By Ron Morrison
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 lifestyles.
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 1980s a new economic theory developed — that of deregulating the money business in the expectation that “the market” would produce economic equilibrium.
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 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 pro-Keynes lobby was unable to marshal a counter argument.
It was 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-gritty of the money system.
Consequently, government remained obliged to borrow from the banking system in order to intervene effectively; and this implied increased taxation.
Keynes died in 1946, before 100% fiat currencies became the norm. At that time half the money supply 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 years on, bank-created money 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 money, 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 USA dominated the post-war Bretton Woods Conference and was 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.
MONEY: AN ACCOUNTING SYSTEM TO ACHIEVE AN OBJECTIVE
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’.
For governments at least, the term ‘affordability’ in terms of money is a non-word.
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 — those financial intermediaries which hold other people’s money to make loans, and which were 27.6% of UK GDP in 1998 (Abstract of National Statistics) — reckons that it knows best how much our government can afford to spend on Public Services and infrastructure.
Money Reformers believe that we elected a government to make that decision on behalf of those who generate the other 72.4% of GDP!
Governments have issued debt-free money for many years and spent it into circulation.
It can be done again, given the political will.
The evolution of bank-created money in the past fifty years has expelled this source and replaced our means of exchange with private, interest-bearing debt.
If government can issue Treasury Gilts and Bonds, then it can issue the money directly to finance the rebuilding of our creaking national infrastructure.
When government once again shares the money supply 50/50 with the banks, we can reduce the tax burden and finance the Public Services , which once were world leaders. Nowadays the money supply is all to do with business and maximising shareholder value — nothing to do with benefiting the community.
It’s a 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.