Over at The Cobden Centre, my colleague James Tyler explores the FTSE All Share index priced in oz of gold, which, it turns out, tends to maintain its purchasing power over centuries:
FTSE All share in terms of oz gold (click for story)
James is Chief Executive of Tyler Capital and a keen supporter of honest money in the interests of the ordinary person.
Read more via Steve Baker speaks at the IEA on fiscal policy » The Cobden Centre.
Via today’s Cobden Centre article, A Free Money Movement, Antoine Clarke predicts the rise of the Free Money Movement called for by Hayek:
What we now need is a Free Money Movement comparable to the Free Trade Movement ofthe 19th century, demonstrating not merely the harm caused by acute inflation, which could justifiably be argued to be avoidable even with present institutions, but the deeper effects of producing periods of stagnation that are indeed inherent in the present monetary arrangements.
This post originally appeared on cobdencentre.org.
Razeen Sally’s Trade Policy, New Century (PDF) succeeds magnificently in explaining the 21st-century case for free trade and, specifically, unilateral trade liberalisation to the interested, non-specialist reader.
From the IEA home page of the book:
The World Trade Organization (WTO) is failing to deliver the trade liberalisation desperately needed to bring prosperity to developing countries, according to a new study released today by the Institute of Economic Affairs. The WTO is hamstrung by a cumbersome negotiating model and the influence of vocal protectionist lobbies who oppose free markets. At the same time, increasingly popular regional ‘free-trade agreements’ often create as many barriers as they remove by erecting new obstacles to trade with countries outside the blocs concerned.
In the context of policy paralysis at the WTO, the author, LSE trade expert Dr Razeen Sally, argues that governments must take back the initiative from supranational institutions. The priority must be unilateral liberalisation – removing trade barriers to benefit domestic consumers rather than waiting for tortuous international negotiations to be resolved. Governments can also help maximise the benefits of free trade by liberalising their economies and strengthening key institutions.
But what is the imperative for the UK? Surely, European Union citizens enjoy free trade?
The EU is a customs union: we trade ostensibly freely within it, but, as can be seen from the EU’s TARIC database, we find ourselves behind a complex system of tariffs on, for example, wheat, notwithstanding the battle long since won by our inspiration, Richard Cobden, to repeal England’s Corn Laws in the general interest.
And this is the key point: free trade is in the general interest. We may make the political and economic arguments in detail, but the public good is our ultimate aim, and not just at home. Razeen Sally explains (pp179-180, emphasis mine):
Adam Smith fortified his presumption in favour of free trade with an explicit political argument. Protectionism is driven by ‘the clamorous importunity of partial interests’ who capture government and prevent it from having ‘an extensive view of the general good’. Free trade, in contrast, tilts the balance away from rent-seeking producer interests and towards the mass of consumers. It is part of a wider constitutional package to keep government limited, transparent and clean, enabling it to concentrate better on the public good.
As important to Smith and Hume was the moral case for free trade, centred on individual freedom. Individual choice is the engine of free trade, and of progressive commercial society more generally. It sparks what Hume called a ‘spirit of industry’; it results in much better life-chances, not just for the select few but for individuals in the broad mass of society who are able to lead more varied and interesting lives.
To sum up: free trade is of course associated with standard economic efficiency arguments. But the classical-liberal case for free trade is more rounded, taking in the moral imperative of individual freedom and linking it to prosperity. Finally, free trade contributes to, though it does not guarantee, peaceful international relations. Freedom, prosperity, security: this trinity lies at the heart of the case for free trade.
In a short article, I can scarcely do justice to this monograph’s insight in relation to the case for classic liberalism nor to its observations on emerging geopolitics: I heartily recommend the book.
Toby Baxendale
Brian Micklethwait on my colleague, Cobden Centre Chairman, Toby Baxendale:
…You don’t get from seventy grand in debt at the age of twenty one to running a company that turns over a hundred million quid a year before you are even properly middle aged without having something about you.
…
The thing I find particularly intriguing about Toby is how his thinking in the academic sense and his business and social thinking are so deeply intertwined, which is sadly not true of far too many businessmen. His early acquaintance with the economic facts of life, due to his parents divorcing early and him being raised by his single mother, meant that he came to the study of economics with a well developed sense of how the economy worked and how wealth gets created, and regular economics didn’t add up. Too abstract. Simply: not right. He paid for much of this education by himself working, first by part-owning and running a night club, then by buying food for a restaurant that he part-owned, the latter activity being the basis of his later business success…
Toby is a remarkable man and I am proud to have been instrumental in establishing the educational charity he founded to promote honest money, free trade and peace in the tradition of that great statesman, Richard Cobden.
I subscribe to the view that our present economic and financial woes were caused by the government. Via The Cobden Centre, you can see we are working on doing something about it:
Through tomorrow and Saturday, ESCP Europe and The Cobden Centre are hosting a Colloquium on Sound Money. The Colloquium is to be directed by Founding Fellow Dr Anthony J Evans and chaired by Corporate Affairs Director, Steve Baker.
A team of academics, banking professionals, entrepreneurs and politicians will meet to discuss:
- What is Money?
- The Interest Rate and Intertemporal Coordination
- The Gold Standard and the Great Depression
- Deflation and Prosperity
- Free Banking vs 100% Reserves
- Central Banking
- Proposals for Reform
The authors whose work will be under consideration are Carl Menger, Joseph Salerno, Frank Shostak, Ludwig von Mises, Friedrich A Hayek, Joan and Richard James Sweeney, Murray Rothbard, Lawrence Reed, Lawrence H White, George Selgin, Vera Smith, Tim Congdon, Richard Salsman and Jesús Huerta de Soto.
My Cobden Centre colleague and Chief Executive of Tyler Capital, James Tyler, explains how we came close to financial collapse and what to do about it:
Fractional Reserve Banking (FRB) is an inherently unstable complex system.
Each and every bubble and crisis has some kind of link to FRB, going back thousands of years.
Even where financial crises are caused by natural disasters (the San Francisco earthquake of 1906 being a prime example), the financial crisis only followed because banks did not have enough reserves to pay out worried depositors – due to fractional reserves.
In a nutshell, depositors wanted what they thought was their property back, only to find it did not exist.
Over 70% of people in the UK believe that money placed in an instant access account remains their property. This is not the case.
Read more: How to avoid future encounters with financial meltdown » The Cobden Centre.
Over at The Cobden Centre, my friend and colleague, financial engineer Gordon Kerr, explains how to destroy the British banking system through the use of derivatives which take advantage of the regulatory system, then sets out four measures to solve the problem:
Nine years ago I worked as a structuring engineer in a three-man team within the investment banking unit of a major British bank. One of us was very bright. He stunned me one day with an idea as to how we could:
Produce immediate (but illusory) substantial profits for our bank, thus ensuring that we would enjoy generous personal remuneration;
Generate ‘virtual’ share capital to boost our bank’s capital reserves;
Leave the actual investment risk exposure and profit expectation of our bank almost exactly the same after the transaction as before it.
Was this idea the kind of rocket science derivative engineering that justifies master of the universe labels for the three of us who designed and implemented it? No: it was extremely simple. Here’s how it worked. We transmuted some loan assets into a derivative transaction for regulatory purposes, whilst leaving the actual loan arrangements unaltered.
From the article which took the Cobden Centre through 1000 views per day, My Journey to Austrianism via the City, by James Tyler:
I make the market in interest rate derivatives: a market born out of the neo classical revolution in finance fostered in Chicago during the 1970s. I am a child of Freidman, Fisher Black, Myron Scholes and the modern international financial system.
My analysis was steeped in the neo-classical, efficient markets paradigm.
Friedman’s ideal was working. Enlightened central bankers guided the free market with gentle nudges and short term liquidity infusions, free floating currencies gently adjusted themselves to the constant flow of new information and efficient and rational markets took all in their stride.
Credit flowed, people got wealthier, economies developed and all was well.
And then the crisis struck.
Markets dried up and ceased to make sense. Price moves became highly irrational.
Then the whole market edifice began to crumble. Bear Stearns going bust tore a hole in the system and Lehmans almost collapsed the entire financial world.
What had gone so badly wrong I asked myself? How could this have happened?
At about this time I was listening to the US presidential debates. A load of guff and hot air really – all except this fella called Ron Paul. He banged on about liberty, the constitution and the evil of the Federal Reserve. His ideas were fresh to my ears.
In particular he talked about what seemed like a loopy idea. He wanted Gold as money, and the free market to handle it.
Without central banks.
My curiosity had been piqued.
US Republican Congressman and former presidential candidate Ron Paul has released End the Fed. Paul explains why we should care about central banks, how we got into the present economic mess and why the Federal Reserve should be abolished. It is a brief and enjoyable read with suggestions for more scholarly reading, some of which are on my bookshelf and within my recommendations for rethinking economics.
Today, we take for granted that a government should have a monopoly on the issue of currency and that the quantity of money should be manipulated by committees of wise men for our own good. There is an extensive body of serious literature which suggests we should should think again.
This is why we have established The Cobden Centre. Please take a moment to subscribe to our email updates.
Watch out for the campaign to audit the Fed. If Ron Paul’s bill becomes law, expect reform of the system of money to enter mainstream debate.
With Dr Tim Evans joining the Cobden Centre as Chief Executive and after the publication of a number of substantial new Insight articles, it has been quite a week for The Cobden Centre.
Today, Toby Baxendale has published a refutation of the mechanistic Quantity Theory of Money, the theory on which QE is based:
The mainstream economists hold that the volume of money in circulation, times its velocity is equal to the prices of all goods and services added up. This is the famous Theory of Exchange, MV=PT, or the mechanistic Quantity Theory of Money, where:
- M is the stock of money,
- V is the velocity of circulation: the number of times the monetary unit changes hands in a certain time period,
- P is the general price level,
- and T is the “aggregate” of all quantities of goods and services exchanged in the period.
It is held by the overwhelming majority of all economists, that if the velocity of money falls, the price level will fall and thus it is the duty of government, the monopoly issuer of money, the chief Central Planner of the Money Supply, to create more money to keep the price level where it is and thus preserve the existing spending habits of the nation.
In a nutshell:
Please see the main article for details. I have commented extensively there.
An article by my Cobden Centre colleague, Toby Baxendale, exploring whether manipulating the interest rate can create real wealth:
You often hear politicians and economic commentators say that we must have low interest rates to make sure the price of money is as low as possible to allow people to borrow and thus spend. This is very much the common view whatever your political outlook. The thought behind this is the Keynesian notion that one person’s spending is another person’s income. This is the famous circular flow of income. In a further article, I will address the latter notion. The first notion — whether cheaper money will make for greater prosperity — I will address now.
First of all, I would like to recap how we entrepreneurs create wealth.
Of course, those in debt want low interest rates and those saving want them high, but that is not the question before the country… read more here.
A stunningly good article by my Cobden Centre colleague Dr Anthony J Evans which is now being picked up in the blogosphere:
Barack Obama’s speech on Monday to Wall Street outlines an overhaul of the regulatory regime. On the anniversary of the bankruptcy of Lehman Brothers, politicians from both sides of the Atlantic are looking to remodel capitalism. The thirst for greater regulation is strong, united around Gordon Brown’s judgment that “laissez-faire has had its day … the old idea that the markets were efficient and could work themselves out by themselves are gone”.
The notion that the present financial system is “laissez-faire” is, of course, ludicrous. At present, we have a nationalised organisation that holds a state-granted monopoly on the issuance of currency. If this were any industry other than finance, the Bank of England would be seen as the Soviet-style planning board that it is.
Defending laissez-faire is therefore not a defence of the status quo; it is a positive prescription for a totally new regime.
Read the rest of the article: Don’t regulate banking – liberalise it.
Further reading here: Insight.
Via Material Evidence » The Cobden Centre, more on the false impression of prosperity created by erroneous monetary and fiscal policy:
Without stopping to rehearse the entire thesis (laid out most recently in the last two editions of Tangible Ideas, viz., ‘Lord Timon’s Purse’ – oriented towards money and credit – and ‘Goodbye to All That’– which dealt with their real–side impact), this ‘bullishness’ may have imparted the impression that we have something of a schizophrenic mindset since, in all other respects, our outlook has been jaundiced, to say the least. To the contrary, the two are not at all incompatible, but, rather, interrelated, since what we have all along said would drive a rapid rebound in asset prices would be continued central bank laxity, supercharged by the monetization of soaring government deficits and magnified by the market’s utter misunderstanding of the nature of the ‘recovery’ this has engendered as the liquidity crisis of ‘Snowball Earth’ has partially thawed to a still glacial Little Ice Age of misallocated capital and sorely impaired balance sheets.
The Cobden Centre has been established to promote honest money, free trade and peace. We recognize that stable systems of private property and exchange are a prerequisite to a sound economy and we are promoting reforms which would extricate us from our present difficulties.
Via Tangible Ideas – Goodbye to All That » The Cobden Centre, Sean Corrigan explains the end of an economic era:
The sheer violence of this reversal of fortune — something akin to the sudden, mortal swoop of a melted-wax Icarus after long hours of patiently spiralling heavenward on the thermals rising off the Cretan coast — has perplexed everyone from Her Britannic Majesty and her hapless First Minister to the fallen idols of investment practice, like Bill Miller and Bruce Bent – yet while its pattern may be a complex tangle of circumstances, there are, in truth, only a few basic threads in the weave, all of them very familiar to those with an Austrian perspective on the case: fiat money, gross government interference with markets, and the avid, rent-grubbing irresponsibility it fosters in everyone involved …
Drawing on the work of Nobel Laureates in economics from three traditions, plus numerous other distinguished scholars, Cobden Centre Chairman, economist and successful entrepreneur Toby Baxendale presents an informal introduction to our proposal for honest money and the benefits consequent on the reform. See also our precis of Irving Fisher’s 100% Money.
via A day of reckoning: how to end the banking crisis now » The Cobden Centre.
I have been busy with my colleagues at our new educational charity for honest money: Steve’s posts at The Cobden Centre.
See also:
Via The Cobden Centre » Honest money, a summary of economist Irving Fisher’s “100% Money”:
The 100% proposal is the opposite of radical. What it asks, in principle, is a return from the present extraordinary and ruinous system of lending the same money 8 or 10 times over, to the conservative safety-deposit system of the old goldsmiths, before they began lending out improperly what was entrusted to them for safekeeping. It was this abuse of trust which, after being accepted as standard practice, evolved into modern deposit banking.
I am delighted to report that I have established The Cobden Centre, an educational charity for honest money and social progress, together with founder Toby Baxendale. You can find out more at our web site. The Cobden Centre provided this site’s previously-published reading list, Rethinking Economics.
Over the coming months, The Cobden Centre will provide a number of insight articles drawing on our extensive base of literature and covering, as a beginning, the scope of de Soto’s Money, Bank Credit and Economic Cycles:
Please follow me, subscribe to new articles and keep an eye on the Cobden Centre site.
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