The Six-Policies Manning Plan for Monetary and Economic
Reform:
Hope springs eternal in the human breast - thank God.
Perhaps the most hopeful monetary reform statement I have read is that
of Lowell Manning, who was for many years the convenor of policy for
the New Zealand Democratic Party, which is of similar nature to the
green parties in Europe. He is a retired civil engineer, with formal
qualifications in psychology and sociology.
Below is a slightly shortened version of Lowell Manning's
submissions to an Independent Review of the Operation of Monetary
Policy conducted by the New Zealand Treasury Department in 2000. The
six "primary instruments of monetary policy" set out in the submission
have since been developed into what I call the Six-Policies Manning
Plan for Monetary and Economic Reform.
The Six Policies involve:
1. A commitment to zero balance current accounts through a
judicially applied foreign exchange transactions surcharge.
2. A debt and interest-free, public service money supply
linked to fundamental reforms of the banking system and the
encouragement of local exchange currencies.
3. Tax reform, including a domestic transactions tax, by
which tax collection will become automatic, almost costless, and
strictly neutral.
4. A universal, basic income, as a national dividend
payable to every citizen, regardless of means and income.
5. A commitment to building up a strong network of local
exchange currencies, to quickly enable everyone who wishes to take
part in worthwhile economic activity to do so.
6. The adoption of measures of economic and cultural wealth
that are appropriate to the drive for sustainable living standards -
unlike the Gross Domestic Product and Consumer Price Indexes.
The Six-Policies Plan is presented as a complete social
package. Here is Lowell Manning's explanation of how the policies
together offer the prospect of a well-structured economy: "Each of the
six policies is a powerful stand-alone policy, but the sum of the six
is vastly more powerful than the parts. For example, policy 4 is hard
to introduce without policies 2 and 3. While universal income is now
being very widely discussed around the world, I believe my proposal is
the only one so far that provides seamless integration with existing
'social welfare', and the ability to fund it properly without
significant tax increases."
For a summary of the Six-Policies Plan (1,700 words) or the
Plan in detail (16,400 Words), please E-mail Lowell Manning direct -
lowellmanning@hotmail.com or manning@kapiti.co.nz
For a summary of the Six-Policies Plan (1,700 words) or the
Plan in detail (16,400 Words), please E-mail Lowell Manning direct -
lowellmanning@hotmail.com or manning@kapiti.co.nz
I think it is useful to constantly let politicians,
economists and entrepreneurs know about hopeful proposals like the
Manning Plan, if only to give some meaning to the otherwise hopeless
predicament they find themselves in, as peons to bureaucratic protocol
and corporate vested interests.
In friendship,
Boudewijn Wegerif, What Matters Programme Folkhogskola
Vardingeby **
Slightly abridged - Summary of Submissions to the
Independent Review of the Operation of Monetary Policy, of the New
Zealand Treasury Department.
By Lowell Manning - September 28, 2000
The present monetary policy is based on fallacy. I am not
suggesting any malice on the part of past governments, the Reserve
Bank, or their advisors, but I believe the country cannot progress
while its monetary policy is operated on the basis of denial.
As long as monetary policy is based on 'real' growth as the
Gross Domestic Product increase minus Consumer Prince Index inflation,
we are subtracting one invalid, unreliable measure from another
invalid measure, producing a completely meaningless outcome. In this
case, two major wrongs create chaos.
In New Zealand, as elsewhere, nearly all money is created
as interest-bearing debt. Taken as a whole, the interest charges on
that money can only be funded through the creation of further debt.
The interest passes to the beneficiaries of the banking system, that
is, depositors, shareholders, employees and contractors. A small
portion also goes to the government as taxation. In this process real
wealth is transferred from the borrowers to the beneficiaries.
The money supply therefore has to increase exponentially to
accommodate the interest payments unless total productivity increases
at the interest rate, or unless all the wealth accumulating to the
beneficiaries is redistributed to the borrowers. In practice there is
no evidence to support such productivity increases or wealth
redistribution. This means the debt system is inherently inflationary.
If the overall interest rate on the money supply is, say, 6% and there
is real productivity growth of, say 2%, then there is 4% inflation
built into the economy.
-- For many years now, monetary policy has been
specifically directed to avoiding rather than addressing the
fundamental truths:
(a) The monetary system is inherently inflationary by an
amount equal to the interest charges across the whole of the
debt-created money supply less increases in productivity, (probably
around 5% over the past year or two, but in double digits in other
years when interest rates were much higher)
(b) The interest charges represent a continual drift of
wealth to those that already have real wealth from those that don't,
that is, to the rich from the poor. The total drift is of the same
order as inherent inflation rate.
(c) The use of high interest rates to "kill" inflation is
the absolute, diametric opposite of any coherent anti-inflation
policy. High interest rates increase real inflation by an amount equal
to the interest rate rise minus any further productivity increases
that can be squeezed out of an ever more oppressed productive sector.
-- Inflation is "wrung" out of the economy by killing the
patient to cure the cold, using the price mechanism to decrease the
demand for new money essential to maintain, let alone increase
economic activity. Ordinary people are forced into an ever worsening
standard of living and quality of life, reducing the ability of
government to provide infrastructure, reducing any chance of
significant real wage increases, reducing employment and income
opportunities for the nation as a whole (the national economic
benefit).
Meanwhile, the "free trade" agenda encourages cheap imports
to mask the inflationary pressure, initiating balance of payments
problems, which are partly offset by seeking foreign direct investment
(mainly through the sale of New Zealand's land, assets and
citizenship). Natural resources are "used up", leaving future
generations with environmental social and infrastructure deficits they
may never be able to repay or put right. Some of our productive
companies have moved offshore. We are suffering a chronic "brain
drain" as qualified people leave for greener pastures abroad. The
masking of inflation by such means results from institutional denial,
the failure to acknowledge that the financial system is itself fatally
flawed.
-- New Zealand's unsustainable current account deficit is
the direct outcome of the measures used to mask the true underlying
inflationary effects arising from the monetary system itself. Some of
these measures are the sale of the nation's assets into overseas
ownership, the repatriation of medium term foreign direct investment,
and the unilateral reduction of trade barriers. The chickens are
coming home to roost from the failed policies of the past 15 years or
more.
Most of the country's public companies and all but one of
its major banks are foreign owned or controlled. Recent financial
outflows have been large, one reason why New Zealand's share market
has been one of the worst performing markets in the world.
As a nation, we have long since "used up" any stopgap
current account benefits arising from such policies and are now in a
strong deficit situation. Under current monetary policy, the likely
course of action is to join the well documented Third World "export"
trade treadmill whereby an ever increasing proportion of our total
production is sent offshore in an impossible effort to "pay our way"
in the world, while the quality of life of our citizens steadily
declines.
Trade is a zero-sum game. The more we are forced into
supplying overseas markets for the sole purpose of closing our trade
gap, the more we are forced into ever increasing competition with
other countries, with a consequent reduction in our terms of trade
(unless we start specialising in short run, high quality, high value
goods and services that offer choice on world markets. I believe such
a transition will take much longer than we have available).
International treaties (WTO, IMF, WB) allow countries to
protect their balance of payment/current account. I have seen precious
little effort to do so.
-- Perhaps the greatest single instability factor on the
value of New Zealand's currency is currency speculation, the
dissociation of financial transactions from the real economy. In New
Zealand something in the order of 99% of all financial transactions
are speculative.
While it may be argued that hedging foreign transactions in
goods and services is a necessary precaution under present financial
policy, the question is "why is such hedging needed in the first
place?"
The "market" is dominated by speculation because there are
very few if any controls on the quantity or flow of money. Many
individual players in the speculation game have vast financial
resources. While speculation itself may appear to be a zero-sum game,
the effects of speculation fall directly on the people in the form of
currency depreciation and currency instability.
My main point is that speculation cannot succeed without
currency instability. Instability is the lifeblood of speculation. If
you create stability you regain control of the currency.
-- I propose six new primary instruments of monetary
policy:
(a) The phasing in of a debt-free money supply through the
Reserve Bank coupled with progressive restraints on money creation
through the private banking system (such as by the re-introduction of
reserve ratios)
(b) The introduction of interest-free loans through the
Reserve Bank to fund voter approved government and local government
capital works.
(c) A substantial surcharge on all financial transactions
involving the purchase or exchange of foreign currency, sufficient to
stop financial speculation, correct the current account deficit and,
and, over time, repay government foreign debt.
(d) The introduction of a valid, reliable and objective
measure of inflation.
(e) The introduction of valid, reliable and objective
measures of national economic benefit, individual well-being and real
productive growth.
(f) Government intervention to ensure all New Zealanders
share fairly in the additional wealth created.
The accountancy relating to these proposals does not need
to be as "creative" as the process by which money is created and
accounted now.
-- The use of debt-free money has been a defining debate
through the centuries. Elections in the US have been fought, won and
lost on it. The issue has now reached critical mass again in
substantial measure because automation and computerisation have
enabled the financial paper economy to become dissociated from the
real economy to an extent not previously contemplated. This
introduction of debt-free money is anti-inflationary. In its most
basic form, it simply seeks to substitute new and existing debt with
debt-free instruments that remove the interest component from the
money supply itself. One example is the issue of debt-free notes to
repay government bonds as they mature. The direct outcome is that LESS
new money needs to be created than is the case under the present
system. Subject to capacity limits, this then allows monetary targets
to be set to enable sustainable increased production to take place
throughout the economy.
The proposal requires only minor amendment to the Reserve
Bank Act.
-- The use of interest-free loans for voter approved public
capital works simply means the public can get much more infrastructure
for the same amount of money. At the moment, most of the repayments go
into interest on the loans raised to build the works. Some projects
have to be paid for many times over, merely because they are funded on
an interest-bearing basis. Under this proposal, the capital cost would
be cancelled over the lifetime of the project. Again, the process is
deflationary unless the rate of project implementation outstrips the
capacity of the economy to construct new projects.
The proposal requires only minor amendment to the Reserve
Bank Act. There is already provision in the Local Government Act
requiring Local Government to adopt the form of project funding that
most benefits ratepayers and residents.
-- The introduction of a unilateral variable surcharge on
currency conversion is a veritable silver bullet. The objective is to
correct the current account deficit. There could be some well-defined
exclusions, such as for computers, machinery, and raw materials used
directly to increase New Zealand's productive base and possibly for
some oil products. The surcharge might initially be substantial,
(perhaps 10% or more), but would decline as the current account
balance is achieved. (It could even turn negative if the current
account balance turns positive after allowing for public foreign debt
repayment).
A positive surcharge will produce an income stream. Its
initial inflationary effect on the price of imported goods can be
neutralised by a compensatory reduction in internal taxation, such as
a reduction in GST.
The import reductions will help correct the trade balance,
increase import substitution and create jobs. It will not affect
exports except insofar as the exchange rate alters when the policy is
introduced..
Very long term foreign investment will not be hindered, but
short to medium term speculation will be stopped absolutely dead as
long as the surcharge is positive. The repatriation of profits and
capital abroad will be subject to the surcharge. This will produce a
currency regime based on the real economy rather than one based on the
speculative paper economy.
-- The introduction of an appropriate inflation measure
would involve coordination with the Department of Statistics. The
existing CPI could be continued to satisfy international financial
institutions. At the very least, the new measure would separate out
increments reflecting additional real or improved value from those
reflecting increased price only. It should also take into account
changes in the "basket" of goods and services that serve to mask
declines in purchasing power (reflected by changes to the quantity as
well as the price of goods and services available from a given income,
such as occurs through the monetisation of previously unpriced goods
and services).
-- The introduction of appropriate measures of production
would involve separating "goods" from "bads" and accounting for the
other factors like resource depletion, pollution costs, and social and
environmental degradation. The existing GDP measures could be retained
to satisfy International Financial Institutions Other new measures, on
a per capita basis could also be offered in other forms such as
Genuine Progress Indicators and social indicators.
-- All New Zealanders can share in the increased wealth and
well being of the country through the introduction of a national
dividend. Such a dividend might eventually be expanded into a
universal basic income or UBI that would replace the existing
superannuation and welfare system with a single guaranteed non
means-tested income. Initially, the dividend might be used primarily
for non-inflationary increases in the money supply reflecting the
increase in production in the economy.
It would increase the purchasing power of ordinary people
WITHOUT the need for wage increases to appear in prices. Similarly,
within limits provided by real economic growth, some new money could
be spent into circulation by the government, stabilising the taxation
effect on prices while at the same time providing those public
services people want and are willing to pay for, such as "free" health
and education.
The national dividend is finite. It may even be quite small
to start with. But it is, in my view, the only way of universal
distribution of wealth that avoids the justifiably unpopular and
costly "tax and spend" route that has so many down-stream economic
impacts across society.
Lowell Manning
** The What Matters Programme is an initiative by Boudewijn
Wegerif, to spread information about what is happening in the world
today, and how things could be, given a schooling at all levels to
free the self and the world from debt/guilt oppression and money
madness - a schooling for love. The trustees of the What Matters
Programme are the collegiate of Folkhögskola Vårdinge By, an adult
education residential college south of Stockholm.
You can read WHAT MATTERS E-letters 1-53 at the WHAT
MATTERS web site -
http://www.whatmatters.nu/wmemails/wmemailsindex.html
Boudewijn Wegerif, Torsberget, 669 92, Deje, Sweden. Tel:
+46.552.21112
Administration: Johanna Heckscher, FHSK Vardingeby, 150 21
Molnbo, Sweden
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