I’m very pleased to say that Reinventing the State: Social Liberalism for the 21st Century has been reprinted with the first print run having sold out. The editors (myself, Duncan Brack and David Howarth) have taken the opportunity to relate the book to recent events by including a new foreword which explains why we think the ideas contained in the book are more relevant than ever. Among other points, we have said:
The collapse of the banking system worldwide has revealed the ultimate dependence of what had previously appeared to be free-standing market relationships on straightforwardly state institutions, such as central banks and ministries of finance. The asymmetries of information, and thus the lack of trust, that lay at the heart of the sub-prime and asset-backed commercial paper crises have now started to affect the whole edifice of banking as a private enterprise, and the whole of the banking system is falling into the hands of states.
It would be easy for those who were always sceptical of the wilder claims of economic libertarianism smugly to say ‘told you so’. But in fact, at least for social liberals, the new situation should be seen as containing dangers as well as opportunities. A vast expansion of state power into the financial system could carry with it a vast expansion of state power into individual lives, which is something liberals must guard against. We are witnessing what is in reality a vast centralisation of power, which is always something liberals should resist.
The central idea of this book is that the state does have a role to play in ensuring liberty, equality and prosperity. Indeed, using the state creatively is crucial if we are to tackle the major environmental challenges we face. But to play that role in a way that does not itself become threatening of liberal values, it must itself be radically reinvented in the direction of the local and the democratic. That will mean a state in which power is radically devolved, so that state action becomes about creative and powerful local government being the first place in which people come together to tackle their shared problems. In a world in which economic forces are pulling in the opposite direction, that task of reinvention is becoming more, not less difficult. But it is also more important than ever.
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6 Comments
Someone who knows what he is talking about ought to take the time to explain the concept of fiat money, and the fundamental problem that, if a central bank is the sole provider of a currency (e.g. Sterling) and lends £1 at 5% interest, then at some point it has to lend (or give) the money with which the interest is going to be paid.
Since the abolition of the gold standard, this is where we are, and every year more and more money gets pumped into the world economy which is, in effect, a giant Ponzi scheme. The last year has seen as steep rise in the rate at which money is pumped in.
But someone who really understands it should explain it better than that.
Someone who knows what he is talking about ought to take the time to explain the concept of fiat money, and the fact that there is no fundamental problem with it.
“We are witnessing what is in reality a vast centralisation of power, which is always something liberals should resist.”
So are you suggesting that social liberals should oppose the bank bailout and the idea of a Keynesian stimulus? That would be a pretty stupid thing to do.
A great time to re-plug my chapter by chapter discussion of reinventing the state:
http://joeotten.blogspot.com/search/label/reinventing%20the%20state
As for your new forward – well I’m reading The Storm by Vince Cable. You’re not going to top that are you?
@ Joe Otten
Reading your blog piece…some good points..
Everyone seems to agree, whether social liberal or economic liberal, that we must have smaller banks and more competition. We cannot allow large banks to hold the country to ransom anymore.
To enforce this principle, we need to have a state with the powers to stop banks getting too big.
This means more state power, at the expense of corporate power. From a liberal point of view, this seems a perfectly fair payoff to make.
Darren – if the Bank of England really were the “sole provider” of sterling the economy might not be in quite such a mess!
Unfortunately sterling is issued (virtually on demand) by the private banking system as deposits, created from absolutely nothing, and credited to individual accounts. Private banks then charge interest on this debt which, as you say, requires the system to create yet more debt-money to service it. This provides a lucrative free lunch for the banks and ongoing enslavement for the rest of us – with inflation, a devalued currency and ever increasing poverty as our perpetual shackles.
To cap this systemic madness, the state “borrows” (at interest) its own currency from private institutions, which again has been created from absolutely nothing. Over 300 years, the private banking system has successfully milked the myth that if the state were to issue this money itself, free of debt-interest, it would cause inflation. That’s right: money free of debt – bad; debt-money supplied by private banks and weighed down with interest that can never be repaid without incurring further debt, courtesy of private banks – good!
And still people cry out to “get the banks lending again!”
The solution? The state-owned Bank of England should be the sole-issuer of sterling to the banking system at the prevailing BoE interest rate for onward lending or investment. The interest accrued by the Central Bank would allow deadweight taxes on income and commerce to be reduced. Government would borrow direct from the BoE at base rate (as a check on spending), but the public purse (i.e. taxpayers) would not be in debt to private lenders as a result. Private bank profits (plus pension schemes and other stakeholdings) could be safeguarded as a freer and fairer market forced banks from licensed exploitation to genuine equity investment – giving them a real interest in sustainable economic growth, rather than the growth of an ultimately unservicable debt with its inevitable cyclical crash.