great Depression was not Keynesian war spending but the fact that the dollar had been brought to par, and because small family farms represented a democratized capitalism, Earned income was produced in the most efficient manner such that the use of that income allowed for tangible American Greatness to be manifest.
Remember that after WWII a return of the Great Depression was anticipated, but not by all, for one of the Economists at SEARS, Dr. John Lee Coulter understood that Parity had provided debt free income in the hands of American producers and that thus that money multiplied through the economy to allow the post war boom to happen.
Coulter was part of the group studying these issues called the Raw Material National Council that studied the question of why the nation went into the Great Depression by analyzing the government data, revealing the importance of adequate base price for new wealth introduced into the economy, where for every dollar of such raw material production would multiply by seven fold to the parameter of national income.
Provisions in the 1942 Defense Bill ( ? proper name and through Steagall Amendment) was unfortunately put on a automatic stop two years after the war. It was not until 1952 that ‘parity’ provisions where not renewed by Congress, even though 7 USC 601 & 602 are still Statutory Law.
It was General Motors, and the ‘interests whose interest is interest’ who lobbied to stop
Parity price floors, such that ’Earned Income" could be dried up necessitating borrowing money to buy cars, etc..such that ’Debt Slavery" could be the contractual norm.
Further the globalists wanted a cheap food policy to flood foreign markets to create vessel states around the globe, but it was precisely the collapse of the honest raw material earned income value system that was the basis for the cannibilization and outsourcing of American Manufacturing.
Thus the point here is that in referencing the need for national credit for improving the physical economy, we must recognize that the nation has a little known mechanism of success in addressing the problems associated with supply and demand voodoo that forces a collapse function of society such that power can be concentrated in the hands of the few, and to which we must be wary of how we might implement credit, even for the common good, that that does not become hijacked.
Presently the President does have the power to deal with a situation where the producers of our Daily Bread are only getting a 28 cent dollar per June 2020 USDA Parity calculations.
Here is a relevant chart per collapse of America and what the President has the power to do to address the crisis.
Getting to the moon requires feeding people and understanding that we will never get there or even here if we continue to allow theft to be national policy for the benefit of the money lenders.
A Return to Parity Act for a graduated return to sane monetary policy based upon production of real wealth for life is what needs to be advocated as a certain quintessence to any quadrature of policy essentials so advocated to reign in the speculators and other purveyors of the ongoing collapse into chaos for power consolidation and destruction of humanity.