post-autistic economics review
Issue no. 39,  1 Oct 2006                                  back issues at www.paecon.net
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In this issue: 
          -The Future of Economic Policy Making 
             by Left-of-Center Governments in Latin America

                  Juan Carlos Moreno-Brid and Igor Paunovic   (United Nations, Mexico) .........2

             - Latin America: The End of an Era

                  Mark Weisbrot   (Center for Economic and Policy Research, USA) ...............................8

           - Will Computers Really Decentralize the Economy?

                 Ian Fletcher   (USA) .........................................................................................26

             - Is New Labour’s ‘ Third Way ’ new or just hot air in old bottles?

                  Grazia Ietto-Gillies   (London South Bank University, UK) ......................................31

           - A Solution to the Alleged Inconsistency in the Neoclassical

              Theory of Markets: Reply to Guerrien's Reply

                  Deirdre McCloskey   (University of Illinois at Chicago, USA) ...................................48

           Opinion

            - Keynes without Debt

                  Ron Morrison   (UK) ...........................................................................................51

             -The Dream of Creativeness as Outcome of Political Economy

                  Margaret Legum   (SANE, South Africa) ................................................................54

 Opinion

 Keynes Without Debt

Ron Morrison   (UK)

             As the power of 'free market' Capitalism – or more precisely, the power of money, takes even deeper root in our 21^st century, so also does the human vice of greed undermine our societies.  Where once there were standards of behaviour and conduct whereby the democratic process would maintain some crude balance between self-interest and social responsibility, now our governments, ably abetted by a burgeoning 'middle class' seem intent upon dividing the world into 'haves' with even more and 'have-nots' with ever less.  Such injustice is the fellow traveller of discontent, generating terrorism and disruption. 

             The challenge is to humanise the present style of capitalist system.  We must recognise the social cost – not only in the obvious sense of the have-nots becoming poorer, but also the ever higher price being paid by the haves in terms of their own much vaunted lifestyles.  If the wider infrastructure of society continues to deteriorate, there will be no green and pleasant environment to enjoy.

             To this end there exists a practical and specific proposal to consider, which might be called Keynes without Debt.  It embraces the economic principles of John Maynard Keynes.  Currently unfashionable in the rarefied atmosphere of the neo-classical academicians who espouse the euphemistically styled free market, it was Keynesian principles which pulled the West out of the depression of the thirties and which helped Europe recover from the ravages of WW2.

             As war developed into peace and the targets of full employment were achieved, so also began to grow once again the power of money.  In the 1980's a new economic theory developed –  that of deregulating the money business in the expectation that the market place would produce economic equilibrium.  Much faith was invested in Adam Smith's 'invisible hand' - a much misquoted euphemism of the 'I'm alright Jack' fraternity.   Hypnotised by this delightful simplicity, and encouraged by a body of bankers and financiers who were obviously extremely influential and financially successful, the politicians of the era – principally Thatcher and Reagan – committed the West to a world run by money as the prime mover of all other policy.

             Not everyone was convinced of the long term effects of this, but the money lobby condemned spiralling taxation and the cost of government borrowing as becoming unsustainable and out of hand.  The pro Keynes lobby were unable to  marshal a counter argument - it was perfectly true that debt – both personal and National, was indeed beginning to spiral and Keynes' theories had never really got  to grips with the role of the money system in the economic drama.

            Keynes eschewed abstract mathematical theories based on apocryphal assumptions.  He produced more practical theories than any of his fellow economists and he dealt with the real world and its problems.  He firmly believed that government's job was to intervene where the free market broke down in social terms. However, he never really got down to the nitty-grittys of the money system - government remained obliged to borrow from the banking system in order to intervene effectively; and this implied increased taxation or an escalating National Debt.

             Of course Keynes' General Theory was published in 1936 when currencies were still linked to the Gold Standard - indeed  the US dollar was still linked to gold up until the early seventies.  Keynes died in 1946, long  before 100% fiat[1] currencies became the norm.  At that time half the money supply in the UK was spent into existence debt free by the state and the other half was chequebook credit. It is not therefore altogether surprising that he felt constrained by traditional monetary theory and found it hard to look beyond bank borrowing to finance public expenditure. The concept of Keynes without Debt addresses our current domestic crisis of rescuing our obsolete Public Services without increasing taxation or cranking up the National Debt.

             Now, fifty yeas on, bank credit supplies virtually all our everyday means of exchange, and this brings into sharp focus the simple fact that modern money is no longer constrained by outmoded intrinsic values.  It is pure fiat and simply a glorified accounting system.  Keynes did see money in this light when he conceived his International Payments Union (Bancor).  Very briefly this was an international currency unit to be administered by the UN whereby all countries were encouraged to maintain a balance of payments and avoid excessive debt.  Countries in surplus saw their balances reduced by the application of negative interest and those in debt had to pay interest or devalue.

             Unfortunately for the developing world the Americans dominated the post war Bretton Woods Conference and were not prepared to permit the mighty dollar to play second fiddle to anyone or anything – no matter how good the logic.  Even then they knew that whoever controlled the world's currencies also controlled the political power.  However, the detail is not the point here, what is important is the principle – that money is now an accounting system which can be administered in such a manner as to optimise a declared objective.

             Modern monetary reform is about displacing the current economic paradigm of 'what can be afforded' with 'what we have the capacity to undertake'. It is a unique situation that for governments  the term 'affordability' in terms of money is a non word.  All new money emanates from government either as cash or as credit authorised under the Banking Acts. The value of the money in our pockets and bank accounts is a function of good government acting responsibly to maintain its value.  Nonetheless, the financial establishment (now over a quarter of the UK GDP)[2] reckons that it knows best how much our government can afford to spend on public services and infrastructure. 

             Governments have issued debt free finance for donkeys years and spent it into circulation interest free.  It can be done again, given the political will. The evolution of credit this past fifty years has expelled this source and replaced our means of exchange with private, interest bearing debt. If government can issue Gilts and Bonds they can issue credit to finance the rebuilding of creaking national infrastructures.  When government once again assumes its constitutional responsibility to issue the National currency and then lends it to the banking system to re-lend as intermediaries then  we can reduce the tax burden and finance essential public services.  Nowadays  Wall Street and the roads in London’s City are not paved with gold but with paper and computer chips.  The money supply is all to do with business and maximising shareholder value – nothing to do with benefiting the community. It is the road out of a mixed economy into a frightening new world order where money buys power, both political and military.  We need an alternative route.  It's sign posted - Keynes Without Debt.

 [1] Financial Intermediaries – enterprises holding other people's money to make loans – were 27.6% of GDP in 1998.  Abstract of National Statistics.

 SUGGESTED CITATION:
Ron Morrison, “Keynes without Debt”,post-autistic economics review, issue  no. 39, 1 October 2006, article 6, pp. 51-53, http://www.paecon.net/PAEReview/issue39Morrisont39.htm

Reprinted from the Scots Independent Newspaper Feb 2011

The TV Licence Costs a lot more than £145.50

 What triggers my blood pressure is how the media consistently supports and promotes the Westminster Establishment and seldom invites any alternative opinion. Public broadcasting is no friend of free speech and certainly not of Independence. Big Brother’s experts never cease fretting over the financial markets, but never a squeak about the Barras... we had hoped that Vince would provide the exception and take a tilt at the bonus boys but alas, high office has obviously cut the Cable. A few months ago the Dispatches programme investigated the banking fiasco but steered clear of actually suggesting what should be done - and of course absolutely nothing has been done. Thanks to the taxpayer our banks are reconstructed in their former image and the profitable business of trading financial assets between themselves and earning bonuses is almost back to normal...... Surely it’s high time we were out of here. Yes says m’lord Calman, you can have more devolution but it must be trivial like a different speed limit, or it can be a fiscal Swinney-trap like raising your own taxes – who ever heard of a popular tax collector? At an earlier Tea Party the Americans got real independence by calling for ‘No Taxation without Representation’.

We too want no taxation without control of the real levers of power – monetary policy and proper regulation of banking and financial abuses. Thumbing through last week’s economic anguish I came across this one - “Public spending as a percentage of GDP will rise to more than 63% of national income by 2030 to meet the rising costs of ageing, an unexpected fertility boom, climate change and the price of replacing decrepit infrastructure.” ( The 2020 Public Services Trust – a "dead centre" commission). Cheerful stuff indeed. Bad enough for us but poor old Ireland– after all that effort to get their independence they were led into Euroland like lambs to the slaughter. Iceland too, with its own currency allowed the bankers to run rampant with their National Credit and are nursing their wounds – they too must borrow e more to get out of debt – you know it makes sense says the IMF.... All thuis is a state of mind rather than some sinister and irresistible force. The quotation forecasting National bankruptcy is depressing because the accountancy says it must be so. We shift uneasily when we are told we cannot afford to live longer and we are conditioned to worry about it – how will we be able to afford decent pensions, how can an already overburdened health service afford proper nursing care and new expensive drugs being invented every day; how can we afford to upgrade our decrepit infrastructure and address climate change and retain a sustainable planet? How can we possibly afford all this – and how can we afford Independence - where will the money come from? Accountancy is about arranging numbers to tell a story.

 When I was a lad studying at the Institute of Chartered Accountants in Scotland we were much impressed that the annual audit must be a fair and true representation of the affairs of the enterprise. There were professional ethics and standards which were inviolate. So how can it be acceptable that the banking system literally collapsed overnight in 2008? How can the Institute, with a straight face, condone the auditors of banks being paid as much in fees for acting as ‘consultants’ as they are paid for the audit? Yes, accountancy is about telling a story, but when it comes to the banking system it is a fairy story. And as we all know, when the banks sneeze we all catch cold.

We may believe that our democracies are managed by politicians. The truth is that our nation States are fashioned by bankers who supply the money, accountants who assemble the numbers and economists who claim to predict the outcome. The politicians take it all as gospel and act to balance the books - and if they don’t balance then it’s hard tack for most of us and economic stagnation all round. It is no longer acceptable that the warped accountancy of a corrupt banking establishment holds the economy hostage. If we as individuals find ourselves consistently frustrated by being unable to afford to do what needs to be done then we look for a better way – and so must the State. It is a nonsense that any self respecting State cannot afford to do what is physically possible and socially desirable. It is the State which provides our money; it even guarantees the banks’ electronic money. It is the job of the State – not the bankers, to ensure there is always just enough money to enable us to buy and sell our goods and services and remain gainfully employed - but all we get is debt as more billions are fed into the banking system causing rampant inflation. Why do we continue to put up with this? It was daft to allow banks to churn out the National Credit in volumes conditioned only by their desire to make profit. The same logic would issue all citizens unlimited credit cards and expect them to act responsibly.

All too complicated for the average voter? Not a bit of it – you wouldn’t put up with these guys picking your pocket in the supermarket or short-changing you at the cash machine - yet they are the Estblishment. Only Independence can exorcise these evil spirits and it should not be just a plank of our manifesto – it is the beam which supports all the other planks. See the wee booklet called There’s No Independence without Financial |Independence at the website of ScottishMonetaryReform and read why every Scot should be voting for Independence.

Financial Independence

There have always been those who make a lot of money from manipulating the financial system, but never so many as today.  Thirty years ago the choice of a career was significant, but now it’s often seen as little more than a means to an end – just show us the money.

 We produce acres of newsprint and listen to media dominated by financial data and markets.  The world economy hinges on the forecasts and actions of a handful of bankers - and the financial interests of those who appoint them.  Governments are constrained by budgets rather than the human resources they represent.  Ordinary folk spend more time worrying about their debts and financial affairs than doing useful work or enjoying themselves.  Money is King.

Over recent months The Federal Reserve has poured hundreds of billions into US financial markets – also called bailing out the banking system.  Likewise the Bank of England has poured tens of billions into Northern Rock and opened a virtually infinite ‘line of credit’ to all the major clearing banks in the UK – all to keep our fragile money system from collapsing. 

 This is the system which sold 125% mortgages to borrowers on income multiples of six and seven times, didn’t bother to check income declarations and required no deposit.  When credit is churned out like that then prices keep rising until the crunch comes.  This is the same system which lends credit to hedge funds which buy up financial products on such a scale that the prices just keep on rising – until the crunch comes.  it is bank credit which funds the private equity firms which buy up real companies, break them up and sell off the bits for a quick turn.  It’s the same credit which funded the conversion of erstwhile Building Societies, the privatisations of the eighties and all the other financial wheezes – the latest being Scottish Water which will now be more efficient and competitive.  In fact the only change is that tomorrow half a dozen new firms will produce bills for the same water, flowing through the same pipes maintained by the same Scottish Water employees.  It follows the pattern of all the other utilities – a free gift to all the new ‘ competing’ power suppliers but the same gas & electricity flowing through the same conduits….. and like all the competing train operators running on the State subsidised rail network. 

 What does all this produce?  Nothing but £100 billion more financial credit each year – that’s £346 million a day more financial air to inflate the bubbles constituting the Financial Sector – now thirty per cent of all UK earnings.  Interesting too that there’s no new bank credit needed to abolish Council Tax so The Treasury describes replacing it with Income Tax as an ‘expensive fiasco’.  We already collect 75% of local authority revenues this way – why should collecting the other 25% cost a penny more?  Indeed abolishing the expensive process of collecting rates locally should be a worthwhile economy.

 The State is constantly broke.  They tell us only ‘private sector finance’ can fund new build State assets and all our public services survive in the shadow of the Treasury guillotine, so they invent PFI.  This generates yet more bank credit, predicated upon the hapless taxpayer paying off the debt over thirty years.  Yet this same State can fork out all these billions to the banking system, and £25 billion for Trident - not to mention £2bn a year to run it.  It can afford military adventures and murder in Iraq and Afghanistan.  We have become a client State of the White House Mafioso  – another politically corrupt administration in obscene debt to the rest of the World but not giving a jot provided the money flows to the right people.

 Government should be protecting us from self-interested moneygrubbers - not subsidising them, yet the gullible public nods its collective head to all this and listens to fairy stories about keeping the financial markets stable and inflation below 3%.  It has taken some time, but the rest of the world has finally  rumbled the con – the pound is following the dollar down the Swaney. Today all these imports and your holidays abroad will cost 20% more than yesterday and tomorrow probably another 20%, because there’s no sign of anyone stepping in to stop the rot.  Why should they -  the financial speculators make as much on the currency falling as rising …

 You can fool all of the people etc. but you can’t manage an economy or a Nation by manipulating its payment system.   As an accountant I was dumbstruck by the Thatcherite deregulation of the banking system.   As a businessman I am nothing short of amazed how long the productive population has remained oblivious to the parasites of  W all Street and The City sucking them dry.  I don’t mind people gambling with their own money, but using mine, pocketing the winnings and then asking me for more when it occasionally goes pear-shaped is a bit much.

 Corrupting the payments system has effectively destroyed the real economy;  we are left weakened and undermined.  We have been gullible and have assumed our government to be competent and responsible.  It has been anything but - and there appears no prospect of change until the last billionaire fat cats and tax exiles abandon the sinking ship.  Take a look at www.scottishmonetaryreform.org and see an example of what our  Party Think-tank should be contemplating. 

 I became a Scottish Nationalist because I believed it was the only way we could save ourselves from this financial disease.  There is simply no point in political Independence without financial independence.   Our party leaders must take this on board and work out how we can reincarnate a responsible banking and payment system.  I have a dreadful suspicion that many of the principles which drew old Nationalists to the Cause may be in the process of being dumped for short term political expediency,  The prospect of a mirror image of the financial status quo but moved to Edinburgh will spark a New Clearance rather than a New Enlightenment.

 A new set of values for society, finance and foreign policy should be the focus of the next election and we should not be frightened to say so.

(Ron Morrison is a retired accountant and businessman and a former member of the SNP Finance & Taxation Committee)

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