You always hurt the one you love: central banks and the murder of capitalism
Bernard Connolly
Unicorn, £30

BERNARD CONNOLLY is the excellent economist who wrote the brilliant critique of the euro, The Rotten Heart Of Europe. In this fine book, he analyses what he calls “the global Ponzi scheme” that is present-day capitalism.

He acknowledges that “there has been extractive behaviour (what Marxists would call exploitation) on a massive scale... What has happened in Western economies in this century in terms of financial crises and massive inequalities of income and particularly, wealth, can appear to validate Marxist predictions.” 

As he notes, Marx believed that crisis was inherent in the nature of capitalism and wanted the crisis to be resolved by instituting a socialist system. Friedrich von Hayek, by contrast, believed that recurrent crises in capitalism were caused not by the nature of private property but by monetary mismanagement, and wanted crises to be resolved in a way that preserved capitalism. 

Connolly is with von Hayek.

He argues that “central-bank thinking... has produced boom-bust in almost all Western economies. It has quite deliberately provided incentives for irresponsible financial behaviour both by lenders and by borrowers. It created the post-pandemic inflation crisis. It has produced a financial crisis, has come close to producing others, and will inevitably produce another one, destroying the credibility of capitalism in many people’s eyes. 

“It has led to massive and unacceptable inequality in the distribution of wealth. It has contributed to a slowdown in productivity growth which has squeezed real wages. It has provided cover for the destructive lunacy that is the euro and thus for the untold damage the euro has caused. And it has helped entrench the unaccountable power of multinational bureaucracies, big banks and big business.”

So, according to Mr Connolly, it is not capitalism that is to blame, but the mistaken ideas of central bankers. Presumably, if they had adopted a different monetary policy and taken his advice, these consequences would not have followed.

He observes that the standard economic model “astonishingly” does not recognise even the possibility of economic crises. By following this model, central bankers failed to recognise either that US growth has been dependent on a Ponzi scheme, or that once a Ponzi scheme stops growing, it collapses. 

He points out that: “The creation of a massive global Ponzi game, admittedly with the Fed heavily implicated in it albeit without willing it, was heaven-sent for Euro-imperialist statists. The longer it continued, with distributional consequences that must ultimately be unacceptable to ordinary people, the greater the excuse for pervasive government interference and control — and “government” would mean, in this context, the unaccountable, anti-democratic organs of the EU. 

“If, instead, the Ponzi game collapsed for whatever reason, that would put the peripheral countries over a barrel, their elites willing to accept any amount of EU-inflicted suffering — not for themselves, of course, but for the people whose interests they were supposed to defend. Monetary union could not have been more perfectly designed to maximise the damage that a global financial crisis would bring.” 

So, all the EU’s efforts to “save the euro” meant blowing up huge and dangerous credit bubbles and imposing savage, anti-democratic “austerity” (poverty) policies on eurozone countries, “efforts which may yet turn out to... kill the euro area and perhaps even kill the EU.” As former MEP Roger Helmer put it, asking if the euro could be saved was like a cancer patient asking his doctor if his tumour could be saved. 

“The main challenge to democracy... is that central banks and the caste of academic macroeconomic ‘experts’ have... succeeded only in serving the interests of... the global nomenklatura of politicians, bureaucrats, quangocrats, bankers and multinational corporations.” 

And where did this global nomenklatura spring from? From outside the system? Or is it a product of the Ponzi-based system that Mr Connolly seeks to save?

“Monetary policy... has been so important in creating a distribution of wealth that is not just unequal but also inequitable. Such generation is not an inevitable feature of capitalism, and certainly not of free markets, but instead results from monetary policies.“
 
Mr Connolly notes that Fed and Treasury policy in 2023 produced: “a greater concentration of deposits in the bigger banks... the massive use of the BTFP [Bank Term Funding Programme] — about $153 billion — in the first few days after its inception suggested that transfers of deposits from small and mid-sized US banks to the largest ones were enormous.”

But why did the central bankers adopt just this policy and not one of, say, transferring deposits from the largest US banks to small and mid-sized banks?

Mr Connolly writes: “The failure of macroeconomics can be traced directly to the rigging of markets. Just about all markets have been rigged by the development of anti-free-market capitalism.” 

But where did this anti-free-market capitalism come from? It developed from capitalism itself — monopoly capital is the inevitable end product of capitalist development. But monopoly is a term which does not even appear in the book’s index.

He even quotes Marx: “The capitalist mode of production... establishes a monopoly in certain spheres, and thereby requires state interference. It reproduces a new financial aristocracy, a new variety of parasites in the shape of promoters, speculators and simply nominal directors; a whole system of swindling and cheating by means of corporation promotion, stock issuance, and stock speculation.” (Capital, Volume III, p. 438). 

As Marx also put it, more pithily — “One capitalist always kills many.” (Capital, Volume I, p. 763). 

The capitalism that Mr Connolly seeks to save produces the “nomenklatura” whose existence he deplores.