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Jung and the inflationary Jungle

Hector McNeill1
SEEL


Carl Gustav Jung (1875-1961), the Swiss psychoanalyst wrote extensively on people's motivations and actions and to a significant degree this helps analyse much in political economy, so-called. The fact that all of the decisions taken on policy relate to human motivations, concepts and associations is a reason economics suffers from not being a science. If one removes the dominant influence of human motivations from the analysis of economics it does in fact become at least a physical science concerning dimensional or quantifiable physical transactions of goods and services.

Jungian philosophy has some important observations on a specific state of affairs which is referred to as inflation. This does not, of course, relate to economic inflation but it does relate to a specific state if mind as the reason that current monetary theory based on fundamental misconceptions and sustained by factional motivations, remains unchallenged. This is in spite of the fact that copious evidence demonstrates the prejudice imposed on increasing segments of the population as a result of flawed monetary theory and an attempt to prevent this theory being challenged.

Introduction



George Santanaya
(1863-1952)
When attempting to explain the real incomes approach to my fellow economists I am often struck by the quote attributed to Edward Koch (1924-2013), the US politician that states,"I can explain it to you, but I can't comprehend it for you'. Over the last 40 years this quote lost its potency under the circumstances because the state of affairs is more one of, "There are none so deaf as those who do not want to hear"

Jorge Santanaya summarized this state of affairs as, "The empiricist .. thinks he believes what he sees, but he is much better at believing that at seeing." Santanaya's observation pinpoints the complex issue of human interpretation of events and relationships where psychological predilections guide people towards the comfort of their view of the world,


William James
(1842–1910)
sometimes resulting such reaffirmations based on observed phenomena upholding theories even when, in reality, there is no such causal relationship.

As can be seen we gravitate towards having to consider what are facts or, rather, what is the truth? William James had an good definition for truth as, "Truth is what happens". James' definition represents a challenge to all, not just scientists but also to anyone involved in reporting to the rest of the population, "What happened" but to interpret events in an impartial way such as exploring the range of explanations as to why an event may have taken place and how. In today's complex world such impartiality and logic is a rare occurrence. But then this leads us on to why all of this is a topic for economics.

In the last article on this site entitled, "Bretton Woods in retrospect" I ended this with the statement, "....any realistic future "negotiations" require changes in both economic theory and practice." Of course, most "conventional economists" who still cling onto their pet theories will make an effort to shore up the positions of their organizations and of their own personal positions by asserting that there is nothing wrong with economic theory it is just that policies have been wrong. I beg to differ. It is the theory that is wrong and this is why policy instruments are inappropriate and have caused so much misery for the population.



Alfred Korzybski
(1879-1950)
Coming to the significance of economic theory and practice for the general population, Alfred Korzybski made the observation,

"The layman, the "practical" man, the man in the street, says, "What is that to me? The answer is positive and weighty. Our life is entirely dependent on the established doctrines of ethics, sociology, political economy, government, law, medical science, etc. This affects everyone consciously or unconsciously, the man in the street in the first place, because he is the most defenseless"



Carl Jung
(1875-1961)
In arriving at an analysis of why there is so much resistance to contemplating why economic theory is, or might be, wrong, some of Carl Jung's analysis appears to be particularly apposite.

In the Jung Lexicon created by Daryl Sharp, reference is made to the psychiatric state of "inflation". This has nothing to do with economics but rather to a mental condition. The following provides a general description.

"Inflation is a state of mind. It is characterized by an exaggerated sense of self-importance, often compensated by feelings of inferiority....."

"An inflated consciousness is always egocentric and conscious of nothing but its own existence. It is incapable of learning from the past, incapable of understanding contemporary events, and incapable of drawing right conclusions about the future. It is hypnotized by itself and therefore cannot be argued with."

There is more, but this short excerpt is sufficient for the moment to understand the evolving drift of this analysis. So, coming to economics it would appear to be apparent that economists who cling to the theory of monetarism have internalized a theory, a model or map of the way they believe the economy works, to such an extent that criticism of the model becomes almost a personal affront to such people. They would rather presume whoever states anything to the contrary simply "does not understand economics". Because of the drip by drip infiltrations of the monetarist doctrine into institutions and universities over the last 45 years, we have a situation where the theory is assumed to be the equivalent to a "theory of everything" and, therefore, cannot be countered. Thus the Jungian, "It is hypnotized by itself and therefore cannot be argued with." and this internalization and crystallization of this theory into the mindset of policy makers who advise governments has created the more than apparent state of affairs of, "It is incapable of learning from the past, incapable of understanding contemporary events, and incapable of drawing right conclusions about the future."", and yet we rely on these same individuals to plan the actions designed to "rebuild-better" and a range of ambitious impressive-sounding initiatives in the Post-Covid-19 world.

We have a state of affairs where economic theory concerning monetary affairs is a sketchy model or map of reality and yet this is applied as a basis for policy which affects the livelihoods and wellbeing of the whole population who live within the territory and ecosystem within which they live and work. Alfred Korzybski advice to avoid this confusion between model, maps and reality is summed up in his advice that, "The map is not the territory" and this has particular significance here. If policy instruments are based on assumptions made by unrealistic theatrical presumptions, it is self-evident that such policy instruments will have poor and often calamitous impacts on the lives and wellbeing of the majority. This has been the outcome of monetary financialization through the last 20 years. As Jung also explained, that inflation,

"...inevitably dooms itself to calamities that must strike it dead. Paradoxically enough, inflation is a regression of consciousness into unconsciousness. This always happens when consciousness takes too many unconscious contents upon itself and loses the faculty of discrimination, the sine qua non of all consciousness.["Epilogue," CW 12, par. 563.]"

and

" In general we are not directly conscious of this condition at all, but can at best infer its existence indirectly from the symptoms. These include the reactions of our immediate environment. Inflation magnifies the blind spot in the eye.["The Self," CW 9ii, par. 44.]"


This last assertion on Jung's part that, the calamities cause by the theory should strike the theory dead does not appear to be the case because of the maintenance of the "there is no alternative" mantra firewall.

This reflects a tragedy that links back to a need to question the contribution of our higher educational institutions who have trained and mentored most of the ministers of finance or economics the world over and the senior people in a range of international institutions, including those that are part of the Bretton Woods set up, that have an influence on global and national monetary policy. It should not, of course, be forgotten that the monetary system was first conceived hundreds of years ago in the heyday of the Inquisition and through the dreadful years that established the legacy of slavery as a business and component input to the means of production in many parts of the world. All of this served the interests of the decision makers and governance, first and foremost. Originally decision makers had no democratic legitimacy because "democracies" as organizations, where all adults possessed a vote to decide on policy options, did not exist, and so the system was not set up to serve the interests of some "majority". The powerful and influential remained an unelected royalty, of some kind, and a system of governance serving the interests of those constituents favoured by royalty, and whose loyalty has been secured through having been assigned dominion over land areas, as land owners who could extract rent from the activities of the population occupying this land. There was and remains, therefore, a very specific group for whom monetarism was designed to support their specific interests and decision preferences. As the actual role and effective control of royalty over policies has been slowly chipped away by politicians and political parties in response to the desires of an increasingly influential business and trading class, the needed transition for policy to become more inclusive of the needs of the majority has not taken place. This is because of the state of analysis surrounding monetarism has become increasingly focused on the benefits to be derived by business and traders, leaving the interests of the majority of the population on the back burner where the flame seems to have been extinguished around 1971 when Nixon went off the gold standard.

Up until that point, and following the war that ended in 1945, the standard of living for the majority of the United Kingdom constituency had been improving as a result of a period between 1945 and 1970 when no intrusive monetary policies were applied just as no Keynesian policies were applied. This "real economy" saw unprecedented investment and economic growth in real terms and very low unemployment. This was a period when there was a political drive to improve the conditions of the majority through such initiatives as the foundation of the National Health Service and the participation of government with business and unions in tripartite industrial and economic commissions to decide policies with an eye on the majority. This led to Harold MacMillan being able to declare, "Britons had never had it so good!".

Changing focus from Jungian inflation to the monetary inflationary jungle

As a student attending lectures that included monetary theory and finance, I found monetary theory to be unrealistic and therefore confusing, I reviewed this in the article, "Real Incomes & the Quantity Theory of Money". However, I found finance, the application of the currency to investment, cash flow, economic rates of return and market transactions, easy to understand. My doubts about monetary theory circulated round the Quantity Theory of Money which at some point or another teachers would refer to in their "explanations" as the "core theory" of monetarism in terms of policy impacts. It is also notable that most areas of economics possess a transparent and logical character where questions to lecturers and professors received satisfying answers which normally explained the mechanisms of cause and effect. I never found this to be the case in monetary theory and policy. As a student, one was left with the feeling that this topic was complex and therefore required "further study", on my part, before I ventured to ask further questions. I had the same impression listening to some of Joan Robinson's lectures on the monetary dimensions of Keynesianism2. But on reflection, I believe that this situation arose from the inability of teachers to explain the mechanisms involved; there were too many assumptions leading to the unfortunate reality that the replies received were assertions. Those replying to simple questions were, in reality, asking students to take a "leap of faith" without necessarily understanding "the full detail". This cannot be the role of any educational institution or educator. Under such circumstances, in order to pass degree and post-graduate degree examinations it was necessary to "learn" aspects of monetarism based on rote as opposed to understanding, because they did not make sense, but this kept examiners at bay and maintained reasonable examination results.

I have since been able to explain why the QTM is fantasy, but I had to await the outcome of quantitative easing to explain it in more detail in the article, "A Real Money Theory II". The non-inflationary characteristics of money volumes on prices on the supply side production and service economy was exposed in real incomes development work as early as 1976. This was the result of detailed analysis of inflationary mechanisms as opposed to accepting the QTM identity. However, with quantitative easing (QE), the atomization of the economy into distinct encapsulated markets became the most obvious feature of QE and this provided overwhelming evidence to completely undermine the efficacy of the QTM. However, I now realize that I should have extended my analysis into this question in more depth in 1976.

Conclusion

Monetary theory and policy has failed to safeguard the interests of the majority and has very much assisted a small minority faction accumulate increasing wealth. The QTM in reality works for asset holders by enabling the transfer of policy-based monetary injections into encapsulated markets where the participants are largely asset holders who have higher accumulating incomes as a result of their wealth being held in the form of assets whose prices rise on the basis of speculation (see, "More to Say - Part 2 - A century of encapsulation and economic disintegration 1920-2020" ). These encapsulated markets include:
  1. land and real estate as speculative assets
  2. precious metals as speculative assets
  3. cryptocurrencies as speculative assets
  4. commodities as speculative assets
  5. corporate shares as speculative assets
  6. financial instruments such as derivatives and option conditions as speculative assets driving a grey market larger than the GNP and beyond the boundaries of any policy control
  7. savings and cash reserves as non-circulating money
  8. offshore investment and reinvestment of offshore profits in offshore activities often as a tax avoidance scheme
There is only a very small proportion of the circulation of funds within these market segments that finds its way back into the supply side production and service economy where most constituents are employed. Therefore the comparative "growth" is marginal as a result of declines in: investment, productivity, real profits and real wages. In other words there is no such thing as "trickle down".

However, the speculative inflation that occurs in encapsulated markets represents real income gains for asset holders as long as inflation in transactional prices and wages in the supply side production and services markets remain in check. So monetarists concern themselves with supply side transactional price inflation only to the extent that this determines the actual value of asset price inflationary gains in real terms. In other words, inflation in asset markets is not undermining purchasing power of accumulated wealth as long as the prices in the transactional goods and services markets are relatively stable. Inflation begins to appear in the supply side economy as a result of inflationary leakage from the encapsulated markets of land, real estate and some commodities which begins to generate rises in costs on the supply side as a result of rises in prices and rents of land, houses, office space, warehouses, industrial units, port real estate usage and selected commodities, including petroleum-based derivatives. The result of this leakage is a corresponding rise in supply side transactional output prices. This inflation has nothing what-so-ever to so with "demand" but, as is always the case, it is the result of cost-push inflation or supply side cost rises that have resulted from policy facilitating the stimulation of speculation in asset markets. At this point monetarists' main concern is the erosion in value of assets resulting from the devaluation of the currency in transactional markets which in turn impacts the rate at which the real exchange value of assets grows. Therefore monetary policy maintains a "maximum target inflation rate" of between 2% and 2.5% per annum. Note the state of affairs of interest rates paid by industry, or the state of wages, affecting the majority, or productivity and investment are not on the table for consideration. The only concern is the terminate this "inflation" on the supply side for the sake of asset holders. If there was concern for wage earners the central bank target inflation rate, which represents a direct devaluation of wage purchasing power of around 20% per decade, would not be contemplated.

One explanation for the 2.0%-2.5% target inflation rate is that this provides a "justification" for pouring more funds into the economy in line with the QTM logic but which in fact bolsters asset values even further and once this inflation rate is "attained" then restrictive measures will be introduced on the supply side production sector and wage earners. The essential fact appears to be when central bank governors make pronouncements they are addressing two segments of the constituency each of which read into statements what they will. Very little effort is made to dispel any misinterpretation on the part of the majority interests. The intoned gravity and show of confidence following monetary committee decisions seems to suggest all is well when it definitely is not. In select committee questions and answers politicians invariably do not ask the central bank staff to explain the mechanisms of transfer of monetary instrument changes into impacts on the wellbeing of the majority, supply side costs, supply side investment and productivity and, of course, wage levels. The usual cop out it that "the bank is doing, or has done, all that is possible" and now it is time for government to take "fiscal measures". This assumes the usual fiscal manipulations in raising taxes and central banks raising interest rates and lowering money volumes. All of this seldom affect the status of asset holders and rentiers but only exacerbates the state of affairs of the majority. Unless government has access to adequate revenues raised from the supply side the tax changes are not going to have much beneficial impact. The independence of central banks is part of the issue because they escape criticism with all policy ills being blamed on government. For example, with or without the recent bout of austerity justified by government to pay down debt, monetary policy, in the form of QE, created the very same prejudicial impacts and increased debt at the same time.

1 Hector McNeill is the Director of SEEL-Systems Engineering Economics Lab.

2 I am not aware of any criticism of the QTM by Keynesian economists since as far as I can see they simply accepted the monetarists word for the fact that it makes sense. It is paradoxical that a completely new theory for macroeconomics which in fact seeks to influence the flow of money within the economy did not include a review of the QTM but simply accepted it as part of the analytical tool kit.


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