To End the Excessive Power of Prime Ministers

For Great Britain

VIRTUE     FREEDOM     ASPIRATION     WEALTH     PEACE

To End the Misery of Debt Based Money

ARMS OF LONDON

SECOND REPUBLIC

 Arms of the Metropolitan Region of London of the United Republic of Great Britain

REDISCOVERING BRITISH CLASSICAL REPUBLICANISM

 THOMAS PAINE Republican Writer

1737-1809

BRITISH REPUBLICAN

British Republicans at newsvine.com  

"From the Republican perspective excessive wealth and inequality undermine political equality" Iseult Honohan, (2002)

The sections can be read in any order but it is best to start with the three INTRODUCTION sections.(Grayed out pages have not yet been posted)

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INTRODUCTION

A New Constitution

 Debt Free Money

Institutions

IDEALS

Ideals of a Modern Republic

Republicanism

Liberalism

Democracy

Economic Enfranchisement

Non-aggressive Foreign Relations

GOVERNMENT

Constitution

Authority to Create Constitution

Six Functions of Government

Executive

Lower House

Upper House

Judiciary

Supreme Court

Public Services

Monetary Policy

Regions and Federation (to be completed)

Monarchy Disestablished

SOCIETY

Meritocracy

Civil Society

Crime and Penal reform

Vice

Cultural and Intellectual Life

Church Disestablished

Virtue and Happiness

Young Generation

ECONOMY

 Monetary Policy (to be completed)

Existing MPC and FSA

Banking

 Money Flow

Currency

Industry

HISTORY

First British Republic

History of Republicanism

ELECTORAL REFORM

Problems of Current System

Advantage Votes Electoral System

EMBLEMS

National Flag

Federal Flag

FURTHER READING

Republican Theory

General History of Republicanism in Britain

First Republic Period in Britain

British Constitution

Economics

Enlightenment

REPUBLICAN PARTY

The Need for a Republican Party

MONETARY POLICY

© Peter Kellow 2008

It is impossible to disassociate the problems of the British Constitution from those of the Economy. The economic euphoria that accompanied the ascendancy of New Labour  lasted longer than many of its critics predicted, but now as the general economic environment starts to dramatically worsen the weaknesses in the economy and the shallowness of the Brownite prescriptions for it are becoming all too evident.

At root, the Brown Boom has depended on exactly the same thing as did the Lawson Boom before it in the Thatcher era - the release of a vast amount of credit into the economy. The end results will inevitably be the same - inflation, tumbling asset prices, high interest rates and increasing unemployment.

The libertarian economic philosophy that Thatcher adopted for Britain passed practically unchanged into the New Labour mindset. And the Conservatives, of course, are still wrestling with its legacy in their party. It is right to talk of the political and economic thinking now being dominated by a post-Thatcherite consensus for no one dare challenge its prized shibboleths:

1. Private companies work better than public ones
2. Distrust the Public and Civil Services
3. Deregulate finance and banking

It was one of the great unlucky breaks of our nation that North Sea oil production was at its height in the eighties - the era of triumphant Thatcherism. Without the tax revenues to boost the Treasury coffers and bail out the economy, the disaster of the policies being pursued would have been laid bare and would have had to be reversed. Even the one off sale of state businesses to raise revenue could not alone have compensated for the failures.

And where are the benefits now to the nation's finances resulting from these unique bonanzas? Nowhere to be seen. Currently by the government's own estimate the national debt is £650 billion and costs more than £31 billion a year to service.

Norway is a country that had, and has, oil and gas reserves in the North Sea very similar to that of the Kingdom. Thanks to a prudent management of this resource, Norway is now a Sovereign Wealth Fund worth 300 billion.

It is no exaggeration to say that, if, during the era of North Sea wealth, Britain had been well governed in the interests of the country and its people and not in the interests of a discredited economic and political ideology, we too could have been a Sovereign Wealth Fund - instead of a Sovereign Basket Case.

To add insult to injury, the nation's currency reserves were decimated by Prime Minister Major when he tried to defend the Conservative's disastrous policy to join the ERM whilst under New Labour Gordon Brown flogged off the country's gold reserves when its value was at the bottom of the market. The people's elective representatives in Parliament did nothing to prevent this robbery.

The British people's birthright has been betrayed by successive governments. The country has now been left dangerously exposed to a worsening global economic environment. Individuals and families are subject to precarious levels of debt.

But for this the people cannot be held responsible, being forced to make financial decisions in an unstable world of spiraling asset prices, fluctuating import prices and freeloading deregulated banking practices. The government must be held to account for allowing this to happen and the banks must be held to account for the loans they made during Brown's Boom.

*          *          *

We cannot continue trying to address these economic problems within the existing political context. And we cannot address them within the current economic context either. The constitutional reforms that we so pressingly need must go hand in hand with radical economic reforms.

We need to switch the emphasis away from the money side of the economy to the productive side. We should stop giving all the economic power to capital and banking. We should start shifting it to productive effort and working companies.

We have in Britain some superb companies, large and small, and ultimately these are what make the wealth of the country. The banks merely manipulate and control this wealth. If they were doing this well they should be applauded.

But they have displayed incompetence and greed on a mammoth scale. Thanks partly to the banks atrocious lending and investment decisions in the zeros decade we are now facing one of the gravest economic situations in most people's lifetimes. If we survive this in reasonable shape, and it is not certain that we will, it will not be because of the banks.

We need to revise fundamentally the way the banks operate, and there is one urgently needed change that needs to be set out first as it is fundamental to securing our future wellbeing and prosperity.

A central purpose of the new Republican Constitution is to eliminate the singular excessive power that currently accumulates in the office of Head of Government. But an equally important change will be in altering the way the nation finances the economy.

This is why these two aims are equally bannered as the top of each page.

As part of this we must also eliminate the power of the banks to create money as they do now. This is far too important a function to be left to private concerns. Only the people, in the form of the state, should be able to create money.

That way the created money belongs to the people. And it is the people as private individuals who will enjoy the benefits.

*          *          *

The private banks operating in the Kingdom are responsible for all but a tiny percentage of the money created. Their role in looking after the nation's investments and the degree to which they have been wise and diligent in this is currently being laid bare in the news bulletins as more and more billions of pounds of loses are declared. In the case of one British bank the situation was so bad that there was a run on it and it had to be nationalised.

The banks' role in creating the money that drives the economy has unfortunately been equally lacking and this will become clear in a moment when we look at some figures regarding their management of the money supply.

But first, what precisely is the "money supply"? The money supply is the amount of money that exists to enable all transactions involving money to take place: buying goods and services, paying wages and taxes, servicing debts and buying assets, such as properties or shares.

Each transaction involves the exchange of money in the form of coins and notes, cheques, bank cards or direct bank transfer. Consequently to calculate the money supply in use for these transactions we must add up all the coins and notes in circulation plus all deposits in bank accounts.

Money in one of these forms is required every time there is a transaction that involves an exchange of money.

Each unit of money, each pound, can be used numerous times during any one year and so it is possible for the total value of all these transactions to grow without the amount of money necessarily growing. The existing money can just do more work - go round faster.

Although coins and notes and bank deposits are all lumped together to calculate the money supply, there are two important differences between the former two (the "hard stuff"), and the last one. These are:

1. Coins and notes are created by the government through the Bank of England, whereas money in bank deposits is created by the private banks.
2. Coins and notes because they are created by the government carry no debt, whereas money created by the banks does carry debt. Government created money is debt-free. Bank created money is debt-based.

We should note in passing that there is absolutely no reason why the government should not create money in the form of bank deposits as the banks do. It just so happens this does not happen at the moment.

Debt-free money certainly sounds a lot more friendly than debt-based money. And it is. The debt burden associated with debt-based money never goes away. It might shift from one person to another, but it will still be there somewhere. And so as the amount of such money in the economy increases so does the total burden of debt. People and businesses feel the weight of the debt and all the difficulties that ensue. Most of us are familiar with the effect of debt on our own personal finances.

Amongst other ills, the effect of the debt is inflationary for the costs of servicing the debt must be added onto the price of goods and services. If overall inflation seems relatively contained at present then that only shows how good the economic life might be if there was more debt-free money around instead of all that debt-based stuff.

Without going into all the details of how this works for the moment, let us, nevertheless, look at the growth of debt-free and debt-based money over the last half century and, in particular, how the latter has ballooned under New Labour - a period we are forever being reminded is characterised by its financial "prudence".

For this we will look at the money supply figures for  periods from 1967 to 2006 as shown in the table below. *

Firstly, let us concentrate on the five columns A to E. What is immediately striking about the figures in column B is how enormously the total money supply (technically referred to as M4) has expanded since 1967. Every ten years sees money expansion at a cracking rate and it more than doubles in each period. The period of New Labour from 1997 saw the money expand by 2.3 times whereas the previous period saw it expand by 2.5 times. This might at first seem to put New Labour in a slightly more favourable light until we recall that inflation was lower during this period. But, however you look at it, moving from 680 billions in 1997 to 1550 billions in 2006 is going some.

Columns C and D show the breakdown between debt-free government created money and debt-based bank created money and what is striking here is how the percentage of the former is really quite tiny - and shrinking. In 1967 notes and coins made up 21% of the total whereas by 2006 this had shrunk to 2.8%. Thus currently the vast majority of the money in the economy is bearing interest. Just to be clear what this means quite starkly: someone is paying interest on this amount of money and someone else (probably through the offices of one of our friendly banks) is collecting it.

Column E shows how the amount of debt-based money has grown under the "prudent" period of the New Labour administration during which, of course, the present Prime Minister, was in charge of such things. The extra 851 billions created by the private banks under Gordon Brown's watch is a staggering sum and we need to understand how this increase could come about.

Now in the past most economists and governments would be worried that this overwhelming increase would lead to inflation but inflation has been relatively contained over this period. So we are told. Except inflation has not been in any way contained - if we look at property price inflation as opposed to just shopping price inflation. As we all know property price inflation has been stratospheric with the price of the average house tripling in the period.

Is there a connection between the rapid increase in money supply and the rapid increase in house prices? Of course, there is. The banks have been falling over themselves to manufacture more and more debt-based money to fuel rampant house prices. Is this wise economics? Is this prudent? You can answer that question yourself.

But the picture of excess, greed and irresponsibility on the part of the banks does not end there. Look now at columns F and G. Column F shows the amount of private lending (to individuals and companies) standing at 1950 billions in 2006. But what is curious that against 1950 billions of lending there is only 1550 billions of money. The banks have lent 400 billions more than there is actually money in the economy! If this seems like the economics of the madhouse, that is because that is exactly what it is.

But look at the figures again. In 1997, when New Labour took office there was only (only!) 95 billions more lending than there was money. In period of Gordon Brown's stewardship the sum more than quadrupled. The technical reasons for how this is possible we need not go into here, but you do not need an economics degree to appreciate that something is way out of control with the way money is managed in the Kingdom's economy.

But is this really down to New Labour that this has happened? After all, it is the private independent banks that have created all the money. The government as column C shows has created only a miniscule proportion of the total money.

The vital point here is that the private banks are supposed to be regulated. This is an essential component of any modern economy for bad banking practice affects us all. It can produce recessions. It can produce slumps. It can wreck the economy and with it the financial lives of us all.

We now need to consider New Labour's record on bank regulation, for this is the key to understanding how dear Prudence went out the window. The whole regulatory and money supply "system" is now is in a complete mess and is totally inadequate to cope with the challenges we face.

The overall financial revision we now need is so extensive that it has to be talked about in the same breath as constitutional change. The republican constitutional agenda and the creation of a stable fiscal and monetary system must go together.

*          *          *

To see what has happened to the banking regulation under New Labour we have to go back to 1997 when it was just elected. Everybody knows that two weeks after he took up the job of Chancellor of the Exchequer, Gordon Brown relinquished the job of setting interest rates which had always rested with the Chancellor and created the "Monetary Policy Committee" which was to be part of the Bank of England and gave that Committee the task. The other drastic changes he made at the same time are less well appreciated.

The MPC was to be "independent", that is to say, it was to make its decisions without reference to the Treasury and certainly without reference to the Chancellor. Two points need to be made with regard to the MPC:

1. Its "independence" is completely illusory. It was conjured up out of thin air by Brown and so it has no constitutional or statutory status. It can thus be dissolved as quickly as it was made and if it does not do what it is told this is exactly what would happen. It is effectively nothing more than a quango.
2. Before the setting up of the MPC, the Chancellor nominally made interest rates decisions. But that meant the Treasury participated. The Chancellor as the elected head of the Treasury could ultimately overrule any advice he or she was given but the point is that there was a high degree of professionalism involved in any decision. The decisions are not necessarily made more professional or objective by shifting them to a Bank of England quango.

And it is also important to remember that the Treasury was considered, until 1997, the Rolls Royce of all the Whitehall departments. Over its long history it had amassed a formidable reservoir of experience of expertise. It had a culture of detachment from the political fray and had senior figures of genuine and independent standing. These comments, unfortunately, have to made in the past tense. The Treasury, thanks to Gordon Brown and New Labour, is now a sadly diminished authority.

It is important to understand the changes that Brown made at the same time as he set up the MPC quango, for they explain why the whole banking industry and monetary regime is now out of control. Furthermore, this understanding will take us back to heart of the argument for a fully Republican Constitution, for it will illustrate how the ingrained excessive power of the Executive permits and encourages "control freakery" and shabby maneuverings.

These are the other measures that Brown made in 1997

• Until then the Chancellor had always worked with his Chief Economic Adviser at the Treasury, a post for a top Civil Servant, and so he could take advantage of the Treasury's experience. Brown dismissed the incumbent he inherited and parachuted his sidekick, the young inexperienced Ed Balls, into the post.
• Following this a wave of departures from the Treasury began and New Labour began its relentless process of politicisation. Young blood was brought in and now only 20% of the staff were there when Brown took over. Mid-career officials occupy top posts so seniority has been wasted. 
• The Bank of England was nominally given the power to set interest rates although as we have seen that power is illusory. However, it lost half of its traditional role which was to regulate the banking system. Many feel that Brown as Chancellor treated the Bank with disdain.
• Brown created the Financial Services Authority to take over the role of regulating the banking system. However, as a new body it never had any prestige from the start. It was cobbled together from other regulators and has always struggled to recruit people of the calibre needed

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*Each period is of ten years except the last as figures are not available for 2007. However, for the sake of the argument the last nine year period will be compared with the previous ten year period. When the 2007 figures are available the comparisons will only look even worse.