Money and Macroeconomics from First Principles, for Elon Musk and Other Engineers
Chapter 01: Introduction
By Steve Keen (@profstevekeen)
“Physics is the law, everything else is a recommendation”[1] is one of your best-known phrases. This leads to you practicing “First Principles” reasoning, which is:
a physics way of looking at the world … you boil things down to the most fundamental truths and say, “OK, what are we sure is true, or as sure as possible is true?” Then you reason up from there.
In that same interview, you criticized the alternative of reasoning by analogy:
It’s important to reason from first principles rather than by analogy. The normal way we conduct our lives is we reason by analogy. “We’re doing this because it’s like something else…”[2]
You are now involved in the economics of government finances, where you have made numerous comments like:
America is headed for disaster, with no money for anything, unless the government overspending is addressed.[3]
If we don’t fix the deficit, everything will suffer, including essential spending like DoD, Medicare & Social Security. It’s not optional.[4]
These conclusions can be shown to be based on reasoning by analogy, by applying what applies to a household or firm to a government. It could be that the analogy holds, but what if it does not? The consequences of acting on a false analogy are bound to be negative.
Ironically, applying physics per se to the analysis of money would be a case of arguing by analogy: “economics is like physics”, etc. Instead, you need to base your analysis on the fundamental truth of money. This is that every monetary transaction involves two parties—the payer and the payee. Almost a millennia ago, Venetian traders worked out that this process could be tracked by what we now call double-entry bookkeeping:
‘All the creditors must appear in the Ledger at the right-hand side, and all the debtors at the left. All entries made in the Ledger have to be double entries—that is, if you make one creditor, you must make someone debtor.’ Luca Pacioli as cited in {Gleeson-White, 2011 #4185, p. 91}[5]
Today, all businesses and banks manage their finances via double-entry bookkeeping. To paraphrase your quip about physics, with respect to money, double-entry bookkeeping is the law, and everything else is fraud.
[1] https://x.com/CtrlAltFutura/status/1403337457148518407.
[2] https://x.com/ValaAfshar/status/1878093140122653043.
[3] https://x.com/elonmusk/status/1869841055455257050.
[4] https://x.com/elonmusk/status/1866151552617939319.
[5] Double-entry bookkeeping was developed in Venice in the 1200s, and spread across Europe in the late 1400s after the invention of the printing press. Luca Pacioli’s Summa de arithmetica, geometria, proportione et proportionalità was the definitive treatise.
Payer/Payee is the fundamental process of money. However, the even more fundamental delusion is that all new money is created as debt, or the illusion of debt as is the case with government created money which despite the fact that government "deficits" are treasury bonds they are simultaneously monetary payments to the private sector. Thats MMT.
The deepest problem of economics is that the banks wield the monopoly monetary paradigm of Debt ONLY for private commercial and individual money creation. This is an equivalent paradigmatic dominance to the monopoly paradigm that the Roman Catholic church wielded which was Salvation Via Roman Catholic Sacraments ONLY and which led to The Reformation.
By strategically integrating a new paradigm for private commercial and individual money creation into the Debt ONLY system we can create more individual economic freedom and systemic economic free flowingness.
With even a cursory look at historical paradigm changes two fundamentals present themselves:
1) All new paradigms are in complete conceptual opposition to the present anomalous paradigm and
2) The mental and temporal effects of every historical paradigm change have always been an aspect or aspects of the natural philosophical concept of grace.
Thus the current private and commercial monetary paradigm of Debt ONLY, that is the Burden To Pay and/or Repay, and the new paradigm is Strategic Monetary Grace As In Gifting.