Lecture Concluding-Statement: "Debt, Money and Mephistopheles: How Do We Get Out Of This Mess?" by Adair Turner. Cass Business School. 6th February 2013

Adair Turner is Chairman of the Financial Services Authority (FSA), "a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom." http://en.wikipedia.org/wiki/Financial_Services_Authority

The following represents Adair Turner's concluding remarks in a lecture he gave on February 6, 2013, at the Cass Business School, entitled, "Debt, Money and Mephistopheles: How Do We Get Out Of This Mess?"

MEPHISTOPHELES, MONEY AND DEBT

So finally then, what should we conclude about Mephistopheles, Money and Debt? For Jens Weidmann, the implication of Faust Part 2 is clear. After a pleasing but passing upswing of rising consumer demand and falling state debt "all this activity degenerates into inflation, destroying the monetary system because the money rapidly loses its value".

But Weidmann's stress on the negative consequence of Mephistopheles's monetary experiment has been challenged, and by someone who speaks with considerable authority. Professor Harold James of Princeton University is one of the world's preeminent economic historians and a leading expert on inter-war German economic history (James 1986). He is also a man steeped in knowledge of German history and literature. And in a short article entitled "Germany should re-read Goethe's Faust Part 2" (James 2012) his take on the consequences is a bit more positive (EXHIBIT 43).

"Everything in the empire improves as a consequence of the introduction of paper money. The generals are pleased because the soldiers are paid once more, the treasurer finds that he can pay off all the debts, tailors are busily making new clothes, ladies become more willing to embark on well paid romantic adventures".

So that while there are undoubtedly subsequent consequences which, in the wake of our own crisis, we would recognise as warning signs – "the property market booms and simpletons can buy big houses" – the potential benefits of paper money creation should not be ignored.

So who is right: Weidmann or James? Well in reality the differences in their interpretation are slighter than first appear: both refer to the beneficial effects of modest money creation, both to the dangers of inflation when money is created in excess. Leading us clearly to James's conclusion "a well managed paper currency could offer greater price stability than gold or silver based currencies", while also serving better the needs of a potentially expanding economy. Money – in its pure fiat irredeemable base money form - is a powerful economic medicine if used within tight constraints and a potential poison if used to excess.

As for debt contracts between private sector agents and in particular bank loans that create matching quantities of bank credit and bank money, they are not mentioned in Goethe's Faust. But as great economists of the 1930s such as Irving Fisher and Henry Simons correctly pointed out, uncontrolled creation of bank credit and money can be a major driver of financial instability and subsequent economic harm, even when the creation of irredeemable fiat money is tightly controlled, with fiscal deficits small or non-existent and inflation low.

This suggests two conclusions:

  • First, that in the deflationary, deleveraging downswing of the economic cycle, we may need to be a little bit more relaxed about the creation, within disciplined limits, of additional irredeemable fiat base money.
  • But second, that in the upswing of the cycle we should have been massively more worried than we were pre-crisis about the excessive creation of private debt and private money; and, that we should be wary of relying on a resurgence of private debt and leverage as our means of escape from the mess into which excessive debt creation landed us.

See also:

Not the Solution: Currency War, Starving Labor, Robotics

A Mainstream Economist goes off the reservation and calls for direct money issuance into the real economy, by Scott Baker

Donate


The following should appear at the end of every post:

According to the IRS, "Know the law: Avoid political campaign intervention":

Tax-exempt section 501(c)(3) organizations like churches, universities, and hospitals must follow the law regarding political campaigns. Unfortunately, some don't know the law.

Under the Internal Revenue Code, all section 501(c)(3) organizations are prohibited from participating in any political campaign on behalf of (or in opposition to) any candidate for elective public office. The prohibition applies to campaigns at the federal, state and local level.

Violation of this prohibition may result in denial or revocation of tax-exempt status and the imposition of certain excise taxes. Section 501(c)(3) private foundations are subject to additional restrictions.

Political Campaign Intervention

Political campaign intervention includes any activities that favor or oppose one or more candidates for public office. The prohibition extends beyond candidate endorsements.

Contributions to political campaign funds, public statements of support or opposition (verbal or written) made by or on behalf of an organization, and the distribution of materials prepared by others that support or oppose any candidate for public office all violate the prohibition on political campaign intervention.

Factors in determining whether a communication results in political campaign intervention include the following:

  • Whether the statement identifies one or more candidates for a given public office
  • Whether the statement expresses approval or disapproval of one or more candidates' positions and/or actions
  • Whether the statement is delivered close in time to the election
  • Whether the statement makes reference to voting or an election
  • Whether the issue addressed distinguishes candidates for a given office

Many religious organizations believe, as we do, that the above constitutes a violation of the First Amendment of the US Constitution.

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

That said, we make the following absolutely clear here:

  • The Real Liberal Christian Church and Christian Commons Project not only do not endorse any candidate for any secular office, we say that Christianity forbids voting in such elections.
  • Furthermore, when we discuss any public-office holder's position, policy, action or inaction, we definitely are not encouraging anyone to vote for that office holder's position.
  • We are not trying to influence secular elections but rather want people to come out from that entire fallen system.
  • When we analyze or discuss what is termed "public policy," we do it entirely from a theological standpoint with an eye to educating professing Christians and those to whom we are openly always proselytizing to convert to authentic Christianity.
  • It is impossible for us to fully evangelize and proselytize without directly discussing the pros and cons of public policy and the positions of secular-office holders, hence the unconstitutionality of the IRS code on the matter.
  • We are not rich and wouldn't be looking for a fight regardless. What we cannot do is compromise our faith (which seeks to harm nobody, quite the contrary).
  • We render unto Caesar what is Caesar's. We render unto God what is God's.
  • When Caesar says to us that unless we shut up about the unrighteousness of Caesar's policies and practices, we will lose the ability of people who donate to us to declare their donations as deductions on their federal and state income-tax returns, we say to Caesar that we cannot shut up while exercising our religion in a very reasonable way.
  • We consider the IRS code on this matter as deliberate economic duress (a form of coercion) and a direct attempt by the federal government to censor dissenting, free political and religious speech.
  • It's not freedom of religion if they tax it.

And when they were come to Capernaum, they that received tribute money came to Peter, and said, Doth not your master pay tribute? He saith, Yes. And when he was come into the house, Jesus prevented him, saying, What thinkest thou, Simon? of whom do the kings of the earth take custom or tribute? of their own children, or of strangers? Peter saith unto him, Of strangers. Jesus saith unto him, Then are the children free. (Matthew 17:24-26)

  • Subscribe


  • Tom Usher

    About Tom Usher

    Employment: 2008 - present, website developer and writer. 2015 - present, insurance broker. Education: Arizona State University, Bachelor of Science in Political Science. City University of Seattle, graduate studies in Public Administration. Volunteerism: 2007 - present, president of the Real Liberal Christian Church and Christian Commons Project.
    This entry was posted in Monetary Reform, United States Notes. Bookmark the permalink.