Accounting and the UK Exchequer

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Helen Schofield, Twitter and Facebook all drew my attention to a new report from the Gower Initiative for Modern Monetary Studies this morning. As Helen notes:

Off topic but to draw your attention to the following:-

https://new-wayland.com/blog/#Bonds%20Pay%20For%20Themselves

https://gimms.org.uk/2020/12/26/accounting-model-uk-exchequer/

https://gimms.org.uk/wp-content/uploads/2020/12/An-Accounting-Model-of-the-UK-Exchequer-Google-Docs.pdf

Why should we be surprised sleights of hand are a specialty of the British establishment when, for example, in 1694 a private joint-stock company could start issuing hard copies of the currency (medium of exchange) piggy-backed on a retirement process enforced by the government!

The paper is entitled An Accounting Model of the UK Exchequer and is by Andrew Berkeley, Richard Tye & Neil Wilson.

I think I should give fair warning that this paper is long and is not an easy read. Why the authors thought putting out such a long paper without a summary t be a good idea slightly defeats me. The best there is can be found in the postscript on page 111. And having noted that I will not summarise it all.

As I read it the paper says little I disagree with. It argues that the power to raise tax is the foundation of what they call ‘moneyness ’ and as such the Consolidated Fund in to which all government funds are aggregated is the power behind the UK Exchequer.

As they rightly argue, it is also a fact that the UK Parliament can authorise spending whether there are funds in that source or not.

They also rightly argue that all the arrangements around the Bank of England and Debt Management Office to issue debt and clear balances are largely charades, and necessarily have to be when in practice conditions of uncertainty exist around their operation meaning that the Treasury and its guarantee has to always underpin their operations.

The conclusions do support the fact that the Treasury functions, in their widest sense, operate as MMT says.

That said, and I stress I have not read it all as yet, there do appear to be limitations to the work. First, I have some minor quibbles. For example, I think there is a difference between my view on base money, which only includes central bank reserve accounts and the views of the authors, who seem too include all bills in issue. These are worthy of discussion, but are not major disagreements.

Second, and more important,  the intention to prove MMT also limits the usefulness of the work. Whilst showing MMT is right in the sense that spend  comes first, tax come second and debt issuance is not necessary, is useful establishing this is not a sufficient condition to argue for change as a result.

Of course, doing this does reveal that the arrangements around so-called independent central banking and the claimed dependence on the money markets are a sham, but that is (I think) already known. What I cannot agree with is the implication that none of the resulting structures really matter, which has long been my bugbear with some in MMT.

How we tax does matter.

What role the government plays as borrower of last resort (and so as the provider of safe savings opportunities) does very much matter.

And presuming gilts are just money is to deny other roles that they play for which as yet we have no substitute.

Technically this work looks to be important. If it had a good summary it would be even better (and Neil Wilson’s blog post does not provide it).

But what really matters now is discussing what this means. In other words, given that we know that the government is playing games to restrict the access to money to provide public services that are essential what can we do to create a new narrative that empower an alternative politics.

I will read the piece in more detail, but not today. But it does not answer the question, what next? Its use is in saying where we are. And that’s important. But what cannot be assumed is that wiping away all the structures referred would have no consequence. It would. As a result the repurposing of structures requires much more thought as yet.