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Detlev Schlichter in House of Commons Committee Room 7

Yesterday afternoon, I attended the meeting at the House of Commons that I flagged up here a few days earlier. It was a fairly low key affair, attended by about thirty people or more. Not being a regular attender of such events, I can’t really be sure what it all amounted to. Things happen at meetings that you don’t see. Minds get changed, in silence. Connections are made, afterwards. You do not see everything.

But what I think I saw was this.

The first thing to clarify is that this was the Detlev Schlichter show. Steve Baker MP was a nearly silent chairman. Tim Evans was a brief warm-up act. Schlichter’s pessimism about the world economy was the heart of the matter. He did almost all the talking, and I believe he did it very well.

It’s not deliberate on his part. Schlichter just talks the way he talks. But his manner is just right for politicians, because he doesn’t shout, and because he so obviously knows what he is talking about, what with his considerable City of London experience, and that flawless English vocabulary spoken in perfect English but with that intellectually imposing German accent. He foresees monetary catastrophe, but although he has plenty to say about politics, and about how politics has politicised money, he is not trying to be any sort of politician himself. Basically, he thinks they’re boxed in, and when asked for advice about how to change that, he can do nothing beyond repeating that they are boxed in and that monetary catastrophe does indeed loom. But what all this means, for his demeanour at events like this one, is that he doesn’t nag the politicians or preach at them or get in any way excited, because he expects nothing of them; he merely answers whatever questions they may want to ask him. He regards them not as stage villains but as fellow victims of an historic upheaval. Despite the horror of what he is saying, they seem to like that. He didn’t spend the last two months cajoling his way into the House of Commons. He was simply asked in, and he said yes, I’ll do my best.

Present at the meeting were about five MPs, besides Steve Baker MP I mean, which is a lot less than all of them, but a lot more than none.

One, a certain Mark Garnier MP, seemed to be quite disturbed by what he was hearing, as in disturbed because he very much feared that what he was hearing might be true. Mark Garnier MP is a member of the Treasury Select Committee, which I am told is very significant.

Another MP present, John Redwood, was only partially in agreement with Shlichter. He agrees that there is a debt crisis, but doesn’t follow Schlichter to the point of seeing this as a currency crisis. In other words, Redwood thinks we have a big problem, but Schlichter thinks the problem is massively bigger than big.

Redwood was also confused by Schlichter’s use of the phrase “paper money”, by which Redwood thought Schlichter meant, well, paper money. Redwood pointed out, quite correctly, that paper money that has hundred percent honest promises written on it, to swap the paper money in question for actual gold, is very different from the paper money we now have, which promises nothing. Redwood also pointed out that most of the “elastic” (the other and probably better description of junk money that Schlichter supplies in the title of his book) money that we now have is mostly purely virtual additions to electronically stored bank balances. We don’t, said Redwood, want to go back to a world without credit cards or internet trading! All of which was immediately conceded by Schlichter, and none of which makes a dime of difference to the rightness or wrongness of what Schlichter is actually saying; these are mere complaints about how he says it. Such complaints may be justified, given how inexactly “paper money” corresponds to the kind of money that Schlichter is actually complaining about. But Redwood seemed to imagine that what he said about what he took “paper money” to mean refuted the substance of what Schlichter said. Odd.

For me, the most interesting person present was James Delingpole. (It was while looking to see if Delingpole had said anything about this meeting himself that earlier today got me noticing this.) The mere possibility that Delingpole might now dig into what Schlichter, and all the other Austrianists before him, have been saying about money and banking was enough to make me highly delighted to see him there, insofar as anything about this deeply scary story can be said to be delightful. But it got better. I introduced myself to Delingpole afterwards, and he immediately told me that he considered this the biggest story now happening in the world. So, following his book and before that his blogging about red greenery, Delingpole’s next Big Thing may well prove to be world-wide monetary melt-down. I would love to read a money book by Delingpole as good and as accessible as Watermelons. If Delingpole’s red greenery stuff is anything to go by, the consequences in terms of public understanding and public debate of him becoming a money blogger and a money book writer could be considerable. So, no pressure Mr D, but I do hope you will at least consider such a project.

14 comments to Detlev Schlichter in House of Commons Committee Room 7

  • Did Schlichter not just reply to Redwood “Dude, ‘paper money’ is just shorthand for’ fiat money’, it has nothing to do with dead trees!”…

  • Johnathan Pearce

    Paper money is a good term because it gets across the dubious nature of what it is. Redwood is doing what some very clever people sometimes do: he’s nitpicking to the point where he misses that actual argument at hand. A shame. Redwood would have been a decent Chancellor – far better, in fact, than the current holder of that office.

  • The Pedant-General

    “We don’t, said Redwood, want to go back to a world without credit cards or internet trading!”

    I’m just reading the book now: the question is how to answer this properly. How does proper commodity-backed money support credit cards etc?

    Would really like to be able to present a cogent argument on this when questioned…

  • The Pedant General: a credit card is nothing more than a loan. I don’t see how the extension of loans is incompatible with commodity-backed money – needless to add, it has been done before.

  • Midwesterner

    The Pedant-General, I am maybe a little confused about your question. What is to prevent a full reserve and/or fully gold back banking system from engaging in electronic transactions?

    Even with paper money there have to be trucks picking up and dropping off vault cash to adjust for electronic activity. Granted in 2011 a lot of it is ‘moved’ with computer keystrokes but we would just be rolling back a couple of decades or so to a time when base money (M0) existed as notes and coins and moved around in armored currency trucks. They used to be so common but lately I only very occasionally see them at box stores. When you consider the purchasing power of a dollar in 1929, the size of the bills that was issued is staggering. But it was so they could more easily move it around physically. It is also interesting that they stopped issuing the large bills at about the same time they went off of the gold standard.

    The free market electronic transaction system would function essentially the same whether for fiat or commodity backed money. Quite probably private bullion banks would hold the largest part of member banks gold deposits all in one building and simply moved it to different rooms in the vault to reflect which bank is holding it for their depositors. That system exists presently for gold deposits but would be expanded substantially for commodity backed currency systems.

    For the consumer, conduction transactions in an electronic system should be indistinguishable regardless of the commodity/reserve policies underlying the currencies.

    If you are worried about ‘currency fluctuations’ just ask yourself, is it gold/silver/platinum that is fluctuating or is it dollars/pounds/euros that is doing the fluctuating. The easiest answer to that is to compare the purchasing power of services or things that haven’t significantly benefited from mass production, calculated in gold or in dollars over the last hundred years. Aside from fluctuations forced by forbidding the ownership of gold, you will find that the long term stability is all on the side of gold.

  • The Pedant-General

    Alisa, MW

    Thanks. I think that’s about it: as soon as you go to commodity money, you do need to worry about the physical movement of the physical commodity backing.

    obviously, the net movements are much much much smaller than the total transactions, but ultimately net movements of the physical commodity there may have to be.

    Also, regarding credit cards as loans, I understand that. The issue is the creeping move back towards FRB that that might very well entail.

  • Pedant: as you probably know, FRB is currently (and has been for a long time) imposed by governments. Whether it would still exist absent government intervention, and whether it is “a good thing” is an interesting question that has been discussed here extensively (Mid, do you happen to have that ling handy?)

  • ‘ling’? I meant ‘link’, of course…

  • Midwesterner

    In a free banking market with the knowledge that if your bank fails, no bailout and you are screwed, I think people will pay much closer attention to their bank’s audit reports and external appraisals of the banks solvency/liquidity/general banking practices/whatever. FDIC, etc, is a very perverse incentive for both the depositors and the bankers.

    Also, if failure to return demand deposits on demand was treated as theft, not bad banking practice, bank officers would be a little more, a lot more, careful about backing up demand deposits. FRB would still exist, but ‘you only get it if we got it‘ deposit withdrawal terms would be carefully stipulated at the time an account is established.

  • Midwesterner

    Link? You mean this one or another one? I lose track of all of the banking discussions.

  • I meant the last one, but I guess any one of them will do – there’s a lot of repetition in all of them.

  • Laird

    Since this thread is (technically) about Detlev, there’s a new link on his website to an interview(Link) of him by Jeff Randall on Sky News. Succinct, cogent; he speaks very well. The man’s a marvel.

  • Paul Marks

    A key point is “what is a loan?”.

    To “common sense” a loan is when money goes from savers (either directly – or via bankers) to borrowers.

    I.E. a loan is a TRANSFER of money.

    If it is then there is no problem with 100% gold (or silver, or whatever) money. And one can have credit cards and what not.

    However, this is NOT how a banker (or many economists) thinks of a “loan”.

    To them a “loan” is a CREATION of money (not a transfer of money). A bank “credits money to the account” of a borrower – it does not transfer money from the account of a saver (or savers) to the account of a borrower (which is what “common sense”, i.e. reason, would assume happens).

    Savers (getting interest for their money) do not see themselves as GIVING UP their money (in return for a claim on the bank) – no, they think they have still got the money (and the bank, and so on, tells them so).

    Banks do NOT operate a “fractional reserve system” in the sense of lending out (say) 90% of savings (keeping the other 10% as a “fractional reserve”) – no the banks CREATE MONEY (by, for example, crediting money to the accounts of borrowers). Money that no one saved – and did not exist till the bankers started doing their “creative” book keeping.

    This was all brought home to me quite recently (or rather I was remined of it).

    I was talking (internet talking) to one of the leading “Free Banking” people and he said that cheques, credit cards (and so on) were examples of “private money”.

    At first I thought he had just made a language slip – that he really meant they were ways of TRANSFERING money.

    But no, he really thought of (for example) a cheque as “new money” (not as a request for the tranfer of existing money from one person or organization to another).

    In short some of the “Free Banking” people have the same basic ideology as the Keynesians.

    The great fight between the two groups is, to some extent (with some people), just shadow boxing.

    Simple test – ask someone whether credit cards, cheques (and so on) are requests to transfer money, or are new “private money”.

    Judge them by the answer they give you.

    And, of course, different answers determine whether you can have 100% commodity money.

    If cheques, credit cards, loans (etc) are “NEW money” (not requests to transfer existing money) then, by definition, you can not have 100% commodity money.

    Indeed one can not even have 100% paper money.

    One can not have a noncredit bubble financial sytem at all, under this doctrine (the doctrine that a loan is “new money”) – one has (to use an ugly word from a nasty man – but it is accurate term) “banksterism”.

    A financial system “based” on book keeping tricks, on smoke and mirrors (and a plan, by the “banksters”, to run off with the profits before the system goes into collapse).

    By the way – as far as I remember the monetary system in the United States is about 80% credit bubble. Even with the increase in the monetary base by the Federal Reserve (a vast increase – never before seen on anything like this scale). [By the way I have no idea what the situation is in Britain - but I rather doubt it is better].

    So it may be FEAR (rather than greed, or brainwashing by an establishment “education”) that leads some people to insist that loans (and so on) are “new money”.

    For the moment they accept that they are NOT – then the “finance economy” is esposed as what it is.

    A fraud.

    Indeed an unexploded debt bomb.

  • The Pedant-General

    OK thanks all.

    Next question: think of the OPEC driven oil shock of the 1970s. That was massively inflationary, but was genuinely commodity driven, rather than being a monetary phenomenon. I don’t doubt that the morons will have managed to make it worse, but how would this have played out in a 100% commodity money world?