the other road to serfdom

7/27/2019 The Other Road to Serfdom

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drawn to the teachings of Karl Marx or to the faith of the free play of market-forces are, no doubt, sincere in their beliefs that their way is the road to social

justice, not the road to serfdom.

However, these opposing beliefs fail to convince the broad mass of theelectorate as they instinctively feel that both these forces should be kept undercontrol for the well-being of the nation. This long drawn out struggle between

the 'haves and the have nots' has now entered a far more dangerous stage thanthe great monetary and economic disaster of the 1930's and as I will attempt toshow later, Keynes in his analysis of the forces that bedevil man's attempts toevolve a fair and just society diagnosed the problem as monetary, noteconomic.

(1) Routledge and Keegan Paul.ISBN 0 7100 8485 4.

The appearance in The Times (7/8/1984) of an article by ProfessorF.A.Hayek under the heading-"Jobs: the basic truths we have cast aside", in

which he claimed that group interests in making concessions to avoid frictionhave obscured the truths that once made Britain the most advanced industrialnation and that the abandonment of these traditions have lead to ourindustrial decline and the fall of real wages from the highest to the lowestamong advanced nations.

The reason for this, Hayek claims, is the "power" of the trade unionsto deny other workers access to jobs and second if they are not able to obtainthe wages fixed by the unions, the assistance of capital investment at their

workplace. This somewhat simplistic explanation of Britain's industrialdecline, must have made a great number of economists wince and I have no

doubt that a shoal of letters on the subject descended upon the editor. Onlyone was published which referred to Hayek's article directly (15/8/1984).The following was my contribution.The Editor,The Times. 7th August1984.Dear Sir

I trust that more competent observers than I have written to protestagainst Professor Hayek's conception of "Jobs: the basic truth we have cast

aside". In essence as I see it, it is the same thinking as that in the 1930's whichbelieved that lower wages would lead to greater competitiveness on the part ofBritish industry. All it did was, in conjunction with the nation's propensity tosave was to [further] reduce the amount of money available for the purchase ofapproximately 10% per.cent, of the nation's GNP and as factories cut down onproduction to meet the declining demand so unemployment mounted.

This was the painful lesson of Hayek's "basic truths", as Keynesdemonstrated in 1936 in his book - The General Theory of Employment,Interest and Money that the only solution to this problem was for the state toinject the equivalent of this lost purchasing power into the economy. But, andthis is the nub of the problem of our declining industrial capacity today,Keynes saw that it was unlikely that the banking policy on the rate of interest

would be sufficient by itself to determine an optimum rate of investment.


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Therefore, he saw that "a somewhat comprehensive socialisation ofinvestment will prove the only means of securing an approximation to fullemployment". Furthermore, this new money should come into existence atnear-zero rates of interest and that the bank rate should stand at about 2%per.cent if the marginal efficiency of capital is to be safeguarded.

The nation's savings now running at about 12% per.cent. and the real

rates of interest now at their historically highest levels plus the ever-increasingburden of servicing the National Debt are, I submit, the "basic truths" that"we have cast aside". Thus, concluded Keynes:-"The outstanding faults of our economic society in which we live are its failureto provide for full-employment and its arbitrary and inequitable distributionof wealth and incomes ".

Yours sincerely

Arthur Swan

If, as Hayek states, British workers were the highest paid amongindustrial nations, how does he imagine this happened? By the generosity ofemployers eager to share their profits? Whatever ones opinions are of thetrades union movement there is a general agreement that it has played animportant part in the improvement of the well- being of the working-class asthe result of its efforts over the past hundred years. Very few people, I suggest,could be found who would seriously argue the case that in the beginning tradeunionism was unnecessary. Most enlightened judgement today would agreethat the conditions of the 'Labouring poor', especially when seen beside theenormous wealth of the comparative few, were bound to outrage socialreformers and none more so than Karl Marx who sign-posted the road to the

socialist serfdom with his rallying cry - "Workers of the world unite you havenothing to lose but your chains".

Marx was soon to be joined by increasing numbers of intellectualswhose influence upon the trade union movement made a considerable impact.The formation of the Independent Labour Party in 1893 was instrumental inspreading the beliefs in socialism throughout these organisations which

became affiliated to the Labour Party after 1906.

In those early days and, indeed, through to the present time theextreme left of the party has made great play on Marx's dictum that: "The

history of all hitherto existing society is the history of class struggles".Ironically, however, over the past forty to fifty years this concept of class-struggle in industrialized societies has, in my view, become for the dedicatedMarxist, increasingly blurred, for it is, to a great extent, the result of continuedagitation within the Labour Party and the trade unions that better conditionsfor the working class have been achieved.

In spite of this shift in thinking, the dedicated activists of the left areas determined as ever to overthrow the 'Capitalist' system. The miners strikeof 1984 is a perfect example of this determination. What is also certain, is thefact that, the strike had little to do with improving the conditions for miners,

but everything to do with the downfall of the Thatcher government which theyidentified as the class-enemy.

It is broadly true to say that the Labour Party and the trades union


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movement has been continually weakened by the conflict of views as to howthe ideal of a socialist state can be achieved. The Marxist claim that each timeLabour has been returned to power they have failed to implement the declaredaim of the party and the T.U.C., as laid down in Clause 4., of their constitution;'the nationalization of ALL means of production and distribution.'

Furthermore, the insistence of the left that the nuclear deterrent

should be unilaterally abolished and that the armed forces should be reducedto what would have amounted to veritable impotence in spite of the lessons oftwo world wars has increasingly repelled a great number of potential socialistsupporters. Those responsible for the failure of the full implementation ofClause 4 are in the eyes of the Marxist left the so-called moderates of the Party

who believe that the British electorate can only be won-over to socialism by theFabian philosophy of gradualism, or as Bernard Shaw cynically put it....Bystealth.

Keynes whose beliefs had a profound influence on socialist thinkingwas not a socialist, but felt strongly that capitalism should be regulated. As

early as 1924 in The End to Laissez-faire he wrote that "capitalism in itself is inmany ways objectionable" and in his tract on monetary reform he also pointedto the dangers inherent in capitalism.

The failure of the Labour Party and the TUC's hopes of social justicewas, therefore, the inevitable result of the irreconcilable views as to how theobjectives of socialism were to be achieved, namely the Marxists and theirrefusal to budge from Clause-4 and the moderates who argued for itsmodification. The efforts of Gaitskill, Crossland and many others had little orno effect on modifying the thinking of the Marxists who are still convinced thatthey can repeat and extend the great sweep of nationalization that Attlee's

government achieved immediately after World War II.

Keynes's early questioning of the dangers of unregulated-capitalismwas to show itself in the panic that engulfed Wall Street towards the end of1929 and the ensuing calamity of the Great Depression. As a member of theMacmillan Committee which reported their findings in 1931 (Committee onFinance and Industry. Cmd 389) he was, no doubt, most disturbed with theevidence they had amassed and in 1936 published his great work - The GeneralTheory of Employment, Interest and Money.

The main thrust of his theory was that the state should be responsible

for the level of expenditure to ensure we consume that proportion of thenation's gross national product (GNP) left unsold as the result of savings. Ifthis was not done then increasing unemployment would be the inevitableresult. This basic concept of demand for goods and services Keynes madeperfectly clear could only be achieved in the framework of a free-marketeconomy if the state controlled the money supply. Alas, the political partiesspurned this all-important condition. Keynes's explanation of the things thatcaused slumps and booms was received with great hope and althoughsomewhat technical in its detail its basic message was widely accepted.

Time, however, was to show that Keynes's analysis of the seeminglyinsoluble problem of unemployment has been misrepresented by the opposingforces of socialism and 'capitalism'.

Why? Because he showed that both of these sectional aims are inimical to the


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welfare of the total community. In his introduction to The Road To Serfdom(p.4.) Professor Hayek states: -"It seems almost as if we did not want to understand the development which-has produced totalitarianism because such an understanding might destroysome of our dearest illusions to which we are determined to cling".

On pages 6 and 8 he goes on to say:

"Those Germans in conflict with National Socialism being forced to leaveGermany and that these 'socialist refugees' are now helping to lead theiradopted country the way that Germany has gone"

"Have not all our efforts and hopes been directed towards freedom, justice,and prosperity? Are we victims of some evil power that must be conquered

before we can resume the road to better things?"

My reason for writing and compiling - The Other Road To Serfdom isto show that uncontrolled money or rentier-capitalism is the divisive force

which sets labour against true-capitalism, i.e. producer-capitalism, andwithout harmony between these two wealth-producing groups the hopes of thenation for improved conditions for the total community are continuallythwarted.

We find Professor Hayek (p14) writing of the: "immense possibilitiesof advancement" and stating that it can only come about by increasingintellectual mastery of the forces of which we make use: "such as our handlingof the monetary system and the prevention of the control of monopoly".Therefore, the case presented in the following pages is that it is precisely thefailure to control the monetary system which has led to rampant money-

capitalism and the alarming growth of monopolies which has taken us downthe other road to serfdom.

Keynes in his analysis of these problems in The General Theory,showed how the failure to control the money system led us down the road tothe money-capitalist monopoly situation and its opposition by the forces ofMarxist socialism. Therefore, Hayek, in highlighting the evils of the socialiststate, whilst neglecting the evils of the money-capital monopolies hascontributed to the ever-widening gulf between these two schools of thought.His rejection of Keynes's diagnosis and solution of these problems leaves me ofthe opinion that he, in common with most orthodox economic thinking, failed

to recognise that there are two forms of 'capitalism': producer-capitalism andmoney-capitalism whose interests are in mortal conflict.Karl Marx late in life discovered this to be so, but, tragically, still insisted inlumping the two together in spite of all the evidence he found and recorded ofmoney-capitalists exploitation of the producer-capitalist. Hayek (p.30.) refersto Mr.Max Eastman, Lenins old friend, who found himself compelled to admitin his book - 'Stalin's Russia and the Crisis of Socialism, that -

"instead of being better Stalinism is worse than fascism more ruthless,barbarous, unjust, immoral, anti-democratic, unredeemed by any hope ofscruple".

It was this view of Communism which led great numbers of men all


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over Europe between the wars to support fascism as the only apparent counterto this growing menace to western civilization. To these men the liberalism ofthe old parties had induced the loss of will to challenge this threat to the veryexistence of civilization. This threat had to be met on the streets where, asLenin had taught, "they who control the streets control power" .It was,therefore, as the result of this opposition to the enslaving nature ofCommunism that Western Europe earned the present respite, but for how

long?

We find Hayek (p.31) saying that all his criticism is directed solelyagainst planning which prevents competition. But, surely, it is precisely

because finance- capitalism does just this in the drive towards ever largerfinancial groupings that it must incur the hostility of the socialist.

The Times (15/11/83) carried a headline - No More Private Investorsafter the 'Year 2000? A Stock Exchange survey showed how institutions weregetting more powerful and would, therefore, eventually control competition, inline with John D. Rockefeller, who is reported to have said: "Competition is a

sin". If this is allowed to happen it would destroy the sole justification of'capitalism' competition between the producer-capitalists, i.e, true-capitalism.

With the passing of almost half a century since Hayek wrote the following, Iwonder just what his feelings were when he viewed the rapid strides towards amonopolistic money-capitalist state. He had said:

"Our freedom of choice in a competitive society rests on the fact that if oneperson refuses to satisfy our wishes we can turn to another...But if we face amonopolist we are at his mercy".

Money should be regarded as the means of exchange of goods and

services between people. Therefore, because money carries-out this useful andall-powerful service, and because the private banking system has a virtualmonopoly of the creation of the nation's money-supply the money-capitalist isalways in the position to exploit the producer-capitalist. It is of more thanpassing interest that Hayek tells us (p. 103.) that in Germany and Austria it

was the Jew who became the enemy as he was regarded by socialists as therepresentative of capitalism. As Hayek puts it:

"The fact that German anti-Semitism and anti-capitalism spring from thesame roots is of great importance for the understanding of what has happenedthere".

Furthermore, we are told (p.104.) that "Collectivism on a world scale

seems to be unthinkable - except in the service of a small ruling elite". Onewonders who this ruling elite would be. Hayek goes on to say that "this wouldraise technical and moral problems which none of our socialists are willing toface". But, why should we assume that it would be a socialist elite? Are we not

witnessing on a world scale the virtual control of nations by a money-capitalistelite?

In chapter XII - The Socialist Roots of Nazism, Hayek states that the

roots were put down over the years by many people outside Germany and hequotes Carlyle, Stewart Chamberlain, Comte and Georges Sorel. However, I

would suggest that a faulty monetary system and the failure to implement afairer distribution of wealth over the past three-hundred years has been theroot cause, and has been questioned by Locke, Paterson, Hume, Adam Smith,


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David Ricardo and many others culminating in Keynes's General Theory ofEmployment, Interest and Money, all of whom strove to alert men to the evilsthat would arise if the nation's money creation was left in the hands of private

bankers.

We find (p.140.) Hayek deriding the belief of Hegal and Marx andevery pseudo historian, and in this particular instance Professor E.H.Carr, that

the presumed necessity of the general growth of monopolies in consequence oftechnical developments and the alleged "potential plenty" are "familiareconomic fallacies". However in the fight of the rapid development ofmicrochip technology over the past few years would Professor Hayek stillcontinue to insist that those "familiar economic fallacies" have not turned thealleged "potential plenty" into a visible reality?

However, it is on page 144 that he touches upon the reason for thedestructive conflict which threatens the stability of democratic nations whenhe discusses the attempt to create a "middle-class" socialism before the last

war.

Apart from these efforts, he points out: "the impetus of the movementtowards totalitarianism comes mainly from two great vested interests,organised-capital and organised-labour"and, he continues, "Probably the greatest menace of all is the fact that thepolicies of these two powerful groups point in the same direction".

It is, therefore, my hope that the following outline of a history ofmoney- capitalism: The Other Road To Serfdom, will show how this powerinevitably created the conditions which led to the analysis and denunciation of

the 'capitalist' system by the early social reformers.

However, it was the following statement of Hayek's (p.145.) that tookmy breath away. Here he is discussing capitalist-monopolies."A state which allows such enormous aggregations of power to grow up cannotafford to let this power rest entirely in private control."

I suggest, therefore, that in that admission he throws into questionthe conception of the freedom of the market forces for which he so forcefullyargues. Therefore, I rest my case against his thesis on the fact that in the whole

of the development of his case against socialism he never mentions thegreatest monopoly of all; bank created money, the fount from which flows aconstant source of new money which makes possible the vast expansion of themoney-capitalists activities throughout the world. It is this monopolisticimposter's threat to the survival of true-natural capitalism that, if notreformed, before it is too late, will lead to the triumph of Marxist socialism asthe nations throw off the yoke of insupportable indebtedness, and jump out ofthe socialist frying pan into the bankers fire - Maastricht and all that.

To finalise what I see as the fundamental flaw in the one-sided casepresented in Hayek's Road To Serfdom, we find that under the chapterheading - The Prospects of International Order, the statement -"That there is little hope of international order or lasting peace so long as everycountry is free to employ whatever measures it thinks desirable in its own


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interests however damaging they may be to others".

It would seem to me that what Professor Hayek is saying is incontradiction to his plea for the free play of market forces. If individuals are to

be free to react to the forces of the market in their own interests then it followsthat the nation which is the sum total of those individuals must be allowed todo likewise. If it does not do so it will suffer the consequences of its refusal to

act in the defence of its interests, or he is asking for some form of supra-national authority to control the freedom of nations to safeguard theirinterests?

It is, therefore, my submission that Professor Hayek has ignored theworld-wide threat of the other road to serfdom inherent in the uncontrolledpropensity of private banking to create an ever-increasing flood of new money

which passes into the hands of the finance-capitalist who through re-lending itthroughout the world has enmeshed it in an increasingly unpayable debt. Thusgiving rise to fears and traditional hatred as they struggle to meet interestpayments and in doing so lower the standards of living of great masses of

people.

The interest payments on these vast debts held by the developing anddeveloped nations alike will become impossible to meet and no matter to whatexpedients bankers resort they must know that eventually they will berepudiated, or will have to be written - off..

My case, therefore, is that at the present time Professor Hayek's staris still in the ascendancy (even posthumously) and his message of the tyrannyof the socialist state is still proclaimed throughout the democratic nations,

whilst the equally evil tyranny of money-capitalism is still being ignored.

It is this failure to control the dominating position of money-

capitalism which will eventually destroy the competitive urge of true-capitalism which Professor Hayek and his supporters contend is necessary tocombat the controls of a socialist state. Hence the need to consider - The OtherRoad To Serfdom,

In 1976 Professor Hayek emboldened by the increasing success of hisespousal of the virtues of the free market now aided and abetted by thegrowing influence of the I.E.A. (Institute of Economic Affairs), founded in 1957as a "research and educational trust to specialise in the study of markets and

pricing systems as technical devices for registering preferences andapportioning resources", wrote his analysis for the Denationalisation of Money

which was published under that title by the IEA the same year. Here we findHayek taking the freedom of the market into its final stage: the completedomination by the private banking system of the worlds currencies. Heargues:-

Government should be deprived of its monopoly of the issue ofmoney.

Thankfully this audacious kite flying exercise did not succeed, althoughMaastricht has this Private 'Big-Bank Theory high on its list of priorities andthe worlds bankers and beneficiaries of such a move are still beavering away to

bring about the final subjugation of nation states to a one world government ofbanking and finance.


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No doubt can remain that a common currency for the European

Common Market will be the first step. With this accomplished and the drawingin of other European nations around the periphery they will have completedthe first phase of their plan. However, as the majority of the governmentscomprising the membership of the EEC are socialist and likely to remain so forthe foreseeable future, followers of Professor Hayek will be confronted with his

great fear of totalitarianism which he said comes from two great vestedinterests., "organised-capital" and "organised-labour" and that; "probably thegreatest menace of all is the fact that these two powerful groups point in thesame direction".

In the preface, Arthur Selsdon sums up the crucial flaw in Hayek'sargument for the denationalisation of money as the monetary reformer viewsit when he says "In effect, Professor Hayek is arguing that money is nodifferent from other commodities and that it would be better supplied bycompetition between private issuers than by a monopoly (of) government".

It is, indeed, incredible that such a proposition can be put forward inany seriousness. One can only conclude that to hold such a belief all contact

with reality has been blinded by the illusion that bank created credit-money iswealth itself.Adam Smith in his The Wealth of Nations laid the foundations of his thesis inthese words,"The annual labour of every nation is the fund which originally supplies it withall the necessaries and conveniences of life which it annually consumes, and

which consists always either in the produce of labour, or in what is purchasedfrom other nations. Labour was the first price, the original purchase money

that was paid for all things. It was not by gold or by silver but by labour, thatall the wealth of the world was originally purchased; and its value, to those

who possess it, and who want to exchange it for some new production isprecisely equal to the quantity of labour which it can enable them to purchaseor command."Therefore, in the following 'history of the main cause of inflation andunemployment' under the title The Other Road To Serfdom, the realisticapproach to monetary reform is that presented by David Ricardo when heconcluded:-

"There is no point more important in issuing paper money than to be fullyimpressed with the effects which follow from the principle of limitation ofquantity"

"After the establishment of banks, the state has not the sole power of coiningor issuing money...the banks would (and now do) have an equal power ofadding to the whole quantity in circulation"

"The advantage would always be in favour of the issuers of paper; and as therepresents the people, the people would have saved the tax if they, and not the

bank, had issued this million...Experience, however, shows neither a state or abank ever had the unrestricted power of issuing paper money without abusing(this) power"

"In a free country, with an enlightened legislature, the power of issuing paper


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money, under requisite checks of convertibility at will of the holder, might besafely lodged in the hands of commissioners appointed for that specialpurpose, and they might be totally independent of the control of ministers"

"After a well regulated paper money is established, these can neither beincreased or diminished by the operation of banking"

Furthermore, in spite of the Institute of Economic Affairs thirty-sevenyears in existence and its formidable panel of professors of economics, worlddebt, inflation, and unemployment is as great a threat to the stability of worldtrade as it has ever been. In fact., it would be fair to say that the whole ofeconomic thought is in complete disarray simply, as always, because theyinsist in averting their eyes from the fundamental flaw in all their economicthinking: the flow of unregulated bank credit which constantly destabilizeseconomic equilibrium.

As we have seen above Professor Hayek in 1975 was arguing the casefor the denationalization of money,- as can be seen from No.18 Votes and

Proceedings: governing the Select Committee's on Nationalised Industries in1974. This situation already existed in the United Kingdom. Specificallyexcluded from the scrutiny of any Select Committee set up to examine theallegedly nationalised Bank of England are the following.(1). activities in the formulation and execution of monetary and financialpolicy, including responsibilities for the management of gilt-edged, money andforeign exchange markets;(2).activities, as agents of the Treasury, in managing the ExchangeEqualisation Account and administering Exchange Control; or

(3).activities as a banker to other banks and private customers.(For more information see Appendices)

Back to ContentsACKNOWLEDGEMENTS & GRATEFUL THANKS

To Mrs. Jean Kennedy, Permissions editor for Messrs. Macmillan,

Administration Ltd., for reading Chapter 10 - The Betrayal of Keynes from theoriginal manuscript of The Other Road To Serfdom. And for the permission toquote from John Maynard Keynes book - The General Theory of Employment,

Interest and Money.To Professor Milton Friedman (Hoover Institute, Stamford University,California, U.S.A) who read part of the original draft manuscript of The OtherRoad To Serfdom; 'Monetarism': Why it is not enough, and his comments.To Professor I.F.Pearce of the University of Southampton for reading Chapter12, 'Lets get back to Proper Money' and his comments.To Professor (Lord) Robert Skidelsky for reading Chapter 10 of The OtherRoad To Serfdom; The Betrayal of Keynes and his valued comments.To Professor Tim Congdon for his permission to send to the then editor of theThe Times (Charles Douglas Home) a copy of a letter dated 4/6/1984 which Ihad written to him regarding one of a series of articles he had contributed to
http://uk.f253.mail.yahoo.com/ym/Compose?DMid=4318_140279934_50050_469_544_0_5471_-1_0&YY=20615&y5beta=yes&y5beta=yes&inc=25%E2%88%A8der=down&sort=date&pos=0&view=&head=&box=Draft#Contentshttp://uk.f253.mail.yahoo.com/ym/Compose?DMid=4318_140279934_50050_469_544_0_5471_-1_0&YY=20615&y5beta=yes&y5beta=yes&inc=25%E2%88%A8der=down&sort=date&pos=0&view=&head=&box=Draft#Contents


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The Times during that same yearTo Mr.L.Trimby for his proposal for the Redemption of Rother DistrictCouncil's Public Works Loans Board debt which I adapted to meetCheltenham's Public Works Loans Board debts and for his reading of it andcomments.

To the Borough of Cheltenham's Treasurer, Mr. K.A.C. Nutland, IPFA forfigures and details necessary to compile the proposal for the Redemption ofCheltenham's Public Works Loans Board debt. his reading of the proposal andhis comments.(see Appendices).To Sir Charles Irving, MP. for Cheltenham to whom the proposed RedemptionScheme and his presentation of it to the Secretary of State for theEnvironment. Also, for his generous and valued help over the years insupplying statistics, Parliamentary Reports, etc., on monetary and relatedmatters.

To the Economic Secretary to the Treasury to whom I sought advice in 1987 asto the interpretation of the figures for the National Debt for the year 1985-86.This was supplied and signed Simon Briscoe.To the British Library Productions for supplying a photocopy of DavidRicardo's pamphlet - A Plan for the Establishment of a National Bank.Published in 1824 by John Murray, London. And permission by the BritishLibrary to reproduce it in this publication.To Andrew Ellis who over the years listened patiently to my description of theresearch and development of my thesis 'A History of the Misuse of Money'. His

invaluable comments and advice on the interpretation of financial figures andstatistics and the practical assistance in photocopying of my typescripts andother help which has lead to its final completion.To Miss Nell Brooks my great appreciation for reading the typescripts of TheOther Road To Serfdom and for the correction of punctuation and spellingerrors for which I am most grateful. To the "Daily Telegraph Letters" dated 29/8/1973 and 8/9/1973. To "The Times Letters" dated 20/8/1968 and 30/8/1968

To David M Pidcock who after his conversion to Islam in 1975 sought the way

by which Islam's second sacred commandment; the forbidding of taking orgiving interest on loans could be implemented. On reading the proposed forthe Redemption of Cheltenham's Public Works Loan Board debt and followingnumerous discussions with the author, he was convinced that only through thereform of the Monetary system could this commandment be achieved. And forhis help in preparing this work for publication. Together with KennethPalmerton, Taher Gozal, Idris Rahman, Akhtar Khan and many others whoprefer to remain anonymous.

A LAYMAN'S GUIDE TO THE MAIN CAUSEOF UNEMPLOYMENT AND INFLATION


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The following simple explanation shows quite clearly that until the issue of thenation's credit-money is the sole prerogative of the state there can be no way

by which price stability can be achieved. Without price stability near-fullemployment and the avoidance of inflation can never be realised. Alleconomists agree that the currency to maintain its true functions must fulfilthe following conditions.

I. That money acts as a medium of exchange.

2. That it is a measure of value.3. And a store of value.These three vital functions can never be realised until all money is spent intoexistence as in the case with the legal tender issue (notes and coins by theBank of England free of interest) by a State bank free of interest payments andnot lent into existence by the private banking system burdened with interest.

Whatever the magnitude used in our example whether millions or billions the

result will be the same and show the same basic factors that regulate thenation's economy as would a 1,000 GNP ( the gross national production ofindustry and services). Therefore, if the GNP is a 1,000 and the NationalIncome (wages, incomes, profits and rents) must also be a 1,000. If thedesire to save for various reasons amount to 10% per cent then it must followthat 10% per.cent of the GNP must remain unsold. This 10% per.cent savingsis considered to be investment and it is at this point we can see that there is afundamental contradiction. The GNP of a 1,000 less 10% per.cent savingsmust mean that a 100 of the GNP remains unconsumed and if unconsumedmust lead to unemployment as industry cuts production accordingly to 90per.cent of its capacity. If, however, this 10 per.cent of unsold production is

then exported the standard of living of the people who produced it will bereduced by 10% per.cent if it is not replaced by an appropriate return flow ofimported wealth.

With the discovery of steam power and the development of the of the railwaynetwork over Britain, by the mid 19th century she had become the workshop ofthe world. However, sadly, for the masses that toiled to create this enormousoutput of real-wealth, they were not to benefit. At about the same time as thegreat industrial revolution took place the private bankers aided and abetted bytheir protector the Bank of England laid the foundations of that which was to

become an on-going disaster for the nation; the National Debt.

This terrible financial instrument has held the nation to ransom of perpetualinterest payments for the past two-hundred years. Thus if the power of theprivate banking system to create credit-money had been ended in 1945, whenthe Bank of England was nominally nationalised, by 1989 it has beenestimated that the nation could have been saved from taxation to pay theinterest charges of some 125,000,000,000 (125,billion) if a State bank hadissued all forms of money including private, bank-created, credit-money whichnow represents 90% per-cent of the nations money-supply.

These massive payments to service the National Debt are known as transferpayments. In other words money is transferred from one section of the publicto another. It is, therefore, assumed that the nation is none the worse off. It isof course true that a proportion of the income from the interest received isspent into circulation thus contributing to the consumption of the GNP, but


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the fact remains that a large proportion of these payments are reinvested infurther securities in this country and abroad thus withdrawing nationalincome which further reduces the money available for the consumption of theGNP. Nothing less than a disastrous inflation under present monetarythinking can end the plight of the nation in debt to private bankers. The greattragedy for the people was the discovery by powerful merchant bankers;members of the Court of the Bank of England, of the advantage to themselves

of exporting vast quantities of real-wealth on credit. Therefore by the I880'sthe City of London had piled-up huge loans overseas, billions of which werenever repaid. It was this exporting on credit which denied the wealthproducing, labouring class, any real improvement in their lot; regrettably thisterrible travesty of economic thinking continues to this day.

We see therefore that the GNP of 1,000 can only be consumed if the totalnational income is expended on its total production otherwise unemploymentis inevitable. Likewise by borrowing a 100 to consume the unsold 10% per-cent of the GNP prices would again rise and we would be in an inflationaryposition. In the same way if goods are purchased on credit and there has been

no increase in the GNP prices will increase. If however the borrowed money isspent on imports there will be appreciable increase in inflation, but we wouldfind ourselves with a balance of payments deficit, i.e., in debt to othercountries.To assume, therefore, that 10 per.cent of unconsumed GNP is savings and thatthese savings are investments makes nonsense of hopes of ever achievingnear-full employment. It is these savings that have made further investmentunprofitable and until consumption equals production the GNP will decrease.Therefore, not until a State bank issues all money free of interest can industryand commerce finance their activities from their own profits thus releasing

them from the burden of interest charge payments on production resultingfrom private, bank-created, credit-loans.

As a State bank would now be issuing all the nations money free of interestpayments the government could borrow from the State bank to finance alladditional national expenditure instead of as at present selling securities to thepublic which becomes the National Debt. We see, therefore, that the people

would then be free from the taxation needed to pay the interest on theNational Debt when a State bank spends all new money into existence treefrom interest payments. The people released from the burden of interestpayments on private bank loans and taxation to service the National Debt

would now have the additional spending power to consume more of the unsoldGNP which is the main cause of inflation and unemployment. Taxation is aform of forced savings, but in this case these savings are used by the state topay the salaries of the armed forces, civil service, education, hospitals, etc.,administered by government and watched over by Parliament. Therefore,these forced savings are spent in the consumption of part of the GNP.

We now come to the crucial point and as we have seen the governmentstaxation spent into circulation contributes to the consumption of the GNP.However, payments of interest charges by the state, local government,industry and the people, in the main, does not find it spent on goods andservices thus increasing the problem of the under consumption of the GNP.Even worse the interest payments are re-lent therefore taking more money outof circulation thus increasing the interest paid on the borrowed money thusincreasing the proportion of the GNP remaining unsold. And as the unsold


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proportion of the GNP increases so must unemployment.

As these immense sums of reinvested interest payments continued to increaseall over the world, it was inevitable that pressure would be brought to bear ongovernments to lift their controls on the investment of money overseas and bythe end of 1970's this was to happen. Britain abolished her ExchangeEqualisation Account in I970 and immediately billions of pounds started to

flow out of the country and has continued to do so ever since. An estimatedfigure of 100,000,000,000 (100,billion) by now has been invested abroad.

Add to this other capital flows to those of other nations that have alsoabolished control of the movements of capital there can be no wonder as to

why the world's currencies are in a constant state of dangerous instability. it isnot surprising therefore to read that foreign dealing on the world's stockmarkets of financial assets overwhelm the exchange transactions of Goods andservices, i.e., exports and imports.

It is estimated that nearly $100,000,000, 000,000 ($100 trillion dollars)flows through the worlds foreign exchanges every year and that only

$5,000,000,000,000 ($5 trillion dollars) is needed to finance the world'strade. In other words $95 trillion dollars are constantly seeking a profit on(Hot) money dealings instead of a profit on trade. Thus money has become acommodity traded for profit instead of means of exchange, therefore,destroying the three conditions that all economists agree are vital if money isto maintain its stability The foregoing proposals for the alleviation of thenation and nations from this constant struggle to solve the massive problem ofunemployment and inflation are based upon the conclusion of David Ricardoin his book - The Principles of Political Economy and Taxation -"The advantage would always be in favour of the issuers of paper; and as the

state represents the people, the people would have saved the tax if they, andnot the bank, issued the money"John Maynard Keynes in his book - The General Theory of Employment,Interest and Money - concluded that "a somewhat comprehensive socialisationof investment will prove the only means of securing an approximation to fullemployment" which in essence means a State Bank as Ricardo visualised. Itshould be obvious to anyone who thinks seriously as to why the worldeconomies are in a constant state of disarray that excess of money must playthe all-important part, therefore, if the Common Market countries succeed insetting up a European Central Bank there can be no hope whatsoever of

sovereign states exercising any remaining control over their economies.Surely this amounts to a centralized bureaucracy from which the EasternEuropean states and the old USSR are trying to escape.

A European Central Bank would entail the complete control of the EC'smonetary policies, conduct foreign exchange operations, to hold and managethe the official reserves, to operate payments systems and participate informing and execution of policies for the stability of the financial system, andmuch, much more. National governments must inform Eurofed (EuropeanCentral Bank) of all international agreements proposed in the banking orinternational field. Eurofed will control relations with banks and financialinstitutions in Third World countries. It will acquire and sell spot and forwardall types of foreign exchange assets and gold. Eurofed would take over allassets of each country and its gold reserves. All this will be conducted by acouncil and executive board comprising of members of the board of governors


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of national banks. This complete control of all Europe's monetary activitiesmeans that "Its proceedings will be in secret" and "completely independent ofthe 12 community governments and any other body." If this total subjection ofEurope's monetary system to the bankers is accepted we will have changed a'socialist serfdom' (CAP and all its ramifications) for that of a 'bankersserfdom'.

It should not have escaped our attention that the Delors Committeewas composed largely of bankers and that Government borrowings in memberstates would be capped at 3% of G.D.P.(Gross Domestic Product). The PublicSector Borrowing Requirement (PSBR) for the United Kingdom for the years1993-94 was forecast by H.M. Treasury in November 1992 to be44,000,000,000, (44,billion) which represents 7% of G.D.P. Which, underthe Maastricht formula, will mean further cuts in spending of around25,000,000,000, (25,billion) per year on top of the unnecessary andexpensive spending cuts we are already making, and which the country can notafford, bringing more of the same, in order to impose and maintain theartificial scarcity of capital and push us into one of our periodic and ever

deepening recessions.

It is certainly not beyond the wit of man to devise an economic system fromwhich the damaging, inhuman features of the present one are absent -contrary to everything we have been told, workable alternatives do exist. Forit cannot be right to go on the way we are, destroying wealth, people, property,goods and ameliorating services - social or otherwise, in the insane quest forzero-inflation. The operation may succeed, but the historical evidence proves,that the patient always dies. There can be no legitimate justification forrestricting the circulation from an infinite supply of a substance such asmoney; unless, of course, you have an interest in obtaining something for

nothing.

Money, which is, in the main, comprised of recycled metal, rags, double entryrecords, or represented in the from of a truly inexhaustible and cheap supplyof electromagnetic keystrokes on a computer screen, comes into existence attiny cost to those who have the power to create it. But what they have managedto convince the world of, is that the whole purpose of existence is to servethem and their interests. Money, which, as a medium of exchange is as vital toour existence as oxygen, no longer serves this essential service, it was designedto perform. The once useful servant, has now become a cruel and fearfulmaster.

The achievement of zero inflation is impossible under the present monetarysystem, based as it is, on interest, and compound interest. Therefore, anyattempt by any government to do so, is surely, executive insanity andineptitude raised to its highest possible power. If, as they say in the City ofLondon, that time is money. Why is it that debt is not allowed to decay at asimilar rate?It is, as if, the whole purpose of life, from the cradle to the grave, was designedto serve the interests of banking, to reverence and maintain the power andposition of fractional, of fictional reserve bankers, as gods to be served and

worshipped. Or that the whole purpose of a journey was that of obtaining aticket regardless of the purpose of making the trip. But Hayek, as with mostDiplomats, Ambassadors and marketing men tells us to go to hell in such a

way that we are looking forward to arriving at our destination - but in his case


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we are creating and paying in perpetuity for a serfdom of our own making.

'CAPITALISM'

Before we embark on our journey through this 'history of the maincause of inflation and unemployment' let us construct a simple model of

'capitalism' and see if we can find why it has produced the constant upheavalsin world trade as the result of indebtedness. At its most simple level we findthat a man by his own efforts produces articles of real wealth, for example,pieces of furniture or he grows vegetables. He has saved sufficient money with

which he has purchased the necessary tools for the production of this wealth.These tools are his working capital. From the sales of his goods he covers hisoverheads, i.e., rent, rates, raw materials, transport, tax, etc., and from theprofits on the sales of his production draws an income to meet his livingexpenses, and for the continuing success of his business, sets aside aproportion of his profits to plough back into the business which is crucial forits further development. We shall see why this is so important later on.

The business prospers and he now engages workmen and further expansiontakes place. He then, perhaps, forms a limited company and finds no difficultyin attracting private investment. Here we have reached a decisive point in thedevelopment of 'capitalism' as this new investment represents the savings ofthe investors, who, through their investment, hope to share in the prosperityof the company. In other words the money the new company has attracted isfree of interest charges. Therefore, whatever the business and however small,through to firms on the scale of ICI, if its finances are managed in this manner

we have 'true-capitalism'. This simple model illustrates quite clearly that if thisstate of affairs prevailed the sum total of the nation's yearly production of real-

wealth, i.e., the Gross National Product, would flow into the economy free ofinterest charges. Therefore, the marginal efficiency of physical capital, i.e.,plant and machinery, etc., would be safeguarded as it would not have had tocompete for funds from the 'money-capitalist' with the result interest rates

would fall to a very low level.

We now come to the second stage in the development of 'capitalism'. In themid-I7th.century with the discovery by goldsmiths that merchants who lefttheir gold and valuables in their strongrooms were using the receipts for theirdeposits to pay their debts was in essence, the simple forerunner of the chequesystem, or if the depositor wanted to settle a debt of much smaller proportions

than his deposit the banker would pay the bearer, i.e., the possessor of thedraft issued by the depositor for the stated sum with a promissory note to the

value directed. Thus the birth of the banknote which quickly became to beregarded as money. The banker soon discovered that these banknotes werehanded around in settlement of debts and that only a fraction were returned tohim for 'cash', i.e., currency of the realm which is issued by the State free ofinterest charges. It is this legal tender money - 'cash', when deposited with the

banker which enables him to make loans to the ratio of up to ten times to the'cash' in his tills which means that every loan becomes a deposit.

With this power to create money it is obvious that this form of 'capitalism' isan entirely different animal to the one we found in the first stage. We see,therefore, that with this power in the hands of the private banker thetemptation to create new loans is inevitable because it is the interest on theloans which represents the profit.


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At this point we now get a clear view of what this power of the banking systemmeans. In our first stage of the development of 'capitalism' we found that firms

who used their investors savings and the profit set aside for further capitalequipment development were free of interest charges on borrowed bankmoney. However, often reasons arise for the need of further capital to see afirm especially developing firms, through a cycle of production such as farming

with a yearly cycle of growth to harvest, or long-term planning of several years

in building a factory and the installation of plant and machinery before beingable to market its new product.

If, therefore, a loan from a bank is used instead of raising new capital we nowsee that the first charge on the profits of the business is the payment of theinterest charges on the banks loan. As we have already seen the irony of thisnew situation for the previously debt free company is that the bank has createda credit based upon the 'cash' deposited with the bank, by the same borrower,as the result of its paying in cash and cheques and paying out cash andcheques through the bank in the course of its years trading. Cheques beingmerely a convenient way of transferring cash to settle debts means

[theoretically] that there is always billions of 'cash' in the banks tills to supportloans or overdrafts.To emphasise once again the banks use the nation's interest free legal tendermoney to support their loans of money created as bank credit money on whichthey then charge interest . And so, for year after year many businesses areforced to re-negotiate their loan or overdraft, thereby, remaining tied to theuncertainties of erratic bank rates and when faced with interest charges of

between 16%pc to 20pc as in 1989 and during the previous deflation of theearly 1980's, is it any wonder that thousands are thrown into bankruptcy? The

value of this huge mass of fictitious bank created money in existence is

virtually safeguarded by a nations central bank; for Britain the Bank ofEngland, who in the final resort represent the total wealth of the nation via theTreasury from the government.

We can now see that the source of power that lies in the hands of the 'money-capitalist' flows, in the main, from the bankers privileged position to createmoney, and where the conflict of interest arises. Because, the money-capitalist's concern is to lend at the point of highest interest and the producer-capitalists concern is that the interest rate on borrowed money should be at aconsistently low level to ensure that the marginal efficiency of his physicalcapital is safeguarded. Thus the constant conflict between 'true-capitalism' i.e.,

producer-capitalism and 'imposter-capitalism' i.e., money or rentier-capitalism.The writer has gathered together wide-ranging evidence in the following'history' which he hopes will convince the reader that not until the total issueof the nation's money-supply is in the hands of the state will the totalcommunity receive its fair share of the real-wealth produced by true-capitalism. It is the struggle to achieve a fairer share of the real wealthproduced that brought about the questioning of the economic system by earlythinkers whom we identify as socialists and culminated in the writings of KarlMarx.The situation that arose as the result of the development of stage two of'capitalism' as described above, was solely that of the activities of private

bankers within the nation and up to recent times the central banks had a


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reasonably firm hand on their activities. However, in spite of this the bankerslending excesses precipitated crises of varying severity every ten or so years.

With the introduction into the world economy of two immense monetaryinstruments, the Eurodollar and the Petrodollar during the past twenty five

years there came into existence, as I describe it, 'the bankers dream-moneycome true' which enabled them for the first time to create loans based uponthese deposits of Euro and Petrodollars internationally in the same way as the

banker does on the peoples 'cash' nationally. It is this international moneywhich recognizes no frontiers, and over which the central bankers have little orno control. With the result that the world's developed and developingcountries alike, are enmeshed in an indebtedness on such an immense scalethat, sooner or later the interest payments will prove to be a burden of suchproportions that defaults will lead to loss of confidence in the monetary system

which could lead to its collapse. This is why the Marxist-Socialist is convincedthat it is necessary to keep up the pressure on the so-called 'capitalist' system.Events world-wide and the politically inspired coal strike of I985 like theimpending one in Britain in 1993, were precipitated by a completelyunnecessary pit closure programme and are, understandable examples of this

deeply held belief.It is, therefore, why this book sets out to prove, that Professor Hayek's 'RoadTo Serfdom' has a confluent carriageway, which, having first led to the Gulagsof socialism is fast becoming, as the carriageways merge - The OtherRoad toSerfdom.

Arthur SwanCheltenham1993.

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the other road to serfdom

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