Adam Smith and reality

Adam Smith was a moral philosopher. An Inquiry into the Nature and Causes of the Wealth of Nations, written 1776, is a follow up to The Theory of Moral sentiments (1759). Unfettered capitalism, as proposed by today's neoliberals, would have been unacceptable to the 'Father of Capitalism'.

Smith clearly states in Wealth of Nations, government should regulate business which always seems to evolve into monopoly. On the other hand, the people should beware of instances when government and business create laws, as these will not benefit society but business.

Given Wealth of Nations is cumbersome reading, very few 'students of Smith' actually realise the rational economic actor-homo economicus  -is a moral economic being. Wealth of Nations is advanced Theory of Moral Sentiments. Thus, progressive taxation and the support of infant industries are seen as essential to all economic progression. All actors who use capital to support the domestic sector realise the greatest value through the ' invisible hand'.

Adam Smith emphasizes that wealth is a function of  labour and not the amount of gold plus silver at hand. In Zimbabwe, with 80% unemployment rates, they is no real wealth. To grow the economy, domestic resources should support local industrialisation. Futhermore, tax and policy should not disadvantage the masses but truly uplift. Thus economics has a morally scientifc foundation at its classical root.

Marx & Zimbabwe

Dissecting the dynamics of the world economy is a complex task. Karl Marx spent 20 years writing up the full first part of Das Kapital. Those 20 years of writing just gave us Volume 1 of Kapital. Marx studied mathematics, philosophy and other classical economists inluding-  D. Ricardo, J. Mill even Adam Smith. Marx strongly believed 'the anatomy of civil society is to be found in political economy'. It was Marx's plan to give us 6 full parts of Kapital. Apart from Kapital 1, the other published volumes of Kapital are syntheses of notes he left behind.

Marx gives us an alternative economic theory, however his death meant he could not personally defend the position of his theory. Kapital is a cumbersome read and as such it is no surprise very few get the essence of Karl's opus.Marx himself warned against false socialism which would seem more attractive than a benevolent democracy. The last century saw various systems masquerading as following the Marxist ideal.  Leninism, Stalinism, Sovietism and Nazism all pretended to follow Marx-however they completely missed the point. Marxism emphasised the authority and power of the worker.Marx did not sanction state dictatorship. Marx repeatedly emphasised that 'everything should be questioned', they was no freedom of speech in so called socialist economies. Pure Marxism is a continuous critical process-a growing dialectical argument. It is freedom of thought. The worker has the power to negotiate and realise the surplus created in production. In socialist economies the workers had no clear right to the fruit of their labour. This last contradiction guaranteed the fall of the Soviet Union.

Zimbabwe has had its fair share of Marxists. Growth With Equity, the economic policy document, had a pro-people agenda. At many points the document misses the Marxian ideal of worker participation.

US Dollar Scarcity

It is everywhere

Other nations print it.

QE1 to QE infinity.

We used to have it, more than others.

So many zeroes.

Just many zeroes.

Economy contracting.

Not dollar scarcity.

Poor economic acting.

After the elections

The battle to rebuild the economy will begin after the elections. Current uncertainity has worsened capital and currency shortages. Poor policy and structural failures have not helped the macro-economy find its footing.  Regarding currency challenges, the US Dollar cannot be relied upon for perpetuity. At one point or another the monetary system is going to need complete overhaul-

“Those nations that stick with the crumbling USDollar system stubbornly will find a horrible fate with devastating effects, rampant economic damage, broken financial markets, sputtering credit engines, tremendous loss of wealth, wrecked supply lines, poverty spreading like wildfire, ruined political structures, social disorder, isolation from the rest of the world, and a fast ticket to the…. A division has begun, as the East has been busily installing the next generation platforms, as related to trade, banking, and commercial integration.” Silverdoctors. 

http://www.silverdoctors.com/jim-willie-the-coming-isolation-of-usdollar/

Money Talks

“There are good reasons to think that the nature of money is not yet rightly understood.” John Law, 1720 (with the collapse of the Mississippi Bubble)
The above qoute is valid today, given Zimbabwe does not have its own currency. Money value disappears due to failures in the management of monetary fundamentals.

 “Irredeemable paper money has almost invariably proved a curse to the country employing it.” Irving Fisher, 1911
This classical economics quote brings back nightmares of hyperinflationary suffering, with prices doubling every 24 hours for Zimbabweans, around November 2008. This was the second highest ever recorded rate of hyperinflation. The worst hyperinflation recorded by any country, in this century.

 “There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.” John Maynard Keynes, 1920.
In the 1990's, the Reserve Bank of Zimbabwe started printing large amounts of Zimbabwe dollars(qausi-fiscal activities). This ushered in the new age of quantitative easing,  now being practised by the Federal Reserve, European Central Bank and other Central Banks around the world. Do the gurus at central banks know what they are doing?

 “Since the time when President Richard Nixon broke the final tenuous link between the dollar and gold in 1971, no major currency, for the first time in history, has any connection to a commodity. Every currency is now a fiat currency…” Milton Friedman, 1991
The Reserve Bank of Rhodesia, which is now the Reserve Bank of Zimbabwe, managed to escape the fiat currency curse because of sanctions. One longstanding Rhodesian record is- it was the first country to be sanctioned by the United Nations, in 1966. This, very first, 'mandatory trade embargo on an autonomous state' forced the country to pursue protectionist import substitution industrialization. The value of the Rhodesian Dollar was preserved, as imports were kept low and the majority was not catered for by: health, social or educational services.

“We very much believe that, if you have a debased currency, that you will have a debased economy.   The difficulty is in defining what part of our liquidity structure is truly money.” Alan Greenspan, 2000.-
Back to modern Zimbabwe, hyperinflation destroyed a struggling industrial base. Bringing in the US Dollar obliterated liquidity ensuring industry will struggle to recover. Quantitative easing, in the western part of the world, is destroying industrial potential, by subsidizing and inflating financial assets. The growth of derivative financialization has driven liquidity into opaque 'dark pools' leaving industry short of cash investment.

The First Step

'A person without a smiling face cannot open a shop' is a popular Chinese saying. A neoliberal economist cannot discern market failure, just as socialism will not stop basic human greed plus corruption. These sayings apply to Zimbabwe, as will be investigated in this Steps Series on the Zimbabwe economy.
When Jongwe (Zanu PF) came into power in 1980 they had difficult issues to wrestle with. The liberation war had destroyed rural infrastructure, a coloured majority was living in abject poverty and the South African apartheid regime was working to derail the whole of independent Southern Africa.
The governing policy document in the early 80's cherished 'Growth with Equity' for young Zimbabwe. In these early years, policy execution was challenged by limited resources and a global recession. Regardless of the debilitating droughts and resistance from Zimbabwe's influential economic players, schools were built and health was made universally accessible. This helped reverse some of the historical imbalances of the colonial era.
In hindsight, between 1980 and 1982, Jongwe performed exceptionally well. Policy generated eqaulity, Aid flowed in, and Zanu PF smiled at all the customers. Walking on both roads at the same time- the Jongwe was both socialist and capitalist-it was too good to be true.

Zimbabwe election 2013

Politicians will continue to make promises heading into electoral season. The focus of the election is the economy. Given real unemployment hovers above 90% and poverty is rife, Zimbabweans obviously deserve inprovements in livelihood.
These elections will have violent incidents and party infighting will be evident. Zimbabwe's poverty levels make politics the easier route to subsistence and riches-this desperation is the fuel for electoral violence.
One party will argue indigenisation is the policy that will benefit the masses. This is just empty posturing as indigenisation will only benefit the politically connected.
The othe main party will argue it has an economic plan that will attract investment and increase employment. More wishful rhetoric, as the Global economy reamins mired in recession. Europe needs over $60 Trillion(USA Dollars-not defunct Zim Dollars) to support it's financial system.The USA also needs Trillions to fund its Federal expenditure. Zimbabwe, on the other hand, remains one of the least attractive places to invest and this will not change within one election cycle.
Whichever way the elections go, right through the next four years, unemployment will hover around 90% and the majority will still lack opportunity.