Walter Stanners
Diarmid Weir seems to quote Neil Manthorpe approvingly, to the effect
that being
"tough on the causes of inflation" is "the central issue". However,
his main
conclusion, it seems to me, is that we need more emphasis on
re-distribution of
income. His way of saying this is:
"Assumed future income that would rightly belong to those currently
in command
of relatively few human and material resources, is redistributed in
advance to
those currently in control of relatively more, widening not just
income
inequality but also inequality of control of resources."
I take this to mean that whatever merits led to the present
distribution of wealth, there
is no logical reason why this should give a similar distribution of
title to future
consumption, since this future outcome is largely unknown. I come to
a rather similar
conclusion by a different route, the full account of which can be
found at
http://econwpa.wustl.edu/eprints/mac/papers/9804/9804003.abs . The
following is
based of that paper.
First, let me get inflation out of the way.
No serious and convincing evidence has been found that inflation
matters as far as
economic growth rate is concerned (see Stanners, 1993, 1996b), and
yet it suits
politicians, and presumably the electorates whose votes they seek, to
insist that low
inflation is necessary for growth. There has been extreme reluctance
on the part of
economists to give any clear and direct message contradicting this.
On the contrary,
essentially trifling and untested but politically congenial theories
involving shoe leather
and menu prices have been provided and taught in classes, and
econometric work has
been published in which the required conclusion is given, but does
not follow from the
algebra (see Stanners, 1996b, and, for an example, Alexander 1997,
cited in Stanners,
1998). The main descriptive references to the Weimar and other
catastrophic
inflations (Bresciani-Turroni, 1937, Cagan, 1956) do not acknowledge
clearly
(although they give the evidence) that output was relatively
unaffected (Barro, 1993,
p201). Barro, to whom I am indebted for this information, but who
has himself
contributed elsewhere to the "low inflation is essential" myth
(Stanners, 1996b),
devotes 14 words to this extraordinary fact.
I cannot therefore agree that "the current modes of the creation and
distribution of
money are at the root of most of our economic and social dilemmas".
The distribution
of title to present and future consumption has been "unfair", in the
sense of not being
demonstrably linked to "merit", from the beginning of time, and most
obviously since
the beginning of agriculture several millenia BC.
My perception is that well-being depends on the production of
material things, a
process which was accelerated by the introduction of agriculture (a
way of harnessing
solar power), the discovery of techniques for dealing with metals,
the improvement of
ways of using water and wind power, and finally by the technological
revolution
(which affected agriculture and industry alike - hence not an
industrial revolution)
which allowed the exploitation of stored solar power, i.e., fossil
fuel.
This process has now reached a point where it can be seen, clearly
enough for it to
enter political debate, that this process of the production of
material things (without
which all "higher" intellectual, cultural, and "service" activity
would be impossible) is,
due to productivity increases, involving a smaller and smaller
fraction of the
population, a fraction which we can now conceive will approach zero,
when many
machines and computers will be tended by a relatively few people.
That is, the sole
basis of increasing prosperity - the production of material things -
will transparently be
due to developments to which the vast bulk of the population will
have no direct claim
to contribute.
The prosperity due to this growing flow-rate of material things
cannot - and this is
where I join Weir - be distributed indefinitely according to titles
which are spurious in
everything but law. Given that a clever man, say a popular writer,
can establish title to
more goods than a stupid one, the fact remains that the clever man of
today is richer
than the clever man of yesterday, not because he is cleverer, but
because of the greater
volume of today's goods, and that circumstance is due to a small
proportion of the
population, many of whom may not have benefited at all from their
technical or
organisational innovations. While the essential role of the market
assigned by
proponents of the so-called third way is not contested, it will
become increasingly
evident that this market, left to itself, distributes titles to
income, i.e., titles to the
purchase of things, in a way which cannot be supported. Thus the
fashion designer
may proceed to an affluent old age, while the manufacturing (or
mining or transport,
etc.) entrepreneur or worker who has helped to provide the goods
which embody his
affluence may, due perhaps to the technical obsolescence of his
skills, be thrown into
poverty. Or the farmer, who has been paid partly by the end customer
and partly by
the tax-payer, may find the successful novelist complaining that he
has been forced to
give up part of his firmly-entitled money "for which I have worked
hard" in order to
feather-bed a scrounger.
When wealth can be clearly seen as increasing due to no merit on the
part of
individuals comprising the great majority of the population, it will
no longer be
tolerable that it is distributed preferentially to people whose
"merit" consists of a
superior ability to catch and hold on to it. For millennia after the
inception of
agriculture, this "merit" consisted initially of force, and then of
force mediated by the
ignorance, superstition and resignation of the ruled. Today, titles
to income, that is to
the purchase of things, are awarded in a sort of game in which
cleverness, alertness,
dexterity, family, class, luck, cunning, fraud, the ubiquitous threat
of force that is
present in any orderly state, and to a small extent the actual use of
force, all play a part
in the innumerable transactions of life in which one person or group
wins and another
loses (or also wins, but not so much).
In the above, I am far from pushing at a firmly locked door. On the
contrary, there is
no modern state which does not abbrogate normal legal title by
"confiscating", by
force if necessary, income from its citizens in order to redress the
balance towards
those who have been unlucky in this "game", or ill- equipped to take
part in it.
Perhaps there has never been such a state or society. The medieval
church
"confiscated" tithes which it partly redeployed in charitable works.
When this was
stopped, the Tudor Poor Laws (in this country) ensured that the
Parish rate-payers
took over.
No, the door is well open, under governments of all shades of
politics. But
proponents of "the third way" are noticeably reluctant to mention
re-distribution. On
the contrary, it has taken up enthusiastically the slogans with which
its notional
opponents used to attack "old Labour". Tax-and-spend, the dependency
culture, the
undeserving poor, benefit fraudsters in poor back streets, are
shunned and castigated.
The "spiralling out-of-control welfare budget" has to be cut to allow
better education
and health, as if there was no conceivable way that resources for
these purposes could
be found in our affluent society except in the pockets of those
undeserving poor.
It is appreciated that there can be no government without first
winning elections, and
so what needs to be changed is not the policies of politicians, but
the mind-set of the
voters. That is where writers of all sorts (including marginal
politicians) come in.
Opposition to tax is not a built-in human trait. That is
demonstrated by the fact that
different countries have widely varying tax-takes, and that tax
levels in nearly all
countries today (which, in spite of all the rhetoric, have generally
kept going up)
would have been unthinkable only a few decades ago. As material
goods become
cheaper and cheaper (roughly, if x% of the workforce is engaged in
the production of
such goods, then x% of people's incomes are spent on them) taxes can
and must go up
and up, without affecting well-being. By the same token, it must
become more and
more evident to the least imaginative that this well-being is not
particularly due to
whatever activity produces their income. It can come to be accepted
that we are all,
rich and poor alike, not particularly "deserving". This again echoes
Weir.
We need to find a way back to the steeply progressive income taxes
which were
accepted in most advanced countries (including the United States)
until only a short
time ago, and to something like the universal "basic income" as
advocated
(occasionally!) by Samuel Brittan (1996, Chapter 13). Main stream
politicians cannot
afford to take the lead. Academics, journalists and media people of
all sorts need to
do so.
References
Alexander, W. R. J. 1997, Inflation and economic growth: evidence
from a growth
equation, Applied Economics, vol. 29, no. 2
Barro, R. J. 1993, Macroeconomics, New York, John Wiley & Sons Inc.
Bresciani-Turroni, C. 1937, The Economics of Inflation, London,
Allen & Unwin
Brittan, S, 1996, Capitalism with a Human Face, London, Fontana Press
Cagan, P. D. 1956, The monetary dynamics of hyperinflation, in
Friedman, M. ed.,
Studies in the Quantity Theory of Money, Chicago, University of
Chicago Press
(The following three references can also be found at
http://dialspace.dial.pipex.com/town/estate/fab06/index.shtml)
Stanners, W. 1993, Is low inflation an important condition for high
growth?
Cambridge Journal of Economics, vol. 17, no. 1
Stanners, W. 1996b, Inflation and growth, Cambridge Journal of
Economics, vol.
20, no. 4
Stanners, W. 1998, Growth is not correlated with inflation,
http://econwpa.wustl.edu/eprints/mac/papers/9803/9803006.abs
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