JERRY ROBERTS. Thinking about economics

Nov 8, 2019

Whether anybody — anybody at all — understands the workings of the world economy, or even the national economy, is a moot point but there are lots of interesting theories.

In her remarkable book, “Central Banks, Democratic States and Political Power,” Jocelyn Pixley praises Nugget Coombs for his “eclectic” approach to economic theory. Dr Coombs would pick and choose among the economic options, even those provided by the dominant theorist of the times, John Maynard Keynes, whom he knew personally as a member of the exclusive club of central bankers and whom he admired. Indeed, Coombs began his autobiography with a hymn of praise to The General Theory of Employment, Interest and Money.

Of all the economic theorists and philosophers, the best writer is John Stuart Mill. A few decades ago I sat in an armchair and read his Principles of Political Economy. Straight away I was transported back to childhood and another armchair in my Dad’s study where I curled up and read those wonderful novels, David Copperfield and Great Expectations. J.S.Mill and Charles Dickens share that uncanny ability to make readers think they are sitting in the same room with the author and listening to every word, clear as a bell.

Nugget Coombs discovered J.S.Mill after completing his formal education in London, when he was back in Australia as acting Governor of the Commonwealth (now Reserve) Bank and preparing a speech traditionally given by the Governor. He often quoted Mill thereafter. The most perfectly composed description of the economic question was written in Australia. Readers are invited to guess the author. A clue is provided. He was our greatest Prime Minister. It doesn’t get any better than this:

The cross-currents in the reactions emerging from what has happened make it almost impossible to present the case in the proper sequence of cause and effect. For back in the hills there is little difference observable between what ultimately becomes a great river and what merely serves as a minor tributary to it. But for the number of lesser streams feeding it, however, the river itself might not become of any real historic or national importance. So it is with the study of Australia’s economic problem. What appear to be minor elements are so mixed with those that are admittedly major in significance that the only safe thing to do is consider them whenever and wherever they present themselves. We are a debtor country.”

That was John Curtin writing in 1930 as the Great Depression tightened its grip. Tom Fitzgerald quoted the passage in his emotionally powerful and deeply patriotic 1990 Boyer Lectures, which I wish the ABC would reprint. Every Australian should read them. Fitzgerald wrote that Curtin’s 1930 pamphlet has “a topical air and one might wish that the intelligence it expresses was available now.” In the depth and sophistication of his thinking and clarity of expression John Curtin towers above anyone we have seen in Australian public life before or since. He was in a class of his own.

Tom Fitzgerald’s lectures included a scene from the Australian Parliament when Curtin’s mate Frank Anstey reflected on the comparative value of a labourer working on the roads with the prognostications of honourable members sitting in their padded seats. Wrote Fitzgerald: “Curtin never wavered from the older man’s (Anstey’s) fixed precept that money must be made the servant instead of the master of the people and industrial life.”

We are indebted to Michael Keating for a concise summary of how monetary policy has increased asset prices but not wages, thus increasing inequality (Pearls and Irritations 22 and 23 October). As Professor Bill Mitchell says, monetary policy has reached “its rather gymnastic limits.” We are witnessing the bizarre spectacle of politicians acting as spruikers for real estate agents, desperately trying to prop up housing prices to stave off collapse of the Australian banks.

The red-hot gospeller for monetarism was Milton Friedman, who toured Australia at the same time as Joan Robinson, who was a member of the inner circle of John Maynard Keynes and coined the expression “bastard Keynesianism.” Academics who attended Friedman’s Australian lectures were flabbergasted by his generalisations and glib fudging of statistics but Australian economist Craig Freedman interviewed Milton in later years when researching his book on Chicago economics and found the American utterly charming.

Jocelyn Pixley calls Milton Friedman “the show-pony in a field of morose cart-horses.” In one of a thousand or two revelations new to me in her central banking book she points out the responsibility of Richard Nixon and then Federal Reserve Chair Arthur Burns for the stagflation that opened the door to the Chicago monetarists and which conservatives prefer to blame on the Democrats in particular and social democracy in general.

Pixley writes: “A capitalist economy’s survival is threatened, (Hyman) Minsky said, ‘if it oscillates’ between ‘an imminent collapse of asset values and employment’ and ‘accelerating inflation and rampant speculation.’ Nixon-Burns did both.” Concluding the preceding chapter, she wrote: “The irony of 2016-17 (we can include the next two years to the present) was that central banks finally talked the tune of the old social democracy — that great if doomed effort played in many post-war central banks. Today they plead for the full employment on decent wages they had systematically destroyed, albeit demanded by the capitalist finance sector and productive sectors that imposed austerity.”

She quotes Nicholas Kaldor from this period in a comment we Australians should note: “If it continued long enough (American policy) it would involve transforming a nation of creative producers into a community of rentiers increasingly living on others, seeking gratification in ever more useless consumption.”

J.K. Galbraith summed up the era with characteristic irony, saying the applause for the monetarists from the rich was well-earned. Pixley concludes: “The Curtin-Coombs legacy, after decades of conflict to build it, perhaps holds hope if social democracy ever revives to temper capitalism.”

Don McLeod’s favourite picture was taken outside the Roebourne Court House at the turn of the 20th century. An Aboriginal hunter stands in chains and has been given a spear as a photographic prop. I doubt if he was permitted to take it into the court for fear he would pin the magistrate to his chair. The young man has the physique of an Olympic athlete but it is the cast of his eyes that caught Don’s attention. Such fierce pride. No chains could break his spirit. This photograph should be framed and hung on the wall of every waiting room in every Aboriginal health clinic in Australia.

So too should the words of John Curtin quoted above be fixed on the wall of every Reserve Bank and Treasury office, every economics lecture theatre and professorial study, in the hope that the sincerity and incomparable intellect of Australia’s war-time leader will inspire us to strive for the ultimate goal of the political project — to make the economy work for the society, not vice-versa.

Jerry Roberts is a member of the ALP

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