We do not live in a simple self-sufficient local barter economy like Smith's village. We live in a complex mutually-dependent global money economy. Tin pots and slabs of bacon are not "money". But mainstream economics cannot see that simple truth. Economics is utterly blind to the reality that banks "create" the "money" that "buys" the bacon and the pots; the money that buys the real economic Wealth of Nations.
Bill Black wrote, The Best Way to Rob a Bank is to Own One.
Did the banksters who bankrupted their own banks and crashed the dollar-based money system suffer "market discipline"? Were they tarred and feathered and dragged through the streets in shame? Were they stripped of all their ill-gotten gain and consigned to ignoble poverty begging for mercy in the streets? Or did they get to keep all the tens and hundreds of millions of dollars they 'earned', and are they still managing their bailed-out banks? "Market discipline" is a pathetic fraud upon humanity.
There is no money and there are no banks in these mainstream economic models that purport to describe "reality". The models are taught as "the facts" in virtually all economics departments.
Money and Banking is taught as a specialized field in economics, that few economists ever study. Financial economics teaches students the mechanics of the existing money system, how to "be bankers", how to work within the bankers' money system. Nobody teaches an overview of the system.
Macroeconomics is taught as an expanded version of microeconomics -- Smith's barter economy where the goods themselves are the "money". Because they are oblivious to the simple arithmetic of banker-issued money and debt, none of the mainstream macroeconomists "saw the collapse coming". They believed in "efficient markets": the market always "sets the right prices", including the price of risk. Financial collapse is "impossible".
{For an entertaining romp through the absurdities of neoclassical macroeconomic assumptions about 'what reality is like', read Steve Keen's 2001 book (expanded and updated in 2011), Debunking Economics -- The Naked Emperor Dethroned?}
Mainstream economics is a faith-based discipline that believes in what its high priests say rather than believing in the reality that people can see with their eyes. Bill Black -- whose investigative work as a financial regulator was instrumental in prosecuting the Savings and Loan swindlers -- calls it "theoclassical" economics. Most people believe it and try to understand its arcane alchemy; rather than see it for what it is: an incoherent fairytale that blinds them to reality.
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