On Central Banking

I had a good interview with Scott Horton of Antiwar.com radio today (Wednesday). It went quite a bit longer than my last one (45 minutes or thereabouts), and should be posted in a day or so. I hope.

At any rate, toward the end of the conversation, we talk a bit about central banking and how central it is to the social democratic welfare/warfare state. Scott asked me why liberals, with their suspicion of banking power, aren’t more exercised about central banks (like the Federal Reserve). I should have had a better answer than I did.

Central to the social democratic outlook is the desire to subject the economy and all economic activity to the political process. This is called “economic democracy.” States have done this imposing regulations and restrictions on business activities, privileging trade unions (at least some of them) in law, and by weaving the state and business together through contracts to provide everything from armaments to roads and ports. Whole industries were created this way (like investment banking) or enabled to survive (like giant steelworks making precision guns, munitions and warships to create modern militaries), the point being to ensure the profitability of heavy industry as well as create and sustain employment for workers who might otherwise be unemployed.

The state could not manipulate economic activity without the ability to create money out of thin air. Growth, the fetish of economic faith (according to Robert Nelson, author of Reaching for Heaven on Earth: The Theological Meaning of Economics) and an absolute necessity if the state intends to fund the increasing demands of the welfare and warfare constituencies. Thus the social democratic welfare/warfare state needs central banking.

In fact, Nelson says that fiscal and monetary policy (government budgets and central bank policies respectively) as the American way of making the welfare/warfare state work — the central tenant of American economic theology — in the post-WWII era (via the two Bretton Woods institutions, the World Bank and the International Monetary Fund; now that I think about it, the General Agreement on Tariffs and Trades, now the World Trade Organization, may have been a third bastard child of Bretton Woods). One that was, and to an extent still is, widely exported. And increasingly resented.

At any rate, the promise of central banking is that the economy can be managed to minimize the risk of recession and unemployment (or at least control employment levels) and other nifty goals — such as home “ownership” — by controlling money supply, interest rates and bank reserve requirements. It promises a way of making the economy “democratically accountable” while allowing for “private ownership.” The state need not own the means of production in order to affect how they are used and foster some sense of “social good” done by the state.

So, Social Democrats of all persuasions, both left and right, are deeply in love with central banking.

UPDATE: This desire on the part of social democrats and Christian socialists of various stripes is what made the Roman Catholic Church’s relationship with Hitler and the Nazi state so fraught with difficulties (according to Konrad Heiden, author of Der Fuehrer, an account of Hitler’s rise to power in the 1920s and early 1930s). On the one hand, the Catholic church was very aware of Naziism’s essential anti-Christian elements and the fact that the National Socialist German Workers Party wanted to create a post-Christian society modeled on a denatured and romanticized version of German paganism. On the other hand, the Nazis also wanted to make the German economy accountable to the state, something the Catholic Center Party in Germany (and Catholic social teaching) had long wanted. Thus, according to Heiden, the Center Party agreed to work with the Nazis in support of that particular goal.

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