Finance at the Threshold
Rethinking the Real and Financial Economies
Christopher Houghton Budd’s new book on the Financial Crisis
Reviewed by Christopher Schaefer Ph.D.
Christopher Budd is well known to students of Anthroposophy as a writer and lecturer on Associative Economics, accounting and finances. The book, Finance at the Threshold: Rethinking the Real and Financial Economics, published by Gower, is a very stimulating effort to integrate Rudolf Steiner’s economic ideas into the mainstream economic debate about the current financial crisis. The book is meant to give Steiner as an economist credibility among an academic audience not familiar with his ideas. It does this in two main ways, first by using Steiner’s economic insights as a way of understanding the present crisis and secondly by suggesting fundamental solutions to the problems of the financial system based on his work. The book is full of intriguing ideas and challenges to mainstream economics. Its basic argument is that the financial crisis is the result of excess liquidity in the global economic system and that just as in the Middle Ages cathedral building siphoned off surpluses, so too today by gifting to the young, and to cultural life in vastly increased amounts, the economic and financial system could be restored to health by using excess capital productively, a solution first proposed by Rudolf Steiner in Rethinking Economics.
The author sees the financial crisis as global in nature and as representing a new defining moment in human history, in which both our ways of acting and our understanding of economic life are called into question. He relies on an image provided by Rudolf Steiner to make this case: “The economic life of a particular time, and the spiritual life of a particular time, hold the same relation as a nut to its shell; the economic life is invariably the shell which the spiritual life has thrown out. It takes its cast from the spiritual life. Today’s abstract economic life is, therefore, the product of an abstract spiritual life.”
From this basic insight Christopher Houghton Budd suggests:
- The world economy has been global since the beginning of the 20th century but our behavior and our understanding has not until now recognized this fact.
- The crisis is due to excess capital seeking ever increased returns at a time when there are no new markets as such since most areas of the globe, including the Islamic countries, operate under conditions which allow the free movement of capital and goods. The growth of the international financial market is not only due to the mistaken leverage of assets such as housing stock but also to the vast sums available to capital markets through pension, mutual and investment funds.
- The consciousness of people and the understanding of economists of the international economy is too abstract and not accurate to the reality of what is happening. The efficient market hypothesis of the Chicago School claims that the market will always do the best job of determining true price. But this approach, based on abstract mathematics, assumes that people act rationally, and that there are clear cause and effect relationships in economic life. As Steiner noted a long time ago, “Economic processes are distinguished by the fact that we ourselves are within them, therefore we must see them from within. We must feel ourselves inside the economic processes, just as a being would do who is inside the chemist’s retort…” In this statement Steiner is anticipating George Soros, who argues that the economic and financial system is reflexive in nature, that there are no independent variables for determining either price or behavior. The author cites Soros approvingly, “Let us examine the main assumptions of the theory of perfect competition. Those that are spelled out include perfect knowledge; homogeneous and divisible products; and a large enough number of participants so that no single participant can influence the market price… The assumption of perfect knowledge is suspect because understanding a situation in which one participates cannot qualify as knowledge…” Furthermore, “The shape of supply and demand curves (which supposedly determine price), cannot be taken as independently given, because both of them incorporate the participants’ expectations about events that are shaped by their own expectations… Nowhere is (this) more clearly visible than in financial markets…” Steiner also noted that a calculation of true price depended on whether one was a producer, trader or consumer, suggesting that there were really three different equations for determining price. It was from this insight that he suggested the importance of an associative economics which would bring consumers, traders and producers together in associations in order to arrive at an approximation of true price.
- There are five basic recommendations which the author makes to renew and transform the international financial system. The first is to recognize that the world economy is global and will require an international reserve currency, such as John Maynard Keynes suggested with the creation of bancor. Such a suggestion rests on the understanding that money is an agreement between people about a medium of exchange and is based on the economic activity of a society made visible through loan and purchase transactions.Secondly, the international economic and financial system will need to be self-administered by associations of consumers, traders and producers. Thirdly, as one would expect, given the author’s previous work, he advocates that the financial system needs to rely much more on accounting, and in particular, double entry book-keeping in order to both connect the individual to economic life (micro-economics) and to the broader field of macro-economics. A central part of this recommendation is also that a greater reliance on accounting would create a self-balancing economics as those requiring liquidity would need to be balanced by those offering liquidity so that all accounts would sum to zero. The fourth recommendation, articulated rather poetically, is the plea to recognize that there exists a choir of cultures (free cultural life), a group of states, (rights life) and a global world economy, each of which needs to be independently administered according to its own inherent principles. The last, previously mentioned, and to my mind critical proposal is to recognize the need to spend the excess liquidity of the economic system by gifting excesses, which will inevitable arise, to youth and to educational and cultural life.
Finance at the Threshold is an intriguing and stimulating book. Its limitations, beside the high price, are the understandable academic language and mode of presentation. Many chapters deserve special study, so for example Chapter II “When the Banks Stopped Lending to One Another” because of the many interesting quotes from both liberal and conservative economists, and Chapter IV “It’s the Epistemology, Stupid” since it raises basic questions about our current understanding of economics.
I do wish that a simpler, shorter, and cheaper version of this book would be published in paperback in the future because, as a trained economist and social scientist also interested in bringing Steiner’s social and economic ideas to a broader audience, I find both the examples and the conceptual discourse compelling. If a new edition were to be done, I would suggest a deeper look at the distortions and suffering which the present financial and economic system has in particular brought to American and British society as in these countries, economic and financial elites have determined the political discourse and government decision-making for the last three decades with devastating consequences for their own citizens and for the world.
I would also recommend that readers look at Martin Large’s new book, Common Wealth: For a free, equal, mutual and sustainable society (Hawthorn Press) for a complementary presentation on the ways in which threefold perspectives are alive in many efforts at social reform. I can also suggest Gary Lamb’s recent study Associative Economics: Spiritual Activity for the Common Good (AWSNA) for its comprehensive presentation of Steiner’s ideas on economics. At a time when the limitations of both socialism and capitalism have been made abundantly clear, all three books should be read and worked with as a way of enlivening a new imagination of society appropriate to our time and our consciousness.
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