Page 3578 - Week 12 - Thursday, 20 September 1990
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Legislative Assembly and did attempt to put this theory into practice, with fairly disastrous results. The Federal Government had to exercise its powers and take over the public debt and the public finances of that province.
But the theory was not even original to Major Douglas. It is a theory that has really run throughout economics. I was sure that I had read a quote on this and I was not able to lay my hands on it the other night, but I have since located it. It is in a fairly recently published work by Professor John Kenneth Galbraith, who is a well known American economist. He taught for many, many years at Harvard, and he is probably best known for popularising economics through his Age of Uncertainty series on television. He has written widely and taught widely in this field. He is writing about one Pierre Joseph Proudhon, who was a Frenchman in the nineteenth century, a contemporary of Marx and a regular opponent of Marx. Proudhon is best known as the founder of syndicalism and the cooperative movement.
But Proudhon also favoured unlimited creation of public credit through a cooperative bank. This is what Professor Galbraith says of Proudhon's theory:
And Proudhon is one among many parents of the great continuing faith in monetary magic - of the belief that great reforms can be accomplished by hitherto undiscovered designs for financial or monetary invention or manipulation. Proudhon's bank was a dubious imitation of the one with which John Law first astonished, delighted and then ravaged France a century earlier.
Mr John Law ran the Bank Royale in France in the seventeenth century, with disastrous consequences. Galbraith goes on:
There are some economic lessons that are never learned. One is the need for the most profound suspicion of innovation in matters concerning money and more generally the field of finance. The thought persists that there must surely be some as yet undiscovered way of solving great social problems without pain, but the simple fact is that there is not. Ingenious monetary and financial designs, without known exception, turn out to be, if not innocuous, then frauds on the public or, frequently, on their perpetrators themselves. Proudhon was not the first to have faith in monetary magic, but he was an early advocate in an enduring tradition.
Mr Deputy Speaker, this monetary magic, this idea that everyone out there is wrong and that the world would be perfect and we would live in a Shangri-la if only people understood the simple truth about credit, is, as I have said, an enduring fallacy of economic thought. It would be wonderful if it were true, but sadly it is not.
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