In reference to Lyndon LaRouche's "New Bretton Woods" policy proposal.

This article appeared in the July 28, 1995 issue of Executive Intelligence Review.

Why Most Nobel Prize
Economists Are Quacks

by Lyndon H. LaRouche, Jr.

Today, every nation on this planet is under the domination of a single, worldwide, monetary and financial system: the so-called International Monetary Fund (IMF) system. That system is about to go out of existence. The worst financial collapse of the Twentieth Century could erupt within as soon as weeks, or, in the unlikely case, the disintegration of the system could be postponed until as late as early 1997.

Nothing can save the present monetary and financial system. It could be gobbled up in an orderly bankruptcy reorganization conducted by governments, or, if governments are, as Hamlet said, too ``pigeon-livered'' to do this, it will reach the point that the system simply disintegrates within as short a span as 24 to 72 hours. That is to say, it would vanish as if in a cloud of smoke: in an implosion of what is called ``reversed financial leverage.''(Footnote 1)

That information should come as no surprise; any competently trained economist would agree immediately with what has just been written here. They, and all honest mass news-media, would have been warning governments of this danger over years, even decades. To illustrate that point: The present writer has forecast just this danger--repeatedly, consistently, and accurately--during the past 30 years; during the mid-1970s, he found concurrence with his own forecast, on the general nature of the danger, in his personal meetings with such notable figures as the former economic adviser to President Charles de Gaulle, the distinguished Jacques Rueff. During the recent several years, another of the rare species of competent economist, France's Nobel Prize-winning economist, Maurice Allais,(2) has been warning publicly, and repeatedly of this imminent danger.

Yet, until a few months ago, most generally recognized economists, worldwide, showed themselves not competently trained. Until the aftermath of both the Orange County, California and Mexico outbreaks, they consistently derided such warnings--although, at that time, the symptoms of an onrushing, early general financial chain-reaction collapse, echoing the famous, Weimar Germany Reichsmark collapse of 1922-23, were already the dominant features of world markets.

Now, over the course of the period since the Orange County bankruptcy and the Mexico crisis, a significant and increasing number of prominent economists and bankers nod sadly, and agree: The system is coming down. One might respond to that: Better late than never; should we not respond, instead: that the economics profession and the bankers have failed miserably over the past 25 years, or longer? Must we not say, that they should have foreseen this coming decades ago, and warned governments and the public of the consequence of continuing the mistaken policies already under way back then?

To recognize why otherwise educated and intelligent people, when confronted with generally accepted economics dogma, so often behave like credulous spectators at a carnival side-show, we must make clear certain deep-rooted false, empiricist, assumptions about science. These are the prevalent, mistaken assumptions which have shaped popular opinion on the subject of social theory in general and economics in particular. First, consider the subject-matter whose mention terrifies popular economic opinion today.

The facts just referenced pose three crucial questions of policymaking to the U.S.A.'s and other governments.

  1. Why did virtually all of the most respected professional economists and bankers of the world fail so contemptibly, over a period of 30 years?

  2. Why did we tolerate, over a period of 25 years, economic, monetary, and financial policies whose foreseeably inevitable consequence was a collapse of the physical economy of the planet, and also, inevitably, the worst monetary and financial collapse in European history since the mid-Fourteenth Century, when England set off the chain-reaction collapse of the Lombard debt-bubble of that time?(3)

  3. Why do most governments of the world, and also most ``popular opinion,'' support the policies of such transparently lunatic economic dogmas as those of former British Prime Minister Margaret Thatcher, Harvard's Prof. Jeffrey Sachs, Sen. Phil Gramm, and U.S. House Speaker Newt(on) Gingrich?

1. The present economic crisis

Before attempting to answer the series of questions we have just posed, consider the relevant most crucial facts about the presently skyrocketting, global, financial and economic crisis. The data upon which the following summary is premised are the standard statistics publicly available to every government and leading economist in the world.

To those statistics apply the following procedures, for the purpose of comparing U.S. per-capita income and output during the interval 1956-94. Reduce the publicly available data used, to the form of values expressed as quantities per capita,(4) per family household, and per square kilometer of relevant land-use.

Define input as consumption by persons, by households, by agriculture, by mining, by basic economic infrastructure, by manufacturing, by construction, and by allowable ratios of employment for sales and administrative functions of both government and the private sector. Use U.S. data for 1956 as the standard of comparison for ``allowable ratios of employment for sales and administration of both government and the private sector.'' This yields ``market baskets of consumption'' for persons, households, infrastructure, production, and sales and administration: all, of course, per capita, per family household, and per square kilometer of relevant land-use.

Define output as the production of the items contained in the market-baskets of consumption.

The content of these market-baskets is limited to useful physical goods, measured in physical (not monetary) units, plus three elements of infrastructure indispensable for maintaining and improving the demographic characteristics of the family household, and for maintaining and improving the productive powers of labor: education, health-care delivery, and science and technology as such.(5)

The assessment of these market-basket requirements is implicit. The relevant question is, what would be the actuarial impact upon demographic characteristics of family households and productivity (ratio of output to input of these market-basket contents), were the contents of some among the total spectrum of market-baskets to be increased, or decreased? Define ``implicit economic equilibrium'' as a secular trend corresponding to a rate of physical economic growth, measured in terms of demographics and output-to-input ratios, of about 5% (physical-economic) growth per annum.

Employ the suggestive imageries of the undergraduate science classroom; identify that ``implicit equilibrium'' level as representing the ``energy of the system'' of the physical-economic process at that interval of the continuing process. Thus, continuing to employ the same symbolism: The ratio of output to input, implicitly defines a ratio of ``free energy'' to ``energy of the system.''(6) This symbolism requires us to state that the healthy, non-degenerative (``sustainable'') phases of an economic process, are characteristically ``not-entropic.''(7)

By that standard, using nothing other than the official statistics which are generally available to all professionals and relevant governmental and private institutions: The U.S. economy has been in a continuing state of physical-economic decline over the entire period, from 1967-70 to 1992-95.(8) (Figure 1, Figure 2, and Figure 3) Overall, the relevant available statistics are sufficient to show, that the same trend is characteristic of the world-economy taken as a whole. The same array of statistics shows, that although there were tendencies in this disastrous direction in the U.S.A. prior to 1963, it was a package of radical policy-changes set into motion during the 1964-72 interval, which has been responsible for the persisting net decline of the entire world's physical economy since 1972.

During the 1972-95 period to date, the percentile of the total labor-force employed in producing what we have identified, above, as ``energy of the system,'' has been successively shrunken ( see Figure 4), while the physical productivity of the labor still employed in these categories has also been successively shrunken over this same interval (see Figure 2).(9) This has been true in the U.S.A.; it is also, if even more emphatically, the case for the planet taken as a whole.

Next, compare the physical-economic developments and trends with the corresponding arrays of monetary and financial data. Begin with the simplest comparison: shifting patterns in the ratio of foreign trade to foreign-exchange turnover. After that, turn to the internal mechanisms of finance itself.

In 1976, the import-export trade of the U.S.A. accounted for a reported 23% of the total daily U.S. foreign-exchange turnover. Following the disastrous initial impact of the lunatic October 1979 policy changes introduced by Federal Reserve Chairman Paul A. Volcker, by 1981, the trade factor in foreign exchange turnover had dropped to about 5% (see Figure 5). By 1992, under President George Bush, the figure had dropped to less than 2%; for mad Margaret Thatcher's Britain, the figure had dropped to about half of 1%, and the world average had declined to about 2%. Today, taking into account ``off-balance-sheet'' derivatives transactions, it is safe to say, without fear of exaggerating the case, that total world trade accounts for less than 1% of daily world financial turnover.

In sum: The world's monetary and financial systems have been ``de-coupled'' from the real economy. Officially reported ``economic growth'' is a hoax, for two very obvious principal reasons. First, Gross National Product/Gross Domestic Product estimates, the figures used to report putative economic growth, are based on estimates of monetary Value Added; therefore, since the monetary-financial system has been de-coupled from the real economy, GNP and GDP estimates, even if they were honestly compiled, have a corresponding degree of irrelevance to any discussion of national economic health. Second, of course, governments and related agencies lie--with greater abandon, each passing year--in every statistical analysis of this sort.(10)

That de-coupling of money and finance from real economy is built into the changes in policy-shaping trends of the past 30 years: since the so-called ``cultural paradigm-shift,'' which began as an orchestrated mass sociological phenomenon during 1964. The anti-science (anti-rationalist), ``post-industrial,'' and ``neo-Malthusian'' trends introduced into the fevered, sex-crazed, and pot-soaked brains of (admittedly only) a majority among campus-based anti-war protesters during the 1964-72 interval, are exemplary of this part of the problem.(11) From about 1966, the London Tavistock Institute's influence succeeded in forcing initial major cutbacks in the U.S. science-driver (space) program, arguing that the success of space projects had inspired too many Americans with a deplorable liking for not only science, but also rationality in general.(12) The same year, the first neo-Malthusian proposal for making population control an issue of U.S. foreign policy was introduced into the U.S. State Department.(13) During that period, Rep. George Bush (R-Tex.) earned the nickname of ``Rubbers'' for his zealous prosecution of the cause of birth control.(14) By 1967, Zbigniew Brzezinski contributed his own ``New Age'' epiphany: his conversion from Christianity to the ``Third Wave,''(15) to Norbert Wiener's, Robert Theobald's, Alvin Toffler's, and looney Lord William Rees-Mogg's neo-paganist(16) cult of ``information theory.''(17)

These and related mass-brainwashing efforts prepared the way for the crucial event of the 1964-72 transition to a ``New Age'': the Aug. 15-16 decisions of the U.S. Nixon administration, de-coupling the U.S. dollar from the Bretton Woods gold-reserve standard. That decision established, preemptively, a worldwide ``floating exchange-rate'' monetary order, to replace the pro-industrial monetary system contracted at Bretton Woods.

The original Bretton Woods agreements were formally broken at the Azores monetary conference of 1972. The 1973-74 ``oil-price shock,'' conducted by Britain's London petrolem-marketing cartel, with assistance from U.S. Secretary of State (and British agent of influence) (Sir) Henry A. Kissinger,(18) either wrecked or severely damaged the industrial economies of the world, including that of the U.S.A. The effects of the London ``oil-price shock'' caper, led to the Rambouillet monetary conference of 1975, at which the looting of economies through ``floating exchange-rate'' speculation was apotheosized as an immortal god of IMF Olympus.

The next decisive development leading into the presently onrushing collapse, occurred 1979. In spring of that year, while campaigning(19) for nomination as the new U.S. Federal Reserve Chairman, Paul A. Volcker announced that he considered ``controlled disintegration of the [world] economy'' an acceptable policy for an incoming Fed chairman. Those words, and Volcker's later practice as Fed chairman, echoed the proposals detailed by Fred Hirsch in the New York Council on Foreign Relations 1975-76 Project 1980s outline of policies being specified for the incoming administration of President Jimmy Carter; Carter appointees Cyrus Vance and Zbigniew Brzezinski had been key project coordinators for that CFR policy-planning. Beginning October 1979, Fed Chairman Volcker applied Hirsch's ``controlled disintegration of the economy'' with full and sudden force: zooming prime interest-rates into the stratosphere of usury, way above the rate of profit available in any known honest form of business enterprise. Since the ruinous effects of the 1979-83 implementation of Volcker's measures, there has been an increasing rate of net flow of financial and real (physical) capital, out of the productive sector, into the realm of pure financier speculation.

The Volcker measures, together with two disastrous, additional pieces of legislative lunacy, the St Germain-Garn and Gramm-Rudman bills, sent the U.S. economy on a reeling, ``junk bond'' orgy of financial looting and speculation, through 1982-87. The October 1987 stock-market collapse signalled the coming end of the ``junk bond'' phase, and inaugurated that ``financial derivatives'' bubble which has made the early doom of the existing monetary system inevitable.

To complete the sketch, showing why the early collapse of the system, during the coming months, is now inevitable, examine the ironies of the derivatives bubble itself.

At the core, what is called, euphemistically, ``investment'' in the financial-derivatives form of ``futures,'' is somewhat less reputable than gambling at the tables of a Monte Carlo or Las Vegas casino. It has been fairly described, repeatedly, by Maurice Allais as a casino economy.(20) On at least two public occasions, prominent Japanese officials have described ``derivatives'' as ``financial AIDS'' in the world monetary and financial system.(21) I have often referenced the fact that ``derivatives'' in the financial-economic realm is analogous to the model of cancer presented in one of my old textbooks, that of the mathematical biophysicist Nicholas Rashevsky.(22)

Typical is the case of the gamble which tumbled the famous Lord Shelburne's Barings bank into bankruptcy earlier this year. It happened at Barings branch office in Singapore, currently one of the world's leading centers of financial prostitution. Their man there placed multibillion-dollar bets--not investments, but out-and-out crap-shoot-style side-bets--on the short-term outcome of shifts in both the Tokyo stock and bond markets. It was an enterprise steeped in the fiscal prudence of a New York City numbers-racket runner. Barings lost the bet on the numbers, and tumbled into bankruptcy as a result of that, plus other gambling losses. Derivatives speculation is gambling, on a thin margin, often risking large amounts of other people's financial assets. The Seventeenth Century's John-Law-style South Sea and Mississippi bubbles were paragons of fiscal conservativism, by contrast.

For purposes of practice, the most notable difference between today's wild-eyed Singapore, City of London, or Wall Street Yuppie, hedging derivatives bets, and the Seventeenth Century financial bubblers, is that John Law's acquaintances did not have modern personal computers and high-speed, round-the-world, round-the-clock communications links. The application of a blend of John Von Neumann's Theory of Games(23) and Chaos Theory(24) to these modes of calculation and communication, permits a rate of speculative chain-reactions, subsuming impulses momentarily approaching near-light-speeds. This not only permits, but fosters rates of speculative inflation never before even imagined.

There are three most essential ``mechanisms'' of the resulting, worldwide financial bubble: 1) The numerically largest factor involved is the magnitude of the ``notional'' (fictitious) capital values, which are treated as the equivalent of money-capital for the purposes of the derivatives form of futures speculation; 2) the second largest factor is the flow of monetary stimulus into the maelstrom of financial speculation, in derivatives and related categories; 3) the speculative bubble's root-dependency upon an income-stream of real wealth taken out of real consumption and the production cycle. To determine why and how a bubble will pop, and to estimate when it will probably pop, one must focus upon the function of these combined, interacting three mechanisms.

Since the typical layman has no notion of the meaning or functional significance of the term, ``fictitious capital,'' two clarifying illustrations are supplied here: first, the treatment of a simplified representation of what occurs as speculative appreciations (nominal ``capital gains'') in secondary stock-transactions, and, second, a similar case in speculation in New York slum-rental real estate during the 1960s. To understand how ``derivatives'' speculation balloons, and then, inevitably, collapses in a sudden, ``nuclear-like'' implosion, it is sufficient to carry the ordinary image of purely parasitical speculation, as seen in secondary stock-markets and slum rental real-estate properties, into that domain of which is the ``derivatives'' form of numbers-racketeering.

The first example: A man has 100 shares of common stock in Widgets, Inc., which he has purchased from that company's representative for $10 a share: $10,000. At that time, the stock's expected annual dividend-income is $5 per share. Meanwhile, a subsequent fluctuation in the prevailing interest increases the relative financial advantage in a financial speculator's holding of that $5 yield per share. As a result, traders are willing to pay $102 a share, instead of $100, for a share of Widget common. The $2 gain in price is purely fictitious, purely speculative, rather than the result of some action related to investment within the production cycle as such. The speculative gain of $2 a share is, as such, a purely financial phenomenon, not an economic one.

Continuing the same example, go to the next step in the hierarchy of speculation. Let a trading company be incorporated whose sole source of income is fictitious capital gains of the type represented by the indicated $2 gain in Widget common stock. Let this company issue stock. Paid-in capital put to one side, the remaining assets which secure the value of that latter stock are already purely fictitious, rather than real-economic assets. Let the price of a share of that stock be $100, and let the expected dividend be $5 per year. Fluctuations in the value of that stock now represent fictitious values based upon appreciations, or depreciations of what are already purely fictitious values.

The second example, the case of the Manhattan slum-rental property, affords a more intimate view of the essential morbidity of fictitious gains in general. During the relevant period cited, the rule-of-thumb market valuation of a Manhattan rental property was calculated as a mutiple of the expected annual rental income. Thus, a landlord, by using various devices to increase the rental rate per square foot, could increase the nominal market value of a savagely deteriorating property. This was characteristic of slum rental properties in New York City during that time.(25)

The intrinsic value of the building used as an investment in slum rental property was almost an irrelevance, except as the physical structure provided a means for parking a relatively large number of rent-paying families on a city lot no larger than the standard plot allowed, during the 1920s or 1930s, for an urban single or two-family occupancy in a typical ``working-class residential district'' in a city such as Lynn, Massachusetts. Under the indicated slum-rental investment arrangements for Manhattan, the greater part of the paid-in rental income represented nothing other than ``feudal'' ground-rent, the latter a purely fictitious sort of economic value. Thus, the physical purchasing-power of the capitalized value of the slum could be zooming skyward, while the physical value of the building itself were falling rapidly toward zilch. The fluctuations in the financial value of the investment in the rental property had been ``de-coupled'' from the economic value of building and its use.

Thus, companies which speculated in fictitious gains from such investments could capitalize their fictitious earnings (capital gains) from the turnover in a number of such slum-investments, creating what we shall label Exhibit A. Let the profit of operations involving Exhibit A be labelled Exhibit B. This poses the question: What would a financial speculator pay to own the right to collect the expected annual dividend labelled Exhibit B? Suppose that prospective buyer expects a 10% financial return annually; in that case, the ownership of the right to collect Exhibit B annually would be approximately ten times the price of Exhibit B: creating Exhibit C.

These two examples introduce the principled features of the kind of process upon which all financial speculation in general is based. Financial derivatives represent the shifting of this sort of speculation from investment to pure betting, sometimes called ``hedging.'' The point of these two, admittedly much simplified illustrations, is to identify the role of unreal, i.e., fictitious values, in feeding a bubble: as Exhibit A feeds Exhibit B, which feeds Exhibit C. What gives the financial bubble its specific quality is that without the growth of successive tiers of pure speculation (fictitious appreciation), the growth of the bubble comes to a standstill.

At the point of standstill, investors are in a scramble to sell out from under the collapse of the bubble as a whole; the scramble becomes a panic. Consider a panic operating globally, at computer speeds, along pathways of contemporary cable and satellite communications: The panic zooms, hyperbolically, into a ``reversed-leverage'' analog of a thermonuclear explosion: an implosion which causes the disintegration of virtually every financial and central-banking monetary institution of the planet, within a lapsed time of hours, 48 to 72 hours at most.

The maintenance of the growth of financial speculation requires an inflow of primary monetary aggregates (e.g., Federal Reserve issues of U.S. dollars) into the network of financial speculation. The multiplier-effect embedded within the tiered structure of the speculative bubble demands such money in quantities which are only a fraction of the rate at which new fictitious aggregates are being generated within the bubble, but the inflow of that currency-issue is crucial for the continued existence of the bubble-process as a whole. That leverage is the second of the principal mechanisms to be considered.

The inflow of currency into the bubble generates a tax upon the real economy. In part, this is literally a ``tax,'' expressed in the form of government debt-service payments against the growing mass of debt used by the central banks to generate the flow of money into the bubble. Since the bubble is leveraged against outflows of real value from the productive cycle, among other sources, and since the mechanism of the bubble is leveraged borrowing, the growth of the bubble is reflected in accumulated financial charges embedded in every pore of the society's economic life. This is the third of the principal mechanisms to be considered.

In summary, the functional interrelationship among the three mechanisms, is this. The increase of the size of the bubble increases the rate of growth of fictitious accumulations required to prevent the bubble from shifting into a reversed-leverage phase. The increase of the rate of growth of fictitious accumulations required, obliges the central banking systems to feed increased money-flows into the bubble's speculative base, otherwise, the fictitious accumulations are slowed, and the bubble as a whole then shifts into a reversed-leverage phase. The increase of the accumulated debt-capitalization used to fund the inflows of currency into the bubble's speculative base, causes an increased tax (of various sorts) upon the economy which the central banking system is looting to support the speculative base of the bubble.

Consider the charts and graphs reflecting the statistical studies of Christopher White, John Hoefle, Anthony Wikrent, et al. in that light (see Figure 6, Figure 7, and Figure 8

  1. Over the interval from the base reference period of 1967-70, until 1990-95, the physical-economic consumption and output of the U.S. economy, per capita, have nearly halved. At present, the decline is accelerating significantly.

  2. Over the interval 1976-92, the percentile of U.S. foreign-exchange turnover represented by import-export trade had fallen from 23% to about 2%. Today, taking into account both reported and estimated rates of off-balance-sheet derivatives speculation, the figure is fairly estimated to have fallen to the vicinity of 1% or less.

  3. Meanwhile, especially since 1987, the rate of daily financial turnover on markets has zoomed; since 1991, the ratio of the curve of rising volume of financial aggregates to rates of per-capita physical-economic output and input, has been indisputably hyperbolically upward.

Those three combined conditions define a rapid convergence upon an absolute functional discontinuity: not merely a financial collapse, but also a potential, literal disintegration of most of the world's monetary and financial institutions.

The only alternative to these calamities would be that governments, particularly the government of the U.S.A., act to put the entire bubbling system into government-supervised financial-bankruptcy reorganization: writing off the claims by fictitious capital, while assuring those continued flows of pensions, withdrawals from modest personal savings, and so on, needed for social, political, and physical-economic stability. Those emergency measures would not be sufficient by themselves, but they are no less indispensable; bankruptcy, ``Chapter 11''-style, is the precondition for success of those governmental measures needed to organize an immediate economic recovery.

Under the U.S. Federal Constitution of 1787-89, the means for launching economic recovery are elementary. Within the same 48-hour interval, the President of the U.S.A. declares the Federal Reserve System as a whole to be bankrupt, and places it under the equivalent of ``Chapter 11'' financial reorganization. On the same day, the Fed is ordered to cease all new issues of Federal Reserve notes; the same day, an emergency bill is sent to Congress, under provisions of Article I, creating several trillions of dollars of U.S. Treasury currency-notes for lending. The loans are issued through a newly created (by act of Congress) National Bank, modelled upon the Washington-Hamilton Bank of the United States. Loans are issued, at between 1% and 2% per annum, in the mode of construction progress-payment tranches, to worthy infrastructure projects operating under authority of emergency legislation, to vendors to those projects, and to other designated high-priority purposes. Success is counted in the number of new productive work-places filled, and in the ration of both the unemployed and the uselessly employed (such as financial-house employees) transferred into productive work-places.

During the same 48 hours the U.S. government is launching those recovery measures at home, the President of the U.S.A. invites the heads of responsible and willing nation-states to appear in Washington, D.C. for emergency sessions establishing both 1) a new international monetary order, replacing the IMF, and 2) guidelines for a new set of bilateral and multilateral tariff and trade agreements; a set of protectionist financial, monetary, and economic agreements reflecting the common vital interests of sovereign nation-states engaged in a general recovery-effort.

One concluding observation is to be added here, before turning to address directly the three questions posed at the outset.

The key to understanding the causes for the imminent disintegration of the present global monetary and financial system--the IMF system--is to recognize the crucial difference between a financial system and a real economy upon which a financial system is superimposed. For that reason, the solution to the problems of economic analysis, which we are next to consider here, depends upon recognizing several considerations which are axiomatic preconditions for competence in economic science. Several among those axiomatic matters are treated in their appropriate place, below; one must be considered at this juncture.

The systems of money, financial accounting, and John Von Neumann's ``systems analysis''(26) are each and all linear systems. They can represent only those kinds of relations which are themselves approximately of a linear form. Using the language of the undergraduate thermodynamics classroom, they can represent only systems which are either actually entropic, or virtually so.

Contrast, the rise of the human population from the several millions maximum possible for a variety of higher ape: to several hundred millions by the mid-Fourteenth Century, and to more than 5 billions presently. This is the result of willful forms of cultural changes, improvements in demographic characteristics of households and productivity per capita, changes brought about through the discovery of new scientific and related types of principles, a kind of creative-mental behavior which exists only in the member of the human species. This latter set of facts demonstrates, that human behavior is intrinsically not-entropic, neither linear, nor simply ``non-linear.''(27)

Thus, the monetary-financial system of accounting is a linear system, which cannot map the characteristic events of the not-entropic process which a physical economy represents. The two systems are axiomatically mutually exclusive, with the qualification that a non-entropic system can always represent a linear one, but a linear one can never represent a not-entropic, or even a merely non-linear one. The irony of the matter is, that during the past 500 years of (globally-extended) modern European civilization, the system of agro-industrial economy which dominated the world from the early Eighteenth Century, through the time of President John F. Kennedy's assassination, has been a system based upon the mutual interaction of two axiomatically distinct processes, the financial system and the economic process.

For economic analysis, this difference signifies that all of the real profit (sometimes termed the ``macroeconomic profit'') of the real economy, the physical economy, is generated through creative (not-entropic) impulses such as technological progress from within the real economy. The financial system as such can generate no such profit; it can merely appropriate wealth from the real economy. This poses the special situation, in which the real economy generates no ``macroeconomic profit,'' or is even operating at a physical-economic loss, in which the financial system appears to be enjoying a high degree of profitability, if but temporarily. This anomalous discrepancy between real and financial profit is sometimes termed ``primitive accumulation'': the looting of the real economy, and nature itself: a purely parasitical role of the monetary and financial system.

Until 1963, the two interacting, axiomatically-distinct processes interacted in a kind of symbiosis: Within the industrialized nations, finance, usually, contented itself to taking no more than a share of the ``macroeconomic'' profit generated by the agro-industrial economic process as a whole. The introduction of the cult of ``post-industrial society,'' together with the degeneration of Bretton Woods into a parasitical form of ``floating exchange-rate'' monetary system, broke the symbiosis: Finance was transformed from a relatively benign, to a malignant form of financial ``cancer.''


1. A collapse best described by the same sets of equations used to describe a chemical or nuclear explosion. (back to text)

2. See Maurice Allais, Le Figaro: April 26, May 9, June 1, and Nov. 15-16, 1994. Allais also has the special distinction, of being the only sane person yet to receive the Nobel Prize for Economics.(back to text)

3. See Barbara Tuchman, A Distant Mirror: The Calamitous Fourteenth Century (New York: Alfred A. Knopf, 1978); also, Miriam Beard, A History of The Businessman (New York: MacMillan, 1938). Over the hundred years preceding that collapse of the ``Lombard'' debt-bubble, since the A.D. 1250 death of the Holy Roman Emperor Frederick II, Europe had been gripped by the rise of a Venice-controlled ``Black Guelph'' faction, and the effects of the invasion of Venice's ally, Genghis Khan's Mongols, from the east. By the time of the death of the anti-``Black Guelph'' political leader, Dante Alighieri, all western Europe lay prostrate under the heel of Venice's ``Black Guelph'' agents, notably the ultra-usurious Lombard bankers--the, so to speak, Paul A. Volckers of their time. Miss Beard properly highlights the case of two of these swindlers, known by their French cognomens, ``Biche'' and ``Mouche.'' Among the more disgusting cases of belated resistance to Venetian usury was England, which had been virtually a ``suburban development project'' of Venice's bankers since the relevant capitulations of comprador-kings Edward II and Edward III. Then, mid-century, came the time that the King of England, like the voters of Orange County, California more recently, repudiated England's debts to the Lombard House of Bardi, Biche's and Mouche's employer, and the entire banking system of Europe went promptly belly-up, in a chain-reaction of Fourteenth-Century ``reversed financial leverage.''(back to text)

4. I.e., per capita of total available labor-force.(back to text)

5. For example, to maintain the net rate of growth of physical productivity (per capita of total available labor-force, per family household, and per square kilometer of relevant land-area) at circa 1963 levels, approximately 5% of the total labor-force must be employed in functions of physical science and engineering. This references the comparison of three bench-mark, developed economies (the U.S.A., Germany, and Japan) for the interval 1967-70. If the level of employment for technological progress, and in related machine-tool sector categories, drops below that ration, the economy will suffer an entropic physical-economic net decline.(back to text)

6. Do not overlook a crucial point implied here. What does society do with the ``free energy'' margin? A sane society reinvests most of it not only for expanding the economy in scale, but also in increasing the relative content of the energy-of-the-system, per capita, per household, and per square kilometer. Thus, the capital-intensity and power-density requirements of a ``sustainable'' economic process are continually increased. To maintain a ``constant'' minimum ratio of ``free energy'' to ``energy of the system'' over successive epochs of the process, requires a corresponding increase in the physical margin of output available for investment. This latter constraint is satisfiable by no other means than advances in productive and related technologies. The same challenge is presented by the apparent relative finiteness of what an existing level of technology regards as required natural resources; this constraint can be overcome solely through the same means: advances in productive and related technologies.(back to text)

7. The system is actually ``not-entropic,'' not merely in the symbolic, but the strictly physical sense. ``Not-entropy'' is employed here in a sense distinct from Prof. Norbert Wiener's silly derivation of his term ``negentropy'' from Ludwig Boltzmann's H-theorem (Norbert Wiener, Cybernetics [New York: John Wiley & Sons, 1948]; see Morris Levitt, ``Linearity and Entropy: Ludwig Boltzmann and the Second Law of Thermodynamics,'' Fusion Energy Newsletter, September 1976, pp. 3-18). The measure of the not-entropy of a system is implicitly supplied by the mathematician Georg Cantor (n.b., Beiträge zur Begründung der Mannigfaltigkeitslehre, in Georg Cantor: Gesammelte Abhandlungen mathematischen und philosophischen Inhalts [Berlin-Heidelberg: Springer-Verlag, 1990], pp. 282-356). The mathematical representation of the relative not-entropy of a physical process is effected through a comparative study of a increase in the relative cardinalities of two crucially distinct successive states of a system: e.g., the implicit increase of the density of implicitly enumerable mathematical discontinuities per arbitrarily chosen interval of action of the process. The cause for a ``sustainable'' increase in the productive powers of labor, in a physical economy, is the realized increase in those forms of knowledge (i.e., cumulative discoveries of valid principle) which produce the effect of technological progress. This function for ``not-entropy'' was discovered by the present writer during the course of a project (1948-52), prompted by a determination to expose the fraud of Wiener's fraudulent claim to represent human knowledge by the mechanical means of statistical ``information theory.'' The present writer employed Cantor's work to illuminate certain deeper implications of Bernhard Riemann's 1854 habilitation dissertation, ``On The Hypotheses Which Underlie Geometry,'' (über die Hypothesen, welche der Geometrie zu Grunde liegen, in Bernhard Riemann's Gesammelte Mathematische Werke, Heinrich Weber, editor [New York: Dover Publications, Inc., 1953], pp. 272-287). Hence, the application of Riemann's work to solve the problem of adequate representation of the function earlier defined by this writer, became known by the seemingly anomalous, but descriptively accurate ``LaRouche-Riemann Method.''(back to text)

8. See Christopher White, ``NAM's `Renaissance' of U.S. Industry: It Never Happened,'' EIR, April 14, 1995.(back to text)

9. Ibid. See, also, Christopher White, ``LaRouche's Ninth Economic Forecast--One Year Later,'' EIR, July 7, 1995.(back to text)

10. On massive fraud in official economic-growth reports and quarterly forecasts by the Federal Reserve System and U.S. Department of Labor, see Lyndon H. LaRouche, Jr.'s Democratic presidential-nomination campaign TV address of Feb. 4, 1984: ``Stopping the Worldwide Economic Collapse,'' published by The LaRouche Democratic Campaign in A Program For America, 1985.(back to text)

11. The two most exemplary of influential events of 1964, are the publishing of Robert Theobald's The Triple Revolution and the staging of the imported ``Beatles'' on CBS's ``Ed Sullivan Show.'' That book was, together with Rachel Carson's fraudulent Silent Spring (New York: Houghton Mifflin, 1962), the opening salvo in the effort to launch a mass-based anti-technology movement under the rubric of ``post-industrial society.'' (As Environmental Protection Agency head William Ruckelshaus admitted, in ordering the virtual banning of DDT, his decision to capitulate to Rachel Carson's dupes on this issue, was a political decision, in defiant disregard of the scientific evidence supplied to his committee.) The Triple Revolution was a Ford Foundation-lubricated product of Bertrand Russell crony Robert M. Hutchins's Center for the Study of Democratic Institutions. What is recognized as the ``rock'' cult-fad spread since that 1964 appearance of the Beatles, was a joint creation of satan-cultist Aleister Crowley's followers and the ``wise guy'' financier interests of the recording and concert mafia. Even a decade and a half earlier than 1964, through his fight against the irrationalist cult-dogma of ``information theory,'' this writer was already familiar with the establishment circles who played a key role in steering the anti-civilization cultural-paradigm shift of the 1960s and 1970s. In Boston, this featured Air Force- and RAND-funded projects at MIT's RLE; in the New York City Metropolitan area, this circle of plotters was typified by a series of seminars convened under the sponsorship of the Josiah Macy, Jr. Foundation. The latter included prominent associates of MK-Ultra's Gregory Bateson, and his sometime-wife, Dame Margaret Mead. See Dope, Inc. (Washington, D.C.: Executive Intelligence Review, 1992) for the links among MK-Ultra, et al., and the circles which organized the mid-1960s mass-distribution of LSD-25 to university campuses around the U.S.A. Margaret Mead and MK-Ultra's Gregory Bateson, for example, were associates of Bertrand Russell and Robert M. Hutchins, in the 1938 launching, at the University of Pennsylvania, of the Unification of the Sciences project, one of the principal anti-science feeder conduits into the post-World War II launching of the ``New Age'' counterculture.(back to text)

12. See the London Tavistock Institute's ``Rapaport report'' on the effects of the U.S. space program.(back to text)

13. Anticipating U.S. Secretary of State Henry A. Kissinger's overtly genocidal policy-outline of 1974, National Security Study Memorandum-200: Implications of Worldwide Population Growth for U.S. Security and Overseas Interests, Dec. 10, 1974 (unpublished: available in the National Archives, Washington, D.C.).(back to text)

14. See ``Rubbers Goes to Congress,'' pp. 186-213 of Webster G. Tarpley and Anton Chaitkin, George Bush: The Unauthorized Biography (Washington, D.C.: Executive Intelligence Review, 1992).(back to text)

15. Cf. Zbigniew Brzezinski, Between Two Ages: America's Role in the Technetronic Era, Prepared Under the Auspices of the Research Institute on Communist Affairs, Columbia University (New York: Viking Press, 1970).(back to text)

16. See Lord William Rees-Mogg, ``Dogmatic Without Dogma: Many of the New Forms of Religion Are Breaking Away from Hierarchies in the Search for Authenticity,'' London Times, July 13, 1995. Rees-Mogg is a devotee of Alvin Toffler's ``Third Wave,'' and a leading backer of U.S. House of Representatives Speaker Newt(on) Gingrich. He is also a vilely hateful enemy, together with Conrad Black's London Telegraph, and the American Spectator, of U.S. President Bill Clinton.(back to text)

17. Lord Rees-Mogg has proposed that 95% of the population should receive no education at all. He has proposed that the educated 5%, creating Alvin Toffler's ``information'' in isolated places, such as perhaps the islands of the English Channel, will supply the future world all the needed wealth of a global ``Third Wave'' utopia.(back to text)

18. There is a continuing, hysterically lying effort from high-level mass news-media and other circles, to deny the conclusive evidence, that former U.S. Secretary of State Henry Kissinger has been, officially, an agent of influence of the British foreign-intelligence service during more than 50 years to date, since early days in Wilton Park training, at Harvard. See Henry A. Kissinger, ``Reflections on a Partnership: British and American Attitudes to Postwar Foreign Policy,'' official transcript of his keynote address delivered on the occasion of the 200th anniversary of the founding of the British foreign service by Jeremy Bentham, delivered at Chatham House (Royal Institute for International Affairs), May 10, 1982 (Washington, D.C.: Center for Strategic and International Studies, 1982): ``In my White House incarnation then [1969-77], I kept the British Foreign Office better informed and more closely engaged than I did the American State Department....'' The Harvard Wilton Park unit under British agent of influence William Yandell Elliot, Kissinger's trainer, is a subsidiary of British foreign intelligence's Chatham House. For an elaboration of the treasonous mind-set which Kissinger acquired at Harvard's Wilton Park unit, see Henry A. Kissinger, A World Restored: Metternich, Castlereagh and the Problems of Peace 1812-1822 (Boston: Houghton Mifflin, 1957).(back to text)

19. In Britain, naturally.(back to text)

20. Cf. Maurice Allais, loc. cit.(back to text)

21. In 1990, former Japan Finance Minister Tomichi Hashimoto (currently trade minister) described as ``financial AIDS'' the policies which President Bush and Mrs. Thatcher were urging, not only for Japan, but for all Asian countries. On June 19, 1995, a Japan source informed Executive Intelligence Review News Service, Inc., that ``seeking a cure for `financial AIDS' was on the agenda in June 18-19 talks between Japan Prime Minister Tomiichi Murayama and his cabinet, and President Jacques Chirac and European Union officials.''(back to text)

22. Nicholas Rashevsky, Mathematical Biophysics (Chicago: University of Chicago, 1938). The featuring of this usage of ``financial cancer'' by my friend Jacques Cheminade, in his 1995 campaign for election as President of France, caused an epoch-making outburst of lunacy from leading Paris media.(back to text)

23. John Von Neumann and Oskar Morgenstern, The Theory of Games and Economic Behavior, 3rd edition (Princeton, N.J.: Princeton University Press, 1953).(back to text)

24. So-called ``chaos theory'' is a fanciful piece of pseudoscience-fiction derived from a misunderstanding of the flawed work on infinite series by Newton, Newton-devotees Leonhard Euler, Augustin Cauchy, et al. Starting from adoption of Newton's famous Latin motto, ``et Hypotheses non fingo,'' the remarkable assumption is made, that the mathematical discontinuity axiomatically inhering in the inconsistency among mutually-exclusive mathematical-physical theorem-lattices can be bridged ``at infinity.'' Thus, did Cauchy set out to circumcise Leibniz's calculus, and, in his blundering enthusiasm, castrated it, instead.(back to text)

25. See Paul Gallagher, ``How New York's Slumlords Created a Financial Bubble,'' New Federalist, Feb. 13, 1995.(back to text)

26. Von Neumann, op. cit. More descriptive than ``systems analysis,'' is the term which Von Neumann himself employed in introducing his economics, during the late 1930s: systems of simultaneous linear inequalities.(back to text)

27. Too frequently, a streak of scientific illiteracy found even among ostensibly educated professionals, confuses ``not-entropic'' with ``non-linear.'' As noted earlier here, those physical processes, including physical economies, which are not-entropic, can be represented mathematically only in the manner suggested by Cantor's theorem on the enumerability of the density of mathematical discontinuities within an arbitarily selected interval of action. The advances in technology, as in culture generally, which render one culture superior to another, reflect cumulative, valid discoveries (e.g., mathematical discontinuities in previously established theorem-lattices)--in physical science and in Classical forms of culture--which constitute increases in the number of historically accumulated discontinuities transmitted to an interval of thought-directed practice of today's member of society. Those who blunder into using ``non-linear'' to signify ``not-entropic,'' thus show themselves illiterate respecting the dominant, continuing issue of scientific method throughout the present century: the conflict between Leopold Kronecker, James Clerk Maxwell, and Rayleigh, on the one side, and Carl F. Gauss, Wilhelm Weber, Bernhard Riemann, Karl Weierstrass, and Georg Cantor, on the other.(back to text)





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The platform for the 1648 Peace of Westphalia was the principle of universal love.