End of 3rd Age of Socialist Monetary Experimentation

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The great change was upon them in an instant, and though nobody could really foresee what was to come everyone expected that it would. Perhaps the greatest single political shock of the 20th century, an age with far too many to begin with, was Winston Churchill's defeat in July 1945. It wasn't strictly his loss, of course, as the Conservative Party was trounced in a manner never seen and still yet to be duplicated. While the numbers themselves were staggering, it was the timing that is of greatest and lasting significance.

V-E day was May 8, 1945, a singularly unifying event where Churchill was celebrated as a national hero, a uniting political presence whose genius and acumen kept the British in the fight and on the road to ultimate victory where perhaps no other Briton before or since may have fared half as well. Less than two months later, the opposing Labour Party took 393 seats in Parliament for a gain of 239; the surge in total votes of nearly 12% came at the direct expense of the Conservatives who certainly still saw Churchill as the Great Man.

As Churchill himself described it,

On the night of 10 May 1940, at the outset of the mighty Battle of Britain, I acquired the chief power in the State, which henceforth I wielded in ever-growing measure for five years and three months of world war, at the end of which time, all our enemies having surrendered unconditionally or being about to do so, I was immediately dismissed by the British electorate from all further conduct in their affairs.

The reason for this national change of heart wasn't all that complicated, as though the Brits saw Churchill as the man to win the war he wasn't understood as the leader for the peace. Right to the end, he remained defensive (in the national sense), particularly about the Soviet Union, and dour. The British were tired of war, a second time, and had themselves the sturdy task of actually rebuilding a great deal of their island.

Labour's leader, Clement Attlee, a man who Churchill once said was a modest man with much to be modest about, had thoroughly won the electorate on a single, unifying purpose. Up until the latter war years, Britain had maintained itself a steadily conservative state in most political senses; resisting the left turns that took hold in almost every other nation, including FDR's United States. The much derided, with good reason, Neville Chamberlain, whom Churchill succeeded, was also a Conservative, as was Baldwin before him.

The Labour Party of 1945 wasn't just different, it was radically so and thus appealing in ways that are only comprehensible to those living through great tragedy. In its 1945 manifesto for that general election, titled Let Us Face The Future, it declared, "The Labor Party is a Socialist Party, and proud of it." The general premise was full-blown socialism in the Western sense of nationalization of industry, health and the ever-present promise of "full employment." Just two and half years prior to the election, Sir William Beveridge both delivered to Parliament and published openly his Social Insurance and Allied Services; a personal manifesto that became the bedrock of Britain's own left turn both politically and in popular opinion. It was, without doubt, the foundation for Churchill's electoral undoing.

Beveridge was perfectly clear as to his intent, calling for the "Abolition of want" and justifying the goals if not the means. This did not suggest he knew how to clear space for his tasks, just the opposite as he wrote in his report (which is still known as just the Beveridge Report):

"Now, when the war is abolishing landmarks of every kind, is the opportunity for using experience in a clear field. A revolutionary moment in the world's history is a time for revolutions, not for patching."

In the election of 1945, the British signed on for radical alterations in their lives and their economy; nationalizing industries and rail, creating the National Health Services and promising a labor-centric near-utopia. They had won the war and felt they deserved it, but as with most things of this type they had little idea about how to actually get it.

While Beveridge was clearly one of the primary figures of this historic demarcation, the other was undoubtedly Keynes. In the 1940's if you went about suggesting full employment as a realistic goal, John Maynard Keynes had described the way in which to get there (theoretically). His General Theory and other works more than hinted at government spending as far more than ballast for capitalism's inherent instability, all the ideas for a nationalized economic approach were there. The government needed only to refocus its spending endeavors into more "investments" where job growth might be maximized; switching from money payments on housing to money investments on building housing, for example.

While theoretical questions still abounded, most prominently how could government actually define the most efficient path toward labor utilization, the new Labour government had more immediate and real problems - the UK was dead broke. By necessity, the Churchill government had to borrow, primarily from the US, for most war material and even the food with which the impoverished British could procure. Not only was the government's finances a total disaster, British consumers were too and so was the economic system of the pre-war arrangement (the British Empire).

In the Beveridge Report as it was intended, the Bank of England was to be nationalized alongside almost everything else. If true socialism were to be rooted then, at that moment, the socialists knew the importance of money in doing so. This was not just class hatred over "moneyed interests", simmering for as long as industrialized Britain, but rather recognizing the very real political limitations imposed by an actual government budget. The Attlee government was already at great fiscal imbalance, owed the American billions and the British tax-base devastated after war and privation extended for six years. The Bank of England was a tempting deus ex machina, as central banks always are.

The postwar world, however, imposed other restrictions upon the socialist claim to the Bank. Under the Bretton Woods arrangements, the pound was to be a co-reserve currency alongside the dollar. That forced a choice upon the new government in 1945, one that they could not possibly alter without universal and global monetary disruption - that the Bank would have to stay as a central bank, and the pound carrying on responsibly for its reserve role.

The Bank of England was never truly independent of the socialists, either, as the pound was often caught between those competing interests. That is why it turned out to be such a poor choice for a reserve vessel, undertaking several great crises which threatened the global monetary order in the 1950's and especially the 1960's (the 1967 crisis was perhaps the "last straw"for Bretton Woods). These pound crises were fiscal crises because the socialists never could actually figure out full employment and thus an efficient tax base; there sat the currency to "finance" the gaps, which threatened its "value."

The mistrust over monetary affairs was nothing new to socialism, having been present at the very birth of the movement. In the 1830's, Robert Owen, a Welsh "reformer", had tried repeatedly to convert currency to labor function. Time-based currency was an idea where you were "paid" in time for labor (notes actually denominated in hours), exchangeable for products "valued" under the same terms. The idea was simple, namely that all labor should be equal so that inequality of class would be abolished. Time currency, then, meant that there was no value to labor, only to goods, which presented inordinate problems in valuing goods as they were also intermediate to labor.

Owen, therefore, had very little luck in actually creating a workable system outside of that theory. He had close experience with a similar system, though wholly opposite his egalitarian intentions, in the "truck system" of early 19th century Britain. Owen was a part-owner of a mill and it was typical practice to pay mill workers in tokens (either in part or even in full) that were only exchangeable at the mill owner's "truck shop." Since the owner would often supply the worst kinds of inferior goods and charge the highest prices for them, Owen realized the relative exchange equation here was to devalue labor; he intended to accomplish the opposite thinking it would not only be more equitable to labor but far more efficient for everyone (instead of benefiting the mill owner almost exclusively, a far more fair labor "value" might benefit all of social society).

He tried building communities around this principal, first in 1825 in Scotland near Glasgow, and then New Harmony, Indiana. Neither lasted more than two years (sources differ on the dates of experimental extinguishment and to the extent in which they were disasters). Undeterred, Owen created, forced and lorded over institutions throughout the early 1830's; the Co-operative Congress for Labor; the National Equitable Labour Exchange (which was an attempt at an actual banking system predicated exclusively on time-currency); the Builder's Guild; the Guild of Builders; and the Grand National Consolidated Trades Union which was transformed after only 16 days, and massive departures, into the British and Foreign Consolidated Association of Industry, Humanity and Knowledge.

The failure of each and every endeavor of egalitarian struggle was both common and diverse. The conditions of the age were not quite suitable, or ever possible, for large-scale success. The common problem was Robert Owen himself, who was only interested, it seems, in what Robert Owen had to offer (the true egalitarian utility). As his son put it not long after the failure of New Harmony, the community was "a heterogeneous collection of radicals, enthusiastic devotees to principle, honest latitudinarians, and lazy theorists, with a sprinkling of unprincipled sharpers thrown in." Prefiguring the excuses still delivered in the wake of communism's similar ends in national "experiments" a century later, Owen never really felt he had failed it was that his theories were never really tried.

Those theories actually far survived any of Owen's attempts at actual reform, which also foreshadowed the socialism turn in economics divorced of science and observation in favor of pure theory above all else. Even Karl Marx was influenced in his central thesis on "surplus" value, which shared an intellectual baseline with time-currency principles. Marx was himself not so much an adherent to the idea of it in real banking reform along these lines, as the Ricardian soclialists of his day were, instead offering what actually stands as a devastating critique of the theory:

"The replacement of metal money (and of paper or fiat money denominated in metal money) by labour money denominated in labour time would therefore equate the real value (exchange value) of commodities with their nominal value, price, money value. Equation of real value and nominal value, of value and price. But such is by no means the case. The value of commodities as determined by labour time is only their average value...Market value equates itself with real value by means of its constant oscillations, never by means of an equation with real value as if the latter were a third party, but rather by means of constant non-equation of itself."

Marx even went on to compare this non-translatable self-condition to Hegel's constant "negation of the negation." The problem is and will always be "value", but not in an abstract manner which can be translated into some mathematical property to be employed or even exploited. Theorists, especially on the socialist side, decry and even hate that value plays a central part of the economic foundation in free markets and capitalism, having attempted its subjugation time after time.

This is why taxes and fiscal redistribution are so alluring as means to the goal of "equality." Arbitrary redistribution is, at its base, the subtraction of value as it is commonly understood in economic terms with a replacement in value as it was understood by Robert Owen and even Marx's idea of "surplus" labor and value. Making that theory plausible as an active and actual systemic basis in the real world has proved impossible, which is only met each time with more resolve rather than rethinking the theory. Marx found that entirely unworkable even on conjectural grounds, and thus headed off in the direction of a "necessary" global revolution to start from scratch - erase all value in the first place.

That, to me, stands as the chief division in the branches of economic socialism and communism - the socialists are still striving for some sort of redefinition of economic value without resorting to total upheaval and interruption, but sharing that common theme. That is why, of course, these important moments in history offer the ripest times for drastic changes, such as at the end of World War II. Not only would society be open for something different, even radically so, the basis and hurdles for implementation are significantly reduced in the chaotic and uncertain aftermaths of great events.

That was certainly true of World War I, too, in which all the same was applied if only to a lesser degree. Of all the empires that started that catastrophe, only that of King George V of Britain remained at its end. Monetarily speaking, the gold and hard money of the pre-war era did not long last past the first calls of general mobilization at the war's outset. Fiat currency was the operative means not just through the end of that war, but well into the 1920's and even into and past the Great Depression.

It was, then, the first general departure on defining monetary value. In many ways, the war did not start that transition but merely finalized it, as all over the world there were rough experiments with "modern" rules of "science" above the chaos of markets. The United States adopted the Federal Reserve in 1913, but owing as much to upheaval around and after the Panic of 1907 (and the rest of the Progressive Age). The UK itself had become an early experiment with nascent socialism, having adopted the People's Budget in 1909, whose early supporters included, prominently, none other than Winston Churchill.

That early bookend to Churchill's career, having started as a sort of socialist and at least a true sympathizer and then ending facing opposite its more radical adoption, more than suggests an entire age of monetary and economic transformation. The old Empires of the pre-modern era were gone not quite two decades into the 20th century, and with their ashes came the first real opportunity at cracking "value." The list of failures in that experimental period is far too long to expound on here, but chief among them were Weimar hyperinflation and a near-rerun in the franc just a few years later. Orthodox economics does not want to debate the 1920's, but the Great Depression was as much a case of redefining monetary value in the first fiat era as any other factor (call money, nascent swaps and pliable global reserves all make their first appearance in bulk and wholesale then).

The end of the Second World War thus provided a second attempt at the same economic transformation. Almost in Marxian terms, what was judged missing was not a better theory but rather a deeper and more determined commitment. The British, in particular, provided exactly that but it still failed - by the 1970's, the entire Beveridge foundation was being upended, leading up to Margaret Thatcher's victory and repudiation of the "Welfare State."

But it was actually that cutting edge seemingly away from socialism that seems to have provided an opening into a yet-another age of almost purely monetary socialism - the third. It's as if the utopian impulse realized the shortcomings of the 1945 attempt and reversed the order; the central bank would take over primary from the fiscal side. The work that took place in the 1960's especially is what, I think, clouds the issue here. Namely, Milton Friedman had overturned a great many of the prior assumptions about the leftish bend in monetary and economic theory surrounding the Great Depression (it was judged, contemporarily to be sure, as a failure of capitalism). By asserting a monetary cause, he seemingly rewound economic thought back in the direction of capitalism and free markets. However, what we have now, in the fifty years since, looks and functions less and less like capitalism; after all, Ben Bernanke himself described his job as picking losers so that we all can "win" (though haven't yet).

The rise of eurodollars in that decade was at first a practical matter of internal insufficiency as well as growing technological proficiency. In political terms, however, eurodollars provided another form of expressing "value", meaning yet another attempt at overriding it in the course of harnessing redistribution (of monetary means this time). While Friedman was supposedly moving economics back toward libertarian thinking distinct from socialism, this took place where Samuelson and Solow were pushing for and getting more economic management into the "Great Society" that was far, far more comfortable with Clement Attlee's worldview than William McKinley's commitment to gold. The work of Solow and Samuelson was to get the Fed to do what the Bank of England would not or could not; and it did, largely "underwriting" the prescriptions of the "exploitable" Phillips Curve and resulting in nothing less than the Great Inflation.

Each of these economic ages, experiments really, is marked by terrible transitions; the first from the ashes of World War I which led to the Great Depression and World War II; the second from that point until the Great Inflation. Each begins with huge promise and even the apparent delivery on those promises (in the US, for example, orthodox economics still, somehow, holds the 1920's as a golden age) before "value" comes back into the equation, imposes restrictions and limitations which ruin the fantasies.

In the case of the third transformation, the only real impediment left was the dollar which the eurodollar has disposed of quite comprehensively. And here, too, it all seemed to work so very well as the 1980's and 1990's are regarded as a second golden age - the Great "Moderation" as some still refer to it (though the number who do so and the frequency with which they do is much, much diminished now). The redefinition of the dollar into the "dollar" has run into the same limitations as the others, namely that serial asset bubbles are the monetary and financial constant which can only mean that value has not been transformed even where all currency and financial forms have been; monetary limitations still apply even if they cannot tangibly and readily be identified as they had been in the past.

That would tend to suggest that Marx was right in a limited interpretation, that strictly speaking value is not something that can be transcended by diktat or pure force of will. It is seemingly innate in human systems that are not totally dominated by what Neitsche sought out of his Master/Slave dynamic. It is almost Biblical in its constancy, that free people seek to preserve value as an almost Platonic ideal that cannot be cratered or alienated from our lives; it is inalienable.

The trajectory of economic history as I see it is one in which the means to separate value from our possession has only grown stronger and more fierce with every turn. I think it is a mistake of convention, especially after Friedman's very positive contributions, that economic thought and intentions have run more toward free markets and true capitalism. As I see it, the opposite has been the case; with each successive failure comes more and deeper commitment to override innate economic value in seeking out a perfect, utopian equality where value maybe even has no place or role. That is the trajectory of the dollar, which began these experimental ages as hard money, a true dollar as currency and convertibility; discarded from money in 1933 by "necessity"; and then again in 1971 by "necessity" into a form now that is totally unrecognizable (and not even a single, unified conception; the "dollar" takes on numerous dimensions that are not themselves even stable or static, and not even relative to the United States).

With each of these turns in attempting to define value, the role of government or its state agencies does not diminish. In fact, in 2015, the free markets are ruled by central banks in many important ways far exceeding that of Robert Owen's conceptions; the Federal Reserve may not be dealing time-currency but it and its global cousins are seeking out redistribution in the name of full employment as a matter of "fairness." The goal is never wrong to these people, which is the same aspect animating all these transitions in the same socialist direction - like Owen, "they" are always right to disastrous results in the end. There is no re-examination that maybe free economic affairs are totally and completely incompatible with the use of value as a tool of control, just open doors of not wasting crises with which to retry the same theories in greater and greater magnitudes and in new dimensions.

In other words, across now more than a century of monetary recalculations, the object remains the same - to become what Marx called that "third party", to be the wielder of a mathematical code that will break the conventions of the past and lead to a more or even most perfect economic existence. The problem, universally, is that value is not just some convention to be deciphered, it is essential and immutable. Monetarists have believed that money was that object, pliable and a perfect substitute across ages, but money is just the expression of a much deeper ethos, a physical stand-in for the dimension of value. Political socialism is to transform individuals into a cohesive singular entity; monetary socialism is to do the same, centered always on redefining value. We live today not with free market capitalism, or even a functioning eurodollar standard anymore, but what looks very much like the inevitable end of the third age of socialist monetary experimentation. Value, beaten, battered and bastardized, so far survives.


Jeffrey Snider is the Chief Investment Strategist of Alhambra Investment Partners, a registered investment advisor. 

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