More wrong prescriptions

A recent article in the UK got a decent start:

In Russell Hoban's novel Riddley Walker, the descendants of nuclear holocaust survivors seek amid the rubble the key to recovering their lost civilisation. They end up believing that the answer is to re-invent the atom bomb. I was reminded of this when I read the government's new plans to save us from the credit crunch. It intends - at gobsmacking public expense - to persuade the banks to start lending again, at levels similar to those of 2007. Isn't this what caused the problem in the first place? Are insane levels of lending really the solution to a crisis caused by insane levels of lending?

Yes, I know that without money there's no business, and without business there are no jobs. I also know that most of the money in circulation is issued, through fractional reserve banking, in the form of debt. This means that you can't solve one problem (a lack of money) without causing another (a mountain of debt). There must be a better way than this.

But after this it veers off course. He explains that alternative or complementary currencies often get used in financial crises [correctly], and that often these alternatives provide great benefit to the local economies [at least temporarily]. However, his suggestion that the scheme of Silvio Gessell be tried again is the wrong prescription.

Gessell's big idea was that currencies (paper ones, that is) be reduced in value over time. This seems to be an improvement, at least from a Keynsian economics perspective, but the examples cited in the article were all short lived. They were never around long enough to prove that they weren't merely draining the economy while making it look like it was improving. I believe in the long run the Gessellian currencies would have proven to be like any other cannibalistic system, decreasing the actual wealth while raising the appearance of wealth.

The current mainstream prescription for the U.S. is no exception. It may temporarily increase the appearance of wealth, but in the long run will decrease real wealth. The economists of the Keynsian mindset, and to a lesser extent, the Chicago school, still don't get it. Real wealth requires real money, and the only way to get it is to separate economy and state.

And that's where the biggest failing of this article, and so many others like it lie: they believe that there is a government solution. Nothing could be further from the truth; for as long as economics is "guided" by politics, it will be manipulated for political reasons. Only by separating the economy from politics can we have a steady, sustainable, and humane economy.