Money & Work

To the architects of the Swedish model the fulchrum about which the good society turned was the fair distribution of work and income. The most important source of poverty was joblessness. The most important indicator of individual well-being was the ability to work in ways that allowed people to feel they were acting on the world in the best way they could.

To work is to earn an income - and Gustav Cassel, Kurt Wicksell and David Davidson who trained the economists of the Stockholm School that provided the economic theories for the Swedish Model understood the critical role of effective demand in economic life. But the linkages are not as well understood by non-economists as they ought to be.

Effective demand is wages plus profits.

It is what people have to spend...or save.

Mobilising these savings is a separate issue. This is what stock exchanges are for...swapping £20 now for £1 per year.

But in classical economics, money is not given to people.

Money is given to firms.

Firms pay wages and make profits. That is how people get money.

The economists' bruttonational product (BNP) measures these two streams of money.

But classical economic theory was constructed to explain why trade and manufacture presented a better way for a country to get rich than mercantilism...the prevailing orthodoxy of the time which focussed on bringing as much gold as possible into national treasuries, not on increasing the size of the local harvest or the power of the parish church.

When Adam Smith wrote 'The Wealth of Nations' he took nothing for granted...except the nation state.

The original purpose behind classical economic theory was to keep money and goods in balance. Keeping prices steady was the main concern.

And the classic demand equation 'Money (M) multiplied by its Velocity of circulation (V) equals Price (P) multiplied by the Volume of goods traded (T) served the purpose well.

It was true. The devil was in the detail.

'MV=PT' has outlived any useful purpose.

It is now a playground for statisticians. Eurostat is the most important department of the European Union. Proving 4=5 is all in a day's work.

BNP was not invented to measure progress but to help regulate the amount of money in circulation and prevent prices rising. There is no reason why BNP needs to be 'national'. It could just as well be 'bruttovillageproduct' (BVP) or 'bruttoglobalproduct' (BGP).

Nowadays anything that moves and registers in the till is now called a traded good.

Money as coinage has been overwhelmed by credit instruments and cybercash.

A third of all traded goods are invisible to national statistics, passing within transnational corporations.

And goods can have almost any price tag on them. Distress sales, charity shops, advertising and fashion were never part of classical economics.

Only economic statisticians really understand the problems.