3007819-poster-1280-now-abba-songs-double-money-making-inspirationMust be funny, sang Abba – and it is, as  we’ll see later.

First, here’s a question: do you trust me?

You do a bit. At the very least you have started to read this article. So you must hold a modicum of trust that reading it will bring you something of value – a little entertainment, new information, perhaps some satisfaction by the time you reach the end. To continue, your trust must grow. Of course, there comes a point where a reader must feel confidence in a writer’s skills. They must feel secure in the writer’s hands – not just that there won’t be obvious grammatical mistakes the writer should have avoided – but that the journey they are being taken on is coherent, is well-planned, and will eventually be worthwhile.

That point is around now. It’s my job to demonstrate to you that I know what I’m about. I have to show that I have something valuable to say and that I can deliver it to you on this page. You also need to feel I won’t tax you over much but nevertheless there will be meat on the menu.

And that is all perfectly reasonable. We normally don’t trust new acquaintances until we get to know them. Trust is built up; it isn’t just taken for granted. I expect to have to win you over.

George Osborne Underlines UK Government's Opposition To Currency UnionYet with money, where far more trust is needed than merely to be persuaded to read a couple of thousand words, it is almost taken for granted. We treat day-to-day sums with barely a second thought. Banknotes are accepted in shops from total strangers. We hand them over to unknown retail assistants, accept them as change, or take them from the cash dispenser fully confident that the value printed on the face of the paper is what it says it is. That simple inner decision – while not even considering the possibility of forgery – is a massive act of trust. We believe that this rectangle of paper with just that texture and those colours printed on it carries a value hundreds of times greater than the material value of the note itself. That belief triggers a whole series of conscious and unconscious psychological states. Don’t we all feel a sense of contentment when we take a wad of notes from the hole in the wall? Who doesn’t enjoy the soft papery scent of freshly printed notes as we slip them into our wallet or purse? And when you pay for a round at the bar doesn’t it feel good, don’t you feel so confident when you hand over a twenty pound note even if a tenner would suffice? These are the feelings we all notice. There are subconscious effects too. Psychologists have discovered that merely handling money, even money belonging to other people, makes us less sensitive to criticism. It also, surprisingly, makes us less generous.

Perhaps these feelings are part of what makes my blood boils when I hear the stories of Scottish banknotes being refused down South. You may remember during the Rugby World Cup that the Edinburgh Evening News carried the story of a Rugby fan whose Scottish banknotes were refused when he tried to buy merchandise in a World Cup outlet. Only yesterday (24th November) I read in a Facebook feed one Scot’s response when his £20 Scottish banknote was turned down in a well known coffee franchise in London: “So, what would you do if [insert name of well-known coffee franchise] in Canary Wharf refused to take a Scottish £20?? I’ll tell you what I did, I said no problem, got my bank card out ordered 4 tall skinny caramel lattes, 4 cheese & ham toasties, 4 Belgium brownies and a hazelnut frappe, asked if I could see them to make sure I’d ordered the right thing, when they got it all ready I refused to pay and walked out, get that RIGHT UP you. Girls face was priceless!! Guy behind me was in tears!!”

ScotlandPNew-20Pounds-2006Commem-donatedTDS_fI make no claims regarding the veracity of the story – I didn’t recognise the poster’s name and I’ll remain silent on the name of the coffee franchise – but the sentiments expressed in that story and in similar anecdotes in the comments which followed show the quite natural indignation when an item we regard as valuable, and hold as dear, is rubbished.

I’m tempted to say that refusals like this break the trust which underpins the whole monetary system in the country. If Bank of England notes were regularly rejected in any substantial number by people in the largest country in the Union, then the UK pound would take one step towards collapse. In real terms, though, the proportion of Scottish banknote refusals compared with the number of the notes which are accepted daily in Scotland must be tiny. What is really going on in these anecdotes is racial discrimination. There is, in fact, no legal requirement for any trader to accept a customer’s offer to trade, but if the refusal is on the grounds of nationality then it could be illegal. The question would be whether refusal on the grounds of the country of issue rather than the customer’s nationality is actually racial discrimination. In the case of the retailer who issued a blanket ban on Scottish notes it’s hard to think of a motivation which isn’t racial. In other cases it may be no more than lack of familiarity with our banknotes and a concern about forgery.

moneytalk2While it’s gratifying to read stories like the one about the coffee franchise  – well, it is to me – I doubt they have much effect on attitudes south of the border. Scottish banknotes are legal currency, approved by the UK government, and backed by an equal deposit in the Bank of England. But that fact is either unknown or deliberately ignored. What they are not is legal tender, not even in Scotland. Legal tender has a very specific meaning in relation to settlement of debt. A debt can be paid off by any means the debtor agrees to accept. With legal tender it’s a different matter. Let’s take the example of going for a meal in a swanky restaurant. You don’t pay until you leave, so you are effectively in debt once you’ve swallowed your entrée. Suppose you offer to pay with Scottish notes. The  restaurateur refuses but then notices your blingy wristwatch and says they’ll accept that as payment instead. But you like your wristwatch and you know it cost twice the price of the meal.  If you now go into your other pocket, pull out Bank of England notes, the restaurateur has no option but to accept them as payment, because BoE notes are legal tender  in England. However, in Scotland BoE notes are not legal tender at all and it would be tempting to encourage our Scottish restaurateurs to refuse them on that ground. It might be rather satisfying if they did. But I imagine that most of them couldn’t be bothered with the hassle when push came to shove. They’d just take the money.

Money, however, is more than banknotes, coins, and legal tender. This is where ABBA were right – if they actually knew what they were singing about. Only 3% of the money supply in the UK exists as paper notes. The rest is created by the banks in the form of interest-bearing loans to companies and individuals. Contrary to what most people think, banks do not hold reserves from which they hand out their loans. Instead they simply increase the balance in the borrower’s account. They look for reserves later. The money exists as no more than the state of a memory location in the Bank’s computer. This is the Fractional Reserve Banking System. In the US banks must hold at least 3% of the total money they lend – which to me seems an astonishingly small amount – while in the UK there is NO legal reserve requirement. UK banks can create as much money as they want.

Here we really see where trust has to come in. The banks must trust that we will pay back our loans and those who have savings trust that there won’t be a run on the banks! If you consider that 97% of the money in the economy exists in this form of debt, then it’s easy to see how fragile the monetary system is. If trust in the pound disappeared, i.e. trust in the ability of the government to support it, the UK pound would collapse in an instant. Yet it’s this ephemerality, this vapidness of money which Scotland could lever to its advantage. What value does such an insubstantial concept carry? What, in fact, is value anyway?

Both Adam Smith and Karl Marx used a labour theory of value in their attempts to crystallise the concept in some concrete way. Marx defined the value of a commodity in terms of the work required to make it. While this makes sense it doesn’t take human psychology into account. Smith defined value as the work someone is prepared to undertake in order to acquire a commodity. This, at least implicitly, includes the notion of desirability, a much more impermanent entity which is both personal and changeable (I still can’t make up my mind about 2016’s summer collection). Nevertheless, wherever wealth accumulates, objects of inherently intrinsic value and those with some perceived desirability can be seen.

But people in Scotland work damned hard too. Shouldn’t our economy be as strong as Germany’s? Well, it should be and there is a way, without waiting for the full benefits of independence, it could go a long way to getting there.

John Ruskin claimed “There is no wealth but life”.  In his view wealth included love, joy and admiration. The richest country was the one with the largest number of ‘noble and happy human beings’. I can’t disagree. Life without art, without music, without the company of family and friends, without recreation, without security of income and without peace, is a life diminished. It is poorer in Ruskin’s terms. Where ‘wealth’ means ‘material wealth’, in the stricter context of everyday usage, I think a better aphorism is “There is no wealth but work”. Within any economy, nothing carrying a value which can be measured using money, including its apparent desirability, gets there by itself. Somebody has to do some work even if it is no more than taking it to the marketplace. Those things which we think of as provided by Nature – raw materials and agriculture – need human intervention before they become useful in an economy. Oilfields must be drilled, diamonds must be mined. Crops must be sowed, protected and harvested. They must be packaged, transported and distributed before the customer can pick them off the supermarket shelf where a stacker’s work has placed them earlier in the day. Those wealthy people who get their money to ‘work for them’ indulge in a delusion. Money cannot work. It is impotent. Every penny of the dividend shareholders receive is earned by the work done by the employees of the company they have shares in. All the interest you accrue on your savings account is gleaned from the hard-earned additional money paid by borrowers as the interest owed on their loans. A country is made wealthy by the work done by its citizens. If there is any reason why Germany has such a strong economy, it’s because her citizens work damned hard.

But people in Scotland work damned hard too. Shouldn’t our economy be as strong as Germany’s? Well, it should be and there is a way, without waiting for the full benefits of independence, it could go a long way to getting there.

I support the proposal of the New Economics Foundation (NEF) to create a Digital Currency for Scotland. At a cost of around £3 million to set up the infrastructure, the Scottish Government could launch the ScotPound (S£) as complementary currency existing in parallel with the UK pound.  Transactions would be cost-free, unlike debit or credit cards payments. Mobile phones would be the main instrument of payment. The new currency would be used only within the territory of Scotland and could never be removed from it. Thus any value generated by its use would remain here. At the time of launch every citizen on the voters’ roll would be credited with S£250. This would add nothing to the UK deficit as the currency would rapidly acquire a value of its own shortly after its launch.

I support the proposal of the New Economics Foundation (NEF) to create a Digital Currency for Scotland. At a cost of around £3 million to set up the infrastructure, the Scottish Government could launch the ScotPound (S£) as complementary currency existing in parallel with the UK pound.

Here’s how that would happen. After you sign up (a legal agreement to honour any debts you may incur), you receive S£250 in your account. Suppose you decide to try it out straight away and go to the local butcher to buy some meat for dinner. As soon as you have paid and left the shop with, say, S£10 worth of prime beef the currency has acquired value in your mind. The butcher, however, is in the red. What they have to do is to use the ScotPounds they will receive by the end of the day to buy more sides of beef from the local farmer. As soon as the order is delivered the new currency will have acquired value in the butcher’s mind. Next, the farmer has to use the ScotPounds the butcher handed over either to buy grain from their neighbour’s farm or, more crucially – since this is what adds most of the value – to pay part of their workers’ wages in ScotPounds. The workers have already spent their S£250, know that they work, and are delighted to earn some more to use again. These workers, and any others who receive some of their salary in ScotPounds, buy their groceries in the new currency, and the cycle is complete. The value of the currency now exists in the minds of the people who use it. They trust it because of the goods or services they have purchased with it and they are willing to work to acquire it.

An important aspect of the proposed ScotPound would be the application of ‘demurrage’. Demurrage is used in the local currency of Bavaria, the Chimgauer, and is a small tax applied if the currency is hoarded. The purpose of the charge is to encourage people to spend their money and increase the ‘velocity of circulation’ in the economy. The astonishing success of the Austrian Wörgl experiment of 1932 in dramatically reducing unemployment during the Great Depression was credited to the use of demurrage – until the central bank put a stop to it!

All this may sound utopian and fantastical, but other countries are already successfully operating complementary currencies in many forms, some having been around for a long time. The WIR Franc in Switzerland was founded in 1934, eighty one years ago.

If the Scottish Government had the courage to take up the idea it would stimulate the economy of Scotland and tackle unemployment at its source. Perhaps it can’t be done in one step, but it could be trialed in a town or city – Dundee comes to mind – and then rolled out across the country.

What better way would there be to answer the pettiness of those retailers in England who refuse Scottish banknotes? We don’t return the pettiness – satisfying as that may be – but we create a currency unique to Scotland which by its structure gets people working and spending and makes our economy the envy of the rest of the UK.

Yet for me the most important gain would be psychological. It would allow ordinary Scots, through direct experience, to see the currency question, the Achilles Heel of the Yes argument in IndyRef1, for what it really was – a non-issue.