This letter was sent by the Scottish Currency Group to The Herald newspaper in Scotland yesterday in response to the LSE report I referred to in this blog yesterday. I was one of, I think, 56 signatories:
Dear Sir
We wish to respond to the report by the LSE which was reported in The Herald on February 3rd 2021.
It is unfortunate that your coverage of this LSE briefing displays such an unbalanced assessment that it can only be regarded as pro-union propaganda. The report contains several important caveats, which read as follow:
In this briefing, we restrict our analysis to trade effects and do not consider other potentially important economic effects of Scottish independence, such as changes in investment flows into and out of Scotland, whether Scotland continues to use sterling as its currency and the fiscal implications of independence.
Unlike your reporting we will be clear and objective. It is entirely possible that Scotland will be poorer after independence. But such an outcome will not be caused by independence — it will be the result of poor decisions and mistakes in the management of Scotland's economy, and in this broader context the impact of any new trading arrangements cannot be predicted in isolation. The truth is that the possible post independence scenarios are almost infinite and fundamentally unpredictable and un-quantifiable. We should never be drawn into futile arguments about hypothetical numbers, especially in the case where they are a product of such a narrowly framed analysis.
What can be said with confidence is that with our own currency Scotland will have greater control over its destiny — not absolute control as we a part of a globally connected economy, and any trade arrangements always involve some compromise for national sovereignty. We can, however, say with certainty that having our own currency will provide the country with greater autonomy and there is no reason to suppose that Scotland will be the weaker partner in any trade negotiations. We may be, but we may not — it depends on what other decisions are made with regard to the management of our economy.
The first mistake we can make is to adopt the prescribed economic policies set out in the Growth Commission Report. The second mistake we could make is to delay the adoption of the new currency. If we commence the new currency immediately after independence our freedom of action is widened in many areas of economic management.
The next mistake we could make after independence would be to replicate the UK's banking and financial regulations. Who can say whether Scotland will make this mistake or not? — again it is unpredictable. We hope we don't make such a mistake, and we will do whatever we can to prevent it, but nobody can say that we will succeed.
Neither your newspaper nor the LSE economists have any idea whatsoever whether Scotland will choose wisely or not — that is unpredictable. The LSE report is subject to so many caveats that it is a pointless exercise except as a weapon with which to try and scare the people of Scotland out of their wits.
Even if we take the analysis based on the impact on trade, there is an assumption that trade patterns will continue as at present without taking into account the highly probable effects that climate change and biodiversity loss mitigation will have on economic activity and resulting trade flows. Trade flows may well change rapidly and such uncertainty defies any meaningful quantification.
If we keep mistakes to a minimum there is a very real probability that Scotland will emerge as a more prosperous, more productive and more environmentally sustainable, free nation. To quote the words of Franklin D Roosevelt — “there is nothing to fear but fear itself”.
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Has the letter been published Richard?
I am not sure
The letter has not been published in either The Herald, Scotsman, Guardian or National this morning from what I have seen.
I think your heading is very appropriate. To move forward however Scotland also needs to air its dirty washing. As soon as possible.
https://yoursforscotlandcom.wordpress.com/2021/02/05/the-police-state-moves-closer-2/
YES, I totally agree with the Scottish Currency Group!
And 1 thing is for certain is that an Independent Alba Wont be any worse off, and probably a Great deal better off, than under the Control of WasteMonster!
I am like Many Scots, I wish England well, But We Do have the People in Scotland to be as Successful as Denmark, Norway & Sweden, who are All Independent & Sovereign Countries, Saor Alba!
How ironic that a Scottish Independence Movement that presumably is a movement because it wants greater democratic control for what it sees as a nation doesn’t automatically also see the need for a Democratic Money Theory!
They may as well pack up their politicking and go back to shouldering the English monetary yoke because they aren’t yet a truly “democratic” movement as such!
some of us do Helen……that is the whole raison d’etre of the Scottish Currency Group
@ Jim Osborne
I’m sure Jim you are fighting gallantly for the SNP to have a Democratic Money Theory. I was pointing out the ironic discrepancy of the party wanting more democratic control over the fate of the Scottish people but despite most people working all their lives to receive currency (money) the party doesn’t have any clear democratic theory about how that currency should be created.
This, of course, isn’t to target the lack of thinking adequacy of the Scottish people (I’m 7% Scottish by the way according to my DNA analysis although I’m somewhat sentimentally torn as a mongrel having the same percentage from Ireland and the Basque country!) it’s also true of the English and Welsh who don’t appear to have given much thought to the notion of currency creation being governed by democratic principles.
In response to Helen throwing down the gauntlet of needing a Democratic Monetary Theory I will report as follows.
I have now reached Chapter 9 of Felix Martin’s book “Money” and at page 139 something very powerful hit me. He speaks of the contradiction confronting monetary societies – how to achieve adaptability and change (he uses the term “fluidity) whilst also achieving stability. Well folks I have good news for you all – this is exactly what “evolution” has achieved – the evolution of life from single celled organisms to complex organisms such as humans (and even the evolution of life itself from non-life) has been achieved because complex chemical networks have evolved to what Stuart Kauffman called “the edge of chaos” (his book “At Home in the Universe” is probably the most important book ever written by a human being since humans discovered writing) – this is where complex system can both reconcile both adaptability and stability. Monetary societies are still evolving to this “edge of chaos” and in the process we see a history of period of stability punctuated by great disruptions and chaos before a new equilibrium is found. To find the “edge of chaos” and reconcile adapatability with stability is the quest for Democratic Monetary Theory.
In my opinion Richard is doing heroic work in exploring where we can find this “edge of chaos” solution – and his hypothesis about “hypothecated bonds” strikes me as a key element in finding this solution because it is the means whereby we can decentralise the monetary system which will provide fluidity whilst a central monetary authority provides the stability. The solution is the principle of “subsidiarity”.
Crikey (a word I still have some affection for)
Let’s not overdo it. I just write a blog 🙂
Yes you do Richard but this scientific background just proves to me you are charting the correct course. 🙂
@ Jim Osborne
Felix Martin’s book is an excellent book. I wish I’d read it alongside Christine Desan’s “Making Money: Coin, Currency and the Coming of Capitalism.” and Moshe Arye Milevsky’s book “The Day the King Defaulted: Financial Lessons from The Stop of The Exchequer.” before I wrote my long post “Christine Desan’s Work In Relation To MMT.”
I only have one minor quibble with Martin’s book I wished he’d introduced earlier in his book rather than later Desan’s point that that it was the need to deal with collective issues in a society/nation that kicked off the government/sovereign invention of money technology and this created the market which led to capitalism.
In regard to throwing down a gauntlet for the creation of a Democratic Money Theory Martin does it in the final last two sentences of his book. Indeed the whole book leads up to these:-
“It is never to forget that the monetary standard must be both efficient and fair – answerable to the needs of both commerce and government – if money is to work. And as I hope this book has demonstrated, only genuine democratic control of the monetary system can ensure that.”
In regard to the need for what I term “volatility” (Kauffman’s “chaos”) in life I like Holmes Rolston III’s explanation that it drives evolutionary complexity alongside an embedded Golden Rule. This is to be found in a chapter entitled “Care on Earth: generating informed concern” in a book edited by Paul Davies and Niels Henrik Gregersen called “Information and the Nature of Reality.” Rolston quotes Stuart Kauffman in his chapter but I find Rolston’s writing more comprehensible and insightful.
https://mountainscholar.org/bitstream/handle/10217/39368/Care-on-Earth.pdf;sequence=1
Rolston by the way is regarded as the “father of environmental ethics.” He’s still a professor of philosophy at Colorado State University I think despite his great age.
https://libarts.source.colostate.edu/qa-with-holmes-rolston-life-persists-in-the-midst-of-its-perpetual-perishing/
Helen – thanks for the link to Rolston. I took a quick scan read over the first few pages. That has left me with the impression that his enquiry is not so penetrating down to the fundamental laws of evolution as Kauffman’s work. “At Home in the Universe” is not an easy read but when I read it for the first time in 1999 I understood enough of it
for it to fundamentally alter the way I look at things and I have gone back to re-read it several times since, including during the spring of 2020, after which I lent it to a friend. Every time you read it you learn something else new and gain a deeper understanding of ideas and concepts which didn’t sink in properly the previous time(s).
I have read other authors on “complexity” “emergence” etc but none of them achieve the depth of understanding you get from Kauffman…he is pure genius…and generous enough to credit others with discoveries that he missed – in particular the concept of “constraint closure” which he integrates into his theories in his most recent books.
@ Jim Osborne
Rolston’s chapter is about why the fundamental laws of evolution are there and why they work the way they do. A more philosophical take if you like but still pragmatic.
Very pleased at this cogent reply to more yoon nonsense. I am a long time committed independista but not qualified in any financial capacity apart from life experience. Despite the latter I have opinions and one of those is that we should proceed straight into our own currency on Independence Day.
One thing that the Scottish people need to be made aware of is that the permission for the 1694 private joint-stock company known as the Bank of England to create money from nowhere in the form of banknotes was a democratic decision made by Parliament.
This decision known as The 1694 Bank of England Act, or The 1694 Tonnage Act, was in effect a time-limited licence given to the joint-stock company that continued to be renewed until 1946 when the company was nationalised and the British government took over creating the banknotes from nowhere. The government continues to issue these banknotes along with coinage. Today with the advent of computers they also create money from nowhere electronically. The premise of creation therefore has not changed just the technology.
All of this currency creation firmly remains as the outcome of democratic decision. It can be said that all these activities I’ve explained stem from what we should understand as Democratic Money Theory. Such theory is as valid and applicable to Scotland as it was in 1694 when the design of money evolved and subsequently provided impetus for an Industrial Revolution.
What is Democratic Money Theory and why do we need it?
At its simplest it’s the recognition that only a democratically agreed government decision process to retire money mostly through taxation allows value in money to last the longest.
Underlying the collective decision to use money technology, however, lies the adaptive understanding a society’s well-being rests to a large degree on being able to mobilise resources, especially human labour, in diverse ways. Maximising value stability in money therefore prompts trust for resource mobilising.
The factors Democratic Money Theory needs to encompass are therefore four-fold — volatility, trust, mobilising, and money bearing instruments.
LSE that bastion of financial learning awarding degree certificates at a cost only the rich can afford LoL .
I have to say what it is that I see and all this ‘froth’ in the SNP at the moment has me worried.
Are those being frozen out the ones who support a true Scottish currency (the best way forward in my View)?
Are the ones bedding themselves in the SNP Blairites who will benefit financially from their political position?
Or is it the other way around?
And ‘Democratic Money Theory’? I must say – I like the sound of that.
The SNP is freezing out those get MMT and is truly Blairite at its core right now
Yesterday I think I was wrong to say the following:-
“I only have one minor quibble with Martin’s book I wished he’d introduced earlier in his book rather than later Desan’s point that that it was the need to deal with collective issues in a society/nation that kicked off the government/sovereign invention of money technology and this created the market which led to capitalism.”
Having made the quibble I thought I ought to re-read Desan’s chapter in her “Making Money” book on the matter which is at the start of her book. In fact it’s the first chapter after her introduction. It’s entitled “Creation stories” and in the process of telling us about the virtually moneyless period in Britain from approximately 410 AD to 610 AD after the Romans had left on page 41 she says the following:-
“Transferring goods between individuals … is hard enough … in a society that is truly illiquid. … individuals can get by in subsistence production, making one-off exchanges, or with idiosyncratic arrangements between reciprocating partners. Mobilizing the material resources and labor of a group is far more difficult. The goal may be defending a territory or taking more of it, clearing and cultivating common space, or policing, educating, or caring for people.”
The key word in these sentences is “mobilizing.” Most of us don’t really know why we’re here on this planet including me who’s not ultimately entirely sure. One thing is obvious though there appears to be a “mobilising” element embedded in life. Why else would life develop complexity to the point where one species develops the use of language (including numbers, an Arab invention) both spoken and written?
The same applies to the creation of money it’s a mobilising facility which helps human beings to organise and diversify their activities, the latter activity can of course be referenced to Adam Smith famously saying much of the success of the Industrial Revolution lay in the “division of labour.” Indeed we know the Renaissance (the re-discovery of all things Roman and Greek) preceded the Industrial Revolution and it’s almost as though the 1694 Bank of England Act or Tonnage Act in England with the privatised “collective” issuing of paper banknotes picked up where the Romans had left off in England and Wales!
So the point I’m trying to make is that we need to recognise two things about money; in the first instance it’s there because it’s a collectively agreed mobilisation tool for human well-being, and in the second its collective origination has to be democratic because in order to provide value stability for the longest possible period there has to be the “collateral element” which is the reflux or retirement process of much of the created money and this is mostly through taxation.
Taxation was, however, one of the impetuses for the American Revolution “No taxation without representation!” but lesser known is that it was also the need for adequate liquidity to develop the colonists’ economy which the British government wasn’t providing. The 1694 Bank of England Act provided the same liquidity revolution. For Scotland to push for its own independent currency should therefore be seen clearly for what it is a liquidity mobilisation act!
For monetary societies to thrive they have to reconcile stability and fluidity otherwise the only way they can change is through disruptive crises….that’s the history of money I think. Stability is not sufficient because circumstances change. You really should read Kauffman….its not easy but did progress happen by taking the easy route?
I strongly believe the solution to the problem of reconciling stability and fluidity (adaptability) is by adopting the principle of subsidiarity in the monetary and banking system and in our system of governance.
Hypothecated bonds are an important element in achieving this I think but other “rule changes” are needed too
(1) prohibit debt being treated as a commodity (by providing state backed credit risk insurance) (2) prohibit compound interest (simple interest only). I think credit can still be treated as a commodity (secondary markets for gilts with the back up of QE when liquidity is required) – gilts should not continue to be issued via preferred banks though – no middleman other than possibly a function of publicly owned stock exchange(s).
@ Jim Osborne
“reconciling stability and fluidity (adaptability/change)”
I think both Kauffman and Royston are saying the same thing. (I checked my Amazon record and did buy Kauffman’s book “At Home in the Universe” in 2017 but can’t find it know. I think rightly or wrongly I gave it to charity because I found the writing turgid a frequent complaint of reviewers on Amazon about the book. You clearly have greater patience than I nevertheless I’ll try again on your recommendation and have just re-ordered it.)
“did progress happen by taking the easy route?”
On the face of it progress in the sense of amplifying the Golden Rule did appear to happen easily and by accidental chemical change according to the following argument:-
https://www.researchgate.net/publication/247759661_Evolution_of_Parental_Caregiving
I don’t really buy this argument because of the development of hologenomics. Put simply from a limited number of simple cells on this planet the Golden Rule (allowing for the need for these cells to seek energy for survival by eating other cells) resulted in complex cellular entities such as ourselves.
So is an embedded Golden Rule an easy route? I don’t think so you only have to look at Donald Trump who had a maladaptive childhood as far as the Golden Rule is concerned. A maladaptive childhood is clearly change but a change in what direction? I’d like to think it reinforces the need for democracy which is really the Golden Rule:-
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3471369/
Democracy of course underlies the creation of money. See Chapter One of Christine Desan’s book “Making Money: Coin, Currency and the Coming of Capitalism” for a fairly exhaustive explanation. Also note the setting up of the Bank Of England in 1694 which sanctioned the introduction of a new medium of exchange (paper banknotes) under licence (charter) by act of Parliament, a democracy. Note too that multiplying of the medium of exchange by private banks is done under government licence. The rescue of them also takes place by government created money when they get into trouble.
As we now know from the Gimm’s recent paper whilst government created money is hedged around with Parliamentary created legislation no actual law has been enacted which states the government must ensure its books are balanced by receipts before it can rescue the private banks. Clearly if there was such an act the monetary system would collapse akin to how it did in 410 AD after the Romans had left England and Wales. This is why we can say there’s a Democratic Money Theory sadly few citizens in the UK appear to know or understand! This surely is the true reason you’re interested in subsidiarity, you hope the Scottish people will better understand Democratic Money Theory as a consequence of wanting independence from the monetary illiterate English?
https://gimms.org.uk/category/mmt-long-read/working-papers/
If it’s subsidiarity for the purpose of issuing hypothecated bonds then again there’s dependency on understanding Democratic Money Theory. Namely they’re dependent on government being the “Money Creator of Last Resort” just as the rescue of the monetary system from the financial sector’s depredations is today (we’ve moved on from Walter Bagehot’s “Lender of Last Resort” position. See Chapters 14 and 15 of Felix Martin’s book “Money”).
Once we recognize the democratic nature of money as an underlying base then it becomes possible to envision radical policy change. Why, for instance, shouldn’t house purchase mortgages be provided at a simple interest rate by the state (administered by the local state) with under-writing standards that discourage the type of private sector bank induced house price hyper-inflation the UK has had for the last fifty years!
@Helen Schofield
How can you say the creation of the BoE was democratic. The English parliament was far from democratic at that time – and even the Athenian “democracy” had a very restricted franchise.
Even today many of us, me included, would ague and have argued on here that we are far from achieving democracy in most countries, particularly the UK. We have a form of representative government where the representatives primarily represent their parties and not the electors. The citizenry are virtually excluded from contributing to or making decisions.
I agree that money creation should be democratic, but that should also include the citizens having a say.
Helen – it is understandable that reviewers of “At Home in the Universe” find the language “turgid”. That is because the concepts he is describing and explaining are so alien to normal established ways of thinking. He is really drilling down in an endeavour to discover what the basic rules are that underpin the evolution of life from non-life and from single cell organisms to complex life. Single cell organisms are complex in themselves. Discussing this stuff under the theme of “care” just doesn’t cut it because it does not explain the actual processes through which care” emerges. I fully understand that concepts such as “state space” “state cycles”, “attractors” , “basins of attraction”, “fitness landscapes”, “constraint closure” (which comes into his later work) and others are hard to grasp but I think Kauffman does an excellent job in setting out how all these elements fit together. I firmly believe he has gazed into the soul of nature and revealed something of great power – and what he reveals is relevant to any complex and evolving system – evolution of life, evolution of human societies, evolution of money, evolution of technology, evolution of language, evolution of knowledge…..the list goes on.
@ Jim Osborne
Not sure why you dislike the notion of “care’ it’s not too far away from the word “valuing” and “balancing” all of which are contained in the Golden Rule the basis of religions for centuries. Rolston makes very clear that his “caring” doesn’t exclude competition stemming from self-interest and of course hologenomics now does the same. You don’t have to believe in the Christian concept of Heaven to accept Rolston’s point that “Golden Rule” balancing has been embedded in life’s development on this planet or in the universe for that matter. From what I understand Kauffman’s position is as follows:-
“In 1985, the mathematician Stuart Kauffman published a book chapter in which he argued that natural selection cannot alter gene regulatory networks to achieve optimal configurations (Kauffman 1985). Kauffman’s basic argument, amplified in his subsequent books, was that the more complex a network becomes, the more unlikely it is that random mutations can improve its function. Kauffman suggested that most real gene regulatory networks are composed of a large proportion of suboptimal interactions and that their overall organization is largely determined by chance mutation rather than adaptation.”
https://academic.oup.com/bioscience/article/62/12/1084/230807
This is in opposition to hologenomic thinking which seeks to explore adaptive selection through cell symbiosis. See the Eugene Rosenberg and Ilana Zilber-Rosenberg article on hologenomics I referenced.