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Limiting the power of government - money [Guest post by Mark]

Since the 17th/18th century capitalist seizure of government power, and specifically following from the 1694 creation of the Bank of England, the government's debt has been the basis of our monetary system. This combination of government power and capitalist credit money made possible a broader based integration between government and the economy - contributing directly to the explosion of British economic, industrial and military power which later gave birth to the British Empire.

This system has obvious advantages with respect to the coordination of a mass economy but from the perspective of individual freedom it is deleterious.

Some argue that the private creation of government money is a separation of powers which itself limits government. In reality, the opposite is true. Finance is government and government is finance - and at the same time, if we wish to do business, we cannot help but be drawn into this government-private hybrid money nexus. The power of government is surreptitiously (or not so surreptitiously) extended to every aspect of economic life.

Not only is it nearly impossible to escape this system but also, if the government relies upon and controls the private money system, we face the twin dangers that (1) control of government/finance becomes the most profitable activity in society and (2) the temptation to raise revenue for government takes precedence over real economic considerations.

The Fred Goodwins of the world, or the trend for physicists to become bankers are a result of (1) while the austerity/ higher tax campaigns are a result of number (2).

Libertarians would generally seek to solve these problems by eliminating the government from money creation. There are a number of problems with this approach. Firstly, credit networks without government support tend to be either small and personal, or entirely unstable. Secondly, there is no evidence that pure "commodity money" has ever existed or that barter can be used to run a large scale economy. Thirdly, almost everyone agrees that there must be some role for government and if government must use private money we again run into problems (2) + (1) - because government relies upon private money it cannot be separated from private business.

Now, there may well be a trade off between the ability to run a mass economy and individual liberty, in order to be free we might have to accept fewer things. I'm relatively comfortable with that - from the perspective of libertarians the destruction of the mass economy may well be a feature rather than a bug. However, I do feel that, rather than eliminating government money creation, as libertarians suggest, (or eliminating private money creation as per the positive money proposal) - we should allow both systems to operate alongside each other, but to exist, entirely and conspicuously separately - in essence, make using government money and engaging in the mass economy a choice.

Government created money could be a form of virtual commodity, (with the function of gaining respite from the taxman - essentially a tax credit). If the government did not require private money, there would be no (revenue related) reasons for it to tax these transactions. Therefore, it would be relatively easy to eliminate VAT, income tax, capital gains tax and replace it with some form of flat tax on tax credits only. In this way, the ability to do business would be separated from the need to pay tax.

Personally, I would set up the system in such a way that it would be possible to choose through lifestyle to avoid tax entirely. (For example - we distribute 100 tax credits to each citizen every year and tax on the basis of natural resource consumption- 100 tax credits for every 10 squared meters of land - by making a lifestyle choice to consume fewer natural resources you could avoid taxation and then be free to engage in whatever other business you choose - obviously many people would insist that people did "work first" before they get credits.)

You could then choose to conduct business either using surplus tax credits (which would offer the mass stability of government money), private credit agreements or barter/commodity money. These entirely independent monetary systems would provide a *real* division of economic power and be based entirely upon voluntary exchange.

As I say, I don't know if this would be more efficient from the perspective of production or "raise GDP", but I do think it would be more conducive to personal liberty.

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