Friday, April 24, 2009

Money - 7. The Budget 2009

A Caveat to the unfamiliar: I think money is a force. For me, price is to money, as weight is to gravity.

The Budget delivered by Alistair Darling, our chancellor of the exchequer, on Wednesday 22rd April 2009 was historic; apparently.

It must be good to be an economic or financial journalist right now. A normal budget would keep journalists busy enough, but an historic one ! That has to be the highlight of a financial journalist's career. Personally, I've always found Budget Day extremely dull. Even the wittiest, most engaging writer would find it difficult to hold my interest. Like the majority of people, I want two pieces of information. One; how much is booze going up? Two; how much are fags going up? And, as I no longer smoke tobacco, I'm not really interested in number two, any more.

Are people genuinely interested in what the Budget says? I reckon that they're faking it. They feel that they need to be seen to care. They'll watch the news, read a paper, and maybe they'll get a letter from their accountants outlining the key measures and their likely impact - enough to allow them to appear to their colleagues that they know their stuff, but that's about it. In truth, they're likely to be more concerned about their current cash crisis, or the one looming, or the one they've just got over (although 'getting over' a cash crisis is becoming rarer). Two percent on this, or three percent on that after such and such a date, probably means no more to them than it does to me.

The Budget isn't really about money at all. Its about politics. Its one battle in an ongoing war. Both sides want us to believe that it is they, not their foe, who can best control the State's money-power.

The rules of engagement for the Budget day battle are as follows. The incumbent power must declare their tactics for the next year's custodianship of money-power; their strategy for dealing with money-power being set in their election manifesto. Once declared, the opposition can then criticise both the tactics and the strategy of the incumbent. The opposition often focus on any inconsistencies between them. Like when the government has achieved political power on the promise of not raising taxes, and then it does. However, such discussions can quickly numb the mind. So, both sides eventually revert to making direct attacks on the capacities and capabilities of the people involved. Like they really matter !

Attacking people for their failings is reassuring. It helps to convince us that it was someone's fault. It's nice to believe that people count. But do you really believe that if a different man or woman had been Prime Minister, or Chancellor, things would be that different? I don't. Most of us have enough trouble being custodian to our own money-power. Can you imagine quite how impossible it would be to look after the money-power of the British State?

The British State's claim on the money-force is determined by an infinite number of possibilities, the vast majority (if not all) of which are not under anyone's direct control. There is little real agreement about what's happened to British money-power in the past because one's view of the past is so dependant upon one's current political and ideological sensibilities. Predicting the future of British money-power is a highly suspect activity. You might as well read tea leaves. Our relationship to the money-force is in trouble because we fail to recognise our own limitations. The Budget serves to reinforce this failure year after year.

A persuasive argument for the value of the political ritual of the Budget is that it replaces the conflicts of earlier times; as to a certain extent all political rituals do. Instead of rich barons squaring up to the King over his demands, or vice versa, be-suited politicians glare and shout at each other across the floor of the house of commons. People keep their heads. But it is our choice of peace over war, of non-violence over bloodshed, of national politics over tribal conflict, that has created our history. The Budget is just an argument about our circumstances today. Its hard to imagine a Budget - even an historic one - changing the course of history. Ideas do that, budgets don't.

That's what I reckon. Here's what a very clever Welshman says about the money battle: 
We shall see as our history of money unfolds that there is an unceasing conflict between the interests of debtors, who seek to enlarge the quantity of money and who seek busily to find acceptable substitutes, and the interests of creditors, who seek to maintain or increase the value of money by limiting its supply, by refusing substitutes or accepting them with great reluctance, and generally trying in all sorts of ways to safeguard the quality of money.
Glyn Davies - A History of Money (p. 29)

Friday, April 17, 2009

Money - 6. Counterfeiting

Recently, an 83 year old man escaped a prison sentence for helping to forge £8 million. In earlier times, this crime would have cost him his life.

If you decide today that you've had enough, and from tomorrow you're going to make money without regard to the law, how would you do it? How would you get rich quick? With the gateway to criminality open, creating counterfeit cash would surely be your best bet. The advances in and availability of, reproduction technologies have made it easier than it used to be. And now, even if you do get caught, which seems unlikely if you act with due diligence and aren't too greedy, your punishment wouldn't be too severe. It would seem rather harsh for the courts to dish out long sentences to punish culprits for the harm they're doing to the economy. Even the largest most determined counterfeiter would find it hard to match what the banks have done.

When I was growing up, if you decided that you'd had enough, you'd say 'I'm going to rob a bank'. This was an expression of feelings and a statement of intent (albeit one very rarely acted upon) that was socially acceptable. People would react rather differently if you'd said 'I'm going to rob a granny'. In essence the crime is the same, you're taking something that clearly doesn't belong to you. But grannies fit our notion of victim hood, banks do not.

These days, I reckon we should say 'I'm going to print some cash', when we want to express those feelings. Why have any victims at all?

Counterfeit cash has no victims. At least, there are no victims while we maintain the believe that the cash is real. When someone creates a fake £10 note a [false] debt is raised against the Bank of England. But, as long as the bank remains sound, and as long as the note itself is believed to be real, the £10 note functions as well as any other. Assuming the Bank of England can detect the counterfeit it can refuse to honour the £10 debt because it did not create it. So, essentially the counterfeiter has loaned national economy some temporary liquidity at his own risk and at no direct cost to the central bank. In payment of his [illegal] liquidity loan he gets whatever his counterfeit cash can buy him.

This might seem an odd way to look at things. But in the past it might have made more sense. In the days before paper money, Kings and Queens found it expensive to provide coinage for their subjects to use in economic exchange. There was huge demand for coins. To provide them, a King would strike a deal with his minters to share the profit made by 'cheating' the coin out of it's full value of precious metal, by making it lighter than previous issues, or using alloys. Debased coins and counterfeit cash are essentially the same thing. Both provide real liquidity. Its estimated that '1 in 20 £1 coins [in circulation in 2009] are fake'. But a counterfeit £1 is still a real coin; a counterfeit Louis Vuitton handbag, is a fake Louis Vuitton, but its still a real handbag.

Counterfeiters do not create fake money; what they do is make a false claim on the custodianship of money-power. All of us are at least guilty of overstating our money-power at some point in our lives. Banks especially. It comes with the capitalist territory.

The primary claim to the custodianship of money-power comes from the state. The claim the British state makes bears the £ symbol, of course. We know and respect this symbol as a mark of British custodianship of money-power. All claims made with this symbol are, ultimately, subordinate to the British state. The British state's claim is itself subordinate to the world's most powerful symbol. Currently this is $ symbol. All around the world people in their day-to-day lives believe that the paper, duly authorised to bear this symbol, is money (they're wrong of course - its just cash). The custodianship of money-power cannot be maintained without our belief in these symbols. Should that belief waver, the custodians of money-power fight to keep the faith. To this point in history, military strength and money-power have gone hand-in-hand.

This is the power structure that counterfeiters are subverting.

However, the paradox of counterfeiting is that so long as it remains hidden, it actually helps the economy. To damage the reputation of the symbol it mimics, counterfeit cash needs to be recognised as counterfeit. This sets up an interesting dynamic for the State. Its in the State's best interest to keep quiet about the levels of counterfeit currency. And it might actually be better for the economy to have an unnoticed level of counterfeit currency circulating. Liquidity is increased, but central bank debt levels are not.

I'm not suggesting that for you, or me, counterfeiting cash would be a good thing to do. It's fundamentally dishonest; it makes liers of us. But we should try understand it.

Hayek - [you don't know who Hayek was? if Keynes were Jesus, then Hayek is God, and Marx is the Devil, or vice versa, depending on your p.o.v.] - argued that citizens should be free to use and refuse any currencies they wish. He thought that if the state monopoly on money creation was ended we'd be free from cycles of inflation and deflation, so that the unemployment and depression often blamed on capitalism would be cured. He published a paper on it in that special year 1976 (1 + 9 + 7 + 6 = 23). He was quite old by then, so most people just thought he'd gone a bit mad. I think he was on the right track. In fact, I'd go quite a lot further than that.

No quotation for you this time. Instead a link to Lawrence Malkin's site about operation Bernhard. This was a Nazi plan to destroy the British economy by issuing, Malkin estimates, $650 million worth of counterfeit British notes (that's about six or seven billion in today's money). Obviously, it didn't work out too well for the Nazis.