Chrematic school of economics

From Roses, Tulips, & Liberty

The Chrematic school (Amerikaens: Schöl de Krematick) is an economic school of thought originating in the mid-20th century, primarily associated with the economic strategies of New Netherland during the 1970s and 1980s, and associated with the works of Theodorus Dorchom and Anja Blauveldt. The philosophy emphasizes monetary policy over fiscal policy, advocating for the strategic manipulation of the money supply as the primary means of stabilizing and driving the economy. It supports a market-driven approach to economics in a free-floating currency system.


The core principles guiding modern chrematic theory include:

  1. Free Floating Currency: Chrematic economists support a "decretal" currency, backed by government decree rather than tangible metals, allowing for more flexible economic responses and internal control of inflation and economic growth.
  2. Monetary Policy Over Fiscal Policy: Chrematic economists hold that the control of the money supply, through mechanisms like manipulating interest rates or the purchase and sale of securities in the open market, is more effective in regulating economic health than government spending or tax policies.
  3. Global Economic Independence and Regional Interdependence: While chrematic economics emphasizes self-sufficiency and resilience against external economic pressures, it acknowledges the benefits of regional economic partnerships.
  4. Skepticism of Large-Scale Fiscal Stimulus: Infrastructure projects and other large government spending initiatives are viewed as less effective tools for short-term economic growth. Instead, these are believed to be better as outcomes of a healthy economy, established through sound monetary policy.
  5. Stable Monetary Environment for Growth: Chrematic economists argue that a stable monetary context, achieved through careful control of the money supply, lays the groundwork for sustainable economic development and prosperity. This stability is seen as crucial for fostering business confidence and encouraging investment.



Economic situation in New Netherland

During New Netherland's "Golden Era" of the 1910s to 1930s, the nation saw increased consumer demand, further propelled by the increase in disposable income. This economic prosperity was further bolstered by New Netherland's strategic adoption of bimetallist currency policies, which insulated it and other North American nations from the European Economic Crisis (1922-1928).

In the 1940s and the 1950s, the New Netherland government under the Güman bloc embarked on social welfare programs, labor laws favoring workers' rights, and the expansion of social security. While these initiatives increased the quality of life in New Netherland, it also led to a significant increase in government spending, financed mostly through borrowing and expanding the tax base. This also gradually led to rising production costs, which in turn led to higher prices for consumer items and a trade imbalance with other nations.

Dorkhom's chrematic theory

Economist Theodorus Dorchom, after analyzing New Netherland's inflationary trend, published a paper titled 'A Chrematic Approach to Economic Stabilization' in 1963. In this paper, he identified that the rampant fiscal policy and government expenditure were not matched by a corresponding growth in productivity and real income. This mismatch, he argued, is what led to inflationary pressures, diminishing the purchasing power of the average citizen and creating a fragile economy susceptible to both domestic and global shocks.

Dorchom suggested that a strategic focus on the money supply could be the key to sustainable economic health. He believed that by controlling the growth of the money supply to match the productive capacity of the economy, New Netherland could achieve price stability, mitigate inflationary fears, and potentially smooth out the trade imbalances that loomed over the economy. The term he coined to describe these ideas, 'chrematic', comes from the Greek word 'χρήματα' (chremata), meaning 'money'.

Evolution of chrematic thought

During the late 1960s and early 1970s, several forward-thinking economists began to further develop the principles of chrematic theory, drawing inspiration from Dorkhom's early pioneering work.

Reynier Wolff's managed bimetallism theory

Reynier Wolff, an economist and professor at New Amsterdam's Van Dyck university, proposed an economic approach to monetary policy in 1962, built on the chrematic framework. His approach, termed "managed bimetallism", suggested allowing the silver-to-gold exchange ratio to fluctuate within a controlled range, as set by financial authorities.

Managed bimetallism, he argues, would allow authorities to increase or decrease the money supply indirectly through the metal exchange ratio between gold and silver. The adjustments would not be random, and would be responses to market conditions, including supply and demand of both metals in the global economy and the internal economic needs of the country. He argues that if the ratio shifts in a way that values either metal more, for example gold, individuals and institutions might be more inclined to exchange their gold for paper money, thereby increasing the money supply.

Anja Blauveldt's decretal currency theory

Several economists, such as Anja Blauveldt, a prominent economist at the University of New Amsterdam, firmly rejected Wolff's theory in a paper published in 1965. Blauveldt believed that Wolff's theory depended on uncertain behavioral outcomes, arguing that as the value of gold or silver shifted, the reactions of individuals and institutions could widely vary, dictated by personal perceptions and speculation of future value. She argued that in such a scenario where one metal becomes more valuable, there could be a natural inclination among the populace to hoard the more valuable metal instead, an outcome directly at odds with Wolff's assumptions.

Aside from this uncertainty, Blauveldt also pointed out that Wolff's theory only complicated the currency system, and that it was still tied to the unpredictable global supply and demand for metals.

Instead, Blauveldt proposed a more radical overhaul of the monetary system. She advocated for the abandonment of commodity-backed money altogether, calling for the adoption of a floating currency system not backed by tangible material. She called this type of currency as "decretal money," emphasizing that the currency is backed by government decree instead of metal. In her theory, this would provide the nation with the monetary sovereignty and flexibility needed to combat inflation effectively and respond to dynamic economic conditions.

In 1971, she published the highly influential book, The Fallacies of Metal, which outlined how North American economies could benefit from decretal currency. Her ideas were contemporarily known in the 1970s as the decretal currency theory, but later became more popularly known as Blauveldtian Chrematics, which would soon dominate in Chrematic academic circles in the 1980s and 1990s.

Government reaction

Both Wolff's and Blauveldt's theories were met with dismissal from contemporary Zeyven Party policymakers, seeing these ideas as potentially destabilizing in the fragile economic environment. However, the debate sparked in academic and political circles laid the groundwork for Chrematic economic thought.

See also