How Monetarism Screwed the People

Previous sections of this study have examined the idea that Canadians would be better off reverting our central bank to it's prior, stronger position in the economy, where the government, through the BoC produced more of the money used in the economy than it does today, which is only about 5%. As noted, this is possible because our central bank is wholly owned by the government and uniquely run as a joint responsibility between its institutional bankers and The Finance Department.

We have to wonder however, if the prior BoC/ government-created-money (GCM) system was so good, why did then Prime Minister Trudeau change the modus operendi toward the modern bank-created-money (BCM) or debt-money system? Hellyer's article asserts that the change came after 1974 when the BoC, in concert with other central banks, adopted the ideas of Milton Friedman and his colleagues at the University of Chicago. Here is Wikipedia on the Monetarist ideas of the Chicago School:

At the University of Chicago, Friedman became the main advocate opposing activist Keynesian government policies.[3] During the 1960s he promoted an alternative macroeconomic policy known as "monetarism". He theorized there existed a "natural rate of unemployment," and argued that governments could not change this natural rate. He argued that the Phillips Curve was not stable, and predicted that then-existing Keynesian policies would cause high inflation and minimal growth (later termed stagflation).[4] Friedman's claim that monetary policy could have prevented the Great Depression was an attempt to refute the analysis of Keynes, who argued that monetary policy is ineffective during depression conditions, and that large-scale deficit spending by the government is needed to decrease mass unemployment. Though opposed to the existence of the Federal Reserve, Friedman argued that, given that it does exist, a steady, small expansion of the money supply was the only wise policy, and he warned against efforts by a treasury or central bank to do otherwise.

For monetarism, "Friedman advocated a central bank policy aimed at keeping the supply and demand for money at equilibrium, as measured by growth in productivity and demand. The monetarist argument that the demand for money is a stable function gained considerable support during the late 1960s and 1970s "

Translation: Don't try to help the unemployed by spending (new) money on work programs or you'll just cause inflation and the economy (employment) won't expand anyway. Maybe this is where the idea of giving money to the bankers instead came from!!

My recollection is that the Trudeau years were chock full of all sorts of programs to reduce unemployment and mitigate its effects. Generous youth programs stick in my mind as I was in my twenties at the time. So we might even wonder if he was actually trying to steal a page from the BoC's mandate as noted in an earlier section by expanding gummerment and employment opportunities such as youth programs, unemployment insurance, student loans and welfare benefits; all of which were intended to accommodate the rapidly expanding boomer workforce. If the BoC wouldn't play ball by printing money, he would just have to borrow the money. The inexorable effect of all this was that Canada began to amass huge amounts of debt, which no doubt, pleased the bankers. At the time nobody cared - until later on when interest rates went through the roof and interest payments ballooned. Mulroney inherited this mess in 1984, but as punishment for instituting Free Trade and the GST (a VAT type tax), was blamed for adding to the public debt on account of still-high rates and unstoppable gummerment largesse. Only under Chretien and Martin would debt reduction proceed in earnest.

Conspiracy theorists have a different take on Trudeau (can't recall where I first saw this idea: a link would be welcome). Essentially they make the case that in order to get Canada admitted to the G7, we had to suck up to money interests by borrowing huge sums from banks instead of using our BoC's money creation powers as before. They go on to suggest that Trudeau, being an elitist and idealist, embraced the Club of Rome and its globalist ideals. The moving force behind globalism in general is held to be bankers for whom globalism might increasingly be seen as the ultimate engine of endless profits because of the centrality of banks to facilitate international transactions. So was joining the G7 just part of this package? A modern conspiracist might also suggest that Trudeau, the master elitist, was setting up the masses for eventual re-enslavement by gradual submission to tax debt servitude.

The idea that Trudeau agreed to borrow from commercial banks to get us into the G7 is a nice fiction but, in my opinion, doesn't make sense on its own since governments from Mackenzie King to Diefenbaker had always issued bonds to commercial or public markets to raise money. The idea that Trudeau could draw from a bigger financial pool for his big elitist spending ideas is only slightly better. If we read between the lines of the Buck book, which seemed to favour our 'pinky' PM, we might conclude that the BoC's protocol was simply too restrictive (disciplined!), cramping the imperious style of our most prima donna PM. Hellyer's suggestion that the monetarist idea was the justification, might or might not been the case, although as Deputy PM, he was certainly in a position to know. Certainly the Chicago School's ideas would have discouraged bankers from wanting to help the unemployed since unemployment was now natural! Plus, a politician would use any means to justify his cause so yes, we could accept that monetarism, one way or the other, provided cover for a little noticed change in the government's relationship with the Boc. I recall being upset at how Trudeau grew the debt, but I and most others were blissfully unaware of any issue involving the BoC. One must also ask, if Hellyer was Deputy PM at the time, why is he complaining now? I've no idea on that one but would surely like to know.

Regardless what Trudeau or our central bankers thought, no less a personage than George Soros has opined recently that "Monetarism is a false doctrine" [ref 1 p144] which lends credence to Hellyer's basic assertion that Monetarism shaped the public debate and encouraged governments to recede from the economy in favour of the now infamous 'efficient market hypothesis'. More on Soros in the next section but he certainly bolsters Hellyer's thesis that governments should now push back on capitalism, especially globalist capitalism, and reassert themselves by restrictincg BCM (bank created money) in favour of GCM (government created money).

I'll have a more detailed look at his plan in the next section.

Jump to first section / index or use the links below to move forward/ back in the series. Dunno why its backwards, I'll fix it if I figure it out :-)