The British are not exactly famous for consensus.

But we might come close to agreement on the proposition that life as we currently find it does not match our reasonable expectations or our potential.

Nor is our present condition an appropriate reflection of our many and considerable historical achievements. Once Britain was a Great Nation, her greatness spanning the globe and several centuries.

Many see the Victorian era as the period of Britain’s real greatness. In those days every piece of worthwhile machinery was invented, designed and made with pride in Britain, good sturdy machines built to last. In 1851 Britons had an average income 65% higher than the average German, 30% higher than the average American. That was the time, too, when Britain boasted an empire on which the sun never set.

Indeed, Britain’s greatness and its contributions to civilization stretch back far beyond Victorian machinery and the Empire, beyond Shakespeare and the age of world exploration when Britain mapped a world of which the geographical centre was and still is Longitude Zero at Greenwich.

One of our most notable contributions was the Magna Carta of 1215, that famous document generally regarded as the world’s first and still most respected Constitution, which was itself only a only confirmation of long-held rights and liberties.

But the past is past. Things have changed and the days of Greatness are gone. Though a few may prosper individually, our relative national prosperity declines. As we look at other countries we once considered our equals, we see them doing what we should be doing, overtaking us, finally leaving us far behind.

Of course our politicians do their best to create the illusion of prosperity, a popular and vote-catching aim indeed. But prosperity for whom? Politics is still a two-sided contest, us and them.

The Blues, Conservatives, Republicans in USA, stand for big business and the already-rich. A degree of unemployment is discretely favoured because it keeps wages down and low wages increase profits.

The Reds, Democrats in the USA, Socialists, or in extremis Communists in Britain and Europe, support the Workers against their Capitalist Bosses. Socialism stands for jobs, a Welfare State, high taxes on the rich, public spending, and if necessary, a growing public debt.

Old traditions die hard, or so they say. But they are dying right now, as the Right-Left choice no longer satisfies an increasingly disillusioned public now turning to the so-called ’fringe parties’, some with regional or special interest ideas, some genuinely reformist, others simply cranky reflecting their supporters’ view of a cranky and dysfunctional world.

And there is a growing antagonism, not specifically towards the Incredibly Rich, but towards the system which allows this gross and growing inequity to come about.

How is wealth created, and how can we ensure that its fruits are widely shared?

This leads inevitably to money, its investment potential, and how this can be channeled so that its benefits are more widely enjoyed.

The basic principles of banking are both sound and simple.

Bankers take fixed assets (like the deeds of your house) as security and give you an equivalent in liquid assets (cash or credit, or purchasing power) in exchange for the duration of the loan. No new wealth is created. The bank simply exchanges one type of asset for another.

Banking was, and is subject to certain basic rules of conduct. The bank must at all times remain liquid, which means that it must always hold enough cash and near-cash to satisfy the normal demands of depositors for withdrawals. Second, the Bank must assure itself of the true value of assets taken from borrowers as security in exchange for credit.

A third, and significant discipline is applied by the Central Bank, which varies interest rates banks must charge so as to reflect the state of the economy. Low rates encourage economic growth. Higher rates are applied to slow down growth as the economy approaches capacity.

So far so good. However, many young entrepreneurs today have difficulty putting up security – there is not the broadly based home ownership of yesteryear. It is possible, indeed highly likely, that good ideas with potential go undeveloped. The flourishing of enterprise during WW2 provided a clear indication of the wealth of talent and enterprise waiting to be developed with the right backing and support.

During the Great Depression years following 1929, Britain’s Lord Melchett, prominent industrialist and politician, stressed that banking should be at the service of industry, rather than industry at the mercy of the banking system.

His words are equally true today: “While banks take a short-term view for reasons of security and liquidity, business is conducted on a long view. We must alter our banking and economic system to suit the necessities of industry”.

More specifically, we must find ways to provide investment based on ideas and their potential, rather than pre-existing assets, then provide such backup and support as may be required to maximize each project’s potential.

Job-creation requires capital:
in sufficient quantity and with the guaranteed longterm financial reliability to ensure a business is properly set up and able to maintain the highest international standards in design, production and marketing.

The UK’s Offfice for Budget Responsibility cites low business investment as one of the main reasons for persistently low levels of productivity.

Traditional banking practice requires pre-existing assets as security, and loans carry no long-term commitment.

Development Banking avoids these two limitations of traditional banking by securing the loan on the industrial or commercial project itself, thoroughly researched and costed, rather than outside assets alone, and by making a long-term commitment based on an intimate involvement with the business or project in which it is invested. This facilitates the creation of new business and new jobs, as well as providing secure finance with which existing business can maximize quality and productivity.

A dedicated Development Banking sector based on Project-Security can spread growth across the nation, creating jobs and providing the wherewithal for existing companies to increase their competitiveness, as well as for infrastructural improvements. Investment targeted regionally can bring industry and growth to traditionally under-developed areas.

The two broad principles of Development Banking focus on analysis, and commitment.

The Development Bank begins by thoroughly researching each loan proposal from design to production, management and sales, calling on outside expert advice and assistance where necessary. A successful loan recipient will receive full back-up support in a close working and constructive partnership with the Development Bank, both on start-up, then continuously monitored with an ongoing flow of performance data. The Development Bank would levy a fixed charge covering its administrative costs, plus a small insurance premium.

Though handing out grants rather than repayable investments, Britain’s (now defunct) Regional Development Agencies (RDAs) were otherwise similar to Regional Development Banks in that they based their financial assistance on their own thorough research and analysis of project details, costs and anticipated returns.

With investment risk minimized through proper, pre-investment research and positive on-going monitoring of physical production, sales, and accounting, the business itself becomes the security for its investment loan.

By setting up Development Banks to operate at regional level, focusing on regional and local needs, investment benefits can be spread widely and uniformly across the nation, avoiding the usual pockets of non- or under-development. Local infrastructure can also be financed.

A percentage of the investment charge should also be set aside to fund apprenticeships and on-location training. High youth unemployment is largely caused by the mismatch between the skills that young people offer and those prospective employers need. Indeed, countries with the lowest youth jobless rates have a close relationship between education and work.

Many of today’s successful businesses grew over many years and a long hard climb, starting with minimal capital, operating on a shoestring, and reinvesting every penny of profit. Regional Development Banking can provide sufficient capital for a good business venture to start at full operation, properly equipped for maximum productivity.

Indeed, by conditionally requiring the highest standards of product and service quality, Development Banking can increase competitiveness, and the high level of productivity which creates real and lasting prosperity.

Most significantly, Regional Development Banks can create jobs and industries NOW, with the guaranteed longterm finance needed to maximize productivity and most importantly, maximize quality. And the availability of genuine, repayable investment loans avoids the need for deficit-increasing grants, now well beyond the means of debt-ridden governments.

Dedicated, Project-secured Development Banking can create wealth and prosperity. This is a start, and a valuable one. But there are other issues that remain to be confronted and resolved.

– fair remuerations, based on real work contributed at all levels;
– fair prices, reflecting the work content of products and services with a limit on profits;
– and a stable, a non-inflating, meaningful monetary unit for trading, and for saving.

The Rich are getting richer, the Poor are getting poorer. Gross and growing inequality of income has become a major issue, and a major source of social discontent. And statistics support popular instincts: as of 2016 the richest 1% of the world’s population now owns 50% of its total wealth, according to a report by Credit Suisse.

Is inequality a problem? No, not if it is the result of hard work, of training and education, acceptance of responsibility and simple success at what you do. But inequality of remuneration and consequent living standards IS a problem when it is widely perceived that there is no just and fair relationship between work and reward.

While this is causing growing, and justifiable resentment, the problem is very much deeper and more fundamental: the basic failure of our monetary system.

Money has no structural value. It has meaning only in terms of pay and prices. Both pay and prices are settled by a form of disputation and subject to continuous inflationary pressure fuelled by the simple human desire for more. It represents a facet of anarchy, since it is a process of settling differences by unregulated dispute rather than by a system of debated and agreed guidelines and regulation. This results in friction, industrial disputes, loss of productivity, inflation, and permanent under-employment.

Inflation is not the complex esoteric phenomenon economists would have us believe. Inflation is simply a matter of human greed our natural desire to get more reward for the same amount of work combined with a monetary unit which lacks any meaningful definition or inherent value.

And inflation is a block to full employment, for as the economy expands to near-full employment, rising inflation causes the Central Bank to put the brakes on.

Is it possible to establish a fair wage and a fair price, together with a stable monetary unit? Let’s start with Remunerations.

A Fair Day’s Pay

A difficult and contentious issue, fraught with disputes, frustration and strikes? Actually, no. In fact, a solution already exists, and needs only to be applied on a standardized national scale in order to bring stability and social justice, that essential pre-condition of stability to the economy.

Formal job evaluation began in the United States with the Civil Service Commission in 1871. As organizations became larger and more bureaucratized the need for a rational system of paying employees became evident. Job evaluation became a major part of the answer.

For many years, government agencies and corporations large and small, have been using a system of job evaluation to evaluate the work contributed by each employee. Each job is analyzed, and its essential characteristics and demands, such as training, responsibility, working conditions and physical/mental effort involved, are measured on a series of common scales. The job value is then directly related to remuneration. In this way, pay is fair, both in relation to the work done, and in relation to the pay and the work of others.

Currently there are several such systems in use, well tried and working successfully. A single standard could easily be established, a national standard of value for measuring the work element contained in a product or service, so that pay becomes a true reflection of the work required of a job.

Society already measures apples and milk; it could hardly get along otherwise. Yet of all the commodities traded every day, work is the most important, and work is the one commodity we don’t measure.

A national standard would provide a point of reference, of justice indeed. Everyone would know how much they should get for the work they do, without hassle or argument or strike.

But a fair wage is only half the story, and any financial stability thus created will immediately become invalidated if price inflation escalates.

A Fair Day’s Pay – and a Fair Price too?

Work evaluation can ensure remuneration stabilization. This process must be carried through to price stabilization.

A factory’s, or a business’s total costs consist of three elements. First, the cost of bought-in raw materials and components; second, the direct labour added in the factory; and third, the costs of capital write-off, overheads and finance. These are the costs of making a product, of supplying a service. From these costs a Unit Production Cost can be calculated for each product or service supplied. If this Unit Production Cost then becomes the Selling Price, there would be a direct and fair relationship between cost and price, and therefore between pay and purchasing power.

But the Unit Production Cost is not normally equated with the Selling Price. The difference between the two is commonly referred to as the net profit. How is the net profit currently disposed of?

The prior destination for profits has traditionally been the investors, or shareholders, who provide the necessary investment. The other major destination for the disposal of company profit is re-investment, either in research and equipment or increased working capital. The advantage is that in-house or self-generated investment comes without future servicing cost or commitment to repay.

There is however, one more much-neglected claimant to a share in the profits, and that is the customer. Profits have to come from somewhere or someone. In fact it is the customer who pays the price and generates the profit; thus a justified claim on profits would come from the consumer, demanding lower prices.

Much as a national standard of work evaluation would provide a point of reference for remunerations, so the establishment of public policy for profit distribution would ensure both fair and stable prices. This could take the practical form, first, of an overall profit ceiling. Of the profit made, broad percentage bands could be established and gradually stabilized, distributing profit according to a pre-set formula as between investors, consumers, and the internal needs of capital for reserves and re-investment.

Note that price stabilization effected in this way, through annual account regulation, would permit the same degree of latitude in pricing “deals” and special offers. But the profit ceiling would ensure an ultimate price stability.

Pay, Profit and Price Evaluation: a fair wage, a fair price. Fair exchange between employer and employee, between producer and consumer – without the need to argue or strike, with stabilized pay and prices even in times of economic expansion.

It would then be possible to expand the economy steadily to full employment and hold it there indefinitely without fear of inflation, resulting in full employment, monetary stability, with a high level of productive efficiency and thus prosperity.

Stability in wages and prices would eliminate inflation, allowing our monetary unit to function as a savings medium, which of course it should be but certainly isn’t right now.

What is money?
There’s probably a different answer each time the question is asked.

For a definitive answer, where better to go than the IMF, the International Monetary Fund... you can’t get nearer Heaven than that. And this is their response, clear and simple:

Money serves as
a unit of account,
a medium of exchange,
a store of value.

The document adds:
Without it, modern economies could not function.

Absolutely not, for sure. We must, and do have a monetary system of course. But it fails on one out of three essentials: clearly money as we know it, and as it is managed today, is not a store of value. Its value deteriorates day-by-day sometimes slowly, sometimes rapidly, but inflation, the gradual reduction in the purchasing power of our currency, is ever-present.

Inflation renders money totally useless as a savings medium, which should of course be one of the prime purposes of a properly functioning monetary system. Don’t put your money under the mattress, Nellie. By the time you’re retired and want to spend it, it’ll be worthless. If the mice don’t get it, inflation will.

So how do you save for your old age? You buy a house if you can.

Saving is as vital to civilized life as trading. We grow up, we work, we earn, and we spend so we can feed, clothe and shelter ourselves. But the time inevitably comes when we can no longer work, failing as we are wont to do, in mental and physical capabilities. But even if we can’t work, we still need to feed, clothe and shelter ourselves.

So the Wise amongst us might seek, during our working lives, to save, to put a little aside on a regular basis ‘for our old age’.

But this is an ideal, far removed from reality. As we all know, our money loses value day-by-day in terms of its purchasing power, as the prices of goods and services slide slowly and inevitably upwards in the process well-known to us all as inflation.

This has an adverse knock-on effect on the housing market. We still need to save for our old age, so with our money useless as a savings medium, we must inevitably look elsewhere, and for millions of people who are not sophisticated investors, this means your house.

As a result there is considerable upward pressure on house prices, putting the dream of ‘a home of your own’ beyond the reach of many young people today which, incidentally, is probably why they’re not marrying and having children, so we have an ‘ageing population’.

Such is the price of inflation, the steady deterioration in the value of money.

If money was steadily increasing in value, you could simply save a regular amount into the bank (or under the mattress if you prefer), then, when you retire it’s there ready for you, without need for investment plans (and paying people to administer them), or scrambling to fund a mortgage in a grossly over-inflated property market. And with productivity maximization, combined with the stability of a labour-based monetary system, this becomes a reality.

Productivity increase means more product with less workers, who are then laid off and idle. But if increased productivity is reflected in lower prices and inceased purchasing power, demand will increase, thus in turn increasing employment opportunities.

The cumulative result is negative inflation. Your money buys more each year, not less. As productivity increases, the labour-content decreases, and it becomes possible for goods and services to be produced and offered at lower prices, thus progressively lowering the cost of living.

This in turn means that as we get older we can look forward to increased purchasing power for our savings.

A wild dream? No. This is as it should be, the normal course of events. We should be, and are increasing productivity year-on-year, producing more and better at less cost. And with a stable monetary unit, increased productivity involving less labour is reflected in lower prices.

But the whole financial and business climate must be right.

The essential ingredients of maximum, nation-wide prosperity are simple and straightforward, devoid of any esoteric complexity or the obfuscation with which professional economics can so often cloud the issues.

One. Full employment is clearly a primary ingredient of prosperity. If 5% of the working population is unemployed, 5% of productive capacity is wasted.

Two. Maximum productivity everybody working productively. Even if everybody is working, but working inefficiently using outdated equipment with poor organization, then again, output and potential prosperity, will be reduced.

Three. Maximizing productivity requires secure, longterm, committed investment, in education, training, research and development, in the tools and machinery of industry, and in the nation’s infrastructure.

Four. We need an accepted, universal system of pay, price and profit evaluation creating social and monetary stability, a foundation on which we can maximize economic expansion without inflation.

Five. With wage, price and monetary stability, as productivity increases, so prices fall, and savings increase in value. Money at last becomes a true store of value.

A powerful combination which cannot fail to give us the widespread prosperity of which we are surely capable and which would so enrich all our lives.

Ultimately the idea of living in a society where the cost of living goes down slowly, year by year instead of up, where your savings are not only safe but increase in value, where your domestically produced goods get progressively better and cheaper, where a fair day’s pay for a fair day’s work in decent conditions is an accepted norm rather than an on-going battle... it may all seem utopian.

But it’s possible. And it’s all do-able.



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