Capitalism needs saving from itself

The WSJ has a great book advertisement/review, disguised as an op-ed with Robert Reich, former secretary of labor under President Bill Clinton, but interestingly enough it strikes to the core of the problem with today’s capitalism.

It is plain that while developing economies have made huge progress in terms of prosperity, rising living standards including health and education, most developed economies have seen a stagnation in employment, wages and/or working conditions, with rising inequality the rule, not the exception.

The usual platitudes of “oh its just globalization, a new world, a new economy – just work harder!” aren’t sitting well in the US, where the middle-class has been effectively wiped out with wealth distribution undergoing a reverse Robin Hood. This has seen the rise of Bernie Sanders taking on the presumptive Democrat presidential candidate, Hillary Clinton, who stands for the few, while on the Republican side, the main contender, serial liar Donald Trump, is the embodiment of the problem.

Power. Concentrated financial and corporate power that has consolidated into a few, an “elite” as Robert Reich puts it, with some excerpts from the interview:

Q. How did you come to see political power as a key force driving inequality in addition to technology and globalization? 

The power of the business community to get the kinds of regulatory and legal results they wanted has continued to escalate at a remarkable rate, and it seemed to me there was some relationship between that political power to get the rules and the laws they wanted, and widening inequality.

For years, I had looked at the individual industries, I had looked at individual studies, and I was aware of pieces of the puzzle. But actually seeing the entire reality, pulling the puzzle pieces together, connecting the dots—I was surprised at the enormity of it.

Q: What are some of the ways we see this market power in our own lives?

A: Americans pay more for Internet service than citizens of any other advanced country, and we get the slowest service.  Because the Internet service providers have a lot of political clout, both locally and nationally, and the cable companies know how to keep their monopolies.

Another example would be the pharmaceutical industry. Americans pay more for pharmaceuticals than do the citizens of any other advanced country. Rather, it’s because the rules and laws governing pharmaceuticals here allow companies to do things they’re not allowed to do in most other countries, like pay the manufacturers of generics to delay the introduction of generic equivalents beyond the point where the patents have run out.

Even food: Crop prices are down at least 6% from what they were 10 years ago, and yet food prices have been increasing much faster than inflation. That’s largely because of the market power of some very big food processors.

Ring any bells here? While any use of a government monopoly is derided and needs to be “privatized” as soon as possible, when corporations takeover, they are applauded and supported, sometimes by government itself (witness Andrew Robb in recent years campaigning for it) even if the outcomes are worst. Its hypocrisy and rent seeking of the worst kind and is nowhere near a “free market”.

Reich goes on to explain that this political power concentration is nothing new, and that the internet age while providing enormous education and organisation for the “many”, is being gamed by the “few” just like the old yellow sheets and use of scapegoats in the past. A concentrated media is part of this of course.

Capitalism needs to be saved from itself, because as an organising economic force, there has been no demonstrable better solutions to raising prosperity from the feudal and/or agragian like state the majority of the planet was once in beforehand. But it cannot continue to do that if there is no trust in the system:


Capitalism is based on trust. It’s impossible to have a system that works well and is based on billions of transactions if people don’t trust that others are going to fulfill their obligations, or they fear someone will take advantage of them or exploit them. That’s when a system moves from production to protection, and we spend more on everything from lawyers to security guards.

That begins to spell the end of a system that generates widespread prosperity and growth, and that’s the real threat to our democratic capitalist system.


Latest posts by Chris Becker (see all)


  1. Market share and market capitalisation result from market forces.. meeting customers demands, engaging in profitable behaviour, innovation and creative destruction.

    Political power comes at the point of a gun, the hands of a regulator and the legistation of the tax collectors.

    Better blame the market then !

    Oh and inequality isn’t rising and poverty is falling for decades.

    • What you’ve just described Jono is pure neoliberalism. The “market” doesn’t deliver what you suggest at all – the empirical evidence is irrefutable. Political power at the point of a gun you say? Maybe in China, but not in the West, where political power is gained by actions of interest groups in lobbying the politic. Inequality is rising as the article points out the middle class wealth has been redistributed to the elite over the last four decades. Inequality in the West is moving rapidly back to 1900’s.
      The “market” is a human construct. It is manipulated by monopolistic power delivered to special interest groups by clowns like Robb. Need to read the article mate.

      • You’re entitled to your own opinions, but not your own definitions, facts and vocabulary.

        Trying to paint markets and free exchange between individuals as some kind of foreign construct, and smearing the idea of voluntary exchange as ‘neoliberalism’ will not win any arguments.

      • You’re entitled to your own opinions, but not your own definitions, facts and vocabulary.

        From someone whose entire belief system hinges off the arbitrary and artificial concept of a “free market”.

        The only _actual_ “free market” is one without rules.

    • “Oh and inequality isn’t”

      A lot of people disagree with you. Either way, I suspect a lot has been covered up by consecutive asset bubbles and highly questionable levels of private debt. Let’s see how things look when/if households manage to deleverage themselves.

      • Inflation is not created by the free market.
        The RBA is not in any sense a free market operator. They create inflation, they deliberately de-value our currency and inflation wipes out the poor and the middle class.

        Only the wealthy can afford to protect themselves from inflation.

      • Inflation is a monetary phenomenon.

        Money is a rule, thus comes with a rule-maker or rule-makers. Ergo anything wrt money is not a free market by a true definition..

        Only barter is a free market.

        “Political power comes at the point of a gun, the hands of a regulator and the legistation of the tax collectors”

        Well all that points to is a rule-maker or rule-makers once again. Remove rule-makers, some party will fill that void and commence making rules once again, it needn’t be corrupt union official or incompetent suburban lawyers.

        Do you have a proposal where no one makes rules Jono?

      • Bullshit Jono, inflation is created when private sector banks create money out of thin air far in excess of any equivalent increase in available goods and services OR when available goods and services suddenly vanish, leaving credit behind to chase fewer targets.

        Who puts a gun to the head of banks and forces them to lend? NOBODY. They service the DEMAND.

        Who puts a gun to the head of individuals and companies and forces them to borrow? NOBODY. They choose to become overleveraged specufestors of THEIR OWN FREE WILL, in pursuit of $$$ gains in a free market. Interest rates don’t FORCE them to borrow any more than an open chocolate forces you to eat it.

        The freer the market, the more the opportunities for people to pursue, and the more demand for borrowing. The freer the market, the more likely Minsky’s Ponzi Finance is to eventually occur and for the whole thing to blow itself up spectacularly.

        Sensible constraints are needed. The Germans call it Ordoliberalism but it could also be called common sense. Every game needs rules that are enforced or it descends into a farce, which is exactly what we have right now. A global economic farce produced by 40 years of idiotic Free Market Fundamentalists like you tearing up all the rules so that the credit may flow unimpeded to where it is desired, no matter how insane, stupid and destructive that desire may be.

    • Well, *arguably* political power is invested in politicians by the people during democratic elections… Not perfect but there’s no equivalent model in the marketplace. Who of us voted for James Packer, Rupert Murdoch or Gina Rinehart (all 3 beneficiaries of dynastic entitlement btw)?

      Your thinking could probably stand a little refinement, Jono…

      • You should re-phrase the question.
        Who of us did not engage in voluntary trade with Murdoch, Packer and Rinehart ? Millions of consumers did, which is unfortunate for your philosophy.

        Which of us voted for Michael D’Ascenzo, the hated Australian Tax Office commissioner ?

        Who of us voted for Bill Morrow, the head of NBN Co ?

      • The practices of these three charmers, and most of the elite Jono, are proven time and again to lead to greater and greater gains that are ill-gotten. It’s fraud to the average punter, but, according to the legal and political fraternity, it’s just good business to lie, cheat, hoard, and manipulate markets to f**k the competition and give the millions of consumers no actual choice. Yes, I’ve bought the Daily Telegraph a few times, gambled at a Packer casino, and my car has bits that were once iron ore, but it doesn’t mean I’m condoning the system they perpetuate. Sheesh

      • “Who of us did not engage in voluntary trade with Murdoch, Packer and Rinehart ”

        The problem is Jono, that these types lobby for favourable legislation in their various industries which make it far more likely you will have to engage them or have no alternative not too. Big Pharma is the biggest one in the States. Monsanto and food labelling. The laws they lobby for, mean those who want to know what is in their food don’t even have the luxury of being able to find out. The list is endless. The USA is rotting at its core with internal contradiction like the once USSR did.

      • “Who of us did not engage in voluntary trade with Murdoch, Packer and Rinehart ? Millions of consumers did, which is unfortunate for your philosophy.”

        That’s not the be all and end of capitalism Jono. There is also the facet of ‘competition’, and in particular barriers to entry and perfect information, which is not evident, and actively suppressed by such folk.

        “Which of us voted for Michael D’Ascenzo, the hated Australian Tax Office commissioner ?

        Who of us voted for Bill Morrow, the head of NBN Co ?”

        They’re agents given a mandate by those we elect.

      • More importantly those we do not elect penney…. that have power equal or greater too electoids…

    • “Political power comes at the point of a gun, the hands of a regulator and the legistation of the tax collectors.”

      Pfft!! In the USA political power is purely in the control of organised cashed up lobby groups and the large corporates they lobby for. Period, end of!

    • FiftiesFibroShack

      “Political power comes at the point of a gun, the hands of a regulator and the legistation of the tax collectors.”

      Political power comes at the point of a pen – signing a fat political donation – to buy the hands of the regulator and favourable legislation, often at the expense of smaller competitors.

    • Strange Economics

      Are you kidding. Neoliberalism is not healthy capitalism, its the power of lobby groups – see the US Congress for the perfect example. Next you’ll be saying that any control of a monopolist is “nanny state gone mad”, the classic wedge of the unethical monopolist. Economics 101, get a monopoly or duopoly.
      Successful capitalism needs strong regulation (or at least some) – eg the robber barons of the US at the turn of the century were balanced by FDR, etc, – and Wall St by Glass Steagall, and laws. Otherwise its free for all (for those starting with more money). No Glass Steagall then open slather and 2007 crash. Neoliberalism gives you the House of Cards if you want to see the result.

  2. The poor fort for equality in the western world, they won a lot, the rich thought ok, then let’s import cheap labor in under student visas and skilled worker schema knowing they won’t complain about their rights and at the same time export jobs and services to the third world. And that’s it, everything is now fucked. The migrants and students will undercut any local to stay here, and the new rich elite from their profits on exploited 3rd world labor from their factories in places like China buy their way in to the west and invest in property, you in the west lose.

  3. What we have now does not resemble true capitalism. The “rich” simply borrow their money for near free whilst the poor have to go to cash converters. It has been coming for years but really manifested itself when the hedge fund LTCM fell over in ’98 and the fed reduced rates as a bail out measure.
    We do not have a true market for debt or risk as central banks bail out the “rich” with cheap money. The cheap money is used to fund asset purchases, further inflating the value of assets.
    If debt was truly priced (imagine 18% interest rates like in the early 80’s) many of the “rich” would be worthless as their wealth is often leveraged. Meanwhile the “poor” whilst having little money often do not have debt.
    The poor get screwed all the time and cannot figure out why. It is really sad. We need stronger communities who can think independently and support one another more than we do.

    • What we have now does not resemble true capitalism.

      this one sounds familiar to some saying from pre Berlin Wall fall period … What we have is not true communism ….

      This is exactly what true capitalism is; capitalism striped of all moral, religious, humanist and socialist ideas, the purest form of the basic capitalist ideas that selfish actions of self-interest individuals with the help of the invisible hand are producing the greatest good for all.

      It’s clear that invisible hand doesn’t deliver the greatest good to greatest numbers but rather to fewer and fewer people. Once everyone gets this fact we will be able to move forward … unfortunately it may be too late

  4. Almost all the problem, relates to economic rent in land. Good critiques of Piketty point out that all the increase in inequality he finds, is in urban land – it is wrong to call it “Capital”. Returns to productive capital have remained fair and modest.

    For example, Matthew Rognlie; Etienne Wassmer et al; and Stiglitz have all done critiques that point this out.

    This problem has returned in the West because of growth-containment urban planning.

    In developing countries the process of formal urban growth is simply rigged to benefit the well-placed rentiers without using fancy fig-leaf descriptions like “smart growth”.

    The great reduction in inequality experienced in most first-world nations went along with the decades of falling urban land rent consequent on automobile based suburban development. Michael A. Goldberg (1970) “Transportation and Land Rents: A Synthesis” should be far better known (not to mention the theories with excellent explanatory power dating back to 1926 that his “synthesis” was all about).

    Acemoglu and Robinson in “Why Nations Fail”, conclude that it is due to the proportion to which “extractive institutions” dominate in a nation – not only is inequality increased, but aggregate “production” is reduced. It would be wise to conclude that most of the West has adopted the road to failure with its urban planning fads after decades of golden age that is taken for granted without any understanding of its real cause.

    • @ Phil Could we therefore link the negative aspects you have mentioned to our population ponzi, delivering poorer productivity outcomes and inefficiencies all round?

      • The effects of numerous other problems are multiplied, that is all. Including “population ponzi”.

        In fact much faster rates of population growth, in Australia in the past and in some US cities in the south and heartland now, are not presenting anything like as much of a problem. When you don’t have zero-sum land rent swallowing the money that can be spent not just on productive capital, but on infrastructure, all your options are better.

    • “This problem has returned in the West because of growth-containment urban planning.”

      I live in an outer suburb of Melbourne and the biggest problem living out here is employment. There are just too few jobs. It seems increasingly employment opportunities are in the large cities, not in the outer areas. Maybe it has something to do with the slow death of manufacturing in Victoria, I don’t know, but I wouldn’t recommend anyone move out here. Which is a shame because there are many advantages to living as far away from the city as possible. Employment just doesn’t seem to be one of them..

      • The evidence and data for US cities with low land costs, is that dispersion of employment is a norm that keeps average commute times stable. There are numerous academic papers on this – Peter Gordon is the most prolific author and has been picking this trend for the longest.

        I think the trouble with high-land-price urban areas – and even at the fringes, land in Melbourne area is far too expensive – is that numerous sectors that might have been providing employment near the fringe, have not even evolved into being “because of” the land costs being too high.

        Imagine if farming was expected to turn a profit on quantity-rationed, speculated-in land supplies. In fact urban planning these days is so utopian and absurd, that you might as well propose that farming, too, be obliged to occur in high-rise buildings, because “everyone knows that is where the most wealth is created in the modern economy”.

        Between “global finance” and “farming”, there is a whole spectrum of “industries” requiring “land” of varying amounts, at rational prices, so as to exist at all. When “urban” land prices are hiked, the sectors that require “more land than average” – eg for production lines – are “forgone” to the economy entirely. In fact some of the most spectacular examples of specialist “clusters” – Silicon Valley is the best one – have emerged on low-cost exurban land. It is common knowledge among economists in the UK, that nothing like Silicon Valley can evolve in the UK, thanks to their planning system and their boundaries and high land costs.

        Even worse, the industries that require a lot of land, tend to be the ones that actually create wealth by converting resources to goods – rather than “services” and “consumption” and “economic rent”. A delightfully concise and insightful read is William Fruth; “The Flow of Money: How Local Economies Grow and Expand”.

      • I am familiar with the general arguments put forward in those.

        It is a fallacy that there is “X years supply of land” inside a given growth boundary sufficient to guarantee land price stability. Unless all the land owners intend to sell it anyway in the short term, at original rural values, you are going to get a speculative boom. Developers need to secure sites for their next project even while they are spending years on their current project, so something like 10 years supply of land is always “work in progress” anyway. And within a “20 year” or even a “30 year” boundary, there will barely be a full 50% or 33% of land “available for sale anyway”. Developers have to go door-knocking, persuading reluctant sellers, and before long, out-bidding each other in Dutch Auctions. It is well recorded that in Portland, after the 20 year boundary was established, the price inflation started 4 years later.

        It is very important to understand the relationship between infrastructure supply and land, too, as those articles point out. The reason we used to have no problem, was that the monopoly (government) infrastructure planners and providers were there to help and co-operate with developers, not to ration and obstruct. A helpful, co-operative monopoly provider is OK; the other approach that works well in the USA, is allowing the private sector to simply form incorporated bodies (called Municipal Utility Districts) to do and fund the infrastructure – almost like setting up a new small Council that then charges property taxes to pay back the infrastructure.

        Marcus Spiller makes an interesting point that developers used to protest about being charged for infrastructure that was costlier to provide because of longer distances away from existing development – imposing a growth boundary to get round this problem merely creates a worse problem! It is better to just pay for the infrastructure, than have to pay 10, 20, 30 times too much for the land!

        Marcus Spiller makes a common error in assuming that infill development will restore affordability in a city with a growth boundary. There is NO evidence at all from anywhere in the world, that within a growth boundary, housing does anything other than become twice as expensive (and more) even as its density increases. The average housing density in UK cities is around 20 units per acre, while in affordable US cities it is around 3 units per acre; yet the median multiple is around 6 in the former and 3 in the latter. Land values are elastic to allowed density – all economists need to be made to write this out 1000 times.

        Hong Kong has 26,000 people per square kilometer with the average unit being a stacked-up 70 square metres, and HK’s median multiple is 17. The evidence in fact indicates that the denser your city gets, the LESS affordable housing gets, i.e. people are paying MORE, for less (not less, for less, which is the shallow assumption driving policy).

    • It’s amazing that these feudal ideas about land can still capture someone’s attention. We live in 21st century where 90% of big money is made by manipulations with virtual commodities and you still claim that land is somehow critical.
      Land is a poor man wealth. left to former serfs to think they finally joined the club, while people in charge still make their money exploiting them – exploitation evolved from one that was exploiting directly via labour to the one that mostly exploits via consumption and credit

      • Oh come on, you can’t have made that comment sincerely, or really believe it.

        Consumption items of all kinds are full of consumer surplus, cost a fraction in real terms of what they used to – and land inside growth boundaries ramps up and up in price in real terms the longer the policy is persisted with – and you scoff?

    • Thanks Phil, you raise good points, as ever.
      Spiller does make some interesting points but it concerns me he and co are in the ear of government. I liken UGB in the same way that trade theory regards quotas – no more at any price! – driving up the price of that quantity allowed and everything associated with it; with housing, that is pretty much everything.

    • Goodie , most of the substantial criticisms of the contemporary big govt corporatist statist model are not coming from what you would consider ‘left’.

      They are coming from people are critical of excessive concentrations of power whether by government or by private organisations – business, unions, trade organisations etc. It is no surprise that govt and those large organisations work hard to deflect criticisms of their control of power.

      In fact what you probably consider to be ‘left’ and ‘conservative/right’ are much the same. Both are keen on powerful large government – for their own reasons. One likes big government to protect what its got and the other side likes big government so it can redistribute it (not that this actually happens much any more).

      Either way they are both into big government run by technocrats.

      No surprise that govt gets bigger regardless of whether the ‘lefties’ or the ‘righties’ are in power.

    • The entire OECD is far off to the Right and Authoritarian by historical standards. Calling something “Left” because it’s relatively to the left of extreme Right is total horse-shit from a simple mind that has been contaminated by propaganda.

      The “Left” is a figment of your twisted imagination, missing in action since the 1980’s when Monetarism, Neoliberalism and Free Market Fundamentalism took command of the OECD.

      Here is the reality in Australia, educate yourself: or don’t and continue to wallow in ignorance, being a good little “useful idiot” for the fascist pricks in command right now.

      “Fascism should more appropriately be called corporatism because it is the merger of state and corporate power.”

      • The entire OECD is far off to the Right and Authoritarian by historical standards. Calling something “Left” because it’s relatively to the left of extreme Right is total horse-shit from a simple mind that has been contaminated by propaganda.

        BS – why don’t you go an do some reading. You live in your happy church of progressive thought – known as the Cathedral FYI – where up is down and wrong is right.

        Simple math – go look at any state in the 18 and 19 centuries, and let me know exactly what the % of GDP which is made of up government spending is. Then compare today’s welfare/warfare states. Remember the left is on the side of more government spending.

        If you want to have fun, look up a list of important values for people from any population in 1850, 1900, 1950. Then look at the relative importance of those values today. You will find that we have been going left for a very long time. Anecdotally, this is why conservatives are a joke. What exactly have they conserved?

        Invoking Godwin’s law, as we are on the internet… Do you consider the Nazi’s left wing or right wing? Compare and contrast with whether the Nazi’s considered themselves left wing or right wing. (Hint – its the national socialist party…). So i ask you, why do you think the Nazi’s were right wing when they clearly did not…

      • Can’t argue with logic like that !

        (Who would have thought there were people around who _want_ to live as serfs beholden to Lord and Church ?)

      • The Nazis were slightly right-wing, Authoritarian, far less right-wing than today’s OECD governments and certainly not left-wing. You might know that if you’d bothered to investigate the website to which I linked, but instead you choose to demonstrate remarkable ignorance. I suppose you think that the German Democratic Republic was actually democratic too seeing as that’s what the name says right? Apparently you think it’s sound to judge a book by its cover.

        Yes, government debt is higher than historical levels. No shit. You know what’s also much higher than historical levels per capita? PRIVATE SECTOR SAVINGS. Now if you had any clue whatsoever about how our monetary system actually works, then you’d be well familiar with Wynne Godley’s Sectoral Balances and you’d know that a government deficit, at all times, equals the private sector surplus adjusted by the current account.

        This has absolutely nothing to do with right-wing or left-wing as your simple mind wants it to be. This is a structural factor of our monetary system and transcends governments of the Left or Right persuasion. If you want to have a private sector flush with net savings (after debts have netted away), then you can’t avoid a government deficit unless the nation is a strong net exporter.

        There is no rule that a Left-wing government must spend more and run up more debt than a Right-wing government, that’s just another piece of Right wing propaganda. In fact, if the exact same service is delivered by a Left vs Right wing government, it is the Right wing government that will have to run up debt to do so given that it outsources service provision to privately owned providers. A Left wing government, on the other hand, itself owns the service provider (nationalised industries) and so pays itself for provision, avoiding an increase in debt in the process. In doing so it deprives the private sector of income and the private sector languishes.

        If you want to cry about high levels of government debt and rail against Big Government then why don’t you do some reading to discover what happens to your precious private sector and foreign account every time a government tries to go aggressively into surplus. Maybe then you might learn how money actually works and escape the world of Right wing propaganda to accept that government deficits and high government debt are not necessarily a bad thing against a balanced current account.

        In the real world, some things are better nationalised, others are better left to the private sector. Only idiots fly the flag for Left OR Right without it being a mixture. Government debt is always required to have any large, modern, private-sector worth speaking of that is capable of surviving extreme expansions and contractions of credit.

        Therein lies the greatest irony. Right-wingnuts rail against “Big Government”, but when they blow themselves up, they’re the first to come screaming for a bailout. They also secretly know that a huge chunk of their profits comes directly from the government running up debt and they secretly love it.

        McDonald’s bottom line LOVES food stamps. Ah the cognitive dissonance. There’s nothing “left wing” about that spend. It would be Left if the government made the food.

    • There is always Newscorp’s twaddle, or the ABC’s if you’re dissatisfied? Just saying, you’re not starved for choice.

  5. No great mystery what is happening but as is so often the case we only learn when we feel the skin burning and blistering.

    A monetary system that is structured around private banks and their lending activities is simply nuts and like so many bits of broken plumbing in our system of ‘management’ it has reached the end of its serviceable life.

    The features of its dysfunctional nature are too long to list but here are a few

    * The idea of public money being issued and managed by public authorities is considered ‘dangerous’

    * Public money issued by bonus hunting and profit seeking banks is considered ‘safe’ – despite relentless booms and busts due to private bank pro-cyclical money creation / destruction.

    * The only way people can get their hands on new money is if they take out a loan

    * The only things that are considered good security for loans are chunks of land

    * As a result the price of land is driven up as it is the first destination of all the new money

    * As a result we can have inflating asset price but little money in wallets being spent on anything else.

    * As a result we have bank economists claiming there is a ‘lack of demand’ when the real problem is a lack of ‘new money’ being applied to purposes other than lending for asset speculation.

    * Banks issuing new money with a trailing commission attached creates an inherent deflationary pressure that is only managed by making sure the speed of money creation is sufficiently fast to out run it
    * As the mountains of household debt grows the demand for debt falls to counter that natural tendency interest rates are driven down to re inflate the demand for debt. Without a supply of new debt (aka bank created money) the deflationary pressures due to the trailing commissions on past Bank money creation would get out of control.

    Yet despite the fact that current model is demented and fundamentally broken talking about the obvious alternative is seen as “wacky” and “crank” territory.

    1. Public money should be issued by the government.

    2. The amount of public money should be managed by the government and they will be held accountable for mismanaging it.

    3. Public money should be issued without an interest rate trailing commission attached.

    4. If a business (aka bank) wishes to be an intermediary between savers and lenders they must acquire deposits before lending them.

    5. If banks or anyone else wishes to issue their own money (or create loans in their private money) they can do so but only public money can be used for paying taxes.

    6. The taxpayer will not bail out any depositor who loses deposits in private money when the issuer fails.

    7. Banks can offer customers public money accounts or accounts in their ‘private money’ or any other money for that matter.

    • Public money should be issued by the government. – Tell us, will the government also be in the credit game. I mean, if they issue the money, presumably the government is also lending it out. So i can expect my file from ASIO to be checked out while the government tries to work out if i’m a credit worthy borrower… You realise that the function of managing credit is the core function of banking, and hence banks have the privilege of issuing currency.

      The amount of public money should be managed by the government and they will be held accountable for mismanaging it. – Cause governments have a fine track record of doing exactly this. How’s Venezuela working out? And since when has a citizenry managed to hold a government accountable for squat? You see every single law being broken, every single value being trampled upon, and more government is always your answer.

      Public money should be issued without an interest rate trailing commission attached – Ah yes, this boondoggle. Try and find out where this idea comes from. It is a Norse concept, the idea being the Gods have given man time on this earth, and hence no man can charge interest on a gift from the gods. The Moslems stole the idea and now we call it Islamic finance. Do you know you are spouting religion? I would read some history to work out why this does not work in practise.

      If a business (aka bank) wishes to be an intermediary between savers and lenders they must acquire deposits before lending them.- 100% deposits clearly. Why don’t we just shift back to the gold standard. Then when your precious .gov gets frisky, they can clip the edges and we can all stand in queues for toilet paper.

      If banks or anyone else wishes to issue their own money (or create loans in their private money) they can do so but only public money can be used for paying taxes. – … you know there is a curious phenomena when high levels of inflation set in. People pay their taxes as late as possible, because the value of the taxes falls in real terms. Just think this through in your scenario – its insane.

      The last two also don’t work – go read about banking in the 19th and 20th centuries and you will find it is remarkably similar to your proposals. The key take away is that it does not work/.

      • T,

        No the government should not be in the business of lending.

        You are confused if you think acting as a financial intermediary requires the ability to create money.

        As you are confused about that it is not surprising that you dont seem to have a clue about 18th and 19th century banking which bore no resemblance to what I proposed.

        You do understand that the Bank of England was a private bank until nationalisation in 1948.

        The majority of the econmic horror stories you worry about were the result of bank control of the money supply. That is obvious if you understand anything about banking.

        The recipe was simple

        1. Expand the money supply with lots of credit.

        2. Then contract and foreclose and seize the security.

      • Okay so let’s work through the Mr T responses.

        1. Mr T Confused – Thinks that if banks create money by lending then that means the govt would create money by lending.

        2. Mr T Confused – Doesn’t seem to understand that under our current monetary model the central bank control interest rates and not the money supply.

        3. Mr T Confused – Thinks that government control of public money means the charging of interest is abolished on all loans.

        4. Mr T Confused – Thinks that government control of the money supply is moving back to the gold standard. You might be spending too much time with Austrians.

        5. Mr T Confused – Paying taxes which results in money being removed from circulation creates inflation.

        6. Mr T Confused – Thinks that government controlled the money supply in 18th and 19th centuries.

        Wow you really struck out there.

        But don’t worry – ignorance as to our current monetary system and how it evolved (and devolved) over the centuries is pretty common.

  6. Gezz this post brought out the loon pond more so that AGW…. the religious fervor is palatable…. must consult the oracle…

    Skippy…. rapture ready clock…

  7. Save it from itself?

    Capitalism is ‘of its own’.
    Look at what’s happening. Its irredeemable.

    • I posted some time ago a short and concise comment which unpacked the foolishness of monolithic nomenclature e.g. Capitalism, socialism, communism, et al as everything is multivariate and in constant flux i.e. on might as well say humans are irredeemable.

      Skippy…. the worst of the lot are those that drive immovable stakes in the ground…

      • “et al as everything is multivariate and in constant flux.”

        Fair point.

        “might as well say humans are irredeemable.”

        While I don’t beleive this the case, if we don’t accept and respect the planet’s limits, we might find ourselves in a lot of trouble.

  8. pyjamasbeforechristMEMBER

    Step 1 – introduce a tax on asset (low to start gradually increasing)
    Step 2 – remove all other taxes

  9. Just to really piss off the Austrians and random free market boffins…

    Just a very quick note so as to weigh in on a debate which, frankly, I don’t really want to weigh in on. It relates to the Austrian Business Cycle Theory (hereafter: ABCT) and its relationship to the natural rate of interest. The natural rate of interest was discredited by Piero Sraffa in the 1920s when he pointed out that there were actually multiple own rates of interest depending on which commodity you took as a numeraire. There have been many Austrian responses to try and iron this out — almost all of them imagine a range of financial market contracts, throw in some implicit “rational expectations” assumptions about how such contracts are priced and then claim that they can reconstruct the ABCT from here.

    I don’t think that this is the case, I think that the assumptions they use to make the financial contracts produce the interest rate they wish to produce — because, let us have no doubt, this is a theory that at some base emotional level the Austrians want to be true — contradict other assumptions made elsewhere in Austrian theory; such as the assumption of Knightian uncertainty.

    However, even leaving this aside we know that the ABCT will not work because, whatever way you cut it, it rests on the idea of a rate of interest that will bring the economy to full employment equilibrium. The manner in which the theory “works” is that the money rate of interest — i.e. that charged by banks — either falls above or below this full employment equilibrium rate, thus causing either inflationary or deflationary forces to generate. This view, however, is disproved by the Cambridge Capital Controversies which showed that such a rate of interest — which the Austrians take over from Knut Wicksell — cannot exist.

    Skippy… cult is being kind…