THE OTHER ROAD TO SERFDOM
In the words of John Kenneth Galbraith
"The study of money, above all other fields in economics, is the one in which complexity is used to disguise the truth or to evade the truth, not to reveal it"
Money: From Whence it Came, and Where it Went?
IT is now close to 50 years since the publication of Professor Hayek's book The Road To Serfdom (1) and society world wide is more divided than ever. What is now absolutely certain, is that, the virtually uncontrolled acquisitiveness of finance- capitalism which his school of thought has done so much to propagate in the name of a free market economy will widen the gulf between the advocates of Socialism and the supporters of so-called Capitalism. So-called for reasons I hope to make clear later.
At the time, Hayek's writings seemed to skilfully demonstrate that Marxism - Via Socialism was the only road to serfdom and in the eyes of the majority of those living in the relative freedom of a democratic state the vast prison camp of Soviet Russia and its subjected iron curtain countries seemed to confirm his analysis. In The Road To Serfdom, Hayek makes quite clear his conviction that nationalization and any form of planning, economic or social, would destroy our democratic freedoms.
What this book 'The Other Road To Serfdom', attempts to show is that 'unregulated capitalism' is also a road to servitude. In a different way, and probably more so, George Orwell's Animal Farm and 1984 alerted the free-world to the horrors of the Marxist state, but with an all important difference. He did not claim that the forces of the free-market would prevent this sort of catastrophe from curtailing the freedom of people here, and was deeply concerned that Hayek's beliefs would lead to a return to the conditions of slump and unemployment in which the seeds of communism could germinate.
With close to three million unemployed and millions more kept above the poverty line by a costly social security system in Britain and a similar story in most developed industrial countries, the Left is as convinced as ever of the 'evil' of 'capitalism'. Most of us, as did Orwell, feel concern to a lesser or greater degree about the plight of the unemployed and the poor, but it does not make us Marxist-Socialists, far from it.
The tragedy, therefore, of 20th century politics, and more so since the end of the second world war has been the incalculable damage inflicted upon economic activities both nationally and internationally by the partisan interpretation of the meaning of 'capitalism'. Most men, whether they are drawn to the teachings of Karl Marx or to the faith of the free play of market-forces are, no doubt, sincere in their beliefs that their way is the road to social justice, not the road to serfdom.
However, these opposing beliefs fail to convince the broad mass of the electorate as they instinctively feel that both these forces should be kept under control for the well-being of the nation. This long drawn out struggle between the 'haves and the have nots' has now entered a far more dangerous stage than the great monetary and economic disaster of the 1930's and as I will attempt to show later, Keynes in his analysis of the forces that bedevil man's attempts to evolve a fair and just society diagnosed the problem as monetary, not economic.
(1) Routledge and Keegan Paul.ISBN 0 7100 8485 4.
The appearance in The Times (7/8/1984) of an article by Professor F.A.Hayek under the heading-"Jobs: the basic truths we have cast aside", in which he claimed that group interests in making concessions to avoid friction have obscured the truths that once made Britain the most advanced industrial nation and that the abandonment of these traditions have lead to our industrial decline and the fall of real wages from the highest to the lowest among advanced nations.
The reason for this, Hayek claims, is the "power" of the trade unions to deny other workers access to jobs and second if they are not able to obtain the wages fixed by the unions, the assistance of capital investment at their workplace. This somewhat simplistic explanation of Britain's industrial decline, must have made a great number of economists wince and I have no doubt that a shoal of letters on the subject descended upon the editor. Only one was published which referred to Hayek's article directly (15/8/1984).
The following was my contribution.
The Times. 7th August 1984.
I trust that more competent observers than I have written to protest against Professor Hayek's conception of "Jobs: the basic truth we have cast aside". In essence as I see it, it is the same thinking as that in the 1930's which believed that lower wages would lead to greater competitiveness on the part of British industry. All it did was, in conjunction with the nation's propensity to save was to [further] reduce the amount of money available for the purchase of approximately 10% per.cent, of the nation's GNP and as factories cut down on production to meet the declining demand so unemployment mounted.
This was the painful lesson of Hayek's "basic truths", as Keynes demonstrated in 1936 in his book - The General Theory of Employment, Interest and Money that the only solution to this problem was for the state to inject the equivalent of this lost purchasing power into the economy. But, and this is the nub of the problem of our declining industrial capacity today, Keynes saw that it was unlikely that the banking policy on the rate of interest would be sufficient by itself to determine an optimum rate of investment.
Therefore, he saw that "a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment". Furthermore, this new money should come into existence at near-zero rates of interest and that the bank rate should stand at about 2% per.cent if the marginal efficiency of capital is to be safeguarded.
The nation's savings now running at about 12% per.cent. and the real rates of interest now at their historically highest levels plus the ever-increasing burden of servicing the National Debt are, I submit, the "basic truths" that "we have cast aside". Thus, concluded Keynes:-
"The outstanding faults of our economic society in which we live are its failure to provide for full-employment and its arbitrary and inequitable distribution of wealth and incomes ".
If, as Hayek states, British workers were the highest paid among industrial nations, how does he imagine this happened? By the generosity of employers eager to share their profits? Whatever ones opinions are of the trades union movement there is a general agreement that it has played an important part in the improvement of the well- being of the working-class as the result of its efforts over the past hundred years. Very few people, I suggest, could be found who would seriously argue the case that in the beginning trade unionism was unnecessary. Most enlightened judgement today would agree that the conditions of the 'Labouring poor', especially when seen beside the enormous wealth of the comparative few, were bound to outrage social reformers and none more so than Karl Marx who sign-posted the road to the socialist serfdom with his rallying cry - "Workers of the world unite you have nothing to lose but your chains".
Marx was soon to be joined by increasing numbers of intellectuals whose influence upon the trade union movement made a considerable impact. The formation of the Independent Labour Party in 1893 was instrumental in spreading the beliefs in socialism throughout these organisations which became affiliated to the Labour Party after 1906.
In those early days and, indeed, through to the present time the extreme left of the party has made great play on Marx's dictum that: "The history of all hitherto existing society is the history of class struggles". Ironically, however, over the past forty to fifty years this concept of class-struggle in industrialized societies has, in my view, become for the dedicated Marxist, increasingly blurred, for it is, to a great extent, the result of continued agitation within the Labour Party and the trade unions that better conditions for the working class have been achieved.
In spite of this shift in thinking, the dedicated activists of the left are as determined as ever to overthrow the 'Capitalist' system. The miners strike of 1984 is a perfect example of this determination. What is also certain, is the fact that, the strike had little to do with improving the conditions for miners, but everything to do with the downfall of the Thatcher government which they identified as the class-enemy.
It is broadly true to say that the Labour Party and the trades union movement has been continually weakened by the conflict of views as to how the ideal of a socialist state can be achieved. The Marxist claim that each time Labour has been returned to power they have failed to implement the declared aim of the party and the T.U.C., as laid down in Clause 4., of their constitution; 'the nationalization of ALL means of production and distribution.'
Furthermore, the insistence of the left that the nuclear deterrent should be unilaterally abolished and that the armed forces should be reduced to what would have amounted to veritable impotence in spite of the lessons of two world wars has increasingly repelled a great number of potential socialist supporters. Those responsible for the failure of the full implementation of Clause 4 are in the eyes of the Marxist left the so-called moderates of the Party who believe that the British electorate can only be won-over to socialism by the Fabian philosophy of gradualism, or as Bernard Shaw cynically put it....By stealth.
Keynes whose beliefs had a profound influence on socialist thinking was not a socialist, but felt strongly that capitalism should be regulated. As early as 1924 in The End to Laissez-faire he wrote that "capitalism in itself is in many ways objectionable" and in his tract on monetary reform he also pointed to the dangers inherent in capitalism.
The failure of the Labour Party and the TUC's hopes of social justice was, therefore, the inevitable result of the irreconcilable views as to how the objectives of socialism were to be achieved, namely the Marxists and their refusal to budge from Clause-4 and the moderates who argued for its modification. The efforts of Gaitskill, Crossland and many others had little or no effect on modifying the thinking of the Marxists who are still convinced that they can repeat and extend the great sweep of nationalization that Attlee's government achieved immediately after World War II.
Keynes's early questioning of the dangers of unregulated-capitalism was to show itself in the panic that engulfed Wall Street towards the end of 1929 and the ensuing calamity of the Great Depression. As a member of the Macmillan Committee which reported their findings in 1931 (Committee on Finance and Industry. Cmd 389) he was, no doubt, most disturbed with the evidence they had amassed and in 1936 published his great work - The General Theory of Employment, Interest and Money.
The main thrust of his theory was that the state should be responsible for the level of expenditure to ensure we consume that proportion of the nation's gross national product (GNP) left unsold as the result of savings. If this was not done then increasing unemployment would be the inevitable result. This basic concept of demand for goods and services Keynes made perfectly clear could only be achieved in the framework of a free-market economy if the state controlled the money supply. Alas, the political parties spurned this all-important condition. Keynes's explanation of the things that caused slumps and booms was received with great hope and although somewhat technical in its detail its basic message was widely accepted.
Time, however, was to show that Keynes's analysis of the seemingly insoluble problem of unemployment has been misrepresented by the opposing forces of socialism and 'capitalism'.
Why? Because he showed that both of these sectional aims are inimical to the welfare of the total community. In his introduction to The Road To Serfdom (p.4.) Professor Hayek states: -
"It seems almost as if we did not want to understand the development which-has produced totalitarianism because such an understanding might destroy some of our dearest illusions to which we are determined to cling".
On pages 6 and 8 he goes on to say:
"Those Germans in conflict with National Socialism being forced to leave Germany and that these 'socialist refugees' are now helping to lead their adopted country the way that Germany has gone"
"Have not all our efforts and hopes been directed towards freedom, justice, and prosperity? Are we victims of some evil power that must be conquered before we can resume the road to better things?"
My reason for writing and compiling - The Other Road To Serfdom is to show that uncontrolled money or rentier-capitalism is the divisive force which sets labour against true-capitalism, i.e. producer-capitalism, and without harmony between these two wealth-producing groups the hopes of the nation for improved conditions for the total community are continually thwarted.
We find Professor Hayek (p14) writing of the: "immense possibilities of advancement" and stating that it can only come about by increasing intellectual mastery of the forces of which we make use: "such as our handling of the monetary system and the prevention of the control of monopoly". Therefore, the case presented in the following pages is that it is precisely the failure to control the monetary system which has led to rampant money-capitalism and the alarming growth of monopolies which has taken us down the other road to serfdom.
Keynes in his analysis of these problems in The General Theory, showed how the failure to control the money system led us down the road to the money-capitalist monopoly situation and its opposition by the forces of Marxist socialism. Therefore, Hayek, in highlighting the evils of the socialist state, whilst neglecting the evils of the money-capital monopolies has contributed to the ever-widening gulf between these two schools of thought. His rejection of Keynes's diagnosis and solution of these problems leaves me of the opinion that he, in common with most orthodox economic thinking, failed to recognise that there are two forms of 'capitalism': producer-capitalism and money-capitalism whose interests are in mortal conflict.
Karl Marx late in life discovered this to be so, but, tragically, still insisted in lumping the two together in spite of all the evidence he found and recorded of money-capitalists exploitation of the producer-capitalist. Hayek (p.30.) refers to Mr.Max Eastman, Lenins old friend, who found himself compelled to admit in his book - 'Stalin's Russia and the Crisis of Socialism, that -
"instead of being better Stalinism is worse than fascism more ruthless, barbarous, unjust, immoral, anti-democratic, unredeemed by any hope of scruple".
It was this view of Communism which led great numbers of men all over Europe between the wars to support fascism as the only apparent counter to this growing menace to western civilization. To these men the liberalism of the old parties had induced the loss of will to challenge this threat to the very existence of civilization. This threat had to be met on the streets where, as Lenin had taught, "they who control the streets control power" .It was, therefore, as the result of this opposition to the enslaving nature of Communism that Western Europe earned the present respite, but for how long?
We find Hayek (p.31) saying that all his criticism is directed solely against planning which prevents competition. But, surely, it is precisely because finance- capitalism does just this in the drive towards ever larger financial groupings that it must incur the hostility of the socialist.
The Times (15/11/83) carried a headline - No More Private Investors after the 'Year 2000? A Stock Exchange survey showed how institutions were getting more powerful and would, therefore, eventually control competition, in line with John D. Rockefeller, who is reported to have said: "Competition is a sin". If this is allowed to happen it would destroy the sole justification of 'capitalism' competition between the producer-capitalists, i.e, true-capitalism. With the passing of almost half a century since Hayek wrote the following, I wonder just what his feelings were when he viewed the rapid strides towards a monopolistic money-capitalist state. He had said:
"Our freedom of choice in a competitive society rests on the fact that if one person refuses to satisfy our wishes we can turn to another...But if we face a monopolist we are at his mercy".
Money should be regarded as the means of exchange of goods and services between people. Therefore, because money carries-out this useful and all-powerful service, and because the private banking system has a virtual monopoly of the creation of the nation's money-supply the money-capitalist is always in the position to exploit the producer-capitalist. It is of more than passing interest that Hayek tells us (p. 103.) that in Germany and Austria it was the Jew who became the enemy as he was regarded by socialists as the representative of capitalism. As Hayek puts it:
"The fact that German anti-Semitism and anti-capitalism spring from the same roots is of great importance for the understanding of what has happened there".
Furthermore, we are told (p.104.) that "Collectivism on a world scale seems to be unthinkable - except in the service of a small ruling elite". One wonders who this ruling elite would be. Hayek goes on to say that "this would raise technical and moral problems which none of our socialists are willing to face". But, why should we assume that it would be a socialist elite? Are we not witnessing on a world scale the virtual control of nations by a money-capitalist elite?
In chapter XII - The Socialist Roots of Nazism, Hayek states that the roots were put down over the years by many people outside Germany and he quotes Carlyle, Stewart Chamberlain, Comte and Georges Sorel. However, I would suggest that a faulty monetary system and the failure to implement a fairer distribution of wealth over the past three-hundred years has been the root cause, and has been questioned by Locke, Paterson, Hume, Adam Smith, David Ricardo and many others culminating in Keynes's General Theory of Employment, Interest and Money, all of whom strove to alert men to the evils that would arise if the nation's money creation was left in the hands of private bankers.
We find (p.140.) Hayek deriding the belief of Hegal and Marx and every pseudo historian, and in this particular instance Professor E.H.Carr, that the presumed necessity of the general growth of monopolies in consequence of technical developments and the alleged "potential plenty" are "familiar economic fallacies". However in the fight of the rapid development of microchip technology over the past few years would Professor Hayek still continue to insist that those "familiar economic fallacies" have not turned the alleged "potential plenty" into a visible reality?
However, it is on page 144 that he touches upon the reason for the destructive conflict which threatens the stability of democratic nations when he discusses the attempt to create a "middle-class" socialism before the last war.
Apart from these efforts, he points out: "the impetus of the movement towards totalitarianism comes mainly from two great vested interests, organised-capital and organised-labour"
and, he continues, "Probably the greatest menace of all is the fact that the policies of these two powerful groups point in the same direction".
It is, therefore, my hope that the following outline of a history of money- capitalism: The Other Road To Serfdom, will show how this power inevitably created the conditions which led to the analysis and denunciation of the 'capitalist' system by the early social reformers.
However, it was the following statement of Hayek's (p.145.) that took my breath away. Here he is discussing capitalist-monopolies.
"A state which allows such enormous aggregations of power to grow up cannot afford to let this power rest entirely in private control."
I suggest, therefore, that in that admission he throws into question the conception of the freedom of the market forces for which he so forcefully argues. Therefore, I rest my case against his thesis on the fact that in the whole of the development of his case against socialism he never mentions the greatest monopoly of all; bank created money, the fount from which flows a constant source of new money which makes possible the vast expansion of the money-capitalists activities throughout the world. It is this monopolistic imposter's threat to the survival of true-natural capitalism that, if not reformed, before it is too late, will lead to the triumph of Marxist socialism as the nations throw off the yoke of insupportable indebtedness, and jump out of the socialist frying pan into the bankers fire - Maastricht and all that.
To finalise what I see as the fundamental flaw in the one-sided case presented in Hayek's Road To Serfdom, we find that under the chapter heading - The Prospects of International Order, the statement -
"That there is little hope of international order or lasting peace so long as every country is free to employ whatever measures it thinks desirable in its own interests however damaging they may be to others".
It would seem to me that what Professor Hayek is saying is in contradiction to his plea for the free play of market forces. If individuals are to be free to react to the forces of the market in their own interests then it follows that the nation which is the sum total of those individuals must be allowed to do likewise. If it does not do so it will suffer the consequences of its refusal to act in the defence of its interests, or he is asking for some form of supra-national authority to control the freedom of nations to safeguard their interests?
It is, therefore, my submission that Professor Hayek has ignored the world-wide threat of the other road to serfdom inherent in the uncontrolled propensity of private banking to create an ever-increasing flood of new money which passes into the hands of the finance-capitalist who through re-lending it throughout the world has enmeshed it in an increasingly unpayable debt. Thus giving rise to fears and traditional hatred as they struggle to meet interest payments and in doing so lower the standards of living of great masses of people.
The interest payments on these vast debts held by the developing and developed nations alike will become impossible to meet and no matter to what expedients bankers resort they must know that eventually they will be repudiated, or will have to be written - off..
My case, therefore, is that at the present time Professor Hayek's star is still in the ascendancy (even posthumously) and his message of the tyranny of the socialist state is still proclaimed throughout the democratic nations, whilst the equally evil tyranny of money-capitalism is still being ignored.
It is this failure to control the dominating position of money-capitalism which will eventually destroy the competitive urge of true-capitalism which Professor Hayek and his supporters contend is necessary to combat the controls of a socialist state. Hence the need to consider - The Other Road To Serfdom,
In 1976 Professor Hayek emboldened by the increasing success of his espousal of the virtues of the free market now aided and abetted by the growing influence of the I.E.A. (Institute of Economic Affairs), founded in 1957 as a "research and educational trust to specialise in the study of markets and pricing systems as technical devices for registering preferences and apportioning resources", wrote his analysis for the Denationalisation of Money which was published under that title by the IEA the same year. Here we find Hayek taking the freedom of the market into its final stage: the complete domination by the private banking system of the world’s currencies. He argues:-
“Government should be deprived of its monopoly of the issue of money”.
Thankfully this audacious kite flying exercise did not succeed, although Maastricht has this Private 'Big-Bank Theory high on its list of priorities and the worlds bankers and beneficiaries of such a move are still beavering away to bring about the final subjugation of nation states to a one world government of banking and finance.
No doubt can remain that a common currency for the European Common Market will be the first step. With this accomplished and the drawing in of other European nations around the periphery they will have completed the first phase of their plan. However, as the majority of the governments comprising the membership of the EEC are socialist and likely to remain so for the foreseeable future, followers of Professor Hayek will be confronted with his great fear of totalitarianism which he said comes from two great vested interests., "organised-capital" and "organised-labour" and that; "probably the greatest menace of all is the fact that these two powerful groups point in the same direction".
In the preface, Arthur Selsdon sums up the crucial flaw in Hayek's argument for the denationalisation of money as the monetary reformer views it when he says "In effect, Professor Hayek is arguing that money is no different from other commodities and that it would be better supplied by competition between private issuers than by a monopoly (of) government".
It is, indeed, incredible that such a proposition can be put forward in any seriousness. One can only conclude that to hold such a belief all contact with reality has been blinded by the illusion that bank created credit-money is wealth itself.
Adam Smith in his The Wealth of Nations laid the foundations of his thesis in these words,
"The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes, and which consists always either in the produce of labour, or in what is purchased from other nations. Labour was the first price, the original purchase money that was paid for all things. It was not by gold or by silver but by labour, that all the wealth of the world was originally purchased; and its value, to those who possess it, and who want to exchange it for some new production is precisely equal to the quantity of labour which it can enable them to purchase or command."
Therefore, in the following 'history of the main cause of inflation and unemployment' under the title The Other Road To Serfdom, the realistic approach to monetary reform is that presented by David Ricardo when he concluded:-
"There is no point more important in issuing paper money than to be fully impressed with the effects which follow from the principle of limitation of quantity"
"After the establishment of banks, the state has not the sole power of coining or issuing money...the banks would (and now do) have an equal power of adding to the whole quantity in circulation"
"The advantage would always be in favour of the issuers of paper; and as the represents the people, the people would have saved the tax if they, and not the bank, had issued this million...Experience, however, shows neither a state or a bank ever had the unrestricted power of issuing paper money without abusing (this) power"
"In a free country, with an enlightened legislature, the power of issuing paper money, under requisite checks of convertibility at will of the holder, might be safely lodged in the hands of commissioners appointed for that special purpose, and they might be totally independent of the control of ministers"
"After a well regulated paper money is established, these can neither be increased or diminished by the operation of banking"
Furthermore, in spite of the Institute of Economic Affairs thirty-seven years in existence and its formidable panel of professors of economics, world debt, inflation, and unemployment is as great a threat to the stability of world trade as it has ever been. In fact., it would be fair to say that the whole of economic thought is in complete disarray simply, as always, because they insist in averting their eyes from the fundamental flaw in all their economic thinking: the flow of unregulated bank credit which constantly destabilizes economic equilibrium.
As we have seen above Professor Hayek in 1975 was arguing the case for the denationalization of money,- as can be seen from No.18 Votes and Proceedings: governing the Select Committee's on Nationalised Industries in 1974. This situation already existed in the United Kingdom. Specifically excluded from the scrutiny of any Select Committee set up to examine the allegedly nationalised Bank of England are the following.
(1). activities in the formulation and execution of monetary and financial policy, including responsibilities for the management of gilt-edged, money and foreign exchange markets;
(2).activities, as agents of the Treasury, in managing the Exchange Equalisation Account and administering Exchange Control; or
(3).activities as a banker to other banks and private customers.
(For more information see Appendices)
ACKNOWLEDGEMENTS & GRATEFUL THANKS
To Mrs. Jean Kennedy, Permissions editor for Messrs. Macmillan, Administration Ltd., for reading Chapter 10 - The Betrayal of Keynes from the original manuscript of The Other Road To Serfdom. And for the permission to quote from John Maynard Keynes book - The General Theory of Employment, Interest and Money.
To Professor Milton Friedman (Hoover Institute, Stamford University, California, U.S.A) who read part of the original draft manuscript of The Other Road To Serfdom; 'Monetarism': Why it is not enough, and his comments.
To Professor I.F.Pearce of the University of Southampton for reading Chapter 12, 'Lets get back to Proper Money' and his comments.
To Professor (Lord) Robert Skidelsky for reading Chapter 10 of The Other Road To Serfdom; The Betrayal of Keynes and his valued comments.
To Professor Tim Congdon for his permission to send to the then editor of the The Times (Charles Douglas Home) a copy of a letter dated 4/6/1984 which I had written to him regarding one of a series of articles he had contributed to The Times during that same year
To Mr.L.Trimby for his proposal for the Redemption of Rother District Council's Public Works Loans Board debt which I adapted to meet Cheltenham's Public Works Loans Board debts and for his reading of it and comments.
To the Borough of Cheltenham's Treasurer, Mr. K.A.C. Nutland, IPFA for figures and details necessary to compile the proposal for the Redemption of Cheltenham's Public Works Loans Board debt. his reading of the proposal and his comments.(see Appendices).
To Sir Charles Irving, MP. for Cheltenham to whom the proposed Redemption Scheme and his presentation of it to the Secretary of State for the Environment. Also, for his generous and valued help over the years in supplying statistics, Parliamentary Reports, etc., on monetary and related matters.
To the Economic Secretary to the Treasury to whom I sought advice in 1987 as to the interpretation of the figures for the National Debt for the year 1985-86. This was supplied and signed Simon Briscoe.
To the British Library Productions for supplying a photocopy of David Ricardo's pamphlet - A Plan for the Establishment of a National Bank. Published in 1824 by John Murray, London. And permission by the British Library to reproduce it in this publication.
To Andrew Ellis who over the years listened patiently to my description of the research and development of my thesis 'A History of the Misuse of Money'. His invaluable comments and advice on the interpretation of financial figures and statistics and the practical assistance in photocopying of my typescripts and other help which has lead to its final completion.
To Miss Nell Brooks my great appreciation for reading the typescripts of The Other Road To Serfdom and for the correction of punctuation and spelling errors for which I am most grateful.
· To the "Daily Telegraph Letters" dated 29/8/1973 and 8/9/1973.
· To "The Times Letters" dated 20/8/1968 and 30/8/1968
To David M Pidcock who after his conversion to Islam in 1975 sought the way by which Islam's second sacred commandment; the forbidding of taking or giving interest on loans could be implemented. On reading the proposed for the Redemption of Cheltenham's Public Works Loan Board debt and following numerous discussions with the author, he was convinced that only through the reform of the Monetary system could this commandment be achieved. And for his help in preparing this work for publication. Together with Kenneth Palmerton, Taher Gozal, Idris Rahman, Akhtar Khan and many others who prefer to remain anonymous.
OF UNEMPLOYMENT AND INFLATION
The following simple explanation shows quite clearly that until the issue of the nation's credit-money is the sole prerogative of the state there can be no way by which price stability can be achieved. Without price stability near-full employment and the avoidance of inflation can never be realised. All economists agree that the currency to maintain its true functions must fulfil the following conditions.
I. That money acts as a medium of exchange.
2. That it is a measure of value.
3. And a store of value.
These three vital functions can never be realised until all money is spent into existence as in the case with the legal tender issue (notes and coins by the Bank of England free of interest) by a State bank free of interest payments and not lent into existence by the private banking system burdened with interest. Whatever the magnitude used in our example whether millions or billions the result will be the same and show the same basic factors that regulate the nation's economy as would a £1,000 GNP ( the gross national production of industry and services). Therefore, if the GNP is a £1,000 and the National Income (wages, incomes, profits and rents) must also be a £1,000. If the desire to save for various reasons amount to 10% per cent then it must follow that 10% per.cent of the GNP must remain unsold. This 10% per.cent savings is considered to be investment and it is at this point we can see that there is a fundamental contradiction. The GNP of a £1,000 less 10% per.cent savings must mean that a £100 of the GNP remains unconsumed and if unconsumed must lead to unemployment as industry cuts production accordingly to 90 per.cent of its capacity. If, however, this 10 per.cent of unsold production is then exported the standard of living of the people who produced it will be reduced by 10% per.cent if it is not replaced by an appropriate return flow of imported wealth.
With the discovery of steam power and the development of the of the railway network over Britain, by the mid 19th century she had become the workshop of the world. However, sadly, for the masses that toiled to create this enormous output of real-wealth, they were not to benefit. At about the same time as the great industrial revolution took place the private bankers aided and abetted by their protector the Bank of England laid the foundations of that which was to become an on-going disaster for the nation; the National Debt.
This terrible financial instrument has held the nation to ransom of perpetual interest payments for the past two-hundred years. Thus if the power of the private banking system to create credit-money had been ended in 1945, when the Bank of England was nominally nationalised, by 1989 it has been estimated that the nation could have been saved from taxation to pay the interest charges of some £125,000,000,000 (£125,billion) if a State bank had issued all forms of money including private, bank-created, credit-money which now represents 90% per-cent of the nations money-supply.
These massive payments to service the National Debt are known as transfer payments. In other words money is transferred from one section of the public to another. It is, therefore, assumed that the nation is none the worse off. It is of course true that a proportion of the income from the interest received is spent into circulation thus contributing to the consumption of the GNP, but the fact remains that a large proportion of these payments are reinvested in further securities in this country and abroad thus withdrawing national income which further reduces the money available for the consumption of the GNP. Nothing less than a disastrous inflation under present monetary thinking can end the plight of the nation in debt to private bankers. The great tragedy for the people was the discovery by powerful merchant bankers; members of the Court of the Bank of England, of the advantage to themselves of exporting vast quantities of real-wealth on credit. Therefore by the I880's the City of London had piled-up huge loans overseas, billions of which were never repaid. It was this exporting on credit which denied the wealth producing, labouring class, any real improvement in their lot; regrettably this terrible travesty of economic thinking continues to this day.
We see therefore that the GNP of £1,000 can only be consumed if the total national income is expended on its total production otherwise unemployment is inevitable. Likewise by borrowing a £100 to consume the unsold 10% per-cent of the GNP prices would again rise and we would be in an inflationary position. In the same way if goods are purchased on credit and there has been no increase in the GNP prices will increase. If however the borrowed money is spent on imports there will be appreciable increase in inflation, but we would find ourselves with a balance of payments deficit, i.e., in debt to other countries.
To assume, therefore, that 10 per.cent of unconsumed GNP is savings and that these savings are investments makes nonsense of hopes of ever achieving near-full employment. It is these savings that have made further investment unprofitable and until consumption equals production the GNP will decrease. Therefore, not until a State bank issues all money free of interest can industry and commerce finance their activities from their own profits thus releasing them from the burden of interest charge payments on production resulting from private, bank-created, credit-loans.
As a State bank would now be issuing all the nations money free of interest payments the government could borrow from the State bank to finance all additional national expenditure instead of as at present selling securities to the public which becomes the National Debt. We see, therefore, that the people would then be free from the taxation needed to pay the interest on the National Debt when a State bank spends all new money into existence tree from interest payments. The people released from the burden of interest payments on private bank loans and taxation to service the National Debt would now have the additional spending power to consume more of the unsold GNP which is the main cause of inflation and unemployment. Taxation is a form of forced savings, but in this case these savings are used by the state to pay the salaries of the armed forces, civil service, education, hospitals, etc., administered by government and watched over by Parliament. Therefore, these forced savings are spent in the consumption of part of the GNP.
We now come to the crucial point and as we have seen the governments taxation spent into circulation contributes to the consumption of the GNP. However, payments of interest charges by the state, local government, industry and the people, in the main, does not find it spent on goods and services thus increasing the problem of the under consumption of the GNP. Even worse the interest payments are re-lent therefore taking more money out of circulation thus increasing the interest paid on the borrowed money thus increasing the proportion of the GNP remaining unsold. And as the unsold proportion of the GNP increases so must unemployment.
As these immense sums of reinvested interest payments continued to increase all over the world, it was inevitable that pressure would be brought to bear on governments to lift their controls on the investment of money overseas and by the end of 1970's this was to happen. Britain abolished her Exchange Equalisation Account in I970 and immediately billions of pounds started to flow out of the country and has continued to do so ever since. An estimated figure of £100,000,000,000 (£100,billion) by now has been invested abroad. Add to this other capital flows to those of other nations that have also abolished control of the movements of capital there can be no wonder as to why the world's currencies are in a constant state of dangerous instability. it is not surprising therefore to read that foreign dealing on the world's stock markets of financial assets overwhelm the exchange transactions of Goods and services, i.e., exports and imports.
It is estimated that nearly $100,000,000, 000,000 ($100 trillion dollars) flows through the worlds foreign exchanges every year and that only $5,000,000,000,000 ($5 trillion dollars) is needed to finance the world's trade. In other words $95 trillion dollars are constantly seeking a profit on (Hot) money dealings instead of a profit on trade. Thus money has become a commodity traded for profit instead of means of exchange, therefore, destroying the three conditions that all economists agree are vital if money is to maintain its stability The foregoing proposals for the alleviation of the nation and nations from this constant struggle to solve the massive problem of unemployment and inflation are based upon the conclusion of David Ricardo in his book - The Principles of Political Economy and Taxation -
"The advantage would always be in favour of the issuers of paper; and as the state represents the people, the people would have saved the tax if they, and not the bank, issued the money"
John Maynard Keynes in his book - The General Theory of Employment, Interest and Money - concluded that "a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment" which in essence means a State Bank as Ricardo visualised. It should be obvious to anyone who thinks seriously as to why the world economies are in a constant state of disarray that excess of money must play the all-important part, therefore, if the Common Market countries succeed in setting up a European Central Bank there can be no hope whatsoever of sovereign states exercising any remaining control over their economies. Surely this amounts to a centralized bureaucracy from which the Eastern European states and the old USSR are trying to escape.
A European Central Bank would entail the complete control of the EC's monetary policies, conduct foreign exchange operations, to hold and manage the the official reserves, to operate payments systems and participate in forming and execution of policies for the stability of the financial system, and much, much more. National governments must inform Eurofed (European Central Bank) of all international agreements proposed in the banking or international field. Eurofed will control relations with banks and financial institutions in Third World countries. It will acquire and sell spot and forward all types of foreign exchange assets and gold. Eurofed would take over all assets of each country and its gold reserves. All this will be conducted by a council and executive board comprising of members of the board of governors of national banks. This complete control of all Europe's monetary activities means that "Its proceedings will be in secret" and "completely independent of the 12 community governments and any other body." If this total subjection of Europe's monetary system to the bankers is accepted we will have changed a 'socialist serfdom' (CAP and all its ramifications) for that of a 'bankers serfdom'.
It should not have escaped our attention that the Delors Committee was composed largely of bankers and that Government borrowings in member states would be capped at 3% of G.D.P.(Gross Domestic Product). The Public Sector Borrowing Requirement (PSBR) for the United Kingdom for the years 1993-94 was forecast by H.M. Treasury in November 1992 to be £44,000,000,000, (£44,billion) which represents 7% of G.D.P. Which, under the Maastricht formula, will mean further cuts in spending of around £25,000,000,000, (£25,billion) per year on top of the unnecessary and expensive spending cuts we are already making, and which the country can not afford, bringing more of the same, in order to impose and maintain the artificial scarcity of capital and push us into one of our periodic and ever deepening recessions.
It is certainly not beyond the wit of man to devise an economic system from which the damaging, inhuman features of the present one are absent - contrary to everything we have been told, workable alternatives do exist. For it cannot be right to go on the way we are, destroying wealth, people, property, goods and ameliorating services - social or otherwise, in the insane quest for zero-inflation. The operation may succeed, but the historical evidence proves, that the patient always dies. There can be no legitimate justification for restricting the circulation from an infinite supply of a substance such as money; unless, of course, you have an interest in obtaining something for nothing.
Money, which is, in the main, comprised of recycled metal, rags, double entry records, or represented in the from of a truly inexhaustible and cheap supply of electromagnetic keystrokes on a computer screen, comes into existence at tiny cost to those who have the power to create it. But what they have managed to convince the world of, is that the whole purpose of existence is to serve them and their interests. Money, which, as a medium of exchange is as vital to our existence as oxygen, no longer serves this essential service, it was designed to perform. The once useful servant, has now become a cruel and fearful master.
The achievement of zero inflation is impossible under the present monetary system, based as it is, on interest, and compound interest. Therefore, any attempt by any government to do so, is surely, executive insanity and ineptitude raised to its highest possible power. If, as they say in the City of London, that time is money. Why is it that debt is not allowed to decay at a similar rate?
It is, as if, the whole purpose of life, from the cradle to the grave, was designed to serve the interests of banking, to reverence and maintain the power and position of fractional, of fictional reserve bankers, as gods to be served and worshipped. Or that the whole purpose of a journey was that of obtaining a ticket regardless of the purpose of making the trip. But Hayek, as with most Diplomats, Ambassadors and marketing men tells us to go to hell in such a way that we are looking forward to arriving at our destination - but in his case we are creating and paying in perpetuity for a serfdom of our own making.
Before we embark on our journey through this 'history of the main cause of inflation and unemployment' let us construct a simple model of 'capitalism' and see if we can find why it has produced the constant upheavals in world trade as the result of indebtedness. At its most simple level we find that a man by his own efforts produces articles of real wealth, for example, pieces of furniture or he grows vegetables. He has saved sufficient money with which he has purchased the necessary tools for the production of this wealth. These tools are his working capital. From the sales of his goods he covers his overheads, i.e., rent, rates, raw materials, transport, tax, etc., and from the profits on the sales of his production draws an income to meet his living expenses, and for the continuing success of his business, sets aside a proportion of his profits to plough back into the business which is crucial for its further development. We shall see why this is so important later on.
The business prospers and he now engages workmen and further expansion takes place. He then, perhaps, forms a limited company and finds no difficulty in attracting private investment. Here we have reached a decisive point in the development of 'capitalism' as this new investment represents the savings of the investors, who, through their investment, hope to share in the prosperity of the company. In other words the money the new company has attracted is free of interest charges. Therefore, whatever the business and however small, through to firms on the scale of ICI, if its finances are managed in this manner we have 'true-capitalism'. This simple model illustrates quite clearly that if this state of affairs prevailed the sum total of the nation's yearly production of real- wealth, i.e., the Gross National Product, would flow into the economy free of interest charges. Therefore, the marginal efficiency of physical capital, i.e., plant and machinery, etc., would be safeguarded as it would not have had to compete for funds from the 'money-capitalist' with the result interest rates would fall to a very low level.
We now come to the second stage in the development of 'capitalism'. In the mid-I7th.century with the discovery by goldsmiths that merchants who left their gold and valuables in their strongrooms were using the receipts for their deposits to pay their debts was in essence, the simple forerunner of the cheque system, or if the depositor wanted to settle a debt of much smaller proportions than his deposit the banker would pay the bearer, i.e., the possessor of the draft issued by the depositor for the stated sum with a promissory note to the value directed. Thus the birth of the banknote which quickly became to be regarded as money. The banker soon discovered that these banknotes were handed around in settlement of debts and that only a fraction were returned to him for 'cash', i.e., currency of the realm which is issued by the State free of interest charges. It is this legal tender money - 'cash', when deposited with the banker which enables him to make loans to the ratio of up to ten times to the 'cash' in his tills which means that every loan becomes a deposit.
With this power to create money it is obvious that this form of 'capitalism' is an entirely different animal to the one we found in the first stage. We see, therefore, that with this power in the hands of the private banker the temptation to create new loans is inevitable because it is the interest on the loans which represents the profit.
At this point we now get a clear view of what this power of the banking system means. In our first stage of the development of 'capitalism' we found that firms who used their investors savings and the profit set aside for further capital equipment development were free of interest charges on borrowed bank money. However, often reasons arise for the need of further capital to see a firm especially developing firms, through a cycle of production such as farming with a yearly cycle of growth to harvest, or long-term planning of several years in building a factory and the installation of plant and machinery before being able to market its new product.
If, therefore, a loan from a bank is used instead of raising new capital we now see that the first charge on the profits of the business is the payment of the interest charges on the banks loan. As we have already seen the irony of this new situation for the previously debt free company is that the bank has created a credit based upon the 'cash' deposited with the bank, by the same borrower, as the result of its paying in cash and cheques and paying out cash and cheques through the bank in the course of its years trading. Cheques being merely a convenient way of transferring cash to settle debts means [theoretically] that there is always billions of 'cash' in the banks tills to support loans or overdrafts.
To emphasise once again the banks use the nation's interest free legal tender money to support their loans of money created as bank credit money on which they then charge interest . And so, for year after year many businesses are forced to re-negotiate their loan or overdraft, thereby, remaining tied to the uncertainties of erratic bank rates and when faced with interest charges of between 16%pc to 20pc as in 1989 and during the previous deflation of the early 1980's, is it any wonder that thousands are thrown into bankruptcy? The value of this huge mass of fictitious bank created money in existence is virtually safeguarded by a nations central bank; for Britain the Bank of England, who in the final resort represent the total wealth of the nation via the Treasury from the government.
We can now see that the source of power that lies in the hands of the 'money-capitalist' flows, in the main, from the bankers privileged position to create money, and where the conflict of interest arises. Because, the money-capitalist's concern is to lend at the point of highest interest and the producer-capitalists concern is that the interest rate on borrowed money should be at a consistently low level to ensure that the marginal efficiency of his physical capital is safeguarded. Thus the constant conflict between 'true-capitalism' i.e., producer-capitalism and 'imposter-capitalism' i.e., money or rentier-capitalism.
The writer has gathered together wide-ranging evidence in the following 'history' which he hopes will convince the reader that not until the total issue of the nation's money-supply is in the hands of the state will the total community receive its fair share of the real-wealth produced by true-capitalism. It is the struggle to achieve a fairer share of the real wealth produced that brought about the questioning of the economic system by early thinkers whom we identify as socialists and culminated in the writings of Karl Marx.
The situation that arose as the result of the development of stage two of 'capitalism' as described above, was solely that of the activities of private bankers within the nation and up to recent times the central banks had a reasonably firm hand on their activities. However, in spite of this the bankers lending excesses precipitated crises of varying severity every ten or so years. With the introduction into the world economy of two immense monetary instruments, the Eurodollar and the Petrodollar during the past twenty five years there came into existence, as I describe it, 'the bankers dream-money come true' which enabled them for the first time to create loans based upon these deposits of Euro and Petrodollars internationally in the same way as the banker does on the peoples 'cash' nationally. It is this international money which recognizes no frontiers, and over which the central bankers have little or no control. With the result that the world's developed and developing countries alike, are enmeshed in an indebtedness on such an immense scale that, sooner or later the interest payments will prove to be a burden of such proportions that defaults will lead to loss of confidence in the monetary system which could lead to its collapse. This is why the Marxist-Socialist is convinced that it is necessary to keep up the pressure on the so-called 'capitalist' system. Events world-wide and the politically inspired coal strike of I985 like the impending one in Britain in 1993, were precipitated by a completely unnecessary pit closure programme and are, understandable examples of this deeply held belief.
It is, therefore, why this book sets out to prove, that Professor Hayek's 'Road To Serfdom' has a confluent carriageway, which, having first led to the Gulags of socialism is fast becoming, as the carriageways merge - The Other Road to Serfdom.