Economists’ Effluvial Effluxions

By Edward Minden

 “Effluvial effluxions” are outward flows of disagreeable mists or vapours; slight or invisible exhalations of effluence. They are without physical properties and result from no organic origin. They are invariably the residue of intellectual and/or spiritual degeneration (and sometimes depravity) and their chief import is as diagnostic indicators of desiderata disorders.

They are endemic to Orthodox Economists, as poetic license is to Balladists, and blarney is to Irish Comedians.  The similarity ends here, however, for they are not intended to entertain, delight or amuse. They have an intent, indeed a dangerous and provocative one of gross effrontery; they anticipate being taken seriously!

So outrageous have these effusions become in their impositions upon credulity, that the whole practice is beginning to ripen into red faces.

Mr William White, whose details are given below, certainly qualifies as a “mainstream economic expert”. He offered this public confession in an interview with Kevin Orick on the McAlvany Weekly Commentary on 12th February, 2014:

“The analytical underpinnings of what we [mainstream economists] do are actually pretty shaky. A reflection of that fact, is that virtually every aspect you can think of with respect to monetary policy, about best practice, has changed and changed repetitively over the course of the last 50 years. So, this stuff ain’t science.

“Think about what’s happened recently. One, its completely unprecedented. People are making it up as they go along. This is hardly science – building on the pillars of the past.

“Secondly, what they’ve been making up as they go along actually differs across central banks [The Bundesbank, for example, is fighting the threat of high inflation, whereas the Fed is more concerned about the prospect of deflation]. They can’t even agree amongst themselves about what’s the best way to do things.

“I’m becoming more and more convinced that all of the models we use are basically useless.

“It’s surprising that we’ve had this huge crisis that the mainstream didn’t predict. It’s gone on for years, which the mainstream absolutely didn’t predict. I would have thought this was a basis for a fundamental rethink about what we used to think we believed. But that hasn’t happened.

“The policies that we’ve followed – on the monetary side at least – since 2007 are just more of the same demand-stimulating policies that we’ve been following, I think, erroneously, for the last 30 years.

“We’ve got the potential to do so much harm by not getting the creation of fiat credit and money right. We’ve got the capacity to do so much harm that we should be focusing much more on making sure that doesn’t happen.”

So who is this irreverent character, this debunker, this detractor of economic enlightenment? His biography from follows:

“William R. White is the chairman of the Economic Development and Review Committee (EDRC) at the OECD in Paris. This committee carries on regular evaluations of the policies of both member countries and aspiring members of the OECD. In his capacity as chairman, to which he was appointed in October 2009, William White also contributes to meetings of WP1 and the Economic Policy Committee of the OECD. He is a member of the Issing Committee, advising the German chancellor on G-20 issues. William White has continued to publish articles on topics related to monetary and financial stability as well as the process of international cooperation in these areas. And he speaks regularly to a wide range of audiences.


“Mr White joined the Bank for International Settlements (BIS) in June 1994 as Manager in the Monetary and Economic Department, and was appointed to the position of Economic Adviser and Head of the Monetary and 995. He oversaw the preparation of the prestigious BIS Annual Report for which he wrote the Introduction and Conclusions. As Head of the MED, he had overall responsibility for the department's output of research, data and information services, and the organisation of meetings for central bank Governors and staff around the world.

“Mr White was also a member of the Executive Committee which manages the BIS. In this capacity, he contributed actively to various internal subcommittees which establish policies to guide the Bank's overall activities, including those of the Banking Department and Risk Control. He retired from the BIS on 30 June, 2008.

“Mr White began his professional career at the Bank of England, where he was an economist from 1969 to 1972. Subsequently he spent 22 years with the Bank of Canada. His first six years at the Bank of Canada were with the Department of Banking and Financial Analysis, first as an economist and finally as Deputy Chief. In1978, Mr White took on different responsibilities as the Deputy Chief of the Research Department and was made Chief of the Department in 1979. He was appointed Adviser to the Governor in 1984 and Deputy Governor of the Bank of Canada in September 1988.

“In addition to these permanent positions, Mr White spent six months (1985- 86) as a Special Adviser to the Canadian Minister of Finance and six years as a member of Statistics Canada's Advisory Panel on the National Income Accounts. Since the late 1980s, he has been an active participant in many international committees, including the EPC and WP3 at the OECD, the G-10 Deputies, and the Bellagio Group which brings together senior government officials, central bankers and academics.

“Born in Kenora, Ontario in 1943, Mr White was educated at the University of Windsor and received his PhD from the University of Manchester in 1969. In addition to his many publications, Mr White speaks regularly to a wide range of audiences on topics related to monetary and financial stability.

If anybody knows what economists know, there is no small cause for attributing this ability to   William White. He is eminently qualified on two counts. Firstly, come his professional qualifications, and the obvious acclaim of his peers in the roles he has played and his appointments to prominent positions of no small responsibility in economic deliberations. However, one is impelled to add, that his qualities as a man, his humility in the face of imponderables, is compelling. I am very close to being certain, that the most difficult of all human challenges, is to contemplate, confront and master, the prospect of being wrong. Even when this does not result in a readjustment which “gets it right”, surely it must occasion the deepest respect that can be accorded to another.

The drift of the intent of the above material suggests, correctly, that I think that the 2nd Ice Age towards a warm acceptance of “Economic Orthodoxy” is upon us. Given the results, the consequences, and the fallout in terms of disruption and stress, to which we “other mortals” have been progressively subjected following the global recession of 2007, a case can again be made for “disrespectful glances at economic orthodoxy”. Eighty years ago it was rampant. The Great Depression brought tumultuous controversy. C. H. Douglas, A. R. Orage, Professor F. Soddy, and a whole plethora of lesser intellects were hammering at the gates.


Authorship is a partnership between author and reader. It is always a one-on-one partnership, no matter how many may simultaneously be reading it. As with every journey, we must firstly take note of the landscape to be traversed.

The Great Depression was a phenomenon of “Poverty amidst Plenty”. It was predicted and diagnosed by C. H. Douglas as early as 1917, popularised by his writings in the early 1920’s, and accepted by all the authorities that mattered by 1930. Douglas, applying engineering methodology to economics, successfully showed that there was an ever recurring shortage of purchasing-power in modern economies which technically resulted largely from the lengthening lead-times involved in current production methods.

John Maynard Keynes familiarised himself with Douglas’s diagnosis in 1930. Unfortunately, Douglas’s proposal to distribute the necessary increased purchasing-power (money, if you will) by paying a National Dividend to all, and by using a “Just Price” mechanism to end inflation, was implacably opposed by the banking interests of the time, and they were still the unquestionable substantive powers in these matters, Government and the public interest notwithstanding. (1)

Some years drifted past whilst the powers-that-be wrestled with this conundrum. But then Hitler brought war. The perfect means to spend and spend without producing much in the way of consumer goods, because munitions for the consumption of “others” were the preferred output, and when this opportunity came to hand, the future was determined.

By 1936 however, without war, moves were afoot to reflate the economy. President Roosevelt’s “New Deal" was in play. By then also, John Maynard Keynes’s General Theory of Employment, Interest and Money had been published and wide acclaim for it had been organised by powerful vested interests.

Thus the depression ended when a means acceptable to Banking Houses was found to reflate the economy. John Maynard Keynes’s interim proposal, of financing capital projects which had no saleable consumer product, thereby increasing purchasing power in the hands of consumers without increasing the availability of any product that they might purchase, brought several decades of relative prosperity. This analgesic brought relief, and though mistaken for a time as a cure, its recurrence in 2007 in a persistent form occasioned another rethink.

By 2014 another development, much to the shock and horror of orthodoxy, was hurrying upon us. Human Beings were being displaced from production and services by the digitalised information revolution. Human employment was not only being displaced, but this was happening at an exponential rate.

The Economist magazine of 18th January, 2014 carried an article “Coming to an office near you” and subtitled “The effect of today’s technology on tomorrow’s jobs will be immense--and no country is ready for it”.


Some of the text is reproduced below:

Technology’s impact will feel like a tornado, hitting the rich world first, but eventually sweeping through poorer countries too. No government is prepared for it.

Why be worried?

The prosperity unleashed by the digital revolution has gone overwhelmingly to the owners of capital and the highest-skilled workers. Over the past three decades, labour’s share of output hasshrunk globally from 64% to 59%. Meanwhile, the share of income going to the top 1% in America has risen from around 9% in the 1970s to 22% today. Unemployment is at alarming levels in much of the rich world, and not just for cyclical reasons. In 2000, 65% of working-age Americans were in work; since then the proportion has fallen, during good years as well as bad, to the current level of 59%.

Worse, it seems likely that this wave of technological disruption to the job market has only just started. From driverless cars to clever household gadgets innovations that already exist could destroy swathes of jobs that have hitherto been untouched. The public sector is one obvious target: it has proved singularly resistant to tech-driven reinvention. But the steep change in what computers can do will have a powerful effect on middle-class jobs in the private sector too.

Until now the jobs most vulnerable to machines were those that involved routine, repetitive tasks. But thanks to the exponential rise in processing power and the ubiquity of digitised information (“big data”), computers are increasingly able to perform complicated tasks more cheaply and effectively than people. Clever industrial robots can quickly “learn” a set of human actions. Services may be even more vulnerable. Computers can already detect intruders in a closed-circuit camera picture more reliably than a human can. By comparing reams of financial or biometric data, they can often diagnose fraud or illness more accurately than any number of accountants or doctors. One recent study by academics at Oxford University suggests that 47% of today’s jobs could be automated in the next two decades.


At the same time, the digital revolution is transforming the process of innovation itself, as our special report ( and-ubiquitous-building-blocks-digital-products-and-services-have-caused) explains. Thanks to off-the-shelf code from the internet and platforms that host services (such as Amazon’s cloud computing), provide distribution (Apple’s app store) and offer marketing (Facebook), the number of digital startups has exploded.


An example of what’s coming was given:


When Instagram, a popular photo-sharing site, was sold to Facebook for about $1 billion in 2012, it had 30 million customers and employed 13 people. Kodak, which filed for bankruptcy a few months earlier, employed 145,000 in its heyday.


When the housing subprime crisis in the US in 2007 triggered a disinclination of those in the private sector to increase their indebtedness, thereby also failing in increasing the money supply and spending, another way had to be found. No infrastructure of so stupendous a scale could be conceived which would, in being financed by increasing debt, reflate the US economy. Such schemes as was the Boulder Dam in the 1930’s would be but as a drop in the ocean. So what to do?


The answer which was resolved and brought forth, was Quantitative Easing. In this $85 billion of new and additional money (as debt of course) was distributed into the economy every month by the Federal Reserve Bank. This has continued ever since, albeit at slightly lower levels. Yet the economy is barely responding. Unemployment is still high (written 2014) and borrowing to employ more is being resolutely resisted, with only rare corporate exceptions. This is producing changes in thinking, or what can perhaps be more properly described as “an unthinkable rethink” amongst establishment economists.


Professor Laurence Summers, who addressed the IMF’s 14th Annual Research Conference on the Economic Crisis in November 2013, and who was President Obama’s first choice for Chairman of the US Federal Reserve Bank Board, is reported in News Weekly, 15th February, 2014, an Australian magazine, as follows: “… the solution Summers has put forward is that if consumer numbers are not growing at a pace needed to sustain economic growth at a level needed to maximize output and employment, then it may be necessary for permanent levels of Government financial injections to be introduced into economies to achieve that end.”


Quantitative easing, unceasing, ad infinitum and forever. Exponential debt for all the future?


C.H. Douglas’s suggestion of debt free credit being created to overcome the shortage of purchasing-power, and thereby cancelling out debt to that extent, is nowhere given utterance by establishment personnel. Nor will it ever be by those who would retain their positions in financial sinecures, this side of revolution. And revolution it will have to be, though please God a bloodless one.


So much for the landscape. Stupendously ridiculous, and mind bogglingly outrageous in its gross stupidity, but there it stands. And so at last to the original intent of this essay, which was to progressively take big-name economists, expose their effluvial effluxions, the more subtle they may be the better, and hold them forth to the full degree of ridicule that they deserve.


Perhaps we shall start with John Kenneth Galbraith. In 1965 he delivered a series of five lectures, known as the Massey Lectures, for the Canadian Broadcasting Corporation of Toronto, who also published them in that year. The published lectures were entitled The Underdeveloped Country and the quote below is from the first of those lectures Underdevelopment and Social Behavior, pages 5 and 6.


One fact of economic life is common to capitalist, socialist and Communist societies, or for that matter Catholic, Presbyterian, Pentecostal, Buddhist or Animist, and is not subject to controversy as between economists of any shade of color or opinion. This is that any purposeful increase in future production requires saving from current consumption. Only from such saving can the people be supported who are making the machines, building the factories, constructing the dams, digging the ditches or otherwise elaborating the capital which makes possible the increased future output. Saving can be by the highly regarded men of thrift who put a little something by for their children or their own rainy day, or by the rich who are under no great pressure to spend all they receive, or by corporations which plow back revenue before it ever gets into the hot and eager hands of those who might spend it and by governments which, by a variety of devices of which taxes are the most important, can restrict consumption and thus enforce saving by their otherwise profligate citizens.


But while there must be savings in all societies if there is to be economic advance, the difference in the degree of difficulty in getting savings as between the rich countries and the poor is so great as to be a difference in kind.


In the rich country, to refrain from consumption may be inconvenient, difficult or well beyond one’s power of will. It rarely involves physical deprivation—hunger, exposure, pain. And a great deal of saving is automatic or a by-product of motives and preoccupations that have little to do with national progress. Thus, concern for personal security puts income into life insurance, pension funds, and the social security trust funds of governments. The business prestige that comes from heading a growing corporation pours earnings back into expansion. Re­currently our problem is to offset by sufficient investment (or by public or private spending) all that we are disposed to save from high levels of income; for if we fail to offset savings, income and output will decline and unemployment will rise. The reduction in taxes in the United States in 1964 was part of such a strategy to offset the high level of savings—some induced by taxation itself —which we now get at a high level of income and economic activity.



The first sentence reproduced in bold italics is intended to lock us all into agreeing with what follows. Everybody with a backbone and who breaths would seem to be included. I qualify under at least one of his categories, and as Social Credit is a “shade or colour” of economic opinion, and one to which John Maynard Keynes gave important space in concluding the economic argument in his General Theory, I feel as though I can put my hand up.


In doing so, the statement reproduced in red is in my opinion absolute rubbish.


To begin, it seems to be implicit in the red statement that money is fixed in its aggregate amount. It is not. Any perusal of national statistics such as are provided in Australia by the Commonwealth Bureau of Statistics’ Year Books, and by all modern countries in a similar way, shows that the money supply is continually increased. This is done by increasing the indebtedness to Banks within each country. These extra loan funds, when spent into the economy create additional deposits, as no deposits are reduced to make the loans available. Bank deposits, of course, are now what we use for over 99% (by value) of our money transactions.


The reason that additional money is continually added into the system is that purchasing- power is insufficient to allow the consumption of the existent goods and services available. In 2008 Australia was in recession, but the money supply (M3) was increased by 4.5 %. In the five years preceeding 2008 and all after it, the money supply has always increased by above 10%. With inflation approximating 2% in these years, consumption was increased by a net of 8% without any diminution whatsoever in the consumption otherwise financed. None of this increase was financed from savings, it was all arranged through increasing our debt to the Banks. These statistics are from the Australian Bureau of Statistics’ Annual Year Books.


Increased production is largely done by actually increasing consumption. Increasing it beyond our current ability to consume, because a dearth of purchasing power in the hand of end users is constantly arising. The technicality identified by C. H. Douglas in 1917 and now, at least in some form, usually the Keynesian form, universally accepted, can be explored by visiting


Effective demand is entirely in the hands of our Banking systems. Should they ever decline to make any further loans, as we used up our deposits in repaying loans, our aggregate money supply would decrease and in time, completely disappear.


Yes it is true that through the sale of equities and debentures and such, some capital production is funded, but two points need to be made. One, this is relatively insignificant in relation to bank financing. The vast majority of new homes, for example, are funded by Bank mortgages. Secondly, all money, be it savings or no, is created in and by our banking system in its origin. Savings are second-hand bank mortgage money. New money manufacturing affects the second-hand money market, as does car manufacturing affect the used car market.


Most manufacturers prefer to use bank financing, as savings are usually only had in return for equity, and this dilutes the ownership of current shareholders.



So perhaps it is time to restate the red words in a way which makes sense;


“Any purposeful increase in future production requires an increase in current consumption financed by the issue of additional bank debt (or credit).”


The lower Galbraith quotation reproduced in bold is quintessential Keynesianism. I am not aware of any other single sentence coming from an acknowledged and high ranking Keynesian, which states the core of the Keynesian thesis so succinctly. It too is wrong, and is certainly proved by nothing. I reproduce it here to save looking back at it: “Re­currently our problem is to offset by sufficient investment (or by public or private spending) all that we are disposed to save from high levels of income; for if we fail to offset savings, income and output will decline and unemployment will rise.”


The problem in the Great Depression, and all other recessions, apparently, is that we were saving too much? All measurements of savings during these times actually show their decline. In hard times people are forced to use up their savings, not increase them, but this doesn’t help.


More importantly in this, between booms and recessions, the variations in money supply increases absolutely dwarf variations in savings. People do not go into shock because their savings are high. They go into shock when some important economic sector suffers a dramatic decline. In 1929 it was the Stock Market. In 2007 it was the US housing mortgage debacle. Both were the product of exorbitant Bank lending into these sectors, followed by a sharp pull back from doing so.


When people go into shock they take defensive action. They decline, so much as is possible, to accept any more bank debt. The rate of money supply increase declines below the level where there is sufficient extra money coming into being to allow current production to be all sold. Production and employment is reduced because of insufficient sales. This affects all the interdependent sectors of the economy, and apart from rare niche occupants, all go into decline.


Mr. Galbraith is right in that the problem occurs “recurrently”, but it recurs continually, not intermittently.  It is only the propensity to borrow from Banks, and the Banks preparedness to lend, that holds back recession from day to day. We can only spend what we can, and do, borrow from Banks. All money originates with them, and the constant demands of Banks for repayments, which can only be made by using up our deposits (whether we call them savings or not) for making these repayments, reduces the amount of money (bank deposits) in existence. Only the constant increase in bank debt sufficiently above and beyond bank repayments, can allow an increase of purchasing-power to be at hand to overcome the ever recurring dearth of purchasing power in the hands of consumers.


It is the authors intention to “set upon” as it were, effluvial effluxions from other prominent economists as they come to hand and time permits. This is a work in progress, hopefully, so find me out with your authenticated quotes from the same, and perhaps a demolition job on folly will result.



Perhaps we need to ask ourselves; whether the yearly increases in the money supply were created to buy goods that didn’t exist? And further, was this increased money brought into being by accepting increased bank debt, when we already had sufficient money in hand to buy all that was on offer? The answer is indubitably “No” to both. This being so, can any doubt remain, leaving technical questions aside, that a constantly recurring shortage of purchasing power is the reality, and action to constantly increase it, and this alone, holds back recession.


Keynesians meet the situation by urging the incessant increase in society’s bank indebtedness, which makes them the preferred option of Bankers, who arrange for their acceptance in sponsored professorial chairs, media with mortgages, and glossy magazines owned by banking families such as The Economist.


Social Crediters would meet the situation by firstly, producing a set of books normal to any large undertaking. This would include a Balance Sheet and a Profit and Loss (or if you prefer it a Supply and Demand) Account. Some of the additional money created each year would be set against the National Balance Sheet, and issued free of any requirement for redemption or interest, as a credit that is, directly to each living person in equal shares as a National Dividend. Because the national productive output is more than the consumption payments made to produce it, which constitutes a profit, the Shareholders are paid a dividend. Absolutely normal accounting, and the sort that sane men can understand.


For the above thinking Social Crediters are often treated as non-persons, starved by the media of any unbiased and fair-minded exposure. Though even in academic circles or more correctly, especially in academic circles, the discovery and acceptance of Social Credit is growing reassuringly. It is, and can only be for some considerable time yet, a quasi-underground awakening. One should take care in introducing any but the closest of friends to your thoughts about Social Credit; and not giving confidences to ones you may not trust with your academic career, because you might, if you do, suffer stigma, at least in some ideologically and “puritanically” correct circles.  


I am not inciting conspiracy theory here. That’s a dead end. I am saying rather; go quietly, be gentle, you have no right to expect either courage or intelligence in handling unfamiliar conceptual thoughts from academics or economists, any more than from others. This can only grow from within them, and sometimes there’s a lot of timidity in there amongst the contradictions.


The fun of discovery is its own reward however, and with a little sense we can enjoy learning the truth in the absence of any need to blather about it and paint ourselves into a corner.


Voltaire, who incidentally is regarded as an atheist, said that he only ever asked God for one thing “that He make his enemies look ridiculous” and “He granted it”.


Keynesianism, though still less ridiculous than the Austrian School, Milton Freedman’s Chicago School of economics, or the Marxists and most others, is untenably ridiculous nonetheless, and with every month it increasingly shows.





1.     Douglas’s evidence to the MacMillan Parliamentary Inquiry on 1st May 1930 at which Keynes was in attendance and questioned Douglas. See the full transcript at

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