Prof. Reuven Brenner | On February 6, 2013

As we saw in my previous article about the perils of a banking system which is based on land values but which is not constrained by a monetary gold standard, many things perceived “real” can melt into thin air in a flash. Perhaps we would be far better from now on using the French word for “real estate” – “immobilier“.

This term captures the essence of this asset class, as the English word does not: it is immobile, you can’t take it away with you. It immobilizes owners to various degrees, making them easy targets for taxes. The “immobile” feature of this asset class brings a better understanding why politicians love to subsidize this asset class first – realizing that, push comes to shove, they can tax it later.

After all, politicians get more power the more their population is immobilized: they can regulate them, tax and bewitch them with slogans more easily. Real estate, farming, language laws (prohibiting learning other languages – see Quebec, whose laws make it illegal for their French and immigrant population to go to English schools, and require businesses employing more than 26 people to communicate internally in French) – are all great immobilizers.

No wonder governments, since antiquity, have favored such policies, praised “immobile professions” to the sky and held “mobile professions” (trade, finance, science) suspect. Was there ever a time when importers were praised? Never mind that they would roam the world for better and cheaper products to benefit locals. No government built statues to immortalize importers.

On the other hand, they subsidized every “land-based” ideology and practice, praising and subsidizing exporters among them. After all, exporting manufacturers are married to land, depend on the local government, and are in their grasp – whereas the “cosmopolitan” scientists, traders, importers – anyone with technical knowledge, be it engineers, computer technicians or scientists – can escape them.
Moreover, when unwilling to make domestic political, regulatory and fiscal changes needed – better rely on demands from other countries to cover for the persistent domestic mistakes. That this may end up in currency wars – as we may be heading today – politicians are very good in using gobbledygook economic theories and using gullible economists to rationalize devaluations, subsidized exports, and tariffs.

Ludwig Wittgenstein, the philosopher, was right when he stated that: “Philosophy is a battle against the bewitchment of our intelligence by means of language.” Indeed, “real estate” “QE,” “bubbles” (attributed to random variations in people’s mood rather than any concrete laws and regulations), erecting statues to heroes of subsidized “immobility” (unread, unwatched, not listened to statistical “cultures” being a good example) have all “bewitched” many for centuries, though “bothered and bewildered” a few.   The “spells” implied that while the hoi-polloi is subject to animal spirits (that is, random fluctuations in their moods), politicians, bureaucracies and central bankers, who never made money in their lives, are never subject to such lowly chemical imbalances.  They are eternally wise: Academic fads and jargons – Keynesian prominent in this respect – cover the fact that wisdom comes only from experience, from making mistakes.  When was the last time politicians, bureaucrats and central bankers admitting making them?

What are the most immobile professions, after all? Politics, local culture, government bureaucracy, law, much that is “academia” today  all are, and owe their expansion over the last few decades to governments having had easy access to credit. These are the professions which often benefit during time of land bubbles, but their immobility can be a detriment during times when the largest land-based revenue-seeking entity of all, the state, becomes hungry for revenues.

They will try to cling to power and compensations, rationalizing evermore policies on the subsidized academic fads and jargons.   Friedrich Heer, a great historian, wrote too that “all intellectual discussions in our time are struggles for language.”  Words shape perceptions and misperceptions not only about “real estate” but about monetary, fiscal and regulatory policies as well.  Take off the veils of jargons, and you suddenly see that many “emperors have no clothes.”

A version of this article originally appeared on Asia Times Online.  The article draws on Brenner’s Force of Finance (2002) and “Unsettled Civilization“.

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 on 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, 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 the 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.