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Towards a constitutional macroeconomic framework

Hector McNeill1

Policy Forum is an APEurope onlien service that aims to establish propositions on a range of topics where the majority of citizens do not have any means of participating in the processes of policy formulation. The propositions section of Policy Forum has witnessed a rapid growth in contributions to the macroeconomics section. In particular addressing the issue of monetary policy which has resisted any involvement of the electorate in its formulation.

This short article outlines the constitutional issue and the need to work towards a constitutional settlement on this topic in favour of the interests of the majority.

Towards a constitutional settlement for the people of Britain over public choice in the determination of macroeconomic policy

Discussions on macroeconomic theory quite often fail to explain the connection between the prejudice imposed on an increasing proportion of the constituency by monetary policy and the origins of monetary policy. The streams of money that dominated the practice of raising money started around 1600 in Scotland and Ireland witht the Crown, relying on wealthy merchants and businessmen to provide a share in commercial
A track record of
incremental prejudice for the majority

Monetary policy has enriched a tiny minority because political parties in the United Kingdom have prevented a constitutional settlement on constitutional economic lines
exploits in territories assigned to them by the Crown in exchange for military protection. The crown's share was in the form of a proportion of enterprise profits or from taxes raised on colonists' activities such as in the North American colonies. This process over 300 years before the advent of universal suffrage in the United Kingdom and the role of the people of England, let alone the people of Scotland, Ireland or Americans, in such decisions, was never countenanced.

Since 1945, monetary policy has reduced the purchasing power of the £ to less than 1% of its value.

The Bank of England's 2% inflationary target represents an 18% fall in currency purchasing power each decade.

The Bank of England's policy of quantitative easing has enriched asset owners by creating a massive inflation in assets.

This diversion of money from investment in productive activities has created static or falling nominal wages.

As a result, the combination of a falling currency purchasing power and static nominal wages, the real incomes of the majority of wage earners in the United Kingdom have fallen.
A practice has therefore evolved to the present day in which the people of the country, as an electorate, are not involved in any decisions related to monetary policy. Today, we have universal suffrage with all of voting age having the right to vote, but monetary policy remains off bounds to voters.

This power of a very small number of constituents, a tiny faction, over decision making on monetary policy persists. This is because it is a matter that has not been addressed in terms of a constitutional settlement with the people of this country. The evidence suggests that this gap in provisions is a result of manipulation by political parties acting on behalf of the main beneficiaries of monetary policy.

The constitutional issue we face in the United Kingdom is relatively simple. It is that people should only be expected to place themselves under a government that undertakes to make decisions on such an important economic question, that directly affects the wellbeing of the majority, a matter of participatory public choice. There is also the much accclaimed notion of freedom as being the ability of each constituent to pursue their objectives while not constraining the ability of others to do the same. This freedom applies as much to decision making at any level as well as individuals having the ability to protect themselves against the vagaries of those who decide on monetary policy which has very obviously has destabilizing and prejudicial impacts on the majority. We value freedom but in reality it is an abused term because in the domain of economic policies it is a relative term, that applies to a tiny minority who remain more free that the majority.

Political parties, act as the proxies of the benefactors. A specific group of benefactors gain their wealth and status and ability to be benefactors of political parties very much as a function of their influence over monetary policy. The political parties that act as proxies to this particular group of benefactors are the first to claim that the right to vote in a General Election, gives people the opportunity to get rid of governments if they are dissatisfied with their governance. However, General Elections are very much managed by political parties and all political parties come under the same pressure to act in the interests of those who benefit from monetary policies. As a result changing the political party does not change the fact that this vital constitutional requirement of the right of constituents to determine policies remains unaddressed. The media, funded by the same interests that prefer to maintain control over monetary policy, serve as convenient proxies in not explaining the reality of our circumstances but rather act to threaten the survival of politicians and political parties who might venture to propose any alternative policies, let alone any constitutional settlement of this matter.

The common factor in this impasse between the majority of constituents and their right to influence the decisions that impact their economic prospects, is political parties. In General elections, it will have been noticed that the electorate is not provided with any opportunity to select their representatives but, rather, they can only vote for representatives of political parties. In the United Kingdom all of the political parties together have a total membership of around 1.25% of the electorate. The size of the benefactor population that control political party agendas is less than 0.5% of the electorate. However, elected politicians who enter parliament come under the control of the party machines and whips and their advancement prospects and roles in government depend upon their loyalty to this tiny faction. Politicians follow "party wishes" and seldom take their decisions on voting in line with the wishes of those who voted for them in each parliamentary constituency, even if they knew what these were.

As things have evolved, the results of decisions on monetary policy has been found to be increasingly prejudicial on the economic status of an increasing proportion of the population while the tiny minority of voters whose interests are tied up more directly in monetary policy, continue to influence policy decisions. This is plainly wrong and, in terms of freedom of the individual, unfair. It represents a corruption of the democratic process.

The Levellers sought to avoid the formation of political parties and professional politicians in order to avoid the formation of this form of corruption of representation where politicians end up serving the interests of a tiny but powerful faction. In the early seventeenth century the concept that people should be governed by a Parliament of their popular choice was earnestly discussed. Such a concept was justified by Colonel Thomas Rainborough, a participant in the Putney Debates2. These were organized by the Levellers at the Church of St Mary the Virgin in Putney in the County of Surrey, in October and November 1647. Colonel Rainborough stated,

"...for really, I think that the poorest he that is in England hath a life to live, as the greatest he; and therefore truly, Sir, I think it's clear, that every man that is to live under a government ought first, by his own consent to put himself under that government; and I do think that the poorest man in England is not bound in a strict sense to that government that he hath not had a voice to put himself under..."

Colonel Rainborough, of course, did not refer to policy formulation but the sense of what constitutes a legitimate parliament is clear. A parliament whose decisions do not reflect the preferences of the majority by not even raising their intent on a subject as fundamental as the issuance and maintenance of the purchasing power of money used by the people fails to meet a required standard of legitimacy. It is a plainly illegitimate state of affairs because such decisions remain the reserve of an unelected and largely invisible faction acting through proxies.

It is therefore well past the time when the prejudice suffered as a result of the many monetary policy-induced financial crises, that the electorate needs to demand a constitutional settlement for the people of Britain over public choice in the determination of monetary policy. In the process of advancing our quest for freedom we need to move away from the current feudal arrangements towards a constitutional macroeconomic framework.

1 Hector McNeill is the Director of SEEL-Systems Engineering Economics Lab.
2 Cited in McNeill, H. W., "The Briton's Quest for Freedom .. Our unfinished journey", Chapter 4, "A Proposition", pp.33-34, 418 pp., HPC, 2007, ISBN:978-0-907833-01-7.

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