A Second Reserve Currency


The weight of history is on us once again, with the slowly changing status of the US dollar as the world’s de facto reserve currency. The importance of the dollar in the world economy is based on history. When the Bretton-Woods exchange rate mechanism was devised in 1944, the US economy was the dominant force in the world and the US dollar the pre-eminent currency.

It naturally followed that the economic system the Allied powers set up at the end of the war would use the US dollar to back the fixed-rate regime. But 20-odd years later, the US chose to pay for the cost of the Vietnam war on credit, and when the imbalances created by Bretton-Woods made continued backing with US dollars impossible, as the US economy was not generating sufficient foreign exchange (FX) reserves, the system broke down and we moved, ultimately, to the floating-rate arrangement we have today. The problem was, the rest of the economy didn’t move with it.

World trade is still priced in US dollars, everything from crude oil to gold to wheat. While on the surface this doesn’t appear to present too much of a problem, it is when the US constitutes a steadily decreasing share of world economic output and world exports. Is it efficient that when a Malaysian rubber exporter sells its product to a Korean car manufacturer, both parties have to transact in US dollars? As the value of the dollar depreciates steadily (for example, it has lost over 15 percent of its value against the euro in the last five years), it makes less and less sense to maintain pricing exclusively in this currency.

The export performance of the OPEC and Asia-Pacific currencies was a causal factor of the financial crisis. The US dollar reserves of these countries were invested in the West, contributing to excess cheap liquidity which found its outlet in sub-prime and corporate lending. The rest is, again, history. The US dollar’s status as "reserve currency" means that the US economy in effect has a free lunch because it will always find buyers of its assets: the rest of the world. The size of the US public sector deficit today is testament to this lack of fiscal discipline.

As investors will always seek risk-free assets, the Federal Reserve can always print Treasury bills. The current situation is not desirable from a number of viewpoints, whether one is a non-US exporter or a bank regulator trying to mitigate against the next financial crash. So what is the solution? Bear in mind this is a long-term project, one cannot set up a reserve currency quickly. An IMF-style special drawing right (SDR) we can dismiss out of hand, as lacking liquidity.

The euro is a genuine contender, but has to sort itself out first as it needs a centralized fiscal management system (some form of political union) as well as a review of whether economically weaker eurozone countries are viable long-term members. That leaves the Chinese renminbi. Although not a freely tradeable liquid currency, it is surely only a matter of time before it does become one. The Chinese economy is only going to be growing over the next 20 years, and as its exports start to dominate world trade, it makes sense to transact more in its currency.

If the world had three reserve currencies to pick from, for both its risk-free asset holdings and its global commerce, would this be a good thing? The answer is a definite "Yes." In the first instance, the kind of global cash flow imbalances we experienced during 2001-2007, and which contributed to the financial crash, would not build up to the same extent. This would contribute to economic stability. Secondly, exporters would be less exposed to FX rate fluctuations, enabling companies around the world to save money on hedge costs. And third, it would enforce an element of fiscal discipline on future US governments, which would be good for the US economy, and by extension the world, in the long run. This is not to underestimate the importance of the US dollar.

It will still be the main currency for payments and risk-free assets in 10, and even 20 years’ time. But the availability of the euro and renminbi on a similar basis – as freely tradeable, liquid currencies and with an open government bond market in China – will mean that central banks can diversify their currency holdings, and there would be less correlated risk with the entire world to the US economy. This can only be a good thing.

Political Spectrum


A political spectrum is the different political positions arranged in chart by placing them upon one or more geometric axes symbolizing independent political dimensions. Most long-standing spectra include a right wing and left wing, which originally referred to seating arrangements in the 18th century French parliament. According to the simplest left-right axis, communism and socialism are usually regarded internationally as being on the left, opposite fascism and conservatism on the right. Liberalism can mean different things in different contexts, sometimes on the left, sometimes on the right.

One alternative political spectrum offered by the conservative American Federalist Journal accounts for only the "Degree of Government Control" without consideration for any other social or political variable, and thus places "Communism/Fascism" (totalitarianism) at one extreme and "Anarchy" (no government at all) at the other extreme. In 1998, political author Virginia Postrel, in her book The Future and Its Enemies, offered another single axis spectrum that measures one's view of the future; on one extreme are those who allegedly fear the future and wish to control it: stasists, and on the other hand are those who want the future to unfold naturally and without attempts to plan and control: dynamists. The distinction corresponds to the utopian versus dystopian spectrum used in some theoretical assessments of liberalism, and the book's title is borrowed from the work of the anti-utopian classic-liberal theorist Karl Popper.

The terms Right and Left refer to political affiliations which originated early in the French Revolutionary era of 1789-1796, and referred originally to the seating arrangements in the various legislative bodies of France. The aristocracy sat on the right of the Speaker (traditionally the seat of honor) and the commoners sat on the Left, hence the terms Right-wing politics and Left-wing politics.

Political Spectrum Chart



Empiricism is a philosophical theory of knowledge which asserts that knowledge comes through sensory experience. Empiricism is one of several competing views that predominate in the study of human knowledge, known as epistemology. Empiricism emphasizes the role of experience and evidence, especially sensory perception, in the formation of ideas, over the notion of innate ideas or tradition in contrast to, for example, rationalism which relies upon reason and can incorporate innate knowledge. Empiricism then, in the philosophy of science, emphasizes those aspects of scientific knowledge that are closely related to evidence, especially as discovered in experiments. It is a fundamental part of the scientific method that all hypotheses and theories must be tested against observations of the natural world, rather than resting solely on a priori reasoning, intuition, or revelation. Hence, science is considered to be methodologically empirical in nature.

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Voltaire Views of Religion


Voltaire, whose real name was François-Marie Arouet, was a French Enlightenment writer, historian and philosopher. Voltaire did not believe that any single religious text or tradition of revelation was needed to believe in God. Voltaire's focus was rather on the idea of a universe based on reason and a respect for nature which reflected the pantheism of the 18th century. Voltaire's views of Islam and its prophet, Muhammad, can be found in his writings. In a letter recommending his play Fanaticism, or Mahomet to Pope Benedict XIV, Voltaire described the founder of Islam as "the founder of a false and barbarous sect" and "a false prophet." His Essai sur les Moeurs et l'Esprit des Nations, contains much fuller accounts on Muhammad and the founding and spread of his religion as do a number of his polemical works on religion.

Like other key thinkers during the European Enlightenment, Voltaire considered himself a deist, expressing the idea: "What is faith? Is it to believe that which is evident? No. It is perfectly evident to my mind that there exists a necessary, eternal, supreme, and intelligent being. This is no matter of faith, but of reason."

As for religious texts, Voltaire's opinion of the Bible was mixed. Although influenced by Socinian works such as the Bibliotheca Fratrum Polonorum, Voltaire's skeptical attitude to the Bible separated him from Unitarian theologians like Fausto Sozzini or even Biblical-political writers like John Locke. This did not hinder his religious practice, though it did win for him a bad reputation among religious fundamentalists. The deeply Catholic Wolfgang Amadeus Mozart wrote to his father the year of Voltaire's death, saying, "The arch-scoundrel Voltaire has finally kicked the bucket...."

Arthur Schopenhauer


Arthur Schopenhauer (1788 – 1860) was a German philosopher born in Danzig to Heinrich Floris Schopenhauer, who committed suicide. He studied metaphysics and psychology at the university of Göttingen. He became known not only for philosophical clarity, but also for his atheistic pessimism. At age 25, he published his doctoral dissertation, On the Fourfold Root of the Principle of Sufficient Reason, which examined the fundamental question of whether reason alone can unlock answers about the world.

An important focus of Schopenhauer was his investigation of individual motivation. Before Schopenhauer, Hegel had popularized the concept of Zeitgeist, the idea that society consisted of a collective consciousness which moved in a distinct direction, dictating the actions of its members. Schopenhauer, a reader of both Kant and Hegel, criticized their logical optimism and the belief that individual morality could be determined by society and reason. Schopenhauer believed that humans were motivated only by their own basic desires, or Wille zum Leben (Will to Live), which directed all of mankind. For Schopenhauer, human desire was futile, illogical, directionless, and, by extension, so was all human action in the world. To Schopenhauer, the Will is a metaphysical existence which controls not only the actions of individual, intelligent agents, but ultimately all observable phenomena. Will, for Schopenhauer, is what Kant called the "thing-in-itself".

Schopenhauer's most influential work, The World as Will and Representation, emphasized the role of man's basic motivation, which Schopenhauer called will. His analysis of will led him to the conclusion that emotional, physical, and sexual desires can never be fulfilled. Consequently, he favored a lifestyle of negating human desires, similar to the teachings of ancient Greek Stoic philosophers, Buddhism, and Vedanta.

Schopenhauer's metaphysical analysis of will, his views on human motivation and desire, and his aphoristic writing style influenced many well-known thinkers including Friedrich Nietzsche.

Cartesian Doubt


Cartesian doubt is methodological approach whose purpose is to use doubt as a route to certain knowledge by finding those things which could not be doubted. The fallibility of sense data in particular is a subject of Cartesian doubt. Cartesian doubt is a form of philosophical scepticism associated with the writings and methodology of René Descartes.

René Descartes, who was the originator of Cartesian doubt, automatically put all beliefs, ideas, thoughts, and matter in doubt. He showed that his grounds, or reasoning, for any knowledge could just as well be false. Sensory experience, the primary mode of knowledge, is often erroneous and therefore must be doubted. For instance, what one is seeing may very well be a hallucination. There is nothing that proves it cannot be. In short, if there is any way a belief can be disproved, then its grounds are insufficient. From this, Descartes proposed two arguments, the dream and the demon.

Descartes, knowing that the context of our dreams is often life-like, hypothesized that humans can only believe that they are awake. There are no sufficient grounds by which to distinguish a dream experience from a waking experience. For instance, Subject A sits at her computer, typing this article. Just as much evidence exists to indicate that her composing this article is reality as there is to demonstrate the opposite. Descartes conceded that we live in a world that can create such ideas as dreams. However, by the end of The Meditations, he concludes that we can distinguish dream from reality at least in retrospect.

Descartes reasoned that our very own experience may very well be controlled by an evil demon of sorts. This demon, or genius, is powerful enough to control anybody. He could have created a superficial world that we may think we live in.

Descartes believed that doubt can be erased by studying the "first person". This heralded the term "cogito ergo sum" – "I think, therefore I exist".

Immanuel Kant


Immanuel Kant, or Manuel Kant, (1724 – 1804) was an 18th century German philosopher from the Prussian city of Königsberg. Kant was the last influential philosopher of modern Europe in the classic sequence of the theory of knowledge during the Enlightenment beginning with thinkers John Locke, George Berkeley, and David Hume.

Kant established a new widespread perspective in philosophy which has continued to influence philosophy through to the 21st century. He published important works on epistemology, as well as works relevant to religion, law, and history. One of his most prominent works is the Critique of Pure Reason, an investigation into the limitations and structure of reason itself. It encompasses an attack on traditional metaphysics and epistemology, and highlights Kant's own contribution to these areas. The other main works of his maturity are the Critique of Practical Reason, which concentrates on ethics, and the Critique of Judgment, which investigates aesthetics and teleology.

Kant proposed that metaphysics can be reformed through epistemology, suggesting that by understanding the sources and limits of human knowledge we can ask fruitful metaphysical questions. He asked if an object can be known to have certain properties prior to the experience of that object. He concluded that all objects about which the mind can think must conform to its manner of thought. Therefore if the mind can think only in terms of causality – which he concluded that it does – then we can know prior to experiencing them that all objects we experience must either be a cause or an effect. However, it follows from this that it is possible that there are objects of such nature which the mind cannot think, and so the principle of causality, for instance, cannot be applied outside of experience: hence we cannot know, for example, whether the world always existed or if it had a cause. And so the grand questions of speculative metaphysics cannot be answered by the human mind, but the sciences are firmly grounded in laws of the mind.

Kant believed himself to be creating a compromise between the empiricists and the rationalists. The empiricists believed that knowledge is acquired through experience alone, but the rationalists maintained that such knowledge is open to Cartesian doubt and that reason alone provides us with knowledge. Kant argues, however, that using reason without applying it to experience will only lead to illusions, while experience will be purely subjective without first being subsumed under pure reason.

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Auguste Comte


Auguste Comte (1798-1857) was a French philosopher, one of the founders of positivism. Comte was one of the first to designate society as a unified object of enquiry, a central assumption of modernist social science. He held strongly to the idea of an organic totality where the whole is more than its parts.

Auguste Comte was born at Montpellier, southern France, on January 17, 1798. He attended the Lycée Joffre and the University of Montpellier, one of the oldest European universities. Then Comte was admitted to the École Polytechnique in Paris. The École Polytechnique was notable for its adherence to the French ideals of republicanism and progress. In 1822, he published "Plan of scientific studies necessary for the reorganization of society".

In 1823, Comte got married to Caroline Massin, whom he divorced in 1842. In 1826 he was taken to a mental hospital and two months later left the institution without being cured – only stabilized by Massin. He began to work again on his philosophical plan. During this time, he published the six volumes of his Cours.

From 1844, Comte was involved with Clotilde de Vaux, a relationship that remained platonic. After her death in 1846 this love became quasi-religious, and Comte saw himself as founder and prophet of a new "religion of humanity". He published four volumes of Système de politique positive (1851 - 1854).

Auguste Comte died in Paris on 5 September 1857 and was buried in the famous Cimetière du Père Lachaise. His apartment from 1841-1857 is now conserved as the Maison d'Auguste Comte. Comte and Spencer share many positivist assumptions but the latter represents a form of methodological individualism where the “properties of the aggregate are determined by the properties of its units.” Comte and Spencer all share affinities with Darwin’s approach; the idea that the permanence of certain elements is due to their better disposition to adapt in their environment. Hence the extensive use of the organic analogy in Durkheim.

The Positive Philosophy was August Comte's first great work, and in it he propounds his theory that all institutions are based upon the ideas of men which are formed in three successive stages--theology, metaphysics and finally from the positive. When he studies the development of human intelligence, he found that it passes through three stages: 1) The theological; 2) the metaphysical; 3) the scientific or positive. In the theological stage it seeks to account for the world by super-natural beings. In the metaphysical stage it seeks an explanation in abstract forces. In the scientific, or positive, stage it applies itself to the study of the relation of phenomena to each other.