sabato 16 luglio 2011

Chartalism has never been academically challenged

The Bernard Lietaer video as support for Hellyer’s campaign

I have seen references to Bernard Lietaer many times, and was aware that he proposes an alternative monetary system that is consistent with an ecological perspective, but I had never investigated directly nor paid much attention to the details of his alternative. Until this week, when I watched a video on YouTube of a lecture he was giving to what appears to be an audience of journalists.

He starts by repeating the claim that “nobody saw it coming”—citing Robert Rubin and Alan Greenspan. Nobody could have seen it coming. And why not? Because of a Monetary blind spot.

The existing monetary and banking system achieved essentially its current form in the 19th century. By the end of that century it had wrung as many concessions from sovereign governments as it was likely to get or as it was likely to desire. The privilege of banks to supply most of what is used as money to grease the wheels of commerce and to finance industrial expansion was well established in the mid-19th century. Beyond that, the role of central banks as a monetary policy authority independent of democratically elected governments had already been exemplified in several countries, most notably in the venerable case of the Bank of England. (But Wikipedia notes that the central bank of Sweden is actually the oldest of continuing central banks, having been founded several years before the BofE.) Most countries established central banks early in the 20th century, and a central feature of their function was the management of foreign exchange transactions. They and other big private banks were part of an international monetary and banking system. The capstone of the system is international agencies such as the BIS, IMF and World Bank. Lietaer reinforced the international system aspect in his video lecture by noting that it continued to function throughout the Cold War, for it was already established in Russia before the Leninist-Stalinist revolution and was not replaced by a distinctively “Marxist” variant.

This system is a centralized monopoly whose powers have been granted by sovereign governments. It gives great power to its owners to monopolize credit and accumulate compound interest. This significant power to assemble people and other productive resources into extremely ambitious enterprises was a key, indispensable factor in mobilizing the Industrial Revolution (as recognized by Marx). On the other hand, it just as inevitably promotes a cycle of boom and bust.

Lietaer affirms in his video lecture that he once embarked on a career as a central banker (Belgium) and in that function made a study of trends that led him to forecast a coming Latin American debt crisis. He analyzed it as a feature of the international monetary system and wrote a book predicting that there would be a series of such crises. This precipitated a telling anecdote related in his video: One day he encountered the head of the BIS who told him “I have read your book.” This was followed by a question: “Why are you working in a central bank?” Lietaer responded that his aspiration was to improve the functioning of the system. To this the BIS head asserted that institutions of the system, including the BIS, IMF, World Bank and all central banks exist for only one purpose and that is to keep the system operating as it is; not to improve it. That is, to keep the system frozen as it was when the institutions were granted the existing set of powers. They therefore constitute what Lietaer termed an unseen lobby for the status quo. This point is reinforced by a reference that springs up whenever I call up frequently used URLs on my web browser: Ryan Grim, “Priceless: How the Federal Reserve Bought the Economics Profession” (in Huffington Post last September).

Lietaer provided another personal anecdote in support of this unseen lobby theme: A conversation one day with Paul Krugman. Both of them are graduates of MIT, having studied there under the same professors. Krugman asked him, “Didn’t they warn you about not touching the monetary system? If you insist on talking about it, it will kill you academically. It takes a university economist completely out of the system of peer approvals that culminates for a few in the prize given by the central bank of Sweden in honor of Alfred Nobel.” (The System has deftly transformed that award for monetary orthodoxy into one that is popularly conceived as “the Nobel Prize for Economics”.)

Thus an important aspect of the unseen lobby is an academic taboo. The problem is not that no alternatives to The System have been contemplated by innovative thinkers. The possibility that governments should keep the right of creating money as a sovereign power to be administered through a democratic system has been explored regularly by non-conforming investigators. The existing system is an outgrowth of the idea that money was essentially a coin representing the value in exchange of a precious metal. That is where stories about goldsmiths and lending paper representations of gold in excess of what they actually had come from. “Metallism” is a doctrine that banks should have a reserve of precious metals to back the money (credit) that they issue. A contrasting view that governments have the power to guarantee value to pieces of paper or figures in a book without promising payment in precious metal is called “chartalism” or “cartalism”. A very important observation made by Lietaer in the video lecture is that chartalism has never been academically challenged. In other words, the taboo is effective as an instrument of the unseen lobby.

Lietaer did add that the academic home of chartalism is the University of Missouri at Kansas City. Professors there do develop its themes and ramifications, but the academic screen of orthodoxy keeps their ideas carefully filtered from the advice received by Presidents and their Councils of Economic Advisers. A reinforcing anecdote relative to the taboo and lobby was related to me by Michael Hudson, one of whose titles is “Distinguished Research Professor of Economics, UMKC”. I once asked him what kinds of challenges he receives from other economists to his views. He replied that he doesn’t get any. “They know I am right, and they concede it, but then go back to business as usual ‘because it’s a job’.”

To borrow a metaphor from Pierre Berton, university faculty positions in Economics Departments are a “Comfortable Pew”—paid for by taxpayers generally rather than by self-selected members of a church.

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