Money is a language and, like any language, it can only have meaning (value) when it refers to the real world. Over the last thirty-odd years, polticians have abdicated responsibility for genuine economic management and have resorted to 'spin', the presentation of a false reality by the corruption of language. As the language of political discourse has been corrupted, so likewise has money, the language of the economy.
"Once upon a time, an alchemist arrived at the court of a medieval king. The alchemist told the king that he was in possession of the Philosophers’ Stone and the secret knowledge that could transmute base metals into gold. The king demanded proof of these claims and so the alchemist showed him his books, inscribed with all manner of arcane symbols and incantations in strange tongues. The king was impressed, seeing that the alchemist was clearly in possession of esoteric knowledge. The alchemist told the king that he would work his dark arts, but only in secret and he would therefore require the keys to the treasury wherein he could work undisturbed and away from the prying eyes of the rabble. The king granted the alchemist his wishes and handed over the keys to the treasury.
The king, being the king, demanded that he be able to enter the treasury and see the results of the alchemist’s dark arts. The alchemist, of course, told the king that, since he was the king, and of noble status, he would be privy to his work. The days and the weeks passed and every day the king’s chests of gold seemed fuller than before. The king saw that, with all this gold, he would be able to do great works about his kingdom and win the love of his people. He would go down in history as the greatest of kings.
One day, the king went down to his treasury to find that the alchemist was nowhere to be seen. The gold similarly was nowhere to be seen and all that remained in the treasury was mere brass.
The above is an allegory on modern economics, to which I shall return presently. But first, a little history.
At some time in the post-war period, the political view of the economy changed. Under the Heath government in particular, it became the received wisdom that the economy was a vast machine and that politicians could read the dials, pull the levers and turn the valves and the machine would respond as required.
Much of this thinking stemmed from what was known as the Phillips Machine, a wondrous device, comprising transparent glass tubes, valves and pumps, around which coloured water flowed. It owed its existence to one Bill Phillips, an engineer turned economist, who hailed from New Zealand. The Phillips Machine made its first appearance at the London School of Economics in 1949, having been built in a garage in Croydon, and was driven by an electric motor salvaged from a Lancaster bomber. In its appearance it owed much to the fantastic creations of Heath Robinson, but it was intended as a serious explanation of the workings of the economy.
In light of developments during the last sixty-odd years, the Phillips Machine, as a model of the economy, now looks as relevant as a Victorian phrenological head. Phrenology was one of the most popular of Victorian ‘sciences’ and purported to be able to divine a person’s disposition from a reading of the shape of the head. Phrenology was, of course, utter nonsense, but much of modern political economic thinking is perhaps utter nonsense."
To read further: http://www.economania.co.uk/heading-for-a-fall-chris-waller.htm