Banking and coporatism
The whole global corporatist world has wholeheartedly embraced financialisation. In her 2016 book Makers and Takers: The Rise of Finance and the Fall of American Business Rana Foroohar laments the banking sector’s capitulation.[1] It used to be the mainstay of productive business but it is now the manipulator of speculative money markets. According to Foroohar only about 15% of investments actually go into productive business ventures. Historically that figure would have been well over 50%. The finance sector now prefers money market speculation to productive economic investment.
From the creation of the Bank of England in 1694 the ‘money making’ industry began an expansion unprecedented in human history. Canny money lenders discovered that it was possible to make money out of nothing by creating credit well in excess of their cash reserves (deposits). Today, all money comes into existence as an interest bearing debt issued by the private corporate banking sector, or central banks, as a largely costless exercise; without even the backing of a cash reserve. Banks do not lend depositors money; they create new credit for each loan and then charge interest on it. If someone defaults on a loan the banks do not actually lose money in any real sense, they simply lose the interest they would have ‘earnt’ off the credit they created on their computers. If banks do need to borrow money it is only for balancing and bridging purposes and they can do so from many sources at less than 1% interest. Henry Ford rightly observed that if ordinary people understood what was really going on there would be a revolution overnight.
Even if this analysis is incorrect in some measure it should still be obvious that a public body could perform all banking functions without any need to make profit by charging interest. It is also equally obvious that those in the banking system can access credit, at little cost to them and then demand high interest charges from those to whom they lend it. This is an unjust price gouging and excessive profit-taking racket par excellence. It is a systematic perpetuation of a monstrous legalised fraud. The gigantic debts and obscene wealth inequalities we now see everywhere are a natural extension of this iniquity.
The last 300 years has seen the maturation of a system that, quite literally, is a licence to print money for the benefit of the few at the expense of the many. The recent shift from business investment to financialisation, or speculation, has simply grossly magnified the iniquity in such a system. Because this historic development is part of the corporate facet of the problem we will go into it in more detail later. Needless to say, the will to power lies at the heart of the banking industry and the spectacular rise of multi-national corporatism. In the opening to his book, The End of Money and the Future of Civilisation (2009), Professor Thomas Greco says:
“Very few people realise that the nature of money has changed profoundly over the last three centuries, or that it has become a political instrument used to centralise power, concentrate wealth and subvert popular government.”
In the United States the private banking system stole a march on the likes of Thomas Jefferson, Andrew Jackson, Abraham Lincoln, President Garfield and the whole banking reformation movement of the nineteenth and early twentieth centuries, to achieve, by 1913, full monopoly control over both the U.S. and global monetary system.[2] In 1913 the USA joined the rest of the western world in handing over control of its money and credit creation to private corporate interests, fronted principally by the Bank of England and the U.S. Federal Reserve. The European Central Bank came more recently, locking EU countries into the Euro, preventing them from using fiscal policies to manage their economies. Greece, Italy, Spain and Portugal have been hurt the most.
Banking and corporate elites who now wield tremendous covert influence across the Western world and threaten democracy with a return to an even stronger form of feudalism. They hide behind the fiction that this credit for debt system is the only one possible, as if a man-made system is some sort of law of nature. Western societies have become servants to their lenders (an old biblical adage). Our new feudal overlords are both institutional and dynastic. Many now believe this elite have spent at least the last 100 years building the infrastructure and creating the climate for the emergence of a world state. It would be hard to overstate the importance of this aspect to the West’s present economic and social woes, especially when there is a relatively easy fix – make credit creation an interest-free system under the people’s control and reduce any central banking function to be a lender of last resort, not a print public debt and corporate bale out machine.
In his book The Myth of the Robber Barons, Burton Folsom argues there are good and bad corporate entities. Those that use political influence to cripple competitors, feather their own nests and harm consumers [and their environment] Folsom calls political entrepreneurs. Entities that provide the people with products they need at affordable prices he calls market entrepreneurs. Folsom’s distinction has no practical merit; the latter can easily embrace the former as their size and economic weight grows. Drawing a distinction between the two is therefore unwise. He cherry picks certain nineteenth century businessmen who started out as market entrepreneurs but there is every reason to believe they quickly shifted into the political entrepreneur category. The danger in corporates, inequalities aside, is not about what they produce, price, or the good certain products may do, but the undemocratic and covert power they can exercise for self-interest and will to power reasons, when they become too large. Responding to the corporatist element within the problem is about preventing the hidden hand of corporate affairs influencing the open and unfettered rights of the great mass of ordinary people, within a properly conceived and functioning civil society. You may recall my working definition of a civil society, from Part One:
“…the totality of governmental and community activity that act in unison and in the right balance to produce ordered and free societies governed in an aggregate sense by the will and consent of a responsible, well informed and active citizenry with the maximised opportunities to achieve individual potential.”
In both Real Dissent by Thomas Woods and The Rational Optimist by Matt Ridley a case is made for the public good benevolence of big business. There is no argument from this quarter on the proven superiority of capitalist free enterprise; it’s simply a fact. The Soviet Union eventually bowed to it and the Chinese adopted a state-owned version. The trouble is it is not just a matter of production and consumption, as I tried to explain by reference to the four forms of capital, above (Pt2/18). Woods and Ridley take a naïve position that ignores, larger and ultimately more important issues. The short list includes:
· Worker participation and equitable reward for labour.
· Manager-worker salary differentials.
· Covert cross-overs between the world of corporate executives and politicians.
· Excessive wealth concentration and social equity.
· Big business and national opinion making – the media and academia.
· Narrow corporate executive accountability vis-à-vis shareholders and democracy.
· A dominating interest in seeing people as merely a labour market and consumers.
· Business disincentives in balancing public good against private good.
· Questions concerning money market activity, stock markets and banking practices.
· The ease with which public institutions may be co-opted by powerful private interests.
In Part Three and Four we will return to these issues and make the case that it is possible to have a fully functioning and highly productive free enterprise system without the need for large corporate entities and the present private banking system that now dominates and discredits real capitalism. The trap is to look to government regulation or higher taxes to mitigate the negative effects of corporatism. That is like asking Al Capone to keep the gambling industry honest. Real solutions must come from elsewhere.
[1] Many of Foroohar’s recommendations for fixing the finacialisation problem are reflected in the Part Four reforms, but she is not referenced or credited with those reform ideas there because I arrived at them independent of her analysis. See Time Magazine, May 23rd, 2016 for a summary of her work, in Saving Capitalism, pp.24-28.
[2] Watch The Secret of Oz on You Tube for a good historical perspective on the monopoly control of credit creation within the U.S.A. and the battle through to 1913 to prevent its privatisation. The other movement for banking control I refer to is the Social Credit movement begun in the UK by C.H. Douglas during the opening decade of last century. Its influence spread across the British Commonwealth but achieved little in the face of concerted opposition.