Scroogenomics exposed but what is at the centre of banking?

John Kay in the Financial Times 28 Dec 2009 LINK reviews the new book Scroogenomics by Prof Joel Waldfogel, which is an economist’s view on Christmas gifts and how in economic terms they create a drag on the economy because of the waste involved between the cost to the buyer and the (often lower) value to the recipient. Kay uses such words as ‘teasing, barking mad..just kidding.. ludicrous extremes’. He ends by noting that the effect of such theses as Waldfogel’s are corrosive and do economists no favours with the general public, firstly about the joys of Christmas and secondly about why they are bad about explaining financial crises.

John Kay earlier wrote very clearly and helpfully for the ordinary reader about a basic fact of economics, in the FT on 10 November 2009 LINK:

You can become wealthy by creating wealth or by appropriating wealth created by other people. When the appropriation of the wealth of others is illegal it is called theft or fraud. When it is legal, economists call it rent-seeking.

Herein lies the thesis on which the book The Free Lunch – Fairness with Freedom is based: That wealth created by others should not be appropriated by the few, as now, but be shared for the benefit of all. (e.g. credit, land values, et al). In response to John Kay’s article, I wrote a letter to the FT which was not published, so here it is:

‘ Dear Sir

In John Kay’s book The British Tax System written with the current Bank of England Governor Mervyn King in 1990, he says that there are strong arguments for taxing economic rents which ‘arise from the existence of scarce factors’ (p179). In his article ‘Powerful interests are trying to control the market’, November 10, he skates over the scarce factor of credit which is the raison d’être of all banking and not only investment banking that he picks on. Since credit is always in demand it is thus a classic monopoly target for control by rent-seekers.

However the credit that banks are able to create from their state protected monopoly, derives in essence only from our law-abiding, settled community and the profit arising as they manage its distribution, represents an unfair appropriation of our common wealth. US presidents Thomas Jefferson and Abraham Lincoln advocated that the power to issue money should be taken from the banks and restored to the people. Is not this the logical conclusion Professor Kay is working towards?

Yours sincerely   

Charles Bazlinton ’

Clearly John Kay has humanity enough to expose the inadequate core of Scroogenomics, but will he expose the inadequate philosophical base of modern banking? As Prof. Richard Werner says in New Paradigm in Macroeconomics (p.170) about the goldsmiths who became the first modern bankers:

‘Analysing the implications of the loaning of gold that had been entrusted to goldsmiths for safekeeping …From a legal perspective, the goldsmiths committed fraud.’