EMU and inflation -
|EMU (European Monetary Union) and inflation – a civil liberty issue is one of a series of documents about economics and money at abelard.org.|
|moneybookers information||e-gold information||fiat money and inflation|
|Analysis in seven sections|
|section 1: politics without brains
section 2: recent currency debauchery in the uk
section 3: governments love inflation
section 4: innumerate workers
section 5: wealth transfer via emu
section 6: big business
section 7: political venality
|Political and technical considerations
What is to be done
My major concerns are
Both issues have considerable civil liberty implications.
Being a complex matter, I have divided this summary into sections, with
a reference section in the second part which includes several web site
Paddy Ashdown and his old-style socialist defectors would attempt to drive us into disastrous political ‘union’ via the idiotic political Euro, despite about 60% of the British having the good sense to eschew it.
Hermut Kohl would drive the Germans in, despite about 70% of them having
the sense to object to it.
Alan Greenspan, one of the truly great masters of monetary consequences, has been reported by the Wall Street Journal as saying, “The Euro will come but it will not be sustainable”. He also recently expressed concerns over the EMU’s potential capacity to sow dissension between union member states, a central issue as far as I am concerned.
Ted Truman, international chief of the Fed. (Federal Reserve - central bank of the USA), said that the Euro project could adversely affect the smooth functioning of the international monetary system.
Volker, an ex-Fed. boss of great experience, said, “I’d rather start the intellectual process now than wait for the crisis and conflict that if not inevitable, are all too possible”.
I even hear whispers that the Labour Party is kite flying in this gale.
John Major has at last come off the fence and stated that the EMU is a risk too far.
By putting party ‘unity’ and power before the best interests of the country, inevitably he has damaged both.This has left the Tory Party in no decent state to fight this insanity.
The apparatchiks, who fail to read history and learn, are attempting to rush and force Europe into their silly dangerous and simplistic vision of european unity.
It is clear that the dogmatic idealists do not recognise the clear and considerable dangers posed by *forced* integration, despite having a recent example to hand in the chaos of breakdown in what was Tito’s Yugoslavia.
Trust the instinct behind the resistance and disquiet in the common citizen as shown by recent polls, for that disquiet is well founded in history.
The UK is, and has recently been, involved in a massive debauching of the currency. The money supply has been expanded by about 12% p.a. over more than 30 months as John Major tried to cling to power. The process is continuing under Labour, though there is some excuse at the present time, given the difficulty of reversing such a policy.
We will have to pay for that debauchery with about 8% inflation over a similar period and the pound will crash once more. The only reason the pound is high at present is hot money seeking the higher interest charges with, probably, some hedging against the Euro.
Major has left the economy far far worse than when he came to power. It is but poor consolation that continental government is in an even bigger mess with unemployment.
Our central problem is the long-standing disease of paying ourselves more than we earn.
Make no mistake, the Euro is a political project not an economic venture. It is an attempt at political centralisation.
It would be quite feasible to keep our national currencies while introducing the Euro.
It would be easy enough to introduce a law allowing citizens to specify invoice settlement and proportions of wages in euros or the local currencies, according to choice.
The problem for governments of countries like the UK with inflationary policies (as has recently been active in the UK) is that those with ability and sense will tend to exchange their savings for any foreign currencies which are less subject to the debauchery.
Naturally, political control freaks do not like the public avoiding their inflationary-based taxation in such a manner. They want the population under one currency which they can inflate at will, without allowing any ability to avoid it. To this end, such options (as currency choice) are made as difficult as possible, especially for the less well-off.
Some economists, for instance James Tobin of Yale University (1972), say that a small amount of inflation, say 2.5 to 3 percent, allows greater job market flexibility. Essentially this is because Joe Six-pack doesn’t realise his wage packet is decreasing if the numbers stay the same. Such slow inflation then, has the potential to ease downward wage flexibility where particular skills are becoming less marketable. Without flexibility, it is argued that there would be more worker unrest and more unemployment.
This view, concerning helpful levels of inflation, I accept as an interim measure until populations are better educated.
Another element of inflation is that it is used in order to let countries and companies off the results of failed investment or borrowing decisions. This is done by using inflation as a tax on the mass of workers and savers. It could be argued that this avoids depressions such as those that have hit world markets at regular 50-60 year intervals under a more rigid ‘morality’ (see also the paper by Greenspan and Parks.)
It is possible to argue that this process is ‘a good thing’, but I have yet to see it thus argued, even though it is widely practised. As an elitist, it is possible to suggest that removing resources from the mass in order to enable their masters to continue to function, thus providing jobs and continuity, is a necessary process.
German and French governments do not want their citizens to be able to invest in other countries. Their middle-classes want to maintain their overpaid wages and pensions, bugger the fact that their social cohesion is failing.
They would, however, be happy with a centralisation which ends in the UK paying for their refusal to reform their economies.they are less happy with the inflation that would be imported.
Low tax economies are rich economies. We in the UK had made considerable progress under Thatcher until socialist Major threw it all away.
The higher the tax regime and the greater the government interference, the more we and our children will pay with ever lowering standards.
Hence, if Gordon Brown eases up in his drive to control government spending, he simply degrades our long-term future.
It has been claimed by a few that most of Britain’s leading firms also support EMU and that ‘they’ think that entry into monetary union is probably the only way to maintain the competitiveness of our industry.
I think that is specious and incorrect. Some large company managers have stated that they want EMU, others do not. Many of the same people also wanted the ERM.
Their judgement is general poor and often venal. Japan has managed very well within Europe without any single currency, so have we historically. It is well to realise that the bigger firms are generally run by rather unimaginative managers, rather than by entrepreneurs, and that they are usually dull and self-entred. Their companies will gain a little in transaction costs and in reducing their currency departments.
The vastly more numerous smaller companies will merely bear costs, for they do little international trading and those costs will be very considerable. Naturally this appeals to large companies as it makes it difficult for new market entrants to compete.
Politicians hope that, by the time we realise the mess, they have generated they will be long gone and comfortable in some banking or Euro sinecure.
The next lot will blame them, but who cares? They’re all right, Jack! And the next lot will, in turn, be preparing their golden parachutes.
Remember, the politicians are generally not on your side. If you want decent government, you are going to have to become active to ensure it.
Remember, the more currencies are available, the more freedom there is for the individual. The benighted euro project is a civil liberty issue.
Don't be fooled by all the flummery, it is a con trick engendered by corrupt politics.
Just ask where the political control will lie when the soft currency nations clash with the hard currency block? Where will be the accountability? Who will decide the level of the inflation tax? Who will make up the shortfall?
Understand that the main purpose of the EMU is the centralisation of unaccountable power.
Kohl is clearly and deliberately acting in an unaccountable ‘mother knows best’ manner.
At the present moment, no politician could slip EMU past the British people without chicanery; and, remember, no administration can rule in the long run without the consent of the citizenry.
Even those in France who favour EMU would do very well to reconsider the EMU project while political sentiment is running so strongly against EMU in the UK and Germany. Our political masters are telling us that EMU is ‘unstoppable’. That is a blatant lie.
Many in the political ‘elite’ are telling us that EMU, once instigated, is ‘irreversible’. Again a blatant lie.
If EMU is forced through against the democratic will, it is very probable that it will be reversed by politicians who will be prepared to accept the democratic will, politicians who will certainly, in due course, replace those who attempt to ride rough shod over democracy.
Such a progress inevitably will generate much ill-will, tending to instability rather than growing European co-operation.
For the long-erm peace and prosperity it is essential, therefore, that the EMU project is put on hold until greater political acceptance evolves among the European nations.
See the chapter by Congdon (pp76-90) in The Euro
Congdon just does not think the Euro will work technically. He lays out the technical reasons for this, reasons with which by and large I agree, though he could be over-egging the pudding. His sentence structure can be a little convoluted.
I have a great deal of regard for Congdon’s economic understanding (I have not much regard for the stuff put out by most who describe themselves as ‘economists’ J ).
This book also has four useful appendices giving the extracts from the
legal documents that purport to define the Euro (pp. 269-290).
Further to this, John Redwood’s
Both these references above have an air of being rushed out, but that is of course the nature of the situation as venal politicians and bureaucrats try to bounce Europe into this ill-starred project.
For other semi-technical reasons and a better summary of some of the libertarian issues, a short article by Milton Friedman (The Times, 19 November 1997, p.22) is well worth a look. again, there is some inconsistency in his position.
David Owen has recently written a
thoughtful and temperate, if rather diplomatic, article,
I think it worth reading for those concerned with this issue. The extended net version is more useful than the cut-down print version.
However, I point out a considerable error in the section, The need
The Bundesbank was over-ruled when it opposed the inflationary conversion
of ostmarks to
There is also a minor glitch in the section, The British opt out, paragraph 6, where Owen states that a decision to join is “effectively.... irrevocable”. That is an exaggeration, but he is correct that such action could have (and most likely would have - abelard) “appalling consequences”. However, it would be my strong expectation that such detachments from the Euro will eventually occur, however dire the consequences, should any be foolish enuf to join the circus.
Joining the Euro will inevitably see very large rises in UK direct and indirect taxation through inflation, for it is growing ever more clear that the Euro is likely to be a soft currency. Thus we will end up both settling the huge national debts of countries like Belgium and Italy, and funding the enormous continental government pension commitments, if these countries continue to fail to re-order their present arrangements.
For example, see the over-optimistic article
Given such a scenario, we will import other countries' structural unemployment
rates, which rates will continue to climb.
My concerns, as stated, are not primarily technical. as you will note, I am not always entirely convinced by Friedman, Congdon and Redwood. the section above is supplied as a resource for those wishing to inform themselves on these technical matters and political considerations.
Monographs published by the IEA:
With less currency options, there is less ability to avoid a government
cheating citizens by using inflation.
Regarding James Tobin of Yale University (1972),
see short review in
See also The mechanics of inflation.
For some implications of future developments, see Catherine England on
the Cato site at
1) A recent report stated that over 250 local exchange systems had appeared
in France recently, as mainly unemployed individuals struggle to get government
off their backs. Such is the real wave of the future however much governments
may pursue their grand schemes. (The European 2-8th February
5 understanding inflation and why it is so very undesirable
For a more full development of the inflation issue and the multiple problems
it generates, see the Costs of Inflation and Disinflation at
This is an excellent review. I cannot recommend it too highly. (There is one minor issue which I wish to check out- self note!)
For a less technical and more pedagogic approach,
see the excellent speech by Greenspan with useful commentary by Lawrence
Parks, available on the FAME site:
Both inflation and deflation are forms of dishonest money. They both result in un-negotiated transfers of wealth.
The idea of ‘stimulating the economy’ by ‘deficit’
is undesirable, as far as I am concerned.
See the very useful review of ‘Keynsianism’ at http://www.digiweb.com/igeldard/LA/economic/keynes.txt
I want to see radical changes in the cultural relationship to ‘money’. At present, the debauchery of ‘money’ via deficit spending is a dangerous moral corrosive. I regard this as far more important than the present blasé, and widely unconscious, approach to fiat money.
In my view, understanding of the widespread and damaging ramifications of inflation is very poor, even among ‘economists’ and ‘politicians’. To quote Keynes loosely, not one person in a million is able to diagnose the manner in which inflation operates: not much changes. Keynes also claims that Lenin recommended inflation as a sure manner in which to destroy a state.
A fundamental means to such radical changes must be to teach the nature of fiat money and the effective handling of money from very early in the educational process.
I want inflation indices that incorporate wage levels, housing prices
and stock exchange levels. It is important that the myth that the RPI
is greatly related to inflation be debunked.
‘Stimulating the economy’ is often done by using infra-structure projects of the type widely practised by governments and funded by deficit spending. These projects may be useful government initiatives in times of difficulty, but they may not involve clear GDP increases. They may not have, therefore, a simple relationship with monetary stability. It is the test of such links that I would consider germane.
Such projects are political issues and inflation is a rather poor and
destructive way of funding them.
Money is essentially a communication media. To debauch money is to encourage lies and dis-honesty. That is counter to clear education and social progress. It is counter to good and improving government and society.
A reason for the housing boom, and the still very high prices, is the tendency for housing to be seen and used as a hedge against government inflation in countries with amoral politicians. Inflation drives such false markets, causes confusion and disrupts trade.
In time, reduced taxation relative to GDP may be important, but I wish to see greater expenditure, as a percentage of GDP, on education and with no reduction of defence expenditure.
USA. (self note) dated from 10/2/98
Comments are invited.....
email abelard at abelard.org
© abelard, 1998 (10 February, slightly updated and
edited on 3 June, 1998)
the address for this document is http://www.abelard.org/emu/emu-hi.htm