Book Review
This book is a much-needed challenge to the dominant ‘Neo-liberal’ or ‘Washington Consensus’ version of economics, pointing to the disastrous consequence of its acceptance by politicians.
Much of the efforts of the developers of the ‘New Economics’ promoted by the New Economics Foundation, of which the authors are prominent members, is concerned with alternative measurements, challenging the dominance of GDP/GNP; it developed the ‘ISEW’ – the Index of Sustainable Economic Welfare; it is less strong on proposing changes.
The book covers a wide range of issues, with perceptive comment, as indicated by the titles of its 11 chapters, such as: ‘Resources: Why are Cuban Mechanics the Best in the World?’ and ‘Debt: Why are Malawi Villagers Paying the Mortgages of Surbiton Stockbrokers?’
A theme running through the book is the need to aim for ‘wellbeing’ rather than (financial) ‘wealth’, and that the two do not correlate well beyond a minimal level of wealth. They recognize the importance of Basic or Citizens’ Incomes as a means of breaking the link between earnings and meaningful work, reducing stress and freeing people to choose more rewarding occupation, even if it is not so well paid.
They note the psychological importance of a feeling of worth to the community they belong to, and that this need not be gained from ‘holding a job’, i.e. being paid for ‘full time’ work, yet elsewhere they fail to question the concentration of conventional concern on the issue of ‘unemployment’, or to question this concept. Rather, they suggest that ‘we need to share out the paid work better. One way to do this is to shorten the working week …’ suggesting that this ‘goes hand in hand with the minimum wage, because it helps to prevent exploitation of the lowest paid.’ Far better to have Basic Incomes, instead of any ‘minimum wage’.
If Basic Incomes were in place, sufficient to support a minimal level of secure existence, the ‘need’ for ‘economic growth’ just to distribute at least this minimum income would be removed, and a whole new ethic of cooperation and mutual aid could develop – the ‘gift economy’, an extension of the ‘Freecycle’/‘Freegle’ movement.
That this ‘cannot be afforded’ should be challenged; the present money system seriously distorts the reality of physical possibility.
They document the recent huge growth of debt, and its effect of driving overwork as well as income-inequality, noting that in many ways 12th century Europe spread prosperity better, despite the far lower level of technology. They note that at that time, usury was illegal, and that the economy was overwhelmingly local. They note the ‘propensity to borrow’ promoted by ‘serious marketing pressure’, and that this is the result of the need to service the growing levels of debt due fundamentally to the nature of our money-creation, but exacerbated since the ‘deregulation’ of the banks in the 1970s, giving free reign to the money-gamblers on foreign exchange, stocks and shares, and ‘derivatives’, which extracted wealth from the real economy into the unproductive so-called ‘financial economy’. As noted, this has also led to the growth of multinational corporations, partly due to the actions of ‘corporate raiders’, with otherwise sound companies taking on high levels of debt as a defensive measure against the raiders. This growth of corporations to near-monopoly status has led to the destruction of local economies.
‘The Green New Deal’ is recommended – one of the authors was involved in its generation. This idea has been gaining widespread support. It argues for investment in activities to bring about changes to reduce waste and use of fossil fuels, and to promote development of renewable energy. This would ‘create thousands of new green-collar jobs’. It also advocates restrictions on corporate tax evasion and re-regulation of the domestic financial system and the break-up of the huge banks, ‘too big to fail’ (or to be allowed to!). It fails, however, to address the consequence of these restrictions, in reducing the money supply.
The authors refer at several points to the fact that nearly all of our money is created by banks, by making interest-bearing loans, and that this gives the banks huge profit, as well as growing levels of debt. However, they oppose the idea that ‘government alone should create money’ because of ‘skepticism about money and its measuring power’. This causes them to fail to see the huge power held by the money-creating authority, if the money only enters circulation as loans.
They write that: ‘In the long term, a key brick in the new economics edifice is going to be provided by issuing interest-free money and ending the link between savings and lending’, without considering the fundamental importance of how the money should be ‘issued’.
They advocate complementary currencies, without consideration of the possibility of all ‘legal tender money’ being created by the State and spent into circulation, with a ‘monetary authority’ being charged with monitoring and adjusting the volume to meet social needs. Given this, money would be a circulating medium-of-exchange, instead of being created as limited-time loans, subject to recall and cancellation.
In such a situation, there would be no reason to outlaw the complementary currencies they advocate, but there would be little need for them. The authors are keen on the idea of ‘time banks’, to encourage supportive neighbourly acts by building ‘credits’ to spend in later life; alternatively, Basic Incomes would tend to promote the ‘gift economy’ and achieve much the same effect, without any formal accounting.
They are rightly critical of the idea that money ‘is an effective measuring device’. This leads them to advocate ‘a multiplicity of different kinds of money, operating from the neighbourhood to the international level, and operated by different institutions rather than by one state-controlled bank’ – though I know of no proposal that ‘one state-controlled bank’ should ‘operate’ a money supply.
As a corrective to the failure of banks to make loans to ‘un-creditworthy’, poor people, they commend the Grameen Bank and credit unions, and note that these keep their rate of interest low and more affordable, replacing the extortions of ‘loan-sharks’ – noting that the "UK only abandoned a usury interest rate in 1977. The previous top rate of interest was 48 per cent. In many EU countries, half this level is the ceiling today’, but that in 2002, ‘sub-prime lending’ to low-income households’ was at rates ‘from 160 to 500 per cent APR’"!
They report with approval that ‘a new business model has been launched in the UK called a community banking partnership, a social cooperative network among credit unions, a community development finance institution and a money advice agency’, one of which groups has so far stopped over 100 evictions.
Internationally, they note that the special drawing rights – SDRs – created by the IMF in 1967 but little used, could be ‘reinvigorated’ as an international currency and used for poverty reduction and the provision of global public goods; alternatively, ‘special emission rights’ – SERs – and ‘emissions backed currency units’ – EBCUs – could be used, linked to annually reducing emissions of carbon from fossil fuels.
Overall, they are right to point ‘the 6000-year-old disconnect between money and life’, but in failing to consider the potential of a system of money spent into circulation, and so not involving the creation of debt, while rightly ‘skeptical about solutions that pose as a single magic bullet, whether they are interest-free money or land tax’, they fail to consider the possibilities opened-up by the combination of debt-free money with Basic Incomes and land tax, etc. In an otherwise fine, well-informed book, this is to be much regretted.