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Mitchell Library, Glasgow,

The Mitchell Library in


.....  where much of the original research was done for "MOVING ON" including the then unpublished statistic that 97% of Sterling was bank credit & only 3% was cash 

This book was published some seven months prior to the Scottish referendum, its purpose to highlight the opportunity independence would present to modernise public finances and overhaul banking regulation. It was ignored by most of the political class who heard only the siren voices of the Establishment.

The result was total financial confusion, public confidence was undermined and a golden opportunity lost. Immediately following the referendum the Ashcroft poll established that concerns over the currency, public finances & pensions were the primary reasons given by voters for their voting decisions.

Ashworth Poll, Scottish pound, pensions

The lesson is not difficult - there can be no independence without financial independence

Here is an extract from this book of two halves - the Economic Principles 

& the Financial Means - a sample Chapter from each.


If this taster sparks your interest there is a button at the end which you

can press to order the complete book with its comprehensive appendices.

and from Part Two - where the money comes from

 from PART ONE


The post war Atlee government laid the foundations of the Welfare State. Thereafter Westminster governments of all stripes presided over its decline in favour of Big Business and High Finance.  In Part One Andy assembles these events to construct a platform for fresh thinking. He concludes with




Monetisation of Society


In this final chapter of this part we cut through the jargon, and

the technical language which has disguised the most blatant

misappropriation of community resources built up and maintained

by the UK taxpayer over many years.

If we learn from this experience then it should serve as a

warning against an Independent Scotland falling into a similar trap.




Monetisation is a financial term meaning converting an asset

into money – selling your house is monetisation, or taking your

accumulated junk along to a car boot sale.

Money has always been an important fact of life for all of us,

but the monetisation of government policy is a more recent

development which has come to dominate the decision making

process. The change was accelerated under Thatcherism, when

managing the monetary system was transferred from being a

responsibility of government into private hands, which led directly

to the deregulation of the banks and the unprecedented growth of

public debt.

The social impact of privatisation on the currency has been

enormous and without historical precedent. It has been the driving

force behind far more privatisations than will be recalled by the

present generation. It is difficult to steal a locomotive, or a post

office, or a fresh water reservoir, or an airport; but if you monetise

it first then it’s easy.

Burma Oil was founded in Glasgow in 1886 and went on to

become BP, the fifth largest energy company in the world.


It lost its main assets in Burma during WW2, and the remainder

due to nationalisation there in 1963. In 1965 it was the first company

to strike oil in the North Sea. In 1974 the company made huge

losses on its tanker fleet and was rescued by the taxpayer, and was

nationalised in 1974.

During 1977/1987, at the height of the North Sea oil boom,

the Westminster government privatised the company. Just imagine

the personal fortunes made from this sell-off alone and the value to

the national economy of having a national oil company like this


That however was just the beginning of selling off the British

taxpayer’s assets. There were so many huge businesses sold off

over some thirty years that they cannot be listed here, but take a

look at the 150 names in Appendix 4 and then contemplate how

this once rich country has become one and a half trillion pounds in

debt, the one per cent of the population millionaires, while 99%

are still wondering what happened to them.


Monetisation of Government


Well, what happened was this. Most of these national assets

were substantial companies and buying their shares, even at knock

down prices, was beyond the average private sector entrepreneur.

So Big Business went to their colleagues at the bank and borrowed

billions to buy out these monopolies from the state. The banks had

the assets as collateral, and Big Business owned the shares and all

the profits into the distant future. They achieved their free market

objective, the banks conjured up the wherewithal from thin air, and

Big Business became even bigger. Everyone was happy.

These industries were slimmed down and shed significant jobs.

Many were sold to foreign investors for a quick buck, but did the

consumer bills drop? Well you know the answer to that question.

These household names, Scottish Hydro, SSEB, and Scottish

Gas, all the national utilities sold off as ‘inefficient’ services, which

would be much more competitive and save us great wedges of cash

following privatisation. Aye, that’ll be right then, but there’s more.


PFI Devices


Have you any idea of the money made by those ‘in the know’

out of PFI – the Private Finance Initiative? Respected economists

Jim and Margaret Cuthbert found that:

“In Scotland alone, PFI deals in operation or signed cover

capital expenditure of £5.1 billion, almost all under Labour. Further

£1.7 billion future deals are in preparation”.

They were able to uncover details of one example – “a hospital

project in England with a capital cost of just under £70 million. To

finance the building the consortium borrowed over £60m from

banks, at an interest rate of just over 6 per cent: the consortium

itself provided almost £10m subordinate debt for the project, for

which it received a more generous 15 per cent, and the consortium

also put in an equity stake of £1,000: (no, we have not misread the

decimal point: we genuinely mean one thousand pounds). The

project shows the classic signs of inappropriate indexation, with

the senior debt being paid off quickly, and hence senior debt charges

declining rapidly - but with the whole unitary charge being indexed

over the full thirty year life of the project at 3 per cent per annum.

As a result, the projected returns to the consortium are eye-watering:

the £1,000 equity input is projected to earn dividends totalling to

more than £50m. Taking account of projected undistributed reserves

at the end of the project, the consortium’s own financial projections

indicate that the consortium is expecting to reap a cash return of

more than £90m in total on its investment, (by way of subordinate

debt and equity), of less than £10m”.

On our own doorstep, the new Edinburgh Royal Infirmary was

estimated to come in at around £180 million. PPI/PPP was to add

up to £1080 million over a 30 year period, and even at the end of

that period it still would belong to the private consortia.

So the process is like the skilled operator with sleight of hand

inviting you to bet on which cup the ball is under. You should not

be obliged to guess, because it’s your money in the first place...

and when you are told that it’s OK because it’s a not for profit

game – then be even more wary, you are dealing with a serious

confidence trickster.


Privatisation of Public Assets


You will no doubt have a school near you built under PFI,

where the skilled tradesmen who actually built it, and the teachers

who teach in it, are described as fortunate to have a steady job in

these difficult times.

The buildings were however not built to employ anyone. Their

primary purpose was to enrich the banks which lent the finance,

and the big construction firms who negotiated the contract, without

the need for a competitive tender.

Then there was the sale of council houses, variously described

as a Thatcherite ploy to win conservative votes in England and to

undermine the principle of social housing and stopping any more

council houses being built. This was a different kind of privatisation,

whereby a million council houses were sold off to sitting tenants at

a discount of 30/50% of valuation.

A number of councils have simply transferred their residual

housing stock to housing associations which were able to operate a

much easier business model.

It works like this. The housing association receives the stock

of houses free of charge. It then borrows tens of millions from the

banks to refurbish them. It sells off some of them and rents out the

balance. Provided the income covers the salaries and overheads of

this ‘social enterprise’, everyone is happy. The bank is happy

because it has a safe loan, out at 6%, and the collateral of refurbished

and sellable houses; the council is happy not to have the maintenance

bill for a rundown housing stock; the private housing market gets a

boost – once again everyone’s a winner. Except the poor old

taxpayer who provided the money for the council houses in the

first place, and which now have been kindly donated to the


Few people take into account that the money to build these

houses was borrowed from the Public Loans Board – just another

name for the national debt. As with all Westminster wheezes, the

banks win and the public pays.

Since the passing of the Attlee government, Westminster has

always been about big business, high finance and the City of

London. Everywhere else was an appendage, a nuisance to be

tolerated as a necessary overhead to be maintained at minimum

cost. That is Great Britain Limited.

It is an enterprise run for the benefit of the shareholders, who

live mainly in the home counties, and employ the best accountants

to ensure they pay little or no tax. The law of the land is carefully

crafted to favour big business over the self-employed and the smaller

enterprises, which employ the majority of the population and pay

most of the taxes.

Westminster projects a public image of financial prudence,

but do you ever get the feeling that this is a type of government

dedicated to its own special interest group rather than the common

weal? Huge sums of taxpayer’s money are allocated to

unemployment benefits and subsidies, to assist the finances of the

poorly paid, the part timers, and the unfortunates of the zero hours

contracts, and the futile efforts of agencies engaged in job creation

and fancy schemes to get people back to work. This is all funded

with taxpayer’s money. It seems almost too obvious that it would

be better all round to invest this money in the creation of public

assets which would create a demand among employers to take on

workers to meet a natural demand for labour and apprentices.




There is an explanation, and it is a skill highly valued in Big

Business circles. It is called externalisation.

This is a universal mechanism whereby the normally accepted

costs of doing business are unloaded on to someone else. When

ATH Resources in Fife went into liquidation it left behind a scarred

landscape and a polluted water table to be cleared up by the Coal


The operators of rail services are subsidized by Network Rail

which runs the tracks and stations.

The tobacco industry does not contribute to the NHS, and when

Westminster privatized British Nuclear Fuels and the electricity

companies, they conveniently left behind the estimated £70bn cost

of cleaning up to the National Decontamination Authority.

Now consider the privatisation of our public utilities. They

were all transferred with billions of pounds worth of network

infrastructure, rails and stations, power stations and the National

Grid, gas distribution networks, reservoirs and water pipelines.

These assets required maintenance and periodic renewal. Everyone

knew this but Big Business maximises profits and minimises


Sure enough when the infrastructure eventually wears out and

needs major investment, guess who picks up the bill?

At first look it is quite remarkable what some governments

can get away with. But that too is a special skill honed at those

universities teaching politics and economics. More and more of

these young graduates go straight into Westminster and become

researchers, interns or assistants to a sitting MP, to learn the art of

politics, and it is more a matter of expediency rather than conviction

which dictates the party they join. That fits well into the Westminster

pattern, but is does not provide the essential breadth of real life

experience essential to good government.

The London credo is that it all has to pay its way and that

means a return on private capital. That inevitably leaves the faceless

taxpayer to pick up the inevitable pieces. Gamblers have an old

aphorism oft quoted by Warren Buffett - “If you don’t know who

the sucker is, then you’re it.” Unlike the gambler who may just

occasionally win, the taxpayer never does.




On a lighter note, no critique of the Westminster system would

be complete without some reference to bureaucracy and the Yes

Minister syndrome, whereby public attention is diverted from

unpopular or failing policies to trivia.

The technique is to ignore the fundamentals, and engage

people’s attention on energetic activities which appear to be

addressing the issue, but are primarily a distraction to take the

public’s mind elsewhere:

A degree of bureaucracy is undoubtedly part of all government,

because there are so many departments and structures to administer

that it would be impossible without ‘systems’. It would seem

reasonable to expect that the larger the state the greater the number

of Sir Humphreys, however the reverse undoubtedly holds true,

the smaller the state structure the more ridiculous the Sir Humphreys


Hopefully an independent Scotland will avoid the bureaucracy



“When you discover that you are riding a dead horse, the best strategy is

to dismount.” However, in government more advanced strategies are

often employed, such as:

1. Buying a stronger whip.

2. Changing riders.

3. Appointing a committee to study the horse.

4. Arranging to visit other countries to see how other cultures ride dead


5. Lowering the standards so that dead horses can be included.

6. Reclassifying the dead horse as living-impaired.

7. Hiring outside contractors to ride the dead horse.

8. Harnessing several dead horses together to increase speed.

9. Providing additional funding and/or training to increase the dead horse’s


10. Doing a productivity study to see if lighter riders would improve the

dead horse’s performance.

11. Declaring that as the dead horse does not have to be fed, it is less costly,

carries lower overhead and therefore contributes substantially more to

the bottom line of the economy than do some other horses.

12. Rewriting the expected performance requirements for all horses, and,

of course...

13. Promoting the dead horse to a supervisory position.


The media, which is largely controlled by Big Business, is

quick to tell us how business-like and efficient the Westminster

model is, and to explain away this crippling public debt as public

sector profligacy and the fault of the previous administration.

The truth is quite different and these observations chime with

the conclusions of Chapter Five – the system of financial capitalism

cannot operate without constantly escalating debt. That is why we

refer to it as systemic debt.

It is the liability of the taxpayer and the asset of Big Business.

It is a system supported by all the main Westminster parties. Some

say it always survives its periodic crises, but is this just a periodic

crisis or is this one something more? The debt mountain certainly

has no historic precedent. What really matters however is how

much longer it will be tolerated by the other 99%?


Employment - the Priority


It is an unforgivable crime for any society to condemn large

numbers of its people, particularly its young people, to

unemployment. Figures recently released show that Glasgow has

the worse level of unemployment in the UK, with one third of

households in the city having no-one of working age in employment.

Scotland’s largest city in that appalling situation shames the

whole nation, and is of course a disaster for the many people

involved. Quite frankly, if this is the best the UK economy can

provide, it is high time for change. We have shown that this high

unemployment is entirely man-made. It is down to the failure of

the government to properly manage the economy. We have also

shown that a government can, and with reference to the Attlee

government, has in the past solved the unemployment problem.

The way forward is for a newly independent Scotland to take

a more radical and more fundamental approach to our economic

future. Franklin D Roosevelt when proposing to implement the

New Deal famously said “The only thing we have to fear is fear

itself”. Those famous words are as appropriate in the run-up to the

referendum as they were in 1933.


Markets – the Lessons


Much human hardship and suffering has been caused by

governments which imposed a policy of free markets and nonintervention.

Conversely, we have witnessed how command

economies, such as that established in the Soviet Union, when it

adopted the view that consumer selection was not important, and

that the economy would be better served by a committee of experts,

failed. That spectacular failure, in a mountain of economic waste

and corruption, led to even greater hardship for ordinary people.

Adam Smith was right about the market, it can indeed perform

an important role through consumer selection and prioritising

production. But Marx and Keynes were also right to point out that

the market cannot deal with every aspect of economic development.

The economy is living and vibrant; it demands constant care and

attention. That includes monitoring its dynamic cycles to ensure it

performs its primary function of generating sustainable wealth

across the entire community. Again, that is more readily

accomplished in a smaller country, as is evident today in Europe.




Globalisation supports its own bureaucracy through

international institutions like the World Bank, the IMF and the World

Trade Organisation. These organisations are a mixture of

international politics and Big Business and are the main promoters

of globalisation. If that word meant the promotion of genuine fair

trade principles based on fair wages and working conditions and a

reasonable profit for participating enterprises, then globalisation

could be a force for good. Unfortunately, the contrary is the case,

and they are driven by exactly the same vested interests that dictate

the policies of Westminster and Washington.

When our politicians say that in this age of globalisation the

small nation has no influence, this has to be understood as selfinterested

propaganda. Globalisation is driven by Big Business

and international banking and their image is fronted by politicians

who share their credo. No small country should feel obliged or

intimidated by such propaganda, and should concentrate upon

arranging its affairs for the benefit of its own people first, and for

the ‘international community’, whatever that might mean, second.

At the end of the day the futile attempts to reduce these issues

to whether we are all a few hundred pounds better or worse off as a

result of independence, has no substance in a world where money

itself is meaningless, and is not related to physical resources. It is

much more important that we feel valued within our community,

rather than exist as pawns on the board of someone else’s business


It is about trusting your government to act in the common

interest, and being accountable, and knowing that if it is

contemplating doing something you don’t like then you can get

close enough to ensure you can do something about it.

So let us make sure we insist upon proper democratic

accountability, and keep a close eye on international business

interests and their paid lobbyists’ intent upon influencing our

politicians and democratic institutions


End of Part One

Chapter 14

The Virtuous Circle


The Virtuous Circle - The hierarchy of institutions of Constitutional Money
– keeping the cuckoos out of the nest - The principles and disciplines of
financial sovereignty - The methodology of managing the currency - Paying
for employment, not unemployment - The role of the National Investment
Bank - What constitutes debt free investment? - How does the private
sector benefit? - Financing the impact of automation.

It’s a tough old world out there, particularly when it comes to
money matters. No need to lift your eyes far above the horizon to
see the vultures circling. Little old ladies are being relieved of
their pensions on a daily basis, and a lot of pretty contemptuous
behaviour hides behind a cloak of respectability. On a personal
level only the exceptionally astute will have avoided being deceived
in financial matters at one time or another. Indeed, when it comes
to financial enterprise on the grand scale no one escapes – provided
it is on a big enough scale.
Apparently no one sees these things coming – like the latest
financial crisis, virtually everyone had lost their money before they
were even aware of being robbed. Sometimes we are parted from
our money so cleverly and painlessly that again it is difficult to
explain how it happened or who took it from us.
Stuff happens, and it is very frustrating not to be able to do
something about it. There are two main hurdles to jump if the
people who screw us are ever to be stopped. The first is to
understand how they operate. That has formed a large part of this
book. The second is to reform out financial environment to keep
the criminals out – at least the big operators. So we have devised a
circle. Inside are the essentials of a sound financial system and
outside the forces which would disrupt it. If we define these, our
enemies become visible and when we see and understand them, we
can defeat them. They are no longer mysterious forces lurking
behind smoke and mirrors.
This diagram represents the basic monetary
elements supporting economic sovereignty and stability - together
with the main external influences which can subvert it – Fractional
Reserve Banking, and Sovereign Debt.


























Within the ‘virtuous circle’ a nation state is captain of its own
destiny. Its internal finances democratically accountable and its
external position periodically adjusted through the rate of exchange
– an automatic reality check comparing its performance with other
countries. It is a circle to be vigorously defended against selfinterested
speculators or the political ambition of currency unions.
When you turn in for the night you lock the door to keep out
unwanted intruders and friends and neighbours take no offence.
The same principle applies here.
The dominant myth is that the banking business is global – so
interconnected as to be impossible for any single government to
influence. De-regulation permitted inter-bank lending, and notional
money from the fractional reserve system flowed without restriction
across borders and out of the control of national regulators. Once
out there in the cyberspace of financial markets the last vestiges of
accountability vanished, and the result has been worldwide
That part of the myth is fact, but the suggestion that no
government can do anything about it is a fiction. Certainly for
those western governments, infiltrated by Ministers of State and
political leaders who are in thrall to the elite, particularly in London
and Washington, the prospect of regime change seems beyond the
horizon and will be a monumental task. But not for smaller
countries, and particularly not for a small nation achieving its
independence for the first time and starting with a clean sheet, and
as yet, unencumbered with a generation of politicians whose first
allegiance is to the City of London.
Scotland therefore stands on the threshold of designing a
financial system which reflects the needs of its people, to all its
people that is, not just a financial elite. The Virtuous Circle can
guide us through how to set about this perfectly achievable task.
The first essential is maintaining the integrity of the new currency
by enshrining its origination and issue as an exclusive state
monopoly under the Constitution.
Now consider the deep red box containing the fractional reserve
system and how the currency flows in and out of the circle with
impunity, and immediately the State has lost any control over its
monetary policy.
Next consider the pink box relating to the situation if imports
exceed exports and money is owed to foreigners. When the balance
of payments goes into the red the state must borrow from foreign
banks and loses sovereignty. If the problem persists the creditors
start to buy up your assets or your internal budget comes under
strain through interest payments going abroad. The dire
consequences of debt are well known in the UK.
If these external factors are isolated the government of the
day is freed to exercise democratic power free of the constraints of
getting into debt. Decisions are made on rational criteria first, and
affordability second. Within the circle we are our own masters,
and neither the IMF nor any other external agency can hold the
nation to ransom. The currency becomes not just the means of
exchange, but the most effective instrument to finance full and
gainful employment and incentivise the creation of sustainable
wealth within the nation.
Observe the flow of money through the system. The
Constitutional Monetary Authority (CMA) receives intelligence
from the Statistics Office and other agencies and delegates the issue
of the currency to the Central Bank – The National Bank of Scotland
(NatBoS). In the early stages, whilst sovereign Constitutional
Money replaces notional bank credit as the backing for all loans,
NatBoS will debit all the new banks with this matching sum, to be
progressively replaced with private savings and investments as old
loans mature.
The CMA may also authorise funds directly to the Scottish
Investment Bank to finance investment in fixed public sector assets.
All funding from the CMA is like cash – free of debt or redemption.
The Constitution binds the CMA to act primarily to maintain
gainful employment through capital investment. It cannot authorise
new money to pay for, or subsidise, social benefits which are fiscal
charges against government revenues. The individuals comprising
the CMA will however retain some discretion in defining the terms
‘Public Capital Investment’ or ‘Fixed Asset Formation’. The
overarching principle is that no new money may be created which
does not directly secure an equivalent increase in public wealth.
Note the phrase public wealth. That is distinct from GDP, a
statistic which measures money and that is quite different because
banks and governments can print endless quantities of money and
pay it out in subsidies, interest, dividends and income, and that
will increase GDP but not wealth, which must be tangible and of
value to society.
The commissioning of road building, hospitals and schools,
public buildings, (but not housing), rail lines and rolling stock, (but
only for a publicly owned service), would all be straightforward
examples of public capital investment.
Some decisions may however be less clear cut. A practical
example might be if a large site were identified where previous use
had created such a degree of contamination as to sterilise further
occupation. That could be interpreted as creating a capital asset
out of a liability, but only if it were then to be put to use for a
particular public or private revenue earning purpose.
Or the Defence Department might wish to commission the
building of a new warship, and whilst its operational costs would
certainly be chargeable to revenue, it might be argued that the vessel
itself was a capital investment providing local employment, although
it would earn neither a private nor public return on investment.
Retaining these principles is as important, as financial
accountability is essential, to good order, and codes of conduct can
only make good sense in the context of the times. There can be no
doubt that in the future automation will continue to replace labour
in both the productive and service areas, and there will come a
time when these financial principles will require to be reviewed.
Such times are however some way off, and we are only now just
beginning to consider that governments should make economic
decisions on rational rather than purely financial grounds.
Whilst these reforms will transform public finances, they will
impact indirectly upon the private sector. Full employment implies
a private sector maintained at or near optimum capacity and a
customer base financially able to consume these products and
services. That is the basis of building private wealth which in turn
generates the prosperity which permits a fair taxation policy.
Private enterprise, by definition, must stand upon its own
financial feet, and it will be the job of the banks to provide
appropriate working capital facilities on a basis of responsibility
and moral hazard which is the skill of a good bank manager lending
other people’s money. The provision of risk and long term
investment capital is not the business of high street banking but of
specialised privately owned financial institutions – merchant banks,
the stock market and venture capitalists – the latter in the form of
companies or individuals. Those who invest in these organisations
do so in the full knowledge that they will be accepting a higher rate
of risk and return than will be earned investing in the High Street
banks and that is how the capitalist system can work to the mutual
benefit of society.
Within our Virtuous Circle, we place private sector finance as
a distinct function from that of the public sector. We have
experienced what happens when the mechanism exists to speculate
with other people’s money is made lawful and it is for regulators
and lawmakers to banish ‘chinese walls’ and replace them with


Automation needs more than just a passing reference. Already
the cars we drive are made by robots, and CNC machines make a
host of consumer products faster, better and cheaper, than human
factory workers. Computers have rendered a host of office workers
redundant and technology is making increasing inroads into areas
previously the domain of the professional and middle classes. It
will not be long before software is developed to enable medical
diagnosis to be made more efficiently by a computer than by the
average family doctor. It is already easier to imagine many of
today’s jobs which will be displaced by machines over the next ten
or perhaps twenty years, than to predict those which remain in their
present format.
This was touched upon towards the end of Chapter 5 in Part
One, and it is appropriate that we look at the financial complications
which this is already inducing into our everyday society. It is a
complication which will become a major social problem within a


De-industrialisation is the term applied to the closure of plants
which cease to be able to compete in the global market place. The
term can be extended to include any form of domestic enterprise
which is forced to close because its customer base has shrunk due
to competition from imported goods and services.
Free trade has long been championed by all industrial nations
which prospered from exporting surplus goods and services. An
export market also adds volume and advantages of scale which
lowers production costs and enhances competitive pricing. The
policy condemns protectionism and tariffs as barriers to free trade.
In pure commercial terms this is a rational policy.
The policy remains rational for so long as there is a balance of
imports and exports between the trading nations. That balance
maintains the same logic of any domestic commercial relationship
that is earning sufficient income to pay for expenditures and
hopefully to make a fair profit.
If however that balance is not maintained and one party builds
up a substantial deficit or debt due to the other party, and the
prospects of ‘catching up’ and repaying the debt are remote, then
the commercial logic of continuing to do business disappears. This
can be distorted if the currency in which the producer is operating
is itself being used as a milch cow to drain off regular profits for
the elite and is thereby being maintained at an artificially high level
In the absence of commercial logic the case for free trade
becomes fatally flawed. That flaw can go undetected for a
remarkably long time because the commercial reality which follows
upon the non settlement of due debt is not apparent to the
commercial parties. The buyer continues to pay the supplier through
his banking system and the seller receives the agreed sum, and so
the imbalance is of no consequence to the commercial parties and
trade continues as usual.
The central banks of both countries do however notice that
one is in significant debt to the other. This is called ‘Sovereign
Debt’ and the offices of national statistics present the figures to
their respective governments.
The exporting nation wishes to maintain employment and the
apparent prosperity of a successful exporting business. The
importing nation enjoys getting something for nothing and is happy
to instruct its central bank to print bonds (IOUs) in favour of the
creditor nation, and pay a modest rate of interest. Both parties are
satisfied and the trade continues in the absence of commercial logic.
The replacement of logic by political expediency is made
possible by the use of fiat currencies issued by both nations in
quantities unrelated to anything real, because paper bonds and notes
are churned out through a Central Banking system that requires no
ultimate settlement. It may be appropriate here to recall that prior
to the last currency which abandoned the gold standard in 1971
(the US Dollar), nations were required to hold gold reserves in
order to settle foreign exchange debts.
The replacement of commercial logic by political expediency
is not however without a variety of consequences. The non
settlement of debt does not mean debt forgiveness. A creditor nation
can therefore use its credit to buy up the assets of a debtor nation
and will be tempted to do so – provided the debtor nation is not
prepared to use, or imply the threat of violence to prevent this.
Among the other consequences of abandoning commercial
logic is that eventually the exporting nations expand their industries
to a degree far beyond that capable of being supported by the demand
of their domestic economy. As other nations follow suit, they too
build up a surplus of capacity, which again is unconstrained by
commercial logic. Today no politician dare say “No” to the cheap
imports from East Asian tigers. Once they were the poor importers
of foreign surplus capacity but now they too have abandoned the
logic of requiring ultimate settlement.
The domestic consequences of over capacity of course produce
their own domestic problems. As firms find commercial survival
ever harder they desperately try to cut costs in the name of greater
efficiency. First the labour force is progressively reduced followed
by financial pressure to ‘externalise’ as many other costs as possible.
That may be a ploy to avoid tax by transfer pricing through a tax
haven, or lobbying for a state subsidy as an option to closure and
the social cost of unemployment. Or it might be government grants
to create new jobs which would otherwise be unviable. It could
simply be to liquidate or go into administration. In all cases it is
the ‘taxpayer’ who picks up the bill.
The list of ploys to deal with the absence of fundamental
commercial logic is endless, as employers and unions squabble to
survive. Finally there is the close down – domestic deindustrialisation.
The public feels bemused and let down. Blame
is distributed to unions, bad management by employers, lack of
national enterprise and of course government. The procedure is to
elect a different party to government and the whole process recycles
ad infinitum. Instead of society improving with each generation it
deteriorates to a survival of the financial fittest.
At present governments duck the issue of unemployment of
up to 10%, with the old fashioned neo-liberal responses described
in Part One, and in true Westminster tradition, this is a thorny
problem best left to the next administration. Here in an independent
Scotland, as in Scandinavia, we should be looking at the future
more realistically.
It is still doggedly perceived that an ageing population is a
financial liability rather than a blessing. It is therefore addressed
by increasing the retirement age. That is not because there is work
undone which requires to be done; it is because the cost of retirement
pensions cannot be absorbed into the present financial system. This
problem however also suggests how we might regard the relentless
march of automation as a threat, when it is in fact a blessing.
There is a wealth of experience of an older generation which
was fortunate enough to retire on what, at the time, appeared to be
a comfortable pension. In general, many people were happy to
retire at sixty because they could afford to do so. Today there is no
good reason why the working population should not be able to retire
at fifty five or even fifty. Most would be delighted to enjoy a longer
retirement and pursue their hobbies, interests and travel ambitions.
The fly in the ointment however is how can we afford that?
The answer is the same as the response to unemployment
– re-arrange the financial system to serve society rather than to suit
self-interested bankers and financial markets. Everyone can enjoy
full and gainful employment throughout their active years and live
out the remainder in comfort and security. It is perfectly practical
and possible even now, but some countries will wait until a desperate
population eventually cries enough is enough; others with a little
more imagination, enterprise and expertise will manage the
transition as seamlessly as the transition from sterling to a Scots
currency – the subject of the next chapter.



Virtuous circle, Banking system, Financial

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