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Economics

Welfare and the case for honest money

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:

  • How the state has grown inexorably since 1900,
  • How taxation reached an apparent limit at rather less than the scale of state spending, remaining there since 1971 or thereabouts.
  • Where our debt projections are heading,
  • How our money has been debased, particularly since 1971.

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:

To appreciate the disruptive nature of inflation in its full extent we must keep in mind that it springs from a violation of the fundamental rules of society. Inflation is what happens when people increase the money supply by fraud, imposition, and breach of contract. Invariably it produces three characteristic consequences: (1) it benefits the perpetrators at the expense of all other money users; (2) it allows the accumulation of debt beyond the level debts could reach on the free market; and (3) it reduces the [purchasing power of money] below the level it would have reached on the free market.

While these three consequences are bad enough, things get much worse once inflation is encouraged and promoted by the state. The government’s fiat makes inflation perennial, and as a result we observe the formation of inflation-specific institutions and habits. Thus fiat inflation leaves a characteristic cultural and spiritual stain on human society

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:

Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. 

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.

Economics

My Journey to Austrianism via the City


Another classic article, brought forward. This is a speech by James Tyler to the Adam Smith Institute Next Generation Group on 6 October 2009. This speech is also available on hedgehedge.com.

I have spent the best part of the last two decades pitting my wits against the market. It’s an unforgiving game: I’ve seen ups and downs, and many of my rivals buried under an avalanche of hubris, passion, illogical thought and unchecked emotion.

I have witnessed the sheer folly of the ERM crisis, the Asian crisis, the failure of the Gods at Long Term Capital Management and the insanity of the tech boom.

I have enjoyed the ‘NICE’ decade (Non-Inflationary Constant Expansion), and scared myself silly during the credit crisis.

I am a trader.

I risk my own money and live or die by my decisions, and face the threat of personal bankruptcy every time I switch my screens on. I get no salary – indeed I turn up at the start of the month with a large office overhead – a ‘negative’ salary. I have no fancy company pension scheme, no lucrative monopoly or franchise.

I eat what I kill.

Mistakes cost me my livelihood, so, above all, my decisions have to be rooted in practical and logical decision making.

Some have called my kind parasitic, but I would have said that I bring order, efficiency, predictability, stability and deep liquidity to a crucial process: a process that makes the whole world keep ticking.

I make money work.

I make the market in interest rate derivatives: a market born out of the neo classical revolution in finance fostered in Chicago during the 1970s. I am a child of Friedman, Fisher Black, Myron Scholes and the modern international financial system.

My analysis was steeped in the neo-classical, efficient markets paradigm.

Friedman’s ideal was working. Enlightened central bankers guided the free market with gentle nudges and short term liquidity infusions, free floating currencies gently adjusted themselves to the constant flow of new information and efficient and rational markets took all in their stride.

Credit flowed, people got wealthier, economies developed and all was well.

And then the crisis struck.
Continue reading “My Journey to Austrianism via the City”

Economics

The violation of Mr Smith

Forty years ago today, Britain moved to decimal currency. A 1971 penny was worth the equivalent of today’s 10p. In recognition of this dramatic debasement, and its devastating effects, we are bringing forward this classic article, originally published in December 2009.

Mr Smith works hard, plans carefully, and saves what he can, putting his money into a building society.  He pays his credit card bills off each month, and tries to overpay his mortgage when he can.

Mr Smith got a 3% pay rise last year – inflation was only 2% – so he felt good about that.  But… he doesn’t feel any wealthier.

Year after year, the government had said that the economy was growing strongly, but still, things seemed harder for his family and him.  Train ticket prices up again.  Heating bills rocketed when the price of oil went up, but never seemed to come down.  He swears a loaf of bread and a pint of milk were much cheaper in years gone by.

When he changes his cash for Euros, he realises that his holiday in France is now unbearably expensive.  His tax rates didn’t go up, but still, after all his bills were paid, he seemed to have less and less spare cash than he remembers a few years ago.

There are Mr Smiths everywhere.  Careful folk, who plan, save for a rainy day and have a sense of personal responsibility.

Smith is the target.

It is Mr Smith who is going to pay for the banking crisis.

His saved wealth will pay the national debt.

His prudence will bail out Gordon Brown’s profligacy.

His forgone holiday will pay the banker’s bonuses.

His careful spending will pay for the vast number of quangos.

His financial planning will bail out the failed NHS computer project, over-budget military programs and ID cards.

His sense of responsibility will end up funding the destruction meted out in Iraq and Afghanistan.

It won’t be the politicians or the bankers who pay for global warming – he will.

He knows he pays tax… but what is hard for him to comprehend is that there is another pernicious process draining his wealth and subverting his hard work towards paying for the misjudgement of others.  Whether he likes it or not, he naively pays for the decisions made by the political class.

He has no choice. No option.  He was never asked to vote for it.  And for the most part, the act of theft is so subtle he doesn’t even know it is happening.

Why does he feel poorer?

Why is it that Mr Smith seemed to miss the  ‘boom’, yet is hurting more in the bust?  Why doesn’t life get easier for him?  What is going on?

Inflation.

As technology produces things more cheaply, Mr Smith should have been able to reap the rewards – except that things don’t get cheaper for him.  Society cheats him when the government opens the spigot of new money, washing this value away as the torrent of new money chases prices higher beyond his reach.

The winners are always those close to the gusher – the banks, financiers and politicians.  These are the ones who get to spend the new money first, thus chase prices up before Mr Smith gets any sniff of what is happening.

To save or to invest?

Think about your personal circumstances.  Every time your payslip comes in, you have a choice of how much to spend and how much to save.  Every rational person knows that there is a balance to be struck between current enjoyment (consumption) and future enjoyment (savings – or deferred consumption).

This choice is exactly the same for society as a whole.  As a country, we must decide how much to consume, and how much to defer consumption in order to allow our children and us to enjoy things in the future.

The choice for us all is simple.  Defer consumption and invest for the future, or consume and enjoy now.

What is the process by which we save for the future?  There are two ways.

  1. Voluntary saving.  If society needs to invest for the future, but people prefer to consume, then the savings rate – the profits paid on investments and/or the interest rate paid on deposits, rises until people choose to defer consumption and invest.
  2. Forced saving.  Government policy forces a decrease of the purchasing power of money via inflation of the money supply.  The net effect is a transference of wealth from savers and fixed income groups towards net borrowers (itself included).  It also creates an artificial pool of liquidity into which the government can sell its IOUs.

The evil of Forced Saving

The natural state of affairs in a free market, with a more consistent supply of money, is that general prices fall as technology advances.  The prudent are rewarded, and borrowers have to carefully evaluate and moderate their flights of fancy, only investing borrowed funds carefully in sound projects.

When the value of money declines, savers find that their money buys less, whilst borrowers are happy to find that they can repay their debts with money of a decreased value.  It’s like borrowing five books from the library and finding that you are only required to give four back!

By setting a target for rising prices and then pulling levers to increase the supply of money in the economy to achieve it, the government prevents the natural response of general prices to competition, increased efficiency and innovation: they stop prices from falling.

Entrepreneurs, innovators, inventors and new businesses exist because they believe that they can satisfy society’s wants better than they have been served before.  They have ideas, innovations and take risks in order to provide goods that are cheaper than they otherwise would be.  Businesses operating in a competitive environment always seek to reduce costs, be that one step more efficient and produce a cheaper or better widget.  As group of people, entrepreneurs bring efficiency and innovation, and they make stuff cheaper.

The benefit to Mr Smith should be that his income goes further.  As time progresses, technological innovation should mean he can buy more with the same cash.  But that’s not what happens, as any pensioner knows.  Saved money buys far less now than it did at the time it was saved.

Governments achieve rising prices by encouraging the supply of new money.  This new money comes from the central bank via its control of the banking system.  The first users of this new money are invariably politicians, finance capitalism and big business. These guys get to use the newly minted money first, and thus spend it first.  This process bids up prices, leaving everyone else chasing behind, and poor old Mr Smith last in the queue.

What an evil system it is then, when government can control money in such a way as to give it a first user advantage that penalises all those in the general population whose wealth is being rapidly diluted.  A process that systematically violates and loots pensions, savings, fixed incomes and the actions of prudent, and rewards the profligate, the speculative borrowers and above all, rewards the biggest borrower of all: Government.

Let’s be clear.  The current system is a process that diverts the benefits of innovation and technological advancement that should accrue to the general population, and thrusts it towards the desired spending of the well connected and the political class.

We need to stop this continual violation of the little man.  Mr Smith has to start realising what is happening to him.

That’s why I’m proud to support the efforts of the Cobden Centre.

Economics

Tonight: Britain’s Trillion Pound Horror Story

Film maker Martin Durkin explains the full extent of the financial mess we are inBritain’s Trillion Pound Horror Story will be transmitted on Channel 4, tonight Thursday, 11 Nov at 9pm:

Film maker Martin Durkin explains the full extent of the financial mess we are in: an estimated £4.8 trillion of national debt and counting. It’s so big that even if every home in the UK was sold it wouldn’t raise enough cash to pay it off.

Durkin argues that to put Britain back on track we need to radically rethink the role of the state, stop politicians spending money in our name and introduce, among other measures, flat taxes to make Britain’s economy boom again.

This is a polemical film presented by Martin Durkin. The film brings economic theory to life and makes it hit home. It includes interviews with academics, economic experts, entrepreneurs and four ex-Chancellors of the Exchequer.

A number of members of the team gave interviews and we look forward to seeing the final result.

Economics

Sound familiar? A Challenge to Tribal Politics

Peter Joyce and Geoffrey Sell describe an Eton and Oxford educated Party Leader thus:

A long-term opponent of statism, the view that social advance could only be brought about through the action of the state. His opposition to state action was partly based on the belief that this enhanced the power of bureaucracies, transforming those who received state services into the passive recipients of handouts, devaluing their humanity by depriving them of the ability to take decisions which affected their everyday lives. His firm belief in the importance of participation and the need for individuals to possess freedom of choice resulted in him viewing communities as the key social unit in which individuals could intellectually develop their full potential by sharing in the pursuit of common goals…

He found in small self-sufficient communities paradigms against which he measured the lunacies of central government and the welfare state…

He deserves credit for placing on the political agenda issues such as how Britain should handle her relative decline in the world and how government should be brought closer to the people…

I was struck by the similarity of the Big Society not Big Government message from David Cameron and these quotes from the excellent Joyce/Sell Biography of the late Liberal leader Lord Jo Grimond found here.

I believe it highlights the flawed tribal nature of our politics. I feel truly sorry that the Liberals have abandoned such a rich political heritage for the politics of envy entrenched in their 2010 Manifesto. They now espouse a misguided socialist agenda of taxing the rich and disincentivising enterprise with policies like Mansion tax and more than doubling capital gains tax. Surely we have all learned the lesson from Labour’s mistakes of the 60’s and 70’s that to “tax the rich until the pips squeak” does not work. This is even more relevant now that we recognise the potency of global competition which even Gordon Brown acknowledges now that his claims to have ended “boom and bust” have been trashed by “global events”. Wealth creators can simply up sticks and locate in tax and regulatory friendly jurisdictions. We need to encourage enterprise as well as foster philanthropy and promote sound stewardship.

Nick Clegg says this in his foreword to the Liberal Democrats Manifesto We’ve had 65 years of Labour and the Conservatives: the same parties taking turns and making the same mistakes, letting you down. It is time for something different. It is time for something better.”

If he truly wanted to do “something different” he would have stuck to core Liberal ideas and not filched old Labour policies. With luminaries such as Richard Cobden and Jo Grimond in their past they have a rich vein of truly innovative and now timely ideas on which to draw. Sadly, enticed by the prospect of power they have ditched ideas of gravitas and integrity for a more populist polemic.

If I were to summarise the 2010 manifesto’s for my 83 year old father and ask him to identify the Party he would probably identify the Conservative manifesto as old Liberal, the Liberal manifesto old Labour and the Labour manifesto as – well at best it is a poor attempt to cobble together enough populist ideas to cling on to power

Through it all is an electorate so disenchanted with politics and politicians that if they bother to vote at all they will either vote tribally or be influenced by the televised debates where image not policy is King. Political selection now has more in common with TV shows like X Factor, Britain’s Got Talent and in Lord Mandelson’s case Strictly Come Dancing.

On the plus side this is just the right time for efficacious change. Our Nation has been shaken for sure, we have seen the imperfections of the banking system and Politics has been thrown into disarray by the expenses scandal. Yet a wind of change is blowing life into the embers and fresh ideas are being debated. The Cobden Centre is dedicated to promote “Honest Money and Social Progress” – let the discourse continue!

Economics

‘Heroes’ helped to help themselves!

I have just listened to the Budget Debate and quite frankly am growing more and more tired of the political point scoring arena that Parliament has become. It was unbridled electioneering, totally populist and I am sure none of us are fooled.

The implied nonsense that Belize are now cooperating with UK tax authorities to ensnare Michael Ashcroft when he has done nothing contrary to current tax laws was pathetic. Do they think we have forgotten that the Labour Peers Paul and Cohen are also non-domiciled for tax purposes? To use the Budget which should present a sober look at the Nations books for such gerrymandering is an insult to the shareholders/electorate they purport to serve.

I therefore exercise my right to express an opinion and to look objectively at how the current ‘management’ are looking after my interests; after all I have been obliged by them over the years to contribute lavishly  to their misguided vision for our wellbeing!

Quite simply if this was an AGM and I was a shareholder with voting rights I would back a motion to sack the lot of them based on performance. In that sense I cannot wait for the forthcoming election to register my vote of no confidence. I am particularly unhappy at the parlous state of our benefits-driven society. The Conservatives are at least offering some reasonable solutions to tackling the welfare state thanks largely to the excellent work undertaken by Iain Duncan Smith’s think tank the Centre for Social Justice. The Party are undoubtedly more compassionate than they were in the Thatcher era and, unlike Lord Tebbit’s solution for the unemployed “get on your bike and find a job”, contemporary caring Conservative Policy prime facie is to ride alongside!

I watched Channel Four News last night and was captivated by John Snow interviewing some of the good folk of Luton; a large number of his interviewees stated that they wouldn’t vote. How many times do politicians need to hear that people don’t bother voting because of the mess they have made of our democracy before they listen to vox pop and try to understand our frustrations with politics and politicians? Our Cobden Centre colleague Douglas Carswell MP sets out the reasons why people have disengaged in ‘The Plan’ the book he co-authored with Daniel Hannan MEP. They correctly deduce that voter apathy is mainly due to the inability of politicians to effect change. Carswell quotes doorstep comments such as “you’re all the same”, “it doesn’t matter how I vote, nothing changes” and “you make promises but you never deliver”. Carswell and Hannan go onto unpack the route that led to this apathy and make some sound policy recommendations to effect rapid change but, sorry chaps, this is not rapid enough for me so I have decided to go one step further motivated in part by the following:

  1. (updated)Approximate UK Income Tax receipts £146bn versus welfare payments £196bn. However well the Chancellor spins these numbers this shareholder ain’t happy!!
  2. Benefits saved Tax and NI gained per person returning to work >£8000 per annum (source CSJ). ((NI – National Insurance is a clever idea that helps citizens save for benefits, retirement and other social needs. It is run by the Government in much the same way as Bernie Madoff ran his quaint little investor scheme except, as it is run by the state, it is entirely legal. Therefore none of the people running it will be held accountable and go to jail for 150 years when the shareholders realise that all of their money and more is being spent straight away and not invested for their future benefit.))
  3. NHS cost per capita £860 per annum this doubles for the unemployed perhaps because they constantly need to prove they are sick to continue receiving benefits as well as the inherent problems some genuinely face to their wellbeing by being unemployed. For a thorough evaluation, read the CSJ reports.
  4. Pure and simple, ‘helping one another’. do you remember that old-fashioned and now outdated idea ‘neighbourliness’?
  5. The parable of the talents: Matthew 25:14-30 so good it was repeated in Luke 19:12-27.

It is entirely correct that a caring, prosperous and civilised society should look after those unable to fend for themselves but when in 1945 Atlee’s Post War Labour Government began implementing the recommendations of the 1942 Beveridge report they weren’t up front about this creeping socialist agenda that has led to an unacceptable reliance on state handouts sadly not by the deserving in society but the most devious who often exhibit brilliant cunning and guile at exploiting our overly complex system. Oh that those talents could be harnessed elsewhere for good! Others newly unemployed soon see how they work the system and join their ranks. “Up to three generations of some families have never worked and are entrenched in economic dependency” this is oft rolled out, well known and needs proactive solutions. We can trust some politicians like Iain Duncan Smith, Philippa Stroud, Steve Baker, Douglas Carswell and Frank Field amongst others to make their voices heard in the corridors of power but we should not sit back and wait for them to legislate a way out of this mess.

I have come to the conclusion that instead of raging at the machine we should attempt to solve our own problems in our own communities and not rely on politicians and the state.

Why? Simply because problems like unemployment are corrosive not just to those going through the process but to communities, society in general and we as ‘shareholders’ cannot afford to fund it anymore.

This thought process and the closure of my own business due to the downturn allowed me the time to set up a Job Club in my home town Edenbridge, then neighbouring Oxted, now Richmond Borough and soon Sutton. I have also founded a charity GB Job Clubs to train and resource other volunteers to set up clubs in their own communities. This was all inspired by a Conservatives Social Action seminar on ‘How to Start a Job Club’ in March 2009.

Remember David Cameron’s speech to the Open University on May 26th 2009 advocating localism? The Conservatives have been very proactive in encouraging social action as this doesn’t require legislation or an election to implement. Iain Duncan Smith encapsulated this when he said,“Our approach is based on the belief that people must take responsibility for their own choices but that government has a responsibility to help people make the right choices.”

Well said Sir, however, I come from the viewpoint that the Government is not there to provide everything for us; if we take control of our own destinies then we might actually wrestle some control back from the state who continue in their desire to nanny us from cradle to grave. If we serve ourselves more and rely less on state provision we can shrink Government, yep that’s right fewer politicians, dismantle quangocracy, reduce red tape oh boy the list goes on! Maybe in time we can insist on a reduction in the funds we are required to invest to keep UK Plc afloat!

I recently compared notes with some fellow Job Club leaders and between our six clubs discovered that we had helped 105 folk back to work over the last six months. If the cost/saving benefit is £8000 per annum per person we have saved the exchequer and more importantly ourselves as tax payers/shareholders £840,000 per annum. That is the result of only six Job Clubs run voluntarily at little or negligible cost to anyone. That’s right there is hardly any cost involved in setting up and running a Job Club and we don’t want ‘government funding’ or put it another way some of our tax bucks back! Why not? It would probably require our application and subsequent performance to be assessed by one of those quangos or an army of civil servants wrapping us up in red tape and emasculating our ability to deliver.

GB Job Clubs now has 25 ‘Get Britain Working’ inspired Job Clubs listed on the Directory page of its website, www.gbjobclubs.org. If the success rate of our six clubs is replicated in all 25 , we would save ‘ourselves’ £3,500,000 per annum. How about 500 clubs up and down the country each succeeding to get just one person per month back to work that equates to a saving of £48,000,000.

Now I like numbers like this and, as a shareholder, they excite me! Detractors will point out that finding people jobs is reliant on the economy and that £48m is a drop in the ocean in an overall spend of £185bn. I know, but every single person we have helped is worth much more than money. We are seeing lives transformed by opportunity and communities in a small but visible way impacted by helping one another and this is undoubtedly great for social cohesion. This can spread like a virus. Just imagine that, instead of aspiring to be in gangs and earn illicit money from delivering drugs, the new role model is someone in a community who has set up his/her own business and can legitimately employ someone.

I have used GB Job Clubs as a launching pad for a microfinance and mentoring project named the Jericho Programme where we incubate small ventures in communities up and down the country. The first pilot scheme is now underway in Edenbridge where we have backed two heroes from the Job Club to start their own garden maintenance business. It takes guts to wean yourself off state support especially when you have three children as is the case with one of our entrepreneurs but they are going for it with gusto. All it has taken is encouragement, support from a mentor, a small loan for equipment, a van donated by the local council and the goodwill of a community. Cobden Centre founder Toby Baxendale has joined me in funding six such projects in the UK and once we can prove they work we will set about raising funds and recruiting fellow mentors to empower these latent entrepreneurial heroes that exist in our midst.

We can’t cure all our problems ourselves but we must take more control of socio-economic issues where we are able. We will reap great dividends and that has got to be great news for all shareholders!

Richard Cobden

“The State is a severe mother”

From Lord Welby’s preface to The Political Writings of Richard Cobden, 1903 (PDF):

The State is a severe mother. She demands from her noblest sons their intellects, their energies, and, if need be, their lives; but she is not ungrateful. The men who have guided her destinies live in grateful memory and in memory the more honoured, if to great service and lofty aims they have added disregard of self, directness of purpose, and simplicity of character. Such men become household words of the nation. They create the standard by which the nation measures itself and by which it is measured. They strike the keynote of national character. Such a man was Richard Cobden, a type of a great Englishman to Englishmen of all times, a type in his truthfulness, in his simplicity, and in his devotion to the welfare of his countrymen.

Cobden sacrificed his fortune and even, for a time, his health to further the interests of the ordinary person. His fortune was restored to him by public subscription.

Let us hope that in 2010 we see a little more of Cobden’s spirit in British politics.

Economics

Razeen Sally, “Trade Policy, New Century”

Razeen Sally’s Trade Policy, New Century (PDF) succeeds magnificently in explaining the 21st-century case for free trade and, specifically, unilateral trade liberalisation to the interested, non-specialist reader.

From the IEA home page of the book:

The World Trade Organization (WTO) is failing to deliver the trade liberalisation desperately needed to bring prosperity to developing countries, according to a new study released today by the Institute of Economic Affairs. The WTO is hamstrung by a cumbersome negotiating model and the influence of vocal protectionist lobbies who oppose free markets. At the same time, increasingly popular regional ‘free-trade agreements’ often create as many barriers as they remove by erecting new obstacles to trade with countries outside the blocs concerned.

In the context of policy paralysis at the WTO, the author, LSE trade expert Dr Razeen Sally, argues that governments must take back the initiative from supranational institutions. The priority must be unilateral liberalisation – removing trade barriers to benefit domestic consumers rather than waiting for tortuous international negotiations to be resolved. Governments can also help maximise the benefits of free trade by liberalising their economies and strengthening key institutions.

But what is the imperative for the UK? Surely, European Union citizens enjoy free trade?

The EU is a customs union: we trade ostensibly freely within it, but, as can be seen from the EU’s TARIC database, we find ourselves behind a complex system of tariffs on, for example, wheat, notwithstanding the battle long since won by our inspiration, Richard Cobden, to repeal England’s Corn Laws in the general interest.

And this is the key point: free trade is in the general interest. We may make the political and economic arguments in detail, but the public good is our ultimate aim, and not just at home. Razeen Sally explains (pp179-180, emphasis mine):

Adam Smith fortified his presumption in favour of free trade with an explicit political argument. Protectionism is driven by ‘the clamorous importunity of partial interests’ who capture government and prevent it from having ‘an extensive view of the general good’. Free trade, in contrast, tilts the balance away from rent-seeking producer interests and towards the mass of consumers. It is part of a wider constitutional package to keep government limited, transparent and clean, enabling it to concentrate better on the public good.

As important to Smith and Hume was the moral case for free trade, centred on individual freedom. Individual choice is the engine of free trade, and of progressive commercial society more generally. It sparks what Hume called a ‘spirit of industry’; it results in much better life-chances, not just for the select few but for individuals in the broad mass of society who are able to lead more varied and interesting lives.

To sum up: free trade is of course associated with standard economic efficiency arguments. But the classical-liberal case for free trade is more rounded, taking in the moral imperative of individual freedom and linking it to prosperity. Finally, free trade contributes to, though it does not guarantee, peaceful international relations. Freedom, prosperity, security: this trinity lies at the heart of the case for free trade.

In a short article, I can scarcely do justice to this monograph’s insight in relation to the case for classic liberalism nor to its observations on emerging geopolitics: I heartily recommend the book.

Further reading