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Newsletter No. 31 - July 2010

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CONTENTS

1. The UK Emergency Budget – Much Worse than Necessary

2. Book Reviews

(1) Mary Mellor,THE FUTURE OF MONEY: From Financial Crisis to Public Resource

(2) Clark McGinn, OUT OF POCKET: How Collective Amnesia lost the world its wealth, again

(3) John Stewart, PRIME MINISTER

(4) Fred Harrison, THE PREDATOR CULTURE: The Roots and Intent of Organised Violence

3. Further Points of Interest

(1) Latest "Tax Justice Focus" - on Land Value Taxation

(2) Free Lunch Blogspot 21 June on banking and land monopolies

(3) Elected European officials call for a European Finance Watch

(4) Financial Times Deutschland praises "Creating New Money"

(5) Resistance to Corporate Domination

(a) "Taming The Corporations", Austin Mitchell & Prem Sikka

(b) Benefit cheats compared with corporate tax cheats

(c) GM food and the Food Standards Agency; a sinister bid

(d) Agrarian Renaissance versus Corporate Supermarkets

(e) Campaign for Real Farming

4. Population Growth

 

1. THE UK EMERGENCY BUDGET - MUCH WORSE THAN NECESSARY

The UK Coalition Government's Emergency Budget proposals of 22 June ignored a huge potential source of expenditure saving and public revenue. It has been estimated at £200 billion (click here).

It consists of: the hidden subsidies that we all pay to commercial banks because our governments give them the privilege of creating our national money supply as part of their profit-making business; and the lost money we would be benefiting from if new money was created as public revenue and spent into circulation by the government on purposes that meet public needs.

Political and media reporting and debate about the recent UK budget has been limited to conventional questions: does it strike a proper balance between rich and poor, between tax increases and public spending cuts, and between a Keynesian and a Thatcher/Reagan economic response to our potentially disastrous prospects? Decision-makers and mainstream commentators appear to be totally unaware that monetary reform could change our prospects dramatically for the better by providing a very significant contribution to paying back our huge deficit.

As well as that contribution to our immediate needs, there are other overwhelming arguments for monetary reform. They require no academic economic teaching to understand, just common sense. They include the following.

(1) In a more "normal" context, if the banks are allowed to create over 95% of our money as interest-bearing debt, the only way to maintain a financially sustainable situation is to let them create more money continually, in order that borrowers can pay the interest on the debt already created. That systematically creates inflation, a more indebted society, and a growing gap between rich and poor.

(2) "Normal" situations can't last very long when money is created that way. As profit-making businesses competing with one another, commercial banks are inevitably under pressure to create too much money; that causes recurrent booms which end in busts; in busts the banks will not create enough money to meet society's needs; then they can hold the government to ransom to bail them out with enough taxpayers' money to enable them to lend us what should be our own!

(3) Allowing the banks to decide how almost all the money in society is used on its first entry into circulation, and to be paid interest on it as it circulates until it is repaid,

  • distorts the economy in favour of activities profitable to the banks,

  • imposes a hidden charge on everyone who uses money, and

  • subsidises the banking industry, and so reduces the efficiency of the services it offers.

All these problems could be avoided by transferring to an agency of the state (the Bank of England) the function of:

  • creating all the national money debt-free to meet the monetary objectives laid down by the government; and

  • giving it to the government as public revenue to be spent into circulation under democratic budgetary procedures.

The present out-of-date, undemocratic way of managing national money supplies is a central part of how the world's money system now operates perversely as a whole, nationally and internationally.

Citizens of other countries also suffer unnecessarily from it, as the G8 and G20 meetings last month in Canada confirmed.

 

2. BOOK REVIEWS

(1) Mary Mellor, THE FUTURE OF MONEY: From Financial Crisis to Public Resource, Pluto Press, 2010, 208pp, £13.99.

This is essential reading for anyone seriously wanting to understand the money system and its future.

Its chapter headings are as follows:

1. What is Money?

2. The Privatisation of Money

3. 'People's Capitalism': Financialisation and Debt

4. Credit and Capitalism

5. The Financial Crisis of 2007-08

6. Lessons from the Crisis

7. Public Money and Sufficiency Provisioning.

It concludes that:

"money is a public resource that should be used to provision human societies on the basis of social justice, wellbeing and environmental responsibility. A steady state economy would be possible if the money system was not driven by the demands of debt-based money, financial accumulation and profit-driven growth. Money should be reclaimed and democratised for the benefit of the whole of society and the natural world."

Inevitably there are some disputable points in the book. For example Gordon Brown did not make the Bank of England independent from the state (page 54). The Bank is an agency of the state. It is required to implement monetary policy objectives published by the elected government and parliament, and then to account to them for what it has done.

What Brown did was to take responsibility for decisions on changing interest rates away from politicians competing to serve their own electoral objectives, and give it to the Bank of England to respond professionally to what it thinks is the right way to meet the public monetary policy objectives the government has given it.

Another criticism could be that the book's title claims too much. The future of money and how it shapes the way we live won't entirely depend on how governments organise the creation and management of the money supply.

That will continue to play a dominant part. But how governments raise public revenue - what they tax and what they don't tax - and how they decide to distribute it through public spending will also help to determine the allocation of resources and relative costs and prices throughout an economy. How governments manage those functions today is just as perverse as how they manage the creation of money.

Finally, there is the question of capitalism and socialism.

In the book's 175 pages of text I counted 215 explicit references to "capitalism" and "capitalist" in a pejorative "anti-capitalist" sense. When they are not providing quotations from other writers, like Marx, they could almost always have been left out without any loss of meaning about the actual practices, policies, or purposes the particular bit of text is describing.

It's a pity that this potentially very important book is presented as part of a crusade against "capitalism". Presenting it as such could have the following consequences.

On the positive side, its insistent anti-capitalism may perhaps attract support for its vision of the future of money from committed "anti-capitalists" who might otherwise have ignored it.

Outweighing that, however, it will turn off everyone who is still determined to protect the idea of "capitalism" against the idea of "socialism".

More importantly, it may also repel potentially active supporters of reform who recognise that for the practical purpose of defining specific reforms the old opposition between "capitalism" and "socialism" is obsolete and backward-looking - unconstructively tilting at windmills, and distracting us from the practicalities of re-organising our money system to deal with needs of a democratic society today.

Some years ago I felt the same, but in the other direction, about the title to Jonathon Porritt's important book Capitalism as if the World Matters.

 

(2) Clark McGinn, OUT OF POCKET: How Collective Amnesia lost the world its wealth, again, Luath Press, 2010, paperback, 316 pp, £12.99.

Clark McGinn is a senior Scottish banker. His book is an informative, entertaining and well-written account of the crises of financial boom and bust that have resulted regularly over the centuries as the pendulum has swung between greed and fear. It is highly relevant to us today as world leaders fail to agree on how to recover from "the greatest financial debacle in history".

Part I is based on eleven case studies, including the South Sea Bubble of 1719, the absurd Dutch tulip price bubble of the 1630s, the Railway Mania of the 1830s/1840s and the Dot.Com Bubble of the 1990s. Going back to ancient times, Part VI's 11-page "Memorable Chronology of Collective Amnesia" summarises events since then in which our grandparents and their ancestors lost their money.

Part II is on "Banking Basics Gone Wrong - But How Does Banking Really Work?”. Part III is on "The Ten Laws of Banking and how they got broke"; the Seventh Law is "The Bonus Pool Does Not Reward Behaviour - It Sets It". Part IV is "Epilogue (Or Is It An Epitaph...) - The End Is Nigh". Part V is an amusing and informative fifty-page "Glossary of New Meanings For Old Words" - like "Casino Banking", "Dead Cat Bounce", "Due Diligence", "Insider Dealing", "Leverage", "Sovereign Wealth Funds" and "Too Big To Fail".

I recommend this book warmly. That's partly because it's an interesting read and quarry of information. But it's also partly because McGinn challenges us powerfully to disprove his forecast that, before many years have passed, collective amnesia will return and another boom and bust will hit us again. As our political and financial world leaders fail to agree at one international meeting after another on effective measures to prevent that happening, it seems all too probable.

We must agree with him that we won't be able to prevent it by seeking to change human nature; that would just be too naive. We need to change the institutional framework to motivate people positively, including bankers, to behave in ways that benefit themselves and their associates by serving the needs of society.

That means there is no alternative to depriving the banks of their present privilege of creating the public money supply as part of their profit-making business. Competition with one another is bound to compel them to create money faster and faster until bust follows boom.

 

(3) John Stewart, PRIME MINISTER, Shepheard-Walwyn, 2010, paperback, 224 pp, £9.95.

This appealing novel tells a great story of an unmarried thirty-six year old Prime Minister elected in a general election resembling our recent one, and faced with a complex of economic, financial and social challenges much like those we face today.

I won't spoil it by giving away all the plot. But it starts with him receiving a letter from a tall, trim, grey-haired family publisher, whose twenty-five year old unmarried daughter helps him to run his business.

The letter suggests that the crisis calls for a shift of taxation from earnings and enterprise on to community value, "the value that accrues to site location by the collective presence of the community". (We usually call it "land value taxation"). The story develops from there, and culminates with the parliamentary battle over the necessary money bill.

As many good stories do, it calls for some suspension of disbelief. But it's a page-turner; once it captures your attention you won't want to put it down. Splendid holiday reading - perhaps with a bottle of wine at hand, and a box of paper handkerchiefs for when you get to the tear-jerking bits.

Will the book be read by people who don't already understand the need for this tax shift? I very much hope it will, that they will enjoy it, and that it will convert them to support that reform.

 

(4) Fred Harrison, THE PREDATOR CULTURE: The Roots and Intent of Organised Violence, Shepheard-Walwyn, 2010, paperback, 192 pp, £17.95.

Strategic policy-making is organised now in such a way that it fails to take account of the connections between socio-economic policies and policies for creating and maintaining a more peaceful and safer world. The present difficulties of the NATO coalition in Afghanistan are a current example of that. This book addresses one aspect of the need to remedy that general failure, and is welcome for that reason.

It offers "a theory that explains socially organised violence in terms of a particular set of property rights ... historically the main intent behind the major events of violence having been the quest to appropriate other people's land, or the resources of nature in and on that land".

A Prologue on "The Failed State" is followed by three Parts: "A General Theory of Violence"; "The Social Pathology of Land Grabs"; and "Structures of Violence". Chapters on "Freedom through Taxation", "Truth and Reconciliation" and "Principles of Non-violent Governance" make up the concluding Part 4 on "Healing Humanity".

Among the many practical illustrations that Fred Harrison cites of how the way we deal with land rights affects peaceful co-existence in a society, he looks at lessons to be learned from Costa Rica about the sociology of peace, and from South Africa's efforts to achieve land justice after the end of apartheid.

On the latter, Harrison cites the programme to restore land to black citizens with an ancestral claim to tracts owned by white citizens. On a recent visit to South Africa he found that that programme is failing and threatening the food security of the country in much the same way as has brought Zimbabwe to its knees.

He suggests that an alternative more likely to succeed would be for white farmers to accept that they should pay the whole "economic rent" (site value) of their land as public revenue; and for Community Land Trusts to be set up, to be funded by some of that revenue, and to help black claimants to acquire the skills and capital to put the land to its best use - thus meeting both their own interest and the food needs of the rest of the population.

Many readers will, I believe, find much to interest them in this book and stimulate their thinking.

However, I should confess to a feeling that the book claims too much. Its first words stress the link between socially organised violence and capitalism. Its last few words are as follows:

"We need to re-socialise the publicly created value, and reprivatise the personally created value. With the adoption of that one principle, contests over who owns the land disappear; and with them systemic violence."

Surely a propensity towards violence, including socially organised violence, is more deeply rooted in human nature than that?

For example, socially organised violence began long before capitalism was thought of. A few examples would be: the campaigns of Julius Caesar, Alexander the Great and Genghis Khan; the slave trade and the systematic working of thousands of slaves to death in silver mines by the city state of ancient Athens and the Spanish invaders in 16th-century Potosi; or the Crusades and the massacres of Jews in 12th-century England.

Certainly, many acts of socially organised violence can be connected with the violation of land rights. I strongly support the principle that people should pay for the benefits they take from the common wealth, including the site value of land. I also think some of the resulting revenue should be distributed to every citizen as a share of the common wealth.

But, although implementing that principle may be a necessary precondition for the disappearance of socially organised violence in a society, I find it difficult to believe it will be a sufficient condition.

 

3. FURTHER POINTS OF INTEREST

(1) The latest issue of Tax Justice Focus - guest editor Carol Wilcox, secretary and treasurer of the Labour Land Campaign - is on Land Value Taxation. It is a very important presentation of a key money-system reform by a group of well qualified contributors. In his keynote contribution Nicolaus Tideman, Professor of Economics at Virginia Polytechnic Institute and State University, sets out six convincing arguments for LVT. This issue of Tax Justice Focus is a very welcome development by the Tax Justice Network, hitherto best known for its powerful opposition to the damage caused by tax havens.

(2) Charles Bazlinton at www.the-free-lunch.blogspot.com (21 June posting) concludes that "our political masters... should boldly take control of these banking and land monopolies for the public good . Other recent postings are also interesting.

(3) Elected European officials call for a European Finance Watch, as a counter-power from civil society to balance the power of banking and finance industry lobbyists in Brussels.

(4) An article in Financial Times Deutschland of 6th June 2010 (in German) refers to "Creating New Money" (written by Joseph Huber and myself ten years ago) as offering the best remedy to current monetary and financial ills.

(5) Resistance to Corporate Domination

(a) "Taming The Corporations" is a 56pp paper by Austin Mitchell MP and Professor Prem Sikka (click here, then click on Publications and then on "Taming the Corporations" - third on the list). This important paper provides evidence of systematic abuses of corporate power in virtually every sector of the economy.

(b) Benefit cheats cost the UK government £millions, whereas corporate tax cheats cost the UK government £billions. But “corporate fraud is treated more lightly than benefit fraud because it is committed by wealthy individuals and companies, who walk in the corridors of power and who are able to point to major economic consequences that they say would result if they were prosecuted" (from political-cleanup.org).

(c) GM food and the Food Standards Agency: a sinister bid to twist public opinion.

(d) Agrarian Renaissance: an Alternative to Corporate Supermarket Consumerism.

(e) Campaign for Real Farming - Colin Tudge's blog.

 

4. POPULATION GROWTH

Population growth is a feature of our world today that will affect future developments in almost every aspect of our lives. In that respect it is comparable in significance to how our money system works.

For a Summary of Forum For The Future's recent report, "Growing Pains: Population and Sustainability in the UK", click here. It sets out key issues, makes seven recommendations to policy makers, and tells you how to download the full report.

 

James Robertson

8th July 2010