THE JOURNAL OF THE COMMITTEE ON MONETARY AND ECONOMIC REFORM

$3.95 Vol. 23, No. 7 • JUly 2011

Contents What We Must Learn from 11 A Century After his Birth, Marshall McLuhan Is Still Ahead of Us Social Credit 14 Europe and the American Credit Appraisers Contradict Each Other The following are extended excerpts from The Economics of Happiness on the Nature of Solvency Understanding the Financial System: Social So successful has the silencing of Social 15 A Canadian Equivalent to USA’s Credit Rediscovered by Frances Hutchinson Credit been, that the quest for answers to Sheila Bair (Jon Carpenter Publishing, 2010). A further fundamental questions relating to the theo- 17 Transitional Homes for Ex-convicts discussion of this excellent work will be carried ry and practice of finance in economic sys- in a future issue. tems across the world, is conducted without 18 Pay The Piper! Call The Tune! In an attempt to understand the present- any reference whatsoever to Social Credit 20 The Ruinous Cost of Treating Our day institutions we need to scroll back in publications. In The Economics of Happiness, Investment in Human Capital as an time. The two decades immediately follow- Mark Anielski poses several key questions. Expenditure ing the First World War saw a remarkable • Why do economists, financial ana- Publications Mail Agreement No. 41796016 challenge to the growth of corporate culture, lysts, politicians and media fixate on growth politics and economics. Foreshadowing the measures (such as GDP or gross domestic environmental, peace, and anti-corporate product) as the key indicator of human pressure groups of the twentieth century, the progress? world-wide Social Credit movement posed a • Why do economy and stock market in- serious threat to the hegemony of corporate dices have to keep growing if a community international financial interests. Despite the has achieved levels of material self-sufficien- determined opposition of salaried econo- cy and quality of life? mists, party politicians and the national and • What is money and where does it come international press, Social Credit publica- from? tions were studied and debated by ordinary • Why is money always scarce? men and women seeking economic democ- • What’s wrong with a steady-state, sub- racy in their respective localities. Through- sistence economy which has achieved suf- out the UK, in the Dominions, in the USA ficiency and homeostasis? and elsewhere, the attempt by the demo- • Why does free market capitalist eco- cratically elected Social Credit government nomics look more like a cancer cell that the of Alberta [1935+] to implement change in self-renewing life cycle of an ancient forest? the social order was observed with the clos- • What is driving our more-growth, est of interest. The very possibility of success more-consumption obsession? posed a challenge to the corporate status • Why aren’t economists and our leaders quo, to such an extent that, in the Second asking hard questions? World War era, as the following chapters • More growth of what? For whom? indicate, the episode was airbrushed out Anielski faced these questions as an econ- of history. Throughout the later decades of omist working in the Canadian province of the twentieth century the corporate world Alberta, as senior advisor on green issues to actively discouraged study of the academy: the Government of China, and as practi- texts written by the founder of the move- tioner and preacher of sustainable business ment. Clifford Hugh Douglas (1879-1952), practices. The Economics of Happiness goes by the Guild Socialist editor of The New a long way towards providing answers to Age, Alfred Richard Orage (1873-1934), the questions posed above, and is set to be and by many other contributors in the rich a major test of the future. However, one can literature of the movement. Continued on page 2 Social Credit from page 1 The Era of Silent Spring trace the identical questions back through By 1959 C.P. Snow’s The Two Cultures each of the decades of the twentieth century, and the Scientific Revolution was raising the to the immediate aftermath of the First key topic of the failure of communications World War. between the sciences and the humanities. FOUNDING EDITOR Writing when the Bolsheviks had but Rachel Carson’s Silent Spring was published John Hotson 1930–1996 recently seized power in Russia, when the in 1962. The Cuban crisis of the same year PUBLISHER–EDITOR phenomenon of Hitler’s Nazism had yet had alerted the world for a brief period to the William Krehm to be conjured into existence and when fact that nuclear arsenals could indeed result ([email protected]) Roosevelt’s New Deal was still a decade into in Mutually Assured Destruction. Students INFORMATION SECRETARY the future, Social Credit founder Clifford rebelled in 1968. Veblen’s The Theory of the Herb Wiseman ([email protected]) Hugh Douglas observed: Leisure Class, Tressell’s The Ragged Trousered “There are only two Great Policies in the Philanthropists, and Tolkien’s The Lord of the WEBMASTER world today – Domination and Freedom. Rings. Yet nothing changed. The Vietnam Tony Koch Any policy that aims at the establishment War continued unabated until 1975. The Economic Reform (ER) of a complete sovereignty, whether it be so-called “Green Revolution,” the introduc- (ISSN 1187–080X) is published monthly of a Kaiser, a League, a State, a Trust or a tion of “improved” seed to Third World by COMER Publications Trade Union, is a policy of Domination, countries, had predictable and predicted 27 Sherbourne Street North, Suite 1 irrespective of the fine words with which it effect of further driving small subsistence Toronto, Ontario M4W 2T3 Canada may be accomplished, and any policy which farmers off their land to swell the shanty Tel: 416­‑924-3964, Fax: 416‑466‑5827 makes it easier for the individual to benefit towns surrounding the cities. 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His two books pub- whole could be less stressful not only on Herb Wiseman, 69 Village Crescent, lished to date, Economic Democracy and oneself, but on the environment and society Peterborough ON K9J 0A9. Credit-Power and Democracy, were being in general. The idea of a basic income as an used as university texts and were being inalienable right for all citizens was floated. Copyright © 2011 studied by leading economic thinkers like It joined up with the work of the Citizens’ COMER Publications John Maynard Keynes. In these, and in Income Study Group that, in seeking an end All rights reserved subsequent books, articles and speeches by to means-tested benefits, undertook statisti- Permission to reproduce is granted Douglas, every one of Anielski’s questions is cal research into the feasibility of a transfer if accompanied by: fully and comprehensively answered. Dur- income from taxation under the auspices of “Copyright © 2011 COMER Publications. ing the 1930s in Alberta, a democratically the London School of Economics. The UK Reproduced by permission of elected government sought to put Social Green Party adopted the policy of a Guar- COMER Publications” Credit into practice. anteed Basic Income for all as a necessary Postmaster, please send address Moreover, Douglas’ contemporary ob- prior condition of a free, democratic society. corrections to: servations on the Russian economy under A nice thought, said the economists and the COMER Publications Communism, the financing of Hitler, and politicians in chorus but economically it 27 Sherbourne Street North, Suite 1 the New Deal anticipated the later writings could not be done. Where, after all, would Toronto, Ontario M4W 2T3 of authors like Anthony Sutton. By the out- the money come from? break of the Second World War, Douglas PRINTING AND DISTRIBUTION and other prominent social creditors were The “Ecosocialism of Fools”? Watt Solutions Inc., London household names. During the subsequent In the early 1990s, as my children left Printed in Canada on recycled paper. decades of the twentieth century, all knowl- home, I registered for post post-graduate edge of Douglas’s work faded from the research in economics in an attempt to un- academy. derstand what exactly the economists were

2 | Economic Reform July 2011 www.comer.org teaching as the twentieth century was draw- ing endorsed by several individuals includ- and injure himself. The nephew then does ing toward its end. ing Mary Mellor and myself. fall and nearly breaks his back. Who is the To my astonishment, I discovered that As a result of the circulation of Watt’s more responsible for the victim’s injury, the a body of economic analysis and theory draft article, my collaboration with Mary one with the consciously malicious inten- had existed since the early 1920s, capable Mellor ceased. Her immediate reaction was tion or the one who failed to pay attention of explaining the relationship between the to withdraw The Politics of Money from pub- to what he should have been doing? A com- real material economy of the production lication. I assured her that Clifford Hugh prehensive study of the event would seek and distribution of goods and services, and Douglas and his Social Credit colleagues to examine the reasons behind the jealous finance which moderates economic activity. were on the contrary vehemently opposed relative’s action and for the young man’s In all my general reading on the history of to fascism, anti-Semitism and any form absent-mindedness.” economic thought, politics and history, no of blinkered intolerance. But it was only The story of Social Credit is one of the mention of Social Credit had ever arisen. Yet my promise to thoroughly investigate the “nephew” picking himself up from the “fall” there it was: a body of economic thought grounds for the allegations that persuaded of the Great War and the following depres- capable of envisioning a Basic Income, or her to allow the book to go forward for sion years and trying to take active steps to National Dividend without increasing the publication. avoid falling on another banana skin. frustrations of the transfer-tax system: an It has taken seven years of voluntary, un- approach to economics which was anti-war, paid research to establish the truth behind The Threefold Social Order anti-growth and anti-wasteful consumerism. the writing of Derek Wall’s article and the A year or two after starting the research It was at least worth investigating, if only to reasons for its subsequent publication in a I came across the Anthroposophical and dismiss it as impractical and intellectually respectable academic journal in 2003. In Camphill movements which flowed from untenable. I completed my research, attend- January 2009 I started to write up the results the work of Rudolf Steiner, and immediate- ing conferences of heterodox economists, of my researches in the form of this book. It ly saw a connection. Both Social Credit and having papers and books published and is the story of the dedicated commitment of Anthroposophy, in their very different ways, even teaching Social Credit economics to countless individuals in the quest for sane, have been major world-wide movements of undergraduates under the title “An Institu- alternative ways of running the economy “the people” which have been ignored by ac- tional Analysis of Money.” It was suggested for the common good of humanity. It is the ademia and the mainstream presses. During that the lectures could be formed into a story of an experiment in political economy the year in which I wrote up my researches, further book, and in due course The Politics which came close to becoming a practical I came across a considerable interchange of of Money co-authored with two feminist aca- reality in Alberta during the 1930s, and ideas between social crediters and the earli- demics Mary Mellor and Wendy Olsen, was which remains an example for the future. It est proponents of Social Threefolding ideas almost ready to go into print. At that point is also the story of an intriguing campaign (see chapter 9) in the UK during the 1920s a curious event occurred. Derek Wall, a fel- by mainstream academia politicians and the and 1930s. low Green Party member who was known press to discredit Social Credit in the UK, in Rudolf Steiner (1861-1923) was an Aus- to Mary Mellor and myself through the Canada and world-wide. trian philosopher, literary scholar, major meetings of a national body known as the literary scholar, educator, architect, play- Red Green Network, circulated a draft copy Cock-up and Conspiracy wright, and social thinker. Initially recog- of his article entitled “Social Credit: The The basis of the disagreement between nized as a major literary critic and cultural Ecosocialism of Fools.” The title indicates Mary Mellor and myself was that the for- philosopher, at the beginning of the twenti- the quality of the paper itself. mer fully and wholeheartedly embraced the eth century he originated the Science of the Ostensibly circulated “for comment,” cock-up theory of history, and jumped to Spirit, known as Anthroposophy. As long the purpose of the paper was evident from the conclusion that I was a simple-minded ago as 1919, Rudolf Steiner wrote the fol- the outset. It was written as a warning to conspiracy theorist. I am inclined to believe lowing words: named individuals that they were in danger that the truth lies somewhere between the “The economic aspect of life has to a of being fooled into advocating far-right two. Things do happen because we allow great extent overspread everything, because fascism and anti-Semitism if they in any ourselves to be blown along by the force it has outgrown both political and cultural way promoted the study of Social Credit. of circumstance, without seeking to un- life, and it has acted like a suggestion on David Korten and Herman Daly were cited derstand what we are doing or where we the thoughts, feelings and passions of men. as having unwisely endorsed Michael Row- might be heading. At the same time there is Thus it becomes ever more evident that the botham’s The Grip of Death “advocating undoubtedly evidence that conscious deci- manner in which the business of a nation is social credit ideas, and Daly has provided sions are being made behind closed doors carried on determines, in reality, the cultural articles for The Social Credit journal.” Lead- by individuals who do not have the common and political life of the people. It becomes ing members of the UK Green Party were good at heart. The point is illustrated by the more evident that the commercial and in- named, alongside all who had taken up following story: dustrial magnates, by their position alone, the theme or Social Credit in the UK, or “A young man is walking along the road have acquired the monopoly of culture. The collaborated in any way with those named dreaming and looking up in the sky without economically weak remain uneducated. A individuals. Some eighteen months later the noticing where he is going. A family relative, certain connection has become apparent article was published in Capitalism, Nature, a jaded and jealous uncle, for instance, who between the economic and the cultural, and Socialism (CNS), Vol. 14, No. 3, September hates his nephew and wishes him ill, decides between the cultural and political organiza- 2003, pp. 99-122, in a slightly altered form to hide in the bushes and throw a banana tions. The cultural life has gradually become which gives the impression of the paper be- skin in his nephew’s path, so that he will fall one that does not evolve on its own inner www.comer.org July 2011 Economic Reform | 3 needs and does not follow its own impulses, ther questions about the author of the ideas left to rot, for attempting to steal food after but, especially when it is under public ad- cited here, and the multi-faceted movement having been driven off the land to make ministration, as in schools and educational of which he is the originator. way for money-making adventures. Rudolf institutions, it receives the form most useful Steiner cites the English author Thomas to the political authority. The human being Work and Income More (1477-1535), on the subject of enclo- can no longer be judged according to his The following chapters introduce the sure of land: capacities, he can no longer be developed reader to several key issues of the early “So what happens? Each greedy indi- as his inborn talents demand. Rather, is it 21st century in such a way that the inter- vidual preys on his native land like a ma- asked, ‘What does the State want? What relationships between finance and politics, lignant growth, absorbing field after field, talents are needed for business? How many production, gender relations, work, income, and enclosing thousands of acres with a men are wanted with a particular training?’ farming, education, arts, sciences and all single fence. Result – hundreds of farmers The teaching, the schools, the examinations forms of human interaction become a little are evicted. They’re either cheated or bullied are all directed to this end. The cultural clearer. Inevitably, to sustain the argument, into giving up their property until they’re fi- life cannot follow its own laws of develop- sweeping assumptions have been made as nally forced to sell. Whichever way it’s done, ment; it is adapted to the political and the to the reader’s familiarity with “alterna- out the poor creatures have to go, men economic life.” tive” historical thought. I owe a great debt and women, husbands and wives, widows The quotation forms part of the lec- of gratitude to the early readers of the first and orphans, mothers and tiny children, tures and writings of Rudolf Steiner on the drafts of these chapters for their forthright together with all their employees – whose Threefold Social Order. First translated questioning of many unsubstantiated state- great numbers are not a sign of wealth, but into English in 1920, his book, entitled ments. One question, for example, was simply of the fact that you can’t run a farm The Threefold Commonwealth explores the phrased as follows: without plenty of manpower. And they can’t relationship between the three spheres of “Why, in fact, did the peasants through- find anywhere else to live. Their whole stock society, the cultural, political and economic. out the nineteenth century have to move of furniture wouldn’t fetch much of a price, Throughout his works Steiner insists that into towns for money wages? Was it the even if they could wait for a suitable offer. man is a spiritual being, not in a vague pressure of higher money wages than they But they can’t, so they get little indeed for it. mystical sense but in an exact scientific could earn as farm labourers, or the promise By the time they’ve been wandering about sense. This being the case, a social system of a better lifestyle?” for a bit, this little is all used up, and then which fails to offer scope for the free activity The question reveals a great deal about what can they do but steal – and be very of man’s spiritual nature will end in chaos. the standpoint of a reader, who has been properly hanged?” The spiritual is not something private, to conditioned by a mainstream education Thomas More, Steiner observes “found it be set aside from the mainstream currents into thinking in terms of “progress from necessary to draw attention to the fact that of the life of society. Rather it is of central rural poverty to urban plenty.” From this people exist who drive the rural population importance within all aspects of human perspective, Rational Economic Man, the from the soil they have tilled to turn it over social interaction. Without understanding hero of economics textbooks, migrates for to sheep, the rearing of sheep,” having be- the spiritual nature of humanity, attempts to “economic” reasons, that is, for the highest come a financially profitable exercise in early reform the political and economic institu- money wages made available through indus- modern times…. tions of society will flounder and fail to meet trialization, This is, however, a teleological human needs. It is absolutely essential to argument. The emergence of landless labour The Evolution of “Economic Man” liberate science, religion and art, i.e., educa- was a direct result of enclosures, which were Writing at the turn of the last century, tion in all its forms, from dependence upon undertaken on grounds of financial profit- the American institutional economist Thor- the corporate political economy. ability, rather than the free choice of the stein Veblen traced the origins of the politi- As Steiner explains, the three elements “labourer.” Throughout long ages the right cal economy of industrialization back to the of society need to form a coherent whole to use a piece of land, together with rights earliest known forms of social interaction. in which each element operates to comple- in the resources of commons and waste In his first book, The Theory of the Leisure ment the others. The three spheres can be lands to provide for one’s family has been Class, Veblen conceptualized the evolu- summed up as: a fundamental human right. The power of tion of the institutions of industrial society 1. An economic system having to do moneyed interests to take the land from the as arising from two distinct sets of skills with “everything which is requisite for man’s people for commercial “development,” as and talents. These he labeled “instincts,” regulation of his material relations with the when Shell used Ogoni lands in Nigeria, meaning learned patterns of behaviour and external world.” dates back to the dawn of modern times. talents. The first group of behaviours, as- 2. A political or equity system dealing From the outset, enclosure of the land has sociated with caring, nurturing, parenting, with “all that is made necessary in social life been a legal process, endorsed by the force provisioning, invention and education, he by relations between man and man.” of laws passed by the political sphere of termed the instincts of “workmanship.” 3. A cultural/spiritual or educational sys- society: They are undertaken by women, engineers tem covering “all that of necessity proceeds They hang the man and flog the woman, and practical men. from the individual and must of necessity That steal the goose from off the common, The second group of skills and talents find its way from the human personality But let the greater villain loose are not concerned with survival, still less into the structure of the body social.” That steals the common from the goose. with the development of practical science Serious students of society in the present And men were, quite literally, hanged and technology. Rather, they give “invidious time will find themselves obliged to ask fur- in considerable numbers, and their bodies distinction,” glory, power and status – to the

4 | Economic Reform July 2011 www.comer.org individual practitioner who acts according to flora and fauna of generations of peasants count, Joseph “collected” the grain over the his own selfish interests. Thus the “instinct was lost. To the present day surviving peas- seven years of abundance, placing the food of workmanship” provides intrinsic satisfac- ant communities across the world continue from the surrounding countryside within tion, is co-operative in nature, and gives to be eliminated so that cash crops can be each urban settlement. The suggestion of rise to technological development through taken from the land to supply distant urban recompense to the farmers for their work the uncoerced exercise of “idle curiosity.” populations in the fields is left open. Food would ap- Such traits are useful to the community as Evidence of banking in Ancient Greece pear to have simply been commandeered. a whole. Sportsmanship, including prowess appears early in the fifth century BC Fi- When famine raged, however, Joseph “sold in battle, on the other hand, requires no less nancial transaction were conducted by the the grain to the Egyptians.” Indeed, people effort on the part of the individual, yet gives holders of positions of authority in Greek came “from all over the world to buy grain only invidious satisfaction, involves waste of temples and civic institutions, as well as from Joseph.” This raises a further question: efforts and resources, and is a drain on the in private dwellings. Financial transactions what did the people use “to buy” the grain? community as a whole. As human society included loans, deposits, currency exchange The following chapters of Genesis make has evolved, prestige has attached to the and validation of coinage. From these very frequent reference to “money” being used predatory and non-creative male-centered early times there is evidence of dealings as the means of purchase. Money would activities of war, sport, politics and high in credit, whereby a money-lender would not as yet be “legal tender,” i.e., backed by finance, whilst the procuring of the basic write a credit note for a customer making a law. As far as the story of Joseph in Egypt is essentials of life has been avoided by high deposit, allowing the client to cash the note concerned, money would have merely been status males…. in a distant city, thus avoiding the danger of another highly desirable commodity, most Nevertheless, in whatsoever form it might carrying material wealth from place to place. probably coinage of precious metal. have taken throughout history, the “leisure Many bankers in the Greek city states were class” has always remained dependent on the foreign residents or slaves, whose wealth Kings and Jubilee on-going existence of the natural world and enabled them to buy civic rights such as When the Hebrews moved into the the skills and parenting and workmanship freedom and citizenship. Promised Land, authority lay with the which have continued to be practiced in the Evidence of credit-based banking prac- prophets and the priestly class who arbi- rural village by men with a practical turn of tices has been detected from the fourth cen- trated between God and His people. Prior mind and by women. According to Veblen, tury BC across the Mediterranean world. to the coming of the kings and their power- the two basic traits of predation and work- When Egypt fell under Greek rule the nu- ful henchmen, the land was apportioned manship were handed on from generation merous state granaries were formed into a directly to the families who were to farm to generation as humanity passed through network of grain banks, centralized in Al- the fields and vineyards and pasture the live- history. Hence economic affairs in early exandria; where accounts from all the state stock. In due course of time, however, the twentieth American century were not driven granary banks were recorded. Again, the people demanded kings, desiring to be like by notions of usefulness, but by social pat- banking network was used as a trade credit other nations in the vicinity who had kings terns left over from the tribal customs of system, with payments transferred from ac- as figureheads as well as priests their priests prehistoric times. People set about the divi- count to account without the necessity for and priestesses. The request was granted. sion of labour on grounds which had noth- movements of wealth in kind. The bank- However, Samuel, the disapproving High ing to do with usefulness. On the contrary, ing practices developed by the Greeks were Priest at the time, presented an accurate ac- warfare and hunting, which are wasteful of built upon by the Romans who perfected count of the disadvantages of monarchy so human resources, have been accorded high accounting and administration, whilst in- far as the common people were concerned. status. Meanwhile farming, cooking and troducing laws and regulations…. However, Samuel spelled out the rights of the king provisioning, which are essential and useful, the Romans retained a strong preference for who would rule over the people: are considered of low status, to be under- cash transactions, so did not develop bank- “He will take your sons and assign them taken by inferior men and women. ing much further. Legislation restricted the to his cavalry, and some will run in front of charging of interest once Christianity was his chariots. He will use them as leaders of Urban Settlements accepted as the official religion of the Ro- a thousand and leaders of fifty, he will make With urbanization, the counter-skills man empire. After the fall of Rome banking them plough his ploughland and harvest his of predation, acquisition of material pos- disappeared in Western Europe, and did not harvest and make his weapons of war and sessions and emulative consumerism came re-emerge until the time of the Crusades. the gear for his chariots. He will take the to the fore. However, the introduction of The pattern for the development of a best of your fields, of your vineyards and enclosures at the onset of modern time, world economy was set in the ancient world. give them to his officers and his servants. He empires and urban settlements depended Powerful individuals like the Pharaoh in will take over the best of your manservants upon the continued existence of a peasant- Genesis, on the advice of their prototype and maidservants, of your cattle and your farming hinterland for supplies not only of financial advisors like Joseph, comman- donkeys, and make them work for him. He food and other subsistence requirements, deered control over material resources like will tithe your flocks and you yourselves will but also supplies of slave workers and sol- grain, which they predicted, according to become his slaves. When that day comes, diers. The enclosures were introduced so inside information, were likely to be in short you will cry out on account of the king you that the land could be used to produce wool, supply in the future. When the predictions have chosen for yourselves, but on that day grain and meat for profit. Such practices not proved accurate, the now highly desirable God will not answer you.” only denuded the land of its vitality, but in commodity could be sold for money. It is The people failed to listen, and Samuel’s the process the acquired knowledge of soils, noticeable that in the Old Testament ac- prophesy was fulfilled. When people give www.comer.org July 2011 Economic Reform | 5 authority to secular rulers, they put them- of poor peasant folk who crowd into towns, America, Mexico and the Southern States of selves into a servile position. Nevertheless inflating them to gigantic slums, morally the USA. The English-speaking colonies of until the coming of industrialization, the and physically unsound, and by its offer of America, Canada, Australia and New Zea- rulers and their subjects were consciously pittance wages for hired labour calls every land, however, were exceptional in human aware of the fact that they remained depen- horror of capitalism into the world.” history in that once slavery was abolished, dent upon the land and upon the commu- Private ownership of land on a massive they were populated almost entirely by a nity that tended that land. scale inevitably results in a dispossessed landless underclass. Formed in this way, the people. One alternative is for local com- United States of America has become one Colonization and Peasant Farmers munities to lease out land to individuals on of the most powerful state-formations in all On the occasion of the sixth annual terms agreed by custom, under the general history. Within it, the landless masses are Zionist Conference held in Basle, in 1903, over-lordship of the State, thus eliminating exploited by a ruling capitalist class, itself Franz Oppenheimer made the key observa- the hegemony of finance. originating in landlessness, but has fol- tion that ‘every nation depends on a mass For Oppenheimer, “peasant” agriculture, lowed its “instincts” with enthusiasm. This of humanity being rooted in the soil it in the European sense of traditional patterns presents something of a paradox. It would occupies and such roots are only struck by of Common Law land-holding, is a key appear that the mass of men to be exploited agriculture. At the time, the Jewish people factor in creating a viable political entity. imported itself by migrating en masse to had spent 2000 years as landless exiles in Insightfully, he dismisses as impractical the escape intolerable conditions elsewhere. the nations of the world. Oppenheimer re- idea of transporting a gigantic population of Divorced from land and peasant culture, ferred back to the ancient agricultural laws artisans, shopkeepers and peddlers from one and hence unable to sustain themselves, of the Hebrew people, handed to Moses on place on the surface of the globe to another, the masses sought out waged employment Mount Sinai before they entered the Prom- and expecting them to continue to survive from capitalists who were only too willing ised Land. The newly conquered land was as artisans, shopkeepers and peddlers. A to oblige. to be apportioned out to families under a sound mix of urban and rural was essential Thus was achieved an illusory “freedom” complex system of rules. Basically, the Law to the problems of capitalist society, with its to work for a money wage dictated by the guaranteed rural properties to the families dispossessed rural population swelling the self-appointed capitalist class capable of to which they were originally allocated. If slums and shanty-towns of sprawling cities dominating the entire political economy the family fell on hard times and was forced were not to be transferred to the new na- through the scarcely-veiled use of force. In to sell the land, or even to sell themselves tion. Oppenheimer’s economic studies and this way, was created a culture completely into slavery, such sales only stood until the observation of the European experience has separated from the land, and hence inher- fiftieth or “Jubilee” year, when slaves were led to the conviction that “he who would ently unsustainable. Prairie farming of Eu- freed and land reverted to its original own- create towns must create peasants” who ropean grains and cattle has resulted in the ers. Somewhat different rules applied to have a vested interest in the soil they culti- dust bowls of the 1930s and the on-going contracts in respect of the sale of rights in vate. Having studied examples of “industry- loss of topsoil…. urban areas. centered land tenure” in the late nineteenth Maintenance of equality of land tenure century, Oppenheimer observed that to CHAPTER 2: THE EVOLUTION OF THE would appear to be the key to social stabil- build a State without a peasantry with se- CORPORATE WORLD ECONOMY ity in any state or area of political jurisdic- curity of tenure would be like “building a Glyn Davies’ fascinating account, A His- tion. Thus Zionists sought to restore the house from the roof downward.” tory of Money documents the use of money primeval agricultural laws of Israel, which from ancient times to the closing years of allocated the land for all time to the tribe Landless Labour the twentieth century, revealing the inter- or village community, which for its part not Until the present day, the development play between actors in the political and only possessed it in fief from the nation as a of political and legal rights has been deter- economic spheres and the financiers upon whole. Under old systems of Common Law mined by the exercise of predatory activ- whom they relied for the necessary funding in Europe something similar had applied, ity involving the use of force. Historically, for their military or economic operations. offering advantages of individual prop- waves of conquest have flowed over settled According to conventional texts, however, erty right in land, but free from its worst farming communities, giving rise to a va- bankers are rarely mentioned in connec- shortcomings. Land held in this way gives riety of parasitical ruling classes. However, tion with the development of political and security of possession to farming families until the agrarian and industrial revolutions, economic affairs, whilst the unprecedented who, throughout history, have acted as the made possible by the evolution of the debt- institutional changes which accompanied guardians of resource management which based money economy, a permanent class of industrialization are rarely mentioned. Ac- forms the true basis of the economy. landless families, existing from generation cording to most histories, life was nasty, “It bestows the home feeling in the full- to generation totally divorced from the brutish and short until technological chang- est sense and forges an indissoluble link with means of subsistence and from indigenous es that accompanied industrialization gave the soil which roots the soul of the peasant culture, did not exist. rise to the development of production and in the fields he tills; but it precludes the During recent centuries, where no vi- trade, leading to material progress and pros- mortgaging of the soil, which deprives the able peasantry existed, and only roving perity. Since progress was inevitable there peasant of the fruits of his labour through- huntsmen who could not be subdued were was little point to questioning the morality out all the countries under Roman Law and to be found, would-be colonists had to or sustainability of big business. However, throws them into the lap of the landlord. resort to the importation from afar of a histories of money and banking reveal a very Moreover, it precludes that proletarization mass of slaves, as in the West Indies, South different story.

6 | Economic Reform July 2011 www.comer.org Debt and Usury the growing luxury markets in Europe and they were hired for money wages. Institu- The moral association between financial fought in foreign wars. From the outset, the tions of finance were crucially involved in debt-creation and corruption of social val- growth of the money economy had virtually the changes introduced in agriculture and ues was less obscure in the early days of the nothing to do with producing the necessi- industry. Hence debt-finance came to domi- development of banking. Like Judaism and ties of life or conserving essential knowledge nate policy decisions, not only in prepara- Islam, the Christian Church banned usury or resources. tion for war but also in determining forms because the necessity to go into debt was a of financially profitable production. Mili- sign of misfortune. An individual normally The Development of Banking tary and industrial enterprises waited on the fell into debt only when he had hit hard The maritime centres of the Atlantic availability of finance for authorization to times, through sickness, crop failure or some coast saw Antwerp, and subsequently the proceed, and increasingly such availability other disaster. It was considered moral to British seaports, become the new centres of of finance was debt-based. lend, but immoral to benefit from misfor- trade on a worldwide scale in early modern Surprisingly, in view of such massive tune by requiring the loan to be repaid with times. The early bankers, the goldsmiths, change in the social order, the teaching of interest. The Medici and other bankers of invested in productive and trading ventures economic history in schools and colleges the Italian Renaissance City States found with the objective of building up their per- across the world has dwindled almost to various ways around the Church’s ban on sonal stores of wealth. They also invested in zero. What remains provides at best a se- usury such as disguising transactions as the State. Kings needed armies to enforce ries of disjointed “sound bites” rather than “international” currency exchanges between their claims to the throne. They were, how- a meaningful account of the transforma- independent states. Banking practices were ever, notoriously unreliable in settling debts tion in everyday policy formation processes further developed by the Lombards, who incurred in the process of destroying armies. which have occurred over the past two argued that a money lender who financed a Hence in 1694 a group of London merchant hundred years. Without an understanding profitable trading venture had a moral right bankers secured their position by agreeing to of the changes in political and economic to a share of the profit. loan to William III for the purpose of war, institutions of society over the period of The practice of taking a money reward on the security of Parliament’s legal right to industrialization it becomes virtually impos- for merely lending money is so central to impose taxes. The Bank of England was not, sible to envisage a sane approach to political the market economy of the present age however, owned or controlled by the King economy which alone will facilitate the that its justification needs to be closely or Parliament, but by a group of six private beginning of moves towards a three-folding examined. The Lombard bankers financed individuals who stood to gain substantially social order. the merchant ships of Venice, Genoa and from the National Debt so created. With some notable exceptions, econom- other Mediterranean ports, the key centres Governments have been in debt to the ic change has been attributed purely to the of world trade at that time. A merchant bankers ever since. The Bank of England technical advances, i.e., to the introduction sending a ship out to India might make a was from the outset a joint stock company, of agribusiness farming techniques and the profit equal to thirty times the money spent meaning that it had a legal identity in its technological inventions in industry and on the outlay. The Lombard bankers argued own right. When the Government needed transport. The key factor in social changes that if they financed a merchant they were to raise new loans from the public, the Bank of the industrial revolution, the develop- putting their money at risk if the ship did acted as its agent. Hence the loans required ment of financial institutions, is rarely, if not return. Furthermore, the money-lenders to fund the costly wars of the 18th century ever, mentioned. Fortunately, electronic also argued that they could alternatively were in fact act underwritten by the citizen forms of communication have made in- fund a profitable venture of their own with taxpayer. The world-wide development of formation about these developments more any potential loan. merchant banking, and of financial ‘services’ readily accessible. This raises the question, how did the has been well-documented. All that needs One excellent source of information on Lombard bankers acquire the finance capi- to be stressed here is the interplay between banking, finance and its international inter- tal to invest in risky but potentially highly the trading activities of private groups of connections in the 19th and very early 20th profitable ventures? They were private indi- individuals (firms and corporations) and centuries is the 1906 Jewish Encyclopedia, viduals, not kings, emperors or other heads the creation of the legal framework under all twelve volumes of which are now avail- of state with the legal right to levy taxes. which such activities were allowed to flour- able online. Drawing upon this material, it The question is key to an understanding of ish. Banking and dealings in money have would appear that, at least in the early stages the corporate world order. The Lombard always been debt-based and underwritten of enclosure, colonization and industrializa- money-lenders were originally craftsmen by legal statutes. tion, international financiers were in the and traders who employed other people to The 19th and 20th centuries saw un- advantageous position vis-à-vis the indig- work in the weaving industry to produce precedented changes in the social order. enous populations of the individual coun- goods for sale. The employment system As the agrarian and industrial revolutions tries of Europe and worldwide. The Jewish came about from the desire of some private progressed, developments in this financial Encyclopedia (1906), here cited, provides a individuals to acquire material riches so that world increasingly impacted upon the every- wealth of information on the central role they could achieve worldly power over re- day lives of peasants in the rural homeland played by named key people in the wars and sources. Other people took the timber from of the cities. Enclosure and the mortgage industrial developments which prepared the the land and built the ships, farmed the land and sale of the land ended ages-old tradi- way for the history of the twentieth century. to produce food and raw materials, manned tional rights of access to the land, creating The five sons of the Frankfurt-born Mayer the ships which took the gold, spices and a class of landless labouring families whose Amschel Rothschild are an essential part of silks from the Indian countryside to sell in members had no means of support unless that story. www.comer.org July 2011 Economic Reform | 7 The House of Rothschild tionship between the Rothschilds and all the with the leading statesmen of the capitals In 1928 Victor Gollanz published the major figures in the history of Europe after in which they resided, whilst at the same English edition of a two volume history of 1830, and includes pictures of the opening time maintaining close contact with each the Rothschild family. Written by Count ceremonies of railways in England, Austria other. Alongside the portraits in the Fer- (Egon Caesar) Corit and translated from and Germany, portraits of Napoleon III, guson book is a reproduction of a part of the original German, The Rise of the House Bismarck and Cavour. Although the sec- “One of many thousands of letters in Juden- of Rothschild and The Reign of the House ond book purports to bring the history of deutsch exchanged between the five Roth- of Rothschild offer insights into the social, the Rothschilds down to “the present day” schild brothers on an almost daily basis.” political, economic, technical and financial (1928) it in effect ends at the 1870s with It is possible to argue that by the twentieth changes of the nineteenth century. countries, ceasing to maintain their interna- century networks of contacts between pow- Like the late twentieth century accounts tional connections…. erful banking interest on an international compiled by Niali Ferguson, the research From a historian’s point of view. The two scale ceased to exist. However, that seems and publication of the Corti books was books are a delight to read, full of detail unlikely. aided and endorsed by the Rothschilds. about the recorded lives of the Rothschilds In the work of historians like Corti and However, although Ferguson’s work con- and their relationships with the leading Ferguson, six men, all from the same family, tains a mass of detail, it is recounted at a political figures in the Europe of the nine- are portrayed as playing a key role in the his- journalistic pace so that the significance of teenth century…. The reader is left in no tory of Europe, across international bound- the story for the 21st century is, to all in- doubt about the existence of a “House of aries, in the first three decades of Europe, tents and purposes, lost. Rothschild” which transcended the bound- across international boundaries, in the first A mere couple of centuries ago, when aries of the individual nation states of Eu- three decades of the nineteenth century. In the Battle of Waterloo took place in Bel- rope while at the same time playing a key total Mayer Amschel Rothschild had nine- gium, the technologies which could support role in the wars and developments of the teen children, of whom only ten survived. sophisticated financial networks were yet nineteenth and early twentieth centuries. The five surviving girls had no documented to be invented. The 21st century economy Neil Ferguson, a later apologist for the part to play in the story. Although her sons is regulated by a network of national state Rothschilds. recounts their pioneering work became fabulously wealthy, old Mrs. Roth- currencies which could not have been de- in banking and communications, laying schild remained in the little house in the veloped under the conditions of technol- stress on the ostentatious use of their le- Jewish quarter of Frankfurt where she had ogy and communications which existed in gitimately earned fabulous wealth. He is raised her family. Except as help-mates to 1815. At that time the Rothschild brothers dismissive of “conspiracy theorists” who the men the women were of no account in were building up a network of communi- have “misunderstood” the nature of the their own right. cations between countries in which they “network of private financial relationships Furthermore, there is documentation of chose to settle. But such communications with key public figures of Restoration Eu- the “development of the Rothschilds” pri- still depended on horse-power on land, and rope.” In a sense, the work of Corti and vate postal system which finally covered the wind-driven sailing ships at sea. Ferguson lays the myth of the Rothschilds whole of Europe and was used by friendly It is recorded that Nathan Rothschild, to rest. Yes, they existed, playing a key role governments for forwarding confidential who had by then settled in London, en- in international affairs in the early decades documents. The essence of international gineered the situation so that he received of the nineteenth century. But by the twen- finance has been secrecy. It has operated be- news of Wellington’s victory at the Battle of tieth century their riches and power had hind the scenes, influencing wars, economic Waterloo a full day ahead of the office gov- dwindled, and they took their place among development and public affairs, generally ernment messengers, At that time, messages the democratic masses of the twentieth without the need for public accountabil- were carried by word of mouth, or on pieces century. The privatization of the control of ity. Moreover, Corti clearly states that “the of paper, written perhaps in code and sealed public affairs through the control of finance Rothschilds played a part in the defeat of with sealing wax. Long-distance railways, is quietly presented as a fact of political life, Napoleon at Waterloo.” telegraph. the internal combustion engine, while the very mention of the existence of According to popular accounts, Nathan steamships, electricity and electronic means international finance as a force in world Rothschild used his early receipt of the news of communication were all as yet to be politics is enough to bring forth the dreaded of Wellington’s victory, mentioned earlier, invented. By the outbreak of World War accusation of ‘anti-Semitism.’ to his own advantage in his dealings on the I, a century later, a very different world On one page of the Ferguson book are London stock exchange. Whatever the truth had come into existence, one in which the the portraits of each of the five brothers of the matter might be, by the time Corti money economy impacted on the everyday painted around 1836 by the same artist, was writing, well over a century had passed, lives of people in every nation state across in the style of the portraits of aristocracy. and the events had been told and re-told. the world. The world had changed out of All were settled in different capital cities, In this instance Corti, an apologist for the all recognition. Amschel Mayer Rothschild (1773-1855) Rothschilds uses a literary device which has Corti’s first book contains detailed de- in Frankfurt, Solomon Mayer Rothschild since come into common usage. When an scriptions of the close relationship between (1774-1855) in Vienna, Nathan Mayer event becomes public knowledge, and the the various members of the “single House” Rothschild (1777-1836) in London, Carl subject of open and informed debate, it and the key players on the European stage Meyer Rothschild (1788-1855) in Naples becomes necessary to confuse and defuse the of the early nineteenth century, including and James Meyer Rothschild (1792-1865) issue, by ridiculing or vilifying proponents Napoleon, Wellington and Metternich. The in Paris. As all the biographies indicate, of an open discussion. Here Corti is imply- second book takes up the story of the rela- these five men were in close consultation ing that Nathan passed the information to

8 | Economic Reform July 2011 www.comer.org the British Government, although he does with the interlocking directorates, and pres- consonant with the prevailing drift of senti- not say so directly. ently the voting trust, were the ways and ment in the community at large, as is shown “The members of the British Government means by which the banking community by the uniform and uncritical approval with were enormously impressed by Nathan’s took over the strategic regulation of the key which it is regarded. The substitution is a advance knowledge of such an important, industries, and by way of that avenue also substitution of businessmen and politicians. and when this became generally known, the the control of the industrial system at large. So that the discretionary control in matters public, who were just beginning to learn of By this move the effectual discretion in all of university policy now rests finally in the the extent to which Nathan was employed that concerns the business management hands of businessmen.” by the English Treasury, began to invent all of the key industries was taken out of the During the nineteenth century the role manner of legends regarding the method by hands of corporation managers working of the ‘Robber Barons, in American society which Nathan had acquired his knowledge, in severalty and at cross purposes, and has was publicly transparent. More recently, and the manner he had exploited it. Some been lodged in the hands of that group of however, the educational establishment said that he had a private service of carrier investment bankers who constitute in effect presents ‘both sides’ of the argument. Hence pigeons, others that he had been personally a General Staff of financial strategy and who an on-line teaching guide presents students present at the Battle of Waterloo and had between them command the general body with a potted biography of John D. Rock- ridden to the coast at top speed. In order to of the country’s credit resources….” efeller. He moved from rags to riches, be- make the story more romantic, he was said In these circumstances, it is scarcely sur- coming one of the richest men in the world to have found heavy storms raging when he prising to find that “a constitutional govern- in the oil business by founding Standard reached the channel and to; have crossed at ment is a business government” in which Oil, yet he gave away “half his wealth” in the risk of his life. Nathan was also alleged the money of the banking and business creating a university, an institute for medical to have exploited the news on the Stock interest is the central feature of their control research, and several foundations. Exchange, thus at one stroke creating the over the politics and government. The con- The teaching guide admits that, although enormous fortunes of the Rothschilds….” trol of business interests over government is some of his business practices were “good The trend was set. Information secretly not, however, simply a matter of politicians (he was organized and efficient), some were obtained could be used by private groupings being corrupted by corporate interests. As unethical. He put other companies out to advance their own interests, while at the Veblen neatly observed: of business, prevented competition, and same time influencing public policies to the “Representative government means, demanded kickbacks.” As can readily be advantage of the private group. The dust chiefly, representation of business interests. confirmed, the teaching guide presents an jacket of The Reign of the House of Rothschild The government commonly works in the accurate review of the ethical standards of a spells out the “quite fantastic role played by interest of the business men with a fairly key corporate figure, albeit with the implica- the Rothchilds, at the height of their power, consistent singleness of purpose. And in its tion that such behaviour was justified by the in weltpolitik.” solicitude for the businessmen’s interests it is results. “During the Gilded Age” students borne out by current public sentiment, for are told: Absentee Ownership and there is a naïve, unquestioning persuasion “John D. Rockefeller brought business the Corporate State abroad among the body of people to the practices to new heights – or depths, de- The role of international corporations effect that, in some occult way, the mate- pending on one’s ethical standards. Amass- in the conduct of the political and military rial interests of the populace coincide with ing huge personal fortunes, often through history of the 20th century has been thor- the pecuniary interest of those businessmen unscrupulous means, Rockefeller domi- oughly documented and does not need to be who live within the scope of the same set of nated the entire oil industry. Rockefeller’s further rehearsed here. A new world order government contrivances. The persuasion is Standard Oil was ruthless; it bought off had arisen which constitutional government an article of popular metaphysics, in that it politicians, made secret deals with railroads is government by corporations, themselves rests on an uncritically assumed solidarity of to obtain favourable rates, and destroyed governed by the “absentee owners,” of busi- interests….” the competition through bribery and cor- ness interests. As Thorstein Veblen had Public opinion is, as a result, slow to seri- ruption. Standard Oil became one of the already observed in 1904: ously question the situation. It remains con- most hated companies of its time, earning “Modern politics is business politics. tent to assume that big business has at heart mammoth profits by preventing competi- This is true both of foreign and domestic the general welfare of society as a whole. tion, keeping wages low, and setting prices policy. Legislation, police surveillance, the Furthermore, corporate business holds sway high. By 1879 – a time when America’s ap- administration of Justice, the military and over the institutions of higher learning petite for oil to fuel its expanding industry diplomatic services, all are chiefly concerned through its ability to control the flow of was reaching new heights – Standard Oil with business relations, pecuniary interests, finance. Writing in 1918, Veblen observed controlled over ninety per cent of America’s and they have little more than incidental that under the older American universities refining capacity.” bearing on other human interests.” the governing bodies were almost exclusive- Thus “alpha male” behaviour has secured Furthermore, Veblen noted that, what- ly drawn from the ranks of clergy and were finance, enterprise, politics, learning and in- ever their original interests might have been, guided by “devotional notions of what was dustry to the service of the corporate world. the most powerful corporations such as J.P. right and needful in matters of learning,” Although individuals can no longer be so Morgan and National City Bank operate However, “for a generation past…there has clearly identified as targets for discontent, across the full spectrum of industrial enter- gone on a wide-reaching substitution of lay- the philosophical base of the key institu- prise and financial institutions. men in the place of clergymen on the gov- tions of society has continued without de- “The holding company and the merger erning boards. This secularization is entirely viation…. www.comer.org July 2011 Economic Reform | 9 Dissent “It was explained in that treatise that the apart. One of these is the Canadian federal The corporate world can tolerate a financial system was the agency most suit- budget process that has been based on the certain degree of dissent. Pressure groups able for such a purpose; the inculcation of a belief that the government hiding assets – a demanding an end to poverty create the illu- false democracy was recommended; vindic- criminal matter in the private sector – is an sion that “something is being done at last,” tive penalties for infringement of laws were aid to virtue, so that, at the end of the year, whilst keeping the critics of the system busy advised; the Great War and the methods by some of this can be trotted out as proof of raising funds, producing leaflets and giving which it might be brought about were pre- the finance minister’s ‘fiscal responsibility.’ out speeches which do not raise too many dicted at last twenty years before the event; “Private corporations have used unregu- fundamental questions about the causes of the imposition of grinding taxation, more lated derivatives – trades in an abstract poverty amidst plenty. Within the academy, especially directed against Real Estate own- feature of a security which is unregulated apparent dissent serves the useful purpose of ers, was specifically explained as essential to and can be kept off the books – to create creating the illusion of academic freedom. the furtherance of the scheme. The methods the illusion of more demand for the security Marxists can be tolerated because the pow- by which the spurious democratic machin- itself. These derivatives may deal in interest erless poor will never rise up in revolution ery and the journalistic organs of ‘public’ earned, or the exchange value of the cur- at the injustices of corporate capitalism. In opinion could be enlisted on the side of rency in which the underlying currency is real life they will actually starve to death such taxation, and an antagonism between denominated, in calls or options or swaps in their millions, as continues to be the the interests of the town and the interests of in trades of these abstractions (‘swaptions’ is case well into the 21st century. Labour will the Country could be created, with an ac- only a simpler sample of what is becoming organize to obtain a better deal for work- curacy of detail which can only be described the best rewarded high technology of our ers as workers under capitalism, as Veblen as Satanic.” period). observed over a century ago. Waged labour The original document can be dated to “Another such – the hedge funds that never organizes violent revolution. As An- the late nineteenth century. Published in originally were the happy hunting ground thony Sutton and others have shown, only English for the first time in 1920, The Pro- of billionaires – are not being used by more corporate elites have the resources to plan tocols of the Learned Elders of Zion (hereafter modest investors who have cashed in their and execute violent changes of government. referred to as The Protocols), was the subject profits during the aging boom market. They Capitalism, Communism and Nazism are of lively debate, but was soon withdrawn have also became a favorite haunt of overex- bedfellows arising from the power base of from circulation. Public discussion of the tended banks that by their own admission the corporate elite. contents of the document was banned on are unloading much of their bad debt on The system can tolerate empty-headed the grounds that it was a “forgery” intended unwary modestly wealthy folk who don’t dissent. It is content with dogmatic slogans, merely to foster pogroms. As Douglas fur- know what to do with their winnings. Bank- sound bites and idle speculation as to the ther commented: ers are coming clean on such matters, since causes of disasters, whether man-made, “It is quite possible that this document their consciences have been sensitivized by natural or “economic” (which falls into a is inductive rather than deductive in origin, the revelations of New York state prosecutor category of its own). But it cannot toler- that is to say, that some person of great but Eliot Spitzer. His subpoenas have achieved ate dissent based upon the systematic and perverted talents, with a sufficient grasp of the costly settlements by some of the greatest organized study of the social framework existing social mechanism, saw and exploited names of insurance for using derivatives of the institutions which govern the social the automatic results of it. If that be the ‘to aid their own results with the complex order. In the twentieth century students case, the world owes a debt of gratitude to techniques that they pioneered and mar- could be encouraged to read Machiavelli, that mysterious author. He was substantially keted over the past 25 years. Insurance has since the truly powerful individual was a accurate in his generalized facts, and the moved beyond its core business of insuring thing of the past. Would-be dictators like inductive prophecies are moving rapidly against fires and earthquakes’ to the damage Hitler might study Machiavelli in order to towards fulfillment (emphasis added).” by artificial overheating and tremors of their become effective tools for their masters. But ❧ ❧ ❧ own making. the systematic study of how corporate hege- “As a result, leading Canadian bankers mony over the institutions of society might You may wonder why we are devoting have moved in closed ranks from opponents be countered and successfully reformed is, as so much space and attention to bring to of regulating derivatives to supporters of yet, nowhere to be found in the institutions light a long-suppressed key chapter of the the idea. Canada’s banks have reached hu- of higher learning. world’s history. Or, worse still, being played miliating settlements running into several in reverse. It is as though the six Rothschild hundreds millions of dollars for having par- A Machiavellian Scheme master couriers even peddled their strategic ticipated in the off-balance-sheet partner- In 1920 Eyre & Spottiswoode, a respect- dispatches to fishmongers enroute to West- ships of Enron.” able London firm that was the King’s print- minister and other capitals with only a bad, er, published a remarkable document in bad case of indigestion. The Risks of Risk Management which a scheme for corporate world control I need do no more than quote from an “The change of heart of our bankers was outlined. Writing about the document article of mine in Economic Reform of April, on the subject of derivative regulation has in his fourth book, Social Credit, published 2005 entitled “The Multi-frauds of Risk not come inexpensively for the Canadian in 1924, Douglas noted that the methods Management have begun unraveling”: taxpayer. by which the enslavement it describes could “Much of this issue of ER is devoted to “We should make clear that we are not be brought about could already be seen re- the frauds of risk management that in sever- against risk management as such. Like per- flected in everyday experience. al areas of the economy have begun coming sonal virtue it is as much to be recommend-

10 | Economic Reform July 2011 www.comer.org ed but devilishly difficult to achieve. Partial success towards the goal can certainly be reached by such policies as deficit budgeting A Century After his Birth, by government so that during a recession a heightened degree of government spending Marshall McLuhan Is Still for necessary capital purposes will help keep employment and economic activity higher. Ahead of Us However, the risk management encouraged by hedge funds and other large financial cor- By Oakland Ross, The Toronto Star media guru of all time,’ says B.W. Powe, porations has precisely the opposite effect. (18/07): If Marshall McLuhan were alive a former student of McLuhan’s and now It adds wind and bluster to the financial today, there isn’t much that would sur- a professor of English at York University. bubbles and increases the violence of the prise him – not the Internet, or Google, or Powe recently returned from a European busts. Twitter, or WikiLeaks, or even the phone- speaking tour that included talks on McLu- “The Wall Street Journal (15/02) – hacking scandal now transfixing much of han’s work in Naples, Bologna and Barce- ‘Spitzer, SEC subpoena AIG over complex the UK. lona, among other cities. deal accounting’ by Theo Francis) wrote: “In broad outline, if not in precise detail, “‘McLuhan is still ahead of us,’ he says. ‘American International Group Inc. is fresh he predicted all of these and more. “McLuhan’s hotly debated star is likely off settlements with the US Justice De- “‘Rereading him, I still get new insights,’ as high now as it was during his glory years partment and the Securities and Exchange says Robert Logan, a former colleague of at the University of Toronto in the 1960s Commission for its role in allegedly helping the Canadian media guru some now call and 1970s, when he was busily charting the their earnings with complicated financial The First Seer of Cyberspace. ‘The man was topography of an electronically connected products for its own possible illegitimate a total genius. If he came back today, on world that was a looming reality then and purposes. his 100th anniversary, he would say, “Yeah, seems nearly all-pervasive now. “The New York insurance Giant yes- that’s about what I expected – and people “Wired magazine recently proclaimed terday disclosed new subpoenas from New haven’t learned a thing.”’ McLuhan as its ‘patron saint,’ marking his York Attorney General Eliot Spitzer’s office “Possibly, they never will. posthumous return to the kind of celebrity and the SEC. They seek information related “Or maybe the heightened popular in- he enjoyed three or four decades ago when to certain types of insurance arrangements terest and critical attention being accorded he was a cult figure in Canada, the United and ‘AIG’s accounting for such transac- McLuhan during this, the centenary of his States and much of the world – a dapper, tions,’ the company said. birth, may yet help us fumble toward a erudite visionary who spoke in a Delphic, “AIG added that it received the inquiries clearer understanding of the parlous digital aphoristic style that seemed to owe as much just after it reported its fourth quarter earn- world that he anticipated and whose name to poetry as science. ings last Wednesday and seemingly closed he coined – the global village. “The most influential publications in the book on two regulatory [items] that had “‘McLuhan’s value today lies in applying the world – Newsweek, Time, The New York lingered on unattended to for months. his methods,’ says Mark Federman, former Times, among others – clamoured to pro- “The new subpoenas show regulators’ chief strategist at the McLuhan Centre in mote his ideas and to parse his aphorisms mounting interest in a line of insurance Culture and Technology at the University in their pages. products that was obscured just 16 month of Toronto. ‘It’s cool that he predicted the “Then, as now, it often seemed his words ago. But since regulators were caught off future, but what we should do is learn from could mean almost anything or, perhaps, guard by billions of dollars of loans that his methods.’ almost everything. have targeted financial services firms that al- “Those methods aren’t easy to summarize, “‘With any profound thinker who is legedly aid corporations in financial machi- much less emulate, and there is considerable ahead of us, there will be as many interpre- nations, Enron filed for bankruptcy court disagreement among academics about the tations as there are people wandering in the protection in December 2001. meaning of McLuhan’s often cryptic or even desert,’ says Powe. ‘People forget his roots “‘Specifically, the subpoenas relate to oxymoronic pronouncements – ‘the future are in poetry, literature, the artifact of the investigations of non-traditional insurance of the future is the present,’ for example, word. He spoke poetically and aphoristi- products and certain assumed reinsurance or ‘the effects come first; the causes, later’ – cally, and that leads to interpretation.’ transactions and AIG’s accounting for such but there is no doubt the man’s stature and “McLuhan’s best-known book – with transactions,’ AIG said. Many non-tradi- influence are firmly in the ascendant once the seemingly prosaic title Understanding tional insurance products can allow users to again, after a long period of decline. Media – appeared in 1964 and soon gave inappropriately shift losses from the buyer’s “More than anything else, it’s the frenetic birth to an intellectual cottage industry that balance sheet, aiding the bottom line in the expansion of the Internet in recent years brought together pipe-smoking professors short line while misleading shareholders and that has renewed international fascination and leather-jacketed students in university regulators. with the Canadian communications vision- common rooms and lecture halls around the “Last fall, AIG settled allegations that it ary who was born in Edmonton in 1911 world: Understanding (or Misunderstand- had helped PNC Financial Services Group and died in Toronto in 1980 at the age of ing) McLuhan. Inc., a Pittsburgh banking company, im- 69. He would have turned 100 this coming “The debate goes on. properly shift liabilities off its books, and Thursday. “This year, and especially this month, that it helped Brightpoint Inc, a Plain- “‘In North America, for quite a long a new generation of scholars is joining Continued on page 19 time, he was considered the most overrated its counterparts from generations past, as www.comer.org July 2011 Economic Reform | 11 McLuhanites around the world mark the his nose into everybody else’s business,’ he alert, he was unable to speak – a cruel blow century that has clocked past since his birth. once said. for a man who thrived on words. They are holding discussions, listening to “With those few words, McLuhan ef- “‘He laboured on for a year,’ says Logan. lectures, attending multimedia displays and fectively anticipated the ruthless phone- ‘We took walks in the park. I would share generally reconsidering the theories of the hacking culture that disgraced the News of ideas with him, but he just couldn’t get the man who became famous for proposing – the World, the British tabloid shut down words out. He knew he was never going to among much else – that the medium is the by media magnate Rupert Murdoch earlier regain his speech. Beethoven went deaf, and message and the content is us. this month, with further consequences un- McLuhan went mute.’ “Born into a middle-class Alberta house- doubtedly still pending. “On the final day of December 1980, hold, McLuhan was educated in Cana- “Some oasis. Herbert Marshall McLuhan took his final da and later in Britain, where he studied “Another of McLuhan’s most famous breath, leaving behind a huge legacy of ideas at Cambridge University. He returned to insights – ‘the medium is the message’ or – and no shortage of paradox. North America in 1936. ‘the massage,’ as the concept is sometimes “Surprisingly, The First Seer of Cyber- “A decade later, he took up a faculty rendered – is also commonly misunderstood space had little use himself for the shiniest position at St. Michael’s College, a Catholic or not understood at all. gadgets of the postmodern age. enclave at the University of Toronto. By “‘Most people don’t get it,’ says Feder- “‘His television was in the basement,’ then he was married – to Corinne Lewis, man. says Federman. ‘He didn’t drive a car. He originally from Texas – and had converted “While undoubtedly profound, the idea avoided technology.’ to Roman Catholicism. The couple would isn’t really that difficult to follow. “And yet, like Charles Darwin or Albert eventually have six children. “For example, the first passenger airplane Einstein before him, he reconfigured our “‘He was a mystic Catholic humanist,’ was certainly significant but not because of world. says Powe. ‘He was not an optimist but a the specific individuals it happened to be man of hope.’” carrying on any given flight. It was signifi- McLuhan’s Words of Wisdom cant because it heralded the emergence of • The medium is the message. Not an Optimist but a Man of Hope passenger aircraft – a new medium. • The medium is the massage. “He was also fated to be a target of mis- “Before you knew it, there were in-flight • The effects come first; the causes, later. understanding. movies, airport limousines, frequent-flyer • I can’t bear to read anything I have “As McLuhan’s fame and influence grew, points cards, jet lag, 9/11, metal detectors, a written. it became common in the public mind to war in Afghanistan, another war in Iraq, and • My statements are probes. perceive him as a champion of the phenom- a whole lot else. • Canada is the only country in the world ena he studied – as an advocate of the digital “It’s the medium, in other words, and that knows how to live without an identity. revolution, for example, or a devoted citizen not the cargo, that constitutes the message. • Art is anything you can get away with. of the global village, or an ardent proponent “The same applies to cell phones, the • Affluence creates poverty. of any medium that manages to be its own Internet and all forms of electronic com- • Tomorrow is our permanent address. message. munication since Samuel Morse invented • The trouble with a cheap, specialized “It wasn’t so. the telegraph. education is that you never stop paying “McLuhan rarely, if ever, advocated any- “This may seem almost obvious now, but for it. thing. ‘He wasn’t a champion of technology the insight had the force of a lightning bolt • We shape our tools and afterwards our or opposed to technology,’ says Logan. ‘He more than 40 years ago, when McLuhan tools shape us. was neither a technophile nor a Luddite. All divined the idea. • I wouldn’t have seen it if I hadn’t be- he wanted to do was make people aware of “‘He realized that electronic communi- lieved it. both sides of the coin.’ cations were a second Creation,’ says Powe. • I think of art, at its most significant, “McLuhan himself went further. ‘Electronic technology has radically altered as a DEW line, a Distant Early Warning “‘I am resolutely opposed to all innova- how the brain functions.’ system, that can always be relied on to tell tion, all change,’ he once said in a television “McLuhan may have possessed ‘uncanny the old culture what is beginning to happen interview, speaking with a characteristi- prophetic abilities,’ in Powe’s words, but he to it. cally inscrutable tone. (Was he serious? Or was also a performer, a man who loved to • There are no passengers on Spaceship merely teasing?) ‘Anything I talk about is devise riddles and games for public display, Earth. Everybody’s crew. almost certain to be something I’m reso- a penchant that was perhaps central to his • Anyone who tries to make a distinc- lutely against.’ genius. tion between education and entertainment “As for his predictions of an emerging “‘He was constantly at play,’ says Logan. doesn’t know the first thing about either. global village of electronic connectivity – ‘Play, for him, was a serious concept.’ • Ads are the cave art of the Twentieth perceived by many as a sort of cyber prom- “While dauntingly intelligent, McLuhan Century. ised land, an idyllic virtual oasis – McLuhan was seldom arrogant or patronizing. • All media exist to invest our lives with was under no illusions that our species’ “‘He was generous, witty, engaging,’ says artificial perceptions and arbitrary values. digital destination would necessarily be Powe. ‘He always began his classes with seri- “For a fascinating video compendium agreeable or even tolerable. ous laughter. Every class began with a joke. presenting Marshall McLuhan live and in “‘The global village is at once as wide as Some were pretty good.’ his own words (along with those of US the planet and as small as a little town where “In his late 60s, he suffered a stroke and novelist Tom Wolfe), visit ­www.marshall everybody is maliciously engaged in poking considerable brain damage. Although still mcluhanspeaks.com.”

12 | Economic Reform July 2011 www.comer.org ❧ ❧ ❧ the day as the Marxian social map foretold, I first got to know Marshall McLuhan they were slaughtered mercilessly and many through my late wife, Gladys Cowan. In my ended up in British exile, including Marx BookStore Mexican exile a democratic leader in Guate- and his own family. As a result, he was mala, grandson in fact of one of the coun- never able to complete the second and third Available from COMER Publications: try’s leading liberators from the Spanish volumes of his Kapital. In 1870 the Pari- 27 Sherbourne Street North, Suite 1 yoke, phoned and urged me to come down. sian workers who had set up a revolution- Toronto, ON M4W 2T3 Only when I reached Guatemala City did he ary regime on the defeat of Napoleon III’s [email protected] take me into his basement and explain to me government by the Prussians, were again Price EXcludes postage and handling. why he had suggested that I come. executed mass-wise in the Père Lachaise There was to be a coup against the dicta- Cemetery in Paris. With the blowing-up of Hazel Henderson tor that midnight and one of the key artillery his certainties, Marx was unable to finish • The United Nations: Policy and officers of the dictator had been kidnapped, volumes II and III of his Kapital. It was left Financing Alternatives: Innovative and with a gun placed to his temple told his to his life-long collaborator Friedrich Engels Proposals by Visionary Leaders, life would be spared if he directed the fire who did as well a clean-up job as he could ­Editors Harlan Cleveland, Hazel kitty-corner from the other pill-box against under those trying circumstances. It helped Henderson, Inge Kaul, $10 his own comrades. That he did with tears rather than hindered that he had spent most W.F. Hixson flowing down his face. of his adult years in his family textile fac- • It’s Your Money, $10 We crouched in my friend’s basement tory in the British Midlands, whereas Marx awaiting the imminent artillery duel, wait- learned about capitalism from economist William Krehm ing the combat to begin. In 15 minutes it reformers. • Towards a Non-Autistic Economy was over, I left my friend’s basement and in McLuhan had a keen flair of what tech- – A Place at the Table for Society, the darkness picked my way to the central nological change was doing to our doctri- $10 square, where I found only a single dead naire certainties – at every level of human • Babel’s Tower: The Dynamics soldier. The plan had been a complete suc- existence. With a genius for embracing the of ­Economic Breakdown, $10 cess. I sent to TIME magazine where Henry current state of the society, the family and • The Bank of Canada: A Power Luce, who controlled TIME was getting even the universe in a single phrase, it is Unto Itself, $5 bored with the routine war stories. He liked hardly surprising that journalists and adver- • Democracies and Tyrannies of the my reportage, fixed up my US immigration tising folk should have sensed the unique Caribbean, second English and third in no time flat, asked me where I would phenomenon of McLuhan. However, most Spanish editions available, $15 choose anywhere in Europe or the Americas. of his academic colleagues, finding it hard • Meltdown: Money, Debt and My heart was in Latin America and that I disguising their envy, tended to grudge him the Wealth of Nations – Volume 1, where I chose to represent TIME as cor- the acknowledgment that he most definitely ER from 1988–1998, $20 respondent. deserved. • Meltdown: Money, Debt and Meanwhile, I went up to New York City The surgical precision of his most sparse- the Wealth of Nations – Volume 2 to get to know the inner workings of the ly worded perceptions, is exemplified by his ER from 1999–2001, $20 magazine. I chose Latin America, and then, summation “The medium is the message.” • Meltdown: Money, Debt and What so basically transforms economic when the mood changed I was given a most the Wealth of Nations – Volume 3 generous retirement pay. I was able, finally, relationships, he quietly detected as basic ER from 2002–2003, $20 to get back to Canada, and catch up on to sexual relationships when he advised • Meltdown: Money, Debt and deeper economic studies. his charming five daughters about the new the Wealth of Nations – Volume 4 My wife enrolled at the University study- morality of the most delicate bridges of ER from 2004–June 2005, $20 ing French and Spanish literature. And there human relationships: “Don’t do anything I befriended a daughter of Marshall McLu- wouldn’t.” • Meltdown: Money, Debt and han. For quite a while I had been preoccu- Since I, with what were by comparison the Wealth of Nations – Volume 5 ER from July 2005–Dec. 2006, $20 pied by the way in which society’s changing crude economists’ tools, was engaged in a technology, shapes our general thinking. I very parallel restructuring of basic thought • Price in a Mixed Economy – had read the three volumes of Marx’s Kapital we at once appreciated what the other was Our Record of Disaster, $15 by the age of fifteen. But the thought had up to. With a sympathy that even a few combo offers: come to me that Karl Marx’s thinking in years later would be banned with loss of • One volume of Meltdown plus many basic ways reflected his having been teaching posts, the University of Toronto in either The Bank of Canada or born during the initial railway-building those distant blessed days lost little time in It’s Your Money, $35 years. Surely his view of social development making available a special auditorium where • One volume of Meltdown plus each social stage of development following every week or two pupils of all faculties were Democracies (English or Spanish), the previous in foreseeable sequence, right invited to hear thinkers of just about any Price in a Mixed Economy, Babel’s to the terminal when all passengers got off faculty state the new paradigms that might Tower, The Bank of Canada and with beatific smiles on their faces. All that be taking over in his special area. I was Towards a Non-Autistic Economy went very well until 1848. when the pro- amongst those once or twice. – A Place at the Table for Society, letariat threw up barricades in almost every “The medium is the message” covered $90 European capital. But instead of carrying my views of my ever so differently struc- www.comer.org July 2011 Economic Reform | 13 tured price theory and the interests of those on his own and McLuhan’s behalf. I was price increase is officially handled as “infla- who resisted in by suppressing all alterna- the only one on the panel who seemed to tion” with a single cure in the form of higher tives to the previous one. On McLuhan’s have grasped the significance of McLuhan’s interest rates, and then back to the indus- untimely death, the family invited me to tremendous contribution from a purely hu- tries turning out ever more deadly atomic participate on the Canadian Broadcasting manist point of view. bonds, that will remedy what is taken for Commission on McLuhan’s immense con- Today McLuhan’s all-embracing appre- “inflation” in a sure way – by exterminating tribution. Apart from the publicity agents ciation of the shift in human thinking is tak- the human race. who had helped exploit McLuhan’s genius ing over again. Not a moment too soon. A W. Krehm Europe and the American Credit Appraisers Contradict Each Other on the Nature of Solvency In its July 7 issue, The Globe and Mail’s received a bailout. He said the ratings move Greece’s bailout. “Report on Business” (“Europe assails ‘bias’ is fuelling speculation in financial markets “Ben May, European economist at Capi- of debt raters”) sheds a glaring light on what this week. tal Economics in London, said that while is paralyzing the world economy: “Leaders “‘It seems strange that there is not a the fight between European politicians and complain new cuts by rating agencies based single rating agency coming from Europe,” the major credit agencies has flared this in the US are hampering efforts to solve cri- Mr. Barroso told reporters in the European week, it is not a new – or particularly dan- sis” by Janet McFarland, reports” “Europe’s Parliament. gerous – development. leaders are accusing the world’s largest cred- “‘It shows there may be some bias in the “‘There have been comments like this it-rating agency of bias in assessing the debt markets when it comes to the evaluation of seen over a prolonged period in the past,’ of troubled countries, renewing calls for the the specific issues of Europe.’ Mr. May said. ‘I’m not sure these are neces- creation of a European rating Asia. “European Union Political leaders have sarily anything new, although there is an “The complaints were sparked after talked in the past about creating a European element of frustration.’ Moody’s downgraded Portugal by four debt-rating agency, but there is no concrete “The head of Standard & Poor’s in Ger- notches Tuesday to ‘junk’ status, and Stan- plan in place to do so. many, Torsten Hinrichs, defended his firm’s dard & Poor’s warned Monday it would “Lawmakers have butted heads with the work, telling a radio interview he rejects consider it a ‘selective default’ if banks and rating agencies throughout the debt crisis, the criticisms of the firm’s latest report on insurers roll over about $42 billion of Greek but even earlier criticized the firms for help- Greece. debt – a move that could derail efforts to ing spark the financial crisis in 2008 by fail- “‘The assertions are completely made up restructure Greece’s debt. ing to adequately assess the risks of complex out of thin air and factually wrong,’ he said. “German Finance Minister Wolfgang financial instruments. ‘They are either based on ignorance of the Schaeuble said Wednesday he was surprised “The credit-rating firms are now fac- facts or are politically motivated comments by the decision to downgrade Portugal, ing new regulations requiring registration (that) neglect the facts.’ saying he ‘can’t decipher’ the basis for the as well as heightened standards to control “A Reuters report quoted Mr. Hinrichs evaluation. conflicts of interest. saying S&P will not put 150 years of cred- “‘We need to break the oligopoly of rat- “Those new reforms, however have not ibility on the line ‘to enable politically moti- ing agencies,’ he told reporters in Berlin. stopped European politicians from continu- vated push-ups’ of Greece. “The comments heighten long-simmer- ing to complain that the world’s biggest “Moody’s said it is simply aiming to pro- ing tensions between politicians and the credit raters are primarily US-based, al- vide investors with fair information. three leading rating agencies, whose ratings though they have local offices in Europe. “‘Moody’s priority remains providing are crucial to efforts of Europe’s troubled “Moody’s and Standard & Poor’s are US- independent, objective assessments of credit countries to ease their debt burdens. based firms, while giant Fitch Ratings Ltd. risk on debt securities,’ a spokesman told “In the short run, policy makers need to is based in London and New York and is Dow Jones. keep Athens from being declared in default owned by a Paris-based company. “While politicians are clearly frustrated, so Greek banks can continue to borrow “‘They feel [the rating agencies] just there appear to be few calls from the private from the European central bank. don’t understand the process, and I don’t sector for a new European-based debt rating “European leaders are struggling to ex- think most people would say that’s a fair agency. tend Greece’s debt and win support for fiscal criticism of the rating agencies as it relates “Mr. Chandler said he has not heard plans for Spain, Ireland and Portugal, while to developed-country sovereign debt,’ said of any demand in fixed-income circles for debt-rating agencies are assessing the ef- Mark Chandler, head of Canadian fixed-in- a new rating agency, and said it is hard to forts on behalf of private-sector lenders and come strategy at RBC Dominion Securities. imagine it would have access to different bondholders who are being asked to partici- ‘They have a long track record on that.’ information or better expertise to serve pate in some of the refinancing efforts. “Mr. Chandler said the credit raters are clients.” “Mr. Schaeuble’s concerns were echoed looking at the restructuring from the per- Appraisal, as ever, turns out to be a pro- by European Commission president Jose spective of the private sector as policy mak- cess that will serve the politically decided Manuel Barroso, who criticized Moody’s ers continue to propose models to entice goal of an empowered social group. for downgrading Portugal so soon after it private banks and insurers to participate in W.K.

14 | Economic Reform July 2011 www.comer.org A Canadian Equivalent to USA’s Sheila Bair By Grant Robertson, The Globe and it would most certainly join Toronto Do- the event of default, which would assume Mail (8/7/2011): “Having spend the past minion Bank, Bank of Nova Scotia, Bank of the obligations of imperiled lenders and year drawing up new standards for global Montreal and Canadian Imperial Bank of liquidate the assets. mega-banks doomed too big to fail, finan- Commerce in a group of banks that would “‘If you are talking about an institution cial regulators will turn their attention this be deemed national SIFIs. that is very important, you need tools to fall to debating requirements for smaller “RBC chief executive officer Gordon deal with its exit from the system,’ she said. banks that are of national significance – a Nixon could not be reached Thursday, but ‘Otherwise, you will have no choice but to process that will have direct implications for Mr. Nixon has said he believes Canada’s larg- repeat what happened in the financial crisis, Canada’s financial institutions. est bank is not large enough to be classified where governments had no choice but to “Canada’s major banks would shake the as a global systematically important bank. bail out certain institutions.’” country’s financial system if any of them He is pushing for Canada’s major banks to That, however, should ring even more were to fail in a crisis, but most are not be treated equally, on a national level. important bells in our minds. expected to be named to a list of about 30 “The list of global SIFIs could be a long The New York Times (10/07, “Sheila Bair” systemically important financial institutions time coming. In the next month regulators by Joe Brown) quoted Sheila Bair: “‘They (so-called SIFIs) around the world, which will issue a consultation paper on the pro- should have let Bear Stearns fail.’ It was will be established in the coming year. posed criteria for the list, which will look at midmorning on a crisp June day, and Bair, “Under an agreement reached two weeks how interconnected a bank’s operations are the 57-year old outgoing chairwoman of ago in Basel, Switzerland, the global SIFIs with other financial institutions, as well as the Federal Deposit Insurance Corporation will be required by 2016 to hold as much its cross-border activity and the complexity – the federal agency that insures bank de- as 2.5 per cent of additional capital on their of its assets.” posits and winds down failing banks – was books compared with their peers, which sitting on a couch, sipping a Starbucks latte. will serve as an extra buffer against a future Exit “Too Big to Fail” We were in the first hour of several lengthy financial crisis. “When the debate turns to a national on-the-record interviews. She seemed ever- “Global regulators were in general agree- level, Ms. Dickson said, her preference is so-slightly nervous. ment about putting extra requirements to not attach ‘too big to fail’ labels to any “Long viewed as a bureaucratic back- on the world’s biggest banks, but the next of Canada’s banks, but instead to introduce water, the FDIC has had a tumultuous round is expected to be more contentious. a system that would allow for an orderly five years while being transformed under There is much disagreement about how resolution of a troubled bank, rather than Bair’s stewardship. Not long after she took to treat banks considered systematically propping it up with a bailout. charge in June 2006, Bair began sounding important to the well-being of their own “Some countries may want banks deemed the alarm about the dangers posed by the countries. national SIFIs to hold more of a capital explosive growth of subprime mortgages, “‘It’s going to be much more difficult to cushion. However, Canada is proposing a which she feared would not only ravage get global agreement on that,’ Julie Dick- series of other measures to safeguard nation- neighborhoods when homeowners began son, the federal Superintendent of Financial ally important banks, such as the concept of to default – as they inevitably did – but also Institutions, said in an interview. ‘It’s more bail-ins, where debt is quickly converted to wreak havoc on the banking system. of a national prerogative on how you want equity to inject capital into the bank. “The FDIC was the only bank regulator to deal with institutions in your country.’ “‘It’s like an army of capital that is cre- in Washington to do so. During the finan- “News stands for the world’s biggest ated,’ Ms. Dickson said. ‘The doors of the cial crisis of 2008, Bair insisted that she and banks have been the priority so far, given bank are left open, they’re never shut. But her agency have a seat at the table, where the global domino effect that would result if other holders of debt, uninsured depositors, she worked – and fought – with Henry they were to fail. But Ms. Dickson pointed holders of senior unsubordinated debt, are Paulson, then the treasury secretary, and out that difficulties at medium-sized finan- converted into equity holders.’ Timothy Geithner, the president of the New cial institutions can lead to international “Contingent capital, which Canada put York Federal Reserve, as they tried to cobble problems as well. forward at global regulatory talks last year, together solutions that would keep the fi- “British bank Northern Rock was not a is one form of bail-in, the Office of the Su- nancial system from going over a cliff. She large financial institution when it required a perintendent of Financial Institutions said. and the FDIC managed a number of huge Bank of England bailout during the credit OSFI has already required Canadian Banks failing institutions during the crisis, includ- crisis, yet its failure would have been felt to draw up ‘living wills,’ blueprints for how ing IndyMac, Wachovia and Washington throughout Europe and potentially around the organization would be wound up and Mutual. She was a key player in shaping the the world. liquidated in the event of a default. Dodd-Frank reform law, especially the part “‘Circumstances also play a big role in “Rather than label banks as too big to that seeks to forestall future bailouts. Since whether an institution is systematically im- fail, which could lead them to seek bailouts, the law passed, she has made an immense ef- portant,’ Ms. Dickson said. Ms. Dickson said her focus has been on fort to convince Wall Street and the country “In Canada, RBC has been mentioned figuring out how to contain the damage of that the nation’s giant banks – the same ones as a possible candidate for the list of global a failure its operations. Canada has also laid that required bailouts in 2008 and became SIFI banks. If RBC does not make that list, the groundwork to create a ‘bridge bank’ in known as ‘too big to fail’ institutions – will www.comer.org July 2011 Economic Reform | 15 never again be bailed out, thanks in part they were talking to us because the President President quickly signed on to the idea of to new powers at the FDIC. Just a few wanted them to.’ having Dodd-Frank include the ability to months ago, she went so far as to send a let- “Getting the banks to make large-scale resolve giant bank-holding companies and ter to Standard & Poor’s, the credit-ratings mortgage modifications is no different to- other systemically important financial insti- agency, suggesting that its ratings of the big day than it was in 2007 – next to impos- tutions like AIG. banks were too high because they reflected sible. The servicers still lack the economic “That was the easy part. Dealing with an expectation of government support. If incentives to modify mortgages; it’s easier in the Treasury Department was, as usual, the a too-big-to-fail bank got into trouble, she most cases for them to foreclose, which also hard part. The original white paper outlin- wrote, the FDIC would wind it down, not generates fees, while modifications don’t. As ing the financial reforms it wanted from bail it out. Bair herself discovered during the IndyMac Congress included a section calling for the ‘“Yes, that was necessary,’ Bair said. ‘But experience, changing that attitude requires government to be able to legally ‘resolve’ they certainly could have been less gener- dogged effort. ‘I ended up having calls with the big banks. It had the FDIC running the ous. I’ve always wondered why none of our servicers every Friday, to get a status process, which clearly made the most sense; AIG’s counterparties didn’t have to take report on what they’d done that week on the agency had been doing it for so long, it any haircuts. There’s no reason in the world loan modifications, just to keep the pressure had the process down to a science. That’s why those swap counterparties couldn’t have on,’ Bair said. why bank depositors scarcely notice when taken a 10 percent haircut. There could ‘“I think the President’s heart is in the the FDIC shuts down their bank on a Friday have at least been a little pain for them.’ (All right place,’ Bair told me. ‘I absolutely do. and reopens it under new management on a of AIG’s counterparties received 100 cents But the dichotomy between who he selected Monday morning. on the dollar after the government pumped to run his economic team and what he “Weeks passed. About an hour before the billions into AIG. There was a huge outcry personally would like them to be doing – I President was set to announce the reform when it was revealed that Goldman Sachs think those are two very different things.’ package, FDIC officials, including Bair, received more than $12 billion as a counter- What particularly galls her is that Treasury were shown the latest copy of the white party to AIG swaps.) under both Paulson and Geithner has been paper. According to Bair, ‘The resolution “Bair continued: ‘They didn’t even en- willing to take all sorts of criticism to help authority had completely changed.’ While gage in conversation about that. You know, the banks. the FDIC still had an important role, its Wall Street barely missed a beat with their authority had been seriously diluted – now bonuses.’ Helping Banks “Too Big to Fail” the Treasury and the Federal Reserve would ‘“Isn’t that ridiculous?’ she said. “The second key issue for Bair has been also have to sign off before a bank could “John Podesta, who headed the Obama dealing with the too-big-to-fail banks. Her be wound down. From Treasury’s point transition team, was another Democrat distaste for the idea that the systemically of view, this was completely reasonable. that Bair had known forever. ‘I just thought important banks can never be allowed to After all, any wind-down would require there had been too many people who had fail is visceral. ‘I don’t think regulators can short-term lending from the Treasury, so it been too close to the financial situation adequately regulate these big banks,’ she wanted some say in the process. But Bair felt for too long,’ Bair told me. ‘I thought we told me. ‘We need market discipline. And if strongly that this was yet another example needed a fresh perspective.’ we don’t have that, they’re going to get us in of her – and her agency – being undercut by “Instead, Obama turned to Geithner. It trouble again.’ other regulators. was no secret by then that Bair and Geithner “In the early wrangling over what became “So she fought back; and in typical Bair had a frosty relationship; inevitably stories the Dodd-Frank bill, ‘resolution authority’ fashion, she did so publicly. When called to leaked out that Geithner was trying to push was not a prominent part of the agenda. testify before the House Financial Services her out. But the stories were wrong. Bair’s Then in March 2009, AIG filed documents Committee about the new resolution au- support for mortgage modifications made showing that it had set aside $165 million thority, she bluntly told Barney Frank, then her enormously popular with Democrats; in bonuses for its traders. The public anger the committee chairman, that, as she put it when she told Podesta that she would step over these bonuses was enormous. One day to me: ‘It still doesn’t resolve the large bank- down early if that’s what the President want- in the middle of the furor, the President holding companies. We would like the au- ed, he said no: Obama wanted her to stay. summoned Bair to the White House. When thority to do that.’ In the final Dodd-Frank “What has been discouraging is that the she arrived at the Oval Office, Geithner and bill, Treasury’s oversight role was diminished Obama administration hasn’t done much Lawrence Summers, Obama’s top economic – and the FDIC had the authority to man- better on the loan-modification front than adviser, were sitting on the couch – and the age a failing too-big-to-fail bank. the Bush administration did. Early on, the seat next to the President was empty. That “Even so, there are many people who President told his staff to talk to the FDIC was where she was supposed to sit. As the remain convinced that the government will about how to set up a loan-modification President vented his frustration over the never have the nerve to let an important in- plan. The FDIC had a wealth of experience, AIG bonuses, Bair saw her opportunity. stitution actually fail. Indeed, the big banks in part because it operated IndyMac for nine ‘This doesn’t happen with our process,’ she currently have a much lower cost of capital months until a buyer was found. It used that told the President. ‘We have a resolution than their smaller brethren precisely because time to work on mortgage modifications process that we’ve used for decades, and the bond market doesn’t believe they will with IndyMac borrowers and came up with when we put a bank into receivership, we ever be allowed to fail. a template for a program it felt could work have the right to break all contracts, we can “Bair has spent much of the last year nationwide. ‘They did talk to us,’ Bair said fire people, we can take away bonuses and trying to convince the country – and Wall of Obama’s staff, ‘but I always had the sense we don’t get into this kind of problem.’ The Street – that the FDIC is up to the task.

16 | Economic Reform July 2011 www.comer.org Most people remain unconvinced. But she that I’m not an Ivy League person. It could independent initiatives of two great women insists, thanks to the new resolution au- be; everybody has their biases. But I found in the civil services of the two major North thority, ‘I think we are in a lot better shape I had to become assertive when they just American countries. It is a deep concern – than we were.’ The truth, of course, is that wouldn’t listen.’ doubtlessly with deep biological roots, for nobody can possibly know what the govern- “My own view is the country would have women and mothers to be concerned about ment will do. The only way to find out is been far better served if more people in posi- the survival prospects of their families. Sure- to have an institution fail – not exactly a tions of power had been willing to listen to ly then, not only should psychologists and prospect to relish. But that will be a problem her as the financial crisis unfolded. Hers was mathematicians be brought in. The Lord for someone else, not for Sheila Bair. She has a voice of common sense, trying to protect knows that there are plenty of them avail- done her part. the taxpayer, the bank depositor and the able because of alleged budgetary problems. ‘“I didn’t start off being assertive and homeowner. If other regulators had taken In fact there remains no accountancy and going public with concerns,’ Bair said as her early subprime concerns seriously – to hence no budget worthy of that name. our second interview was winding down. cite just one example – the financial world What is being left out is the concept of pre- ‘But we were being ignored, and we had might be a different place today.” paid human capital – “the most important something to bring to the table. There’s But there is an even more important investment a country can make.” been speculation: maybe it was gender or lesson that must be picked up from the William Krehm

Transitional Homes for Ex-convicts

Jim Rankin, in The Toronto Star, June 14, facility where they can live up to a year be- bum, they are really going to be tone deaf 2011, writes: fore permanent housing is found.” to any cost-benefit analysis no matter how “On the first seriously hot morning of a much it pays because they think it’s the late spring, Ron gave his walk-up bachelor If Ex-prisoners were Helped wrong people (getting support),” says Open apartment on St. Clair Avenue West a seri- to Rehabilitate Policy’s John Stapleton, a report co-author. ous sweep, despite the heat and fact that he “The study, funded by the Toronto “The logic of cost-benefit analyses is otherwise keeps it immaculate. Community Foundation, looked at exist- sometimes trumped by feelings, which are ‘“It’s already 30 degrees,” said Ron, 57, ing research and applied it to what could often used by politicians who talk tough on mopping his forehead with a cloth. “I need be saved…. crime and punishment. a fan, I think.” “Looking at a number of variables and ‘“You sure learn quickly that it’s not “But it is home – and has been since costs associated with inmates in a previous about saving money,” says Stapleton. “The December, when the John Howard Society study, including average number of trips to public is willing to pay for things, even if it helped find him the place. Other than the jail, average jail stay, cost of incarceration costs them more.” fan, it has what he needs: a small kitchen, ($142 per day), plus costs to victim, the “Ron is on a methadone program and TV and pull-out bed. He’s added a few per- justice system and the cost of administering gets by on disability payments. sonal touches, like mirrored lettering on the the program, the study found the program “He grew up in Toronto and has a Grade wall that says, “Live, Love, Laugh.” could save a bundle. 12 education. He worked as hairdresser and ‘“I feel good about myself,” said Ron. “Per-person savings for homeless ex- handyman and was married. His wife died “Since the age of 17, Ron, a recovering prisoners were estimated at $350,000. For eight years ago from cancer. That’s when he heroin addict, estimates he has been in and ex-prisoners convicted of serious offences got heavy into pills. out of jail about 40 times, spending a total (those subject to what is called an 810 order) “He liked at one point to combine Va- of 20 years incarcerated. The longest stint the savings were put at $109,000. lium and beer. Doped up, he says he once 1 was 2 /2 years in a federal penitentiary for a “The homeless group, often suffering wandered into a No Frills grocery store, string of drug-fueled break-and-enters. from mental illness and addiction, are more where he opened a chocolate milk container, “Ron, who agreed to be identified by his likely to cycle in and out of jail, thus the drank it, and ate some cookies. Thanks to first name, believes he would not have cycled greater savings. his criminal record and release conditions, in and out of jail so many times had he had ‘“We had anecdotal evidence that there the incident landed him in jail. a place to live during the gap between being would be a cost savings to the taxpayer but ‘“The pills make you do stupid things,” released and finding a place of his own. it’s one thing to have anecdotal evidence and said Ron. “When you get out of jail, you “The John Howard Society of Toronto another to have pure economic proof,” says don’t have very much. I’ve been in and out is hoping a transitional housing program Greg Rogers, executive director of the John quite a few times. It ends up costing the already successful in Ottawa will stop the Howard Society of Toronto. taxpayers a lot of money. cycle earlier for other released inmates and, ‘“The study actually exceeded what I ‘“But over the past five years, things have in turn, save taxpayers’ money – and make thought it would say in savings.” gotten a lot better. I stopped doing all this Toronto safer. “The results are to be officially released foolishness. I’m 57. That’s enough.” “In an effort to persuade governments to Tuesday. The report was prepared by On- “Using the study’s daily jail cost of $142, invest, the society commissioned a cost-ben- tario consulting groups Open Policy and Ron’s total incarceration cost for his esti- efit analysis of the program, which provides Chronicle Analytics. mated 20 years in jail comes to $1 million. just-released inmates a room in a controlled ‘“People who are going to call them a “There is currently funding in Toronto www.comer.org July 2011 Economic Reform | 17 for two John Howard Society drug court transitional housing units, for eight people in total. They have been operating since Pay The Piper! Call The Tune! 2007. It boasts a success rate of 52 percent – meaning half don’t re-offend – a rate nearly If we are to call forth the sweet strains of that, “in this we face the larger question as four times better than those who do not go a better world, then we must be prepared to to whether or not Parliament is to be sover- through the program. pay the piper; for, he who pays the piper does eign, as to whether or not the people are to ‘“It’s not rocket science. Instead of put- call the tune! be sovereign, or whether we have not had ting these guys down in the shelters, where Fortunately, this is something that we are our liberties filched from us without most there are crack dealers out in front, we’ve quite capable of doing. The money is there of us having been aware of what has taken got them in houses with rules and workers for whatever it is that we need money for. place.”2 looking after them,” says Rogers. Alas, the choice of how to spend it, is not. “That program costs $110,000 a year. That choice is in the hands of the money- Whoever Said that Canadian “The society also operates a post-incar- lenders. History Was Dull? ceration housing team that places about The struggle over who should control a In 1933, the Bennett government ap- two homeless clients a week into permanent nation’s money system has been going on pointed a royal commission on banking housing. But there is otherwise no program for centuries. Its history is a most instruc- – the Macmillan commission. One of those that bridges the gap between release of a tive cautionary tale. Thomas Jefferson, for who appeared before the Macmillan com- homeless inmate and permanent housing. example, addressed this issue early in the mission was Gerald Grattan McGeer, rep- “The society would like to create a 45- history of the United States. Without so resenting the Vancouver, New Westminster unit transitional facility in Toronto that much as a crystal ball, he warned: and District Trades and Labour Council. would house about 100 men each year. The If the American people ever allow the McGeer was a highly accomplished lawyer, clients would have their own rooms and banks to control the issuance of their cur- counsel to the BC government during the would not be allowed to communicate with rency, first by inflation and then by defla- freight-rate cases of the 1920s. His brilliant others while on site. tion, the banks and the corporations that success had resulted in “significant reduc- “The facility would cost $4 million in will grow up around them will deprive the tions in rates and corresponding increases renovation and building costs and about people of all property until their children in commercial activity.” Those cases had $850,000 a year to operate – about the same will wake up homeless on the continent convinced him that money and its misman- as a similar-sized shelter, said Rogers. The their fathers occupied. The issuing power agement were at the root of the problem, society is prepared to contribute toward the of money should be taken from the banks and had drawn his attention to economics, cost. The study doesn’t spell out projected and restored to Congress and the people especially in money, banking and interest. overall savings. But if half the 100 men who to whom it belongs. I sincerely believe the That concern was further stimulated by the went through the program in a year were banking institutions having the issuing Great Depression, whose cause he traced to from the homeless prisoner population and power of money are more dangerous to faulty monetary policies.3 did not re-offend, the lifetime savings would liberty than standing armies.1 McGeer’s report on the Macmillan Com- be $17.5 million. And lo! It has come to pass. (For a com- mission included a devastating criticism of “Police in Ottawa, where the society’s pelling documentary on how this prophecy the commission itself, and of the “indecent Ottawa chapter has established and ex- has been fulfilled see Michael Moore’s,Capi - haste” with which it was proceeding. He panded such transitional support housing, talism: A Love Story.) suggested that the Commission could be are fans of the program. The good news, is that we have a bank likened to a “thieves’ kitchen court, in which “They particularly like the fact that of- of our own, you and I. It’s our central bank. the wrong – doers were both upon the fenders who have served their entire sentence It’s called the Bank of Canada. We bought Bench and in the jury box.” He pointed out, and are released – a group that includes sex it during the 1930s – a time when the Great for example, that under the ministry of one offenders – are in a program and can be Depression had educated the public to a member of the Commission. Sir Thomas found.” level of consciousness and concern about White, PC, KC, MG, Vice-President of the Once you come to recognize human banks and banking that would serve us well Canadian Bank of Commerce, and Canadi- capital as “the most productive investment today. an war-time Minister of Finance, war-time a government can make” then you must As early as 1925, J.S. Woodsworth, then rates of interest charged to government for – as with all investments – look after the the Independent Labour Party Member of credit loans were increased by 50%. failures as well as the highly successful ones, Parliament for Winnipeg North, and one Also included in his report were excerpts and manage as well as you can those that of only two MPs who held the balance of from the British Macmillan Committee may come to need special attention, or power crucial to the Liberal minority gov- on banking credit and finance (same Mac- even the complete failures. No investment ernment of Prime Minister, William Lyon millan!), excerpts which McGeer believed comes with a 100% guarantee of success, Mackenzie King, called for a nationalized reflected the minority views of such other and those who claim to are in fact the most system of banking, and government con- notable members of that committee as John dangerous. trol of the issuance of currency and credit, Maynard Keynes, and which supported his Let us celebrate the memory of the au- with the removal of this power from private own. thor of the very notion of human capital, corporations. He contended that money Finally, he enclosed the outline of a plan Theodore W. Schultz. supply should be managed for national for Canada, entitled, “The Conquest of W.K. interests rather than private profit, saying Poverty.” In it, he explained how “public

18 | Economic Reform July 2011 www.comer.org credit [was] used to support the most pow- by the Canadian government. He stirred favoured us with a “Golden Age.” It helped erful predatory monopoly in finance that national debate on the subject. “From him, us to afford post-war infrastructure projects has ever been organized,” and argued that more than any other man of his time, [the like the Trans-Canada highway and the St. “legal tender money and the purchasing public] learned about the awful power of Lawrence Seaway, and social programs like power medium of exchange, whether it be money.”7 the Canada Pension Plan and Medicare. money or credit, transferred by cheque, Finally, in 1938, thanks in no small part It nurtured a growing Middle class and an is…a creature of law and its creation and cir- to Gerry McGeer, Prime Minister Macken- increasingly egalitarian society. culation constitute the exercise of a supreme zie King, in accordance with his political To be continued. prerogative power of governmental author- insights, and his well honed skills in the Elan ity.” In the course of time, “he predicted, “art of the possible,” led his government to 1. Charles Beard, The Rise of American Civilization, London: ‘the system of more equitably distributing “nationalize” the Bank of Canada. Cape. Quoted in Michael Rowbotham’s, The Grip of Death, pages 34, 35. national income will be perfected. But, in In Canada, it seemed for a time that the 2. Vincent Lam, Tommy Douglas, Penguin, Canada the meantime,’ he stressed, ‘we must get question of who should create the money 3. David Ricardo Williams, Mayor Gerry, Douglas and McIn- started.’ His performance at the committee – the state on behalf of all the people, or tyre won much public acclaim and wide public- the private banks in their own interests and 4. Ibid. ity.”4 that of their preferred clientele – had been 5. Babad/Mulroney, Where the Buck Stops. Stoddart. Three of the five members of the Com- decided. Money-creation was shared by the 6. Abraham Lincoln, Senate document 23, page 91, 1865. Quoted in The Grip of Death, Michael Rowbotham, page mission supported the creation of the Bank government, through the Bank of Canada, 221. of Canada. While there was little opposition and the private banks. The system served 7. David Ricardo Williams, Mayor Gerry, Douglas and McIn- in the Commons to creating the Bank of us well. It helped finance World War II and tyre. Canada, important issues remained to be settled.5 Two of these were key. Should the Social Credit from page 11 bank be privately or publicly owned? Who field, Ind., cell phone distributor, cover up more urbanized high-tech world. should have supreme authority on monetary losses using a bogus insurance policy’ AIG And yet from the slashes in high tech- policy, the government or the bank? The agreed to pay $128 million in penalties and nological programs that could expose the ensuing struggle for ownership of the Bank other costs but neither admitted nor denied blindness of untrammeled greed that has of Canada is a buried tale that bears out wrongdoing. taken over – the realization of the suicidal Santayana’s observation that, “those who do “Separately, Mr. Spitzer’s office has course that this imposes on our society. It not remember their history are doomed to named the company as a participant in a is high time not only to retrieve our history repeat it.” bid-rigging scheme with other major insur- and its lessons, but organize the reclaim- The Bank of Canada opened in 1935. ers and insurance broker March & McLen- ing of our society for survival. We could In August of that year, in a radio address nan Cos. AIG said last Wednesday that it make use of mathematicians and astrophysi- to the nation, Prime Minister, Mackenzie had found no indication of wrongdoing cists left unemployed by slashing our space King, said: outside the single unit in which those indi- programs to examine what passed for the Once a nation parts with control of its viduals worked. elementary maths that are supposed to sup- currency and credit, it matters not who “Some of the complex, alternative risk port the complete takeover of our society by makes that nation’s laws. Usury, once in transactions that regulators are looking into speculative capital. For example of turning control will wreck any nation. Until the across the industry allow insurers to com- around a proposition and considering it still control of currency and credit is restored pensate for reserve shortfalls in the short valid. For example: if I shoot myself in the to government and recognized as its most run by seemingly transferring risk for these head. I fall dead. From that you cannot con- conspicuous and sacred responsibility, all reserves from one insurer to another. clude that if I fall dead, I have suicided. talk of the sovereignty of Parliament and of “AIG has long been on Wall St.’s list Surely with the reduction of our space democracy is idle and futile. of favourite insurance stocks, known for travel programs, there will enough highly To this Abraham Lincoln would have its steady earnings growth in an industry trained mathematicians and astronomers added that “the privilege of creating and where results are typically banged around available to judge that because there is issuing money is not only the supreme by everything from hurricanes to adverse too much demand to be satisfied by the prerogative of government, but it is its developments in asbestos litigation.” available supply of, you can conclude that greatest creative opportunity.” In an address The classic insurance worries may be when prices rise, there has been an excess to Congress, a few weeks before his assassi- put in the shadows by the risks of being too of demand. It could have been that more nation, Lincoln outlined principles not un- successful in the new jungle of derivatives investment is being made in non-market like those expressed in the Bank of Canada technology. programs, and unless you recognize that, Act and predicted that by the adoption of Indeed, the whole artificial structure of and responding to that need with more di- these principles…“money [would] cease to suppressing our history with an aggressive rect government investment, society will be be the master and become the servant of denial of just about everything that humans pushed to its doom. humanity,” and that, “democracy would rise learned in their struggle for survival from One of the lessons of the original Social superior to the money power.”6 the laws of primary arithmetic have been credit movement recognized and dealt with Colourful, controversial, relentless, in- crimped and crumpled in the blind pursuit such problems. That is what makes Frances defatigable, and a powerful orator, McGeer of corporate greed. Stripped of our history, Hutchison’s new contribution a most im- championed the cause of monetary reform our command of the most elemental logic portant book to be read and pondered. through a publicly owned bank, operated we are sent to deal with the problems of ever William Krehm www.comer.org July 2011 Economic Reform | 19 The Ruinous Cost of Treating Our Investment in Human Capital as an Expenditure Having clamped down the costs of run- of living. After two atomic bombs led tothe devas- ning a modern economy and assumed with “The agency is also planning to charge tation of Japan, followed shortly afterwards doctrinal blindness that all higher prices private businesses quite a lot more to renew by the collapse of Nazi Germany, Washing- can be relegated to too much demand and licenses on park properties. ton sent many hundreds of economist to Ja- too little supply, our government is getting “Asking Canadians and industry to pay pan and Germany to study the extent of the into predictable trouble. The point it shuts more for government services appears to damage and from it to foretell how long it its eyes to, is that a modern economy has be one way federal departments are manag- would take these great trading nations to re- to make investments that are not market- ing the wave of cost-cutting demands as sume such roles again. determined. the Harper government attempts to erase Some sixteen years later These are determined by the cost of tak- Canada’s $32.3 billion deficit. one of these Theodore ing care of its ever more expensive human “Government departments that charge Schultz wrote a crucial capital. This consists of our government’s user fees – the federal government takes in essay on how wrong he direct non-market-determined investments about $1.8 billion a year in this way – re- and his colleagues had such as human capital, which is not de- cently outlined their future plans in reports been. This he attrib- termined on any market, but is financed to parliament. uted to the fact that directly by our governments. It includes not “Treasury Board President Tony Clem- they had concentrated only the education of the labour force but ent has said that higher user fees would Theodore Schultz on the physical war- the expenditures needed to keep it properly not form part of the government’s deficit- time destruction, and urbanized and healthy. fighting plan, but The Globe and Mail re- overlooked the fact that the talented human This I and an entire French school of viewed some of the reports and fount that capital had come through the war virtually economists ascertained has to be seen as 13 government departments are preparing intact. And then in a stroke of sheer genius investment – treating it as an “expense” will to update their fees. he concluded that human capital is the be white-caning their way in attempting to “Most of the 13 that are planning to most important investment a government balance their budgets. ‘change’ their user fees have not yet provided can make. For a few years Schultz was feted, Ignore that detail and try ironing out detail proposals. Only the Canadian Food decorated, and then completely forgotten. such imbalances with higher interest rates, Inspection Agency is using language in its We attach a note of life and achievement, and our governments are embarked on proposal that suggests its fees will decrease, since his work is more needed than ever to endless troubles. The have, in fact, nothing while the rest either explicitly state or imply prevent the extinction of our culture in the that could be mistaken for accountancy in that fees will rise. next atomic war. the dark. We quote from The Globe and “Among those with detailed proposals, Without Schultz’s great conclusion, our Mail (07/05, “Fees: Canadians roundly the Parole Board of Canada is planning to civilization is being pushed to its doom condemned proposal to raise costs of pur- increase the cost of a pardon to $631 from by the suppression of all that was learned suing a pardon” by Bill Curry, Ottawa): $150. That was almost universally panned during the Depression and the immediate “Despite Conservative promise, fees are in a recent public consultation. Canadians quarter of a century thereafter, Treating the set to rise across the country. As many as who e-mailed responses called the hike investment in human capital as just another a dozen departments that charge user fees excessively punitive and warned it would debt calling for suppression by higher inter- propose price hikes; national park entry, make it harder for convicted felons to clear est rates, deprives humanity of anything that fishing licenses and camping among affected their names so that they can find work. could be mistaken for serious accountancy services. “Health Canada is also planning to more even the dark. Canada’s Auditor General “The Harper government may have than double fees for drug and medical- attempted to make the point. But under vowed that cutting the debit would not lead device companies to help cover the cost of Washington’s practical dictation our Prime to higher user fees, but documents show safety regulation.” Minister Brian Mulroney over-rode him. that as many as a dozen federal departments The flaw in this official reasoning is that Ignore the growing importance of hu- plan to raise these fees – including Parks our price level is exclusively determined by man capital, and treat is a debt to be sup- Canada. the market. In fact, the greatest lesson to pressed by higher interest rates, in an age “The department responsible for Cana- come out of World War II, was that the when the rapid urbanization of the world is da’s national parks will soon release its pro- most dynamic investment that a country increasing apace, is to call for disaster. posed user fees for next year, ranging from can make is not market-determined at all, Confuse capital investment by govern- entry and camping to the cost of fishing but in human capital. Since this – like so ment for debt can lead nowhere but the next licenses and the use of hot pools. much of our history that we have dire need final atomic disaster. “A Parks Canada official said camping to save the current market-inspired rush We carry a brief note on the late Theo- fees – which have been frozen since 2008 into the next atomic war – has been so dore Schultz whose great contribution must – are too low and that the increases are thoroughly suppressed that we must at this be brought to the fore again. likely to be in with inflation and the cost point recount it. William Krehm

20 | Economic Reform July 2011 www.comer.org