Number-crunching as Opposed to Analysis

The following is from a communication sent to Connie Fogal, at the time in the early years of the 2000s when she was leader of CAP. It deals with the function of the central bank.

Bill Krehm

To begin with nothing personal is implied in the use of the term “number-crunching.” It happens to be one of the afflictions of our age. A high-tech culture based on a compulsion ever to expand has become the format of our lives. Most folk, accustomed to numbers as the prods keeping them on the course prescribed for their existence, are innocent victims rather than villains in this vast disinformation ploy.

Such “number-crunching” “slams and bolts the door against the very possibility of serious information.” It starts out by identifying the “economy” with the “market” on which everything to really count must be traded. Trading is envisaged as taking place not on the markets of this real world that are more and more run by huge international corporations, but in an idealized “pure and perfect” market where all actors are of such minute size, that nothing that they can do or leave undone can possibly influence prices. From this model the existence of equilibrium points – such as a flat price level – is deduced, though it is clearly incompatible with the real world around us.

The very term “inflation” is misleading because it covers upward movements of price indexes due to completely different causes. Prices moving up may indeed be doing so because of an excess of demand over supply. That is the proper use of the term “inflation.” However, prices can go up because both physical and human investment by governments essential to the welfare of our exploding population and paid for by taxation. That inevitably results in a deepening layer of taxation in price. To deprive society of such essential services to keep prices flat is a barbaric, inhuman thing. That however, has been the main agenda of official economic doctrine of the past three decades. [It is also caused by the increasing interest-charges on the increasing levels of debt, built into prices, throughout society – BL]

But if the government consents to its central bank raising interest rates to keep prices flat or to balance a budget that makes no distinction between government spending for current purposes and public investment, then it either doesn’t know what it is doing – or, worse still, it doesn’t want the public to know what it is doing. Our universities, press and parliament have been increasingly denied information on such vital matters, and reduced to number-crunching. Number-crunching can be defined as an absorption in a statistic to the complete disregard of the very different factors that may be contributing to its movements. The main damage inflicted by number crunching is that it diverts public attention from the destruction of institutions in which the democratic achievements of the past have been lodged. That was notably the case of the monopoly of the monarch in coining and recoining the money of the land. That was defended under monarchs such as Charles II of England, but as Karl Polanyi has shown, even feudal governments could in running their realms defend the social interest against the rapacious up-and-coming capitalist class.

The prerogative of the feudal monarch in coining gold and silver money in the fullness of time was transmuted into the prerogative of democratic government to share in the profit of the private banking system. That was known historically as the government’s right of “seigniorage.” It took the form of the private banks redepositing with the central bank a portion of the deposits they took in from the public with the central bank. And on these “statutory deposits” the central banks paid no interest. And the government in Canada received the profits of the Bank of Canada in the form of dividends – for the government was its sole shareholder since its nationalization in 1938. That nationalization and those cost-free statutory deposits of the banks was a recognition of the assignment of the money creating powers of the government to the banks.

I have often wondered out aloud what form the next bank bailout from their heightened speculations. The answer has already come from the German and other European central banks paying the private banks interest on the statutory reserve under the name of the “banks’ seigniorage.” By that, society is already in the process of being deprived of the memory of another key institution embodied in the language. The immediate efforts of those who insist on a “policy” on the debt expressed as a percentage of interest to be paid by the central bank to the banks for shifting from government debt to it, are not likely to lead to immediate results. Better immediate results could be had by insisting on the provisions still in the Bank of Canada Act (subsections of section 18), that allows the Bank to hold both unfunded and funded debt of the central government and the provinces. Even talking in terms of the Bank of Canada paying the banks interest on its transfer of federal debt redeposited with the BoC, surrenders the vital notion of government seigniorage. At the very time that the European central banks have brought in their notion of “bank seigniorage,” it doesn’t make sense for monetary reformers in Canada to be surrendering key institutional assets for monetary reform for the indulgence in a bit of number-crunching.

On the subject of valuable institutional assets, you may remember I promised our Saskatoon friends to track down precedents for the Bank of Canada lending money to the provinces and municipalities. In my preliminary reading of the back issues of Economic Reform for the second volume of Meltdown that our visit in Saskatoon encouraged me to undertake, I have come across this forgotten gem. This is a footnote in the ER of October 2000, page 6, of an article entitled “O O Canada – The Central Bank Stands on Guard for Thee”: “In our last issue we reported the attempt of the Saskatchewan Finance Minister, Mr. Eric Cline, at the suggestion of the local COMER chapter, to persuade Mr. Thiessen (governor of the Bank of Canada) to refinance maturing debt at low rates against federal guarantee. A letter signed by Mr. Thiessen was received saying the BoC does not make such loans because of their inflationary effect. At that point your editor was enlisted as assistant researcher and came up with loans made by the BoC reported under the heading of ‘Less Liquid Assets – Provincial Municipal Securities amounting to $14.9 billion in January 1999, up from $2.6 billion in October 1989.’ Mr. Cline and COMER have written the BoC for an explanation of the discrepancy with the signed statement of the Governor along with a breakdown of the figures so that we might judge why they presumably were not inflationary. To date no reply has been received.” “In this connection we were intrigued by a column in the G&M (16/9) of Madeleine Drohan, ‘Canadians Reveal Shocking Ignorance of Central Bank.’ It tells of a survey commissioned by the BoC on public attitudes toward the bank. ‘43% of those surveyed cannot even hazard a guess at what the BoC does.’ Until a convincing rectification of Mr. Thiessen’s erroneous reply to Minister Cline and COMER comes in, we must add the Governor himself to that 43% of Canadians who were clueless about what the Bank does and doesn’t do.”

Your faithful sub-searcher,
Bill Krehm

– from Economic Reform, October 2009