CHAPTER 7

In a fascinating book titled On Aggression, Konrad Lorenz, winner of the Nobel Prize in Physiology, imagined what conclusion "an absolutely unbiased observer . . . on Mars" would draw after observing the great historical events of the world.¹ Here is his answer:

" . . . if our extramundane observer were a knowledgeable ethologist, he would unavoidably draw the conclusion that man's social organization is very similar to that of rats which, like humans, are social and peaceful beings within their clans, but veritable devils towards all fellow-members of their species not belonging to their own community. If, further, our Martian naturalist knew of . . . the ever-increasing destructiveness of weapons . . . he would not expect the future of humanity to be any rosier than that of several hostile clans of rats on a ship almost devoid of food"² [my italics].

Lorenz's thinking on the aggressive drive in humans and rats shaped more than modern ethology--the science of behavior and psychology. Echoes of this thinking reverberate even in the financial-services sector. In The Canadian Revolution, Peter Newman reported a quip Allan Taylor, the chairman of the Royal Bank until 1995, apparently made, in Saskatchewan:

"Bankers are so unpopular these days, that in response to complaints from the animal rights people the University of Regina has decided to use bank executives instead of white rats in all future biological experiments. There are three reasons for this new policy: there is an unlimited supply of bank executives; the researchers don't get attached to them; and there are some things a rat just won't do"³ [my emphasis].

Ethological intellect and witticism aside, the reported quip unconceals something tragic and distressing. Why are bankers so unpopular these days? Exactly what do bank executives do that rats just won't do? Is there a pre-historical animality lurking in the being-for-self of Usury, or is Usury an evil disease society cannot rid itself off--an "archaic past of the soul"?⁴

It is not what the bank executive reportedly quipped that concerns me here. What concerns me is what can remain unthought in the borrower's mind. Citizens as depositors and borrowers need an "Anthropology" of the Capitalist soul and a "Phenomenology" of the banker's mind.⁵ They also need a "Historiography" of Capitalist thinking and doing. Since these are beyond the scope of this book, I will limit myself to offering a summary of some of the great economic happenings of the last two business cycles in Canada--the world's "best" place to live.

The Darkness in the Business Cycle. In Capitalist societies, all values can be reduced to Money. So let me start with the money stock. The economic expansion in the last business cycle in Canada was driven by increases in the year-over-year change in the money stock (M2-M1, M2, and M3). Financial institutions (usurers in general) perceived a general opportunity to use the new money to earn higher fees and interest income from heavily collateralized loans. The increases in the money stock were followed by increases in commercial real estate loans, increases in the prime lending rate, and increases in the T-bill rate. The increases were also followed by speculative overinvestments in commercial real estate at banks and trust companies. Overinvestments occurred when commercial real estate loans, as percent of total domestic loans, continued to increase well after the year-over-year change in the money stock were decreased. The overinvestments led to a "credit crunch": per-share cash resources at many banks and trust companies plummeted. The 24-month rolling probability of default implied in the prices of the common stock of some financial institutions reached dangerous highs. Some financial institutions collapsed or were gobbled up by bigger ones. Claiming to reduce their exposure, many banks tightened credit: loans to scores of small and midsized businesses were suddenly and deliberately frozen, reduced, or called. Bank actions thus increased substantially the risk of illiquidity at many firms. Many sound and promising firms, including high-tech firms--the backbones of the so-called New Economy--, were destabilized and became vulnerable to aggressive economic predators. The value of collateralized assets plummeted.

The space-time changes in the structure and distribution of money, including bank loans, propagated through the economy like a monstrous wave--with terrible consequences for far too many. All the following variables increased significantly or substantially, following increases in the money stock--and in commercial real estate loans:⁶

1. Non-accrual loans.
2. Non-accrual residential mortgages.
3. The unemployment and underemployment rates.
4. The income gap between rich and poor families.
5. Personal and unincorporated business debt outstanding. As percent of personal disposable income, this debt peaked at about 87.4% in 1979, and soared out of control to about 100.9% in 1994. Ironically, the Qu--bec referenda were held in May 1980 (1979+1) and in October 1995 (1994+1)! In the October 1995 Qu--bec referendum: 48.5% of Quebecers voted for the separation of Qu--bec; 49.7% voted against; the turnout was 92%.⁷
6. Government deficits and the debt (all government levels).
7. The number of foreclosures and evictions (and the average claim per foreclosure).
8. The number of consumer bankruptcies.
9. The number of business bankruptcies.
10. The total criminal code rate (excluding traffic infractions)--and the total property crime rate.
11. The number of therapeutic abortions (especially in areas were non-performing loans were high).
12. The number of hospital discharges (alive or dead) for cardiovascular disease (ischemic heart disease--including acute myocardial infarctions or heart attacks).
13. The number of suicides (total male and female).
14. The number of beggars on the streets.

The increases were simply too large to be attributable to Solomonic time and chance. To sum:

1. People and their governments became more indentured.
2. The national economy was destabilized.
3. Canada's safety net was threatened.
4. Canada--the world's "best" place to live--came within a fraction of a percent from breaking up.

But Big-Bank profits soared! Economic arrangements were viewed with considerable suspicion. The commonwealth was threatened. Misfortune, loss, social marginalization, alienation, pain, suffering, despair, and misery of existence--all increased. Too many were failed by Capitalism.⁸ Canadians concluded that they could no longer trust Big Government, Big Business,--and Big Banks.

Konrad Lorenz reflected on aggressive behavior and its tragedies--in humans and in rats. He warned against the danger of self-destruction. Pondering how people can be physically destroyed at a distance by "modern remote-control weapons," Lorenz wrote: "The man who presses the releasing button is so completely screened against seeing, hearing or otherwise emotionally realizing the consequences of his action, that he can commit it with impunity . . . "⁹ Apparently, even "perfectly good-natured men, who would not even smack a naughty child" can reduce "hundreds and thousands of children to a horrible death . . . "¹⁰

The same logic obtains in the marketplace when economic power and technology are highly concentrated in a few masters. Today, people and small firms, even governments, can be economically destroyed--easily and at a distance--by "perfectly good-natured" Capitalists or their bankers. Flawed changes in the structure and distribution of money, including bank-money, can propagate through the economy with potentially devastating and irreversible consequences. Let me paraphrase Lorenz:

CAPITALISTS AND THEIR BANKERS, LIKE THEIR MILITARY COUNTERPARTS, CAN BE SO COMPLETELY SHIELDED FROM SEEING, HEARING, AND UNDERSTANDING THE CONSEQUENCES OF THEIR ACTIONS, THAT THEY CAN COMMIT ECONOMIC DESTRUCTION WITH IMPUNITY.