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The ancient equivalent of austerity was the ruler taxing and putting gold away in vaults, sometimes for millennia. By taking it out of circulation, currency availability was reduced and except when there was inflation the likely result was a reduction in economic activity.
Reviewed by ANDRE BEAUMONT
Both those who advocate returned austerity or more taxation are wrong.
Carefully handled, the Covid-19 emergency will prove both wrong.
Theirs is a very 18th century attitude where the economy, if it could be conceived as such then, was viewed as a zero sum game - nations only became richer by conquest.
In reality war impoverished nations, taken together.
The industrial revolution proved the warriors wrong.
There have been many societies in history where there has been no taxation.
All that was needed was a means of exchange providing a continuous flow of new liquidity and the mining of metals did that. Metals went out of circulation as they were used so the continuous flow was particularly necessary.
The danger was inflation as the conquest of central and south America proved by oversupplying Spain with gold but that is controllable and less of an evil then than taxation that added to the power of those that should not have had it or had too much of it.
In practice, balancing budgets is rarely necessary. The aspiration to do so is of more use as a temporary tool to quell inflation (and reassure markets, which we are coming to) than the righting of any perceived injustice or ill. Unexpected large budget deficits caused by necessity are best treated as accounting entries for a few years, for example by issuing 50-year bonds with twice the usual rate of return.* Pension funds are dying for this type of security. Balanced budgets mean that they have to turn to alternatives like bonds issued by the oil industry.
Many identify the correct injustices but then their solutions are dreadful like the 18th century warriors.
Then there are the unintended consequences. Like a Tea Party or two to upset the idea of all taxation as necessary. Mind you taxation as tariffs, as was prevalent then, is a lesser evil than taxation by income tax. All taxation of individuals, rather than higher up the chain where the wealth is produced, is more evil. Let us set aside this particular philosophy, though. Its time will come. What is needed now is an upsetting of traditional economics; it really is in a mess.
Bitcoin is the modern equivalent of a mined currency out of the control of the authorities and of any like King Herod who believe in taxation and their own unimpeachable virtue relative to others.
It is seriously ethically flawed, though. It is a currency used for some of the most unscrupulous transactions and its creation uses way too much electricity.
The idea, though, is useful.
A currency does not need to be backed to its full value, just backed by something real. Bitcoin is not backed by something real other than its creation uses a lot of electricity.
At the time of a crisis it is best to hold off making Tea Party grade suggestions .... but afterwards?
At the time of the worst of the Greek economic crisis there was a clear shortage of liquidity and of monetary creation and, incidentally, a failure of the taxation system.
If, say, the city of Athens had issued a cryptocurrency based on future parking revenues from 10 years onwards it would undoubtedly have circulated digitally as an alternative currency to the euro. The market would have found a value - who knows what parking revenues might be massaged into being ten years hence and the issuance could have continued like bitcoin. Because it is there bitcoin is used.
Just before the 2015 election an eminent person was setting out how little scope David Cameron would have to renegotiate Britain's membership of the EU and therefore he should do as he laid out which followed eminently conventional British foreign policy lines. I could not help perking up and saying that I might agree with the logic but that he should do nothing of the kind. He should say nothing much in the election, see how the Greeks played it and then play it by ear.
The Greeks played it not so well but I would have undoubtedly suggested that Europe become a two currency zone, with an offer that the Greeks, Italians, Spanish and Portuguese could join a sterling area and those who wanted a balanced budget could stay in the euro, just before starting negotiations. Then play it by ear.
Of course, no one was going to hand London control of monetary policy of a third of Europe any more than our central bank would have wanted to take on problems that historically have nothing to do with it but one solution fits all is as challenging.
A cryptocurrency does not reassure markets; that is the nub of it.
Some degree of independent - in other words, pluralistic - policy can.
* In March 2021 Greece sold its first 30-year bond since 2008, realistically a better maturity than 50 years, at a yield of nearly 2% - and doubtless with a white rose thrown in .