There is such a thing as society -
it’s just not the same as the state.

Tomorrow, Saturday December 10th at 1.30pm, my colleagues Gordon Kerr and Kevin Dowd will appear on the steps of St Paul’s Cathedral to explain how bankers falsify profits and misappropriate bailout funds for personal benefit.

Kerr will set out:

• How derivatives transactions are structured to game flawed accounting rules and Basel regulations and create illusory profits and capital;
• How Basel rules, although deeply flawed, cannot actually function given the present false accounting system;
• A specific example of how his team found a £25 billion black hole in RBS’ accounts this May, astonishingly missed by the FSA and Bank of England, and RBS’ response to this exposure;
• The way out of this mess.

Kevin Dowd will put the present crisis into historical context and explain the threat to sterling presented by continued failure to fix the banking system. 

Gordon Kerr is a banking insider and author of The Law of Opposites to be published on 13 December by the Adam Smith Institute. Professor Kevin Dowd is a leading economist and author of Alchemists of Loss (Wiley, 2010). Both Kerr and Dowd are with Cobden Partners.

Gordon and Kevin are taking a courageous step in doing this. They are likely to inflame and dismay the financial community while providing authoritative, scandalous information to the protestors. I hope it goes well: things must change and, as I said before, if this is capitalism, I am not a capitalist.

My colleague Jesse Norman MP has done some fantastic work towards obtaining rebates on exorbitant private finance initiative (PFI) contracts. See for example his article It is time to derail the PFI gravy train. To that end, yesterday we held a lengthy debate in Westminster Hall which you can find here.

PFI really matters to Wycombe and Buckinghamshire, where long, expensive hospital contracts have become fixed points in the local health system. A sensible, negotiated rebate would help NHS staff deliver more.

My colleagues did a fine job in explaining the minutiae of PFI and its faults so I tried to widen the debate to encompass PFI’s place in our present social system:

I would like to develop one point: how PFI fits into the nature of our society. I am reminded of something that Churchill said, which I think speaks to the third way. He said:

“Some people regard private enterprise as a predatory tiger to be shot. Others look on it as a cow they can milk.”

I will come back to how he finished the quote at the end. It strikes me that the third way seems to have turned private enterprise into a vampire squid to be suckered on to the faces of people on normal and low incomes.

…

It is strange that so much money is being funnelled to firms whose commercial risks are being underwritten by the power to tax. Far from protecting the poor, the state now seems to be an institution for protecting the rich from the risks they take with their own investments. I am a capitalist, and I believe that capitalism requires entrepreneurs and investors to bear their own risks. Somehow, through all this mire and mess we find ourselves in, we need to recover the principles of a free society and a vision of a capitalism that works, and works for everybody.

The worst part of the present system of vampire squid state capitalism is of course the banking system, but PFI as recently executed is in there too. The Treasury has made a start but there is far to go before PFI satisfies the public’s incisive sense of fair play.

The battle between banks and nation states is shaping up as something that lies between a phony war and a rout.

The bald facts are that three years after the crisis in which banking almost brought down the global economy, the biggest banks are bigger, more global and more entrenched in their positions, courtesy of a now all but explicit government guarantee.

The author, James Saft, goes on to predict that the next banking crisis will be larger than the last.  You can read the rest of the article via the Financial Chronicle:  Big winners in crises: The banks.

This is why, with like-minded thinkers from business, banking and academia, I spent time setting up The Cobden Centre: the design of the present banking system is not only a great source of injustice in the world, but the problems created by it are growing.

It is absurd that we do not apply the principles of free markets to money and banking. Property, contract, competition, unhampered entry and exit and, crucially, bearing one’s own commercial risks are some of the institutions and principles which enable a dynamic, open and flourishing society. As Cobden pointed out, the monetary system should not be positively managed by authority:

I hold all idea of regulating the currency to be an absurdity; the very terms of regulating the currency and managing the currency I look upon to be an absurdity; the currency should regulate itself; it must be regulated by the trade and commerce of the world; I would neither allow the Bank of England nor any private banks to have what is called the management of the currency…

Whether we can rediscover and apply the principles of a free society in relation to money and banking will determine the course of our lives for a long time. Please join us in our efforts by becoming a Cobden Centre subscriber here.

Today, Cobden Centre comrades and I are off to inject some Austrianism into the Positive Money conference. As you can tell from the Cobden Centre’s literature page, we are not afraid to work with other schools of thought — there are significant areas of overlap.

For example, from the conference home page:

Does the fundamental design of the banking system automatically lead to an unstable, unproductive, unfair and unsustainable economy and society? If the answer is yes, then should we take the opportunity to truly fix the problem now, or simply make superficial changes and start saving up for the next bailout?

This is, of course, very much where I am coming from. However, there is a hint of anti-capitalism about the conference page, something which I hope to contribute to overturning.

The fundamental problem is, after all, the state: state monopoly, state planning, legal privilege, the socialisation of risk and the privatisation of profit. What is wrong is that we have the appearance of capitalism without the correct institutional architecture.

What we have is corporatism.

Peston calls this the “new capitalism”.  This seems to be all about government overseeing big business and public policy-makers directing business.  Not much “new” about this idea, Robert.  It’s called corporatism.  And they tried it in 1920s Italy and elsewhere.

via Douglas Carswell MP.

It seems that, from generation to generation, we must keep explaining why government and big business should not be entwined.

We have had a crisis of global statism. It’s time to try capitalism, a sustainable capitalism of free people, a capitalism that has been sought for nearly a hundred years:

The answer must be, I am sure, that we have been in a fair way of failure,—tragic failure. And we stand in danger of utter failure yet except we fulfil speedily the determination we have reached, to deal with the new and subtle tyrannies according to their deserts. Don’t deceive yourselves for a moment as to the power of the great interests which now dominate our development. They are so great that it is almost an open question whether the government of the United States can dominate them or not. Go one step further, make their organized power permanent, and it may be too late to turn back. The roads diverge at the point where we stand. They stretch their vistas out to regions where they are very far separated from one another; at the end of one is the old tiresome scene of government tied up with special interests; and at the other shines the liberating light of individual initiative, of individual liberty, of individual freedom, the light of untrammeled enterprise. I believe that that light shines out of the heavens itself that God has created. I believe in human liberty as I believe in the wine of life. There is no salvation for men in the pitiful condescensions of industrial masters. Guardians have no place in a land of freemen. Prosperity guaranteed by trustees has no prospect of endurance. Monopoly means the atrophy of enterprise. If monopoly persists, monopoly will always sit at the helm of the government. I do not expect to see monopoly restrain itself. If there are men in this country big enough to own the government of the United States, they are going to own it; what we have to determine now is whether we are big enough, whether we are men enough, whether we are free enough, to take possession again of the government which is our own. We haven’t had free access to it, our minds have not touched it by way of guidance, in half a generation, and now we are engaged in nothing less than the recovery of what was made with our own hands, and acts only by our delegated authority.