Monetary Reform, Government Spending and National Borrowing

Post monetary reform, as we at PM advocate, only the publicly owned institution, the UK Monetary Creation Committee, will be allowed to issue new national money. A related matter, but one on which, as far as I know, PM does not hold a definite position, is that of national borrowing.

Post reform, should national borrowing be allowed at all? If so, to what extent and under what circumstances? The question will arise, as often posed by Spike Milligan, “What are we gonna do now?”

Suppose that monetary reform happens while the annual UK government deficit is £120bn, as it is now. If government borrowing is immediately stopped as part of the reform then during the following year that £120bn excess of government spending over tax revenues will have to be bridged, all else equal, by the aggregate of three quantities of money:

1)      An increase in tax revenue

2)      A decrease in public spending

3)      Newly issued debt-free money

Absent government borrowing, the maintenance of the prior levels of taxation and public expenditure would entail, post reform, £120bn of new money being issued and spent into the economy by the government, an increase in the money supply of approximately 6%. If, as would seem likely, there is no real growth in the economy at that time then the purchasing power of each pound in circulation would on average decrease by 6%. Would the electorate stand for this? Would 6% price inflation adversely affect their attitude towards monetary reform?

I think we should take care not to overstate the shorter term benefits of monetary reform, while of course continuing to appreciate and propagate its enormous longer term significance. The UK state is now both massively indebted and continuing to live beyond its means and one effect of monetary reform will be, in my opinion, to make these uncomfortable facts more apparent to the electorate. Sooner or later, and in one way or another, economic realities will call a halt to our collective profligacy and as monetary reformers we should be ready to face this.

We have become overly dependent upon our collective borrowing, which is after all but a form of deferred taxation, shifting the bill for present day public expenditure onto future taxpayers. If this present day public expenditure of borrowed money is used to pump prime the productive economy , for example to build useful and enduring infrastructure, then we can argue reasonably that future taxpayers should indeed pay their fair share for it, since they will be getting benefit from it. If however the money is used simply for our consumption, then borrowing it is both morally and economically more questionable. Clearly there is scope for much discussion here, with a whole raft of related questions, including:

1)      How big a state do we want overall, measuring its expenditure say as a percentage of GDP?

2)      What are the priorities for this public expenditure, whatever its total size?

3)      How much of this public expenditure should we pay for through current taxation, and how much, if any, should we pass on to future taxpayers by national borrowing?

These are huge questions which in a democracy should be decided at the ballot box.

However, though influenced by it, these questions are to a large extent independent of monetary reform. One of the compelling features of monetary reform is that it is demonstrably beneficial across a broad left/right, big state/small state political spectrum. Fundamentally it is simply people issuing collectively (i.e. publicly) their own debt-free tokens of exchange, in contrast to renting them from, and being allocated them by, a profit seeking commercial cartel. It is the throwing off of an unnecessary and burdensome parasite.

Post reform, some of the cost of running a state can be met by issuing new debt free money. This will be essentially an alternative form of current taxation, not by the usual confiscation but by the relative inflation of the money supply, the decrease of money holders’ purchasing power. Insofar as government borrowing will thereby be reduced, this issuance will be of itself a shift from deferred taxation to current taxation. It still leaves open the bigger question of whether to move to 100% current taxation (in whatever form) by abolishing government borrowing completely.

While recognizing that other money reformers might differ, personally I would rather live with governance that never collectively indebts the people it serves. As Bill Still has consistently pointed out, sovereignty and freedom are compromised by indebtedness. I would prefer that we pay as we go from present taxation (either directly or by issuing new money) to build public wealth as we see fit, and then pass that wealth down to our descendants, free of debt. By the same token, we can enjoy what our ancestors built partly for our benefit, again free of debt.

Comments, please.

Bob Welham