The Economy : Exploring the Answers 1: Money

What is money? It is not a thing. It is a measure. It measures values of all economic activity including services, labour, assets, goods, skills, knowledge. This list is another seemingly endless recital. But the key element is that, like centimetres or grams, without something to measure, it has no value in itself.

In past times the physical expression of money did mostly have value in the form of coins, which were of gold. silver and copper. But when paper was used there was no  value in the actual notes except the paper itself.  With modern electronic money there is no physical element. Last year over 80% of money transactions in the UK were electronic.

Here comes the brain twister. Most people think of money and the currency as the same thing. But they are not. Money is a measure and valueless unless measuring, but the currency has an intrinsic value and can be traded and exchanged. It is the physical expression of money. You can touch it and hold it.

For a country to be fully independent it must have a working currency. It is the absolute expression of independence. If a country shares a currency with others, none are individually sovereign states, because they have elected to share their sovereignty, to create a powerful  independent union, of which they are a more secure and prosperous part. The structure can vary. The United States, following the carnage of their civil war, consider themselves a single country with an indivisible union and one currency. In other words a union from which you cannot separate. The EU, on the other hand is a voluntary union of states, some of whom share a common currency, but others retain their own. If a state decides to leave the EU it can.

The UK, especially England, has a very strong sense of sovereignty, especially since the Reformation, which finally threw off the dominance of Rome. Traditional conservative  sentiment over sovereignty is perhaps why there was so much resistance from Thatcher over the ERM in the latter part of her premiership and towards joining the Euro. The sentiment eventually overtook the whole political establishment. There is a very strong  sense of full sovereignty and a national currency being indivisible, as indeed they are.

But with that sovereignty comes ownership, responsibility, management and financial discipline. This requires political control of who benefits and who loses. It shapes the financial model, which in turn shapes the society. And in a democracy who does all that is the remit of  the people through their choice of  government and parliament. Unfortunately bit by bit, without any malign intentions, the Western economic model has transferred control from governments to central banks and markets.

This has resulted in political inertia over issues which burden ordinary people most, because in the end uncontrolled  markets will always act in their own interests. In particular they will favour assets over labour and are blind to social injustice. They leave all these questions to democratically elected politicians, who consistently fail to deliver on promises made, because they no longer control the key levers of power. They do no more than tinker at the margins of the great economic issues of the day.

This is a much bigger threat to our way of life than any military threats coming from countries that we chose to regard as enemies. Because as the people who benefit from markets grow ever richer, those who keep the essentials of modern civilisation running, grow ever poorer. The cost of housing becomes the dominant feature of the domestic budget while earnings fail to keep up. Social cohesion begins to fracture and strikes and riots multiply. Moderate political parties which broadly support the system find themselves under pressure from the far left and far right, who want to tear it down.

As a consequence the relative standard of living of workers, on whose daily contribution all the modern elements of a civilised state depend, is falling, while speculators and investors in fixed assets have never had it so good as they forever inflate their wealth, fed by unlimited supplies of printed money. Every latest forecast for productivity and  national debt produce unsustainable figures. The new government struggles to shore up in the short term a structure which will not anyway stand for long. What can be done about it?

Future Blogs will explore the options. They will be way beyond any thinking acknowledged in the Treasury today and outside the experience of anyone in power. But they will be neat and simple and clean. And they will work.