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.

After the 2011 tsunami, Fukushima nuclear power plant exploded and was unable to produce electricity, necessitating rolling blackouts and widespread efforts to save electricity in the Tokyo region/ East of Japan. The disruption that this caused was completely inevitable given the circumstances. At the same time, in the West of Japan there was also a widespread campaign to reduce electricity consumption. Lights in supermarkets were turned off, air conditioners not used despite soaring temperatures, workers all crammed into one office, people generally encouraged to turn things off regardless of inconvenience - to help the people in Tokyo.

All this, despite the fact that there was absolutely no way to transfer electricity to the areas with a shortage. The Eastern and Western halves of Japan operate on completely different electricity systems and are unconnected. Consumption in the West is entirely unrelated to availability in the East, yet people still believed that their sacrifice would somehow help their countrymen.

You might find this behaviour strange, or perhaps noble, but to me this represents more than just another oriental peculiarity or example of Japanese communalism. This is the way that most people around the world think, most of the time. It's based on the principle that resources are universally exchangeable and unfortunately, it is a damaging mistake. The reason why we make this mistake, is money. We are so familiar with equating the things we consume and do with money, we forget that different types of work and different resources are often entirely unrelated.

For example - if I manage to refrain from eating a chocolate bar, the number of motor cars does not increase. There is some real physical limit to the number of chocolate bars which can reasonably be produced in the present. There is also an unrelated limit to the number of cars which can be produced. A chocolatier cannot design a motor car and a chocolate factory cannot make one.

We are told, often and loudly, that the rich must pay their fair share in order to contribute to the poor. I suggest that this is not possible. The rich absolutely cannot pay for the poor, because the resources that they use are entirely unrelated to those which the poor need. The rich spend most of their money on positional goods. If we lower spending on diamond rings, will more food become available? Will lowering spending on Ferraris increase the number of houses? No.

"But," you cry, "if we spend money on the poor, we must get it from somewhere!"

Yes - we make it. If the supply of money is the only factor which is limiting production, then presumably producing more money will increase production ( for free since money costs nothing to make). I assume that price rises are driven by supply and (nominal) demand, so if production increases, presumably price inflation will be limited. In this case nobody has paid anything to feed the poor, though some people have chosen to work.

If there is some real limit to production, then producing more money will lead to inflation. But even in this case, it won't be the rich who pay.

Price increases for everyday goods, will effect the rich only a little and in order for the price of the positional goods which they want, to increase, the rich would have to be getting more money (or who else would pay for them). In real terms, they have lost nothing. In reality, the price increases would affect ordinary people - so they would be the ones paying for the poor.

If printing money is inflationary, then taxing it must be deflationary. Why not give the money to the poor, but reduce the inflation impact on ordinary citizens by taxing the rich? Again, this won't work. Given that the rich spend so little of their income on everyday goods, the only way we can have an effect on the demand for these goods is if they stop paying so much money to their workers, ordinary people.

If we want to pay for the poor and there is a limit to real resources, it will be the ordinary people who pay - through consumption tax or food price inflation - in real terms, through less everyday goods.

There are, of course, other reasons why we might want to tax the rich - perhaps their wealth causes great unhappiness to the rest of us, or they earn their wealth through exploitation rather than contributing to the common good. Perhaps by taxing the rich we will encourage people to work harder in real jobs. Perhaps the rich will work harder to make up the money they have lost. Who knows. Taxing the rich could equally cause them to work less hard and make us all poorer. The case isn't clear which is why people generally try and justify taxing the rich on the grounds of them "paying their way", even when their true motivations are quite different.

As far as I'm concerned the effects of taxation on this group are so unclear, we probably shouldn't worry about it over-much. Ideally, we would have a society in which wealth wasn't produced by antisocial activities, but destroying the entire mechanism of money as motivator isn't likely to achieve that.

In the same way, by not consuming a chocolate bar, perhaps I might, in the long term, lead to an increase in investment in car factories. Only if I use my money to buy more cars.

We are also told that increasing government debt means the impoverishment of our children as they work to pay it off. This is the temporal version of the Japanese Electricity Fallacy. As Bertrand Russell once wrote, "a man cannot eat a loaf of bread that does not yet exist". By taking a piano lesson today, I am not reducing the number of piano lessons available to my children. Government spending, resulting in debt can only reduce the welfare of future generations to the extent which it reduces investment in the economy. But the reason for increased government expenditure and deficits at the moment is the desire of the private sector to save.

That is what government debt is - the savings of individuals and businesses. And that is why interest rates are low - businesses fear that demand is weak and therefore don't wish to invest - they are saving their money. This saving does not result in productive investment. The government can help, by either giving money to people in the private sector who want to spend but have no money, thereby boosting demand and encouraging investment or by investing in public goods themselves.

"Ah!" you exclaim, "eventually, interest rates will rise and then we will be bankrupt!"

If interest rates rise, it will mean that the price of bonds have fallen. What would prevent the government from buying these bonds back at less than they issued them for in the first place, exchanging interest bearing bonds for zero interest cash? They would turn a tidy little profit on it at the same time (though the idea that the government (representing the country as a whole) should be trying to make a profit(at the expense of the country as a whole) is utterly ridiculous).

It is absolutely true that if savings are sufficiently high and growth in productive capacity sufficiently low, that the people making savings have absolutely no hope of getting their money back. They will lose out to either inflation or tax (this is what will happen to the Japanese eventually). But, what do you suggest we do about this? Surely the only thing we can do is attempt to boost demand and investment through government spending. The "do nothing" charter will absolutely doom savers to losing their money, and mean the rest of us have fewer sunglasses at the same time.

Having said this, there is a definite limit to what government spending can achieve. All unemployed people are not the same and giving them money will not neccesarily increase real production. It will however increase demand which will encourage those capable of production to get on with it.

In my humble opinion, we shouldn't worry about debt, deficits or unemployment - an excessive concern for any is likely to be counter productive. We should instead be pragmatic and attempt to buld the best possible society while ignoring the twin evils of egalitarianism and market fundamentalism.

[Even more than his previous posts, this - Mark's final contribution here - only represents his own opinion and is not endorsed by The Last Ditch in any way, shape or form. Tom]

"What do you get for the man who has everything?"

Market orientated Libertarians believe that this is the most important question facing our society. The more extreme believe that we should stake our lives on finding a satisfactory answer - if we can't produce something that someone else wants to buy, we should do the decent thing and die quietly.

British society in general seems to have accepted that the unemployed are guilty of a terrible sin in failing to contribute to production and must therefore be degraded or left destitute as punishment. Some Keynesians would rather have the unemployed smashing windows than doing nothing. Libertarians object to this not on the grounds of wasted time, but wasted money (though they believe fiat currency to be worthless).

I say let them go fishing.

I say this for two reasons. Firstly, if the unemployed are lazy, we will not lose very much from them not working. You can't force people to do non-robotic jobs, which deal with people, well. You have to concentrate on persuading them.

Secondly, if the unemployed are highly skilled and productive workers but demand for their work is low, why punish them?

You might claim that even if we consumers do not know what we want, it is the job of workers to discover our hidden desires and satisfy them. This is what Steve Jobs did. Steve Jobs was especially astute/ruthless/lucky. The unfortunate fact is that in the UK 50 odd percent of new businesses fail within a few years. It really isn't easy to decide what people want - with the odds the way they are, entrepreneurship is probably best viewed as a form of socially beneficial insanity (if the butcher, baker and brewer were really looking out for their own self interest, they'd not start a business in the first place). We can't really blame people for failing to divine these secrets.

Free market men, what do you want the unemployed to do and why aren't you paying them to do it?

I accept that most people do not know what to do with themselves without work. Recently, bawling Stockholm syndrome sufferers are an increasingly common sight on our screens. When I see grown men begging for work, it makes me feel queasy - I consider this to be a terrible failure of our education system, the primary purpose of which should be to teach people how to have pleasent lives and how to enjoy their free time with sports, cultural pursuits, friends, family, wine etc. Perhaps as a temporary measure we should give them some work to do.

Of course, in the free market utopia, there will be no problems. There will be no lack of demand, the market mechanism will ensure we inch towards maximum possible utility and charity will replace welfare.

Now, I like markets, I really do. Markets can be a good way to demonstrate, impersonally, what we want and then get it. The problem arises what we want causes difficulties for society generally.

For example, once people have achieved a certain standard of living, they might value increased security (through saving, in libertarian land) more than an extra cream bun. Increased saving will mean less spending, unless there is some other body to make up for this. But if everyone is looking after their own interests, and our own interests are linked to what others think, you could end up with all kinds of horrid cascade effects, demand shortages and, if we follow market- extremist principles starvation/civil war.

What we need is a body which is not concerned for its own utility, the government, which can intervene and spend money into the economy when such things happen. Real market-extremists reject this on entirely religious grounds - the government must be wrong, there can be no market failure... everything will be perfect once the free-market arrives, hallelujah!

The major problem here is that just as the efficient market can only exist to the extent we don't believe in it (remember the profesor leaving the dollar on the floor), the free market utopia would only ever be able to exist among people who were constantly questioning what was happening in their society. I don't know what the solutions to our social/ economic problems are, but sticking your fingers in your ears and shouting "markets!" over and over, can't be it.

(BTW, am I the only one who notices similarities between extreme market libertarians and communism ? The free market is always around the corner...)

The sad thing is, that there is nothing especially "anti-market" about the government controlling the money supply. In a society where we must do business with people we don't know, we have to have some outside body providing our money. The government producing money enables markets rather than destroying them - it is this which allows us to do business with each other.

And, if a man does pointless work and eats one day, how are we worse off if he does no work and eats the next? Why is it especially offensive if the government is neccesary to facilitate this?

[Mark's opinions are his own and do not represent the viewpoint of The Last Ditch]

A common criticism levelled against the Citizen's Basic Income (guaranteeing each person an income as a right of citizenship (as far as I'm concerned this should be irrespective of the work they do)) is that it would interfere with the process of "creative destruction" and therefore reduce long term productivity gains. We will all be better off in the long term if the government gets out of the way and lets the market run its course. I disagree.

Creative destrucion is a process which applies to institutions, not individuals. If we destroy a bank, an idea, we might replace it with something better. If we destroy a man, take his income, take his self respect, home, possibly his family, will what emerges be something better, or something far worse? 

This should be an important question to even the most self interested free marketeer, as technological change means that the work we require from people will increasingly fall into one of three categories - managerial, creative and direct customer service.

The great creative works of humanity have not generally been born of desperation, though many vile acts have. People worrying about survival are not free to make great things - we should give them this freedom. Likewise, people dealing directly with people are unlikely to be able to do a good job unless they actually want to be there. Let's replace obsequious waiters, who despise you, with people who genuinely wish to provide you with an enjoyable meal.

As for good management, what is it if not creatively dealing directly with people?

Increased protection for individuals would reduce the political pressure to protect institutions and would therefore aid the market in producing more efficient means of managing resources.

The time when we could increase economic production by driving reluctant workers into mindless jobs, with the threat of destitution, has passed. We should recognise this fact.

Mark

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NB: Although posted by me because he had problems with my blogging platform, these are NOT my views but those of Mark - a prolific commenter here of late. His comments all challenge my views from a broadly statist perspective and I thought it might amuse you all to hear them expressed more systematically. Please feel free to comment and let's try to keep the Christians vs Lions vibe to a minimum please!

Tom