Today, I am accompanying my dear friend and colleague, Mr. David J. Pratt in a lecture at the James Madison Museum (http://www.thejamesmadisonmuseum.org/events). Our lecture is entitled: ‘Banking on the Future: Madison and the Closure of the First National Bank’. We expanded on some of these themes.
In a letter to his esteemed philosopher and scholarly friend Mr. John Taylor in 1816, Thomas Jefferson famously stated:
"I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale."
While this sound bite has captured the #OWS crowd with patriotic zealotry, the unquoted sections of the letter of May 28, 1816 are equally or more admonishing of our current state. And in this week when Wall Street banks had to cover their own “irrational exuberance” in the Facebook IPO bubble, we find a world in which the funding of human enterprises is devoid of consideration as much today as it was 200 years ago. With JP Morgan unveiling its reckless synthetic illusions which have both helped the bank manufacture illusory profits and distribute dividends at the expense of the publicly-back accountability deferrals and with breathless CNN, Fox, and CNBC commentators fawning over NASDAQ: FB complete with TD Ameritrade screen shots instructing an uneducated populace into the abattoir of opaque speculation, all of Jefferson’s concerns find themselves landing on a modern America and G-8 devoid of any creativity.
“The system of banking we have both equally and ever reprobated. I contemplate it as a blot left in all our constitutions, which, if not covered, will end in their destruction, which is already hit by the gamblers in corruption, and is sweeping away in its progress the fortunes and morals of our citizens. Funding I consider as limited, rightfully, to a redemption of the debt within the lives of a majority of the generation contracting it; every generation coming equally, by the laws of the Creator of the world, to the free possession of the earth He made for their subsistence, unencumbered by their predecessors, who, like them, were but tenants for life.”
Jefferson went on to lament that, “Much I apprehend that the golden moment is past for reforming these heresies.” What was the proximate cause of his melancholy? Setting aside Jefferson’s personal economic proclivities which had frequently pitted his profligate consumption at odds with moneylenders, Jefferson seemed to discern that, given the opportunity to be swindled, the populace, in the main, would be seduced. Given his profound distrust of Alexander Hamilton’s ‘big government’ impulses – fearing that they would undermine the experiment of the Republic – he reflected that, “the evils flowing from the duperies of the people are less injurious than those from the egoism of their agents.” Resolute in his opposition to the First Bank of the United States and facing a diminishing pool of allies in his opposition to the expediency-laced formation of the Second Bank of the United States, established in large part to deal with debts from the War of 1812, Jefferson was certain that the adverse consequences of sovereign banks would lead to the undoing of his life’s aspirations.
From 1791 to 1836 – allowing for the nearly 4 year gap between the expiration of the First Bank charter and the promulgation of the Second Bank – furious debate raged over how a relatively new country, filled with industrious people and unquantified resources, would grow. Two major wars, three financial panics, and untold scandals later, our banking system and associated laws took their first tentative step in to setting the economic stage for the Civil War.
So, in this week of irrational exuberance ranging from Jamie Dimon’s callous façade regarding the reckless synthetic positions constructed under his leadership at JP Morgan to Mark Zuckerberg’s gravity-defying circus in which the final act will likely involve “audience participation” (think Water for Elephants), I find myself intrigued by the news on the opposite side of the Earth.
In Mongolia, “anti-investor” legislation – if you read Western pundits – was passed seeking to insure that the nation would be able to participate in the development of its vast metals and energy resources. Most media outlets have followed the passive-aggressive narrative suggesting that instilling fear of failing foreign investment should play a role in national sovereignty. Tragically, these fear mongers fail to understand that there are more resource investors in the world than once controlled the market and, if asked to chose between cooperation with nationalists or no access to energy and metals – participating access will prevail. In New Ireland, Papua New Guinea, facing the electoral consequences of delayed justice, Prime Minister Peter O’Neill finally released $9 million held by the Mineral Resource Development Corporation seeking to placate a rather vocal voice that could swing his political fortunes. What was conspicuously absent from this transaction was any meaningful participation in Newcrest Mining’s nearly $3 billion gold revenue – close to 20% of which is derived from its Lihir operation.
During the next few weeks, I will be working with my colleagues in the Pacific to educate a number of communities in an effort to limit the “swindling of futurity”. It’s as relevant in the U.S. as it is in Papua New Guinea. Ironically, what’s missing here is what’s missing there. First, a public sector for the people and by the people. Second, a population taking the time to be informed. And finally, recognition that linking productivity to socioeconomic benefit is essential for any economy – regardless of political monikers. While many of you visit this blog on a recurring basis each weekend, I trust that next week, as I’m in the midst of one of the most significant resource conflict and violence-torn parts of the globe, you take your InvertedAlchemy moment to reflect on this and other posts and share this dialogue with others. In so doing, we may rekindle the taper Jefferson sought to light and reinvigorate a public accountability much needed in our time.
Fair winds and following seas until next time…