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Elemental Economics

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Competitiveness of Nations

Cultural Econom


Elemental Economics

World Cultural Intelligence Network


Dr. Harry Hillman Chartrand, PhD

Cultural Economist & Publisher

Compiler Press


215 Lake Crescent

Saskatoon, Saskatchewan

Canada, S7H 3A1

Curriculum Vitae


Launched  1998




Macro Observations




Observation #0: Origins

Observation #1: The Wealth of Nations

Observation #2: The Economics of Democracy

Observation #3: Capital, Labour & Natural Resources

Observation #4: Technological Change

Observation #5: Fiscal Policy in Canada

Observation #6: A Brief History of the Central Bank: UK, USA & Canada

Observation #7: Shadow Banking & the Great Recession of 2008

Observation # 8: Jeremy Bentham


Observation #0: Origins

The Standard Model of Microeconomics (or Market Economics), specifically 'X' marks the spot, was formalized by  Alfred Marshall at Cambridge University at the end of the 19th and early part of the 20th centuries.  He provided the solution to profit maximization under perfect competition and monopoly.  In the 1930's Joan Robinson, also at Cambridge, provided the solution for monopolistic competition but in an interesting intellectual coincidence it was independently resolved, at the same time, by Edward Chamberlin in the U.S.A.  As will be seen, the Standard Model was then extended into Welfare Economics (including Externalities) by Arthur Cecil Pigou who succeeded Alfred Marshall in 1908 as Professor of Political Economy at the University of Cambridge holding the post until 1943.  Thus the Standard Model of Market Economics could more accurately be called 'The Cambridge Model'.

Its roots, however, lay in the 'Marginalist Revolution' of the 1870s. This shifted the focus of economics from the production and distribution of wealth among social classes - owners of capital, labour and natural resources - towards the atomized individual consumer (2.0 Demand) and producer (3.0 Supply). Microeconomics was born - the budget constrained maximization of consumer happiness and the cost constrained profit maximization of producers underpins the standard model. 

This Standard Model of Market Economics served as the foundation for development of the Standard Model of Macroeconomics by John Maynard Keynes (also of Cambridge) with his 1936 The General Theory of Employment, Interest and Money.  Until then government did not play an active role in managing the economy.  Rather, it was governed by  'the iron law of wages'.  As the economy boomed labour became scarce and wages rose until the economy crashed.  As the economy declined labour was increasingly unemployed and wages fell until low enough to jump start the economy.  There was no government intervention, no 'social safety net'.


Observation #1: The Wealth of Nations

0. Introduction

What is wealth?  What is a nation?   And, accordingly, what is  'the wealth of nations'?  Through time the meaning of these terms has and continues to change and mutate. 

a) What is a Nation?  

First, what is a Nation? 

I will restrict myself to the Western European and especially of the English experience which I have studied in some detail.  I thereby confess my relative ignorance, i.e., lack of knowledge, of the evolutionary experience in other regions of the world.

From Tribe to Empire & Back

Once upon a time a Nation was a 'tribe'.  A people of the same ethnicity, language and religion - a whole people but one often made up of different clans.  Ancient Egypt, China, Persia and Greece were such nations; anyone outside was 'a barbarian'.  Rome, on the other hand, began as a tribe - the Latins - but ended up an Imperium in which citizenship was not limited by blood, birth, language or religion.  

The modern Nation States of Europe recapitulated Rome beginning as Germanic and other tribes - Bavaria (Bavarians), the Burgundians (Burgandy), the Franks (France), the Helvetica (Switzerland), the Lombards (Lombardy), the Swabians (Swabia), the Saxons (Saxony), the Magyar (Hungary) and the Russ (Russia).  Some then collasced and evolved into European colonial empires transformed after WWI into Nation States (a term not introduced into American English until 1919) and more recently into the pan-national European Union, sometimes called the second Roman Empire.


From Divine Right to Throneworthiness  

Along the way, a related question arises.  Is a Nation a land, a people or a king or queen?  David was anointed King of Israel.  So says the Old Testament.  This served, in the West, as the basis for the Divine Right of Kings.  The Church of Rome, however, separated the secular powers of the King (or Emperor) from the spiritual power given to St. Peter by Christ in the New Testament: "Pay unto Caesar what is Caesar's and unto God what is God's".   The opposing  principle called caesarpapism merged the spiritual and secular roles  in  the Eastern Roman or Byzantine Empire.  Henry VIII of England reverted to caesarpapism by returning the spiritual power to the King as head of  the Church of England in 1534.   One implication of the Nation as Monarch was that through marriage the territorial limits of a nation could, and often did, change.  A more extensive description is available in my article: Christianity, Censorship and Copyright in English-speaking Cultures.

 However, the people of England during its  Civil War (1642-1651) answered the 'Divine Right of Kings' in 1648 by beheading King Charles I and starting the first modern republic, the short-lived Commonwealth of Oliver Cromwell.  The argument was based on the ancient Anglo-Saxon law of throneworthiness.  Kings were elected according to how much rape, pillage and spoils they could deliver (MacDougall 1982).  Ironically 1648 was also the year in which the Treaty of Westphalia (actually a series of treaties ending the Thirty Years War) was signed.  In brief, it birthed the modern Nation-State as a sovereign geographic entity in which minority religious rights of Christians - Protestant or Roman Catholic - were secure from secular and religious persecution.  Non-Christians had to wait until the mid-20th century. 

From the Scientific to the Republican Revolution

The Commonwealth (1649-1660), however, was followed by the Restoration of the monarchy in 1660 becoming a constitutional monarchy with the Glorious Revolution of 1689.  These events were accompanied by the Scientific Revolution. Unlike other European states, England during the Reformation split not two but three ways – Protestant, Catholic and Anglican or Church of England. It was in these troubled times that Francis Bacon in his 1605 Of the Proficience and Advancement of Learning Divine and Humane began his call to Scholars to come down from their ivory towers into the workshops of Mechanics to practice the instrumental experimental scientific method and force Nature to reveal her secrets.  Fifty years later at the height of Cromwell’s Commonwealth Robert Boyle provided the metaphysical rationale for this new ‘experimental philosophy’ placing the laws of the Nature in stasis above and beyond human and divine intervention. God having created the world set His Laws in motion and withdrew, no more miracles or divine intervention.  He left, however, a second book, the Book of Nature, that had to be red and all of Nature was therefore the legitimate subject of experimental philosophers.  This was the ‘Latitudinalist compromise’ (Jacob 1978).  Its logo was Newton’s clockwork universe running on the calculus of motion.  Secular and religious legitimacy for experimental philosophy was granted by Charles II's charter to the Royal Society of London for the Improvement of Natural Knowledge in 1662 (Jacob 1978; Jacob & Jacob 1980).  Theologically, this Revolution placed the material world beyond the opinion of popes, priests and philosophers.  No longer would hot or cold be determined by the personal whim of a superior but rather by the thermostat.  The machine became the measure of all things physical leading to Instrumental Realism (Idhe 1991).

The first successful Republican revolution was the American of 1776.  It overthrew an ancient regime of subordination by birth but nonetheless adopted many of the Common Law legal traditions and precedents of their ancient masters especially business law and most importantly, intellectual property rights like copyright, patents and trademarks.  Henceforth, however, the individual, not the family, clan or bloodline would be the lodestone of society.  This marked the culmination of a process beginning with the artist/engineer/humanist/scientist of the 15th century European Renaissance.  The individual through creativity and talent erupted out of anonymity into celebrity.  It continued during the Protestant Reformation of the 16th century when the individual was linked directly to the godhead without intermediation by pope, priest or philosopher.  It accelerated with the Scientific Revolution of the 17th century with the ‘experimental philosopher’ who William Whewell, at the request of the poet Samuel Coleridge, renamed ‘scientist’ in 1833 (Snyder 2000) and continued with the 'author' in the 18th century, the 'inventor' in the 19th and the business 'entrepreneur' of the 20th century.  This is known as the western Cult of Genius.

The second Republican revolution, the French of 1789, threw out not just feudal overlords but also common law and religion. The French Revolutionaries re-thought Law from a Republican, secularist perspective. Like the Americans, they made the Individual, the Natural Person, the cornerstone of the political and social order. Thus the American Declaration of Independence announces: “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness”. The French Declaration of the Rights of Man and the Citizen of 1789 (Article 2) arguably goes further declaring: “The aim of all political association is the preservation of the natural and imprescriptible rights of man. These rights are liberty, property, security, and resistance to oppression.” [emphasis added]

The term natural indicates that Nature, not some divinity, is the scientific source from which these rights flow in an ideological sense. The word ‘ideology’ has many meanings today (Gerring 1997) but was coined simply enough by Condillac in 1797 to mean ‘the science of ideas’ (OED, ideology, 1b). Separation of Church and State was critical to both American and French revolutionaries but the French were atheists while the Americans were theists. A secular science of ideas to counter the awe and mystery of religious and metaphysical thought and ritual was part of the French revolutionary agenda to complete the overthrow of the ancient regime. In this sense an ideology is a 'secular' theology explaining the way the world works but without any necessary reference to a divinity.

The term imprescriptible indicates that no contract infringing such rights, even willingly signed, is enforceable by the courts, i.e., they cannot be signed away. They cannot be assigned, transferred or waived in favour of a Proprietor – Natural or Legal.  The difference between Anglosphere Common Law and (what began as the Napoleonic Code but evolved into) the European Civil Code with respect to intellectual property is arguably one of the hottest international trade controversies - Disney vs. France, the United States vs. the 2005 UNESCO Convention on Cultural Diversity, etc.  As I argue elsewhere, with respect to intellectual & cultural property the American is an unfinished Revolution.  Please see my Preface: Intellectual & Cultural Property - Cult of the Genius.

There was in fact  five major waves to the Republican Revolution: (i) the English Revolution or ‘Great Rebellion’ of 1640; (ii) the American Revolution of 1776; (iii) the French of 1789; (iv) the Latin American Bolivian Revolution of the early 19th century; and, (v) Sun Yet Sen's Chinese republican revolution of the early 20th century.  In all cases they were betrayed.  In the first, the monarchy was restored in 1660 and the ‘Glorious Revolution’ of 1689 was required to establish a ‘constitutional’ monarchy.  In the second, the definition of ‘Man’, or Natural Person, was limited to white males (sometimes called the ‘pale penis people’).  In the third, terror was justified in the defense of liberty.  In the fourth, a caste system - with descendents of European conquistadores at the top, mixed bloods in the middle and indigenous peoples at the bottom - was erected.  And the fifth was swept away by the Communist Chinese Revolution of 1949.

Progressively, however, the franchise has been extended to all Natural Persons as citizens, discrimination under the law has been progressively eliminated and the concept of human rights become engrained into the polity.  The concept of  'a republic', of course, dates back to ancient Greece and Rome.  The modern republic, however, is grounded, more or less, not on common ethnicity, language or religion, but on 'the people' as a whole including all those born within the territorial limits of a Nation State (even the children of immigrants).  Today, the vast majority of humanity takes for granted that 'the people' constitute the Nation even if a 'constitutional monarch' wears a token Crown.  This is the triumph of democracy.  Furthermore, with the end of the Market/Marx Wars the Communist Revolution collapsed.  The previous Republican Revolution survives and a world divided and threatened with nuclear winter for almost half a century because of a domestic feud between two schools of economic thought now rallies around the last ideology standing – market economics with its political and legal corollaries: popular democracy and private property.  For our purposes macroeconomics functions at the level of the Nation State.  For further information about the shifting sands of sovereignty on which it stands, please see: Chapter 13.0 The Nation-State, of my dissertation The Competitiveness of Nations in a Global Knowledge-based Economy.


b) What is Wealth?

If the meaning of Nation has changed through time, the meaning of wealth has also transformed.  The common meaning of the word wealth as given by the Oxford Concise Dictionary is: n. riches, large possessions, opulence; being rich; abundance; a profusion or great quantity or display.   A subtext to the definition, however, is more revealing.  By subtext, I mean, in this case, the etymology or origin of the word.  In the case of wealth the OED says: Middle English from well and weal, after health.  And hence the concept of the 'commonwealth'.

In a subsistence 'hunter gatherer' economy, wealth is easily defined.  In very simple terms, anyone with lots of food and other requirements for survival is wealthy; anyone without is poor (and usually unhealthy and soon dead).  The Agricultural Revolution generated a significant surplus in the food supply permitting a higher order of division and specialization of labour than possible in a hunter gatherer society.  Wealth began to include not just the necessities but also 'luxuries' like jewelry, precious stones and metals as well as land, skilled craftspersons and great buildings.  An often overlooked parallel to the Agricultural Revolution was the 'Maritime Revolution', e.g. of the Amerindian culture of the northeast coast of North America (known as the Maritime Archaic culture) which 7,000 years ago enjoyed a significant food surplus through command of the seas.    It has even been suggested that they sailed to Europe.  With the Industrial Revolution and steam power, the concept of wealth changed yet again.  This time it expanded to include manufacturing facilities vastly more complicated and diverse than the water and wind mills of the Agricultural Revolution and, in a sense, beyond human scale.  It also ushered in a new form of wealth in the form of equity shares in limited liability corporations rather than outright ownership. 


c) What is the Wealth of Nations?

Until the 1930s there was no  'macroeconomics'.  There was no 'national economy'.  In effect, there were two relatively disconnected sectors: government (the monarch and/or Parliament) and the private sector (the people).   The economy went up and down ruled by the iron law of wages.   As the economy boomed labour became scarce and wages rose until the economy crashed.  As the economy declined labour was increasingly unemployed and wages fell until low enough to jump start the economy.  There was no government intervention, no 'social safety net'. 

Here is a timeline for the changing meaning of the wealth of nations:

i -Mercantilism: 16th to 18th Century

At first this disconnect reflected the vision of the Nation as the private concern of a monarch and was 'proprietary' in nature.  The monarch or Parliament was politically  'absolute' and economic policy was Mercantilist.  How much gold, silver, land and slaves (or serfs) was the measure of national wealth.  Sell as much and buy the least from foreign countries and build up ones bullion reserves.  The people consisted of serfs, slaves, servants, commoners, soldiers and vassals or aristocrats - dukes, counts, barons, etc - who swore allegiance to the monarch who, in turn, made demands of, and granted privileges to them.  National economic policy consisted, initially, of Crown grants of monopoly privilege to the monarch's favorites to fund the monarch's scheme, palaces, ventures and wars while taxes approved by Parliament were levied on the general population - including a head tax - to finance domestic peace, order and good government.  Little concern was given to the well-being of 'the people'.


ii - Classical: 1776 to 1870's

By the end of the 18th century, democratic government - constitutional monarchies and republics - arose.  However, in response to the excesses of monarchial interference with the economy during the Mercantilist period, laissez faire (let the entrepreneur decide what to produce and not the Crown) & laissez passer (let workers move to work where they want, not to where guilds assign them) became the norm, that is, limited involvement by government in the economy.   The central economic concept, however, remained 'class' and the question was the division of national income among the classes.  Thus, on the one hand, the politics of the Republican Revolution made the individual as voter the foundation of the polity, in classical economics class remained the primary unit of analysis.

It was also believed that the market would self-adjust the business cycle.  The mechanism of adjustment was called the Iron Law of Wages. If workers earned more they would simply breed increasing the number of workers and thereby forcing wages down to a subsistence level.  If wages were too low, workers would not reproduce reducing the number of workers forcing wages up which, in turn, would lead to more workers with wages again falling again to the subsistence level and so on.

By the mid-19th century 'Socialism' arose.  Beyond Karl Marx & the Boys (Lenin, Stalin, Mao, Fidel, Pol Pot, et al), however, there are many forms of socialism with differing views of the relationship between 'the working class' and the rest of society.  The history of the Labour Movement demonstrates such differences, e.g., the Knights of Labor. the Industrial Workers of the World or "Wobblies", Fabianism with its concept of Industrial Democracy, Syndicalism, Gomperism or business unionism, etc.  What they share in common is a focus on class - the working class hero of John Lennon - not the individual.


iii - Neo-Classical: 1870 to 1936

Beginning in the 1870s the Marginalist Revolution in economic thought made the atomized consumer and producer maximizing utility and profit, subject to the constraints of budget and price/cost.  Its vision could be expressed in deductive logic based on simple assumptions and demonstrated in words, calculus (numbers) and geometry (graphs) satisfying Descartes' definition of a 'science'.   It represented the marriage of the felicitous calculus of Jeremy Bentham and Newton's calculus of motion.  In many ways it is the economic flip-side of the Republican Revolution doing away with 'class' in classical economics including Marxism and replacing it with the atomized constrained maximizing individual as consumer/producer.  It also explains, among other things, why the Market/Marx Wars ended the way they did.  It is the individual, not class, that matters because we are always both consumer and producer.  For more information, please see my notes on The Marginalist Revolution.

It was, however, the height of the European colonial empires that remained Mercantilist internationally with a laissez-faire domestic market.  These attempted through colonies to become self-sufficient with respect to resources and markets.  They strived for autarky.  No truck nor trade with the enemy unless absolutely necessary.


iv - Keynesian  1936 to 1970s

Belief in the self-adjusting power of the marketplace continued to dominate economic thinking until the Great Depression of the 1930s.  The economies of the industrialized world did not self-adjust to the first synchronous global downturn.  Before if Germany was depressed France was inflated or if Britain experienced a downturn the the U.S. boomed while Japan continued to industrialize and joined the crowd.  All national economies sank at the roughly the same time.  Unemployment was very high (25-30%); social unrest and revolution was in the air.  Many considered that Fascism in Italy, Nazism in Germany, Communism in Russia and the Imperial Japanese 'Co-Prosperity Sphere' offered answers to the suffering of the people.  All were essentially authoritarian, racist and totalitarian in nature.  In this sense the Second World War was in fact as much a war against racism as fascism.  Furthermore, like the European colonial empires on which the sun never set, they advocated autarky rather than the comparative advantage of international trade to answer the global economic crisis.  In this regard, the Cold War represented a similar attempt to attain autarky - no truck nor trade with the Commies or Capitalists, depending in which Bloc one lived.

The liberal democracies desperately sought an alternative.  In politics, the United States elected Franklin Delanor Roosevelt as President in 1933 on the platform known as the 'New Deal'.  In economics, John Maynard Keynes offered a new view of the economy requiring government to play an active role without exerting ownership or requiring corporatist dirigisme and retaining the free market as the primary economic institution.  Macroeconomics was born.  It is Keynes' model that we will examine in this class.  It is arguably the 'standard model' of macroeconomic thought because even its critics use the same instruments of analysis introduced by Keynes and his successors.  It focuses not on class or the individual consumer/producer but rather on functional aggregate categories such as households, consumption, savings, investment, government expenditure, etc.  For more information, please see my notes on The Keynesian Revolution.


v - Post- Keynesian 1970s to ?

By the late 1970s Keynes' belief in government's ability to 'fine tune' the economy and the efficacy of its 'fiscal policy' - tax and spend - was questioned for reasons discussed later in this course.  The policy focus shifted to the Monetarists who emphasized the role of the central bank in manipulating the money supply and the cost of money or the interest rate (r) to fine tune the economy.   Similarly, fiscal policy was seen as inherently limited by the Rational Expectationalists who took exception to Keynes' key assumption about workers' price expectations resulting in sticky money wages - a subject to be discussed later in the course.  With the recent 'Great Recession', however, a mixed Keynesian/Monetarist economics is being tested: Can brute monetary intervention together with limited government expenditure stimulus prevent another Great Depression?   Its competitor is the  the Austrian School of von Hayek and von Mises that argues the economy should simply be allowed to clear out bad investments made by producers and consumers with no government intervention.  Another critical difference with the 1930s is there is no viable ideological alternative to market economics.  It is the last ideology standing. 


2. Global Knowledge-Based/Digital Economy

 Please see the linked historic exhibit.   Please see my recent article: Disruptive Solutions to Problems associated with the Global Knowledge-Based/Digital Economy.  Please see my dissertation: The Competitiveness of Nations in a Global Knowledge-Based Economy.  More will be said about this emerging economy and the role of intellectual property rights (IPRs) - copyright, patent, registered industrial design, trademark, 'know-how' and trade secrets - later in the course.  Arguably, IPRs represent wealth in the global knowledge-based economy.

Unlinked Reference

MacDougall, H.A., Racial Myth in English History: Trojans, Teutons and Anglo-Saxons, Harvest House, Montreal, 1982.


Observation #2: The Economics of Democracy

Keynes believed that the business cycle reflected the fickle 'animal spirits' of investors alternating between Fear & Greed.  He called on Government to compensate for these mood swings relying on 'the multiplier'.   But how stable is the mood of Government?  Can it be relied upon to make sober, sensible decisions?  Is it, in turn, subject to 'animal spirits'?

There are three actors in the economics of democracy: voters, politicians and bureaucrats.  Each has its own 'objective function' which its strives to maximize subject to constraint.  Ideologically every polity can be characterized by colours in two dimensions.  Horizontally, there are Blues - conservatives, monarchists, fascists, etc. and then there are Reds - liberals, social democrats, communists, etc..  Vertically there are Browns - techies, engineers, mechanists, etc. and, then there are Greens - ecologists, nature lovers, romantics, etc.  One can thus have Red Greens (Green Peace) as well as Blue Greens (Sierra Club); Red Browns (Communist apparatchiks and nomenclatura) and Blue Browns (Nazis technicians 'just following orders').  At the extreme, one can also have Blue Reds when far Left (e.g., the Party as vanguard of the revolution) turns into far Right (e.g., the dictatorship of the proletariat) or vice versa.

Arguably the seminal text in what today is called 'rational choice theory' was published in 1957 by Anthony Downs: An Economic Theory of Democracy.  Other economists have followed as have other disciplines including Law and Political Studies.  For our purposes there are three primary actors in the public policy process:

i -Voters;

ii - Politicians; and,

iii - Bureaucrats.

i - Voters

The objective function of the voter is maximizing utility when that function includes Equity, Externalities and Public Goods. They are constrained primarily by what is alternatively called Rational Apathy or Ignorance.  If one is to be an informed voter one must learn about the issues - time & effort.  Having determined the issues one must then decide where one stands - time & effort.  Having decided one must chose the politicians who reflects one's views - time & effort.  Having selected the candidate one must get out and vote - time & effort.  Time & effort represent costs to the voter who unless strongly motivated is rational to be apathetic and stay ignorant of the issues and stay at home on election day.  This is why we say a government is not elected but rather defeated.  Thus in federal elections only about 60% turn out to vote; in provincial elections only about 50%; in municipal election about 10%; and for school and hospital board elections only about 1% get out and vote.   This has significant implications.  Taking just the federal level it means that 30% of the electorate can elect a majority government which can use the 'notwithstanding' clause to abrogate any of those rights and freedoms in spite of the courts.  The same 'notwithstanding' clause holds for the Provinces but where only 25% can elect a majority government.  This reflects what Jeremy Bentham called "legislative omnicompetence" - the supremacy of the House of Commons under Parliamentary democracy.

Another characteristic of voters (and citizens in general) is adverse selection.  This is most apparent in the case of insurance.  Adverse selection occurs when one's demand is related to one's risk but the insurer cannot adjust pricing.  This may occur because risk information is known only to the individual (information asymmetry), or due to regulations or social norms preventing the insurer from using certain information to set prices, e.g., gender, ethnic origin, genetic test results or preexisting conditions. The latter case it is called "regulatory adverse selection".  Thus if an insurer does not vary prices according to smoking status, life insurance is a better buy for smokers than for non-smokers and smokers will be tend to buy more insurance than non-smokers.  For the insurer the higher mortality of smokers is adverse.  Something similar happens in politics.  If one is unemployed one will tend to vote for the politician promising government intervention which raises the cost of government.

Yet another characteristic is moral hazard.  Economist Paul Krugman describes moral hazard as "any situation in which one person makes the decision about how much risk to take, while someone else bears the cost if things go badly."  For example, bank bailouts by governments, central banks or other institutions may encourage risky lending in future because those taking the risk believe that they will not have to bear all the losses.  Fire insurance is another example.  One buys fire insurance to cover losses but by insuring against fire one may be tempted to commit arson to collect the insurance payout.  Politically, similar problems have been associated with government programs as noted by Rational Expectationalists, e.g., the American urban homesteading program.

ii - Politicians 

The objective function of politicians is to get elected or re-elected.   They are constrained primarily by Arrow's Impossibility Theorem.  If a politician receives 51% support on every issue in an election campaign that politician looses the election!  Why?  Rational Apathy.  The 51% comfortable with the politician's position tend to stay at home in large numbers while the 49% opposed are motivated and turn out and vote.  Again this is why we say a government is not elected but rather defeated.  This encourages politicians to take a middle-of-the-road position on most issues thereby avoiding painting a target on their backs.  Similarly political party platforms tend to avoid alienating voters by taking a middle-of-the-road position, until Trump. Edifice Complex

iii - Bureaucrats 

The objective function of bureaucrats is 'steady as she goes', 'no waves'.  The bureaucracy should run like a fine tuned engine.  There are two distinct types of bureaucracies - political and professional.  In the U.S. all positions from the director level to Secretary of State are political appointees. Each serves at the pleasure of the sitting President.  This is part of the political spoils system.  It is relatively easy to appoint loyalty over competence.  In the parliamentary democracies like Canada there is a profession public service that fill positions from clerk up to deputy minister.  Theoretically competence is valued over loyalty to the party in power.  In both cases bureaucrats are constrained by politicians and voters.  It is, however, of the parliamentary democracies of which I coined the Three Laws of Technocracy.  Two qualifications: first, they are based on my career experience; second, the term 'technocracy' was coined by John Kenneth Galbraith to explain large corporate bureaucracies.   To the degree competence is the test in both the following apply to both.

The bureaucrat can relax the constraints in three ways:

Confuse & Conquer

A minister in government is generally not a specialist in the subject area.  The professional bureaucrat usually is.  When the politician proposes a new policy that will make waves for the bureaucracy the bureaucrat can make the question so complicated that the politician backs off or leaves it to the bureaucrat - confuse & conquer.  The self-regulating professions are similarly capable of making an issues so complicated the client leaves it to their better judgment.  

What We Don't Know Won't Hurt Us

For all the talk about freedom of information the reality is the bureaucrat and the politician often practice 'What we don't know won't hurt us!'  With information politicians and voters may ask questions that require the bureaucracy to answer creating waves and causing the fine tuned engine to stutter.  If information is simply not collected then questions cannot be asked and therefore there is no need to answer.  No waves.  No stutter.  Real world examples abound!

When in Doubt Privatize

One aspect of parliamentary democracy is the role of the Auditor General who is an officer not of Her Majesty, i.e., the executive branch, but rather an officer of the House of Commons.  The office was originally established to ensure that tax revenues authorized by the House were used by the Crown for their voted purpose.  If, however, a Crown Corporation is established or an activity is privatized but financially supported by the government then the cloak of commercial confidentiality falls over its financial operations and the Auditor General usually does not have authority to check the books.  In fact the most powerful form of privacy in a capitalist system is commercial confidentiality


Observation #3: Capital, Labour & Natural Resources

Capital (K)

The definition of capital is an unresolved problem in economics.  To Marxists, it is theft.  To the mainstream, its definition remains problematic as noted by T.K. Rymes of Carleton University in conversation with the author in the early 1970s: “If there is no theory of capital, there is no economics.  And there is no theory of capital!”  

The concept of capital has mutated and expanded through history.  To the Mercantilists of the 17th century, capital was gold, silver, land and slaves.  To the Physiocrats of pre-Revolutionary France, it was the surplus generated by agriculture.  To the Classical School of the late 18th and early 19th centuries, it was the surplus resulting from the division and specialization of labour.  To the Neo-Classical School of the late 19th and 20th centuries, it was financial capital as well as physical plant and equipment.  To Bohm-Baverk and the Austrian School, capital was historically embodied labour produced through ‘round-about’ means of production (Blaug 1968, 510-11).  How to measure such embodied labour has never, however, been satisfactorily answered (Dooley 2002).  Today, when economists speak of capital, they may refer to cultural, financial, human, legal, physical, social or other forms expressed as a stock, e.g., physical plant and equipment existing at a given moment in time. 

For my purposes, capital is codified and tooled knowledge, i.e., knowledge fixed in an extra-somatic matrix.  Alternatively, capital is “knowledge imposed on the material world” (Boulding 1966, 5), or, “frozen knowledge” (Boulding 1966, 6).  It includes:

codified knowledge in the form of human-readable information management systems and databases, operating manuals and libraries as well as associated intellectual property rights such as copyrights, patents, registered industrial designs and trademarks; and,

‘hard-tooled’ knowledge in the form of physical plant and equipment, i.e., sensors and tools, plus related ‘soft-tooled’ knowledge including machine-readable computer & genomic programs, standards and techniques. 

Codified and tooled knowledge are fixed in material form; both have vintage; both are extra-somatic, i.e., they exist outside the natural person.  I will now briefly examine softer forms of capital - cultural, financial, human, legal and social - expressed as codified and tooled knowledge. 


Cultural capital, as artworks, books, photographs, plays, recordings, etc., is codified knowledge.  As broadcast & recording studios, conservatories, libraries, museums, parks, printing presses, sets, props & costumes, theatres and other venues, it is tooled knowledge.  In this sense, cultural capital (codified and tooled) contrasts with cultural practice or performance which is personal in nature.


Financial capital as currency, equities, bonds, mortgages and other financial instruments is codified knowledge, i.e., fixed on paper or in human readable electronic format.  Anti-counterfeiting measures such as encryption, electronic strips and chips are forms of tooled knowledge.  Debit and ‘smart’ cards are contemporary examples of financial capital as tooled knowledge.  In this view, financial capital (codified and tooled) contrasts with financial practice which, again, is personal in nature.

It is as personal & tacit knowledge, however, that financial capital plays its primary role.  As a generally accepted medium of exchange, store of value or unit of account, financial capital as money involves tacit knowledge routinely recognized and accepted by a natural person.  In this sense, financial capital, including the price system (Hayek 1989), is an institution, i.e., a routinized pattern of collective human behaviour.  Like a physical reflex, e.g., riding a bicycle, a human being learns to recognize, accept and exchange financial capital.  In different cultures and periods of history what constitutes money and financial capital differs (Humphreys 1969).  In other words, financial capital is a cultural artifact, a form of organizational technology that is tacit, i.e., ‘generally accepted’ in a society.


Human capital generally refers to the stock of skills and education possessed by a worker.  Given human capital is embodied in a living human being, there is no extra-somatic component, i.e., there is no capital as frozen knowledge.  The term ‘human capital’ is thus a misnomer.  Human capital is personal & tacit knowledge and somatic to the individual.  Additions to this stock reflect learning, education, experience and training on the memory and reflexes of the individual. 


Legal capital as law books, statutes, judicial and quasi-judicial decisions is codified knowledge.  Legal capital as court houses, handcuffs, prisons and police cars is tooled knowledge.  In this view, legal capital (codified and tooled) contrasts with legal practice which is personal knowledge.


Social capital can be codified and fixed on paper or another human-readable format stating customs and conventions of behaviour, educational curricula, public rules and regulations as well as public safety standards, e.g., drinking water standards.  Social capital as schools, hospitals, roads, sewage & water systems and telecommunication systems is tooled knowledge.  In this view, social capital (codified and tooled) contrasts with social practice including market sentiment which are persona knowledge.

Social capital, according to some scholars, can be extended to include “values and beliefs”.  Such values and beliefs can be codified, e.g., the Analects, Bible, Koran & Vedas.  Alternatively, they can be tooled into monuments and other works of aesthetic intelligence reflecting an ideology, e.g., socialist realism.  Values and beliefs, however, take on meaning only when practiced or perceived by a living human being.  In this sense, there is no extra-somatic component, i.e., there is no capital or asset that can be exchanged for money.  Put another way, “Money can’t buy you love”. 

With respect to economics, such values and beliefs include market sentiments.  In The Theory of Moral Sentiments and The Wealth of Nations, Adam Smith stresses the role of Sentiment in market exchange, e.g., trust.  As Samuels put it, “the order produced by markets can only arise if the legal and moral framework is operating well” (Samuels 1977, 197).  Together with division and specialization of labour, it is market sentiments, according to Smith, that assures the wealth of nations.  In effect, Sentiment influences Reason and Reason influences Sentiment including economic expectations.  Put another way: no matter the price, would you buy a used car from that person?

To the degree that various forms of capital – cultural, financial, legal, physical and social – can be expressed as codified and tooled knowledge, one may speak of ‘a knowledge theory of capital’.  Such a theory is a corollary to a more general ‘labour theory of knowledge’. 

Labour (L)

In fact there are three forms of Labour - Productive, Managerial & Entrepreneurial.  All three forms embody personal knowledge.


Productive workers are those on the shop floor actually producing goods & services. They are concerned with output. Their knowledge is technical and specialized to a given industry or firm. In effect they combine codified and tooled with personal & tacit knowledge (memory and reflex) generally learned on the job in the Anglosphere. Their knowledge involves making something or making something work. In this sense the competitiveness of a firm or nation “depends not only on sensible decisions about what to do, but on the availability of the skills that are required to do it” (Loasby 1998, 143).


Management, among other things, means “a governing body of an organization or business, regarded collectively; the group of employees which administers and controls a business or industry, as opposed to the labour force”. It also means “the group of people who run a theatre, concert hall, club, etc” (OED, management, n, 6). The role of management is to make available the means (inputs) so that production workers can perform their tasks and then to market and distribute the output. In many ways management is like a choreographer, music or theatre director. This sense of modern management is caught by Aldrich:

Thus the total operation is a performing art with blueprints for score or choreography, the difference being that in this technological case neither the co-ordinated performances (ballet) of the skilled workers nor the finished product is put on exhibit simply to be looked at, contemplated. It is a useful performing art. Its value is instrumental.” (Aldrich 1969, 381-382)

Similarly, according to Schlicht, it is:

the fit of the organizational elements, rather than the elements themselves, that characterizes a firm. Just as the quality of an orchestra performance cannot be adequately measured by the average quality of the performances achieved by the individual instruments, but depends crucially on the way the instruments are played together, so the productive value of a firm - as opposed to a set of individual contracting relationships - emerges from the quality that has been achieved through mutually adjusting the various activities that are carried on. (Schlicht 1998, 208)

One crucial characteristic of the firm is custom including tacit understandings of entitlements and obligations between productive, managerial and entrepreneurial workers. This constitutes part of what is commonly called ‘the corporate culture’ for which, on a day-to-day.


With the notable exception of firms like Microsoft (Bill Gates) and Walmart (Sam Walton), most modern corporations do not follow an original founder/owner but rather a ‘hired gun’, or business entrepreneur.  The word ‘entrepreneur’ comes from the French entre meaning ‘between’ and prendre meaning ‘to take’.  The English ‘middleman’ retains this original sense.  During the Middle Ages and Renaissance, European traders (especially from Venice and Genoa) ‘middled’, at high risk, between foreign suppliers, e.g. of silk and spices from the Turks, and final consumers in northern Europe.  Today the term usually refers to someone who sees and seizes an economic opportunity or a market opening or gap.  This may take the form of a new product or of servicing an existing market in a new way.  In both cases a high degree of creativity and risk-taking is implicit.  In this regard, the first English usage of ‘entrepreneur’ was in 1828 meaning “the director or manager of a public musical institution.”  Today we would call this ‘an impresario’.  In fact, it was not until 1852 that entrepreneur took its modern meaning of “one who undertakes an enterprise; one who owns and manages a business; a person who takes the risk of profit or loss (OED, entrepreneur, a, b). 

Entrepreneurial knowledge is intuitive in seeing and taking advantage of invariants and affordances in a market that others do not see.  It involves seeing and realizing a vision of future markets, products and opportunities.  Ignorance is the opposite of knowledge, i.e., want of knowledge.  The non-rational way of entrepreneurial vision was called ‘animal spirits’ by Keynes (Keynes 1936, 161).  Like some ancient priest-king, the entrepreneur ‘knows’ the future and leads his people (investors, managers, workers and consumers) into it – right or wrong - to success or failure.  In a manner of speaking, prophets today seek profits, not souls.  Ideally, this highly valued form of pattern recognition works best as “informed intuition” (Jantsch 1975).  All available information, knowledge and opinion is explicated but then an intuitive, inductive judgmental vision is conjured up.  In a sense, the business entrepreneur or CEO has assumed the mantle of the Western Cult of the Genius joining the artist, inventor and scientist. 

Natural Resources (N)

Similarly, the definition of what constitutes a natural resources is constantly evolving.    At first glance, natural resources have no relationship to knowledge. By definition, they exist as John Locke said in “the State that Nature hath provided” (quoted in Dooley 2002, 4). They are just part of the environment until the knowing mind recognizes them as useful. Thus oil lay in the ground virtually untapped until invention of the internal combustion engine. Just as we recognize a tool by its purpose (M. Polanyi 1962, 56), we similarly identify natural resources by the human ends we attribute to them. At a given point in time a naturally occurring substance is seen as nothing but an environmental feature. Take a pathway through the jungle one day and you see a large rock outcrop. The next day, with new knowledge, the same path leads not to an environmental feature but to a bauxite deposit that can be converted into aluminum. It has become a toolable natural resource. Yet it itself has not changed, one day to the next, rather new knowledge allows us to see it in a different light.  This ‘changed way of seeing’ is captured by Loasby when he writes:

Menger begins by arguing that an object becomes a good only when someone discovers how to use it to satisfy some human need. Goods are endogenous, created by new connections between human need and physical or human resources; and their value is derived from the need which each of them serves and - crucially for this paper - from the knowledge that it can serve this need and also the knowledge of how it can be made to do so… The creation of goods, and of technology, rests on the creation of knowledge, and therefore on previous uncertainty - or indeed sheer ignorance.” (Loasby 2002, 6)

Today the most striking example of how new knowledge transforms environmental features into toolable natural resources is biotechnology.  While advances in analysis and sequencing now allow researchers (and hence firms) to experiment with known genetic command codes to build new drugs, enzymes, pathways, proteins et al, the reality is that the raw material for biotechnology is life itself – everywhere and every when. Nature is much older and more experienced in designing command codes under a wide range of environmental conditions than emergent biotechnology. Accordingly Nature has become the object of search by the biotech industry for novel code. This search is called ‘bioprospecting’ and takes two forms: ethnobiology and ‘original research’ which is self-explanatory.

Ethnobiology is the interdisciplinary study of how human societies use or have used flora and fauna to serve human purpose, e.g., for medical or nutritional purposes. Its principal sub-disciplines include ethnobotany, ethnomycology, ethnolichenology, ethnozoology, ethnoecology, paleoethnobotany, and zooarchaeology. The Society of Ethnobiology publishes a journal documenting activities in these fields.

Non-linked references

Blaug, M.,Economic theory in retrospect, Cambridge University Press, 5th Edition, 1996

Jantsch, E. Design for Evolution, Braziller, NY, 1975.


Observation #4: Technological Change

What do we mean by technology?  The word ‘technology’ entered the English language only in 1859 according to the Merriam Webster Dictionary deriving from the Greek techne meaning Art and logos meaning Reason, i.e., reasoned art.  The Oxford English Dictionary (OED, technology, 1 b) reports it was re-coined at that time by Sir Richard Francis Burton, Victorian explorer and translator of the Kama Sutra (1883), the Arabian Nights (1885) and the Perfumed Garden (1886).  

It was Karl Marx, however, (1818-1883) who produced the first true philosophy of technology combining ‘the means of production’ with a humanist critique rather than simple glorification of Victorian progress.  It is important to realize that the technological imperative drives Marxian analysis.  Class warfare is collateral damage.  This Marxian connection tainted reception of all subsequent philosophies of technology in the English-speaking world or Anglosphere.  Arguably, it was the work of Martin Heidegger (a purported Nazi sympathizer) specifically his 1954 essay ‘The Question Concerning Technology’ that finally led, in 1983, to founding the American Society for Philosophy and Technology (Idhe 1991, 4).  Please see the journal, Techne.  Physical technology, to paraphrase Heidegger, is the enframing and enabling of Nature to serve human purpose.

In Economics, measurable technological change only entered the mainstream in 1957 when economist  Robert Solow published "Technical Change and the Aggregate Production Function".  In it he presented what is known as the Solow Residual.  It begins with a symbolic equation for the production function: Y = f (K, L, T) which reads: national income (Y) is some function (f) of capital (K), labour (L) and technological change (T).  Subsequently, in 1962, Solow introduced the concept of 'embodied technological change' in “Technical Progress, Capital Formation and Economic Growth”.  Embodied technological change refers to new technology fitted into actual products like the transistor in the transistor radio.  By contrast disembodied technological change tends to spread evenly across an economy such as improvements in communications and transportation or what the Victorians would have called 'Progress'.  In addition there is endogenous and exogenous technological change, i.e., change resulting from economic imperatives (endogenous to the economic system) and changes resulting from the work of independent scientists, inventors and other creators (exogenous to the economic system). 

Technological change in the Standard Model of Market Economics refers to the impact of new knowledge on the production function of a firm or nation.  The content and source of that knowledge is not a theoretical concern; what matters is its mathematical impact on the production function.  Over the last hundred years, depending on the study, something like 25% of growth in national income is measurably attributable to changes in the quantity and quality of Capital and Labour while 75% is the residual Solow attributed to technological change.  Yet we have no idea of why some things are invented and others not; and, why some things are successfully innovated and brought to market and others are not.  The Solow Residual is known in the profession as the measure of our economic ignorance.  The economic effects of this residual was called 'creative destruction' by economist Joseph Schumpeter.   The 'residual' is why I became an economist distinguishing, during my career, between Physical Technology (P) emerging from the Natural & Engineering Sciences; Organizational Technology (O) emerging from the Humanities & Social Sciences; and, Design Technology (D) emerging from the Arts or what I call the POD Model of Technological Change.  For more information please see my: Creative Destruction: The Economic Meaning of Technological Change, especially Exhibit 1: Evolution of the Production Function.

All cost considerations involved in internalizing a process  can be overturned due to changes in technology, e.g., information technology in the 1980s reduced the need for middle management and resulted in significant 'downsizing' of large firms.   As has been demonstrated, however, new knowledge has many sources and varying effects.  It may be productive, increasing output on the shop floor; it may be managerial reducing costs or increasing sales; or, it may be entrepreneurial realizing a vision of future markets, products and/or other opportunities.  It may flow from the natural and engineering sciences (physical technology), the humanities and social sciences (organizational technology) or the Arts (design technology).  In economic theory, however, it does not matter what form new knowledge takes; it does not matter from whence it comes; the only thing that matters, in terms of calculatory rationalism, is its mathematical impact on the production function. 

In response to technological change, the production function for output may shift upwards or downwards, i.e., technology can be lost as happened with the fall of Rome.  The quantity and/or cost per unit output may increase or decrease.  Alternatively, an entirely new production function may emerge with innovation of new and/or elimination of old products, processes and techniques.  Technological knowledge does not only accumulate; it also withers away if not transmitted to subsequent generations.  The later is most apparent with respect to traditional craft methods (White & Hart 1990).  The process has been compared by Kaufmann to speciation and extinction in biology (Kauffman 2000  216).

In the 20th century, technological change became recognized as the most important source of economic growth, i.e., increase in output – absolutely, or, per capita.  Our understanding of such change, however, remains limited.  We do not understand why some things are invented and others are not; why some are successfully innovated and brought to market, and others are not.  The contribution of technological change has, in theory, traditionally been treated as a ‘residual’, i.e., after measuring total growth of output, the contribution of an increased quantity and quality of capital, labour and natural resources are factored out and the residual is called technological change.  Again, technological change, in this sense, is a residual amounting to an error term, or, a measure of our economic ignorance.  In this regard, Kaufmann criticizes the Standard Model and suggests such ‘ignorance’ can be resolved using the concept of coevolution and coconstruction (Kauffman 2000, 222).

Non-linked references
White, B. & Hart A-M, (eds), Living Traditions in Art: First International Symposium, Dept. of Education in the Arts, Faculty of Education, McGill University, Montreal, 1990.

Observation #5: Fiscal Policy in Canada

i - Purpose

ii - Assumptions

iii - Ground Rules

iv - Putting the Question

v - Terminology

vi - Process & Problems in Canada

i - Purposes

Until the Keynesian Revolution of the 1930’s (put into motion by the political impact of the Great Depression), the almost exclusive fiscal concern of Government in ‘liberal democracies’ of the West was financing and fulfilling ‘political’ objectives – domestic and geopolitical. Overall, or ‘macroeconomic’ performance was a given, not an end or objective to be pursued. The market would ‘self-adjust’ and Government would hold on as ‘bust’ turned into ‘boom’ and then into ‘bust’ again riding the tail of the dragon. People would suffer or prosper according to the timing and dictates of market prices with little if any assistance from Government 

The Classical and Neo-Classical Periods of economic history thus reversed Mercantilism that had preceded them. From an economy as a Crown Privilege to be used, regulated and controlled by the whim and passion of a moody Prince, the economy became forbidden territory into which a democratic, liberal government dare not tread. In summary, the progress of Classical and Neoclassical Political Economy was the withdrawal of the State from the economy with the notable exception at the beginning of the 20th century of anti-trust or anti-combines policy – breaking up trusts and monopolies that, like Government itself, could corrupt perfect competition and foreclose a ‘just price’ in individual markets. As for the economy as a whole, the rationale was governmental non-interference. 

An important political boost to this rationale was provided by the rise of socialist and communist political power. With the defeat of Napoleon III in 1870 by Germany, civil war broke out in France between liberal democrats (Republicans) and the Paris Commune (Communists). Socialist and communist thought argued that the answer to the arbitrariness of both Princes and Prices was total public ownership of the economy in the name of the people. Paris burned and laissez-faire capitalism, more or less, triumphed. France remains, however, much more prone to Government economic interference than Anglo-American cultures. This fear of public ownership was re-ignited and then made real with the Russian Revolution of 1917 and the subsequent Civil War ending 1921 with ‘Communist’ victory.   In 1944 Karl Polanyi, brother of the chemist and philosopher of science, Michael Polanyi, published the first edition of The Great Transformation. It treats the rise of the self-regulating market and the decline of traditional social institutions.  According to some scholars this book is of renewed relevance in a post-Cold War world due to the emergence of a global knowledge-based economy (Block 2001; Munck 2002). 

Since Keynes, however, macroeconomic performance (including economic growth and price stability) has become an essential, if still secondary, policy objective of the modern State. The business cycle has, to a degree, been usurped by a public policy cycle. Enormous deficit spending during the 1960’s through 1970s was followed by increasingly strict ‘deficit and debt’ reduction, downsizing of the public sector during the 1980s and 1990s with ‘surplus’ spending beginning a new public policy phase in the early 2000s to burn out in the Great Recession of 2008, also known as the Long Recession.  Austerity - deficit and debt - was the response of governments around the world.  In many ways repeating the mistakes of the past - the Great Depression.  Like the 1930s initial stimulus was followed by austerity.  This time, however, monetary authorities intervened softening but not reversing the decline with experiments like quantitative easy of which more later.

It can, however, be argued that the hard lessons learned in the 1930s were not forgotten even at the height of the ‘neo-conservative’ (so-called in the English speaking world) or ‘neo-liberal' (so-called in France and most of continental Europe) political movement of the 1980s and early to late 1990s. The ship of state continued its course towards a ‘welfare state’ in which Government has a legitimate role to play in the social and economic development of the nation (see: Government by Moonlight). The difference is that many functions assumed by Government between the 1930s and 1970s have been downloaded to smaller ‘private’ or semi-private vessels. Overall culture, education, employment, the environment, health care and welfare (or ‘workfare’) of society and its members as well as economic growth and price stability remain responsibilities of the post-modern Nation State. Such responsibilities are, if anything, taking on even greater importance as ‘competitive factors’ in the emerging global economy emerges. The only questions remaining are: who should deliver such services – Government, the profit or the nonprofit sector and how should delivery be monitored? The services, however, must be delivered in an equitable manner with citizens protected by a ‘social safety net’ that varies between States but is present, nonetheless, in all, even the most capitalist – the United States of America. 

One of the ironies accompanying the ascendance of macroeconomic objectives by politically elected Government is that until the 1970s most universities in North America, and the English-speaking world in general, did not have ‘departments of economics’. Rather, the more usual disciplinary designation was “political economics”. But just as the legitimacy of Government’s role in macroeconomics affairs reached a zenith not seen since the Mercantilist Period of economic history, such departments split into separate and distinct Departments of Economics and Political Science. 

The fiscal policy process is as much cultural as economic, that is, it is a cultural economic phenomenon. The USA budgeting process (dominated by the legislative branch) is very different from that of Canada that is different from the United Kingdom (both dominated by the Executive Branch) that is different from France that is different from Germany, etc.  Each country even has its own distinct rituals and traditions associated with the fiscal policy process. For example, in Canada the Minister of Finance is expected to wear a pair of new shoes while in Britain the Chancellor of the Exchequer is to use an old beaten up briefcase to present the budget to the British House of Commons.  Accordingly, what follows applies only in Canada. It is extracted from my longer paper: A Radical Analysis of 'Personal' Taxation.

ii - Assumptions 

I begin with five assumptions about the Canadian budgetary purpose. First, there are two sides to the coin of fiscal policy – pleasure and pain. The pleasure (including relief from pain) flows from spending public monies – fiscal policy.  Pain flows from collecting private monies to pay for public spending – tax policy. Like carrot and stick, a democratic government-of-the-day uses public finance to adjust, adapt and evolve society and the economy towards its ‘ideological’ goals and objectives that extend above and beyond macroeconomic growth and price stability. 

Second, the only way to gain more pleasure without more pain is through a growing economy.  In the long run, however, a growing economy can be maintained only if public finance does not “kill the goose that lays the golden egg”. 

Third, rational citizens will do their best – in or out of a growing economy - to minimize their pain and maximize their pleasure through lobbying, protests and voting. 

Fourth, in their annual budgets, federal, provincial and local governments flip the coin seeking a politically workable, socially desirable, balance between the ‘heads-I-win’ and ‘tails-you-lose’ of public finance. 

Fifth, the game of public finance is worth playing, at a minimum, because of ‘market failure’, that is: 

·         there are some goods and services (public goods) essential to modern life that cannot be produced by the private sector, e.g. municipal bridges and roads, compulsory mass education, contagious disease immunization, national defense, etc.; and, 

·         perfect competition is not common in the ‘real world’. Usually some players in the economy (typically a small group or oligopoly) exercise market power over the price and quantity of goods and services available to consumers. The existence of such ‘market power’ justifies a public response including spending, e.g. funding anti-combines agencies, and, taxation. 

iii - Ground Rules

Beyond the constitutional reality that public finance is conducted in the name of Her Majesty in right of Canada and in Her right of each of the ten Provinces, there are five ‘ground rules’ for this annual coin toss: 
     a) the Constitution establishes, in broad terms - subject to varying interpretation: 

· on what federal and provincial governments can spend; 

· by what means they can raise public monies; and, · in subordinating local to provincial government; 

b) three legal systems interactively define persons, property and taxation in Canada: 

· criminal law, the prerogative of the federal government but with administration shared by the Provinces;

· civil law, essentially the responsibility of the Provinces with Quebec being the extreme case governed by a variation of the European Civil Code rather than Anglo-American Common Law as in other Provinces, e.g. torts (non-contractual damages) based on precedent (Common Law) rather than principle (Civil Code); and, 

· tax law, a shared responsibility of the federal and provincial governments; 

c) the federal government ‘owns’ the coin through the Bank of Canada and influences its value through exclusive control of monetary policy; 

d) the federal government can define and redefine what are legitimate sources of public monies, e.g. income tax introduced during WWI as a ‘temporary’ war measures act, and, the 1970 amendment to the Criminal Code permitting lotteries (gaming in general including ‘video lottery terminals’ or slot machines) to become an increasingly significant source of public monies for the Provinces; and, 

e) the federal government indirectly influences settlement of public finance disputes with citizens and the Provinces through its prerogative of appointment to the Federal (formerly the Exchequer Court) and the Supreme Courts of Canada. 

iv - Putting the Question 

Subject to these ground rules, each senior level of government (federal and provincial governments) annually put the following ‘pleasure’ questions to the people: 

· who or what will enjoy public funding: the poor and needy; the average citizen; the corporate citizen; city or rural dwellers; foreigners, i.e. foreign aid; and/or, abstract policy categories such as education, the environment, health care, protection of persons and property, etc; 

· what pleasures will they enjoy, e.g. direct dollars in the pocket (grants in aid), civil service employment, public infrastructure and essential services, investment and/or loans in support of private and/or semi-private ventures, and/or relief from taxation e.g. tax expenditures including refundable and non-refundable tax credits; 

· how much pleasure will be allowed, e.g. marginal or significant to the life of citizens – corporate or individual; and, 

· when will the pleasure be provided, e.g. weekly, monthly, quarterly, annually? 

Similarly, each government annually puts the following questions about the pain of public finance - direct and indirect, ‘near’ and ‘voluntary’ taxes - to the people: 

· who will suffer so they and/or others may ultimately enjoy the pleasures of public spending; 

· what forms of pain must citizens endure, e.g. corporate, excise, income, near taxes (e.g. fees-for-service), sales and/or voluntary (e.g. lotteries) taxes; 

· how much pain from any one and/or all taxes - should one person or any ‘class’ of taxpayers bare (tax burden); 

· when and by what means should they suffer, e.g., monthly, point-of-sale, quarterly and/or withholding-at-source; and,

· at what threshold should the quality and/or quantity of pain change or stop, i.e. what are the tax brackets?

v - Terminology

Fiscal policy or ‘public finance’ involves primary political choices, each with its associated opportunity costs.  Fiscal policy involves answering hard questions about what pleasures to publicly provide, to whom, how much, and, how to inflict the pain necessary to raise the required public funds.   Attaining macroeconomic objectives like fostering economic growth and maintaining price stability provide only a ‘glass ceiling’ above the heated political debate of making the ‘tax and spend’ choices of each and every Government.  The ceiling, however, has a great deal of flexibility.  The Keynesian Revolution called for spending in bad times and saving in good times.  This is not what Government did.

From the 1960s to the mid-1990’s Government around the developed world spent in good and bad times.  In fact, they spent more than they willing to pay in additional pain to the taxpaying public.  So they ‘borrowed’.  Politics thereby raised the ceiling.  The ceiling only began to come down when ‘deficit and debt’ became the political mantra of the industrial world and interest payments on the national debt the largest single and least satisfying pleasure paid for out of the public purse.  

By the late 1990s, deficits were slashed; debt began to shrink; and, social infrastructure built up over two generations crumbled but fortunately did not collapse.  As the 21st century begins, the word ‘surplus’ has even re-entered the political vocabulary.   Inevitably, perhaps, the heat generated by all the public policy spheres rubbing up against each other is threatening to raise the ceiling once again.  Jockeying to be first to fill its specific ‘deficit’ incurred during the ‘slash and cut’ of public debt and deficit reduction, each public policy sphere is raising its profile before the political public.  Collectively, their wants, needs and desires threaten macroeconomic goals such as economic growth (increasing potential real GDP) and price stability (low inflation).  If the GDP pie grows and the cost of its slices does not increase then more public pleasure may be had with no increase in public pain in the form of taxes or interest payments on the national debt.  If not, some will win and some will lose.  It is to the naming of these various Canadian spheres of political influence that now I turn. 

As a federation, Canada has had amply time to sort out the naming of these spheres of public policy.  Since at least 1918 with the founding of the Dominion Bureau of Statistics (now Statistics Canada), the federal and provincial governments have come to agreement on certain terms.  These became embodied in The Canadian System of Government Financial Management Statistics (CSGFMS).  In 2001 the system became a victim of globalization and a general decline in the quality of the publicly generated statistical evidence.  One thing is certain, it will take decades to develop actionable time series.

The FMS was founded on a modified-cash based system of accounting. Recently, Canadian governments have decided to move from that modified-cash based accounting system to an accrual based accounting system. In addition, an internationally accepted Government Finance Statistics (GFS) manual has been developed. The GFS 2001 is an internationally accepted accrual accounting framework for government finance statistics. The GFS 2001 is also fully integrated with the United Nations (UN) System of National Accounts (SNA) framework. Given these changes, the Canadian statistical system underlying government finance statistics must also change. Statistics Canada has decided to move towards reporting government finance statistics on a Government Finance Statistics 2001 (GFS 2001) basis.

In the following I will deal with the original 'made-in-Canada' system.  The CSGFMS was used for purposes of the Fiscal Arrangement Act between the federal and provincial governments.  The CSGFMS was used to calculate, among other things, equalization payments by the federal government to the ‘have-not’ provinces of the country.  Next to the System of National Accounts (to which it is fully compatible), the CSGFMS was the most important system of economic statistics in Canada.

For purposes of illustration please find below top-level CSGFMS terms used for: a) assets & liabilities of government in Canada; and, b) revenue and c) expenditure items.  These terms are top-level in that each is composed of various sub- and sub-sub-categories (CSGFMS, Statistics Canada Catalogue 68-506, Occasional).






1. Cash on Hand & Deposits

1. Borrowings from Financial Institutions

2. Receivables

2. Payables

3. Loans & Advances to

3. Loans & Advances from

4. Investments

4. Savings Bonds, Treasury Bills & Other Short-Term

5. Other Financial Assets

5. Bonds, Debentures & Treasury Bills – Long-Term


6. Pension Plans, Deposit & Other Liabilities


Excess of Financial Assets over Liabilities






1. Personal Income Taxes

14. Succession Duties & Estate Taxes

2. Payroll Taxes

15. Gift Taxes

3. Corporation Income Tax

16. Health Insurance Premiums

4. Taxes on Insurance Premiums

17. Social Insurance Levies

5. Other Taxes on Corporations & Businesses

18. Universal Pension Plan Levies

6. Taxes on Certain Payments & Credits to Non-Residents

19. Other Taxes

7. Real & Personal Property Taxes


8. General Sales Taxes

20. Natural Resource Revenues

9. Motor Fuel Taxes

21. Privileges, Licences & Permits

10. Alcoholic Beverages Taxes

22.Sales of Goods & Services

11. Tobacco Taxes

23. Return on Investments

12. Taxes on Amusements & Admissions

24. Other Revenues from Own Sources

13. Taxes on Other Commodities & Services

25. Miscellaneous


1. General Government

11. Labour, Employment & Immigration

2. Protection of Persons & Property

12. Housing

3. Transportation & Communications

13. Foreign Affairs & International Assistance

4. Health

14. Supervision and Development of Regions & Localities

5. Social Welfare

15. Research Establishments

6. Education

16. General Purpose Transfers to Other Levels of Government

7. Environment

17. Transfers to Own Enterprises

8. Natural Resources

18. Debt Charges

9. Agriculture, Trade and Industry, and Tourism

19. Other

10. Recreation & Culture


vi - Process & Problems in Canada

a) Components

b) Limitations

c) Wiggle Room

d) Conclusions

a) Components

The traditional instrument holding government, at the federal and provincial level, accountable is the ‘Budgetary & Public Accounts Cycle’ or BPAC.  The cycle begins with submission of an annual Budget to the legislature as well as a set of spending Estimates by agency, department and program. Together, the Budget and the Estimates form a government's financial plan for the coming year. The cycle ends with publication of the Public Accounts reporting actual spending about two years later.  What follows has been extracted and edited from my Government in Canada journal article: The 1995-96 Federal Cultural Budget: A Case Study in Canadian Government Budgetary Information.

In theory, the BPAC permits one to assess if a government is "putting its money where its mouth is!" Words and numbers are cheap, especially in the heat of political debate and media glare. All sorts of promises and threats may be made -- but does government keep its word?  BPAC should hold government accountable by making its actions transparent to the legislature, the general public and all communities of interest including the cultural and financial communities.

The BPAC consists of eight separate documents in three distinct sets: the Budget; the related Estimates; and, the Public Accounts. The three are published by three different agencies – The Department of Finance, Treasury Board and the Auditor General – each often using different data and definitions. 

The Budget presents the government's financial strategy and consists of four documents produced by the Department of Finance.  The Budget Speech presented by the Minister of Finance in the House of Commons; and the Budget Document, expanding upon the Minister's speech that establish the Government’s strategy; the Budget in Brief, spotlighting selected budgetary actions; and, the Budget Plan, supplementing and detailing information presented in the first three, as well as presenting ways and means motions to be tabled in the House of Commons.

The Estimates represent tactics that support the government's strategy. Produced by Treasury Board, the Estimates report to the House of Commons by Vote, Activity and Program for most, but not all, federal departments and agencies. Furthermore, the Estimates define the logistics behind the government's tactics using dollars, person years, and (less frequently) federal standard objects of expenditure.  The Estimates consist of three documents, one of which (Part III) comes in multiple volumes:

·   Part I - Government Expenditure Plan describes relationships between the Budget Plan and the Estimates;

·   Part II - Main Estimates describes resources for individual departments and agencies and requiring spending authority from the House though a Vote; and,

·   Part III - Expenditure Plan reports, in 78 separate volumes, for most federal departments and agencies. Agencies not reported to the House through Part III generally issue an annual report and a financial statement, e.g. the Canada Council. Such annual reports are not considered in this article.

b) Limitations

The Budget and the Estimates are complex, self-contained documents drafted by two related but distinct departments of the federal government. Each has its own objectives, perspectives and priorities. Often similar information appears contradictory and/or at variance when reported in different documents and even different volumes of the same document.  Thus, with respect to the Estimates, there are variations for which there are apparent and sometimes substantive differences.  First, with respect to Part I - Expenditure Plan and Part II - Main Estimates:

  • Part I reports total planned spending while Part II reports spending authority by parliamentary vote, i.e. self-generated income is not reported in Part II's bottom-line request of Parliament;

  • Part I reports spending external to government, i.e. it does not include interdepartmental and other transfer costs as reported in Part II;

  • Part I reports reserves not included in Part II because they will meet requirements as they arise in the course of the year and will only then be formulated as Supplementary Estimates requiring a parliamentary vote;

  • Planned reductions reported in Part I are not reported in Part II because they cannot be acted on until new legislation is passed by Parliament; and,

  • Some spending authority reported in Part II is expected to lapse in Part I for reasons ranging from contractual and weather-induced delays to late delivery of goods and services.  Thus Part I reports federal savings and lapsed spending, not reported in Part II and, furthermore, such savings and lapsed spending is not attributed to individual departments and agencies in Part II.

Second, since 1986 Part II reports only main estimates for both the current and forthcoming year. But in any given year a government introduces Supplementary Estimates increasing or decreasing proposed spending. These changes are no longer reflected in Part II. Similarly, government may not spend all monies voted by Parliament. These differences too are not reported, year over year, in Part II.

Prior to 1986, these adjustments were reported under "forecast estimate" for the year finishing. While not an actual figure, the forecast allowed some sense of this year's estimate relative to last year's likely spending. In fact, previously Part II provided five years of data including three years of actual spending, one year of forecast and next year's estimate. This change may, or may not, reflect the ascendancy of commercial chartered accountancy (reporting two years of data and adjusting definition of expenditure items required by changing circumstances) and traditional practice in both registered industrial accountancy (up to ten years of data with constant definition like the banks) as well as public sector accountancy (at least five years). Nonetheless, credible statistical trend analysis can only be conducted with at least five years of data.

Third, Part III (introduced in 1986) reports for each of 78 individual departments and agencies in separate volumes. In many cases Part III displays five years of data including estimated spending for the forthcoming year, forecast spending for last year and actual spending for the previous three years. But these are reported only department-by-department, i.e. no single figure for the federal government as a whole is available in Part III.

Fourth, federal programs with which communities of interest are most familiar are usually not reported in the Budget and may not be reported in the Estimates. Thus, the Estimates report "Votes" of the House of Commons. For example, grants and contributions under "Cultural Initiatives" (a program very familiar to the cultural community) are part of "Vote 10 - Grants and contributions: Canadian Identity Program, Canadian Heritage". This means distribution within the Canadian Identity Program is, to a great extent, a ministerial or bureaucratic prerogative and priority. Thus latitude is provided to officials permitting "back-pocket" budgeting whereby ministers or bureaucrats may, if they wish, play one group against another without published information by which they can be held accountable.

Fifth, there are in excess of 25 consolidated specified purpose federal accounts reported as a single entry in Part II in the "General Summary" to the Main Estimates.  But these accounts are not described or even named in Part II. An accounting of these funds (reduced as planned or not) will be available only in the Public Accounts to be published in two years. 

c) Wiggle Room

It is important to appreciate the "wiggle room" provided by these limitations within the federal Budget and Estimates. The government can, in effect, quote different numbers to suit different purposes. Consider, for example, global federal spending. According to Part II - Main Estimates, total federal spending for all departments, agencies and specified purpose accounts will increase 2.3% from $161.1 billion in 1994-95 to $164.8 billion in 1995-96. Excluding specified purpose accounts, spending by all federal departments and agencies will increase by 6.2%. But if one then excludes the Public Debt Program of the Department of Finance, then spending by all federal departments and agencies will increase by only 1.7%.

And if one uses Part I and considers only federal transactions with outside parties (including public debt payments) and includes planned savings (requiring parliamentary approval) and anticipated lapsed spending (allowing for reserves), then total federal spending will increase by only 0.4% over 1994-95.

In fact of 25 departments and agencies reported in the 1994-95 "General Summary" of Part II, eleven will increase and fourteen decrease. Thus the Department of Finance will experience a 19.1% increase while the Public Debt Program will increase only 17.3%. Accordingly, excluding the Public Debt Program, the Department of Finance budget will increase 28%.

In the Budget Plan, however, the Minister does not provide data directly comparable with the Main Estimates. Rather he claims departmental spending will decrease 19% over the next three years. Because such cuts include "out years" they are subject to more uncertainty than cuts proposed this year. Accordingly, one can say federal spending will go up 2.3%, 6.2%, 1.7% or 0.4%, or it will decline 19% over the next 3 years. Which statement is "true"? Does the current format for the Budget and Estimates provide accountability and transparency of the Government to public scrutiny?

d) Conclusions

To conclude, consideration is paid to issues of comparability and definition and how government could be more like ‘business’ with dramatic effects on public finance.  

i - Comparability

While the Main Estimates can be  used to calculate the federal budget for any given public policy sphere, more detailed data is available in Part III which provides estimates for both the current year and the past year as well as forecast data for the past year and actual data for the previous one, two and sometimes three years. There are, however, three problems associated with Part III.

First, cost is a problem. Together, Parts I, II and III (78 separate reports) cost $960.85 plus GST. Separate annual reports are also be required for each cultural agency not reporting through Part III. With Budget documents, the cost (not including time and effort in adding up data for all relevant departments and agencies) is well over $1,000.00. This is the minimum price of accountability of federal spending to public scrutiny. This cost could be significantly reduced if the pre-1986 format for the Main Estimates was reinstated reporting five years of data.

The federal government has, however, made the Budget and Estimates available in electronic as well as paper format. This does not mean electronic information is free. Federal policies are, at present, ambiguous and subject to differing departmental policies. Treasury Board, for example, tends to make electronic products available to libraries at no cost, while the Department of Finance applies a cost-recovery policy in some cases, e.g. detailed budget papers. Parts I and II of the Estimates are now available in electronic format.

Second, Part III presents other compatibility problems. Thus while the Participation and Official Language Support components of the Canadian Identity Program are reported for five years, sometimes down to the level of grants and contributions, the Cultural and Heritage Development component is not. Similarly, Parks Canada and Corporate Management are reported for only this year's estimates, last year's forecast and one previous year's actual spending. This inhibits trend line analysis that requires at least five years of data. Furthermore, while total budgetary requirements of cultural agencies are reported in Part III for five years, data at the activity level is available only in Part II - The Main Estimates for last year's and this year's estimates.

Third, even if one used all 78 volumes of Part III, data will not necessarily agree with the Public Accounts for the corresponding year. Formats of the Estimates and Public Accounts are not compatible.

(ii) Definition of Management

It is clear from calculating the federal cultural budget that definition of management or administration varies between departments and agencies. Without a compatible definition it is not possible to determine resources directed at providing the Canadian people with goods and services.

iii - Definition of Policy Spheres

For accountability and transparency of government actions to be accessible to any Canadian or community of interest, government spending in any public policy sphere such as culture should be reported in one place, at one time and at a reasonable cost. This would require, of course, formal recognition of "legitimate" communities of interest not rooted just in geography or political allegiance but also in "conceptual space" where, nonetheless, they exist as "real" public policy spheres of influence.

That this is possible is evident in France with respect to international cultural relations. Since 1982, the Government of France has required all departments and agencies to make an annual report concerning international cultural relations (État récapitulatif des crédits concurrent à l'action culturelle de la France à l'étranger, No. 82-126 du décembre 1982). The results are compiled and published. A similar approach is possible in federal cultural as well as all other public policy spheres.

iv - Formalization of a Cycle of Public Accounts

Similarly, spending consequences of all government actions should be accountable and transparent to public scrutiny by any Canadian or community of interest. But for this accounting to happen, it should be reported in one place, at one time and at a reasonable cost.  Reinstatement of the pre-1986 format for Part II - The Main Estimates would be a useful first step. It would also provide a timeline supporting trend analysis and therefore measurement of the momentum of government towards its long term objective, i.e. to fulfill its democratic mandate. This would require, of course, that actual spending, not just will-o'-the-wisp promises or threats, be reported.

A significant second step would be the re-design of all three parts of the public accounts cycle -- Budget, Estimates and Public Accounts -- using the same definitions and parameters.  


Observation #6: A Brief History of the Central Bank - UK, USA & Canada

I will trace the origins of three central banks, the Bank of England, the Federal Reserve in the United States and the Bank of Canada.  As will be seen the Bank of England was created to finance defense spending while both the Bank of Canada and Federal Reserve were created in response to financial crises.  In both – Canada and the United States - creation of the central bank represented institutional recognition that the financial community could not be trusted to contain its animal spirits and ‘excessive exuberance’ while Government could not be trusted to keep its hands off the printing press.  The central bank arguably represents a 4th order of Government - executive, legislative, judiciary and central bank.  It marries Government to Finance in a capitalist economy. 

i - The Bank of England

Founded as a private corporation in 1694 the Bank of England was intended to finance defense spending and serve as the Government’s banker and debt-manager.  By contrast the Bank of Scotland (also a private corporation) was founded in 1696 to support Scottish business.  It was the first bank in Europe to print its own banknotes and continues to do so.

By 1781 the Bank of England had effectively become ‘the banker’s bank’ accepting deposits from and providing services to other banks.  In 1844 the Bank Charter Act linked banknotes to gold reserves and the Bank of England was granted the sole right to issue banknotes in England & Wales.  An exception was made, however, for private banks that previously enjoyed that right.  The last private banknotes in England were issued in 1921.  Nonetheless, certain Scottish and Irish (Ulster) private banks still retain this right.  It should be noted that their banknotes are not technically legal tender but rather promissory notes like cheques.

 In 1870 the Bank of England was given the additional responsibility for interest rate policy.  Then in 1890, during a severe financial crisis, centred on the Baring Bros Bank, the Bank of England became ‘lender of last resort’ in order to stabilize the financial system during such financial crises.

From its foundation in 1694 until 1946 the Bank of England was privately owned and operated.  Under the post-war Atlee Labour government, however, it was nationalized and until 1997 was state-controlled.  In 1997 under the Blair Labour government the Bank of England again became a privately held corporation and was granted operational independence over monetary policy in the United Kingdom.

ii - The Federal Reserve of the United States

The first Bank of the United States was created in 1791 by an act of Congress to serve, like the Bank of England, as the Government’s banker and debt-manager.  Like the Bank of England it was a private corporation.  Unlike the British, however, it was intended to be a truly national bank.  In 1811 its charter lapsed and Congress, for regional political reasons, failed to renew it. 

In 1816, the second Bank of the United States was created primarily in response to government debts incurred during the War of 1812.  Its charter was for 20 years but in 1833, again for political reasons, President Jackson issued an executive order ending deposit of federal funds which instead were placed in state chartered banks.  After its charter expired in 1836 it became a purely private bank and then went bankrupt in 1841.

A series of financial crises racked the United States in the mid- to late 1800s climaxing with the 1907 Panic known as the Banker’s Panic.  It led to runs on all banks and the entire financial system appeared near collapse.  A white knight appeared, however, in the guise of financier J. P. Morgan, one of the richest men in America.  Organizing other New York bankers and industrialists like John D. Rockefeller – the richest man in America - Morgan pledged enormous sums of his own money to stabilize the financial system. 

While many in industry and government praised Morgan for his initiative many were gravely concerned that the fate of the nation’s finances rested on self-interested private charity.   Accordingly in 1908 Senator Nelson W. Aldrich established and chaired a commission to investigate and propose solutions.  This led to creation of the Federal Reserve System in 1913.

Unlike the Bank of England and the Bank of Canada the Federal Reserve is regional as well as national in character.  There are 12 district federal reserve banks in Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, San Francisco and St. Louis. The regional character of the system allows variations in monetary policy deemed appropriate for the differing economic conditions in the various regions.

In addition to the 12 regional Federal Reserve Banks with their own managements, there is a seven member national Board of Governors appointed by the President and confirmed by the Senate to serve 14-year terms of office. 

Significantly, unlike the British and Canadian systems, there is no branch banking in the United States.  Rather local branches retain reserves in their own vaults.  Under branch banking reserves are generally held at head office.  The regional nature of the American experience began as fear by the slave-owning South of the emancipationist industrializing North.  The U.S. simply could not accommodate a truly national bank or a branch banking system.  Failure of the first and second Banks of the United States as well as the constitution of the Federal Reserve speak to, among other things, this regional opposition to national financial centralization.

iii - The Bank of Canada

During the pre-Confederation period the provinces of British North America issued, from time to time, treasury notes that served as legal tender, e.g., Prince Edward Island in 1790 to make up for a coin shortage, a common problem among the provinces.  Various private banks also issued banknotes beginning with the Montreal Bank (later the Bank of Montreal) in 1817. 

Under the British North America Act, the federal government gained jurisdiction over currency and banking and the Dominion Notes Act came into effect in 1868.  The new federal government assumed responsibility for provincial notes. In 1871the Bank Act repealed all provincial acts conflicting with federal jurisdiction over currency and banking.  Thereby chartered banks came under common regulation.  The private banks were allowed to issue notes with a minimum denomination initially of $4. The federal government issued smaller notes as well as larger ones used mainly for transactions between banks.

Until the Great Depression of the 1930s there was little need for central banking in a widely scattered and mainly rural economy.  With the Depression, various bank scandals and a Conservative Prime Minister’s perceived need for a direct means for settling international accounts, R.B. Bennett set up a royal commission to study “the organisation and working of our entire banking and monetary system [and] to consider the arguments for or against a central banking institution...”

The result was the Bank of Canada Act of 1934.  The Bank of Canada began operations in March 1935.  It initially was a private corporation with shares sold to the public.  The new Liberal government of William Lyons McKenzie King, however, amended the Act and nationalized the institution in 1938.  The Bank became publicly owned and remains so today. 

The Bank of Canada Act, which defines the Bank’s functions, has been amended many times since 1934. But the preamble to the Act has not changed. The Bank still exists “to regulate credit and currency in the best interests of the economic life of the nation.”

About the Bank, Who We Are,

Conflicting definition of the “best interests of the economic life of the nation” between region and metropole played a conspicuous role in the pre-history and constitution of the Federal Reserve Board in the United States.   It did and does so still in Canada.   The American way is regionalism and local reserves for local investment.  Canada, however, chose branch banking in the British tradition.  And, unlike the Federal Reserve, the Bank of Canada does not practice regional monetary policy. 

The apocryphal “7-to-1” policy of chartered banks in Canada demonstrates its regional animal spirits.  For seven dollars in deposits in the regions, one dollar is lent back to local enterprise.  In the metropole – Montreal & Toronto – for every dollar deposited seven are lent back to where the opportunities are and the head office with the reserves.

Historic, rather than apocryphal, is the constitutional crisis of 1961 between Governor of the Bank of Canada James Coyne and Conservative Prime Minister John D. Diefenbaker, Member of Parliament for Prince Albert, Saskatchewan - formerly ‘the northwest territories’ of Canada until 1905, a.k.a., the regions.  Known as the ‘Coyne Affair’ the Governor publicly criticized the Prime Minister’s expansionist (Keynesian) economic policies especially export sales to the United States during a recession and recommended instead higher interest rates to slow the economy down and eliminate the deficit (Classical). 

Behind the national scene, however, were the regional political economic implications of the Governor’s view.  Diefenbaker in 1957 created the Agricultural and Rural Development Agency (ARDA) so that federal dollars could help develop the regions outside southern Ontario and Quebec, the metropole.  There lived the majority of the population and dollars but not seats in the House of Commons.  Diefenbaker’s Conservatives held the regions while his Liberal opposition held the metropole.

The Conservative House of Commons voted to vacate Coyne’s employment but the Liberal dominated Senate refused to pass the bill.   Constitutional crisis!  Coyne nonetheless resigned.  This raises, however, the whole question of the arm’s length relationship.    At that time the Bank of Canada was at full arm’s length from government interference.  Once appointed the Governor was essentially independent of the Government of the day.   Similarly, the Chairman of the Federal Reserve and European Bank are shielded from political interference.  They function at full arm’s length.  A recent case in Italy where the Governor of the Bank of Italy was accused of interfering with a foreign takeover of an Italian private bank demonstrates.  He refused to resign for over five months and only then, I believe, on his terms.  As in the Coyne affair, any political interference causes the animal spirits of investors, especially foreign ones, to be depressed.  As will be seen, moral suasion is arguably the most powerful tool in the hands of a modern central bank. 

Today, after amendment of the Bank of Canada Act, the Minister of Finance can order policy changes.  Any minister who does so, however, faces the opprobrium of the investment community with all its economic and political implications.


Observation #7: Shadow Banking and the Great Recession of 2008

After the Great Depression of the 1930s tight central banking regulation became the norm at the retail level in the United States, the dominant player and trend setter in banking and financial markets around the world.  Among other things the federal government in effect guaranteed retail banking deposits.  At the wholesale or investment banking level, however, regulation flowed from security & exchange rather than banking legislation.

In the 1980s deregulation became the policy norm and two major things happened.  First, retail banks were allowed to invest their own money, a.k.a., deposits, in ‘secure’ financial securities rather than simply making loans or issuing mortgages.  In effect, many became investment banks.  Second, financial innovations at the wholesale level rapidly accelerated, among other things, spawning the so-called ‘Masters of the Universe’, a term coined in the 1980s to describe Wall Street brokers in that Age of Greed.  Through conglomeration, de-regulation, financial innovation and lax public oversight a ‘shadow banking system’ arose beyond the pale of public scrutiny and arguably beyond accountability becoming, in some cases, ‘too big to fail’. 

Ironically, the most recent investment bubble of 2007-8 is rooted in ‘securitization’ intended to spread and minimize risk.  According to John R. Commons in his classic Legal Foundations of Capitalism (1924) property, in the economic sense of what can be bought and sold, is the history of its ever increasing intangibility.  In this sense, property has become not so much a thing in-and-of-itself but rather an evolving set of rights & obligations associated with it, e.g., a warranty.  Thus property today includes intangibles like copyrights on artistic & literary works, patents on inventions, futures options, equity shares, software and investment certificates in land and buildings, e.g., ‘CDOs’ or Collateralized Debt Obligations. 

CDOs’are part of a more general and widespread securitization of property.  This is done using probability calculations derived from physics and mathematics rather than traditional actuarial calculations.  In fact major firms hired high energy particle physicists, mathematicians and economists right out of school to do the calculations.  Title is created, as a financial instrument, to a mix of thousands of primary financial instruments such as copyrights, mortgages, patents and student loans.  The mix is ‘hedged’ (one primary asset against another so to speak) to assure a mathematically stable rate of return with zero to minimal downside risk.  Slices or shares in this consolidated ‘exotic’ (now ‘toxic’) instrument are then offered to investors.  Title is granted to a share of the resulting pool. 

It is no longer clear, however, what is in any given instrument, e.g.., how much sub-prime, prime or super-prime.  Their complexity is such that they are not traded to the general public and therefore not subject to retail security & exchange or banking oversight.  Essentially they are sold wholesale between banks, hedge funds and investment houses, intra alia.  What is being bought and sold is new exotic and very complicated financial instrument.  Their complexity is such that very few understand the math including CEOs of financial institutions buying and selling them.  But they have ‘the numbers’.  Bond and other rating agencies agreed and initially granted ‘AAA’ ratings to many such securitized financial instruments.  The Big Short

In this regard it is critical to note that physics rests on the Laws of Nature while financial investment rests on ever changing human laws and human nature subject to fear and greed.  This distinction extends to the application of mathematics.  As economist Kenneth Boulding points out there are “limitations [to] mathematics both as a tool and as a language, especially in regard to possible distortions of the growth of knowledge”.  

In this regard, the Great Recession of 2008 arguably resulted because of a failure to distinguish between risk and ignorance and between speculation and enterprise.  These are the subjects of Chapter 12 – The State of Long-Term Expectations of Keynes’ General Theory of 1936. 

i - Risk vs. Ignorance

Risk involves calculation of the probability of possible outcomes.  It implies one knows what those outcomes might be.  Usually it also involves setting aside ‘Black Swans’, or outriders of extremely low probability but potentially devastating consequences.  With respect to the Great Recession, this was arguably the case with respect to the chance that the entire national housing market in the United States would collapse at the same time. – an extremely low probability but one with devastating consequences.

Ignorance, on the other hand, defined as the lack of knowledge, cannot be subjected to calculation.  One just does not know.  As Keynes points out in Chapter 12, business enterprise inevitably suffers ignorance beyond a very short time frame.  It is animal spirits that keep them going concerns, not probabilistic calculation.

ii - Speculation vs. Enterprise

In economics, speculation involves taking risks.  And this can be a very good thing, e.g., insurance, future options, etc.   It can also be a form of gambling in which short-term trumps long-term returns.  In Chapter 12, Keynes compares playing the stock market – day trading - as a beauty contest in which it is not choosing the most beautiful but rather the choosing the one that conventional expectations will choose.  This catches the ‘herd mentality’ of equity markets.

Keynes applies “the term speculation for the activity of forecasting the psychology of the market, and the term enterprise for the activity of forecasting the prospective yield of assets over their whole life” (Keynes 1936, 158).  Arguably, bank deregulation beginning in the 1980s resulted in the merging of the banking and security & exchange systems.  Banks traditionally focused on enterprise loaning money (deposits) and retaining ownership of primary financial assets, e.g., the mortgage on a home.  With deregulation they began to engage in speculation by selling off primary assets and acquiring secondary or derivative assets, e.g., CODs.  With both the banking and security & exchange systems engaged in speculation a financial bubble was arguably inevitable.

iii - Securitization: The Sub-Prime Bubble


The Sub-Prime Bubble & Its Mates

Harry Hillman Chartrand, PhD

Revised March 6, 2008

The most recent investment bubble of 2007-8 is rooted in the 'securitization' of Property. From the perspective of cultural economics Law is not a technical subject but rather a cultural artifact arising from the unique historical experience of a specific culture with its distinctive patterns of custom, habit and life ways (Schlicht 1998).  More to the point, each system of Law has its own definition of what can be bought and sold, i.e., What is Property?  This contrasts with other things that are not Property especially People.

Today, legal title to Property usually takes the form of a document, deed or certificate establishing the right to possession. The coercive power of the State protects and defends it. There are three forms. There is immovable or ‘real’ Property such as land, buildings and fixtures which together with moveable Property or ‘chattel’ (derived from the Anglo-Saxon for cattle) constitute tangible Property.  Then there is intangible Property such as business ‘good will’, stocks, bonds and intellectual property such as  copyrights, patents, registered industrial designs and trademarks.  Each involves associated rights & obligations granted by and subject to the pleasure of the Sovereign - Crown or State.  Each consists of differing bundles of rights & obligations, e.g., the differing term for a patent and a copyright  or between allodial, freehold or usufruct (tenant) title to real Property. [1]

John R. Commons observed in his classic Legal Foundations of Capitalism (1924) that Property, in the economic sense of what can be bought and sold, is the history of its ever increasing intangibility.  In this sense, Property has become not so much the thing in-and-of-itself but rather an evolving set of rights & obligations associated with it, e.g., a warranty.  Thus Property today includes intangibles like artistic & literary works, inventions, futures options, equity shares, software and investment certificates in land and buildings, e.g., ‘CDOs’ or Collateralized Debt Obligations including an unknown number of sub-prime mortgages.  Such intangible income earning Property is arguably the legal foundation of the knowledge-based economy (Chartrand 2007).  According to Commons, the transition from tangible to intangible Property began in the 1700s with recognition, under Common Law, of business 'goodwill' and copyright as income earning assets.  What is bought and sold, in effect, is the expectation of profit, e.g., of a going concern.

'CDOs' are part of a more general and widespread securitization of Property intended to spread and minimize risk.  This is done using probability calculations derived from physics and mathematics rather than traditional actuarial calculations. [2]  In fact major firms hired high energy particle physicists and mathematicians right out of school to do the calculations.  Title is created, as a financial instrument, to a mix of thousands of primary financial instruments such as copyrights, mortgages, patents and even student loans.  The mix is 'hedged' (one primary against another so to speak) to assure (mathematically) a stable return with zero to minimal downside risk.  Slices or shares in this consolidated  'exotic' (now 'toxic') is then offered to investors.  Title is granted as a share in the resulting pool. 

As demonstrated in an article by the Economist, "Securitization: Fear and loathing, and a hint of hope" February 14, 2008  it is no longer clear what is in any given instrument, i.e., how much sub-prime, prime or super-prime.   Their complexity is such that they are not traded to the general public and therefore not subject to 'retail' security & exchange as well as banking oversight.  Essentially they are sold bank to bank, hedge fund to hedge fund, investment house to investment house, intra alia.  What is being bought and sold is new exotic and very complicated financial instrument designed to securitize all income earning Property.   Their complexity is such that very few understand the math including CEOs of financial institutions buying and selling them.  But they have 'the numbers'.  The bond and other rating agencies agreed and initially granted 'AAA' ratings to many such securitized financial instruments.

The 'dotcom' bubble of 2001 demonstrated the need for the U.S. Government to regulate the accountancy industry and its clients following the collapse of Arthur Anderson, the fifth largest global accountancy (see the Sarbanes-Oxley Act) .  Arguably, the 'sub-prime' bubble demonstrates the need for tighter banking and investment regulation.  Why?  Simple:  Fear & Greed.  For whatever reasons investors periodically, throughout capitalist history, come to believe that what goes up does not come down and that the business cycle has ended and there are only blue skies above.  This was a theme of the dotcom bubble, i.e., the so-called 'New Economy' based on the internet.  When the sky falls the investment community tends to duck for cover in what was called 'a bunker mentality' after the dotcom bubble burst.  Fear & Greed are facts of financial life.  It is not just cold calculation that motivates investment decision but also raw emotion.  Financial loss is right up there with sickness and the emotional loss of a loved one.  Financial gain, at the extreme of pure gambling, is arguably as addictive as hard drugs - the rush.   Ego deflation and inflation naturally follow.  Short-run speculation rather than long-run enterprise too easily becomes the game [3].

Creation of the Bank of Canada in 1935 represented recognition that the financial community could not be trusted to contain its 'animal spirits' and 'excessive exuberance' while Government could not be trusted to keep its hands off the printing press.  The Bank represents a new 4th order of Government - executive, legislative, judiciary and central bank.  In effect it represents a marriage between Government and Finance in the money market of a capitalist economy.  Tight central banking and security & exchange regulation were, until recently, the norm.  Recent deregulation arguably went too far and did not kept up with financial innovations trading between 'Masters of the Universe' (a term coined in the 1980s to describe Wall Street brokers in that Age of Greed).  Through conglomeration, de-regulation, financial innovation and lax public oversight a 'shadow banking system' has been created beyond the pale of public scrutiny.

Government's role, cum Keynes, is not to inhibit risk taking and financial innovation but to compensate for the bi-polar animal spirits of investors and hence the extremes of the business cycle through 'workable' regulation.  This requires, however, recognition on the part of the financial industry itself of a self-felt public responsibility given its privileged status in a capitalist society - noblesse oblige.  Arguably there is a generalized need for heightened public accountability and transparency, not just on the part of Government, [4] but also all self-regulating professions, e.g., accountants, architects, engineers, lawyers and physicians.  The market works on what Adam Smith called 'moral sentiments' or what today we call ‘market trust'.  Trust is a two-way street.  And in the current crisis it is lack of trust between banks that is fueling the ongoing problem.  In effect we are in an institutional liquidity trap.  Interest rates are zero but no one will invest.  When one bank is asked to borrow from another, the potential lender looks at a balance sheet that shows securitized assets whose worth cannot be easily determined. Therefore banks will not lend to banks and the entire financial system seized up and its effects are now rippling through the 'real' economy.

Just before the fall of Communism this need for accountability and transparency of all self-regulating agencies of the State including the Party - the leading vanguard of the Revolution - was called  perestroika and glasnost.  Arguably, the same is needed for the troubled capitalist world order.  The 'off loading' of responsibility for the public purpose into semi-public/private hands (the pattern of 'privatization' since the days of Margaret Thatcher, Ronald Reagan and Brian Mulroney), does not relieve Government of responsibility for monitoring and regulating performance.  The problem and suggested solutions are presented in my book review of Government by Moonlight - Hybrid Parts of the State (Birkenshaw, P., Harden I. & Lewis, N., Unwin Hyman, London, 1990).  For my part, as a Canadian, one possibility is Senate reform inclusive of the self-regulating professions that, through secret ballot, each would elect their own Senator as representative of the profession before the people of Canada.

[1] For a fuller exploration of Property in the Anglosphere please see my recent article "Equity & Aboriginal Title", Compiler Press, January 2008.

[2] It is critical to note that physics rests on the Laws of Nature ewhile financial investment rests on human laws and human nature, both culturally expressed.

[3] This distinction between short-term speculation, e.g., on the stock market, versus long-run expectation of enterprise, i.e., between nominal and real gains,  was a central theme of Keynes' analysis of the Great Depression.  See Chapter 12 of his General Theory.

[4] For my views on what are the continuing inadequacies of the federal and provincial system of Budget, Estimates and Public Accounts please see: “The 1995-96 Federal Cultural Budget“, Government Information in Canada, University of Saskatchewan, Winter 1995.

Observation #8: Jeremy Bentham

Contemporary Economics is rooted in the 17th century Scientific Revolution in England.  What we call the natural and engineering sciences were then called ‘experimental philosophy’.  This new way of looking at the world gained legitimacy with Charles II’s 1662 Charter to the Royal Society of London for the Improvement of Natural Knowledge.  The Scientific Revolution then began in earnest with Isaac Newton’s clockwork universe serving as its icon.  This materialistic meme rapidly spread across Europe.

The ascent of experimental philosophy left moral philosophers (those today we call social scientists and humanists) searching for the social equivalent of Newton’s clockwork universe.  Arguably it was uncovered by Jeremy Bentham (1748-1832) founder of the last great school of philosophy to emerge from the Western Enlightenment - Utilitarianism.

His answer was the greatest good for the greatest number measured by atomic units of pleasure/pain called utiles with pleasure and pain serving as “sovereign rulers of the State” in Bentham’s words.  The greatest good was to be calculated using Bentham’s felicitous calculus, the calculus of human happiness.

While we will consider Bentham’s contribution to economics it is important to note that the impact of his thought was much wider.  Thus among his disciples were the Philosophical Radicals who became the Liberal Party of the United Kingdom.  They used Bentham’s felicitous calculus to institutionally transform England and its Empire from a feudal into an Administrative State.  Their achievements, among others, included: constitutional and local government reform, the end of slavery; responsible government in Canada, universal suffrage; the supremacy of the legislature (or ‘legislative omnicompetence’ in Bentham’s words), compulsory public education, health and safety; penal and criminal law reform including a modern police force; welfare reform; and, founding, in 1826, the first English research university and the first to accept non-Anglican, non-male and non-white students – University College London.  These achievements were based on the premise that the happiness of a pauper is equal to that of a prince expressed in the euphemism: An Englishman’s home is his castle.  Liberal democracy in fact took root in England through Benthamism dodging the Republicanism of the United States and France.

Bentham’s philosophy is rooted in Epicurean sensationalism.  Epicurus (341-271 BCE) was a contemporary of Aristotle and Plato who both believed in the gods but Epicurus did not.  Bentham acquired his view from the De Rerum Natura (On the Nature of Things) by the Roman Epicurean poet Lucretius (99-55 BCE), whose work, unlike those of Epicurus, survived the fall of the Roman Empire and the censorial fires of the Church.

Like Epicurus, Bentham believed that physical sensation was the foundation of all knowledge.  Knowledge, including preconceptions such as ‘body,’ ‘person,’ ‘usefulness,’ and ‘truth’, form in the material brain as the result of repeated sense-experience of similar objects.  Ideas are formed by analogy between or compounding such basic concepts (O’Keefe 2001).

For Bentham sense experiences involved a unit measure of pleasure and pain called the ‘utile’ that eventually, according to Bentham, would be subject to physical measurement.  One corollary of the utile, however, is that customs, traditions and taste cease to be independent variables.  For Bentham compulsory public education would begin with children taken at birth from their mothers and placed in state-operated crèches.  Each child was, Bentham believed, born tabula rasa – blank – and compulsory public education would ensure everyone’s customs, traditions and taste would eventually become identical and therefore irrelevant.  He also innovated the Panopticon, an architectural form that allowed the observation of convicts in prison cells (Kingston Penitentiary) is an example and designs for observing the educational life of children and civic life in general by a hidden observer. 

Bentham believed that human existence was simply the search for pleasure and the avoidance of pain.  Thus utilitarianism is radically materialistic.  Even aesthetics shrank to analysis of pleasurable sensations evoked by a work of art.  A thing is beautiful because it pleases, it does not please because it is beautiful (Schumpeter 1954, 126-7).  This, combined with emphasis on functionality, meant application of artistic effort was “irrational”.  In industrial design and architecture, this aesthetic reached its conclusion in the aphorism form follows function, the Bauhaus and the glass and steel towers of the International School of Architecture (Hughes 1981).

In many ways, Bentham makes Karl Marx look like a weak kneed bleeding heart liberal.  Marx would have admired John Lennon’s working class hero.  Bentham, on the other hand, wanted to socialize not just the means of production but also of consumption.  For Bentham the Mao suit or ‘GI’ issue - one size fits all - was the style of the future.  It was only the terrors of the French Revolution that drew Bentham back from perfect communism.  For Marx, on the other hand, Revolution was the instrument of change.  In a sense, Marx was the son that Bentham never had

The formal name for Bentham’s utilitarianism is Ethical Hedonism.  The search for pleasure (hedonism) was inhibited in Bentham’s scheme by assuming human beings carried a genetic sense of right and wrong, good and bad - essentially the Protestant work ethic.  Once that ethic fades, however, we are left with ‘Me-ism’ socially expressed as ‘Consumerism’.

In 1881 Francis Ysidro Edgeworth (1845-1926) married Bentham’s felicitous calculus of human happiness to Newtonian calculus of motion and reduced it to geometric expression subject to mathematical proof in his Mathematical Psychics.  At root this marriage succeeded by using Bentham’s reification (making concrete that which is abstract) of happiness as money – the presence of money brings pleasure, its absence brings pain.  One’s willingness to pay $10 for a DVD is a measure of the utility or happiness one hopes to derive from it. 

Edgeworth’s geometry and its related calculus permitted erection of what became, in the hands of Alfred Marshall, the Standard Model of Market Economics.  It shifted the focus of economics from analysis of the distribution of national wealth among different classes in society to the constrained maximization of utility by consumers generating the Demand Curve and the constrained maximization of producer’s profits generating the Supply Curve with ‘X’ marking the spot where the willingness to buy (Demand) exactly equals the willingness to sell (Supply).  The market clears.  This is where the greatest good for the greatest number is achieved in the Standard Model of Market Economics.

It is important to note that use of calculus defines the Standard Model as mechanical rather than biological in nature, i.e., the calculus of motion, in this case, of human happiness.  It is also important to note that the demand-side of the economic equation came first and flowing from it the supply-side was subsequently erected.  Put another way, consumer's wants, needs and desires in the Standard Model precede production of goods & services to satisfy them.  This is sometimes called ‘consumer sovereignty’ or ‘dollar democracy’. In this sense the consumer/producer-centred Standard Model of the late 19th century allowed economics to catch up with the citizen/voter-centred Republican Revolution of the 18th century.

It is ironic that Bentham-inspired economics should achieve what Plato most feared about the Arts as expressed in Book X of The Republic:

We must remain firm in our conviction that hymns to the gods and praise of famous men are the only poetry which ought to be admitted into our State.  For if you go beyond this and allow honeyed muse to enter, either in epic or lyric verse, not law and the reason of mankind, which by common consent have been ever deemed best, but pleasure and pain will be the rulers in our State.

It is not, however, just the Ancients who have (or would have) concerns about Bentham’s felicitous calculus and the Standard Model.  Joseph Schumpeter called it “the shallowest of all conceivable philosophies of life that stands indeed in a position of irreconcilable antagonism to the rest of them” (Schumpeter 1954, 133).  John Maynard Keynes went further identifying its dangerous ideological flaws:

I do now regard that as the worm which has been gnawing at the insides of modern civilization and is responsible for its present moral decay.  We used to regard the Christians as the enemy, because they appeared as the representatives of tradition, convention and hocus-pocus.  In truth, it was the Benthamite calculus, based on an over-valuation of the economic criterion, which was destroying the quality of the popular Ideal.  Moreover, it was this escape from Bentham... which has served to protect the whole lot of us from the final reductio ad absurdum of Benthamism known as Marxism (Keynes 1949, 96-7).

In fact, before the Republican Revolutions of the 18th century the economy was embedded in society through guilds and a class structure of subordination by birth.  Today, many fear that human society is being embedded into a global economy in which everything is for sale – children, hearts, kidneys, lungs as well as the entire natural and human built environment – as Karl Polanyi suggested in The Great Transformation (2001).  Such lingering concerns may be genetic fragments of a not quite dead Marxism or remembrances of forgotten roots - in the United States, “Life, Liberty and the pursuit of Happiness” and in France, “Equality, Fraternity and Liberty”. 

In a way, the Republican Revolution overthrew an ancient regime of subordination by birth gaining political freedom for the individual and in the process spawning the free self-regulating market as its economic corollary.  The Communist Revolutions of the 20th century, on the other hand, sought economic freedom for the individual (each according to one’s need) through a centrally planned and controlled command economy and spawned the one-party Leninist State as its political corollary.  Arguably, both freedoms – political and economic - are necessary, if not sufficient, to fully realize human potential.

Non-linked References

Hughes, R., The shock of the new, Knops, NY, 1981.

Keynes, M., Essays on John Maynard Keynes [1949], Cambridge University Press,  Cambridge, 1975.

Schumpeter, J. A., History of Economic Analysis (1954), Oxford University Press, New York, 1968. 

For more on Bentham, the 'Marx & Lenin' of Capitalism, please see my MIDAS Lectures:

Secularization of the West & The Rest: The Legacy of Jeremy Bentham

Part I Establishment

November 2012

Part II Disestablishment

April 2014


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