Forty years ago I wrote The Moral Basis of Monetarism

Rodney Atkinson 1984


The Corporatist, Statist distortions of economy and democracy I identified in this paper are as relevant today as they were in 1984. Monetarism has now fallen out of fashion and the exact opposite (“quantitative easing”) is deemed both wise and without consequences. But there are serious consequences; inflation, capital erosion, business failures, a sclerotic economy and another era of misallocated investment, unjustified rewards and a massive democratic deficit. The monopoly coal and steel industries have been replaced by exploitative utilities, health, rail and postal “services” while the parasitic State continues as before. Today the concentration of corporatist economic power has clearly moved into the political sphere with medical dictatorship, media censorship, big tech social control and State prosecution of free speech greatly extending the dangers I identified 40 years ago. The same lessons must be learned again – urgently! Voters can only sweep corrupt corporatist governments from power if they see their effects. Monetarism reveals those effects, State money printing disguises them. Rodney Atkinson April 2024


“I found it fascinating” ProfessorMilton Friedman, Nobel Laureate

“I read it with pleasure and a very large degree of agreement” Professor Mancur Olson

“Very good indeed, I commend it strongly” Rt. Hon David Howell MP

Many Western Governments, having embarked on a monetarist policy as a principal ingredient in their economic pro­grammes were inevitably going to be confronted with a stark choice. Monetary control would be a shorter, more immediate and less overtly political process than the rationalisation of their ‘real’ economies. The real ‘crunch’ would occur if the effects of monetary control, combined with electoral pressures, conflicted with the slow implementation of political reform. At such a point Governments would have to choose either to adhere to monetarism, confident that their radical “marketisation” and removal of Government and institutional distortions would quickly increase the efficiency of ‘supply’ or to abandon monetarism and ‘stimulate demand’ in order to prevent those distortions from further punishing the innocent with mass unemployment.

The latter recourse to the disastrous policies of the past may yet be forced upon governments by their own failure to tackle the underlying political causes of western economic decline which the practice of monetarist responsibility has so well revealed. The excessive pre-occupation on both sides of the Atlantic with the technical measurement of money and the ‘defeat of inflation’ was never as important as the social analysis of why Governments found themselves in the position of “printing money” and promoting inflation.

In Britain there are those who arrived at the monetarist practice, not principally through intellectual insight but through moral outrage at the long process of economic decline, social decadence and political opportunism which had characterised British life for 25 years or more. For them the printing of money was the ultimate immorality and the final symptom of government accommodation of the powerful and privileged. The morality of monetarism is in its analysis of this complete reversal of the traditional role of Government.

Monetarism and the morality of the market place do not reduce the democratic power of the state – they strengthen it in its true role as the arbiter of fair play, the controller of the strong, the protector of the weak. That is the morality which was lost as the post war generation used the state to intervene to protect their established privileges, shore up their decaying industries, promote union and professional power and preserve political sinecures. The cost to others was disguised by inflation. The strict control of money has put an end to this method of disguise and revealed a far more complex political message. Monetarism is the first indispensable step towards the revelation of economic inefficiency and political opportunism in British society. There must be no guilt ridden timidity about the role of monetarist policy in the mistaken belief that the revela­tion of long concealed problems is the cause of those problems.

Monetarism is the morality which prevents the devastation of the savings of the old and the aspiring young, the surreptitious accommodation of undemocratic power and the lies and deceit of government. It is and must remain a moral crusade. No monetarist analysis of the present can be anything but an angry condemnation of the past. This paper attempts to analyse the root causes of the maldistribution of power in society, the political nature of the causes of economic decline, their revelation through monetarist practice and the radical political steps which must be taken to promote economic and political democracy. The analysis can to a great extent be applied to all the economies of the western industrialised democracies. There is no solution to domestic economic problems without stability in the international economy but the latter depends totally on the political will to restructure the domestic economies of democratic nations.


It is all too easy in the heat of political debate to use words and concepts which are not received by the reader as they were understood by the writer. The following is an attempt to minimise such potential misunderstandings.


A monetarist assumes that changes in the supply of money and credit in the economy is the prime causal factor in long run changes in the general level of prices (ie debasement of the currency). Monetarism is the financial analysis of the symptoms resulting from government action. However significant such an analysis is, it is of infinitely less importance than the economic analysis of the use or waste of real resources and the political motivations of government in the inflationary process.


The Wrong Consensus is government based on the accommodation, (disguised by the process of inflation), of the demands only of those powerful enough to threaten the Rule of Parliament. Since this accommodation is based on the defiance of the politically and economically expressed wishes of their fellow citizens the Wrong Consensus is diametrically opposed to the genuine democratic consensus.


Illegitimate power is power which once acquired through the machinations of the Wrong Consensus is not open to challenge either through Parliament or the market place. Outside the many legitimate roles of the State, Government promotes the retention of illegitimate power by preserving institutions which the people acting in free association would have condemned to oblivion. Within the Rule of Law only the market mechanism can balance the relative claims of those who possess and those who must have the right to challenge that possession.


Privilege is the arbitrary possession of illegitimate power. Since there will always be social variety and change, so there will always be relative degrees of wealth and power. The destabilisation of society comes not from variations in wealth and power but in the arbitrary and unchallengeable possession of any particular degree of wealth and power.


Legitimate Power is power which is open to social challenge. Economic power accruing through “money votes” is more direct, immediate and, in a competitive environment, less open to distortion than political power accruing through periodic electoral votes but the latter is the only potential check on the anti-competitive practices of the economically powerful and their State provided privileges.


There is no reason to assume that monetarism belongs to any particular part of the political spectrum. It can be embraced with equal enthusiasm by left and right. Those who wish to destroy the status quo will oppose it, those who wish to maintain the economic and political system will adopt monetarism, for the practical effect of accepting the scientific analysis is to maintain confidence in the currency, the method of exchange of goods and even political ideas.

Even the linguistic currency is upheld for in the absence of monetarist constraints, the government’s debasement of the currency turns financial promises into lies and industrial agreements into deception. The debased language no longer has reliable meaning; the logical framework of our existence is destroyed, the morality of social relationships usurped. This applies to any status quo – communist, fascist or social democrat, Conservative, Labour or Liberal. Monetarism is politically neutral, as is inflation.

Typically those who find they can no longer afford something blame “inflation”. Inflation itself however does not prevent people buying what they could previously afford since inflation in itself is merely the devaluation of money not the raising of relative prices (or lowering of relative wages). If 10% more money is “printed” then everyone’s money will be worth that much less. Although therefore demand rises and hence prices by 10%, no one is poorer than before since in real terms no goods or services are more expensive than before. Where therefore the complainant can justifiably identify himself as poorer it is not inflation he should blame but the deliberate transfer of wealth from himself to others partially disguised by government inspired inflation. But how much more convenient for the beneficiaries and government that this transfer of wealth is not identified and the impersonal “deus ex machina” “inflation” is repeatedly blamed.

We must therefore seek the real economic and political causes of our decline not in the symptoms of inflation but in the motivation for inflation. By removing the monetary causes of inflation we are confronted not by a materialist and purely economic definition of our social ills, but we are increasingly conscious of the intensely political nature of the maldistribution of social power. Paradoxically the lessons of monetary analysis force government to return to purely political measures and away from the superficial tinkering with macro-economic levers, a pre-occupation in which post war Keynesianism had tragically persuaded them to indulge.

The correlation of world monetary growth and subsequent inflation since the second world war is impressive. The process of international liquidity creation through governments and the banking system had remarkably simultaneous effects in all OECD countries, resulting in over stimulation of the house market, commodity and property speculation, a rise in oil and precious metal prices and in the UK in 1973 to a near banking collapse.

It has been a common symptom of government money printing that individuals in London, Washington or Bonn could earn more from the appreciation in the value of their houses than from their annual salaries throughout the 1970’s. Never was there a more cynical reflection of the relative value of labour and unproductive speculation. Today, as the governments in those capitals apply their stringent macro-economic policies to “bring down inflation” they succeed in doing so only by bringing economic activity to a halt and bankrupting market sector individuals and corporations. Either they do not recognise or they will not see their duty to reform the institutional distortions, privilege and corruption which underlie the symptoms of inflation and unemployment.

Now that the monetary squeeze in western economies has produced a politically unacceptable level of unemployment, governments have decided that a loosening of their monetary policy is preferable to electoral defeat. The third and only honest course of action, to tackle government inspired or tolerated waste of national resources, has been virtually ignored.

(This list of State distortions and corporate privilege in four western countries in 1984 is of course out of date but different beneficiaries of State distortion have emerged since then!)

In the U.K. the government continues to encourage investment in housing and pensions rather than wealth creation and compounds the many corporate fiscal distortions by giving generous tax allowances to rich investors in small companies to compensate for the subsidy of their larger competitors. The massive portion of national assets in the hands of nationalised industries continues to be used for negative returns. Even a market orientated government calls the (occasional) extracted surplus of public sector monopolies a “profit”, prevents the import of coal to appease a monopoly trade union, and takes arbitrary non market decisions about the remuneration of policemen and nurses. Trade Unions still possess monopoly power to cajole their members and hold employers to ransom, not in the cause of a fair distribution of profit between capital and labour but in the pursuit of individual and collective political power. Hundreds of millions of pounds are still poured into loss making production of ships and steel while government spending as a share of GNP (even boosted by massive North Sea revenues) is higher than in 1979. While condemning Keynesian deficit financing of public investment government justifies a 20% rise in inflationary defence spending. While rejecting the superficial tinkering with economic symptoms a massive 20% rise in spending on law and order concentrates exclusively on social symptoms.

In the United States the government grants tax relief on interest for unlimited personal borrowing, authorises massive increases in the least market constrained and most inflationary areas of government spending – defence and space exploration – has re-allocated federal spending to states pretending that somehow that is more efficient, provides massive market distorting guarantees and subsidies for industry, and, like the U.K., provides tax incentives for investment in pensions and life insurance as if such investment without tax incentives would be ignored! There are ‘Buy American’ provisions to promote domestic industrial incompetence and although Trade Union membership is very small certain strategic areas like steel and transport are dominated by excessively powerful market distorting Unions.

In Germany the industrial sectors which provided the 1950’s and 1960’s “Wirtschaftswunder” are in relative decline as rapidly industrialising developing countries provide keen competition in Germany’s export markets. Energy poor and lacking a firm base in services, computers and electronics, Germany nevertheless has acquired since the war a burden of State distributed largesse, an overburdened public sector infrastructure, comfortable industrial work practices, a vast wasteful health industry and large guaranteed (and unfunded) pensions for an increasingly ageing population.

In France, even before Mitterand’s radical extension of State ownership and State distributed social largesse, industrial structure was geared to sectors where government purchases are dominant – armaments, nuclear, aerospace, railroads and telecommunications. Even the consumer oriented car manufacturing sector is heavily influenced by government ownership while the overall financial structure is dominated by government underwritten and manipulated commercial banks. The strong educational technical and career links between government, civil service and industry in this mercantilist State will have a deleterious effect on a centrally controlled inflexible system which will in future not be able to rely on a constant supply of a newly urbanised peasantry grateful for industrial employment. Within the EEC France cannot continue to count on the German and British fiscal purse to solve their agrarian social problems.

The common characteristic which threatens these countries is not industrial change or economic decline but the political power of privileged institutions who, refusing to change and adapt, succeed in passing on the consequences of their failure to the rest of society, while compounding the wasteful use of valuable national resources in the hands of those politically powerful enough to force government to finance their incompetence.


Economic failure does not arise naturally. It has to constructed, and it is constructed by those who have acquired sufficient power to frustrate the natural course of events whereby the needs of individuals are met by others and assets acquired by individuals can only be retained if they are well used in the interests of others. In order to act against the interests of their fellow citizens, or retain assets which are repeatedly utilised for negative returns, individuals and corporations must enjoy the active connivance of government in this retention of power without responsibility. The central role of government in this process cannot be over emphasised.

The insidious nature of their involvement is exemplified in the government’s own robbery of those who have invested their savings in what are laughingly called gilt-edged stock. £100 invested in government consols in 1950 would be worth a mere £2.50 in real terms in 1982. And yet, did not the government always say that what is in the interests of the State must also be in the interests of the people who invest? Did one not learn that government risk is second to none? But of course the government does give guarantees – of jobs for dockers and miners, of index-linked pensions for civil servants and these guarantees hold good. Not of course for those who invested the fruits of a life times labour in government stock. Nor for the retired Captain of the Queen Mary whose pension between 1968 and 1982 rose by 32% while the cost of living rose 400%. The only thing a government guarantee can guarantee is that someone else will be paying for that guarantee.

And yet, despite this central role in economic decline and political opportunism and despite their confidence in their own ability to run the economy and society, governments are the first to identify the reasons for decline in international symptoms like “high commodity prices”, “world recession”, “collapse of international monetary system” as if these were causal events, unjustly visited upon innocent governments by some deus ex machina. In fact, far from the domestic economy being a victim of external events, it is one of the main constituents and instigators of economic decline. The U.K. has, more than most countries, failed to maintain a responsible and stable economy preferring to tolerate incompetence and the waste of national and international resources in the corrupt purchase of votes.

Whereas honest companies and individuals responsible to consumers for their activities adjusted to changing circumstances, government flouted economic rules by protecting the incompetent and extending the aegis of political patronage to maintaining institutions which the people acting as individuals would have condemned to commercial oblivion.

In the long run of course, there is even a limit to government borrowing, money printing and corruption, but in the long run politicians do not stay in power. In the medium term they can, however, buy many years of power and patronage at the expense of economic decline and individual misery since “the average”, “the aggregate”, “the collective” mind can be so easily misled. Collective “democratic” decisions taken by committees both fudge issues in the name of consensus and deflect any criticism from individuals who were responsible. Indeed, members of committees may all individually disagree with a conclusion or recommendation which they nevertheless collectively espouse as the lowest common denominator. No wonder that when a committee gave miners a 25% pay rise in 1974, followed some deceptive months later by an equal rise in coal prices, the link between decision and responsibility for consequences is made neither by timing nor by reference to individuals. Equally what of the committee which recommended in 1972 that dockers should have jobs for life? What consequences of that shameful corruption were borne by those making that decision?

And yet such procedures have been the staple diet of the United Kingdom since the second world war. Incompetence without responsibility disfigured the domestic economy and the persistent economic decay by small undetectable steps, ran parallel with an equally persistent decay in the body politic. For if the political establishment will not tackle incipient economic decline for fear of compromising its political power (by offending those whose accrual of privilege is the root cause of decline) then privilege, market distortion and economic failure are further compounded. The instigation of corruption and incompetence in any governed society is always political and the resolution of those ills is political. Between this beginning and end are mere economic symptoms.

The ensconcing of political power and privilege, the use of government commands and financial indiscipline to appease the powerful and disguise the extent of irresponsibility, the eventual imposition of economic control, the revelation of the location and extent of privilege lead inevitably to the painful political solution. This process is both national and international but just as the link between political decadence and economic decline can be disguised, just as the impersonal decisions of committees hide the link between responsibility and power, so the removal of practical responsibility to the nebulous and distant “international context” compromises our understanding and honesty.

Having failed to check the power of the privileged and seeing the resultant economic failure and social suffering, government resorts to even more superficial tinkering with symptoms. Having so effectively reduced the returns on investment, more national resources are artificially forced into the same wasteful channels. Having allowed the irresponsible to rob the youth of their jobs, “job creation schemes” are funded by relieving their parents of their savings. And yet, paradoxically, the greater the disaster created by the paternalist state, the more the people turn to that state and the politicians who always claim, partly through ignorance, partly because of a desire for self-aggrandisement, that they can indeed alter the course of events. If we consider the power and almost universal involvement of the state in macro-economic, industrial and social intervention, this is not an unreasonable assumption. However, it is the nature of the state’s involvement and its historical expansion through a combination of collectivist design and individual weakness which has been so disastrous.

Some derive power from economic success which accrues to them as they attract “money votes” from those whose needs and desires they satisfy through the production of goods and services. Others derive power from the democratic votes of the people who see in their Parliamentary and legal systems a power to check or reconcile contradictions, exaggerations or inequalities which the pure pursuit of self interest may produce. A nation’s defence, social security for the poorest, monopolies and mergers legislation, would all be examples of activities not readily or more efficiently pursued by individuals or corporations.

Both pivots of community life – the market place and parliamentary representation while relying on each other for their efficacy, have within themselves the seeds of their own destruction. While those who pursue their self-interest through commercial activity must adapt their behaviour to conform with fiscal and social responsibilities imposed by government, so government must preserve the power of free individuals to pursue their responsible interests without fear of the totalitarian judgements of the state. Market freedom without constraint can lead to activity which is destructive of the very framework necessary for healthy commercial activity. On the other hand the hubris of the all powerful State, by not recognising the limits of its effectiveness can soon earn the contempt of those it set out to protect, and the praise of those it set out to control.

In the United Kingdom – and to a greater or lesser extent in all Western capitalist democracies – it has been both the growing power and the increasing impotence of the State which has upset the balance of power. For whereas there has been no lack of social security, higher taxes and daily intervention in prices and incomes there has also been a paradoxical impotence to check the power of state industries, trade unions, local authorities, government agencies and certain professional associations.

The State has more power and yet the Welfare State is weak. Taxes are high and yet the tax take is pathetically low. Massive investment incentives exist and yet industry is weak. The underlying cause of this combination of power to act but impotence to effect any change is in the failure to define the legitimate roles of government.


While Parliament indulges in extensive and complex legislation to nationalise industries, provide subsidies, and protect unions and industry from the consequences of their own actions, some of the most elementary tasks of government are neglected – to guarantee an efficient and just legal process, to keep roads and sewers in working order, to protect the individual from the tyranny of collective vested interests – to enforce, without favour, fair trading practices and anti monopoly legislation or to protect those like artists or writers who become the exploited victims of technical and commercial innovation. The fewer the legitimate activities of the State are, the more vital and urgent as social and economic change accelerates.

Monetarism, as Sir Keith Joseph’s pamphlet had it “is not enough”. Norman St. John Stevas is correct when he writes: (3)

“Isolated from its political, social and moral context (monetarism) is . . . misleading and dangerous . . . our monetary policy has to be set squarely in the wider setting of traditional social concerns and traced to its roots in moral values”.

But neither he nor the government’s critics in other parties are justified in believing that their boundless sympathy and endless compassion have done anything other than in practice bring about an immoral decline. For so often this compassion consists of what is called consensus politics. The Consensus politician is forever seeking political arrangements with economic symptoms rather than tackling root causes, for to tackle causes would lose his consensus.

A more exact analysis of this consensus reveals an (understandable) bias towards agreement with the most powerful institutions in the land – the very groups who, through their ability to acquire and retain power and privilege, influence the “democratic” process, waste the nation’s assets and yet receive continued accommodation from the public purse at the cost of the majority of responsible citizens. When the rules of monetary rectitude prevent this accommodation of the powerful through the printing of money and hence the theft of the savings and earnings of the weak, then “consensus” politicians find themselves overtly in the position of having to choose between the powerful and privileged and the ordinary responsible individual citizen. This overt conflict is not conducive to easy answers and electoral popularity so the “arid monetarists” become the scapegoats.

The attempts by politicians in “consensus governments” to paper over cracks and postpone politically unpalatable decisions or to take positive steps to “create jobs”, “boost the economy” and protect the weak have in fact led to the opposite of all these aims. The riots of unemployed youth in the streets of the U.K. occurred in a country where job creation schemes had flourished for many years. Company bankruptcies had reached record levels despite massive tax allowances and subsidies. In the land of the welfare state over half a million stood in queues for important operations and yet the attempt to raise taxes for social welfare is met by widespread tax evasion by all sections of society.

A compassionate people will the end but no longer grant the means because their leaders have squandered resources in bribing the powerful and protecting the privileged in those institutions who are responsible to the people neither through Parliament nor through the market place. It is guaranteed tenure, indexed pensions, the loss making steel plants and outdated pits which have absorbed the resources denied to the social services. If the problem for the government is the overhead of social spending as GNP falls in recession, the cause of that recession was not social spending. The irresponsibility of central and local government and the political aspirations of certain trade union leaders are directly responsible for the denial of jobs and security to youth which, having no voice in the corrupt halls of collectivist power, take to the streets in frustration and justified anger.

The politics which led to the riots were indeed the politics of consensus – but a dishonest and opportunist consensus between the powerful and the government. The real consensus has always been for the state to check, balance and control elements which threaten to dictate terms to the rest of society, not to appease them. However, consensus also requires that government act against those who may prove a threat to the “stability” of political power. There is always the time honoured reply to those who demand firm action that such action would be “politically unacceptable” and that the “public could not support it”. Here is the crux of the failure of both democratic and economic institutions, for whereas personal responsibility for their individual actions is daily accepted by “the public”, the decisions of government are concerned with the actions, freedoms and constraints of groups, institutions and the nation itself. To project personal comprehension of individual freedoms and responsibilities into a broader, national context and draw conclusions about legal constraints on collective action is difficult and requires intellect, insight, integrity and purposeful action from politicians who are prepared to lead. So much of the post war has seen the rise and establishment of the opportunist, the political fixer whose constituency has been some powerful interest group -nationalised industries, trade unions, the business lobby, academe, the professional associations. Those who rioted in the streets were the young, betrayed by their parents establishment, the black, who arrived too late to be part of the post war distribution of power and privilege, and the unemployed, who paid the price exacted by their ex work mates, still enjoying the protection of political and trade union patronage.

Such dispossessed minorities, in a society whose rewards and opportunities are determined by the “wrong consensus” are unable to challenge freely through their own efforts, education and skill for society’s job opportunities. Too many professions have unacceptable barriers to entry, too many union closed shops are capable of achieving job protection and reward maximisation for their increasingly privileged members at the direct cost of those minorities excluded from those opportunities. There is for the youth and unemployed of Britain no transparently fair system for allocating jobs and rewards. They see only arbitrarily acquired (and therefore illegitimate) power in the possession of less qualified and not very industrious members of a club with a closed membership -the employed.

Since respect for the Law presupposes a respect for the method of distributing political and economic power it is little wonder that the threat to the Rule of Law should have arisen when the dispossessed youth of Britain took so dramatically and suddenly to the streets. If those riots were the result of desperation the present simmering frustration of the unemployed, in a country where rewards for those still in work are rising fast, could lead to a far more dangerous upsurge in the one vital ingredient for genuine revolution – the aspirations of the arbitrarily dispossessed.

The more rapid economic and social change becomes the more the patterns of wealth and power on which the Rule of Law is based must be open to scrutiny and challenge. Whether Government restricts opportunities directly or merely tolerates the monopoly power of employees it is contributing to all the dangerous tensions which the recognition of illegitimate power bring to the surface.


In a healthy society the power which has accrued to groups and individuals is a product of their economic success in satisfying the needs of their fellow citizens or their political success in being elected by the people to take certain decisions on their behalf. In a healthy society neither of these processes will have been tarnished or corrupted by the beneficiaries of them. From this “status quo” it is necessary to move on. Rewards for some must diminish, rewards for others must increase. Some factories must close, certain regions will decline, certain industries must revolution­ise their activities, trade unions must discard traditional practices, certain highly paid professions find that manual labourers are commanding similar rewards, local authorities are losing their rate paying populations and some craft unions find that society no longer requires their craft. In all these circumstances change is required and the acceptance of a new reality less advantageous to the participants. To the extent that those so affected have acquired their rewards by being responsible to the people then they will understand and accept the judgement of time and adapt to the new circumstances. Just as they had no reason to feel guilty when they enjoyed the wealth or power provided by their fellow citizens through the market place or through electoral votes so they will have no resentment or anger when change and a lower status or level of reward are thrust upon them.

However, many have enjoyed their wealth and power without reference to their fellow citizens. They have frustrated democracy, usurped the law and distorted the market in their pursuit of power. The local authority or trade union leaders saw a political justification for their activities beyond the representation and defence of their constituents – they saw a permanent right to their own positions as the recipients and distributors of political and economic largesse. The fact that those they represented and the nation in general would benefit from abandoning old jobs and old assets for new more rewarding opportunities was irrelevant. Politically Arthur Scargill cannot afford to see NUM members becoming fewer and richer. The promotion of his socialist ambitions require that many men should continue to breath the dust of obsolete loss making pits and the monopoly structure and trading conditions of the nationalised coal industry provide him with the power to achieve this.

Equally intransigent in the face of change are the corridors of government where the privileges of non market rewards and index-linked pensions is the source of one of the most obscene divisions in society, the medical and legal professions whose regulations rival some of the worst excesses of trade union restrictive practices and the power of some well established companies in industry and commerce who seem to find a ready ear among Ministers of the Crown when new legislation is required to prevent the embarrassment of competition.

Government therefore finds it is worthwhile to avoid offending the powerful and proceeds to a “consensus” based on their requirements. If local authorities spend more than their revenue, if more funds are needed to subsidise loss making pits, if redundant railway lines are preserved, if the horrendous cost of inflation-proofing civil servants cannot be found then it is borrowed. This involves the sale of public sector debt, a procedure whereby the populace is led to believe that if they lend the government £100 today they will get £100 back in, say, five years time. However, this money is borrowed, not to invest in wealth creating modern assets, but rather to shore up old wasteful assets and to pay interest on existing borrowings. Since the State’s appetite for money becomes greater than the willingness of the people to lend, the government, therefore resorts to borrowing from the Banking system. The Government through the Bank of England controls and regulates the Banks’ reserves which as the basis of lending activity determines the rate of growth of bank balance sheets and hence the supply of money and credit in the economy.

The process of expanding the balance sheets of the Banks has rightly been described as government “money printing”, since, as the amount of money created rises out of proportion to the rise in goods and services available in the economy so the value of money will fall. All those who hold monetary assets, like for instance bank or building society deposits or government stock, will see the value of those holdings diminish.

Note that those who tend to hold such assets are the poorer and younger members of society who are saving money in order to invest in their first real asset – a house. Note also that the old tend to invest their life savings in government stock and in building society deposits. Government money printing has devastated the savings of such people. It is theft and all the more invidious because the victims are never aware of the crime and indeed continue to vote for the perpetrators of the crime. As Hayek has observed as a characteristic of governments: “Dispensing gratuities at the expense of somebody else who cannot be readily identified became the most attractive way of buying majority support”. (4).

This process of corruption started with the power of those in government, trade unions and industry whose activities were not open to the checks and balances provided by the people through the market place or Parliament. They were in a position to resist change and maintain their rewards despite failing the nation. They forced a weak state to accept the position and finance their privileges by robbing the young, the poor and the old of their monetary assets. But what kind of assets predominate among the powerful, those who have built and preserved a power base from which to defend their social position? Here we find ownership of two vital attributes – non-monetary assets and monetary liabilities. Typical among the assets are houses, including second homes used primarily as “investments”, land, jewellery and paintings. While the ownership of such inflation-hedging assets is of value in itself, the really profitable occupation when weak governments are printing money is the ability to borrow other peoples monetary assets to finance your own ownership of non monetary assets.

As the savings of the pensioner disappear to a fraction of the value of his labour when he earned that money so the burden of the debt on the borrower declines and a windfall capital gain arises. Meanwhile, the young couple saving to buy a house see their savings eroded and the cost of houses rising out of reach. But for those who own a house there is actually a further incentive to borrow money – tax relief on the interest payments. Not only does government devalue the burden of house owners debt and give tax relief on borrowing, there is no tax to pay on the capital gain on the house when sold. The present government has further exacerbated this situation by raising the level of mortgage interest relief. This has further promoted housing as a market in tax avoidance. There is even evidence to show that much money raised for house purchase or improvement is in fact spent directly on consumer goods!

(While mortgage Interest Relief for was abolished in 2000 Government has found other ways of subsidising house purchase and very low interest rates since the 2008/9 financial crisis and “quantitative easing” provided a new speculative boost to house values)

For those who, unlike the pensioner investing his life savings, see government stock as an opportunist short term investment, the state even arranges for capital gains arising on the sale of government stock to be tax free (if held for more than 1 year). Not only is this an insult to the long term investor but the true cost of financing government debt is concealed. Not content with deceiving the old and robbing the poor, the government adds insult to injury by providing gilt edged stock (low coupon gilt) specifically designed to help the rich high tax payer to avoid high taxes (he is able to take his interest as a capital gain). It may also be noted that while the government is in the corrupt process of distributing such largesse, it denies to industry, who would use such funds responsibly, the ability to raise money in the same way.

As the government struggles to rectify the results of its own dishonesty, we see at every turn that those whose power is at the root of economic incompetence and political corruption nevertheless emerge as beneficiaries. This is a characteristic of all societies which have an excess of political decision making processes. The most extreme examples are all socialist societies where the centralised control of political and economic life, through the Party and its committees is absolute and “democratic” collectivist decisions are taken about the definition and direction of aggregate phenomena. As societies advance from such primitive forms of control towards maximum individual freedom and responsibility the role of the state declines and decisions, political and economic are taken by emancipated individuals who are encouraged to plan, anticipate, act and accept the consequences of their actions. The State must now no longer “nanny” the weak but rather control the excesses of the strong, providing a rule of law and framework of standards and codes which all must obey. Within such a framework it is the disaggregated influence of individual decisions and preferences which bear upon all men. This is the nature of the market place. The less non-market so-called “democratic” decisions infringe upon society, the less opportunity exists for corruption by the powerful, firstly because the nature of market competition and change prevents the aggregation of power and secondly because the scope for circumventing the wishes of the people by politically powerful interest groups is reduced. There is therefore an inextricable connection in a democracy between monetarism, which reveals the extent and location of irresponsible power and privilege and the market philosophy which aims to dissipate such power and remove such privilege.

We have identified the following steps in the process of economic decline and political immorality.

Economic, political and social change begin to affect adversely the financial status of institutions.

2. Those who have acquired power without reference to their fellow citizens resist their loss of reward and status.

3. Government, because its power relies on at least the acquiescence of politically powerful groups, accommodates their wishes while maintaining the appearance of “moderate consensus”.

4. The process of accommodating privilege and incompetence requires that government spends money it hasn’t got by borrowing money which does not exist – hence inflation.

5. The jobs and monetary assets of citizens least able to defend themselves are taken from them by government in order to appease those who have been very successful in defending their privileges.

6. Money is devalued, as are promises, contracts and laws. Outmoded practices, decaying business, decadent institutions and wasting physical assets are preserved and the process of economic decline quickens.

What, then, if the monetary side of this process is halted? What are the effects of a refusal to print money?


There are of course any number of points along the spiral of decline at which a responsible government could begin the process of regeneration and most of them have been attempted over recent years: antimonopoly and restrictive practices legislation, control of nationalised industries, reduction in government borrowing and expenditure, trade union legislation and attempts to increase the accountability of central and local government. These steps have however largely failed because, without the understanding and support of electorate and elected, action against the irresponsible was politically impossible. The necessary insight and public support was not available because the extent and location of irresponsible power and privilege was not transparent. The process of decay and the accommodation of failure had built up an impenetrable web of economic and political obfuscation.

The mere insight of wise officials and a brave government cannot, in a democracy, be sufficient to bring about reform. The process of change can only begin through a general insight into economic and political cause and effect which in turn can only be brought about by monetary constraint.

By limiting the growth in money supply to correspond more exactly to the real growth in the value of goods and services in the economy government deprived itself of the opportunity to print money. Although the mechanics of money creation allow it to be seen as passive – and hence money control as proactive – in reality the decimation of the people’s savings (money creation) is active and the refusal to do so (monetary control) is passive. The pursuit of monetarism therefore is choosing not to continue with an immoral course. The government refused to “spend money it didn’t have by borrowing money which didn’t exist”. When those powerful and irresponsible groups required a ‘consensus’ to be built around their demands at the disguised cost of other people’s savings the government refused to accommodate them. Money demanded and taken by the strong is now an overt loss of competitiveness and therefore a threat to jobs (in the private market sector) and evident exploitation of consumers in the public non-market sector. It becomes equally obvious that a rise in the price of public sector demands – (coal, electricity, rates, national insurance charges) has a direct effect on employment in the market sector. Private companies cannot, like the privileged public sector, pass on higher costs in a competitive market and must therefore resort to cost cutting, including redundancies.

The transparency of unjust cause and effect is of little short term comfort to the dispossessed. It is however of inestimable value to society in its attempt to establish a social order in which power cannot be retained by a minority at the cost of the majority.

When the theory of democratic representation was conceived, there was a justifiable belief that representation of all the people would provide both the means and the will to act decisively and without delay to rectify imbalances. It continues to be naively assumed that the first step towards rectification -i.e. the recognition of injustice – is automatic. As we have seen the most obscene forms of injustice and exploitation are perpetrated surreptitiously so that the process of recognition followed by (genuine) consensus and then political action does not even begin.

The decision to control money supply and the concomitant refusal to accommodate economic failure reveals the location and extent of privilege but in itself does not rectify the power imbalances. Matching the growth in money supply to the growth in goods and services restores the meaning of promises, the honesty of contracts and the value of money but the equal revelation of the truth of economic and political relationships is unwelcome to politicians whose immediate response is vital. The final link in the process of reform (economic constraint, democratic recognition and political action) is missing. It is at this point that government is tempted to allow budget deficits and money supply to expand to “pull the economy out of recession” rather than to pursue their original intentions of rationalising the economy and allowing natural organic growth. This central point has now been reached in the U.K.

There was for too long an assumption by those responsible for Government economic policy that the re-establishment of honest money, the reduction in government spending and the “defeat of inflation” were sufficient to restore economic health. However, as we have seen the real causes of economic decline were not macro-economic but the political failure to check the power of institutions to frustrate change. Left unchecked under a regime of strict monetary control these power imbalances bring about an even more acute exploitation of the weak than under Keynesian “inflationism”.

Recognising, as market economists do, the vital role of the arbiter State, there must be doubts about the political course of the present government. Rather than act against the privileged there have been occasions on which the very same groups responsible for our present malaise have been accommodated while those who had acted responsibly have been crushed. Worst of all, instead of de-politicising the reward structure in the public sector, we have seen the political (and therefore arbitrary) distribution of largesse to groups like the Armed Services and Police according to no better criterion than that the present administration “thinks they deserve more pay”. What happened to the principles of supply and demand here? Such principles have bankrupted good companies and reduced shopkeepers to poverty wages. What arbitrary right has the government to eschew market principles for its friends in the Police and Armed Services? Certainly, no more right than Arthur Scargill has to claim that miners should be paid as much as judges or that loss making mines should stay open. The depoliticising and marketizing of the public sector is possible but like tackling so many of our social problems it requires the establishment of consistent principles and a strong political will. It requires more than a strong political will however when Government seeks to control what has been misleadingly called “public expenditure”.

High (apparent!) taxation, large public sector borrowing and spending are rightly regretted but the mere reversal of these phenomena are as inadequate and superficial as the “defeat of inflation”. Merely to reduce public sector borrowing will not necessarily contribute to the control of money supply or inflation (especially as much of the private sector is being artificially preserved by Bank of England lifeboats and by conscience stricken Banks desperately trying to prevent the taxation of their windfall profits!).

Merely reducing public sector spending on the “large overhead” of the welfare state in order to distribute it to the public sector monopolies (and hence to their trade unions) or to corporations and individuals through lower taxes is not only unjust but is per se irrelevant to promoting economic efficiency. It was not the sick, the old, or the unemployed who caused our economic decline but the active and the employed who allocated to themselves the nation’s valuable assets – skills, education, land, capital – and proceeded to reduce their value year by year because they had no market responsibility for the use of those assets. Without the most radical attack on the privileges of the non market sector the re-distribution of more pound notes in the form of reducing welfare and lowering taxes will further exacerbate the difference between the strong and the weak and will continue to channel funds to the irresponsible and incompetent who still have the power to grasp and squander those resources.

Despite the mistakes and understandable reticence to tackle traditional and entrenched institutional power, the combination of monetary constraint and public support for the first really principled and determined Prime Minister since the war, have brought about remarkable changes. Many public sector employees have launched themselves as independent companies, many local authorities have put services out to private tender when even trade unions have formed consortia to bid for work. Telecommunications, gas supply and public transport have been forced to compete with commercial concerns. There is a new attitude among management, workers and consumers. Universities and schools are at last adapting to the real needs of the market place and in order to attract students who take a sober and rational view of study and work. The needs of the customer are increasingly recognised as paramount and profit is no longer quite such a dirty word. The people now see where the real extent of irresponsible power lies, recognising the strident demands of State sector monopolies and trade unionists as direct exploitation of the rest of society. By supporting underpaid nurses and the government simultaneously the people of Britain condemned those who for too long have had the power to allocate to themselves excessive rewards at the cost of less exploitive workers.

The public recognition of cause and effect, actions and responsibility becomes greater every day. These are the incipient characteristics of an honourable and emancipated society.

An emancipated society recognises that for individuals, institutions, and government, the enjoyment of freedom entails the acceptance of responsibility for the consequences of the exercise of freedom. The ability to understand the consequences of actions is derived for individuals and society as a whole from the long process of learning while the acceptance of responsibility for those consequences is a measure of moral maturity. As a society we learn by standing on the shoulders of past generations and as individuals we learn from our own observations and experiences of cause and effect. If political leaders anaesthetise us from this learning process and forget or deny the lessons of the past, society is forced to repeat the painful learning process. If the true reflection of social relationships, cause and effect, success and failure and the process of change itself is disguised and distorted then there is no social recognition and no response. If the consequences of actions are dishonestly disguised then the individual does not learn, he becomes mindless, irresponsible and increasingly dependent on the State which promotes the disguise. A society of such individuals is helpless, frightened of itself and is forced to resort to further obfuscation, central control, a protective and oppres­sive State apparatus and further loss of freedoms for increasingly irresponsible citizens.

Emancipation is the political, economic and social release from this state of mindless dependence. The revelation of political privilege, economic distortions and commercial cause and effect are the unpleasant but necessary effects of strict monetarist policies. What was disguised is revealed. What was not understood is recognised. The people can now choose no path which is not clearly signposted. Social relationships are open to scrutiny. The market philosophy and the reduction of the State to its vital role as the controller of the strong, the protector of the weak and the dissipater of power open up new and endless possibilities for individual and institutional initiatives. Instead of drawing more and more people and resources into the political centre, where there is less and less insight, transparency or accountability, power is diffused to many diverse and responsive agents acting in commercial (and therefore democratic) response to the ever changing needs of their fellow citizens. Illegitimate power is recognised and eliminated. The more strident the privileged become in their condemnation of the revealers of that privilege, the more certain we are that change is upon us.


Trade Unions, conceived and promoted as market bargainers to seek a fair distribution of the returns on capital have become the controllers of markets and the extractors of wealth where it has not been created. They are, ironically, at their most exploitive where their socialist ideas have their fullest expression – in State owned monopolies!

Both the origins and justification for Trade Union bargaining are in the private market sector of the economy. When capital is used profitably, its owners benefit. When capital is used profitably, its owners benefit. It is accepted that the market value of workers will fluctuate and when labour is in surplus wages may not reflect a fair proportion of the joint product of capital and labour. It is therefore legitimate that free collective bargaining (undistorted either by a closed shop or a monopoly employer) should be concerned with the distribution of the returns on capital between workers and investors. Through such a system market returns for labour would be established in the private sector and those without jobs would be in at least as good a position as the employed to challenge for jobs, wages and returns on capital.


In the public sector, where Government has non market responsibilities decisions on costs and wage rates must be automatically market related. There can be no wage bargaining where the consumer is a captive of the (Government) producer. Pay determination must be through non Governmental “Standards Boards” which would not set pay levels but would monitor the standards of recruits and existing staff. If standards fell, Government would have to pay the market rate to “recruit and retain” employees of the right standard. Such a “depoliticisation” of public sector wage determination would remove political power from both Government and Unions, provide an automatic and transparent reward system and remove mutual suspicion between private and public sector employees.

Those who see a primarily “redistributive” role for taxation betray a misunderstanding of the power of capital in a competitive environment. Much of Trade Union legislation which enhanced the power of Labour in relation to Capital was an exaggerated and misguided response to the power of capital. That power arose not so much because Trade Unions were weak but because the strength of capital was not always open to challenge from the most powerful and egalitarian force in a free economy – competition. The combination of private capital, free consumers and competition means that neither the ownership of assets nor the income from them can ever represent “power” – and certainly in no political sense of the word power. Power to determine the use of these assets and size of returns on them resides instead with the consumer.

Only in a socialist society is it possible to be permanently and unjustifiably rich. In a competitive capitalist society a rich man is continually called upon to justify his wealth by competitors and free consumers. This is the principal purpose of the privatisation of public assets. Attempts to use privatisation to raise maximum revenue (by restricting a competitive environment for the privatised concerns) would defeat the purpose of privatisation. Freedom for a pampered off-spring of the state would mean imprisonment for consumers and industrial suppliers.

Taxation therefore is largely irrelevant in the search for a “redistribution” of wealth. That is primarily the function of competition policy, for in a market environment decisions cannot be vulnerable to pressure group lobbying. Taxation on the other hand is entirely the prerogative of the Government machine, open as it is to the pressures of those who seek to achieve through Parliament what they have not earned in the market place.

The purpose of business is not to (a) raise revenue by (b) increasing production and (c) meeting demand. The purpose of business activity is to create value and hence wealth by providing new goods and services or increasing the utility of existing goods and services in relation to their price. This could in fact mean doing the opposite of a, b and c. It could mean cutting production of goods and services and revenue and ignoring the existence of demand for a product in order to introduce a completely new product – in smaller amounts with lower costs and price but of higher utility to the customer and hence of greater profitability to the producer.

All these healthy responses to perceived or anticipated needs rather than existing demand will be stimulated only if stable prices form a constraint on producers. If Government creates artificial money demand in the economy then the price of goods will rise to meet that new level of demand, producing an improved return to a producer regardless of whether he has improved the quality, cost or pattern of supply. Persistent Government subsidy through the “management” of money demand stultifies the reaction of businessmen to real demand and perpetuates outdated forms of supply.

The monetarist revolution has put a ceiling of price constraint on all markets so that the rewards for innovation and change from entrepreneurial suppliers are greater than for the traditional anachronistic “reactors” to Government manipulated and distorted demand.

Government is also constrained so long as monetary control is the paramount economic strategy. Whereas the constraint of price disciplines business suppliers, the constraint on money supply forces Government to pay for its excesses overtly and honestly either by raising interest rates or taxes, for both of which they will pay in votes.

This virtuous circle for business and political responsibility does unfortunately rely upon Governments being convinced of monetarist policies – unless of course we could enshrine such precepts in a written Constitution.