Newsletter winter 2008/9
CREATING NEW MONEY, AND THE WAY TO DO IT
At a secret meeting at 10 Downing Street just before Christmas, or so Will Hutton tells us, the Prime Minister, Chancellor and their financial advisors estimated that Britain still needs another trillion pounds or so to make the corrupt British banking infrastructure effective again. But they decided there was no room for manoeuvre any more. Borrowing that much would destroy the credibility of the pound.
We may, anyway be in for a currency crisis this year, in which case we will discover what such a fate might mean. One thing, it seems to me, will be an end of the wholly irrelevant revived debate about whether Britain should join the euro or not. If the value of the pound collapses, one of the first things we will find is the euro circulating widely around the UK and accepted at retailers. We will have a de facto dual currency, and a good thing too.
What is indefensible is to borrow any more money to prop up our failed financial infrastructure, which is still taking our money but failing to deliver. The high street banks should be broken up to rebuild a diverse high street lending infrastructure, like the one in northern Europe.
The real question is how to fill that trillion pound gap, and you have to wade back into history – a peculiar New Labour blind spot – to find any real parallels.
When Lloyd George was Chancellor, facing the banking crisis that immediately preceded the First World War, he rescued the situation by getting the Treasury to print their own notes. They were called Bradburys, after the signature of the Permanent Secretary, Sir John Bradbury.
There is always the option for governments to create money, and the news today (8 Jan) implies that this is the course now being considered, but it could mean Britain opting out of many of our global institutions to make it possible, because it is no longer possible to defend the pound in the face of the world markets.
The secondary option along the same lines, set out in 1922 by Henry Ford and Thomas Edison, would be to bypass the banks and create the money as low interest loans, which are then paid back to the Bank of England and removed from circulation. In practice, this can be spun differently, but it carries much the same risks as creating money and spending it directly into circulation.
Governments, like monarchs, are notoriously bad at setting the money supply appropriately, and knowing where to stop. The danger is that every crackpot scheme, from the new Heathrow runway to nuclear energy, will be financed in this way. We have to persuade the government – if they dare to create the money themselves – that it must go on infrastructure and investment that increases Britain’s sustainability, and nothing else.
But the prospect of a dual currency carries within it a clue about one possible alternative. There is no reason why the money required has to be created in the form of pounds. We need to learn from the successful business-to-business Wir model in Switzerland, where a parallel currency to the Swiss franc circulates – mainly in the restaurant and construction trades – available at very low interest in the form of loans. Wir is the last remaining example of the Great Depression currencies of the 1930s, 4,000 of which were closed down in the USA alone as Franklin Roosevelt’s first act in office.
There are other successful models of local currencies we can learn from, notably in Ithaca in upstate New York, and in Great Barrington, Massachusetts. What they prove is that people are quite innovative enough to create their own liquidity if they get a little support, and that these solutions might not be stop-gap at all – they might be the beginning of a new diverse, multi-currency world. Especially when creating money in parallel currencies can be done without quite the same danger to the value of the pound.
But the British are a miserably conservative nation when it comes to finance, wedded to the idea of ‘sound money’ for decades after the stuff disappeared, believing – against all the evidence – in the solid world of Captain Mainwaring and dedicated bank managers years after they were consigned to the scrap-heap. Our banks, as Robert Skidelsky memorably put it, are utilities wedded to casinos, but we blind ourselves to it.
Yet the government could and should act to hasten this new monetary world. They can accept other currencies for a proportion of taxes and fines, and allow local government to do the same. They can set the framework for these new business-to-business models, starting with London where we need it most. They can also defer to Scotland: the Scots are, thanks to John Law, William Paterson and their successors, the greatest financial innovators in the world, and they will show the rest of us the way.
The truth about the discovery of America
I went on American National Public Radio on Columbus Day to talk about my book Toward the Setting Sun, and how the lives of Columbus, Cabot and Vespucci intertwined. I even got some phone calls during the programme. This was the result.
Towards a community economics
A quarter of a century ago, Gordon Lishman and Bernard Greaves wrote The Theory and Practice of Community Politics. Bernard and I have now written a similar manifesto for ‘community economics’ – and hope it has a similar impact.
Is the crash so bad?
OK, it isn’t good. My column in Town & Country Planning suggests that the end of the nightmare years of fake regeneration isn’t such a bad thing for cities, communities and planning. Call me Little Mary Sunshine...
Green New Deal
Strange that the Green New Deal, which was launched to a deafening silence in August, should now be absolutely everywhere – even in a photo on the front of the Sunday Times. My contribution was a lecture to nearly 300 students at Greenwich University.
What to do about banking
This is the New Economics Foundation’s response to the banking crisis. The key message: break up the banks to provide a new lending infrastructure capable of rebuilding the local economy, because banks have been consolidated to a point beyond their own usefulness.