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 At the same time, humanity’s historical reliance on gold will be superseded by such behaviour becoming informed by the golden rule, namely, “over the economic cycle, the Government / Citizens will borrow only to invest and not to fund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?