The following is the preface to A Power Unto Itself by William Krehm.
Much of the material in this book was drawn from my writings in Economic Reform, ¹ the monthly newsletter of the Committee on Monetary and Economic Reform (COMER). In that sense it is a blend of journalism and editorial comment, written in response to events of recent years.
On another plane, however, the book’s roots are deeper and go back almost three decades, in the mid-1960s, when the upward surge of prices was becoming a concern, I noticed a serious discrepancy between the mixed economy that had developed since World War II and conventional price theory. To operate an urbanized and increasingly high-tech modern society, we need costly infrastructures that only government can provide. Conventional economists, however, regard price strictly as a balancing act between market and supply and demand. Having settled on this limited definition, they are disinclined to admit the presence of other independent variables.
From my mathematical training, I knew that, to be valid, solutions cannot have fewer independent variables than the problems they are supposed to solve. Since our society had become pluralistic, only a pluralistic view of price could help us fathom what was happening in the economy. For example, I reasoned that prices might rise not necessarily because market demand was outstripping available supply, but because taxes had climbed to pay for public services that were neither priced nor marketed. Or because of a wide variety of other circumstances.
This approach was developed in a number of technical papers that appeared in the two leading economic publications in France,² where they aroused a degree of interest. But shortly thereafter, economic publications became closed to such views. This was the period when monetarism – the dogma that prices can be stabilized by restricting the money supply – was adopted by central banks throughout the world. Monetarism also became the approved model at the majority of universities.
Here in Canada, our rich experience in curbing inflation without provoking recession was suppressed. Instead, the idea of fighting inflation was identified solely with the policy of high interest rates as practised by a succession of federal finance ministers and governors of the Bank of Canada. In this climate, which scarcely encouraged dissenting views, I myself published my three previous books on economic subjects.³ They received favourable attention from readers and commentators both at home and abroad, but essentially I was writing for the record. Aleksandr Solzhenitsyn has remarked that a writer in Soviet Russia often wrote only to bury his manuscript in the garden. No Gulag awaited Canada’s economic dissidents, but those of us who persisted in questioning the prevailing wisdom found ourselves in a somewhat similar position.
In time, along with Professor John Hotson of the University of Waterloo and others in Canada and the United States, I organized COMER, whose members exchanged views at modest workshops in Canada and abroad, as well as throughout the pages of its newsletter. Thanks to these exchanges, our views have of course undergone refinements, modifications, and – I hope – improvements.
Meanwhile, the world has moved on to what might be described as a second generation of economic problems. Today, we are confronted less by the dislocations of inflation per se than by the consequences of false defences against inflation blindly imposed. Our main concerns in the early 1990s are so-called “jobless recoveries,” the deficits experienced by every level of government, and depleted treasuries that leave no resources available for even the most urgent programs. These adverse effects are worldwide, as a glance at the newspaper headlines reveals.
Those who commandeered economic thinking a quarter-century ago have had their chance and have failed abysmally in their task. The time has come to restore untrammelled dialogue on economic matters.
I write these words as the 1993 federal election campaign is in its earliest stages. Plainly, the economy – particularly job creation and the federal deficit – will remain its focal point. I fear, however, that the three major parties, as well as the smaller regional parties, will end up shouting at one another from time-worn platforms, employing time worn-rhetoric. If so, vital questions will be ignored.
Immediately following the election call the CBC radio program Morningside featured a panel of commentators who laid out what they consider likely campaign themes and strategies. One participant noted, almost in passing, that Prime Minister Campbell, if she chose, could instruct the Bank of Canada to alter its policies – but that she simply wasn’t about to do so. No one asked why not; no one talked about whether this was good, bad, or indifferent. The discussion then turned to the need for Canadians to make do with less, having lived beyond their means for far too long, and so forth.
Meanwhile, Liberal leader Jean Chrétien has stated that, if in power, he would tell John Crow, Governor of the Bank of Canada, that “we want people to get back to work.” He also categorized Mr. Crow as “an official of the government.” This led to a brief flurry of speculation in the media. The Globe and Mail recalled a speech delivered by Mr. Crow, in which he said that “the central bank has a position somewhat apart from government…it is not simply a department of government.”4 On the evening news, several people speculated on the probable reaction of foreign bond-holders to such “interference” on Chrétien’s part.
The consensus was that the dollar would come under pressure, rates would rise, and all hell would break loose. A person reading the newspaper or watching television might be pardoned for thinking that the bank, its governor, and its policies are indeed untouchable – or that, if a government dares to meddle in the process, it does so at its peril, not to mention the country’s.
I take the opposite view. It is absolutely necessary that the central bank he brought to account, by which ever party forms our next federal government. But for this to happen, the bank, its policies, and a wide range of economic issues must be debated openly in the light of day, stripped of mumbo- jumbo so that ordinary men and women can grasp what has been going on.
At times like these every citizen has a duty to grasp some degree of monetary policy, society as a whole has a broader duty, but enlightened self-interest suggests that everyone must be aware of the forces that impinge upon the quality of our lives.
This is at first glance a daunting prospect. Many people tend to tune out when specialists and so-called experts launch into long and convoluted explanations of fiscal ebb and flow. My purpose in writing this book at this time is not only to convince you of my views but to keep these issues on the political agenda during this crucial period in our nation’s history. In this you can play a part. Whether you agree with me or not, it would be wise for you to learn enough to be able to ask questions of the people who are running for public office. This will force them to disclose and defend the positions of their parties on vital economic matters.
Don’t consider economics an esoteric science, in which only specialists have the answers. We have to do our best to penetrate the mists and to unravel economics for our time and place.
William Krehm was born in Toronto and studied mathematics and physics at the University of Toronto. He has worked as a correspondent for Time magazine in Latin America, and in Canada as a freelance broadcaster, house builder and publisher. He is currently the publisher of Economic Reform, a journal of the Committee on Monetary and Economic Reform. Mr. Krehm lives in Toronto.
End Notes
- Formerly COMER Comment.
- Revue Économique and Économie Appliquée.
- Price in a Mixed Economy: Our Record of Disaster (1975); Babel’s Tower: The Dynamics of Economic Breakdown (1977); and How to Make Money in a Mismanaged economy and Other Essays (1980).
- The Globe and Mail, 2/9/93.
Our Comment
It seems especially fitting, at this moment in COMER’s history, that in this, the last COMER issue in 2017, we glance briefly at the past, and consider its implications for the future.
I have found the Preface to William Krehm’s book, A Power Unto Itself: The Bank of Canada, a good place to start.
It begins with a reference to a basic flaw in conventional economics – the relegation of certain variables to the status of “externalities.”
What counts and what does not count sure makes a difference to the outcome! Imagine a game in which every point scored by team A counts, but only one out of every two points scored counts for team B!
To lump all price increases into the same category regardless of what caused them is a monstrous distortion.
To condemn an economy to strangulation, because it affords advances in medical science conducive to improvements in health care, is absurd.
The role of dogma has been dramatically effective in promoting neoliberalism. However, that dogma has now been widely challenged, and the repression of successful alternatives or a knowledge of them is being increasingly undermined.
We are blessed, today, with new resources with which to meet the imperative need for an awareness of “the forces that impinge upon the quality of our lives,” and to do something about them.
The “modest workshops in Canada and abroad,” and the newsletter and other COMER publications enabled COMER to work with others, at home and abroad to raise the level of awareness of monetary and economic issues.
As Bill has observed, the world “moved on to what might be described as a second generation of economic problems” – and to their worldwide adverse effects.
Today, we face yet another “generation of economic problems,” yet another politics of “time-worn platforms” and “time-worn rhetoric.”
Today, more than ever, every citizen – out of “enlightened self-interest” alone – can and must play a part during an even more “crucial period in our nation’s history.”
The implications for COMER are “rooted in the past” and will include the task of doing what we can do to help ourselves and others to “penetrate the mists and to unravel economics for our time and place”
Élan
