Index

23:  Book Review:

“Monetary Reform — Making it Happen”

William Krehm

This fine book by James Robertson and John M. Bunzl announces a coming togeth¬er of society’s defences on two distinct fronts – monetary reform represented by James Robertson, and John Bunzl’s Simultaneous Approach. Hopefully, it may prove the harbinger of further alliances in other vital areas.

Robertson provides the historical perspective in the efforts of Thomas Attwood, an early 19th-century monetary and political reformer.

“A family banker aged 29, in 1812 he made his mark with the manufacturers and artisans of Birmingham by leading a political campaign against the monopoly enjoyed by the East India Company and other British Government restrictions on overseas trade. That campaign confirmed that business owners and the working people – both of whom who had sprung from the industrial revolution and were unrepresented in parliament – could work together in their common interest that conflicted with those of the rural land-owning classes. The latter still monopolized parliament and government. For ten or fifteen years his energies were directed to monetary reform, but then he was to play a key part in the successful passage of the great parliamentary Reform Act of 1832.

“The industrial revolution was straining monetary institutions. In 1797 the effects of the Napoleonic Wars had driven the Bank of England off the gold standard; the exchangeability of its banknotes for gold sovereigns had been suspended. Between 1810 and 1819 Attwood campaigned, unsuccessfully, against the parliamentary ‘Bullion Report; which recommended that the number and value of banknotes in circulation should be reduced and their exchangeability for gold be restored.1

“Attwood and his colleagues of the ‘Paper Money’ School were in effect calling for money to be redefined to include paper banknotes as well as gold coins and bullion. Today this has been long accepted. Banknotes are recognized, along with coins, to be ‘cash.’ Like coins they are now issued debt-free by an agency of the state, the Bank of England. Although British banknotes still say ‘I promise to pay....’ that is a meaningless survival from past history…. Everyone knows they are cash.

“The challenge we face today is similar to Attwood’s. But our definition of money should now be extended to include, not just banknotes and coin, but also the electronic bank-created money in our current bank accounts. Although some people say that that is something distinct from money called credit, it is now clearly recognized to be money immediately available for spending. The Bank Charter Act of 1844 eventually resulted in a Bank of England monopoly of the banknote issue in England and Wales. Scottish and Northern Irish banks still issue their own banknotes, but these must be backed by Bank of England notes. However, the number and value of the banknotes issued are simply what is needed for the convenience of the public. They play no part in controlling the total value of the money supply. That is done by regulating interest rates, to control demand for the non-cash, bank-account money created by commercial banks and issued to their customers’ accounts as interest-bearing loans. That commercial banks still create this official-currency money for private-sector profit has become a glaring anachronism.

“As pressure grew for parliamentary reform in the 1820s Attwood recognized that monetary reformers would have to work together with campaigners for other radical issues. One of these was the campaign to repeal the Corn Laws, which imposed a tariff on imported grain and imposed dearer food on urban working people. In 1829 Attwood succeeded in bringing these various campaigning groups together under the banner of the Birmingham Political Union for the Protection of Public Rights, a new ‘general political union between the lower and middle classes of the people. Its first priority was to campaign for reform of the House of Commons, which had become, in Attwood’s words, ‘the seat of ignorance, imbecility and indifference.’ who specialized in the pursuit of power, influence, and corruption.

“For over two centuries political democracy has been spreading through the world, thanks to Attwood and others like him. But our capacity to control and harness the power of money for the public good has lagged far behind. So much so that failure to bring the workings of money and finance into line with economic justice is damaging confidence in political democracy itself. An international monetary system based on one or two superpower currencies such as the US$ and the euro profits the countries that issue those currencies at the expense of the rest of the world.

“For us in Britain the euro highlights the link between democracy and the money system. In spite of efforts to persuade us that scrapping the pound and replacing it with the euro would be a progressive step, people are increasingly doubtful. Why can’t we use the euro as a parallel currency, alongside the pound, rather than a single currency managed by a remote, centralized authority imposing one-size-fits-all interest rates and money supply on millions of diverse people and places? Surely 21st century pressures to become more globalized and more localized call for a more pluralistic monetary system. This would allow different currencies and means of payment to evolve at local to global levels, enabling people and organizations to choose whatever currency they find most useful for different purposes. As well as national currencies, continental currencies and a global currency, we should be encouraging currencies issued by local government authorities for local circulation, and non-official payments systems set up by community groups (like LETS).”

This articulates an issue already very much in the air. Thus The Wall Street Journal (9/01/04, “State and Local Programs Seek to Aid Uninsured” by Laurie McGinley) informs us: “Muskegon, Mich. – States and local communities, frustrated by the federal government’s failure to stem the growing ranks of the uninsured, have begun experimenting with their own initiatives to expand health coverage, especially for low-income employees of small businesses. Many of the initiatives are small and in nascent stages, started with seed money provided by state and federal governments or nonprofit foundations. They could be snuffed out if the states’ beleaguered financial picture doesn’t substantially improve.” The answer is, of course, alternate currencies at various lower levels, that will limit spending to the availability of unused local human and material resources. In short this is one of the many welcome mats that are already out for the Simultaneous Policy solution.

But nowhere have I encountered improvisations generalized so clearly into essential principle as in the Robertson-Bunzl book. That would give local bodies the choice of providing employment against payment in local as well as national or international currencies. In that way human ingenuity could throw up defences against the monopoly of international conglomerates.

But to make this possible the same recognition and simultaneous policy must be extended to embrace two further areas.

One is the recognition of public sector investment, both in physical and human capital. In the US this was smuggled into the government accountancy under the misleading heading of “savings,” which it was not since it was not held as cash.2 In this way the Clinton administration, beginning with January 1996, was able to show a surplus and through the improved ratings resulting on federal debt bring down interest rates. In Canada, “capital budgeting” (a.k.a. “accrual accountancy”) became law in mid-1999 with neither explanation or debate in parliament or in the media.

 Unless the Simultaneous Policy crusade embraces serious accountancy in the public sector, its efforts will be frustrated by the present hysteria for balanced government budgets. Without the distinction between government investment and current spending, you simply have no accountancy. Try introducing such bookkeeping in the market sector and see what would result.

Capital is, after all, what capitalism is supposed to be about. CEOs of private corporations who horse around with company assets even risk ending up in jail.

It is important to note that since the revenue of governments is mostly taxation, it is the tax-base that counts rather than whether an investment in human capital – say education or health – ends up in physical bodies and minds or in the government jurisdiction.

Closely connected with that is the fact that a flat price level (“zero inflation”) is simply unobtainable in a highly technological, rapidly urbanizing world. Except, of course, under conditions of severe depression. Nobody in his right senses who moves from the countryside to London, Tokyo, or New York expects his living costs to remain the same. How then can humanity expect to when making a similar move? Price index increases may mean one of two very different things: real market inflation, properly defined as an excess of aggregate demand over supply. Or it may simply designate that the output of the public sector has increased as a proportion of the total national output, and hence the layer of taxation in all price has deepened.

Significantly even the US Federal Reserve and the Bank for International Settlements in recent months have come to distinguish this as “beneficial inflation” and identify it as up to 2% price increase. We identified it under the name of “social lien” almost 40 years ago. It makes no sense to give two different, in fact contrary forces, the same name. You will find no instance of that in any serious science.

To make such nonsense possible, conventional economists have declared all non-market subsystems of our mixed economy “externalities” – i.e., shoved them out of the back door so that they could devote themselves exclusively to the attainment of flat-world economics. But unless you enter the cost of what should be but has not been done to preserve the environment, or public health, you are running up a deficit that will catch up with you with dreadful penalties. Such have already appeared under the labels of AIDS, SARS, Mad Cow Disease, and even Terrorism.

Finally, we must come to grips with the fact that economic theory is misusing mathematics. Much has been made of the “higher mathematics” on which price theory has been based for over a century. But to use the infinitesimal calculus, the “marginal utility” people who assume a “pure and perfect” market that is self-balancing, posit all actors on it to be of such negligible size that nothing they do individually can influence the price level. Obviously this is nonsense in the age of Microsoft and General Electric – a clear case of the customer cut to the cloth.

It is high time that we brought some professional mathematicians into our conferences on heterodox economics to tell economists what mathematics can and what it cannot do. Likewise it is absurd for economists to close ranks and consider that only they, with their tattered record, have a right to be listened to when the economy comes up for discussion.

William Krehm

1. There is a reference to the Attwood brothers in Marx’s Capital, Vol. 3, p. 547, Moscow 1962: “Let us now listen to a private banker, Twells, an associate of Spooner, Attwood & Co., since 1801. He is alone among the witnesses before the BC (Banking Committee) who provides us with an insight into the country’s actual state of affairs and who sees a crisis approaching. In other respects, however, he is a sort of little-shilling man from Birmingham, like his associates, the Attwood brothers who are the founders of the school. He testifies: ‘4488. How do you think that the Act of 1844 has operated? If I were to answer you as a banker, I should say that it has operated exceedingly well, for it has afforded a rich harvest to bankers and [money]-capitalists of all kinds. But it has operated very badly for the honest industrious tradesman who requires steadiness in the rate of discount, that he may be able to make his arrangements with confidence. It has made money-lending a most profitable pursuit.’” And there follows a jeremiad of exploitation of the producing economy by the banks and financiers.

2. The US statistic is to be found in the “national saving” figure of the Bureau of Economic Analysis figure of the Department of Commerce, where assets of some $1.3 trillion were discovered – still not counting government investment in human capital such as education, health, and social welfare.

Copies available from International Simultaneous Policy Organization (ISPO), PO Box 26547, London SE3 7YT, UK , [email protected]. International prices (including postage and packing): US$17.50, CA$ 22.60.

— from Economic Reform, Feb 2004

 

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