Economics Part II: The Trouble With Money

In the last essay in this series we looked at some examples to show how and why our economy came to exist and explain some fundamental principles from a different angle of approach. This essay will use those mechanisms to show how some natural evolutions of our economy are not to the advantage of society. Much as I dislike a negative essay it is important to highlight problems so we know what we are trying to fix.

So far from the previous essay the only method of altering the value of money in society we have explored is by improving the efficiency of labour or production. Many factors were kept constant or removed from consideration in the potato producer example which we shall now look at in turn to asses the resultant changes to the value of money.

It was stated that in the example society their was a fixed total amount of currency which we placed at 10,000,000 money. Currency is simply a reference tool and the actual numbers are only relevant when relative to something else. By using our understanding of equilibriums it should become clear that something in our society that cost 5 money would necessarily cost 10 money if the total amount of money in the society was doubled and all other factors remain constant. The real cost in labour terms to the society in producing the item is unchanged. That cost may be expressed as a percentage of the total labour.

Cost of item in labour = 5

Total cost of all labour in society = 10,000,000

(5/10,0000,000)x100 = 0.00005%

Now, if we double the total amount of money to 20,000,000 while leaving the percentage requirement of labour to produce the item we have

0.00005 x 20,000,000 /100 = 10

The ultimate equilibrium position makes no difference to the economy of a society (in isolation) however the transition from one equilibrium to another equilibrium position will cause some instability in the economy if it is too rapid. The transition period is where the most significant profits and losses are to be made.

Many factors can cause the physical amount of money to change or create a situation which simulates the creation or destruction of money. Minting new currency is the most direct way to increase the total amount of money in a society. It is rare that a government produces significant quantities of money relative to the total amount at any time due to the economic instabilities it can cause, particularly as no society is in isolation like in our potato example!

Population growth will simulate the removal of money from a system. Imagine an identical society to that our previous example but with exactly double of everything except the total amount of money. To produce the item which cost 5 money in the first society requires half the percentage total labour of the society. This is because the labour required to produce the item is the same while the total amount of labour available is doubled.

It therefore takes 0.000025% of the total labour to produce.

0.000025 x 10,000,000 /100 = 2.5 money

By increasing the population but not the total quantity of money the cost of things will fall. The quantity of labour increases with increased population and as money is used to procure labour the cost will be reduced in nominal terms to ensure the relative costs remain the same.

Another way to express this is with supply and demand. As more trades are made in a growing society due to increased total requirements and labour the demand for money to make those trades will increase. We have assumed the supply of money remains the same therefore when trading a good for money the recipient will receive less money. The increased demand for money increases its value as a commodity and so all other goods and services become cheaper or exchange for less money.

So far we have only a minor way to cause inflation which is via the minting of new currency and we have two major means of deflation through improvement and population growth. A very good question to ask at this stage is why, when our societies are clearly improving across the board in production methods and the population continues to grow do we experience inflation of money? It may also be prudent to consider why it is when deflation is the result of improvement that it is generally considered that inflation, or the devaluation of money, is a good thing.

I stated earlier that work or labour added value to something, however when attempting to define labour I did not point out that by adding value to a commodity it would also result in the increased value of money. When a potato is brought to market the value of money will be increased by that amount.

This would suggest that the total value in society was increasing continually however this is not at all the case for when the potato is consumed that value is lost again. Food is produced in similar quantities to the amount consumed and as a result the net effect is nil. No value is gained or lost by society. If something is consumed and not replaced it will become more scarce and command more money to purchase. This increased price is another way to say that the value of money is decreasing. Consumption therefore is a significant contributor to inflation or the devaluation of money. Value is always being added to society while at the same time removed, the net increase or decrease (assuming all other factors constant again) will determine whether deflation or inflation are observed respectively (again, assuming all other factors are constant). The most suitable economic definition of consumption is when something is no longer able to perform its function. Certain things like food are consumed immediately and others have a lifespan which may vary greatly. Services may be said to be consumed at a rate equal to how frequently the same service is required again. The product which lasts longer may be said to be consumed more slowly.

Along similar lines to consumption is an idea already touched on which we called parasitic trades. These are trades which may benefit one party but at a greater total cost to another party than was gained by the first. There are many examples of this but perhaps the easiest one to relate to is that of the slack worker who is present at work and receives pay but who achieves basically nothing. That person is supported by the productive labours of others yet returns little or nothing to them or the society at large. Each individual who produces less “value” than they consume is reducing the total value of society and consequently the value of money used in that society.

Labour is performed to produce or procure stock which is then sold to pay for the labour, the land and the upkeep of any required equipment. In most situations being able to guarantee a wage to labourers and being in possession of necessary equipment is required prior to generating any stock in which to sell. Profits from the stock may be reinvested to enable more efficient generation of stock and/or a greater quantity of stock. This is a slow process if one assumes that only the money generated by the stock may be used in this way. A much faster way to generate a good profit is to borrow money in order to fund the labour and stock. There is a strong positive correlation between the amount of money invested in the production of a given stock and how much return may be expected upon that investment, which is another example of economies of scale. As a result the ability to employ capital in producing stock, and ultimately profit, commands a cost of it's own. This cost is usually represented by the interest paid on a loan. Money not only acts as the profit made from selling stock but also as the stock itself and so money becomes a commodity in it's own right under capitalism.

As a commodity that may be sold for profit, those in command of a sizable sum of money are in a position to profit from the lending of that money alone. People earn returns on their savings or surplus money by giving it to banks and brokers who invest or lend it to others on their behalf. The more one has at their disposal the greater return they can expect from it. Under capitalism there is a general trend of money gravitating towards greater pools of money. The rich get richer is not a conspiracy theory where the rich plot ways to increase their wealth but simply the logical result of a system that allows a reference tool to extend beyond it's design parameters. Money flows like water with wealth acting as the gravity which gives it direction.

When a loan is taken to enable the production of stock the price of that stock when taken to market must incorporate the interest to be paid on the loan. This increased cost on the commodity is a cost that all who purchase the goods must pay in part. The more loans are utilized in industry the more the cost to society at large. Assume that all the potato producers in our example had taken out loans to buy their fields and support themselves prior to their first crop being harvested. We have already asserted that all other industries incorporate the cost of the potato as all persons in our example society consume them. The price of the loan is ultimately born by the society at large in order to benefit the owner of the initial capital against which the loan was issued. Certainly the potato producers had to incorporate the cost of the loan into their business plan however it is not really the producer but the consumer who must bear the cost of this loan. Consumers include the poorest within society where as those with surplus capital do not. The interest paid on loans is a tax upon the whole of society. This tax is not however used for improvement to society such as funding education but an additional income for those with the most already. The end result is a further devaluation of money as the cost of goods and services increases. Loans which demand an interest payment are another cause of inflation.

In certain situations loans can be given where the physical quantity of money does not cover the value of the issued loan. A bank may only have X money invested in it however it may have lent 2X money out. This is deemed acceptable as the invested money is not required by it's owners and the loaned money will be returning over time with interest. Although this may allow a society to fund new industry at a greater rate than it otherwise could it also has the exact same effect as minting new currency. The more money available in society- the more expensive goods become. The price of goods increasing or the value of money decreasing is therefore facilitated not just by the interest paid on loans but also by those loans which are made against a non-existent capital.

It may be unreasonable to describe those in the industry of providing loans and investing money as a parasitic trade on society, as mentioned previously they do provide a unique service which in turn allows for other things to become available to society. Should there become an alternate method by which new industry were funded and capital made available then the transactions made by investors would certainly be counted amongst those trades which are parasitic within society. The labour used on redistributing capital adds no value to any commodity, any value they obtain will be someone else's loss. The finance sector globally is huge, if one is to look down the hundred biggest companies they will have to look pretty far down before they find a company that does not deal in oil or finance. The argument in support of the finance sector is that they are the best able to put capital in the hands of those that will confer the most advantage to society. This is certainly a useful role but allowing it to operate in free market capitalism (or at least a capitalism with few restrictions) will ensure that the industry grows out of proportion to a size unrepresentative of societies need for informed wealth allocation. I would not like to postulate as to what fraction of those involved in finance are needed to function in the best interests of society in an ideal world, but I suspect it is a tiny fraction of what we currently have. The reason that a capitalist asset allocation system will grow out of proportion is due to the natural gravitation of wealth. The finance sector is best place to gain out of this trend as they dictate the terms by which they invest capital. The more capital they have at their disposal the more powerful they become, and thus the more they are able to dictate conditions, which they would sensibly do their own advantage thus furthering growth.

The current finance sector primarily makes money for themselves and secondly they make money for the already wealthy. It is an example of a necessary evil as we have no better mechanisms by which to allocate assets so they may advantage society. It is not that those in the finance sector are evil, they are all just people doing their jobs, it is a problem with the system and how it has evolved. This particular issue is possibly the most important for society to solve and as yet we have failed. We are otherwise faced with a choice between sustaining or increasing the wealth gap, or risking the loss of innovation and subduing industry. Communism saw fit to rely on the good intentions of individuals without any incentive to provide appropriate asset allocation and was a significant cause of it's initial failings. Potential solutions exist that operate using different economic systems, which is not particularly helpful without a method of getting from the current system to the new one.

We have previously shown how gaining market share is the main route to the profitability of business and thus one of their main aims. Several factors also work in the favour of larger companies such as the larger an organisation is the better able it is to employ good economies of scale. Larger companies generally have more assets and are able to employ more capital, more cheaply, at their discretion. They also have more leeway in tougher times and will be more able to borrow to cover their costs. Each of these factors will further enable a flow of money towards wealth and help the larger companies to take market share from the smaller ones. In regards the larger companies uses of economies of scale it may be seen as beneficial to society when companies grow, however there are more factors in play than just economies of scale.

Competition was the mechanism by which improvements made within industry are allowed to benefit society at large. The larger the company in terms of market share, the less competition they will have. This means that companies are enabled to control demand to an extent as they control the supply. A company with a monopoly on one kind of product may produce as many as they see fit to do so, the less they produce the higher price they will command. As the price rises less people will purchase the product so the monopoly will attempt to find the optimum balance for maximum profit where margins are high but turnover is still significant. If the margins were to get too high due to very low supply then the turnover will fall enough to reduce overall profitability. Not only can a monopoly control supply to maximise profitability they are also in a position to pocket any returns from improvements made to production as no competition exists to have a price war for market share. Industry without competition does not serve society, nor is it under any pressure to make advances and improvements.

Society is generally wise to avoid allowing any company to gain a monopoly on an industry. There are some cases however where it makes some practical sense to have only one set of infrastructure, such as a rail network as having two sets of lines is likely to be a very inefficient use of labour space and resources. These examples are few enough that they may each be dealt with independently and are outside the scope of this essay series anyway. There are some arguments against letting companies get too close to monopoly level. Minsky claims that the larger a company gets the more it will invest in things that offer no advantage to society such as advertising and executive weekends. This may well be the case but it needs close scrutiny as it is not so clear cut as that. Larger companies are best able to fund and implement new improvements to give one example. The task is therefore to find some approximation of the optimum size (measured in market share) for industries in terms of their efficiency and conferred advantage to society.

Real and Relative Changes of the Value of Money

1. Minting of new currency

2. Improvements to production

3. Population growth

4. Interest paid on loans

5. Loans made against non-existent capital

6. Consumption greater than value adding labour

7. Parasitic trades

We have now covered in a round about way, stopping for various tangents, the most basic principles that effect the change in value of money as listed above and many now return to our question of why inflation may be viewed as a positive effect. By maintaining a society of steady and constant inflation one may be assured that by doing nothing with a large pile of money it will fall in real value. As a result, anyone with capital would be sensible to employ it in some task or investment rather than let it diminish in value over time. By operating with an inflating currency a society is encouraged to save less and spend/use what they have. This in turn assures that all the money within the society is in continual circulation and use. More trades are made, more goods are consumed and produced and so jobs are available to provide for the increased consumption. In a society of deflation people are in a better position to save their money as it will accrue value over time. It would discourage people from frivolous spending creating an environment where people purchased only what they needed rather than until their budget was all used. Inflation creates a demand for consumption which is good for all producers of non-essential goods and services. Inflation also creates a demand for investments as those with a surplus capital that do nothing with it are loosing money continually. If inflation is at 2% a year, a person sitting on a million “money” is losing the equivalent of 20,000 money annually in devaluation. Even though they still have the same amount of money the purchasing power of that money is always getting less. People in this situation will either buy up assets with minimal depreciation or loan money to those wishing to turn a profit in order that they may gain interest on that loan.

Let us take two identical example societies and then impose 2% inflation of currency upon the first and 2% deflation of currency to the second. In both societies there is the same quantity of money and initial value however the flow or number of transactions in the first society will be far greater. A good way to illustrate this is by taking a single coin to represent an average coin of these societies. In the deflating society this coin may well only be involved in a few transactions and change hands these few times while in the inflating society the coin is more like a hot potato where it is rapidly passed from person to person, non wishing to hold it for too long. By having a situation where the same amount of money is used more frequently the result is a strong and booming economy. Investors are encouraged to see the populous spend everything they have at their disposal and the demand for goods and services at their maximum. These conditions will ensure the most immediate profitability to would-be investors and producers. It may initially appear to an external viewer that the society experiencing inflation is more opulent and has greater resources and greater wealth to begin with than the deflating society but this is only the appearance.

The society with 2% inflation may well be attaining greater value faster through increased production but it will also be removing that value again with increased consumption. The consumption in this case drives the production and not the other way round therefore the net increase in value by any measure in the society experiencing inflation cannot exceed the otherwise identical deflating society. It is also worth noting that the society experiencing inflation will consume it's natural resources at a greater rate than the other. This is in part due to the increased consumption but also due to the ‘hot potato’ effect. The inflating society is always under the pressure of having to act immediately otherwise have their money reduce in value where as the deflating society is happy to wait for a better opportunity as waiting only increases their money's value. Where inflation is prevalent the most important factor to consider is time, where deflation is prevailing then efficiency becomes more important than time. As such a deflating currency will help to increase the sustainability of an economy through frugal use of raw materials and longer lasting products however it will lower immediate profitability and stunt the growth of some newer industries. Inflation benefits those who are in a position to reinvest capital (providing they do so and sensibly) where as deflation is to the advantage of the poorest in society. The advantage gained by the poorest under deflation is not however as pronounced as the advantage gained by the capitalists under the same percentage inflation due to the numbers of people affected. A small and slow gain for many verses a more immediate and significant gain for the few are the options.

It is not inflation in itself which is good but rather we live in a society which runs on the energy and urgency injected by inflation. Although there is only a 4% change in effect in my example it is a very significant change in economic terms. If such a change were to occur overnight there would be chaos in the economy, it is indeed always the rapidity and magnitude of an economic change that causes the problems, not the resultant new equilibrium position. Inflation is therefore good as we, as a society are used to it, expect it and are set up to deal with it. Not only would the economy change if we suddenly experienced a period of ongoing deflation but the whole mechanism of society would need to readjust. I would argue that in undertaking any such readjustments to cope with deflation a more sustainable society would result but the slower these adjustments are allowed to take place, the better for all those involved.

So inflation may be regarded in some senses as good simply because that is the economic condition that our present societies are set up to expect. Inflation in and of itself is very difficult to classify as “good” or “bad”, it just is. A more useful way to look at inflation are the merits of its causes. If we take our list of seven factors which affect the value of money we can remove population decline and minting of currency and describe these as neutral effects (the morality and goodness of population growth/decline is entirely outside the scope of this particular argument). Of the remaining five factors it is clear that those which cause inflation are all negative contributors to society. It is not that inflation is bad but that the majority of it’s causes are bad. A society could weed out all negative economic factors and still experience inflation of it’s currency due to the neutral effects.

It is worth noting that both inflation and deflation are positive feedback mechanisms and by that I mean they are self perpetuating. Under an inflating currency the factors which further increase inflation, such as the interest rate on loans, are encouraged. The greater the inflation the greater the more significant the factors that effect it become. We have seen historic examples of countries which experience run away levels of inflation to quite disastrous consequences. Although there are fewer examples we can look to for cases of run away deflation the same self perpetuating conditions arise. The higher the percentage inflation or deflation the greater the rate at which it wishes to increase. As we have asserted, it is not inflation or deflation that are good or bad but rather a rapid change in economic conditions which causes most harm to a society. Inflation rates are kept low and steady in economies that are doing well in the present day. By letting them get to high you run the risk of having them spiral out of control, the same would be true of deflation. The closer your currencies change in value is to zero percent; the less it will encourage further change. This argument implies that inflation and deflation are both bad and that an unchanging value of currency is good or optimal. I would argue against attempting to maintain a steady zero percent level on inflation as it is an impossible task as economies are chaotic systems with too many factors to consider holistically. A margin of error or an acceptable fluctuation is a more sensible aim, for example say -/+ 0.5%. Flipping from inflation to deflation continually will cause problems in the economy due to the different effects they each have. It would be better to ensure you are as low as possible in either, so for example a target rate of 0.5% deflation with an acceptable variance of 0.5% would be acceptable as the possible range (0% - 1%) would never put the economy back into inflation while being as realistically low as possible to avoid positive feedback mechanisms taking over.

The fact that inflation is experienced throughout most of the world is testament to the might of the finance industry in that it must provide a great deal of unproductive labour in the relocation of money. To achieve the required levels of inflation experienced on a global level despite improvements to production and population growth a vast sum of money must be being created. traded and skimmed by the finance sector. All of this trading is not adding value to anything and must require the labours of others to support.

There is one further ramification of inflation I wish to discuss but it requires some understanding of the interactions between two (or more) currencies. We earlier defined money, in part, as a tool to relate variables, in other words it is a relative constant. As soon as you introduce multiple currencies you create a contradiction of sorts as those currencies vary with respect to each other yet only functioning as intended when relatively constant. The result of this contradiction is that trade outside of a single currency will not necessarily reflect real values of commodities as they should when under a free market and using only a single currency.

This is best described with an example so we shall take two identical isolated societies, called X and Y and give them different currencies. We shall then allow trade to occur between these two societies to show the effects of their currencies. To begin with these societies have a currency of equal value, X$ = Y$, the same nominal quantity of either currency will purchase the same amount of labour or goods. As with all examples designed at showing only one economic rule we shall keep all other factors which affect the value of money constant but allow the quantity of goods each country trades with the other to vary.

Country X sells X$10,000 worth of goods produced in country X to country Y annually. Country Y sells Y$20,000 worth of goods produced in country Y to country X annually. This implies that country X has a greater degree of consumption than country Y as they must make use of the extra $10,000 of goods which they purchase. If both countries produce $200,000 worth of goods and services annually then country X consumes $210,000 while country Y only consumes $190,000 each year.

Country X is now running at a trade deficit as it is purchasing a greater value of goods than it is selling. Any currency finding itself, through foreign trade, in an area where it is not a useful currency must find its way back to the country of origin so that it may be useful and retain any value at all. In the course of one year of trading in our example we find that X$20,000 are in country Y and half that amount of Y$ are in country X (this assumes that both countries pay for goods in their own currency which changes nothing that would affect the economic trends but does make understanding easier). Country Y wishes to use the useless X$ to recall the Y$ it used in the foreign trade. The ratio of X$ to Y$ wanting to find their way back to their countries of origin is 2:1 which is a very basic way to understand exchange rates. Based on the trade deficit of these two countries which should have equal real value in currency the value of a Y$ is roughly twice that of the X$ even though in their own countries $10 will buy the same quantity or value of goods. Exchange rates are governed by money entering and leaving a system primarily and only slightly affected by the goings on within that system. Simply put this means that when purchasing from a system from the outside you are able to trade under conditions where values are not equal.

The ramifications of this unbalancing of values is that $Y commands a much greater purchasing power for commodities produced in country X. This is a negative feedback mechanism which ensures that prices tend to normalize towards their real value. As the Y$ is so strong compared to the X$ the imbalance of trade between the nations will swing in the other direction as those in country X get more for their money if buying in country X rather than country Y so they import less than previously and those in country Y begin to find it cheaper to buy from country X rather than the home markets. What began as a trade deficit for country X will become a trade deficit for country Y as country Y’s internal trade begins to purchase from cheaper sources in country Y, this is also true in reverse as country X will look to source things in the home market as country Y is twice the price. It is fortunate that unlike inflation and deflation, which are positive feedback mechanisms, the fluctuation in exchange rates are negative feedback mechanisms and essentially self regulate. If they were not self regulatory then sustained periods would exist where goods could be purchased at a price that is lower that their real value.

The equilibrium condition of our societies X and Y will be one where the exchange rate of their currencies will ensure that whichever currency you choose to buy any goods with you will receive the same level of value. Despite being a negative feedback mechanism tending towards the equilibrium condition it is the whole system that must respond to changes internally and therefore will necessarily have a lag phase. Any such lag phase will allow the most diligent of traders to make some very good profits for a short time. The scale of any such profits would be dependant on the degree to which the equilibrium position was deviated from; the greater the deviation the greater the potential profits. A deviation from the equilibrium position must have been caused by something, in our earlier example the deviation is caused by establishing a trade deficit in country X. In the time it takes their economy to regain an equilibrium holders of $Y will be able to gain advantage from purchasing goods made in country X. Fluctuations either side of an equilibrium position can be harmful to an economy as markets will be intermittent, companies who rely on imports and exports can lose custom or be unable to afford supply. When importing is cheap, exporting must be harder, and the same is true in reverse. Instability in markets caused in this way are as harmful to society as any other economic instability is.

By adding in multiple currencies, not to mention allowing all the factors we kept constant to vary naturally, we create a chaotic system of variations and ever changing equilibrium positions. Trends described in this essay will still be present but they may not be predominant and predictability is all but lost. By using our understanding of the aims and befits of money and trading, and also our knowledge of the causes of economic problems and trends, we are able to suggest potential solutions and improvements to an economic system with societies best interests being the prerogative.

Presently we observe in the global economy a number of the biggest individual economies able to maintain a seemingly continual trade deficit. When one considers the effects of combining an inflating currency with a trade deficit and our understanding of lag phases we are able to see how a deficit may be maintained. A lag phase of time must exist between a currency leaving a country and that currency returning. The rate of inflation over that time of the currency will not be accounted for directly by the exchange rates. The longer the lag phase on currency returning to it’s home country, the greater the inflation (providing it is stable) and finally the greater the total amount of that currency; the larger the trade deficit that country is able to support.

Let us paint a basic example. Country A has 1,000,000 money total and experiences a stable and constant annual rate of inflation of 4%. If we say the average lag phase for money returning to country A is 6 months then it may sustain a trade deficit of up to 20,000 money annually, this figure is 2% of the total money of country A. These figures assume much more than previous examples given in this essay and cannot in reality be calculated as such, most notably that all of country A's money would need to be used to import goods to be able to support the maximum deficit which is not achievable. If we were more reasonable and claimed country A imported goods to the value of 100,000 then it would support 2,000 of that at the expense of other nations. A country with a trade deficit is essentially borrowing value from other countries. If the countries lending value were using the same currency as the country borrowing it there would be no factors like inflation to upset any balances, as such the amount of value returned would be equal to the amount borrowed. As it is however, any value gained by a country with inflating currency will be returned at a reduced rate. Countries exporting goods to other countries with sustained inflation will exchange those goods for a lower value of goods (assuming their rate of inflation is lower) and as a result they will be working to improve things for those other nations. The loss on any transaction is minor, and on small trades is unnoticeable, however when massive economies operate under these conditions the summation of all the tiny gains becomes significant and enable that country to support itself upon the labours of others.

In this essay we have looked at the causes of changes in the value of money, deflations and inflation. This was used to determine how society acts in accordance with the conditions. The effect of capital acting as stock was also discussed which lead us to understand some of the problems in the finance sector and of monopolies. Lastly we looked at how multiple currencies cause can cause instability and periods of unjust (unequal labour values) trading, this idea was advanced by combining it with our understanding of inflation and delay times between equilibria readjustments. This is a critical essay which I shall attempt to justify writing by offering some possible solutions to the problems highlighted here in my final essay in the series - “Solutions”. Given the complexity of our global economy and the lack of any planning given to its evolution it is impressive how few flaws it has. They are more like minor compromises in order that we may gain the monumental benefits of trade, even so, it seems wise to attempt to improve where possible, particularly given the importance of economics in society. 

Economics Part I: A Primer

To understand anything which involves humanity such as politics or sociology one needs to understand economics. This is because money is such a convenient tool it has come to represent almost everything. They say money can't buy love, it doesn't need to, people already love money, and why shouldn't they as with it you can do anything. You can buy intimate relations or just friendship, they may not be quite the same as those forged without the transfer of money but they are not as far apart as people like to make out it is. I would say that the difference between renting friends or paying for sex compared to getting them without the use of money is rather like the difference between buying some tomatoes from the supermarket or taking the trouble to grow your own. They both do the same job but the latter in both cases is more satisfying, rewarding, time consuming, subject to failure, and will taste all the better when you get it right!

With the importance of money in mind the study of economics becomes of paramount significance for any study of a subject which relates to people. A lecturer of my partner's described economics as the science of choice. Really sociology and psychology should be the macro and micro sciences behind choice, but as choice is based on incentive and money provides a universal incentive regardless of your particular tastes, then understanding economics can be a more precise way of predicting the choices people will make. I have always been a utopian, even since quite a young child yet I had little understanding nor eduction about economics until a few years ago. I quickly realised the underpinning nature of economics behind any society when I tried to first describe my utopia and so set about gaining a complete understanding of the principles and interaction of economics.

When looking to understand any system, I break the system down in to it’s component parts to analyse them. Once you have established why each aspect of the system came into being and how it reacts with the other aspects, then you are able to extrapolate a complete understanding of the whole system. Economics has been made complex by the many regulations and interactions surrounding it. All markets are controlled by numerous chaotic occurrences which makes them seem random when actually there are few relevant factors one needs to consider to understand the principles. People are more concerned with what the markets are doing than understanding why they are doing it. This is entirely reasonable as that is how one is able to make money from the markets but it does not help to improve society. The aim of this series of essays is to explain these factors in simple terms so that the fundamental principles behind economics are clear. The first essay will act as a kind of primer, the kind I should have like to have read several years ago! It will look at how and why money came into use and how a change in conditions will impact upon money and the economy. It will do little more than describe how and why things occur in a manner that I hope will not be to dull or unapproachable to the reader. Once this is done subsequent essays will build on the mechanisms described in this essay and look at the problems that are caused by the current regulations and infrastructure of the economies around the globe. I shall attempt to end the series by offering solutions to these problems.

What are the component elements of economics? Trade is the underlying concept behind economics, whether it be of goods, services, currencies or any other commodity. The earliest examples of trade may be found in social animals who trade in security, parental duties and other forms of labour. By working together they are able to achieve greater efficiencies than they would otherwise be able to if operating alone. This improved efficiency will allow the same amount of work to support a greater number of offspring which confers a greater survival chance to the continuity of the pack. The improved efficiencies can be observed in two main ways, both of which also have economic terms; the division of labour and economies of scale.

For example: A pride of lions hunts together to bring down large prey to feed the whole pride. The prey is often large and requires the team work of the pride to capture. A single kill will provide a significant quantity of food, likely far more than a single lion could make use of on their own, even if they were able to procure it that way! By working as a team, or trading labour, they are able to perform a task that provides proportionally more return on the work employed than they are able to by labouring alone. This not only shows economies of scale but also possibilities of scale. A single man may not in a single lifetime construct the Sistine Chapel as it is too great a workload.

When the lions hunt together they may well employ the fastest lion to chase down and flank the prey and the strongest lion to bring down the prey and make the kill. By doing this they increase the success rate of hunting or its efficiency and are again able to support a greater number of offspring. As the lions specialize in the various roles performed within the pride they become practised and experienced at their main roles and are able to perform them yet more proficiently. Adam Smith brought this principle to the attention of people in clearly showing how it may be used in industry to enhance productivity, however he did not invent the division of labour as that has been exploited by evolution for a much longer time.

This simple example is used in order to illustrate that trading evolved (or life evolved to trade) because it could confer an advantage. The act of trading is akin to a symbiotic relationship. Mankind evolved from a social animal and had made use of the principles of trading well before inventing the wheel or even learning to walk! We use trading in a slightly removed context from how it came in to being. A trade is usually defined as the exchange of goods or services for other goods or services. This does not make clear the case that this exchange may not be of mutual benefit. In nature parasitic relationships exist in which only one of the parties involved gains any benefit. Parasitic trades occur in human societies when errors of judgement are made or people are the victims of deceit. Worse still, trades may occur in which no parties benefit which may be due to bad judgements or just ill luck. Understandably such relationships have not evolved in nature!

Categorising trades as parasitic or symbiotic does not completely describe the state of affairs as it is an analogue scale. A trade may benefit both parties tremendously or confer minor advantage to both parties or confer a great advantage to one and a small advantage to the other. The latter example resembles a parasitic trade greater than the other examples but is still not defined as such for a single key reason. When a small advantage is to be gained it is still an improvement or an advantage. If the only alternative to the trade is to not trade is would be folly to not make the exchange. Symbiotic trading therefore increases the overall advantage of all involved in the trading. An easy way to represent this would be to say 2+2 in a symbiotic trade = >4! or in a parasitic trade may only = <4 (this same logic could also be used to define symbiotic trading as X+X = >2X). Parasitic trades may benefit a small group of people at the cost of others yet the prevalence of trade in society is due to symbiotic trades, which benefit everyone.

Before we are able to go further and show how these economic principles are manifest today in human society we must understand the concept of money and how and why it came into being. Money came into being as a tool to facilitate trade. Exchanging goods for other goods becomes difficult and laborious when multiple types of goods from various suppliers are required. This is especially the case when one only has a single commodity they produce themselves to trade for other commodities (which is incidentally the optimum condition for gaining maximum advantage from the division of labour) as it requires the people you wish to trade with to desire the commodity you produce. Convoluted trades begin to occur where intermediaries are needed to exchange your commodity for commodities desired by the people you originally wanted to trade with. By having simple and quick means of trading each exchange is more efficient leaving more time available to exploit economies of scale and the division of labour. Money does exactly that, it removes the need of any intermediary by performing the same role.

The difficulty of trade is also increased when goods are heavy, bulky, perishable or fragile, by using money in part of a trade it reduces the physical difficulties of certain goods which acts as another time saving property of money. Money also gives the ability to relate the value of a commodity to another which can otherwise be a hard task. Different commodities not only require varying amounts of labour to produce but also have a different value to different people. Barter may enable all parties to fight for the best deal for themselves but it is another activity which consumes time. Having a society-wide price for a product will normalize the price of that product and facilitate competition, a mechanism which allows trade, the division of labour and economies of scale to confer the maximum advantage to society.

The money we use today is, as an object, worthless. It cannot be consumed or worn or fulfil any other practical use. It is better understood as a representation of some labour done to the benefit of society combined with a promise from the society to repay that equivalent value to the owner. When there is no trust in the society the “value” of money falls as it ceases to command repayment and becomes akin to the useless commodity it is. At such a time the advantages of having money in a society are lost. Money came into being to allow a society to efficiently trade and easily relate value of labour and commodities. This is not the only role presently performed by money in economics due to how its use has evolved, this will be returned to later but for now all we need to appreciate are the advantages that money gives a trading society (excuse the tautology) and therefore why it came into being.

Now that we have a clearer understanding of money we can use that to show how economies of scale and the division of labour can be fully exploited in human society. Both of these principles rely on sufficient communication and cooperation to become useful. Unless you can be assured of perfect teamwork and understanding in production and trading every increase in size that is made to the trading group will reduce certain efficiencies and so the economic advantages would need to offset that to remain effective. The pack sizes of social mammals varies from species to species but nothing in the animal kingdom comes close to humanity in its ability to exploit economies of scale and the division of labour (although some insect species are very impressive). Humanity can be observed as many packs consisting of towns and cities or of nations or religions but in economic terms it is one entity and this position gives the greatest potential for creating an advantage from “nothing”. To put in more real terms, most wild animals are forced to spend a majority of their time fulfilling the basic requirements to survive and propagate while many humans enjoy a significant quantity of “free time” that they may spend at their leisure. This principle also shows how humanity has been able to increase in population as rapidly as it has done. The extra efficiencies of our production and trade allow those labours to support more and more people.

As money is, on the whole, freely interchangeable, any person who uses money is part of a giant economic whole. Currencies may be exchanged, which has ramifications of its own, but it does allow the whole globe to participate in trade. The more persons involved in trading with one another the greater the potential to exploit economies of scale and specialization. Trying to relate lions hunting to human economics is big jump and so we will use another example of a trading society. In this society we shall make a number of assumptions in order to distil the basic principles I wish to illustrate. Our society shall be of constant population size and in complete isolation, as far as this example is concerned it is the only society in existence. They use a single currency and there is a fixed quantity of that currency.

Mr A is a citizen of our example society and he supports himself by producing potatoes. The prices of the potatoes in our society are constant and depend only on the yield of the crops. A good yield may be the result of good weather conditions but it may also result from improvements made in the production methods. We shall now assume for this example that weather conditions remain constant and affect all producers equally and can therefore also be ignored. It is the nature of improvements to production and how they impact on the whole of society that I wish to focus on.

Mr A develops a new production technique which enables him to double his productivity. With no additional labour or cost used, he achieves twice the yield and may sell this at present market price for over double the profit he would have made prior to the improvements. Due to the increased production of potatoes however, there is a greater supply than the demand for them. As a result Mr A is sensible in reducing his prices to ensure that he will sell his potatoes before his competitors. This reduction in price will mean that the competitors are the ones left with the surplus supply. Mr A has greater profit margins due to his increased productivity and is better placed to win a price war as he will still be making profit at a price at which his competitors are making a loss.

Let us put some numbers into this example so that the changes may be observed.

We shall say the price of a potato in our society is 1 money.

We shall say that there are 4 producers of potatoes, Mr A, Mr B, Mr C and Mr D.

Each of these producers initially produced 10,000 potatoes annually at a cost of 1,000 money making a 9,000 money profit.

In the society there is demand for 40,000 potatoes annually at a price of 1 money each.

In the first year that Mr A produces 20,000 potatoes for only 1,000 money he stands to make 19,000 instead of 9,000 however 10,000 of the total 50,000 potatoes produced this year by Mr A, B, C and D are surplus to requirement.

Mr A reduces the price of his potatoes to 0.8 money each to ensure he sell all of his stock. This means he still makes 15,000 profit, a 66% increase on previous years despite a 20% reduction in price.

Mr B, C and D are now in a predicament as they have 30,000 potatoes to sell in a market that only requires 20,000. If they leave their prices the same and suffer the loss of sales evenly between them each only sells 6,666 of their potatoes which would make their profits on the year 5,666 money, about 63% of the previous year.

Even if they were able to retain all their customers by matching Mr A's price and sell the whole crop at 0.8 money each their profit would be reduced to 7,000 which is still only about 78% of the previous year. This is also a best case scenario for society as Mr A is able to continually reduce his prices all the way down to 0.5 money per potato without making less profit than previous years. Simply put, the society is required to pay less for potatoes as a result of the improvements to production methods as the producers reduce prices in order to retain market share.

The two previous options available to the competition show that market share is of greater importance than profit margins in terms of total profit. The best methods of retaining your share of the market is by producing quality products and charging competitive prices. It is in the best interests of the whole potato industry to reduce margins and retain market share.

Note at this stage that the only ramification to any person in this society other than Mr A, B, C and D is that potatoes are becoming cheaper to buy. Mr B, C and D are all forced into taking action as a result of Mr A's improvements. They can seek to improve their methods of production to compete with Mr A's efficiency. They could also change trades and produce a different commodity but they cannot simply do nothing unless they are able to afford a significant loss of earnings.

Let us say that Mr D decides to get out of the potato business immediately and expends his labours on producing other commodities. Mr C is frugal yet lazy and elects to do nothing as he is able to live more frugally to compensate for the reduction in profits while Mr B is industrious and sets about making improvements to his production methods. We shall say that Mr A is content with the situation also and does not wish to increase the size of his operation by purchasing the fields of Mr D. If Mr A was to use his profits to expand it would have no negative effects on the rest of society unless he obtained a monopoly on the potato market. It would be to the advantage of the society of the most efficient and cheapest potato producer was able to supply the greater portion of the market.

I have thus far described points in time and the changes that happen between them as it is the most suitable way to describe the basic principals. It is still worth pointing out that economics is, in reality, more evolutionary as it is reacting to every change to rebalance itself. In the example where the potato producers are reducing prices to retain market share it is clear that this will be a smooth and ongoing procedure and not done in steps or stages as shown.

Economics is best understood as a vast array of equilibriums. If you have a system in equilibrium governed by a set of conditions and one of those conditions is altered, when the equilibrium is re-established another condition will necessarily also have changed to balance the equilibrium. Allow me to show this in the case of the potato farmers.

Mr B is able to obtain the same efficiency in production as Mr A over a period of time however at the start of that period Mr B is still only producing 10,000 potatoes. Mr C is at that time still producing potatoes that are in demand as a total of 40,000 are produced annually (as Mr D has left the industry). As Mr B gains in efficiency over time he will begin to produce more potatoes thus creating more supply than demand.

Mr A is best suited to gaining the market share of Mr B, C and D as his production is most efficient enabling him to reduce his prices most easily. Mr B is becoming ever better at taking market share from Mr C and competing with Mr A on price. Mr C is poorly positioned to take any market share from Mr A or Mr B but initially this is not too much of a problem as Mr D has left the market leaving his previous share of the market in need of new supply.

If we assume that the initial starting condition were in a state of equilibrium (within a free market economy) in that the price of potatoes was 1 money and each farmer made 9,000 a year profit then we can make some predictions about the resultant equilibrium when production capacity has been doubled. As Mr B tends towards producing 20,000 potatoes annually for 1,000 money the price of potatoes will tend towards 0.5 money. The guaranteed competition between the three remaining producers will force prices down across the board. If both Mr A and Mr B produce 20,000 potatoes each annually and charge less than 1 money per potato and Mr C tried to keep his prices at 1 money each then all or most of the 10,000 excess supply of potatoes will be the ones produced by Mr C. Mr C will sell 0 potatoes and make a loss of 1,000 money which is not sustainable even to the frugal! This is the mechanism that ensures prices are lowered as production efficiency is increased. Increasing production at the same rate of efficiency serves no purpose unless demand for that product in society is also increasing.

The improvements made by Mr A initially caused Mr D to leave the industry. As Mr B made his improvements and Mr C remained static, he was gradually forced out of the market but his presence ensured that competition would drive prices towards the equilibrium value. This is because without Mr C their would be no surplus production and therefore no need to reduce prices to sell all the produced goods. The new equilibrium in this example is one where Mr A and Mr B both produce 20,000 potatoes annually for a cost of 1,000 money and then sell them at 0.5 money each. The cost to produce, profits, and total market quantities (supply and demand) have all remained unchanged so to redress the balance of producing twice as many the price must fall by half.

[I have assumed that reducing the price of potatoes does not increase the demand for them which based on the nature of the goods almost certainly would, even in a society with no population growth. This is because they will begin to compete for market share with things like bread and rice as they perform a similar role but the relative cost of only the potato is falling. This particular trend is not relevant in understanding the principals behind improvements and would just increase the complexity of the example.]

That example looked at a single equilibrium in isolation but I defined economics as a vast array of linked equilibrium. As a condition changes and an equilibrium linked to that condition readjusts it will have knock-on effects on other conditions that relate to other equilibriums which will in turn do the same. Some of these affected equilibrium will perpetuate the initial changes and others will retard them but in general it will ensure results that are hard to predict. What may be an equilibrium for one set of conditions may well not be for a another linked equilibrium, in such a situation there will be no smooth and gradual progression from one position to another but instead an undulation between the two systems different equilibria.

In this period of time since the first improvement the changes we have observed are that Mr C and Mr D are no longer able to support themselves in the potato industry and have been required to find work elsewhere. The profits from the potato market were also unevenly distributed between the suppliers while the improvements were at vary levels of efficiency and the supply outweighed the demand. This plight of Mr A, B, C, and D are not really the emphasis of this lengthy example but rather the effects on society as a whole.

Society has gained from the improvements made in the potato industry in that potatoes now cost 0.5 money and not 1. Each year the society when viewed as a whole saves 40,000 (total potato consumption) times 0.5 money which = 20,000 money. Let us say that within the society exists 10,000,000 money total then by saving the society 20,000 the value of money has increased by 0.2% which simply means that for the same face value of money you would be able to purchase 0.2% more of anything. This is an idealistic way to illustrate the outcome as it requires certain conditions to result in an exact, across the board 0.2% change but it does accurately show the mechanisms by which improvements benefit society.

The main assumption made in asserting that a 50% price reduction in a 40,000 money market would provide a 0.2% increase to the value of money in a society with a total of 10,000,000 money is that of perfect benefit transfer. What I mean by the term benefit transfer is the knock-on effect throughout the whole market of reducing the price of one commodity. If all people eat potatoes then it is fair to say that the cost of potatoes is involved in the cost of any task. If people need to eat to live and perform labour then by reducing the cost of eating you are reducing the cost of labour. In reality people will just have a bit more spare money which they will spend as they feel fit creating new demands. By increasing the value of money you are effectively increasing the supply of money (which is ironic as in present day economic lingo to increase the money supply is inflatory and reduces the value of money). The new demands may well find employment for Mr C and Mr D, perhaps Mr D grows sugar and Mr C makes sweets thus offering the society greater luxury consumption. In the case of Mr C and D producing sweets the market has the same nominal value of money but more goods being produced. This is another way of saying the cost of everything else must go down in order to “fit in” the extra new cost of the sweets available in the market.

An alternative solution to the equilibrium is that Mr A found it possible with his improvements to produce 10,000 potatoes for 1,000 money but in half the time. The price would remain the same as there was no influx of supply so society would not benefit in the same manner but Mr A would be working less. If you look at the society as a whole this would mean that less total labour supported exactly the same degree of “value”. This illustrates the two ways to balance the economic equilibrium when improving production methods, either less labour is required or more money becomes available to support new and different labours.

A society continually improving all its production methods is able to expend greater portion of labour on luxury and other superfluous demands or reduce its working week. Most societies have found that some combination of these two factors is how they wish to make use of increased efficiency with an emphasis of luxury consumption over reduced work, particularly in the last thirty years. As society improves its production methods gradually and across all industries the general trend in that society is lower labour time per person, greater value of money and greater quantities of available goods.

Potatoes are used in this example as they offer better benefit transfer throughout society than many kinds of production. In economics there will always be a lag phase between an improvement being made and the benefits coming to the society as a whole through the forces of competition. If an improvement was made to a very specific area of the economy, say for example a tool used in mining to extract metal ores is made significantly better. Firstly the company producing the tool will benefit, then the various mining companies will also start to gain an advantage but to a lesser degree than the tool producer. After that the companies buying the ore and using them to produce other things will notice very minor benefit and lastly this benefit will begin to minutely manifest itself throughout all of society. Some forms of improvement such as those upon crops of basic foodstuff will have a quicker, broader and more evenly distributed effect on society than specialist or luxury producers will achieve. The important point to understand is that any improvement made upon the labours of society will improve the whole of that society by virtue of the trading relationship within the society. This improvement may be measured in an otherwise constant society by the increasing value of money (or its deflation) or by the reduction of the average working week.

It must be noted here that those who instigate an improvement are only in a position to personally gain an advantage during the lag phase, or at a non-equilibrium position. Mr A in the potato example is only able to be more profitable than Mr B while Mr B is less efficient in production. When both producers are equally efficient Mr A will only be as profitable as he was before he made the initial improvements.

The way in which improvements effect society may be explained in other terms without using the altering value of money as a measure. This second explanation will describe exactly the same principle as before however in a society where many factors affect the value of money it can be useful to understand in different terms. In reality we are unable to keep influential factors constant and so our method of measure loses its usefulness. This essay is not intended to provide means of measuring the economy but to impart understanding of the important basic principals and this is why the first monetary example has been given.

To describe how society benefits from improvements to production and trade we must introduce a new concept concerning types of labour. When a cost is paid for goods or services a portion of that cost will go towards paying the labour that produced the good or performed the service. The remainder of the cost will go towards the land used to render the goods or services, the cost of maintenance and profit. These areas of cost will be returned to but for now we need only be assured that the cost paid for anything will in part pay for the labour. Even a portion of the cost of the constituent raw materials contained within any goods will be for the labour required to procure that material. Labour or work is the act of adding value to something.

The kinds of labour that exist within a society may be broken down in to two categories; those labours which support the subsistence of the society such as all the food producers, all the people who make tools which are used by the food producers, all the people involved in moving the food from where it is produced to where it may be consumed and so forth being the first category. As to what you may put in this group depends on what you define as a requirement for the subsistence of society and more importantly to what extent should those things be made available. Take the motor vehicle: humanity was able to survive for a great period of time without it. Shortly after its invention it was still only a luxury, now however many would consider motor vehicles to be essential to sustain life as we presently live it.

The second category of labour consists primarily of labours that contribute to the luxury and culture within a society such as entertainers. It is clear with this second definition that the overlap between the two categories is up to interpretation. Many other examples can be given alongside that of the motor vehicle such as healthcare, education or the computer which are not essential to sustain humanity but do facilitate it very well and would now be considered an essential. It is also worth noting that many industries overlap and perform some tasks for the “sustenance” or first category while also expending labour for the “luxury” or second category such as a logistics company who help move all manner of goods.

The important distinction between these two categories is that all of the labour found within the second category is supported by that of the first. This may be easiest to show with some numbers. If the average producer of food makes enough to support themselves and nine other people then that allows nine people for every one producing food to expend their labours on other tasks. It would be folly to produce more food than is required as it goes to waste. We can complicate our example by saying that it also requires the labours of one further person per food producer in the production of equipment for the food producer. We shall say that in this example that only food, clothing and housing are required for sustenance and that the labours of one builder or one tailor provides enough to support twenty others. In such a situation 30% of the population would be able to support the rest thus enabling their labours to go in to improving the quality of life.

For 20 people therefore 2 are needed to produce food, 2 more are needed to support the 2 food producers. 1 is needed to make clothes and 1 is needed to make houses. This means that 14 of the 20 people are able to perform other tasks.

Perhaps only 50% of the population are capable of working as the rest are children or elderly which would then mean most of the labour output by the society would be for basic sustenance.

The example with Mr A and his potatoes was used mainly to highlight how improvements to the efficiency of labour increase the value of money. It also shows that improvements that occur within the sustenance labour category will proportionally increase the number of people that it supports. The same is true for land usage in terms of how many persons a given area may support. Improvements to production methods used on that land will enable it to support more people and that will in turn free up more land for other uses or enable population growth to occur.

In this essay we have explained the beneficial mechanisms by which trade came to exist and how humanity has advanced the use of trade; with money, massive scale and extreme specialization. It was shown how improvements to efficiencies of labour come to benefit a society when competition exists, and that competition will provide an incentive to improve. Nothing I have said here is unbeknown, nor does it contain suggestion or opinion. It is hoped however, that I have managed to provide a useful basis upon which to use economics to discuss how we can make things better, and not simply more profitable. My description thus far is intended to show the important fundamental aspects of economics that relate to society rather than the individual or the business. In my next essay - “The Trouble with Money”, I will build on the ideas of this essay and show how some of our monetary systems have evolved to the disadvantage of society.

Understanding the Villain

I need to begin this essay with a disclaimer as we will be treading very on delicate ground, topics where words which are devoid of meaning cause people to recoil at the sounds of them. The villain in question is Adolph Hitler and the disclaimer wishes to assert that in no way do I condone the actions of this man, nor do I attempt to provide him with any excuses to remove him from blame. The aim of this essay is to show how we should learn from mistakes by critical analysis of them. I must therefore apologise to any reader who takes any offence at my selection of words or the implications of them. All to easily do we get caught up in the emotion surrounding a topic and allow our rational self to take a back seat. This can affect our responses and our faculties of understanding and can cause conflict where views and aims are actually very much in line. I therefore advise caution and restraint to any who read on from this point.

I am no historian, or expert in World War II or Hitler, I have only read a few chapters of his works. I think however, most who live in the western world would agree that the Holocaust was the greatest mistake of the last few hundred years and is thus one of the most significant things to learn from, so that we may avoid any similar recurrence. I have taken a holistic approach to learning and knowledge and can apply a modicum of understanding from numerous disciplines upon the events that lead up to the Holocaust. Those who know far more than me on the subject may be able to highlight specifics to refute my suggestions and I would welcome them as such persons provide the best possibility to advance ideas. The reason my less learned opinion is still of some use is that of the different perspective, and consequently probing different links. The extent to which human knowledge has reached means that the most learned people in specific areas will know less in other areas, the institutionalization of learning to some extent has focused the “angle” at which a subject is viewed thus further reducing the change of spotting links. A holistic approach to something will not necessarily have good “focus” on the subject, i.e. know less of the details, but will look at a broader picture.

Mostly people will blame the holocaust on Hitler and leave the analysis at that. Much as the assertion of blame is correct it does not serve any purpose in the use of logic. People being unique renders blaming anyone for something meaningless in a search to prevent recurrences. Someone else as an object of blame may serve as a tool to remove personal guilt or even increase our own self esteem. These are psychological reasons or motives for blame and may help the individual who blames another. No expression or sharing of this blame is required to obtain the psychological merits as they are specific and personal. I would go so far as to suggest that when blame is no longer a personal feeling an individual may have, but instead a socially accepted premise, it can become dangerous and detrimental to both individuals and society. Blame becomes socially affirmed when people begin to voice their feelings about who to blame for what with significant agreement, the media outlets clearly leading the way. I shall now briefly detail some of the negative aspects regarding the concept of blame which certainly apply to socially accepted blaming but may still apply to the individual who keeps their thoughts to themselves.

Blame divides people and groups and generates hatred between them. Hatred of individuals is far from ideal but that is not to say it cannot be justified, however when the focus of hatred is towards a group, represented by some commonality, it is unjustified and very damaging to society. Hatred is a negative emotion along with many others that are generally best avoided both personally and for a society at large. Many critical dystopians suggest that fear is a good method of controlling society which may be true, but it will create an environment in which the people become increasingly hateful, mistrustful and selfish which ultimately will be the failing of that society. Fear, hate and blame all fall into the category of negative thoughts which tend to proliferate more negative thoughts and feelings in both self and others, and as such should be avoided where possible.

Blame will cause apathy in individuals in that they believe they are not responsible for the fault and are under no obligation to help resolve it. This may be a justified response but it is rarely the choice that will be optimal for them or the society concerned. Blame is useful in this respect for locating an individual to rectify a problem which they have caused so that they may remedy it, as such it may be considered an optimal resolution. This is no longer useful when a situation cannot be undone or the individual responsible does not have the appropriate means to remedy the situation. In these situations the optimal response to return things to their original state requires a group effort.

Blame serves to absolve people in their potential role in bringing about a problem. If I can blame someone else for this mistake I am under no obligation to change my ways or improve upon myself. Rarely are mistakes the consequence of one persons actions alone yet we all still love a scape goat.

I could go on about the logical incompatibility with blame, or the negative effect it can have as an attitude for both individuals and societies, or how unhelpful it may be in arriving at the best solution. Suffice it to say I am of the opinion that the question should always be; 'how do we solve this?' not, 'who is to blame for this?'. Although we are unable to solve the Holocaust we may look beyond blaming Hitler and examine social conditions and opinions prior to the events. We can also look at what motivated Hitler and how he came to believe his actions were acceptable or beneficial. In doing this we may find ways to safeguard against other potential social catastrophes.

Hitler pitied those who he saw as his fellow man, the labouring classes of Austria and Germany. He blamed their condition primarily on those in positions of power and socialists. His political motivations originated with a mixture of love and pity for those with least. Even though he saw these people as wretched, hateful and immoral he had the clarity to observe that their condition had made them this way and that they were not naturally so. For this reason he wished to create a society of proud people that would not let others slip into wretchedness.

Hitler's initial motivations were good in that he wanted to do what he saw as right and best for others. Fictional super-villains often seem motivated by “evil” things, such as wanton destruction, however it is far more chilling to observe an attempt at altruism fail so spectacularly. In reality people are generally only motivated by self interest or altruism, the former without any morality is often regarded as evil but for this explanation I will leave it in the self interest category. Only the most disturbed or mentally ill people are motivated sadistically or masochistically and such people are often social outcasts, instantly recognizable to others as “odd”. Hitler cannot have gotten to the position he did by being an evil soul as it were - those who do harm to others without any obvious personal gain. People of such dispositions do not relate to others and are missing the tools required to lead and inspire, Hitler was however renown for his oratory prowess and for his ability to inspire people.

We can only conclude that Hitler was misguided if we cannot conclude his motives were “pure evil”. It is hard to see how a purely self interested motivation could require genocide to exact. Thus the only conclusion which I am left able to draw is that Hitler was a misguided altruist. This must serve as a warning to all politicians, sociologists, activists and utopians in that one assumes their aims are altruistic or for the general good. We may all comfort ourselves in that we are nothing like Hitler and are in no danger of being misguided. Certainly few of us reach such levels of power and thus are not in a position to cause such extreme harm, however it is still a good reminder that actions we intend to do good may have quite the opposite effect if we are incorrect in our assumptions.

So, where did Hitler go wrong? What were his incorrect assumptions? The first answer I would give to these questions is that of association. Association is a useful tool to have evolved as it allows us and other animals to learn from similar circumstances. No two objects or events are identical such as two apples. By associating these two distinct objects we are able to infer with good probability that upon finding the first was good to eat that the second will be also. Hitler saw many socialists and people in positions of power were Jewish. He also felt he had very little associations with Jewish people especially when compared to the labouring classes of what he called the Mother Land.

The critical error Hitler made was to assume that it was the Jewish influence in these positions of power rather than the system surrounding such positions that caused what he saw as the main problems in society. Rather than examine the social, economic and political systems as the object of his problem he made Jewish people the object instead. Hitler was both socially astute and very bright, nor had he ever personally been caused to suffer by any Jews, which begs the the question; how was is possible to arrive at a conclusion that to modern observes seems so obviously wrong?

To answer this question I would look to the social conditions of the time, not just quality of life but the general feeling of the people, the views they may hold or find socially acceptable and the scientific understanding of the times. In the period before Hitler's rise to power the concepts of eugenics where being explored seriously for the first time. The scientific community had not yet come to a consensus as to the benefits or morality of eugenics, many simply saw it as a new tool to better humanity. Others inferred from these ideas that some humans or types of human were better than others, a scientifically administered licence for racism. These ideas were all still in the theoretical stage as conducting experiments was not a simple task. As such those outside the scientific community were able to freely make their own interpretations of eugenics.

The abolition of slavery was not all the long before the time period in question and little change was to be seen regarding how white people treated and saw black people. Emigration and immigration were not as common place as they are today. Perhaps most significantly at that time no events had yet come to pass in which a racist view was taken to an extreme. I am not saying one needs hindsight to appreciate how wrong racial motivated genocide is, but it is a great deal easier to reach that conclusion and requires a lot less consideration. Most people know about WWII and the Holocaust and can directly relate that to have been a bad thing, there is a wide and consonant view in society of this fact which was not so readily available to people prior to those events. These three factors combined with the scientific communities position at the time lead to a climate that was far more accepting of racial slander or making the enemy of society a race.

A social climate that is more accepting of racism will not only help to produce people like Hitler but it will also help those people to gain public support. This was not exclusive to Germany, the average level of racism in Europe was unlikely to have been that different from one country to the next. The factors exclusive to Germany were the result of WWI. This is well documented and understood but in a nut shell the German people felt belittled and second rate as a result of the defeat and it's consequences. When an individual is made to feel this way they will become insular, insecure, resentful and feel the need to prove themselves. Societies of people are inclined towards acting in similar ways to individuals when the general feeling is aligned. One could argue that it was society which created a role for a new kind of leader rather than Hitler leading society astray. As with so many questions the answer is most likely to be six of one and half a dozen of the other, and also somewhat of the chicken and egg conundrum.

To quickly recap the various factors which allowed for the holocaust;

1. The poor social conditions within Austria and Germany, including large wealth gaps.
2. The national lack of pride and self worth resulting from the loss of WWI, a national insecurity if you will.
3. The unstable economic climate prior to Hitler's rise to power, this effect is mostly through exacerbating the previous two factors.
4. An incomplete understanding of the ramifications of Darwinism and eugenics.
5. A lack of any serious social stigma regarding racism.
6. A general public loss of faith in government.

It is not easy to predict what problems any of these factors might cause but it is not as hard to appreciate that any of these situations is unlikely to result in good things. The fewer problems a society has the less able it will be to generate a snowballing problem which gains momentum from contributions from those many problems. It is somewhat stating the obvious and not particularly useful to conclude that to avoid large unforeseeable problems in society one should tackle all observable problems in that society. This may be true but the message I wish to get across is the significance of a broad approach. It might have been possible to prevent the Holocaust by solving the specific problem of Hitler himself somehow, but this is quite a hit and miss approach that seems quite ridiculous when phrased in this way, although many still talk about going back in time and killing him! A more assured way of preventing the Holocaust would be to remove the social conditions that allowed it to occur, even if such a society could produce a character such as Hitler, it would not provide them with a role to fill, i.e. such a society would not bring Hitler to power.

So what of Hitler, some might say my arguments do remove him from blame, instead making him the victim of society. While it may be the case that society is the catalyst for characters and events we cannot remove accountability from the individual. To do so would be to throw society in to anarchy. If we are just automatic machines devoid of free will responding to stimulus then personal accountability is an important stimulus to allow us to cooperate effectively.

Although I may have claimed Hitler's initial motivations were altruistic it is clear from his actions he strayed very far from the moral path. The man Hitler was to become was either deluded or corrupted, perhaps by power or fear or urgency. A man must be judged on their actions, not their motives leaving Hitler pretty damned. I have paid most attention to how someone could come to form the political views that they did and then be raised to power, and not how a potentially altruistic person could come to command such atrocities. I generally put this down to a gaining of momentum of his idea, the support of his people and of his contemporaries. An incremental advance towards acts of evil is far easier to bare than a direct plunge from goodness.

I am however quite suspicious of his assumptions to which I provided only one reason for at the time. I am suspicious as Hitler seems too bright to really believe what he preached. A cynical part of me suspects Hitler to be disingenuous in his assertions appointing Jews as the enemy of society. Perhaps he felt he could rally the people to his cause most effectively by making an easy enemy for the labouring classes to unite against. If this were the case we can conclude more readily that Hitler was motivated by power, by self interest and not altruism. If this is the case I have failed to provide any suggestion as to how such an individual could come to exist however I suspect that the answer would still be the result of social conditions!