The old Monty Python's Flying Circus had a sketch, "How To Do It," in which three completely fatuous hosts of a BBC show called How To Do It told you, well, How To Do It, that is, solve any problem. Take, for instance, How To Cure All Known Diseases:
John Cleese: "Here's Jackie to tell you all how to rid the world of all known diseases."
Eric Idle in Drag: "Hello, Alan."
Cleese: "Hello, Jackie."
Idle: "Well, first of all become a doctor, and discover a marvelous cure for something, and then, when the medical profession really starts to take notice of you, you can jolly well tell them what to do and make sure they get everything right so that there will never be any diseases ever again."
Cleese: "Thanks, Jackie. Great idea. Now, how to play the flute . . ."
The sketch was allegedly based on Blue Peter, the longest-running children's program in the world that debuted on the BBC in 1958, geared toward children ages 5 to 8. It presents facts and activities presumably geared toward that age level. The Monty Python sketch could thus be taken as an incisive and biting satire on the efforts of academics and world leaders who remain stuck in oversimplified and outdated paradigms and struggle vainly to solve increasingly desperate world problems, with spectacular failure the inevitable result.
Or it could just be a bit of fun, but that doesn't give us a segue into today's blog posting — a brief commentary on Jeffrey Sachs's column in this past Friday's Washington Post: "How I Would Lead the World Bank" (03/02/12, A21). Ostensibly simply a way of trying to force the decision by going public with his alleged qualifications for the job of president of the World Bank, Sachs's essay is, perhaps, a trifle more revealing than he intended.
Admittedly, we probably wouldn't even have looked at the column if somebody hadn't started laughing and exclaimed, "This sounds like a grade school composition!" Looking it over, it bore a striking resemblance to the sort of thing a teacher in elementary school would see if he or she handed out an assignment on "If I Were King of Poland," "If I Were a Fireman/Astronaut/Policeman," "How I Would Solve All Problems If I Had Three Wishes," etc.
Sachs boasts that, unlike previous presidents, he doesn't come out of Wall Street or the political world. He is thus not one of the fat cats who have screwed up the system with their partial understanding of the nature of money, credit, banking and finance, but "a practitioner of economic development, a scholar and a writer" who doesn't appear to take trivial details like money, credit, banking or finance into consideration at all. He is on the side of "the poor and hungry," not "a corporate balance sheet or a government." He sees the World Bank as "far more decisive than a bank." Where past World Bank presidents apparently knew how to make money for themselves, Sachs knows how to spend money for others. He is "a trusted problem-solver for heads of state and impoverished villagers."
And so on.
Sachs goes on at some length how he intends to spend money. There is not a single word of where he intends to get the money he proposes to spend with such a lavish hand. That has worked out so well for Greece.
Here's a wild and crazy idea. Instead of reinventing the World Bank to make it more than a bank, why not use it for the purpose for which banks of issue were invented? We agree that the World Bank has been ineffectual, but not because it hasn't been spending enough on Jeffrey Sachs's pet projects under his guidance. It's because the World Bank has not been used properly to back up national central banks that back up the local commercial banks that are supposed to provide liquidity for self-financing economic development.
A bank is not supposed to undertake development projects itself. The job of a commercial or mercantile bank, as a type of bank of issue, is to trade privately issued money in the form of bills of exchange based on the present value of existing or future marketable goods and services, for the bank's promissory note. The bank's promissory note can either be used directly as money itself, or to back a demand deposit. A nation's or region's central bank ensures that commercial banks can, in turn, trade the bills they accept for the promissory notes issued by the central bank. This ensures a uniform currency that, all things being equal, is stable and "elastic," expanding and contracting to meet the needs of the private sector. A central bank also usually oversees clearinghouse operations and provides emergency reserves to prevent "runs" and bank failures.
A central bank thus functions, in part, as a type of monetary insurance. The World Bank, even though a product of the post-World War II Keynesian revolution, could easily be fitted into a program of global monetary, financial and banking reform to restore sound currency by functioning as a central bank for the world's central banks — and thus as a type of monetary reinsurance.
This would mean, of course, that virtually everything Sachs wants to do if he becomes president of the World Bank is out the window. The banking reforms that need to take place immediately are:
• Take politics out of the system by discontinuing the monetization of government deficits. (While this is the most immediately critical, it is also the hardest, and probably can't be done at once. Instead, a "sunset date" would probably be expedient, although not ideal.)
• Restrict all commercial bank lending to qualified industrial, commercial and agricultural capital projects. Personal banking services — especially consumer loans — should be separated from commercial banking and spun off as separate, purely depository institutions. Terminate all non-productive lending by commercial and central banks, whether for personal consumption or government expenditure, at the earliest possible date.
• Investment banking must be separated from commercial banking, and the financial system reformed to implement proper internal controls to restore automatic checks and balances.
• Implement a program of expanded capital ownership (e.g., Capital Homesteading), financed by discounting properly vetted and financially sound private sector bills of exchange that are immediately rediscounted at the central bank and, if necessary to ensure stability during the process of restoring a sound, asset-backed currency, rediscounted again at the World Bank.
Or we could just put Jeffrey Sachs in as head of the World Bank so he can solve all of our problems by spending money we don't have.
Great idea, Jackie.