The development of physical productive forces is not cyclical, but
we have a macroeconomic system that follows boom-and-bust cycles.
If the development of physical productive power behaves in a
boom-and-bust cyclical pattern, we have to tolerate the
boom-and-bust cycle of macroeconomic output and the system as a
whole. But if the progress of the physical productive power or the
potential of the increment of physical productive power is
progressive, it is not necessary to tolerate the cyclical behavior
of the macroeconomic system. This does not mean that the business
cycles of microeconomic system (which correspond to the performance
of individual enterprises) should not be tolerated; instead, such
cyclical behavior is necessary to ensure business efficiency that
is based on consumer preferences. Businesses should be allowed to
fail and new businesses should be allowed to emerge based on
efficiency and consumer preferences. But macroeconomic system
failures are not due to consumer preferences-but to the general
illiquidity of consumers arising from a cyclical bad debt crisis as
explained by the System Gap Theory. The illiquidity of consumers is
not a physical phenomenon but a monetary phenomenon; and money that
is not "real" is an abstract quantity, which we can control. That
is why I strongly argue that we could have prevented the collapse
of macroeconomic systems in the US and Europe in late 2007-and the
continuing crisis can be resolved rather quickly if we change the
monetary equation. To do it what was-and is-needed is a new
macroeconomic policy tool and wisdom beyond the Federal Reserve.
General
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