Bernie Masters is a geologist/zoologist who spent 8 years as a member of the Western Australian Parliament. Married to Carolina since 1976 and living in south west WA, Bernie is involved in many community groups. This blog offers insights into politics, the environment and other issues that annoy or interest him. For something completely different, visit www.fiatechnology.com.au for information about vegetated floating islands - the natural way to improve water quality.

Friday, April 03, 2015

A maverick currency scheme from the 1930s could save the Greek economy.

The
Eurozone crisis calls for radical solutions – and one of the most thrilling has
been tried and tested. George Monbiot

Compare
the terms demanded of the Greek government to those offered to the banks. Eurozone
ministers now insist upon unconditional surrender: a national abasement that makes a
mockery of democracy. But when the banks were bailed out, governments magicked
up the necessary money almost unconditionally. They shyly requested a few token
reforms, then looked away when the bankers disregarded them.

The German
government, now crushing the life out of southern Europe, merely tickled its
own banks. As
the New York Times reported, though the corrupt German banking system “required
a bailout bigger than the one American banks received”, “there is little
appetite for change in Germany because the banking system is so deeply
intertwined with its politics, serving as a rich source of patronage and financing
for local projects”.

When the
Greeks complain that they have been reduced to colonial subjects, they are
right, but the colonial masters are not the northern members of the Eurozone.
They are the private banks. The
governments that seem determined to destroy a sovereign state for its impudence are merely
the intermediaries of power.

None of
this is to deny the corruption and fiscal promiscuity of previous Greek
administrations. But while the banks have got away with far worse, the bullies of
the Eurozone insist on extracting every last drop of blood from people who had
no role in their governments’ deceptions.

Greece is
stuffed: or so almost everyone asserts. Perhaps. Or perhaps there are
possibilities we have scarcely begun to examine. I should warn you that no one
in their right mind would take financial advice from me.(Or, for that matter,
from most financial advisers) I seek only to suggest
that there may be some possibilities of hope among the ruins.

One of
these radical ideas was proposed a few months ago by Martin Wolf in the
Financial Times. He
suggests stripping private banks of their remarkable power to create money out
of thin air.
Simply by issuing credit, they spawn between 95% and 97% of the money supply.
If the state
were to assert a monopoly on money creation, governments could increase their supply
without increasing debt. Seigniorage (the difference between the cost of
producing money and
its value) would accrue to the state, adding billions of pounds to national coffers. The banks
would be reduced to the servants, not the masters, of the economy.

An
entirely different approach is proposed by Ann Pettifor, in Just Money. She
argues that governments
have failed to understand what money is. It should not be seen as a commodity, she says,
but as a social relationship based on trust. Unusually for a radical critic of finance,
she sees the creation of money by private banks as “a great civilisational
advance”, freeing nations from the usurers who once monopolised and restricted
wealth.

The supply
of money is, in effect, unlimited: as long as there is sufficient productive
activity to absorb it
there is no obvious restraint on the amount of money that can be issued. So
when governments
and central bankers tell you that the money has run out, Pettifor argues, they
are either deceiving us or deceiving themselves. What holds back economic
activity is an unnecessary
and artificial restriction of the medium of exchange.

Banking’s
great civilisational advance has been all but destroyed through deregulation,
whose result is
a new system of usury, speculation and exploitation. Private banks borrow cheap
and lend dear,
forcing us to work ever longer hours and to inflict ever more damage on the
natural world to
service our debts. Pettifor suggests that*governments should reassert control
over interest
rates at every level of lending.

But
perhaps the biggest transformation could happen at the local level. Greece
already has set up some local currencies that have kept money circulating in
several towns and cities as it cannot be
siphoned away. (There are similar systems in Britain, such as the Bristol
Pound). But strangely they do not make use of the thrilling, transformative
system that almost saved Europe
from fascism; the currency developed by the economist Silvio Gesell called
stamp scrip. It
is explained in Bernard Lietaer’s magnificent book The Future of Money.

In its
original form, stamp scrip was a piece of paper on which a number of boxes were
printed. The note would lose its validity unless a stamp costing 1% of its
value was stuck in one of the boxes every month. In other words, the currency
lost value over time, so there was no incentive to hoard it. Stamp scrip
projects took off across Germany and Austria after national currencies
collapsed in the early 1930s. In 1932, for example, the Austrian town of Wörgl
was almost broke, unable to finance public works or to support its destitute
population, until the mayor heard of Gesell’s proposal.

He put up
the town’s tiny remaining fund as collateral against the same value of stamp
scrip, and used
it to pay for a building project. The workers then passed on the currency as
quickly as they could. Like the magic pudding, this little pot of money kept
circulating, enabling Wörgl to repave the streets, rebuild the water system,
construct houses, a bridge and even a ski jump. In the 13 months of the
experiment, the 5,500 scrip schillings in circulation were spent 416 times, creating
between 12 and 14 times as much employment as the standard currency would have done.
Unemployment vanished, and the stamp fees paid for a soup kitchen feeding 220 families.

The
governments of Germany and Austria, profoundly threatened by the success of
these projects,
shut them down and employment collapsed once more. When the US economist Irving
Fisher examined these experiments he concluded that “the correct application of
stamp scrip
would solve the depression crisis in the US in three weeks!”. Roosevelt’s
government, aware that
such currencies could invoke a massive loss of federal power, promptly banned
it. Could
these ideas be useful to Greece? Could they be of relevance in other parts of
Europe? Even
perhaps in Scotland, where the currency issue was unimaginatively fudged before
the referendum?
I don’t know. But if Greece leaves the Eurozone, it could open up a world of

possibility
to which other nations have closed their minds.

A fully referenced
version of this article can be found at Monbiot.com