For reasons I will outline below, the measures which have been advanced to deal with the current financial meltdown, measures that include swathing cuts in public services on the part of our Government, and Basel 3 on the part of the international banking community, are bound to fail.
Moreover, the futility of these prescriptions is far less a function of political affiliation than of simple mathematical logic.
My argument has at its core one key concept: that we strive to grow our economies not out of choice but because we are compelled to do so, in large measure by the money - (or debt) - creating activities of the banks.
In an article that was published some months ago (see: http://www.telegraph.co.uk/comment/personal-view/7273332/Darius-Guppy-our-world-balances-on-a-sea-of-debt.html). I described how the activities of a former fellow-inmate, a master counterfeiter known as ‘Tommy’, and the banks are in essence the same – the manufacturing of money out of nothing.
I demonstrated how the banks have usurped the state as the principal creators of money, despite this fact being either unknown to or deliberately obscured by the financial and political communities and I argued that the banks’ money-creation process constituted in effect a hidden fraud upon the general population – a worldwide swindle that leads to a de-coupling of money and reality and the emergence of a parallel, virtual economy based on debt which, as it mushrooms exponentially, is bound eventually to implode.
Finally, I identified this general phenomenon by its ancient name – usury - the cancerous process of self-replication by which virtual wealth supplants real wealth and in the process enslaves human beings.
Moreover, this contention, that stresses the extent to which the real economy becomes subservient to the virtual one, is given credence it seems to me by one obvious fact to which the commentators seem oblivious – that we should not be facing a crisis in the real economy at all.
After all what therein has actually changed in the past two or three years? There are still just about as many minerals in the ground and as many crops in our fields; it is not as if an economic collapse has been occasioned by anything tangible – the salinization and waterlogging of agricultural lands as occurred in ancient Mesopotamia for example, or a catastrophic decline in population levels brought about by the Black Death; nor has the store of human intellectual ability been depleted.
All our problems occur on the level of the virtual and in fact the only thing that has been threatened in this instance is the cultural mechanism by which control over the community’s wealth is exercised – for which, alleluia, if only we could see it.
For a real economy consists of human activity and intelligence applied to Nature’s bounties in the creation of goods and services for the benefit of the community. It should never be defined by financial instruments that have ceased to have any bearing on the wealth they are supposed to represent. If therefore the crash can somehow bring about the realignment of money and reality then it can only be a good thing, at least for the vast majority of us.
The crux of my argument in the Sunday Telegraph occurred where I showed how the banks have been bestowed what amounts to a license to print money owing to their ability to lend out many times more than they have on deposit. (‘Fractional reserve banking’).
In this way, the average reserve requirement for the majority of the world’s commercial banks is under 10% which means that for every dollar (or equivalent) which a bank has on deposit it can lend out at least ten times this amount – dollars which it invents and on which it charges interest.
This interest accumulates as newly-created money in the system at a compounded rate that can never be matched by economic growth in the real world and creates inflationary pressures for the very reason Monetarists point out – namely an over-supply of money, or credit. Such an inflationary pressure is bound in turn to produce an expansionary imperative on the global economy itself - hence the mantra of ‘growth, growth at all costs.’
In its simplest terms, therefore, there is little difference between the architecture of our global financial system and the Ponzi scheme put into place by Bernard Madoff.
Thus, the most basic exercise in false accounting, from which the other variants nearly all stem, is to treat a depletion of assets as the generation of revenue.
In this way, Madoff was able to utilise funds placed on deposit with him to pay out above average returns to investors who assumed, wrongly, that those returns had derived from profitable ventures when in fact they had been drawn from their own capital – (in itself an analogy for Britain during the Thatcher years and up to the present time).
Now Madoff’s scheme works perfectly well – and remains undetected largely because it is only when things go bust that regulators tend to step in – just so long as one thing occurs: Growth.
As long therefore as Madoff can expand his capital base by attracting ever greater investments, the merry-go-round continues, but when those investments contract, the fall is sudden.
And in exactly the same way, insurance companies, pension funds, publicly quoted and private corporations nearly all of which are indebted to the banks, the banks themselves – indeed the entire financial sector, not to mention our national economies - are all bound to one central premise: continuous growth – required to pay down runaway debt.
So too, the remedies put forward by our politicians are all based upon the same vulgar delusion: that we must – and can - grow our way of out the hole in which we find ourselves.
Remove this assumption and the edifice collapses.
Appreciation of this simple Ponzi structure leads at last to ‘Growth’ being seen for what it really is - not at all a call for the betterment of the human condition as the dogma would have it, but instead the desperate bid for life on the part of a system that will die without it.
Welcome to the global economy and to the true reason for our delirium.
Welcome to what obsesses our politicians – the “relentless, forensic focus on
growth”, as Mr Cameron has recently put it; to what has taken over and destroyed our culture by making money society’s sole directing criterion – with a race to the bottom and homogenisation sprinting in tandem; to what feeds so destructively on ever- larger quantities of the planet’s capital reserves; to the concentrating effect of monetary self-replication whereby the rich become richer and the poor poorer without the remotest reference to merit, and welcome to what truly motivates so-called ‘globalisation’: the survival-driven hunt for economic lebensraum.
Those, therefore, who compare the current crisis with the events of 1929 or who minimise it next to its predecessor, have failed to grasp its true significance.
For, in 1929 the world’s population was under a third its current level and de-forestation virtually non-existent; the polar ice caps and ozone layer were intact, the oceans well-stocked and unpolluted, carbon emissions were small and consumption was still relatively non-threatening to the biosphere. Specifically, the earth’s ‘sink functions’ – in other words her mechanisms for absorbing and disposing of the waste and pollution caused by industrial activity – were not yet overly strained.
In short, plenty of room remained in which to grow our way out of trouble and keep the beast alive, which is of course precisely what occurred.
But it is time for our quacks to wake up to the fact which confounds their more-of-the-same-old-medicine remedies: that the exponential growth culture of the past few hundred years represents a unique and unsustainable period of human history - brought about by a confluence of unrepeatable factors such as the discovery of new continents and the advent of the Industrial Revolution – an adolescent spurt that must yield to maturity.
For the reality is that no more lebensraum remains and we have at last come up against the brick wall of environmental reality.
Consider a respectable but by no means startling growth rate in the world’s economy of 2% per annum - a figure with which the likes of Messrs Obama and Cameron would no doubt be pleased and a pittance - until one looks beyond one’s own nose, that is.
For, when 2% is compounded annually, then in 35 years - or one generation - a single incremental increase is equivalent to a doubling in today’s terms and in two generations’ time to a quadrupling.
In simple English - and allowing for inflation which is always deliberately understated by Governments – then for my grandchildren to keep pace with a two percent growth rate that is set today, they will need to increase their production and consumption – and the waste that goes with this – in absolute terms by four times as much every twelve months as we now produce and consume in an entire year.
Now imagine that growth is set at, say, 5% - half China’s current levels and the approximate rate assumed by life insurance companies and pension funds in order to meet their future obligations. In such a scenario our grandchildren are no longer compelled to grow their economies by the equivalent of four times today’s levels every year, but by over 30 times.
Increase the rate to 6% - only slightly more than what Ireland will have to pay on the loans recently required to bail out her economy - and the figure becomes almost 60 times.
It simply isn’t going to happen.
Hence the insanity of the course along which we are being steered, together with the silliness of terms such as “balanced, sustainable growth” – as the goal recently set by Mr Obama for the G-20 economic summit.
Hence too the futility of measures such as the Government’s earmarking of six Billion pounds’ worth of spending cuts – a figure which when put next to the interest payments alone on Britain’s indebtedness, forget about any capital redemption – amounts to an attempt to bail out the Titanic with a saucepan and can only aggravate matters by targeting the poorer elements of the community.
In fact the only sector that has any prospect of achieving genuine growth is indebtedness itself.
From this inescapable logic derives perhaps the increasing sense in so many of us not of emancipation nor of the ‘freedom’ which our politicians insist it is our mission to export to the rest of the world, but of entrapment; the realisation that despite working harder than ever before, and ‘competing’ more frenziedly than ever before, we are no better off and no happier; that we must run just to keep still; that despite almost continuous historical ‘growth’ on the part of our economies the Promised Land that we keep hearing about seems further away than ever; and from all this our concomitant lack of motivation at a four or five-yearly beauty parade of politicians each more mediocre and ineffectual than the last together with our burgeoning understanding of how “Democracy” has become a fig leaf for Mammon itself - whereby the true rule is not ‘one man, one vote’ as the charlatans would have it, but rather ‘one dollar, one vote.’
Crucially though, if my arguments are accepted, then they represent not simply an indictment of the banking system but of neo-liberalism itself, for in the final analysis and despite attempts by the political class to distance itself from the financial sector, nothing of what faces us could have occurred without the blessing of the politicians.
And no party pushed the neo-liberal agenda more - buying into the artificial economy at the expense of the real one, choosing the City above industry and agriculture and sacrificing the last vestiges of Britain’s economic independence in the process - than the Tories under Thatcher.
How rich of the Government therefore to put the blame for the current mess on Gordon Brown. Did Gordon Brown create a similar crisis in Ireland, or in Greece, or Portugal, or Italy or Spain? Was Gordon Brown responsible for the sub-prime crisis in America or the problems which face all the other struggling economies throughout the world?
On the contrary, while his error was to misunderstand – along with all our politicians – the simple principles around which the global economy is configured, in fact the present debacle was the direct result of the Ponzi scheme which I have described above, a scheme given dignity and made orthodoxy above all by champions such as Margaret Thatcher and Keith Joseph.
The difficulty for New Labour being that, now more Catholic than the Pope, it can hardly rely on such an argument.
Consider too the absurdity of a Thatcherite logic which stressed on the one hand the importance of controlling the money supply whilst simultaneously facilitating the financial sector and in particular the banks, where the money is actually created, to run riot, all the while describing such a policy – and without the slightest sense of irony – as “financial discipline!”
In fact, examples of Tory sloppy thinking, dressed up as philosophy, are endless.
Take those Conservatives who bemoan the erosion of national autonomy in favour of Brussels’ increasing command, for example.
How conveniently they ignore the act of Sovereignty Suicide committed in the Thatcher era with Britain’s final capitulation to a power far greater than the European Commission could ever be: the so-called international ‘Free Market’ – a market so ‘free’ (and so ‘efficient’) that it has required state or supra-national intervention to prevent its collapse with every one of the successive pre-shocks that have led us to where we now find ourselves – the 1982 Latin American debt crisis, The 1987 Stock Market Crash, the American Savings and Loans crisis, the 1994 Mexican crisis, the 1997 Asian financial crisis, the 1998 Russian crisis and so on.
It would appear that, despite the theory, it is simply the beneficiaries of welfare and protectionism who have changed, for the bail-outs that have been required to prop up the system in the face of these fiascos would dwarf even the most ambitious Social Welfare projects.
What true Sovereignty or autonomy remains for Britain in the face of the forces I have described?
One of the more touching examples of my argument occurring on Black Wednesday in September 1992 when the then Chancellor of the Exchequer, Norman Lamont, imagined that an injection of a few Billion pounds to prop up sterling would have the desired effect. George Soros’ bet against the UK Treasury proved my point: the pennies that can be marshalled by supposedly sovereign states are laughable against the trillion dollar tsunamis that can be summoned up quite literally at the speed of light by an international finance which knows no flag, no morality and no real master.
Bearing in mind too that it was David Cameron who was purportedly at Mr Lamont’s side for the entire day that the events in question unfolded, one might have hoped that the current Prime Minister, more than most, had learned the lesson.
“You can’t beat the market” was how the commentators rather smugly described this episode, although “you can’t beat the power of compound interest or exponential growth” would have been more pertinent.
But the true evil in the story is discerned when we appreciate how, despite reassurances that we have never been more free, in fact the version of economic freedom that has been foisted upon us and which forces us down the path of manic debt and manic growth to mitigate that debt has no opt-out clause - the defining principle of usury.
Consider, for example, the question of property.
For the past few decades the overriding concern of students leaving school to find employment or coming out of University saddled with tuition fee debts, is to ‘get onto the property ladder’ – and not simply because a roof over one’s head represents the satisfaction of perhaps our chief primal instinct – survival – but because if the young do not ‘get onto the property ladder’ they will be left far behind their peers.
But the fact is that nowadays anyone who is not lucky enough either to earn or have inherited a fortune is compelled to borrow. Take your average Englishman: how can he possibly buy a property without mortgaging to the hilt and thereby being sucked into the system?
Homes become the people’s greatest ‘asset’, an asset against which they borrow yet further to fund their consumer existences and the longer they delay their participation in the process the poorer they will become relatively speaking, or so it has been assumed. How realistic is opt-out for them? What ship can they board and to which land can they flee to escape their indenture? A thirty year mortgage constitutes their freedom, extended in some countries such as Japan to encumber the next generation: our home bonds to be paid off by our children.
We are told of course that one of the great triumphs of the neo-liberal adventure has been to enable more of us to become home owners, finding fulfilment most notably in the Thatcher years with the transfer of state-owned council houses to the private sector.
But the argument is disingenuous. To which part of the private sector has transfer occurred? To individuals? Or to banks?
To find the answer look not at property’s title deeds but at its mortgage deeds.
And the cars in the streets or the planes in the skies –are they owned ultimately by people or by finance companies? Likewise with virtually everything you behold – right down to the shirt on your back.
In short, we must ask ourselves: in our desperate chase for growth what has actually increased, wealth or debt? Freedom or bondage?
There is no opt-out. Servitude is total.
Consider the question of bank accounts and credit cards. Carry more than a couple of hundred pounds cash on you and the assumption is that you are a drug dealer. Try to hire a car without a credit card: almost impossible.
For virtually every aspect of our lives our participation in the system –in particular the banking system - is mandatory. And the last remaining holes will soon be plugged. With technological advances cash itself can be dispensed with. Already we see its retreat. Liquid sums greater than £10,000 are subject to ‘anti money laundering’ legislation.
In other words, by this remarkable logic, a figure which could hardly buy one a decent second hand car is considered worthy of control by the State – and a possible threat - while trillions in funny-money are given free rein to criss-cross the earth every day, no questions asked - such seismic, largely speculative, life-ruining movements determined not at all by our ‘democratically-elected leaders’ but by the keyboards of a few hundred foreign exchange dealers who themselves simply ride the Megalodon wherever it takes them, remora-like.
The truth is that while modern day economic liberals claim to be the heirs of thinkers such as Adam Smith and David Ricardo, through their lack of understanding of how money actually operates and in particular how it breeds, moves and assembles, a state of affairs has been allowed to develop which could not be more opposed to the vision of their philosophical mentors. For, whereas in Smith’s time capital was almost as constrained in its movement as human labour, that circumstance no longer pertains and sums which could bankrupt entire nations can be shunted thousands of miles in seconds.
The result is for money to take on an agglomerating quality - an effect that is exaggerated manifold by a banking system which reproduces such money at an exponential rate, forcing us to grow our economies just to keep pace in ways that are unsustainable.
One of the more predictable consequences of such a phenomenon is of course the huge and increasing discrepancies in wealth that we see today - not remotely the result of talent or virtue or ‘efficient markets’ or ‘value-added’ as some apologists of the current system may argue, but entirely down to the manner in which money coalesces due to the processes I have described.
Thus, the combined wealth of the world’s billionaires, (just shy of 500 at the time of writing), amounts to the net worth of the planet’s poorest 2.5 billion inhabitants. Moreover, for the reasons already outlined, the process of distribution from the poor to the rich can only accelerate. So that, (according to the United Nations Development Programme) while in 1960 the 20% of the world’s richest people had thirty times the income of the poorest 20%, by 1997 that figure had already reached seventy four times.
And because the connection between reward and genuine contribution is virtually non-existent, in the Dictatorship of Money can be found perhaps at least a partial explanation for one of the great paradoxes of the age, namely the uncanny tendency on the part of our meritocracies to promote those who do not have much merit. The deification of the market leads to the creation of an utterly false elite, stripped of ancient virtues, the enemy of the people and of God.
In turn, a false elite brings about the subversion of the political process itself - election in particular, especially in America, being determined by proximity to the largest agglomerations of money.
Nor does the story end there, for this pooling of money occurs not simply on the level of the individual as I have argued but on the level of the corporation at the expense of the individual.
Far from a giant, global, ‘free market’ therefore in which individual ‘entrepreneurs’ act in their own self-interests and thereby, collectively, for the Common Good as Adam Smith envisaged, we march inexorably towards a global economy that is in fact thoroughly managed.
For where does economic power truly reside? On the level of the individual? On the level of the state even? Or on the level of the banks and their largest clients – the huge Trans National Corporations, some of which already constitute economies larger than those of certain countries?
And these behemoths, driven by the same imperative of expansion which propels money itself are not becoming any smaller either, but coagulate into ever larger bodies – we are told in the interests of ‘synergy’ and other meaningless terms designed to justify the Moghul-style bonuses that result from these mergers and to disguise the truth, which is that bigness, or growth, is not a strategy to ensure the Common Good but rather to forestall collapse.
And since when have corporations constituted ‘free’ economies?
On the contrary, the corporation is the very embodiment of economic planning.
And when we bear in mind that, for example, only a handful of these giant entities control the manufacture of the great majority of the world’s civilian aircraft, and how few of them control the majority of the world’s media, or the world’s mining operations, or the world’s large-scale agricultural production, or the world’s commodity trading, or the world’s foreign exchange dealings and so on and so forth, then we come to the realisation that far from our market being ‘free’ and constituting a myriad of decision-making individuals, it is in fact becoming more and more controlled.
The depression occasioned by this insight soon gives way to a cold sweat, moreover, when we ask the next logical question: “controlled, by who?” and the reply comes back: “no-one really knows anymore.”
As it grows, Mammon – which recognises no value other than itself - contaminates everything.
We allow too many immigrants into a country not on account of their beaux-yeux but to suppress the wages of our own workforce and to exploit those immigrants in the scramble for short term profits - a policy known as tolerance. More and more casinos are built not because of our freedom-loving instincts but to fuel the growth that is required to feed the monster, by whatever desperate means possible. Pubs too are open all hours for the same reason. Newspaper editors have their roles reduced to formatting trivia according to the topographical requirements of advertising. The sexualisation of society occurs not on account of our liberal values but simply because sex sells. The serenity of Sunday is sacrificed to the same idol.
Human unhappiness and a state of permanent dissatisfaction ensue precisely because the twin-headed beast of economic growth and debt requires them. For of what use to this beast is the un-neurotic soul content with his lot, who values his leisure and the world’s non-monetised pleasures, who knows the meaning of enough and who believes that perhaps there should be more to this life than to consume, vote, reproduce and die?
And while a counterfeit economy is reflected in a counterfeit culture the result is decadence – the Arts themselves captured not by patrons but by racketeers; Big Brother, X-Factor and a pile of bricks in the Tate Gallery – examples of a contemporary cultural output with a true worth of nil.
All these, and many more unpleasant consequences, most notably the despoliation of our planet, are the direct result of our compulsion to grow, in itself a function of the manner in which money - or debt - is manufactured, as I have argued.
But how could it be that supposedly well-educated individuals, including politicians, financial journalists, accountants, economists and other ‘experts’, could be so blind to what the average ten year old student of elementary mathematics would grasp within seconds – that non-ending exponential growth in a limited world is simple Alice in Wonderland?
First is the total entrenchment of neo-liberal doctrine, - (sometimes referred to as ‘The Chicago school’ or the ‘Washington consensus’), and at the heart of which lurks an assumption of continuous economic growth –– in the economics departments of our universities, our media and the political sphere.
Take for example the following quote from former Secretary to the US Treasury Larry Summers and subsequently President of Harvard University, made in 1991 and typical of the type of the nonsense that is taught to students all over the world:
“There are no… limits to the carrying capacity of the earth that are likely to bind any time in the foreseeable future… The idea that we should put limits on growth because of some natural limit is a profound error…”
Or this, from William Nordhaus of Yale University, published in The Economist:
“In any attempt to assess (the impacts of climate change), the main factor to recognise is that the climate has little economic impact upon advanced industrial societies… Cities are increasingly becoming climate proofed by technological changes like air-conditioning and shopping malls.”
Or this, from Professor Julian Simon of the University of Maryland:
“Because we can expect future generations to be richer than we are, no matter what we do about resources, asking us to refrain from using resources now so that future generations can have them later is like asking the poor to make gifts to the rich.”
It would be impossible to exaggerate the extent to which this economic Wahabbism, masquerading as factual and based on empirical evidence but in fact utterly abstract, which emanated from an ultra minoritarian sect centred at the University of Chicago and whose ideas as little as fifty years ago would have been laughed at by mainstream economists and politicians, has assumed the status of an orthodoxy that would be the envy of Medieval Popes - analogous perhaps to the manner in which a warped fundamentalism has brainwashed almost an entire generation of adherents to the noblest of religions, funded assiduously and with an almost Marxist focus on scholastic institutions, by benefactors too naïve to see how the monster would turn inevitably upon its Frankenstein.
Read the financial press in the West and listen to the politicians; one is most struck by just how uniform and unimaginative is their commentary. And even with the collapse of the system dissenting voices remain stifled. Concepts such as self-sufficiency, tariff barriers, the ending of fractional reserve banking, local currencies, restrictions on the movement of capital, national economics and indeed any proposal that aims at our re-acquiring control of our economies cannot even be discussed.
Labour, Tory, Liberal Democrat, Republican or any of the others, now barely even superficially different, in fact want the same thing above all else – the preservation of the status quo.
Not that can it be argued that everyone in the world has been blinded by the ideology.
Thus, for many years thinkers such as Richard Douthwaite for example, author of ‘The Growth Illusion’ (1992) or the environmental economist Herman Daly, or organisations such as the Foundation for the Economics of Sustainability in Ireland (‘Feasta’), have been predicting with remarkable prescience the very state of affairs in which we now find ourselves.
It is just that these voices are not allowed to be heard.
Instead politicians and economists in thrall to the dogma remain fixated on growth above all else and its defining measurement – GDP – that most ridiculous of social welfare indices and perhaps the supreme expression of our obsession with quantity over quality.
By this crude yardstick of economic throughput, a woman who stays at home, for example, and cooks a meal for her children and who brings them up to be decent, happy individuals adds no ‘value’, while her equivalent who dines out at a restaurant with her boss with whom she is having an affair and who causes a divorce that employs lawyers, the courts, removal companies and child psychologists is a worthy contributor to the national well-being!
Likewise, such a computation would have it that children who improve their brains and their literacy levels playing Chess or Scrabble are not nearly so valuable as those stupefied by X-Box or who spend their pocket money telephoning a premium rate line to vote off the next contestant of some Reality Show.
From my own experience I remember as a young man being shocked by just how taken in my contemporaries were by the neo-liberal heresy and by how quickly – lacking genuine idealism - they dumped their traditions and collaborated.
The classical heroes of previous generations, nearly all Spartan in their tastes – saints, poets, warriors - were soon jettisoned in favour of the banker or the sort of person who might win on ‘The Apprentice’. Likewise, where, in politer times, even to talk about money was frowned upon, various ‘Rich Lists’ made clear who we should idolise, bringing to mind a passage from Aristotle’s ‘Politics’:
“But the good men did not remain good: they began to make money of that which was the common property of all. And to some such development we may plausibly ascribe the origin of oligarchies, since men made wealth a thing of honour.”
And in the City, in the financial press and in recruiting tours of schools and universities a martial language was employed to assist in the deception.
But no amount of “white knights”, “outflanking manoeuvres”, “rear-guard actions”, “corporate titans”, “skirmishes” or “heavy guns” should obscure the facts: that banking and the neo-liberal experiment of the past few decades have constituted one huge exercise in moral hazard, so that while profits have indeed been privatised as the ideology requires, rarely have losses been so thoroughly socialised.
Indeed, ironically, when it comes to the chief virtue of the ‘entrepreneur-as-hero’ of Thatcherite discourse – namely a preparedness to take risks – my counterfeiting friend Tommy, who nearly always ends up in jail, scores far higher than those individuals who in the real world would be the first to end up on our dinner plates but in the virtual one have reaped bonuses of up to billions at a time – even when their companies are technically insolvent - never putting their necks on the line and forming no part of any heroic tradition, despite the propaganda.
So that if, for example, a recent biographer of Sir Francis Drake has estimated the fortune accumulated by his subject throughout a lifetime of fending off pirates, Spanish battleships, typhoons, mutiny and scurvy, at £30 Million pounds in today’s terms, the financier who does no more than shuffle paper on behalf of an institution that requires bailing out the next day, sniffs at such a sum.
The standard response, given in the face of such unattractive realities, that these individuals’ rewards are a consequence of “the laws of the marketplace”, is a proposition which should be seen for exactly what it is: not at all an argument based in fact and having none of the scientific rigour which its proponents ascribe to it, but instead a expression of ideology pure and simple.
The second reason for the blindness on the part of our ‘experts’ to the fallacy of non-ending growth and the swindle of money-creation out of nothing is that an entire class has developed which is the direct beneficiary of the fraud, a fraud that less perceptive commentators have mistaken for genuine invigoration when in fact it has constituted a short-lived period on steroids for which we would pay sooner or later.
So that in a world geared to fantasy, where the creation of money is no longer so much a function of productivity but of money mating with itself, those more connected to the real - farmers, soldiers, doctors, teachers, workers, for example – have seen their influence and wealth decline, while those in closest orbit to the virtual have prospered: bankers, corporate lawyers, actors, video game designers, software programmers, accountants and so on. It is no coincidence that even in the realm of medicine it is the plastic surgeon who is the best remunerated.
And this class of beneficiaries, right down to the son of a stock broker as Prime Minister, will instinctively protect what it discerns as the source of its wealth and influence.
More generally though it is in the area of property that the hoodwinking has been, until recently, most persuasive and most widespread, creating an illusion of benefit that has fooled millions.
Thus, for decades while the term ‘inflationary’ has had a negative association, in this particular area at least – where it comes to our homes - an increase in prices has made us feel richer and has therefore been considered a boon, allowing us to overlook the dramatic expansion in credit and to be lied to about the true inflation rate.
But in the long run it is still a mug’s game.
Take for example the case of my own father. He bought his house in Chelsea for £6,000 shortly before I was born. Some forty years later it was valued at £2 Million - an increase of 333 times and one that resulted almost entirely not from the supply and demand of houses in Chelsea but from the supply and demand of money - or credit - able to be converted into houses in Chelsea.
But for my children to enjoy a similar rate of growth the same property would have to be worth about a billion dollars by the time they reach my age and for the process to be repeated for my grandchildren – a mere two generations down the line - a two floor property in Chelsea would need to be worth a third of a trillion dollars.
Such are the miracles of exponential growth.
(While no doubt properties in Chelsea may command an intrinsic premium, nevertheless the general effect has been replicated throughout the entire United Kingdom and most of the world’s urban real estate)
Now were that growth in the property’s value – as I have argued primarily the function of an exponential increase in credit through the banks - able to be reflected in an equivalent economic growth in the real world there would be no great difficulty. But it simply cannot be.
It is not an accident therefore that it was at this exact nexus, where the ephemeral meets the solid - bricks and mortar – and in the place where the largest virtual printing press of them all is to be found, America – that the scheme should unravel.
The third reason for the blindness on the part of our ‘experts’ concerns what growth has come to represent: hope.
In this way the central argument relied upon by the advocates of neo-liberal economics in its worldwide dissemination is that all boats, big and small, will rise with the swelling tide.
In short, with the prospect of growth, the poor can hope and thereby be kept compliant. Remove such a prospect and that most frightening of notions announces itself: re-distribution.
For where growth is no longer possible, then by definition, an increase for the have-nots can only be at the expense of the haves and vice versa. Or, to put it in tangible terms, for the average citizen of China to possess a motor vehicle in the manner of his American counterpart an environmental catastrophe will ensue and for him to consume as much as his American equivalent then at least two planet earths will be required.
Mr Cameron’s assertion in a recent trip to China therefore, that we can all keep on growing, and that our current economic practises do not constitute a zero-sum game, is simply away with the fairies.
In fact, in a context in which growth is no longer possible, at least on an aggregate level, is what we are witnessing a worldwide recession at all so much as a worldwide re-distribution? After all, while in the West we may be struggling, in terms of the planet’s two most populous countries, China and India, the economy is actually expanding even if, for the reasons already outlined, it cannot do so forever and even if that expansion is by no means to the benefit of all their inhabitants.
But how then to make money once more our servant rather than our master?
We will need the kind of “big ideas” which the current Prime Minister has manifestly failed to pull out of the hat despite his promises to do so: specifically, the ending of fractional reserve banking – the only measure which, in a single stroke, will remove the power of the banks to create money and vest that function back again in the State where it belongs.
By banks lending only what they have on deposit, and by the elimination of the multiplier effect caused by the fractional reserve requirement, overnight the need for manic growth would be tamed.
The Basel 3 accord on Capital Adequacy ratios, therefore, will have very little long term impact, simply increasing as it does the total common equity requirements for the banks to a mere seven percent.
Politicians should be clear: the ‘banking reform’ which they like to talk about is hot air unless it incorporates the abolition of fractional reserve banking in its entirety.
Other suggestions include the establishment of a consumer price index simultaneously with the ending of fractional reserve banking, an index whereby prices would be kept constant by means of the state either producing money or withdrawing it from circulation depending upon the index’s movements, acting analogously to a thermostat. A more constant supply of money by means of this method – as opposed to the rapid shrinking and expansion of debt-based money that originates in the banks – would rein in the ‘boom-bust’ cycles that have come to define modern economies.
A move away from debt-based to dividend-generating and equity-based financial instruments, as advocated notably by Islamic economists; gold or silver-backed national currencies whereby money’s ethereal quality is given once more a sense of the real; the adoption of more truthful indices – indices for example which reflect more accurately the real inflation rate or which consider human welfare in terms more subtle than blunt economic throughput; the introduction of local currencies to run in parallel with the national currency - in the manner of LETS schemes – stimulating local economies that may not have access to outside capital and allowing wealth to remain in the locality where it is generated for the benefit of the community which generates it; taxes on speculation; de-specialisation in industry, whereby we become less dependent on the production of others and more reliant on our own; restrictions on the export of the nation’s capital by means of a two-tier currency system, in effect separating the capital and current accounts such as occurred with the Financial Rand or the Sterling Area, and preventing the sort of ruinous flights of capital that saw the Mexican Peso devalued by 40% in a matter of days in December1994 – all these are simply some of the suggestions that at the very least deserve exploration on the part of a political class blinded by a quasi-religion that has quite clearly failed.
Now while it would be impossible in so short a space to do justice to the various proposals touched upon above and to others not mentioned, it seems to me that for any suggestion to have the remotest prospect of success it must incorporate the two following principles:
First, the re-coupling of money and reality. Money must represent much more accurately the stock of wealth of which it is supposed to be the measure: a notion which makes the global swindle that I have described far less likely to succeed.
And second, a reversion to the principle of self-sufficiency. If money comes to reflect once again real wealth then the community which creates that wealth must have significant say in where and how it is deployed. Why should people who work all their lives be so utterly beholden to forces that have nothing to do with them? Why should they risk losing their homes and their livelihoods due to economic factors on the other side of the globe and because of speculative froth in markets over which they have zero control? Is this what is trumpeted by politicians as ‘freedom?’
Now while it may be held that a policy of greater national and regional economic autonomy would be doomed to failure in this era of globalisation and ‘interdependence’, it seems to me that such reasoning, far from supporting ‘interdependence’, in fact constitutes one of the best arguments for economic self-sufficiency that I can think of.
For this is nature’s law: homogenisation and ‘interdependence’ lead to disaster while compartmentalisation - the principle whereby separate, sealable spaces make the sinking of a vessel less likely - increases security. Mono-cropping means that a blight which strikes one particular variety of crop leads sooner or later to famine. Likewise, a single, global economy – the vision and goal of the Market and all our politicians – brings down the whole world when it falls.
But all of these measures can be subsumed within the biggest idea of them all:
We must forget about growth.
It is simply no longer possible nor desirable, either for individual countries like Britain or for the world in its totality - and it must be our most urgent priority to devise an economic system capable of dealing with non-growth or shrinkage.
For me it is extraordinary that our politicians have not even considered this possibility, such is their timidity, and it surely cannot be beyond our ken to devise such a system, especially when we bear in mind the preponderance of British names to be found on the list of humanity’s truly useful innovations and ideas, the great majority of which were inspired not remotely by some base, Thatcherite, greed-is-good motivation but as a result of that curious free-thinking, slightly eccentric and adventurous mixture which was, until recently, such a prominent feature of the British psyche.
If I were Prime Minister it is upon this resource that I would focus my energies rather than on some wild goose chase in the Middle East.
Now the principal argument relied upon to re-butt the notion of shrinkage or even non-growth was summed up by Edward Heath:
“The alternative to expansion is not an England of quiet market towns linked only by trains puffing slowly and peacefully through green meadows. The alternative is slums, dangerous roads, old factories, cramped schools, and stunted lives.”
In other words, what would we do with all our excess capacity? With the endless lines of un-sold, rusting cars or crumbling motorways?
The point surely is this: sooner or later, whether now or in a hundred years – a nano second in environmental terms – we will have to stop growing and will therefore be confronted with the same problem. And the longer we leave things the longer will be our lines of un-sold cars, our networks of crumbling roads and so on.
Rather than being something to fear it seems to me, Operation Tidy Up represents a genuine opportunity. Employment prospects would soar as we dismantle the ugliness, as the countryside is re-populated, as hideous, inhuman suburbs are greened-over and as the unwanted products of industry are re-cycled for use in different areas.
But above all, so long as economic shrinkage is accompanied by a corresponding decrease in population levels then it offers the best prospect for a re-normalisation of wealth discrepancies and for a catch-up on the part of the disadvantaged - as well of course as releasing the pressure on the natural environment.
In short, to borrow from Aubrey Meyer, founder of the Global Commons Institute, with contraction comes a genuine opportunity for convergence.
Thus, for example, a gradual halving of the population would mean the same number of resources to be distributed among half as many people or, roughly, a doubling of per capita wealth – and in this sense genuine “growth.” Granted, it would also mean a halving of the labour force and with it a huge decrease in productivity, or so it is assumed, but it is here that technology could at last live up to the emancipatory promise on which it has so far failed to deliver, fulfilling the role that caused such excitement with its advent, by plugging a labour gap brought about not by forced unemployment but by a voluntary reduction in our numbers.
Those who reject the need for limits to our population levels or who assume that economic growth can be never-ending in a limited world, should extrapolate. Where do we stop? When the world’s population reaches fifty billion? A trillion?
History has taught us that without self-limitation, in our numbers and in those economic activities which harm our environment, nature offers up radical solutions as many civilisations have learned – in Mesoamerica, in the Indus Valley, in Mesopotamia, on Easter Island and so on.
Indeed, were continued exponential growth still even possible for us – and it is not – do we really want it at all?
Do we really want to compete with places like China? – something that would require increasing our population twenty-fold and working like slaves 18 hours a day for ten per cent of what we currently earn. And if eventually we were indeed able to grind away those 18 hours for a pittance, what then? Some bright spark would suggest that in the drive to increase our GDP we work 19 hours a day for even less!
Where does it end?
The truth is that we can never compete with places like China in any meaningful sense.
But, more importantly, we would not need to if we were more self-reliant.
Far from being something to fear, therefore, we should embrace the prospect of shrinkage, especially if that shrinkage can re-focus our attention on the things that really matter.
So that if, say, an economic contraction of 30% were to occur - a staggering figure for most economists - much would depend on where that contraction were concentrated.
Thus, if it were to affect education, food supplies and other essentials it would be unwelcome. But if it were to mean that instead of buying three microwave ovens a year I could now only buy two, then big deal, frankly. Or that instead of having 1000 channels to choose from on my satellite television I now only had 700, then so what? Who knows? We may even start talking to each other again.
Or what about spending time with my family? What about my hobbies or going for a picnic in a beautiful countryside – all of which are useless as far as GDP or ‘Growth’ are concerned?
Where is all this growth getting us? And what is more important - my children’s psychological wellbeing or their capacity to go through an ever greater number of Play Station consoles every year?
In short, it is all a question of prioritisation. Sometimes we have to sacrifice the unimportant for the important and if the price of our individual and national autonomy may mean fewer kiwi fruits on our shelves or Chinese toys in our nurseries then perhaps it is a price worth paying.
In 1928 Eamonn de Valera summed up a similar set of options which faced the Irish people well:
“If the servant was displeased with the kicks of his master and wanted to have his freedom, he had to make up his mind whether or not he was going to have that freedom and give up the luxuries…which were available by being in the mansion.”
Let us hope that as human beings rather than ‘consumers’, we make the correct choice.
But these are all philosophical questions, the type of questions which politicians find embarrassing because they require a clear definition of what constitutes the ‘good’. And those who ask and answer them risk losing votes.
However, a debate and a very clear understanding about where the ‘good’ really is located are in fact precisely what we require.
Unfortunately though, having known a fair number of politicians from all the parties, both from my parents’ generation and from my own, I can confirm to the reader that if he puts his faith in such individuals for the bringing about of this objective, then he will be disappointed.
At best they are perfectly nice, perfectly un-remarkable people – unsuited for the challenges which face us.
Brought up in a liberal tradition that is above all expansionary in nature, walls are to be abhorred and must be torn down, whether those walls are economic, cultural or geographical. Consequently, limits on our behaviour and the realities of scale are rejected – by reflex.
Imagine the vastness that lay before the settler of newly-discovered lands, in particular in North America, where nothing bar the awkward detail of indigenous populations stood between him and unprecedented expansion, where railroads, factories, cities could spring up with dizzying speed, and where there was almost unlimited room for booming populations.
Is it any wonder that a theology of wealth should have made this territory its home?
But in the relentless pursuit of growth the Commons soon fill up and in North America perhaps the most recognisable symbol of what happens when that growth is unchecked is found in the Bison. When European settlers first arrived they numbered 40 to 75 million. By 1891 their population had been reduced to 541 animals.
In short, there comes a time when, even in a huge expanse like America, not to mention a small island like Britain, the realities of scale can no longer be ignored.
Instead of confronting these realities however, careers on the part of those supposedly at the helm, but strangely powerless, which have imprisoned them behind desks or computer screens and fenced their leisure within boardroom lunches or cocktail parties given by their friends or the party faithful, have imparted on them both a parochialism and a strange air of unreality, utterly opposed to the earthiness of the small and self-sufficient landowner or artisan, viewed by Jefferson as the guarantor of a free and healthy society, not simply on account of his moral qualities but because of his connectedness with the real.
For no man who understands the cyclical rhythms of the environment, or who appreciates how little time it takes to fell a tree but how long it takes to re-grow one, or how much longer waste takes to break down than to accumulate, or how co-operation and symbiosis rather than competition are in fact Nature’s rule, could have been fooled by an ideology so totally destructive in its abstractness as neo-liberalism.
This disconnectedness from the real and the consequent disregard for the question of scale on the part of our politicians and economic ‘experts’ is of course evidenced in their continued heavy reliance on economic liberalism’s most sacred tablet – Adam Smith’s theory of the ‘Invisible Hand’ - which supposes that left to their own devices, individuals acting in their own self-interests will, by default, maximise the benefit for society as a whole, a reasoning which could not be more suited to the present time – in which the pursuit of selfish desires is encouraged to the maximum not so much to guarantee individual liberty but, above all, to increase sales.
One could imagine – just about – the appeal of such a hypothesis, at least on paper, at the time it was written, when businesses were small and the world operated at a far more circumscribed proportion, pace and level of technology but now, having shifted to a totally different scale, with mass industrialised production involving huge numbers of employees, contracted to vast corporations spread out across the planet, where gigantic sums of capital can be deployed or withdrawn in seconds, one wonders how any rational person could cling to this idea with such fervour, some two and a half centuries after it was first expressed.
As Richard Douthwaite explains:
“There is not, and never has been, any economic mechanism that ensures that if I devise a labour-saving technique that puts hundreds of thousands of people out of work and gives jobs to just a few, everybody everywhere will ultimately benefit. The only thing that determines whether I introduce my technique is my decision whether it will provide me with a personal gain. I am not required to consider how the introduction will affect the livelihoods of other people. More powerfully, if I do develop scruples, the growth imperative forbids me to delay introducing my technique because if I do not innovate, someone else will … and unless I follow suit I will be driven out of business.”
But even were they more anchored in the real, what could our politicians actually do?
Imagine if Mr Cameron, for example, were to announce the truth to the world – that austerity measures as advocated by the IMF and implemented by governments such as our own or Greece’s will, in the scheme of things, avail to naught? Imagine if he were to explain as I have done how the financial system in its current form is crooked, unjust and irreparable? Or if he were to state that neither as individuals nor as nations will we ever be able to repay our debts and that only some form of massive debt repudiation – typically in the form of significant inflation - can wipe the slate clean, but that even with a new start we would quickly find ourselves back at square one if the banks were allowed to continue to manufacture money out of nothing and force us thereby down the path of unsustainable growth?
What would happen if he were to say these things?
Either a collapse of the financial system in its current format - if other ‘leaders’ were to follow his example - or, more likely, he would be dismissed as incompetent or mad, only to be replaced by some other marionette.
And so, a simple strategy - the same for all politicians from whatever political party - is adopted: to smuggle in a gradual reduction of our living standards, in the hope that their particular term of office will coincide with the sort of artificial mini-boom that punctuates relentless, step by step, decline, thereby affecting not too adversely their CVs, their Wikipedia pages or the bonuses of their chums.
In sum, I have argued in this essay that the current financial system and unsustainable growth are joined to the hip in neo-liberal doctrine and that this doctrine has been programmed to the extent of brainwashing into two generations of minds. The result is not – despite its appeal to a scientific approach – a reliance on facts, but an intellectual paralysis before those facts: for the overwhelming evidence is that the neo-liberal experiment of the past few decades has been an unmitigated disaster for the planet and for human societies.
Writing over sixty years ago Karl Polanyi predicted as much:
"To allow the market mechanism to be sole director of the fate of human beings and their natural environment...would result in the demolition of society."
The Tories are in no position therefore to lecture us about “Broken Britain”, refusing to acknowledge as they do just how implicated their own Party has been in the breaking of Britain. For if one’s guiding view is, as Margaret Thatcher put it, that “there is no such thing as society” then this is exactly what you get – no society.
How alarming that Mr William Hague should have described his colleagues and himself as “the children of Thatcher” and how shameful for New Labour and the Liberal Democrats to have sold out so cravenly.
But perhaps the single biggest factor in the failure of neo-liberal theory is its consideration of human beings: not as souls, each unique and a creation of God, but as machines, whose labour can be extracted and commodified; able to be programmed into mindless consumption for the benefit of some profit and loss account lying on a desk somewhere - a view as pernicious as anything dreamt up by Marx.