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From: John Hermann <[EMAIL PROTECTED]>
To: John Hermann <[EMAIL PROTECTED]>
Sent: Saturday, 23 October 1999 2:31 PM
Subject: The Grip of Death - review
Economic Reform Australia
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Date: Thu, 21 Oct 1999
From: COMER <[EMAIL PROTECTED]>
Organization: Committee on Monetary and Economic Reform
Copyright (C) 1999 COMER. May be reproduced with acknowledgement.
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Review of:
The Grip of Death : A Study of Modern Money, Debt Slavery
and Destructive Economics, by Michael Rowbotham
(Jon Carpenter Publishing, Charlbury, Oxfordshire, 1998
ISBN: 1897766408)
William Krehm
Editor-Publisher, Economic Reform
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The number of books, even good books that have been appearing
on the taboo subject of money should be telling us where the world's shoe
pinches - even in that portion of the world that can claim the luxury of
wearing shoes. But even so, Rowbotham's book stands out not only for the
quality of the research and the writing, but for the compelling vision
that it unfolds.
Coming from the Marx-Keynesian side of the house, I was late
in fully appreciating the keenness and deep humanity of C.H. Douglas's
thought. It imposes on us Puccini's view of Richard Wagner, who much
more than Douglas had his share of unhousebroken prejudices: "Compared
to him we are all mandolin strummers."
But even so, his A and B theorem somehow does muddle the
reality of capital depreciation - but to my mind not so badly as what it
suffered at the hands some of his official critics. Yet it does call for
some interpretation. Nowhere have I found the job more persuasively done
than by Rowbotham. Douglas comes out of it all with a far more embracing
view of the future and its problems than Keynes. Concerned with more
than revving up a stalled economy to a resumption of the mad jig with
ever more demand, Douglas questioned the wisdom of pursuing the endless
goal of chewing up the biosphere to balance the monstrous balloon of
debt on our backs. And that was 80 years ago!
Direct quote from Douglas: "You may not require lathes and may
have enough bread, but the employees of the lathe maker cannot get bread
unless they make lathes, and so they make lathes to make shells to make
war to get bread which is already available." Or from Rowbotham himself,
"A new factory producing cars is welcomed for the employment it offers,
but do we need a new factory? Are there not enough car plants already?
Are they not being closed regularly for want of sales?" (p. 43)
"Forced into intense competition to survive in the market,
industries have cut costs and reduced quality, to the point where the
consumer needs protection from goods that are so cheap they are unsafe.
There has had to be substantial administrative involvement and legal
protection offered by a third party - government. Minimum standards have
had to be set and monitored. Controls, regulations, product checks,
visits by the Health and Safety Inspectorate, food hygiene and trading
standards officials; all this immense bureaucracy is due in no small
part to the constant change of products, continual alterations in
production methods and general poor quality in an economy forced to grow
constantly with low price as a priority."
Because of the very forcefulness of the case that Rowbotham
builds up it is unfortunate that he should weaken it by some heroic
simplifications. Thus (p. 33) "These houses we live in and on which we
pay such massive sums - they have been paid for in real terms. In terms
of all the raw materials; the terms of the blood, sweat and tears of
labour; the manufacturing, the transporting, the bricklaying, the
decorating and plumbing, and all the grovel and grind of work- they are
already paid for. They were paid for on the day they were completed."
But paid by whom? Rarely by those who have nominal title to them and
dispose of their occupancy so long as they keep up the mortgage and tax
payments. This leads us to a bigger blemish. Rather than denounce debt
in the absolute, why not pin-point the line at which helpful financing
crosses over to become destructive parasitism?
The great divide is the Net Operating Income - when all the
expenses have been paid except interest charges and taxes geared to
profit. If the interest charges even approach that crucial line in the
sand, they become unsustainable because they leave nothing for the
entrepreneur . The entrepreneur's profit, however, also serves as a
margin of comfort for the lender, subordinate to his claim. If that
vanishes the loan becomes riskier and the interest rate on loans secured
by it goes up.
The distinction is not irrelevant to the argument that
Rowbotham is making. All other proven means of controlling inflation
have been eliminated except uncapped interest rates - which happens to
be the revenue of an economic group not noted for anorexia. Of
entrepreneurs whom he sees as victims as much as victimisers: "All could
perceive that they had a common interest in the balanced functioning of
the economy, a common, day-to-day, practical interest which was far
stronger than the superficial difference of class. In this Douglas was
far more shrewd than either Marx or Lenin."
Then why when it comes to the matter of interest, this
whimsical self-indulgence? We will have to win allies through our
hard-nosed handling of economic facts. It is no secret that a loan that
permits a producer to acquire even long established technology, without
gobbling up the proceeds of that, can be a boon to the borrower. To deny
that is nonsense. Nor does a loan have to make possible the introduction
of new techniques to justify the interest it charges. The one criterion
is whether it leaves living space for the industrial capitalist, and his
workers. Marx sensed that when he saw in interest a portion of the
surplus value that capitalist production threw off.
A charming feature of the book is the colourful evidence from
early documents of the public's resistence to the Bank of England's
assumption of money creation powers.
"Forgery, almost unknown before 1790, became widespread at the
turn of the century and rose to a peak after the Napoleonic wars.
Forgery was a capital offense, and people could be executed or
transported merely for being caught in possession of a forged note. The
realisation that the Bank of England had itself been creating money or
effectively counterfeiting gold, led to a bitter outcry. The Bank of
England became involved in decisions as to whether clemency was to be
granted to forgers. William Cobbett, ever champion against paper money,
wrote: "This villainous bank has slaughtered more people than would
people a state. With rope, prison, the hulk and the transport ship has
destroyed 50,000 persons, including widows and orphans of its victims.
At the shop of this crew of fraudulent insolvents there sits a council
to determine which of their victims shall live and which shall swing!"
Money creation is the name of the financial game, even though
disguised as "intermediation" or honest brokerage between the savers and
the borrowers. The reality is that our banks and other financial
institutions are turning their backs on banking, and using their powers
of money creation to create the funds for high-stake gambles. Nor is
this confined to the domestic sphere.
"The total funds of the IMF were massively increased and its
entire function and status radically changed when, in 1979, the IMF
instituted what were known as Special Drawing Rights (SDR). Although
these SDRs are 'credited' as, and are intended to serve as, additional
international currency, if a nation borrows these SDRs it must repay
them or their equivalent, or pay interest on the SDR loan.
By far the greatest weakness of the book is its failure to
question the official notion of price and inflation in our mixed
economy. Thus on page 264 while discussing what percentage of the total
money supply ought to be created by the government on an interest-free
basis, the astounding passage occurs: "a 21% debt-free base in 1960 very
rapidly led on to the inflationary growth of the 1970s." Now the 1960s
were the years when the promises of the welfare society made to win the
war were being honoured. The baby-boomers had reached university age and
across the developed world university campuses and other post-secondary
schools sprang up like mushrooms after a rain. Unemployment insurance,
health care, old age pensions were being set up. The infrastructures for
vast urbanisations were going in. For the most part these were provided
by the public sector on an unpriced unmarketed basis, and paid for by
taxation.
Though conventional economic theory turned glass eyes to the
phenomenon, it was impossible for the price level not to rise, not
because of "inflation" i.e. an excess of demand over supply, but because
more of that supply was being delivered on an unpriced basis. But though
the cost of these services turned up in price through taxation, the
benefits were not picked up - for the same reason that you cannot tell
the time on a thermometer, or the air pressure on a hygrometer.
There is another important point to be made. The validity of
the previous sentence in no way depends on "peer recognition." It is so
basic, that the longer economists shut their eyes to it, the more vital
its recognition becomes, because the destructive costs incurred will
have reached crisis proportions.
There is a simple way of adjusting the price index to allow
for the benefits of unpriced services whose costs have already entered
the index via those of the priced items. Essentially it consists of
using the cost of public services as a surrogate for their nonexistent
price.1
But apart from need to adjust the price index for the huge
leap in unpriced public services there was the further detail of the
Vietnam War that pushed up prices.
Perhaps the most important message of the Rowbotham book is
that he delivers to us a part of Douglas's heritage that we stand in
particular need of. The monetary reform and post-Keynesian movements
risk becoming trivialised into concerns for job creation. And when
provided, this most commonly comes from the automobile transnationals.
"Douglas's writings amounted to an astonishing attack on the motives as
well as the methods of modern government. A large number of people felt
that he was being ridiculously extremist. However, there was an
additional unexpected result of Douglas's invective. A number of eminent
financial figures started making revealing comments about banking and
came out openly in support of Douglas's proposals.
"This was when Reginald McKenna, a former director of the Bank
of England, wrote: 'I am afraid the general public would not like to be
told that banks create and destroy money. Those who control the credit
of the nation hold in the hollow of their hands the destiny of the
people.'
"Perhaps the greatest transformation was that of Lord Josiah
Stamp, another director of the Bank of England. Within weeks of being
[criticised] by Douglas for his failure to pillory the government for
not providing currency, Lord Stamp made his startling statement
regarding banking, the acquisition of property and the implications of
slavery: 'If you want to become slaves and pay the costs of your own
slavery, let the banks create money.'"
As the world breezes forward to a major financial collapse,
could it be that the McKennas and Stamps of our times will step forward
to bear witness to the facts, if we follow the deeply principled example
of Douglas?
The Rowbotham book is a work to be cherished, and cleaned up
where necessary for the second edition that it so richly deserves.
1 Economic Reform, June 1999, p. 10.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
To order The Grip of Death, check out:
Canada: Chapters
http://www.chapters.ca/books/details/default.asp?ISBN=1897766408
US: Amazon.com
http://www.amazon.com/exec/obidos/ASIN/1897766408/002-7396004-0650605
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