Is the IMF about to Become Truly Useful?

The International Monetary Fund (IMF) is arguably the single most powerful economic institution in the world. It can and does make and break the economies of nations. It was originally created just after World War Two with the apparently noble intention of helping to bring economic order to a planet riven by global holocaust. But that isn’t quite what happened.

So it isn’t often that you actually notice anything useful emerging from the IMF. Apart from the original concept of it, which had some merit, it’s actually pretty to difficult to think of anything at all done by the IMF that’s ever truly benefited humanity. So when two IMF economists, Jaromir Benes and Michael Kumhof produced a paper in August titled “The Chicago Plan Revisited”1, which has the potential to do exactly that – benefit humanity – the world really ought to sit up and take notice.

It’s important to state at the outset that the Chicago Plan referred to has nothing whatsoever to do with the deservedly much discredited so-called “Chicago Model” which has wreaked so much havoc around the globe since its heyday in the 1970s. The Chicago Plan was a much earlier piece of work championed in the 1930s by Henry Simons and Irving Fisher, amongst others. Had it been adopted then, the history of the twentieth century would be very different. Possibly, just possibly, World War Two might not have happened. If “Chicago Plan Revisited” were to be taken seriously by the powers that be, World War Three might possibly be prevented. It is that significant.

Although the IMF paper is written by economists, much of it is perfectly readable by any literate person – and these readable bits should very definitely be read by anyone who is able to do so (the pseudo-maths bits can easily be skipped over without missing anything important).

Sadly a lot of people are needlessly intimidated (or instantly bored) by economics – much the same way as some people immediately react on hearing the word “maths”. Although economics is frequently dressed up as maths (in order to try and give its often bizarre notions some credibility) it’s very important to understand that it isn’t in fact nearly as respectable and honest as real maths; so first, a few basic truths about the subject.

I’ll begin with a few relevant quotes by Professor Steve Keen, who has been teaching economics for over 30 years, and who was one of the very few voices sounding alarm bells about the impending collapse of the world’s economy in 2005. Although all manner of so-called “experts” are making that particular claim these days, Keen has the published work to prove it. His view of his own subject is this:

“[A]s a means to understand the behaviour of a complex market economy, the so-called science of economics is a melange of myths that make the ancient Ptolemaic earth-centric view of the solar system look positively sophisticated in comparison.”2

It’s pretty easy for anyone who knows a bit about maths to write a mathematical formula or equation – almost as easy as writing a sentence in your native tongue; and just as putting together some words in a sentence doesn’t necessarily mean the sentence is true, so to with formulae and equations. They look mighty impressive – especially to non-mathematicians – but they aren’t necessarily true. You could probably write formulae and equations about lots of bible stories, for example, (such as doing a calculation for the age of the Earth, perhaps), and insert them into a new modern version of the bible, but the reality is that your formulae and equations will all be false and meaningless because they would be based on fantasies and outright lies. So too with a lot of the mathematics associated with economics.

Steve Keen acknowledges that his rather unique views about his subject have a lot to do with the good fortune he had as a young man to be taught by someone who could think for himself, and who strongly encouraged his students to do the same. This gave Keen the confidence to evolve opinions such as this one:

As Kirman commented, economic theory has seen off many attacks, not because it is strong enough to withstand them, but because it is strong enough to ignore them. Part of that strength has come from the irrelevance of economics. You don’t need an accurate theory of economics to build an economy in the same sense that you need an accurate theory of propulsion to build a rocket.3

The Kirman referred to is Alan Kirman, a mathematical economist, who once wrote a paper titled: “The intrinsic limits of modern economic theory: the emperor has no clothes.”4 Keen voices a very similar opinion:

There is one striking fact about this whole literature [of economics], and that is that there is not one single empirical fact in it.5

It’s a point he makes several times over, suggesting at one point the similarity between economics and religion:

[A] frequent refrain in this book [is] that neoclassical economics is far more a belief system than it is a science.6

The economics that Keen’s book debunks is neoclassical capitalism. If socialism had been given a chance to develop it’s quite probable that it too could be debunked just as easily. Given the direction it was heading under the stewardship of the likes of Stalin or Mao, it didn’t have a great start in life – which is not to say it isn’t a viable economic system. But so too is capitalism. The key problem is the nature of the human beings in charge.

So, here’s key fact number one:

None of the well-known economic theories, such as capitalism and socialism, has any sound scientific basis upon which it should be trusted more than any other.

Here’s key fact number two:

None of the people in charge of the world’s economy act in the interests of the 99%. From Thatcher to Stalin the only interests these people have ever served are those of the 1%, and until such time as people such as these are permanently excluded from having any significant political power, the only interests they will ever serve are those of the 1%.

Unsurprisingly, few of the so-called experts acknowledge key fact number two. Although it’s something that’s been known since the beginning of human civilisation by every anarchist who’s ever drawn breath, it is seldom admitted by anyone else. But very occasionally a chink of light will be revealed by a Person of Standing. Sadly, however, it’s always a very brief light, and often just a dim little glow at that, appearing briefly way out on the distant orbits of popular consciousness, such as this, for example, by the ex-French president Nicolas Sarkozy, referring to an excellent piece of work by some pretty well-known economic heavyweights:

All over the world people believe they’re being lied to, that the figures are false, that they’re being manipulated…

In the comments on the commission’s work that Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi sent me, I noted this sentence: ‘One of the reasons that most people may perceive themselves as being worse off even though the average GDP is increasing is because they are indeed worse off’.7

I offer these two key facts for consideration. They might not seem like much, but if one thinks about them for a few minutes, the implications are pretty seismic – the ground really begins to move.

I mean, consider for example that last sentence by M Sarkozy. Now GDP, Gross Domestic Product, is used as THE core measurement of a nation’s economic health; it’s an acronym that even the least economically-literate in western countries have possibly heard uttered – even if they’re not exactly sure what it means. But here we have a major study revealing the fact that as far as the 99% are concerned it is a completely bogus measurement.

So what else are we told by our trusted leaders and their assorted “experts” that’s also completely and utterly bogus?

It’s not the purpose of this essay to try to answer that question. This essay is about one or two essential facts of economics. Given then that a) none of the existing main economic philosophies have any empirical substance, and b) given that none of our leaders and their carefully chosen “experts” may be trusted to act in the interests of the 99%, what can we, the 99%, do?

In short… go back to the drawing board, back to a place where we can take a look at the first principles of economics, which actually needs us to look at the first principles of society in general.

Modern democracy is a fairly new thing – when viewed on the time-scale of human civilisation as a whole. It shouldn’t surprise us that it’s still far from perfect: most new ideas have teething problems – especially when those ideas are contrary to the vested interests of the Powers-That-Be. It can be argued that this age of modern democracy began with the foundation of the USA, which was the first country (in modern times) to draft a constitution where some principles of democracy were established. That constitution wasn’t perfect and, imperfect as it was, it was already being opposed by a sizeable section of the new nation’s emerging 1% for being far too liberal.

One of the most prominent voices of the day was that of Tom Paine. Although he had no direct involvement in the drafting of the constitution, he was much respected by some of those who did (a copy of that original constitution still hangs up in the room at the White Heart Inn in Lewes, Suffolk, where Tom Paine and his Headstrong Club used to meet). Tom Paine wrote many, many wise words. Amongst some of the wisest were these:

Let it be heard and let man learn to feel that the true greatness of a nation is founded on principles of humanity.8

It’s patently obvious to anyone who’s ever studied any history from the perspective of the 99% that none of the powerful nations of the world, all of whom no doubt consider themselves “great”, were founded on principles of humanity. Whilst they frequently portray themselves that way – as veritable champions of humanity – the reality is very different.

Switzerland is arguably the most democratic country in the world today. Although it too is far from perfect, quality of life for its citizens is extremely high, and it hasn’t been to war in two hundred years – even when completely surrounded by war, twice. It’s curious how this tiny landlocked country with very little in the way of natural resources can be as successful as it is. No doubt the fact that it’s one of the planet’s leading off-shore banking centres may have something to do with it, but banks do not control the Swiss government (well, not as much as they do in the other so-called democracies), the Swiss people run Switzerland, in a very real sense; and it’s interesting to note that the closing words of the preamble to the Swiss constitution are as follows:

…the strength of a people is measured by the well-being of its weakest members.9

Surely then, given that one of the greatest popular philosophers of all time, Tom Paine, and that arguably the most successful democracy on the planet, Switzerland, both argue for the importance of humanity in the constitution of a country, that’s a fairly good place to start: we need global societies founded on humanity – not the fake cynical type of humanity peddled by the agents of the 1%, but REAL humanity, serving the 99%.

So, starting from that position, how do you design an economic model, founded on humanity, that serves the 99%?

Well, it needn’t be that difficult, given that it must surely be what the 99% would choose to have, if they were given that choice, in preference to a model that serves the 1%.

One of the most important duties of government is to provide security – economic security as much as physical security. So what would be the essential components of economic security? Surely it must be that all citizens have physical security, sufficient nourishing food, and enough water to drink and keep themselves clean. They must have safe and comfortable shelter and warm and comfortable clothing. These are the absolute minimum standards that should be available to every human being anywhere on Earth. The fact that they’re not is utterly shameful, and a massive indictment of the cynicism of the powerful nations who could, if they chose to do so, easily ensure these things were provided.

For richer first world countries even more should be considered as essential components of economic security. Of course, in an ideal world there wouldn’t be such thing as a first world country, but we’re a little way off the ideal world and must first deal with reality, and that reality is that this first world/third world economic divide very definitely exists. So for first world nations who for the most part already enjoy the bare basics of economic security described above, it’s perfectly reasonable to raise the bar, to require more in terms of bare basics – not at the expense of the third world (which is pretty much the existing situation), but in addition to raising their bar too.

So, in addition to the bare basics for economic security outlined above, first world nations should be expecting their governments to deliver, to a high standard: real justice for all; free education; free health care; inexpensive, efficient public transport; inexpensive, good and reliable communications; inexpensive energy – and arguably the most important service in this list: a government-owned bank.

The fact that these things would seem to be impossible to provide is not because of any sound economic reason, it’s because we’re conditioned to believing it would be impossible – too Utopian. But if society was organised in such a way that, as Paine suggested, it was founded on humanity instead of criminality and oppression, these ideals, and more, would become entirely normal and people would look back on the days when they were not normal with disbelief and pity for those who had to live in such barbaric times.

An essential part of the conditioning we’re subjected to, and which leads us to think such humane society cannot be possible, is our misunderstanding about money. After all, the first question that’s bound to flash through the mind of anyone reading these words is “how do you pay for it?” Our confusion on this subject is due to a fine and very clever piece of misinformation. To put it in a nutshell, this particular piece of misinformation can be summarised in the word “borrowing”.

Most people understand that if we borrow something from someone else, that someone actually has in their possession the thing we are borrowing. But where banks are concerned the word has an altogether different meaning; and it’s a very important difference. The interpretation of the word “borrowing” that banks and governments use recognises the fact that banks don’t actually have the money that governments supposedly borrow from them. This is key fact number three:

Governments don’t “borrow” money from banks, banks agree to create money out of cyberspace for governments to use in return for a guarantee by governments to extract taxes from working people to “repay” this counterfeit money – plus an interest charge.

Here’s key fact number four:

There’s absolutely nothing to stop governments from creating whatever money they need in order to run public services in exactly the same way as banks do. Abraham Lincoln did it very successfully throughout the American Civil War, and was poised to make it the foundation of the US monetary system – but was murdered before he could do so.

Which is where we return to the quite remarkable paper recently produced by the IMF economists Jaromir Benes and Michael Kumhof. For, to put it in a nutshell, allowing governments to take full control of money supply is exactly what they suggest. The fact that this is an IMF paper (although the IMF clearly states that the paper does not represent IMF policy) is hugely significant, because the IMF is the one organisation that’s capable of making it reality.

The quite awesome implications of this paper are that money supply could, for the first time in history, eventually come under the direct control of publicly accountable governments not, as at present, under the direct control of a deeply cynical, secretive and unaccountable private banking system. Public debt could disappear, quite literally, overnight. Permanent War could disappear within one generation – maybe sooner.

Very few people have dared to make such a seismic proposal. Almost unknown writers such as Ellen Brown excepted, virtually no one has been brave enough to put their heads above the parapet with such a brazen suggestion. The action of two IMF economists stepping forward to add their voices to the cause of ending the stranglehold of the private banking system on the world economy is brave and deeply laudable. The IMF is, as far as the 99% are concerned, a rightfully discredited institution. If it were to put some real weight behind this work of its own economists, it would go a very long way to re-inventing itself as a truly worthwhile body.

  1. Jaromir Benes and Michael  Kumhof,  “The Chicago Plan Revisited“, August 2012 []
  2. Debunking Economics by Steve Keen, p. xiii []
  3. Ibid. p.  4 []
  4. Ibid. p. 66 []
  5. Ibid. p. 67 []
  6. Ibid. p. 101 []
  7. Mis-measuring Our Lives by Stiglitz, Sen and Fitoussi,  p. viii & xi []
  8. Tom Paine, Prospects on the Rubicon []
  9. Federal Constitution of the Swiss Confederation – Preamble []

John is a writer and political activist based in England. He can be contacted through his website. His main contribution comprises three free-to-use works-in-progress: The People’s Constitution, The School of Kindness, and EnMo Economics . Read other articles by John.