Newsletter No. 27 - November
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1. Reflections On The Past Week
2. The Financial Sector Harms
The Real Economy
3. Money As A System Of Systems
4. "Massive, Radical Reforms" Are
5. The Public Money Supply: National And International
(1) Two petitions to the UK
(2) Robert Poteat on
why "the bank credit/debt money system
is unavoidably inflationary"
(3) Lowell Manning on the inflationary
gap between wage/salary earnings and returns to investors
(4) How the international
monetary system creates crises
6. Land Value Taxation
7. Other Important Topics
(2) When markets are poison.
(3) Opposing a "profoundly
distorted picture of our world"
(4) Political and corporate lobbying in UK
1. REFLECTIONS ON THE PAST WEEK
Not a good start. A leading article on "Back to
the Future" in The Times (London), Monday
2nd November states that "Capitalism is
the most efficient way
of creating wealth and
also of spreading it. ... Above all, an efficient
economy requires faith in the
The writer clearly hadn't realised that
such statements say little more than "Hurrah for
business as usual" or "We
must have change", unless you define what
you mean by abstractions like "capitalism" (and "socialism"), "efficiency" and "creating
wealth" - what their practical
implications are for the real world of today.
For example, how did that statement connect with the
next day's government announcement of a new shake-up
for the UK banking system? Did it suggest we should have
faith that "an efficient economy" would be
restored by feather-bedding the restructured
banks with a further subsidy of £40 billion
Would our faith in the banking system then be further
enhanced by the announcement three days later that,
having already bought up £175 billion worth of
assets - mostly government debt - to help the banks,
the Bank of England had decided to expand "quantitative
easing" by another £25 billion?
Does the The Times' statement have any relevance
to Lord (Adair) Turner's recent suggestion, as head of
the FSA (Financial Services Authority), that the British private
financial sector has become "too swollen" for
the good of the economy, and that some parts of it make
no useful economic or social contribution at all? - see www.jamesrobertson.com/news-sept09.htm.
Brown enthusiastically congratulated
the City of London in his Mansion House
speech of 21st June 2006, for its financial and business
achieved a larger role in the British economy than
financial services in any other major country! -
How do we reconcile Adair Turner's "too
swollen" charge with that?
If Adair Turner or Gordon Brown or any other government
financial authority, or any political party - or indeed
any established NGO or academic body - seriously wanted
to make a useful contribution to public understanding
of our money system and to public policy for it, wouldn't
they commission an independent analysis of the costs as
well as the benefits for our society and economy from
our private financial sector in the past ten years? Why
has none of them done so?
Is it perhaps because they share Adair
Turner's view that it is dangerous to let politicians
and the public understand how the money system works
- that, for example, "the
present convention of non-transparent money creation is
based on well founded fears that governments
will abuse direct control of money printing presses" (see his
article Europe's Best Defence Against Deflation, Financial
Times, 4 November 2002. For more, see p.34 of my and
John Bunzl's book Monetary
Reform - Making it Happen).
Have the authorities in our supposedly democratic country
been deliberately concealing from citizens
and their representatives how the money system they manage
for us now works? Yes, of course they have.
In the last few weeks, this lunatic saga has continued
to unravel. It still has further to go and more to reveal.
Developed by us oh-so-clever humans and used by no other
species, the idiotic way we allow our money system
to be managed would be a joke - if it didn't cause suffering
to billions of people and other creatures around the
Around the world now, thousands
of politicians, officials, experts, NGOs, commentators
and journalists from many countries are preparing
Copenhagen global climate conference in December.
Already they accept that it won't produce a binding treaty,
only prepare the ground for the possibility of one at
a later date.
More important in the long run, none
of them seem to understand the link between
the global environmental threat and global finance.
It is that the world's money system now imposes a perverse
calculus of values on countries, places and people
This both encourages the
better-off minority to try to preserve and expand their
privileged economic and social positions, and compels the
poorer majority to
try to survive and maintain themselves and their
families, in ways that are bound to overwhelm the planet's
resources, including its capacity to absorb carbon and
other climate-changing emissions. Without
the worldwide money system's radical
reform, any eventual climate treaty is bound to fail.
The week ended on a rather better note.
On Saturday 7 November the dear old Times, which
steadfastly refuses to publish letters I send them on
these matters, carried a centre-page "Opinion" article
by Janice Turner, one of their regular writers: "Let's
target our ire on the things that matter".
It was one thing, she said, to pursue the "gratifyingly
easy scalps" of errant Members
of Parliament who had got taxpayers to refund their
expenses on things like duck houses and dog food. But what
about the really serious damage that the bankers had
inflicted on almost everyone but themselves?
was too complicated, too hard on the old attention
span, to bring to account the slippery charlatans
who stole our billions. Perhaps the lack of sustained
rage against the City is down to a deliberate
obfuscation of the facts. 'You little people'
say the bankers, 'can't comprehend the algorithms
of international finance. Just remember one thing:
how critical it is we're paid egregious sums even
when we've failed'."
Spot on. In other words, Bankers
2. THE FINANCIAL SECTOR HARMS
THE REAL ECONOMY
In " How the Servant Became a Predator: Finance's
Five Fatal Flaws" William K.
Black's message is that "the financial
sector is a tool to help those that make real tools,
not an end in itself. But five fatal flaws in
the financial sector's current structure have
created a monster that drains the real economy,
promotes fraud and corruption, threatens democracy,
and causes recurrent, intensifying crises".
Black sees the first fatal flaw as follows. "Even
when not in crisis, the financial sector harms the real
economy. It is vastly too large. The
finance sector is an intermediary - essentially a "middleman".
Like all middlemen, it should be as small as possible,
while still being capable of accomplishing its mission.
Otherwise it is inherently parasitical.
Unfortunately, it is now vastly larger than necessary, dwarfing
the real economy it is supposed to serve.
Forty years ago, our real economy grew better with
a financial sector that received one-twentieth as large
a percentage of total profits (2%) than does the current
financial sector (40%). The minimum measure of how
much damage the bloated, grossly over-compensated
finance sector causes to the real economy
is this massive increase in the share of total national
income wasted through the finance sector's parasitism."
here for the full text. Thanks to Steve
Kurtz for the reference.
3. MONEY AS A SYSTEM OF SYSTEMS
To understand how money works, it helps to see it as a
system of systems that interact with one another.
How a money system operates and what money values -
prices of some things compared with others - arise
from it are largely determined by
- who creates the public money supply,
how and in what form (as debt
- how governments collect public revenue (for
example, what they tax and what they don't tax),
- and what public spending is
spent on and what it isn't
The need for radical change in all three
of the above is briefly explained in answers I gave to
about my contribution to Development, Vol.
52, Issue 3, September 2009.
4. "MASSIVE, RADICAL REFORMS" ARE
Mason Gaffney is the
author of many books, including (with Fred Harrison) The
Corruption of Economics. His latest is After
the Crash - http://eu.wiley.com/WileyCDA/WileyTitle/productCd-1444333070,descCd-description.html.
Here is an extract from " The four vampires of
capital " by him in Land and Liberty, Summer
2009 - www.landandliberty.net/uploads/landl1224.pdf.
"What about banks and our money
bonds and real estate have become their major assets.
The pressure is on to issue more bonds, and support
land values, to save the banks and the virtual-money
they have created. Must we? Do the banks and mortgagees
have us over a barrel? They would like us to think so.
But not if we open new investment and job opportunities
by untaxing work and production.
The changes I propose are massive and radical, I know;
but we have been massively, radically wrong,
and the times call for massive, radical reforms. People
will resist, will object, will twist and turn and contort
in dozens of ways, as Washington now does, to protect
banks and landowners and the current power structure,
resisting the unwelcome inevitable. They have eaten,
drunk and been merry on low taxes, cheap credit, foreign
loans and rising land values. Meet The Great
Reckoning: it is time to foot the bill. We can
do it and turn America healthy in one stroke by
taxing land values and rents to retire
5. THE PUBLIC MONEY SUPPLY: NATIONAL
AND INTERNATIONAL MONETARY REFORM
(1) Two petitions to the UK Prime Minister are
now open for signature. I warmly recommend British citizens
to sign both. They are at:
They are an interesting pair. The first supports monetary
reform on principle; the second supports a
step towards the principle of monetary reform as
a way of financing urgently needed investment in an
important item of public infrastructure.
Poteat's paper for the 2009 conference of
the American Monetary Institute explains why "The
bank credit/debt money system is inherently and unavoidably
(3) Lowell Manning, a civil engineer
in New Zealand, is one of many monetary
reformers who have come from more practical
professional backgrounds than economics. He has
developed an up-to-date version of Irving Fisher's equation
which has served as an analytical basis for many monetary
reform proposals since the 1930s.
I hope Manning's work will
come to be accepted as important for economists,
as the need for monetary reform belatedly penetrates
their professional minds.
One practical conclusion is that:
effect of unearned interest on deposits is to transfer
claims on the real wealth of the nation from those
who produce the economic output to those in the investment
sector who produce nothing. Houses and other
assets become more expensive in terms of the inflated
prices in the investment sector but must be bought using
the less inflated money of the productive sector.
Unless inflation in the investment sector and the productive
sector are equalised, there must be an ever-widening
gap between debt-bound wage and salary earners
on the one hand and the participants in the investment
sector with net deposits in the banking system on the
A short version of Manning's findings
is at www.flowman.nl/lowellshortpaper20090706.htm.
For the full version ask him (his email is manning at kapiti.co.nz) to
e-mail you a copy of 090527A
(4) HOW THE INTERNATIONAL
MONETARY SYSTEM CREATES CRISES
This Bretton Woods Project report identifies four
main features of the current international
First, floating exchange rates have
been enormously volatile.
Second, the dollar's central
role as the world's reserve currency allows
the US to borrow cheaply and to continue borrowing
indefinitely, with very damaging consequences for the
rest of the world. Though American monetary and fiscal
policy decisions can impact all other countries, the
US can ignore this.
Third, there is little effective
international oversight and control over the international
Fourth, the rules, institutions
and norms of the international monetary system are guided
by the ideology and economic model known as the Washington
The report argues that: "The international
monetary framework which emerged after the collapse of
the Bretton Woods system in the 1970s has proved volatile,
damaging and prone to crises. It is time for
a fundamental redesign and the introduction of a global
reserve currency, to help stabilise international
exchange rates, smooth commodity prices, promote international
economic cooperation, and prevent future financial crises."
It concludes that a fair, transparent
process should negotiate the necessary reforms, involving
all countries and open to civil society and parliaments,
under the auspices of the United Nations. This has been
demanded by thousands of civil society organisations,
but the leaders of the G20 have not yet heeded
here for the full report.
6. LAND VALUE TAXATION (Also see
Item 4 above)
ALTER (www.libdemsalter.org.uk) launched
a new 100-page paperback on The Case for
a New People's Budget at
the Liberal Democrats' Conference in September. It
marked the centenary of Lloyd George's People's Budget
in 1909. It has a Foreword by Vince Cable.
It contains 10 essays as follows: "The
People's Budget"; "Land Value Taxation
and Transport"; "Business and Enterprise"; "Food
Scarcity and Farming"; "Utility Companies"; "Housing"; "Poverty
and the Welfare State"; "Banking & Finance"; "This
is How We Do It"; and "Sustainable Taxation & Modern
The last two chapters - by Tony Vickers
- deal with key practical questions for the present and
the future. But all convey how much better off we would
be if we replaced existing taxes with LVT.
I recommend it warmly. It costs £5.50 inc.
postage and packing from
Catherine Hodgkinson, 51 Demesne Furze, Oxford
or contact Tony Vickers (his email address
is tonyvickers at phonecoop.coop).
here for a report on the Irish government's decision
to introduce Land Value Taxation, and here for
the role played by the Irish NGO Feasta in
making that happen.
here for news about the mutual support developing
between LibDem ALTER (Action for
Land Taxation and Economic Reform), the Labour
Land Campaign and the Co-operative
7. OTHER IMPORTANT TOPICS
(1) "Altruistic Economics: The
gift culture and the end of extinction". In issue
18 of the always excellent Pacific Ecologist
M Newton faces up to the fact that "our current
alienated, resource-wasteful economic activity and antiquated
banking and money systems are inadequate".
(2) When Markets Are Poison. "Studying
the financial crisis and the climate crisis together
can provide useful tools for understanding how to tackle
both. Overconfident commodification of uncertainty (in
the form of a trade in new and complex derivatives) helped
precipitate a global economic crash. Overconfident
commodification of climate benefits (in the form of a
trade in carbon) threatens to hasten an even worse catastrophe" -
(3) Media Lens (www.medialens.org)
responds to the "profoundly distorted
picture of our world" presented by the
increasingly centralised, corporate nature of the media
- providing a "propaganda system for corporate
and other establishment interests". The "costs,
in terms of human suffering and environmental degradation,
(4) Political and Corporate Corruption and
here to read about action proposed by the UK
House of Commons to regulate political lobbying of
the UK government.
11th November 2009