Category Archives: Economics

Destruction by organised money

80 odd years ago, F D Roosevelt argued that Government by organised money was just as dangerous as Government by organised mob. That assessment was shaped by experience of the run up to the 1929 Wall Street Crash which was followed by the austerity driven Great Depression. We now know it’s much more dangerous than that: leading to the destruction not just of jobs and whole economies, but many of the ecological systems we benefit from on planet earth.

He identified organised money as comprising “business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism (and) war profiteering”. Eisenhower added the “military-industrial complex”. Today, strands of academia and the social media would be included as they argue and promote the theoretical constructs which provide the coat of respectability for organised money’s activities.

The financial sector was largely called into existence to finance the industrialisation process which began in the 18th century and proved far beyond the capacity of the then possessors of capital, mainly the landed gentry. But the sector quickly found far easier ways of making bigger and quicker returns than by long term investment in industry. So the components of organised money came to dominate the financial sector with the ‘robber baron’ excesses which led inevitably to the 1929 crash. That pattern was repeated in the four decades leading up to the 2007-8 crash and subsequent austerity driven decade of lost opportunity.

Those lessons have been rejected by those in power. Government is dictated by organised money whose self-interested criminality is well documented. The Economist described the financial sector as mired in ‘a culture of casual dishonesty’.[i]That culture ignores unprecedented inequalities and denies the imperatives of ecological sustainability. It accepts, simply as a cost of doing ‘business as usual’, the fines for fraud and criminality, so long as they are paid by the corporate entity and the individual decision makers are not held personally responsible.

The saga of such criminality is far too long to reference here. The Financial Times reported that, ‘between 2009 and 2013 the 12 global bankers paid out £105.4bn worth of fines to European and American regulators.’[ii] They were fined for rigging the Forex market, as well as rigging various commodity markets, also for money laundering on behalf of various terrorist organisations and for Mexican drug cartels, not to mention tax evasion and the most energetic avoidance. Those 12 global banks had also made additional provisions in their accounts for a further £61.23bn of anticipated fines for crimes which presumably they knew all about, but which had not yet been uncovered. So a total of £167bn, which was ‘unlikely to be the final hit.

Most financial houses appear to have been behaving in similar fashion as indicated in Remaking the Real Economy.[iii]

So government by organised money is not just predatory on the real economy, and exploitative of the public, but in serving its own sectional interests, it has developed sophisticated means of avoiding and evading taxation and is willing to act with criminal fraudulent intent. Organised money is openly criminal and dominates government, notably in the US and UK.

The net effects are to create ever increasing inequalities of wealth and income both within and between economies, which must at some stage be reversed by whatever means. It also initiates all manner of ecological destructions which must similarly be reversed but within a defined time span.

One of the two first moves has to be to recognise the naked criminality of organised money which includes much of the financial sector. And to correct it.

The other move must be for classical/neoclassical economics to be set aside and disregarded in favour of understanding the practical realities of a modern economy . But that is another story.

Is Modern Monetary Theory the Answer?

Economic theory continues to evolve as it always has.  That is partly because the real world economy is itself continuously evolving.  But it is also partly because economic theories are far from perfect, but are retained till something better comes along.

Monetary theory is a highly pertinent example right now, given the evolving role of money. As a means of exchange, it has long been reduced to the role of lubricant for relatively minor transactions, with further reduced usage of notes and coin being trialled during the coronavirus lockdown. As a store of value it has long been outperformed by many alternatives of varying security from property to financial speculation. And its lasting function as a unit of exchange is now largely maintained in electronic form enabling further possibilities.

Neoclassical economic theory emerged in mid 19th century as the inadequate but mathematical expression of self-interest maximising humans, profit maximising businesses and efficient markets free from government regulation which the theory promised would be no longer subject to booms and slumps.

That was the context in which monetary theory was given its first coherent expression by Irving Fisher in early 20th century.  It was in the form of a simple equation of exchange: MV=PT, where M is the quantity of money, V the velocity of its circulation, P the overall level of prices and T the volume of transactions taking place in the given time period.  While the equation is a truism and identifies macroeconomic quantities, their content is largely immeasurable and its various interpretations susceptible to simplistic political debate.

Fisher became notorious for his repeated assertion that the stock market had reached ‘a permanently high plateau’. That was just before the 1929 Wall Street Crash, which was followed by the Great Depression, imposed and prolonged by the continued focus on M with policies of austerity. That was only ended by Roosevelt’s relaxing austerity and focusing on V with publicly funded New Deal job creation schemes aimed at putting money into the hands of the poor, who had no choice but to spend it immediately for their survival, thus increasing V and so generating further economic recovery.

The 1970s stagflation was observed by Piatier as having been caused by OPEC’s 400% oil price rises and the stagnation arising from the maturing and decline of 2nd industrial revolution industries.[i]  But neoclassical theorists argued stagflation to be the failure of Keynesian economics, thus enabling monetary theorists to resume control.  But after two decades of application, even leading quantity advocate Milton Friedman admitted the theory had largely failed.[ii]

The lessons of 1929 had been set aside and forgotten as demonstrated by the relearning experience of the early 21st century, a period referred to as ‘the great moderation’ for which both politicians and economists at the time took credit.  That was just before the 2008 crash, which was followed by a decade of austerity in the real economy, which produced only disappointing results, despite massive Quantitative Easing (QE) for the financial economy banking sector – an estimated $14trillion worldwide. [iii]   

That is the context in which Modern Monetary Theory (MMT) emerged, taking account of the limitations of the former theory as well as the evolving possibilities of money itself.  MMT explains how a government that issues its own currency, can control and guide its economic growth absolutely without monetary constraint. That must be the holy grail of modern economy. It does so by promoting growth when needed by increasing the quantity of money in circulation. It could also slow growth by increasing taxation if inflationary pressures threatened to exceed what is advisable. Control of money supply and taxation can both be selective so that the direction of economic growth can also be set. The avoidance of booms and slumps is thus held to be firmly within the grasp of MMT competent governments. The validity of such assumptions will become apparent over the next few years and hopefully it won’t simply be a repeat of the 1929/2008 learning experiences.

Within that broad model, the explosion of new technologies is enabling governments and central banks access to many more detailed control mechanisms which MMT can accommodate. It is a highly dynamic situation in which MMT will continue to develop or could even be replaced by alternative theoretical approaches. One such, currently being promulgated, is Transfinancial Economics (TFE), which takes fuller account of the technological possibilities of developing QE for the global economy.

At this point in time, the possibilities of economic theory, notably of MMT, appear immense, but unpredictable.  As always, the theory is underwritten by political considerations which were previously focused on the M-V dichotomy.

Now, the extreme possibilities of new technologies, make the Real and Financial economic divide absolutely crucial.  The Real Economy is what could produce the needs and wants of everyday life for all people within an environmentally sustainable context. The Financial Economy was initially established to raise the finance for the canals, mills, factories and railways of the first industrial revolution. But since then it has found easier ways of making faster returns than paying for those Real Economy activities. So the Financial Economy has become predatory on the Real by a variety of means, including a process of increasingly sophisticated Merger and Acquisition (M&A) followed by systematic asset stripping and closure of Real Economy organisations. 

It is a process which is ignored since the distinction between the Real and the Financial Economies is not made, a fact celebrated by the simultaneous combination of austerity and QE, symbolic of the global combinations such as tax haven corruptions and the climate crisis.

That Real-Financial dichotomy, so vital to Remaking the Real Economy, is completely ignored by economic theory, including MMT. In orthodox measures such as GDP, a $ is a $, whether it is earned through care home services, bets on the financial casino or prostitution.

However, MMT controls enable both money supply and taxation to be selective, so that the direction of economic progression could be focused on the Real Economy making the financial sector resume its former more restrained role as supportive provider of finance.

Moral philosopher Adam Smith started his inquiry into the nature and causes of the wealth of nations with observation of real economic activity (pin making), rather than theoretical argument. There was no theory at the time.  Real economic activity clearly didn’t require a theory. Today, further progression without detruction might be better achieved if freed from theoretical constraints and diktats.


[i]  Piatier, A., (1984), ‘Barriers to Innovation’, London: Francis Pinter.

[ii] Friedman, M., (2003), in interviews with Joel Bakan for the documentary film ‘The Corporation’, see https://www.youtube.com/watch?v=Y888wVY5hzw [accessed 10.January 2020].

[iii] Martin, F., (2014), Money: the Unauthorised Biography, London: Vintage Random House.

The Lessons of Carillion and Grenfell

Back in 1989, J K Galbraith addressed newly graduated women students of Smith College, Massachusetts. He was advocating the pursuit of simple truth and warning of the dangers posed by ‘institutional truths’. They were not truths at all, but overarching lies which had to be bought into if an individual was to survive and prosper in a particular setting.

Neoclassical economics was perhaps one of the most elaborate systems of institutional truths yet invented. Generations of dedicated economists have bought into it and then added further intricate detail of depth and breadth of institutional truth to the ideology.

The neoclassical foundation was built on simplistic assumptions of homo economicus, profit maximising business and a complete disregard for observed reality as well as for any wider context such as social and ecological systems. It also excluded any consideration of values and for the long term impacts of economic decisions. The maths simply was unable to accommodate such fundamental factors.

The generation of neoliberals associated particularly with Chicago University and in particular, Milton Friedman, added final touches to the ideology which was grasped by the Reagan and Thatcher administrations and has maintained its stranglehold on Anglo-America ever since. Those final touches include commitment to minimised flat rate taxation, minimised state involvement in the economy, minimised market regulation and the conversion of profit maximising business – which at least allowed potentially beneficial allocations of maximised profit – to shareholder value maximising which denominated everything, not just profits, as the property of shareholders.

The many institutional truths, that is lies, on which those various tenets of neoliberal economics are based have been well covered elsewhere on this website. Minimised market regulation doesn’t lead to competitive markets benefitting customers, but to markets regulated by financialised monopolists for their own benefit. Minimised government for the people by the people, doesn’t lead to freedom for the people, but to government by organised money for organised money. Minimised flat rate taxation doesn’t reduce the tax burden on the mass of people but on the rich monopolists who lead the self-perpetuating organised money establishment.
Continue reading The Lessons of Carillion and Grenfell

There is an Alternative

According to the current edition of the Economist, Britain appears to be questioning the wisdom of its devotion to ‘the liberal economic credos of its recent past.’ Those are the credos which include free trade with open access to unregulated markets, minimised public sector, and so on and so forth – the whole baggage of neo-liberal economics to which the Economist itself is committed.

This questioning was prompted by popular responses to the threatened closure and disposal by Tata of its British steel operations. They were said to be losing around £1m a day, at least in part as a result of Chinese dumping cheap steel on UK markets. The outrageous suggestion had been made that the Brits should protect their domestic industry by charging an import duty on Chinese steel so as to at least level the playing field. Thus the classic dichotomy was drawn up between the two childishly simple minded economic ideologies: free trade on the one hand; protectionism on the other. These are the tips of the two ice-bergs of neo-liberalism and totalitarian communism. Continue reading There is an Alternative

The Importance of Competitive Markets

The general purpose of all business should be to innovate and grow, developing technologies, employees and products, delivering value to customers and shareholders as well as for the common good (which includes for future generations living on this planet), through their operations in competitive markets. This is a worthwhile aim from which the economy as a whole and the general population should benefit. That is the arguable aim of ‘light touch regulation’. It is ‘light’ so as to avoid the bureaucratic strangulation of competition and the benefits that flow from it.

But there is a huge flaw in this reasoning. The basic assumption is that unregulated markets are competitive. But the reality is somewhat different.  While most markets are competitive when they first emerge, as they mature, the most successful players achieve greater market shares and in due course become dominant. Such markets are not at all competitive, but are in effect controlled by monopolistically empowered leviathans. Continue reading The Importance of Competitive Markets

Impending Disaster, made in Davos, by Bilderburg

Our world is headed towards disaster. That appears to be widely accepted; as are the reasons for it and what should be done to change direction to a safer, more sustainable, future. The Green Party exists for little else. All that is lacking is the power to achieve that change. Disaster is defined in many different dimensions: climate change, global population growth, unsustainable inequality of wealth and incomes within and between nations, global food insecurity and many other measures of impending doom. The underlying reason why those in power steer their disastrous course, always assuming they are not motivated solely by their own short term self-interest, is their belief in a fundamentally flawed version of what was formerly known as political economy.

Nobel laureate Paul Krugman flagged up one of the most basic errors of the currently dominant Friedmanite take on neoclassical economics [‘Challenging the Oligarchy’, Krugman, New York Review of Books, 17th December, 2015]. Friedman had argued that the development of monopolistic businesses was of no importance since it made no real difference. Krugman identifies that as one of Friedman’s fundamental errors. A complementary Friedman error was to claim business had no responsibility other than to make as much money as possible for stockholders. No wonder discredited ex-Barclays CEO Bob Diamond regarded Friedman as his ‘favourite economist’!

Market power has huge implications for economic behaviour. Failure over the past three decades to pursue anti-trust regulations vigorously has been a major reason for the economic trends we are now experiencing. Krugman identified two as of major importance: the financialisation of business and the ever increasing degree of inequality. Neither is sustainable in the long term, but it is unclear how their termination will be achieved.
Continue reading Impending Disaster, made in Davos, by Bilderburg

Fighting for Fairness in 2016

Fighting for fairness and social justice for the population at large may be a minority concern at Westminster, but it has considerable appeal beyond that bubble. The problem is how that legitimate, democratically supported pursuit might be achieved, without any un-British revolutionary disturbances. That is the recurrent problem for Parties seeking social justice for all. Traditionally, they only come to power following prolonged periods of social injustice. And the only Parties currently onside are the Greens and Corbyn-led Labour.

We’ve been here before. The 1929 Wall Street crash followed by Hoover’s austerity driven Great Depression. That ushered in Roosevelt’s presidency and the stimulus driven New Deal, the second wave of which he introduced as follows:
“We had to struggle with the old enemies of peace – business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering. They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that government by organised money is just as dangerous as Government by organised mob.” Was that really 1936?

That quotation is borrowed from “What a Waste”, a study of the disastrous social effects of outsourcing of public services to private business interests reviewed in the previous posting on this site. It also includes a quote regarding the disposal of public assets from Joseph Chamberlain in 1885:
“Some of them have been sold; some of them have been given away by people who had no right to dispose of them; some of them have been lost through apathy and ignorance; some have been stolen by fraud; and some have been acquired by violence.”
Continue reading Fighting for Fairness in 2016

Outsourcing: What a Waste!

Occasionally I have read stuff which seems so timely and apposite to work on which I am then engaged, that I’ve been motivated to provide an aide memoire of the text. This posting provides such a review of one 2015 text; it is not a summary and includes some personal interpretation; it is more a personal aide memoire of the opening chapter.

The book starts off with two rivetingly relevant-to-today quotes, one from 1936, the other from 1885.

Reading Review: What a waste: outsourcing and how it goes wrong, Bowman et al, 2015, Manchester University Press

Chapter 1 Outsourcing: organised money and disabled government

“We had to struggle with the old enemies of peace – business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering. They had begun to consider the Government of the United States as a mere appendage to their own affairs.  We know now that government by organised money is just as dangerous as Government by organised mob.”  F D Roosevelt, announcing the Second New Deal, October, 1936.

“The common rights of ownership have disappeared. Some of them have been sold; some of them have been given away by people who had no right to dispose of them; some of them have been lost through apathy and ignorance; some have been stolen by fraud; and some have been acquired by violence.  Private ownership has taken the place of these communal rights, and this system has become so interwoven with our habits and usages, it has been sanctioned by law and protected by custom, that it might be very difficult and perhaps impossible to reverse it.  But then, I ask, what ransom will property pay for the security which it enjoys?” Joseph Chamberlain, Birmingham Town Hall speech, January, 1885.

1.1 Introduction: The text addresses new problems created by outsourcing public services to private contractors. It considers the gap between efficiency rhetoric and delivery reality and between public service and the outsourcers’ profit maximising and tax manipulation.

Continue reading Outsourcing: What a Waste!

Budgeting for Climate Change

The aim of the UN climate change conference in Paris is to achieve a legally binding and universal agreement to reduce greenhouse gas emissions, so as to limit the global temperature increase to a maximum of 2°C above pre-industrial levels. Only then could this generation lay any claim to having fulfilled its responsibility to bequeath a sustainable planet earth.

Climate summits are notorious for agreeing targets and then not keeping to them. It is not clear how Paris will be any different. There are huge problems in the way of a committed agreement that could produce an effective and lasting solution. Not the least of which is the fact there will be 196 nations attending, all with different histories, cultures, economies and futures.

An example of these ‘local’ difficulties is the Philippines plan to build 23 new coal-fired power stations in response to growing electricity demand, all too frequent power blackouts and the fall in coal prices. They might, with some justification, argue that if developed nations want the Philippines to invest in renewable alternatives, they should contribute the additional cost.

These practical difficulties caused by the differences between different nations are only part of the story. A bigger problem was identified by MacKay in a Comment in the science weekly, Nature. Agreement would require an ‘upward spiral of ambition’ and the ‘science of co-operation’ in order to ‘harness self-interest by aligning it with the common good’. That head-on collision between the maximisation of self-interest and the protection and development of the common good, is the most fundamental of all the myriad of problems in ensuring the sustainability of life on earth. Solve that and the other difficulties could almost certainly be resolved. But achieving MacKay’s alignment will be difficult. It is not immediately clear how maximising self-interest can be aligned with the common good.
Continue reading Budgeting for Climate Change

Austerity a Vote Winner!

The media, including the Guardian, report that an independent poll shows the government’s austerity agenda is a vote winner. That conclusion is drawn from responses to a statement that “We must live within our means so cutting the deficit is the top priority.” Agreement was registered by 84% of Tory voters at this year’s election, 63% of UKIP voters, 58% LibDem and even 32% of Labour voters of whom only 34% disagreed. Therefore, the argument is, voters believe austerity is a Good Thing!

Everyone knows from personal experience that living within your means is important to peace of mind since living beyond your means generally has pretty disastrous results. So cutting the deficit is, of course, a top priority. But austerity is not cutting the deficit: it is just one possible way of achieving that end; and a horrendously inefficient one at that.
Continue reading Austerity a Vote Winner!