I’d like to dedicate this blog to Andrew O’Neil, Andrew Marr, Robert Peston and Sophie Ridge. It seems if you want to be a Really Well ‘Ard Journalist all you have to do is squeal two questions at regular intervals. “Where’s the money going to come from?” and “Who’s going to pay for it”? My modest aim in this blog is to answer, once and for all, these tediously boring and irrelevant questions. I wouldn’t mind but politicians are perennially stumped by these questions, even the ones that can count. The interviewers are just as bad with the mighty O’Neil seemingly unable to grasp basic accountancy and the notion of an asset swap. Here’s a handy hint Andy, there is no net change in asset values, send me a bottle of Blue Nun to say thanks.
Let’s start with a trivial pursuit question, how much money does the bank start with in a game of monopoly? To save you the trouble of Googling it or digging out the game from your loft to count it the answer is £15,650, at least according to the edition I have. Guess what? It was a trick question, the bank has the sum of infinity minus one penny, a well recognised accounting identity, well done if you got that right. The bank in the game of Monopoly can never go bankrupt because it can always issue IOU’s until it gets some of the currency issued back and it always does. In the end one player has everything and the bank is solvent. You could add an anti trust Community Chest card forcing whoever has the most property to redistribute say half of the top players property to the other players. Then every game would last forever and yes I know they tend to do so even without that card.
The United Kingdom has its own currency, only the Bank of England can mint it and the Treasury can credit accounts at will by any amount. Like monopoly, the state begins with the sum of infinity minus one penny. There are some important points to note here the most vital being that the balance existed before any taxation took place. Please let that sink in, it isn’t taxpayers money it is state money, taxes were never needed to create that balance, it belongs to the state which is you and I, IE, everybody. Let’s remember its real name, The Public Purse, and we are the public. Another thing you need to remember is that balance will never change, the state can spend £1 trillion, a trillion is the new billion after all, and that balance remains unaltered it is still infinity minus one penny. No amount of spending will ever decrease that amount and no amount of taxation will ever increase it, it is constant. That is the terrible power of fiat currency and those that wield it must be held accountable. Please also note I am simplifying here and have no space for a full history of currency creation.
Now, back to our game of monopoly, we must distribute that money to the people so they can use it to track debt, that is the first rule of money. You don’t believe me? Take out any note from your pocket and read “I promise to pay the bearer…” it’s debt, that’s why we call it debt based fiat currency, all money is debt. It is also handy way to fund transactions between ourselves because I know if my wages are paid in that currency Tescos will accept it so I can buy a Findus lasagna and a four pack of Stella for dinner, I do enjoy fine dining experiences. There is another reason I need this money I have to settle my taxes which the state have spitefully introduced. The state has thrown in a few goodies to sweeten the deal, I have the police to go to if my property or person is assaulted, roads to drive my car on, schools to educate me… You get the drift, we even invented a name for it, civilisation.
Along with civilisation we also invented something else with this money, a system that generated wealth, that could destroy poverty, allocate resources to give greatest happiness to the greatest number and power the human race to the stars. And verily we named it Capitalism. Let’s get this straight capitalism beats all the alternatives and handled properly is a force for good. It is currently failing because Neo-liberals are in charge ably supported by the Well ‘Ard Capitalists. This sub species of the human race are most common in America where anything to do with the state is vilified. They’re usually the same bunch of know nothings screaming for radical action against muslims without sparing a thought for whether the action is desirable or even effective. Deficits are always bad, the national debt is a Big Scary Number and our once proud nation is going to go bankrupt. As I have already outlined it is impossible for the monopoly issuer of currency to run out of mony, the UK cannot go bankrupt.
I just need to add a few words about the banks. They create around 97% of all money mostly invested in property. Banks are allowed to do this by exorbitant privilege and make billions in the process from seigniorage. Note the events of 2008 and who bailed out who. That’s where the real benefit scroungers are, the banks got effectively nationalised yet we have nothing to show for it. Why I should have to mention banks when mainstream economists don’t is a mystery, hell I’m just that kind of guy, generous.
Why are politicians never asked questions like “What is the consequence of not spending money on a policy”? “We have been running deficits for centuries why are they undesirable now”? “We have been told for decades that public sector debt is unsustainable, why is it now with interest rates so low”?
They may argue that viewers prefer these things explained in terms they can relate to, which is patronising nonsense, Inform, Educate and entertain. This line of questioning is biased and misleading promoting the nonsense that is Household economics and that debt and deficits are always bad, they aren’t.
This is capitalism as I have understood it and will always understand it. I know TEDx talks aren’t everyone’s cup of tea but if you watch only one please make it this one, Beware Fellow Plutocrats The Pitchforks Are Coming.
So come on then Mr Well ‘Ard interviewer O’Neil let’s have that interview.