The Palma ratio is a measure of inequality within a jurisdiction.

The Palma ratio is the share of all income received by the 10% people with the highest disposable income in a jurisdiction divided by the share of all income received by the 40% people with the lowest disposable income within that same jurisdiction.

Back to top

The paradox of thrift is the idea, first popularised by John Maynard Keynes, that although saving more might make sense for an individual household wanting greater financial security, if everyone in the economy tries to save more at the same time, the consequence can be a collapse in overall economic activity that leaves society worse off.

The logic is straightforward.

First, every person's spending is someone else's income.

Second, when fear, uncertainty or economic shock encourages households and businesses to cut consumption and investment, total demand in the economy falls.

Third, the resulting decline in sales forces businesses to cut production, wages and employment.

Fourth, as a result, national income falls, and the very savings people hoped to increase become harder to achieve because there is less income from which to save.

The paradox of thrift does, therefore, show that individual rational behaviour can lead to collective harm. This is the so-called fallacy of composition at work. What is wise for one household is not, when aggregated, good for society.

This insight matters profoundly for public policy. When private saving rises and demand collapses, only the government can step in to spend, sustain incomes, maintain employment, and prevent recession. Austerity in such conditions, of the sort, for example, imposed in the UK after 2010, is therefore the exact opposite of what is required. It compounds the paradox: government cuts reduce spending still further, deepening the downturn and undermining the well-being of the very households urged to “live within their means”.

In short, the paradox of thrift explains why a healthy economy requires both confidence and spending, and why governments that can create the money we need should never be afraid to use that capacity to sustain prosperity when private actors retreat.

Back to top

A parent company is a company that controls another company (which is then called its subsidiary com­pany) either by owning more than 50% of the share capital of the second company or by controlling the composition of its board of directors.

A parent company may have thousands of subsidiary companies, some of which will themselves be parent companies, in which case they are called intermediate parents. In that case the company at the top of the hierarchy of control is called the ultimate parent company.

Back to top

Any (usually unincorporated) arrangement where two or more people agree to work together to undertake a trade and share the re­sulting profits or losses.

A partnership can be between individuals or companies or a mixture of both.

See also limited labiality partnership, which is private legal entity form of partnership.

Back to top

See trade creditors.

Back to top

A system of deducting tax, national insurance, social security and other payroll tax contributions  owing by employees at source when their employer makes payment to them.

PAYE stands for “pay as you earn“.

The employer is responsible for making payment of the tax owing by their employees to the relevant tax authority within their jurisdiction.

PAYE systems became commonplace after the Second World War as the level of personal income taxes and social security contributions owing by employees increased as the level of average earnings rose in most developed countries. Rules vary from country to country, but the system itself is commonplace.

Back to top

See social security contributions, national insurance contributions, PAYE and income taxes.

Back to top

A pillar of neoclassical thought is the claim that markets work efficiently because everyone has access to perfect information. Buyers supposedly know everything sellers know, and vice versa. No one can deceive or conceal. If that were true, prices would indeed reflect reality. But capitalism's great secret is secrecy itself.

Assumption

The textbooks say that in a competitive market, knowledge flows freely and instantly. All participants can observe prices, quality, and future prospects. There are no trade secrets or insider advantages. Information costs nothing, and because everyone knows the same things, markets become perfectly efficient, with prices revealing the “truth” about value.

Reality

In practice, information is power — and it is never shared equally. Consumers rarely know what companies know about costs, quality, or risk. Financial institutions thrive precisely on opacity: they package debt into forms so complex that even regulators struggle to understand them. Corporations use intellectual property and legal secrecy to protect profits. Tax havens exist to hide ownership and transactions from public scrutiny. The rise of data monopolies has made asymmetry even worse: tech giants know everything about us while we know almost nothing about them.

When information is hidden or distorted, markets misprice risk. Investors chase illusions. Speculators profit from ignorance. The 2008 financial crash was built on the systematic concealment of bad debts, rated “safe” by agencies paid to look the other way. Far from being rare exceptions, such asymmetries are the rule.

Why It Matters

If knowledge is unequal, market outcomes cannot be fair or efficient. The pretence of perfect information legitimises deregulation by claiming that markets self-correct when, in truth, they self-deceive. Transparency is not an optional extra; it is a public good essential to democracy as well as economics. Without it, power and wealth concentrate. Reforming capitalism, therefore, requires not more competition but more honesty: open asset registers, clear accounting, and an end to secrecy jurisdictions that distort global trade, amongst a great deal else.

Summary

Markets do not run on truth; they run on secrecy, and until that changes, “perfect information” will remain a convenient lie.

Back to top

A permanent establishment is an office, factory, or branch of a company or other non-resident person in another jurisdiction.

Under double tax treaties, business profits arising from trade in a country are taxable in that country if there is a permanent establish­ment located within it. The existence of permanent establishments can be subject to dispute as a result.

Permanent establishments may include construction sites or oil platforms in place for over six months. They can also include computer file servers.

Rules regarding permanent establishments can be dependent upon arrangements con­cluded in double tax treaties.

Back to top

Physical capital is the stock of produced, tangible assets that support economic activity, including buildings, infrastructure, machinery, tools, transport systems and productive organisational arrangements. Physical capital enables production, but only insofar as it is maintained, renewed and adapted over time.

Physical capital is more than this, though: it is the public and private infrastructure that makes other aspects of life, other than production, possible, such as:

• Housing.
• Roads and other transport systems.
• Energy systems.
• Hospitals and all the infrastructure that supports care.
• The buildings and infrastructure used by the state to deliver systems of government.
• The physical capital owned by households and used by them in their daily lives.

Physical capital deteriorates through wear, obsolescence, neglect and misuse. Depreciation is therefore not an accounting technicality but a real economic process. Income, whether of businesses or people, can only be said to exist after the full costs of maintaining productive capacity have been provided for. Asset price inflation does not restore productive capability and cannot substitute for investment in repair, renewal and adaptation.

Physical capital does not exist in isolation. It depends on environmental inputs, skilled human labour and stable social institutions. Roads require functioning ecosystems and governance; factories require healthy, trained workers and reliable public infrastructure; digital systems require energy, regulation and trust. Where these conditions are undermined, physical capital becomes fragile or unusable regardless of its book value.

Failure to maintain physical capital results in declining productivity, rising breakdown costs and long-term economic fragility. Economies that appear capital-rich in financial terms may in fact be capital-poor once physical degradation is properly recognised.

See also:

• Capital
• Capital maintenance concepts
• Financial capital
• Human capital
• Social capital
• Income

Back to top

Pleonexia is the desire to have more than one's fair share. The term comes from ancient Greek philosophy, especially Plato and Aristotle, who used it to describe a moral failure. It is the refusal to accept limits and the urge to accumulate wealth, power, or status at others' expense.

First, pleonexia is not simply ambition. It is the pursuit of excess without regard for justice. It shows up when executives extract bonuses while firms fail, when tax avoidance becomes a business model, as it is for many, whether they are professionals, businesses or individuals, as well as whole tax haven states, or when wealth is hoarded while public services are cut. In economic terms, it is rent extraction justified by the claim of merit.

Second, pleonexia is embedded in institutions. Financialisation, secrecy jurisdictions, weak tax enforcement, and deregulated capital markets all reward behaviour that takes more than is given. When policy celebrates accumulation as success, it legitimises the very behaviour classical thinkers (as well as the likes of Adam Smith) warned against.

Third, pleonexia undermines democracy. Extreme wealth buys influence, shapes media narratives, and weakens accountability. It shifts power from citizens to elites. Much of my work on Funding the Future over the years, whether on tax justice, illicit financial flows, inequality, monopoly abuse and rent extraction, is, in effect, about confronting pleonexia in modern form.

Finally, pleonexia is incompatible with a politics of care. An economy organised around limitless accumulation cannot sustain the five forms of capital (environmental, social, human, physical, and financial) that future well-being requires.

Pleonexia names a truth that economics often ignores: that the problem is not scarcity alone, but greed without restraint. Recognising it is the first step toward building an economy based on fairness, responsibility, and shared prosperity.

Back to top

Political economy is the study of how economic outcomes are shaped by power, institutions, and political choices. It asks not only what happens in an economy, but who benefits, who loses, and why. It recognises that markets do not exist in a vacuum; they are created and governed by law, policy, and social norms.

First, political economy links economics to democracy. Tax rules, spending priorities, interest-rate policy, labour law, environmental regulation, and social security systems are all political decisions. They determine how income and wealth are distributed and how opportunities are shared. To pretend these outcomes are neutral market results is to hide responsibility.

Second, political economy exposes power. Corporations lobby, wealthy individuals shape tax policy, banks influence regulation, and governments respond to electoral incentives. These interactions determine who can avoid tax, who receives subsidies, who carries risk, and who enjoys security. Understanding this is central to much of the work I do on Funding the Future when analysing tax havens, austerity, or the influence of finance on policy.

Third, political economy recognises institutions. Property rights, company law, accounting standards, central bank mandates, and social security systems all shape economic behaviour. Change those rules, and the economy changes. Markets are not natural phenomena; they are constructed.

Fourth, political economy considers history and structure. Colonial legacies, class relations, gender inequality, technological change, and environmental limits all shape economic possibilities. The idea that economies naturally converge on efficient outcomes ignores these realities and obscures injustice.

Fifth, political economy focuses on purpose. An economy exists to meet human needs within planetary limits. Whether it succeeds depends on the values embedded in policy: do we prioritise profit extraction or care, speculation or stability, inequality or fairness? These are political choices with economic consequences.

Finally, political economy rejects the myth of value-free economics. Much mainstream theory assumes rational individuals, efficient markets, and scarcity as defining truths. These are, as I have argued elsewhere, completely rubbish approximations to reality when taken as universal laws. Real economies are shaped by cooperation, conflict, institutions, and ethics.

Political economy, therefore, asks the essential question: how do we design an economy that delivers care, security, sustainability, and democratic accountability? Until we confront that question openly, economics will remain an ideology serving those with power rather than a discipline serving society as a whole.

Back to top

A politically exposed person (PEP) is someone entrusted with a public function, such as a politician or employee of a government agency. The term is sometimes inclusive of their relatives and close associates.

Banks and other financial institutions are supposed to treat PEP clients as high-risk clients for money laundering purposes, applying enhanced due diligence at both the inception of the relationship and on an ongoing basis to en­sure that their financial resources do not represent the proceeds of corruption.

Back to top

The Politics of Care

Introduction

The Politics of Care represents a fundamental reimagining of the purpose and practice of democratic government.

At its core, the politics of care asserts that the primary obligation of any government is to meet the needs of those entrusted to its care, with particular attention to those who are most vulnerable and have nowhere else to turn for support.

This philosophy stands in direct opposition to the neoliberal orthodoxy that has dominated Western political thinking for the past 45 years, which has prioritised government financing, market efficiency, and economic growth over the well-being of citizens.

The background

The politics of care has emerged as a response to a profound crisis in democratic politics. Across Western democracies, people are rejecting the solutions offered by traditional political parties that have dominated their countries' politics for decades.

This alienation manifests in several ways, including in the belief that:

• Political parties no longer care about ordinary people.
• Politicians are motivated primarily by personal gain.
• Mainstream parties fail to understand the cost-of-living challenges facing most citizens, and
• Globalisation, as promoted by these parties, has demonstrably failed.

The result is a widespread sense of political homelessness, particularly among those who have traditionally supported centre-ground politics, social democracy, and left-wing agendas.

The stimulus for action

The vacuum that his alienation has created has, in part, been occupied by far-right populism. This offers simplistic solutions based on the racist vilification of immigrants and ethnic minorities, coupled with eugenic thinking that presumes a natural hierarchy within society, itself based on the false presumption of hierarchies of power implicit in the profoundly imbalanced structuring of wealth endorsed by antisocial neoliberal thinking.

While deeply unappealing to many, far-right movements are making significant political progress because they acknowledge people's alienation, linked to their lack of agency in a political hierarchy that has deliberately left most behind by concentrating both income and wealth in the hands of a few, and then promises change, even if that change is ultimately harmful because it is always based on the exploitation of prejudice.

Meanwhile, traditional centrist parties, in a desperate attempt to retain the power they sense is slipping from them as a result of their own failure to consider alternatives to neoliberalism, have increasingly copied far-right policies on immigration, government spending, and social benefits, thereby alienating even more voters from a political system that once embraced them, or their parents.

The failure of neoliberalism

The politics of care offers an alternative path. It diagnoses the current crisis as fundamentally rooted in the failure of neoliberal thinking, which has dominated politics since the late 1970s. Neoliberalism's core tenets are that:

• Markets are inherently efficient.
• Government intervention always distorts optimal outcomes in society.
• Economic growth benefits all through trickle-down effects, and
• Individual responsibility should replace collective provision.

Every one of these has been systematically undermined by real-world outcomes. The 2008 financial crisis, growing inequality, the climate emergency, and the recent cost-of-living crisis all demonstrate the bankruptcy of neoliberal solutions.

The problem that the politics of care addresses is that, despite these failings, those political parties that have embraced neoliberalism (which almost all those parties accustomed to power in the world's richest countries have done) have failed to develop any viable alternatives to neoliberal political and economic thinking, let alone attempt to implement them.

The politics of care

The politics of care proposes three foundational pillars:

• A new political framework.
• A reimagined role for the state, and
• A transformed economics of care.

Politically, it requires acknowledging that existing democratic structures have failed to deliver on their promise of government for the people.

The politics of care demands:

• Accountability
• Transparency
• Genuine representation, and
• Constitutional reforms that ensure that a government serves the interests of all citizens, and not just economic elites.

This includes rethinking how:

• Power is distributed.
• Decisions are made, and
• Citizens participate in governance.

The caring state, as envisioned in the politics of care framework, rejects the neoliberal assumption that government is inherently inefficient and should be minimised. Instead, it recognises that only the government can provide certain essential services and protections that markets will never deliver. The state, in this view, should actively manage:

• The economy to ensure full employment.
• Comprehensive social safety nets, and
• Public infrastructure and services.

It should also:

• Regulates markets to prevent exploitation and environmental destruction, and
• Use taxation not merely to raise revenue but to shape economic behaviour and reduce inequality.

This caring state is not paternalistic but enabling, creating conditions in which all citizens can flourish.

The economics of care

The consequent economics of care fundamentally challenges conventional economic thinking. It rejects GDP growth as the primary measure of success, instead focusing on wellbeing, sustainability, and the equitable distribution of resources. In addition, it recognises that much valuable work, and particularly care work, is systematically undervalued or invisible in conventional economic accounting.

As a result, this economics requires new approaches to:

• Understanding money's role in the economy.
• How government spending actually works (drawing on modern monetary theory insights).
• The purpose of taxation.
• The control of monopolies and rent-seeking behaviour, and
• How business organisations should be regulated and held accountable.

Central to the economics of care is recognition that economies exist to serve human needs, and not the other way around. This means:

• Accounting for environmental externalities.
• Valuing care work appropriately.
• Ensuring that capital serves productive rather than purely extractive purposes, and
• Regulating finance to prevent the kind of speculation that led to the 2008 crisis.

It also requires:

• Reimagining corporate governance to include multiple stakeholders rather than prioritising shareholder value exclusively, and
• Using tax policy not just for revenue but to discourage harmful activities and reduce extreme inequality.

The transition to a politics of care requires dismantling existing power structures that perpetuate inequality and exclusion. This includes:

• Addressing wealth inequality through progressive taxation and possibly wealth taxes.
• Ending the capture of pension funds for the benefit of the wealthy.
• Challenging the outsized power of the financial services sector.
• Reducing dependency on private equity funding.
• Reclaiming savings for savers' and society's benefit, and
• Fundamentally changing corporate obligations to include social and environmental responsibilities alongside financial ones.

It requires rebalancing economic rewards away from rent-seeking, monopoly profits, and financial speculation toward productive labour and genuine social contribution.

Climate change

Crucially, the Politics of Care embraces the challenges posed by climate change rather than treating environmental concerns as obstacles to economic growth. It recognises that addressing the climate emergency requires massive public investment, fundamental changes to how we organise production and consumption, and a shift away from fossil fuel dependency. This transition creates opportunities for meaningful employment, improved quality of life, and a more sustainable economic model.

The practicalities of care

The politics of care is not utopian, but practical. It draws on real-world examples and proven policies, adapted to contemporary challenges. It acknowledges that change will face fierce resistance from those who benefit from current arrangements, but argues that the alternative, including a continued drift toward authoritarianism, oligarchy, and fascism, is totally unacceptable. By offering a coherent alternative to both failed neoliberalism and dangerous populism, the politics of care provides a roadmap for democratic renewal.

Ultimately, this framework represents a return to fundamental questions about the purpose of government and economics. It insists that democracy must deliver tangible improvements in people's lives to retain legitimacy. It argues that we have the resources, knowledge, and technology to ensure everyone's basic needs are met while respecting planetary boundaries.

What the politics of care argues is that what has been lacking is the political will and imagination to challenge the neoliberal consensus.

The politics of care provides both the philosophical foundation and practical policies needed to build a more just, sustainable, and genuinely democratic future, and it is, in essence, a cure for the populism that threatens to destroy democratic governance by addressing the legitimate grievances that populism exploits while rejecting the scapegoating and authoritarianism that populist movements promote.

Back to top

The "politics of destruction" is my term for the ideology commonly called neoliberalism. That in turn describes a set of policies and narratives designed to:

• shift power from citizens to capital,
• weaken democratic accountability, and
• create an economy that fails ordinary people.

The resulting stagnation, inequality, and insecurity are not accidental. They are the intended outcome.

First, the politics of destruction undermines democracy. It shrinks the scope of public decision-making and replaces it with “market discipline”. But markets are governed by wealth, not votes. Privatisation, outsourcing, and deregulation transfer authority from accountable institutions to corporations. Energy, water, rail, housing, health and care services become revenue streams rather than public goods. Voters lose influence; asset owners gain it.

Second, it increases corporate power. Weak regulation, permissive competition policy, and financialisation allow monopolies, landlords, and banks to extract rents. Ownership is rewarded more than production. Profit replaces purpose. This is classic rentier capitalism: value created by labour is diverted to those who control assets.

Third, it widens income and wealth inequality. Tax cuts for capital, attacks on trade unions, and underfunded public services concentrate income at the top. High inequality is not incidental; it fragments solidarity and weakens resistance. A divided society is easier to govern in the interests of wealth.

Fourth, it manufactures an economics of failure. Artificial fiscal rules, obsession with balanced budgets, and myths about “taxpayer's money” are used to underfund public services. When those services struggle, the failure is cited as proof that the state cannot work. Cuts follow, decline deepens, and trust collapses. The cycle is deliberate.

Fifth, the politics of destruction feeds extremism. Economic insecurity, stagnant wages, and deteriorating services create anger. That anger is redirected towards migrants, minorities, or the poor. The politics of hate thrives on the failures neoliberalism creates.

Sixth, it rejects care. An economy organised around extraction neglects the five forms of capital: financial, physical, environmental, human, and social. Infrastructure decays, ecosystems degrade, communities fracture, and demand weakens because those with the least income cannot spend. Growth itself stalls.

Finally, the politics of destruction must be named if it is to be challenged. Real political economy offers alternatives: rejecting the household analogy, using taxation to curb rent extraction and manage demand, restoring democratic control of essential services, rebuilding social security, and investing in people and planet.

The choice is clear. We can continue with the politics of destruction and its economics of failure, or we can build politics for people grounded in accountability, fairness, and a politics of care that puts human well-being, democratic control, and sustainability at the centre of economic life.

Back to top

The term the politics of hate describes the deliberate use of fear, resentment, and division to win and hold power. It works by persuading people that their problems are caused not by failed policy or unequal power, but by other people, whether they be migrants, minorities, the poor, neighbouring nations, people of another gender or sexual orientation, or anyone else who can be turned into an enemy.

First, the politics of hate is a strategy of distraction. When living standards stagnate, public services fail, or inequality widens, attention is redirected away from structural causes such as austerity, financialisation, tax abuse, wealth inequality or underinvestment. Blame is placed on those with the least power to resist it. We see this repeatedly when social security recipients are scapegoated while corporate tax avoidance goes unchallenged.

Second, the rhetoric depends on false economics. Myths about “taxpayers' money”, the household analogy, or the obsession with balanced budgets are used to claim that there is not enough to go round. Scarcity is manufactured to justify exclusion. Once people believe resources are fixed, it becomes easier to argue that some groups must lose so others can survive.

Third, the politics of hate corrodes democracy. It weakens the relationship between voter and representative by replacing accountability with loyalty to a tribe. Leaders who cannot justify policy outcomes resort to culture wars, misinformation, and attacks on institutions. As a result, independent courts, regulators, journalists, and civil servants become enemies because they ask questions and seek to hold those promoting false ideologies to account.

Fourth, hate is profitable. Media attention, campaign funding, and political mobilisation often increase when fear is stoked. Divided societies are easier to govern in the interests of concentrated wealth. If people blame each other, they are less likely to question illicit financial flows, secrecy jurisdictions, or the power of finance over policy.

Fifth, the cost is social collapse. Trust erodes, cooperation declines, and communities fracture as everything that holds them together, from trust to volunteering and simple friendship, fails. Economic policy becomes reactive and punitive rather than constructive. Investment in the five forms of capital (environmental, human, social, physical, and financial), which are key to wellbeing, is neglected because long-term stewardship cannot coexist with short-term anger.

Finally, the antidote is clear. We need politics that starts from shared humanity, not division. We need politics for people – policy designed to meet real needs – and a politics of care that recognises our interdependence and our duty to future generations. That means fair taxation, strong social security, honest economics, accountable government, and investment in the common good.

The politics of hate thrives on fear and falsehood. The politics of care builds on truth and solidarity. If we want a stable economy and a functioning democracy, the choice between them cannot be postponed.

Back to top

A tax that levies the same amount of tax on each person liable to pay it irrespective of their ability to pay.

Poll taxes are correctly seen as regressive and so unjust as they do not take into account the capacity that  a person has to make payment of the sum owing in proportion to their income.

The attempt to introduce a poll tax to fund local government in the UK in the late 1980s and early 1990s and the subsequent protests and riots it gave rise to was one of the principal reasons for the downfall of Margaret Thatcher as UK prime minister after eleven years in office.

Back to top

An underlying crime, such as drug trafficking, which generates illicit money to be laundered meaning that it is a necessary element of building a criminal money-laundering charge. According to the Financial Action task Force tax evasion should be classified as a predicate offence for money laundering but that is not commonplace.

Back to top

A situation in which individuals or companies can negotiate their tax treatment in the state in which they have a tax liability. Pioneered by Switzerland in the 1920s, the arrangement is commonplace in tax havens and secrecy jurisdictions but there has also been evidence of this happening in locations such as the United Kingdom and Ireland as well.

Back to top

These are sums paid in cash in advance of the economic benefit of the payment arising, which means that the value attributable to future periods is carried forward as a prepayment. These sums are recorded in current assets on the balance sheet or statement of affairs  of the reporting entity.

Prepayments include deposits paid for work to be done, insurance premiums paid in advance and other such items.

Back to top

This entry is based on a blog post on 3 November 2025.

I wrote about supply and demand curves here yesterday. I said that the ideas implicit within them are total nonsense, as the claims in the basic model - the only one anyone ever recalls - are based on economic functions.

What really happens when prices are chosen?

So, the real question is what those talking about pricing by business should actually be talking about. This is something I know about from a great deal of practice and no small amount of accounting theory.

The important thing to note is that, almost entirely contrary to what the economic theory of supply and demand curves suggests, the vast majority of prices in the real economy are chosen rather than imposed. That is because, contrary to the assumptions of microeconomics;

• No one knows everything. In fact, most people retain remarkably little price information about the things they buy, even when they buy them quite often. I know there are exceptions, especially when money is very tight, but my observation is true of most people, for most products, most of the time.

• Very few goods are identical, almost anywhere. Even the same product (think of a branded box of tea, as an example) in two supermarkets half a mile apart is not the same. They are not just in different locations, but few people buy tea in isolation, so the price of a box of tea is not independent of the price of other products in each store.

• There aren't countless sellers of anything, and since most vendors still serve small geographic areas, there aren't limitless buyers either.

• The consequence of these facts means that most vendors of almost any product have some degree of market power: they can choose prices, at least within the limits of what they know about their markets, although it should be noted that their own knowledge of that will definitely be incomplete.

• There are both fixed and external costs for any institution that they will always want to cover: they do not, almost ever, think in marginal terms, contrary to what economists suggest.

There is no invisible hand

As a result, almost no firm will ever wait for an invisible hand to tell them what to charge. Instead, they set prices. To do so, they use cost accounting, desired profit margins, and corporate strategy to direct their decision-making.

The consequence of all that is that supermarkets, builders, manufacturers, airlines and many other sectors use targeted mark-up pricing based on the estimated costs of supplying a product plus a desired profit percentage, and stick to that price until competitive or regulatory pressures force a change. Even when they adjust, it is usually to protect margins rather than to find a mythical equilibrium.

What is more, administered or regulated prices are everywhere, including utilities, pharmaceuticals, telecoms, and transport. Governments themselves set prices in sectors such as energy, rail, and student education, whilst central banks fix the most important price of all, the cost of money.

Prices reflect power

Prices are not, in that case, neutral signals of scarcity; they are the outcomes of bargaining power and institutional design.

Employers suppress wages because labour markets are not competitive.

Landlords can raise rents because tenants have nowhere else to go.

Global corporations can charge what they like because we have allowed markets to consolidate into oligopolies.

Price setting, in other words, is not an issue determined by markets, but is instead a political process. It expresses who has the ability to impose their preferred outcome on others.

Expectations and stories shape the rest

The exception to this "normal" process of price setting for goods and services is to be found in financial and speculative markets, where prices bear almost no relationship to underlying cost. The price of oil rises because traders expect war, not because there are fewer barrels available. Stock markets move on belief, not the real value of companies. House prices rise because people believe they will keep growing, until they don't.

Prices in these cases reflect what might be best called the momentum of the underlying narrative.  The tidy intersection of curves on a graph tells us nothing about this behaviour.

Money matters 

In a monetary economy, the ultimate constraint on prices is not physical scarcity but purchasing power, but even this is not determined by markets.  If governments inject more money through spending or banks expand credit, more money chases the same goods. When the state withdraws money through taxation or banks tighten lending, demand falls.

Fiscal and monetary policy, therefore, frame the entire pricing system. Pretending that the market sets prices without acknowledging the monetary environment is a category error; it confuses outcome with context.

What follows from this?

If prices are not imposed by market power, or discovered by businesses and consumers as a consequence, but are instead chosen or administered and are shaped as much by power, government policy and the availability of credit rather than supply and demand, then the task of economic policy is to manage the institutions with most influence on this process, and not to chase imaginary microeconomic equilibria.

That means:

• Regulating monopolies and oligopolies properly.

• Supporting unions and wage bargaining to rebalance power.

• Using fiscal and monetary policy together to stabilise prices and incomes.

• Accepting that price stability is a social goal, not a mathematical accident.

The fact is that prices are social constructs. They tell us less about scarcity than about who decides. And the neat intersection of supply and demand curves, which has misled generations of economists, probably deliberately hides the real lesson, which is that every price is a reflection of power. If we want fairer prices, we need more equitable power. That is the economics that Funding the Future is about.

Back to top

A company whose shares are not quoted on a stock exchange meaning that they are not readily or publicly traded.

The shares in private companies cannot usually be sold without the consent of the company or its other owners, who are also likely to have the first option on acquiring them.

In many countries little or no information need be disclosed on the activities of such companies even though their members enjoy the benefit of limited liability. For the issues arising from this see Companies House or Registrar of Companies.

A company can be private even though very large: the matter is determined solely by whether its shares are quoted on a stock exchange or not.

A private company can be  public interest entity (PIE).

Back to top

See private company.

Limited liability partnerships, unlimited companies and foundations are also private legal entities.

Back to top

There are two types of profit. They are realised profit and unrealised profit (see separate glossary entry).

Both increase the capital of a company by increasing shareholder funds. However, only realised profits may be used to make a dividend payment since only they have given rise to a cashflow consequence.

The identification of the difference between realised and unrealised profits is as a result contentious and open to manipulation or arbitrage within accounts.

A realised profit is the outcome of a transaction undertaken during the course of trade that results in the income generated from that trade exceeding the expenses associated with it meaning that a profit is earned that might result in cash being returned to the reporting entity undertaking the trade.

Back to top

See income statement and accounts.

Back to top

A progressive tax is one where as a person's income increases the amount of that tax that they pay increases in proportion to that income, i.e. their percentage tax rate increases as their income goes up. Compare with regressive taxes and flat taxes.

In a progressive tax system, the overall tax system displays this characteristic.

Back to top

See cell company.

Back to top

This term usually relates to a long term liability of a reporting entity.

A provision is a best estimate of a future obligation owed by a reporting entity as a result of a commitment that it has made to a course of action where the precise sum owing is of uncertain timing or amount on its accounting reference date.

Provisions are one of the areas where the inherent uncertainty in accounts or financial statements becomes readily apparent and the exercise of judgement is required.

See also contingent liabilities.

Back to top

Public goods are a supply of goods (sometimes) and services (more commonly) that are provided without the intention of profit being made to all members of society, usually by a government, but possibly by a private sector organisation.

Back to top