Volume 8 Number 1 January 2000
This is the first issue posted on the Internet. I hope to post all subsequent issues, so keep coming back.
Happy New Millenium!
The final century of the last millenium has brought about unprecedented change, with promise of a glorious future based on the knowledge, infrastructure and experience gained in that centuryor impending doom, as a result of the misdirection of human endeavour, resulting essentially from the baleful influence of a financial system established worldwide through intrigue, bribery and corruption of politicians by the rich and therefore powerful elite, over the last several centuries.
None too soon, their power is beginning to be challenged effectively, worldwide, by the mass of ordinary people most affected by this system, and increasingly, its origin in the world's money system(s) is being recognised, with the demands for debt-forgiveness and challenge to the policies of the World Bank, IMF, MAI, WTO and the global capitalism which the system has promoted. In this challenge, the value of the contribution of the Internet cannot be underestimated. For too long, the control of the mass media has been used to stifle popular knowledge and discussion of the issues of fundamental importance to humankind.
You may also like to visit the Social Credit website: http://www.scss.gil.com.au or the British Association for Monetary Reform's site: www.monetaryreform.org
Or try this one: Excerpts from the book 'MONEY IS UNREAL, Blowing the Whistle on the Federal Reserve System', on http://www.uhuh.com/unreal/contents.htm
Book Revieew: The New Economics of Sustainable DevelopmentJames Robertson
From Bomb Diplomacy to the Rule of Law: The Interventions in Kosovo and East Timor J McMurtry (ER )
Abuse by Taxation (Land and Liberty)
Newspeaking E Goertzen
Book Review: The The Growth Illusion Richard Douthwaite
R Mokhiber & R Weissman
On Our Cultural Heritage W Krehm
Financial Warfare to Lead to the Demise of Central Banking? M Chossudovsky
DEBT M Hudson (L&L)
World Trade Organisation: special report George Monbiot (Guardian)
Strategies of Inequality Nick S. (Freedom)
Inflation - a Brief History D Gracey (ER)
COMER at Bromsgrove wk (ER)
Inflation Reconsidered D Gracey (ER)
-Richard Douthwaite. Green Books 1999 £5 ISBN 1 870098 81 1
This slim volume (80 pages) crams in a wide range of ideas about money: its varied forms and history, and, for each category, answers to the seven questions: Who issued it? Why? Where was it created? What gives it its value? How was it created? When: once, several times, or continuously? How well does it work? This last is broken down into: as a medium of payment or exchange? as a store of value? as a unit of account?
He identifies three main types: commercially produced (the main form of modern money); people-produced, such as LETS, wampum, wheat,&c.and, often, gold; and government-produced, including coin and notes.
For the commercially produced, modern "credit" money the dominant form nowhaving answered his questions and found it seriously wanting, he finds need to ask an eigth: Is the money supply system compatible with sustainability?and to answer: No; it creates a highly unstable economic climate, and requires continual economic growth.
He argues that people-produced money in physical form is generally produced when the effort of production is less that that needed to produce the goods for which it can be exchanged, or simply as surplus production. The more recent account-based formsLETS, Wir, &c. exist mainly to mitigate a shortage of bank-credit money, and though useful, have serious limitations or weaknesses. They are, however, compatible with sustainability.
Coming then to the government-produced money, he looks here at its history when it was mainly in the form of precious metal coin, and potential future, as both notes and coin and as credit. Hr notes that the debasement of coin acted as a form of tax, and notes the problems arising through shortage, sometimes through hoarding, through an influx of gold, and through the shifting relative values of gold and silver. Noting that governments make a profit out of seignioragein the year of 1998 the value of notes and coins in the UK rose by £1.3bn, at a small cost of productionand that in the same period the commercial banks created £52.6bn as "credit" owed to them, he supports the idea that all this money could and should have been created by the government and spent into circulation. As arguments in favour of this, he agrees that the higher level of seigniorage would allow for substantial tax reduction or increase in public spending, but is doubtful that the interest charged by the banks on their credit-money bears more heavily on the poor, and is effectively a regressive tax. A money supply spent into existence would create a more stable, sustainable economy. What I find missing is consideration of the effect of debt-reduction as "stable money" (that spent into existence) replaced bank-debt.
Having completed his survey, he then advocates a mix of currencies as the ideal: an international one to be used for foreign exchanges; a national or regional one, created and managed by the country/region's central bank, and various alternatives such as LETS, Wir, or commodity-based. Additionally, he advocates a "store-of-value money", used for savings, insulated from inflation, which he regards as inevitable with exchange currencies. Each currency should be tradable for others through "exchange mechanisms"two-way currency markets.
The international currency should not be also a national ("reserve") currency, since any national currency used in this way gives a huge advantage to the issuing nation, in the form of seigniorage. Since internationally, we need to reduce emissions of greenhouse gasses drastically, rights of emission should form the basis of value of the international currency.
His recommendation, originated by the Global Commons Institute, is that the international currency unit should be the 'ebcu'energy-backed currency unitissued to governments by the IMF on a per-capita basis, once-off, and related to an internationally agreed CO2-reduction target.
The IMF would also issue SERsSpecial Emission Rightsto national governments monthly, giving them the right to emit a specified amount of greenhouse gases. It would fix the value of the SER against the ebcu. Some of these SERs would be passed on to the population as 'domestic tradable quotas' (DTQs) and the rest auctioned to industry, institutions and the government itselfor some could instead be used to buy extra ebcus from other governments.
The IMF would then exchange further SERs for ebcus as required by governments, the ebcu having a fixed value relative to a given amount of greenhouse gas emissions.
For the national/regional currency, while Douthwaite supports the system of government creation by spending, he expresses concern that governments might be tempted to over-supply it for their own advantage.
He argues for regional as well as national currencies because of the obvious variation of regional prosperity within a country. However, adequate Citizens' Incomes (which are not included in his treatise) should minimise these differences, even without regional currencies. Likewise, they should minimise the need for LETS and other local currencies.
I also do not share his conviction, based on history, that 'exchange currencies' will inevitably lead to inflation. The new circumstances proposed would be historically unprecedented (especially if they include CI and land- and resource-taxes). They should seed the growth of the 'gift economy', as can already be observed within many LETS groups, and provided the national/regio nal currency is maintained in enough volume to meet the needs of exchange, investment and savings, a moderate over-supply should simply cause an increase in savings, with little tendency to inflation. Money could eventually become redundant. (As William Hixson has clearly shown in his A Matter of Interest, even with debt-money, an increase in supply will tend far more to growth of production than to inflation, given the availability of productive capacity and demand.)
Since the change in form of national currency can only come about when there is enough pressure from an electorate educated on the need, I do not think inflation is the more likely outcome, especially if it is also accompanied by the issuing of adequate Citizens' Incomes. By then, the need for resource-conservation should be universally accepted. The effect of CI should be to remove much of the stress and wish for compensatory luxuries and the maximising of financial profits.
His ideas are presented to provoke interest and discussion of the issues, rather than as firm recommendations, and he should succeeed in this. Included is a useful Resource Guide as an appendix. A book to be warmly recommended.
A Briefing for Policy Makers, by James Robertson , 1999 Forward Studies Series. Kogan Page Office for Official Publications of the European Communities
This book complements Douthwaite's. Both are concerned with the money system; Douthwaite's with its past and present forms and their effects on society, and Robertson with its role as one part of wider issues affecting sustainability.
Robertson systematically analyses the interrelated complexities of economics, ethics, politics and personal, local, regional, national and international issues affecting the imperative need for "sustainability" for the long-term survival of humanity and the natural world on which we depend.
He identifies a common pattern of "framework policies" to be applied to the areas of: farming and food; travel and transport; energy; work, livelihoods and social cohesion; local development; technology; business; and health, law and order. These policies include:
Termination of subsidies and other public expenditure programmes which encourage unsustainable development.
Introduction of public purchasing policies which encourage contractors to adopt sustainable practices.
Restructuring the tax system in favour of environmentally benign development and higher levels of employment and useful work.
Introduction of a Citizens Income paid unconditionally to all citizens in place of many existing social welfare benefits.
Development of more self-reliant local economies, involving (among other things) the encouragement of local banking and financial institutions, local means of exchange (local currencies), local shops, and easier access for local people to local means of production.
Development of indicators to measure economic, social and environmental performance and progress.
Development of accounting, auditing and reporting procedures (and other accreditation procedures) to establish the sustainability performance of businesses and other organizations.
Demand reduction policies (e.g. for transport and energy), and the need to consider their implications.
Changes in the existing international trading regime, to encourage sustainable forms of trade.
He advocates a shift of taxation away from income and employment, onto land and natural resources. He notes the potentially regressive nature of this tax shift, and emphasises the need for the changes to be kept in step with compensating factors, especially Citizens' Incomes.
He notes that:
"The social compact of the employment age is now breaking down. The time is passing when the great majority of citizens, excluded from access to land and other means of production and from their share of common resources and values, could nevertheless depend on employers to provide them with adequate incomes in exchange for work, and on the state for special benefit payments to see them through exceptional periods of unemployment. A new, post-modern social compact will encourage all citizens to take greater responsibility for themselves and their contribution to society. In exchange, it will recognize their right to their share of the value of the commons, and so enable them to become less dependent than they are today on big business and big finance, on employers, and on officials of the state." (Page 80)
However, all this precedes consideration of Money and Financehis Chapter 4, of 6. Given his terms of reference from the Forwaqrd Studies Unit of the European Commission, this is perhaps understandable, but his analysis could have been far more powerful if his earlier chapters had included consideration of the potential effect of monetary reform on all these issues. The effectiveness of all the measures proposed would be hugely improved in this context. Missing is consideration of the pressures exerted on all the actors in the economy by the escalating levels of debt generated by the present debt-money system; these act as a severe restraint on would-be reformers.
In his Chapter 4, he notes the damaging ways in which interest on debt works, in systematically transferring resources from poor to rich, and in the "money-must-grow" imperative driving the world's economy to ever-faster growth and consequent destruction of resources. He questions the right of banks to issue credit in the form of interest-bearing debt, and suggests that governments should take back their "ancient right of seigniorage", perhaps issuing new money in the form of a Citizens' Income; he also considers proposals to convert debt to equity, and the idea originated by Silvio Gesell, of negative interest rates or demurrage charges on money.
He observes that money has developed from concrete to abstractfrom metal bars and coins, through paper notes and cheques, to numbers stored and transmitted electronically. This makes clear that it is essentially an information systeman accounting, or scoring system for the exchange of claims on goods and services. It has evolved over centuries, with noone being responsible to ensure that its prime function is to work efficiently and fairly for all users. Never having been designed for that purpose, it is no surprise that it so dismally fails to achieve it.
Noting the emergence and growth of alternative currency systems, e.g. LETS, and financial institutionscredit unions, community development banks,loan funds, and microcredit bankshe advocates public policy support for them, and for the emergence of multi-level currencies; No to the Single European Currency! He does not, however, note that the growth of these alternatives is due to the failings of national and international currencies.
His summary of policy implications for this chapter lists the questions to be addressed:
" what the money and finance system is for (what functions it is supposed to perform);
who it is supposed to be for (who it belongs to);
why it now systematically transfers wealth from the poor to the rich, and systematically encourages unsustainable development;
how it can be designed to work better; and
what a post-modern money and finance system will be like.
If his book gets the serious attention from EU policy makers that it deserves, these are the questions they should concentrate on first! He adds as more specific issues:
the possible emergence of multiple and multi-level currencies
proposals to mitigate the unsustainable effects of interest and debt;
prospects for deregulated currencies and quasi-currencies;
possible implications of electronic money;
the role of green and social investment, and the role of local banking and microcredit institutions, in the shift to sustainability".
The next chapter, on the Global Economy, looks critically at the roles of the World Bank, the IMF, and GATT/WTO, and notes the calls for cancellation of the unsustainableunrepayable Third World debts. He notes also the growth of the idea and practice of "fair trade", supported by a wide range of charities, NGOs and others.
He then goes on to look at the case, put by the Commission on Global Governance in 1995, for global taxation, or charges for use of global resources such as flight and sea lanes and ocean fishing, to finance global purposes. He extends this to suggest the possibility of combining these taxes, including a "Tobin tax", with the issuing of a global Citizens'Income, with nations being charged for their use of global resources, including of the capacity of the global environment to absorb pollution and wastes, and part of the income being redistributed on a basis of size of population.
He also looks at the case for a global (common, not single) currency, and suggests that SDRs (Special Drawing Rights) might evolve into this, or, from Lietaer (1996), that a "Global Reference Currency" could be subject to negative interest for as long as it remained in circulation. These ideas are not explored.
In the final chapter the need for new ways of measuring, accounting and calculating and analysis is proposed: ISEW or sets of quality-of-life indicators instead of/in addition to GDP? He points out the limitation or unreality of cost/benefit analysis, and the need to challenge the meaning of "economic efficiency"efficiency in achieving what?
He then considers the merits of policies to apply the "Polluter Pays Principle", internalising costs now externalised, against the charging of "rent" for use of natural and societal resourcesexternalising benefits now internalised. He suggests that in general, this latter is easier and more straightforward than calculating and collecting the costs.
Summarising, he argues that in place of the present income-increasing economy, we need a cost-saving one, and he compares the developing "new models " in economics with the changes in science, from the Newtonian concrete, quantifiable certainties to systems theory, chaos and turbulence.
The range of topics covered in 160 pages is enormous, giving policy-makers and others concerned for the future much food for thought. Inevitably, no topic is covered in much depth, but the bibliography is usefully linked to the chapters, to assist in further enquiry.
Aimed primarily to guide the European Commission policy-makers, the book should also prove valuable to those campaigning for change, by providing a framework to refine and interrelate their arguments.
Below are the introductory section and two 'boxes' from an 'Interrogation' on Income Tax which appeared in the Henry George Foundation's quarterly, Land and Liberty, Autumn 1999.
Though referring to this country a couple of centuries ago and to more recent American history, the issues are relevant to the Green Party's currently developing Draft Voting Paper on Taxation Policy, as well as being of interest in themselves.
THE BICENTENARY of the income tax has slipped by almost unnoticed. Pitt the Younger introduced it in 1799 to finance the war with Napoleon.
As if to celebrate the event, the starting rate of income tax was cut this year to 10% by Britains Chancellor, Gordon Brown. This returned the levy to its level of 200 years ago, when the law to tax incomes caused indignation because it required citizens to disclose how much they earned. This, admitted William Pitt, was "repugnant to the customs and manners of the nation". But that did not deter him, for the drift of fiscal history favoured the shift away from the Land Tax. Someone else had to pay (see Box 1).
Pitts revenue-raiser yielded £6 million. Today it raises nearly £90 billion, more than a quarter of the British governments revenue, which is about the average for all OECD countries. The 10 pence rate removed many low-income earners from the tax net, but it also added yet one more layer of complexity to public finance. The Chartered Institute of Taxation reports that there are 7,657 pages of legislation covering direct taxes paid by the owners of small businesses alone.
The passage of time has not endeared people to income tax. In the US, according to the official version, 17% of Americans refuse to pay income tax. The lowest compliance rate in recent history is matched by an Internal Revenue Service (IRS) bureaucracy of 102,000 employees. But despite the high level of public discontent, policy-makers continue to champion the tax.
Box 1: The Land Tax & Pitt the Younger
WILLIAM PITT (1759-1806) was appointed prime minister of Britain in 1783, at the ripe old age of 24. From the outset, he was determined to consolidate the political dynasty established by his father, Pitt the Elder, who taught his son the facts of life about power. The basis of that power was land.
From his estate in Somerset (rental income: between £3,000 and £4000) a year, Pitt the Elder allowed his imagination to roam beyond the landscape and into the ethereal sphere of history.
The estate "provided the kind of base that counted in the country, the landed position which sustained a political family; and it had fallen to him In a manner peculiarly appropriate to his conception of his career. It was perhaps no coincidence that he claimed a peerage at the first opportunity, as Earl of Chatham and Viscount Burton Pynsent," wrote biographer John Ehrman.
His son took high office for granted. Pitt the Youngers attitudes were shaped by his father. "His pleasures remained largely those of his father: he rode, he farmed when time allowed, above all he followed Chathams favourite pastime of landscape gardening," notes Ehrman in the first of the definitive 3-volume biography of Pitt the Younger.
So when young Pitt was faced with the financial challenge of financing the war with Napoleon, he did not increase the Land Tax. In a new biography by Eric Evans, the Professor of Social History at Lancaster University, the social context of those who exercised power in London was pithily described in these terms:
Pitts solution was to levy a new tax on Income and to phase out the land tax, long hated by suspicious landowners who argued that the monied Interest has been unwarrantably advantaged by the tax system".
In 1799, Parliament introduced a 10% tax on all income over £200 a year, with lower rates for incomes above £60.
English fiscal history is full of precedents for Pitts action. Walpole, for example, prepared to reimpose the Salt Tax in 1732 as a substitute for the Land Tax. The Salt Tax had been repealed two years earlier as the most suitable way of relieving the poor. Walpole claimed that reinstating the Salt Tax was fair between rich and poor, contending that everyone should pay tax since everyone shared the benefit of public services. A pamphlet supporting Walpole argued that if the labourer "has no estate, yet he owes the protection of his life and liberty to the Government and should consequently contribute his mite to its support. This blatantly Ignored the feudal theory that rent paid by labourers to landlords should be used to defray the public services of the kingdom i.e., labourers DID pay for the benefits of protection of life and liberty. The business of the politicians, however, was to convert that social rent Into private income.
John Ehrman, The Younger Pitt, London: Constable. 1969.
Eric J. Evans, William Pitt the Younger, London: Routledge, 1999.
Kenneth Jupp, Stealing our Land, London: Othila, 1997.
William Kennedy, English Taxation 1640-1799, London: Bell, 1913.
Box 2: Terrorising Tax Power
A CULTURE of secrecy turned the US tax-collecting agency, the Internal Revenue Service, into a ruthless system for terrorising citizens. According to US Senate Finance Committee chairman, William V. Roth, Jr.: "Many innocent taxpayers, denied due process and living lives on the edge of financial ruin, were forced and even bullied into paying more taxes than they owed, and the perpetrators of this abuse were being promoted, given cash awards, and allowed to carry on within a federal agency that is shrouded in more secrecy than the CIA".
Prior to September 1997, when Senator Roth launched hearings, the IRS had not been subjected to the full glare of publicity in a thorough investigation into its methods. For decades, the IRS deployed power which corrupted some of its employees to the point where citizens were driven to despair by illegal methods and harassment.
It began in 1862 when Abraham Lincoln levied the first American income tax to finance the civil war. Although the supreme court was to rule it as violating Article 1, Section VIII of the Constitution, in 1913 Congress passed the Sixteenth Amendment to permit a direct tax.
In 1955, following disclosure of rampant corruption, the Bureau of Revenue changed its name to the IRS. But the name change did not work: the wolf was still within. And the IRS went on to consolidate its powers in secret. This it justified with an astonishing doctrine: public disclosure of its methods was not in the publics interest, because it would weaken the IRSs ability to raise revenue! Sen. Roth interpreted this doctrine thus:
"This line of reasoning holds that people are frightened by what they dont know, by what they cant see and understand. Fear leads to submission. Frightened Americans will more readily pay their taxes".
Congress, driven by a tax-and-spend mentality, allowed the IRS to get away with proverbial murder. Even "Senators and congressmen have been threatened and intimidated. The agency has even retaliated against its own commissioners and employees," reveals Senator Roth.
But the senators hearings failed to ask the searching questions about the foundations of income
taxation. Although he brandishes the concept of equity "theres no excuse for those who refuse to
pay their fair share of taxes" in his book he does not challenge the basis on which congress appropriates earned incomes. He does censure "overbearing taxation and runaway federal spending", but
he does not identify principles that would guide government on questions of
O how much should be raised,
O the method of raising revenue, or
O the sources from which it should be raised.
So no criteria are provided for judging whether he is correct in saying that Americans are excessively taxed: "We have an income tax, something Americans arent too fond of in the first place. Seventy per cent believe its excessive. Its applied by a code so complex that on April 15 most folks dont know whether theyre cheats or martyrs".
The Revenue Act of 1913 introduced the income tax. It took up 14 pages in the law books. Today, the law runs to 4,100 pages, with an additional 5.000 pages of regulations. The original tax applied to less than 1% of the population about 357,000 of the wealthiest people and applied to all income "from whatever source derived". Today, more than half of all income is subject to the tax
William V. Roth, Jr. & William H.Nixon. The Power to Destroy,
New York: Atlantic- Monthly Press, 1999
One of the most important lessons I was asked to learn as a youth was to make the effort to think clearly.
While I still think I flunked the course, I am continually amazed at the way the media have confused the thinking of the average person by the distortion of the meanings of words a' la Noam Chomsky.
We know that ever since George Orwell wrote "1984" that 'doublespeak' has permeated our language. Vocabulary is no longer taught in schools.
Thus The "Charlotttown Accord" was not an accord. The 'Meech Lake Agreement' was not an agreement. The 'Education Improvement Act' was decidedly not an improvement. These are just a few of many examples.
Then there's "Free Trade." sounds great. Who could be opposed to free trade. 'Free' is such a "feel good" word, and trade? we learn to trade as children, "I'll give you my oopsie doll for your fire truck."
If we ever had free trade in it's true sense, there would be no such thing as imbalance of payments. It is the imbalance of payments that is the "Mother Of All Evils" in international affairs. That is a money problem not
a trade problem.
Allow me a short example designed especailly for math students.
If you need a barrell of oil that I have and since you don't presently have anything of value to trade for it, I'll let you owe money to me, let's say $100.00, at 10% interest per annum of course, and further, in my money, not
In future you will want to pay me back by sending me goods. You can only do so on my terms. First of all, I will determine the price I will pay if I allow your goods into my country at all. (trade barriers you see) Additionally, you can only send me a total of $9.00 worth of goods in my money per year.
The question for the math students is, "how long will you have to send me $9.00 worth of goods per year in order to repay the debt?
An additional question for those in advanced math is, "Instead of taking payment, If I invest the $9.00 (at the same interest rate, repayment rate and reinvestment terms) by lending it to you so you can increase your production, how much will you owe me at the end of 10 years? at the end of 30 years?"
For the benefit of those who have graduated from advanced math to advanced economics there is an additional anomaly.
What if the money I lent you was created by me on the collateral value of your own natural resources, skills and future production?
That is I loaned you money that you could have created yourself Would you feel I had unfairly taken advantage of you by trading "beads for land" (resources)?
Welcome China to the WTO!!!! and the world of international finance. I am surprised at the gullibility of the "Human Rights Watch" organization in thinking that dictators making laws in China are going to refuse to allow
the international exploitation of the Chinese people.
International trade is "driven" by the corporate need to satisfy money obligations, not the needs of the people. It is only when leaders impoverish the people (beginning with England's enclosure laws) that the people can forced to produce to satisfy money demands rather than the needs that would be satisfied by "free trade". That is, trading production that is surplus to the people's needs.
Peace and goodwill,
Oshawa, ON, CA
Russell Mokhiber and Robert Weissman
Few top government officials, whether elected or appointed, have managed to emerge as unscathed from a half dozen years in the Washington, D.C. spotlight as former Treasury Secretary Robert Rubin. And Rubin did better than escape without scratches -- he ended his term of office with his image enhanced.
Wall Street and the financial press practically beatified him for his role in overseeing the global economy through difficult times and working in tandem with Federal Reserve Chair Alan Greenspan to keep the U.S. economy working smoothly.
Rubin helped precipitate the Asian financial crisis which has inflicted untold suffering on tens of millions, orchestrated the bailout of foreign bankers and investors in connection with the Mexican and Asian financial disasters, and crafted or helped implement domestic policies that ensured the overwhelming portion of benefits from economic growth would go to the rich -- but none of this managed to sully the reputation of the Secretary Rubin.
Now Teflon Bob appears on the verge of demonstrating that his immunity to criticism makes Ronald Reagan look like he was coated with bubble gum.
When he stepped down from his Treasury post this past summer, Rubin left unfinished a legislative effort to re-write the nation's banking laws. Misnamed "financial modernization" legislation was really a deregulatory initiative -- reminiscent of the S&L deregulation that led to a corporate crime spree, the collapse of the industry and the subsequent taxpayer bailout of epic proportions.
The centerpiece of the deregulatory bill, which different fragments of the finance industry have pushed for a decade and a half, is the repeal of the revered Glass-Steagall Act, which bars the common ownership of banks on the one hand, and insurance companies and securities firms on the other.
Although powerful interests have long backed the legislation, it has repeatedly failed to make it through Congress because of a maze of intra-industry disputes, turf fights between different parts of the federal regulatory structure, and the concerted efforts of consumer and community development advocates.
Another failure seemed possible or likely this fall, especially as Senate Banking Chair Phil Gramm, R-Texas, refused to compromise on privacy and community development issues.
Another failure, however, was not acceptable to one company above all -- Citigroup. The product of the merger between Citibank and Travelers, Citigroup is operating in apparent violation of the bar on common ownership of banking, and insurance and securities, thanks to a loophole that provides for a two-year transition period.
Enter Robert Rubin. According to a report in the New York Times, Rubin helped broker the final compromise language on financial deregulation.
And while he was brokering a deal between Congress and the White House, he was also, according to the New York Times account, negotiating his own deal with Citigroup. A few days after the banking deal was finalized, Citigroup announced it was hiring Rubin as a de facto co-chair of the corporation.
This chronology and these arrangements raise serious issues about whether federal ethics statutes and informal Clinton administration rules have been violated.
Rubin told the New York Times that he was proud of his work in preserving the Community Reinvestment Act (CRA -- an important law that requires banks to make loans in minority and lower-income communities in which they do business). In fact, the final version of the bill significantly weakens CRA: there will be no ongoing sanctions against holding company banks that fail to meet CRA standards, it will lessen the number of CRA examinations, and provisions of the bill will discourage community groups from challenging banks' CRA records.
And the weakening of the CRA is only one element of the finance industry's deregulatory wish list which is included in the compromise legislation. The bill will:
* Pave the way for a new round of record-shattering financial industry mergers, dangerously concentrating political and economic power;
* Create too-big-to-fail institutions that are someday likely to drain the public treasury as taxpayers bail out imperiled financial giants to protect the stability of the nation's banking system;
* Leave financial regulatory authority spread among a half dozen federal and 50 state agencies, all uncoordinated, that will be overmatched by the soon-to-be financial goliaths;
* Facilitate the rip-off of mutual fund insurance policy holders by permitting mutual insurance funds to switch domicile states -- thereby enabling them to locate in states where they can convert to for-profit, stockholder companies without properly reimbursing mutual policyholders (a conversion of tens of billions of dollars);
* Aggressively intrude on consumer privacy (and promote a still-greater intensification of direct marketing), thanks to provisions permitting the new financial giants to share finance, health, consumer and other personal information among affiliates; and
* Allow banks to continue to deny services to the poor (Congress rejected an amendment requiring banks to provide "lifeline accounts" to the poor, so they would have refuge from check-cashing operations and the underground economy).
Robert Rubin helped deliver this ticking time bomb of a bill to Wall Street, first while in Treasury and then while in negotiations to land a top spot at the finance industry's largest and highest-profile company. He may well escape unscathed yet again, but it is sure to blow up on the rest of us.
Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter. Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor. They are co-authors of Corporate Predators: The Hunt for MegaProfits and the Attack on Democracy (Monroe, Maine: Common Courage Press, 1999; http://www.corporatepredators.org)
© Russell Mokhiber and Robert Weissman
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In an article with this title in the Guardian on 4 November, Charlotte Denny investigates the possibility of 'virtual currency, transferred over the internet, mak[ing] fistfuls of fivers redundant'.
She apparently views 'fistfuls of fivers'as the normal medium of exchange, unaware that already 'the pound in your pocket' is now less than 3% of the money supply, so its loss would not change much.
'Forget the euro, the pound in your pocket could soon be replaced by virtual currencies and digital payment systems.'
Moving payments in national currency units 'on line' instead of by cheque or land-line transfer would make little difference, but Charlotte sees it as moving money 'out of the control of central banks'. What is changing things is the growth of 'virtual money' such as 'air miles', 'loyalty points', &c as well as LETS and similar schemes, regardless whether they use the internetand they only stretch the conventional money supply, not offer an alternative.
Charlotte goes on to explore the time when 'companies no longer need to use the banking system to settle their bills with each other', seeing this as a result of internet use, unaware that the Swiss 'Wir" system and others have been in use since the '30s. These too help reduce the dire consequences of the operation of the present debt-money system, but make no fundamental change.
She writes that 'For libertarians, the monopoly of central banks has been a disaster', allowing 'governments to cheat their citizens by eroding the value of their savings through bouts of inflation' but makes no attempt to analyse why this should be so, or whether 'governments' are in fact the main cause or controllers of inflation; or to consider the nature or any of the wider results of this 'monopoly'.
She notes that true 'e-cash' such as 'Beenz and Flooz' are too limited in circulationto compete with 'money', but does not explain anything else about these currencies. She quotes Mantonis'* view that 'The real revolution will come when a big firm with global brand recognition decides to establish a currency. A firm like American Express which already has a money substitutetravellers chequeswould be a natural starting point' suggesting it create its currency, 'Amex', with lower fees to merchants accepting its cards. The article raises the question of its exchange rate with other currencies, and of inflation, but there is no discussion of these issues, nor, importantly, of seigniorage.
While it is good that questions about money creation are being aired in a national newspaper, it is disappointing that the questions of fundamental importance about the current national and international money systems are not raised: how is money created, for what purpose, by what institutions, for whose benefit; and what effects does this have on the rest of us? and how could it be changed for the better?
*Jon W Mantonis, 'Digital Cash and Monetary Freedom'
THE World Bank and IMF plan to turn the debt Jubilee on its head bailing out global banks at taxpayer expense while claiming to help the worlds poorest countries.
But debt-laden countries will still have to pay all their available income as debt service. Not a penny will be freed for their own discretionary use, argues MICHAEL HUDSON. Lost is an understanding of what Clean Slate and Jubilee proclamations were all about.
ADVOCATES of debt relief for impoverished countries made what they hoped would be a breakthrough when the World Bank and IMF agreed to join the worlds richest central banks and sell gold and use the capital gains to finance a debt-relief fund for the 1996 Heavily Indebted Poor Countries Initiative (HIPC). But this plan and its successor, the Cologne Debt Relief Initiative, is just another bailout for the international banks and bondholders.
Indebted Third World countries were excluded from the planning of this initiative, as were the seemingly relevant UN organisations. The only outside parties consulted were the worlds largest institutional creditors. Only at the end of the process were such groups as Jubilee 2000 and Oxfam brought on board to provide rhetorical window dressing to confuse the issue of just who is being helped.
What has gone unnoticed is that the debt service actually to be paid by the most heavily indebted countries will not be reduced by even a dollar. These hapless economies will have to turn over nearly all their income above subsistence levels to private sector creditors, even at the cost of selling their mineral resources, land and other publicly owned assets to foreign investors. The proceeds will be used to pay the banks and bondholders.
What, then, is being relinquished? Only debt claims that are so far beyond the ability of such countries to pay in the next few generations as to be effectively uncollectable.
The World BankfIMF ploy (joined by the British Treasury and a few other central banks in nations whose financial interests wield considerable political power) is hardly a surprise. These two institutions have not helped make debtor countries more self-reliant. They are in the dependency business.
What makes the World BankIIMF program a travesty is the attempt to relate it to the biblical Jubilee. The intent is to attract Christians and Jews to the biblical law of Leviticus 25. But the program has little in common with the biblical Jubilee.
CLEAN SLATES were practised in the ancient Near East for over 2,000 years, going back at least to 2,400 BC in Sumer. The Jewish Jubilee Year reflected its Babylonian antecedents in haytng three major features:
cancellation of personal debts owed by the rural population (mainly as arrears for tax-like obligations or tribute owed to royal collectors);
return of bond-servants (family members, including slaves) who had been pledged to creditors as collateral; and
return of land rights to holders of record as of the last clean slate.
Palaces and temples were creditors, not debtors. Public debt is a relatively modem phenomenon. There was no public debt in antiquity, and hence, no pressure to cancel them. Wars had to be fought on a pay-as-you-go basis.
Wives, daughters and household slaves were returned to their families of origin. Their labour would revert to their families rather than to their creditors. But under the World BankIJMF plan, todays most heavily indebted economies will remain in debt bondage. Their wage levels are to remain depressed by the debt burden. Whatever labour unions may win to improve their living standards will be denominated in domestic currencies. Such gains will be undone by depreciation as payments of interest and dividends interest to foreign creditors and food suppliers will work chronically to collapse the currencys exchange rate.
In todays world, liberation of bond-servants does not apply, although entire countries are to be held in economic bondage via their indebted governments. Nor are land rights to self-support resources being discussed. There is no talk of breaking up the latifundia or giving populations a right to self-support. Entire nations remain food-dependent. Most important, they also remain deeply indebted even after the faux-Jubilee. The real celebrants should be the bankers and bondholders, not the debtors.
THE World Bank/IMF plan has left the indebted peasantrys obligations on the books. No personal or other private sector debts are to be forgiven, and no land transfers that occurred under economic distress conditions (or military force or other coercive means) are to be affected. Only a portion of the governments foreign debt is to be annulled, which has been deemed hopelessly beyond the capacity of the debt governments to pay. Nobody is speaking about a real Clean Slate, a genuine Jubilee.
Under normal conditions commercial banks and bondholders are obliged to take a second-place seat behind the IMF and World Bank, and often behind national governments as well. But these official creditors have now agreed to stand aside: the IMF, British Treasury and numerous governments have agreed to sell gold and use the profits as a book-credit against the book-debts that will be written off. More recently, after Britains sale of gold plunged the metals price, the plan was changed to accommodate South Africa and other gold miners. Official gold holdings will simply be revalued at current market prices, without actually being sold. This ploy of relinquishing official demands for payment will "free" indebted countries to pay international banks and bondholders.
Lost sight of altogether in this sleight of hand has been a key plan of Jubilee-type proclamations: Re-establishment of economic justice by restoring land to its former holders who forfeited it for debt arrears or sold it under economic distress conditions. A "conditionality" constantly imposed by the World Bank and IMF is that past such sales remain irreversible. There is to be no land reform. Indeed, yet more distress sales are to occur.
A TRUE Jubilee would free the lands usufruct (along with that produced by other natural resources and public monopolies) from private debt-claims. This would leave it available to be collected by the public sector to defray the expenses of government. This is how the Babylonian Clean Slates worked that formed the model for the Jubilee Year of Leviticus. But the World Bank/IMF faux-Jubilee intends for these resources to remain in the hands of creditor nations. Whatever assets remain in public hands any remaining public lands, mines, phone systems, transport, and every asset that naturally creates a monopolyrent are to be sold under pressure of foreign debt-service.
Where have the churches and biblical scholars been? Why is there no protest? How have the biblical laws been so thoroughly forgotten and flagrantly misrepresented? From time immemorial these assets and their economic rents have formed the natural revenue of governments. But henceforth, their economic rents are to be paid as dividends and interest to global private investors. The land and other natural resources, as well as public monopolies are to be sold to raise the money to pay private-sector debt and remaining inter-governmental debt. Governments are to be stripped of their national patrimony. And the process is to be made irreversible.
For instance, the World Bank and IMF have insisted that Russia sell Gazprom, oil companies and other natural resources to subsidise the debts run up to finance capital flight. Sale of these resources removes their revenue from the government budget, and turns it into dividends to be paidTo the new buyers. This puts chronic pressure on the exchange rate, as well as forcing the domestic tax base to be shifted onto labour.
Failure to recognise the importance of freeing the land and natural resources from indebtedness to private creditors violates the spirit of Jubilee proclamations. To understand how drastically todays World Bank/IMF rhetoric diverges from these proclamations from Sumer and Babylonia through Judah and other Near Eastern regions, their logic needs to be understood.
Their core was fiscal policy. From the third millennium onward, private creditors waged a struggle to obtain the lands crop usufruct at the expense of the palace. Rulers restored the lands usufruct from private creditors to its traditional holders and cultivators so that the latter once again could pay the crop usufruct to the palace. Private creditors had lent money against this usufruct or economic surplus, and claimed the crop usufruct as interest.
The Babylonian and Assyrian word for these royal proclamations was andurarum, a cognate to the Hebrew deror used in Lev.25. What made the Biblical version different was that the Jewish authors found that kingship had become more in the character of military overlordships than the "divine kingship" by which Bronze Age Mesopotamian rulers had restored order and promoted equity. Jewish leaders accordingly took clean slates out of the hands of kings and made them part of the Mosaic covenant.
In the process, these clean slates were made chronologically regular rather than being left to the inauguration of each new rulers reign or to his discretion as military or environmental conditions dictated.
FAMILIES ran into debt for several reasons, such as crop failure. All they had to pledge was the value of their crop. Nearly every early form of fees or taxes to the palace or contributions to the temples had to be paid out of the lands usufruct.
But the IMF and World Bank insist on just the opposite policy being pursued. The banking systems are to be based on mortgage lending as the land-rent is privatised. Land, mineral rights and monopoly rents societys "unearned income", which forms the natural basis for funding governments are to be taken by creditors. What is to be taxed is labour, not property.
Debtor countries are told to increase their export earnings by shifting land away from producing food that supports their populations. They are to add to the worlds oversupply of plantation export crops and cattle herds. Just as "sheep displaced men" in Englands enclosure movements, so the World Banks "agricultural" loans have been to large export plantations, typically foreign-owned.
The latifundia/microfundia land patterns create a rural exodus to the cities, affording low-priced labour. But unlike the case of the Industrial Revolution, this labour no longer can serve as loom-fodder. Women may work for low-wage garment firms, but men remain unemployed, their lives and potential wasted.
This is what the IMF calls "structural adjustment". It means to keep living standards so low that labour cannot afford to import enough to share in the living standards achieved in the creditor-nations. If labours wages rise, their purchasing power is to be depreciated by devaluing the currencys exchange rate. The raw materials export earnings of these "hewers of wood and drawers of water" is to be used to service their debt.
The semantic root of "service" is servitude and bondage. So we are back to what the original Babylonian clean slates and biblical Jubilee were designed to rectify. But now such servitude is being imposed under the program of Jubilee 2000. This is not an auspicious start to the new millennium.
ABOUT THE AUTHOR Dr Hudson is a former balance-of-payments analyst for the Chase Manhattan Bank and Arthur Andersen. He helped establish the world's first sovereign-debt mutual fund (offshore) through Saudder Stevens & Clark in 1989.
The background on Bronze Age and biblical clean slates is in his "The Economic Roots of the Jubilee," Bible Review 15 (Feb. 1999). For the use of land-rent as the ancient tax base, and how rulers restored this by annulling private-sector claims for interest, see his chapter In R.V Andelson (ed.), Land Value Taxation Around the World (New York: Schalkenbach Foundation), 1998, and Urbanization and Land ownership in the Ancient Near East (ed: Michael Hudson and Baruch Levine), Cambridge, Mass: Peabody Museum (Harvard), 1999
For a critique of the World Banks anti-developrnent strategies, see Dr Hudsons Super-Imperialism (Holt Rinehart & Winston, 1972) and Global Fracture (Harper & Row, 1977).
from Land and Liberty, Winter 1999
n 1996, Tony Blair declared that "I believe in greater equality. If the next Labour government has not raised the living standards of the poorest by the end of its time in office it will have failed" (Independent on Sunday, 26th July 1996). This week, according, at least to the Department of Social Security Press Office, New Labour began to make good its promise, by "standing up to be counted setting specific standards against which well be judged, tackling poverty and its causes". The publication of its annual report, Opportunity For All Tackling Poverty and Social Exclusion, is, according to Social Security Secretary Alistair Darling, "a land-mark". New Labour, Darling told a hand-picked audience at the Bromley-by-Bow Centre in Tower Hamlets, are about to commence "the most radical and far-reaching campaign to combat poverty since Beveridge".
The European Union defines poverty as affecting "people below half average income". The proportion below half average income in the UK has grown in the last 35 years, from 10% in 1961 to 17% in 1995. In the report Monitoring Poverty and Social Exclusion, produced for the Joseph Rowntree Trust in 1998, the researchers Catherine Howarth, Peter Kenway, Guy Palmer and Cathy Street note that "no single indicator could possibly capture the complexity of poverty and social exclusion ... income, though, is unique in determining a wider range of choices than any other asset". They go on to observe that "the majority of individuals who experience persistent low income are dependent in part on at least one of the principal state benefits. In 1997, the average weekly payment made to claimants of either Income Support or Job Seekers Allowance was around £58. People spending two years or more on weekly incomes of this size suffer considerable deprivation. Furthermore, the weekly payment does not rise with time, so that as households goods and clothing wear out, money to pay for replacements must be found from within the same, limited, weekly budget which has to cover all the essential costs of food, heat, power and travel."
The Acheson Report on Inequalities in Health, commissioned by the Department of Health, and reporting in 1998, was equally explicit: "The differences in incomes between those on means-tested benefits and those with other sources of income are a major determinant of income inequality in the UK. Among the poorest fifth of the population, the majority have incomes set by the level of means-tested benefit. People on low income ... are more likely to be unemployed, lone parents and their children, people with disabilities or pensioners and to live in social housing ... A similar picture emerges if poverty is defined as the receipt of Income Support. The number of people receiving Income Support has risen from just over four million in 1979 to 9.6 million in 1996."
The Acheson Reports recommendations in light of this were straightforward enough:
"Policies which increase the income of the poorest are likely to improve their living standards, such as nutrition and heating and so lead to improvements in health. This can be done by improving social security benefits, specifically for families with young children and pensioners ...
... We recommend further reductions in poverty in women of childbearing age, expectant mothers, young children and older people should be made by increasing benefits in cash or in kind to them.
...We recommend uprating of benefits and pensions according to principles which protect and, where possible, improve the standards of living of those who depend on them, and which narrow the gap between their standard of living and average living standards.
...We recommend measures to increase the uptake of benefits in entitled groups.
Simple enough, really. The two major studies into the causes of poverty reporting since New Labour came into office both concluded that the major determinant of poverty was low income, that the prime cause of low income was dependence on benefits, and that the obvious solution was, a) to raise benefit levels, and b) increase benefit take-up. Except that, in the section of the new DSS annual report headed Key Features of Poverty and Social Exclusion Today, income does not feature as a factor in and of itself, but is referred to only as a consequence of "lack of opportunities to work". The annual report is, it turns out, not designed to highlight the governments antipoverty strategy as such, but something much more specific (but yet, in true New Labour style, strangely amorphous at the same time) poverty of opportunity.
Poverty, it turns out, is part disease, part self-inflicted injury. "For many, disadvantage has been passed from generation to generation as children inherit poverty from their parents before passing on this debilitating legacy to their own children." (Opportunity For All, page vii). Thus, the report does not seek to establish a minimum income level, does not propose increases in the rates of Income Support or Job Seekers Allowance, and makes no proposals with regard to benefit take-up. What is on offer instead is the opposite of what everyone from Donald Acheson and the Joseph Rowntree Foundation to the Child Poverty Action Group has called for. Benefit entitlement will become more conditional, with the establishment of the ONE service (closer working between the Benefits Agency and the Employment Service) to implement the New Deal scheme. Pensioner couples are the lucky winners of a Minimum Income Guarantee of £116.60 for couples (the EU definition of poverty is "below half average
income" half average income being, in 1996/7, for a couple, £148 per week).
New Labours commitment to a "sustained attack on poverty and its causes" (quote by Alistair Darling) amounts, in fact, to the establishment of the Working Families Tax Credit, which "guarantees a family with someone in full time work £200 per week (on 1996/7 figures, half average weekly income for a couple with two children was £214 per week), and the introduction of the minimum wage. Where minimum income levels have been suggested, they have been geared to fall under the EU-defined poverty level. New Labours "anti-poverty strategy", as Opportunity for All spells out, is in fact designed to "build a proactive welfare system to help people into work".
A decade ago, the Child Poverty Action Group, in its audit, The Growing Divide argued that the growth of poverty and inequality during the first eight years of Thatcherism were not accidental, but part of a strategy of inequality pursued primarily through changes in taxation, including reduction in the higher rate of income tax for the rich (from 60 % to 40%); higher thresholds of inheritance tax; reducing the basic rate of income tax; a shift from direct to indirect taxation. By 1991 52% of the tax cuts implemented since 1979 had gone to the top ten percent of income earners, while the real value of social security benefits had fallen. Since 1977, the proportion of the British population with less than half of the average income has more than trebled.
New Labour is no more committed to the alleviation of social inequality that its Conservative predecessors. Blair declared that New Labour would "think the unthinkable" when it came to reforming the welfare state. The "unthinkable" turned out to be the New Deal. The Thatcher-Major years had created a reserve army of unemployed labour, which served as a drag anchor on wage levels. As the 1999 Public Expenditure Statistical Analyses show, the price paid for this was a massive hike in spending on social security between 1989-90 and 1993-4 the share of GDP consumed by benefits rose from 10.1% to 13.4%, a cash increase of £34 billion in four years. New Labours solution: cut benefit costs by driving the unemployed into low-paid, casualised work. New Labours strategy of inequality is disguised by rhetoric about rights and duties. Blair has declared his intention to create a something for something society, where we play by the rules. You only take out if you put in. Thats the bargain". Quite who this is a bargain for is obvious. The combined effects of the New Deal (where you get to work for your benefits, and your employer gets paid for giving you something to do), the minimum wage and the Working Families Tax Credit is not to guarantee a minimum income, but a maximum. The "radical and far-reaching campaign to combat poverty" is in fact designed only to maintain poverty, but on altered terms. The Treasury, meanwhile, by holding down public spending, is anticipating a budget surplus of up to £20 billion by 2002/3, which will be used not to fund increased expenditure on health, education and welfare, but on tax bribes at the next General Election.
In 1895 Charles Booth commented that our modem system of industry will not work without some unemployed margin, some reserve of labour". The social security system has never been intended to abolish poverty. Its purpose is to regulate the poor, to control inequality, and as the social historian Tony Novak observed, "to assist in the creation of a less secure and more vulnerable workforce that the changing demands of capital in the last quarter of the twentieth century require" (quote from Poverty and the State, OUR 1988).
If we want to eliminate the "poor housing, poor health, poor education" which, according to Alistair Darling, "remain a scar on the nation" we have to set ourselves the task of eliminating the system which requires poverty and social exclusion as the necessary price for its continued profitability.
from Freedom, 2 October 1999
The Third Annual Bromsgrove conference that I attended towards the end of October was the very personification of the new conservatism described by James Gibb Stuart in the preceding article. In the UK, accent does a near-perfect job of tagging a person's origins, but though held in the heart of the Midlands, the thirty odd peoplewith the exception of the powerful presence of three Scotsspoke what to my ears were variants of middle to upper class English.
The conference took place at a retreat that had originally been a boys' school endowed by the Cadburys, one of England's great philanthropic Quaker cocoa families based locally. Currently it is rented on long lease by the Centre of Reconciliation.
The clerical gentleman in charge John Johandsen-Berg has an urbane charm that might suggest a career in comfortable parishes, but it turns out that he spends a good deal of his time in various parts of Africa and elsewhere in the Third World.
Canon Peter Challen is a gentle Anglican industrial chaplain whose work is centred at the "Klink" on London's south shore. "Klink" has entered English speech around the world as a generic term for prison, but originally it seems to have referred to a specific jail in South London, now a museum. Challen emphasises the need for a "high tolerance of ambiguity" to provide an interface for reconciliation. But on monetary reform he is anything but ambiguous because without it there is little space for reconciliation.
Sister Dorothy Peart is a Catholic nun, of sterner orientation than Canon Challen. Her passion is to write and illustrate pamphlets on monetary reform. As we exchanged our warm farewells after the three days spent together, she handed me her latest pamphlet and apologised for something on page 13 that I might find offensive, but that she would be sure to remove from the next edition. Puzzled, I later turned to page 13 to find a reference to possible religious conversion that might eventually result from efforts for monetary reform.
The predominant background of those who attended the Conference was Social Credit, which, of course, began as an offshoot of Guild Socialism. Major Douglas, the founderlike Marx and Keyneswas by no means free of the prejudices endemic in his day. But what many of us who grew up in other traditions are only now coming to appreciate is the depth of humanity in Douglas's vision.
Writing in the early twenties, he was not content with devising therapy for depressions. Rather he focussed on the pitfalls of forced economic growth, the piling up a mountain of debt to keep going. Central to his writing is the notion of a cultural heritage, the creation of generations of humans and without which the achievements of our contemporary world would be unthinkable. Today that common heritage is not only being belied, but destroyed. Whether it takes a social dividend to defuse the drive for exponential growth, or more government programs or a judicious mixture of the two to encourage alternate life styles, is a secondary matter. There is no way of preserving society as a functioning whole, domestically or globally, unless we find the means of diverting monetary and economic policy from the brainless drive for ever greater growth.
The Convenor and guiding spirit of the Bromsgrove conference is James Gibb Stuart of Glasgow. When flying as navigator with the RAF in SE Asia in WWII, he "took the view that the tracer bullets passing [his] window were not for him, as he reckoned the Lord had some other purpose for me." Perusing Stuart's article that we carry the reader will appreciate the degree of divine foresight.
Academics were notably absent at Bromsgrove. They would seem to have accepted the irrelevance imposed upon them more readily than is the case in North America. On the other hand there was a good sprinkling of small publishers, including a gentleman who owns many of the manuscripts of Major Douglas.
I was heartened to see what a modest publication Sustainable Economics published by Brian Leslie of Tunbridge Wells in a couple of hundred copies that get passed hand to hand has done in popularising the ideas of economic reform. Prominent in its content is material from Economic Reform which reaches an audience considerably larger than our own subscriptions in the UK. It is such achievements on practically no budget that encourage us to broaden our goals.
Michael Rowbotham, author of the very successful book, The Grip of Death, and closely involved with the Bromsgrove group was present. By the time this issue is received, he will have completed a tour of much of Canada.
At the meeting there was discussion of the possibility of issuing a special international edition of ER several times a yearexpanded to 20 pages for the occasionas a review of monetary policy throughout the world. Plans are underway to make this a reality.
10: Ken Bohnsack's Bill for Interest-Free Public Infrastructures Reaches Congress (ER)
For over a decade Ken Bohnsack, a COMER member in Freeport, Illinois, has worked at lining up thousands of municipalities and other government levels to sign a petition for the Sovereignty Project for using the Federal Reserve for one of the purposes for which it was intended. The late John Hotson, Jack Biddell and other Canadian COMER members joined him in this gruelling work, informing the uninformed, convincing the doubters. It is impossible to estimate the shoeleather, the energy and the financial sacrifice that Ken has devoted to this cause. And now it has been brought to its first important landmark. But we will let Ken tell the story.
"To our friends in Canada:
The Sovereignty Proposal was introduced into the US Congress on Thursday, April 15th by Congressman Ray La Hood (Rep.-IL). This bill, titled The State and Local Government Economic Empowerment Act is now known as HR 1452. The bill was directed to the Banking Committee and the Budget Committee.
Congressman La Hood has taken the giant step of leadership. He is sending out a "Dear Colleague" letter to all other members of the House of Representatives. This letter will briefly explain the bill as well as ask for their co-sponsorship.
My efforts will be to follow up with the 82 Congressional offices that I had briefed during the three weeks in Washington the last month and a half and also to encourage as many other members as possible. My further efforts will be to inform and explain HR 1452 to the private sector, such as the National Manufacturers Associations as well as bridge, road, school, mass transit, water service associations, etc.
Over 5,000 bills are introduced into Congress every two years but only a very few reach the height of having hearings.
It is our position that this bill will generate a substantial and genuine increase in our economy to warrant the increase in money supply. Furthermore, the reserve requirement of the US banking system can be adjusted to absorb any additional amount of money so that no inflation will be caused.
We quote some of the salient passages in the bill:
HR1452State and Local Government Empowerment Act
This bill takes advantage of the money creation process of the US Government and its agentthe Federal Reserveand its banking system.
The Federal Reserve, at the request of the administrator, appointed by the US Congress, creates $72 billion each year for 5 years and deposits such amounts to the credit of the US Government in a US government general checking account at a Federal Reserve bank. The administrator uses these deposits for interest-free loans to state and local governments for the exclusive purpose of building and repairing their respective infrastructure.
The amount of interest-free loans available to each state and local government is based on population and for school districts, enrolment. The population of states is multiplied by $200.00, counties/townships $200.00, cities $600.00 and school districts $2,400.00 x enrolment. The "meaningful" amount of each interest-free loan will total approximately $820 M for each Congressional District.
Repayments are made over the expected life of the projectmaximum 30 years.
The repayment of these loans are extinguished from the money just as personal and business loan repayments to banks are extinguished.
It is an acceptable fact among economists that the money supply must increase, and in a proper manner, to have a genuine increase in the nation's economy. The Federal Reserve banking system has increased the US money supply by $1.9 trillion in the four years 1995-1998 with inflation dropping to 1.5 to 1.7% during this period, thus exposing the myth once and for all that the creation of money is automatically inflationary.
This bill embraces the qualities necessary to avoid inflation such as:
1. Having each dollar created increase the production of goods and services (steel, cement, heavy equipment, roofing, engineering, etc. for each project).
2. Helping citizens of every community to afford the projects by allowing up to 30 years (or up to the useful life of the project) to repay the loans with no interest or exorbitant bond fees.
3. Providing more good paying jobs in construction and manufacturing as more projects can be built when cost is reduced to _ or 1/3 because of no interest and bond fees.
IN SHORT, this bill provides the federal government with the opportunity to use its sovereign power to allow the state and local governments to build or repair the projects they deem necessary. No federal tax dollars are involved. All federal administration costs of each loan are paid by the borrowing tax-body. This charge will be minute compared to exorbitant bond fees now paid. State and local governments will pay for the projects but pay for them only once, not two or three times with interest and bond fees. Furthermore, the bill guarantees to genuinely increase the growth of the US economy."
With Canada's battered infrastructures, a similar project would be immensely useful in helping our junior levels of government utterly overwhelmed by the downloading of social problems on them by Ottawa without the appropriate funding. Note that it is a Republican Congressman who has introduced the bill. There is no reason why such a project in Canada should not be a cooperative effort of all of good will across the political spectrum.
And the possibility is very real. What's most reassuring is that the Bank of Canada already contains the provisions necessary, and has since its inception in 1934. We just need to findand promotethe collective political will to make it happen. Ed.
from Economic reform, December 1999
On the Internet we picked up a penetrating observation on NAFTA from Sid Shniad, research director for the Telecommunications Workers' Union in Vancouver, that is worth sharing with our readers. Mr. Shniad quotes from a statement of his drawn up in 1993 summarising his discussions with Mexican and American opponents of the then projected NAFTA.
"It is the position of the Action Canada Network that the Canada-US Free Trade Agreement should be abrogated and that we should say "No" to NAFTA. As I understand it the position of Red Mexicana Contra El Tratado de Libre Commercio (the Mexican Network against the Free Trade Treaty) is that Mexico cannot simply say "No" to NAFTA. The explanation, if I have it right, is that to take a position opposing increased trade and investment at a time when Mexico desperately needs both would undermine RMALC's credibility and destroy its access to both the negotiating table and the national press. As an alternative, therefore, RMALC seems to be trying to put forth a position that can be seen as more reasonable and constructive, showing how NAFTA can be changed to address the concerns of unionists and environmentalists. From my personal point of view, this position is fundamentally flawed.
"The people who are working to defeat NAFTA in Canada are not opposed to increased investment and trade. But NAFTA is not really about restricting barriers to trade and investment. NAFTA, along with the US-Canada Free Trade Agreement, GATT and a number of other similar international "trade" arrangements, is designed to institutionalise a neo-liberal political and economic agenda.
"In Canada the Conservative national government under Brian Mulroney has spent the last ten years putting in place a comprehensive plan of airline, trucking, financial and telecommunications deregulation; cutbacks in public sector employment; drastic reduction in social programs; off-loading federal responsibility for shared cost social programs, including health care and post-secondary education onto provincial governments which do not have the ability to fund them; undermining the country's Unemployment Insurance, Old Age Pensions and child benefit programs by providing them with only partial protection against inflation; reducing the federal minimum wage.
"As I see it, free trade agreements must be evaluated in the context of the overall policy environment in which they are being promoted, not according to a technical reading of their texts.
"Although the FTA and NAFTA are touted as "trade" agreements, they include provisions relating to subjects which are not usually included under the heading of "trade." The section f NAFTA that deals with intellectual property rights actually restricts trade for the benefit of huge transnational drug and computer software companies by extending patent coverage to a range of goods and services.
"NAFTA requires such matters as public education and health care be made accessible to commercial penetration opening these sectors currently answerable to their electorates to bids by private companies. It includes provisions affecting operation of the public sector including terms and conditions related to law enforcement, correctional services, social welfare, public education, public training and health and child care.
"NAFTA includes a range of restrictions on governments' ability to regulate corporate behaviour.
"The focus on "trade" has tended to frame the terms of the discussion. But the rhetoric of "freedom" and "trade" masks the real agenda."
When written Shniad's memorandum showed remarkable foresight. Today only hindsight is needed to appreciate what NAFTA is about.
from Economic Reform, November 1999
Recently, I was a speaker at a World Order Conference at the University of Guelph with eminent visitors and a large audience in attendance. During question period, some wondered whether the current UN intervention in East Timor was repeating the pattern of NATO intervention in Serbia. First-world armed forces were militarily invading a poorer country under the pretext of preventing "a humanitarian catastrophe," they suggested, with "the real objective" being in fact another US-allied takeover of a strategic region of the world.
This view comes from pro- and anti-Jakarta parties at opposite ends of the political spectrum. They press a half-truth. One can hardly deny that such a pattern has been at work in Yugoslavia. The scene was set 15 years ago by the US Reagan administration when a secret National Security Decision Directive (NSD 133) was issued in 1984 to replace Yugoslavia's market socialism with a "free market." Events subsequently complied with this US directive by sky-high interest rates in the 1980s and emergency US, IMF and World Bank loans to pay these debt charges in exchange for massive defunding and privatising of Yugoslavia's self-managed co-operatives and multi-ethnic social infrastructure.
"Restructuring" destructures. At first, there was a huge multi-ethnic strike of 650,000 workers against the US and IMF-driven program. But collapsing wages and employment opportunities along with successive currency devaluations and a flood of imported commodities exhausted the resistance. To finish off the socialist economy, the IMF's "financial aid" included a 1990 Banking Law to liquidate Yugoslavia's community-owned Associated Banks and privatise all remaining government and producer credit under Western banker terms.
The effects of this program are well-known. Market-socialist Yugoslavia was effectively melted down into a cauldron of social insecurity and ethnic division from which it has never recovered. Today, real GDP has plummeted to one-third of its level a decade ago. At the same time, a staggering $60 billion of damages from this year's NATO bombing has devastated its resources for recovery.
But public blame has instead fallen on a pathological symptom, Yugoslavia's President Slobodan Milosevic. Although he resisted the Rambouillet Accord that prescribed total legal immunity and formal occupation powers for NATO over Yugoslavia's economy and infrastructure (under Sections 6, 8, 11 and 15), Milosevic, a former banker and energy CEO, might have expected better from those he earlier assisted. In the words of one senior US official before the Rambouillet Agreement, Milosevic was regarded as "NATO"s indispensable partner in restoring stability to Kosovo."
The Opposite in East Timor
The pattern of events in East Timor is diametrically opposed. The US and its allies have never been at odds with the ruling military leadership of Indonesia since it was installed in 1965 by a US-approved coup d'etat led by General Suharto which murdered an estimated 650,000-1,000,000 perceived opponents the same General Suharto whom the Prime Minister's office was so anxious to protect from embarrassing protests at the APEC meeting in Vancouver in November 1998. In contrast to Yugoslavia's established leadership, Suharto was bloodthirstily anti-communist, using this as his primary justification for killing and torturing hundreds of thousands of Indonesians.
Accordingly, General Suharto introduced what the New York Times called "an investors' paradise." During his 33-year rule by kleptocracy and terror, transnational corporations and business-friendly governments faithfully repaid his largesse. Suharto's open-door policy to Indonesia's vast mineral, forest and low-wage resources was handsomely compensated with unstinting support of his military dictatorship and large infusions of foreign aid. Canada's government, for example, has pumped more about half a billion dollars of taxpayers' money towards Indonesia in CIDA projects, and another one billion dollars into export development credits, tax credits and direct subsidies ever since this "investors' paradise" became safe for the 300 Canadian corporations, including branch plant armaments producers, who do a multi-billion dollar annual business with Indonesia.
Even after the illegal occupation and attempted genocide of East Timor in 1975 when an estimated one-third of the population was killed and starved in the air-and-ground invasion and occupation of the island by Indonesian military forces, no public concern for "crimes against humanity" was expressed by any Canadian or US official. Indeed Canada abstained from and then opposed one UN vote after another which condemned the war-criminal invasion and which demanded Indonesian troop "withdrawal without delay." The Canadian government view was that the occupation and continuing record of atrocities were "a fait accompli."
The troops of Serbian Yugoslavia killed an estimated 2,000 people in its province of Kosovo prior to NATO bombing less than 1% of those killed in Timor. The legal distinction between the fact that Kosovo was a lawful Yugoslavian province under siege by a largely narcotic-financed Albanian army, the KLA, while Timor was an independent territory seeking to defend itself against Indonesia's invasion and occupation, was another reality that got lost in media reports.
But despite the far more compelling justifications for intervening against Indonesia, it was not bombed nor even criticised by the US and Canadian governments for its aggressive war, for its genocidal operations, for its Operation Clean Sweep and Operation Eradicate during the 1980s, or for continuing documented reports of murder and torture of Timorese civilians. No such reluctance to intervene, as we know, occurred in Yugoslavia. The Canadian government proceeded without Parliament's approval to assist the massive infrastructural bombing of Serbia after weeks of media photos (some since known to have been doctored) and typically undocumented atrocity stories. Kosovo, we must understand, was a "humanitarian catastrophe in a former communist state." Timor was a territory with rich oil and agricultural resources under the control of "a reliable business partner."
Then too the intervention in Yugoslavia was purely a NATO military operation, and illegal under the UN Charter (which requires a resolution by the Security Council). The Timor intervention, in contrast, is a lawful UN operation. Legally as well as substantively, the Kosovo and Timor interventions are not just opposite in nature, but more importantly may show a profound turn towards the rule of law in international affairs. Regional Malaysian, Philippine and Thai governments are assisting the Timorese intervention (largely due to Foreign Minister Lloyd Axworthy's initiatives), while those they are assisting against, the Indonesian militias, are tied to the US military. Recently obtained Pentagon documents indicate that, in the words of the London Observer, "specific commanders trained under the US program ["Iron Balance"] have been linked to the current violence and some of the worst massacres in the last 20 years."
What is happening in East Timor is, unprecedentedly in the last 30 years, against a US military client and the US's own military trainees. The more you peel the onion, the more something very new emerges in East Timor. Perhaps the most critical difference is the nature of the armed intervention. There is no air-bombing of civilians and civil infrastructures, but on-the-ground, non-destructive protection of a people who have just undergone the Indonesian military's equivalent of Operation Final Solution. According to the Red Cross, 800,000 East Timorese out of a population of 850,000 have been killed, burnt out of their homes or force-marched out of the country into Indonesia by the militias since they voted for independence.
If there wasn't an intervention now, we would have witnessed the completion of a physical genocide. Still, we hear hardly a word about the camps in Indonesia's West Timor where the militias are in command of over 200,000 refugees they forced there. Nor, in contrast to the Kosovo bombing which the media lavished with daily attention, are we receiving full reports of the anti-genocidal Timor rescue operation. The established strategy of illegal US-led aerial bombing of a designated enemy at television news time appears to be blocking the turn to a new way.
In this light, one has to wonder why these hideous crimes have become so long accepted. In East Timor, they have been going on for almost 24 years with little but celebrations of "the dynamic Indonesian economy" from the Canadian government and international business. In Yugoslavia, the country was stripped of its social infrastructure by the same "international market forces" before the meltdown of their common life security set old ethnic hatreds into motion. If we needed another wake-up call to the devastating consequences of a life-blind global market, we have certainly gotten it in Kosovo and East Timor. The question for some time has been, has this neo-corporate program locked into an unstoppable juggernaut of destruction? The intervention in East Timor indicates perhaps not.
Dr. John McMurtry
Professor of Philosophy
University of Guelph
from Economic Reform, November 1999
In September 1931, the most unthinkable of unthinkables happened. Britain that had at immense sacrifice returned the pound to its prewar parity, let it find its level and it sank towards the mid-three dollar range. Of the response to that of economists and statesmen, their heads stuffed with dogma, Charles P. Kindelberger wrote1:
"Twenty-five countries in all followed Britain off gold, largely in the Empire, Scandinavia, Eastern Europe and such trading partners as Argentina, Egypt and Portugal. Canada split the difference between the US dollar and sterling, experiencing some depreciation against the US dollar, but appreciation against sterling, and, especially painful, against the Swedish krone (newsprint) and the Argentine and Australian currencies (wheat). The Union of South Africa resisted depreciation, together with the US dollar, the gold bloc and the German mark.
"Dark hints have been given why Germany did not devalue to alleviate the deflationary pressure from appreciation. Schumpeter was told by a 'man who ought to know' that Britain would not consent, but himself asked how that was relevant since what could she do. When Ernst Wagemann proposed devaluation in 1931, the French Government and the directors of the Bank of France threatened to call German credits. Hodson gives as the reason the desire to hold down the local-currency cost of foreign debts. The truth appears to be more simple. The British devaluation was regarded by Bruening and Luther as inflationary and dangerous. ...Anyone who recommended devaluation 'was almost in danger of his life.'"
The left was particularly obsessed with the importance of maintaining a strong mark, and since the resulting surge of unemployment brought the Nazis to power, they were to pay dearly for it.
"The leading Marxist theorist and former Social Democratic Minister of Finance, Rudolf Hilferding, asserted in a debate with Woytinsky that it was: 'insanity that London had abdicated its role as the economic centre of the world. ...Germany's main task continued to be to protect its currency. He predicted increased unemployment in England as a result of depreciation.'"[Quite the contrary took place.]
"To Woytinsky, who counter-argued that Britain's credit would be stronger, and that others would devalue, increase their exports and reduce their unemployment, Hilferding shouted 'Nonsense.'
"The contrast is with Japan... What followed, Patrick says2 could not have been anticipated from the record of Japanese behaviour or economic analysis: one of the most brilliant and highly successful combinations of fiscal, monetary and foreign exchange rate policies the world has ever seen.
"During the 1920s, a small minority opposition had campaigned against the restoration of the yen to par, holding out for a lower rate. Led by Tanzan Ishibashi and Kemekichi Takahashi, a distinguished journalist, it had fed on the views of Gustav Cassel, and later of Keynes, whose Tract on Monetary Reform was translated into Japanese in 1924, and Treatise on Money in 1932. These works did not anticipate the theory of public spending, but impressed Ishibashi and Takahashi with their advocacy of a managed currency."
"The journalist Takahashi was initially critical of the theories of politician [Korekiyo] Takahashi, the former Prime Minister (1921-2) and Minister of Finance (1918-22) and Minister of Finance in the new cabinet which took power after the depreciation of the yen. But the politician Takahashi intuitively understood the potentiality of deficit financing with a flexible exchange rate, and his writing of the period showed that he already understood the mechanism of the Keynesian multiplier, without any indication of contact with the R.F. Kahn 1931 Economic Journal article.
"The balance of payments was protected not only by the flexible exchange rate, but also by the foreign exchange control laws of July 1932 and March, 1933. The Bank of Japan lowered discount rates from 6.57% in March 1932 to 2.29% in April 1936. The fiduciary issue of the Bank of Japan was raised from 120 million yen to 1,000 million. But the primary reflationary mechanism was government spending. Under Takahashi's finance ministry, central-government expenditures rose 20% in each year of 1932, 1933 and 1934, and, in all, from 31 to 38% of net domestic product. Sufficient to produce recovery, this expansion failed to satisfy the militarists, who wanted unlimited military expenditures. In consequence, they assassinated Takahashi the politician, aged eighty-two in 1936. The Japanese share in imports of such an area as the Netherlands East Indies, as a consequence of exchange depreciation, rose from 12% in 1930 to 31% in 1933 when the Indies government took protective measures."
The post-war record of Japanese fiscal and monetary policy has in essence been a continuation of that described by Kindelberger between the wars (see Economic Reform, 7/99, 'Rearmament for Japan?')
Economists and political leaders who hold rigid notions of "what is done" and what "is not done" should take note. But since they have buried our own rich history in that regard, there is scant chance of their consulting what happened elsewhere.
1The World in Depressions 1929-1939, 1973, p. 163
2Hugh T. Patrick, Some Aspects of the Interwar Economy, prepared for the Seminar of the Conference on Modern Japan, held in Puerto Rico, 2-7 January, 1968.
from Economic Reform, November 1999
Richard Douthwaite. Green Books. ISBN 1 870098 76 5
The first edition of this book, published in 1992, is already deservedly well-known to environmental campaigners. This new edition is expanded to bring it up to date, but also extensively revised.
His thesis is that not only is perpetual growth of the economies of the world an impossible aim, but the process is itself not contributing to human welfare. This he demonstrates with a wealth of anecdote and research findings, and a sprinkling of statistics, looking to history and contempory experience in different parts of the world, and covering a wealth of topics, spread over 16 chapters.
He starts by noting that the framework of laws on business and property were developed by the rich, for the richonly the rich, in the past, could be MPs, and only (male) freeholders, less than a fourteenth of the population, could vote for them.
For most of the population, the best times were probably just before the start of the eighteenth century enclosures. The enclosures enriched the wealthy at the expense of the poor majority, without compensation, and this has become the accepted principle of "development". "The polluter pays principle" is an attempt to change this, but is not effectively applied.
Periods of growth have been periods of worsening conditions for the poorer members of society. The best times have been in wartime or, if they kept their jobs, during peeriods of depression.
He shows that modern economic growth is a process that consumes its own benefits, with little if any net benefit for people. Cars have polluted, sterilised and destroyed huge tracts of land in road widening and building, and parking spaces; consumed vast resources of materials and energy; destroyed community; decimated public transport and made walking or cycling too dangerous for most, and proliferated to the point where gridlock is common. This is just one example of many covered in the book. He cites examples to illustrate the benefits of traditional "primitive" societies, which have evolved to live within the limits of their environment.. In general, they have no extremes of wealth and poverty, and are mutually supporting, rather than competing. These are characteristics which must apply to any sustainable future society.
For sustainability, nations or regions must be able to live on the resources within their territory, only trading externally for inessential luxuries or for variety. "Globalisation" is not only not needed, but must be reversed.
Limiting population is one requirement, but the effective non-coercive means to do this is to provide economic security and good education for women.
He summarises the essential features for a sustainable territory:
* a stable population
* basic necessities for life provided from renewable resources under its controlwith the expectation of continuing for "at least the next thousand years"
* protection of resources and population militarily and economically; independent banking and currency system and no debts to outsiders
* not dependent on continual economic growth to avoid collapselittle if any growth
He quotes Keynes: "Ideas, knowledge, science, hospitality, travelthese are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible and, above all, let finance be primarily national."
My main quibble with the book is that Richard too readily accepts the work ethic, and the need for the economy to supply jobs. He argues correctly that we need to reduce drastically our use of fossil fuel, and that this will mean more use of human effort in place of it, but sees this as a benefit, in "providing jobs", rather than a regrettable necessity.
Having been introduced as a child to the Social Credit ideas of Economic Democracy, to be gained from the Common Cultural Inheritance, to be distributed to all as a National Dividend, now known instead as a Citizen's, or Basic, Income, and later learning of Henry George's ideas on the common claim to the benefits of nature, to be shared by means of Land Value Taxation and resource and pollution taxes, I have never seen the need to seek wage-slavery as a good thing.
Richard comes close to this position, and a lot of the topics give support to it, but he still appears to fear "idle hands" and too much "leisure", as do the Amish he uses to illustrate the possibility of other ways of living. While not offering their way as any sort of ideal, he clearly does not fully share my ideal of a free, cultured, caring, leisured society using the potential benefits of modern science and technology to produce lasting artefacts of the highest quality without destroying its environment. He writes that "Leisure is a supplement to work Few people relish the thought of having nothing but sport and socialising to fill their time " For me, leisure is the opportunity to persue my own aims in life, be it in expanding my knowledge, developing skills, helping my family, neighbours or the wider society, as well as being able to relax or be entertained when I feel the need.
He demonstrates that a much fairer distribution of income is vital for any sustainable future, but while noting the need for land reform, does not look at the issues of LVT or Citizens' Incomes.
The book is written on the assumption that the economic system of the future will remain capitalist, but a much reformed version. He suggests that the reforms will need to include banking under local control, and notes the role of interest charged on the money supply as a basic cause of the perceived need for eternal growth, but does not persue these points. These he covers more fully in Short Circuit, which followed the first edition of The Growth Illusion and in The Ecology of Money, reviewed here on page3.
We are in a special position to grasp the dilemma of one-armed paperhangers. On the one hand, COMER is called upon to restore to economics some relevance to the reality of our times. On the other, many friends advise us to put our message in a form that the pure of heart can grasp without effort. That is a tall order where what is involved is the dismantling of a doctrine that has wedded illiteracy and skullduggery to throw up inverted pyramids of deceit. Obviously we need a very simple tool that will immediately spot trickery without calling for scholarly attainments on the part of the victims.
The good news is that such a tool already exists. It was taught to us in our first year of high school, in the algebra classes on simultaneous equations. There we learned that to solve equations with two variables, we need two equations -- just one cant possibly do. A distinguished economist, Jan Tinbergen some years ago translated that simple theorem into economic terms: if n independent variables can be identified in a problem, no solution with less than n independent variables can possibly work. Having got his doctorate in physics rather than economics, Tinbergen had a better notion of what mathematics could and could not do. Most economists have heard of the Tinbergen Counting Test, but you can count on your fingers those who really apply it to matters that really matter.
In our contemporary economy the market code "You get what you pay for and you pay for what you get" applies only to the market sector. Elsewhere in the economy other codes hold sway. In the public sector the availability of unpriced services is decided by legislation, and is paid for by taxation. In the environment, there are many subsystems, each of which is under its own constraint: the limit of specific types of pollution that the biosphere will tolerate -- sulphur, greenhouse gases, mercury, etc. Each of these subsystems must have at least one independent variable -- most of them, indeed, have many more.
From the Tinbergen test we can deduce that any proposed solution with independent variables that add up to less than the n in the problem is no solution at all. And if we kid ourselves that it is, we are storing up trouble. However, applying such a test would reveal the efforts of our central bank to lick inflation with the one blunt tool "interest rates" to be dangerous nonsense. For high interest rates ("high enough to do the job") will flatten a lot of other things apart from prices: they will disturb every contract in the country and abroad, shrink the tax-base and inflate the financing costs of the debt, and thus tear the bottom out of the public treasury. And above all they will redistribute the wealth of society from debtors to lenders. Eventually as the high rates collapse the economy and bring down interest rates themselves, lucrative opportunities for financial speculation will be created.
With society bled white with usurious debts, those with access to capital pools will have a field day. Privatisations will increase the costs of ecological conservation while squandering the means for undertaking it on interest payments. The slashing of social programs will be presented as a dire necessity, while the need for them will proliferate. All these unscheduled effects of the "single blunt tool" are in fact already tearing society apart.
In this way a blunder that would get a schoolboy flunked has been parlayed into a multifaceted bonanza for some of the least productive elements of society. And, still more disturbing, when after 20 years of failure the "one blunt tool" model continues to be advanced as a panacea for all economic problems, the very set-up becomes suspect. Clearly we are faced with an unconscionable conflict of interest that is stripping society of all defences.
Even the language itself has been twisted to exclude all alternatives to "the one blunt tool." "Fighting inflation" has become synonymous with higher interest rates, and if you question high interest policy, you are automatically classed an advocate of inflation. Society has been dumbed down to the point where it is increasingly difficult to even express alternatives; the language has been preempted to prevent our doing so. From a strictly economic issue the problem has moved on to become a failure of public morality.
How to find a way out? We have one advantage: basically it all happened before in an age of relative innocence. Under circumstances eerily like those we are going through, the twenties were a period of commodity deflation, that helped stoke unbridled stock market inflation. Economic theory had been neutered to present the status quo as an arrangement dictated by science and nature. Globalisation and deregulation then as now were the orders of the day.
But when disaster struck, leading economists hurled them into a reexamination of where economic theory had taken a wrong turn and had lost all relevance to reality. Keynes wrote, "The great puzzle of Effective Demand vanished from economic literature. ...You will not find it mentioned once in the whole of the works of Marshall, Edgeworth, and Professor Pigou. ...It could live on furtively below the surface in the underworlds of Karl Marx, Silvio Gesell or Major Douglas."1
Thousands of economists became browsers of the earlier literature, even though for them much of it might have been written in Classical Chinese. Keynes wrote of his "long struggle of escape -- a struggle to escape from habitual modes of thought and expression which ramify for those brought up as most of us have been, into every corner of our minds."2
What economists learned in that great rethinking of their theory prepared the coming of a mixed economy, but its achievement had to wait until we were nudged into it by the Second World War. That brought in a pluralistic economy, of many sectors, each with its own code, but interdependent on one another. The financial elite consented to the change only so long as they were living on government largesse, being bailed out from their gambles of the twenties. They were put on a strict diet, limiting what they could do with other peoples money, and what interest rates they could charge. But once the war was behind and they had returned to a degree of solvency, they hit the comeback trail. The campaign they organised for the purpose is without parallel for its thoroughness. Archeologists in reverse gear, they buried entire centuries of our history, and libraries of seminal thought. The curriculum of universities, the very language was recast to their great end.
But one of the things they neglected to rewrite were the freshman high-school texts on algebra, and that processed by a physicist disguised in economists clothing gave us the simple tool for regaining what we have been deprived of -- an economic theory dedicated to solving rather than multiplying societys problems.
I refer, of course, to the Tinbergen Test, a heaven-sent browser for eliminating counterproductive policy.
But what do we put it to work on?
Well, it just so happens that all the underworld schools of economics mentioned by Keynes in the thirties, have their contemporary progeny. Marx had identified the mechanism responsible for the deepening crises of inadequate demand, and what Keynes did essentially was throw that mechanism into reverse gear. Silvio Gesell elaborated a plan for goosing hoarded money out of the mattress by requiring every note to be revalidated each month by affixing a stamp on it -- in essence negative interest charge on stagnant currency. That technique lives on in the writings of Margit Kennedy in Germany and others under the name of demurrage money. If the world comes under severe deflation once again that and other special monies will attain importance. That is already the case in much of the Third World, and the Third World islands in the heartland of the advanced countries.
The Social Credit of Major C.H. Douglas stands out from all others by the powerful foresight of his vision. As early as the early twenties he saw far beyond the need for a therapy against recessions to the need to liberate humanity from the curse of having to ceaselessly expand the economy exponentially to keep it functioning -- like people condemned to set every new records in a marathon to be allowed to breathe at all. Douglas dealt with that through his concept of the "Cultural Heritage." All humans have contributed to the legacy of skills, technologies, social cohesion, institutions, and morale, without which the current feats of Bill Gates and the stock markets would be unthinkable. Distinguished or humble, all members of previous generations bequeathed to this fund by their labour, sacrifices, talents and martyrdom. And he recognised in this more than just a claim of all citizens to a modest basic living that would permit them to adopt life styles different from the prevailing ones as frantic consumers and insecure producers. Not only would this be an inherited right of those who chose to step out of the rat race; it could emancipate society itself from the every accelerating exponential growth that is undermining the biosphere and the fibre and purpose of society itself.
This could be developed beyond where Douglas left it. It would hold particular promise for our relations with the Third World. The slave trade was one of the main forms of the what Marx called the Primitive Contribution of Capital. Trade expansion in Asia at the cannons mouth was another. That went to build up the cultural heritage of Europe and North America but it ravaged that of the colonial countries.
That process goes on under other forms today. The destruction of subsistence economies is a case in point. They do not rate recognition in international statistics, but they are a key ingredient of the depleted cultural heritage of those victim lands. Debt forgiveness, the availability of new credits at non-usurious rates earmarked for life-enhancing purposes such as health projects, education, environmental protection, and as much modern technologies that it would be helpful to these societies -- by decisions in which they would participate.
But a precondition for that is to stop shoving deregulation, and loans tied to purchases from the lender nations down the gullets of these countries. Individuals and entire countries must be given a choice of divergent life styles. Both in the interest of the lender and debtor nations. Just about every dictate of the present Deregulation-Globalisation drive must be scrapped to introduce this new approach.
Combine this rich variety of alternative policies required by Tinbergen Test and new horizons appears. No longer is it necessary to espouse a single of the available policies as the "correct one." The Tinbergen Test tells us that there can be no single "correct one." We must have as many as needed to deal with the number of dimensions in the problems before us. That gives us the option of taking as our points of departure policies that worked reasonably well in the past, enriching them with yet others to address other problems that have arisen. After ascertaining their side-effects in other areas, we could try them out in practice on an incremental basis. High in the list of these is the use of the central bank of all countries developed or under-developed to provide as much of the financing in domestic currency as possible.
1The General Theory of Employment, Interest and Money, (London, Macmillan Limited, 1936), p. 32.
2Ibid p. vi
Editor-Publisher, Economic Reform
Michel Chossudovsky is professor of economics at the University of Ottawa, and author of "The Globalisation of Poverty, Impacts of IMF and World Bank Reforms", Third World Network, Penang and Zed Books, London, 1997.
"Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men".
(Franklin D. Roosevelt's First Inaugural Address, 1933)
OTTAWA, Canada - Humanity is undergoing in the post-Cold War era an economic crisis of unprecedented scale leading to the rapid impoverishment of large sectors of the World population. The plunge of national currencies in virtually all major regions of the World has contributed to destabilizing of national economies while precipitating entire countries into abysmal poverty.
The crisis is not limited to Southeast Asia or the former Soviet Union. The collapse in the standard of living is taking place abruptly and simultaneously in a large number of countries. This Worldwide crisis of the late twentieth century is more devastating than the Great Depression of the 1930s. It has far-reaching geopolitical implications. Economic dislocation has also been accompanied by the outbreak of regional conflicts, the fracturing of national societies and in some cases a destruction of entire countries. This is by far the most serious economic crisis in modern history.
The existence of a "global financial crisis" is casually denied by the Western media, its social impacts are downplayed or distorted; international institutions including the United Nations deny the mounting tide of World poverty: "the progress in reducing poverty over the [late] 20th century is remarkable and unprecedented..." The "consensus" is that the Western economy is "healthy," and that "market corrections" on Wall Street are largely attributable to the "Asian flu" and to Russia's troubled "transition to a free market economy".
Evolution of the Global Financial Crisis
The plunge of Asia's currency markets (initiated in mid-1997) was followed in October 1997 by the dramatic meltdown of major stockexchanges around the world. In the uncertain wake of Wall Street's temporary recovery in early 1998, largely spurred by panic flight out of Japanese stocks, financial markets slid back a few months later, reaching a new dramatic turning-point in August with the spectacular nose-dive of the Russian ruble. The Dow Jones plunged by 554 points on August 31st (its second largest decline in the history of the New York stock exchange), followed in September by a dramatic meltdown of stock markets around the world. In a matter of a few weeks (from the Dow's 9,337 peak in mid-July), $2,300 billion of "paper profits" had evaporated from the U.S. stock market.
The ruble's free-fall had spurred Moscow's largest commercial banks into bankruptcy, leading to the potential take-over of Russia's financial system by a handful of Western banks and brokerage houses. In turn, the crisis has created the danger of massive debt default for Moscow's western creditors, including the Deutsche and Dresdner banks. Since the outset of Russia's macro-economic reforms, following the first injection of IMF "shock therapy" in 1992, some $500 billion-worth of Russian assets - including plants of the military industrial complex, infrastructure and natural resources - have been confiscated (through the privatization programs and forced bankruptcies), and transferred into the hands of Western capitalists. In the brutal aftermath of the Cold War, an entire economic and social system is being dismantled.
The Worldwide scramble to appropriate wealth through "financial manipulation" is the driving force behind this crisis. It is also the source of economic turmoil and social devastation. In the words of renowned currency speculator and billionaire George Soros (who made $1.6 billion of speculative gains in the dramatic crash of the British pound in 1992) "extending the market mechanism to all domains has the potential of destroying society". This manipulation of market forces by powerful actors constitutes a form of financial and economic warfare. No need to re-colonize lost territory or send in invading armies.
In the late twentieth century, the outright "conquest of nations" meaning the control over productive assets, labor, natural resources and institutions can be carried out in an impersonal fashion from the corporate boardroom: commands are dispatched from a computer terminal, or a cell phone. Relevant data are instantly relayed to major financial markets - often resulting in immediate disruptions in the functioning of national economies. "Financial warfare" also applies complex speculative instruments including the gamut of derivative trade, forward foreign exchange transactions, currency options, hedge funds, index funds, etc. Speculative instruments have been used with the ultimate purpose of capturing financial wealth and acquiring control over productive assets. In the words of Malaysia's Prime Minister Mahathir Mohamad: "This deliberate devaluation of the currency of a country by currency traders purely for profit is a serious denial of the rights of independent nations".
The appropriation of global wealth through this manipulation of market forces is routinely supported by the IMF's lethal macro-economic interventions which act almost concurrently in ruthlessly disrupting national economies all over the World. "Financial warfare" knows no territorial boundaries; it does not limit its actions to besieging former enemies of the Cold War era. In Korea, Indonesia and Thailand, the vaults of the central banks were pillaged by institutional speculators while the monetary authorities sought in vain to prop up their ailing currencies. In 1997, more than 100 billion dollars of Asia's hard currency reserves had been confiscated and transferred (in a matter of months) into private financial hands. In the wake of the currency devaluations, real earnings and employment plummeted virtually overnight leading to mass poverty in countries which had in the post-War period registered significant economic and social progress.
The financial scam in the foreign exchange market had destabilised national economies, thereby creating the preconditions for the subsequent plunder of the Asian countries' productive assets by so-called "vulture foreign investors". In Thailand, 56 domestic banks and financial institutions were closed down on orders of the IMF, unemployment virtually doubled overnight.
Similarly in Korea, the IMF "rescue operation" has unleashed a lethal chain of bankruptcies, leading to an outright liquidation of so-called "troubled merchant banks". In the wake of the IMF's "mediation" (put in place in December 1997 after high-level consultations with the World's largest commercial and merchant banks), "an average of more than 200 companies [were] shut down per day (...) 4,000 workers every day were driven out onto streets as unemployed".
Resulting from the credit freeze and "the instantaneous bank shut-down", some 15,000 bankruptcies are expected in 1998, including 90 percent of Korea's construction companies (with combined debts of $20 billion dollars to domestic financial institutions). South Korea's Parliament has been transformed into a "rubber stamp". Enabling legislation is enforced through "financial blackmail": if the legislation is not speedily enacted according to IMF's deadlines, the disbursements under the bail-out will be suspended with the danger of renewed currency speculation.
In turn, the IMF sponsored "exit programme" (ie. forced bankruptcy) has deliberately contributed to fracturing the chaebols which are now invited to establish "strategic alliances with foreign firms" (meaning their eventual control by Western capital). With the devaluation, the cost of Korean labour had also tumbled: "It's now cheaper to buy one of these [high tech] companies than buy a factory - and you get all the distribution, brand-name recognition and trained labour force free in the bargain"....
The Demise of Central Banking
In many regards, this worldwide crisis marks the demise of central banking meaning the derogation of national economic sovereignty and the inability of the national State to control money creation on behalf of society. In other words, privately held money reserves in the hands of "institutional speculators" far exceed the limited capabilities of the World's central banks. The latter acting individually or collectively are no longer able to fight the tide of speculative activity. Monetary policy is in the hands of private creditors who have the ability to freeze State budgets, paralyze the payments process, thwart the regular disbursement of wages to millions of workers (as in the former Soviet Union) and precipitate the collapse of production and social programs. As the crisis deepens, speculative raids on central banks are extending into China, Latin America and the Middle East with devastating economic and social consequences.
This ongoing pillage of central bank reserves, however, is by no means limited to developing countries. It has also hit several Western countries including Canada and Australia where the monetary authorities have been incapable of stemming the slide of their national currencies. In Canada, billions of dollars were borrowed from private financiers to prop up central bank reserves in the wake of speculative assaults. In Japan where the yen has tumbled to new lows - "the Korean scenario" is viewed (according to economist Michael Hudson), as a "dress rehearsal" for the take over of Japan's financial sector by a handful of Western investment banks. The big players are Goldman Sachs, Morgan Stanley, Deutsche Morgan Gruenfell among others who are buying up Japan's bad bank loans at less than ten percent of their face value.
In recent months both US Secretary of the Treasury Robert Rubin and Secretary of State Madeleine K. Albright have exerted political pressure on Tokyo insisting "on nothing less than an immediate disposal of Japan's bad bank loans - preferably to US and other foreign "vulture investors" at distress prices. To achieve their objectives they are even pressuring Japan to rewrite its constitution, restructure its political system and cabinet and redesign its financial system.... Once foreign investors gain control of Japanese banks, these banks will move to take over Japanese industry..."
Creditors and Speculators
The World's largest banks and brokerage houses are both creditors and institutional speculators. In the present context, they contribute (through their speculative assaults) to destabilizing national currencies thereby boosting the volume of dollar-denominated debts. They then reappear as creditors with a view to collecting these debts. Finally, they are called in as "policy advisors" or consultants in the IMF-World Bank sponsored "bankruptcy programs" of which they are the ultimate beneficiaries. In Indonesia, for instance, amidst street rioting and in the wake of Suharto's resignation, the privatization of key sectors of the Indonesian economy ordered by the IMF was entrusted to eight of the World's largest merchant banks including Lehman Brothers, Credit Suisse-First Boston, Goldman Sachs and UBS/SBC Warburg Dillon Read. The World's largest money managers set countries on fire and are then called in as firemen (under the IMF "rescue plan") to extinguish the blaze. They ultimately decide which enterprises are to be closed down and which are to be auctioned off to foreign investors at bargain prices.
Who Funds the IMF Bailouts?
Under repeated speculative assaults, Asian central banks had entered into multi-billion dollar contracts (in the forward foreign exchange market) in a vain attempt to protect their currency. With the total depletion of their hard currency reserves, the monetary authorities were forced to borrow large amounts of money under the IMF bailout agreement. Following a scheme devised during the Mexican crisis of 1994-95, the bailout money, however, is not intended "to rescue the country"; in fact the money never entered Korea, Thailand or Indonesia; it was earmarked to reimburse the "institutional speculators", to ensure that they would be able to collect their multi-billion dollar loot. In turn, the Asian tigers have been tamed by their financial masters . Transformed into lame ducks - they have been "locked up" into servicing these massive dollar denominated debts well into the third millennium.
But "where did the money come from" to finance these multi-billion dollar operations? Only a small portion of the money comes from IMF resources: starting with the Mexican 1995 bail-out, G7 countries including the US Treasury were called upon to make large lump-sum contributions to these IMF sponsored rescue operations leading to significant hikes in the levels of public debt. Yet in an ironic twist, the issuing of US public debt to finance the bail-outs is underwritten and guaranteed by the same group of Wall Street merchant banks involved in the speculative assaults.
In other words, those who guarantee the issuing of public debt (to finance the bailout) are those who will ultimately appropriate the loot (e.g. As creditors of Korea or Thailand) i.e. they are the ultimate recipients of the bailout money (which essentially constitutes a "safety net" for the institutional speculator). The vast amounts of money granted under the rescue packages are intended to enable the Asian countries meet their debt obligations with those same financial institutions which contributed to precipitating the breakdown of their national currencies in the first place. As a result of this vicious circle, a handful of commercial banks and brokerage houses have enriched themselves beyond bounds; they have also increased their stranglehold over governments and politicians around the world.
Strong Economic Medicine
Since the 1994-95 Mexican crisis, the IMF has played a crucial role in shaping the "financial environment" in which the global banks and money managers wage their speculative raids. The global banks are craving for access to inside information. Successful speculative attacks require the concurrent implementation on their behalf of "strong economic medicine" under the IMF bail-out agreements. The "big six" Wall Street commercial banks (including Chase, Bank America, Citicorp and J. P. Morgan) and the "big five" merchant banks (Goldman Sachs, Lehman Brothers, Morgan Stanleyand Salomon Smith Barney) were consulted on the clauses to be included in the bail-out agreements. In the case of Korea's short-term debt, Wall Street's largest financial institutions were called in on Christmas Eve (24 December 1997), for high level talks at the Federal Reserve Bank of New York.
The global banks have a direct stake in the decline of national currencies. In April 1997 barely two months before the onslaught of the Asian currency crisis, the Institute of International Finance (IIF), a Washington based think-tank representing the interests of some 290 global banks and brokerage houses had "urged authorities in emerging markets to counter upward exchange rate pressures where needed...".
This request (communicated in a formal Letter to the IMF) hints in no uncertain terms that the IMF should advocate an environment in which national currencies are allowed to slide. Indonesia was ordered by the IMF to unpeg its currency barely three months before the rupiah's dramatic plunge. In the words of American billionaire and presidential candidate Steve Forbes: "Did the IMF help precipitate the crisis? This agency advocates openness and transparency for national economies, yet it rivals the CIA in cloaking its own operations. Did it, for instance, have secret conversations with Thailand, advocating the devaluation that instantly set off the catastrophic chain of events?" (...) Did IMF prescriptions exacerbate the illness? These countries' moneys were knocked down to absurdly low levels".
Deregulating Capital Movements
The international rules regulating the movements of money and capital (across international borders) contribute to shaping the "financial battlefields" on which banks and speculators wage their deadly assaults. In their Worldwide quest to appropriate economic and financial wealth, global banks and multinational corporations have actively pressured for the outright deregulation of international capital flows including the movement of "hot" and "dirty" money.
Caving in to these demands (after hasty consultations with G7 finance ministers), a formal verdict to deregulate capital movements was taken by the IMF Interim Committee in Washington in April 1998. The official communique stated that the IMF will proceed with the Amendment of its Articles with a view to "making the liberalization of capital movements one of the purposes of the Fund and extending, as needed, the Fund's jurisdiction for this purpose".
The IMF managing director, Mr. Michel Camdessus nonetheless conceded in a dispassionate tone that "a number of developing countries may come under speculative attacks after opening their capital account" while reiterating (ad nauseam) that this can be avoided by the adoption of "sound macroeconomic policies and strong financial systems in member countries". (ie. the IMF's standard "economic cure for disaster").
The IMF's resolve to deregulate capital movements was taken behind closed doors (conveniently removed from the public eye and with very little press coverage) barely two weeks before citizens' groups from around the World gathered in late April 1998 in mass demonstrations in Paris opposing the controversial Multilateral Agreement on Investment (MAI) under OECD auspices. This agreement would have granted entrenched rights to banks and multinational corporations overriding national laws on foreign investment as well derogating the fundamental rights of citizens. The MAI constitutes an act of capitulation by democratic government to banks and multinational corporations.
The timing was right on course: while the approval of the MAI had been temporarily stalled, the proposed deregulation of foreign investment through a more expedient avenue had been officially launched: the Amendment of the Articles would for all practical purposes derogate the powers of national governments to regulate foreign investment. It would also nullify the efforts of the Worldwide citizens' campaign against the MAI: the deregulation of foreign investment would be achieved ("with a stroke of a pen") without the need for a cumbersome multilateral agreement under OECD or WTO auspices and without the legal hassle of a global investment treaty entrenched in international law.
Creating a Global Financial Watchdog
As the aggressive scramble for global wealth unfolds and the financial crisis reaches dangerous heights, international banks and speculators are anxious to play a more direct role in shaping financial structures to their advantage as well as "policing" country level economic reforms. Free market conservatives in the United States (associated with the Republican Party) have blamed the IMF for its reckless behavior. Disregarding the IMF's intergovernmental status, they are demanding greater US control over the IMF. They have also hinted that the IMF should henceforth perform a more placid role (similar to that of the bond rate agencies such as Moody's or Standard and Poor) while consigning the financing of the multi-billion dollar bail-outs to the private banking sector.
Discussed behind closed doors in April 1998, a more perceptive initiative (couched in softer language) was put forth by the World's largest banks and investment houses through their Washington mouthpiece (the Institute of International Finance). The banks proposal consists in the creation of a "Financial Watchdog - a so-called "Private Sector Advisory Council" - with a view to routinely supervising the activities of the IMF. "The Institute [of International Finance], with its nearly universal membership of leading private financial firms, stands ready to work with the official community to advance this process."
Responding to the global banks initiative, the IMF has called for concrete "steps to strengthen private sector involvement" in crisis management - what might be interpreted as a "power sharing arrangement" between the IMF and the global banks.
The international banking community has also set up it own high level "Steering Committee on Emerging Markets Finance" integrated by some of the World's most powerful financiers including William Rhodes, Vice Chairman of Citibank and Sir David Walker, Chairman of Morgan Stanley. The hidden agenda behind these various initiatives is to gradually transform the IMF - from its present status as an inter-governmental body - into a full fledged bureaucracy which more effectively serves the interests of the global banks. More importantly, the banks and speculators want access to the details of IMF negotiations with member governments which will enable them to carefully position their assaults in financial markets both prior and in the wake of an IMF bailout agreement. The global banks (pointing to the need for "transparency") have called upon "the IMF to provide valuable insights [on its dealings with national governments] without revealingconfidential information...". But what they really want is privileged inside information.
The ongoing financial crisis is not only conducive to the demise of national State institutions all over the World, it also consists in the step by step dismantling (and possible privatisation) of the post War institutions established by the founding fathers at the Bretton Woods Conference in 1944. In striking contrast with the IMF's present-day destructive role, these institutions were intended by their architects to safeguard the stability of national economies. In the words of Henry Morgenthau, US Secretary of the Treasury in his closing statement to the Conference (22 July 1944): "We came here to work out methods which would do away with economic evils - the competitive currency devaluation and destructive impediments to trade - which preceded the present war. We have succeeded in this effort."
World Trade Organisation: special report George Monbiot
Thursday December 16, 1999 The Guardian
When the world trade talks in Seattle collapsed, British ministers indicated that they would never again try to force the world to accept a regime which threatened democratic government, developing nations and human health. This is the third time they have made this promise: already, for the third time, it has been broken.
Eighteen months ago, when the proposed Multilateral Agreement on Investment (MAI) first foundered, the British government assured us that it had learned its lesson. The new treaty it was brokering would defend the environment and developing countries. When that turned out to be untrue, and the agreement collapsed again, ministers swore that the environment and human rights would be central to any future treaty. Within a fortnight, leaked documents show, European officials had decided to shift the entire MAI agenda to the world trade summit in Seattle. They did so and, exposed and divided at the beginning of this month, they failed. Again, they waited less than a fortnight to launch the next attempt to facilitate a corporate takeover of the world. At the Helsinki summit of European leaders last week the fallback scheme began to be implemented.
European expansion has several potential benefits for the people joining the European Union - democratisation, human rights and peaceful relations with their neighbours - but these are not the main issues driving enlargement. The growth of the EU is one of the two central projects formulated and controlled by a shadowy lobby group which has, for the past 15 years, exerted an iron grip on policy-making in Brussels.
The European Round Table of Industrialists (ERT) is an alliance of the chief executives of Europe's largest companies, whose purpose is to formulate policies for adoption by the European Commission. It has, so far, been astonishingly successful. The Single European Act was framed not by the EC but by Wisse Dekker, the president of Philips and subsequently chairman of the ERT. His proposal became the basis of the EC's 1985 white paper. The ERT has scheduled and steered the implementation of the act ever since. The enlargement plans just approved by the European heads of government were mapped out by Percy Barnevik, head of the Swedish company Investor AB and chairman of an ERT working group.
The round table insisted not only that the EU be expanded in precisely the sequence agreed at Helsinki, but also that new entrants be forced to deregulate and privatise their economies and invest massively in infrastructure designed for long-distance freight. The EU has agreed to all of its principal demands. Until July this year the British minister responsible for approving these changes was Lord Simon. Before he became a minister, Lord Simon was vice-chairman of the ERT.
The thinking behind these schemes becomes clear when you discover what else the corporate lobby groups have been doing. Since 1995, the EC, pressed by the ERT and other trade bodies, has quietly been preparing for a single market with the US.
The Transatlantic Economic Partnership is a slower and subtler creature than the World Trade Organisation or the MAI. One by one it aims to pull down the "regulatory barriers" impeding the free exchange of goods and services between Europe and America. What this will mean in practice is that once a product has been approved in one part of the new trading bloc, it must be accepted everywhere. If the US government, for example, decides that injecting cattle with growth hormones is safe, Europe will have to adopt that as its regulatory standard.
The master plan is now falling into place. A greatly expanded Europe will form part of a single trading bloc with the US, Canada and Mexico, whose markets have already been integrated by means of the North American Free Trade Agreement, or Nafta. Nafta will grow to engulf all the Americas and the Caribbean. The senate has already passed a bill (the Africa Growth andOpportunity Act) forcing African countries to accept Nafta terms of trade. Russia and most of Asia are being dragged into line by the International Monetary Fund.
Before long, in other words, only a minority of nations will lie outside a legally harmonised neoliberal world order, and they will swiftly find themselves obliged to join. By the time the world trade agreement is ready to be re-negotiated, it will be irrelevant, for the WTO's job will already have been done. The world will consist of a single deregulated market, controlled by multinational companies, in which no robust law intended to protect the environment or human rights will be allowed to survive.
As the previous failures to impose such plans have shown, schemes like this can survive only in the dark: exposure makes them shrivel and die. If this new global master plan is to be thwarted, we must drag it into the light.
Under the gold standard, inflation was rarely a problem. Except for brief episodes, like the South African gold boom, the supply of gold lagged behind the growth of population and output, so the price level usually fell. The end of the gold standard coincided with the Great Depression, when the problem was deflation. Though many enlightened economists advocated monetary expansion little was done until the outbreak of World War II. The exigencies of war precipitated a vast expansion of the money supply, all of which went into increased output. A regimen of controls suppressed any inflation pressures, and the sale of war bonds drained away much of the 'excess' consumer demand.
In the postwar period a new paradigm emerged based on Keynsianism. Inflation was no longer the primary concern. Economists now concentrated on the goal of full employment by maintaining aggregate demand. The main weapon was fiscal policy and interest rates were kept low. This policy was successful and gave us 25 years of sustained growth and prosperity. In the 1970s, inflation resurfaced with a vengeance. OPEC, the Vietnam war and commodity shortages have all been blamed, but scant attention has been paid to the shift in monetary policy which occurred in the 60s and 70s (this will be the subject of a future column).
The initial response to inflation in the 70s was an incomes policy. In the US, Presidents Nixon, Ford and Carter implemented wage and price guidelines. Here in Canada we had the A1B and the 6&5 program, inspired by J.K. Galbraith. Although the inflation rate did drop significantly, the program was attacked vociferously by left and right. All evidence to the contrary, wage and price controls were deemed a failure and the stage was set for the victory of the monetarists.
Milton Friedman had for some time preached the dogma that inflation was 'always and everywhere a monetary phenomenon' and could only be contained by restricting the growth of the money supply. Attempts to do this were made by central bankers in the late seventies, but it transpired that the monetary aggregates were not susceptible to accurate measurement. Undeterred, the monetarists brought out the heavy artillery the interest rate.
In 1979, the Federal Reserve under chairman Paul Volker, began to push up interest rates. The process is ably described in Greider's The Secrets of the Temple. The cudgel as eagerly taken up by the other central bankers, including our own Gerald Bouey, and readers may recall the prime rate reaching over 20%.
The theory was simple. Higher interest rates would reduce the money supply by inhibiting borrowing. Less money would in turn, reduce prices or at least hold them stable. If higher prices are caused by excess money, as monetarist dogma decrees, then less money should mean less inflation. Rightly understood, however, Fishers' equation meant that less money could lead to lower prices or lower output or both. Given the high degree of price and wage rigidity in our economy, reductions are not easily or quickly made. In practise the higher interest rates translated into defaults, bankruptcies and layoffs as businesses struggled to reduce costs in the face of falling demand. A sharp recession ensued.
Of course inflation did eventually decline. Companies were forced to lower prices to stay in business and wages fell as unemployment rose. Government deficits skyrocketed due to lower revenues combined with increased spending, and the national debt escalated. Oblivious to the downside, the monetarists claimed victory, and high interest rates were enthroned as the weapon of choice in the war on inflation.
A policy of controlling inflation by means of high unemployment could never have been sold, but the public was told that high interest rates were the result of government deficits and excessive social spending 'living beyond our means.' Little noted was the benefit to some very powerful interests. Creditors and bankers were pleased with the higher returns. The financial sector has grown apace and is determined not to allow a return to the bad old days. That is why, even though there is no inflation, we are constantly warned of its resurgence. And low inflation has not brought low real interest rates as we were once promised.
from Economic Reform, November 1999
The monetarist dogma that inflation is always due to an increase in the money supply is not without the semblance of logic. Any sustained surge in prices must be accompanied by an increase in M (quantity of money) as in V (velocity of circulation) or both.
The record shows, however, that while inflation required an increase in MV, such an increase does not necessarily cause inflation. By examining US monetary and price data from 1870 to 1987, Bill Hixson has demonstrated that periods of rapid monetary growth are not necessarily periods of high inflation, but are more likely to be periods of faster economic growth. In the real world, monetary expansion translates in large part into higher demand and hence higher output. This phenomenon may have changed in recent years, as Federal Reserve data show that a huge proportion of new money has found its way into the realm of finance and speculation. This would explain why asset inflation in the financial sector has been accompanied by low inflation and weak growth in the real economy.
Even if the monetarist dogma were true it begs the question, 'What causes the rapid increase in MV?' Friedman and the monetarists tend to point the finger at profligate governments. There are, of course, some examples of excessive money creation by governments, such as the German inflation of 1922-3, but these are exceptions. Since WWII, our own government has been creating a steadily diminishing proportion of the money supply. It is difficult to argue that legal tender, which constitutes about 6% of our money supply, is responsible for inflation while the other 94% of debt money is not.
The supply siders have an answer. They argue that all inflation has its origins in costs, be it raw materials (the OPEC oil crisis), or military spending (the Vietnam war) or wages (those greedy unions). The financial system, they say, merely accommodates the rising prices by increasing the money supply. But we should not confuse this increase with the cost-push source of the inflation. Hence the emphasis on increasing supply (output) by incentives to producers such as tax reductions. The resulting stable prices are supposed to stimulate consumption.
Unfortunately, the supply siders never include one of the greatest costs to businessinterest. Virtually all businesses must borrow and there is no doubt that corporate debt has escalated sharply since the 1960s. With governments creating less legal tender, there is simply no alternative, save depression, to businesses and individuals borrowing more money and getting deeper into debt. The long term rise in interest rates adds to the burden. These interest costs must translate into higher prices.
Again we are indebted to Bill Hixson for the hard data (US) on this topic. He shows that since the end of WWII, interest payments have increased much faster than wages (11.6% annually to 7.9%). While we are constantly reminded of the inflationary impact of wage gains (a case in point being the recent CAW-Ford settlement), the impact of rising debt and interest is ignored. The media serves the dominant revenue.
In this light, the absurdity of raising interest rates to combat inflation (the monetarist orthodoxy) is exposed. As John Hotson once said it amounts to 'getting businesses to reduce prices by increasing their costs.' In reality the only way higher interest costs can reduce prices is by collapsing the economy. That is the price we paid in 1981-2 and 1991-2 for ignoring the inflationary effect of our debt money system.
from Economic reform, December 1999
The mood of our world is getting to be not only "end of the century"ish, but end of the line. One thousand years ago, as the first millennium drew to its close, many Christians, anticipating the Second Coming, gave away their earthly goods for a lighter passage to heaven. Today as we approach the third millennium many are doing something similar, casting their wealth into Internet stocks. What is less clear is whether it is precisely heaven that they are headed for. A great casualty of our age, not picked up in corporate bottom lines, has been a sense of morality.
There is not a duller subject than economics but by the early thirties, almost everyone was trying to figure out what had hit the human race. Tens of millions of minds were chewing on the conundrum, why monkeys never starve when too many bananas are around, as their smarter cousins do.
Today we are entering upon a similar stage. But for the test that it will have to face, society is both better and worse prepared. Better, because we did have a fruitful quarter of a century of experience in financing public programs and heading off recessions. Economists like Keynes, who finally felt obliged to pay tribute to Douglas, Marx and Gesellwithout necessarily agreeing with or even grasping the full import of their message. But ominously, in the practical field, it was left to the Second World War to nudge the government a few notches further in the exploration of what was feasible along such lines.
A few years ago a highly distinguished official of the Canadian Department of Finance during the War and postwar, David W. Slater summed up the experience in a book1: "The potential productivity and income of the Canadian economy turned out to be much greater during the war than they had appeared at the beginning. The potentialities after the war were even larger than those of wartime. Underestimation of potential early in the war curbed the war effort. But after the fall of France, Canada made all-out commitments and gradually achieved and sustained them." But the full message that we must beam onto goes far beyond that.
The greatest awakening that came out of World War I came not from Marxists or Keynes, but from Major Douglasthe notion of a cultural heritage towards which generations of humans, revolutionaries and conservatives, regardless of race. Without this modern technologies and social infrastructures and productivity could never have come into being. This heritage is what is being appropriated and ransacked by transnational finance. The means towards this end is the imperative of constantly accelerating growth of the market economy at the expense of the ecology and traditional cultures to support the mountainous debt that keeps the financial system in orbit.
In Canada the very name Social Credit repels. However, Major Douglas, who had enough prejudices of his own, cannot be held responsible for all his progenyany more than can Adam Smith, Marx or Keynes. In his General Theory Keynes spoke of the great puzzle of effective demand was to be found only in the "underworlds of Marx, Gesell and Major Douglas." Each of these writers have given rise to a contemporary movement with a menu of policy to deal with problems that are overwhelming the world today. Marx identified the mechanism that he held must lead to the demise of capitalism. Essentially, Keynes threw that mechanism into reverse gear to provide different goals and a new lease on life for that system. Not dissimilarly, Gesell devised a negative rate of interest that would lift the economy out of the Depression by goosing legal tender out of the mattress into circulating. Sensitive to the destructive effect of exponential growth on the ecology and society itself, Douglas developed the concepts of cultural heritage and social dividend to defuse that time bomb.
Nor is it necessary to choose amongst these and other ideas. That is clear from Tinbergen's Lawdeveloped by Jan Tinbergen, a Nobel Laureate who, providentially had earned his doctorate in physics rather than economics. I say providentially because physicists have a better grasp than economists of something that one learns in first-year high school algebrathat to solve an equation with two independent variable you need at a minimum of two such independent equations. If you can identify n independent variables in the problem, then you must have that many in your solutions. As our society becomes more complexand even a controlled degree of globalisation is bound to make it sothe very notion of "one blunt tool" to keep it stable is stupid to the point of obscenity. The Tinbergen principle on the contrary requires an ever broader menu of contrasting and complementary policies to keep our society functioning and in reasonable balance.
In a mixed economy such as ours, the price level will rise not only because of possible excesses of market demand over supply, but for any of many other possible reasonsthe rapid increase in public infrastructures needed by our exploding technologies and urban centres, and the increased average span of human life. Studying these needs within a context of respect for the environment requires us to frame a highly varied menu of policies and life styles to make that possible. There is no room for maximising trade or growth as a categorical imperative.
That is the inevitable verdict on the highest plane of abstraction, systems theory or mathematical structure. At a more earthly level, there is the detail that the "one blunt tool" chosen by the philosophers of neo-liberalism happens to be the revenue of the money-lenders and the battering ram of financial predators. That involves a conflict of interest that cannot be covered up by even the greatest mind-bending campaign on record.
1War Finance and Reconstructionthe role of Canada's Department of Finance 1939-1946.
from Economic reform, December 1999
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