Money is only the lubricant that helps the real market work. Nothing more, and nothing less. Money is totally useless unless there is something to buy that you want to buy. It is only a medium of exchange for the Real Market.

Money is basically a second level aid to the proper workings of the real economy. Without the real economy there is no financial market.

So what is this stuff about controlling the money part of the real economy being anti competitive? Competition should exist in the real market, not the illusionary money market.

What money systems do farmers need to maximise production? Create those money systems. What monetary systems do we need to facilitate fair and free world trade? Create those money systems. Create the systems we need and control them.

As soon as we create 'money markets' that allow stock brokers and others gamble with other peoples super and create illusionary wealth on paper without any reference to the capacity or needs of the real economy there is going to de trouble. Putting the money markets ahead of the real economy is the tail wagging the dog.

If the money side of the market is to be bought under control there will be by necessity stringent controls, but this is not am ideological thing. Ideology does not come into it. All that matters is that is made to work.

The only ones to lose by the proper working of the money side as an aid to the proper working of the real markets are the greedy and the con artists. They are the ones who distort the money side of the equation at the expense of the real economy to transfer money from someone else's pocket into their own. This is not creating wealth. None of them ever grow a crop or built a bridge.

We would of course be creating unemployment amongst the stockbrokers, fund managers and various other 'professions' who feed of the real economy without contributing anything. I would rather see them unemployed than continue to foul up the real economy.

Great article Geoff Davies, and hear hear, Daviy.
Peter Hume, your constant panty wetting fear of "The Government" is tiresome. At the end of the day, the principal difference between the big bad -democratic- government, and your wonderful free market is this:
one person, one vote.
one share, one vote.
If some dead head, silver spooned moron inherits 1,000,000 shares, he gets 1,000,000 votes.
That's your free market.
If your daughter gets raped, will you not call the police, because they are an arm of the government?
In other threads, it has been mentioned that religion gets a 'get out of jail free' card. we can argue about everything else, but when it comes to religion, we must respect the right of religionists to believe what they want, no matter how irrational.
Apparently, the 'free' market is in the same boat.
We don't allow bullying in schools. We don't allow bullying in the workplace.
But in the free market, we applaud, laud and encourage bullying, as the measure of 'success'.
All that is required is that we apply the same principles of morality to the marketplace, that we apply to every other human endeavour.
Why should the marketplace enjoy immunity?

Geoff great article.

Free open transparent markets are an effective way of allocating resources according to perceived value of goods or services. In their current form they are not a very good way of deciding what to allocate and who should receive the allocations.

The way we have structured markets is one dimensional and is based on allocation according to perceived value and even that dimension is flawed.

The solution, as you say, is not abandon markets but to reform them so that they are not asked to do things they cannot do and they given capability to do things we ask of them.

We can make our markets information rich and include constraints and other objectives as part of the internal workings of the market. For example we can construct a market that sells infrastructure to produce energy with a constraint that the production of energy once the plant is built results in minimal green house gas emissions.

We can construct markets where people are paid not to consume rather than pay to consume.

Markets are good ways for us to work together and share the output of our activities. Let us start to think of them as ways of cooperating rather than ways of competing and let us design them so they can work effectively to achieve multiple goals.

I don't know what Online Opinion is doing publishing an article on economics by a geophysicist, but Dr Davies' ignorance and misrepresentations will hopefully make them think twice next time.

The claim about "unrealistic assumptions" is a common tactic, but it's a strawman. Perfect information or perfect rationality are assumed for economic models, not reality. No-one thinks the models are replicas of society, and it's mendacious to insinuate economists are blind to this.

"There should be no economies of scale"?? I challenge Dr Davies to provide one skerrick of evidence that 'neoliberal' thinking incorporates this.

"the central neoclassical conclusion, that free markets tend to an optimal equilibrium state"

They tend, they don't settle, because the market never stops changing. Fundamentally, it's a statement about the self-correcting nature of supply and demand and prices, something beyond dispute - unless government intervenes.

"Where is the evidence that neoliberalism is superior?"

Here we see the pitfalls of getting armchair economists to pronounce on economic history. Dr Davies completely ignores WWII, technological and societal change, decolonisation, etc. Talk about simplistic thinking!

Fatfingers

<They tend, they don't settle, because the market never stops changing. Fundamentally, it's a statement about the self-correcting nature of supply and demand and prices, something beyond dispute - unless government intervenes.>

I strongly disagree with this. The markets work on rumour and innuendo and greed. Who starts the romours and who starts the markets trends is anyone's guess but they seldom have anything top do with actuality. A few big 'players' (I hate the word because it so accurately describes the stock market) can manipulate and distort with ease.

Outside of the stock market anyone who sold something he/she did not have would be charged with fraud. Why do the stock broker's react so strongly against the idea that if they want to sell something they have to own it first?

There is nothing self correcting about supply and demand in the financial markets. Supply and demand operates in the real markets.

Let me correct that. The present situation is a correction of the sub-prime market so maybe it could be seen as a self correction we did not have to have or need. Boom/Bust is the corrections on a money market out of control.

I see Neoliberalism as the Buddhist hell of the land of the Hungry Ghost. The land of the Hungry Ghost is inhabited with fat grotesque creatures with little tiny mouths. No matter how hard they try they cannot stuff enough food into there tiny mouths to satisfy their insatiable hunger.

fatfingers

Mainstream economic theory is based around mathematical models derived from the equations of planetary motion. They are OK for planets but inadequate to describe economic behaviour. That is what Dr Davies is pointing out and it is not mendacious. Economists borrowed ideas to establish their models in the late 1800 hundreds. It is time they borrowed a few more ideas from thinkers like Davies in the early years of this century.

Your statement that markets tend to equilibrium completely ignores the role of feedback in systems which was well described in 1868 by Maxwell in his classic paper "On Governors". Systems with feedback like markets can easily get out of control from internal behaviour - not from external agents like "the government"

Apply Maxwell's insights to current day money markets and it tells us how to correct their erratic behaviour. When money is created by creating debt this in turn encourages more money to be created because there is more debt. Debt and money keep increasing until the pyramid collapses under its own weight. When we start to reduce debt we also reduce money which in turn reduces the amount of debt. These are classic internal positive feedback mechanisms so well described by Maxwell.

The link between debt and money can be broken by increasing the money supply without increasing debt. Doing this will almost certainly solve the Global Financial Crisis.

This is the sort of thing economists should be thinking about instead of looking for scape goats for the failure of their theories to predict let alone explain economic behaviour.