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Founded in May 2011; More than 12,000 members worldwide.
Please see About section for more details about the blog.
This post continues the reading course on Charles Goodhart’s Evolution of Central Banks. Readers can enrol for an online version of this course via the registration link: https://portal.alnafi.com/enroll/735855?price_id=782356 Currently, this beta-test version of the course is being offered free in exchange for feedback on how to improve the course. The sequence of posts leading up to Chapter 4 is available from the online course linked above. The same sequence is also available in previous posts on this blog starting with Reading Course: Central Banking. So far we have covered the first two chapters, together with extensive commentaries. We now cover some preliminary materials required for understanding Chapter 3.
To understand Goodhart Ch3 Clearinghouse, it is useful to have a deeper understanding of how banks worked in 18th Century England. This is the era of gold money, and we all have a vague understanding the fractional reserve system. The banks issued credit far more than the gold supply they had. This was possible because the proportion of credit, in form of bank checks, which was actually converted into gold was small. This way of thinking about the matter – that some portion of a checking account held at the banks is backed by gold, while another portion is not backed – creates confusion. Clarity can be achieved by changing our ways of thinking about this system.
Alternative Model of Fractional Reserve Gold-Based Banking. We consider two separate monetary systems. One system is that of inter-bank transactions, and the other is the Bank-Depositor interface. It is helpful to begin with the simplifying assumption that all Depositor transactions are conducted purely by check. Everyone has an account at one or more of the banks. In each monetary transaction, the payer gives a check drawn on his account to the payee, who deposits it in her own account. Gold is not used by depositors at all.
To make the picture more concrete, assume there are ten banks labeled B0, B1, …, B9, and there are a 1000 Depositors labeled D1, D2, …, D1000. Each depositor has an account at one of the banks. During the course of the day, there are numerous financial transactions. Depositors buy goods or services from other depositors and write checks to them, which are deposited in their accounts. At the end of the day CLEARING takes place. Let us consider more carefully how this clearing takes place. First, there are internal checks. A depositor at B0 wrote a check to another depositor at B0. In this case, the bank B0 just changes the entries in the accounts of the two, reducing the deposits of one, and increasing the deposits of the other. This happens at each bank. Next, we consider the external checks. Each bank holds deposit checks which are payable by other banks. These checks are settled in gold, which is only used in inter-bank transactions. Each bank sends a runner to collect the gold it is owed from all other banks from which it has received checks. Of course, this process has a lot of duplications and cancellations. That is, suppose bank B0 has a check of GBP 100 drawn on B1, while B1 has a check of GBP 100 drawn on B0. Then the runner from B0 to B1 will get 100 pounds of Gold from B1 and bring it back B0. Later, the runner from B1 to B0 will pick up this same 100 pounds and bring it right back to B1. These runners have to do a huge amount of extra work. To illustrate this, consider an extreme case of symmetry. Suppose that depositors at Bank B0 write 10 checks of GBP 1000 each to each of the 10 banks B0, B1, … , B9. The internal check is cleared without any gold liability. There is GBP 900 in external checks and Bank B0 must pay 1000 pounds in gold to each of the other banks. But now suppose that EXACTLY the same picture holds at ALL of the other banks. Depositors at each bank have written checks of GBP 1000 to each of the ten banks. Runners at each bank will make 9 runs and collect 1000 pounds on each run from each of the other banks, and bring them back to their own bank. A total of 90 runs will be made each run will involve taking 1000 pounds of gold from one bank to the other. But at the end of the day, the gold balances at each bank will be exactly the same as they were at the beginning of the day. Note that this does not mean the runners can stay at home. Each transaction DOES involve changing the numbers in accounts of the depositors, and each transaction DOES make a difference in terms of the amount of money that depositors hold in their accounts. But there is no need for the runners to carry any gold. They just need to change the ledger entries in the accounts of the depositors. Substantial efficiency would result if the runners could just meet in a central place to adjust the account entries, and figure out the NET gold transfers required as a result of the sum of all the transactions, instead of doing each transaction separately. This is how the centralized clearinghouses emerged naturally, to create efficiency in transactions. With a central clearinghouse, 90 transactions can be replaced by 10 — one transaction for each bank. All we need to do is to figure out the NET position of each bank separately. Those with negative balance should pay the required balance of gold to the Central Clearinghouse while those with positive balance should receive the gold from the Central Clearinghouse. One transaction per bank is sufficient for clearing all the checks.
In later posts, we will cover how this model extends to situations where some depositors demand gold, and also how banks extend credit.
This is the first of three posts on the intellectual heritage of founding fathers of modern statistics Sir Roland Fisher, Sir Karl Pearson, and Sir Francis Galton. An uncomfortable fact, suppressed or diminished in Eurocentric accounts, is the deeply racist views of nearly all major European intellectuals. In particular, the founding fathers of modern statistics – Sir Francis Galton, Sir Karl Pearson, Sir Ronald Fisher, were all prominent Eugenicists. Statistics arose out of the attempt to establish central ideas of Eugenics about how genes of superior races were transmitted to their descendants and therefore there was no chance, genetically, to improve or educate the inferior (non-white races).
Statistics is presented as an objective and ethically neutral body of tools and techniques. However, it was developed for a very clear, evil, purpose. There are polar Views on Transmission of Knowledge:
The fundamental underlying question is: “Can the THOUGHTS be separated from the THINKER?”. The balanced position is that BOTH are necessary. We need to Look at the BODY of KNOWLEDGE being transmitted. Also look at the CHARACTER and the PURPOSE of the transmitter/creator of knowledge. In contrast, the Western Intellectual Tradition says: “Look at the SUBJECT MATTER ONLY”. As opposed to this, a popular strand of the EASTERN tradition says: “look at the AUTHORITY of the TRANSMITTER only.” In the West, the MEANING of the word “Probability” changed to reflect this transition – Initially, the word referred to the authority of the transmitter. Later the word was used to mean the weight of the evidence for the matter (see Ian Hacking: The Emergence of Probability).
The Western intellectual tradition defines knowledge as being purely objective, and excludes subjective and personal experiences from the realm of knowledge. This leads to a clear NO answer to the fundamental questions: “Do INTENTIONS of producers of knowledge matter?”, and “Does the CHARACTER of producers of knowledge matter?”. This is in dramatic contrast with Islamic views, according to which ‘Value of Actions Depends on Intentions’. It is easy to see that the nature of scientific knowledge produced depends on the intentions and purpose for which the knowledge is being produced. This topic is now known as the sociology of knowledge, and many simple examples can be given as a proof:
The strong drive for profits led to multi-million dollars for high yield varieties of wheat, but genetically modified to have terminating seeds. This is to enable corporations to sell the same seed year after year. If the intentions had been to feed the hungry, different types of technologies and seeds would have developed.
With this as preliminary, we consider the personalities and intentions of the some of the major founding fathers of modern statistics: Sir Francis Galton, Sir Karl Pearson, Sir Ronald Fisher. Today it has been discredited and forgotten, but Eugenics was EMINENT and RESPECTABLE field of knowledge, taught at universities, and with prominent and influential supporters in the early 20th Century. All three of these founding fathers were big names in Eugenics, and statistics was developed by them as a tool to support their Eugenicist views. Eugenics asserts the Racial Superiority of Whites and the inferiority of the other races. Even more, it asserts that the elite classes are genetically superior to the commoners. According the Eugenics, the only Path to Progress lies in the Extermination of Inferior Races (negative Eugenics), and Increasing Growth of the Superior Race (positive Eugenics). Another way to deal with the inferior races was “specialization” – give them roles to fulfill which would fit their limited genetically determined capabilities (for example, making slaves out of the Blacks to do menial chores not demanding intelligence). A brief sketch of the background which led to the emergence of Eugenics as a prominent field of “science” is given below
A convenient point to start is the question of “Why is their poverty?” and “How can we reduce it?”. It will surprise the reader to learn that these are NEW questions. Even though poverty is an age-old phenomena, the idea that this is a social problem which can be, and should be, remedied, is new. For details see An Islamic Approach to Inequality and Poverty. In pre-capitalist world, poverty was not seen as a social problem. Social responsibility, and the idea of a society as one body, where we must take care of each other, was sufficient to deal with problems of poverty. The emphasis on charity in Islamic teachings led to extraordinarily high levels of spending on the poor, especially via the WAQF, which created endowments to deal with different social problems. But similar patterns of charitable institutions for taking care of the poor are seen in all pre-modern societies.
The driver of major change in Europe was the Industrial Revolution which started in England in the 18th Century. The complex circumstances which created this change, and its effects on the transformation of economic, political, and social institutions, are described in The Great Transformation by Karl Polanyi (and many other books). Of relevance to our current discussion is the fact that industry requires a Labor Force – lives for rent and sale for money. In a capitalist society (like our society today), education is meant to CREATE mindsets suitable for labor force. This means training students to make the goal of life the pursuit of pleasure, power, and wealth. For this purpose, students are trained to pursue CAREER over other concerns like family, society, spiritual growth, or excellence in any human dimension. For more discussion of this fundamental problem with modern education, see Learn Who You Are!. Social change resulted from the chosen solution to the fundamental problem created by the Industrial Revolution: “How to create a labor market?”
The solution created by Europeans was deeply racist. We must believe in TWO classes of people: REAL human beings are capable of enjoying finer things of life. LOW level humans may LOOK like us, but they do not have rich inner lives – they cannot think and feel as deeply. They are closer to animals than to humans. Eugenics is based on the idea that the aristocratic elites have superior genes to the common masses. A little more historical detail is useful in understanding the emergence of these ideas.
A Tale of Two Cities by Charles Dickens opens with a scene where the carriage of a French aristocrat speeding through the crowded streets of Paris crushes a poor child. The aristocrat tosses a few coins to the bereaved mother, and continues on his way without further concern. The extreme inequality, and oppression of the poor by the elites led to the French Revolution, which changed the course of European history. As a consequence of the revolution, there was considerable debate about policies to help the poor, with a view to preventing a similar revolution in England. At this crucial juncture, the ideas of Malthus regarding the causes of, and solution to, the problem of poverty, had a dramatic impact on the policy debate. Humanitarian and compassionate solutions were replaced by cruel and harsh measures to punish the poor for their poverty. Malthus argued that poverty was due to a poor genetic endowment, and was inherited. The problem of poverty arose from the fact that the poor BREED faster than the rich. Thus, poverty is inherited, and being kind to poor, providing social services, is counterproductive. This will only increase the rate of growth of the population of the poor. INSTEAD – we should sterilize the poor, keep them in crowded conditions, encourage spread of disease among them, to keep their numbers low.
This theme became linked with emerging theories of evolution and Mendelian genetics. How much of our makeup comes from inheritance, and how much is due to the environment and education we receive? This is often called the Nature Versus Nurture DEBATE. The dominant and widely accepted point of view leaned heavily in favor of Nature (heredity) having an overwhelming effect. This means that superior races will remain superior, and it is not possible to educate the inferior races to bring them up to the standards of the white people. The inferior people can either be exterminated or enslaved. The Malthusian approach to poverty was strongly based on the “nature” point of view. That is, poverty was due to bad genes which led to poor character and intelligence, and their was nothing we could do to change this, in the form of education or other interventions.
The wrong theories of Malthus led to a dramatically wrong approach to poverty. Malthusian theory suggested that providing support to the poor would only increase poverty, since that would allow them to breed faster. Thus social support for the poor was made deliberately humiliating and degrading, to discourage all but the extremely needy to resort to the poor houses. These theories and policies stand in stark contrast to Islamic teachings which urge us to provide support to the poor without humiliating them in the process. Furthermore, Islam teaches us that every human life – whether poor or rich, black or white, Arab or other – is equally precious. Indeed each human life counts as heavily as all of humankind. There were similar humanitarian streams of thought in the European Christian heritage, but Malthusian views came to dominate policy.
Even though nearly all of the predictions of Malthus turned out to be wrong, his theories had tremendous impacts on thinking about population. As we will see in the next portion of this lecture, the founding fathers of modern statistics invented the subject, tools, and techniques, in an attempt to prove the theories of Malthus. Our main goal is to show that tools developed have been influenced by the underlying agenda, and are not neutral and objective. Malthus created his theories without a shred of empirical support, purely from his imagination. Since then, the theories of Malthus have been decisively proven wrong by the empirical evidence. The article, Malthus: the False Prophet, from the Economist, documents some of the major errors made by Malthus.
Despite numerous fallacies and failed forecasts, the ideas of Malthus continue to be exceedingly popular. WHY? The simple answer is that these theories are ALIGNED with class interests of the RICH. The POOR are to blame for their poverty. Furthermore, the rich have no responsibility to help the poor, because helping them only increases their breeding rate, leading to increased poverty, as well as increasing the stock of bad genes in human population. These deeply mistaken ideas, strongly in conflict with Islamic teachings, have had a deep and disastrous impact on human history, adding to misery of millions. They continue to guide thinking and policy of an influential minority of economists and politicians. In the next portion of this lecture, we look at the development of statistics as a tool of Eugenics, a field of study built on the foundational ideas of Malthus and Darwin.
The previous post (Three Mega-Events Which Shape Our Minds) explains the importance of history in shaping the world we live in. Historical events (facts) by themselves are not meaningful until they are linked together into a coherent narrative. The mortar which connects the facts must be supplied by our minds, and can never be asserted with certainty. The fact that we can never be certain about the narratives which connect and explain history has led to two polar mistakes. The positivist mistake is to renounce narratives, and focus solely on the facts. This makes it impossible to make sense of history, which deprives us of a rich storehouse of human experience. In effect, it means that we must start afresh every day, since the past makes no sense. The other extreme is the post-modern view that anything goes. Since we can never be certain, all narratives we create to connect and explain historical facts are equally valid. Neither of these extremes is correct. We cannot operate without narratives, because all of our actions are based on goals, and on judgments regarding the relative efficacy of different actions in achieving these goals. The only way to judge efficacy is in in the light of historical experience, interpreted according to some narrative. Even though we can never achieve certainty, some narratives are more, and others are less, plausible. In our lives, we routinely stake our lives on our guesses regarding the intentions of others, about which we can never be certain. As I drive across an intersection, I judge the intentions of the other driver to slow down and stop from the velocity of his car. Mistakes can lead to crashes and death, so there is a wrong and right narrative, even though I can never look into the heart of the driver to be certain that my guess is correct. Our lives are enmeshed in a social fabric constructed out of our guesses about the hearts and minds of others, based on barest hints given by external appearances and behaviors. We are evolutionary equipped to make good guesses in environments where radical uncertainty prevails.
Generally speaking, multiple narratives can be woven around the same set of historical events. As a result, the ‘facts’ by themselves are not of much help in assessing the relative plausibility of different narratives. However, studying the archaeology of knowledge is immensely helpful in this connection. Studying the evolution of ideas in the context of the struggles between classes leads to considerable clarity. This is why it is useful to study the history of Central Banking. It helps us to decide between three major narratives which are currently in vogue regarding our modern financial systems based on private banks and Central Banks.
The Free Market Narrative: According to this narrative, unregulated markets provide best economic results for society. Central Banks regulate private banks, restrict competition, and impose government policies on the macro economy. All of this interference with free markets must be harmful. This narrative looks for way to demonstrate the harms of Central Banks, and to show how removal of regulations and Central Banks would lead to superior financial outcomes.
It is hard to dispute this narrative (and most narratives) using facts, because we are comparing what is with what might have been. One can always fantasize that free markets would result in a better outcome. If we show historical examples of failure of free banking systems, proponents can always find some OTHER factor to blame for the failure and continue to uphold superiority of free banking. Instead, it is helpful to look at the historical origins of this narrative. When did people first start to talk about free markets, and to make efforts to remove regulations? The best source for this story is Karl Polanyi’s The Great Transformation: The Political and Economic Origins of Our Times. For a brief summary see Summary of the Great Transformation by Polanyi . In a nutshell, the industrial transformation led to the possibility of massive overproduction, but this was in conflict with traditional mindsets. The victory of the capitalists – industrialists was a victory of the idea of free markets over the traditional ideas of social responsibility which were in conflict with creation of a labor market based on purchase and sale of human labor and lives for money. Studying the history of the idea of free markets leads to the realization that these ideas are “true” only to the extent that they help to create and consolidate the power of the capitalists.
The Naturalist Narrative: Our financial system has its current shape due to natural evolution. Banking systems were created to meet emerging needs of markets and changes were made to fix problems that arose. As a result, the current system incorporates centuries of wisdom built into it through a natural evolutionary process of trial and error, and learning from mistakes. It would be unwise to tamper with it, to make radical changes to a time-tested and proves system, which continues to evolve in face of changing circumstances and emerging challenges.
This narrative is the closest to the line being taken by Charles Goodhart in his book, the Evolution of Central Banking. Goodhart seeks to counter the free market narrative by showing that Central Banks emerged in response to the needs of private banks, and serve an important function. Briefly, banks are forced to take larger and larger risks in unregulated free markets, leading to increasing probabilities of collapse. Therefore, it is essential for a Central Bank to regulate them, to mitigate this tendency and to bail them out whenever excessive competition leads to collapse (as happens regularly).
Unlike the free market narrative, the naturalist narrative does not directly claim any optimality properties for the existing systems. It just claims that this is a workable and time-tested system which has evolved to serve needs as they emerged, and has built-in fixes to problems that occurred over the centuries. It may be possible to fine tune it and make it better. There is widespread agreement and acknowledgement that the system is prone to repeated crises. The naturalist perspective says that we can make changes to try to prevent or reduce these crises and learn to live with what remains, to the best of our abilities. However, some of the most experienced voices who agree with the naturalist view, do not agree that the end-product of the evolutionary emergence of modern banking is good. Mervyn King, former governor of the Bank of England, writes that: “Of all the many ways of organising banking, the worst is the one we have today.” (See article in Positive Money). The Goodhart narrative, which we plan to study through his book, shows how the Central Banking system evolved in response to emerging challenges. To support the Mervyn King narrative, we need to look at other aspects of this evolution. In particular, we need to focus on the crises in the banking system, and attempts to regulate banking to prevent these crises. This is not the focus of Goodhart. It may be worth naming the Goodhart narrative as a Natural Evolution towards an adequate system – where adequacy is created by the need to survive. As opposed to this, the King narrative would be a Natural Evolution towards a disastrously crisis-prone system, which leads to inequity and injustice.
The Conspiracy Narrative: This narrative has been most ably crafted and recounted by Ellen Brown, whom I greatly admire. In this view, the system is not a natural product of evolutionary forces. Rather, a small group of beneficiaries have engineered the construction of the system to achieve the greatest advantage for themselves. The bankers achieve massive advantages by the ability to create money. They do so deceptively, concealing this creation, and pretending that it does not take place. The power to create money belongs naturally to the sovereign state, but the banks have conspired in many ways to take this power away from the state, and to arrogate it to themselves. Some of her key books are
Her work uncovers a lot of hidden historical details which are shocking and surprising, and support her point of view. She continues to study the evolving financial system, and uncover its deep and dark secrets. See for example, her recent article Meet BlackRock, The New Great Vampire Squid.
Personally, I believe the truth lies somewhere between a Natural Evolution towards a Disastrously Crisis Prone System, and the Conspiracy to Capture the Power of Money Creation. My own paper on The Battle for the Control of Money provides evidence in support of the conspiracy narrative. However, as indicated at the start, one can never be sure about the truth of narratives. Since we can rarely learn the truth about the hidden forces which drive history, it is useful to maintain a pluralistic perspective which allows for the possibility that different and conflicting narratives may be equally plausible.
What is the nature of the world in which I live? As I look around me, I see walls, windows, doors, and furniture. But these are insignificant parts of the world as constructed by my mind. I conceptualize the world through the teachings of history, according to which human history started in the remote past, with hunter-gatherers. I have a smattering of knowledge of the ancient civilizations of Sumeria and Babylon, and much more of the Roman Empire. The rise of Christianity, Islam, the Ottoman Empire, the Industrial Revolution in England. The NARRATIVE, or the stories woven around these events, and my own place – or that of my ancestors – within these events, shapes my identity, my allegiances, and also my hopes, visions and projects for the future. These narratives guide me about what is worth spending my life and efforts on. For my present purposes, the important thing to note is that all of this history comes to me via reading of accounts, or listening to oral presentations by teachers and scholars. I did not experience the two world wars, or Hiroshima and Nagasaki, or the “Era of Darkness” described by Shashi Tharoor, but these events are of major importance in my mental landscape.
History creates the world we live in, far more than the bricks and mortar of the buildings around us, and far more than the rivers, mountains, jungles and oceans that we see. But what is history, and where does this history come from? I was taught that history is just a sequence of facts about the world – dates and events – just one damn thing after another. However, this positivist and reductionist view is extremely harmful to our quest for understanding the world, and our own place in this world. Due to the influence of positivism, we confuse the NARRATIVE, or the story woven around the historical facts, with the facts themselves. This leads to the false belief that past history is engraved in stone and cannot be changed. While it is true that the events of history are fixed and cannot be changed, we can exercise considerable creative licence in terms of the stories we tell to explain these events. In particular, the stories told by the victors and vanquished are dramatically different, and listening to both sides gives us an idea of how much flexibility exists in interpreting the same events from multiple points of view.
When we see the narratives as FACTS then we are trapped by them, because we believe the historical facts to be unchangeable. Pluralism involves seeing that there are multiple narratives which respect the facts, so we can choose our truths and our past, to a certain extent. Below we describe three mega-events which have shaped the thoughts of everyone living on this planet. Today, the narratives which divide us are gaining strength. In order to learn the vital lesson that the common bonds of humanity we all share are far far stronger than the surface differences of race, religion, language, and regions, we must learn to recognize the divisive narratives and understand their historical origins and roots. This is the first step towards self-liberation.
Below, I replicate one of my posts which analyzes three mega-events which shape our thoughts, from the point of view of the colonized and the conquered. The original post, with links to related materials and context, is available from: The Islamic WorldView Blog.
To a much greater extent than we realize, the thoughts we think are shaped by the major tides of history. In the first place, colonization is a conquest of minds – millions of people cannot be ruled by thousands without giving their willing consent. To become a great teacher, we must first liberate ourselves from the low flying and carrion-eating crow-mentality that is created within our minds by our education. To do this, we must learn about three major historical events that have shaped the minds of all human beings living on the planet today. These are listed below, and their consequences are discussed further.
All of these three developments have had major impact on ways of thinking, always in conflict with Islamic values. As a first step, we must recognize the impact of these events within our own ways of thinking, and cleanse our own minds of the conflicts created by them. This involves a great deal of work. Some of the main points which need work are listed below.
Results of Colonization and Conquest: This created a superiority complex in the European-origin colonizers (see Orientalism) and a corresponding deep-seated inferiority complex in the colonized East. The need to justify the ruthless and brutal conquest, involving genocides of many races, complete destruction of many civilizations, enslavement of millions, and theft and exploitation of planetary resources belonging to all of humanity, on a mind-boggling scale, required the invention many “Myths of Eurocentric History“. To counter the inferiority complex, we need to re-learn history from the Islamic point of view. A key contribution and a starting place for this effort is Syed Abul Hassan Ali Nadwi’s landmark book on “What the World Lost Due to the Decline of the Islamic Civilization.” Restoring self-confidence destroyed by our defeats and domination by others requires work on many dimensions. One is to learn about the “Theft of History” how Europeans stole inventions of other civilizations and claimed them for their own. For instance, “Islamic Origins of Science” shows how Copernicus was just a translator, and not a revolutionary.
European Transition to Secular Modernity: The standard story which is told about this is that, for the first time in human history, Europeans learned to reason. In the light of their superior knowledge, they rejected the superstitions of Christianity, and made tremendous strides in all fields of knowledge as a result. Their tremendous power and glory is due to the new was of thinking, acting, and being that they have invented over the past three centuries. This story is strongly in conflict with Islamic teachings, but is widely believed by Muslims today, because a Western education teaches us to believe in this story. In order to re-learn Islamic teachings, we need to take several commonly used words, and UNLEARN the meanings which we have been taught. For example, the idea the Development means getting more wealth (GNP) is correct only for those who thing the robbing the entire planet by brute force is development. Islam, on the other hand, defines development as the development of human character and capabilities. Similarly, knowledge is defined as that which can help us acquire wealth and power, corresponding to a civilization based on colonization and conquest. Islamic knowledge teaches us how human beings can realize their hidden potential to become the best of the creations. The West defines prosperity as possession of wealth and power, while Islam defines it as excellence in conduct. Unlearning Western lessons and relearning Islamic ones is essential to follow the pathways and methods of the Greatest Teacher of All Time: Our Prophet Mohammad SAW.
The Great Transformation to Market Society: Today, we are at the bottom of the pyramid. Our thoughts are shaped in whatever direction the education we receive shapes us. We accept without question any knowledge coming from the West. To learn to soar above like the eagles, we need to look at where this knowledge is coming from. What are the forces that shaped the minds of the Europeans, and led them to the creation of the types of knowledge that we study in our schools, colleges, and universities? Why did our Muslim ancestors not invent this type of knowledge? To learn the answers to this question, we have to look at how the great tides of global history have shaped the lives and thoughts of mankind. At the root of the answers to these questions is the industrial revolution in England, which created the capacity for massive overproduction. This capacity was developed by other cultures, in other times and places as well, but this did not have any consequence, because over-production is useless in a self-sufficient society – what will we do with goods far in excess of those needed by the society? Through a sequence of peculiar and unique events in England, the emerging market society managed to launch a revolution, which destroyed traditional society, and created the modern world. For more details about this, see the Great Transformation in European Thought.
Postscript: This is part of a sequence of posts about “How to Become a Great Teacher”. The next post in the sequence is GT5: Reshaping Lives: Identity and Purpose: A great teacher reshapes lives of students by changing their goals and thereby their identities.
Ten years after the 2008 global financial crisis, the commodification of health, the spread of fiscal austerity programmes, deep social marginalization and climate change challenges revealed that health issues are “vital matters” that economists should address. Moreover, the outcomes of the coronavirus crisis call for a reflection on the contemporary threatens related to individual freedom, control on individuals and insecurity in social interrelations.
Indeed, it has long seemed to me the need to call for reflection and action upon what is ethical in our behavior in the world and the role of ethics in economics education.
In a recent piece titled “How Should Colleges Prepare for a Post-Pandemic World”, published in The Chronicle of Higher Education (https://www.chronicle.com/article/How-Should-Colleges-Prepare/248507), Brian Rosemberg wrote: If one were to invent a crisis uniquely and diabolically designed to undermine the foundations of traditional colleges and universities, it might look very much like the current global pandemic.
In the same line of thought, Frank Bruni, in his piece “The End of College as We Knew It” (https://tinyurl.com/ybha8mhb), said: Colleges and universities are in trouble — serious trouble. They’re agonizing over whether they can safely welcome students back to campus in the fall or must try to replicate the educational experience imperfectly online. They’re confronting sharply reduced revenue, severe budget cuts, warfare between administrators and faculty, and even lawsuits from students who want refunds for a derailed spring semester. And a devastated economy leaves their very missions and identities in limbo, all but guaranteeing that more students will approach higher education in a brutally practical fashion, as an on-ramp to employment and nothing more.
The actual learning scenario reveals that rational behaviour is now required of everyone in all areas of social life. As Max Weber explained, modernity in education has been a process and result of the rationalization of society. Indeed, “rationalization” has been a key feature of the reorganization of social interactions. In the context of neoliberalism, this process involved the adoption of efficient business practices. While short-term portfolio decisions predominate in the free markets, the provision of basic services of health, education, energy, water, among others, has increasingly relied on a diversified set of arrangements among governments, corporations, non-governmental organizations and communities.
In the Great Transformation, Karl Polanyi highlighted the critique of the liberal myth and the challenges to social justice, showing that the dehumanization of capitalism is a result of the particular institutional set up of the market society. Taking into account the historical analysis of capitalism enhanced by Polanyi, we can say that contemporary institutions adjust perfectly to the principles of instrumental rationality in society.
Nowadays, calculation and control are fundamental conditions for the rationality of bureaucracy that overwhelms the advancement of knowledge.
In short, the social, cultural and political challenges of this pandemic require a re-grounding of economics in ethics.
Any ethically defensible approach to economics as a social science that address “vital matters” should look for universal ethical principles that might guide life in contemporary societies beyond effectiveness.
RG10: Previous post in this sequence is RG9 Who Should Create Money? In this post, we pause to explain the process of money creation by private banks, and the role of Central Banks in enabling and facilitating this money creation. This is necessary in order to understand the history of Central Banking, which we are studying in Goodhart’s book. The standard explanation of this process found in textbooks is false and misleading, and creates many widely believed myths. The following 1m video provides the standard FALSE explanation of how banks create money. It is useful to understand the MYTHS of money creation, encapsulated in this video, in order to explain why they are wrong.
First Myth – Misunderstanding how fractional reserve works: The bank is required to keep 10% of the money you deposit somewhere safe, and is allowed to lend 90% of it out to other customers.
This is a massive misunderstanding of modern money, perhaps based on the idea of money as gold. Cash is now a very small part of money in circulation, most of which exists only as electronic entries in computer ledgers. To understand what happens when John deposits $1000 in form of cash – which is different from the deposit of a check – in his Bank ABC. it is useful to separate this into two different transactions. There is a Cash Kitty of the bank ABC, to which $1000 is added. At the same time, separately, an electronic entry is made in John’s account for $1000. If John deposits a check, then only an electronic entry is made, and there is no change in the Cash Kitty of the Bank ABC.
Second Myth: Bank is a Financial Intermediary – it takes money from depositors in order to give loans. Suppose that after John walks out of the bank, Mike comes in and asks for a loan of $1 Million. The bank will not go and look at its cash kitty to see if there is sufficient money to grant Mike a loan of $1 Million. Instead, it will assess the credit-worthiness of Mike and ensure that he has sufficent collateral — assets worth more than a $1 Million. It will take a pledge from Mike to repay $1M plus interest one year from now, backed by the collateral, to be seized in case Mike does not pay.
Bank ABC will open an account with keystroke entry of $1 Million. This $ 1M comes into existence when Bank ABC gives Mike a loan. This $1 Million is NOT taken out of depositors money – it is create ex nihilo – out of thin air. Now suppose Mike writes checks on his account so that, at the end of the day, Bank ABC must pay $1 M to other banks, where these checks have been deposited. Where will Bank ABC get the money it owes, which it created out of thin air?
The Role of Central Banks: Bank ABC will now BORROW over-night, funds required to cover what it owes. There are two markets where such borrowing is done. One is the Interbank Market – it can borrow keystroke money from any bank having an excess. Banks having an excess are only too happy to lend it overnight and make a profit. However, if liquidity is tight and no one has excess reserves to lend, the Central Bank is the lender of th last resort. It is legally obligated to loan ABC HOWEVER MUCH money Bank ABC wants, in return for good collateral. Here the collateral Bank ABC will offer to the Central Bank is the PLEDGE of Mike to repay the loan, backed by his assets worth $1M.
Maturity Transformation: Converting a one-year loan to a sequence of 365 overnight loans,. Both interbank borrowing and borrowing from the Central Bank are done at nearly the monetary policy rate, while commercial loans are significantly higher, at least by 2% or more. This means that if Bank ABC has to borrow this $1M overnite every night for the whole year, it will still make a profit when Mike pays back his loan with interest. For more details about this, see Monetization, Maturity Tranformation, and MMT
Overnight Clearinghouse: Generally speaking, Bank ABC will not need to borrow the $1 M every night. In the banking system, all the banks are creating money by making loans. At the end of the day, overnight clearing takes place. All of the checks written on all of the banks are cross-checked and balanced. Bank ABC loaned $1 M and may lose $1 M to other banks. However, it will also receive as deposits from money created by other banks, which are deposited into accounts at Bank ABC. Banks with more inflows than outflows will have excess (keystroke) money, which they will be happy to lend in the overnight inter-bank market to those banks which have excess outflows and less inflows. When banks as a whole fall short of funds, perhaps to due to withdrawals of money from the banking system, the Central Bank is the lender of the last resort, and will lend to cover any such shortfalls.
Monetary Consequences: The explanation given in the video, is also commonly used in textbooks. This suggests that if the reserve requirement is 10%, and there is $1000 of cash (called High Powered Money or HPM) in the system, then a maximum of $10,000 worth of money can be created. This is the myth of the money multiplier. It leads to the belief that Central Banks can CONTROL the amount of money in the system. However, since Central Banks are OBLIGATED by law to lend reserves to any Bank ABC which has suitable collateral, there is no restriction on the power of money creation by private banks. When Central Banks attempted to implement Friedman’s rule to keep monetary growth at a fixed rate of 6%, they found that they could not do so. The quantity of money was not subject to their control. It was after this failure that Banks shifted to using the overnight discount rate as the principal instrument of monetary policy decision.
In this post, we will cover the remaining portion of Goodhart Ch2 Case for Free Banking It is worth noting that this chapter is a theoretical preliminary, and not part of the historical analysis which is the main strength of this book. The Central Question of importance, to which no solution is known currently, is the following: Who should create money, and what should be the rules or guidelines for the creation of money? It should be obvious that the power to create money creates enormous benefits for the creator. The free banking debate takes the view that Central Banks are unnecessary government intervention which create a harmful monopoly over the power of money creation. The opposite point of view is that Central Banks are a conspiracy to benefit commercial banks at the expense of the government and the public. The historical evidence is more supportive of the second view. Competition among private banks is harmful to the banks, because to compete, they keep taking increasingly risky positions. The private interests of banks individually are opposed to the collective interests of the banking system as a whole. Thus, Central Banks evolved naturally out of the essential need to regulate private banking, in order to create some stability in a system which is inherently fragile and unstable under competitive forces. After this overall summery, we discuss the second part of Chapter 2, entitled “The Inherent Inflationary Tendencies of the Central Bank”. This completes our discussion of Chapter 2, and we will go on to Chapter 3 next week.
Theoretical Position: Central Banks will take advantage of this power to create large amounts of money, leading to inflation, and destroying the value of currency, causing massive damage to the economy.
Empirical Support: Several Historical episodes where convertibility of Central Bank issued notes to gold was suspended. This suspension indicates that Central Banks issued too many notes, and did not have sufficient gold to be able to provide backing for them.
Question: What is the alternative? Should private banks be allowed to create money? Another way to put the question is: What should be “legal tender”, money that is backed by the law?
Answer: Bagehot argues that if a bank is allowed to issue money freely, it will do so without restraint. However, the Bank of England had this power, and did not do so. WHY? Bagehot thinks that this is because the Board of Directors consisted of un-imaginative merchants, who were unaware of the possibilities open to them. However, Santoni argues that private sector directors were creditors, who had direct interests in maintaining the value of the currency. It was the government’s desire for funds which created inflationary pressures, which would be resisted by private sector directors of the Central Bank.
What does “Legal Tender” Signify? Goodhart makes the point that historically, currencies were designated legal tender in times that they were weak – there was insufficient gold backing, so the government had to step in with a legal protection for acceptance of the currency as payment. Historically, this status has occasionally been given to private currencies issued by banks. The point being made is that governmental legislation and decree is only a small part of what makes money valuable, and other factors, not considered in the debate, matter a lot for money creation.
The Free Marketeers ideological position: Hayek’s claim that “practically all governments of history have used their exclusive power to issue money in order to defraud and plunder the people”. Is this really true? Historical evidence does not provide any clear examples, where governments used power of money creation against the public interest. Ellen Brown has argued that free marketeers make this argument in order to take control of money creation away from the government, in order to use it for private benefits of the financial sector. For a more detailed discussion of this point of view, see “The Battle for the Control of Money”.
So what is the solution to this ALLEGED tendency of Central Banks to over-issue currency and thereby cause inflation? Free Marketeers argue that “competition” is the answer. One form of competition is with foreign currencies. If one Central Bank is irresponsible, the currency will be devalued and people will switch to more sound foreign currencies. Hayek did not consider this as a sufficient check on the power of money creation by Central Banks. Therefore he proposed a more radical alternative. Authorize private sector banks to issue money, and let them compete freely in the market for creation of money. However, there are many problems with this theoretical idea – the idea that the private sector would create sound money to maintain credibility is contradicted by the historical evidence. Private sector maintains appearances of credibility while doing extremely unsound and dangerous financial practices because they have inside information, and they are too big to fail. Realizing that there is no hope of creating private currencies, free marketeers have proposed to index money to a basked of commodities, in order to prevent inflationary tendencies. This is meant to replace the Gold Standard, which was a means to keep the currency anchored to a real resource, and thereby to prevent excessive issuance of currency. However, none of the commodity backed proposals have found much acceptability, and so this does not seem to be a viable approach.
Whereas the line of attack under discussion above says that Central Banks have inflationary tendencies and issue too much currency, there is another line of attack from the opposite direction. According to this line, Central Banks are too conservation and issue too little money, causing harm to the domestic economy. This is especially popular after the Keynesian critique of balanced budgets.
Resolution: The empirical evidence on this issue is quite clear. The central claim of the free bankers is that forces of competition would cause private banks to behave responsibly and not create excessive credit. Historical experience of more than 300 monetary and banking crises following the Reagan-Thatcher era of financial de-regulation proves conclusively that this is not the case. Given the power to create money without strict regulation, the shadow banking industry continues to create trillions of dollars of credit leading to extreme financial fragility.
The basis of this discussion is the question of how Central Banks should create money? Should they use their own discretion, or should they follow rules? Again, the empirical evidence on this question is very clear. The experience of rule-based monetary policy has been very bad. Central Banks were unable to control the money supply in accordance with the rules, and following rules limits the ability of Central Banks to take steps to help the domestic economy.
The reason for dis-satisfaction with Central Bank management of money supply arises from the fact that there are many different parties, with different interests. Managing money in any way will help some parties and hurt others, so there is bound to be dis-satisfaction. A brief summary of the conflicts of interest which surround monetary policy is given below, to provide some background for the remaining chapters of the book.
Some Background Information: The process of money creation affects everyone in the economy, but different parties have different interests. In general creditors would like to see stable currency and prevent inflation, while debtors would like to see easy money and inflation, so that the loans they have to pay would be cheaper to pay back. In general, creditors have power, and therefore keep the currency creation in check, to prevent inflation. Apart from this broad perspective, there are institutions and sectors with conflicting interests. The Government, which always needs money to finance projects and would like to see easy money creation. The Treasury must provide revenue to the government via taxation, and borrow money from Central Bank and/or private or foreign sources, to finance government operations. Although it is part of the government, it is interested in keeping spending in check, and raising taxes, both of which are in conflict with objectives of popular governments. The Central Bank, charged with the responsibility of money creation, has responsibility to preserve the value of the currency, and to regulate private banks. It is important to note that the interests of the Treasury and the Central Bank are not aligned. The Treasury, or Finance Ministry, would like to freely borrow from the Central Bank to finance the budget. The Central Bank would like to restrict lending in order to keep money supply in check, to control inflation. Then there are the private commercial banks and the financial sector of the economy. These are the creditors who have interest in keeping inflation low. A tight monetary policy suits them, as it makes it easier to sell credit. On the other hand, private real sector businesses would like to see easy credit, to cheaply borrow and invest. Then, there is the general public, which would like stability of money and prosperity, in the form of jobs created by easy money. In addition to all these conflicting interests, there are powerful effects on international trade. An easy monetary policy would lead to devaluation, making imports expensive and exports cheaper. Conversely, keeping the exchange rate stable might lead to a tight monetary policy harmful to the domestic economy.
NEXT POST: RG10 – Some Myths About Money
8th Reader’s Guide continues our study of Chapter 2 of Goodhart’s “Evolution of Central Banks”. Previous post: RG7: Central Banks: Monopoly or Public Service?
Goodhart cites in detail several arguments made by Bagehot (pronounce Badge-it) in favor of a free banking system without a Central Bank. After listing them, he notes that Bagehot is “engagingly naïve”, as a gentle critique. It is astonishing that a hard-nosed practical financial analyst like Bagehot would indulge in such visionary daydreams about a “free market” system. This testifies to the power of ideology to blind one to the faults of idolized system. Here are some of the “naïve” arguments advanced by Bagehot in favor of free banking:
Goodhart shows that this starry-eyed idealization of free banking is contradicted by Bagehot’s own practical experience in context of the workings of the Central Banking system. Before discussing Goodhart’s critique of Bagehot, we pause for an explanatory note about “adequate reserves”, needed for those not familiar with banking operations
BRIEF EXPLANATION OF ADEQUATE RESERVES: (see Monetization, Maturity Tranformation, and MMT for a more detailed explanation.) In fractional reserve banking systems, the banks keeps only a small fraction of the cash that it has promised to pay on demand to creditors. If all creditors demand what the bank has promised, this creates a financial crisis. The more reserves a bank has, the less likely a crisis. However, the profits of a bank depend heavily on its making large amounts of loans without any backing for them in the form of reserves. So banks have a profit incentive to keep as little in the form of reserve as possible. Thus the motivation of maintaining credibility by keeping high reserves goes against the profit motive which calls for low reserves.
Goodhart writes that while Bagehot thinks that banks will maintain adequate reserves for credibility, elsewhere he explains that maintaining large amounts of solid gold is costly, so banks have every incentive to place their reserves at the Central Bank. This again suggests that Central Banking is a natural requirement of a commercial banking system, rather than a forced imposition by government, which cuts into their freedom and profits. Both theory and experience suggest that (1) is false – banks would not maintain adequate reserves in a free banking system because of the cost and care required to do so.
Similarly, Goodhart argues that (2) is also false. Crises are inevitable in fractional banking, because the public knows that when there is a run on the banks, the latecomers will not get any money, and therefore rush to be the first. In such times, the best remedy is to restore the confidence of the public that adequate reserves are present to support all demands for cash. One of the great advantages of Central Banking is that it is always present as a lender of the last resort — in a crisis, all private banks can rely on receiving adequate reserves from the Central Bank. In absence of Central Banks, Bagehot suggest that banks would lend to each other freely in times of crises, thereby obviating the need for a large Central Bank. However, banking experience cited by Bagehot himself suggests that this is false: “(Lombard Street, p. 290): “At such moments [panics] all bankers are extremely anxious, and they try to strengthen themselves by every means in their power; they try to have as much money as it is possible at command; they augment their reserve as much as they can, and they place that reserve at the Bank of England.” Self-preservation instincts would prevent banks from lending freely to each other, as a replacement for the Central Bank function of lender of the last resort. Furthermore, Bagehot seems to be aware of this.
Similarly, supposition (3) in favor of free banking is false. Goodhart cites another leading economist of the time, Henry Thornton, who discusses what would happen if there were two big banks instead of one. He writes that both would be tempted to rely on the presence of other for crises, and go for the profit opportunities created by lower reserves. Thornton also lists several advantages of having one Central bank, which include reputation, regulation of smaller banks, and others. Thus, it seems that Central Banking is not a governmental impostion upon the commercial banking system, but rather an essential requirement for the functioning of such a system.
This conclusion, which emerges from historical experience, is unpleasant to ideological free marketeers, because it shows that the free market system requires regulation, supervision, and government assistance to function. This is in opposition to the ideology which says the unregulated free markets work best, and all types of government interference in the system only cause harm to the efficiency of the system.
NEXT POST: RG9 Who Should Create Money?
bit.ly/DSIA02F – Part F of Lecture 2 on Descriptive Statistics: An Islamic Approach discusses Corruption Rankings made by Transparency International.
In this lecture, we will examine global corruption rankings in light of The Four Questions which are central to the Islamic Approach:
We start by thinking about “Why we assign NUMBERS to corruption?” After all, it is qualitative condition of the heart, not subject to measurement. There is a long and complicated story which led to the attempts to measure the unmeasurable, which we summarize very briefly, to explain this:
Can Corruption be Measured? Obviously, the internal Qualitative, corruption of hearts, cannot be measured in numbers. BUT External Manifestation, like Bribes, can be measured. It is worthwhile to define BRIBE as the Use of Money for Persuasion towards personally profitable agenda at social cost.
Even if we confine attention to bribes, corruption is multidimensional and cannot be reduced to a single number. To see this, compare two countries. A has 100 corrupt transaction of $ 1M each. B has 1M corrupt transactions of $100. WHICH country is MORE corrupt, A or B? There is NO OBJECTIVE answer to this question. To answer, we need to specify the purpose of making the comparison.
There are situations when it become necessary to try to measure the unmeasurable. In such situations, the following Rules for Measurement are worth remembering.
The simplest case occurs when the Target is ONE-DIMENSIONAL and Quantitative. IN this case ONLY, objective measurement is possible. Much more often we have the case of a qualitative and multidimensional phenomena. In this case, we should explain clearly the subjective choices required to convert qualitative & multidimensional measures into a single number. If we consider a range of options, and also the purpose for which different USERS may find it useful, we will find different numbers for different users. This would be helpful to dispel the image of objectivity created by statistics.
Now, we come to the topic of the lecture. How is the CPI (The Corruption Perception Index) computed by Transparency International? To the best of our knowledge, they poll a group of wealthy businessmen of unknown identity , and ask them to rank countries from 1 to 10 in terms of their perceptions of corruption in a given country. High numbers are high honesty and integrity, while low numbers correspond to high corruption.
As discussed earlier in “What do College Rankings Measure?”, the crucial question is: “How much KNOWLEDGE do they have of global corruption, and of RELATIVE corruption?” Uninformed rankings just report the prejudices of the people who are doing the ranking. There are many reasons to suspect that these rankings are done by foreigners with little knowledge of local culture. Furthermore, it is likely that these businessmen make brief visits to get big jobs done in the fastest way made possible by wealth – they look for corrupt counterparts to avoid the regular process. In any case, it is likely that the perceptions just reflect the prejudices of those doing the ranking, rather than any characteristic of the country.
What do the CPI numbers mean? Statistical analysis in Zaman and Rahim (2009) shows that the CPI has a 98% correlation with log (GNP per capita). In other words, Integrity and Honesty is just another name for wealth. This likely reflects prejudice of the wealthy. In real life, we see that More wealth = more greed & corruption. The Quran also mentions how excess wealth leads to corruption. Remember that Corruption is a two party transaction.The poor accept money to do favors for the rich – the poor get the blame and coverage, while the wealthy escape attracting attention.
If we use the definition of bribe given above, LOBBYING in the USA, is easily seen to be bribery: the use of money to pursue narrow group interests while inflicting huge costs on society. The Global Financial Crisis is one example of how rich financiers got trillions of dollars in bailouts, at the expense of poor mortgagers made homeless by the millions. Another egregious example is the Medicare Prescription Drug Bill passed in 2003 using dirty tactics by Senator Tauzin on behalf of Big Pharma. The bill ensures that the Pharma industry can charge whatever price they like for sales to medicare. The government cannot negotiate, and they cannot import cheaper alternatives from Canada. The bill has been called an $80 billion per annum give-away to the Pharmaceutical Industry. (Despite a campaign promise to do so, Obama was unable to get this bill repealed due to the powerful Big Pharma Lobby.) Afterwards, Senator Tauzin left Congress to take up a $2 million consultancy, and also received more that $11 milion in cash rewards from grateful Big Pharma. But while all of this is documented, none of this is counted as corruption!
Our Islamic approach requires us to dig deeper into the historical context and background of the numbers we analyze. Why CPI was developed? The answer is somewhat complex. In the Post WW2 era, there was a competition between Capitalist & Communist models of development. The World Bank offered the Structural Adjustment Program, as a roadmap for development. There is not a single instance of success – no country became developed by following World Bank advice, but many countries, like East Asia, did industrialize by REJECTING World Bank advice (see Choosing our own pathways to progress). This failure of capitalist model widely documented and acknowledged by all parties. In order to maintain credibility, it was necessary for the World Bank to find some scapegoat to blame for the failure of the capitalist model for development. This was done by putting the blame on the poor countries for their own failure – a standard illustration of blaming the victim. It was not bad models created by the World Bank which led to failure, but bad governance and corruption in the poor countries which caused the failure. For more details see the article on Michael Foucault Power/Knowledge which explains how the powerful shape knowledge for their benefit.
The fourth question is: “What is the IMPACT of CPI?:. We could imagine that, theoretically, a country with a high CPI will make efforts to improve in terms of governance and corruption. Practically, it has the opposite effect. Solid research establishes that my behavior is affected by my PERCEPTION of social norms (and not by the REALITY). So If PERCEPTION of high corruption is created, people will act in more corrupt ways. If PERCEPTION of justice and low corruption is created, people act honestly. This means that the strategy of moving towards greater integrity and honesty is the opposite of the one currently being followed all over the developing world. Institutions like NAB and Anti-Corruption drives highlight corruption and cause it to spread. Instead, an effective strategy would highlight honesty and integrity. If a country has 99 incidents of corruption and one of integrity, publicity for the solitary good incident would create an impression of honesty and help to spread it. Thus, attempts to measure corruption via CPI are likely to be counter-productive rather than helpful in combating corruption.
Conclusions: The Colonization of Globe was justified by Racist arguments. White man was infinitely superior to all other races, and had right to rule the world. The colonization process was so extremely brutal and ruthless, that records have been suppressed from history and memory. Today, this process of colonization continues by financial means. Poor countries make billions of dollars of interest payments to the rich. Justification for this exploitation of the poor by the rich and powerful is still needed. This justification is created by the CPI as well as many types of economic theories of development.
POSTSCRIPT: This concludes Lecture 2 – Previous 5 posts discussed how widely used College Rankings are arbitrary. By choosing factors and weights appropriately, we could make the rankings come out in any desired way. Links to this sequence of posts are: Comparing Numbers , Arbitrariness of Rankings , What do College Rankings Measure? , Goodhart’s Law, and Values Embodied in Factors & Weights
Cross-Post from Islamic Worldview Blog. Shows how rankings always involve mixtures of facts and values when they are multidimensional. This is illustrated in the context of ranking of cars by Car and Driver magazine.
[bit.ly/dsia02b] This is part B of 2nd lecture in “Descriptive Statistics: An Islamic Approach” (DSIA02b) considers the issue of comparing two numbers to decide which is higher. Even though this task is trivial from the statistical point of view, it is very complex when we follow through to try to understand the real world context in which the numbers are being compared. This is illustrated through an example involving ranking of cars.
One of the best sources of learning is reading articles and books. Good articles and books encapsulate deep wisdom, which authors have gathered from their life experiences. Ultimately, the only source of knowledge is life experience itself. Since we have only one life to live, we can only gather a small amount for ourselves. Reading gives us access to the fruits of the life experiences of millions of scholars, throughout the centuries of written works. It is essential…
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