Conversation with Master Chef Craig Shelton on Economics and Banking Systems: Founder, Aeon Hospitality (4)

Author(s): Scott Douglas Jacobsen

Publication (Outlet/Website): In-Sight: Independent Interview-Based Journal

Publication Date (yyyy/mm/dd): 2021/04/15

Abstract

Chef Craig Shelton has over 40 years of experience in science-based cooking and teaching in the hospitality business. He trained in eight of the world’s greatest restaurants, including “El Bulli”, “Jamin”; “Ma Maison”, “L’Auberge de l’Ill”, “Le Pré Catelan”, “Bouley”, “Le Bernardin”, and “La Côte Basque. Chef Shelton has earned countless awards as Chef-Owner of his own restaurants including a James Beard Best Chef medal, NY Times 4-Stars ratings on four separate occasions, a 5-Star Forbes rating, the Relais & Châteaux Grand Chef title; and Number One Top Restaurant in America in 2004 from GQ. Mr. Shelton is also an instructor at Princeton University in the Princeton Environmental Institute, where he teaches a freshman seminar on the interrelationships between public policy, agriculture, diet-related disease and anthropogenic climate change. Mr. Shelton began his expertise in this area while an undergraduate of Yale where he earned his degree in Molecular Biophysics and Biochemistry. He is a co-founder of the think tank, Princeton Center for Food Studies, the founder of King’s Row Coffee, and a co-founder of Aeon Holistic Agriculture, Inc. He is recognized as a consummate business consultant with specialization in macro finance. He is known for his ability to generate excitement in his cooks and instill in them the drive toward excellence by connecting all aspects of gastronomy to the larger intellectual landscape – chemistry, ecology, literature, art and human physiology. His great passions are reading and ocean sailing. His full C.V. can be seen here. More about Aeon Hospitality, Mountainville Manor, Aeon Holistic Agriculture, Kings Row Coffee, and Princeton Studies Food (in the hyperlinks provided). He discusses: economics of hospitality; and banking systems.

Keywords: Aeon Hospitality, banking, British Banking, Chinese Banking, Craig Shelton, finance, German Banking.

Conversation with Master Chef Craig Shelton on Economics and Banking Systems: Founder, Aeon Hospitality (4)

*Please see the footnotes, bibliography, and citation style listing after the interview.*

Scott Douglas Jacobsen: To close off, what about the economics of everything?

Master Chef Craig Shelton[1],[2]*: Also, the economics of it. I have a passionate love of the study of economics. The moral and historical basis, the heterodox basis, this expression, which I’m talking about, or the transmogrification of agriculture and the food system.

The industrialization of the food system, the Frankenstein’s monster that it became; it is symptomatic of an even deeper problem faced in the world, which is the systematic regressive wealth distribution caused because of the form of banking most of the world uses referred to as British banking.

Unlimited money creation power is given to commercial banks and other financial institutions. We don’t even understand. It almost changes capitalism into a command economy, which redistributes wealth from the bottom to the top and the young to the old through a mechanism of artificial asset price inflation.

This is concerning and one of the key observations of a book, which I am working on now. A contrast of various forms of capitalism possible – trying to bring to light little policy space with such phrases as “How are we going to pay for it?”

The reality: There is massive amounts of policy space, once we are willing re-examine the first assumptions embraced by us – without even knowing it. That’s a long-winded answer as to what I have been trying to do with my life and the food system, and trying to bring back authentic food systems back to it.

It is to restore human health and planetary healthy. It is looking at the looming problems. The British banking system compounded worse with income-based taxation. I think about the fact that when the entire history, of recorded history, of human beings back to ancient Sumer; taxation was always based on wealth.

80%, 90%, 100%, of taxes were property taxes, which corresponded very well with net worth back in the day before derivative instruments and such. So, what we’re living in, the idea today is this radical transformation, where almost 100% of federal revenues are collected on the basis of income.

This is a radical experiment in the history of the world. It has helped to de-tether real estate from the rest of the economy. Germany discovered this over 200 years ago. Germany had a different style of banking. It is called variously, “German Banking.”

Jacobsen: [Laughing].

Shelton: Or Industrial Banking, in Germany, commercial banks are not allowed to use this power of money creation for financial transactions. Meaning, an asset not being created new. It is an asset pre-existing and changing ownership.

When you change a piece of land, nothing new is created. You cannot get a commercial bank on that. You would need something resembling a credit union in America. It is more community banking. There, and only there, you are borrowing true savings.

We have this mythology. We were led to believe. Banks are simply intermediaries or financial mediation via a bank. That the role bankers play is purely middlemen. They collect savings and then they allocate those savings out to someone less patient, more impatient, who charges that person a higher interest rate than the depositor. They live off the margins.

That is the simple folk tale people have been told. It is a malicious folk tale. It is the single greatest contribution to the world’s immiseration. There’s simply nothing out there doing more harm to more people.

It’s the reason that inequality keeps skyrocketing. I said at the beginning of my book. Let’s look at these 9, 10, or 11 graphs, here is America since the end of WWII, we see a nearly straight line of tax reduction for the richest and for everyone else.

Down, down, down, down, we ask the corporations to pay in taxes. You would expect profits to be up correspondingly over the next period of time. We look at the next graph. Labour share of sales, of GDP.

Down, down, down, down, every year since the mid-60s. It is a complete straight line down. You would expect the profits of the companies of America to be up. You look at the velocity of money. It is down, down, down, down. You would expect the profits to be up.

You look at the reinvestment of profits into new capital goods – down, down, down, down. It is every single year, a straight line. Look at the profits of American corporations, they are down every single year.

This is extraordinary. How can it be: all of the expenses to businesses are going down and profits are not going up, but going down, too? Then you see the buildup of corporate debt. It is due to the artificial asset price inflation of commercial real estate.

Commercial real estate is rising 10 times, 20 times, even 100 times faster, then the company is able to raise its own retail prices. It creates a massive expense wedge, which is first taken out of labour. This is the reason all productivity gains, not one percent went to labour.

Basically, this is from the 60s forward. These are fascinating observations. This accumulation of debt. The size of the money supply, when you include credit as money, money is a commodity. I think it is tautological.

I think that’s a false construct. Money and credit identical, not merely equal, that produces a theory of banking, which then is called the Credit Creation Theory of Banking. If you use Credit Creation Theory of Banking and substitute that for the Financial Mediation Theory of Banking used by all economists, you develop an economics, a mathematics, with a strong predictive power.

That is the weak link in the whole thing, in my humble estimation. Once you start to think in this out of the box fashion, one cannot un-see the seen. Its explanatory powers go down to agriculture. Why, on Earth, would human beings be so suicidal, so stupid?

In the last 40 years, the finite quantity of crop land, high nutrient dense topsoil; we’ve lost 1% every year. We’re down to 60% of the original size, even as population has doubled or tripled in this time.

How can we account for that? Industrial agriculture is, certainly, to blame. Because when you made it your decision to grow the cheapest possible food, like corn, wheat, rice, and soy, unfortunately, when you grow the cheapest possible crops, you are limiting yourself to the cheapest possible agricultural techniques.

Amongst them, how are you going to irrigate? With corn, you end up with lime on the cheapest form of irrigation, which is, usually, a pivot. It is aerial. It comes from above and drops down onto the soil. The first problem: it is not ecologically sound, and wasteful of a precious commodity, which is water.

Equally important, the ground water coming up is filled with minerals and salts. The process of evaporation only concentrates them. If you use twice as much water as a surface irrigation, you use four times the amount. You end up with salinization.

Eventually, the soils will become inert. That is, you can’t get any nutrients across the salt membrane. We are seeing this across the world now, in many locations. Much more damaging has been the plough, turning over the soil 18 inches as pest control or as weed control.

People need to understand. Plants don’t have a digestive system, like we do. It is the microorganisms on the surface of the soil, which are the effective digestive system for the plants. When you turn it over, you are killing them, temporarily, at least.

In the state of nature, you do not see this type of erosion. But when you start turning over the top soil like this, you see, in the near 100 years or 150 years, since the great migration West; we used to have 12 feet of topsoil across the entire Great Prairies.

Almost all the agricultural lands in America were 10 to 12 feet of topsoil. Now, it is 1 or 2 inches. As bad as it is in America, it is as bad or worse everywhere else. It is the second biggest reason for the loss of volume and square acreage of top soils.

But the single largest may surprise you. The single largest contributor for the loss of top soil is real estate development. This frenzy of selling debt, this embedded growth obligation of the British banking system.

The need this system acquires. This inexhaustible appetite for doubling the quantity of credit in the world again, and again, and again. It is the story of the person who did a favour for the sultan. When promised by the sultan, the man asked to take the chessboard and put one grain of corn on the first square, two on the second, and so on.

Hastily, he laughs and agrees to this. The court mathematicians come and say, “There isn’t wealth of corn in the entire world worth what you have just promised him.” This grotesque, insatiable demand for the doubling of credit in the world.

It needs placement. Credit, the bank credit has this one limitation. Banks, literally, can create money out of thin air, but only out of crediting it into existence. Some project or purchase has to happen.

The present value of the land for the farmer who has been brainwashed into growing corn, for example. The last time I checked, the average yield for a farmer who grows corn is only 60$ an acre, including all the government subsidies going into it.

So, the present value of the land, if you’re using for industrial corn production, is almost zero. You figured out a way to squander one of the most precious resources in the world to its lowest possible use.

It cannot stand up to the competition from real estate developers. The system is designed. They can get $200,000 an acre at present value in real estate development. To understand why this is happening, not just what is happening, it is a passionate concern because the system itself has taken on its own life.

I do not ascribe this to a lot of evil people at the top wanting to destroy the world. It is following rules blithely passed from one generation to the next. It set us on a path of self-annihilation. It takes a lot to not see the symptoms and connect them all together, when they have a root cause in the British banking.

It is made worse with a tax system based on income rather than property, wealth, or net worth. Of course, it is made worse. We act surprised that we have poverty or homelessness, or bad health outcomes, opioid crises.

It is so absolutely obvious. We have chosen this. These are all a result of our public policy choices. British banking was rejected by Germany 225 years ago. It is for that reason Germany didn’t lose its industrial base.

The German worker has relative parity in purchasing power to their grandparents. They can still afford to raise a family. They can still afford to buy approximately the same house, in approximately the same sized lot, in approximately the same location.

With some variation, it’s not perfect. There are no tariffs on foreign money coming in, which does destroy markets. But still, the difference is extraordinary. China adopted the German style of banking to a large extent with something called Guidance of Credit.

Guidance of Credit have three macros. There’s consumer credit used to buy consumer goods. Let’s limit the amount of consumer credit in our nation, so, we don’t produce consumer price inflation.

What about the second macro? The second macro are financial transactions e.g., when you buy houses, when you buy land, shares in publicly traded stock, and so on. In most cases, you cannot lose new money printed out of thin air.

You have to borrow pre-existing savings in a German system, in China. The third category is industrial banking. You will create something new, a new factory, buy new equipment to expand the factory.

That’s called new capital good creation. They allow it. That’s where the banks create the money out of thin air. The goal of German banking and Chinese banking is to make sure that the private debt to GDP ratio stays relatively flat.

That way, new money creation goes to the good of society in expanding the economy rather than just producing windfall profits that punish the buyer and reward the seller in an artificial fashion. This is the reason for the German miracle and the reason for the Chinese and a couple of other miracle nations.

They took this German banking system and elevated it. It is sometimes called Window Credit, Window Guidance. There are various names for it. There is variation between the nations. But here’s the kicker, Germany has never had an internally created banking crisis ever since it made this switch in 225 years.

What you begin to realize, this thing we call the “business cycle” is a complete misnomer. There’s no such thing. It should be called the ‘British Banking Cycle.’ Economists identified more than 100 years in the most persuasive cycle.

All this misery, great depressions and little depressions, are all caused by banks printing money out of thin air for the wrong purpose. Basically, collateral-based lending rather than for the creating of capital goods.

It is a mission for me to get this word out. My industry suffers from the distortions caused by British banking more than any single other industry in our economy. We have what is called the lowest productivity. Most people don’t know what productivity means.

They think of it as a virtue. It is not. A company’s productivity could go up, even as their sales and profits fall. Productivity means how successful are you in eliminating jobs and replacing those people with equipment.

In other words, the true definition is taking the annual sales of the company and dividing by the average number of full-time workers or their equivalent. When you do that, you see the average – 10 years ago, probably not different today – of all the industries in America combined is about $420,000.

But if you pick apart the various industries, you realize, “Oh my God.” Big tobacco is at the highest productivity. At the time, it was close to $3,000,000. Restaurants at the absolute lowest or $50,000. This is another area of gross incompetence, which is the way we pay for a social safety net.

It baffles the rest of the world, “Why could the wealthiest country in the world not have even the basic health program for its most vulnerable, poorest, and working people?” Not people out of work who don’t have it, but working people, nobody asks the most obvious question.

“How do they pay for it in the rest of the world?” Every other nation has it. They never said it. It is because it is distributed. The cost of the social safety net is distributed across businesses, but on a fair topline basis.

Everyone shoulders it equally based on sales. In America, we count on a head tax basis. It means a restaurant will pay 100 times the rate of employment tax that big tobacco will, as a percentage of sales. 100 times!

So, these are the kind of baked in policy choices that encourage a maximum degree of wealth transference from the poor to the rich and from the young to the old. These are choices that have been made through the use of power and wealth.

It’s baked into our cake now. We’re feeling the consequences of it ever more sharply. What a great time.

Jacobsen: Thanks so much.

Shelton: My pleasure, very much appreciated.

Appendix I: Footnotes

[1] Founder, Aeon Hospitality.

[2] Individual Publication Date: April 15, 2021: http://www.in-sightjournal.com/shelton-4; Full Issue Publication Date: May 1, 2021: https://in-sightjournal.com/insight-issues/.

*High range testing (HRT) should be taken with honest skepticism grounded in the limited empirical development of the field at present, even in spite of honest and sincere efforts. If a higher general intelligence score, then the greater the variability in, and margin of error in, the general intelligence scores because of the greater rarity in the population.

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