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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