The Underlying Goal of of the Bank of Canada Lawsuit

LvMIC:

Earlier today, Redmond (director of the Ludwig von Mises Institute of Canada) pointed out this little gem of a lawsuit:

PRESS RELEASE TORONTO, ON., CANADA- 19/12/2011
ECONOMIC THINK TANK CONFRONTS THE GLOBAL FINANCIAL POWERS IN CANADIAN FEDERAL COURT.
RESTORE THE USE OF THE BANK OF CANADA FOR THE BENEFIT OF CANADIANS AND REMOVE IT FROM THE CONTROL OF INTERNATIONAL PRIVATE ENTITIES WHOSE INTERESTS AND DIRECTIVES ARE PLACED ABOVE THE INTEREST OF CANADIANS AND THE PRIMACY OF THE CONSTITUTION OF CANADA
Canadian constitutional lawyer, Rocco Galati, on behalf of Canadians William Krehm, and Ann Emmett, and COMER (Committee for Monetary and Economic Reform) on December 12th, 2011 filed an action in Federal Court, to restore the use of the Bank of Canada to its original purpose, by exercising its public statutory duty and responsibility. That purpose includes making interest free loans to municipal/provincial/federal governments for “human capital” expenditures (education, health, other social services) and /or infrastructure expenditures.

So what should be made of this?  For those versed in the Austrian Business Cycle theory and aware of the destructive consequences brought by central bank manipulation of the borrowing interest rate, perhaps joy should be expressed as one more central bank is having its feet put to the proverbial fire.

But before anyone starts championing COMER’s cause, their motive must be thoroughly examined.  From the press release, it’s obvious that the Committee of Monetary and Ethical Reform is in favor of more money printing to finance endeavors they find favorable.  But what should really be emphasized is the push for “interest free loans.”

The idea of “interest free loans” should sound familiar to anyone acquainted with a particular school of economic thought that has dominated the profession for decades.  I am of course referring to Keynesiansim and its underscoring of government spending funded by central bank monetary easing as the prescription for full employment.

In chapter 24 of The General Theory of Employment, Interest, and Money, Keynes writes:

Furthermore, it seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. I conceive, therefore, that a somewhat comprehensive socialisation [sic] of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative. (my emphasis added)

In Keynes’ utopia, bureaucrats are capable of abolishing the law of scarcity and allocating money to those ventures most profitable and efficient.  It’s no wonder why Keynesian took off as a plausible theory as it provided political cover for politicians to do what they do best: buy political favors with squandered funds.
This passing suggestion by Keynes has bolder implications however.  In his brilliant The Failure of New Economics, Henry Hazlitt connects the dots:

It is hard to believe that Keynes is as naive as he pretends, and that he is not laughing up his sleeve.  The rate of interest- the valuation of time and of all investments- is to be taken out of the market and put completely in the hands of the State.  But Keynes ignores the complete interconnectedness of all prices.  This especially includes the prize of capital loans, any state tinkering with which must necessarily affect and distort all prices and price relationships throughout the economy.  Through its socialized investment, moreover, the State would decide which firms or industries to expand and which to freeze or contract.  Even though the State did not technically own the instruments of production, this would lead to a de facto socialism.

So is COMER an advocate of de facto socialism?  Take a look at their description from their own website:

About Us

Whether you know a little – or a lot – about economics, our website is for everyone. An understanding of economics (not outer space!) is the “final frontier.” The realization of a workable and equitable national, global economic theory may well determine how we are to live from here on in, in a reasonable fashion, on Planet Earth.

COMER is an international publishing and education resource based in Toronto, Canada, and is comprised of people who are concerned about the destabilizing effects current economic and monetary policies have had, and are having, on the citizens of Canada and other countries.
COMER argues for prices in a mixed economy (economic reform), and advocates for changes in monetary policy (monetary reform) through revisions in the Bank of Canada Act.
The Journal of the Committee on Monetary and Economic Reform was launched as COMER Comments in 1988. Its purpose was to study the strange turn that monetary policy was taking under the aggressive leadership of the world’s central banks and, in particular, the 1991 proclamation of John Crow, then Governor of the Bank of Canada, who declared “zero inflation” to be the primary concern of the central bank.

Overview

In Canada, we have all the manpower, natural resources and know-how we need – at our fingertips – to create a better world. Canadians could live in a safe, quality-based environment, secure in the trust that social programs, set within the context of Canadian resources and jobs, would be secure for them, their children, and generations to come.
Standing steadfastly in the way of The Dream of Canada are well-organized, well-presented rationalizations that champion marketplace greed and foster political doubt as to what the best policies might be.

The Committee on Monetary and Economic Reform advocates for necessary changes in monetary policy, and for economic reform. We argue that a fair, equitable economic theory is well within our grasp, a theory within which monetary policy may be constructively brought into being for the benefit of all Canadians.

Let’s see: “equitable” economic policy, “mixed economy,” “safe” and “quality-based environments,” and securing “jobs” and “social programs.”  If it walks like a duck and talks like a duck…

While COMER is correct that central banks around the world have been engaged in destabilizing monetary policy, their solution of what amounts to institutional inflation is not only a further destabilizing policy but a giant step down the road of serfdom where the State becomes the ultimate gatekeeper of which businesses are allowed to succeed to prosper.  This lawsuit will most likely not amount to anything but it’s certainly an interesting development.  At least COMER has now revealed itself for the de facto socialist organization they really are.