On double-dip recession, Tullett Prebon rightly ask “What’s the big idea?”

The latest strategy note from Tullet Prebon asks, “What’s the big idea?” with the subtitle “the imperative need for a new ideology”, writing:

Effective government is not simply a matter of management. Even in good times, competence is barely enough. In bad times, ideological clarity is imperative, and the lack of a clear, ideas-based strategy is the black hole at the heart of the coalition administration.

This chart is particularly informative:

Click for report

They comment, “The centre-right is in desperate need of a new ideology, and this, we believe, needs to be based on a commitment to the wholesale reform of capitalism.”

Indeed and that reform must be based on the understanding that it is money itself which has failed, creating a financial crisis, an intractable bust, an unjust distribution of wealth and other grave problems which undermine the basis of our society. It is because money has failed that further monetary activism is not working to produce a recovery. In so far as a resumption of an accelerating increase in the money supply would produce an economic boom, it would be one which risked an inflationary destruction of the currency.

I’m an enemy of Keynes’ flawed ideas, but he was no fool. His preface to the General Theory set out how his main purpose was to cause economists to question the basic assumptions of economic orthodoxy. He finished his book by asking whether the fulfillment of his ideas was “a visionary hope”, famously writing,

The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.

Today, he is that defunct economist. By enabling an economic orthodoxy which understates the importance of time, his ideas (amongst others) legitimise a neglect of the structure of capital and the origin of interest rates which together enable the monetary activism which brought us to this point, which is not working now and which threatens to make the crisis worse later.

It is again time for economists to question the basic assumptions of their orthodoxy.

In the vision for the Cobden Centre, I wrote,

Our vision is of a peaceful, open and free society based on a stable, sustainable economy in which everyone has the opportunity to participate in constantly growing real prosperity.

Based on sound scholarship, we argue that such a society must be built on honest money.

Honest money means an end to credit expansion and false booms followed by financial crises with appalling human cost. It means an end to inflation of the money supply and hence prices. Honest money is the key to social progress in the 21st century.

Tullet Prebon are right that a new big idea is required. The Big Society is a good one, and I support it, but it is empty without monetary reform, for money is the basis of cooperation in society. All the while money remains broken, there will be no sustainable and just recovery. For those who want to question the basis of contemporary economic orthodoxy, I recommend starting with the primers here.

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