From Gold to Golden Rule - Citizenised Central Banking

Keywords:

absence of gold, active balance, articulated money, auditorial versus marketised / statist central banking, beyond gold, central banking role of temples, descent of the sceptre, differentiated demand, double independence, dynamic instability induced by asset sales, economic sovereignty, emancipation from external constraints, financial literacy, financial self-knowledge, financial stability, financialism, function vs institution, 'golden rule', imperfect information, individuation, inherent regulation, mediating between poles, monetary authority, signaling methodology, window into thinking.

The whole paper is available from Arthur Edwards – contact ame (at) cfae.biz

Abstract:

Citizenised central banking[1] is the idea that monetary policy functions currently carried out by the central bank will become embedded in the behaviour of individual citizens. At the same time, humanity’s historical reliance on gold will be superseded by such behaviour becoming informed by the golden rule, namely, “over the economic cycle, the Government / Citizens will borrow only to invest and not to fund current spending”.[2]

Today in contrast, monetary policy is generally considered to be the responsibility of government. The state exercises its influence primarily by setting policy objectives for a central bank (controlling authority). The bank aspires to collect appropriate and diverse information from the market, while itself remaining above the ‘fray of self-seeking’,[3] thereby it aims to achieve an enlightened overview enabling it to issue pronouncements on behalf of those it represents. The assumption is made that, by taking this task upon itself, it can come to a sounder judgement than would individual citizens, who act alone and with less perfect information. Thus its role as a benign authority, whereby it overarches other actors, is predicated on the central bank acting as an agent of the wider public interest. This idea rests on the image of a central monetary authority striking one note to suit a diversity of needs, a central decision-making function that aims to unify the separate actions of individual agents. Today, this conception is affected by the phenomenon of global financial markets that now overshadow the capacity of nation states to assert their sovereignty in finance. Increasingly they must listen only to what the market dictates. Thus, decision-making is made subject to an overriding interest greater than simply the central bank acting for its citizens and is placed at a further remove from those on whose behalf decisions are taken. Arising through the course of the 20th century, what does the appearance of this seemingly all-mighty phenomenon, 'financialism', indicate? When central banks are effectively usurped in this way, the assumption is that there is no higher authority than the wisdom of the markets because, presumably, the market represents collective judgment over and against individual judgement (a kind of democratisation of economic decision making). But is that so, or would it be truer to say that the market does not represent judgements, which imply an overview of the whole, but the playing off of vying interests, which are inevitably partial?

If it is a sense of the whole that matters, can one not envisage a role for the individual whereby he grows beyond his merely partial interest to think also of the whole economy as such? In the absence of gold, how might the 'golden rule', not now applied only by a chancellor of the exchequer but by every economic citizen, achieve the discipline necessary to maintain the economy in balance? Through informing his actions with a better understanding of the relationship of spending to investment, could not each individual enact monetary policy at the micro level, as it were, so that our combined actions summed to what is currently effected by the central bank on our behalf? This would involve displacing the 'might' of the market with the 'light' of articulated money,[4] in which through accounting the means of exchange and store of value functions of money are distinguished from one another, so that the citizens consciously together bring about economic balance rather than, as now, leaving this to the vagaries of the market.

[1] The term is from Christopher Houghton Budd - used in seminars.

[2] From UK HM Treasury Website

[3] The image is from Capie, F., Goodhart, C. and Schnadt, N. (1994, p.91):

[4] Gormez, Y., Houghton Budd, C., (2003: p. 18):

Ethics With Everything

A Talking Economics Evening in Stroud - June 5th

Writing from the World Economics Forum in Davos last year, Times columnist Gary Duncan wryly commented that it was a case of ‘ethics with everything’ as if in the business community today one dare not stand up and speak without shouting out one’s benign intentions. The ever increasing number of ‘ethical’ companies bears witness to this phenomenon, ‘ethical’ here meaning that the word ‘ethical’ is somehow used in conjunction with the company name viz The Ethical Property Company, The Ethical Travel Guide, The Ethical Partnership and so on … but such an observation is not intended to belittle the word, rather to put the question: what does ethical mean?

Writing in Associative Economics Monthly June 06, Mathias Bolt Lesniak an entrepreneur from Norway describes the approach behind that associative economics Quality Guarantee Mark that leaves the responsible individual free to ‘define’ ethical, while opening himself up to a process of accountability:

Attempting to run an ethical business requires that you put your own decisions under great scrutiny. Whatever you do, it should have positive implications. Society as a whole and coming generations should benefit from your actions, and in the long term that means you too. A business cannot call itself ethical without working actively on where and what it spends its money. …Whether you are still ethical now becomes your subjective definition, but subjective definitions are dangerous. The danger is that you cut down too far, and define ‘ethical’ as something too imprecise. As a sole proprietor, associative economics gives me a control function for my own definition of “ethical”, and it gives me a conscious way to become better at what I am doing. By opening up my economy to others, I make public the reasons for my definition.

A like approach might be to say that behind any ethical activity, an ethos must be present. Already one can sense in the word ‘ethos’ a less prescriptive mood. Ethos could be taken to mean character: every person or organisation has character of one kind or other. The character may be of a more social-mission-fulfilling or a more profit-maximising kind. If one makes a mild caricature of the charity and the public corporation – one might be tempted to say that in one or the other case the invested capital can either stand for a declared social good or it can mechanically devote itself to ever increasing returns, with the corresponding ethos arising from the logic of the aim it chooses in its design. Here then is the crucial question – whether or not one can purposefully design an ethos; not only saying what the ethos is but demonstrating the veracity of the claim. This is surely only a matter of spelling out what lies behind the business activity (whether it be a corporation or a charity or a state or a sole trader) and enshrining the idea within a legally binding construct such that it can neither be displaced by the expedience of management nor by the power of capital. If this were to happen then the desired ethos would be able find a suitable body in the company, providing an orientation for all who work for it … and if everybody were able to do this, then presumably no one would deny the idea of ethics with everything? Who knows, they might begin to celebrate it - after all, why not?

Time for a world currency?

A Talking Economics Evening in Stroud 8/5/06

The prospect of a global currency is on the horizon, but what or who actually stands behind it? The idea that there is, or should be, just one currency in the world is gaining strength with the perception that the economic life of humanity is a single global affair.

However the question less often asked is whether such a currency is to be of a political or of an economic nature. In the same way that a political state is being purposefully built on the Euro, there are those who, in advocating a world currency and supposing that this must be accompanied by a central bank, leave unspoken the deeper intention, seen as an inevitable consequence, that a corresponding political entity must later emerge to manage it.

Yet the economic logic tells another story, as accounting can clearly show. By analogy, think of symphonic or choral music: the composition is of one piece, yet the voices and instruments remain distinct. What unites them, or rather allows them to share in a language, is the musical notation. So too, accounting allows humanity to come on to the same page and participate in a musical conversation, but does not force it to do so. Nor indeed should a conductor, if one is needed, favour one section of the orchestra beyond or to the detriment of all others.

In this image the underlying thought is that people can work together in partnership - a fact that accounting demonstrates unequivocally, because on the other side of ‘My’ transactions (both income and expenditure, and balance sheet) ‘I’ find the ‘Rest of Humanity’ without whom, economically speaking, ‘I’ do not exist.

In the absence of such imagery, the underlying direction of much present thinking is a 19th century construct of a world ruled by powers, in which the super-power has the ultimate say. In this scenario, the rush to bring about a world currency is perhaps motivated by the perceived need to create a political world government modelled on the US before China ascends to the economic throne, with all the consequences that such a change would bring.

Behind the currency issue stands a more fundamental one: how is the world formed, out of partnership or out of power?

The role of the British in this is, of course, historic, if one looks at the gold standard or Keynes’ attempts to create a new basis for world partnership through his ideas that were rejected in favour of the American dominated Bretton Woods institutions. But how is one now to understand the current allegiance of the United Kingdom to the pound and its stubborn refusal to be neither the euro nor the dollar but to remain resolutely itself? Could there be more to it than national identity, notwithstanding the fact that most people think of economic sovereignty as a national affair, reinforcing this perception with the picture of the monarch on coins and bank notes?

In a global economy, the reference must always be wider than one's own situation. The value of one's own currency can only be seen realistically in the reciprocal context of other currencies, and not by separating it out in a unilateral declaration of independence. By mathematical implication all currencies are no more than articulated expressions of an implied but invisible universal currency, which they point to, or from which they derive. If one were to understand money as accounting, the reality of our new economic situation in a global economy would then stand before us, revealing currency beyond gold as dynamic bookkeeping. This revelation might allow us to build the road from a now outdated 19^th century mode of economic imperialism to a 21^st century world of partnership based on a universal declaration of interdependence in the economic realm.

While remaining the author’s own views, this introductory piece owes a substantial debt to a paper given by Christopher Houghton Budd on 9 July 2004 at the First Annual Meeting of Single Global Currency Association, at Washington Hotel, Bretton Woods, New Hampshire, USA, entitled ‘A Single Global Currency - A political or an economic money?’ available from chb@cfae.biz, Centre for Associative Economics, Forge House, The Green, Chartham, Canterbury CT4 7JW, England.

The Trial of Taxation
A Talking Economics Evening in Stroud

Taxation is on trial. On the basis that it is not a legal obligation in the terms of the US constitution, millions of Americans are refusing to pay. In the UK, where precedent is the guide, the ‘king’s right to raise an army’ is accepted, or at least felt to be an incontestable right. Yet one might legitimately ask what ultimately stands behind taxation. Some think of it purely as a levy that enables the state to function, while others see it as a way in which the government can conduct social engineering: for example, by giving tax-breaks to ‘charitable’ organisations or by attempting to socialise the selfishness of its citizens, collecting revenue ‘here’ in order to redistribute them ‘there.’ Should the state should let itself out of the allocation loop by giving tax credits to social donors?

The ever-changing world of taxation engenders a lumbering bureaucracy in its wake. Enthusiasts for ‘flat-taxes’ point out that what is really needed is a simpler system. Why have umpteen forms of taxation when logic indicates that one would suffice? Proponents of ‘tax-justice’ put a question mark over the future of revenue taxation by describing the increasing trend of taxable income to go off-shore, with an estimated 355 billion of tax revenue lost annually.

The other side is that taxation puts the individual citizen on trial. Critics scoff that for those on low incomes tax is inevitable, whereas tax avoidance is simply a matter of planning for the well-to-do, who can afford to choose. Should one consult conscience or tax law in order to know what is due? Do I attempt to veil the real nature of my financial situation, by more or less legal means, or do I make a full and honest declaration?

Whither Fair Trade?

In an age of competitive marketing for brand value, what does it mean to say that one represents fairness? Now that Fairtrade products are widely available, the spotlight is falling increasingly on what lies behind these new brands. It is not just their trading practices that are examined, but also the conceptual integrity of what they promote. For example, if a number of new 'fairly traded' brands appear, what other than the market and competitive pricing will they base themselves on? Can each maintain its own version of fairness without reference to the others or will they eventually come round full circle to a competitive ‘beauty contest’ to decide who is the fairest of them all? To be able to say what one means by ‘fair’ is, of course, crucial, taking account of the inherent dynamics of true economic relationships in a way that is rigorous enough to lay down in criteria, but avoiding anything bureaucratically conceived or outwardly imposed. In the words of Michael Wilson from The Golden Blade 1978: “The ability to decide wisely is an art, not a system, and can be developed only from man to man, and from moment to moment. But if a group of people, however small, succeed in developing it, they will have enormous coherence as a unit. Our concept of ‘fair’ will deepen immeasurably with the penetration of our insight and the widening of our responsibility. Other countries have already had to borrow our English word fair, couldn’t we do more with it ourselves?”

Debt and Human Development

We talk about being indebted as if it were a purely negative thing, with the gap between income and aspiration normally held responsible. Yet one could equally say that people are getting a lot of credit! How can so much borrowing be warranted? The issues of debt or credit typically invoke such responses as: Financial institutions must be more tightly regulated! Neither a lender nor a borrower be! The fools have only themselves to blame!

Is this the whole story? What if this tremendous amount of borrowing is the not-yet-understood financial counterpart of a soul phenomenon: the problem of ‘creativity.’ We may not all use Gordon Brown’s ‘Golden Rule’ to measure our behaviour, but most people know that if one is borrowing money, it must be because of something in the future that will create a way to repay it - taking a college course, rather than simply funding consumption. Who decides this? Relational banking is now considered anachronistic. In the age of the credit search, it is the computer, not the person who says yes or no. The modern human being is left free to manage his own credit situation, for better or worse. Without some danger, no development! Is this the price of human creativity?

Accounting for One’s Actions
A Talking Economics Evening in Stroud – Monday 9th January 2006-01-10

Much use is made of the idea of accountability, normally understood as a kind of democratic answerability. But can the human being act in an accountable way without an external pressure acting on him? Is one person accountable to another, or to an interest group, such as share-holders, or to humanity at large? How can that be made real and what is the role of accounting in understanding what accountability entails? How is one to describe the reality of the potential in each human being to act in a way that is not only self-interested (and thereby overcome the prevailing anti-human perception that brings so many restrictive measures in its wake)? How can true and full accounting support and make objective this aim?

Such questions stand behind the subject, and in order to explore it in greater depth something needs to be said about the origin and development of accounting so that one can better see its relevance and purpose in present times. Its lifelessness may be akin to the lifelessness of the brain – best suited for making objective what it records. Just as the brain enables the human being to be individually self-conscious, so too accounting may act as a social brain, which allows human beings to become economically conscious, if they choose. Accounting is a universal language that enables human beings to communicate across cultural differences.

By forming companies which give the power neither to capital (which in reality should not be thought of so much as the interests of the shareholders, but as a purely abstract force), nor to a supervising board, the responsible human being is able to remain effective in his initiative. Through accounting he can share the narrative of that initiative (which represents the biography of a being, whose body is the company). Meeting with his financial backers and reporting, gives rise to a conversation that enables him to draw into a closer relationship with the intuition that guides the company. By becoming aware of the inherent wisdom that lies in accounting and describing the company in a new set of relationships, the potential is present to metamorphose current arrangements such that a corporate culture can arise whose behaviour does not engender the many and varied charges of anti-social behaviour.

Accounting for One’s Action
In a dream … walking along a High Street, embedded in every shop-door, a flat-screen display showing the live accounts for the business inside. Discrete but clearly indicated, one column for income and expenditure, next to it the balance sheet–each moment: the life blood of the business made visible.

Is accounting really so far from daily life? What if we informed ourselves about the economic circumstances around us, rather than leaving it to happenstance or an invisible hand? The cost of living …, next year’s pay rise …, the price of housing …it’s all to be found in the numbers. A set of accounts tells a story; the business narrative; the book in which the economy becomes visible. Some prefer not to look, thinking that life is complicated enough already. Why lift the bonnet?

The dream continues … at the end of the High Street I come to a building, it looks like a transparent temple: as I draw nearer I see the glass walls flashing up hundreds of transactions between all the businesses and showing the dynamic movement between accounts. Inside a meeting going on. I realise this is a bank.
What is accounting really about? Hiding money from the taxman? Painting a rosy picture for your financial backers? Or could it be that it is only by accounting that we can become economically awake, individually and socially.