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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 21st 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% fiat1 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 shares the money
supply 50/50 with the banks we can reduce the tax burden and finance needed public
services. Nowadays Wall Street and 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. Footnotes 1. Money declared as
legal tender but without intrinsic value or backed by reserves. 2. Financial
Intermediaries – enterprises holding other people's money to make loans –
were 27.6% of GDP in 1998. Abstract of
National Statistics. ___________________________________ SUGGESTED CITATION: . |