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Obama: ‘No Difference Between Capitalism and

Communism’

affluentinvestor.com /2016/04/obama-no-difference-capitalism-communism/

Prof. Reuven Brenner

Prof. Reuven Brenner | On April 15, 2016

Barrack

Hussein

Obama II, 44th

President of

the United

States of

America

Hard to know

what is more

shocking: A

president of the

United States

stating in a

Buenos Aires

speech last

week that there

is “no

difference

betweencapitalism and communism, choose whatever works” (see video link in the endnote) or the fact that this statement

has not received coverage.

How can a president of the US get it so wrong? And just 30 years after communism fell? Or without so much of

correcting himself saying: “Though remember, Germans believed that fascism worked for the German tribe for a

while, and communism had its Gulags and starved millions, and don’t forget all the people who disappeared under

Latin American dictatorships, communist or other, or radical Islami sm, for that matter. So perhaps I misspoke.” No,

there is no such correction in his speech. Obama’s statements make Bernie Sanders success and repeated call for

“revolution” before screeching crowds more comprehensible. The lack of outcry is actually deafening.

The last time political leaders were this confused was after WWI and during the 1930s: People were uncertain abouthe model of society they should emulate, as none of the countries then set clear example worth striving for. The fac

that the sad state of affairs had to do with compounding domestic and international mistakes that actually violated

principles of “capitalism,” or of “democratized capital markets,” (as I much prefer defining the main feature of this

“ism,”) disappeared from sights and most minds. The result was that people ended up betting on devastating idea

disastrous political systems, with long term consequences – communism being just one of them.

Recall the 1920s and 1930s: Hyperinflation in Germany, Hungary, Austria, and Italy destroyed their middle classes

and financial markets, consequence, in part, of the devastating Versailles treaty imposing onerous debts. With

financial markets in shambles and people’s savings eroded to nothing, governments and central banks became the

main, often unaccountable, financial intermediaries – and that means having much increased powers in their hands

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Austria, following the large credit expansion during and after WWI, and later the collapse of its largest deposit bank

Credit Anstalt, became insolvent. Though Austria first kept the schilling linked to gold, investors realized that this

could not last, and capital left the country, and in 1931 the schilling was delinked from gold. These events

precipitated the United Kingdom’s own exit from the gold standard in that same year, after it mistakenly re-linked the

pound to gold in 1925 at the pre-WWI level, in spite of the high inflation the UK experienced during the war. This

resulted in predictable deflation and high unemployment. As a result, neither Austria, nor UK “capitalism” appeared

worth emulating.

France learned from the United Kingdom’s 1925 mistake. Raymond Poincaré, French premier in 1926, stabilized thfranc at the proper level (at roughly in the ballpark fraction of pre-WWI level), capital flowed back to France, credit

expanded, and France boomed without inflation or unemployment. A model to emulate, it would seem. But the UK

perceived French monetary policy as “competitive devaluation,” and the disagreement quickly destabilized the brief

international monetary calm. By 1928, the short-lived international cooperation Benjamin Strong, head of the Fed at

the time, engineered with parts of Europe, fell apart. From then on, the mazes of monetary and political errors

compounded rapidly ending in Europe’s devastating political bets that led to WWII.

This post-WWI sequence of events: Russia betting on “communism,”; Western Europe on a range of mistaken fisca

and monetary policies and bad international treaties; the US doing its own share after 1929 with the market crash

and unemployment in the 20-30 percent levels – all ending with the middle class falling far behind and the

destruction of “democratized capital markets” preventing them from rising, destroyed all visibility what model of society should Europe and the rest of the world strive for.

With savings and access to financial markets thus evaporating, people turned to the two remaining “institutions” for

accessing capital: government and “crime” – the latter in a broader sense of the word, referring to wars too, on both

“foreigners” and citizens redefined as foreigners too in particular (“Jews,” that is). People always seek

rationalizations for the new trends, increased roles for government, central banks and military in this case.

“Intellectuals” are always ready on politicians’ shelves to offer promptly such rationalizations. Thus predictably, the

1920s and 1930s also saw socialism and communism rationalizing governments’ expanded roles in some countries

In others, theories about public works and, eventually, the Keynesian framework rationalized the permanent

increases in governments’ and central banks’ roles, raising and allocating capital.

Yet closer inspection of these events does not lead to Obama’s “capitalism-communism-whatever” view of the world

Rather, the sequence of events shows how important it is to put obstacles in place so governments and central

banks cannot centralize too much power, become unaccountable. The historical reminders also show how importan

international agreements are, those sustaining stable exchange rates in particular.

This should not surprise: prosperity happens when talents are matched with capital, holding all parties accountable

the talent, the capital, and the matchmakers. This is easier said than done – building and sustaining the layers of

institutions to keep matchmakers accountable, in particular.

Every society, no matter where or when, has five sources of capital: inheritance/resources; savings; access to

financial markets; government; and, last but not least, “crime,” through military power in particular. After WWI, theseries of monetary blunders and lack of international cooperation decimated people’s savings and the Versailles

Treaty kept resources captive. These events destroyed capital markets and international trade, and the fact that

restoring stable currencies was a requirement for trade to be restored faster, got forgotten in the confusing state of

affairs.

What about today?

Societies are as uncertain now about which model of society to strive for and how to repair the global monetary

systems as they were after WWI. Surprisingly, the president of the US is (mis-)leading the way, even though the US

has the longest experience with “democratized financial markets.” True, a series of grave political and regulatory

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mistakes combined with lack of accountability in the financial sector brought about the recent subprime-induced

crisis.

But how can anyone compare the – no doubt – huge costs of this crisis with the impact of communism in Russia or

China, with millions killed or condemned to Gulags, and millions starved and millions others forced into death

marches? And by a person with pretension to being a “constitutional scholar” too, having gone through Columbia,

Harvard, and lecturing at University of Chicago law school on, according to colleagues, “Constitution, race, and

gender”?

By equating “capitalism” with “communism” it does not appear that Mr. Obama grasped the essence of the US

constitution – namely, dispersion of powers.

Without such dispersion – that only access to independent sources of capital offer, votes and beautifully written

constitutions are little more than pieces of paper – as his Latin American audience can attest.

The 1920s and 1930s offer warnings to them, and even to the US, with a president this ignorant and confused.

The link to the Obama speech: http://www.infowars.com/obama-theres-little-difference-between-communism-and-

capitalism/

The opinions expressed in this column are the author’s own and do not necessarily reflect the view of Asia Times.

(Copyright 2016 Asia Times Holdings Limited, a duly registered Hong Kong company. All rights reserved.

Please contact us about sales, syndication and republishing.)

Originally posted on Asia Times.

Prof. Reuven Brenner Reuven Brenner holds the Repap Chair at McGill’s Desautels Faculty of Management, serves on

the Board of the McGill Pension Fund and is member of its investment committee.

He worked with Bank of America, Knowledge Universe, EEN, Bell Canada, Repap Enterprises

and with investors in Canada, Mexico, the US and Europe. He has been involved in the private

equity markets as partner in Match Strategic Partners, has been investing in start-ups across

Canada, as part of an “angel group,” and also created his own start-up, “e-mortal.com.” He has also been serving o

boards of companies and institutions.

He was expert witness in cases covering anti-trust, bankruptcy and financial matters. In other spheres, Quebec’s

government asked him in 1995 to be member of a commission whose mandate was to examine all aspects of Quebec’s possible separation. He was also asked to testify before US Congressional Commissions and Canada’s

Senate’s Banking and Finance Committee, and worked with Poland’s central bank during the recent crisis.

His recent books are A World of Chance (2008) and Force of Finance (2002). His regular columns appeared in

Forbes, The Wall Street Journal, Asia Times and other financial press around of the world. Forbes’ journalists put

two of his earlier books in their all time recommended list, and Forbes Global dedicated a cover story, titled

“Leapfrogging,” to his works and endeavors. Brenner also received the Killam Award (1992), the Royal Society

elected him as “Fellow”(1999), and he received a Fulbright Fellowship Grant (1976).

Brenner was born in Rumania and immigrated to Israel in 1962. He served in the Israeli army between 1966-69,

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during the Six-Day War, and again during the 1973 Yom Kippur War. The Fulbright fellowship brought him in 1977 to

Chicago, after completing his PhD at the Hebrew University and working at the Bank of Israel, where he received th

First Prize from Israeli banks (for work with Saul Bronfeld, designing indexed securities). He lives in Canada since

1980. He is fluent in English, French, Hebrew and Hungarian.

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