BRITISH STRATEGIC REVIEW - MONETARISM AND THE REAL ECONOMY
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2022 Monetarism & The Real Economy
Release date: January, 2022.
![](bsr2022.png) This edition of the British Strategic Review traces the development of macroeconomic theory and practice between 1929 and today but with an emphasis on the decisions and outcomes affecting the British economy.
The evident divergence of macroeconomic policy from the constitutional needs of the majority of wage-earners intensified in the 1970s when Denis Healey opted to abandon Keynesianism for monetarism in 1975. The conditions of an unnecessary IMF loan in 1976 intensified these conditions even further. Being supportive of the ideological bent of the governments of Margaret Thatcher, monetarism was even further intensified leading to a steady erosion of British industry and manufacturing.
In 1973, the IMF under a management favouring the political objectives of the OPEC petroleum price hikes, combined with stringent international loan conditions, modeled on the loan to the UK in 1976, led to a prolongation of slumpflation by something like 20 years and a progressive decline in worldwide wage-earner real incomes.
A growing obsession of politically influential asset holders demanding increasing injections of money into the economy intensified in the 1980s with government policies that increased the financialization through regulatory relaxation and rising monetary injections into the economy. The growth in offshore investments following the failure of the Bretton Woods agreement and exit from the Gold Standard, over time, led to a hollowing out of British industry and manufacturing and an inability of the country to maintain a positive balance in payments in goods.
In Europe, the country to resist this type of policy-induced decadence was Germany where the political class has a better strategic grasp of the importance of national industry and manufacturing as the foundation of real economic growth. Until recently, Germany had a positive trade balance greater than that of China. In Q2 2021 the USA and the UK had trade balances of -$190 billion and -$12 billion respectively whereas Germany and China had trade balances of $87 billion and $55 billion, respectively. These very poor performances of the UK and USA are the result of seriously defective monetary policies which have never provided the types of incentive necessary to maintain their industry and manufacturing sectors. Germany succeeded in achieving this performance with higher average wage rates ($52,000 against UK's $42,000).
There are significant structural issues in the UK which go beyond its inept macroeconomic policies.
This edition of the British Strategic Review explains why the theory applied in taking decisions on monetary policy is flawed. This is established on the basis of an easy to understand analysis comparing the outcome of quantitative easing. This demonstrates convincingly that the Quantity Theory of Money has no relationship to real events; it never has done. This also explains why quantitative easing did not turn out as expected but exacerbated an already dire state of the economy. In this context the role of the Bank of England in promoting quantitative easing is reviewed taking into account the recent Lords Economic Affairs Committee evidence and report entitled, "Quantitative easing: A dangerous obsession?" Certainly the more detailed analysis in this Review supports the conclusion of one of the providers of evidence that quantitative easing is a policy without a theory. This is complemented by a more detailed critique of the "central bank narrative".
In a sub-section entitled, "The validation of policy theories", in Section 6, the logic of decision analysis is applied and in a few sentences dismounts convincingly the Quantity Theory of Money from its perch in the temple of monetarism. It is notable that both of the main British political parties, Conservative and Labour, do not come off well in a transparent assessment of their economic management of the economy. Indeed, the surprising but very apparent adherence of both parties to monetarism and its faulty logic, is exposed as the reason for the decline of the British economy over the last 50 years. Having identified crucial gaps in monetarist theory and derived practice, this Review addresses these gaps on the basis of logical propositions across critical economic and constitutional functions. It points to the required theory and policies to bring the British economy back onto a sustainable growth path. In an environment of political economic stasis, feeding on the conviction that "there is no alternative", this Review raises the potential sights of national economic ambition by providing practical steps to jettison the current state of policy ineptitude.
A list of contents is provided below.
Please note that the final contents may vary according to final editing and content recommendations received in the internal review process.
This publication will be available in printed and e-book formats.
Contents
Executive Summary
SECTION 1
Constitution and economics
Freedom of expression in word and action
Constitutional economics
Private and public goods
Monetarism and the Real Economy
Monetarism
The general components of the economy
The Real Economy
The Physical Resources Economy
The Assets Economy
The Financial Assets Economy
The Human Resources Economy
Real Incomes
Real Economic Growth
The Say Model
Entrepreneurs
Economic growth, real and nominal
Human capital, tacit and explicit knowledge
Tacit and explicit knowledge
The development of tacit knowledge by medical practitioners
The learning curve
Entrepreneurialism and the delivery of results
Scale of operations
The cost of living and economic growth
Real incomes & currency value
Innovation and real incomes
Endogenous and exogenous money
Economic structural transformation
Inflation
Demand-pull inflation
Cost-push inflation.
Speculative asset inflation
Deflation
Goods and service price deflation
Asset price deflation
Conclusions
SECTION 2
Keynesianism & the Quantity Theory of Money
Money sources, volumes and the Quantity Theory of Money
The Cambridge equation
What prices are referred to here?
Something is wrong with this identity
In the meantime, during this period
Claude Shannon and George Boole
How did Shannon work this out?
Blind spots
Wright’s Law
Conclusions
SECTION 3
Turmoil and adjustments 1944-1965
Imperial preference
United States strategy
Bretton Woods
Contemporary analysis
The rise of the American Empire
Post-war Britain 1945-1965
The stages of economic growth
Economic mechanisms, the slide into oblivion
Britain’s hegemonic cycles & publication date of “The Stages of Economic Growth”
World systems, cycles and warfare
An inaugural lecture
A warning
A route into the study of economics
Our learning curve
The farmer’s learning curve
Economic incentives
Biomedical considerations and policy design
In the meantime, during this period
The discipline of decision analysis
Systems engineering
Sputnik
From circuit switching to transistors
SIMULA 1 and Object-Oriented Programming
Moore’s Law
Packet switching
Email
Conclusions
SECTION 4
Further turmoil and the turning of the tide in the 1970s
The unstable craft in an increasingly choppy sea
Unanswered question
From a national strategy to mutual suicide pact
Slumpflation
The role of the IMF in maintaining high petroleum prices
Pattern of behaviour
Extending the slumpflation crisis
The possible reason for the IMF behaviour
Getting in on the act
Going in the wrong direction
Witteveen and the British economy
Interest rates as a monetary policy instrument
Spreading the word
The New York Mercantile Exchange (Nymex) and Petroleum
Invincible, audacious decisions, coke-heads and hookers
Futures markets
Hedging
Market driven hedging
Heady optimism, hedge funds and assets
The corruption of futures markets
Post Gold Standard gold prices
Unanswered questions
Policy development responses
Supply side economics
Real Incomes Policy
The performance of other Bretton Woods institutions
Safer options
Climate change, income disparity and sustainability
No effective response to criticisms
Loss of control
The reshaping of monetary policy
The reshaping of foreign policy
In the meantime, during this period
From integrated circuits to microprocessors
Databases and queries
Conclusions
SECTION 5
The monetary cascade 1980-2000
Financialization
The decline in ethical decisions
Real incomes depreciation treadmill
Avoiding a dollar run by replacing a gold rush by an asset price rush
A dangerous addiction
The destruction of the Say Model
The 1981 Budget
Economies are always in a state of disequilibrium
“Ideas” concerning the National Health Service
Taming the media by changing truths
The City and the Bank of England independence
The Clause IV moment
The Private Financialization of Health provisions
Project scale, staffing deficiencies
Britain’s State -of-the-Art Tacit & Explicit Knowledge
in the Industrial Arts
In the meantime, during this period
5th Generation
The leap of faith into knowledge engineering and artificial intelligence
Prognos & General Technology Systems Limited
Learning systems
Hand held computer communications
Locational-state theory
Accumulogs
The global network
Huawei
Racal, Vodafone and China Telecom
World Wide Web
The “Onshore Engineering Club” initiative
Other UK gaps and needs
Conclusions
SECTION 6
2000 to 2022 and the proof that monetary theory is flawed
The grey market
Alan Greenspan’s 2000 address
The Bank of England, quantitative easing and the death of the QTM
Thrift and savings
The option of sanctions and people’s quantitative easing
Fraudsters escape criminal charges
Quantitative easing as a dangerous addiction
The semantics of Bank independence
Range of evidence
Comments on 5 aspects of the central bank narrative
Why QE is a policy without a theory
The real economy
The validation of policy theories
Quantitative easing and real incomes
Adding the asset classes to the QTM
Asset loading
Where goods and services inflation come from
Modern Monetary Theory
In the meantime, during this period
5th Generation
The results of a leap of faith into artificial intelligence
Social media
Social media issues
The emerging platform economies
Gig work and accelerated downward spiral in real wages
Doing evil and the deconstruction of objective facts
Blockchain and Bitcoin
Bitcoin, assets or a medium of exchange?
Scalability and speed of resolution issues
Bitcoin as official national currency
Bitcoin as exchange medium and asset revisited
Conclusions
SECTION 7
Constitutional impacts of monetarism and QE in particular
Modes of income generation
Wage-earner constituent sources of income
Input to supply side production of goods and services
Asset holder and asset transaction constituent sources of income
Inputs to asset trading
Why are these income lines different?
The real income effects of income sources
Policy impacts on nominal and real income disparity
Constitutional implications of income sources
Employment, electoral significance & the nature of economic value in the UK
Law and governance
20 General elections
Conclusions
SECTION 8
Britain’s main strategic gap
The British technical education scene
Working against the odds
Working against even greater odds
The Dockyard School
Border-line cases
Intelligence tests
Lamentable priorities
STEM – Science, Technology, Engineering & Mathematics
Conclusions
SECTION 9
Summary analysis
The nature of real growth
The implications of not sustaining real growth
Stages of growth
The main systematic deficiencies and gaps
Democracy, constitution, politics and parties
SECTION 10
The next decade 2022-2032
Public choice
Managing priors
Policies that address our principal needs
A constitutional economy
The essential elements of an alternative economic theory and policy
The principles policy design
The Aggregate Demand Model
Production, Accessibility and Consumption Model
Policy traction, effectiveness & efficiency
Target mechanism
Constitutional aspects of freedom of choice
Public choice
Financial regulations
Decision analysis briefs for public choice
A Real Incomes Policy DAB
Decision Analysis Brief on a Real Incomes Policy
Gaps created by conventional policies
Gaps created by government revenue seeking
The balance of payments
Gaps created by existing accounting regulations
Gaps created by centralized policy decisions and operations
The issue of policy traction
Constraints facing policy movements
Operational governance needs
Fiscal neutrality and transitions
Operational corporate needs
Operational constituent needs
Main operational objectives that policy needs to support 128
Policy targets
Mechanisms
Policy instruments linked to productivity and competitive prices
Policy performance instrument: Price Performance Ratio
Lowering risk
Risk and productivity
A devolved strategic plan
The mapping out of strategic corporate options based on PPR
Secondary incentive auxiliary policy instrument
The Price Performance Levy
Strategic options map for current and future net incomes
Gaining policy traction
Normal parameters of natural growth
Disequilibrium for growth
Balance of payments and foreign trade
Import substitution
Operational principles:
Regulations, security and compliance
Extension services
Enterprise planning
Corporate choice:
Devolved administrations
International perspectives
Corporate taxation
Tax rebates
Clause IV revisited
A contemporary interpretation
Realizations ignored
Labour’s policy Archipelago
Wisdom, received and realized
Ownership of the means of production
Corporations, family firms, cooperatives and mutual
Launching RIP
Technology transfer
Production circles
Life-long learning
The cynical build-up of expectations destined for disappointment
Disenchantment with political parties
The electoral reform roundabout
Power to the people 143
The shortcomings of “Power to the people”
Democracy without parties
ANNEX 1
Experience with political parties:
ANNEX 2
The Price Performance Ratio
The origins of inflation
Measuring the contribution of supply side company to inflation
Inflation
Deflation 148
Desirable & Undesirable States
Innovation target zones
Price Performance Ratios (PPRs) associated with different unit input value movements & movements in unit output prices
The role of business rules in policy
Why the Real Incomes Approach is different
Income disparity
Making the application of business rules a success
ANNEX 3
The Price Performance Levy
Policy - distribution of aggregate real incomes through a Price Performance Levy
Examples of Price Performance Levies
Power functions (intensification)
Some PPL power functions applied to a basic levy of 20%.
Slide or i-d functions (increments or decrements)
ANNEX 4
Top countries in the global Balance of Payments League
Annex 5
Bottom countries in the lowest global Balance of Payments League
Annex 6
Power Report 157
Foreword
Power to the People Executive Summary and Recommendations
Analysis of the Problem of Disengagement
The Myth of Apathy
Red Herrings
The Reality
The Rise of New Citizens
The Response to the Problem of Disengagement
Rebalancing Power
Recommendations
Real Parties and True Elections
Recommendations
Downloading Power
Recommendations
Annex 7
Noland’s principles of public life
1. The Seven Principles of Public Life
1.1 Selflessness
1.2 Integrity
1.3 Objectivity
1.4 Accountability
1.5 Openness
1.6 Honesty
1.7 Leadership
Author’s profile
Title: Monetarism and the real economy
Main cover title: British Strategic Review
Date: Q4, 2021
Author: Hector W. McNeill, M.A.(Cantab), D.A.S. (Cantab), M.A. (Stanford)
Production: Decision Analysis Group, SEEL-Systems Engineering Economics Lab., a division of The George Boole Foundation Limited
Publisher; Hambrook Publishing Company, Portsmouth, Hampshire, United Kingdom
ISBN: 978-0-907833-49-9 |
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