Hi Keith,
Thanks for a very interesting post. I didn’t really care for the way Even
dealt with the ‘interest’ issue, but other than that I don’t
find his ‘Primer’ particularly inappropriate. We all probably have our own ‘favourites’
as an introduction to Social Credit, and as Bill Ryan pointed out, Douglas’s
speech in Oslo to the King of Norway and other guests, titled “Money and
the Price System” serves that purpose admirably, too. (For those who haven’t seen it, it can
be read at www.alor.org. Go to ‘Library’;
it’s there, as
well as in the Compendium to this List, I believe).
I don’t know whether you’ve
seen a recent post of mine on the ‘‘neweconomics”
list re:- the James G McNary
autobiography I’ve just finished reading entitled, “This Is My Life”.
If not, McNary
was an early 20th century west Texas banker who came to head the First National Bank of El Paso. An institution in which
his father-in-law was the major shareholder, and later ended up as head of the
largest lumber and timber operation in Arizona and other adjoining States of
the US southwest, somewhat by default.
Earlier in his career, McNary
was nominated to be ‘Comptroller of the Currency’ by US President
Harding, but the ‘connections’ he and his Bank had with some of their
borrowers caused considerable controversy, and he withdrew. In the latter pages of the book he gives some
insights into early day banking, the ever present danger of a ‘run’
on the Bank in the days before ‘deposit insurance’, and also
comments, interestingly enough, along the lines of what you’ve noted
below about ‘collateral’.
How in the early days there was a great deal more ‘risk’ involved for the Banker, since ‘collateral’
was far less secure than it is today.
From own experience in borrowing for my
business, I’d say what you’ve noted below is quite correct. There was very little ‘risk’
involved for the Bank in any of the loans they made to me. As I recall the first one was secured by the
pledge of my father’s life insurance policy, which had a ‘cash
surrender value’ several times over the amount I borrowed. That loan was repayable over four years, and
gave me no difficulty. I was always two
payments ahead, yet still, about 2 years into it, when I had the opportunity to purchase a small
acreage that had more than enough timber on it to liquidate fully the existing
loan, and the one I hoped to obtain to make the acquisition, the Bank said ‘No’. Fortunately, the owner of that timberland
liked me. And was good
enough to wait for a year until I’d been able to build up enough reserves
of my own to make the purchase.
I was rather disgusted with borrowing from Banks after that, and had no
loans whatsoever for nearly ten years after the initial one was fully repaid.
When our original sawmill wore out, (most
of it was pretty ‘worn out’ when I first put it together
!), I wanted to finance construction of a new plant, and approached the ‘friendly’
Banker. Same Bank, different Manager,
and he was very ‘friendly’. The ‘money was in my account’ on
a handshake. Plus a mortgage on the millsite, a chattel mortgage on the equipment being
purchased, life insurance on me to the amount of the loan, my ‘personal
guarantee’, (‘incorporation’ of a small business provided no
limitation of liability in this instance), plus a Federal Government ‘guarantee’
under the ‘Small Business Loans Act’.
For all that I received funding. At, as I recall, a
floating interest rate 2% over prime on a ten year amortization. When I wanted to borrow a further amount to add some
more equipment to the plant, again after about two years of always being at least
two payments ahead on the initial loan, and offered the security of a further mortgage on the sub-dividable,
now largely logged-off timberland which
I hoped to sell, the Bank wanted a ‘debenture’ on everything I owned. Our lawyer, who put a great deal of his
real-estate conveyancing business through
that Bank, interceded and talked the Manager out of that.
I
got the money on the mortgage alone, but it sure wasn’t on just a
handshake this time. I had to submit
every invoice for every purchase we made for their scrutiny. When the land sold, I paid the second loan off
quick, and later managed somehow to get rid of the initial one two years early,
too. Despite interest
rates that had risen to 21% at one point, and were never out of the
double-digits all through that period.
We made it. Thousands of other
basically sound small and medium sized businesses that should have, didn’t. I
don’t recall ever seeing Bank ‘profits’ suffering to any
extent through that whole 1980’s period.
It would be easy to ‘blame’
the Banks for the difficulties faced by entrepreneurs, especially the small or
medium sized individual or family run businesses. But the ‘problem’, the ‘real
problem’, lies elsewhere. The
actions of the Bank, odious in many ways from my perspective, are really an ‘effect’
of something much larger. Not its ‘cause’. The ‘correction’ of that cause,
along what I feel are the very correct principles Douglas
outlined, would likely be as beneficial to ‘bankers’ overall as it
would to everyone else.
Joe
-----Original
Message-----
From: Keith Wilde
[mailto:nschwartz@cogeco.ca]
Sent: April 6, 2006 1:32 PM
To: socialcredit
Subject: [socialcredit] On Even's
Primer
This subject was initiated on the
"neweconomics" list, I believe, but when I tried to post a response
there I was not acknowledged as a member and I couldn’t find an easy way
to get connected. I believe that most of the discussion has been posted also to
this list, so I think it is not out of order for me to explain here why I found
the Even Primer satisfying.
My initial comment was that I found the first ten
pages to be a useful summary of what I have come to understand about Social
Credit principles. On a close look, I extend that to the first 12 pages, which
I had printed and annotated prior to the appearance of Bill's objections.
Beyond that point, the objectionable political elements become transparent as
background for many reports of unsavory events in Quebec that have been
self-identified as Social Credit initiatives.
It is the brevity, even starkness, of the first few
pages that I find valuable, as starting points for discussion of their realism
as the bases for building a theoretical structure and policy orientation. They
are clear enough that they could be individual, empirical research projects for
senior or graduate students.
I made the following list of elements that stuck in
my mind during a week when I did not have either the Even Primer or Bill’s
objections available for reference—and I have not checked up on myself
subsequently. One of the things I like most about the Primer, therefore, is
that it makes the points memorable.
Even's treatment makes it very clear that Social
Credit is not compatible with capitalism, especially as that system has evolved
over the past 40 years. (The Curtis White article in Harper's reinforces this
distinction, IMO.)
The explanation of why the dividend and compensated
price are necessary is made without invoking A+B. Bill regards that as a
negative; I like it because it manifests sufficient understanding to get beyond
jargon. There are bound to be shortfalls in detail with brief summaries, but I
found that this one accords very well with what I have been able to grasp about
the idea. Getting beyond jargon is for me a critical step in confidence that
understanding has been achieved.
The function of the national accounting office
follows as an almost obvious adjunct to the need for dividends and compensated
price. (Its importance in the process of educating an electorate was recently
underscored for me by an illumination that accounting is a set of conventions
that can be altered to measure and account for the magnitudes that a sufficient
number of the 'right' people want. They are 'generally accepted accounting
principles'.)
I did not detect from those first 12 pages that the
dividend would be paid to other than consumers. I saw no indication that the
expansion of money supply would be put into circulation by direct government
spending, which is Bill's bete noire w.r.t. 'monetary reforms'.
The explanation of how banks make money by extending
credit does not preclude the caveats and adjustments that Bill would add to it.
One element in that part of the Primer does merit an empirical check. Even says
that banks take risks along with entrepreneurs in betting that their schemes to
make profitable investments will succeed. I have the impression that for the
past 25 years or more, banks have not been very much into that business. They
make loans on assets that are already real and gathering revenue (mortgages).
Entrepreneurs have to invest out of their own savings or rely on venture
capitalists. Joe is the one who can give us more precision on that issue. I am
not sure what it does to Even’s interpretation of the banker’s
function, which appears to be a favorite myth among money reformers.
It is not difficult to detect that the first 10-12
pages are orchestrated as a set-up for the political arguments that follow,
most of which I find rather stale and boring--as well as unfortunate in the
influence they seem to have exerted in local political action. Nevertheless, it
does identify the monetary and financial system as the core of capitalism and
makes it clear that Social Credit techniques would substantially modify the
outcome of systemic operations.
Keith Wilde
RE: [socialcredit]
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