THE LAST DITCH An Englishman returned after twenty years abroad blogs about liberty in Britain
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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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Richard Carey

"But for each pound sterling used, there was not a coresponding lump of gold."

True, due to the practice of holding only a fractional reserve. Market mechanisms would prevent over-expansion, if governments didn't intervene to enable banks to inflate. such money is commodity money. The paper attached is accepted as a substitute for money. Where there is doubt that such paper can be converted into gold, then the paper loses value.

"the value of ancient coinage wasn't determined by metallic content, but by symbols written upon them"

No way. When coins were debased, i.e. their precious metal content was reduced, the coins lost their purchasing power as soon as it was realised. Also, when old, clipped coins were legally valued as equal to newly-minted coins, which perhaps weighed 5-10% more, then (à la Gresham's Law), the newly minted coins disappeared from circulation. As governments were constantly committing such frauds upon the people, they needed draconian laws to attempt to avoid the otherwise inevitable consequences of debasement and inflation, such as in revolutionary France, when it was made a capital offence to refuse payment in Assignats.


Sorry, wasn't really aimed at you - just seemed like an appropriate place for a facetious comment.


You wrote all that just to take the piss out of a supportive comment - nice.


But for each pound sterling used, there was not a coresponding lump of gold. It was (and still is) a hybrid commodity-credit form of money. I personally feel that government money has always been more of a virtual commodity than a physical one - the value of ancient coinage wasn't determined by metallic content, but by symbols written upon them - (it might be akin to saying that the ink used in a banknote is what gives it its value and that therefore our monetary system is based on ink) - after the breakdown of the roman empire there was very little precious metal coinage (people coninued to talk about "pounds" but these were virtual units of account rather than physical pounds of gold) - then we have the strengthening of gold currencies around 1500 (but these weren't actually used by the majority of people) and the establishment of the central banks after that - which was a credit-hybrid form of money.


We - honest lovers of liberty - have squirmed for too long under the oppressive jack-boot of the state. The state - an ignorant behemoth driven forward by the inertial force of society's stupidity and greed - must be reduced, it must be shackled.
How can we do this, brothers?
I want the state reduced to the role of servant - a servant whose primary duty is to enable our ability to choose.
"What!?" I hear you cry "We must destroy this evil state, you stupid STATIST!"
Hear me out!
I hate that evil state just the same as you - after all, Gordon Brown.
But if we want to establish a legal system which protects our right to property - property created with our own hands, with the noble sweat of our brows - we must have something very similar to a "state" ("hoooch chhuu" *spits*).
This is a sad fact - but we must at the least have a "state" (hoooch chhuu) which upholds the law and (in a similar way) protects our land from foreign invasion. So the question is always which rules should govern the state, not whether such a body should exist.
But yes, you are right. To me, the state is an evil, parasitic body, stealing the productive work of ordinary people and frittering it away on frivolous and pointless projects. For this reason I propose we rename *our* governing body "the freedom force" - to clearly distinguish it from what came before.
So, which rules should govern the freedom force? Firstly, I fear that we stuck in a vicious circle in which corrupt big business controls the state to reduce the power of competition - while at the *same time* due to this link between government and private business, socialists must steal money from private business in order to use the state for their purposes.
And sterling taxation on transactions denominated in other currencies (or even on barter) means that there is no escape - we must have access to go government money to do business, an unnacceptable concentration of government power... at the same time the government requires private money in order to do business, pushing fool socialists to equate the reduction of private activity with an improvement in public welfare....
Is that better?


That's true.


"It is certainly news that you are trying to appeal to us."

I believe Mark's right in that if he'd written the article differently, he'd be getting more supportive comments.

His suggestions - abolishment of the government money monopoly, and replacing all existing taxes with LVT - are steps toward freedom, not away.

Richard Carey

I wrote a rather long response to this, but it disappeared. I won't repeat it all, in case it turns up from spam.

Commodity money was the norm since indirect exchange first emerged. Gold and silver have certain physical qualities which make them suitable to use as money, but at various times and places other commodities have been used, such as tobacco or cattle. World trade under the Gold Standard was not based on central bank money. The Pound Sterling and the other major currencies represented fixed weights of gold. London became such an important financial centre because (amongst other reasons no doubt) Sterling was considered trustworthy. In other words, people trusted that the Bank of England had enough gold to pay its debts. It wasn't until 1971 that the last vestiges of the Gold Standard finally disappeared. Until then, although denied to individuals, central banks could exchange their dollars for gold at the rate of $35 = 1 Oz. It became increasingly difficult due to America succumbing to the moral hazard of being able to inflate without the self-correcting mechanisms of the Gold Standard - hence de Gaulle sending the French navy to New York to pick up delivery in the 1960s. He saw the writing on the wall. You can find him on YouTube discussing it.


It is certainly news that you are trying to appeal to us. Still, It's interesting as always to hear what you think and I thank you for the piece (as I forgot to do in my rather grumpy first comment). I apologise for that. You are here by my invitation and you are very welcome. Few here agree with you, but you are helping to vary the tone and to avoid this becoming a kind of mutual admiration society. Thank you again.

To any reader who doesn't like Mark writing here, I am happy to offer a "right of reply" by way of granting you the same guest author status he currently enjoys. Please just email me via the link in the side bar to take me up on this.

Even though as a libertarian, I don't think there should *be* any illegal speech, I will read your writing for libel and other legal problems. I have to do that as am liable as publisher of this blog. I won't otherwise censor your opinions though. Mark has been harshly critical of me from time to time, but I hope he would acknowledge that - having given him guest author status- I have published everything he wrote.


Sorry Mark but it looked like nonsense to me.

Richard Carey

"When was commodity money the norm?"

From the earliest times that money emerged. It emerged when a pre-existing commodity became adopted for indirect exchange. Gold and silver were especially suited for this. At other times, goods such as tobacco or cattle have been used as money. With regard to tobacco, farmers paid their taxes with tobacco in early America. Also in prisons and POW camps, tobacco has often been adopted as money.

"World trade prior to the First World War wasn't based on private credit networks - it was based on central bank money"

I think this is totally wrong. The currency used for world trade in the period we are talking about was gold. One pound sterling was a fixed weight of gold, along with all the other currencies on the Gold Standard. The City of London as a financial centre was not run or controlled by the Bank of England, but by private networks. The reason that London was such a financial centre was due to the fact that it was the most trusted place to do business. Banks, including central banks were well known to 'suspend' specie payment (i.e. default from payment of their debts) at certain times, but it was deemed far less likely that this would happen in London. It is due to the confidence that Sterling enjoyed, that the Bank of England had enough gold in its vaults, that Sterling became such an important currency.

The ghost of the Gold Standard lasted until 1971. Until that time, the US dollar was fixed at $35= 1 Oz. This was not available to the individual, but it was to the central banks. This was the unstable Bretton Woods system, which collapsed due to America succumbing to the moral hazard of exploiting the position of the dollar.


"Mark, You are so you don't even know it" ^_^


No economics without politics, I'm afraid.


Do you think my "only land taxes, freedom to create private money, don't have to pay tax at all if you choose not to" policies would go down well over there?

Maybe I should have put a few more "Oooooh government is really bad"s in this piece to appeal to the libertarian market...


"Mark, You are so you don't even know it"

I think you would like to get rid of politics and just have economics - I'm not sure that is possible.


World trade prior to the First World War wasn't based on private credit networks - it was based on central bank money most importantly that o the Bank of England.

When was commodity money the norm?


" However, I reject the essentially Marxian notion that this is at the behest of its 'corporate masters'."

I think we have to acknowledge that Marxists have something interesting to say about the importance of class and power in society, even if we reject the strong version of material/economic determinism or the more extremist rhetoric of the proletariat.

Anyway, in this case - I agree with you - the extension of the state isn't due to the capitalists - but it is due to the monetary/economic system originally created by capitalists. The political changes in 17th century England were largely made by and for the advantage of the rich - enclosure, industrialisation using wage slaves, crony-democracy (and don't forget the direct motive for the glorious revolution was a desire to *increase* religious dicrimination!). It certainly wasn't a libertarian revolution - it didn't even really limit the power of the government - it limited the power of the king and transferred government power to the rich instead.
Now, in the end, this system also helped the poor to the extent that they were able to benefit from increased production, and a stronger nation - but it wasn't a system created for the poor and it wasn't one which cared greatly about their freedoms.
Once the poor started to gain a degree of political power, they continued to use this system, in which private money and public money were one and the same thing (a system originally created by capitalists to their own advantage). Sadly, this has led us to the stage where there is literally no escape from government.

"There is no reason at all why private banks should not issue currency. Three do so in Hong Kong for example under a system that requires they have the equivalent in $US for every HK$ they issue."
I'm not sure what the significance of this is? I'm not saying that banks *can't* produce money - I'm not even saying they *shouldn't* - I'm saying that the money used to pay tax shouldn't be privately produced.

"More importantly, I don't accept that money=government debt."
Me neither - in the sense that there are other types of money and that I actually think the term "government debt" is entirely unhelpful since government money has more in common with a virtual commodity ("tax credit") than it does with debt as we normally understand the word, and that this therefore causes all kinds of confusion.
I do however think, as I said, that sadly, our current monetary system is largely based on "government debt".


Mark who?? shouldn't you be writing on the grauniad?


well it can be easily argued and is clear for all to see just by looking that the British state is not in fact capitalist but 'soft' socialist in practical reality with hints of 'soft' national socialist (fascist) state control through law..

The state needs some sort of wealth generating system, such as capitalism, like any parasite needs a host to take nutrient from.

Tho this highly developed successful parasite takes from citizens when they earn, when they conduct any financial transaction (outside the grey economy evolving as a reponse to state parasitism), when they die and also from any legal entity such as a company.

Underpinning this paratism and facilitating it is ultimately naked force.

You Mark seem to accept this like a fish accepts water "tax credits" indeed.

I am not especially aware libertarians want to get rid of money as such, it is a good means of converting the value of work, goods and services into a common form of .. er currency.

Libertarians would like to see the sate trimmed right back to it's basic functions (that many people actually are willing to pay for), for the health of the host.

They don't trust people like you, who want to get to decide what they get to spend other peoples's confiscated money on.

"Mark, You are so you don't even know it" ^_^

Richard Carey

"Libertarians would generally seek to solve these problems by eliminating the government.."

This! Oh, he's not finished.

"... 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."

World trade prior to the First World War under the Gold Standard was neither small nor unstable. It may not have been perfect but it worked very well. Its destruction and the various governments' failure to reinstate it is one of the many tragedies resulting from that terrible war the centenary of which we shall soon be marking.

"Secondly, there is no evidence that pure "commodity money" has ever existed or that barter can be used to run a large scale economy. "

I don't know if you are using the word 'pure' here in order to provide an escape route, but commodity money was the norm for thousands of years, and will always assert itself whenever it is more useful than paper money or other forms of money substitutes. As for barter, i.e. direct exchange, naturally this is not adequate for an advanced economy - hence the emergence of indirect exchange.

BTW I suspect the writer holds various statist beliefs, indicated in talk of 'running the economy' and such like. I'd sooner the government run off a cliff with rocks in its pockets.


You begin with a statement of historical 'fact' that many of us will not accept and proceed to build layer upon layer of nonsense on that.

I certainly agree that the British state is too important in the economy. Indeed I think it's far too important in every aspect of our lives (except, amusingly, the ones it should be active in - such as protecting our borders and fighting crime). However, I reject the essentially Marxian notion that this is at the behest of its 'corporate masters'.

Not that I reject the idea that big business has disproportionate influence on our government. It does. I would argue however that it's precisely because government is such an out-of-control leviathan that *only* big business has a hope of influencing it. Corruption is a bug of the big state, not its purpose (although it is so rife that sometimes it looks that way). Big business does tend to promote a bigger state, because over-regulation is a barrier to entry that shields it from new competitors. The worst damage our social democratic state does to business is preventing new businesses from being created.

There is no reason at all why private banks should not issue currency. Three do so in Hong Kong for example under a system that requires they have the equivalent in $US for every HK$ they issue. More importantly, I don't accept that money=government debt. This is a discussion we have had here over and again because of your comments and posts Mark, and it's disingenuous of you to state that as an unchallenged fact, while flagging up various straw men ideas of what libertarians think.

Given the enormous debts Western governments have run up and used to corrupt, infantilise and control their electorates since the Bretton Woods Agreement, I can understand the confusion, but that's simply NOT what the money supply represents. That you think it does explains many of your views.

I will leave other readers to fisk the rest of your post, but I felt I had to be the first to demur, given that the name of the author and the status of the post as a "guest post" is not flagged very dramatically in the blog template that I use and given that my Twitter and Facebook feeds publish this to the world as if it were from me.

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