Modern Money Blog Number Twenty One – Responses

Modern Money Blog Number Twenty One – Responses

Budget Deficits and Saving

Responses to Comments on Blog Number Twenty One

by L Randall Wray

New Economic Perspectives (October 28 2011)

Sorry this is late – there were a lot of comments and I am traveling. Before we begin, a note and plea: we are getting an increasing number of emails with comments and questions (sent to NEP email and to mine). Please understand I cannot respond to those – I get hundreds of emails a day and it would consume all of my time to respond individually. That is why I am collecting comments on the Primer page and responding to all at once. I know some people are having trouble posting comments (I do too!) but what I’ve found is that “three’s a charm”: if you hit “post” three times it inevitably works. Sorry about that.

Some of the comments were quite long and dealt with several issues. So this week I am posting most of the text, followed by my response.

Iris: So from my point of view, what you obviously neglect is to insert all the additional references to presupposed material, which us, especially with less “previous knowledge of MMT” could help to better understand the matter you’re dealing with. My impression is for example, that not only general accounting basics are necessary but also knowledge about the structural system of inter-firm-, inter-bank- and government banking-institutions’ accounting to private sector. Would it be asked
to much of a favor for you to perhaps offer, at least via footnotes, these hints too?

Answer: Well there is always a trade-off. We don’t want to get into defining the meaning of “the” (as a former President tried to do). I do presume some knowledge and it is tricky just how much should be assumed and how much explained in detail. Sometimes the reader with less background is probably going to have to accept some statements without fully understanding all the details behind them. I have been leaving out detailed accounting for two reasons: it is more detail than most will want, and it is hard to produce these in Word (and I have no idea how hard it is for our techie to post them to the blog). However, since there have been a number of requests, I will devote a blog to “T Accounts”.

Hugo: Okay, “excess deposits” results in increased “demand for profitable savings vehicles”. And if demand for savings vehicles exceeds supply, the market will adjust. Savers will have to accept lower yields on their savings. Firms would find it more easy to borrow money. Interest rates for corporate bonds would likely decrease (in the financial markets?). But I feel the transmission to an increase in government bonds is somewhat weak here? What you are suggesting seems to be: “Excess deposits seeking profitable savings vehicles”  –> “excess reserves in the interbank lending system” –> “overnight rate maintenance” –> “bond sales” –> “equilibrium” …? But how does “excess deposits” necessarily lead to “excess reserves” here?

Answer: Before I get into a response, Guest responded to Hugo, trying to straighten this out:

Guest: It is a result of double-entry book keeping. Whenever government credits deposits of someone in the banking system, it alse credits banks reserves to create asset that offsets banks deposit liability.

Answer: Okay I am not sure what an excess deposit would be. When I get my paycheck my deposit goes up and surely I do not think it is excessive. I then buy consumption goods and services. I might also make some portfolio decision over what is left, allocating some of my accumulated savings to higher earning financial assets. Hugo says I might bid up bond prices, on both private and government debt, lowering interest rates on the outstanding stock. Right. He is not convinced that a government deficit will put downward pressure on government bonds, however, because he does not see how my “excess deposits” creates “excess reserves”. Remember that reserves are on the asset side of the bank’s balance sheet while deposits are on the liability side. When government makes a payment, both sides go up – the bank’s reserves at the Federal Reserve are credited, and my demand deposit is credited. Most of those additional reserves will be excess reserves (details on this are complicated as reserve requirements are calculated after a lag – let us ignore those details for now). Banks make a portfolio decision: buy something that earns higher interest rate. First they can lend in the overnight, Federal Reserve funds market, pushing that rate down. Next they can buy a close substitute, treasuries (government bonds), and then diversify into other assets. (Note: unless they buy treasuries from the central bank, this shifts reserves about but does not reduce aggregate reserves.) Since central banks target an interest rate (that is, the Federal Reserve funds rate in the US) they will react once the interest rate falls below the target. They will begin to buy treasuries. That eliminates the excess reserves and the downward pressure on interest rates.

Luigi: “The impact of the deficit on bank reserves has been emphasized by the neo-chartalist school (Bell 2001; Wray 1998), but neochartalist writers do not explicitly draw on the conclusion that it supports the complete exogeneity of the long-term rate of interest”. Parguez writes this in 2004, it’s right? How MMT consider long-term rates of interest?

Answer: Sounds okay to me. A central bank CAN target a long term rate (that is, thirty-year treasury bond) and hit it if it wants, but central banks normally do not. Instead, they target the short end and when they want the longer term rates to fall, they make statements like “we expect to hold the overnight rate at a low level for the foreseeable future”. That makes holders of longer maturity bonds more confident that the short term rate will not rise soon – which would cause capital losses. There are a number of approaches to the determination of longer term interest rates: expectations theory, habitat theory, and interest rate parity. As a great philosopher once said “you can look it up”. But in conclusion, yes, MMT agrees that longer rates are complexly determined and are not normally exogenously controlled by central banks.

WH10: Finally, the fear that government might ‘print money’ if the supply of finance proves insufficient is exposed as unwarranted. All government spending generates credits to private bank accounts – which could be counted as an increase of the money supply (initially, deposits and reserves go up by an amount equal to the government’s spending).That’s only half the picture for those concerned.  People perceive government spending as being counteracted by bond sales, so the money supply seemingly does not go up.  HOWEVER, is it not the reality that a significant proportion of bond sales come from bank Primary Dealers, which ‘spend’ from their reserve accounts, such that effectively there is a net credit to deposit accounts (as opposed to them being offset by purchases of bonds out of deposit accounts)?  In other words, it seems we’re almost always ‘printing money’, if this is the case.

Answer: Minsky said: “anyone can create money (things), the problem lies in getting it accepted”. Yes, we are almost always “printing money” in the sense of issuing IOUs denominated in the state money of account. Get over it. On some conditions, that can cause prices of output or of financial assets to rise. It all depends. There is no automatic channel that causes an increase of “money supply” however defined to lead to “inflation”, however defined. And there is nothing that magical with respect to inflation effects of government spending as opposed to private spending. If I get an auto loan to buy a car, on some conditions that could push up car prices and hence the Consumer Price Index (CPI). And we could find that some measure of the money supply also had increased. If government strokes some keys to add a vehicle to its fleet of cars, on some conditions that could push up car prices, the CPI, and some measure of the money supply. Yes, it is a possible outcome and if you really want to point your finger at the increase of the money supply, I guess you can. I would say that it was the increased purchase of autos that in tight markets (full employment, full capacity utilization) would induce manufacturers to increase prices. Note that could also happen without any additional loans or “printing money”.

WH10: Was there a time when the US Government could spend before requiring the Treasury’s account to be marked up?  If we imagine a fiat currency starting out, but Federal Reserve overdrafts are not allowed and the same institutional restrictions that we have today are in place, then what are the accounting statements which allow the government to spend without a positive account?  Does this necessitate the existence and willingness of primary dealers that to have their reserve accounts go negative to facilitate government spending?  Why are they willing to do this?

Answer: Not exactly sure when the US government decided to tie its shoes together by requiring Treasury to have a credit to its account at the Federal Reserve before making a payment, but it could date to creation of the Federal Reserve in 1913. What if there were no Federal Reserve? Bank clearing could take place on the books of the Treasury, and the Treasury could simply credit them with reserves whenever it makes a payment. Even simpler, it could just pay with paper notes or coins. Or, in the old days, with tally sticks. These would be the debt of the government and the financial assets of the nongovernment, accepted in tax payment.

Dave: I guess I’ve missed something (though I’ve reviewed the two previous posts): Given that reserve requirements are defined by the Federal Reserve: How does the non-governmental sector as a whole acquire “excess reserves”, that is, don’t reserves only grow as much as (in proportion to) the surplus the non-governmental sector accumulates from deficit spending? Or do you only mean that SOME agents/banks/actors of the non-governmental sector accumulate “excess reserves”? Or …?

Answer: Banks can get reserves from either the central bank or the treasury. When treasury buys goods and services, bank reserves are credited. We normally call that government spending. When the central bank buys financial assets from banks (that is, buys government bonds, or private debt, or the IOUs of a “borrowing” bank) that also increases bank reserves. But we do not normally call that “government spending”. Really it is, but it is spending on assets not on goods and services (so does not show up in GDP).

Joe: Okay, so we’re starting to get to the answer of “What if people don’t want to buy the bonds?” Perhaps some example numbers, accounts et cetera would make thing a bit more concrete as ‘portfolio preference’ is rather vague. Also, the idea the deficit spending comes first, to provide the reserves to purchase the bonds, seems logical (money must exist before you can buy bonds), but doesn’t the treasury need a positive balance in order to spend? Bond sales increase the balance, so there’s a very strong illusion that the proceeds from bond sales are recycled into the treasury’s account (which I believe is the traditional, pre-1971 view).  Did the interpretation just change in 1971; pre-1971 money from bond sales went into Treasury account, post-1971 cash assets are converted to bond assets while new money is put into Treasury accoumt? And how can the deficit be mandated to be covered by bonds, if you have to wait for preferences to adjust, there must be some time lag between spending and bond sales?  (Sorry, lots of questions, I’m patient, hopefully it’ll all clear up in the coming weeks.)

Answer: Not sure how numbers would help. In the US, where we tied the government’s shoes together, the Treasury first sells bonds to special banks that buy them by crediting the Treasury’s deposit account. Treasury moves the account to the Federal Reserve before spending. These bonds will be bought by the special banks, so at this point the portfolio preferences of the nongovernment sector do not matter. Deficit spending will increase bank reserves dollar-for-dollar (cash withdrawals will reduce that a bit). As discussed the banks will try to buy earning assets such as government bonds. The Federal Reserve and Treasury coordinate how many bonds will need to be sold by the two of them to offer earning assets as alternatives to reserves, to allow the Federal Reserve to hit its interest rate target. A complication is that in the Treasury’s new issue market, it pursues “debt management”, offering a range of maturities. Occasionally the Treasury might offer a maturity that does not match “portfolio preferences” of potential purchasers.

Hugo: According to Vickrey, private capital in the US will have trouble seeking profitable productive investment. Are government bond sales needed as savings vehicles for the private sector to prevent assets bubbles?

Answer: Not sure I follow. To prevent asset bubbles, I’d use rules, regulation, and supervision of financial institutions. The problem really is not one of “excess saving”, so trying to “soak up” saving through government bond sales will not resolve it. If I want to speculate in Martian ocean-front condo futures, I do not need any savings. All I need is a bank.

Kostas: “In reality, the Chinese receive Dollars (reserve credits at the Fed) from their export sales to the US (mostly), then they adjust their portfolios as they buy higher earning Dollar assets (mostly, Treasuries)”. It would be nice if you could elaborate on how foreign central banks get a hold of dollars in their Federal Reserve accounts. My understanding is that this happens when central banks (of surplus countries) intervene in foreign exchange markets in order to maintain their currency foreign exchange value (by offering their currency in exchange for foreign assets). Is there any other way for Bank of China to acquire US Dollar reserves?

Dirk: Of course. The People’s Bank of China can borrow/buy dollars from abroad. Not only from the US, but from anybody who holds dollars. In case of buying dollars, the counter-party has to accept yuan (not a problem) and the exchange rate might be changing (indeed a problem).

Answer: Thanks, Dirk, I think you answered.

Neil: “Recipients of government spending then can hold receipts in the form of a bank deposit, can withdraw cash, or can use the deposit to spend on goods, services, or assets”. Can’t they also swap it for another currency with a willing party at an agreed exchange rate?  So the ‘shifting of pockets’ surely has an exchange effect as well, not just an interest effect. Or do you see currency exchange as just another asset purchase and that it will effect the macroeconomy in the same way as any other asset price shift?

Answer: Yes, I can use a dollar deposit to buy foreign stuff, take vacations abroad, or to buy foreign assets. The dollar deposit will be held by someone else. My spending abroad can affect the exchange rate.

Andy: What effect, if any, does a reduction in bank deposits have on central banks’ day to day operations? For example if repayment of private debt is greater than bank lending and fiscal tightening by governments at the same time.

Answer: Let us say bank deposits decline due to loan repayment. When it comes time to calculate reserve requirements (in the US, more than a month later), banks will find they have excess reserves relative to what is required on their deposits. They will attempt to individually reduce reserves held by purchasing bonds, et cetera. That just shifts the reserves about. But it also pushes the overnight interest rate down. The central bank responds with an open market sale of treasuries. So it “forces” the hand of the central bank that reacts to the interest rate decline.

Suspicious: When will we get the MMP explaining how to credibly regulate a banking sector? Banks have always managed to circumvent doctrines, ideologies, regulations, et cetera and to wreck havoc the financial system. What’s the purpose of the central bank reserves not being inflationary if banks can loot it via control fraud, and raise prices like in the commodities, and even cause hyperinflation if only they were not as greedy as preventing anyone but themselves to make money on it?

Modern Money Blog – Number Twenty One

Government Budget Deficits and the “Two Step” Process of Saving

by L Randall Wray

New Economic Perspectives (October 24 2011)

In the previous two weeks we have shown that government budget deficits take the form of net credits to bank reserves at the central bank and as well to the deposit accounts of those who receive net government spending. Normally, this leads to excess reserves that are drained through the offer of government bonds, sold either by the central bank or by the Treasury. Hence, budget deficits normally result in net positive acquisition of Treasuries. But even if they do not, the nongovernment sector ends up with net saving in the form of claims on government.

To put it as simply as possible: government deficit spending creates nongovernment sector saving in the form of domestic currency (cash, reserves, Treasuries). This is because government deficits necessarily mean the government has credited more accounts through its spending than it debited through its taxes.

Remembering the comments on Blog Twenty we need to make clear that we are talking about net saving in the domestic currency. The domestic nongovernment sector can also net save in foreign currency assets. And some members of the nongovernment sector can save in the form of claims on other members of the domestic nongovernment sector – but that all nets to zero.

It is now obvious from the previous discussion that the nongovernment savings in the domestic currency cannot pre-exist the budget deficit, so we should not imagine that a government that deficit spends must first approach the nongovernment sector to borrow its savings. Rather, we should recognize that the government spending conceptually comes first – it is accomplished by credits to bank accounts. And finally we recognize that both the resulting budget deficit as well as the nongovernment’s savings of net financial assets (budget surplus) are in this sense residuals and are equal.

As a side note (for now) those who claim that the US government must borrow Dollars from thrifty Chinese don’t understand the most basic accounting. The Chinese do not issue Dollars – the US does. Every Dollar the Chinese “lend” to the US came from the US. In reality, the Chinese receive Dollars (reserve credits at the Fed) from their export sales to the US (mostly), then they adjust their portfolios as they buy higher earning Dollar assets (mostly, Treasuries). The US government never borrows from Chinese to “finance” its budget deficit. Actually, the US current account deficit provides Dollar claims to the Chinese, and the US budget deficit ensures these are in the form of “currency” (broadly defined to include cash, reserves, and Treasuries).

More generally, as J M Keynes argued, saving is actually a two-step process: given income, how much will be saved; and then given saving, in what form will it be held. Thus many who proffer the second objection – that nongovernment portfolio preferences can deviate from government spending plans – have in mind the portfolio preferences (that is, the second step) of the nongovernment sector. How can we be sure that the budget deficit that generates accumulation of claims on government will be consistent with portfolio preferences, even if the final saving position of the nongovernment sector is consistent with saving desires? The answer is that interest rates (and thus asset prices) adjust to ensure that the nongovernment sector is happy to hold its saving in the existing set of assets. Here we must turn to the role played by government interest-earning debt (“treasuries”, or bills and bonds) to gain an understanding.

For the purposes of this discussion, we can assume that anyone who sold goods and services to government did so voluntarily; we can also assume that any recipient of a government “transfer” payment was happy to receive the deposit. Recipients of government spending then can hold receipts in the form of a bank deposit, can withdraw cash, or can use the deposit to spend on goods, services, or assets.

In the first case, no further portfolio effects occur. In the second case, bank reserves and deposit liabilities are reduced by the same amount (this can generate further actions if it reduces aggregate banking system reserves below desired or required levels – but those are always accommodated by the central bank to the extent that attempts by banks to adjust reserve holdings cause the targeted interest rate to move away from target). In the third case, the deposits shift to the sellers (of goods, services or assets). Only cash withdrawals or repayment of loans can reduce the quantity of bank deposits – otherwise only the names of the account holders change.

Still, these processes can affect prices – of goods, services, and most importantly of assets. If deposits and reserves created by government deficit spending are greater than desired at the aggregate level, then the “shifting of pockets” bids up prices of goods and services and asset prices, lowering interest rates. Modern central banks operate with an overnight interest rate target.

When excess reserves cause banks to bid the actual overnight rate below the target, this triggers an open market sale of government bonds that drains excess reserves. (As discussed in the response to comments last week, we modify this if the target interest rate is zero; or if the central bank pays a support rate below which excess reserves cannot push market rates.)

So the answer to the second objection about inconsistency of portfolio preferences is really quite simple: asset prices/interest rates adjust to ensure that the nongovernment’s portfolio preferences are aligned with the quantity of reserves and deposits that result from government spending – and if the central bank does not want short-term interest rates to move away from its target, it intervenes in the open market.

It is best to think of the net saving of the nongovernment sector as a consequence of the government’s deficit spending – which creates income and savings. These savings cannot pre-exist the deficits, since the net credits by government create the savings. Hence, the savings do not really “finance” the deficits, but rather the deficits create an equal amount of savings.

Finally, the fear that government might “print money” if the supply of finance proves insufficient is exposed as unwarranted. All government spending generates credits to private bank accounts – which could be counted as an increase of the money supply (initially, deposits and reserves go up by an amount equal to the government’s spending).

However, the portfolio preferences of the nongovernment sector will determine how many of the created reserves will be transformed into bonds, and incremental taxes paid will determine how many of the created reserves and deposits will be destroyed.

Next week: we’ll get more deeply into bond sales by government and impacts of budget deficits on interest rates.

The upward redistribution of income in the United States 1979 to 2007

by David F Ruccio

Real World Economic Review Blog (October 27 2011)

If it wasn’t clear before it should be now: the distribution of income in the United States has become increasingly unequal over the course of the past three decades.

It is increasingly unequal based on “market incomes”, and it is only slightly less increasingly unequal after taking consideration transfers and taxes. The result in both cases is that the distribution of income in the United States has become grotesquely unequal.

That’s the conclusion of the new study by the nonpartisan Congressional Budget Office {1} {2}. The study includes a set of basic facts and figures that should figure in every discussion of the origins of the current crisis as well as the current political debates concerning taxes, deficits, and much else.

It’s also a challenge to economists to either stop ignoring the conditions and consequences of the unequal distribution of income or to go beyond the facile invoking of “technology and globalization” as its causes – and to come up with a real analysis of how this increasingly unequal distribution of income created the conditions for the  crisis of 2007 and 2008 as well as of the changing patterns of US capitalism starting in the mid-1970s that led to concentration of income at the top.

Here, in short, is what we know.

First, for the one percent of the population with the highest income, average real after-tax household income grew by 275 percent between 1979 and 2007 while, for others, income grew much less: forty percent for the sixty percent of the population in the middle of the income scale, only twenty percent of the population with the lowest income. The result was that, between 2005 and 2007, the after-tax income received by the twenty percent of the population with the highest income exceeded the after-tax income of the remaining eighty percent.

Second, a large part of the explanation of why incomes became so unequally distributed between 1979 and 2007 was because of the increase in the concentration of “market income” (income measured before government transfers and taxes) in favor of higher-income households. In other words, such households’ share of market income was greater in 2007 than in 1979. Specifically, over that period, the highest income quintile’s share of market income increased from fifty percent to sixty percent. The share of market income for every other quintile declined.

Finally, while income transfers and taxes make the distribution of income slightly less unequal, the fact is, the equalizing effect of transfers and taxes on household income was smaller in 2007 than it had been in 1979. That’s in part because the distribution of transfers shifted, moving away from households in the lower part of the income scale, and because the overall average federal tax rate fell by a small amount and the composition of federal revenues shifted away from progressive income taxes to less-progressive payroll taxes. As a result of those changes, the share of household income after transfers and federal taxes going to the highest income quintile grew from 43 percent in 1979 to 53 percent in 2007. The share of after-tax household income for the one percent of the population with the highest income more than doubled, climbing from nearly eight percent in 1979 to seventeen percent in 2007.

Those are the basic facts and figures about the increasingly unequal distribution of income – before and after taxes – in the United States between 1979 and 2007.

The next step is to analyze why the distribution of income became increasingly unequal and what its consequences are. I’ll be investigating and writing about those issues in the days and weeks ahead. I hope others will, too …




USA Going Down

by David F Ruccio

Real World Economic Review Blog (October 26 2011)

In the United States the average worker’s pay was up last year but the situation of the average worker got worse.


As David Cay Johnston explains {1},

There were fewer jobs and they paid less last year, except at the very top where, the number of people making more than $1 million increased by twenty percent over 2009.

In other words, median pay fell (again) in 2010, by 1.2 percent, to $26,364. While the number of Americans with any work fell (again) last year, down by more than a half million from 2009 to less than 150.4 million.  See the chart.

The only reason average (mean) pay was up last year (to $39,959 last year, up $46 over 2009) was because the number of workers making $1 million or more rose to almost 94,000 from 78,000 in 2009 (and the number of workers making more than $50 million also rose in 2010 to 81, up from 72 the year before).

Yep, the plight of the average (median) worker went down, in terms of both pay and employment, while the situation for those at the very top continued to improve.

According to Johnston,




The data show why protests like Occupy Wall Street have so quickly gained momentum around the country, as people who cannot find work try to focus the federal government on creating jobs and dealing with the banking sector that many demonstrators blame for the lack of jobs.






The Global Wealth Pyramid

by David Ruccio (October 28 2011)

The unequal distribution of global wealth by individuals (not countries) should give us pause. Even the Wall Street Journal is impressed:

Here’s another stat that the Occupy Wall Streeters can hoist on their placards: The world’s millionaires and billionaires now control 38.5% of the world’s wealth.

How do we know? Because Credit Suisse has just published the second edition of its Global Wealth Report, in which they calculate the distribution of the world’s total wealth.

As readers can see above, the figures for mid-2011 indicate that 29.7 million adults, about 1/2 of one percent of the world’s population, own more than one third of global household wealth.

Of this group, they estimate that:

* 85,000 individuals are worth more than $50 million,

* 29,000 are worth more than $100 million, and

* 2,700 have assets above $500 million.

Compare this to the bottom of the pyramid: 3.054 billion people, 67.6 percent of the world’s adult population, with assets of less than $10,000, who own a mere 3.3 percent of the world’s wealth.

Add another billion people with assets between $10,000 and $100,000 and we have 91.2 percent of the world’s adult population that owns something on the order of 17.8 percent of total world wealth.

Clearly, global capitalism has enriched a tiny minority while leaving the vast majority at the bottom of the global wealth pyramid.

A Lesson in Practical Magic

by John Michael Greer

The Archdruid Report (October 19 2011)

Up to this point in our discussion of the intersection between peak oil and magic, we’ve mostly talked about what doesn’t work. That couldn’t be avoided, since the misunderstandings of magic that run barefoot through contemporary culture have to be dealt with before it’s possible to make sense of anything more substantive.

Still, I hope that by this time my readers have grasped that magic is not a substitute for technology, a way of making an end run around environmental limits and the laws of physics, or for that matter a means of forcing society as a whole to deal constructively with the rising spiral of crises that dominates the emergent history of our time. It’s an old and subtle craft that deals with the interface between consciousness and the universe of our experience, using the buttons and levers of the nonrational mind; it has remarkable potentials for good and ill; and some of those potentials have quite a bit to offer in the face of peak oil. Now that the misconceptions have been more or less cleared away, we can get down to the details of practical magic.

There’s a significant parallel between the material we’re about to cover and the “green wizardry” of the 1970s appropriate-tech movement that we discussed at such length a little while back. The key to green wizardry is that it starts with the individual; instead of pursuing vast top-down changes, the organic gardeners and renewable-energy wonks of the Seventies put gardens in their own backyards, solar water heaters on their own roofs, and insulation in their own attics. In the same way, the effective practice of magic begins with the individual student of the art, and works outward from there.

How to begin, and how to work outward from there, varies from one system of magic to another, and very often from one teacher to another. Since the purpose of this blog is to discuss peak oil and topics related to it, rather than to offer a course in magical training for beginners, I’m going to skip most of the technical details here; those who are interested can find them in the standard textbooks of the art. It’s more useful for the present purpose to give the context in which those details find their place and have their meaning, and that might best be done by introducing you, dear reader, to one of the more colorful figures in the entire history of magic.

If I say that Josephin Peladan was a French conservative of the nineteenth century, nearly every person who reads that phrase will misunderstand it; the English-speaking world has never had anything like continental European conservatism, and even in Europe the conservatism of Peladan’s time is all but extinct. If I go on to say that he was one of the leading lights of the Decadent movement in French literature, the author of lushly erotic and wildly popular novels, as well as a dandy and an esthete who out-Gothed today’s Goths a hundred and twenty years in advance, my readers may have some difficulty squaring that with my first comment; and when I go on to explain that he was at one and the same time a devout if eccentric Roman Catholic and a significant figure in the Paris occult scene of his time, I trust I will be forgiven for listening for the distant popping sound of readers’ heads exploding.

Peladan was all of that, and quite a bit more. He’s the man Oscar Wilde was imitating when Wilde went strolling through London in velvet clothes with a drooping lily in his hand. Peladan claimed descent from the ancient Chaldean sages, sponsored a series of Rosicrucian gallery shows that came within an ace of changing the history of Western art, and ran an occult order that had no less a figure than Erik Satie as its official composer. (Fans of Satie’s early music will recall his Sonneries de la Rose+Croix; those were written for the meetings of Peladan’s order.) “Do you know what is meant by the expression ‘That man is a character’? Well, a mage is that above all”, Peladan wrote, and he certainly was.

All the colorful details, though, were in the service of an utterly serious purpose. Peladan belonged to that minority of late nineteenth century thinkers who recognized that the European societies of their day were headed for disaster. More clearly than any of his contemporaries, he understood that what was facing collapse was not simply political or economic, but the entire cultural heritage – aristocratic, Christian, Latinate – that linked the Europe of his time with its historic roots in the ancient world. What set him apart from the sentimental conservatives of his time and ours, though, is that he recognized that this heritage was already past saving. “We do not believe in progress or in salvation”, his Manifesto of the Rose+Cross announced to a mostly bemused Paris in 1891. “For the Latin race, which goes to its death, we prepare a final splendor, to dazzle and make gentle the barbarians who are to come”.

His work as an operative mage and a cultural figure focused on that theme with the frantic intensity of a man who knows he’s going to lose. His core work of magical theory and practice, Comment on devient mage (How To Become A Mage, 1892), contains not a single magical ritual. Its theme, to borrow a typically ornate term from his writing, was ethopoeia – the making (poesis) of an ethos, one that would enable individuals to stand apart from the collective consciousness of their time in order to think their own thoughts and make their own choices. “Society”, Peladan wrote, “is an anonymous enterprise for living a life of secondhand emotions” – and the particular emotions on offer, as he discussed in some detail, are not picked at random. Ioan Culianu’s description of modern industrial societies as “magician states” that rule by manufacturing a managed consensus by the manipulation of nonrational lures would have been music to Peladan’s ears.

His unwavering focus made How To Become A Mage the most detailed text of its time on the fine art of freeing the individual will, sensibility, and understanding from bondage to unthinking social reactions. It was very much a book of its era, full of references to current events, and it also uses the utterly Peladanesque strategy of infuriating the reader by poking as many of those social reactions as possible. Liberal, conservative, radical or reactionary, every reader of Peladan’s treatise could count on finding a good reason to throw it at the nearest wall, and the effect would be even stronger today, since the cultural differences between Peladan’s time and ours would step on a whole new layer of sore toes. In spare moments, I’ve gotten about halfway through making an English translation of How To Become A Mage, but it’s purely a private hobby; it’s hard to imagine a more unpublishable book.

Still, the same theme appears throughout the literature of the nineteenth century occult revival. Partly that’s because everybody in the occult scene read Peladan, but it was also because the nineteenth century saw the emergence of the first generation of effective mass media and the foreshadowings of the mass movements and political thaumaturgy of the century to come. An extraordinary range of magical literature at the time, and right up through the Second World War, assumed as a matter of course that contemporary European civilization was, as we now like to say, circling the drain.

Whether “the barbarians who are to come” would be domestic or imported was a matter of some discussion – Peladan himself thought that Europe would eventually be conquered by the Chinese, a theory that seems rather less far-fetched today than it did in his time – but very few people in the occult scene doubted that they worked their magic in the twilight years of a dying civilization. Of course they were quite correct; the old cultures of Europe, in every sense Peladan would have recognized, died in the trenches of the First World War; the forty years from Sarajevo in 1914 to Dien Bien Phu in 1954 saw Europe’s nations flattened to the ground by two catastrophic wars, overwhelmed by cultural change, and reduced from the status of masters of the planet to pawns in a game of bare-knuckle politics played with gusto by the United States and the Soviet Union.

All this made Peladan’s lessons more than usually relevant, because the catastrophe he foresaw had a clear magical dimension. Read contemporary accounts of the way that Europe stumbled into war in 1914 and it’s hard to miss the weirdly trancelike state of mind in the warring nations, as vast crowds cheered the coming of hostilities that would cost millions of them their lives, and left-wing parties that had pledged themselves to nonviolent resistance in the event of war forgot all about their pledges and swung into step behind the patriotic drumbeats. The collective consciousness of the age was primed for an explosion, partly by the thaumaturgy of any number of competing political and economic interests, and partly by the rising pressures of intolerable inner conflicts that, in magician states ruled by a managed consensus, was prevented from finding a less catastrophic form of expression.

It took an extraordinary degree of mental independence to stay clear of the trance state and its appalling consequences, but that was one of the things the magical training available in those days was intended to do. Peladan was inevitably the most outspoken of the period’s occult writers on this subject, as on so many others, and filled a good many of the 22 chapters of How To Becone A Mage with advice on how to open up an insulating space between the individual mind and the pressures that surround it. Many of the same points, though, are made in quieter ways by other writers of the time, and in the instructional papers of magical lodges of the same period. All this advice is aimed at the social habits of another time and has not necessarily aged well, but the basic principles still stand.

The first of those principles is to limit and control the channels by which the mainstream media and their wholly owned subsidiary, public opinion, get access to your nervous system. Now of course that raises the hackles of quite a few people nowadays. When I suggested two months back that those who wanted to reclaim some sense of meaning from today’s manufactured pseudoculture might consider pulling the plug on popular culture as a good first step, I fielded the inevitable responses insisting that popular culture was creative, interesting, et cetera, so why did I have such a grudge against it?

It was a neat evasion of my point, which is that contemporary mass-produced popular culture exists solely for the purpose of emptying your wallet and your brain, not necessarily in that order. In terms of the classification I’ve suggested in recent posts, popular culture is a vehicle for mass thaumaturgy; it works, as mass thaumaturgy always works, by inducing you to think less and react more. Thus, in the strictest sense of the word, it makes you more stupid. I don’t think any of us can afford that right now.

One point Peladan made that remains valid today is that spending time among a crowd of people whose minds and conversation are utterly conditioned by popular culture is not noticeably different from getting your popular culture firsthand. If anything, it’s even more of an issue these days than it was in his; I suspect most of us have had the experience of hearing a conversation between two people in which every single word spoken was a sound bite from some media source or other. There’s no need to become a hermit, but it’s a good idea to choose your crowds with some care.

Steps such as these will cut down on the influence that the mass thaumaturgy of our time has over your thoughts, feelings, and decisions. Still, the empty space has to be filled with something better, or there won’t be much of an improvement; this is the second of the principles I mentioned earlier. That’s the perennial mistake of Romanticism, the notion that all you have to do is fling aside the fetters of social expectations and do what comes naturally. The problem here is of course that “what comes naturally” to every one of us is the product of a lifetime spent absorbing social cues from the people around us and the media directed at us, all of which triggers a set of unthinking and unconscious reactions we share with our nonhuman relatives: social primate see, social primate do.

Being who he was, and living when he did, Peladan phrased that dimension of the work in terms of art, music and literature, and that’s certainly one of the available options. If you happen to be a dandy and an esthete, and live in a city with good art galleries, concert venues, and the like, you could do worse than to follow his recommendations – he was particularly partial to Renaissance paintings, German classical and romantic music from Bach through to Wagner, and Shakespeare’s plays – but I don’t recommend copying him and Oscar Wilde and strolling down the streets with a lily in your hand. Their wives clearly had to put up with a lot. (You didn’t know that Wilde was married, did you? Her name was Constance; she was an initiate of the Hermetic Order of the Golden Dawn, the most influential magical order in late nineteenth century Britain; and yes, she did have to put up with a lot.)

Still, that’s only one option, and the last thing you should do in this sort of practice is rely on someone else’s notions of what ought to feed your mind. “Fear the example of another, think for yourself”, wrote Peladan; “this precept of Pythagoras contains all of magic, which is nothing other than the power of selfhood”. As I suggested in the earlier post {1} mentioned a few paragraphs back, the important thing is simply to choose things to read, watch, hear, and do that you consider worthwhile, instead of passively taking in whatever the thaumaturgists-for-hire of the media and marketing industries push at you. What falls in the former category will vary from person to person, as it should.

All this seems relatively straightforward, and indeed it’s quite possible to get to the same decision by plain reasoning starting, say, from the shoddy vulgarity of mass-produced entertainments, and going from there to the realization that there’s much more interesting mind food to feast upon. That making such choices also makes it easier to think clearly would in that case be merely a pleasant side effect of good taste. The operative mage in training does the same thing deliberately, not just to think clearly but to feel and will clearly as well. As the training proceeds, however, those effects begin to reveal another side, which is their effect on other people.

Peladan hinted at this effect in How To Become A Mage, though custom in the occult scene back in his time didn’t favor spelling out the details.

Do not look for another measure of magical power than that the power within you, nor for another way to judge a being than by the light that he sheds. To perfect yourself by becoming luminous, and like the sun, to excite the ideal life latent around you – there you behold all the mysteries of the highest initiation.

What he did not quite say is that “the ideal life latent around you” is in other human beings, and that – especially in times of cultural crisis – stepping outside the lowest common denominator of the mass mind has an effect rather like induction in electrical circuits; put another way, it can be as catchy as a lively new tune.

You can catch that tune, so to speak, from a person; you can catch it from a book, which is why Peladan wrote his 22 novels, each of them exploring some aspect of the relation between the initiate and a corrupt society; you can catch it from other sources, the way Rainier Maria Rilke did from a statue of Apollo; you can also catch it all by yourself, by climbing out of collective consciousness for some other reason and discovering that you like the view. Now of course far more often than not, those who step out of the collective consciousness of their society promptly jump back into the collective consciousness of a congenial subculture, which from a magical perspective is no better – thinking the same thoughts as all your radical friends is just as much secondhand living as is thinking the same thoughts as the vacuous faces on the evening news – but there’s always the chance of getting beyond that, and some subcultures make it easier to get beyond that than others.

Does this seem vague and impractical? If so, dear reader, I would encourage you to glance back over the history of the peak oil movement. Fifteen years ago, next to nobody anywhere was talking about the hard fact that global oil production was approaching hard planetary limits. Ten years ago, there were people talking about it, but they were voices in the wilderness dismissed by all right-thinking people. Five years ago, the idea that an archdruid would take an active part in a national and international conversation on the future of industrial society might have made a great idea for a comedy skit. This year – or, more precisely,a few weeks from now – the archdruid in question will be speaking at ASPO-USA’s annual conference in Washington DC {2}, practically in the shadow of the Capitol. Five, ten, and fifteen years from now? We’ll see.

Many factors contributed to the remarkably fast rise of the peak oil movement, to be sure. Still, from the perspective of an operative mage, it’s hard to argue against the idea that the induction effect Peladan didn’t quite mention – the magical equivalent, to be precise, of personal example – had at least some role in it. As for the deeper implications and applications of that effect – well, here again, that’s a subject for next week’s post.


On a note that Peladan would have appreciated, I’m delighted to announce that Rise & Fall, a modern dance piece choreographed by Valerie Green and performed by DanceEntropy, will have its premiere at the Baruch Center in New York City on January 20 to 22 2012. Regular readers will remember that Rise & Fall is partly inspired by my book The Long Descent {3}. Further information about Rise & Fall and its companion piece, Inexplicable Space, can be found at {4}. I’d encourage any of my readers who will be in the New York City area then, and enjoy modern dance, to take it in.


John Michael Greer is the Grand Archdruid of the Ancient Order of Druids in America {5} and the author of more than twenty books on a wide range of subjects, including The Long Descent: A User’s Guide to the End of the Industrial Age (2008), The Ecotechnic Future: Exploring a Post-Peak World (2009), and The Wealth of Nature: Economics As If Survival Mattered (2011). He lives in Cumberland, Maryland, an old red brick mill town in the north central Appalachians, with his wife Sara.

If you enjoy reading this blog, you might want to check out Star’s Reach {6}, his blog/novel of the deindustrial future. Set four centuries after the decline and fall of our civilization, it uses the tools of narrative fiction to explore the future our choices today are shaping for our descendants tomorrow.








The way to get man back on his feet

Time has come to abandon the disease era of medicine. We have to concentrate on the whole human organism for the future management of altered physiologies.

by Professor B M Hegde

The Hindu (October 22 2011)

“There is no science of man”, wrote Nobel Laureate Alexis Carrel in his celebrated book Man, the Unknown (1935). Modern medicine, even today, nearly 85 years after the death of conventional science following Werner Heisenberg’s Uncertainty Principle, is buried in the linear science of Newtonian Physics which believes that man is made up of matter, which follows certain deterministic predictability patterns. That was before the new awareness in science of the atom having been made up of smaller sub-atomic elements. Even more earth-shattering was the discovery that atoms emit various strange energies such as X-rays and radioactivity.

Newer discoveries in physics showed that matter and energy are the two sides of the same coin – a duality. (Hans Peter Durr). One should read his article, “Matter is Not Made Out of Matter”, for the lay people to get a better idea. The human body is but the human mind in an illusory solid shape. As the famous Johns Hopkins physicist, Richard Conn Henry, put it in 2005, “This world is immaterial – mental and spiritual”. Atoms are made out of invisible energy; not tangible matter. Quantum physics speaks a strange language of “now you see it, now you don’t”. Each atom or molecule has its own unique energy signature.

Everything in this world, including you and me, radiates our unique energy signature. This new science, which will be the new science of man, nullifies our idea of organ based diseases, which we started 450 years ago from the time of Vesalius. All organs have their cells and atoms that have their unique energy signature. Human body is a colony of fifty trillion happy individual human cells that did exist as unicellular organisms for millions of years before getting together as this multicellular colony. Fritz-Albert Popp, a German physicist, has been able to map all our cells using his biophoton camera where he defines “health as a state where the cells are vibrating in synch with one another; disease is when they fall out of synch!” The latest development of science has now accepted the definition of Whole Person Healing (WPH) for future. (Late Professor Rustum Roy at the IOM meeting in February 2010). Time has come to abandon the disease era of medicine. We have to concentrate on the whole human organism for the future management of altered physiologies. The new definition of health is “enthusiasm to work and enthusiasm to be compassionate”. This comes close to the definition of health in Ayurveda, a much more scientific healing art, which followed quantum physics from day one long before physicists discovered quantum physics. Durr does write that the concept of Indian advaita is a better understanding of quantum world compared to his definition of a-duality.

Our old model had a linear structure which followed the Ford Motor style assembly line. If biochemical transmission failed between points A and B, the precursor chemical could accumulate at point A and point B will be depleted of it. The holistic model is that if there is any such lapse, the effect could be felt in multiple areas and systems. One example will clarify this. When you are bitten by a spider you get a severe swelling and itching in the area due to release of the powerful histamine, locally. But if you treat that with an antihistamine, the latter will go round everywhere and have dangerous distant effects even in the brain. While histamine increases capillary permeability locally producing swelling, in the brain histamine enhances the neuronal function for better output. In our present thinking we give you antihistamine and your itching stops but the same antihistamine blocks the brain histamine levels and your brain cells function less, making you very drowsy! This tells us why the biggest killer today is Adverse Drug Reaction (ADR). Further studies have shown that any drug we give helps only because of the faith the patient has got in the doctor (placebo) and the drug has only side-effects! This earth-shaking discovery was made recently in a multi-centric study in the four leading universities. (Science Translational Medicine, March 2011).

Biological systems like man are redundant. This redundancy makes the same signal to be used in multiple places in the body to achieve many things economically with varied behavioural functions. This was the fallacy of our old reductionist model where we thought one defect one effect and one drug molecule to rectify it. That is why nature has just given us 25,000 genes. One gene could look after so many functions. In addition, we have trillions of genes acquired from a multitude of germs that have become a part of us over millions of years and they live a symbiotic existence, the so called human meta-genome. When we disturb the germs inside us, we fall sick! This shows how foolish our expensive search for genetic modelling and genetic engineering, including stem cell research is. In fact, studies have elegantly shown that body cells, if needed, could transform themselves into pluripotent stem cells. Richard Becker showed way back in the 1950s that while a bone fractures, the blood clot seen under the periosteum could make the red blood cells there to gradually acquire a nucleus and then put out pseudopodia to become stem cells to heal the fracture – holistic natural healing!

Physicists have failed to inform the lay public of the purely mental nature of the universe (man included) and biologists and physicians are yet to understand quantum physics. There is a nice simple book by a Nobel Laureate biologist; Albert-Szent Gyorgyi, Introduction to Submolecular Biology (1960). Today bio-chemistry provides the mechanistic foundation for biomedicine. That branch of science is so out dated that our researchers have no understanding of the molecular mechanisms that truly provide for life. The very word animate comes from the proteins in the genetic chain. They twist and bend like a snake to give us mobility at the molecular level right up to our movements! In truth, quantum properties of matter can influence the biochemical reactions as shown above. It is the invisible forces of electromagnetic energy that keep us alive and all those frequencies like cellphones, microwave ovens, radio frequencies and even the scalar energy affect our DNA, RNA and protein synthesis. Similarly the right frequencies of electromagnetic energy could be used for healing any cell in any organ under any circumstance. We are using such frequencies to treat killer diseases like heart attacks, brain attacks and any other damage in the cells of any organ. An added advantage is that energy signals travel at a phenomenal speed of 1, 86,000 miles per second, while chemical transmission is just one centimetre per second!! While drugs take months to get one back on one’s feet after a major illness, energy healing takes only hours to days!

Living organisms must receive and interpret environmental signals in order to survive. The signals reach the single cells through their antenna in the cell wall. So our connection with the outside world is through the cell wall, our true brain. The environmental signals are our true saviours, God if you like (Bruce Lipton). When this signal dies, organism dies only to enter another shell to be reborn! Eastern wisdoms like Ayurveda, Tibetan medicine, Chinese medicine and many other systems adopted quantum physics eons ago and their ideas of energy channels in the human body are now proving to be highly scientific. We condemned the whole lot of them as unscientific mainly because of the pressures from the drug and instrument lobbies.

Instead of understanding human physiology properly, modern medicine created the monsters of “killer diseases” which are nothing but deviations in physiology and behaviour from some hypothetical norm as unique disorders and dysfunctions. The gullible public thinks that they are all killer diseases, thanks to the 24×7-hour advertisements. Let us understand the human being and try and set the deranged cell frequencies with suitable alternatives to get man back on his feet.


The writer is a former professor of cardiology, Middlesex Hospital Medical School, University of London and former Vice-Chancellor, Manipal University. His email is hegdebm

(c) The Hindu