for al-most two centuries. Group theory has occupied itself with patterns of symmetry and asymmetry underlying all problems. That is enough to reduce equilibrium theory to dust, for it assumes a symmetry that is not there. The fight against inflation with a single blunt tool rests on the premise that because, other things being equal, an excess of demand over supply will push up prices, the relationship can be turned around: higher prices in themselves are deemed to imply an excess of demand over supply.

There is also the detail that in our mixed economy each non-market sector - the environment, the household economy, the government itself - has its own code and purpose. They must indeed communicate with the market, and hence speak its language. But this they do in alien accents. The purpose of the family is to nurture its members from birth to death. For the purpose it must have income. Piling up a fortune, however, is not its prime goal. The purpose of the environmental sector is to preserve a life-friendly setting. If you try to translate that into market logic and sell pollution rights you end up with nonsense results.

Moreover, all non-market sectors of the economy are directly or indirectly funded by the state.

To bring all this together to a first approximation we must follow the procedure of the cost-of-production value theory. We must add the balance sheets of the market and of the non-market sectors to ascertain how the economy and society are doing. If the non-market sectors are being cannibalized by the market, we must estimate what it will take to repair the damage and add that negative item to the bottom line of the market sector to see how the economy is faring.

That rules out a flat price level. As industrialization and population growth proceed, non-market sectors gain in importance. That deepens the tax layer in price. A factor in raising the price level has developed that has nothing to do with an excess of demand over supply. The same aggregate demand and supply ratio as before, but with a shift of a significant portion of the demand from the private to the public sector must result in a higher price level. This is not a sign of inflation, but of what I call structural price rise. Apply high interest rates to flatten price and you will only accelerate its climb by giving more power to the speculative financial community that preys on the non-market sectors.

In my most recent book I use reduction to absurdity twice successively to establish the impossibility of enforcing a flat price level by raising interest rates. The proof comes in two stages:

1. Assume that to be possible, but for whatever reason prices do move up. By the assumption to be tested, it would be possible to raise taxes and distribute the proceeds among producers for bringing prices back to where they were. If that is possible, however, there would be no reason for stop-ping at a single helping of this bonanza. Re-peat the procedure until you reach a zero price level. QED. The step method used here is known as "mathematical induction," one of the most frequently used mathematical tools since antiquity.

2. We have proved the absurdity of the proposition when extra taxation for the purpose is distributed among producers. Now comes the second stage. Assume not only that the extra taxation is not distributed to the producers, but interest rates are raised. Instead of reimbursing producers for the taxes they do not recover, they are burdened with higher interest costs. That is an a fortiori version of the hypothesis disproved in test #1. QED.

In a pluralistic society price itself must be recognized as pluralistic. Not doing so, is to reject the pluralism of our society.

Instead of disproving the hypothesis with a twig in the sand as the ancient Greeks would, our central banks have acted out the reduction to absurdity proof. This has been done at a crushing human toll in mass bankrruptcies and crippled social services.

There is a ready way of handling the problems of a pluralist society - systems theory. In science and engineering it has been used for decades: economists, however, have ignored it, for it is incompatible with the notion of a self-balancing market. Its principles are simple enough and directly to the point. If you can identify a sector of the economy, society or the biosphere indispensable to human survival and governed by its own code, it must be treated as a sub-system. Its mutual relations with the other subsystems must be closely monitored to prevent one subsystem from cannibalizing another.

In the case of ecological subsystems the limit of tolerance for their specific vulnerabilities - pollution or whatever - must be respected. For that purpose I have borrowed the notion of entropy from physics. But it should be noted that in physics there is a mathematical equivalence amongst the various forms of energy: thermal, gravitational, electro-magnetic, chemical, nuclear. When that important concept is adapted for social applications, it is essentially reduced to a metaphor, yet a vital one for preventing one subsystem from sapping another. For if that happens the entire system breaks down. What is involved in non-market subsystems is essentially the means and motivations for their survival which can be siphoned off to bolster the negentropy in another subsystem.'