The Gould Standard

Bryan Gould is a former UK MP and more recently Vice-Chancellor of Waikato University. He is leading the team reviewing the 2014 election for the NZ Labour Party.

Bryan has recently published a series of nine articles outlining his proposals for the UK economy for an incoming Labour government after the election. I have summarised the articles here.

Bryan and his colleague, George Tait Edwards, have been looking at recent research into monetary and financial systems. They have found two important facts.

1. 97% of the money in circulation has been created by the banks, mainly to lend.

2. The Japanese economic recovery after World War II was fuelled by loans made to productive industries, on lower interest rates and longer terms than is common in the West.

They propose three areas of immediate interest for a new government:

1. Benefits should be raised immediately to pre-austerity levels, both to help the worst-off and to stimulate economic activity.

2. The minimum wage should be raised to $16 an hour, and wage rises pegged in future, to regular cost-of- living increases, plus an annual lump sum payment equivalent to productivity improvement + 2%.

3. But most of their concern is with the money supply and the way credit creation is entirely in the hands of the large banks. They argue for government to take back control of the monetary system, restructure the banks, and prevent repetition of recent disasters.

They list five purposes for the creation of credit: speculation eg on the property market (and so housing bubbles), stimulating the economy in recession, stabilising the banking system (eg bailouts), major government projects (eg war), and investment in productive industries.

So they want to reform the banks into four sectors, more or less watertight:

1.  Retail banks, regional with lots of local branches, closely in touch with local business and communities, to provide normal everyday services and loans for small and medium enterprises, as has been the norm in East Asian growth economies for decades, and as works well in Germany. These would be government guaranteed.

2. Developement banks, covering larger regions, providing loans to productive industries, both existing and start-ups, and to their essential service industries. Also government guaranteed.

3. Small, local mortgage and loan banks for households and individuals, government-guaranteed again.

4. Merchant banks, not guaranteed, to gamble on exchange rates etc, entirely at investors' risk, except for mandatory reserve.

 

How much of this do you think applies to New Zealand?