The National Liberal Party produced a leaflet last year entitled ‘The Credit Crunch’ which sought to explain how we had got ourselves into todays economic mess. Most commentators agree that it was the private banks greed that encouraged them to over-speculate with their lending. The Government (with cross-party support) had deregulated lending and thus few restrictions were in place to put a brake on any over speculation. Given that the benefiting financiers were making generous contributions to political party coffers was hardly likely to encourage political scrutiny.

To bail out the banks when in trouble the Government underwrote their loans to allow the system to continue trading and thus keep the economy alive. If banks went down then we would too.

The problem was (apart from the buying of patronage via political contributions) that the economy had become reliant upon the banks lending money into society. The bubble of creating ever greater ‘profits’ via interest on those loans was bound to burst. Such profits were created by transferring the earnings of business to the lender and speculator. They had so much money in this way that bankers could afford to pay themselves grossly inflated bonuses much to the disgust of the average working man.

The upshot of the bailout is that the State OWNS MOST OF THE BANKS. Our leaflet went on to suggest that instead of handing these back to private hands that they be conglomerated into a new National (State) Bank. Being not-for profit and run by salaried civil servants they could afford to charge lower fees (preferably rather than an interest rate).

Many Libertarians support Money Reform but worry about swapping one private tyranny with a state one? Below is an article supplied discussing the possibility of maintaining private banks with a state one. We welcome contributions to this debate because like the need for electoral reform, Monetary reform is not if but when?

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ESTABLISH A STATE BANK

The Nation’s money comes from two primary sources, first the State which prints paper money and mints the coins (and also raises bonds) and second from the commercial banks which provide credit.
Up until the early fifties the ratio of notes and coins to bank-created credit was roughly one to one. In 1948 for instance, the State had issued and spent debt-free into circulation £1.3 billion notes and coins, and the banks had out on interest-bearing loans to their customers £1.4 billion.
The only cost of money created by government is that of minting — a small fraction of its face value. This physical cash is spent into circulation when it is sent to the clearing banks and the government account is credited with its full value.
This is called “seigniorage”. In the old days it was a perk of the Sovereign, hence the name, but in a modern democracy this value accrues to the People, as it is credited debt-free to the public purse.

END THE MONOPOLY OF PRIVATE BANKS

This article proposes legislation to end the virtual monopoly of private commercial banks and to establish a Seigniorage (Seignior) Bank — you could call it a “State Bank” — which will provide a source of debt-free money to the State, enabling it to finance the creation of public assets.
This bank will be 100% owned by the State, and chartered to act exclusively as the State’s bank.
It will participate in the commercial bank clearing system. It will be additional to the Bank of England, which will continue to function as at present.

HOW A SEIGNIOR BANK WILL WORK

Instead of the Treasury issuing government bonds (which are, in effect, government IOUs to the banking system) the Treasury will issue Treasury Credits to the Seignior Bank.
These “Treasury Credits” will be denoted in sterling — and be equivalent to the National Currency.
They will be legal tender in the hands of the commercial banks and have the same status as coin and paper of the Realm.
The same security which renders government bonds ‘as good as gold’ endows the same credibility upon the government’s issue of “Treasury Credits” to the Seignior Bank.
As Thomas Edison said: “If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good … It is absurd to say that our country can issue $30,000,000 in bonds and not $30,000,000 in currency.” [Quoted in The New York Times, 6 December 1921]
The “Treasury Credits” will be equivalent to the notes and coins to which Edison refers.
This money will only be available for government backed projects. It should be regarded as a supplement to taxation income.
Just as seigniorage on newly issued cash is credited to the Public Account, so are “Treasury Credits” — both are money in the hands of the public and the banks.

HOW THIS MONEY WILL ENTER SOCIETY

Say, for example, the government says, “We need £1 billion pounds to pay the contractors to build new hospitals.”
The Treasury will create £1 billion in “Treasury Credits” and lodge them with the Seignior Bank.
The money will move from the Seignior Bank, into society in the following manner.
The appropriate Government Department will write a cheque to pay a particular contractor.
The cheque is drawn on the Seignior Bank.
The contractor then takes it along to his own bank, and pays it into his private bank account. The cheque is then cleared through the Association for Payment Clearing (APAC) system, as usual.
The private bank is paid in the “Treasury Credits” which are, in all respects, equal to cash, and the contractor’s private bank account is credited with the appropriate amount in sterling.
Administered responsibly, just as the State has issued debt certificates and debt-free cash responsibly for donkey’s years, the ability of Government to create its own debt-free money could create real economic activity, employment and wealth.
This would go a long way towards eliminating the present anomaly of the nation’s unemployed human and material resources stagnating due to a lack of money. We could dispense with the eternal ‘either or’ debate and start work on the tasks and desirable projects currently awaiting public funding.
If we ever did get back to the two or three per cent unemployment of the fifties and early sixties, that would be time enough to debate the ‘either or’ priorities again.
The State would also have the ability, or “discretion”, to intervene on those not infrequent occasions when the private financial sector overheats and needs to contract its lending to protect its shareholders from a perceived risk.

HOW MUCH SHOULD BE CREATED?

The conservative view might be to argue that the volume of money to be created should relate to no more than the loss of past seigniorage, calculated back to an arbitrary date, say 1960, when the ‘natural’ rate of seigniorage started to decline.
This could be released progressively and thereafter new money would be linked to the Bank of England’s assessment of the annual increase in the total volume of commercial bank credit which would have been projected for the coming year.
James Robertson and Joseph Huber calculated in their book Creating New Money (See Prosperity, August 2000) that the loss of seigniorage — that is, the loss of the value of the new money which would otherwise have been credited to the public purse — costs the UK government around £49bn per annum.
This might be a good guide to the amount of new State money to be created initially.
However, it’s easy to be obsessed with numbers and the ‘amount’ of new money to be created.
The right amount is sufficient to finance that which is socially desired but insufficient to devalue spending power and induce inflation.
There is no formula for this, any more than there is a formula for the amount of bank credit which currently provides 97% of our money supply. Given adherence to its Charter and the over-riding stability imperative, the extent of the Seignior Bank’s money creating powers would be reviewed, having regard to any surplus or shortfall in the Nation’s human and natural resources.
Thus would government find the money to finance the public sector and, given responsible management, maybe even reduce taxation and give a boost to the real economy.

COMMERCIAL BANK SYSTEM COULD BE LEFT AS IS

The commercial banks may not appreciate losing their monopoly on the annual round of increasing Bank Created Credit to the new Seignior Bank.
However, there may not be any need to restrict the traditional credit creating power of the commercial banks.
They create credit according to demand, and the amount of that credit is limited by the normal banking constraints of security and repayment.
Moreover, there is likely to be additional economic activity created by increased public spending which will compensate them to an extent.
No doubt the banks would prefer to lend new credit at interest to the Private Finance Initiatives and Partnerships virtually secured on government bonds — but there will now be no need for such schemes, and the banks will just have to accept the loss of that particular profit-making opportunity.

BENEFITS OF BREAKING THE BANKING MONOPOLY

Monetary reform of this nature is prompted by a desire to re-establish a reasonable public sector presence in a mixed economy.
If the new debt-free income is not used for additional public investment then the social benefits will not accrue. If, for example, the new debt-free income is simply offset by an equivalent private sector tax cut then all will have been in vain and nothing new will have been created.
There is a good argument that the nature of this investment should be precisely defined. It is easy to make the case for public buildings and infrastructure, perhaps less so for investment in ‘social’ capital, ie training more doctors, teachers and nurses or increasing certain social security benefits. This will require some basis in legislation and is perhaps also a constitutional matter for the judiciary.
In the final analysis, it is the administration which the voters empower which will make the decisions, not the unelected bankers.
A Bill to break the monopoly of the banks and establish a State Bank would spark a debate which would lay bare the stranglehold the banks hold over public investment.
Perhaps the most important side effect would be to stymie the ambitions of huge financial and multi-national conglomerates to reduce democratic government to their own private puppet show.
The discovery that there might indeed be another way to run an economy may be sufficient to bring back the apathetic, who absent themselves in increasing numbers from the voting process.
Understanding the potential of Monetary Reform is only one factor in helping the honest politician resist the corruption of Money Power.
There is bound to be resistance to such changes, but managing the monetary system must be effected in the interest of the Nation. Given the will, there is no shortage of money for public services.

HAS NICK CLEGG SOLD OUT ON THE PRINCIPLE OF PR?

Whilst the parties sat in long talks over who would form the next Government at one point John Redwood (Conservative MP) stated that the current situation was “a disaster for British democracy” and that it was “all that some of us feared about hung parliaments. There’s complete chaos and confusion. I think the Liberal Democrats feel they can dictate everything to either of the two main parties”.

Following the announcement therefore that the Liberal Democrats (LDs) are going into a coalition with the Conservative Party one might wonder what they ‘dictated’? In truth the Conservative concessions are in fact a bitter blow to genuine i.e. conviction driven Liberals. This is not so much over the possible policies of such a coalition, a propping up of a Conservative Party or the failure of a so-called “Rainbow/Progressive Alliance’ but with the price the LD’s ‘dictated’ (sic) for their support.

NO PR?

That price (beyond positions for the professional politicians) is a referendum on introducing the Alternative Vote (AV). Yes, after years of bemoaning a system that ensures that the top two establishment parties form Governments on a minority vote, after complaining that the LDs (and others) never receive a fair number of MP’s commensurate with their vote, after pointing out that the ‘political constituencies’ that exist (and would probably increase without the ‘wasted’ vote) are rarely reflected if at all in Westminster, they settle for that?

The AV works by topping up candidates votes by removing the lowest contenders second preference votes (given to them by their voters) until a candidate eventually reaches 50% and is then elected. This is the system presently used to elect London’s GLA’s Mayor. It may result in a more ‘consensus’ candidate being elected but it certainly isn’t a fairer system.

A FAIRER SYSTEM

A fairer system is one that produces a Parliament that more reflects the political ‘divisions’ within the country. This is why the system(s) that does so is called Proportional Representation’. There are various systems on offer with different checks and balances but all attempt to reflect the countries political ‘mood’.
The arguments about the benefits (and costs) of First Past The Post, such as a clear, strong Government, have been debated elsewhere but the choice about which electoral system we could end up with was with the Lib Dems, a party committed (allegedly) to electoral reform based on PR.

Now it is probable that the Conservatives would not have offered any more than they have. After all they said so and given their anathema for electoral reform it is likely so. So what were the alternatives?

‘AV PLUS’ SYSTEM ON OFFER?

The only other possibly was a deal with Labour. Now we are told that AV would be brought in (this was in the Labour manifesto) and a referendum offered on PR (a package branded as AV+). On face value this seems to be a far better deal since it would have given the Lib Dems the chance to obtain what has been one of the most important principles. Why then wasn’t it accepted?

Well Lib Dem sources suggest they were concerned that Labour couldn’t deliver i.e. bring their own MPs in line. There were rumblings from the latter about the value of doing such a deal but their main complaint seemed to be about a lack of briefings let alone consultations with them. The actual prospect of retaining power, albeit in a coalition, may well have persuaded them to accept any deal.

The other concern was over the stability or lack of it with such a coalition. The combined Lib-Lab number of MPs is 315, 11 short of an overall majority. This would have meant relying as partners or otherwise upon the minor, largely Provincial MPs (DUP, SNP, PC etc). Obviously that would be a more precarious arrangement compared to a Lib-Con Coalition of 365.

WHY THE TORIES AND NOT LABOUR?

However with all Coalitions, particularly in a country without that experience, are fragile and may fall. Whilst the arithmetic of a Lib-Con pact is stronger than a Lib-Lab one if the LDs fall out with the majority partner the coalition and thus the Government will fall regardless. So why did the LDs plump for the Tories and not Labour?

Most Lib Dem MPs are left of centre, many may even have been previous Labour voters if not activists. Many of their policies are similar. Many of their most serious opponents are Conservative and some are elected by Labour voters voting tactically. The policy deals on offer would clearly favour a Lib-Lab pact.
What we don’t know of course is what Labour were offering in terms of a partnership i.e. what cabinet positions were on offer? What we do know however is that Nick Clegg was offered by the Conservatives and accepted Deputy Prime Ministership and four other LD MPs as Ministers plus a further 14 posts. Have they accepted therefore the Tory coin for status and squandered a once in a lifetime opportunity to get PR?

A PRICE WORTH PAYING?

If they had accepted the Labour offer and held a Coalition together, at least until they had had a referendum on PR, and they were punished for the failure of the Coalition (if it did fall) in an ‘early’ election or for propping up a Labour run Government (although more LD voters may punish them for propping up a Conservative one!) it would be a price worth paying.

Any PR system would give the LDs (and smaller parties) more seats even with a potential (hypothetical) fall in their national vote and in time the LDs could ‘bounce’ back to be contenders as the majority party in future, but that now seems lost?

LOST OPPORTUNITY

As National Liberals we support the concept of political partnership including Coalitions but Nick Clegg had an opportunity in his grasp to funamentally shake up the political system by giving the people a chance to voting in a fairer electoral system. He has failed his own political tradition let alone the electorate in exchange for status and patronage not least for himself. Will Liberals one day curse his name?

National Liberals

www.nationalliberal.org
natliberal@aol.com

(Free to circulate with due recognition)

SHOULD THERE BE A COALITION GOVERNMENT TO TACKLE CRISIS?

IN FEBRUARY, we featured an article – Youth unemployment – in which a National Liberal Party spokesman put forward several ideas to tackle youth unemployment. They included meaningful training schemes, apprenticeships and jobs.

Now the same spokesman, NLP National Secretary Mr. David Durant, has turned his attention to another economic issue – the foreign ownership of British industry.

To illustrate his concern, he looked at the recent closure of Teesside Cast Products (TCP) which was based in Redcar.

TCP is owned by Corus, “a customer focused, innovative value-driven company, which manufactures, processes and distributes steel products and services to customers worldwide.”

Corus describes TCP as a ‘Long Products Division.’ Corus, in turn, describes itself as “Europe‘s second largest steel producer with annual revenues of around £12 billion and a crude steel production of over 20 million tonnes.”

Corus is a subsidiary of Tata Steel Group (TSG). Based in India, TSG is part of the multinational Tata Group. As well as steel, the Tata Group has interests in cars, IT, communication, power, tea and hospitality.

TSG took over Corus (itself an Anglo-Dutch concern – formed in October 1999 through the merger of British Steel and Koninklijke Hoogovens) in January 2007. Tata Steel purchased a 100% stake in the Corus Group, a deal which is thought to have cost $12.04 Billion. The deal represented the largest Indian takeover of a foreign company and made Tata Steel the world’s fifth-largest steel group.

Mr. Durant – who is also a member of the Executuve of the trade Union Solidarity said he was worried by this sort of foreign ownership of British industry.

He also expressed support for the view of Pat Harrington, the General Secretary of Solidarity. Mr. Harrington had noted:

“If the Government can find the money to prop up the banks – and bail out the fat cats – why can’t they help ordinary British workers?”

Mr. Durrant said that as “soon as the steel industry in Teesside got into trouble, it should have been nationalized.”

Mr. Durant also expanded on his views regarding the ownership of British industry:

”Anything that is vital to national sovereignty of Britain should be nationalised. For starters, all heavy industry, energy and national transport like the trains should come under state protection.

I’m not interested in a policy of imperialism but Britain should be able to defend herself. We shouldn’t be in ridiculous position of having to have foreign-owned concerns build any part of our defensive capabilities. We must retain the capacity to build ships, planes, tanks, weapons and so on.

How these vital industries (operating under state protection) run themselves is another problem. Is there any point in replacing ‘international’ capitalism with ‘national’ capitalism. I don’t think so! The best solution would be for the workforce to have actual ownership of the workplace. In my view that would be best run on some form of co-operative or national syndicalist lines.”

The following should be read alongside this article:

Pension age to be raised? http://www.solidaritytradeunion.net/news-mainmenu-52/276-04012011-pension-age-to-be-raised
Youth unemployment soars. http://www.solidaritytradeunion.net/news-mainmenu-52/266-11122009-youth-unemployment-soars
Dave Durant attacks foreign ownership of British industry. http://www.solidaritytradeunion.net/news-mainmenu-52/300-07032010-dave-durant-attacks-foreign-ownership-of-british-industry.

National Liberal supporters were out in Hornchurch today promoting the NLP candidate David Durant for a forthcoming by-election in London borough of Havering.

In blazing sunshine some seven workers asked shoppers to support a petition raised by the candidate in support of a Village Green. The land in question lies within the ward and has been threatened with development by the Council. Due to David’s efforts a Public Inquiry will soon be convened to decide on the merits of the case.*

Any voters from the ward were also asked whether they would consider voting for the NLP candidate. Since the vast majority said they would we await the results of the poll on Thursday with some confidence!

* If succesful a Village Green cannot be built upon without an Act of Parliament.