There are many times when working alongside the TCC team I have to smile.
Having read a City AM article by our own Dr. Jamie Whyte earlier the morning I hope this makes you smile too.
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I do not doubt that the Government is sincere in its wish to make Britain “open for business” and to deliver greater life chances through reform of the welfare state. I gave some time to the Centre for Social Justice and now I see many of their ideas filtering through to public policy. I support those reforms from both a practical perspective and in view of their moral necessity. The Prime Minister is correct to talk of the culture we have lost, particularly in respect of private shame. I am put in mind of C S Lewis’ book The Abolition of Man: there is, after all, such a thing as right and wrong. Lewis predicted humanity’s ultimate destiny on the path which embraces subjective morality: a dystopian society in which “we find the whole human race subjected to some individual men, and those individuals subjected to that in themselves which is purely ‘natural’ — to their irrational impulses.” Some readers will recognise the problem and the dangers but reject the state’s role in finding a solution. However, we do not live in that world where the state is comprehensively rejected. There is a welfare state and it needs reform. The Government is getting on with it, and in the right direction too. However, what the Government is not addressing is the de-civilising effects of inflation, that is, increasing the money supply. What is commonly called “inflation” – a rise in the general price level – is an automatic consequence of debasing the currency. And currency debasement has been fierce in our lifetimes: the consequences have been and remain profound. There is a presentation which, in one form or another, I have given many times. It shows, in a few charts:
By the end of the presentation, I have explained our banking, fiscal and economic crisis. Given that what it shows is a monetary and fiscal catastrophe, people receive it surprisingly well. As far as I can tell, people can handle the truth and they want it. One of the key slides is a price index from 1750-2003:
The grotesque debasement since 1971 – when Bretton Woods finally collapsed – hides the detail of the nineteenth century on a linear scale, so I include the same chart on a log scale. The log chart shows that, despite a number of crises and fluctuations, a pound in 1900 bought about the same basket of goods as a pound in 1800. In contrast, money has lost almost all its value since the Second World War. The Ethics of Money Production by Jörg Guido Hülsmann is particularly relevant at this point. Hülsmann writes:
He goes on to write of inflation’s tendency to centralise government, to extend the length of wars, to enable the arbitrary confiscation of property, to institutionalise moral hazard and irresponsibility, to produce a race to the bottom in monetary organisation, to encourage excess credit in corporations and to yoke the population to debt. He explains how “The consequence [of inflation] is despair and the eradication of moral and social standards.” That all sounds familiar. Hülsmann’s work is not scripture of course, but neither are his ideas isolated. Consider Ayn Rand:
It is my firm view that inflation – the debasement of money – was the primary cause of the banking crisis. That inflation was a deliberate policy choice of welfare states. You may recall Eddie George’s remarks in 2007 and now Mervyn King has said, “Of all the many ways of organising banking, the worst is the one we have today.” Moreover, if Hülsmann, Rand and other scholars including Mises and Hayek are to be believed, then inflation is also a major contributor to the moral and spiritual decline of our country. No amount of welfare reform alone will solve that. All is not lost however. To return to that log-scale price index, money’s value was substantially more volatile in the first half of the nineteenth century than in the second. In 1844, the Bank Charter Act, Peel’s Act, took from the banks the privilege of extending bank notes in excess of specie (coins of inherent worth). It was recognized that this extension of candy-floss credit un-backed by prior production of real value was a systemic cause of economic and banking crises. Unfortunately, that Act left the banks unmolested in their ability to create deposits. As our system of money and bank credit has evolved, that loophole, combined with central banking and the socialisation of risk, has delivered us into our present predicament. It falls to our generation to solve this problem and that is why we established The Cobden Centre. As Martin Wolf wrote in the Financial Times on 9th November 2010, “The essence of the contemporary monetary system is creation of money, out of nothing, by private banks’ often foolish lending.” And then we wonder why house prices have raced out of reach. We wonder why the basement garages in Canary Wharf are full of supercars while what was once our industrial heartland languishes in state dependency. I admire the Prime Minister and the coming welfare reforms. I will back them gladly. But, until we end inflation as a way to fund the promises of the welfare state, we shall not have done the decent thing. We shall not have established objective morality in banking and in that lifeblood of society: money. Honest money is a prerequisite for social progress and it must be delivered if reform is to succeed.
For me, it was a particularly memorable and moving trip. I took the call informing me that I had been shortlisted for the Wycombe Parliamentary selection procedure, against all expectations, while sitting in the departure lounge at Girona after a week’s skydiving in Empuriabrava. I arrived at the Summit, knowing it was suddenly possible I would be an elected politician within the year. Moreover, it’s no secret that I am a Christian, so it was reaffirming to discover that classical liberalism can be traced to men of God who developed their theory on the basis of morality, jurisprudence, theology and reason. An early speaker at the Summit was a contemporary Spanish friar whose passion for the poor and whose commitment to liberalism transcended the barriers of language. He knew as I know that the proper formula for widespread prosperity and the improvement of mankind is the doctrine of liberty: peace, equality before the law, freedom from arbitrary government, property and the family. In Cobdenite language, we might call for honest money, free markets, free trade, peace and the classical rule of law. And so as I write on this Palm Sunday, we come to the Telegraph’s report “Catholic church: Big Society is failing“:
The Archbishop asks,
How far the Archbishop has come from the scholastics of Salamanca. Yet the Archbishop is on to something:
Now we have a point of agreement. We know we have the worst of all possible banking systems – the Governor of the Bank of England has told us so – and one of its effects is to distort the economy into unsustainable patterns thereby unjustly widening wealth inequality, driving the business cycle and precipitating banking crises, such as the one from which we are apparently recovering and at enormous cost to society. It is a statist banking system characterised by government monopoly, central planning, legal privilege and the socialisation of risk. That very statism is the origin of the injustice the banking system is meting out to the rest of us. The various doctrines of statism have failed. For those of us who wish to live in an ethical society which benefits all its members, it is time to rediscover that moral tradition of social thinking which began formally in Salamanca. It is time to refine and apply the doctrine of justice, peace, prosperity and fulfilment which is humble about the uses of coercive power and optimistic about the potential of individuals cooperating in society. It may be true that those who wear the badges of ethical authority reach often for the coercive power of the state, but those of us with an intellectual, moral and practical basis for another way would do well to remember both the origins of our school of thought and the motto of one of our inspirations, Ludwig von Mises:
I had a meeting two years ago with James Forsyth, the editor of The Spectator, and talked about the alternative world of Austrian Economics, how many of its economists had predicted boom and bust, etc. He was very attentive. I am glad to see this article in this week’s edition, drawn to my attention by Daniel Hannan. The Wealth Manager, Tim Price, is clearly aware of the Austrian School and may well use some of the key insights to invest. He quotes Prof Jorg Guido Hulsmann and his book “The Ethics of Money Production.” This is a must read for anybody interested in how the government are destroying your wealth and will continue to do so until the production of money is taken out of their hands. The full text can be downloaded here . It was brought to my attention that a film version of a book was about to be released on 15 April. The book is of course Ayn Rand’s classic Atlas Shrugged, a book that should be brought to the attention of every serious student of life. Sadly, I only came across the book 3 years ago but I found its insights on the way the world works today simply stunning. You can find my introduction to the book here. A film of this classic deserves an airing and is most timely with current world events unfolding as they are. The film makers are appealing to everyone who wishes to see the film in the cinema to join their online petition. Could I encourage every reader to sign up for a local viewing? One can imagine that a film of a book that exposes so many home truths about the way Western society and culture are headed will meet stiff opposition. It is time to stand firm and demand a hearing of all views, especially the ones that describe the mess we are in and give a pointer to the remedy. I look forward to seeing this film and posting a review. The makers have a hard job to approach the standard of the original, but they should be encouraged and supported in their efforts. You can find the film’s website here. A new film is to be released on the 15th of April: Atlas Shrugged Part 1: The book Atlas Shrugged by Ayn Rand details the decay and collapse of a society from real wealth-creating activities to a society that uses policy and laws to appropriate that wealth from others. This leads to a strike by the true wealth creators, leading to a slow motion collapse of society. The book is based on a society in the US and it tells the story of a family owned railroad business. At the time the book was written, the jet-setting and interstate car age was only just in its infancy. A parallel seen today will be with the off-shoring of production and jobs with nothing to replace it. We also see in the West a rise of regulation and other enforcements that strangle new enterprises at birth. You may have heard the phrase ‘Too Big to Fail’ with reference to the banks but we now have ‘Too Small to Succeed’! The sums involved with all this regulation and enforcement are staggering. Ayn Rand comments on this state of affairs in the book:-
We see today the outworking of this in the case of the ongoing financial scandals in the US and elsewhere (Iceland, Greece, Ireland…), where large private investment bets are paid out in full, backstopped by the taxpayer. We see moral hazard: risk has been offloaded to those least able to afford it. People who took the risk are not willing to realise, or are sheltered from realising, the consequences of that risk. There is so much wrong here it would take many essays, books even, to document. The people of Iceland have said no to paying the debts of private banks with public money and the world has not ended. Are the people of Ireland also about to say no? Austerity seems to now mean the taxpayer pays so that those that took the risk do not have to. On the subject of Money
Today we have throughout the world paper fiat currencies backed by nothing. Debt is now paid simply by ‘printing’ more out of thin air – the Quantative Easing programmes of central banks around the world. ‘Printing’ was put in quotes as today printing is done simply with a computer keyboard, adding the appropriate number of zeros to an entry somewhere in a computer database. The account these ‘looters’ draw on is the debasement of the currency, by that insidious process of inflation. Inflation is a stealth tax on savers and pensioners applied by creating currency in ever-increasing amounts through government deficit spending – the unearned income of ever increasing debt. Inflation is not rising prices but the falling in the value of money. Guilt – the weapon used against you.Ayn Rand identifies the weapon used against you to great effect. It is an insidious tool of manipulation. That weapon is your decency and sense of fair play, it is your guilt. By making you feel guilty about any topic, it disarms you from an effective response. You are made to feel a bad person – the games used here are very cynical. Political Correctness is such a tool, one word accusations which instantly apportion guilt, making you defenceless, innocence denied. You know those words, they enable the manipulator to win the argument without having one. By making you guilty up front you have lost position, do not allow these contemptible frauds to win. Ayn Rand warns of this in the book:
Moreover:
This book should be mandatory in all schools for study. It teaches you how to think, not that I agree with everything, as I did note a certain self-centred sterility which would not work in a family setting. The book exposes well the cynical manipulation by others who try to exploit one’s good nature against yourself. A comment on the Justice system
In ConclusionFinally, what we see today can be summed up with this following quote which preceded Atlas Shrugged and was written during the Great depression by Adrian Rogers (1931):
One question may be, “Will the film be true to the book?” However the question may be, “Will Ayn Rand’s insights come over in the film or will it just be an excuse to defame capitalism with a straw-man cartoon of crony capitalism?” What should be portrayed in the film is the ultimate bankruptcy of Marxism/socialism and the Robin Hood class of a self enriching elite, always claiming to act for the benefit and in the name of the people they ultimately oppress. In the book the society decays and collapses because those in control do not create any wealth but conspire to appropriate and consume the wealth created by others, wrapping it up of course in the obligatory self-justifying but bankrupt cause. George Orwell’s sage words are ever more applicable today: “In the time of universal deceit, telling the truth is a revolutionary act!” On Saturday, I spoke again to set out the scale and scope of our financial and monetary mess and again, the audience welcomed the presentation. I find this encouraging: while people are typically horrified by the true levels of debt and debasement that have been entered into by states on our behalf, generally, people are prepared to believe that reform is possible. I was put very much in mind of two attitudes. As Sean Corrigan has indicated, Bagehot’s classic treatise is not so much a defence of British monetary orthodoxy as a despairing attempt to show how to survive the banking crises which are inevitable under such a system. As Bagehot wrote:
This stands in contrast to the hopeful attitude shown by Jörg Guido Hülsmann in The Ethics of Money Production:
Now, I suppose a thoughtful person might question whether Hülsmann is engaging in hyperbole with his reference to “the coming disaster”. It seems a very reasonable question and, though I don’t propose to begin answering it here, I reflect on the trouble faced, not just by the UK, but by the Eurozone and the USA and also on the actions of their Central Banks, treasuries and legislatures: a broader range of predictions than we are accustomed to has become credible. Denying the facts of our predicament will not do, but nor will a hopeless despair. The central, optimistic path is serious bank reform working towards honest money. As I reflect on responses to my speeches, from students, Conservatives, businessmen and others, and as I consider the increasing success of grassroots campaigns like Positive Money, I am increasingly persuaded both that Hülsmann is right to reject defeatism and that there are good reasons to believe that the will to deliver worthwhile reform may yet emerge. You can find Andy Duncan’s review of Hülsmann here. Antoine Clarke’s fascinating paper The Micropolitics of Free Market Money: a Proposal is also relevant.
I read this yesterday and almost fell off my chair laughing.
As ever, George Monbiot remains totally clueless about the ideas, motivations and complexities of the free market movement. Not knowing his David from his Milton Friedman he has clearly never read Mises, Rothbard or Hoppe. He wouldn’t know his Socialist Calculation Debate from his Bastiat. Nor would he know what to make of a Kevin Carson or writers such as Frank van Dunn; free marketeers who are more consistently opposed to the corporatism and underpinning architecture of big business than even your most rampant anti-capitalist. The older I get the more I realise that people such as Monbiot are actually simple and essentially poorly read characters. They probably consider themselves to be informed and insightful but in reality they are intellectual babes in the wood. That is why they comfort themselves by defaulting to simplistic tales of big business, self-serving interest and billionaire plots. As with many Conservatives looking at the left, they see opponents as an amorphous mass devoid of understanding. Crucially, such thinkers avoid the real meat of the story and in military terms they make the ultimate mistake. Time and again they demonstrate that they simply don’t know what many of their perceived enemies actually believe. And as such, they fail to engage with a more exciting but challenging reality. Via Bank plans to cap risky mortgages – Telegraph:
But why did borrowers wish to borrow so much, so riskily? And why did lenders wish to lend so much, at such risk? In the first place, credit has been too cheap for too long. Low interest rates are bound to encourage people to borrow more and save less. Therefore, people saved less and borrowed more. This was the result of the Bank of England’s decisions. House prices kept rising because people kept borrowing and pumping money into housing. Housing was excluded from the Bank’s measure of inflation, so rates stayed low. The appearance of inevitable and uninterrupted house price rises gave the impression that we were in a new era within which the old rules did not apply: borrowing caps could be raised to excessively risky levels and borrowers could rely on price increases to deal with the capital. Lenders used models which fundamentally understated risk. For example, markets do not behave within the Gaussian or “normal” distribution: extreme events happen more often than a normal distribution predicts. Furthermore, the risk of mortgage default correlates across similar mortgages when the economic environment changes. Still, the models said risks were lower than they were, so more credit could be extended. Since the lenders were neither, on the whole, mutuals or partnerships with open-ended liabilities and since the employees making the decisions shared only in the upside, there was insufficient motivation to manage to the true level of risk. Moreover, securitisation of mortgage pools and so forth palmed off the risk onto hapless investors who probably trusted the risk models and the market environment created by excessively cheap credit. And, “Hey, look at the returns!” The personal touch was missing from the relationships between borrowers, ultimate lenders and intermediaries, further corrupting the system. Of course when the pantomime ended, the taxpayer was forced to pick up the bill. And still bonuses were paid in bailed-out banks! Now, having created the boom with cheap credit and moral hazard, the Bank plans, not to fix the root problems, but to pile intervention upon intervention… There is much else to be said, for which I recommend The Alchemists of Loss and Money, Bank Credit, and Economic Cycles. However, on the face of it, the Bank’s present proposals merely extend the infantilisation of the financial services sector. Later this week, I will indicate ten serious plans for financial reform. One of our good supporters has sent us in an article to publish by Christopher Snowdon, who with the support of the courageous campaigners for liberty at the Taxpayers Alliance is setting out to challenge and demolish the work of Wilkinson and Pickett’s The Spirit Level: Why more equal societies almost always do better. Open-minded readers of this site will no doubt come to their own conclusions. Comment at The Guardian is warming up on the matter.
Christopher Snowdon is the author of The Spirit Level Delusion. The book can be ordered from Amazon. |
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