Money’s golden connections

A recent email from Positive Money posed an interesting question:
“How is it that lack of money, the only resource that can be created at will, forms the main obstacle for addressing effectively society’s problems?”
If we presume that the resources they refer to are labour, land, energy and money, then it is delightfully true that only one of these is unlimited – and that’s money. And indeed only one of these has been completely invented by man – and that’s money.

How, when we’ve invented it, can we ever even think that there is no money – or even that there is not enough money? Who is limiting it and why?

Prevailing received wisdom seems still to be that money can be limited. And people don’t think of who is limiting it but what is limiting it. So the politician’s and banker’s most powerful weapon is actually there in the collective and individual minds of the electorate – all are still pretty much on the gold standard. Richard Nixon may have moved the world off the gold standard in 1971 but most people are still on it in their minds. And it is telling that the expression still forms part of the language as indicating the absolute best. For some purposes it could be – but it never can be for money.

When money is the preferred method of accounting for society’s resources then we don’t need to count by thinking it is irredeemably attached to a limited commodity.  At its most basic the world clearly has more resources than just gold. Gold makes good jewelry, is fine for filling teeth, is useful in electronics and sometimes compounded in medicine. But that’s about it, so why use it then to limit artificially both the quantity and allocation of your entire range of resources? It is not logical and certainly constrains an economy  – and that’s why we no longer do it.

A further disadvantage is that there is not much opportunity for river panning for gold these days so it is generally mined and refined using mercury or a cyanide compound – both pretty dangerous and dirty procedures. So you really would want to use it only for a beneficial purpose. It is crass stupidity to dig it up from one hole in the ground and refine it, only then to put it into another hole in the ground – probably thousands of miles away – under a bank.

So it needs to be properly recognised that money is society’s invention for the benefit of society and money’s use rests on confidence in its issuers. When people are told on the one hand that money makes the world go round and on the other that there isn’t enough of it that only helps to undermine that same confidence. Increasing private debt and increasing fraud are just two indications that money’s distribution is too limited.

Once we understand that money is created by society for the useful benefit of all its members we can arrive at the conclusion that its creation can be seen as a simple franchise scheme.

This seems to me rather a comforting suggestion and one that might be more understandable by the general public. The private banks are a bit like McDonalds franchisees and we are all partners in the franchisor. Indeed this is an additional reason to ask banks for extra tax – oh alright franchise fees – for having the right to produce almost all of our money.

To ensure the public and the banks get the message I think we should call it the seigniorage tax.

And please beware of anyone who flashes their gold.

Sovereignty is a matter of degree

This is a copy of a letter recently sent to a newspaper though I regret have lost the reference as to which.
Its destination is not important but its sentiment is.
We have someone here from a very small (rather attractive, if I recall correctly) town of about 5,000 in Bedfordshire, who considers sovereignty beyond price.

Like charity, sovereignty begins at home.
So Roger’s sovereignty is undoubtedly already likely to be compromised.
Probably he has a wife and children so that is his first problem. Even if he doesn’t does he refuse to deal with Shefford Town Council?

And what about Bedfordshire County Council?
I think we might have heard if he had refused to pay his Council tax.
Sovereignty is a matter of degree.

It seems as though Roger wants Parliament to look more like the highest court in the land, though of course it has always been and remains so – whether we leave the EU or not. It just means that Parliament may cede, by agreement, a little of its control to the European Court of Justice, the European Commission or even Bedfordshire County Council.

Clearly Roger didn’t mean that sovereignty was beyond price but that sovereignty has its price. His price is drawing the line under Brussels to include Westminster and Bedfordshire County Council. And to make himself, and others, poorer.

It is often said that North Korea is the the most fearlessly sovereign and independant country in the world. It too, is poor. Yet, remuneration aside, even that hasn’t been going too well of late has it Roger?

Now I’ve given up on Kim jong-un, but how do we persuade Roger to widen his horizons?

Perhaps in a spirit of compromise, Roger might be ideally placed to give a little help to Mr Trump  with his reponsibilities – he might wish to use this simple map as a start?

If they did have a chat they might both realise that sovereignty is always a matter of degree and definitely has its price.

 

Why can’t a household be more like a bank?

The short answer to this question is of course that householders don’t issue their own money.

But banks do.

So perhaps we should be complaining less about the household analogy that is the bugbear of a proper understanding of how the economy works  – and suggesting another more fitting analogy.

A government with a sovereign currency is more like a bank.

There are other similarities – issuing money is good for business, indeed is the business.

Unlike a household, a bank doesn’t put money away for a rainy day into savings – it invests. Just as a competent government ought.

And a bank doesn’t want to be in surplus with extra money sloshing around in its coffers. Good business relies on the bank being in deficit.

So the government is like a bank.

Perhaps this analogy might yet get people thinking about banks – as well as about the government and the economy!

If it was a vote for anything, Brexit was a vote for import substitution

The UK is unable to properly negotiate trade deals until it has left the EU, so the government seems to be trying to soften up various countries with a view to signing deals as soon as possible after Brexit.  I imagine this is why Liam Fox has been to America and Boris Johnson to Australia.

It may be all fine and dandy to seek to substitute access to the largest Customs Union in the world with individual deals for access to countries – none of whom, even together, are markets of the same size as the market the Brexiteers are so keen to leave – but it is safe to say that no trade deal will be completed before the two year deadline from triggering Article 50.

The Brexit vote was seen by the government largely as a vote against immigration, presumably because Nigel Farage said so. (My opinion has always been that it was more likely to be a vote against the hopelessness of austerity.) Yet the EU’s central purpose is as a block for mutual trade so what the vote was most clearly, was a vote against international trading with our closest neighbours in Europe.

Yet we now have the government trying to increase our international trade with the rest of the world. This is a further indication of the English exceptionalism that has previously been mentioned here and elsewhere. The UK does not wish to trade with its nearest neighbours in Europe but really desperately wants to trade with countries on the other side of the world. That harks back to the empire. The two need not of course, be mutually exclusive but the Brexit vote seems to have made them so.

Given the lack of preparedness and general paucity of skilled capabilities in the current government we should be concentrating our limited resources less on world trade and much more on import substitution.

Land may be Britain’s most important resource but we cannot untie from our mooring off the coast of mainland Europe for a more desirable location. It is equally arguable that people are the country’s most important resource but certainly they are at least a very close second.

If, therefore, you treat the Brexit vote as an anti immigration vote then you need import substitution. That needs investment in that second most important resource: people. That means the finest possible training and education for the British population so immigrants find it so difficult to compete they are not required.

It means too, increasing minimum wages and – especially – enforcing minimum wages so that all jobs provide rewarding employment which enable a proper family life and so all the jobs which we are told the home population do not want to do, become desirable to someone.

It also needs investment in things. At the minimum this requires a National Investment Bank targeting funds towards industries where imports could be substituted. And Green QE would be beneficial for substituting energy imports.

And there is no danger this would not be useful whether or not the UK eventually parts company from the EU.

Even for the most ardent Brexiteer logically there is nothing ‘not to like’. Proper investment to make the country happy and glorious (as their National Anthem has it) and certainly happy and prosperous.

Instead the government lie to us that there is no money. And we have a toxic tribe of Brexiteers who think austerity is the future.

Never has a country been so utterly failed by its government.
Even when they call a binary referendum they do not understand the reply.

Is the Institute for Fiscal Studies on to something?

In a recent ‘Times’ article (republished on the IFS website)
Paul Johnson of the IFS  comments extensively on their recent report on UK living standards:

“..by far the biggest challenge to have reared its head over the past ten years or so … is the massive squeeze on incomes right across the population. After taking account of inflation, average earnings remain below where they were in 2008. That’s unique in at least 150 years.”

He continues:
“Increasing employment and dreadful earnings growth have put paid to another verity. Poverty is no longer overwhelmingly associated with lack of employment. The majority of those officially classified as poor live in a household where someone is in work. More than four in ten children in families where one parent works now fall below the poverty line.”
And further:
“Another profound change relates to what it means to be in the middle of the income distribution. The incomes of those in the middle are no further behind the top than they were 20 years ago. But today half of middle-income families with children live in a rented property. Less than a third did so in the mid 1990s. With the extension of in-work benefits they are also more reliant than before on welfare. In the mid-1990s both the rich and the middle were generally owner-occupiers dependent on their own earnings. Increasingly the renting, benefit-dependent middle earners have, and perhaps feel they have, more in common with the poor than with the rich.”

Although, as we have come to expect of the IFS, he goes off the rails at the end of the article, when he talks about tax revenues (that’s why I have quoted extensively to spare PP readers from having to read it throughout!) his comments are a pretty devastating critique of the current economic circumstances.

His conclusions suggest that Labour has an open goal on living standards. They also imply that the idea that you get more right wing as you age may, with so many still feeling the pinch for much longer, not be as pervasive as most imagined.

Labour’s remaining problem is Brexit on which they are giving mixed messages. A period of Labour silence would surely be advantageous in order to allow the Tories gradually to strangle themselves. It seems to be most unlikely that the government will be able to get its five Brexit bills through the Commons and Lords unscathed and it I would be unsurprising if the government fell at an early hurdle. Still, the longer the government lasts the clearer it will be that leaving the EU is a recipe for impoverishment of the nation and that will, by the day, be getting more obvious to voters. So when Labour seems to suggest that its Brexit policies will be practical and influenced by circumstances as they arise perhaps that is no bad thing.

Add to that the fact that Conservative voters are getting elderly and some will, like Brexit voters, be popping their clogs.

Time I think, is on Labour’s side.

The Bourbons would still be doing okay under English law

It has been a long time coming but it seems that at last leaseholds on new houses are to be banned. And ground rent on leasehold flats will apparently be able to be set only at peppercorn levels.

But there are still not any definite plans to help those already affected by the blatant rent extraction of selling what would and should be newly built freehold homes as leasehold.

As many of the freehold land owners seem to reside in tax havens, perhaps a start could be made by mandating that any rent payable to a company incorporated anywhere except the UK or the EU would not have the force of English law. And their agents – because they always have agents – should be required to disclose the details and addresses of landowners. So the shady companies of which, anecdotally, it seems there are quite a few, might just fade away. The others would have to declare themselves.

Indeed Property ownership in tax havens seems so widespread that even articles in the ‘Sunday Times’ earlier this month were highlighting how tenants resented exporting their rents and calling for realistic taxation of commercial property companies.

Once company names are revealed then it is surely up to the builders who sold on these streams of rents to the professional rent extractors, to themselves unwind the deal.

If the builders do not find they have the moral fibre to do so then, although retrospective laws are not usually to be encouraged, arbitrary doubling of ground rents and spurious fees for alterations are so completely contrary to natural justice, that I think a retrospective law would be justified. Such leasehold trickery certainly brings the law into disrepute and has no right to expect the legal system to be available for its enforcement.

Indeed it is at least arguable whether the agreements were freely and knowingly entered into in the first place and some conveyancing solicitors will surely end up being sued.

This deviousness only goes to further demonstrate the perversity in UK jurisdictions of treating the tenant and landlord relationship as equal.
On the Continent, whilst it is true that the codified Napoleonic legal system was based on Roman church law, at least it was modified by the French Revolution. They didn’t want the Bourbons back and ensured that the rent extractors did not get it all their own way. Consequently Continental laws have clear tenants rights and obligations for landlords and recognise that the landowners cannot be allowed the untrammelled power that is their natural advantage.

That revolution is long overdue for English law.

 

Positive Money – a good campaigning organisation, but with a missing link

‘Positive Money’ have a decent idea. Money should be created with the consent of the public. Governments that have served the financial sector must look instead to serve the public.

In this endeavour they want to set up a commitee to create it – rather like a Monetary Policy Commitee with extra powers, although in this case directly answerable to Parliament.

They point out that creating money is absolutley essential to society. It is.

And at the moment the big banks that create about 90% of it are self serving and do not have any view of how they should serve society. True again.

There is little doubt that Banks tend to create crises because they are so all embracing – every financial possibility is considered to be also their interest. The ill conceived idea that they should be kept absolutely as they are is rather like planting one variety of potato and supposing that blight will affect only an infinitessimal amount of the crop. You’d have to be delusionally confident or else just simply lucky. This is not a policy.

So Positive Money suggest that creating money should be considered one of the ‘separate’ powers:  Legislature, Executive, Judiciary  – and Money Creation.

This is certainly an arguable case.

So create the money independent of private PLC banks. Itself an interesting idea.

But if money creation is a separate power shouldn’t taxation be a separate power too? Or is there too much concentration on the money creation at the expense of the money destruction?

Should we further revise the Separation of Powers to give us the Legislature, Executive, Judiciary, Money Creation, and then also Money Destruction (this means, in effect, Taxation).

Yet shouldn’t the Department of Money Creation and Department of Money Destruction -surely basically the same department, perhaps be merged?

If they should, then surely we end up with Parliament? They’re in charge of tax and spend – or as we now know, spend and tax.

Parliament’s members are the people who really need to know where money comes from.

Positive Money propose doing another survey of MP’s, which is certainly good news, but is it not also time for an Ofsted style report on all prospective MP’s? Surely if MP’s are unaware of where the nation’s resources come from they shouldn’t be allowed to stand?

And of course Positive Money need themselves to understand that ‘Positive Tax’ is their corollary and also equally essential –indeed perhaps  more so.