Max Weber wrote that “The fate of our times is characterized by rationalization and intellectualization, and, above all, by the ‘disenchantment of the world.’ Precisely the ultimate and most sublime values have retreated from public life …” The disenchantment of world leads to the modern view of the heart as merely a pump for circulation of blood.  The ancients had deeper understanding; as Pascal said “The heart has its reasons, which reason does not know. We feel it in a thousand things. It is the heart which experiences God, and not the reason. This, then, is faith: God felt by the heart, not by the reason.” Elevation of the head above the heart has led to a loss of wonder at the myriad mysteries of creation which surround us, and also caused deep damage to human lives in many dimensions. As our Poet Laureate Allama Iqbal emphasized: “At the dawn of Judgment, Gabriel told me, Never accept hearts which are enslaved by the mind.” Read More


FullEmplWe are used to thinking that there is progress in knowledge. As we gain experience, the collective wisdom of mankind increases. The story of economics in the twentieth century provides the most amazing example of the opposite: How precious knowledge of vital importance for the welfare of humanity was gained and then lost. Many studies show that a meaningful job is the most important determinant of life satisfaction, and among the thing most desired by the general public. Economists learned how to create full employment, leading to a period of tremendous prosperity. How and why these lessons were forgotten provides a perfect illustration of the thesis that knowledge is shaped to protect the interests of the powerful.

Before the Great Depression of 1929, dominant economic theories stated that the free market automatically eliminates unemployment. Obviously, a theory which does not recognize the existence of a problem cannot provide solutions. Before the Great Depression, the economy was booming, with jobs for all and high levels of production. After 1929, factories lay idle, there was massive and persistent unemployment, and correspondingly high level of general misery. Why did unemployment persist, and how could we get the economy back to full employment of all the resources now lying idle? The revolutionary accomplishment of Keynes was to recognize the source of the problem, and provide an effective remedy.

Keynes argued that the key to the problem was depressed investor expectations about the future. Investors were afraid to produce goods because they did not foresee any demand. If they did take a risk and start producing, the demand would be created, because they would provide jobs to people in the process of production. People with jobs would have income and demand goods. Thus a favorable future forecast would create a self-fulfilling prophecy. People were not demanding goods because they did not have jobs. Producers were not providing jobs because they did not see any demand. This deadlock could be broken by the government in several ways. Lowering interest rates and making money cheaply available would reduce the costs of production, and might induce producers to take a risk on starting investments and production. Indeed, just printing a lot of money and throwing it from helicopters would be enough – people with money would demand goods, and producers would start hiring people to fulfill the demand for goods. The “Helicopter Money” scheme could fail for a number of reasons. The alternative was for government to step into the gap, and start hiring people itself. Even meaningless jobs like digging ditches and filling them up again would be enough to start off a chain reaction which would lead to full employment.  Using the secrets of Keynesian demand management, Western governments managed to achieve near full employment, and widespread prosperity for fifty years.

Unfortunately, general prosperity of the 99% does not suit the interests of the 1%. Full employment leads to an unruly labor class, who can walk out of unsatisfactory jobs to find a better one. Secondly, direct government investment can interfere with business profits. Thirdly, before the Keynesian era, politicians understood that business confidence was essential to economic prosperity and votes. Keynes freed the government from this dependence, much to the annoyance of business leaders.

The story of how Keynesian theories were ridiculed and discredited, and completely fallacious pre-Keynesian theories were re-furbished to take their place is long and complex, and cannot be detailed here. The punchline is that the remedies to today’s economic ills are known, but they are not being implemented because they go against the interests of the powerful. There has been a huge increase in debt globally; Debt forgiveness would remove the heavy weight dragging down aggregate demand which is weighing down the economy. Helicopter money is being dropped but into the vaults of the banks instead of the pockets of the public, and Keynes is being blamed for the lack of effectiveness of this ridiculous policy. Zero interest loans to producers are not working, so negative interest rates are being talked about. Meanwhile, everyone ignores the elephant in the room, a fully effective Keynesian theory which explains exactly how we can stimulate aggregated demand to revive the global economy.

Above 700 Words published in Express Tribune on Tuesday 30th  For short posts on diverse Topics see my author page on LinkedIn. Other works: Index . More material on Keynesian Economics. Some additional materials for readers of WEA Blogs:

Some of ideas are taken from Kalecki’s insightful note on why captains of industry resist full employment, even though it bring benefits to them as well. There is very strong evidence from multiple sources that their is a finance mafia in operation globally, which thrives on poor economic performance. This enables them to make multi-billion dollar loans and reap in interest payments. Enforcement of austerity is a crucial element in this scheme, since creation of Sovereign money — which is also done indirectly by deficit financing – by states would deprive them of their most valuable weapon — they have money while others don’t.  Keeping an economy starved of the money lubricant required for smooth functioning helps the 1% at tremendous cost to the 99%

Post 4/4 about Economic MethodologyFriedmanKeynes

Before Keynes, Classical Economic Theory (CET) was based on three principles. The First Principle is that Unemployment is automatically eliminated by the free market. The Second Principle is the Quantity Theory of Money, which states that money supply makes no difference to real economic outcomes. The Third Principle is that private investors automatically find the right investment opportunities to create the best economic outcomes for future. The realities of the Great Depression of 1929 clashed violently with these three principles which hold only in an imaginary world bound by axioms and logic. Keynes followed scientific methodology to create a new theory which rejected all three axioms of CET, so that Keynesian theory would match the experienced realities of the Great Depression. This is the distinguishing feature of science, that theories are devised and changed in light of experience. In contrast, Greek axiomatic-logical methodology disregards conflict with observational evidence.

The experience of the Great Depression showed that free markets cannot eliminate unemployment. The role of expansion of money stock in the boom, and of restrictive money in the recession, became clear to economists. Keynesian theory incorporates this experience and asserts the extreme importance of money in the real economy, contrary to the Quantity Theory of Money. Also, Keynes argued that the future was unpredictable. Investor sentiment and expectations about future governed their investment decisions, but these could become artificially depressed. This would choke off investment and badly affect the future of the economy. In such situations, the government should step in with investments to compensate for shortfalls in private investments. This type of fiscal policy would be able to restore full employment and generate growth. This Keynesian prescription is diametrically opposed to the Third Axiom of CET which argues that governments should not intervene in economic activity. Keynesian theories were “scientific” in the sense that they were based on observations and economic experiences, and conflicted with the Greek axiomatic approach of CET.

Banks had lost fortunes, and wiped out lifetime savings of many depositors in the Great Depression. Soon afterwards, a strong set of laws were enacted which sharply regulated financial institutions, prohibiting them from speculation, and placing many other restrictions on their activities. Financial regulation restricted the power of the wealthy to generate income from their existing wealth. This meant a sharp reduction in money generated by non-productive financial activities like interest based loans. At the same time, the main thrust of Keynesian theory was that the government had the responsibility to maintain full employment, and undertake investments necessary for growth. Investments flowed to the real sector, instead of the financial sector, and full employment meant that all the productive capacity of the economy was utilized. Empowering the working classes, investing in growth, and restricting the financial sector, led to decades of prosperity in the Western world.

In order to understand what happened next, we have to look at the dramatic impact of the three Keynesian policies of financial regulation, full employment, and government investments, on the income distribution in the USA. From 1930 to 1980, the share of wealth accruing to the bottom 90% increased from a low of 15% to a high of 35%. At the same time, the share of wealth accruing to the top 0.1% decreased from a high of 25% to a low of 5%. This reversal of fortunes was not acceptable to the extremely wealthy, who plotted a coup against Keynesian theories with patience and persistence. Their last bastion and stronghold was Chicago University, which was virtually solitary in its advocacy of free market economics in the days of dominance of Keynesian theories. In their paper “Winning Ideas”, Sabena Alkire and Angus Ritchie have provided detailed information about the campaign to spread, popularize and implement free market ideas. One key strategy was the utilization of economic and political crises and disasters to rush in with revolutionary changes. Naomi Klein has documented this aspect in her brilliant book “The Shock Doctrine: The Rise of Disaster Capitalism” which details how crises were used or generated all over the world as a means of introducing free market policies which could not be achieved by popular vote.

In the USA and UK, the oil crisis in early 1970’s created an opportunity which was seized upon by the Chicago School to create the Monetarist Counter-Revolution against Keynesian ideas. All economic troubles were blamed on Keynesian policies and financial regulation, and a strong push was made for financial liberalization, and for restricting the authorities and power of the government. One weakness of Keynesian theory was that while macroeconomics was scientifically based on observed behavior of real world economies, microeconomics was based on an axiomatic-logical Greek approach to consumer theory. Progress would have involved changing microeconomic theories to match observations of real world consumer behavior. Instead of this, the monetarist counter-revolution succeeded in dislodging Keynesian theory by arguing that these macro theories were not consistent with the axioms for consumer behavior in microeconomic theories. This return to Greek axiomatic methodology effectively divorced economics theories from reality. Keynesian Nobel Laureate Robert Solow remarked:  “Since I find the fundamental framework [of Chicago economists Lucas & Sargent] ludicrous, … I respond by laughing.” Financial liberalization together with repeal of Keynesian economics had exactly the effects desired by the wealthy. The share of the top 0.1% has steadily risen from its bottom at 5% to the current 25% and is steadily rising. The share of the bottom 90% has fallen from its top value of 35% to its current 15% and is steadily declining. The Global Financial Crisis has wiped out the middle classes and further enriched the wealthy financiers. The use of a Greek methodology which confines economists to the study of an imaginary world is extremely helpful in perpetuating the current state of affairs as it prevents the public from noticing essential aspects of the economic system. This is why scientific methodology, which would be based on close observations of contemporary realities of the economic system, is shunned by economists.

Posts on Diverse Topics:My author page on LinkedIn. Other works: Index . More material on Science & Scientific Methodology. Articles on the Nature of Human Knowledge.

           Modern financial institutions, instruments and their underlying philosophies clash with Islamic law in many areas. For some time, both critics and supporters have thought that these Islamic laws were in need of revision to bring them into conformity with the complexities of modern requirements of trade and industry. Critics have been content with ridiculing the “archaic” law. Supporters have made substantial efforts to provide “Islamic” equivalents of modern western financial institutions and instruments. Many have been uneasy with these efforts, which often seem pointlessly convoluted ways of imitating western ideas about finance. There is also the concern that Islamic laws are being stretched beyond the breaking point to accommodate western forms.
            The global financial crisis of 2008 has led to the radical realization that instead of being obstacles to progress, the Islamic laws provide barriers against financial disaster. Many western commentators have remarked that adherence to Islamic economic principles would have prevented this crisis. Challenges, a French magazine, went so far as to say that the 7th century text of the Quran offered better guidance than the Pope on financial matters. Read More

The Great Depression of 1929, and now the Great Recession following the Global Financial Crisis, poses several puzzles for economists. One is them is the sudden and severe drop in aggregate demand. This leads firms to curtail production, and therefore reduces demand for factors of production, most importantly labor. Why does aggregate demand fall, and why do not the price adjustment mechanisms restore equilibrium? The outstanding contribution of Atif Mian and Amir Sufi in House of Debt (see my Review & Summary) is to explain both why aggregate demand fell and also why the standard price adjustment mechanisms fail to restore equilibrium. The correct explanations have eluded famous economists like Keynes, Friedman, Lucas and many others . Only after understanding the reason for the shortfall in aggregate demand does it become possible to prescribe a remedy.

(see also discussion following repost on RWER Blog)
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 As John Kenneth Galbraith pointed out economics is overwhelmed by an ‘uncorrected obsolescence.’ The target of economics education is the comprehension of the reality in its economic dimension, that is to say, the understanding of those practices and ideas that support the evolution of material life and the provision of human needs.

In the post-war period, economics was broadly understood as economic science, that is to say, as a specific area of the development of human knowledge. In this context, the mainstream-heterodox controversies overwhelmed the economic organization and welfare distribution issues. After the 1970s, however, the perspectives on economics education revealed a deep crisis of post-war institutions. In truth, the main challenge to economics education has been the understanding of changing economic realities. In the current scenario, pluralist economics education has been overwhelmed by the attempt to apprehend the complexity of the real-world.

Economics education should take into consideration history, quantitative methods and the awareness of diverse schools of thought within economics. The nuclear idea of the economics curriculum should be to assure the accomplishment of three purposes: pluralism, solid theoretical foundations and commitment to reality.  Such pluralism should be aware of the limitation of the universality of economic laws. Economists would be apt to the recognition of situations that configure singularities and, therefore, to the establishment of specific forms of intervention that would affect economic and social relations. The emphasis should be centered on the social, cultural and political restrictions to the objectivity of economic laws. Indeed, this attempt points out to a pluralism founded on history.


The current  global crisis has revealed and fostered systemic contradictions and tensions in both social and political spheres.


Reforming global finance is a relevant topic of discussion. There are several proposals.


Check some of them and send comments!