Economic Case for an Independent Scotland: a not entirely convincing case made for going alone

Ivan McKee / Business for Scotland,Economic Case for an Independent Scotland (Part 2)” (The Glad Cafe, Shawlands, Glasgow, 26th Nov 2013)

In the run-up to the September 2014 independence referendum, Scottish Independence Live Events has organised a number of talks, presentations and other live events to present the case for an independent Scotland. Some of these events have been co-ordinated with Business for Scotland and Ivan McKee of that latter organisation has been giving a series of talks on why and how Scotland can benefit from splitting from the United Kingdom. The presentations take the form of PowerPoint show-and-tell presentations with McKee talking about the information flashed up on a large screen.

The talk is very dry and consists of McKee running through various comparative statistics that put Scotland in quite a good light compared to the UK as a whole. No wonder the audience seems very quiet: half the people there must have been bamboozled by the figures presented and the other half might have been in the various stages of sleep! The talk seems well organised enough though for a talk that takes slightly over 35 minutes there is no attempt to categorise parts of the talk into sections about Scotland’s economy, its balance of payments and accounts, its exports and imports, and its financial position. Indeed, McKee concentrates mostly on Scotland’s financial position vis-a-vis that of the United Kingdom and the figures invariably look better for Scotland where its contributions to the UK economy are concerned, and worse where its share of the national wealth on various criteria is the focus. McKee paints a picture of statistics showing that Scotland, if its economy were teased apart from that of the UK, is more productive on a per capita basis and contributes more per person to the overall British economy, yet does not receive what it should from London based on its contributions to the national economy. To take one example, the country contributes over £3 billion in defence yet only £1.9 billion is actually spent in Scotland for defence.

I did get the impression that many if not most statistics quoted were cherry-picked to portray a post-independence Scotland in a better position than it would otherwise be in were people to vote “No” in the September referendum. Curiously McKee did not mention what Scotland contributes to the British economy apart from North Sea oil; since the oil makes up 15% of Scottish exports, the Scots would rightly expect McKee to highlight other major and minor exports and say something about the prospects of their future earnings were Scotland to bolt from the union. As oil is a finite resource and North Sea oil production especially surpassed its peak production limit some time ago, one would think McKee would say something about how an independent Scotland would restructure its economy away from dependence on the British economy overall and from finite energy commodities.

Most people in the audience were representative of the general public and one surmises that jobs and employment post-independence would be uppermost in their minds. McKee has nothing to say about how independence will affect companies’ willingness to invest in Scotland and create work that will employ Scottish people. There is nothing mentioned either about how enmeshed Scotland is with the rest of the British economy and whether non-Scottish British firms would be willing to continue investing in Scotland after the country pulls out of the union.

Another significant issue must surely be the currency, whether Scotland would be allowed to continue using the British pound as its currency unit and what consequences the Scots would suffer from London if they did so. Even if the Cameron government promised the Scots that it would not use the pound to wreck the Scottish economy, the financial sector in the UK, based as it is in the City of London whose founding pre-dates the arrival of the Angles, Saxons, Jutes and Frisians in the British Isles 1,500 years ago, tends to act like a law unto itself and could use its power to weaken and ruin the Scottish economy by starving it of funding for necessary infrastructure projects with the connivance of Whitehall.

Nevertheless McKee’s talk certainly provides plenty of food for thought and further discussion.





Breaking Inequality: a well-intentioned documentary based on a simplistic view of corruption in American politics and economy

“Breaking Inequality” (2013)

An urgent and impassioned documentary made to appeal to all Americans, “Breaking Inequality” focuses on the corrupt links that tie the United States government and the country’s financial industry, and traces the history of that corruption back to 1971 when then President Richard Nixon took the country off the gold standard. The film was made on a modest budget: much of it consists of snippets from TV news media with some animation and basic title cards, all laid over by a narration from an unseen narrator.

The film does a good job of tracking the various events and economic trends that led to the 2008 global financial crisis. Where it fails though is in attributing all the problems in the American economy and society back to Nixon’s decision to break with the Bretton Woods agreement, established in 1944 to regulate the international monetary system, and end the convertibility of the US dollar into gold. This act made the US dollar a fiat currency (a currency whose existence depends entirely on laws made by government) and the world’s reserve currency. From then on, the money supply in the US began to increase, gradually at first, then practically exponentially in 2008 and beyond. Now Nixon does deserve to be vilified for the Watergate scandal and for the documents at the centre of that scandal which among other things record that in 1968 Nixon attempted to stall the US-Vietnamese peace negotiations so that he could win the Presidential election that year; but he does not bear sole responsibility, direct and indirect, for those events that occurred as a result of the US dollar being released from the gold standard. The Bretton Woods agreement itself that re-established the gold standard and fixed all global currencies to it was flawed: it was structured in a way that privileged the United States and made it the most economically powerful country in the world. At the same time, the agreement allowed the US to accumulate balance of payments deficits as global demand for the dollar in international trade meant that large amounts of it had to circulate globally. A currency that serves as both national currency and reserve currency will create tension between long-term national fiscal and monetary policy on the one hand and short-term global monetary policy on the other: policies that benefit one do not benefit the other. When the narrator says “… we live in one of the greatest countries in the world …”, his statement takes on a most unwelcome taste.

There were changes also outside the US that made the Bretton Woods agreement untenable: the rise of Germany and Japan as rival economic powers meant that the US economic position was bound to weaken with German and Japanese manufactured products often exceeding US products in quality and affordability. In addition the expansion of US military bases in many parts of the world and the Vietnam War, initiated by President John F Kennedy in the early 1960s, led to large amounts of US dollars circulating globally.

Indeed, if we go back further than 1960, before the rise of Nixon as politician, we see that the United States has had strong imperialistic ambitions since the Monroe Doctrine was proclaimed in 1823. Perhaps such ambitions had their origins even well before then, in the belief that having democracy (or whatever passed for democracy) and being a child of the Enlightenment project of the 1700s made the US a special society that must spread the ideals inherent in democracy to the rest of the world whether it liked it or not. Also the existence of indigenous peoples and slaves – both viewed as inferior in some way to white Americans racially and culturally – and the need to deal with them must surely have influenced American attitudes towards other people.

So, honest and well-intentioned that the film is, when it calls for people to support a petition calling for the restoration of the gold standard, to be presented along with the signatures to US Congress on 4 September 2013, I just wonder whether the response to the petition from US Congress and various economic and political commentators will be silence, ridicule or laughter. In pinning all its hopes on the petition, “Breaking Inequality” and its supporters risk being labelled as naïve. I hate to have to say this but the film-makers really need to bone up on 20th century economic history and the history of the evolution of debt-based monetary systems to understand better the roots of the current global monetary crisis: it is a crisis of global capitalism.




The Yes Men Fix the World: taking down predatory global corporate fascism with hilarious pranks and comedy

Kurt Engfehr, Andy Bichlbaum and Mike Bonanno, “The Yes Men Fix the World” (2009)

Well no, actually they don’t but that was a pretty good little attention-grabber. The Yes Men (Bichlbaum and Bonanno playing themselves) are two political activists whose modus operandi is to pose as faceless executives of real companies and bluff their way into conferences and public forums to pull off pranks that call attention to problems ignored by governments, global finance, corporations and mainstream news media. In the process of carrying out these stunts, the comedy duo exposes the hypocrisy, arrogance, greed and sheer emptiness behind the public face of the corporate world and the dangerous and often inhuman ideology and rhetoric it espouses.

In the form of a fly-on-the-wall / self-confessional home movie with crazy camera angles, giving the impression that any minute the entire enterprise will collapse spectacularly, the film breathlessly chronicles the Yes Men’s adventures (with faithful camera operator in tow) across the world. The structure is loose but basically linear; near its end the film goes into a circular loop around issues relating to post-Katrina New Orleans. First stop is the stunt in which Bichlbaum poses as a spokesperson for Dow Chemicals on BBC TV and says that his company will pay US$12 billion in reconstruction efforts to help the victims of the Union Carbide plant explosion in Bhopal in 1984 which killed 5,000 and which continues to poison and maim communities surrounding the plant. (Dow Chemicals took over Union Carbide in 2001.) Other memorable and hilarious if sometimes tasteless stunts include the duo’s infiltration of an oil industry conference to hand out candles purportedly made of human fat to attendees and a sales pitch to various company representatives of Survivor Ball costumes: these and other stunts are ingenious and well-planned, and are carried out with seat-of-the-pants bravado and a raw energy that counter-act the usual studied and artificial faux smoothness and slickness of much corporate advertising.

One insidious feature of the film that’s not explored or exploited much is the corporate news media’ unquestioning worship of the dominant corporate ideology and culture, expressed in the media’s often deliberate misrepresentation of the Bhopal victims’ reaction to the BBC TV prank and the New Orleans Lafitte public housing residents’ reaction to the Yes Men’s humiliation of the city mayor and the US Department of Housing and Urban Development. The Yes Men feel compelled to visit the Bhopal victims and the Lafitte public housing residents to gauge their reactions and discover that these people, far from being upset at the duo’s hoaxes, thought the pranks were a hoot.

The Yes Men attempt to understand and explore the mind-set and ideology of global corporatism, only to discover that what passes for ideology is an infantile mantra of disconnected buzzwords and phrases that point to self-absorption, laziness and general lack of interest in historical memory, culture and anything beyond self-cocooning and satisfaction. The emphasis is on material self-gratification and anything that might interfere with that is denied; hence we have global capitalism’s fierce denial and attack on phenomena such as climate change or Peak Oil, Peak Uranium, Peak Minerals or Peak Whatever.

Experiencing despair and frustration at seeing their stunts garnering the wrong reactions – the enthusiasm of industry people for the Survivor Ball costumes suggests some folks are so lacking in insight and understanding about their own employers they fail to see they’re being sent up (perhaps the most frightening aspect of the documentary) – our heroes try one last stunt: printing and distributing for free a “special” edition of The New York Times dated six months in advance , covering “news” with a positive bent. The aim is to change people’s perceptions and attitudes so they can see the world could be a better place. When we are not being raped psychologically every day by media tales of brutality, mindless violence and governments and corporations rolling back workers’ rights with sheer machine force, we are less likely to lapse into helplessness, apathy and mental illness, and more likely to respond by being energetic and doing things for ourselves and our communities.

A scrappy production, not always very clear but fervent in its aims at taking down the rich and fatuous, “The Yes Men …” is enjoyable comedy and proof that humour is a weapon of first resort if you want to take on the world.

Money As Debt 3 (Evolution Beyond Money): pointing to a renewed and sustainable world beyond debt-based money systems

Paul Grignon, “Money As Debt 3 (Evolution Beyond Money)”

In the final episode of the series, Grignon looks at how the world can rid itself of the current debt-based monetary system and move to new systems of exchange that don’t involve debt creation to circulate money and which provide alternate ways of valuing real goods and services. In order to explain why alternate systems of money supply and circulation are needed, rather than simply move back to a gold standard as some reformers advocate, Grignon spends at least the first half hour of the film explaining the flaws of debt-based financial systems and the unequal power structures they bring with them. This part of the documentary overlaps with previous episodes and can be a little repetitive. The last 20 minutes of the documentary are the most interesting part as they deal with the pros and cons of returning to the gold standard and adopting fiat money, and espouse the use of self-issued credit to replace debt money.

Bob Bossin’s distinctive Canadian-accented voice-over narration adds a homely and easy-going touch to a topic that can be hard to understand, mainly because it operates according to its own logic and defies an ethics based on compassion, sharing and looking after one’s community and others beyond. Simple cartoon-like animation that does not rely too much on graphs and figures but uses diagrams already encountered in previous episodes help to illustrate Bossin’s narration. Viewers may still need to watch the documentary at least twice or a few times to fully understand the explanations given.

Perhaps the major problem with this film is that it gives no real-world examples of the problems that arise from debt-based banking systems. In the sections in both this film and a previous episode, there is mention of businesses taking on more debt to cover previous debt and what consequences might arise from accumulating debt upon debt but the films offer no real examples or generic versions of real examples put together. Once again also the film applies no political or immediate historical context to its topic: one reason that debt financing has brought the world to crisis now and not, say, 50 years ago is that Western governments have been following economic policies based on monetarism and economist Friedrich Hayek’s neoliberal ideology for the past 30 years. The film says nothing about the effects of these ideologies and their assumptions about markets and human nature.

The film concludes by asserting that future monetary systems, if they are to succeed in encouraging sustainable economic practices that conserve environmental and human resources and rid us of a sociopathic set of values that privilege self-interest, greed, competition and wastage leading to anomie, exploitation of others, pollution and exhaustion of the planet’s ecosystems, must be more like barter exchange systems, serve communities, give economic power back to individuals and communities, and decentralise control of and power over money and money substitutes. This itself is a positive note to conclude on, in that it identifies the solution and the trail we must take: now, the task is to set out on that trail.

Money As Debt 2 (Promises Unleashed): a homely ramble through the global financial system

Paul Grignon, “Money As Debt 2 (Promises Unleashed)” (2009)

Where the first episode in Paul Grignon’s “Money As Debt” series is a general overview of the global financial system and the problems associated with it, the subsequent episodes delve into more detail of how this system operates and the alternative economic and money systems that could replace it. The second episode “Promises Unleashed” explains more fully how banks work, starting with an everyday experience that most viewers born before 1985 would be familiar with: earning money from odd jobs like delivering newspapers around the neighbourhood or mowing the lawn for the elderly lady down the road, a child fills its piggy bank and with the help of mum and dad takes the piggy bank to the local bank and opens a savings account with it. Everyone in the family thinks the savings account is a record of the money the child owns and puts into the bank. Far from it: the account is actually a record of what the bank promises to pay the child in the unlikely event that the youngster will suddenly want to pull out all the money – in other words, the savings account book is just a listing of transactions of money the bank owns. From this misconception of the function of a deposit account – that it’s a record of the money owned by the child – develops the film’s deconstruction of myths surrounding money, its supply and creation, and the revelation of who actually does create and circulate money and why debt is so central to the continued circulation of money.

Using simple, easy-to-follow computer-generated animation and graphs, narrator Bob Bossin leads viewers through the distinctions between creating counterfeit money and creating real money, and pointing out that there’s not much difference between crooks making money and banks making money: the difference is that where the victims of the crooks can be identified, the victims of the legally fraudulent way of making money are harder to find because the way in which they are affected is so indirect. (They turn out to be the real world resources and the owners of those resources and the labour that go into making and supplying products that are paid for with loans from banks.) We then go through various topics arising from the debt-based system of money creation and circulation: how business cycles are made up of overlapping individual loan cycles which themselves incorporate a life cycle of inflation in money, a plateau and then a deflation as the principal and interest are steadily paid off. From this concept of the business cycle, we can see how business cycles are inherently unstable especially when crossed with aspects of human social psychology.

Bossin’s homely voice-over belies the seriousness of some issues dealt with: the narrative touches on how the Great Depression of the 1930s, caused by a series of events which included an economic boom in the US resulting in an oversupply of goods and an overheated stock market among other things, leading to a share price crash, panic resulting in a run on banks as investors tried to cash in on their shares all at once, bank failures when banks couldn’t pay out and declared themselves bankrupt, leading in turn to more panic, more withdrawal attempts, further reductions in bank lending and business investment, and subsequently loss of jobs, high unemployment, lost savings and reductions in consumer spending. This in turn led to even more reduced business investment and a vicious cycle was in place. Although President Franklin D Roosevelt attempted to kick-start the US economy out of the Depression with his “New Deal” package, it was with a boom in jobs making armaments and military hardware and increased government spending during World War II plus the Marshall Plan that revitalised war-devastated Europe after 1945 that the Great Depression ended. This had the unfortunate effect of linking war with a booming economy; war became profitable for banks. From 1945 onwards, the world was at war in one way or another: for 45 years the Cold War allowed governments to build up their military forces and armaments; and after the Soviet Union fell, the United States found new enemies to replace its old foe to justify continual arms spending.

The film digresses to explain the history of bills of exchange and how they facilitated overseas trade. Legislation enacted by the Parliament in England from 1664 to 1699 legitimised bills of exchange and encouraged the rise of stock exchanges. In the last few minutes, the narrative calls for returning the function of creating and supplying money to governments and offers alternative financial systems based on economic conservation and sustainability to the present debt-based one which is premised on unending economic growth.

Although the film has a relaxed pace and explains the concepts and issues associated with our flawed financial systems in a gentle and straightforward way, some viewers may need to see the documentary at least twice to get a full grasp of the issues and what is at stake when banks deliberately encourage or at least appear indifferent to people’s misconceptions of what banks do and don’t do. Grignon’s narrative points out the ultimate effects that debt-based finance has on society, culture, the way resources are allocated and used (or misused) and the environment: the results certainly aren’t pretty at all. The film does not go into all the details of the tyranny exercised over all aspects of life by debt-based finance; a fuller picture can be found in books like Michael Rowbotham’s excellent “The Grip of Death”.

Where the film falls flat is in not providing a fuller historical context to the way in which banks have seized control of Western economies and societies, and how governments now collude with banks or dance to their tune. Although the film does a good job of explaining the phenomenon of spiralling debt, in which debt is paid off only with more debt and that ends up snowballing into bigger debt, it has little to say on how banks have forced individuals, households and businesses to take on more debt and how this has warped the ethical fabric of business transactions and ultimately the societies in which the transactions take place. There is no mention of how US governments in particular (because the documentary is aimed at a US audience) have removed regulations on the financial industry since 1980 at least and how such removals have gradually led to recurring financial crises. There is also no mention of the close links that banks have with companies manufacturing and selling armaments and military equipment.

Nevertheless for its faults and controversies, the film is a much-needed introduction for the general public into the workings of the global financial industry and how it has brought global civilisation to its current crisis where it must now choose between endless cancerous economic growth leading to environmental crisis and breakdown on the one hand, and economic contraction to preserve planetary environmental systems.

What the Heck is a Bail-Out? – a very brief, simplified exposition of how debt-based financial systems lead to collapse and ruin

Paul Grignon, “What the Heck is a Bail-Out?”

Part of a body of work investigating the role of money in modern society and how banks came to exercise so much psychological and financial power over the world, this 9-minute film is a quick introduction to the debt-based monetary system that operates in most countries and especially in Western countries. Using cartoon-styled animation with some action, centring around one character, Grignon explains how current Western financial systems have brought economies to the brink of collapse and ruin by accumulating huge amounts of debt. In doing so, he destroys a number of common myths and perceptions about how modern banks operate.

Grignon begins by explaining the concept of legal tender and banks’ obligations to the public with regard to holding sufficient legal tender to pay out depositors. From banks’ point of view, depositor accounts are money they owe us so they are listed as part of bank liabilities. (And cheques and other money transfers are bank promises to supply legal tender on demand by depositors.) On the other hand, loans that banks make are their assets. Since at any time when a balance of accounts is undertaken, assets should equal liabilities plus proprietorship, it follows banks might be eager to maximise their assets and minimise their liabilities.

Since in practice depositors do not often demand the money in their accounts, and usually demand small amounts, banks can lend the same amount of money again and again (under a system known as fractional reserve banking) without having the legal tender to back up the amounts. The result is that much money in circulation is only backed by a promise to pay out legal tender and since we don’t know when depositors might have to recall ALL their money, banks cover current debts with new debts. For those having trouble understanding this, imagine taking out a second mortgage on your house to cover the outstanding debt of your first mortgage plus interest, then take out a third mortgage to cover your second mortgage plus the interest the SECOND mortgage incurs! Once this notion is grasped, one can see an endless chain of more debt covering previous debts plus all the interest these incur.

Viewers quickly see how debt creation drives money circulation and banks’ business: if banks aren’t lending money, they risk losing business and face closure. With an endless and escalating chain of debt creation, the situation is soon reached where banks have issued enormous amounts of debt, often to borrowers who can ill afford to pay back the debt, and entire financial economies now stand to collapse with deleterious effects to the real economies that produce and supply goods and services, people’s living standards and even people’s ability to plan for their long-term futures. As I write this, I am mindful of news I have seen that the government of Greece has sold off or is selling off important institutions and infrastructure and is closing down universities in violation of the Greek constitution that guarantees free publicly-funded education.

In a 9-minute video, the full complexity of the current state of Western financial systems can’t be conveyed: in particular the history of how governments allowed banks to take over economies and rule them and entire nations with their rapacious ethics is absent. The film ends with Grignon urging viewers to visit his Money As Debt website to view the “Money As Debt” film trilogy.

This mini-documentary is an informative if very simplified sketch of how societies have come to be dominated by the activities and sociopathic thinking and behaviour of banks.

Money as Debt: global finance and banks explained in easy-going and colourful documentary

Paul Grignon, “Money as Debt” (2006)

While looking for something else on, I found this very informative video on how the modern US banking system operates. With an easy-going voice-over narrative, courtesy of Bob Bossin, and colourful, educational animation stills the film explains how banks in most countries, and in particular the United States, have come to dominate economies and economic thinking to the extent that they have become central to the functioning of society, politics and modern culture, and how they control individuals, households, businesses, corporations and governments.

The documentary starts with a brief explanation of how banks arose and originally functioned, and how banks discovered that they could create money by lending it using gold, silver or another precious commodity to back it. In time, banks were lending more money to borrowers than they had gold to pay back the original depositors and eventually fractional reserve banking, in which banks had to keep some deposits as ready liquid assets to pay back sudden demands from depositors for their money, was born. Along the way the film exposes as myth common perceptions about how money is created and this exposure leads into an explanation of the relationship between money creation and debt creation, and how debt has become essential to modern financial systems.

The film then leads viewers gently into a discussion of the consequences of debt-based financial systems: they encourage inflation, distort economies into emphasising economic growth with resultant resources wastage, environmental pollution and destruction, shoehorn people into wage dependence and deny them their rights as workers and choice as to what work they want to do and what life-styles they would prefer, and transfer power from individuals, businesses, corporations and governments to banks and their owners. Not all the problems caused by debt-based financial systems are identified; only those that directly affect the general public as consumers and citizens are pinpointed. The banks’ role of imposing interest on loans, supposedly to reward risk-taking, but leading to usury is examined.

Finally the film calls attention to proposals to reform financial systems and alternatives to replace them. Different ideas about replacing debt-based systems and returning economic and financial power back to governments are evaluated as to how much power is returned to the people. In particular, the film advocates a financial system in which governments create money backed by the necessary infrastructure society needs, such as bridges, roads and public transport and the supply of money could rise or fall depending on the levels of goods and services circulating in economies and whether there is too much or too little money already in the system chasing goods and services.

Friendly and humorous cartoon figures drawn simply and visually colourful and equally simple graphics help to illustrate the concepts described. The film’s pace is leisurely though depending on the audience and its understanding of economics, the film may need to be repeated a second time. Bossin’s narration deliberately uses easy and plain English to explain the concepts. Inserted at various points throughout the film to drive home its message about the horrors of debt-based financial systems are quotations from past politicians, bankers and other significant figures.

The need to educate a wide and general audience perhaps explains why the historical context of debt-based finance systems is so general and vague as to disappear. Viewers who remember a time when banks were firmly under the control of governments using an array of regulations and laws to rein them in might wonder why, how and when governments decided to loosen controls on banks and other financial institutions. This is my main objection to the film, that it is silent on explaining the politics and ideologies involved in governments’ decisions to deregulate their respective countries’ financial industries and to sweep away the legislation that kept the banks in check and prevented them from raiding other banks.

The film is an excellent introduction to the workings of the global financial system and how it has become one of the greatest evils of modern civilisation, enslaving hundreds of millions of people around the world, threatening economic and environmental collapse and undermining social and cultural institutions by handing over vast power over resources and people’s lives to a small coterie of self-interested and often sociopathic financial specialists. The film is the first of a trilogy about money and banking. Those viewers interested in more information about “Money as Debt” and other videos Paul Grignon has made should visit his website.

Masters of Money (Episode 3:Marx): failing to challenge and question important economic and political issues

Will Yearsley, “Masters of Money (Episode 3:Marx)” (2012)

The third and final episode of this rather so-so series on significant economist / philosophers who influenced 20th century politics and economics focuses on a 19th century philosopher, Karl Marx, more usually thought of as the father of Communism, with all the historical, political and cultural baggage that followed in its wake: the aim is to find if Marx’s writings have anything to say about the Global Financial Crisis of 2008, what caused it and what will follow afterwards. Presented by Stephanie Flanders, the episode is a fairly broad summary of what Marx had to say about capitalism, what he thought its problems and prospects were, and whether he might be right or wrong.

Turns out that Marx indeed had a lot to say about capitalism and, moreover, had a great admiration for its dynamism and capability as a system of organising society and generating culture in the way it directs the production and distribution of goods and services. At the same time, Marx realised that this system has an essential weakness: it is a system that lurches from one economic crisis to the next. The system is inherently unstable and is only as good as the current temporary fix. The problem is that money is central to the way capitalism operates: the price mechanism depends on money as a measure of value and determines what goods and services are produced and how they are distributed. The production, distribution and sale of goods and services generate profits for the capitalists, the owners of the means of production, distribution and pricing. At the same time, the capitalists are loath to pay more wages to the workers, whose brains and hands produce, distribute and sell the goods and services, as higher labour costs will eat into the capitalists’ profits. The problem is, who buys the goods and services? … well, it’s none other than workers. The result is that capitalism constantly moves towards a state in which capitalists seek as much profit as they can from the surplus value of the workers’ labour (the value of the goods that is over and above the cost of labour in producing the goods) but because the workers don’t earn enough from what they make, they can’t buy the goods. This sets up a situation in which too little money chases too many goods and services (deflation) and, as Keynes recognised, this will depress consumption which in turn depresses business confidence, leading to a contraction in production which in turn forces capitalists to sack workers. Unemployment shoots up, prices of items might slump (or they might not), people have nothing and become desperate.

Marx’s theory, when applied to the current global economic scenery, has quite a lot to commend it. Since 1980, when economic and financial deregulation became the trend to break the previous decade’s economic fug, workers’ real wages (as opposed to money wages) have fallen, capitalists’ profits and incomes have risen, social-economic inequalities have widened. The demise of Communism and the opening up of new economies in eastern Europe and Asia, especially China, have brought in new workers into global capitalist systems leading to outsourcing of work from First World countries to Second and Third World countries, depressing wages and standards of living in the First World while raising them in Second and Third World nations. First World economies attempted to stave off discontent by the relaxation of controls on credit and banks, exhilarated with the freedom and power that financial deregulation brought, were only too happy to oblige; the result was a series of financial bubbles, starting with savings and loan financing bubbles, various other Ponzi schemes, the subprime mortgage bubble, the dotcom bubble and currently (in the US anyway) the student loan bubble and the shale oil bubble and other related fossil fuel bubbles. All this activity in its essence follows Marx’s prediction.

Marx correctly saw that capitalism itself was the problem and the solution was to get rid of it; unfortunately he was unable to propose an alternative system of determining and organising the institutions, the structures, networks and relationships needed to pinpoint people’s needs and wants, find the raw materials and create and produce from them the items and services to serve those needs and wants, and then distribute them in ways that would fulfill or at least satisfy those needs and wants quickly and without wastage. As presenter Stephanie Flanders observes, Marx was no more able to predict our present world than a mediaeval peasant could have predicted Marx’s world. The program concludes that, for now, capitalism will continue to muddle along, lurching from one economic or financial crisis to the next, patching up leakages here and there, and somehow satisfy most people’s needs and wants. There may be talk of revolution but current political and economic institutions and structures remain firmly in place.

The impression that comes to me is that the program, like Marx in his later years, suffers from a failure of imagination. The system may not be perfect, the program seems to say, but it’s worked fine in the past, it brought wealth and decent standards of living to huge numbers of people across the planet so it must have done some good – all it needs is the right adjustment and the next temporary fix that comes along hopefully will last a lot longer than the previous technical fixes. Look at food production: capitalism, thanks to private companies, has brought fresh food from all over the world to people in First World countries – or so says the program. The problem with this though is that, as Marx realised, capitalism creates society and culture in its image, and the society and culture it produced was a rapacious one that in its extreme manifestation was economic imperialism during the nineteenth and twentieth centuries. So much of what we enjoy is possible because governments and the private companies have often worked to deny other people’s needs, wants, rights and freedoms and taken land and its bounty away from them to produce goods to sell to us for profit. The fresh food we enjoy is food that could have fed its rightful owners first. In addition, what freedoms, rights and luxuries we enjoy or take for granted often turns out to been things our ancestors fought and died for in the form of protests, demonstrations and industrial unrest. Any trickle-down of wealth from private companies and corporations (the modern capitalists) to workers is something that had to be legislated for by governments pressured by voters and lobby groups on their behalf.

Capitalism survives because the society it creates keeps people in competition against one another, helping to create what Marx called anomie, and enables capitalists and those who work for them (governments and armed forces in the main) to exercise soft power over workers through culture. The program itself and many of the people Flanders consults and interviews in the program are examples of the exercise and maintenance of soft power. Technology also is another form of soft power that enables capitalism to survive. What will overthrow capitalism will either be capitalism continuing down its own cul-de-sac, becoming in the process a sociopathic parody of itself, cannibalising its children perhaps; or a completely new system of organising production and distribution of goods and services, underpinned by values that encourage co-operation instead of competition, diversity and tolerance of opinion and creativity instead of a polarised view of the world (capitalists versus workers), and a standard of measuring people and the objects they produce and consume that encourages the preservation of life on its own merits instead of its exploitation for the benefit of a few.

In particular, a system of exchange of goods and services that does not rely on debt in order to create money and circulate it is needed in a post-capitalist society; as some commentators have argued and still do, the use of debt in driving the flow of money forces individuals, groups and many businesses, even large companies, alike to give up power to banks and other financial institutions. The financial economy usurps the real economy in determining what is produced and who consumes it. Interestingly, debt was something that Marx failed to incorporate in his analysis of capitalism.

While the “Masters of Money” series can be interesting at times, it works best as an introduction to the work of the three economists / philosophers featured but that is really all that can be said for it. I sense a distinct lack of interest on the BBC’s part in exploring and questioning issues deeply. To me, that squares with the BBC becoming more of a mouthpiece for global plutocrat interests.

More to tiny houses than size in “Beyond Curb Appeal: Jay Shafer and the Politics of Tiny Houses”

George Packard, “Beyond Curb Appeal: Jay Shafer and the Politics of Tiny Houses” (2011)

While cruising the Internet (as you do), I found this little film about Jay Shafer, an architect and director of Tumbleweed Tiny House Company, who specialises in designing tiny houses. The interview was conducted with Shafer in his own tiny house in February 2011: he talks about the political, psychological and economic aspects of living in small houses and the freedom and luxury they offer as opposed to larger houses and the restrictions those impose on their inhabitants.

Why did Shafer decide to live in a tiny house? First reason, and one that impressed me, is that in many parts of the United States, there are municipal zoning codes that actually prevent people from living in houses below a certain floor size (minimum required size in many zoning jurisdictions is 750 square feet and rises to 1,000 square feet in areas where land is expensive): Shafer reveals that many zoning codes regarding residential requirements originated with insurance companies and the building industry. Presumably the larger your home, the more “stuff” you collect and pack into it, the more housing and contents insurance (or what passes for such) you might require and the more expensive and complicated your housing and contents insurance policy might be. In addition, many safety codes set as minimum requirements levels of safety that far exceed what’s needed in homes and might require the owners to spend far more on meeting these minimum safety levels than they otherwise would. In larger houses, such minimum safety requirements might have a bigger impact on the owners’ hip-pockets than small houses would: there are bigger and more rooms to heat or wire for electricity, and warm air might dissipate more quickly in larger spaces than in smaller spaces so the rooms need even more heating to compensate for the greater heat loss than might be expected for their size. Shafer also notes that local government councils even prohibit people from doing certain things in their homes – for example, some councils won’t allow people to camp on their own properties, even if the camp is temporary, but will allow people to keep recreational vehicles in their backyards – and suggests that, though the intention may be good, the municipalities may be infringing on people’s Fifth Amendment rights.

Shafer notes that the banking industry is biased in favour of large houses: large houses cost more and might require larger loans to finance them. A large mortgage will be a millstone around the house owner’s neck and the bank can exercise great psychological control over the owner. Shafer suggests that a large house can be a virtual debtor’s prison, forcing the owner to slave away just to make the mortgage payments, and limiting the owner’s options to exercise choice in other areas of life such as employment: a person with mortgage obligations will be very reticent to change jobs or careers even if s/he doesn’t enjoy the job or has reached a career dead-end and needs a sea-change.

Shafer talks about his educational background in art, design and architecture, and about the various places he lived in: dormitories, a large 4,000 – 6,000 square foot house, even a truck. He discusses the aesthetics of his architecture: the proportions of the houses he designs, where the inspiration for particular proportions, forms or designs comes from, the almost instinctive feel that humans have for structure, balance and form. Even a seemingly trivial issue such as whether to add a porch or not to a house becomes significant: a porch signifies a transition zone from the public to the private and this can be very important to an owner or tenant going in and out of the house; likewise a transition zone alerts people inside that there are strangers coming in. The issues of community and individuality, and of communal space and individual privacy are also briefly discussed.

Late in the film, Shafer takes his interviewer, Joan Packard, and director / cameraman George Packard on a tour through his 96 square foot house, explaining how his house has been designed for efficiency and maximum use of space. The entire bathroom is a shower and Shafer explains how he keeps the toilet dry while showering. The one bedroom is placed in the roof space and Shafer shows that the bedroom window is large enough for him and a partner to squeeze through in case of fire.

Last, Shafer discusses how useful his tiny houses might be for ageing baby boomers as alternatives to living in nursing homes or in large houses long since vacated by children and grandchildren. He does not suggest other groups who might find his houses convenient: temporary boarders, teenage or college-age children, university students from overseas living on campus, people needing urgent emergency accommodation or temporary / casual workers who have to live on their employers’ properties for some reason. People running bed-and-breakfast operations who might need extra accommodation for guests would also find such houses useful. The houses would also be useful in areas where natural disasters have destroyed buildings and left many people homeless; they would also be good for people who have some mild physical or mental problems or are only able to hold part-time jobs yet can live independently.

In some ways, this film was quite an eye-opener: it had never occurred to me to think that the type of housing we live in, and the kind of houses advertised to us, their design and styling, could be deliberately slanted towards forcing us to spend more money and keeping us in thrall to a political / economic ideology that restricts our freedoms and denies us choice. Since houses are reflections of our culture, what we value or don’t value, and influence the way we interact with family members, or even the kinds of family structures we have, then forcing people to live in larger houses than they need or can afford, in conditions that might isolate them from others at great personal cost or cause strains that could result in misunderstandings, even domestic violence or divorce, extreme though those issues are to consider, is shockingly cruel and might well infringe on people’s rights.

Shafer is an affable interviewee and the film is well-made for its budget and ambition. It doesn’t probe very deeply and challenge Shafer in the issues he talks on, and some background information on the history of housing in the US since 1945 would have been useful, so the film perhaps appears as an oversized advertisement for its subject and his company.

The film is available for viewing on or at George Packard’s Curiously Local blog. It really is worthwhile watching and some people may be inspired to design and build their own small houses or to find out more about them and whether their own councils allow them to build tiny houses.

Masters of Money (Episode 2: Hayek): a breathless race through the life and work of a defender of classical economics

Tristan Quinn, “Masters of Money (Episode 2: Hayek)” (2012)

Using a mix of interviews with former politicians, economists and academics together with a voice-over narrative by Stephanie Flanders of his life and times, this second episode in the “Masters of Money” series dwells on the influence of the Austrian-British economist / political philosopher Friedrich Hayek on global economics and politics in the 20th century. A major theme of this series is whether the work of the economist-philosophers featured is still relevant to economics and political philosophy and can offer ideas or solutions to the current malaise affecting Western economies. Affable presenter Flanders gives a chronological run-down of Hayek’s early life in Austria-Hungary against a background of middle class wealth and comfort, World War I and its aftermath, his arrival in the UK in 1931, his rivalry with John Maynard Keynes and the period of ideological wilderness he endured from the 1940s to the 1980s when his ideas and work defending classical economics were resurrected by the US and UK governments under President Ronald Reagan and Prime Minister Margaret Thatcher respectively.

The program is stronger delineating Hayek’s early life and the ideological underpinnings of his work than it is dwelling on his later life. The structure of the program seems quite muddled and hinges very heavily on following Hayek’s fortunes over the decades. The essential ideas of Hayek’s work – that economies should be completely free, that money flows should be completely free and allowed to achieve their own equilibrium, that centralised control through government institutions such as a central bank or regulated exchange rates or interest rates can be dangerous – are present. A theme emerges very strongly from this episode: Hayek’s distrust of government and its control over a nation’s economy (and ultimately society and culture, politics and the level of freedom allowed to citizens)  through monetary and fiscal policies. Influenced by Charles Darwin’s theory of natural selection, Hayek believed markets were best left alone by governments to regulate themselves and governments should be content to provide the rule of law and a social safety net (as opposed to instituting a cradle-to-grave welfare state) and ensure the proper flow of information to enable markets to function on their own effectively. Throughout his life Hayek opposed political systems that were premised on centralised government control. (Curious to think that in his own way, Hayek was something of an anarcho-capitalist.) His rivalry with Keynes centred on the problem that if the economy was in trouble and in recession, whether governments should step in and try to solve the problem: Keynes believed governments should spend to stimulate the economy, Hayek was in favour of leaving alone and letting the economy sort itself out.

Hayek’s ideas were attractive up to a point to the US and UK governments and private business interests but even the most laissez-faire elements in those agencies still wanted some power and control in and over economies. Hayek himself wasn’t immune to contradictions in his own behaviour and thinking vis-a-vis the implications of his work and ideas: he admired Pinochet’s rule of Chile, accepting awards and honours from the military government there and went so far as to recommend Pinochet’s restructuring of the Chilean economy to Margaret Thatcher. Though opposed to dictatorships, Hayek decided that a dictatorship creating a liberalised, deregulated economy in the short term (with the expectation that the dictatorship would give way to a democracy) was to be preferred to a country, whether democratic or not, that had a regulated economy.

There’s very little critical examination of Hayek’s work in the program which on the whole is quite breathless and fawning in its race through Hayek’s ideas. Hayek’s own interpretation of Darwinian natural selection might be problematic: if his interpretation is based on a belief that such evolution is based purely on competition and the competitively based survival of species (a view popular in the late 19th and early 20th centuries), then his work may not allow for co-operation and it will be flawed in that respect. Nearly the whole edifice of his economics teeters on that interpretation! Another possible problem is that Hayek misunderstood the natures of fascism and Communism and how these political ideologies came to the fore; conflating the two together, he failed to see that his work could be corrupted by governments and private interests and turned into a tool of political and economic control. Hayek’s belief that the free flow of information would enable money to flow efficiently to where it’s most needed and is most useful falters against what we know of human behaviour and the phenomena of groupthink and herd psychology in markets: in some situations, too much information about money flows, combined with time restraints on decision-making and awareness that time and money are being wasted with delays in decisions, can lead to a wrong decision being taken, and everyone blindly following that decision. A small action can lead to disequilibrium in money flows which in turn compound the problem by shutting off options and alternatives and forcing investors down paths in which they might make worse decisions.

It’s ironic that Hayek, in setting out to do what he believed was good for human society, might have come to flawed conclusions about human psychology, economics and the behaviour of markets that have had adverse impacts on societies across the world, increased social, political and economic inequalities and made our world more insecure, more prone to fascism and more enslaved to a global power elite in whose hands economic and political power has become more centralised, not less.