'Let Finance Be Primarily National'

In recent weeks we have probably all looked back wistfully to the days of John Maynard Keynes. It just feels like a world where stability was a normal state of existence, not a chimera that seemed unavailable no matter how many billions we were prepared to spend to achieve it.

It seems to me that Keynes was always right about economics. I really wish I had more time to read his lucid and insightful writings about money and inflation. Sadly, the academic's life was not what it was in Keynes's day - and besides, like Ricardo before him, he made a fortune from the stock markets that funded his life of thoughtful leisure.

I sympathize, therefore, with those who would minimize, rather than with those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel--these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national.

The quotation from which the title of this post is taken is a favourite amongst greens, who usually cite it because of its emphasis on economic self-reliance. But Keynes's focus is on the importance of national governments having control over finance.

Once finance is no longer national we have lost effective control and no longer live in a democracy. Our government can do nothing about the lending policies of US mortgage dealers or insurance companies. If these companies can bankrupt our banking system which we then have to subsidise with our own money, what is the point of voting? The fact that the three main parties simply congratulate each other about their ability to prop up capitalism is only a complacent confirmation of the reality of politics since the globalisation of finance and deregulation of the money markets in the 1980s.

I feel similarly reluctant about giving my money to people who sent their money overseas to invest in countries beyond their democratic remit for an extra half percentage point of interest. Guaranteeing rich people's savings in our banks is one thing; guaranteeing rich people's savings in Iceland, Bulgaria or the Cayman Islands feels quite different.

The 1930s was a time when men who modelled their sartorial style on Mr Cholmondley-Warner, spoke like Trevor Howard and were exclusively white, dominated economic and political life. Although we feel ourselves infinitely more sophisticated and cosmpolitan we haven't solved the problem of our powerlessness in a world dominated by global capital. Credit and exchange controls, giving us as voters power over our national economy, seems increasingly attractive. Tweet

Credit crunch for breakfast?

This is obviously a cereal that will run and run. Robert Peston reports that he expected the banks to be too proud to ask for government money. I’m rather bemused about how he might have formed this opinion given their recent behaviour. Fawning over the hand that feeds has been more the style amongst financiers of late. Darling is quite rightly resisting giving any more public money than is absolutely necessary, hence his piecemeal rather than global rescue strategy. The pundits who are calling for total guarantees and US-style largesse should be reminded that it will be their grandchildren who will be paying off these debts, just as we, the grandchildren of the 1930s, only finished repaying the wartime debts to the USA last year. I wonder if there is a connection there?

The real policy question is why any Chancellor should shovel money into the gaping maw of the banks where it will serve no purpose but paying off their debts. They have provided an effective distraction by arguing that without their finance the real economy would seize up. But our primary attention should be focused on that economy, the one where people actually make stuff and do useful things. There is no reason to use the banks as middlemen.

The banks’ lack of concern for the real economy is shown in their profiteering from the difference between the bank rate and the rates of interest they charge to businesses. This is now the only way banks still have to leverage money out of the economy and their use of it will rapidly increase the number of businesses going bankrupt. They are using the same tactics on mortgage-payers, which will cause an increase in foreclosures and damage the housing market yet again. Far from being the saviours, the banks are shown again to be the destroyers of the economy.

Darling’s plan should focus on the small businesses that provide 99% of the employment in this country. He should establish an ‘Economy Saving Bank’ (literally!) and use taxpayers money through that route to be channelled into business lending. Does this begin to seem like political management of the economy? Might I be the first to mention that unspoken phrase ‘credit controls’? If money is in short supply it seems only sensible to ration it. Those who need to borrow can justify their right to the shrinking pot on the basis of their usefulness to society. My guess would be that in any democratic system the banks would come rather low on this list at present.

Thanks to the Green Bean Counter for the joke and to Lew Rockwell for the cartoon. Tweet

Thinking about money

Money is one of the most marginalised issues of our time. Most people never ask themselves or others questions about where money comes from, what it is, or who controls it. This is a shame, since money quite clearly lies plum at the centre of an economic system that is not called capitalism by coincidence. As David Korten said, ‘Capitalism is the use of money to make money for those who have money’.

This question has become even more pressing in the post-globalisation version of capitalism, where money no longer operates as a tool facilitating trade in products, but is used to make money directly by various confidence tricks in a system which is now commonly referred to as ‘the casino economy’. The creation of money by banks was originally intended to facilitate the exchange of goods. However, from the start a range of financial scams have been perpetrated which remove this need to get your hands dirty making things.

It is no coincidence that globalisation as represented by the vast expansion of trade in goods occurred simultaneously with the liberalisation of financial markets. Countries which had once attempted to maintain political control over finance through setting interest rates, controlling the activities of banks, and through credit and exchange controls were persuaded that further capitalist progress required the market to take on these functions. Money can now be used merely to generate more money for those who have it, leaving not production but finance to play the central role in the global economy: ‘Of the total international transactions of a trillion or so dollars each day, 95 per cent are purely financial.’

Money is useful for the obvious reason that it enables you to pay for a luxurious lifestyle, but more importantly to those who control capital, money gives them a claim over future production so that over time they are enabled to accumulate an unfair share of a community’s resources and power.

There are few subjects in modern life about which so many lies are told and so many misunderstandings encouraged, both politically and personally, than about money. It is, in fact, neither the root of all evil nor what makes the world go around. It is a neat but deceitful political tool that enables those with power under a capitalist system to exercise that power to generate an unfair advantage for themselves. This is why I am launching a strand of this blog to present the issues surrounding money in bite-size chunks.

Readers who have not delved into the inner workings of the financial system should be warned: you are in for an exhilarating but bumpy ride. You should not be surprised to find yourself thinking ‘I just can’t believe it’. I have frequently felt that way myself when embarking on a similar journey. The disbelief is similar to that experienced when watching a confidence trickster, but be assured that, just because the show is good and you have believed it for a long while, that does not mean that it is true. Tweet