TWENTY FOUR ARGUMENTS AGAINST RENEWING TRIDENT

sub

The Ministry of Defence and repeated Governments have been trying to keep the issue of renewing Trident – the UK’s nuclear weapons system – off the political agenda, mainly because the case for it is poor. Gordon Brown announced shortly before he became Prime Minister that he was in favour of replacing the UK Trident submarine nuclear force, due to cease their useful life in 2024 or thereabouts. He was probably pressed by the MoD so that the issue could be “taken out of politics”. It was an odd announcement with no reasons given. The “main gate” final decision will take place in 2016, but already decisions are being made to make that move technical rather than political. As the MoD comments, “The programme is now in a 5 year-long, £3 billion period of work known as the ‘assessment phase’. The main purpose of the assessment phase is to refine the design of the successor submarine before we take the main investment decision in 2016. They want to keep the issue cool. Meanwhile, these billions are already being spent on the project. The Scottish National Party opposes the renewal. It says, “We will continue in our principled opposition to nuclear weapons and believe that the UK should abandon plans to renew the Trident nuclear missile system.” It plans to have a debate on the issue in the upcoming weeks will bring the issue even more fully into Parliament. Labour is having an internal debate on the issue. The discussion may be blighted by party posturing, but hopefully the arguments on this important issue will shape the way all MPs vote. Here are twenty four arguments which suggest Trident should not be renewed.

1. Nuclear weapons have not been used since 1945.
Nuclear weapons, first the atomic bomb and then the fusion bombs have been with us since 1945, a period of seventy years, and they have not been used. That is not quite correct, because about 500 nuclear weapons tests to develop the weapon have been carried out. But they have not been used since Hiroshima and Nagasaki in military anger. There is no dispute that this is the case. This is an extremely long period of history in the existence of this weapon. Why have they not been used? In the case of the United Kingdom, there has been no occasion to consider using them. In all the wars we have fought – on Cyprus, Suez, with the IRA, against Indonesia in the 60s, Aden, Falklands, the First Gulf War, Kosovo, Sierra Leone Civil War, the Afghan War, Second Iraq War, Libyan Civil fight against ISIS – the United Kingdom has not ever considered using nuclear weapons, mainly because we have not fought anyone we would choose to obliterate. If we have not used them for seventy years, why would we suppose we might use them in the future? If a car had existed for twenty years and not been used, we would scrap it. Perhaps nuclear weapons are not usable.

2. Nuclear weapons are indiscriminate. They kill everyone.
International humanitarian law involves a distinction between civilians and combatants. The aim is to protect civilians during the conduct of a war. This principle was breeched during the Second World War by mass genocides, indiscriminate bombing and finally by the two nuclear weapons used against Japanese cities. But the principle remains, and is even of greater significance on a crowded planet. Indiscriminate killing weapons should not be used. In our Trident fleet each submarine is carrying warheads capable of murdering at least ten million people. They cannot be seen as combatants; they are “innocent”, using the usual phrase. If we are not in favour of wiping out Manchester or London, then we will be equally in favour of not doing the same to the cities of Brazil, Russia, China, Australia or wherever the “enemy” may be seen to be. The Commandment, “Thou shalt not murder” we observe in relation to one person. Why should we ignore it for millions of people?

3. The United Kingdom insists on independent or “unilateral” nuclear weapons, but strangely we do not consider their independent or unilateral use.
It is odd we use the term, “unilateral disarmament” for getting rid of nuclear weapons, for we have an independent nuclear capability, that is, we have nuclear weapons because we might need to use them independently, or unilaterally, of say, the United States. We discuss below whether we are independent of the United States. But the idea of whether we might want to use nuclear weapons against someone when the US, China, Russia, France, India, Pakistan, Israel would not want to use them, is bizarrely unrealistic. How would we be unilaterally bellicose when, say, the United States and France were not? In foreign affairs we have done little independently of the United States for fifty years and we work with the French and our NATO allies all the time. The idea of the unilateral use of our independent nuclear deterrent is absurd. Yet, our rationale for having Trident is that we need an independent nuclear system. Why when we say we co-operate in all major world political and military affairs through the United Nations, the European Union, the Commonwealth, NATO and other bilateral relationships, do we want to be independent and unilateral in having nuclear weapons?

4. Deterring whom?
We shall look at the idea of deterrent under several headings. First, we consider whom it might deter. We presumably would only try to deter states which already had nuclear weapons. They are the United States, France, China, Russia, Israel, India, Pakistan and North Korea. Which of those might we want unilaterally to deter? How does having nuclear weapons deter any one else? The only country which is regarded as unreliably dangerous in that list is North Korea. If it is a threat, it is surrounded by the United States, China and Russia and anything we might consider doing to deter North Korea from the other side of the globe is really of no consequence. There are no states we can deter.
Second, the idea of deterring non-nuclear powers from going to war is now effectively dead. It has not happened in dozens of wars, including ones where nuclear powers have been defeated, like Afghanistan and Vietnam. The general understanding is that it is wrong to think of using nuclear weapons against those who do not have them and will not use them against us merely to wipe them out. Presumably none of the recent UK Governments has departed from this attitude which is strongly suggested in the “principles” set out by the MOD. “… the UK’s nuclear weapons are not designed for military use during conflict but instead to deter and prevent nuclear blackmail and acts of aggression against our vital interests that cannot be countered by other means.” So nuclear weapons have no deterrent role in conventional wars.
So, the UK’s nuclear weapons deter neither nuclear powers, nor non-nuclear powers, the first because we are not remotely thinking of unilateral nuclear war against another nuclear power, and the second because a nuclear reprisal in conventional fighting is unthinkable.

5. Exaggerating the Threats.
Much of the history of Nuclear Weapons has been marked by exaggerations of the threats coming from others, especially the Soviet Union. Two examples were the “Bomber Gap” of the mid1950s and the “Missile Gap” of the late 1950s (see Wikipedia summaries). The USSR was predicted to have 800 bombers and on that basis 2,000 B-47s and almost 750 B-52s to carry nuclear weapons were built to match the imagined fleet of Soviet aircraft. Actually, the Myasishchev M-4 Bison, the USSR’s nuclear bomb carrier plane, could not reach the US and get back, and only 93 were produced before production was closed down, with only 19 capable of nuclear service. It was the USSR who had a massive bomber gap.
The “Missile Gap” was similarly entirely fictional. In the late 50s the USSR Inter-Continental Ballistic Missile (ICBM) output was reckoned to be 100, 500, and even 1500 by those associated with the industry and in the media. Kennedy used the scare in its 1960 Presidential election. The CIA to its credit stuck firmly to its estimate of 10. But the actual USSR ICBM count was only 4, including prototypes. These exaggerations contributed to the tensions in the early 1960s including the Cuban missile crisis. The arms companies, the military and intelligence communities have in interest in using exaggerated threats to boost military expenditure and their profile.
The Second Iraq War and WMD is a more recent example. We were warned in 2003 about Saddam’s possession of WMDs, but Saddam had no nuclear capability, let alone weapons, nor means of delivery. We should politically sieve out the presented, but unreal, exaggerations and not allow ourselves to be bounced into this supposed nuclear need. The Trident supporters will have difficulty in naming a real nuclear threat that is not embellished.

6. Creating fear and “We are protecting you”
Governments enjoy a rhetoric which has the form, “We are protecting you against an enemy. You are safe with us.” It gives them a role where, if nothing happens, and usually it does not, we are beholden to them and grateful that we are kept safe. This process can involve the exaggeration of security needs. There is evidence that nuclear weapons are part of this machinery and that it has been accompanied by media and public briefing to keep us in a state of unease. If the people can be held in fear, then the politicians are established in power to protect us against those who would threaten us. Much of the structure of the Cold War had this form. After World Wars One and Two we had “Reds under the Bed” scare stories to keep the weapons industries in business. The Blair and Bush Iraq scare had the same form.
We need to discount Government manufactured fear carefully, and ask the right questions, but it is a large task. When the Government says, “We need Nuclear Weapons to defend you”, the questions are: From whom? Why would they attack? Is there evidence of nuclear threat? Do nuclear weapons defend against nuclear weapons? Do we create military fear in others? Is weapon possession the best way of addressing international tension? Is mutual disarmament possible? We may not need protecting by our governments through nuclear weapons as much as governments pretend, for they do pretend, and even lie to us. Usually, too, they resort to the unknown as yet threat.

7. We have faced no Nuclear Threat for the last twenty five years and probably no actual threat ever.
We can say, with a fairly full degree of certainty, that since the end of the Cold War no state has either planned an aggressive nuclear stance towards us, or has thought of planning one. The United States, India, Pakistan, Israel, China, Russia and France have not and have not really had a remote cause to think of unilateral nuclear attack on others. The nearest we can come to a supposed threat was Saddam Hussein, who didn’t have the weapons, or the capability, or the “45 minutes”, or the yellowcake and whose threat to us was moonshine. There is also no evidence that the USSR ever considered an aggressive first strike against the United States or the United Kingdom – a far more sobering check on the way this threat idea has been used. We have no evidence of any nuclear threat to us ever. That is a very strong argument against the need for a Trident nuclear weapon system.

8. The Cold War is over.
At the end of the Cold War the supposed raison d’etre of western weapons for the previous forty five years had disappeared. Gorbachev and Yeltsin had no interest in nuclear weapons and the opportunity was there to close the whole show down. Gorbachev offered complete disarmament more than once. It did not happen on the choice of the West, mainly the United States and the United Kingdom, and that should tell us something about the pressures towards these great stockpiles of weapons being less political and more about the military-industrial complexes of east and west and a certain Western view about the possession of military power. It may be that the Western (United States and United Kingdom) commitment to nuclear weapons is more important in their existence and continuation than we allow. We see ourselves as primarily reactive to the possible threats of others, but what if we started their development, moved first to mass production, dominated the Cold War arms race and could not give them up when it finished. Well, actually, it is not “what if”. That is exactly what we have done.

9. The twenty five year “Nuclear Prowl” has been a total Pretence.
For the last twenty five years we have had Vanguard Class ballistic missile submarines with at least one constantly on patrol, on a policy called “continuous at sea deterrence” under the name, OPERATION RELENTLESS. This perpetual nuclear weapon prowl where the submarine is always underwater and is almost impossible to attack shows our readiness to meet nuclear attack. This pattern started in the Cold War, and was part of the Mutually Assured Destruction (MAD) response to a possible USSR attack. Actually, the USSR did not ever plan to make such an attack and the Cold War has been over for twenty five years. In this last twenty five years none of the nuclear powers, the United States, China, Russia, France, India, Pakistan, Israel has even remotely considered attacking us, yet this patrol has carried on oblivious of the reality that there is no nuclear threat. Why has this been done? How have we been able to ignore the obvious fact, clear to everybody, that there has been no nuclear threat to us, at least since the end of the Cold War in 1990 and had nuclear weapons on instant alert? Could we have an explanation? Perhaps it is that if all our nuclear subs were in dry dock and the crews were on holiday, we would ask why we needed them anyway…..

10. Non-nuclear powers are as safe or more safe than we are.
If we ask the question of whether non-nuclear countries are more or less safe than we are, the answer is that nuclear possession does not seem to make much difference. If we ask, Are Italy, Canada, Mexico, Argentina, Australia, Japan, Saudi Arabia, Nigeria, and Monaco more or less safe because they are non-nuclear, it seems a non-question. Perhaps they are more safe, because they are less to be feared, and because their neighbours do not feel they need nuclear weapons. But the main issue is whether they will fall out disastrously with their neighbours or have a Civil War. Do India and Pakistan feel more safe because they and their neighbour have nuclear weapons? Israel is probably the one country which can answer that they feel more safe with nuclear weapons, because they have been threatened with annihilation at times in the past. Yet, they still undertake repressive acts against Palestinians and are creating their own troubles.
Since the principle that nuclear powers should not attack non-nuclear powers with nuclear weapons was established, say, as far back as the Korean and Vietnam wars, it does not seem that nuclear weapons inhibit non-nuclear powers from engaging in and even winning conventional wars. We have had plenty such wars over the last 70 years. Nuclear powers are probably less safe.

11. The Nuclear Non-Proliferation Treaty (NPT) has led to a Double Standard, but it really requires Nuclear Disarmament.
Some 190 states have signed the NPT and it is important in world military politics. It is seen as playing an important role in inhibiting moves towards nuclear weapon possession among those who might be tempted to get nuclear weapons. Yet, the Treaty as interpreted by the “nuclear” powers involves a double standard. Those powers including ourselves have effectively said, “We can have nuclear weapons, because we’ve got them, but you can’t.” They evoke the obvious response, “If they are not good for us, why are they good for you?” to which there is no answer. It is a double standard.
But the actual problem is worse than that. Article VI of the Treaty requires “Each of the Parties to the Treaty undertakes to pursue negotiations in good faith on effective measures relating to cessation of the nuclear arms race at an early date and to nuclear disarmament, and on a treaty on general and complete disarmament.” The International Court of Justice comments on this article as follows “There exists an obligation to pursue in good faith and bring to a conclusion negotiations leading to nuclear disarmament in all its aspects under strict and effective international control.” We have not done that. Recent UK governments have merely affirmed nuclear retaining status. President Obama has raised the issue. Not renewing Trident would begin to comply with the Treaty we have already signed.

12. The Idea of Deterrence – deterring the use of nuclear weapons by the use of nuclear weapons
To deter someone is to put some barrier in their way or some burden on a course of action which prevents them from doing what they would otherwise do. Speeding is deterred by speed cameras and the possibility of prosecution, theft by locks and security measures and trespass by walls and fences. These measures are aiming at compliance to law where that might not normally be present. In domestic law where there are dangers involved, say with shooting or stabling on the streets or elsewhere, the deterrent is to prosecute possession of knives or guns. Those found in possession of guns or knives are prosecuted to deter them from the possibility that they might be used. It is an obvious precaution and a normal part of UK law predisposing people to lawful behaviour by deterring gun carrying.
But we do not usually say, “If you shoot someone, we will come along with a bigger gun and shoot you.” That is clumsy in a number of ways. First it operates on the supposition that the event might already have occurred, not a good way to go about deterrence. Second, it threatens to use the weapon it is trying to get rid of and abhors. It aims to deter some threatening state (that we have not yet identified) by using the weapon of mass destruction it claims to be against and would see it as immoral to use.
So the idea of nuclear deterrence, apart from the fact that it hasn’t had to deter in 70 years, and there is no identified threat, and it goes against the Non Proliferation Treaty, is not even a good deterrent. It deters nuclear weapons with nuclear weapons.

13. The Stalemate of Mutually Assured Destruction.
The Cold War escalated until the United States and the USSR had 30,000 plus nuclear warheads each. In retrospect these massive stockpiles of dangerous weapons reflected nothing more than the self-serving production of the military-industrial complexes of both sides, since even in the sixties McNamara had said that nuclear weapons were now irrelevant to the actual conflicts occurring around the world. The proponents declared that Mutually Assured Destruction kept us all safe. Many noted the acronym, MAD, for this argument and concluded it was a description of the argument, but the obvious conclusion was that these weapons were useless and we would be better off without them. The START Treaties reduced the warheads considerably, and the USSR military industrial complex and the USSR arms firms got the work for overproducing warheads and then decommissioning them.
But the main point was that once MAD had been reached, it was the stalemate of the nuclear game, it was no use sitting there staring at the board. The game was over. The idea that nuclear weapons in profusion protected us from nuclear war was silly. Those who thought a bit saw that not having nuclear weapons also protected us from nuclear war, because it could not happen. In the old days men meeting shook hands to show that they did not have swords in their right hands and could get on with one another. It caught on and now people walk down the streets without swords. Nuclear weapons were useless, but dangerous, pawns in a played out game.

14. How The Idea of Deterrence claims undeserved Credit.
Those in favour of nuclear weapons really have only one word in their democratic armory. It is “deterrence”. Nuclear weapons, we are told, “deter” an aggressor from attacking. Another weakness of this idea is the way it cannot be refuted; unless we are all dead, we cannot say, “I told you so”. The deeper problem is that it is a completely dogmatic argument, because it automatically accrues all the credit for not having a nuclear war to itself, rather than ascribing it to common sense, liking other nations, good international institutions, not wanting to destroy the planet, trade, international travel and migration, not wanting to kill people, preferring justice and democracy or having a grown up attitude to disputes. Actually, we know these other factors operate and predominate day in day out, but the deterrent idea claims the success. Without deterrence against some unidentified potential aggressor, we are all doomed.
We can see how the idea is empty by re-examining the strongest possible case for it, that in the Cuban missile crisis of October, 1962, when the United States under Kennedy “deterred” the USSR from threatening and attacking the West. We have seen how the “Missile Gap” myth was used in the 1960 election, when both the United States leadership and the USSR knew that the United States had nuclear missiles in Turkey and Italy as well as a vast lead in nuclear bombers, so that the USSR was more strongly threatened than the United States. Moreover, because Kennedy had talked up a “Missile Gap” in the 1960 Presidential Election and had undertaken the Bay of Pigs invasion of Cuba, Khrushchev was worried that Kennedy was belligerent and might be planning a nuclear strike. Actually, in 1962 the United States had 203 ICBMs and missiles in Turkey and Italy, while the USSR had 36. So Khrushchev’s deployment to Cuba was an attempt to deter the United States, caused by United States “deterrent” policy and in the final negotiation Kennedy agreed secretly to dismantle the nuclear missiles in Turkey and Italy pointing directly at the USSR territory. You could say that Khrushchev “deterred” the United States somewhat by the Cuban ploy, but certainly not that this was western “deterrence”.
We cannot claim that the absence of nuclear war is down to deterrence. That is merely an a priori assertion, without any evidence in fact. Rather the “deterrence” policy was a very dangerous period in the Cold War created by the mass possession of nuclear weapons.

15. The Danger of the Pre-emptive Strike.
The idea of deterrence was also weakened by the fact that a first strike gave the aggressor an enormous advantage right through to 1990 and the end of the Cold War. This led to the dangerous idea of pre-emptive strikes. As soon as missiles were seen on the screen, provided they were not flocks of geese, the retaliatory missiles were to be sent off because in the weird world of nuclear strikes, many nuclear weapons were aimed at destroying the enemies nuclear weapons. This was actually extremely dangerous. In 1983 the USSR early warning system twice announced Minutemen ICBMs had taken off, at a time of high Cold War tension. One, and then four, incoming missiles were identified, but the USSR serviceman involved, Stanislav Petrov decided not to respond on the grounds that the United States would send over more missiles in a surprise attack. He trusted his thinking more than the screen. The two warnings proved to be errors. We are all extremely grateful to Stanislav Petrov. Thank you.
Because the counter-attack had to be so quick, for the idea of deterrence to hold, and as the inter-continental missiles, became faster, the response time shortened, and the danger of accidents increased. Then Ronald Reagan solved the problem after watching the “Star Wars” film and with some prompting from high tech arms companies. If the United States could zap incoming missiles, the problem would be solved. A great Strategic Defense Initiative was set up. The Star Wars films cost several hundred million dollars, but the “Star Wars” military programme cost several hundred billion dollars. Sadly, they found that the cost of zapping incoming missiles was far greater than of creating new ones, so the idea of deterrence against the nuclear aggressor was hardly a reliable policy. But then the Cold War ended, and the possibility of pre-emtive strikes disappeared.

16. Demonizing the USSR and Russia.
It is also time we recognized that over a long period of time the USSR, and more recently Russia, has been demonized in order to provide us with the enemy we needed to justify our nuclear weapons. In the 1940s the USSR was frightened of a nuclear attack while the United States carried out atomic tests and ran a Red Scare. Stalin was not engaged in starting the Korean war and tried to stop it. The McCarthy-Nixon era involved intense anti-USSR propaganda. The USSR has frequently asked for full disarmament, and probably meant it. Their role in both World Wars was minimised by the United States and Britain. After all the USSR carried the brunt of the War before the Second Front was opened, and lost 24 million people, while Britain lost half a million. They were our main ally against Hitler. The USSR also had its own propaganda machine, but the role a western capitalist (and militarist) media has played in creating the enemy has been considerable.
A recent example of demonization evidences the point. The West has repeatedly castigated the Crimea’s decision to join the Russian Federation. Why? It was clear that the Crimean Republic’s population in a referendum wanted to join Russia, not Ukraine. The official vote was 97% on an 83% turnout. Those against boycotted the referendum, and the figures seem too overwhelming, but are not to be dismissed out of hand. 60% of Crimean people are ethnic Russians and a UN agency had done repeated polls on the question “Should the Crimea join Russia? 1200 people were polled by the UN Development Programme – a reliable sample and agency.

The results were:
Quarter Yes No Don’t know.
2009Q3 70% 14% 16%
2009Q4 67% 15% 18%
2010Q1 66% 14% 20%
2010Q2 65% 12% 23%
2010Q3 67% 11% 22%
2010Q4 66% 9% 25%
2011Q4 65.5% 14.2% 20.2%

A ratio of 4.6 to one in favour of union with Russia is pretty overwhelming, and since it was mainly the non ethnic Russians who abstained from voting, a referendum vote of over 80% for joining Russia was likely, even though the turnout cannot have been correct. By usual standards, the incorporation of Crimea into Russia was more than justified.
If we recall that the party support for East Germany joining the West in the March 1990 Election was only 48%, the Crimea result seems more than firm. Yet it produced western outrage. Why? Partly, NATO needed the old enemy. It has been without anything to do for two decades and demonizing Russia offers the best hope of giving it a raison d’être. The United States military-industrial complex and the UK Government have developed a similar line, because they, too, need an enemy.

17. Membership of the UN Security Council.
This argument is strange. Some people seem to think that membership of the United Nations Security Council, the Top Table as it is sometimes called, depends on being a nuclear power. This is just not true. There are five permanent members – China, Russia, the UK, the US and France, and two elected members who are usually not nuclear powers. Three of the permanent members were quite automatic appointments in 1945 when they were not nuclear powers and China was appointed after its previous exclusion. Yet there is a problem with the Security Council. Its permanent members control something like 75% of world military expenditure and a similar proportion of its nuclear weapons and arms exports. Those facts alone explain why the UN has done little about arms exports (until the recent Treaty). Sadly, the permanent members, including the UK, are deeply mired in world militarism, and have too often, apart from China, engaged in war.
The UK has been part of this militaristic culture. In a post colonial way it has believed that it should sort things out, but has made a unilateral, with the United States, error of world significance in invading Iraq illegally. This arrogance has not been addressed. It should perhaps result in reparations, punishment in the Hague Court, and resignation from the permanent membership of the Security Council. Yet, far from seeing this culpability the present UK Government is still full of military arrogance and talks about “punching above its weight”, a rather silly contribution to international politics. As part of the change of attitude required giving up our nuclear weapons can be an act of making peace which would be good for the United Nations, and the initiatives of President Obama and Pope Francis.
The deeper issue is that the UN Security Council should not be controlled by those who make arms, are nuclear powers, have high military expenditure and often engage in war and militarisation. This biases the whole organisation of the UN away from peace. The Security Council needs fundamental reform.

18. The Cost of Trident Renewal.
The costs of renewing Trident are difficult to assess. The costs of most large weapons systems escalate once they are so far forward that there is no real turning back. The costs of Trident may be £60bn or twice that at £120bn or more, if it goes ahead. If it does not go ahead we may lose £5bn in development costs already spent. Given the points above, spending say $5 or 10bn a year on a system that will do nothing is a waste. Of course, the real cost is what could be done instead with these funds and these highly trained personnel – engineers, scientists, shipbuilders. There are also other costs – energy use, safety or accident costs, the tendency to lead others to do the same thing. We are daily told we need economies in Government spending. This can be a major one.

19. Destruction versus Construction.
It does not take much thought to see that all commitments to nuclear weapons are for the world’s most destructive enterprise. The costs in terms of health, land and property lost, deaths, cancers associated with these weapons is vast. Yet, we have been inveigled by the nuclear weapons industries into a commitment to them. The benefits of not backing this destructive direction, but working out how these resources could be used constructively in housing, relief, welfare, education and other areas are obvious, just as Germany and Japan found after WWII that not having a military was of enormous benefit to their economies. This decision offers us the chance to go for construction, rather than perpetual waste, or even massive destruction.

20. A crowded inter-trading, migrating world makes this old nationalist idea of Defence hopelessly dated.
The citadel model of nuclear defence is hopelessly out of touch idea with the world we live in. We are enormously interdependent. National populations are found all over the world. States have a multitude of agreements. The United Kingdom’s links with all the nuclear powers, except dear old North Korea with an economy half the size of Lancashire, are strong and necessary. Why retain and try to justify this old nationalistic idea of nuclear defence? It makes no sense.

21. Domestic Nuclear Weapons can be dangerous.
Nuclear weapons are dangerous at a number of levels. Fall-out from tests has caused millions of deaths, a big proportion from breast cancer. Accidents have happened regularly, including one case in January 1961 where two hydrogen bombs were dropped in North Carolina. Four of the five firing devices on one bomb were triggered and the signal actually went to the core of the bomb. The fifth device held. The records since 1990 contain no serious incident. But a mistake will normally occur and cause serious domestic damage. In May, 2015 a whistleblower, William McNeilly, reported a series of serious security failures which were dismissed by the Secretary of Defence.
Big dangers surround political crises, weak and military leaders, international misunderstandings, terrorist incidents and political grandstanding. As well as our domestic accident possibility, we need to take account of the world-wide dangers of failing to undertake the multilateral nuclear disarmament President Obama is suggesting. We will probably not see the problem until it occurs.

22. The Myth of the Automatic Progression of High Tech. Weapons.
For much of a century we have operated on a modernising understanding of weapons. It is assumed that higher tech weapons will win wars and keep peace. Actually, because the arms manufacturers have been able to keep both propositions going, they have sold weapons to most states and profited from lots of wars when this understanding has failed. Yet the technological march has gone on faster – battleships, tanks, bigger guns, bigger bombs, faster and bigger planes, aircraft carriers, nuclear submarines, radar, chemical weapons, atomic and nuclear bombs, missiles, star wars and so on. The list has all kinds of high tech spin off and developments. Yet, with the arrival of nuclear weapons and the level of destruction they involve, higher tech. weaponry lost its meaning, because no higher level destruction was possible. It was world destruction.
Yet, since 9/11 the direction of weaponry has changed. The 9/11event was carried out with primitive weaponry and terrorism operates on mobility, invisibility, the proliferation of cheap and captured weapons, and on attacking complex social, economic or technical targets. That is a world-wide trend. Much conflict, difficult to stop is centred on small arms. So the high tec. understanding of which nuclear weapons are part may not be and even is not where defence should now be.

23. Nuclear Weapons are irrelevant to Terrorism.
The dominant threat in the West this century is understood to be from terrorism. It can safely be said that nuclear weapons are irrelevant to addressing it. Terrorists operate among populations, clandestinely and on a scale which makes nuclear weapons entirely inappropriate. It seems an entirely sound conclusion that our possession of nuclear weapons will not address the terrorism that is presently creating chaos in the Middle East and has penetrated Europe. Of course, terrorists need to be prevented from getting near nuclear, biological and chemical weapons, but that, too, is not a matter of us having the weapons as a “deterrent”

24. The Nuclear Threat is empty.
The nuclear “deterrent” is, of course, useless unless it will be used. The decision is political, not military, and lies with the Prime Minister of the day. To send off these weapons, vastly more powerful than the mere atomic bombs used at Hiroshima and Nagasaki, is wrong. A wrong does not justify a wrong. Millions of deaths should never be done. That is why we cannot name a target; it would be obscene to do so.The charade whereby we pretend that we would use them in order to make them a valid weapon is empty. The Emperor has no clothes. That is the personal and political reality and it makes this vast military enterprise a show, a cardboard box, a pretense foisted on the public. We were better close it down.
In a democratic system, governments meet arguments, and these and other arguments need addressing. If they are unmet, Trident should close down. We do not make peace by promoting the most dangerous of weapons.

Self-righteousness and the Council Tax

Jesus’ life and teaching towers over human history and politics. He is the light that shows us what is going on in clarity and true perspective. First, we listen to him and then we see, darkly at first and then more clearly. More than this, the truth is not easy. We have to fight for it, inside and out. So when Jesus addresses self-righteousness among the political leaders of his day – the Sanhedrin, law-makers and Temple Party and accuses them of self-righteousness, it is not merely a local skirmish but one of the universal sins of politics. We can escape it, with God’s help, but it lurks at the door, or takes up residence in the living room, especially of Numbers 10 and 11 Downing Street. Self-righteousness is linked with hypocrisy, with being a gleaming tomb full of dead men’s bones – right on the outside and corrupt inside.

So when David Cameron writes to his local Council castigating them for their cuts, when the Council’s grants from government have fallen from £194m a year in 2009/10 to £122m this year, outwardly it righteously attacks cuts when inwardly it has caused them, and the media smells the whiff. The quest for truth, itself in danger of self-righteousness, smells out the full story as a dog sniffs for drugs. This is part of the Christian calling. We are called not to be wimps, as bishops and archbishops have often been, but to hunger and thirst for righteousness, and that is no passive supplicant business, but out there with the prophets avidly truth-seeking and outing hypocrisy.

Thus, when Osborne praises the Conservatives and himself for putting the economy right, he is hiding the bones. His “eliminating the deficit” is asking lots of poor people and organisations to take cuts so that his Government may glow with self-righteousness. It has happened before. In the Thatcher era employers sacked loads of people, destroyed the unions to depress working class pay, and told the rest to work harder, and then took the credit. They started to pay themselves mega-money, as “wealth creators”, but were extracting it from others.

It so happens that Osborne, for good economic reasons, like the fact that we are spending net 6% of our income abroad, will probably fail in this Parliament, as he did last, to balance the books. Nevertheless, the self-righteousness of the Tory establishment will not wane. Being right can always find an excuse.

But the quest for truth also leads us to ourselves. There are three main financial distortions to wealth in our economy. The first occurs through the electronic creation of money by banks which has hefted them a vast windfall of £1 trillion and more and led to the long-term City of London bonanza and the 2008 crisis. The second is the successful evasion of tax by the rich, both individuals and corporations, which has led to these groups receiving over £1 trillion they should not have, but the third, of a similar size involves many of us.

A vast majority of house owners have experienced house price rises averaging well over £100,000. Those who own these houses, some 20 million including privately rented properties, have therefore received a windfall, taking into account ordinary inflation, of well over £1 trillion, a vast transfer. This windfall does not come from no-where.

Who has paid? The processes are complex, but largely this money comes from the young who are paying vast amounts for houses or renting. Part of the story is the late middle aged beneficiaries who had lots of houses built for them, but failed to build them for the next generation. Much of the blame lies with Thatcher and Lawson who sold off Council Houses but did not use the income to build more houses. If this is deeply unfair, how can it be remedied?

Actually, there is a focussed, fair and economically sound answer. Council Tax Property Revaluations have not been done since 1993, largely because the rich who have benefitted considerably from house price rises, would also make a fuss about what is the required move in relation to paying this tax. Council Tax does not even tax the rich fairly now; someone who lives in a multi-million pound mansion only pays about three times more than someone who lives in a bedsit. Revaluation can be done now. At present Council Tax raises about £28 billion; it could easily raise twice that amount, solving most of George Osborne’s problems. It would also take the steam out of the dangerously overheated housing market in the South East. We who have had windfalls from house price rises should advocate this policy to help put right the injustice from which we have benefitted. Let’s do it and solve the Government’s problems.

One Victory for Peace – Christian Democracy in Europe after 1945

Chapter Twenty Five: One victory for Peace – Christian Democracy in Europe.
Militarism did not have it all its own way and there is one astonishing story which now enters the frame. Europe had been riven with hate, fighting, nationalisms, deep animosities and distrust for several hundred years, but starting in 1945 Europe found its way to peace. This warming story goes on at the same time as the emergence of the Cold War and its origin owes a lot to Christian principles and especially to Christian Democracy in Europe. Christian Democracy is not well understood in Britain and the United States even though it is one of the most important world political movements of the twentieth century. It has expressions which are Catholic, Lutheran, Reformed and Anabaptist and produced differently nuanced responses in Italy, Germany, the Netherlands, Belgium, Switzerland, Sweden, Norway and more recently in South America, Eastern Europe and elsewhere. It engaged in most democratic elections in Europe from the 1890s to the present under a variety of labels and was in government after many of them. I should declare an interest here, for I stood in two UK elections in 1974 and 1997 as a Christian Democrat candidate. The Fascist groups of Europe tried to close down Christian Democracy along with other groups which stood against them. The Centre Party in Germany tried to oppose Hitler, finally compromised when Hitler was close to power and was then eliminated by the Nazis. Many party members carried their principles through the 30s and the Second World War waiting to pick up the pieces.

Konrad Adenauer and the German Christian Democrat Vision.
Konrad Adenauer was one of these. He was a Catholic who became head of the Cologne Government during the First World War. He was in favour of broadening the Catholic Centre Party into a more general Christian party including Protestant groups. When the Nazis come to power, he was in and out of prison and nearly died, but lasted through the War in some ill-health. After the War Adenauer, with others, quickly formed the Christian Democratic Union and when self-government was again entrusted to the Germans in the election of the 15th August, 1949, he was head of the largest party and became Chancellor on 15th September, 1949. He was a strong critic of Prussian militarism, which he saw as lying behind the development and success of the Nazi Party. Under Bismarck it had dominated Germany during the Kulturkampf era when it set out to suppress Catholic influence, and it later provided the main impetus for the First World War and the militarism which preceded the Nazis. When Adenauer was Chancellor, though to 1963, he worked at an understanding of openness and co-operation with France, Italy, the Netherlands, Belgium and other European countries and especially linked with the Christian Democrats in those countries to form a kind of peace pact, so that never again would the countries of Europe fight one another. The model looked back to the idea of Christendom which had built a non-nationalistic conception of the states and cities of central Europe in Catholic Christianity. Adenauer was also quite prickly on some issues and sought to prevent witch-hunts against Nazis sympathizers, so this was no idyllic transition, but the transformation of basic outlook in Germany was deeply formative in the post-war era.
Another element played into the scene. Germany is historically a federation of Länder, looking back to the city states of the German-speaking peoples for centuries in both Catholic and protestant eras, and this non-centralised model became the federal basis of the new German Federal Republic. This was reflected in choosing Bonn as capital, another emphasis from Adenauer to get away from the Prussian Berlin in the formation of the new Germany and the centralization of the State which occurred with Hitler. So Germany and central Europe generally underwent a strong and peaceward change in the philosophy of society which shaped political practice.
Though this was true, the actual transition in Germany was more tense and mixed. First, the level of rawness and destruction wrought by the War was great. Many were suffering Post Traumatic Stress Syndrome from bombing and death and this level of trauma played out in many families and towns in acute suffering. It also took years of hard work to clear up the devastation, and the German women especially set about it with an amazing commitment given their suffering. Second, Adenauer and others had to relate to substantial level of Nazi support and presumably internalized attitudes present in the population, the guilt for war. Adenauer’s understanding was that there were only a few real Nazis and others had been taken in by the Nazis – a minimal blame understanding. It was a useful myth for a kind of get back to normal occurrence, and then the German people moved through to a fuller acceptance of guilt. The new regime had to work through this sympathizer generation, and to the often annoyance of the Allies they did, without a make-all-Nazis-suffer attitude. This happened and made a sounder basis for real national remorse. Third, there was the direct threat from the East, signalled in the Berlin Air Lift stand-off. Fourth, Germany had to address its militarism. Adenauer for a long while was a strong supporter of the German High Command, seeking to get a German military re-instated from the time he became Chancellor. In 1950 with the start of the Korean War both the United States and Britain agreed that Germany should be re-armed to deter the Soviet threat in Eastern Europe. At the same time France was utterly opposed to German rearmament, and it would be fair to say that the negotiations on this development were convoluted and not marked by mutuality. Yet, Adenauer came to accept and work with the French position, understanding it and accommodating to it. Further, Adenauer was far from generous to those who had suffered under Nazi persecution. Yet, against all these tensions, and as a new generation grew through, Europe as a community of nations and friends, interacting, travelling, trading and agreeing policies became a reality. It was, and is, a resounding success for peace.

Robert Schumann and the French Vision.
It was reflected in an amazing change of cultural attitudes. It was especially personified in three people who stuck together – Alcide de Gaspari, the Italian Prime Minister, Konrad Adenauer, the German Chancellor and Robert Schuman, French Foreign Secretary and twice Prime Minister. All three were Catholics, Christian Democrat politicians and happened to be able to converse in German. They were friends and formed together the understanding of Europe as a community of respect and mutuality, which had to bring to an end the threat of war in Europe. Schuman and the French were key, because they had to forgive and put out their hand to the aggressors in the Second World War. Schuman did that. He was a warm, shy, forgiving Christian man. France was the victor in the war, although it suffered deeply, and its distrust of Germany had to be great, but Schumann saw beyond victory and distrust to peace and forgiveness. He was a celibate Christian and Bible scholar, formed by the thinking of St Thomas Aquinas, Pope Pius XII and Jacques Maritain, another important Christian thinker of the era who shaped a deep understanding of Christian democracy. Schumann nearly went to Dachau during the War, but survived, and had a strong vision of the unity of Europe. He aimed for a “school where Christian principles are not only applied and proven in the relationships of man to man, but succeed in overcoming the prejudices and emnities which separate classes, races and nations… we need apostles of reconciliation… It is not a question of changing policy; it is a question of changing men.” This was his big historical vision.
“We are carrying out a great experiment, the fulfillment of the same recurrent dream that for ten centuries has revisited the peoples of Europe: creating between them an organization putting an end to war and guaranteeing an eternal peace. The Roman church of the Middle Ages failed finally in its attempts that were inspired by humane and human preoccupations….The European spirit signifies being conscious of belonging to a cultural family and to have a willingness to serve that community in the spirit of total mutuality, without any hidden motives of hegemony or the selfish exploitation of others. The 19th century saw feudal ideas being opposed and, with the rise of a national spirit, nationalities asserting themselves. Our century, that has witnessed the catastrophes resulting in the unending clash of nationalities and nationalisms, must attempt and succeed in reconciling nations in a supranational association. This would safeguard the diversities and aspirations of each nation while coordinating them in the same manner as the regions are coordinated within the unity of the nation.” (Strasbourg, 19th May, 1949)
Schuman worked with Jean Monnet, another Catholic, in forming the French reaction to the end of the War, and it took shape in this direction of long-term peace and forgiveness. Perhaps the crowning moment of the vision was when Charles De Gaulle, another Catholic, but also the personification of the French resistance to Germany during the Second World War invited Konrad Adenauer to share a thanksgiving Mass in Rheims Cathedral on the 8th July, 1962. Before God they engaged in a public act of forgiving and forgetting, which showed just how far this especially French commitment had also gone.

Churchill, Britain and Europe.
Schuman’s vision was different in shape from a similar perception by Churchill. Already at the end of January, 1943, while visiting Turkey, Churchill began to form the idea of a United States of Europe. It was to be part of the United Nations, premised on the victorious powers continuing fully armed. Churchill conveyed this message on the 19th September, 1946. He addressed the “Tragedy of Europe” in beguiling terms.
“This noble continent … is the fount of Christianity and Christian ethics [stretching it a bit] and the origin of most of the culture, arts, philosophy and science both of ancient and modern times.” [flattery] Then after portraying the horrors of a post-war Europe, torn asunder, he set out his plan. “It is to re-create the European Family, or as much of it as we can, and provide it with a structure under which it can dwell in peace, in safety and in freedom. We must build a kind of United States of Europe. In this way only will hundreds of millions of toilers be able to regain the simple joys and hopes which make life worth living. The process is simple. All that is needed is the resolve of hundreds of millions of men and women to do right instead of wrong, and gain as their reward, blessing instead of cursing. Much work has been done upon this task by the exertions of the Pan-European Union which owes so much to Count Coudenhove-Kalergi and which commanded the services of the famous French patriot and statesman, Aristide Briand. There is also that immense body of doctrine and procedure, which was brought into being amid high hopes after the First World War, as the League of Nations. The League of Nations did not fail because of its principles or conceptions. It failed because these principles were deserted by those States who had brought it into being. It failed because the Governments of those days feared to face the facts and act while time remained. This disaster must not be repeated. There is, therefore, much knowledge and material with which to build; and also bitter dear-bought experience. I was very glad to read in the newspapers two days ago that my friend President Truman had expressed his interest and sympathy with this great design. There is no reason why a regional organisation of Europe should in any way conflict with the world organisation of the United Nations. On the contrary, I believe that the larger synthesis will only survive if it is founded upon coherent natural groupings.”
This vision reflected Churchill’s generosity of spirit, especially towards France, but it was also reflected his attitude to the USSR. He had just made his “Iron Curtain” speech in the United States and was clearly formulating bulwarks against the Communist menace, as he perceived it. So Churchill’s vision was substantially a military one against the USSR, and he saw Britain’s foreign policy as mainly a special military and economic relationship with the United States, with the Empire/Commonwealth and the United States of Europe as part of the picture, providing three levels of British security, and so it has largely been. Churchill did not have the vision from within Europe or the same Christian Democrat basis for seeing the communal unity, though he was aware of it. Although similar Christian connections also draw the Commonwealth together, as Queen Elizabeth often recognizes better than her governments, Britain has remained on the edge of this vision.
Alcide De Gaspari and the Italian Perspective.
A similar vision existed in Italy. De Gaspari was a Catholic academic who worked in the Catholic student movement and developed within the kind of vision set out in Pope Leo XIII’s Encyclical Rerum Novarum addressing the condition of the poor. He entered politics, but when Fascism dominated under Mussolini, he opposed it, was arrested and sentenced to four years in prison, but with the help of the Vatican he moved into a job in the Vatican library for fifteen years. When Mussolini fell he helped form the Christian Democrats and became their leader and the Prime Minister from 1945 to 1953, no mean achievement in Italy. He put together coalitions including groups from Communists to Nationalists and established Italy as a stable democratic country after two decades of Fascism. De Gaspari was widely trusted and respected, and the long Catholic stand against war was a relief to the Italians after a long subjection to the Mussolini frog marching Fascism. De Gaspari, too, got on with Schuman, Adenauer, Monnet and the others in a co-operative rebuilding of Europe.
Italy, like Germany, rediscovered another part of their Catholic and Protestant past. Europe had been, before this rampant nationalism set in been a cosmopolitan Catholic, Protestant and Renaissance culture. Dante, Michelangelo, Monteverdi, Erasmus, Shakespeare, Dürer, Luther, Calvin, Leonardo, Voltaire, Bach, Pascal and many others were European thinkers both in their own work and through dissemination. Europe had been the world’s richest international cultural debate, and Italy was part of all the countries of Europe. This cosmopolitan culture was rediscovered as the paucity of Fascist art and marching music was discarded and receded. Italian art and economics was part of European culture again. So with the quiet work of De Gaspari and others Italy and Europe was healed. When he died on the 19th August, 1954, about a year after he ceased to be Prime Minister, he was found to be so poor that he was to have had to have the normal pauper’s burial provided by the state. But it probably did not concern him a great deal.

The Dutch Contribution.
In the Netherlands there was a long history of proud independence since the Spanish Wars of the early 17th century and also a strong tradition of Protestant and Catholic political party contributions since the late 19th century. The Calvinist Anti-Revolutionary Party (ARP) founded by Groen van Prinsterer and Abraham Kuyper became a party of government at the beginning of the twentieth century. Another Protestant Party, the Christian Historical Union (CHU), was a formative influence on Dutch politics, and the Catholic Party (KVP) growing out of Rerum Novarum in the 1890s was also deeply formative and a normal party of government. British people do not understand that all of these parties had an agenda for the poor and Dutch politics did not have the same Conservative-Socialist split of British politics. In the First World War the Netherlands did not participate. It is often stated to have been neutral, not for one side or the other, but it was also for peace and non-conflict, the position of both the Catholic and Kuyperian traditions. Thus, the Dutch were fiercely independent and also had a strong principial dislike of totalitarianism. When in the Second World War arrived they were unceremoniously invaded by Germany on the 10th May, 1940 and were rapidly forced to surrender. Rotterdam was bombed to the ground in the process. The Dutch were submitted to forced labour for the Germans. They also faced the Holocaust of some 100,000 Jews who lived in the Netherlands despite a strike against the deportations in February, 1941 and an active underground. At the end of the War, with famine, emigration of 500,000 citizens and loss, there was deep seated anger at what the German state had done. But it learned forgiveness. Over time, the values of democratic Christian Democracy and of Socialism re-established themselves and the Dutch welcomed a European community of nations without national animosities and became one of the cornerstones of European co-operation. Most Dutch speak French, German and English, and its linguistic openness was another point of intergration in the new European community.
Corrie Ten Boom, who had been put in Ravensbruck Concentration Camp describes forgiveness.
It was in a church in Munich that I saw him—a balding, heavyset man in a gray overcoat, a brown felt hat clutched between his hands. People were filing out of the basement room where I had just spoken, moving along the rows of wooden chairs to the door at the rear. It was 1947 and I had come from Holland to defeated Germany with the message that God forgives. It was the truth they needed most to hear in that bitter, bombed-out land, and I gave them my favorite mental picture. Maybe because the sea is never far from a Hollander’s mind, I liked to think that that’s where forgiven sins were thrown. ‘When we confess our sins,’ I said, ‘God casts them into the deepest ocean, gone forever. …’The solemn faces stared back at me, not quite daring to believe. There were never questions after a talk in Germany in 1947. People stood up in silence, in silence collected their wraps, in silence left the room. “And that’s when I saw him, working his way forward against the others. One moment I saw the overcoat and the brown hat; the next, a blue uniform and a visored cap with its skull and crossbones. It came back with a rush: the huge room with its harsh overhead lights; the pathetic pile of dresses and shoes in the center of the floor; the shame of walking naked past this man. I could see my sister’s frail form ahead of me, ribs sharp beneath the parchment skin. Betsie, how thin you were! He would not remember me, of course—how could he remember one prisoner among those thousands of women? But I remembered him and the leather crop swinging from his belt. I was face-to-face with one of my captors and my blood seemed to freeze. ‘You mentioned Ravensbruck in your talk,’ he was saying, ‘I was a guard there.’ No, he did not remember me. ‘But since that time,’ he went on, ‘I have become a Christian. I know that God has forgiven me for the cruel things I did there, but I would like to hear it from your lips as well. Fräulein,’ again the hand came out—’will you forgive me?’And I stood there—I whose sins had again and again to be forgiven—and could not forgive. Betsie had died in that place—could he erase her slow terrible death simply for the asking? It could not have been many seconds that he stood there—hand held out—but to me it seemed hours as I wrestled with the most difficult thing I had ever had to do. For I had to do it—I knew that. The message that God forgives has a prior condition: that we forgive those who have injured us. ‘If you do not forgive men their trespasses,’ Jesus says, ‘neither will your Father in heaven forgive your trespasses.’ ‘Help!’ I prayed silently. ‘I can lift my hand. I can do that much. You supply the feeling.’And so woodenly, mechanically, I thrust my hand into the one stretched out to me. And as I did, an incredible thing took place. The current started in my shoulder, raced down my arm, sprang into our joined hands. And then this healing warmth seemed to flood my whole being, bringing tears to my eyes. ‘I forgive you, brother!’ I cried. ‘With all my heart!’ For a long moment we grasped each other’s hands, the former guard and the former prisoner. I had never known God’s love so intensely, as I did then.
Forgiveness was the bedrock of the new Europe, one that no longer needed to fight.
The Christian Democrat vision, especially in the Netherlands, contained another important dimensions in the central idea of governance, not recognized in Anglo-American culture, but most strongly formulated by Abraham Kuyper, the Dutch Prime Minister, often called sphere sovereignty. The normal model in much western political ideology is of the State over society or a collection of individuals. In the Fascist model the state embodies and directs the whole of society and the economy. Yet a Christian understanding is different. It sees a number of institutions as God-given and comprising the plural fabric of society. These include marriage and family, work and economic activity, education, church and religious formation, and community relations as well as the state. Essentially the state is not “sovereign”, limited, has no absolute authority, is under law and involves responsibilities, and must honour other institutions. Indeed, the word, “institution” has its meaning in the idea that God has instituted these areas as part of our normal lives and in all these areas we are accountable to live freely and faithfully in an open God-ward direction and not through State surveillance. Thus, there is no absolute or totalitarian state, but all institutions are part of the way we are called to live. This pluralism, or sphere-sovereignty, as the Dutch call it, gives a much more open view of society. The Christian Democrats in Germany, the Netherlands, Belgium, France, Italy and elsewhere shared much of this perspective. This pluralism, reflected in the work of many Christian social and political philosophers, is less understood in English-speaking traditions.
Indeed, it went further than this, for the understanding in the Netherlands, Belgium and to some extent Germany was that in each institutional area, not just in politics, democratic variation should be allowed as people followed their own perspectives in the media, education, work and unions. This pillarisation, or Vezuiling, made sure that ideological pluralism was allowed in all institutional areas of society – schools, business and unions, the media, arts, universities, families and religion. Abraham Kuyper, Prime Minister of the Netherlands at the turn of the century, developed this perspective most fully. It is, in fact, recognizing democracy, the right of people to say and live by what they believe in every area of life, not just in politics. Christians accept this position because they are Christian. God is sovereign and no human institution, state, party or person should be sovereign. You can believe the truths of God, and respect everyone else’s beliefs because they too are part of God’s open society. It is the most radical understanding of democracy that has ever been developed, and it merely reflects the way Christ actually lived. Martyrdom in Christianity reflects this holding of the Christian truth and the suffering it may produce, and Luther’s Protestant stand, “Here I stand; I can do no other. So help me, God.” is similarly nonconformist in this deepest sense. Nonconformity is, in part, nonconformity to the absolutist state. Given that so many Jews and Christians had suffered under the Nazis with these views, although a lot had died for them, it is not surprising that their weight should reappear in European political thought as a major Dutch contribution to European non-totalitarianism reflecting the deep convictions found among hundreds of thousands of churches throughout Europe and millions of Christians.

The Catholic Church and the Papacy.
Here, we must say something about the long-term influence of the Catholic Church on the peace of Europe, partly because it has been poorly understood. In the First World War Pope Benedict XV consistently opposed the War, pointing out the evil and destruction which would follow. He was right and was not thanked by the belligerents. He proposed the Christmas truce in December, 1914 and then another cease-fire and truce later in the War. But the combatants were not able to withdraw from the War without looking silly, because a 1-1 draw when millions had died did not look good. The Pope was therefore marginalized in a fairly deliberate way, especially at the Versailles Peace Conference. Given President Wilson’s precarious position at home, it turned out to be a serious mistake. In the 1920s the papacy continued to work for peace, and it was the driving force behind millions of signatures backing the Great 1932 Geneva Disarmament Conference. It failed, as we saw in War or Peace?, mainly through Japanese militarism, the arms companies and British negativism.
Catholics opposed Hitler in principle on his way to power and exposed its ideology. They attacked its racism. The Nazis in turn hated Catholic internationalism. When the Nazis came to power, Pope Pius XI tried a Concordat with Hitler in 1933, but the Führer ratted on that, and Catholic persecution was one of the earliest cases of Nazi oppression. Goebbels, Himmler, Bormann and Heydrich were vehement anti-Catholics. The rich heritage of Catholic schools, universities, colleges, newspapers, monasteries, political parties, welfare programmes, youth movements and trade unions was closed down, often with real venom. Monasteries became brothels. Leaders were murdered. From 1935 clergy were sent to Dachau Concentration Camp, and by the time the War was underway some 3,000 were there. In 1937 the Papal Encyclical Mit brennender Sorge (with burning concern) was read from pulpits but then confiscated by the Gestapo to wipe out co-ordinated opposition. When the Nazis moved into Poland they murdered two thousand Catholic clergy and thousands of other Catholic leaders as part of their aim to destroy all Polish independence. In Austria Catholic leaders were persecuted; Odilo Globocnik in Vienna led the attack. Otto Neururer was tortured and hanged and Jacob Gapp was guillotined in Berlin. Catholic protestations were put down decisively by mobs. Similar patterns occurred in Czech and Slovene areas. It was going to be Catholic annihilation.
Finally, when the Nazis and Mussolini were fully in power, each established their own Fascist Churches to supplant Christianity completely. In 1936 Hitler created the Reich Church. This did not have the Christian cross as its symbol but the swastika. The Bible was replaced by “Mein Kampf” which was placed on the altar. By it was a sword. Only invited Nazis were allowed to give sermons there. It was meant to be the replacement of Christianity. The Nazis planned on ceasing publication of the Bible. As the War approached Pope Pius XII in both Germany and Italy had little hope but to save lives. The Catholic Church again espoused neutrality, meaning it was against the War, and the Papacy acted carefully so as not to jeopardize the lives of yet more. When you do not fight, and are under duress, with people depending for their lives on you, that is the kind of thing you have to do.
But wars come to an end. They have to come to an end. And peace without enemies has to work, because there is no other option, and in 1945 the Catholic Church was ready for peace. It had done no killing. And through Catholics in Germany, Italy, the Netherlands, Belgium, Austria, Switzerland, Britain and elsewhere a kind of peace grew out of the chaos; they could be trusted. Gradually a community of nations took place and grew, replacing national militarism with trust and mutual respect. The command of Christ that we love one another was obeyed and people made decisions to be friends across previous persecution and national boundaries. It is an unrecorded history. They were going to respect one another and bury militarism as a way of relating. It took root, grew and showed the success of ordinary neighbour love and peace in human political affairs. We learned that nation can speak peace to nation, and this victory is with us today so that military confrontation between the states of Europe is now unthinkable. That a great victory and as a Protestant I thank the Catholic Church for its deep contribution to it.

Money Creation, Credit Seigniorage, Vanishing Money and the Banking Crises

email comments to alan@storkey.com. Any reasonable use may be made of all or parts of this paper. This version: 05/11/2011, early versions 2008-9.

Summary.
As a series of severe banking crises occur throughout the western world, it is not clear that all the underlying causes have been understood. This paper examines quite a simple part of the pattern which has been ignored. The electronic creation of money through credit is one of the components of the world-wide surge in banking disorder and has created massive structural distortions. One aspect of this process is credit seigniorage, the windfall that accrues to any agent who has money accepted into circulation. This article argues that credit seigniorage has fuelled the boom in world-wide banking credit and is more recently creating problems for the banks. Further, the mistakes in understanding this basic concept are reverberating and becoming more serious with the sovereign debt crisis and the extensive use of quantitative easing.
The “creation” of credit money by the banks has become a large scale phenomenon over the last three decades or more. It creates a long-term skewing of resources which needs to be understood more thoroughly and is perceived by those who say that the banks have become rich at the expense of the rest of us. Seigniorage explains how this happens. Traditionally, of course, state banks have received this windfall through the issuing of notes and coin, and we have been happy, given discipline over the money supply, for this windfall to accrue to the state and be offset against tax. Most commentators on seigniorage mistakenly seem to limit the term only to state-created money. Yet, of course, for decades most of the money supply has been electronic money created within the banking system by the expansion of credit. This money, measured by M1-M3 in different economies, generates windfall seigniorage by exactly the same logic as operates through fiat money, though in a slightly disguised form.
No real notice has been taken of this windfall, running into trillions of dollars, accruing over the last few decades, and its effects on the world’s banking systems. It has predisposed towards undisciplined expansion, high bonuses, and the presumption that all banking business is more profitable that it actually is in proper accounting terms. It has encouraged leveraged credit expansion of financial markets when this is without economic justification and a range of financial illusions. The full etiology of these processes is complex, because they involve national budgets, bank policies, forms of institutional lending, international currencies, reserve currencies and the policies of state and trans-state banks, but the underlying electronic seigniorage effect has been present from Iceland to Greece.
As these crises have unfolded, seigniorage has become crucial in two other developments. The first is through negative seigniorage, the reverse of the seigniorage windfall outlined above, which many banks find eroding their cash position when they try to contract credit. As banks contract in concert – a requirement in the face of debt difficulties – they also face negative seigniorage generated by other banks doing the same thing. Although this effect is not equally distributed, it creates further difficulties for the return to stability, through what we will call “vanishing money”. Addressing this problem has been vital for the Bank of England and shows the importance of quantitative easing.
Second, qualitative easing, QE, prevents the banks from entering a crisis of contraction through vanishing money and this concept shows why it has especially needed to be used by the Bank of England to stabilize the system. It can also be partly understood as an attempt by central banks to wrest back some seigniorage windfall for themselves to offset sovereign debt. As they issue cash for bonds, the sovereign bank reclaims some of windfall that has accrued to the commercial banks. The banks increase their holdings of cash reserves and the seigniorage effect accrues to the state by amortizing billions of debt payments and effectively calling in private seigniorage. But the main point is that as the banks deleverage and contract credit, they are in a long and difficult process of adjustment which prevents many normal credit operations and the Bank of England has facilitated this process.
The argument here is that these windfall and blow-away effects must be taken into account in relation to investment banking, bank lending policy, bankers’ bonuses, reserve currencies, banking regulation and banking contraction. This study merely opens the discussion; it focusses, partly parochially, on the United Kingdom, but it has obvious similar significance for the United States and the Euro-zone countries. Obviously, this paper can only sketch the issue.

1. Why the “success” of British banking?
One way into the issues is the question posed above. Over the last few decades we have been regaled with the idea that the banking industry has been highly successful, especially in the City of London, through the global supply of financial services. For example, the City of London claimed in early 2008 that 60% of the growth of GDP over the last five years had come from the financial sector. This is an astonishing claim, but we have not asked why this sectorial growth might have occurred. If financial services in the UK economy have grown from something like 5% of GDP to 10% five years later, why has this skewing occurred and why so suddenly? After all banking has been around for quite a time. It can be seen as a “banking success”, reflecting the genius of the bankers involved, or perhaps as a particular distortion of the economy resulting from a totally new development. Much attention has been focussed on the collapse of particular banks in 2008, but relatively little on why this sector had earlier become so big, particularly in Britain. Was it a sudden miraculous gain in market efficiency among companies which had long been involved in international finance or is there some other explanation? This buoyancy of UK banking is really an unexplained phenomenon, aside the self-promotion of bankers.
The suggestion here is that it is substantially the outcome of a seigniorage effect resulting from the creation of near money resulting in a windfall, for example, to the banking sector in the UK of £30bn and more a year over a substantial period of time.

2. The re-emergence of private sector money creation and seigniorage.
The structure of money creation is well known, but is also ambiguous. Fiat money, traditionally bank notes and coin, is created by the central bank putting them into circulation through its normal operations. Extra paper money produces seigniorage, the value of notes minus the cost of producing them, say £19.80p on a twenty pound note; it is a one-off windfall bonus to the Bank of England and the Treasury, reflecting the simple fact that paper money has only the value given it by conventional usage and not the production costs of gold or silver. Seigniorage remains significant wherever money can be brought into conventional usage; it is a pure windfall to its creators. Gradually, commercial banks have ceased printing their own notes, outside Scotland, where the seigniorage effect is now nullified by the Bank of England, so that printing notes has not normally been a matter of private profiteering, and we have forgotten the important issue of private money creation. On the whole, we do not mind fiat money windfall, because it is received by the central bank, can be offset against taxes and does not accrue to private bankers. The central bank is expected not to make excess seigniorage profit by expanding the paper money supply by more than the growth in GDP, otherwise it is skewing the economy towards the public sector without proper fiscal decisions.
Yet, in more recent times money “creation”, or more accurately, money making, has moved from the central bank to being generated largely by private banks through credit expansion. The money is electronic in the sense that it does not even require paper manufacture, but merely exists in a variety of accounts and transfers. The cost of manufacture is even lower than fiat money. How is this money created? Before Reagan and Thatcher there was a crude control of credit through fractional banking, which to some extent disciplined the banks. In the early 80s the banks themselves pushed for deregulation, and met willing support in Reagan and Thatcher and the new era began. During that period the Monetarist myth was that as long as the State money supply was held stable, preventing inflation, the banks could be free to manage their own credit and liquidity, which they then did. Gradually, the expansion of credit and the money supply grew to something between 5-10% year on year. The reserve ratio of cash and near money to liabilities fell, say, from 8-10% to 3%, and fractional control became quite passive through general processes of deregulation. So, notes and coin have been vastly overtaken as the normal form of money by electronic money in bank accounts allowing instant or relatively short-term withdrawals of cash. As a result of these trends banks increased their leveraging from, say, ten to twenty or thirty.
There are two ways of looking at these accounts. At one level each transaction is a debit and a credit and the whole system, except bad debts, is a matter of the balance sheet. That is the conventional understanding and it remains true as a matter of bank accounting. Even though accounts may be balanced, it matters whether M3 is one or two trillion; it is a difference of enormous economic significance. Mere accounting does not address the importance of money creation which adds to the money supply and must produce a windfall equivalent to its size. We have ignored the scale and significance of this process for the last three decades or so, partly because it is disguised. Yet, b anks have been extending credit to the tune of an extra £30 billion or so a year, and provided they roughly keep in step, they receive back deposits of roughly an extra £30 billion a year. The money which has been loaned on credit must find its way into one bank account or another, because today there is nothing else you can do with money. We, the public treat our demand and savings accounts as money and thereby give the banks a windfall of these extraordinary proportions. Because electronic money is now currency, the banks get back what they have lent and are free to invest most of it again. It is as if Fred came up to me, the banker, and asked to borrow a hundred quid at 10% interest, but then handed the notes back to me, and said, “Here you are, look after these. I probably won’t be back for a while. Do what you like with these.” Individually we do not usually do this, but collectively that is exactly the effect. If Fred pays someone else the hundred quid, they also put it in the bank, because bank accounts have become the dominant form of money.
Let us check the question of whether this money is created. The money comes into them through current and savings accounts. The current accounts cost the banks no interest and the savings accounts realise one or two percent for the customers against an inflation rate of two percent or more. Customers pay mildly for the banks holding the money and the provision of services. There are service charges, but the main “service” is holding money in our accounts, which the banks say is money. They, not the Bank of England, as we are rediscovering, validate money by having sound accounts and on the basis of habitual trust. As long as they have some kind of cash reserve to meet the normal demands of transactions (which will merely be moved from one account to another), the banks have the money back from Fred and can use it again.
This phenomenon has been largely ignored in the literature. Alan Greenspan back in the mid 90s put his toes in the water and recognised the possibility of seigniorage being garnered by the private banks from the public sector in a pithy comment.
That signal may not be so readily evident in the case of electronic money. The problem is seigniorage, that is, the income one obtains from being able to induce market participants to employ one’s liabilities as a money. Such income reflects the return on interest-bearing assets that are financed by the issuance of currency, which pays no interest, or at most a below-market rate, to the holder.
Historically when private currency was widespread, banks garnered seigniorage profits. Seigniorage increasingly shifted to the federal government after passage of the National Bank Act, when the federal government imposed federal regulation on bank note issuance, taxed state bank notes, and ultimately became the sole issuer of currency.
Today, there continue to be incentives for private businesses to recapture seigniorage from the federal government. Seigniorage profits are likely to be part of the business calculation for issuers of prepaid payment instruments, such as prepaid cards, as well as for traditional instruments like travelers’ checks. As a result, in the short term, it may be difficult for us to determine whether profitable and popular new products are actually efficient alternatives to official paper currency or simply a diversion of seigniorage from the government to the private sector. Yet we must also recognize that a diversion of seigniorage may be an inevitable by-product of creating a more efficient retail payment system in the long run.
Greenspan interestingly signals the strategic way in which seigniorage can be captured from the federal government, but it does not seem that he sees the full significance of electronic money creation, the full scale of the process of “recapture” that has gone on in the private sector. He seems to see it as quite a marginal part of private banking, limited to travellers’ checks and the like. Yet, the “by-product” may be the elephant in the room. It is ubiquitous. The argument here is that all electronic money creation, save some minimal administrative, interest and risk costs, is windfall seigniorage.
3. Seigniorage and leveraging in the banking system.
Where does the windfall fall with this long-term creation of money through credit? Where are these windfall profits fluttering down? Strangely, the outcome is masked, because the archetypal move occurs after credit has been extended and the money is returned to demand or near demand accounts. The general pattern is roughly as follows. Bank A issues credit, money made over to a customer in return for interest. This first relationship is a credit-debt transaction, and results in no seigniorage to the bank concerned; it is the normal accounting we assume in all financial transactions. Money has been lent – let us treat it as new lending – and a debt ensues from which the bank receives interest, but it has no more money. Bank A has to make sure that it is a sound loan. It is when the person who has taken out debt puts his money in “another” bank that the seigniorage occurs. Suddenly bank B has an influx of cash which adds to its funds; it is created money which it has received largely as a holding bank. As the accounts of incoming customers grow, they constitute a vast pile of electronic money, assuming quasi-permanent status distributed through the system by millions of transactions. All banks are bank Bs. It is this that makes the effect unnoticed. It is not easy to make a trillion pounds of windfall profits invisible, but because the process is disseminated, we do not notice it as such. The banks who probably have not even worked out what is going on – this is not a conspiracy but a muddle – claim the credit for the windfall (pun intended). The liquid reserves needed to service these accounts is merely some fraction of its total, say 10% at a maximum, and the bank perceives that it has 90% of this new incoming money to invest, spend on bonuses, construct new offices and so on. It is effectively double lending on all the newly created money. But it does not stop at double lending, because the 90% of the 90% can be lent as well, and the bank can leverage its lending still further. Broadly speaking banks have been able to leverage up to thirty times the value of their assets. This leveraging, over against the capital base has become the distinctive feature of the new megabanks.
We note that this pattern arises from the windfall from seigniorage. Because people treat credit-created bank money as money, and hold it at near zero or below zero rates, the banks are able to lend and relend, generating enormous power beyond their capital base. This is why the banks are post-capitalist, in the sense that their capital base has relatively little importance in relation to their overall lending. The leveraging of the banks has increased vastly since the era of fractional reserve controls. For example Barclays Bank has loans of above a trillion or so on capital base of about $62 billion, and is thus leveraged at about twenty times in the 2010 Annual Report, and this level has risen quite markedly at certain times. It is this situation that generates the need for financial instruments to try to cover the risks of this level of leverage. This is quite dangerous in difficult times because all the banks face similar levels of changed risk, and deleveraging on this scale is well nigh impossible. Further, there is little hope of meeting risk from capital reserves, although the Governor of the Bank of England wisely counsels this. The banks rely largely on their immediate policy of liquidity, and thence on the Central Bank. This explains many of the characteristics of the banking boom which is now in crisis, but cannot end. It has dominated the system and has driven the actual money supply to near exponential growth over some three decades and has no possibility of contraction without facing the seigniorage losses of credit contraction which we consider below. Historically the loss of control of credit expansion under Reagan and Thatcher unlocked this slow explosion. We also need to be aware of the way this skews the economy away from manufacturing and other sectors especially because British banks have tended to lend internationally. Further, we need to see that the availability of this seigniorage windfall also makes it easy for governments to borrow money and increase sovereign debt, since one of the dominant uses of these vast amounts of bank credit has been to lend to states willing to expand their debt, rather than tax or cut. The sovereign debt crisis we are now struggling with has been in part demand led by the banks.
5. The Scale of Credit Seigniorage.
Credit seigniorage has been growing for the last three decades. An obvious way of estimating it is through the growth in the various measures of the money supply. Let us quickly review what they are. M0 is notes and coin. M1 includes current accounts. M2 also includes savings accounts and small Credit Deposits or fixed term loans to the bank. M3 includes larger CDs and M4 in Britain includes other commercial loans. M1 and M2 receive low rates of interest, especially in real terms, where they are often negative. Which measure is most helpful in this case is a matter of debate. M4 may be too broad, but it is a good approximation to the overall seigniorage phenomenon we are considering. M2 is roughly two thirds of M4 for much of the period with which we are concerned with and offers a conservative estimate of the phenomenon we are examining. If we begin with the Thatcher era, the money supply, measured by M4, was around £100 billion. By 1990 it was up to £477 billion. Clearly this was the period when the brakes really came off. One of the best kept banking secrets was the way Midland Bank was kept afloat after its crisis in the mid eighties associated with large South American loans, partly because of the easy money which was now beginning to flow. During this period, too, the more conservative mutual and trustee banks were taken over, often by near illegal activities (especially in the case of the Trustee Savings Bank, whose assets were appropriated to the State through promises to the Trustees of lucrative directorships). We take up the fuller story in 1990, looking at M4, M2 and their annual increases as a rough guide to the scale of the seigniorage effect.
Table One: 1990-2009 UK M4 Money stock, annual increase, M2 money stock and annual increase. Figures in £billions
Year M4 Increment M2 Increment
1990 £477bn 50bn 310 18bn
1991 504 28 336 23
1992 518 18 373 10
1993 544 24 395 19
1994 567 25 410 18
1995 624 56 437 27
1996 683 59 460 24
1997 722 80 485 36
1998 783 60 515 31
1999 815 32 559 39
2000 883 67 598 39
2001 943 59 650 53
2002 1,009 69 704 54
2003 1,082 73 777 72
2004 1,179 100 846 69
2005 1,328 150 923 78
2006 1,499 167 997 73
2007 1,675 189 1,071 65
2008 1,937 259 1,124 49
2009 2,049 134 1,184 60

This table, retaining the actual amounts, shows tens of billions of seigniorage flowing into the banking system each year in the biggest bonanza British banking has ever known. There are some transactions costs and low interest rate costs on these billions, but largely they are a windfall to the full banking system. Of course, the same process was underway in the United States and other western economies. In the UK the seigniorage effect was something over £1 trillion. In the United States it is about $8 trillion and in Europe about €9 trillion. In each area the same kind of effect is evident. Roundly, we could say that it has been quite usual to pump £30 billion windfall profit into the UK banking sector in any year, but in the naughties it was two or three times this amount. This is enough to explain the kind of skewing we examined at the beginning of the article towards banking expansion and the growth of the City of London financial sector. It also explains bankers’ bonuses, as we consider later. The annual growth in the money supply is something between 5-10%, way above the overall growth of GDP, and again explains the skewing towards the financial sector. Because this money comes to be seen as a nearly permanent part of the money supply, it becomes a presumptive source of profit within the financial sector. The sector boasts of its profits; the only problem is that it has not earned them.
This is especially a problem of the United Kingdom. This can be seen by is to consider the ratio between M0 (notes and coin) and a broader measure, in this case M3. Using standardized data prepared by Mike Hewitt , the ratio stands at about 1 to 14 for the European Union as a whole, 1 to 16 for Japan, 1 to 11 for Saudi Arabia and 1 to 7 for India. For the UK it is 1 to 39. Even the United States generates a ratio of only 1 to 17, although that relaxed after the 2008 crisis to about 1 to 28. It is largely a western phenomenon and the UK has been especially bad in allowing this expansion of the money supply. New Labour carried on the trend started in the Thatcher era. Broad money, and the resultant seigniorage has grown at approaching 10% a year for much of the last thirty years since the easing of credit that took place under the Thatcher Conservative Government, way ahead of the growth in the real economy, and the Blair Government merely continued the same trend. Brown’s (really the Treasury’s) emphasis on the Bank of England having an independent role in controlling inflation merely continued the deregulated credit boom. Inordinate attention was paid to interest rates, while this fundamental expansion in the wider money supply was ignored. Meanwhile, the financial sector, buoyed by its windfall profits, was becoming financially lax and slowly undermining the credit-worthiness of its major operations in housing, government lending and personal credit, because this windfall was misinterpreted as good banking. This was a process of pouring free funds into the banking sector. After all, a windfall of £1 trillion or more is enough to loosen the financial accountability of the banking system, hasten its inefficiency and create a bonus bonanza culture of the kind that has happened in the banking sector.
6. Some reflections on money.
We need briefly to consider in principle the place of money in the structure of the economy. Often texts look for neutral or technical definitions of money. This is not possible, because money is a communal phenomenon. Money is for everyone to use in their transactions and must reflect and represent their contributions in work, goods, production, saving and service in a roughly equitable way. It requires trust and must carry value fairly across the transactions of the economy. St Paul’s Cathedral oversees the financial sector, and it denotes the way in which the biblical principle that we are to love our neighbours as ourselves undergirds financial transactions and establish the trust that we must have in the money we use. Money should be fair to everyone. Counterfeiters, bank robbers, printers of inflationary sovereign debt and creators of electronic money have departed from that. They have found a way to love themselves at the expense of the rest of us. If one group is given a windfall of £1 trillion, that grossly undervalues the work and contributions of others. The creation of money should be spread fairly throughout an economy to reflect the mutual contribution of all its participants.
Conversely, the worship of money as something which is self-referencing, worshipping Mammon, creates a cultural lie. That the post Thatcher economy in part has done, and the bankers have become the owners of the cult. The City of London believes it “makes money”, and has an inflated sense of its own value, simply because it has been allowed to take over and dominate the business of creating money and receives these vast, untaxed, windfalls. It does make money, but simply through the process outlined above. Bankers deserve no credit for the seigniorage windfall, but have clothed themselves in supposed virtue and competence. Of course, useful functions are performed in the City, as they have always done, but when the bankers have dressed up to pose as leading the economy, they have no clothes. Jesus words, “You cannot serve God and Mammon” resonate to us. Then, as now, the money lovers will sneer at those words, but they remain true. The worship of money has actually detracted from good economic activity and moved the whole economy towards financial speculation and the emptiness of the belief that economic activity is about “making money” rather than living fairly with one another.
Yet another part of the picture is the problem of debt. Debt occurs for several reasons. One of the main ones is the big division between the rich and the poor. When 10% of the UK population own over four times more than the bottom 50%, it is clear that many will be desperate to borrow. Moreover, when the old have accumulated and are slow passing on economic resources to the young, many will spend much of their lives chasing debt. Further the UK tax system is actually regressive, taking more from the bottom fifth than the top fifth. The early precepts of the Mosaic Law show a commitment to the limitation of debt giving most of the population more independence throughout their lives. Our economies have been perversely geared towards maximising debt, and therefore the likelihood of default.
Finally, we have had a toxic mix of banks finding it immensely profitable to push consumer and property “credit” or debt at the population, and consumption-orientated advertising which pushes products, experiences, domestic bliss and personal fulfilment at the population in the biggest pattern of indoctrination ever experienced. The result has been a population orientated towards high consumption now, and therefore addicted to credit, to the glee of the banks. The result has also been that the UK also has foreign debt equivalent to four years of GDP and will soon face an acute fall in living standards as a result of our international debt. We face a crisis both of consumer and financial capitalism.
7. Bankers’ bonuses.
Over these three decades in the United States and Britain especially a pattern of bankers’ bonuses has grown up which is justified on the basis of performance, expertise and the profits of the banking sector. The scale of these bonuses in the United Kingdom is something like £10 billion during the good years and £6 billion during the bad, and a similar kind of level in the United States. One question is where these vast sums come from? The answer suggested here is that they come from seigniorage, the windfall in the UK of £30 billion or more a year that the bankers have appropriated.
Of course, the self-validation of banker’s bonuses is that they have earned it by a high level of expertise. They are worth it. Moreover, they can easily move around from company to company, and the only way they can be retained in a near perfect market is through the award of bonuses. Bonuses are often related to “performance”, that is the ability of some bankers to generate profits through their own decisions and skill. This is odd for a number of reasons. First, it is very difficult to calculate the marginal productivity of any worker, let alone a banker. Attribution is also a problem; when markets are moving up, any donkey can make profits, but, of course, the donkey has not been responsible for them. Second, the underlying technique of banking is charging more on loans than is paid on borrowing, a principle which a six year old can understand. Third, many financial markets are actually zero-sum games; this includes international currency markets, stock exchanges and commodity markets when they are flat and that produces a scenario of swings and roundabouts. When the vast seigniorage gains in banking are stripped out, the performance levels of bankers, even before the crash, were probably pretty mediocre.
The other validation of bonuses is the ability to take risks. Risk taking is interesting; Does the reduction or escalation of risk, other than changes which everybody can appreciate, inhere in one particular skilled person or another? Might a risk taker at one time succeed, and then fail later? In an industry supposedly aiming at the reduction of risk so that our money is safe, why is risk taking lauded and rewarded as the apogee of the profession? Taking higher risks can be reduced somewhat by more knowledge, as Keynes showed (1921), by formalizing the levels of our ignorance, but as the gross errors in the banking crises show, bankers have operated in corporate ignorance incapable of assessing quite basic levels of risk. They can hardly have been truly rewarded for a skill which they have grossly failed to excercise. The crises of Lehman Brothers, Bear Sterns, Merrill Lynch, Goldman Sachs, Morgan Stanley, Fannie Mae, Freddie Mac, Washington Mutual were hardly marginal to American banking. The TARP handouts to Bank of America, Bank of New York Mellon, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley and others suggest that most bankers failed to handle risk with expertise. They could not have been rewarded for what they did not have. In the United Kingdom, Northern Rock, Royal Bank of Scotland, HBOS, Lloyds similarly constituted another large lump of failure in the banking sector. We throw in the crises in Ireland, Belgium, Spain, Iceland and elsewhere and have to recognize that bankers rewarded for their risk-taking skills were perpetrating a corporate myth; there was none, or very little. We further lob in Bernard Madoff and the most basic of Ponzi schemes which spirited $65 billion out of the accounts of bankers and others, and we have a glorious failure on a Wagnerian scale in the noble art of risk-taking. Some bankers were sound and reliable, making decisions that any professional should properly make, but on the whole skill was not the source of bankers’ bonuses. Rather, snouts were in a trough, and the question is, where did the trough come from? The obvious answer is that the trough has been filled with seigniorage windfall profits accruing from the electronic creation of money. Bankers were, and are, taking their cut. The only skill was to be standing in the right place when the money wafted down, or to return to the metaphor, to be at the trough when the swill arrived.
The solution is not to try to modify the bonus system by engaging in some kind of marginal tax constraint of “excessive” bonuses, but to remove this massive, unearned, windfall from the system and return the overall economy to some kind of balance and end the myth and bankers’ bonuses. This has not happened. Rather, in the United Kingdom, the United States and Europe, to name but three, the financial system is being reconstructed to maintain the privileged bonanza status of the bankers, and incidentally, of their bonuses.
7. Why no inflation?
We need briefly to consider an issue which seems scarcely to have been raised in banking circles. The dominant theory of money is the quantity theory which says that if money increases, inflation will follow. It was sacrosanct around the time this trend began, and you would expect bankers to anguish over it. Yet since 1980 the money supply (M4) has grown from about £100 billion to over £2,000 billion, a twenty fold increase. Surely, this is an irresponsible increase in the money supply. Yet it has not yet led to high inflation. Why?
There are a number of likely answers. In the 1980s Mrs Thatcher broke the unions and the back of working class wage inflation by unemployment, immigration and strike-breaking. Further, during this period very low wage goods from China, India and elsewhere flooded the economy, not allowing any domestic price inflation. Further income flows have gone to China, Germany and other producers. Loans have also gone abroad keeping domestic demand low. But one main reason must surely be that the banking sector has kept control of most of the effects of money supply expansion. In case we had not noticed bankers’ pay and rewards have undergone severe inflation, catastrophic inflation if it occurred more widely, but we have not attributed it to quantity theory inflation and seigniorage, but only to the inordinate skills of the money pushers. We have had inflation confined to one sector and its employees. The quantity theory explanation of inflation was always too simple. It was also politically used. Strangely, it has been ignored by financial capitalists who are supposed to understand money…
8. The Banks and “Vanishing Money”.
We are now (2011) going through a long crisis of credit and sovereign debt, mainly owed to the banks. This paper does not look at sovereign debt, but it raises an obvious issue that arises from the previous analysis. We have looked at money creation and seigniorage, the vast windfall profits that banks have received, but as credit is drawn down in a range of financial markets in response to the crises we have been through, the opposite of credit seigniorage occurs. We will call it “vanishing money”. As credit falls, so banks find accounts to the value of billions dropping out of their accounts in the reverse process to the credit seigniorage one. To use our earlier parallel, when Fred pays back the loan to me the banker, it is because he has already obtained the funds from other bank accounts, who suddenly see their deposits disappear. The contraction of credit reduces the holdings of electronic money available to the banks on a scale which it would be difficult to assess at this stage, especially since the seigniorage effect, both positive and negative, has not even been acknowledged by the banks. Nevertheless, it is likely to be very large and create a range of unforeseen difficulties.
The central banks have addressed this problem of the sudden shrinkage of the money supply. So, for example, a journalist’s report in the Daily Telegraph of May 2010 addressed the United States money supply: “The M3 figures – which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance – began shrinking last summer. The pace has since quickened. The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of institutional money market funds fell at a 37pc rate, the sharpest drop ever. “It’s frightening,” said Professor Tim Congdon from International Monetary Research. “The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly,” he said.
This kind of contraction problem has been recurring throughout the system and in the United Kingdom. Indeed, the Bank of England has addressed it remarkably well. Because there is a contraction of a similar kind to the earlier growth with each case of credit removed from the system, the banks enter a period of difficulty when they face blow away losses.
It is sufficient to note that it is likely to make the transition to secure banking for a whole range of banks very much more difficult than we might otherwise assume is the case. The point is that unless we explicitly understand the economics of credit seigniorage and the vanishing of money which happens through dis-crediting, we, and especially central banks, are unlikely to have a good grasp of the policies which should be pursued in the coming crises created by problems with sovereign debt.

9. Quantitative Easing.
The crises that have occurred and are still occurring have been met in a variety of ways. Governments and the European Central Bank have bought up assets at a variety of discounted prices, or have provided loan funds as lender of last resort. The overriding concern is that none of these banking institutions should fail, and the extent to which banks in the United States, Europe and the United Kingdom have been supported runs into an additional vast subsidy to the industry. For example, at present much of the European Union’s concern with Greece, Ireland, Spain and Portugal is to make sure that there are not defaults on the substantial bank loans which are vested in the debts of those countries. Banks’ control of electronic money allows them to blackmail governments into automatic support. Governments and the European Union have, on the whole fallen into line, requiring populations to pay for this level of support to the banks.
Yet, in terms of seigniorage, another interesting development in this pattern is the emergence of quantitiative easing as a method of supporting the system. It involves buying government debt and mortgage-backed securities for cash, and thus both supporting potentially weak financial institutions and also increasing the money supply. Now we can see one aspect of quantitative easing, for it is an attempt by the State to reclaim some of this vast amount of seigniorage, as it buys back debt and replaces the interest on sovereign debt merely with funds made available to the banks. Low interest rates and quantitative easing result in the temporary ability of states to finance sovereign debt cheaply, but at the cost of losing control over credit, for by giving the banks money the State allows them to extend credit further or at least stay at the levels of M4 money supply they have already generated. It buttresses but does not reform the present structure of banking. Because this loss of control has occurred during a recession it has not yet been too significant, but it does mean that discipline over bankers and regulation has been theoretical rather than real. The level of QE in the States is something like $2 trillion, about 15% of total national debt. That is a substantial temporary advantage, but it is not systemic reform, and it involves no structural departure from the unfettered credit expansion model pursued by the State and the banks..

9. Banking and Taxation.
In the longer term the question arises as to whether the banks have any right to a windfall resulting from the expansion of credit. The classic answer to the seigniorage effect for fiat money is that the central bank does not have a “right” to this, but provided it keeps firm control on the money supply, since this windfall is to the fiscal benefit of everyone, it can be ignored. Banks, as is the case with the Scottish note issuing banks, do not have a right to this windfall, A windfall of £50 billion a year by one sector, not only makes them unfairly rich – expressed through share prices and employee bonuses and other effects, but it also distorts economic activity towards an area where it might be relatively useless. The windfall should be taxed. But what kind of tax? The IMF Interim response makes a number of suggestions . A tax on transactions, the Tobin Tax, and stability fund charges may well be valid. We note that UK banks pay no VAT at all on their transactions, though they claim to be providing a service and to be adding value to the economy. Why banking services should be excluded from taxation on their services is merely one level of bias. But it does not touch the issue of seigniorage windfalls. If money is being created by banks to the tune of £30 billion or more, then this amount should be taxed, either fully or at a high percentage. The UK “bank levy” of the Brown administration had no formal economic justification, and the 1910 Coalition’s bank tax was based only on some vague moral dis-ease against the gross profiteering of the City. Here is the proper justification of a bank tax, a bank levy. It should be directed at the seigniorage bonus accruing in that year to the banks, through the expansion of the money supply. The seigniorage windfall to the banking system should be taxed, because it is unearned and merely poaching resources from the rest of us. The tax should be a substantial proportion of the annual increase in deposits to each bank or financial institution, or a substantial proportion of it. In a contracting bank the tax would disappear. Though there are some issues in relation to the immediate stabilization and taxation of banks, this is the tax with the proper economic rationale giving stability to the financial system and trimming out this unearned windfall from sustained money creation. Then the economy might move into structural stability and these dangerous effects purged from the economy.
10. The Efficiency of banking transactions
In the light of this, the efficiency of many banking transactions needs to be radically questioned, especially the efficiency of moving assets and liabilities through a series of transactions within the banking sector. We may have been suffering from disguised inefficiency upheld by the seigniorage windfall. Efficient investment banking should involve moving funds as directly as possible to good investment uses. It is likely that the present inefficient structure of banking occurs because this process increases the seigniorage effect. It is a recipe for creating electronic pseudo-money, with limited economic efficiency. It is also likely these profits have encouraged banks to move away from careful lending to businesses, based on good knowledge and security, towards centralised global investments and sovereign debt in risky markets. If these transactions were taxed, by a Tobin like transactions tax and a seigniorage tax, they would be far fewer and more focussed. Thus, it seems that the banking sector has been on a banking holiday from taxation, both in relation to its transactions and in relation to the enormous windfall that it has received through money creation and the seigniorage effect. It is time for the sector to contract substantially and begin to be more useful.
alan@storkey.com

Psalm 46

Psalm 46 “He makes wars to cease to the ends of the earth.”

What does this Song mean? It rocks across vast themes and defies a merely poetic interpretation. Let’s have a go at it. The opening is defence – the refuge, the fortress, the present help in trouble – and God is the defence, the One who meets fear, who is strength, however desperate the circumstances. This is not just personal defence. Then, there was no public and private segregation and a lot of life was scary anyway. But the reference later in the Song to making “wars cease” suggests this is a big canvas, and it gets bigger.
The structure of the first three verses is: God is our refuge, “though the earth give way” and there are earthquakes and hurricanes. In other words, whatever the natural destructions and catastrophes, God the Creator is our strength. This is somewhat extreme, but this is where it stands. Whatever rages, God.
The next section is like the quiet second movement of a symphony. “There is a river whose streams make glad the city of God, the holy place where the Most High dwells.” Suddenly the water is calmed and becomes the life giving streams for the city of God, for Jerusalem, the place that acknowledges God. The “holy place” is where life is whole and not segregated off from God. God is within her; she will not fall. God will help her at the break of day, however dark the night has been.
The great epic of disorder comes together again in verse 6. “Nations are in uproar, kingdoms fall; he lifts his voice, the earth melts.” But it is not entirely satisfactory. Why should the nations be in such turmoil? It is cataclysmic, but how is God in charge? How is this power manifest? The line, “God lifts his voice, the earth melts” suggests something new. God’s voice is to be heard, and the earth melts, melds, how – we do not know.
Even the refrain of verse seven, repeated in verse 11, is not quite adequate. “The Lord Almighty is with us; the God of Jacob is our fortress.” It is a local response, a concern with our security. How can God provide this kind of security? What is it? The fortress defends. What defence is this?
Verse 8 “Come and see the works of the Lord, the desolations he has brought upon the earth” is also perplexing. Is it ironic? Why would God bring desolation? It sets us up for what follows, but we can scarcely take it in.
“He makes wars cease to the ends of the earth; he breaks the bow and shatters the spear, he burns the shield with fire” There is no mistake about what this is saying. It is taut – either in describing the breaking of weapons. The chief arms used in these conflicts are taken out, as we world say, to end war. The “shield” may be “chariot”. Indeed, because they were largely wood, they burn more directly, though shields of that period may also have been substantially wood. This is the bonfire of weapons under the rubric, “He makes wars cease to the ends of the earth.” Is this vain hope or the solid understanding of what God is about when God rules, which is always.
The Psalm closes on the verse, “Be still and know that I am God” so often rightly taken as the centre of human life, the place where we are before God personally. So far, so good, but the context is fuller. “I will be exulted among the nations. I will be exulted in the earth” is not so much focussing on the acknowledgement of God, though that it does, as on the reason for recognizing God as supreme, for when we do, wars cease and we are still from war.We see beyond the shallow conflicts of nations in uproar. Be still and know that I am God. The God of Jacob is our fortress, because with God we do not need fortresses.

main webpage