The Non-Economic Man

A few weeks from now, I will be taking a vacation from the Alberta winter to attend the 14th Annual Conference of the Eastern Economics Association in Boston, Massachusetts. There, I present a paper at the sessions sponsored by the Committee on Monetary and Economic Reform on the subject of “Frederick Soddy and the Doctrine of Virtual Wealth”.

Since I am not sure that all of the above will fill you with boundless curiosity, I may as well mention that I have also to act as a discussant for a paper prepared by my friend Mario Carota, of Toluca, Mexico. Mario is a farmer of Italian background, who sold out his holdings in Prince Edward Island, to live in Mexico to work among that country’s rural poor.

His paper deals with his attempt to assist the poverty of the Mexican peasant by establishing Christian producer cooperatives—for example, providing sheep or other livestock to one family which will in due course reproduce and be the starting capital for some other family: or providing marketing cooperatives so that the sweaters and blankets woven from the wool can be sold abroad and bring in money. It is all on an infinitesimal scale compared with the extent of the need—but it is a beginning.

The train of thought that this has started in my mind is this. In spite of making a presentation to a learned group of economists on what he is doing, Mario is challenging the accepted doctrine of Economic Man.

This is serious. He is attacking one of the most cherished assumptions of Economics itself. Every social discipline needs its concept of how the average citizen behaves. The law has its ‘reasonable man’—“the man on the Clapham omnibus”—the assumed average citizen with an innate sense of justice. Twelve of them, assembled in a civil or a criminal trial, are constantly used by the Law as the tool to make decisions of fact. So, Justice is kept in contact with popular sentiment by what these real people decide—and, as happened in some of the trials of Dr. Morgenthaler, their views can be a surprise to the experts.

Politics has its ‘average voter’, and the wise politician makes use of an incredible wealth of public opinion polls and sampling, designed to guide him as he sets out on uncharted waters, what the opinion of the public is likely to be on any issue. Disaster strikes the government that ever gets ‘out of touch’ with the mood of the voter.

Those engaged in marketing and advertising research make use of the same trial marketing and sampling techniques in order to find out what will best satisfy the different whims of different groups of consumers.

Economics, however, has set out on a different path. The tool of Economic science—if science it is—is a concept known as ‘Economic Man’: a person assumed to have no scruples or morals, except those imposed on him by the possible economic loss from being caught. Economic Man shops in the cheapest market, and sells his product for the very highest possible return. He does nothing he is not paid to do. He has no heart: no motivation except the welfare of his pocketbook. The theories of economics are postulated on the world being composed, as far as economic activity is concerned, by persons of this nauseating disposition.

Economic Man will never, for reasons of the general good, ‘buy Albertan’ or shop at his local Co-op store if the price of the product can be met by a different supplier at a lower price. He will never give to charity or do a turn for a friend, unless there is ‘something in it for him’. Indeed, Economics darkly hints from time to time that those who are foolish enough to disobey the ‘invisible hand’ are in some way disloyal to the smoothly working economy, and not only are doing themselves harm, but are also subverting the whole international economy.

All of which, of course, is the purest balderdash. If Economics is a science—as it claims—then its study should be of men as they actually behave, not as a theoretical model says they behave. The truth is, that the world is full of people who volunteer for good causes, Marios of various types, who give money to charity and food to the Food Bank, look after their aging relatives or handicapped children, and generally behave in a way quite contrary to that supposed for Economic Man. If Economics is to be considered a science, therefore, it should be doing market research on its model, and find out that humans at their best are motivated by a great many other factors besides greed for money.

Indeed, those who study civilizations would say that only when the world is filled with such people does civilization progress. A nation filled with Economic Men is a nation in the course of dissipation and decline. Just as the Hutterites, in a religious community, may be a model of one of the few successful ways that farming can be undertaken in the modern world, so my friend Mario, who has given up a good deal to work in Mexico and to teach Mexicans how to build up prosperity through cooperative community, may be on to a key to development that no amount of ‘aid’ programs through the injection of money can achieve.

The concept of a social system that guarantees a minimum share of economic welfare to all goes back to the time of Moses, and the idea of a rich man ending his days in a lake of fire for want of compassion on the beggar who dies at his gate dates from the time of Christ. Rightly or wrongly, for a couple of thousand years or so, a substantial number of people in the world have believed and acted accordingly, thereby abandoning their personal ambitions for wealth or political power. In other words, they have refused to act as Economic Men.

It’s just a thought—but is it possible that economic planning based on the concept that people will behave like Economic Men is doomed from the start, because such persons cannot create a free and prosperous society: putting their own economic interests first, they can do nothing but impose slavery on others?

If the truth of the way the world works is that ‘He who loses his life, the same shall find it’, then Economic Man is not only a fiction, but a fraud. The answer to Mexico’s problems is not more foreign aid—it is more non-Economic men like Mario.

– Gemini, March 1988

A Living Wage

Economists have a saying that perplexes me. They say that “There’s no such thing as a free lunch.”

This is obviously false. The air we breathe, the sun that “shines upon the evil and the good”, the rain that falls on just and unjust alike, the earth with its abundance of natural resources, the inheritance of knowledge and wisdom, vocabulary and literature, and physical assets such as roads and sewers, railways and telephone systems left behind for our use by earlier generations—all constitute, not just a free lunch, but a banquet.

Ah, but there is a catch in this, that in some ways proves our economists right.

Almost all of these resources, that once belonged to humanity at large, have now become the property of some one person. What was once common land has become private property through ‘enclosures’. Enclosures of common land for sheep farming in England created the ‘sturdy beggars’ of the time of Elizabeth I, many of whom emigrated to the cities or the colonies of the New World. Enclosures in Scotland led to the depopulation of the Highlands, and more emigration to the New World. The potato famine of the nineteenth century in Ireland led to dispossessed farmers who could no longer pay their rent again joining the tide of emigration to the North American continent.

Our capitalist economic system works when different people or classes gaining a monopoly in one way or another of some feature of the resources of Mother Earth, whether these be physical or intellectual, and selling this to others who need it and do not have it. Some have become owners of land, some of capital or intellectual property, some have developed skills in different professions. Many people, however, have none of these assets, and therefore only have their labour to sell.

Those who have come into ownership of resources are in a fortunate position. Theirs can be an unearned income of rent based on the resources they control. Those who are not so blessed have only their labour to sell, and they are the ones who pay rent for the resources they use, or for the money they borrow to acquire them. In this way the world is divided between the rich (who gain income from the assets they control), and the poor, whose standard of living as wages for the work they do will always be limited to the amount they need to survive, the balance being taken by what they have to pay to make use of the resources that others own.

It is only too easy to blame the poor, whether in our own nation or in third world countries, for being poor because they do not work hard enough—the old cry for more ‘productivity’ that drives the machinery of production faster and faster, so that we will not be left behind in the competitive race. But the truth is that unless the homeless are given a place to stand, and some inalienable assets of their own, even food banks and charity will not solve their underlying problem.

Poverty in Canada is found chiefly among immigrants and aboriginal peoples. Immigrants generally have brought little by way of resources with them, and may be unable, because of language difficulties, to make use of any investment in education they may have received in a foreign country. Aboriginals, who before the white man came were able to share a whole continent and its resources of land and animals among themselves, now are confined to reserves, or have moved to cities, making their traditional way of life an impossibility.

All of this is to argue that the concept of a guaranteed basic income for all is not unjust, nor an impossibility. We already provide this in pensions for seniors and the disabled. Ancient Israel gave every family an inalienable ‘inheritance’ that at most could only be leased out for fifty years to the next year of Jubilee, and never completely disposed of.

Alberta is in the throes of boom times, where houses that sold for $15,000 fifty years ago now command a price thirty times as high, and rents have risen accordingly. So much money is being poured into the Province that labour is short, the value of the dollar continues to fall, and homelessness is on the rise. Politicians are caught in a catch 22 situation. Protecting the environment has to be set against the threat of economic collapse if the expansionist bubble bursts. Yet all the time, the salaries of those at the top of the economic pile rise ever higher, and the living standards of workers, the unemployed and much of the third world if anything go downwards.

It’s not an insoluble problem. The church made an attempt to tackle it in its Jubilee initiative some years back. But when as few as five hundred people control more than half the world’s wealth, with the political power to prevent change that goes with this, there’s obviously a great deal of distance still to be run.

– Anglican Messenger, 2007*

Time to Reform Our Banks?

A brother in law of mine started out his career as a bookkeeper by taking a job with what looked like an upcoming construction firm. Up to then it had been keeping its own books, but with growth, it seemed sensible for management to take the next step of hiring a professional to keep its accounts.

It did not take very long for my relative to find a rather substantial error in the books. An important item had been entered as a credit when in fact it was a debit. The firm was not prospering, but in fact close to collapse. So instead of starting out on a promising career, his employment for the next year was to work for the bankruptcy trustee, winding up the whole operation for the benefit of unpaid creditors.

As I look out over the world’s economic prospects for 2009, and the desperate moves by governments worldwide to borrow billions of dollars created by the banking system from that same system in order to provide funds to prevent it from collapse, I get a sense that something is equally wrong here in the way the books are being kept.

For many years, I have carried in my wallet a quotation from the late professor Frederick Soddy, Nobel Prizewinner in 1922 for his work on the chemistry of radioactive substances, who coined the word ‘isotope’, and visualized in the midst of World War I the possible use of atomic power either as an instrument of war or as an enormous contribution to the world’s peace and plenty. Concerned by the fact that economies became incredibly productive under the pressure of war, but found themselves unable to deal with unemployment and poverty in time of peace, he attempted to understand the economic system. He says:

“I thought that, as a scientific man, I ought to know something about economics. So I studied the money system for two years and could make nothing of it. Then one day the truth dawned on me. What I was studying was not a system, but a confidence trick.”

The essential element in this trick is the technique of banking. Before goldsmiths became bankers, a deposit of gold with them would incur a charge for storage. As with a safety deposit box, one would leave the metal with the goldsmith, and expect to pay for the safekeeping, and receive the precisely same unit of gold back when withdrawn. Hence the term ‘deposit’.

In the sixteen hundreds, however, there was a new development. Samuel Pepys, for instance, records in his diary at that time how delighted he was when he found that, instead of paying for storage of his wealth, he could be actually be paid for leaving money ‘on deposit’ with a banker. The difference? First of all, the gold he received back would not be the same gold that he deposited. Secondly, the gold he had deposited would be lent out to some third party, with interest paid to the bank, and lesser amounts then credited to Pepys. Thirdly, that what stood to Pepys’s credit until he withdrew his ‘deposit’ was not gold, but a promise to pay that could be transferred by cheque and in many cases treated as money. Fourthly—and very relevant in today’s world—that if people lost confidence in their bank, or too many people sought to withdraw their money when it had already been loaned elsewhere, the bank would fail and its promises to repay would be worthless, leading to the ruination of all concerned. Fifthly, the effect of the same money being considered to be in more than one place at once was to expand the quantity of money in the economy, so causing inflation of prices by diluting the value of each individual monetary unit. The ‘South Seas Bubble’ of the early seventeen hundreds was only the first of many inflationary bubbles brought about by this system. Banker and borrower alike made a profit until the bubble burst—this at the expense of the general public, whose savings bought less.

All these things are only too evident in today’s economy. Inflation is persistent, and has reduced the value of the dollar and so of savings to one tenth of the value they had fifty years ago. Debts grow out of control. Obscene rewards have gone to those knowing how to make use of this substitute money system, which enables the money creators to print the tickets and grow rich, while the rest of the world slaves to do the work and provide the products those tickets will buy. And the reserves of cash needed for this system to operate have been allowed to become so thin that major bank failures have begun to happen, and the supply of credit for industry has dried up.

The flaw in the accounting system? Gold may be an asset of real value, but a bank’s promise to pay is not an asset but a liability of the bank, supported by the liability of the borrower to repay the credit the bank has extended to him. A system that has negative feedback is self-correcting and stable, but this new arrangement has created a situation of positive feedback, where inflation leads to more inflation, and deflation leads to unemployment, poverty and economic collapse. No amount of juggling with interest rates can prevent this from happening.

Banks by their very nature cannot create credit without creating an equal amount of debt—hence the enormous and growing personal and national debts that cost us so much in taxation, cripple our ability to enjoy products that are waiting for us to buy them, and lead to ever more consumer debt, longer mortgages on ever more costly housing, rent increases, foreclosures and homelessness. It’s not that everyone in the financial industry is a criminal—finance is essential to our modern civilization. What is essential is that we recognize that the rules by which we operate the system at present are impractical and unsustainable, and lead to wasteful and oppressive consequences that could easily be avoided.

If our politicians would ‘think outside the box’, they would realize that it is possible to create dollars without creating debt—but not through the banking system. The Mint does it with coinage all the time. Abraham Lincoln in the United States did it by issuing ‘Greenback’ dollars. England at the start of World War I abandoned gold sovereigns as money, and printed and circulated Treasury notes. The Bank of Venice financed Italy’s most successful trading city in this way for six hundred years. Alberta itself worked on the same principle by setting up the Treasury Branch system, operating at one time “on a one per cent reserve and a hot line to the United States”. It was a factor that helped Alberta get out of the poverty of the depression years, and still gives this Province an economic advantage.

The time has come for public and politicians to start thinking ‘outside the box’ as we face the coming economic catastrophe. It’s nothing but an accounting problem. The world could be as productive as it was twelve months ago, if only we would reform the rules of the financial system to make this possible.

Will we? Who knows.

– Publication Unknown, 2009*


Three days ago, I completed a project that has taken me the best part of a year. In the middle of last summer, I received a call from a student in Switzerland on a website I frequented, appealing for someone to help translate a book from the Latin in aid of a Ph.D thesis he was working on.

The subject was Usury, and the book was a commentary by one Father Daniel Concina of the College of Preachers, dated 1746, expounding on a recent Encyclical of Pope Benedict XIV dealing with the subject. Where Benedict was blessedly brief and to the point (and the Vatican provided a translation of his words), Father Concina was anything but. Nevertheless, the subject being extremely relevant in our present day world of banking, borrowing and debt, I felt that not many people besides myself would have the background in theology, economics and Latin to be able to handle this, so I volunteered and have laboured with the project on to its conclusion.

Usury, as defined not only by the Pope but by Plato, Aristotle, Aquinas and a whole host of Catholic writers, is the demand for payment of any sum in excess of the amount originally advanced in a loan for consumption—that is, a loan where the original article loaned, whether foodstuff or money, will not be returned, but instead, something of equivalent value will be paid later on to the lender. If I rent a car, and pay for the use until I return the identical car, usury is not involved. I pay for the value I have received, and the renter has during that time gone without. However, if I lend money, and ask for more and different units of money when the debt is repaid, that is Usury, a form of theft sinful and criminal, even by Roman law.

Is this simply hair splitting? At the time of the Reformation, Calvin definitely thought so, and ruled that moderate charges for the lending of money, particularly for purposes of trade, were legitimate. Calvinism, with its tolerance of usury, became prevalent in the Low Countries of Belgium and Holland, in East Anglia (including Boston, Lincolnshire, from where the Pilgrim Fathers set sail), in the Presbyterian Church of Scotland, home of Adam Smith, founder of modern Capitalist economics, and has become in fact the basis of the whole modern day monopoly of money creation through banking, the foundation of present day Capitalism, and the gloomy Calvinist theology of full employment, hell fire and an angry God, waiting to pounce on the least of the sinner’s mistakes.

So why should such a system be condemned? Concina’s argument is that money is of its nature sterile. Whereas farms are productive, and renting vehicles provides value, the person who rents money is in fact renting a ticket to value which will be provided, not by him, but by some other member of the public at large who provides the product for which the money will be exchanged. The Banker creates this money by providing credit in the form of a loan of imaginary dollars: the physical value is provided by the public at large, whose own dollars lose value by the inflation of the money supply when this credit comes into being. Banking is in fact a subtle manner of robbing the public, evident in the continual loss in value of the dollar and so of our savings and investments over many years—something that the authorities nowadays seem to take for granted.

As a retiree. living on the aforesaid savings and investments, that point certainly resonates with me! And in a world where indecent bonuses are paid to bankers, bailed out at public expense as being “too big to fail”, while half the world’s population survives on less than two dollars per day, surely the time has come for some re-thinking. Possibly even some public indignation.

– Gemini, 2010*

The Rich get Richer and the Poor get Poorer…and Why!

The following lecture was given at Chicago Area Mensa’s Regional Gathering, October 28th, 2000.

It’s a real pleasure for me to be invited to speak at this Regional Gathering, and make my way for the first time to this great city of Chicago, in the United States, the richest country of the world.

I don’t know whether you realize just how rich the United States is in comparison to the rest of the world. If we shrank the population of the world down to just one hundred people, then fifty per cent of the world’s wealth would be in the hands of only six of those people. All of them would be citizens of the United States.

Two thirds of the world’s population has an income of two dollars a day or less, and many have to work very hard for it. Yet any one of us North Americans with twenty thousand dollars of net worth can, by investing that, get an income of that size without doing a hand’s turn of work, simply by holding the investment. Let alone the capital gains that can come if we know how to profit from the stock or the commodities market.

That being the case, some other statistics about this, the richest country of the world, should cause us concern. There are 200 billionaires, and eight million millionaires in the United States, a number that has increased fourfold in the past ten years. Yet look at some other statistics:

  • Thirty million people in the U.S., about one tenth of total population, suffer from food deprivation.
  • 3 million are homeless, a 100% increase in the past ten years.
  • One child in five in the U.S. lives in poverty, defined as having less than one half of the median income of the total population.
  • Over fifteen years, the family incomes of the lowest 20% of the U.S. population have shrunk by more than a fifth. The incomes of the highest 20% have risen by thirty per cent.
  • The poorest fifth of the U.S. population have less than one twenty-fifth of the country’s total income: the highest fifth have approximately half.

But this is not just to blame the United States. Alberta, Canada, where I come from, prides itself on being the most prosperous province in all Canada. Yet Edmonton, its capital, has equally high rates of child poverty, concentrated particularly among aboriginals and single parent families. The food bank, set up as a temporary measure after an economic downturn hit the city in 1982, now serves twice as many, about 3% of our population, some on welfare, but nearly one third are members and families of the ‘working poor’.

Ten years ago, our Parliament decided to fight a war on child poverty, yet the situation is worse now than then. The top 20% of our population are actually noticeably better off than they were twenty years ago. The next 20% are about the same. Below that, the poorer you are, the worse your situation has become. Particularly, young males in the 18-24 year old group have worse average wages and worse employment prospects than ever before.

For young males, this makes earning a living in the free enterprise drug culture an attractive way of life. For girls, there’s the possibility of prostitution. Both of these alternatives generate immense social problems. There’s a real connection between unemployment and crime levels. So while the poorest of the nation fill the jails—one quarter of all persons in prison in the world are in the United States—the richest ones are also forced to live behind walls and bars in their own ‘gated communities’ out of fear of crime.

There are also international ramifications to all of this. Fidel Castro, that Cuban president the U.S. loves to hate, recently addressed a meeting of 100 leaders from the world’s poorest nations. Comparing spaceship earth to a ship, he points out that “trifling minorities are travelling in luxurious cabins … 85% of the passengers on this ship are crowded together in its dirty hold suffering hunger, diseases and helplessness.” So he proposes destruction of the International Monetary Fund, cancellation of all Third World debt, a war crimes trial for those responsible for the new global economic order, and a tax on speculative financial transactions to protect vulnerable economies, and raise a trillion dollars for Third World development.

The massive protests around the meetings of G7 leaders in Seattle and elsewhere, the complaints about third world debt coming from the Pope and many churches, perhaps indicate that there is a groundswell of dissent beginning to build; all is recognized not to be well in our self-satisfied economic world. Communism may not be an answer, but the ‘competitive free enterprise system’ obviously is also not delivering the goods to everyone’s satisfaction.

The strange thing is, that only ten days ago I was listening to a presentation to the Economics Society of Northern Alberta, giving a highly upbeat and positive answer to the question asked in the title of its message: “Can the Good Times Last?” It is as if different elements of society are living in completely different worlds—or perhaps, as one doctor described his work—“The operation was a success, but the patient died.”

What seems to be missing, though, is an understanding of what lies behind the tendencies of our times, and without this, many efforts to put things right are doomed to founder. Raise the minimum wage? Then young people will find it even harder to get a job. Run a food bank? Then the forces of competition will allow poor people to accept lower wages or pay higher rents, all at the expense of the charitable donors. Government make work projects? They encourage political boondoggles, and statistics show they can actually deter initiative and cause unfair competition with established enterprises. Forgive Third World debt? Then banks would no longer be able to balance their books, and we would all be faced with economic collapse.

So what I would like to do is to take a sober look at the monetary factors behind this growth both of extreme riches and extreme poverty. Unless we diagnose the problem, the remedies we propose are not going to make things better, and may well make them worse.

In the spirit of our tour of your Forensic Laboratory yesterday, I suggest that we need to look at clues, and that the first clue to what is going wrong around us lies in looking at the actual budgets of the rich and poor.

Whoever we are, we need to buy in order to live. Whatever we buy has a cost. The cost is broken down into a number of factors.

  • One is the Wages of Labour
  • Second is the Overhead of Capital used in production
  • Third is the Rent of Resources
  • Fourth is Taxes paid for Government Services
  • Fifth is the Interest Cost of Financing the business enterprise.

Each of these costs involves payments that give a stream of income. Incomes do not only come from wages. They come from interest or dividends on investment. They come from rents and royalties on resources. They come from wages in government employment, and pensions and other government assistance programs. An income of wealth also comes from ownership of property: what we own, we do not have to rent from someone else, so our standard of living can be just as high even when our income of money is smaller.

Look now at the budget of the typical family in poverty. Rent is an enormous part of it, unless the homeless sleep in cars, with friends, in shelters, or on the street. Interest is another—the cost of buying ‘on time’ rather than outright, reflected in the additional cost of finance charges. Taxes are likely less of a burden, although even the poorest contribute to the cost of government in sales taxes which put up the price of what they buy. Wages and Business Overhead go into the prices of all the products they buy. To balance all these costs, the poor have only one major stream of income, their wages, possibly helped in cases of real destitution by some sort of welfare payment from Government.

Contrast that with those in the upper brackets. The rich own their homes: no rent to pay. Indeed, they may well have invested in real estate or natural resource development, and so receive rents from others. The rich do not borrow to survive. Rather they have ‘money in the bank’ and investments, and can live on ‘unearned income’ whether or not they have a job as well. The rich do indeed pay taxes, and perhaps receive less in value from government than they pay (though they are likely to receive substantial government help in the cost of their children’s higher education): current trends in politics, however, (which are very much influenced by ‘big money’) are to reduce this contribution by the wealthiest, and push it further down the income scale.

To sum up. The poor have one and one half streams of income—wages and government help—and five streams of outflow: rent, interest, and taxes, as well as the wage and overhead costs in the products they buy.

The rich have four streams of income—wages, rents, business profits and interest—and three streams of outflow: wages, overhead and taxes. Further, their budgets do not include the elements of rent and debt payments that consume so much of the budgets of the poor. The real difference lies in the areas of unearned income—rents and royalties (from ownership of resources), capital (from ownership of productive assets through investment), and interest on the money they have in the bank.

What is alarming is that this situation is so rapidly worsening. It is harder and harder to get a job without a high level of education (itself a form of investment), and the jobs of those who do not complete high school are unstable and poorly paid. But when the world’s chess champion can be defeated by a computer program, even Mensans should tremble at the challenge that the computer makes to their skills and hardly acquired knowledge. Even Mensans tire of solving complex problems twenty four hours a day. The computer never wearies!

Moreover, employment itself is changing. We do not nowadays have armies of farm workers in the fields, or women stitching shirts or rolling cigarettes. Today’s appliances and automobiles are ever more complex, and are assembled more and more on robotic production lines. Mass employment today no longer comes from making products. It comes from making the tools that make the products, after which the labour force is largely unneeded.

If we build a power station to generate electricity, for instance, thousands of workers will be employed at the time of building, to put it together before any electricity is generated. I have calculated that one of our local power stations, designed to last for thirty years of life, spent 56% of its total cost for that 30 year period, before a single unit of electricity was generated. Thousands of people were needed to build it—just a dozen at a time are needed to run it.

Once in production, a dozen people can run it: the thousands are laid off so have no incomes to purchase the electricity, unless they can find another project to work on. Other areas have a similar economic situation. If we want to raise pigs, the only way we can meet the market in price is by starting an operation with a minimum of 5,000 animals, and an investment of $2.5 million in an automated plant to do it. The number of old fashioned ‘family farms’ is declining swiftly, and many are in a perilous financial position. So are the rural communities to which they belong.

What we have is an economy where the only way many people can earn money today, is by investing more and more in projects that promise us wealth tomorrow. If we don’t, the whole spiral collapses into an economic depression. Yet the resources of the world are finite. Some time in the future, a crunch point is going to come.

The problem of the poor centers around the fact that they don’t have ownership of much in the way of resources. And that brings me to the key to the problem—the ‘unearned income’ and the cost of interest and rent, that have made the difference between being rich and poor in the modern world.

Firstly, that question of rent. Primitive societies share the land. It is provided by nature, and it is owned by the community at large. Over time, though, people improve it with houses, roads and farms. They ‘enclose’ common lands, or take them for homesteads. Land becomes private property and is bought and sold. Those who used to have common rights—whether they are the aboriginals of this continent, or the displaced, “sturdy beggars” of the sixteenth century, Scottish crofters, or the Irish who crossed the Atlantic in potato famine days—all have been squeezed out by those who have taken their common land from them.

If we live on land we do not own, we have to pay rent. If we buy it, we will likely finance it with a mortgage. In either case, what we are prepared to pay per month will be the difference between what it costs us in time and expense in travelling to ‘marginal land’ which costs less, but uses more of our resources to get to work. So young couples have the choice—live downtown close to work, and pay a high rent or buy at a high price, or move out to the suburbs and spend a great deal of time, trouble and money in a daily commute. Either way, it’s a bite out of our standard of living.

I’m sure all of you have at some time played the game of “Monopoly”—the game where properties are bought and sold, and rents charged, until in the end one player owns the whole world and the rest are bankrupt. The idea of Monopoly was derived from an earlier game, “The Landlord Game”, devised as a teaching tool to popularize the ideas of the American economist, Henry George. I guess much of my own interest in economics started with the furious games I used to play at school before I reached my teens. Yet I wonder how many of us have enjoyed the fierce cut-throat competition of this game: buying properties, building houses and hotels, charging rents, squeezing the other players to the wall, without realizing that this is a picture of the world we actually live in. The vast majority of players in our economy are heading towards bankruptcy. Just one player (Bill Gates, perhaps) in the end will be the owner of the world. None of us here is likely to be the lucky winner!

George’s remedy for this situation was to impose a tax on ‘site values’, for the benefit of the community at large. Privately owned sites receive their value from the presence of the community: the community should therefore be the one to profit from their private exploitation. In several towns and cities, George’s ideas have been used as the basis of a tax system which imposes the heaviest property tax on the site, not the improvements of buildings and so on. Cities like these don’t have vast areas of their downtown in empty parking lots, where buildings have been torn down to avoid owners having to pay taxes on improvements. This type of taxation gives an economic incentive to use every square foot of property to maximum advantage. Equally the same system can be used to obtain royalties on the exploitation of natural resources. In Alberta, we don’t have too many oil millionaires, but the Province itself has been rescued from bankruptcy and set on the path of prosperity and low taxation by royalty revenues being paid to the Provincial government. This Alberta idea has been carried even further in Alaska, where oil revenues have been channelled into a fund that pays a regular dividend to every Alaska citizen.

Monopoly, though, is played with a very naive sort of banker. Have you ever tried playing the game with a bank run the way commercial banks are run today? I have played the game that way only once. It was one of the most depressing evenings of my life. A bank is an institution that accepts deposits of legal tender money—gold, silver, notes of the state or central bank—and gives out its own promises to pay in exchange. As long as you don’t ask for the actual legal tender money back, banks can create and issue their ‘promises to pay’ (their deposits) almost without limit. So the bank can make loans that enable particular players to buy property (subject to their mortgage, of course), favouring some and rejecting others, in the same way as most house purchase are financed today.

The bank makes profit by charging interest and making charges, but my experience was that the Bank’s real profit and power came from expanding the money supply, creating a boom with rising prices and property values, and then bringing prices crashing down with a credit squeeze. By creating such a cycle of boom and depression, all property starts to be owned by the bank, buying low and selling high. In the end, property is sold for far less than its nominal cost, everyone is in debt, and the game grinds to an unpleasant halt with only the Banker in charge.

The essence of banking is that the bank can create credit—it does so every time you use your credit card, and your signature on the sales slip is exchanged for a credit to the supplier on the books of the bank. However, to balance the bank’s books, every credit must be matched by a debt, what you owe on your charge statement, for instance, so that if depositors cause a ‘run on the bank’ by wanting ready cash, those debts can be called in. The biggest borrower in real life is usually the Government, often having borrowed for purposes of war, or social relief programs in times of depression. As a consequence, an enormous part of government taxation goes to pay interest on that debt. The Welfare State is designed to take from the rich to give to the poor—but the catch is, that the interest on the debts it causes generally come from the poor and middle classes, to give wealth to the rich.

Nervous politicians protest that we have to repay the National Debt. If they do, one of two things will happen. One possibility is that the economy will come to a standstill, as money loaned to the government is taxed from the people, paid back to the banks, and so cancelled. The second is that the people themselves will balance the repayment with much higher personal debts of their own. Some of this will be home mortgages, some of it financing purchases of cars and major appliances on time, some just charge card credit, not balanced by any tangible assets, and some will finance leveraged speculation in commodities or on the stock market.

Personal debt on inferior quality of credit is rising rapidly in the United States and Canada at the present time. In the U.S., the National Debt is far, far above the trillion dollars that was a worry in Ronald Regan’s time, and there is a major increase in the overseas trade deficit, all of which contributes to the high exchange rate of the U.S. dollar, and the rush of imports from low wage countries. It seems certain that at some time soon, the whole inflated balloon of bank credit, which has to be puffed up more and more year by year, is going to explode, when the poor of this world, at home and in impoverished Third World countries, can no longer pay their debts and their taxes, and the whole system dissolves in bankruptcy.

Another economist, Irving Fisher, from this city of Chicago, wrote a book in the thirties called 100% Money, in which he explained how unnecessary this debt system was. His proposal was that all money be issued by a government authority, so that the profit from money creation would flow to the community which gives money its value, not to the banking interests, who simply create the money tokens. The wonderful result would be that, instead of the Government regularly going to financiers to find out how much it has to pay month by month and year by year in interest on the National Debt, the Bankers would regularly come to the government, to find out what interest rate they would have to pay for the privilege of creating money. Just think what that could do for your tax rates. They could be cut by at least a third—and why not?

Such a system was used by the Bank of Venice in the Middle Ages, an institution that lasted for six hundred years and financed the richest and most successful trading city of its time. It was used in the American Colonies before the War of Independence, by Abraham Lincoln with the ‘Greenbacks’ he introduced at the time of the Civil War, in Alberta’s Treasury Branch system, in the Treasury Notes of Great Britain when its banks ran out of gold at the start of World War I, by the island of Guernsey; all these are successful examples of this approach. There’s no reason why improvements to municipal infrastructure, roads, bridges and so on, could not be financed this same way. That is the essence of the ‘Sovereignty’ campaign, both here and in other countries, aiming to give help to municipalities facing financial problems. But the rich have a great deal of influence in politics, and the suggestion has so far fallen on deaf ears.

So there we are. The community gives value to land, resources and dollars, but we have developed a system where these values are monopolized to an ever increasing degree by those in a position to exploit them. The rich get richer, the poor get poorer, the environment gets placed under ever increasing pressure, debt piles up, famine faces the poor here and in the poorer countries of the world, and most of us live so much with the daily challenge of paying our mortgage or our rent, and keeping up with our bills, that we have no time to think of how to do things differently.

There are better ways to go. Mensans are supposed to be the ones who have enough brains to find them. Will we do so?

– Text of a lecture delivered in October 2000

Myths We Can Do Without

“Sing a song of plenty, a planet full of fools,
Everybody starving by sound financial rules;
The shops were full of good things, the factories likewise –
The Banker shut his books and said ‘We must economize.’”

That little ditty from the days of the Great Depression seems to sum up the grim prognostications that fill the Business world today. It’s all so unnecessary!

One of the remarkable things about hypnosis is the way in which, as a result of suggestion, people individually, and whole masses of people on occasion, can completely misperceive the world around them, so as to act in ways that are self-defeating and absurd.

Listening to economists, financiers, business executives and politicians—let alone taxpayers, debtors, and those in danger of losing their homes or their jobs—wailing about the state of the world’s economies, makes me think that we need a dose of realism to dispel the myths that make today’s situation so discouraging and incomprehensible. So here goes:

(1) That the economy is collapsing. WRONG. We are just as able to grow food, build houses and automobiles, as we were twelve months ago. What is collapsing is not our ability to produce, but the system of payments by which that production is made available to people who want to enjoy it.

(2) That there is something mysterious and incomprehensible about the way our money system behaves. WRONG. Money obeys all the normal rules of arithmetic. The amount of our Gross National Product is directly connected to the quantity of dollars in circulation at any time. If the quantity is reduced, say by a shortage of credit, then the amount of production will also shrink, and bankruptcies and unnecessary poverty result.

(3) That Government deficits are a Bad Thing. WRONG. If they are needed to give citizens the dollars they need to receive a standard of living that is physically possible and desirable, they are essential. The important question concerns the way in which they should be financed.

(4) That deficits can only be covered by borrowing money created by the banking system. WRONG. The federal government controls both the Mint and the Bank of Canada, both sources of dollars which are legal tender. It does not have to go into debt to the banking system to do this. Of course, it will have to control the private creation of credit by the banking system if it does so, but perhaps that’s not a bad thing.

(5) That Canada’s banks are stable and sound. WRONG. The reserves of legal money held by banks to cover their obligations to customers are a minute fraction of the amounts they owe. Banking is a confidence game that can break down at any time—remember the Canadian Commercial Bank, the Northland Bank, and near banks such as the Principal Group, and the Credit Unions that had to be bailed out by the Province of Alberta only twenty five years ago—let alone some of the enormous failures taking place in the U.S.A. and elsewhere at the present time. Banking operates by making the same dollar appear to be in several places at once. It only takes a few bad debts for the whole card house to start tumbling down. That’s what is going on at the moment.

(6) That we have to give everybody jobs before they can get incomes. WRONG. The really rich in the world get most of their incomes not from the jobs they do, but from the property and investments they own. Society’s unearned income, who gets it and why, is quite as important to a sound and prosperous economy as what comes in a pay packet. Ordinary folks should get on that gravy train too.

(7) That creating money involves creating debt. WRONG. It does if the money is created by a bank, because a bank needs to hold a promise to pay to balance its own promise to repay its depositors on demand. But our coinage simply comes into existence by stamping an image on pieces of metal. No debt at all. When you think how much of your taxes are going to pay interest on borrowed money that the Government could have created for itself, one wonders why there isn’t a taxpayer’s revolution.

(8) That governments printing money is a sure guarantee of inflation. WRONG. Money is like the transmission fluid in a car—it doesn’t create any energy itself, but it transmits the energy of the motor to the wheels that do the driving in a way that makes movement possible. Too little fluid, and the vehicle will go in stops and starts, just like our present economy. Too much, and its power is diluted. Dollars are dollars no matter where they come from, and as long as there is proper control of the overall amount in circulation, inflation and deflation need not be problems.

(9) That the present situation will work itself out in a short period of time. WRONG. History shows that the one effective way of getting out of a depression is by the incredibly unpleasant, dangerous and wasteful route of rearmament and war, when normal rules of ‘prudent finance’ are suspended. Do we really want that? When we find ourselves in a hole, as we are today, the first thing to do is to stop digging. The next, is to find a way out.

(10) That the ‘iron laws of economics’ have nothing to do with morality. WRONG. Economic systems have been created by man, and they should serve public welfare rather than private greed. Today’s ‘competitive free enterprise system’, so favoured by organizations such as Stephen Harper’s National Citizens’ Coalition, is nothing but a blueprint to establish the Kingdom of Hell on earth. We can do better.

So let’s take the blinkers from off our eyes, and see the situation as it really is—not nearly as bad as the financial experts and bankers would have you believe. As William Aberhart used to say in the days of the depression of the Thirties—“If you haven’t suffered enough, it’s your God given right to suffer some more!”

– Publication Unknown, 2006

Having Enough

“The rich rules over the poor, and the borrower is the slave of the lender …”

“Owe no man anything …”

I reflected on these words of Solomon and Saint Paul, while tossing into my recycling bin the tenth solicitation I have received this year to subscribe for yet one more generous and (temporarily) low cost line of credit. Indeed, I was somewhat miffed that this last one only offered me a credit limit of $7,500. Most of them value me at a good $10,000—though this one did also tempt me with a reward of 5,000 free Air Miles, in case I needed them!

Why should we think that more money brings more happiness? Very few lottery winners have found that to be true. In their excellent book on money management, Your Money or Your Life, Joe Dominguez and Vicki Robin quote a survey that shows how, when people evaluated their happiness level on a scale of one (uncomfortable, tired, frustrated, insecure) to five (joyous, enthusiastic, fruitful, making a difference), happiness for those earning zero to $1,000 per month was only slightly less than that of those earning $3,000 to $4,000, and was actually higher than those earning more than that amount.

Why is this? A number of reasons. More income requires more effort and more responsibility—more time and energy expended in earning the higher amount. It involves an increase in social status, and all the costs in clothing, child care, eating out, second cars, cottage at the lake, club memberships, and other status symbols that those with lower incomes do without. And of course, more badgering from those, charitable or otherwise, who would like us to share a modicum of our wealth with them.

Dominguez points out that there is a point, which we can call ‘enough’, where we can achieve the maximum of satisfaction for the amount of our life energy we are prepared to spend acquiring money. In his case, it is as low as $6,000 per year. He suggests a number of ways in which we can learn to live a ‘frugal’ life (‘frugal’ from the Latin ‘fruor’: I enjoy). We can record our spending by categories, and assess whether each category gives us as much satisfaction as it costs us in time and energy to acquire. We can learn to shop cheaply and not on impulse, but also to get the best rewards for the employment we undertake. We can save and invest, so that not only do we bring our debts under control: in the end we come to a point where our earnings from our savings are sufficient to free us from the need ever again to work in the nine-to-five rat race. We can throw up our jobs, and volunteer to spend all our time at our own expense on the things that really matter to us in life.

How difficult is all of this? Chiefly, it seems to be a matter of discipline—having the courage to see where our monies—and therefore the limited hours of our lives—are actually being spent. Then evaluating and acting on what we find, permitting us to get a life that really reflects the direction in which we want to go.

It means the ‘tuning out’ of the million conscious and subconscious messages that swamp us every day, from advertisers and salespersons who would like us to do anything rather than live a lifestyle that does not involve buying their product.

And if too many people adopt Dominguez’s recipe, it means that we will wreck the western world’s consumption-based, full employment economy—but likely also make it possible for the world’s ecology to have a sporting chance to survive.

After all, if having ‘more’ makes us more unhappy, why should we not make the experiment of learning how to get satisfaction from having ‘enough’?

– Anglican Messenger, November 2011