A former RAF aviation engineer and software engineer in the financial sector, Steve Baker has been the Conservative MP for Wycombe, Buckinghamshire since 2010. Recently he was elected by his colleagues to the Treasury Select Committee, where he has put questions to Bank of England Governor Mark Carney, and he has also sponsored a Parliamentary debate on ‘Money Creation and Society’. He is an outspoken follower of the Austrian Economic School, and is an advocate of ‘free banking’ and the de-nationalisation of money. In this interview, Steve shares his views on money, banking and economics generally; why he chose to enter into politics; his plans for the next Parliament; and the prospects for sound money and banking in the UK and around the world.
BY WAY OF BACKGROUND…
Steve Baker has been fascinated by machines since his youth growing up in Cornwall. He studied Aerospace Engineering at Southampton University through a University Cadetship programme, entering the RAF on graduation, and served his country in multiple international locations for 10 years.
Also fascinated by information technology, on leaving the RAF in 1999 he studied towards a degree in Computer Science at St Cross College, Oxford. He then worked in a number of IT roles, including at Lehman Brothers in 2006-08, leading into the global financial crisis. His personal website (here) makes plain that, “My work at Lehman Brothers particularly informs my present work on reforming the financial system.” He decided to enter politics in 2007 and was elected to Parliament on his first attempt in 2010.
Steve is hardly the only sitting MP to focus on financial and banking issues. But he is the only Conservative MP to openly advocate for fundamental reform of not just banking, but of money itself. This is due to his outspoken belief in the key tenets of the Austrian Economic School, which teaches that activist monetary and fiscal policies undermine long-term economic health. To begin our discussion, we explore how Steve experienced the 2008 financial crisis and the impression it made.
JB: Steve, you had been working at Lehman Brothers for about two years when the financial crisis hit in 2008. Did you ever have a sense that the firm was dangerously exposed to a potential crisis? That the firm’s high leverage and a reliance on short-term financing could bring it down? That the financial system in general was as fragile as it demonstrably was?
SB: Back when Lehman was posting record quarter after record quarter, I was focussed on delivering value through software and I still believed our masters understood the institutional superstructure of the economy. It was only when the bust came that I realised the Austrian School had crucial insights to offer which were missing from the mainstream.
JB: How exactly did you come to believe that the Austrian Economic School provided the best explanation for the 2008 financial crisis and also for understanding economics more generally? Was this a gradual process or rather something more like a sudden epiphany?
SB: It was a long process. I first read Mises’ The Causes of the Economic Crisis and Hayek’s Monetary Theory and the Trade Cycle in 2000 during my MSc in Computer Science. I was planning to make my fortune in software, but then the dot-com bust happened. I wanted an explanation and found it in these books. However, my priority was business and I didn’t have the confidence to start telling economists where they were going wrong. It was only after working for banks and their regulators that I realised key insights about epistemology and method were absent from mainstream economics in important ways. That caused me to read more deeply, co-found The Cobden Centre with Toby Baxendale and then use my Parliamentary position to promote better economic policies.
JB: Please describe what it is you mean by free banking and money. Most people just take national fiat money and heavily-regulated banking for granted. Of course this was not always the case. But then have free banking and money really ever been the norm? Why is this topic of such importance to you?
SB: By ‘free-banking’ I mean money and a banking system produced by the spontaneous co-operation of free individuals in markets. It is what Hayek proposed in his Denationalisation of Money and HM Treasury briefly worked in that direction as an alternative to the euro. Usually, free banking means gold (or silver) as the base money and banking conducted under the ordinary commercial law, usually with unlimited strict liability. Canada and Scotland historically came closest to free banking. In a future free-banking system, cryptocurrencies or blockchain technologies of some sort are likely to have a role. Sound money is crucial to the justice of social processes.
JB: When and how did it occur to you that, by entering politics, you could contribute to changing the terms of debate around money and banking, when neither major UK party seemed to have any interest in doing so?
SB: Originally, it was the scandal of the Lisbon Treaty – the mangled EU Constitution – which prompted me to seek election to deliver an in/out referendum. It seems I may have played my part in reaching that objective but that decision was reached in 2007, before the crash. Once the crash came, when I had no realistic expectation of being elected, I decided to establish an Austrian School think tank. My surprise selection for a Conservative-held seat and election to Parliament changed everything.
JB: Please describe your experience in Parliament to date. What is it like to be something of a ‘maverick’ MP on the issues of money and banking? Is it encouraging? Discouraging?
SB: It’s hugely encouraging but hard work and I always appreciate support. As far as I am aware, I have no original ideas in this field and, being wary of the fringes of debate, I keep close to established literature. As a result, I seem to be attracting colleagues to at least consider the possibility that the Austrian School has a better answer to the question—famously asked by HM the Queen—of how the financial crisis could have happened. People know I am unorthodox but they also know I am grounded in credible literature. They also recognise the call for lower taxes, balanced budgets and sound money as distinctively Conservative. I suppose the difference is I really mean it; I don’t just say such things in hope of being elected.
JB: You recently sponsored a Parliamentary debate on ‘Money Creation and Society’? What was the purpose of the debate and do you believe that it achieved your objectives?
SB: Prominent Constitutional fiat money advocates Positive Money were agitating for a debate and they have strong national support. Despite disagreeing on many things, I am one of their best contacts in Parliament. The timing of the debate corresponded with their campaigning activity. However, of course I have spoken many times in the same vein, beginning with my maiden speech. Positive Money had created sufficient support for a debate in the main chamber to be possible and I was glad to lead it. We meant to move the debate forward and we did: I have received messages of support from around the world.
JB: Having recently achieved selection to the Treasury Select Committee, you have now had the opportunity to engage with Bank of England governor Mark Carney on multiple occasions. While he is obliged to answer your questions, do you find his answers satisfactory? Or evasive? Does it seem to you that the Bank of England is properly accountable to Parliament? Or is it able more or less to set policy on its own? If you could change anything about the existing governance of the Bank of England—other than abolishing it—what would that be?
SB: It is always a huge pleasure and privilege to ask questions of the Governor, who also chairs the G20 Financial Stability Board. Mark Carney is undoubtedly the central banker of his generation, full of talent and statesmanship. He knows where I stand. Perhaps our good-natured jousting can sometimes be seen in the sessions. His answers are mainstream and remember he has a dreadful power to shift markets with every word. He is sometimes breathtakingly honest—for example in relation to the shortcomings of mathematical models—but it is right that he has regard to the potential for his words to reverberate through markets. This factor has no place in a free society, of course, but we are where we are. The Bank is accountable to Parliament and the officials evidently take this seriously. The Bank operates within its mandate and that means it reaches policy decisions independently of politicians.
Given that, like Walter Bagehot [ed. note- Bagehot was Editor-in-Chief of The Economist from 1860 to 1877 and wrote extensively on fundamental economic and financial issues], I think the ideal system would not include central banks, your last question is hard to answer. I would have the Bank produce research that questions their groupthink and they are doing so. It will be a long time yet before we win the argument but having the Bank itself challenge orthodoxy may be an important breakthrough.
JB: Assuming that you and the Conservatives are re-elected in the coming months, what plans do you have for the next Parliament? What goals are realistic? And if you’re optimistic, what might be achieved over the next five years?
SB: Nationally, we must balance the budget. In all the circumstances, this will remain a tough problem. Personally, I would like to be re-elected by my colleagues to the Treasury Committee so I can continue to work on changing the terms of debate.
JB: How do you feel about the growing UK independence movement? Do you believe that the UK is more likely to fundamentally reform money and banking inside or outside the EU?
SB: People across the political spectrum are awakening to the reality that state power has escaped democratic control and that awakening is a good thing. The challenge is to hold politics together while a coalition for democracy and liberty is built, especially bearing in mind that it is the classical liberal and conservative family that is awakening first. A further fragmentation of the centre-right would be bad news for democrats and advocates of liberty.
Realistically, monetary reform is likely to come from either spontaneous market action or global reform of the post Bretton-Woods system. I don’t think the UK is likely to reform sterling unilaterally but this could happen provided we retain our own currency. I imagine Switzerland is culturally better-placed to reform independently, especially now they have decoupled from the euro. Maybe Russia will dramatically disrupt geopolitics with the reform you describe in your book. [Ed. note- I have suggested that Russia might respond to escalating international tensions by backing the rouble with gold. See here.]
JB: Do you regard the government’s ‘austerity’ policies to have been a success? How would you define ‘success’?
SB: Success would be a balanced budget. More work is required and the longer I spend in politics, the clearer it becomes that turning around a democracy is not like turning around a private company. The Chancellor has been more successful than most other finance ministers. I will continue to support him in so far as I can.
JB: To expand on the above, you are more aware than most about the deteriorating state of UK public finances and of the large imbalances in the economy more generally, such as the excessive reliance on property and financial services, and the chronic trade deficit with the rest of the world. Is it hard to be optimistic for the future when history suggests that the UK economy is going to remain weak for many years even in a relatively benign, non-crisis scenario in which these imbalances and excesses are worked off?
SB: In truth, it is often hard to be optimistic when you have “taken the red pill” of Austrian School economics. On the one hand, I am glad so many more people are now in private sector employment but on the other, as I have explained many times, the trajectory of debt and the continuing abuse of currencies is of grave concern. The future of our civilisation may be at stake.
JB: You co-founded the Cobden Centre, the leading sound money and banking think-tank in the UK. What do you see as the CC’s core mission? How exactly do you see the CC making a difference in future? Through education? Practical policy recommendations?
SB: The Cobden Centre’s core mission is to promote classical liberalism and specifically the Austrian School, that is, social progress through honest money, free trade and peace. It does not do politics but ideas and education. There is much more to do. Those interested in learning more can visit the website at www.cobdencentre.org and potential donors are welcome to send an email to firstname.lastname@example.org!
JB: Thanks so much for your time Steve. Before we conclude, are there any other thoughts you would like to share with our readers, many of whom work in the financial industry and would be profoundly affected by the sort of money and banking policies you advocate. What sort of impression would you hope they would take away from our discussion today?
SB: I hope readers will read your reports and your book, The Golden Revolution, and Detlev Schlichter’s complimentary work Paper Money Collapse. I hope they will read Mises and Hayek. If financial professionals cease opposing honest money and banking will we achieve the greatest institutional reform of our age: money and banking subject to competition and free of ruinous state control.
JB: Thank you so much Steve for your time.
POST-SCRIPT: REAL REFORMS REQUIRE
The value of Steve’s prominent role in promoting sound money and banking cannot be overstated. His leadership is an inspiration to all who would seek a better economic future. The best hope for real reform is to pressure the system both from within and from without. I encourage all readers to support Steve in his efforts in Parliament; through the educational resources of the Cobden Centre; and through their own private initiatives, whatever they might be.
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