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The Global Financial Crisis 2 min readViewed 1 time

4.1 The Absurdity Of The Business Cycle: Boom And Bust


If the metre, gram and second remain constant, why does the dollar keep changing? The former units are measures of stable physical quantities, while the latter is a pseudo-measure, i.e. it is used as a measure but currently no stable physical quantity can be correctly attributed to it. But as currency is currently not backed by something stable and tangible, significant numbers of bright people (not to lose out on the spoils) devote their time following the dance of the currency markets. Rather than considering it a problem, they see it as an opportunity to generate more profit. Some make profits by predicting the next move while some try to actually choreograph the dance itself. Currency or money is a unit of value. In other words, the exchange ratio of a product/service with money is called its ‘price’. It is noteworthy that the ‘value of exchange’ or ‘value’ as it is usually called, is the ratio of an exchange of one thing with another, and price therefore is a type of exchange. But unlike exchanges of one thing with another, it is possible that the prices of all things rise or fall at any one time. Hence the price of a thing is merely one of its values. If money had a fixed value in terms of something stable and tangible (for example 1 unit of money = 1g of gold), it would indeed be a measure, like the metre or the second. For more than a millennium money was based on some standard (like the gold standard) and it continued to be the medium of exchange, and hence for most ordinary people money is commonly understood to be a measure of the value of things. But that standardisation to something as stable and tangible, ceased to be the case in the latter part of the 20th century, and as such money came to be considered a mere object, which only has a notional or temporal value. The notional value of money may not necessarily be based on real exchange ratios with other commodities or services; in fact it came to be based merely on the perception of people or traders.

So, the price or value of things fluctuates according to the notional value of money, as much or even more than the importance or benefit of the product or service, or the ‘value of benefit’. This is unfortunately how things are valued in today’s world – hence it is not surprising to find the value of your house rising and falling, and for over a century there has been talk about boom and bust at least once every decade for over 150 years.

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Chapters (31)
  1. 11. Introduction
  2. 21.1 Anatomy Of A Crisis
  3. 31.2 Diagnosis
  4. 42. What Went Wrong?
  5. 52.1 Gamblers Folly – Let Them Fail
  6. 62.2 Liquidity Crisis – The Banks Stopped Lending
  7. 72.3 The Domino Effect
  8. 83. Government Intervention: Superheroes To The Rescue
  9. 93.1 Bailouts
  10. 104. Capitalism’s Systemic Flaws
  11. 114.1 A Monetary Time Bomb
  12. 124.1 The Absurdity Of The Business Cycle: Boom And Bust
  13. 134.2 Doomed To Live In A Crisis Ridden World
  14. 144.3 Inherent Instability
  15. 154.4 Prosperous Or Preposterous System
  16. 164.5 An Interest-free Economy
  17. 174.6 Capitalism And Its Future
  18. 185. The Islamic Perspective
  19. 195.1 The Human Crisis
  20. 205.2 Credit Or Misery Creation
  21. 215.3 Gambling And The Legal Environment
  22. 225.4 A Market Free From Manipulation
  23. 235.5 Corporate Bias
  24. 245.6 Accounting For Success And Failure
  25. 255.7 Inflation Versus Gold/silver
  26. 266. Conclusions
  27. 277. Appendix
  28. 287.1 Collateralised Debt Obligations (cdo’s)
  29. 297.2 Credit Default Swap (cds)
  30. 307.3 Currency Swaps
  31. 318. Hizb Ut-tahrir