When young
people turned out in their masses to vote for a radical left wing party in the
hope that they will cure society of its economic ills, what they were doing is
the equivalent of going down to the engine room on the Titanic with their
screwdrivers and spanners looking for ways to increase the ship's nautical miles per
hour.
Before you
read on, just click on this web page – it illustrates the remarkable national
debt rise of £5,000 per second. You'll also notice a statement that says that
the national debt equates to "£78,000 for every person in the UK ". Hidden behind this is something very important, and it's related to all the things voters were dismayed about when they voted, and the fact that they would be utterly shocked to find the real source of their unhappiness.
Let me now explain
why with something that many of you will not know. Politicians are ruining things for us far more than they hope you'll ever realise, because the truth is, it is actually a combination of debt, borrowing and
currency inflation that is causing the vast majority of the things people have
been complaining about and squabbling over in this election – from the public
sector crisis, to the NHS, to social care, to low wages, to levels of taxation, to the difficulties of the JAMs (those just about
managing) – all of those election issues are secondary to the primary problem
that affects society, and that is the immense harm that politicians do to the value of money.
To begin, let
me explain how lending actually creates new money. Only about 2% of the money
in Britain and America is
cash, the rest is electronic - it is 1s and 0s on computers. Under the gold
standard the money supply is limited (as there is a limited amount of gold in
the world), but under the digital system there is nothing to constrain the
amount of money created in fiat currency.
Banks no longer
make loans by attaching it to gold stored in its vault. Now it's pretty much
all digital, meaning that even if you are merely an individual customer looking for a loan in your own bank, as long as a prospective borrower does not literally want
the actual notes as a term in the loan, the bank doesn't need to have the money
before it makes a loan.
On a much larger scale, the money the government creates is a fraction of all the money created in circulation in terms of loans. As all this new money is created, the money already in circulation is devalued, which means people who hold the current money, that's you and me, are made worse off. We must add to this the problem of centrally created interest rates, which is the price of borrowing money. The market system of pricing of goods and services is the most effective way of setting prices, and the same should be true of the price of money, which when all is considered is the most important price of all.
Money is now a
political football for politicians to play around with as they see fit for
their short-term interests. All this money created has pushed up prices, so
when wages rise less frequently your pay packet buys you less than before,
which makes day to day living seem more expensive. And this is pretty much all the government's fault - they have done more than anyone to create the JAMs.
To see why, imagine
an island of 100 people. Of those, 50 people have £20 and the other 50 have no
money but assets worth £20 per person. The islanders will freely buy and sell
these assets at £20 a time. If more assets appear on the island the price of
assets will drop. Now suppose instead of more assets there is the same amount
of assets but more money thanks to the appearance of a man with £1000. As there
is now double the money in the economy, selling an asset for £20 seems too
cheap, because the £20 is now devalued. Asset prices rise to reflect the fact
that there is now £2,000 in the economy, which reduces the purchasing power of
all the rest of the islanders with £20 to spend.
This is what
has been happening to our developed economies over the past few decades. Wages
cannot keep up with inflation because the government's injection of extra money
into the economy negatively impacts people's purchasing power through money devaluation.
A good illustration of this can be seen by looking at the housing market and
the difference between old and young people. For young people the cost of
getting on the housing ladder has risen to reflect all the additional money that has been put in
circulation. Older people got to buy their houses prior to this, so they
benefit from higher house prices disproportionately higher than they originally
paid.
And of course,
with crony capitalism the money pumped into the economy by central banks is not
finding its way to the everyday member of the public, it is going to people in
the banking industry with special political interests and politicians on side
to ensure the money supply is inflated to fulfil their mutual interests. By way
of analogy, it is rather like when aid money is given to Zimbabwe or Sudan but only a small proportion
of it makes its way to the neediest people because it is filtered through
corrupt officials.
All the ways
the economy is devalued, through printing money, through excessive borrowing, and through
deficit spending, society is being turned into part Ponzi scheme part credit-pumping pyramid scheme where those nearest the
new currency gain the most and those furthest away from it lose out, because by
the time all this extra money reaches them it comes in the form of higher
prices for goods and services relative to their wages.
I said that this disproportionately affects the young more than the old.
And naturally the younger you are the worse this affects you, because you currently
have no assets, just a national debt that you and the millions of unborn people
will have to pay back. Okay, you don't literally pay it back in the same way you
would a friend who'd lent you £10 in the pub last Saturday, but you pay it back
more subtlety in the shape of less purchasing power, more things being unaffordable,
and state-based initiatives that skew the wealth from the bottom of the pyramid
towards the top.
Many leftists believe that all these things like unaffordable housing,
higher levels of inflation, stagnant wages and increased struggling to make ends
meet are because of capitalism and the way that the market makes the rich
richer at the expense of the poor. It is simply a lie - these things are not
caused by free markets where people buy and sell in accordance with the
marginal value of the goods, services and labour - they are caused by
governments and crony capitalism which consist of rent-seekers that rig the
system to favour the elite over the rest. This sort of financial skewing would
not happen in a freer market where the price of money was conditioned by supply
and demand and where the ability to add more money into circulation was
quelled.
A phenomenon
called Wagner's Law states that as the economy develops over time, the
activities and functions of the government increase. As progressive nations
expand their economic growth, the proportion of money that goes into the public
sector grows too, because there is more economic growth for politicians to get
fat off in the shape of transfers of wealth. What you have to remember is that
the state doesn't create anything of value, it merely reallocates sideways money
that has already been earned by private sector value being created. That's not
to say the state provides nothing of value to society - I don't mean that at
all - I mean that the state doesn't create value by inventing things or by
innovating.
Here is a fact that ought to absolutely startle you. The state is
now approximately 25% of the entire country's workforce, and yet less than 15%
of new currency goes into the private sector. Imagine all the talent,
innovation and prosperity that could have come in the shape of value-creation
if the state hadn't creamed off so many of the nation's resources for
politicians' own gains.
Here's how things should be
Picture the
scene: imagine you live in a society in which no central bank or government can
add more money into circulation, and no government can run a deficit (UK
governments have run a deficit for literally 95% of the past 40 years - 38
years out of 40), meaning they can only spend what they collect in taxes. And
further, imagine they can only tax with utmost transparency - there are no more
stealth taxes, and every tax they take has to be justified with visible
recorded expenditure accessible to everyone.
In other
words, the state has to play by the same rules as everyone else - only spending
what they have and only spending money on things that people want them to spend
it on because they value that expenditure more than alternatives. Even wars,
like the ones in Iraq and Libya could not go ahead unless taxpayers voted with
their wallets and provided the funds for the government. If you take away the
government's ability to spend excessively you force them to only spend money on
projects and services that people value. At present there is very little
stopping them printing whatever money they need to action whatever cause they
like.
Since the
Nixon shock of 1971 when the link of money to a gold standard was discontinued,
we have had a system built on borrowing and credit and printing of money that
has left us all drowning in a reservoir of debt and deficit. Because of
politicians' short-term aims, they manipulate currency to carve our their own
political career knowing that most of this activity goes on out of focus of the
naked eye of the electorate and at a rate that will do most damage to people
who will be working long after their political careers have ended (a good
example is the effects of the Nixon shock that played a huge part in the 2008
financial crisis that occurred 14 years after Richard Nixon's death).
Gold as the money
standard was a good method for ensuring a limited and therefore more civilised government,
whereas unlimited fiat money leads to uncontrolled currency expansion that
thins out the value of money. We talked about house prices going out of control
a moment ago thanks to currency inflation, but also supply and demand problems.
Have a look at a product that doesn't have the same kind of supply and demand
problems as houses - I'm talking about oil. Here you can map the price of a
barrel of oil from 1946 to the present day. Look at how stable the price of oil
was when the dollar was linked to gold, and look at how it fluctuates at a much
higher level afterwards. The price of oil if measured in gold hasn't changed
much at all since 1946, whereas the price of oil in dollars or pounds has shot
up drastically.
The same goes
for most consumable goods - their prices have risen far higher than they would
have if the government had been kept in check with its careless handling of the
money supply - prices of goods have risen higher than average earnings. Had
government activity been wedded to the gold standard and prices of goods,
services and money been more in line with supply and demand, the link between
average earnings and prices of consumables wouldn't have been so out of line,
and the relative value of things would be clearer for all to see. You may not
realise this but many businesses either suffer hard times or go bust altogether
because of distorted currencies where the supply of money created by governments
is not constrained enough, or in some cases not at all.
Have you ever thought about the cost of government quantitative easing in terms of families in the
"Both the Bank of
With approximately 25 million families in the
This series of problems can only be put right when the monopoly politicians have on the money supply is thwarted. Only when the state operates by the same ordinances as the market prices of supply and demand will things be better for our children and grandchildren.
If this election is anything to go by, it seems young people's appetite for voting has been seriously whetted, as they came out in bigger numbers than before. Unfortunately what they voted for is more of the same kind of crises but on an even larger scale under Corbyn's Labour. We've engaged the young in politics; now we need to teach them the basics of market freedom, supply and demand, and about the damage politicians have been doing to their future for a long time now.