THE ECB, THE FED & POLECONOMICS – THE WIZARDS OF OZ

In my writings on political economy I have often used the term poleconomic to highlight the fact that politics (the use of power) is never unconnected to those with economic clout.  They are two sides of a coin.  Persons with political power are usually either wealthy or in bed with the rich; and those with lots of money almost always try to influence those with political power.  The majority of citizens stand on the sidelines.

 

The situation in our present globalized political economy is informative.  I have written mainly about how chiefs and shamans and kings and their viziers manipulate political and economic structures to their advantage, usually to the detriment of the general populace; but in our globalized world the politicians seem to be taking a back seat to a new breed of financial operators – in the USA it is the agents at the Fed and in Europe it is the people in charge at the ECB.

 

According to the view the average citizen has of a democracy it should operate like this:  you vote someone into office and if they do a bad job you vote them out.  Who voted for the Fed and ECB operators?  Who can vote them out?  Clearly the politicians are doing a bad job, but does it do any good to vote them out?

 

These Fed/ECB persons have great power in our present crisis in the capitalist world, filling the void left by our effete and often bickering politicians; yet we often don’t know who they are and we surely don’t know what goes on in their deliberations behind closed doors.  Every so often Oz sends out a messenger to make a pronouncement, but we don’t see the rope-pulling behind the screen.  Nor do we have any input to it or control over it.

 

This is not a democracy but rather a plutocracy, that is, a political economy in which the wealthy rule.  Sometimes the politicians are wealthy or influenced by the rich, but in our present world it seems that the politicians can't seem to get the job done and the financial guys behind the screen are getting a little more press.  They are individuals with financial acumen and surely have their fingers in the sticky pie of high finance, with personal portfolios beyond the imagination of the average citizen. 

 

The history teacher prepares to give a lecture to his young students on how democracy works.  This won't be in his notes.

 

This ain’t Kansas anymore. 

 

 

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Comment by Eugene L. Mendonsa on August 18, 2011 at 8:03pm

Keith, again on your point about how things have changed.  When I was a student in England I did not see the graffiti that I noticed recently when I was a visiting scholar at the Centre for African Studies at our alma mater.  It was even on some Cambridge walls.  Furthermore, when I was a student in the 1970s it was common to leave one’s bicycle unlocked.  Not so now.  Every bike had major locking devices and if you didn’t latch it to a post or fence, someone snatched it.  I know that these are superficial indices, but I think they do link up with the recent riots and looting.  It seems there have been a general demise in respect for community and an increase in disgust with governmental institutions, economic greed and society in general.  Furthermore, perhaps even more superficially, I was appalled that the institution of communal tea drinking had all but disappeared.  While reading at the University Library or the Haddon in the 1970s everyone broke for tea at 10 and 4.  The anthropology department did the same.  Not now.  Everyone seems to have their own tea kettle on their desk and makes their own tea at will.  I missed my old Cambridge, but then as Thomas Wolfe noted, “you can’t go home again.”

 

Comment by Eugene L. Mendonsa on August 18, 2011 at 7:33pm

Keith, I agree that times are different than when John, you and I were in school.  These are scary times in the world and America is quite sick where the social contract is being by a political economy increasingly redesigned for the super-rich who are stealing billions as the middle class slips into the lower class and the lower class slips into abject poverty and homelessness.  Don’t know if you have been to the USA lately, but many intersections or on ramps to a freeway have people begging for food and/or work.  Some elderly are forced to turn off the heat and eat dog food.  The Tea Party and their Republican lackeys not only are tearing up the social contract, they are burning the pieces.

Comment by Eugene L. Mendonsa on August 18, 2011 at 7:21pm
John, you are obviously correct when you write: "It is when these institutions are captured by those that they are intended to regulate that things go to hell. We all know plenty of examples."  Tea Party nuts like Rick Perry and Michele Bachmann not only want to capture institutions like un-employment insurance, medicare, the EPA, etc., they want to do away with them!  also, I understand the pull between the need to govern with some secrecy in international affairs and the public's desire to know how they are being governed.  That will always be there, but in domestic matters we can and should have more transparency.
Comment by Keith Hart on August 18, 2011 at 6:28pm

That's well-argued, John and, in its own terms irrefutable. I take my lead from John Locke writing and politicking in the 1690s after a century of mayhem in England culminated in the restoration of a protestant monarchy by the Glorious Revolution. He had spent decades hiding what he had to say, since publication would have cost him his life and he ended up in exile for the same reason. For him the need for transparency in public life came from debasement of the means of communication and exchange, language and money. No public figure meant what he said or said what he meant. Words were meaningless in consequence. And you couldn't tell if a coin was worth what it was supposed to be because of counterfeit, clipping and the rest. So people stayed out of the market.

Locke set out to restore the value of both, launching the dictionary movement to stabilise the meaning of words and reforming the money supply including the appointment of Isaac Newton to the Mint where he came up with a soveriegn that "rang true" if it was the right weight. Not coincidentally, the Bank of England was formed and Britain was launched on its path of world domination. Thorstein Veblen once described England in the 17th century as "an isolation hospital for science, technology and civil rights" in a corrupt world. Locke had something to do with that.

So it really depends on how bad you think the problem is. If there is room for common ground, that implies the existence of a viable social contract. But if has been broken by a polity for the super-rich who steal fortunes while arguing for the erosion of working people's living standards, what then? Take up the cudgels you say, but it isn't always obvious where, when and how to fight. Bringing corruption out into the open and punishing rent-seekers would be one way.

I understand and sympathize with the argument, but it was made in different times, when you and I were getting an education, John, and the US resembled England in that earlier period. The world has moved on and in some ways it resembles now the Old Regime that once was ripe for liberal revolution. Enlightenment principles might come into play under those circumstances. That's my bet anyway, but you are entitled to yours.

Comment by John McCreery on August 18, 2011 at 5:46pm
my point was simply that in a plutocracy, and in many political economies since the rise of chiefdoms, lots of “stuff” goes on behind the cloak and armor of office.  Some of it is not in the interest of the general public and needs to be hidden from the scrutiny of those wishing a more transparent political economy.

True, true, true. That said, however, the argument points only to one horn of a dilemma, the clash between the right to know (demand for greater transparency) and the need to get things done (avoid endless delay, distraction, or war). Three sources have shaped my thinking about this issue.

 

The first was a professor of Industrial and Labor Relations at Cornell who taught a Telluride Summer Program that I attended between my junior and senior years in high school. After discussion of a particularly nasty bit of labor history, I ventured the sentimental opinion that a lot of this could have been avoided if people just put more effort into understanding each other. The professor observed that there are often situations in which people recognize perfectly well where each other's interests lie, but those interests are fundamentally opposed. 

 

The second is C. Wright Mills, in a wonderful essay on the vocabulary of motives. In it, Mills points out that unless people can find a shared description of each other's motives with which both parties can empathize, fight or flight are the only alternatives left.

 

The third and most immediately relevant, however, is Harlan Cleveland in a book titled The Knowledge Executive. In it Cleveland spells out what I have written above. There is frequently justice in demands for greater transparency and hearing as many voices as possible, but these demands will always clash with the imperative to get something done—Now! In extreme cases, e.g., the captain of a sinking ship, consultation with everyone on board is not a strategy for survival.

 

To me, these considerations point to two important conclusions, the need to find common ground or, if none is to be found, thinking about how to win the inevitable battle, and the importance of independent legal and other regulatory institutions (including democratic elections) that closely and constantly monitor the results of decisions made behind closed doors. It is when these institutions are captured by those that they are intended to regulate that things go to hell. We all know plenty of examples.

Comment by Eugene L. Mendonsa on August 17, 2011 at 2:16pm

     Keith Hart has eruditely taken my little bit of writing and expanded it brilliantly.  He certainly has a grip on the evolution of the global political economy and should be read carefully if one wishes to know that dire straits is more than the name of a rock band.

     Professor Hart understood my allusion to the Wizard of Oz, but suspects some readers may not get my point.  He points out that in 1900 a journalist called Frank Baum published an allegory, entitled The Wonderful Wizard of Oz.  It was a metaphor for the political, economic and social events of America in the 1890s.  The allegorical aspect of Baum’s work is open to interpretation (see: http://en.wikipedia.org/wiki/Political_interpretations_of_The_Wonde...) but my point was simply that in a plutocracy, and in many political economies since the rise of chiefdoms, lots of “stuff” goes on behind the cloak and armor of office.  Some of it is not in the interest of the general public and needs to be hidden from the scrutiny of those wishing a more transparent political economy.

     Of course, The Wonderful Wizard of Oz was made into a movie and the protagonist, Dorothy was played by the great singer, Judy Garland.  A tornado, which may represent dizzying political events, lifts Dorothy and her dog out of their Kansas home and deposits them in the East.  The East to Westerners and Mid-Westerners in America is synonymous with political power.  Dorothy and her companions set out on the “yellow brick” road (referring to gold, as ingots and ounces), to Oz (New York City).  Most Americans don’t know this tale as a political allegory.  They take it as a children’s story, but the singing parade up the yellow brick road can be seen as evoking an 1894 march by the unemployed demanding more money and work for the common people.  On the way Dorothy picks up a scarecrow (farm worker), a tin man (factory worker) and a cowardly lion (William Jennings Bryan).  

     Today Bryan would be labeled by the establishment right-wingers (Republicans & Tea Party radicals in America) as a liberal who opposes robber barons, big corporations and the exotic lifestyles of the rich and famous.  In the allegory The Emerald City (New York) is controlled by the Wizard of Oz (a contemporary plutocrat), who fools the Munchkins (the people of the city) into not seeing how he and the bankers manipulate the levers of power.  

     In my piece I used this to indicate that today much is going on behind closed doors in government, at the European Central Bank (ECB) and the FED (Federal Reserve System).  In the allegory the Wizard is exposed as a little and apparently not-so-scary man behind a screen, designed to fool the public, where he pulls ropes to make sounds and images to hoodwink them. 

     In my writings about the rise of political domination in history I repeatedly emphasize that holding office gives a politician a certain “mask of office,” a screen or shield against being observed as one goes about the business of governing.  This is a major impediment to the development of true democracy, but in our present world much is still happening behind closed doors in places like Davos, where the WEF (World Economic Forum) has met, for instance.  The same is true for what goes on in the White House, the FED, the ECB, the World Bank, the IMF or the governmental halls of the EU.  For ages most politicians, their viziers, financial wizards and deal makers have not wanted transparency as they collaborate to siphon wealth and value off the labor of the general populace.  For an early example of this in chiefdoms see my blog: POLITICAL DOMINATION'S ORIGINS: SPECULATION OR ETHNOHISTORY? on OAC at: http://openanthcoop.ning.com/prof

Comment by Keith Hart on August 17, 2011 at 9:53am

The story about voting giving the people democratic power is an example of the cover-up that passes for education at every level in our societies. Politicians need money and money men need political cover. Central banking was invented to institutionalize their partnership. The Bank of England, Banque de France and Federal Reserve are all private institutions which were given the appearance of public authority in return for absorbing the "national debt", that is of the King, Napoleon and Congress. I am not sure about the ECB's constitution, since one problem with the euro is that monetary union preceded political or fiscal union. Of course, the educators, including the vast bulk of academic social scientists, insist that our societies are built on the separation of public an private interests, when it hasn't been so for over 300 years.

Perhaps the main thing that is new about neo-liberalism is not the privatization of public interests, which has long been normal, but rather the fact it is now promoted as an ideal, where before it was clandestine. As Umair Haque noted recently, this makes the Gilded Age look Leninist in comparison. In both cases any social contract between rulers and masses was torn up and revolution seems inevitable. It is chastening to contemplate what happened after three decades of financial imperialism last stopped -- in 1913/14.

Yet there is something special about the plutocracy that has built up in recent decades, especially but not only in the USA. This has to do with the rise of modern corporations which were granted the rights of individual citizens in 1884 and now combine those rights with their longheld special privileges in ways that make the rest of us hardly citizens at all. Even the Romans, not noted as champions of democracy, limited the spending of the rich in political campaigns. The US Supreme Court not long ago refused to accept any restriction on corporate political spending since it would infringe their "human rights".

These same corporations once built their wealth by producing industrial commodities for profit at prices cheaper than their competitors. Now they rely on extracting rents (transfers sanctioned by political power) rather than on producing for profit. The best way to rob a bank these days is to own one. Yet these rent-seekers, far from being punished for stealing from the public, are bailed out by our taxes and held up as shining examples of super-rich consumption to be adulated by a public that has exchanged equal citizenship for bread and circuses (or looted plasma TVs). This is decadence, a repudiation of the values of modern civilization, and the result is an impasse where there are no longer any political solutions to our economic problems. Some new form of political economy may emerge, perhaps ushered by war or civic unrest on a massive scale. But don't hold your breath.

You allude to the Wizard of Oz, Eugene. Some of your readers may need a nudge on this story.

The American Civil War provided the opportunity for introducing a national monopoly currency. In 1879, having won the war and built up its gold reserves, the federal government finally felt able to back its dollars with gold. Immediately voices arose seeking to make money plural again. The People’s Party (better known as the Populists) found their support mainly in the South and West, among poor farmers. They flourished during the first age of financial capitalism, when New York was beginning to rival London as the world’s main money centre. They wanted the government to address the chronic cash shortage in some parts of the country by issuing more paper money and unlimited silver coins. The rising price of gold and a corresponding fall in agricultural prices squeezed America’s farming communities; but the main cities enjoyed a boom in international trade, splitting the country on class and regional lines. Blaming Eastern bankers and politicians, the Populists settled on a monetary policy of bimetallism (silver coins in addition to the gold-backed currency). Their champion was William Jennings Bryan, twice defeated as Democratic candidate for president in 1896 and 1900. Bryan famously told the East Coast establishment, “You shall not crucify mankind on a cross of gold”.

Also in 1900, a journalist called Frank Baum published an allegory, The Wonderful Wizard of Oz. A tornado lifts Dorothy and her dog out of their Kansas home and deposits them in the East. Dorothy and her companions set out on the “yellow brick” road to Oz (referring to gold, as ingots and ounces), evoking an 1894 march by the unemployed demanding more money and work for the common people. On the way she picks up a scarecrow (farm worker), a tin man (factory worker) and a cowardly lion (William Jennings Bryan). The Emerald City (New York) is controlled by the Wizard of Oz (a contemporary plutocrat), who fools the Munchkins (the people of the city) into not seeing how he and the bankers manipulate the levers of power. After the Wizard is exposed for what he is, the tin man gets a bimetallic tool and Dorothy’s magical silver slippers take her back to Kansas.

Congress passed the Gold Standard Act in 1900, committing the US to even more reliance on gold. But discoveries in South Africa, Alaska and elsewhere increased the supply of gold and commodity prices rose. So Americans had their cake and ate it, at least until the Wall Street Crash of 1929 drove everyone else off the gold standard and into a new regime of national paper currencies. Richard Nixon completed this process in 1971. The anniversary of this event was last Sunday. It took forty years, but the capture of money then by "the markets" has finally reached its denouement now. The rest is up to us and school civic lessons won’t help.

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