[A-List] Of 'independence' ..and 'price-revolutions'

[Tony B.]

Bill,

I realized I had replyed to your personal e-mail...I hope you won't mind me 
re-forwarding my reply to the list as there's some material I intended for 
everyone.

Tony


----- Original Message ----- 
From: "Tony B." <tal1 at cogeco.ca>
To: "Bill Totten" <Sent: Friday, August 13, 2010 1:49 PM
Subject: Re: [A-List] How the Proposed Bank of England Act Works - Part One


> We're in sympatico  :).
>
> Yeh, I take it as a sign, once again, of their unconscious (capitalist) 
> assumptions that the BOE authors could so naively speak of an 
> 'independent' economic body....
>
> ...As you suggest, what could such 'independence' possibly mean?  .....The 
> only solution is to have the body under truly *democratic* control..which 
> would imply having to educate the citizenry in economic matters..'real' 
> economic matters, of course, not the bullshit fictions of 'neo-classical' 
> economics.
>
> I would go so far as to say that such education should also include a 
> strong historical component, i.e. looking back at, say, the 'price waves' 
> of the past millenium so as to inculcate a long term view of the world 
> (which would help in other matters as well, i.e. climate change, 
> population control, ecology etc)..[By the way, a fine exposition of the 
> autogenous historical dynamics of price and inflationary waves over 
> historical times - and the vast social and poltical consequences stemming 
> from them* - can be found in David Hackett Fischer's, 'The Great Wave', 
> 1996, Oxford Press.]
>
> Tony
>
> *Rather than leave this comment 'hanging', allow me to sketch the thesis 
> more fully. Here is a quote from the jacket cover:
>
> "Ficher uses these materials [price records: which are more abundant than 
> any other type of quantifiable data] to frame a narrative of 
> price-movements in western history from the eleventh century to the 
> present. He finds that prices tended to rise throughout this long period, 
> but most of their increase happened in four great waves of inflation - 
> which he calls the price-revolutions of the thirteenth, sixteenth, 
> eighteenth, and twentieth centuries.
>
> The four waves shared many qualities in common. All had the same movements 
> of prices and price-relatives, falling real wages, rising returns to 
> capital, and growing gaps between rich and poor. They were also very 
> similar in the structure of change. Each of them started silently, 
> developed increasing instability, and ended in a shattering crisis that 
> combined social disorder, political upheaval, economic collapse, and 
> demographic contraction.
>
> These crises happened in the fourteenth, seventeenth, and late eighteenth 
> centuries. They were followed by long periods of comparative equilibrium: 
> the Renaissance, the Enlightenment, and the Victorian era. In all of these 
> eras inequalities diminished. Then another great wave began and the 
> pattern repeated itself, but not precisely in the same way. Fischer quotes 
> Mark Twain: history doesn't repeat itself, but it rhymes.
>
> Through all these movements, Fischer explores the linkages between 
> economic trends, social tendencies, political events, and cultural 
> processes. He finds that long periods of price-equilibrium were marked by 
> faith in order, harmony, progress, and reason. By contrast, 
> price-revolutions created cultures of despair in their middle and late 
> stages.
>
> Fishcher examines the cause of these movements, and discusses the models 
> that have been used to explain them...."
>
>
>
>
>
> ----- Original Message ----- 
> From: "Bill Totten" <shimogamo at ashisuto.co.jp>
> To: "The A-List" <a-list at lists.econ.utah.edu>
> Cc: "Tony B." <tal1 at cogeco.ca>
> Sent: Friday, August 13, 2010 4:29 AM
> Subject: Re: [A-List] How the Proposed Bank of England Act Works - Part 
> One
>
>
>>I think I forgot to reply to this, Tony. Although I think this proposed
>> Bank of England Act overall is superb and much better than anything
>> England, Canada, the US, or Japan have now, I agree completely with your
>> comments on "independence". Why should any citizen of a democracy want
>> such a vital thing as his or her nation's currency to be governed by any
>> body independent of the government s/he helps elect?  Bill
>>
>>
>> you On Sun, 8 Aug 2010 14:12:07 -0400
>> "Tony B." <tal1 at cogeco.ca> wrote:
>>
>>> "The MPC will continue to be politically independent and neutral. This 
>>> is
>>> very important, as it prevents harmful political 'tinkering' with the
>>> economy. It is important that the MPC can not be overruled by
>>> politicians, whose decisions will be swayed by political matters rather
>>> than the long-term health of the economy."
>>>
>>>
>>> This is where I have real problems with the 'proposed Bank of England
>>> Act'. To wit: the Bank of Canada is "politically independent and
>>> neutral", i.e. it is independent of both parliament and the Minister of
>>> Finance.
>>>
>>> ...But, of course, it is not independent of corporate lobbyists...and so
>>> is now totally controlled by them.
>>>
>>> This idea that being 'politically independent and neutral'  is
>>> self-contradictory and unworkable given that the central bank would
>>> still be functioning within a capitalist system, i.e. in a system whose
>>> whole raison d'etre is manipulation of the economy towards profit,
>>> monopoly, exploitation and corporate hegemony.
>>>
>>> Thus, the proposed 'Bank of England Act' would represent a viable
>>> proposal *in a socialist state*....but not within the existing ecomomic
>>> system. First it would never get off the ground, i.e. the capitalist
>>> elite would never sanction it. Second, even if it were to get off the
>>> ground, it would likely be brought crashing down to earth in short
>>> order, again by capitalist imperatives.
>>>
>>> I reckon that all this falls under the heading, 'revolution vs
>>> reformism'.
>>>
>>> Tony
>>>
>>>
>>>
>>>
>>> ----- Original Message ----- 
>>> From: "Bill Totten" <shimogamo at ashisuto.co.jp>
>>> To: <a-list at lists.econ.utah.edu>
>>> Sent: Saturday, August 07, 2010 8:49 AM
>>> Subject: [A-List] How the Proposed Bank of England Act Works - Part One
>>>
>>>
>>> > Creating New Money
>>> >
>>> > Like adding oil to a car engine, the economy needs a certain amount of
>>> > 'new' money each year to continue running smoothly.
>>> >
>>> > While many journalists and academics have slated the Bank of England's
>>> > 'Quantitative Easing' scheme as 'printing money' and being
>>> > inflationary, these same commentators are usually ignorant of the fact
>>> > that the money supply has been increased by an average of 7.6% per
>>> > annum for the last thirty years - almost entirely as a result of the
>>> > money creation within the private banking system. Since this newly
>>> > created money was all matched by the same amount of debt, it laid the
>>> > foundation for the recent financial crisis.
>>> >
>>> > However, had the money supply not grown at all over the last thirty
>>> > years, we would have suffered thirty years of economic stagnation. So,
>>> > while too much new money can cause inflation, there is still a need
>>> > for an annual increase in the money supply.
>>> >
>>> > Our reform would make it impossible for this annual increase in the
>>> > money supply to be provided by commercial banks - in other words, we
>>> > would take control over the nation's money supply out of the hands of
>>> > private companies and put it back in the hands of the state.
>>> >
>>> > We would then need to replace this money creation with an alternative
>>> > source of new money. The following section explains how we do this.
>>> >
>>> > Who Decides How Much New Money Should Be Created?
>>> >
>>> > The existing [Bank of England] Monetary Policy Committee (MPC) will
>>> > become responsible for making decisions on how much new money should
>>> > be injected into the economy in each period of time.
>>> >
>>> > They will stop making decisions to raise or lower the base interest
>>> > rate and will instead make a decision to increase or reduce the money
>>> > supply. They will likely take a twelve-month or two-year view of the
>>> > economy, and then smooth any increase in the money supply over each
>>> > month.
>>> >
>>> > The MPC will continue to be politically independent and neutral. This
>>> > is very important, as it prevents harmful political 'tinkering' with
>>> > the economy. It is important that the MPC can not be overruled by
>>> > politicians, whose decisions will be swayed by political matters
>>> > rather than the long-term health of the economy.
>>> >
>>> > The Committee will also still be subject to all the rules regarding
>>> > transparency of its decisions, and the amount of the authorised
>>> > increase in the money supply will be made publicly known.
>>> >
>>> > Note that they will not be creating as much money as the government
>>> > needs to fulfil its election manifesto promises - the needs of the
>>> > government will not be considered. As discussed in 'Guarding Against
>>> > Inflation' {*}, suggestions that this reform would cause a 'Zimbabwe
>>> > situation' have no basis in reality.
>>> >
>>> > {*}
>>> > http://www.bankofenglandact.co.uk/how-it-works/guarding-against-inflation/
>>> >
>>> >
>>> > How Will The Monetary Policy Committee Make The Decision?
>>> >
>>> > The Monetary Policy Committee would authorise the creation of as much
>>> > new money as they believe the economy (in other words, companies and
>>> > households) needs to function healthily, and no more. There are two
>>> > main measures that they can use to guide their decisions.
>>> >
>>> > Firstly, the Committee will continue to base its decisions partly on
>>> > the basis of 'inflation targeting' - the policy of trying to ensure
>>> > that inflation stays within a small range - such as between 1.5% and
>>> > 2.5% per annum. In other words, they should try to ensure that any
>>> > change in the money supply is neither inflationary nor deflationary -
>>> > neither too much nor too little. Note that for this to be effective,
>>> > the measure of inflation used must be redesigned to take account of
>>> > asset price inflation (such as a housing price bubble). It is
>>> > pointless to attempt to make decisions affecting the whole economy
>>> > using a measure of inflation that ignores inflation of ten per cent
>>> > per annum in house prices when housing is the most expensive item in
>>> > anyone's 'basket of goods'.
>>> >
>>> > Secondly, the MPC can also refer to changes in the use of overdrafts.
>>> > If the average overdraft balance was increasing, it may suggest a
>>> > shortage of circulating money in the economy, and point to the need
>>> > for more money to be injected into the economy. Alternatively, if the
>>> > average overdraft balance was decreasing, it may be an indicator that
>>> > there is 'enough' or too much money in the economy and that the
>>> > Monetary Policy Committee should hold off on increasing the money
>>> > supply for one or two months.
>>> >
>>> > The Mechanics of Creating New Money
>>> >
>>> > When the Monetary Policy Committee has authorised the creation of a
>>> > specified amount of new money, it will be created in the following 
>>> > way:
>>> >
>>> > 1. The government will hold an account, known as the 'Central
>>> > Government Account' with the Bank of England.
>>> >
>>> > 2. The Bank of England's Issue Department will simply increase the
>>> > balance of this account by the amount authorised by the Monetary
>>> > Policy Committee. They will not simultaneously reduce the balance of
>>> > any other account - by making a credit without making a matching
>>> > debit, they are creating new money.
>>> >
>>> > 3. The government can then withdraw the money from its Central
>>> > Government Account and add it to tax revenue, and then use it in
>>> > accordance with the principles discussed below.
>>> >
>>> > In contrast to printing physical cash or coin - which costs around
>>> > three pence for every one GBP created - a creation of money by the
>>> > method is costless. To create GBP 20 billion or GBP 200 billion both
>>> > requires one authorised official with the right passwords and a
>>> > computer connected to the Bank of England's central accounts system.
>>> > Of course, it would also require witnesses and formalities to be
>>> > observed, but all in all, GBP 20 billion could be added to the economy
>>> > in a little under twenty minutes.
>>> >
>>> > http://www.bankofenglandact.co.uk/how-it-works/creating-new-money/
>>> >
>>> > http://www.billtotten.blogspot.com
>>> > http://www.ashisuto.co.jp
>>> >
>>> >
>>>
>>>
>>>
>>
>