Money Money Money

Money has always fascinated me. I don’t mean in the grasping, I must have as of it much as I can get, sort of way. I mean in the sense that I find what we think of as money to be beautiful, interesting and educational. A bank note is a work of art, and it can tell a story.

I think I was about five years old when this first gripped me. My grandmother in Scotland had sent me for my birthday a ten-shilling note. I couldn’t spend it because we were overseas at the time, in Ceylon to be precise, where my father had been posted by the RAF. My father exchanged it for some Ceylonese rupees so that I could buy something when we next went to Colombo. Instead of one ten-shilling note, I had ten one-rupee notes. Some of them had the picture of a lady on the front whom I later discovered was our Queen while others had a Ceylon lion instead. I had ten notes instead of one; it made me think our shillings were very valuable.

It was a Bank of England ten-shilling note because there were no Scottish ones, but as I was to discover when we were home in Scotland two years later, there were a number of different one-pound notes from the Bank of Scotland, the Royal Bank of Scotland, the Clydesdale Bank and the British Linen Bank. Bank of England notes were also in circulation, freely accepted, unlike Scottish notes in England, but not Northern Ireland, Isle of Man or Channel Island notes. A fiver was seen about as often as a fifty is these days.

I also had the fun of getting to know the coins in circulation – half-crowns, florins, shillings, sixpences, threepences (silver ones as well as the dodecagonal brass coin), right down to the copper pennies, ha’pennies and farthings. They didn’t just have the head of Queen Elizabeth II on them. They had the heads of George VI, George V, Edward VII and Queen Victoria into the bargain. One of my pastimes became sifting through all the coins that came my way looking for Victorian ones. We still have a box of pre-decimal coins in the house but sadly, although a few are Edwardian, none is Victorian.

Children born after 1971, the year of decimalisation, or even those born in the late 60s, didn’t have this joy in their piggy banks. No saving silver sixpenny pieces in a Haig’s whisky ‘Dimple’ bottle for them either. All were swept away by decimalisation, the second great act of inflation I remember, although shillings and florins remained in circulation for some years afterwards, serving as 5 New Pence and 10 New Pence coins respectively. It would have to be five pence pieces in the Dimple bottle from then on – 100% inflation.

The first great act of inflation had been the Wilsonian devaluation in 1967 when the dollar exchange rate for the pound was dropped from $2.80 to $2.40 while Labour Prime Minister Harold Wilson reassured us:

 “The pound abroad is worth 14% or so less in terms of other currencies but that doesn’t mean, of course, that the pound here in Britain, in your pocket or purse or in your bank account, has been devalued”. 

Well, of course, it meant exactly that. It should have been my first lesson in the political inversion of truth, but it wasn’t.

Three years later I was at university and following economics modules for two years as a part of my degree course. I won’t say studying because, truth to tell, I found the subject deadly dull and not at all what I had been expecting. Topics the courses didn’t include which I had rather thought would be fundamental were money, banking and finance. Maybe those would have come later; I don’t know because I decided I’d had enough after two years of it; I graduated as soon as I could and went off to the RAF, all such stuff banished from my mind as I got to grips with the far more exciting prospect of becoming a pilot.

Over the next forty to fifty years the gaps were filled in by necessity as I flew through life becoming more economically and politically aware and accruing some assets. I read Adam Smith as, astonishing as it may seem, the Keynesian economics course at my Scottish university had neglected him. I also got to know Friedman, Hayek and Von Mises a little. However, it was the topic of money and finance that was really at the nub of things.

Thanks to the testimony before the US Congress of J P Morgan in 1912 we know that “money is gold – nothing else”. All other assets in the banking system—including all dollar bills and pound notes— are forms of credit, whose value depends on the belief, the trust, that the debtor will pay it back. Thus, credit is a Janus, it looks both ways, whereas gold is the only financial asset that bears no counterparty risk.

l’ll leave aside how we gave up sovereign money, came off the gold standard and allowed the central banks to control the money supply and concentrate on the defects of the fiat currency system we are shackled to. The money supply in Britain is treated relatively simply compared to the USA and the EU. In the UK we have only two official measures of money, M0 and M4. M0 is notes and coins in circulation plus banks’ reserve deposits while M4 is cash outside banks and in circulation with the public and non-bank firms plus retail bank and building society deposits and certificates of deposit. If you want more detail, you can read about money supply here.

It is well known that the central banks control the expenditure levels, and therefore the tax and borrowing policies of governments. Justin Walker, a long-time campaigner on money and banking,relates the story of a conversation he had with his uncle, Sir Harry Pilkington of the glass company who was also a director of the Bank of England. To the teen-aged Justin, Sir Harry had said:

“I’m going to give you two pieces of advice to take through life: Firstly, never believe anything you read in the press because we control it. Secondly, never, ever believe a politician when they say they can do something because they can’t unless we say they can.”

We know too that banks create money out of thin air when they make loans, and that the private central banking world is literally a law unto itself, controlling sixty central banks through the Bank for International Settlements. But more than that, other supra-national bodies are involved as many of the banks (all of them?) are also members of the World Economic Forum. Who can forget how the Bank of England effectively got rid of Liz Truss in 2022 after she and Chancellor Kwasi Kwarteng had planned to abolish the Additional Rate of Income Tax and cancel the planned increase in Corporation Tax?

United States President Joe Biden said he thought Truss and Kwarteng’s tax proposals were stupid, commenting that the Corporation Tax rate would be ‘harmful tax competition.’ Since when do foreign heads of state comment on the internal tax policies of other sovereign nations? Since when did the idea of ‘harmful tax competition’ between nations states gain currency? Only someone dead set on global fiscal harmony (governance) could come up with it.

Most readers will already know that the main British political parties are controlled by major donors in the banking cartel and corporations, that policy comes to them from NGOs, ‘think tanks’ and supra-national organisations. For example, climate change policy is virtually dictated by the UN IPCC, what our children are taught about sexuality comes from UNESCO and the measures which will be in Rachel Reeves’ autumn budget come from The Resolution Foundation.

The major expansion of the size of the state followed the creation of central banks and that was followed by the imposition of Income Tax for the first time in Britain in 1798 by William Pitt the Younger, supposedly as a temporary measure to pay for the Napoleonic Wars. It was abolished in 1802 then re-instated in 1803, abolished again in 1816 and re-instated for good in 1842. Ignoring the many ways in which the tax can be, and has been, varied to influence people’s decisions about how they work and live, its main function is as a means of stealing money from hard-pressed individuals and families so it can be redirected to government contracts placed with companies owned by the major banks and multi-national corporations. It is an upward wealth transfer mechanism as indeed are all taxes.

Now we arrive at the evil genius of fiat currency. It is currency only because it is declared so to be and it has gained acceptance even though it is not backed by anything tangible. The notes and coins are intrinsically worthless although they can be exchanged for items of immediate use or durable value.

As previously mentioned, money is created out of thin air by the central or retail banks on demand. For example, when someone applies for a mortgage, the sum is advanced to their bank account and entered on both side of the bank’s ledger. It matters not if the bank had no money on deposit which it could advance to a borrower. It then proceeds to charge interest on the loan of something which did not exist until the moment it created it. The borrower then has to satisfy the bank’s claim on their future labour in the form of the interest for however long the loan endures, turning the borrower at least partially into a slave. When the loan is repaid, the money is destroyed.

The greater the volume of money lent and debt created, and the faster it whizzes around in transactions, the more can be skimmed off in fees, commissions and other charges and turned into tangible assets by the bank’s shareholders and senior executives. Grand houses, yachts, luxury cars, private jets, works of art and gold are in this way acquired by a few. A loan is also an upward transfer of wealth which is why people should borrow only to invest, provided that the value of the investment will comfortably exceed the capital borrowed and interest charged. That is a calculated risk most of us will have taken at some point in our lives. Money should never be borrowed at interest to fund consumption.

The other great function of debt-based fiat currency which is not widely understood is that inflation is an inherent and unavoidable feature of it. Why else would the central bank have an inflation target? Inflation is an increase in the money available over and above the value of all the goods and services in the economy which means that prices will go up when there is more money available than products to spend it on. There will also be supply and demand adjustments which may counteract the overall inflation in some sectors of the economy, so it is not all bad news. That said, the main effect of inflation is that it reduces the purchasing power of currency so people who do not have an income increase above the inflation rate sustain a lowering of their standard of living. This happens anyway because pay, pensions or benefit increases to counteract inflation are always in arrears, never in advance. It is thus a hidden tax.

Inflation will always be with us while we have a debt-based currency, and it is always and everywhere a result of deliberate policy. Why? Because inflation is necessary to keep money whizzing around so fees, commission and other charges can continue to be collected and the size of companies’ and governments’ debt can be reduced bit by bit in real terms but, naturally, never entirely eliminated. Debts eliminated mean money destroyed. This means inflation is also behind the relentless drive to increase overall GDP, a claimed benefit of mass migration – although some may beg to differ.

Back to that ten-shilling note at the top. What is it these days? Fifty pence. Fourteen years after I received one from my Gran, I was a university student, and they were still in circulation. I could have gone into the St.Machar bar in Old Aberdeen and bought a round of four pints of McEwan’s Heavy and expect some change. Today, those pints would probably cost well over £20.

Money has to be fungible, affordable, durable, portable and reliable so that it can function as a medium of exchange, a unit of account and a store of value. Fiat currency has been a lousy store of value although it has helped bankers and financiers to get filthy rich in real terms as it was intended to do. The writer Robert Tressell identified as much in his 1910 novel The Ragged Trousered Philanthropists when he coined the term the money trick. With interest rates below the inflation rate, I would not recommend keeping much fiat currency in a bank or building society account for any great length of time. Is there a way out of this? Yes, there is. But that’s for another essay.