Finance at the Threshold: Rethinking the Real and Financial Economies

By Christopher Houghton Budd. Gower, 2011, 239 pgs.

Review by Christopher Schaefer, Ph.D.

Christopher Budd is well known to students of anthroposophy as a writer and lecturer on associative economics, accounting, and finances. Finance at the Threshold: Rethinking the Real and Financial Economics, published by Gower, is a very stimulating effort to integrate Rudolf Steiner’s economic ideas into the mainstream economic debate about the current financial crisis. The book is meant to give Steiner credibility as an economist among an academic audience not familiar with his ideas. It does this in two main ways: first, by using Steiner’s economic insights as a way to understand the present crisis; and second, by suggesting fundamental solutions to the problems of the financial system based on his work. The book is full of intriguing ideas and challenges to mainstream economics. Its basic argument is that the financial crisis is the result of excess liquidity in the global economic system. Budd suggests that in the same way cathedral building in the Middle Ages siphoned off surplus capital, today, gifting to young people and to cultural life in vastly increased amounts could restore the economic and financial system to health by using excess capital productively, a solution first proposed by Rudolf Steiner in World Economy.

The author sees the financial crisis as global, and as representing a new, defining moment in human history that calls into question both our ways of acting and our understanding of economic life. He relies on an image provided by Rudolf Steiner to make this case: “The economic life of a particular time, and the spiritual life of a particular time, hold the same relation as a nut to its shell; the economic life is invariably the shell which the spiritual life has thrown out. It takes its cast from the spiritual life. Today’s is, therefore, the product of an abstract spiritual life.” (World Economy)

From this basic insight Christopher Houghton Budd suggests: 1. The world economy has been global since the beginning of the 20th century, but our behavior and our understanding have not until now recognized this. 2. The financial crisis is due to excess capital seeking ever-increased returns at a time when there are no new markets as such, since most areas of the globe, including the Islamic countries, operate under conditions that allow the free movement of capital and goods. The growth of the international financial market is not only due to the mistaken leverage of assets such as housing stock, but also through the vast sums available to capital markets through pension, mutual, and investment funds. 3. People’s consciousness and economists’ understanding of the international economy is too abstract; their sense of what is really happening is inaccurate. The efficient-market hypothesis of the Chicago School claims that the market will always do the best job of determining true price. But this approach, based on abstract mathematics, assumes that people act rationally and that there are clear cause-and-effect relationships in economic life. As Steiner noted long ago: “Economic processes are distinguished by the fact that we ourselves are within them, therefore we must see them from within. We must feel ourselves inside the economic processes, just as a being would do who is inside the chemist’s retort.…” (World Economy) Here Steiner anticipates George Soros, who argues that the economic and financial system is reflexive in nature, and that there are no independent variables for determining either price or behavior. The author cites Soros approvingly, “Let us examine the main assumptions of the theory of perfect competition. Those that are spelled out include perfect knowledge; homogeneous and divisible products; and a large enough number of participants so that no single participant can influence the market price… The assumption of perfect knowledge is suspect because understanding a situation in which one participates cannot qualify as knowledge.…” Furthermore, “The shape of supply and demand curves (which supposedly determine price) cannot be taken as independently given, because both of them incorporate the participants’ expectations about events that are shaped by their own expectations… Nowhere is [this] more clearly visible than in financial markets.…” Steiner also noted that a calculation of true price depends on whether one is a producer, trader, or consumer, suggesting that there are really three different equations for determining price.

It was from this insight that he suggested the importance of an associative economics that would bring consumers, traders, and producers together in associations in order to arrive at an approximation of true price. 4. The author makes five basic recommendations for renewing and transforming the international financial system. The first is to recognize that the world economy is global and will require an international reserve currency, such as John Maynard Keynes suggested with the creation of the “bancor.” Such a suggestion rests on the understanding that money is an agreement among people about a medium of exchange, and is based on the economic activity of a society made visible through loan and purchase transactions. Secondly, the international economic and financial system will need to be self-administered by associations of consumers, traders, and producers. Thirdly, as one would expect given the author’s previous work, he advocates that the financial system needs to rely much more on accounting, and in particular, double-entry book-keeping, to connect individuals to economic life (micro-economics) and to the broader field of macro-economics. Greater reliance on accounting would create a self-balancing economics, as those who required liquidity would need to be balanced by those offering liquidity, so that all accounts would sum to zero. The fourth recommendation, articulated rather poetically, is a plea to recognize the existence of a “choir of cultures” (free cultural life); a group of states (rights life); and a global world economy, each of which needs to be independently administered according to its own inherent principles. The last proposal, previously mentioned—and to my mind, critical—is to recognize the need to spend the economic system’s inevitable excess liquidity through gifting to youth and to educational and cultural life.

Finance at the Threshold is an intriguing and stimulating book. Its limitation, besides its high price, is the author’s understandable use of academic language and mode of presentation. I do wish that a simpler, shorter, and cheaper version of this book would be published in paperback, because as a trained economist and social scientist also interested in bringing Steiner’s social and economic ideas to a broader audience, I find Christopher Budd’s examples and conceptual discourse compelling. Many chapters deserve special study: for example, chapter 2, “When the Banks Stopped Lending to One Another,” features many interesting quotes from both liberal and conservative economists; and chapter 4, “It’s the Epistemology, Stupid,” raises basic questions about our current understanding of economics.

For a new edition, I would suggest a deeper look at how the present financial and economic system has created distortions and suffering in the United States and Great Britain, since in these countries economic and financial elites have determined political discourse and government decision-making for the last three decades with devastating consequences for their own citizens and for the world.

I would also recommend that readers look at Martin Large’s book, Common Wealth: For a Free, Equal, Mutual and Sustainable Society (Hawthorn Press, available from the Rudolf Steiner Library), for a complementary presentation on the ways in which threefold perspectives are alive in many efforts at social reform. I can also suggest Gary Lamb’s recent study, Associative Economics: Spiritual Activity for the Common Good, (AWSNA, available from the Rudolf Steiner Library) for its comprehensive presentation of Steiner’s ideas on economics. At a time when the limitations of both socialism and capitalism have been made abundantly clear, all three books should be read and worked with as a way of enlivening a new imagination of society appropriate to our time and our consciousness.