VANCOUVER ( BullionBullsCanada ) -- For more than 400 years, Western economies (and the deluded theorists who have been allowed to guide those economies) have focused upon two extremely simplistic and somewhat opposite "models" for our economies. In this respect, I am indebted to John Maynard Keynes. While Keynes may have been utterly inept as an "economist, he is more than adequate as a "research assistant."

Keynes tells us that the older of these two economic models (by far) is "mercantilism," while the more recent theoretical model is that of "free trade." For those readers who become phobic whenever exposed to economic jargon, relax. I have no intention of bombarding you with complex jargon. Indeed, as I alluded to earlier, these economic models are shocking for their simplicity (among other things).

Both of these models centered on the need to have a "balance of payments" surplus for one's economy. There is nothing controversial here. A nation having a balance of payments surplus is like a corporation which makes a profit. No nation (or corporation) can survive over the long term as a money-losing enterprise. However this aspect of economic theory has obviously been totally (and conveniently) forgotten by all of our politicians and all of our modern "theorists" (i.e. banker apologists).

For the benefit of the precious metals enthusiasts out there, the "surpluses" that these nations and economists coveted above all else were not surpluses accumulated in banker-paper, but rather surpluses of gold and silver. For more than four centuries, those who accumulated the gold and silver were considered history's winners, while those whose gold and silver was taken from them were the losers. We can see the obvious result of such thinking through the rampant corruption of modern, Western precious metals markets.

Mercantilism is by far the older of these two economic models, and can be thought of as an "adversarial" system of economic management. In this law-of-the-jungle philosophy, nations aggressively sought to out-maneuver competing nations in creating their balance of payments surplus -- in the simplistic belief that there could only be "winners" and "losers" in any economic system. If you didn't try to "screw the other guy" then they would certainly try to "screw" you.

Conversely, free trade is a much more cooperative economic system, in that thanks to the wonders of "comparative advantage" it was theoretically possible that most (or even all) economies could simultaneously be "winners." To reiterate, this is all simple stuff. The doctrine of comparative advantage stipulates that if all nations focus on producing the goods/services which they can produce the best, then through the mechanisms of "free markets" and global commerce an optimal equilibrium can be achieved where ( in theory ) everyone is a winner.

While free trade can immediately be seen as a more enlightened approach to global commerce, it should not be seen as some "theoretical breakthrough." Rather, all it did was to mirror the general change in attitude in Western cultures, which (for the first time in history) sought to use diplomacy and negotiation as the principal tools of "foreign policy" rather than war, and more war. Mercantilism was an economic model of "constant war,⿝while free trade was a model (supposedly) based upon cooperation and mutual advantage (i.e. enlightened self-interest).

Keynes characterizes mercantilism and free trade as being in many respects opposite to each other, yet notes that both schools of thought have some shared beliefs. Here is where this previous theoretical work becomes interesting. Any time more-or-less opposing views share a common belief, this is highly suggestive that such a belief is flawed (with respect to at least one of the competing theories). While it is possible for opposing systems to share valid, common beliefs/goals, such scenarios clearly represent the "exception" rather than the "rule.⿝

With respect to my own analysis, the shared belief in which I am most interested is the belief of both schools of theorists that minimizing wages (for the average worker) was a critical component of economic prosperity. Some will accuse me of twisting the meaning of the work of Keynes and others here, in that these renowned theorists typically talk about the virtues of a "stable wage-unit.⿝ I would argue that such double-talk is very transparent. Look into the work of these theorists in detail, and we will observe a remarkable coincidence. All of these theorists warn of the "great danger" of rising wages (i.e. wages being too high), but none of these theorists have ever been able to see any harm in falling wages (i.e. wages being too low). Indeed, all that low wages have ever represented to these titans of economics are high profits for corporations (i.e. the very wealthy who own those corporations).

Clearly, an economic system which possesses a large, permanent, extreme bias against "high wages" while having demonstrated a multi-century "love affair" with low wages is not a system which believes in keeping wages "stable," but rather in keeping them as low as possible.

The obvious parallel in our modern world is the gold market. Many prominent banking officials, most notably those of the Bank for International Settlements have openly talked about the need to keep the price of gold stable. However, decades of empirical evidence is clear in this respect: keeping the price of gold "stable" has always meant taking steps to suppress it when it was deemed "too high" but never doing anything at all to "stabilize" the price (i.e. push it higher) when it was too low.

The proof is unequivocal. During the 1990s, the price of gold was pushed below the costs of production for roughly 90% of all gold mines. You don't have to be a "great economic theorist⿝(or a banker) to know that when 90% of the companies producing a good go out of business that the price of that good is "too low." And yet at the time that banker-manipulation of this sector was bankrupting gold miners all over the world, gold price-suppression was at its peak.

Similarly, I have written on many occasions about how our governments have deliberately allowed structural unemployment to rise to the highest level in modern history (roughly 50 million people not allowed to work in Western economies), because permanently keeping massive numbers of workers unemployed permanently depresses wages -- because those who have jobs are too terrified of losing those jobs to push for fair wages.

Thus, for more than 400 years, those on top (i.e. the very wealthy), and those who serve as their mouthpieces (the "great economic theorists⿝) have concluded that the best path to "prosperity" is to minimize the wages of "workers" (i.e. over 80% of the population). Here we arrive at the utter idiocy of these four centuries of economic theory: the idea that you can "maximize prosperity" for an economy as a whole while simultaneously minimizing prosperity for more than 80% of the people who live in that economy.

The complete failure of four centuries of theorists to see through such an obvious defect should not be seen as simply servitude by these economists toward the very wealthy. Instead, it is a classic illustration of "ivory-tower syndrome." Is it any great wonder that a group of individuals who have never actually performed "a day's labor" in their entire lives would be totally incapable of relating to the needs of the common worker (or even to acknowledge that these people have "needs⿝)?

To these "great theorists," the common worker has never been anything but an "input of production." Indeed, there is no recognition by these theorists that the common worker even belongs to the same species as these theorists, since the lack of regard (and even disdain) which these academics have for the common worker is very similar to how we treat our cattle.

We can boil down the enormous failure of comprehension of these theorists to a simple premise. Our great economists believe that people were invented for the benefit of corporations, rather than corporations being invented for the benefit of people. And since corporations are owned by the very wealthy, this premise is transformed into the following "Golden Rule" of 400 years of capitalist theory: workers exist for the sole purpose of maximizing the prosperity of the wealthy (i.e. economic slavery).

To attach numbers to this premise, in the United States, the richest 1% of Americans own 56% of all shares in U.S. corporations, or (put another way) 1% of the people hold majority ownership of all corporations. More broadly, the top 20% hold an obscene 87% of all equity in these corporations â¿" making the other 80% literally nothing more than their slaves.

The simplistic (and hopelessly "top-down⿝) view of our economies represented by history's greatest theorists has resulted in a hopelessly flawed economic system -- where the inevitable consequences of that system have been clear to see. Despite allowing these "great minds" to steer our economies for more than four centuries, all that they have ever been able to achieve are cycles of ever more spectacular-and-devastating "booms" and "busts."

They have never been able to achieve anything remotely approaching "lasting prosperity" or even "lasting stability" -- for obvious reasons. An economic system which focuses on permanently impoverishing over 80% of the population is doomed to simply hollow itself out and implode -- again and again and again. This is precisely what we see today: economies hollowed-out to an extent never before seen in our modern era, and about to implode in the most devastating economic collapse in human history.

This should not come as a surprise to any student of history. Regular readers know my deep admiration for a quote from Plutarch, a Greek philosopher who lived in Ancient Rome. Nearly 2,000 years ago Plutarch told us that "an imbalance between rich and poor is the oldest and most fatal ailment of all Republics." To put these words in my own terms, if you hollow-out your economy by allowing all or most of the wealth to flow to the very wealthy, you guarantee the collapse of that economy.

Indeed, when freed of their bias against the common worker, the "great theorists" echo that point. As Keynes points out, both the mercantilists and free traders were greatly concerned with balance of payments surpluses as being the key to economic health and prosperity.

This had nothing to do with a mere phobia toward one's neighbor becoming wealthier and everything to do with their (correct) fear that allowing an economy's wealth to be hollowed-out was the surest path to ruin. We know this to be the case because these same theorists were opposed to even their own governments accumulating "large Treasuries" -- explicitly because if too much (idle) wealth flowed into government coffers this would sicken and eventually kill these economies.

Thus we have a group of theorists who are in complete agreement that we don't want most of our economy's wealth to flow into the possession of another country, and are in complete agreement that we don't even want to see our own governments accumulate large pools of wealth -- because just like draining us of our blood makes us anemic (and eventually kills us), draining the wealth out of an economy must always sicken and kill an economy.

It is only blind self-interest and elitism which makes these theorists incapable of seeing that allowing vast amounts of wealth to be accumulated by a tiny group of individuals is just as destructive (if not more so) than through allowing our economies to become hollowed out by other means. It is nothing but elementary arithmetic to point out the obvious: low wages lead to high profits, which in turn lead to the accumulation of large pools of (idle) wealth, which in turn dooms an economy to implode. However, this principle implies much more.

In Part II, I will expand further on the great "evils" of the low-wage/high-profit economy, along with demonstrating (both theoretically and empirically) how a high-wage economy must ultimately lead to maximum innovation, maximum efficiency, and maximum prosperity.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.