There is, however, a still more fundamental cause, one I have not ceased to articulate: our managerial system of government is breaking down under the weight of a welfare state we cannot afford and which fails to meet expectations.
Promises made to successive generations cannot be met from our productive output. The gap has been filled by debt and by the systematic debasement of the currency since Nixon closed the gold window in 1971. In the nineteenth century, a pound in 1900 bought roughly as much as a pound in 1800. Since 1971, the purchasing power of money has collapsed. That is not a coincidence. That is policy.
I put this thesis to Rishi Sunak in a private meeting. He readily agreed I was right. The room of some thirty MPs looked crestfallen, until someone said, “But we can’t do anything about it before the election” whereupon everyone relaxed and reverted to type. That moment encapsulates our problem precisely.
Liz Truss understood the fiscal reality and tried to act on it. She was also, simultaneously, spending enormous sums on an energy bailout. The bond markets noted the contradiction and drew their own conclusions. She was unlucky with undiagnosed structural problems in bond markets while caught between two incompatible imperatives. Her underlying diagnosis was not wrong.
It turns out reality is not optional. You can ignore it, but you cannot ignore the consequences of ignoring it. Rachel Reeves and the whole nation are discovering this now, after the Chancellor brought welfare cuts to MPs who told their constituents for years that austerity is a choice and said, “No thank you!”
Starmer’s current crisis sits at this junction: a government elected on the promise that “change” would be painless, running head‑first into the arithmetic they declined to discuss.
No. The problem is that our representatives are ill-qualified (eg never had a proper job), and many are plain thick and promoted beyond their level of competence.
Thanks for picking this up.
Some are very bad, but not all. I hope you read my articles.
Well, yeah… Our dear Energy Sec, Windy Millipede for one. Does he even know Ohm’s Law let alone any thermodynamics. I could teach him those with a car battery and croc clips. But what’s the point?
There’s a comfortable myth that a government can make changes without adversely affecting someone, somewhere. It suits politicians to pontificate about good things without mentioning the consequential bad things (assuming they have an informed view).
So we have ended up with a ratchet of increased benefits and increased stealth taxes. If there is no government willing to undo this ratcheting effect then yes, the UK is becoming ungovernable.
You might think we are already ungovernable, but I couldn’t possibly say that.
Is the UK becoming ungovernable?
You ought to hope so. It is her only possible salvation.
Steve Baker misses the fact that the “Bond Markets” were really reacting to the Bank of England (as Liz Truss points out in her book) – these were “markets” that had ignored the insane level of government spending on (counter productive) Covid policies, because the Bank of England told them to ignore it – and they (the “markets”) depend on the Credit Money of the Bank of England – ditto the other Western nations and the other Central Banks (including the ultra political Federal Reserve system).
We do not have free markets, or even semi free markets (the sort of semi free markets the Victorians had) – we have political “markets” dependent on the antics of the Bank of England and the other Central Banks. The Credit Money that Steve Baker himself mentions earlier in the article.
As for politics in Britain – the situation is indeed not good, Steve Baker is correct.
Prosperous Cambridge has only one Conservative councilor – and no Reform Party councilors at all, the election in this city of high technology industry (computing and bio tech) was dominated by leftist groups – showing a leftist “ideological hegemony” that the Italian Marxist Gramsci would be proud of – well “educated” “capitalists” supporting anti capitalism.
At the other extreme of prosperity (lack of it) Birmingham (the second city of England) – a city which is falling apart and where nothing works, voted, mostly, for the left. Let this sink in – even with everything falling apart around them, most people did not vote Reform or Conservative (who do not have a majority – even together) – most people voted for various parties (including the Lib Dems) who want to make government even bigger and whose main foreign policy is – kill-the-Jews (and that foreign policy will end up becoming domestic policy – Jews with the financial means to do so, should leave the United Kingdom – it is not “cowardice” to save the lives of your children). Hobson would love what has happened to the “Liberals” (they now support his line on everything, the Jewish Question, Credit Money, government spending – everything), and the Greens and Islamic independents are WORSE than the Lib Dems – and Labour will also go down this road (Sir Keir Starmer is, relative to Labour Party factions, a “moderate”).
Scotland? Wales? – both places have seen the utter failure of leftist government since “Devolution” and both voted for more (yet more) leftism.
Steve Baker has a point – although he is too polite to say it bluntly, the United Kingdom may well be buggered.
Entirely correct.
Kettering?
Only one ward up for election here – a by-election in Hanwood Park.
The Greens were supposedly hit by national scandals (around the national leader – the despicable “Zack”) and local scandals around the local Green leader – who went off to South America for several months whilst still taking pay from North Northants Unitary Authority, both for being a councilor and for being a Group Leader.
Yet the Greens won the by-election – 102 votes for the Greens, 79 votes for the Conservatives, and 44 votes for the Reform Party.
Even in the middle of England in a little ward which was canvassed and leafleted endlessly, and (before anyone asks) the “Muslim vote” is tiny, the right did-not-win.
Endless government spending funded by “money” created from nothing (either by bankers or by the government) is a popular policy.
Insane – but popular.
It is old “gold bugs” like me who are the freaks now.
After all if the rich and the Corporations get lots of funny money (created from nothing) – then why not everyone?
Why should not everyone get the funny money – why just the connected?
That is the problem with monetary corruption – even for the elite who have benefited from it for so long.
“If it is good for you – it is good for everyone”.
And then society collapses.
Once the electorate get it into their head that they can vote for more largesse, they will do so, in droves. MPs don’t care as long as they get the votes and remain ‘in power’. The ‘Be kind’ mob have taken over the madhouse.
Who will cry for good, old England? I don’t know what the answer is, but something is going to give, soon.
Philip Aggrey.
The people know, in their bones, that the wealthy (and the vast corporations) have been getting “cheap money” for many years – the public may not know what the “Cantillon Effect” is, but they know something crooked is going on – and has been for a very long time, getting worse with the years and decades (even the Victorian Age was partly bent – but now the monetary and financial system is twisted it is a corkscrew).
So it is natural enough for an ordinary person to say to themselves “the wealthy are getting help – why not me and my family?” a small wealthy elite can be subsidized (it is sickening – but will not destroy society), but, as you say, when most people get subsidized – it-is-the-end.
But we still might win – after all in some places Conservative voters and Reform Party voters are still the majority (if you add them together).
But presently we are cutting each other’s throats – as in the Burton Latimer by-election and the Hanwood Park by-election – both near me and both went as I predicted they would.
“If we knock on more doors and produce better leaflets…..” – NO, will NOT work, the division between Conservative voters and Reform Party voters must end – it is the only way.
Look at the upside…the problem will eventually solve itself.
Paul Marks – ““If we knock on more doors and produce better leaflets…..” – NO, will NOT work, the division between Conservative voters and Reform Party voters must end – it is the only way.”
This is a sensible tactical argument, Sir, but we have moved beyond tactics. Tactics are what got us here. The people are resolved to destroy the two old parties. And the Civil Service, and the quangocracy. It is to be hoped anyway. This will involve pain and suffering but we have had enough now of the cockwaffle about triangulation and electoral constituencies. Let’s just burn it all down and start again. The people might be wrong but they cannot do any worse than the 35-year principle-free panto since Maggie was defenestrated.
Ungovernable?
The real question is whether you lot are heading for a Religion/Race civil war a la Yugoslavia , Hutus-Tutsis and all that.
And the answer is yes.
And the answer is no; the coming civil disorder will look nothing like Yugoslavia or Rwanda.
Mongoose – the only Conservative Party Prime Minister since Margaret Thatcher has been Liz Truss.
If someone told me that Liz Truss was coming to Kettering I would go to the event to listen to what the lady had to say. Not because the lady achieved things (sadly she did not) – but because the lady, at least, tried.
If the person coming to Kettering was John Major, David Cameron, Theresa May, Alexander Boris Johnson or Rishi Sunak – I would not go to listen to them, even if they were speaking in a community center a few yards away from where I live. I am not interested in listening to them. I do not wish any harm to come to them – I just do not wish to listen to them.
The last time (for example) that I listened to Prime Minister Sunak was when he was saying, in answer to questions in the House of Commons, that the Covid “vaccines” were safe – he was not saying this in 2021, he was saying this in 2024, when it was obvious that these injections had caused injuries and deaths – that they were not “safe”, he was not making an intellectual mistake, he was LYING, lying about matters of life and death. I have not listened to him since then. By the way – GB News still trots out the Covid “vaccine” (specifically the AstraZeneca injections – the “clot shot” that the even the British government quietly stopped as it was killing and injuring too many people) as a great achievement of the government of Mr Johnson – the Corporate State (the international Corporate State) does not care about human life.
Perry – Yugoslavia and Rwanda can feed themselves, Britain can not.
And Britain also imports manufactured goods – not just food and raw materials.
These is indeed some production here (we are about number 11 in manufacturing) – but nothing like enough to maintain the existing population – which has vastly increased due to mass immigration and the natural increase of (hostile) populations.
This nation no longer has a sufficient foundation – not economically, and not really culturally either.
The big issue with currency backed by gold (or anything which has “value in and of itself”) is that it effectively eludes money’s primary purpose, which is to enable transactions between people; historically, “money” as such was based on mutual credit, not savings from foregoing prior consumption.
By restricting it to anything like gold, or any other “backing”, you’re introducing artificial scarcity into a realm that has no reason to be scarce – people’s ability to transact between themselves – by enabling a monopoly, or close enough, of people who are able to issue credit; thereby encouraging conditions where those people are able to dictate the rates upon which “money” can be borrowed, and of course, they’ll raise those terms as high as possible, and pushing people with good ideas but low ability/confidence to meet those terms out of the market. In effect, goldbuggery is just another transfer of wealth to the already wealthy.
Of course, one might say, it’s possible to create networks whereby one *isn’t* dependant on borrowing from someone able to set usurious terms; but realistically, these small networks have been crowded out (somewhat due to the need to convert at least *some* of your income into coin of the realm to pay taxes, but for a host of other reasons as well – it’s hard to pay a mortgage without pound sterling, for example). I have some experience with LETS and so on, and it’s honestly just really hard work to balance.
(Note: this is a totally different argument to Paul’s beloved Cantillon effect, which is predicated on debasing the coin of the realm to the advantage of the already wealthy, in which he is absolutely correct)
neonsnake
Not money “backed by gold” – the gold (or whatever commodity people are using) is-the-money (it is not “backing” for something else) – and every step away from that is a step to more subsidies for politically connected (and normally wealthy) interests – the Cantillon Effect. Which you cite – but have no understanding of, or, at least, which you present as having no understanding of.
So your claim that commodity money is best for the wealthy is not just wrong – it is the reverse of the truth. Money starts as a commodity that people choose to value before-and-apart-from its use as money.
No money has not historically been mutual credit – historically money was silver in the Middle East (apart from in Egypt where gold was used) – for many centuries before coinage was invented. And my own father did not see many five Pound notes in his youth (they were not common in the East End of London – where people were poor) – money was a silver shilling or (a rare sight) a gold sovereign. Sadly “backing” tends to be a stage to a totally fiat (fiat – edict, order, whim) currency, as we most recently witnessed in Switzerland – where the process of monetary (and political) corruption was carried out only a few years ago.
“Money does not have to be scarce” – if it is not scarce it will not be worth much (if anything at all).
Usury – there is nothing wrong with usury, lending out Real Savings (the actual sacrifice of consumption) for interest – but there is everything wrong with lending out “money” that did not exist before it was lent out (i.e. the corrupt antics of the banking system – in between busts and bailouts – open bailouts, or, more normally, the hidden drip-feed bailouts).
Money is not just a means of exchange – it is also a store of value, and that is why it should be (and remain) a commodity that people choose to value before-and-apart-from its use as money.
As some writers in the past pointed out – these names “Pound”, “Dollar” (and so on) have become misleading – and contracts should specify the amount of the commodity (of an agreed level of purity) that is to be payment.
By the way – this was a great blunder of the American Democratic Party in the late 19th century, it wanted to fix the exchange rate of gold and silver – and that can not be done, as they are two different commodities.
Any effort to reduce interest rates by lending out “money” that did not exist before it was lent out (i.e. is not Real Savings – the actual sacrifice of consumption) is both economically damaging – and morally wrong.
I’m sorry, but, that’s just factually incorrect.
“Money” historically, was a record of obligations that people had towards one another, accounted for in many different ways, because the world is rich and varied, but largely by keeping tablets or similar (which is literally where the phrase “put it on my tab” comes from) of debts owed amongst the community, and occasionally coming together to cancel them out against each other, leaving the remainder to be settled later.
I’m not talking about fiat money here, as I noted, so Switzerland, five quid notes etc are irrelevant.
“Money” is a process by which people exchange goods and services, at a rough level of understood and agreed upon equivalency – that’s it, that’s all it is.
Or at least, that’s all it needs to be.
The ability to “exchange” does not need to be subject to scarcity, and by making it subject to such, one distorts markets.
@neonsnake
“Money” is a process by which people exchange goods and services, at a rough level of understood and agreed upon equivalency – that’s it, that’s all it is.
Money in economics is traditionally categorized as having three functions: a medium of exchange to facilitate trade, a store of value and a unit of accounting. How money is denominated is entirely a cultural choice, though some things are better as money than others. There is nothing special about gold that it is somehow “real” money, it is just a material that traditionally has certain properties that align well with what we need from money.
Commodity money is better than fiat money simply because it takes away the government’s ability to just create more money. It offers no other real benefit than that. But it has a lot of problems too. Better than fiat money, but still problematic. It is difficult to store and transport, it is prone to adulteration, the growth of the money supply (to account for expanding capability of the economy) is hard to model since the expansion of gold is based on capricious mining success rather than a good proxy for general economic growth. A great example of this was the fact that when Spain raided Mexico and South America after the discovery of the new continent they brought back shiploads of gold and silver, and in doing so utterly ruined the value of their currency, crashed their economy and ultimately lead to Spain being the basket case it is today. Just think about all that “money” they brought back in the 15th and 16th century, and yet it was Britannia not Espania, that ruled the waves.
But an important thing to think about with regards to money is that it is a balance between inflation and deflation. Inflation is caused by the government printing too much money representing the same amount of value and deflation is caused by new technology making massive amounts of new value represented with the same amount of money.
I think that we all need to realize that this second aspect of money is going to totally dominate in the next few years. Technology via AI and robotics is going to produce value at a speed that we have never seen before in history. Governments put drunken sailors to shame in their profligacy, but even they will not be able to keep up. This is going to cause insane levels of deflation. It’ll be combined with crazy societal chaos and transformation too, but all this value will be available to ameliorate some of the down side. In America and China anyways. In Britain where you have to take out a mortgage to plug in a toaster, you get all the downside and none of the upside.
If you are interested in this I’d recommend reading this article which discusses the impact of these new technologies on money.
Consider for example medical care. If you need surgery you need a surgeon. Surgeons are rare. They are VERY expensive to produce, they get paid a lot. One surgeon’s training costs probably millions of dollars and they get paid at the low end $300,000 a year. And that isn’t even touching other medical staff. But if that surgeon can be replaced by a single robot costing $30,000, a robot that can be trained with all the newest techniques in an instant, that can work continuously and probably do three times as much work, that means those surgeons whose lifetime cost with training is maybe $30 million dollars, can be replaced for $30,000 times 3x productivity. Translate that into deflation and a a dollar today has the same value as $3,000 in this new world. Think about any retirement savings you have or your salary and multiply by 3000. A person who has saved $100,000 for retirement now has the equivalent of $300,000,000. Do you agree that makes you crazy rich? That is not just better, it is a new world, a new paradigm that requires entirely different tools for measuring.
Macro economics was always bullshit. Today, and for the new future, it is complete and utter bullshit, and not just that but extremely dangerous bullshit. And gold, as money, just does not have the capacity to handle such growth.
Money is not just means of exchange, it is also a store of value – and money starts off as a commodity (be it salt, silver, gold – or some other commodity) that people value before and apart from its use as money. This Carl Menger pointed out – although it has been know for thousands of years before him.
Every step that money takes away from this, is a step away from economic sanity – a step into economic decay and societal corruption.
As for the idea that money does not have to be something that is scarce – if it is not scarce it will not have value, it will not be suitable to be money.
It is true that electronic means may be used to transfer ownership of the commodity – that a person does not have to physically carry around the commodity with them, but the physical reality of the commodity is vital.
@Fraser Orr
Fiat money suffers from the same issue as “sound money”, insofar as it is “scarce” and therefore subject to monopoly rents; the reasons are different (it obviously doesn’t need to be scarce at all!), but by virtue of regulations that limit who can issue loans and credit. In some ways, I’d argue this is even worse, because banks create money by lending, they’re not even vaguely foregoing consumption etc; but by limiting the people who are legally allowed to lend money, they are enabled to charge higher interest rates than would otherwise be possible, by virtue of competition.
My argument isn’t “fiat money” vs “sound money”, it’s “non-state money” vs “state money”. I’m not close enough to it to fully understand, but I believed once that crypto had potential, and yet it doesn’t seem to have had much effect (I’ll be clear and honest, here, it’s something I know only a little about, so am open to being corrected), as I believe it also has scarcity? Like, there’s a limit on the amount of bitcoin that can be produced in total, apparently?
But this is where my interest in mutualist banking, LETS etc comes from – if money truly is treated as a means to co-ordinate production, which it should be IMO, then there’s ways of doing it without surrendering that control to a state-backed monopoly. Not to say that it’s not hard – it really is, for reasons I mentioned above – but it’s possible
The linked article was, indeed, interesting – thank you. Again, I’ll be clear and honest, some of it went over my head, particularly the more techy parts. Not my field.
I largely agree with what I think was the gist, which is that as productive capacity rises, costs to the end-user come down (I’m looking at his google maps example as a “for instance”); where I get cynical is in believing that those savings will meaningfully change people’s lives. We’ve had decades and decades of pretty bloody fantastic productivity-increasing tools and increased knowledge, and yet…it costs more to live now than it did when I entered the workforce in the 90s. Whilst productivity-enhancers are great, it depends on where the benefits from that enhancement is going.
And experience suggests that it won’t be to “me”, or “mom and pop”, or ordinary people without much/any capital themselves; instead I believe it will go to those who own the technology, or are able to gatekeep it in some way; essentially, those who are able to rent it out.
That’s been the case historically, unless one really fought against it, I’m not sure why AI/robotics will be any different?
Historical records show this to be incorrect, Menger and others (at least as far back as Smith) were projecting backwards based on their current understandings of how money works, but that’s not how money actually came into being. Whilst I must point out that history is rich and varied, money started off as a unit of account, not a commodity.
Specie currency, or salt, tobacco, barley or other forms, came into being later, predominantly at the behest of the early states or proto-states, particularly when they needed/desired to be able to tax individuals.