The fact is that while some people talk about the financial markets being in turmoil, the reality is that they are in chaos. The capitalist system requires that there is a fundamental belief in the old maxim “honour among thieves”.
The problem that we now have though is that banks don’t trust other banks. So while the central banks determine interest rates that money is lent to the banks, the banks themselves aren’t prepared to loan money out to other banks, because they don’t believe the published information about the state of the other banks’ balance sheets.
But that too is really just the tip of the iceberg and is there to take our focus off of the bigger problems that face us all.
The big problem is that we have too many people on the planet all consuming too much. That means that there is a very high demand for energy. Those billions of people in China and in India who are starting to experience the ability to purchase goods are doing so because they were infected with an idea virus. That idea virus – or meme – was possibly America’s greatest invention and greatest export.
That concept was the invention of a man called Edward Bernays. It is his story that signals the beginning of the great society that the west has enjoyed for the last 90 years and it is the unintended consequences of his invention that mean that we have to find a new meme that is more effective than the old to reinfect the population of the world.
What was this idea virus that Edward Bernays created? And who was he?
Edward Bernays was the nephew of Sigmund Freud. His family emigrated to the US from Germany by way of England before World War 1. Bernays was the father of the modern public relations business. He used some of the ideas that were the brainchild of his uncle and was able to convince clients of the ways that people thought and how their thoughts could be turned to the benefit of the clients’ needs.
One of the clients that Bernays worked for was Sarah Lee. They had a problem. They had created a cake mix that just needed water added to it and then could be popped in the oven. The problem was that housewives were not buying it.
Bernays did some studies and came up with the conclusion that the housewives that the product was targeting felt that they had not personal involvement in the success of the baking of the cake. He proposed that the company change the formula for the product to require the user to have to break an egg and mix that with the water into the cake mix before baking the cake.
The rest is history. The new cake mix took off like wildfire and still today in every supermarket that you go to you will find cake mixes that require the user to break an egg into a bowl and then mix it with the powdered ingredients in the packet.
From that and a number of other quite ground breaking ideas and campaigns his legend grew.
At the end of World War 1 he was given a brief by the Chairman of one of the largest investment banks in New York, Lehmann Brothers. The Chairman was deeply concerned about the potential for the US economy to implode. Manufacturing had been vastly increased over the period leading up to the armistice in 1918 in order to supply the needs of the British and the French in their war with Germany.
The problem that the Chairman of Lehmann Brothers envisaged was that there would be no need for that manufacturing beyond the end of the war. The investment that the bank had in manufacturing was generating huge profits and he wanted to continue to reap the kind of rewards that the bank was getting used to.
The idea that Bernays came up with was a concept of pure genius. He suggested that America was a needs-based society. It needed to change and become a desires-based society. This idea drove the philosophy of manufacturing and marketing in America from that day on. It drove the concept of developing new designs for motor cars each year. It drove the concept of new clothing fashion each year. It drove the development of planned obsolescence to ensure that after a certain period of time things would break down even.
It took hold in the board rooms of America and was the single significant idea that helped make America into the greatest trading nation of the time.
The desires of people in America could never be fully satisfied. Once they had found the taste for consumption of one kind of goods, they started to look for a new good. And that demand meant that people wanted to keep up with the consumption of their neighbours.
As the growth in desires increased so too did the inventiveness not only of the manufacturers to build new products, but also of the bankers to help facilitate the growth of the demand. They found new ways to help people borrow more money so that they could buy more stuff. Because something else seemed to happen as a result of the transmission of this meme: People started to have greater self-esteem. They wanted to live in bigger and better houses. They wanted better jobs. And as their work force borrowed money from the banks their employers found that their staff became more compliant, because they were now entirely reliant upon their jobs to ensure that they could make the monthly payments on their house mortgage and their car and furniture repayments.
This produced the ultimate virtuous circle concept that venture capitalists treated as the underlying rationale for their businesses: “You can never go wrong investing in other people’s self-interest”.
The American Culture became a key part of Hollywood too. Movies and then TV programs made in the US for Americans reflected the culture that had grown up around the concept of satisfying a desires-based society.
America, totally obsessed with itself, largely ignored what was happening elsewhere in the world and just focused on its own market. World markets for movies and TV and music were thought of as irrelevant to most executives who continued to think of success in terms of whether a production was able to recoup its costs and make a profit in the domestic market. They were not alone.
The result was that around the world people enviously watched reruns of American programming like Dallas and saw profligate wealth that they could only dream of.
And then in order to feed the desire for ever greater profits American companies started to move their manufacturing to places where labour costs were low and skills high. That meant that in some markets where people were living in shacks with the only piece of furniture being a colour TV, that they could now get jobs. And now they too could aspire to the meme of living in a desires based society rather than a needs based one.
With the advent of the PC and the Internet, things went into hyperdrive. Suddenly like the fall of the Berlin Wall, the barriers to entry came down. Now not only could people aspire to own physical goods, but they could actually share content that would be able to be played on their devices too and at virtually no cost.
Globalization of product flow was one thing. Globalization of content was the next. Then came globalization of money flow.
And the huge irony at this time was that while no one in the US had been watching the governments of some of the countries that they were doing business with had been storing the financial wealth that had been created.
Of course this went totally against the grain for some people who believe that any political leader should steal as much of his country’s wealth as possible and put it into a numbered Swiss bank account.
The concept of not stealing the wealth of countries may be the most revolutionary concept of all. But the evolving tragedy for the US is the possibility that some politicians are honest. The sovereign wealth funds in the countries with the politicians that don’t steal the treasures of their countries (either because they are so huge or because they are honest – it doesn’t matter which, frankly) are the ones that are being relied upon to continue to loan money to the US to bail it out. And you have to wonder how patient they will continue to be with the US given the way that it manages its economy.
