Winter Fuel Payments

Do you think that better-off pensioners should pay for their own winter fuel, and their own bus-passes? Of course they should! And of course they do, don't they? Not only their own, but they pay for the winter fuel and the bus-passes of the less well off as well. Because they pay their taxes.

I hope that Iain Duncan Smith never said anything about the "better off pensioners" voluntarily paying for their own fuel and transport. Voluntary taxes are a bad idea. It is, of course, true that the better-off can voluntarily do whatever they want with the money that remains to them after taxation, but how that is spent must be left to them. There must be no suggestion whatever that they 'should' do this or that with their remaining money; just to pacify the silly hue-and-cry of the media and of the people who do not understand where the money comes from that funds all public services in this country.

However, it would be good if we could evolve and annunciate a rationale for a progressive tax system slightly more sophisticated than the old "squeeze them till the pips squeak". For example, wealth that accumulates suggests excessive income. The "poor are always with us", and we have always had the rich as well; so maybe that is as it should be. But the rich should not get richer and the poor (relatively) poorer. That seems to indicate an inadequately progressive tax policy.

The bad thing about voluntary taxes is that the willing, the sensitive, and the vulnerable will pay while the busy, the thoughtless, and the selfish will not pay. We should tax wealth, not conscience and good citizenship.

L. Cawstein
cawstein@gmail.com

ProgNoteSmetana

String Quartet No.22 in B-flat, K.589 — W. Amadeus Mozart (1756-1791)

i. Allegro, ii. Largetto, iii. Menuetto & Trio , iv. Allegro assai
In 1789 Mozart, getting desperate for money, visited Berlin where he met and played before King Friedrich Wilhelm II of Prussia (himself an amateur cellist). He came back to Vienna intending to write 6 quartets for the King and 6 'easy' piano sonatas for his daughter Princess Frederike. Of the latter, only one seems to have been written — Mozart's last piano sonata. Of the quartets, Mozart only wrote 3; ours is the second, written in the summer of 1790. Mozart received part payment, but had the plates engraved at his own expense; they were published the following year, a week or two after Mozart died. A distinctive feature of all 3 'Prussian' quartets is the prominent and interesting cello part, intended no doubt for the king himself to play.

String Quartet No. 1, "Kreutzer Sonata" — Leoš Janáček (1854 – 1928)

i. Adagio/Con moto; ii. Con moto, iii. Con moto/Vivo/Andante, iv. Con moto/Adagio/Più mosso
Stubborn originality seems to be the keynote of Janáček's professional life. He was clearly an able pianist and organist, but difficult and wayward. A Brno choirmaster at 19, he entered the Prague Organ School at 20. Without a piano in his digs, he is supposed to have marked black and white rectangles on the edge of his table and practiced on that. He was expelled after criticising his teacher (Skuherský ), but allowed back in to win top place on graduating the following year. After teaching for a few years he took a place at the Leipzig Conservatoire but found his teachers inadequate and left after 5 months for Vienna where he stayed for over a year studying composition. His submission for a prize was rejected as "too academic" and he returned to Brno (1880), where he founded an organ school (which he directed for the next 38 years), and married. During the next 20 years he collected folk music, published musical criticism and composed, mostly choral church music. In the anguish following the death of his 20 year old daughter he wrote Jenůfa (performed with success in Brno, 1904); though it was 12 years before Jenůfa was staged (to great acclaim) in Prague. For the last 11 years of his life, Janáček was romantically obsessed (from afar) with a young woman called Kamila Stösslová, producing a late flowering of masterpieces. Our quartet was written in 1923. Each of its four movements contains many changes of tempo and mood, so that the conventional descriptors seem nonsensical. The key structures are even more difficult to squeeze into conventional forms. However, it has a title and so a story or message; presumably that of Tolstoy's novella which portrays carnal passion as destructive and abstinence as creative (except of children).

String Quartet no. 1, in E minor ———— Bedřich Smetana (1824 – 1884)

i. Allegro vivo appassionato, ("inexpressible yearning for something I could neither express nor define, but also a kind of warning of (my) future misfortune.")
ii. Allegro moderato à la Polka, ("brings to mind the joyful days of youth")
iii. Largo sostenuto, ("the happiness of my first love")
iv. Vivace, ("my joy in following [national elements in music]...until…checked by the catastrophe of the onset of my deafness,")
Smetana composed his first quartet at the age of 52 (1876) and titled it "Aus meinem Leben" ("From my life"). Son of a successful brewer at a time when Bohemia was in the Austrian Empire and obliged to speak German, young Bedrich showed a talent at the piano from an early age. After hearing Liszt perform, he resolved to emulate Mozart in composition but Liszt in technique. From the age of 14 he was educated away from home, at Německý Brod, Prague, and Pilsen. There the late teenager's pianism shaped his lively social life and he fell in love with Katerina. Qualifying at 19, the penniless youth followed Katerina to the Prague Music Institute where he managed to get taken on for composition lessons while earning his keep by teaching piano. He obtained Liszt's support in founding (1848) a Piano Institute which gradually became fashionable with the nationalist elite. Success allowed marriage. In 1856, 3 of his 4 children having died and his ability as a performer deemed second rate, he took a job in Gothenburg where his success as teacher and conductor was gratifying, but not satisfying. His wife died in 1859, and he remarried 15 months later. Throughout his years of struggle, rejection and loss, Liszt was a valued mentor, and friend. Only in 1861, on the building of a Czech opera house, did his fortunes begin to change. For there was no Czech opera. Smetana had first to learn the Czech language, and then to invent the genre. Success came at last in 1866 when his first 'nationalist' opera (The Brandenburgers) was finally staged, followed within weeks by his far more popular Bartered Bride, which soon became an international success. Smetana continued to encounter opposition in Prague, ostensibly for his 'Germanism'; but eventually produced a string of 8 operas. From 1874, encroaching deafness, marital problems and declining health, led (1876) the family to retire to the country, where Smetana was able to compose some late masterpieces, including this quartet and the Má Vlast tone-poems. Smetana died in an asylum at the age of 60, but revered as the father of Czech national music, and especially opera.

Existentialism and Existence

 

Existentialism and Existence

(Prepared for u3a Philosophy group meeting on 23^rd Feb 2012)

Existentialism

The term Existentialism coined by Sartre. Adopted and given meaning by Sartre, Simone de Beauvoire, Camus and others as a cultural phenomenon or social outlook as much as a philosophy in the strict sense.

Roots

Descartes (1596-1650)

Sartre claimed that the fundamental truth of existentialism is in Descartes formula, "I think; therefore, I exist." The existential philosophy is concerned with the personal "commitment" of this unique existing individual in the "human situation."

Kierkegaard (1815-1850)

Who was searching for the meaning of life (his existence) which question sort of supposes a voice from on high saying "your purpose is to exist". He wrote lucidly about Abraham who understood God to tell him to kill Isaac, even though that was surprising. This philosophy is 'Anti-Rational'

Nietzsche (1844-1900)

Agreed that the 'crowd is 'untruth'. Only your own thoughts are thoughts. Art (in particular) shows an absolute standard: a work must be judged as istelf, not as an instance of a genus.

Husserl (1859-1938)

Phenomenology. Accused of Psychologism by Frege (that 2+2=4 only because we think it does). Defended himself against that. Influenced by Brentano (Intentional existence; I want an apple, I admire a picture; that the stuff in our heads is the product of a mental intention); invented Phenomenology and deveoloped that school including Heidegger as pupil. Method of phenomenological reduction (bracketing) by which a person may come to know directly an essence. (Seeing a horse qualifies as an experience whether or not it is a real horse or a dream, or an illusion.) From the Phenomenological standpoint, the object ceases to be something simply "external" and providing indicators about what it is, but becomes a grouping of perceptual aspects that hang together under the idea of a particular object or essence. The notion of objects as real is not abolished by phenomenology, but "bracketed" as a way in which we regard objects instead of a feature that inheres in an object's essence founded in the relation between the object and the perceiver. In order to better understand the world of appearances and objects, phenomenology attempts to identify the invariant features of how objects are perceived and relegates attributions of reality to a subordinate role as just something we perceive (or an assumption underlying how we perceive objects).

Heidegger (1889-1976) 

Pupil of Husserl at Freigurg. Deliberatly obscure. His initial question was "what is the meaning of being" , which he pursued using Husserl's method of phenomenology. I think Heidegger (in Being & Time) is definitely adopting 'Psychologism' (Heidegger says the sense of being precedes any notions of how any particular being exists; it is pre-conceptual, non-propositional, and hence pre-scientific.) Heidegger asks: what is the being that will give access to the question of the meaning of Being? Heidegger's answer is that it can only be that being for whom the question of Being is important, the being for whom Being matters; therefore a human being.

Sartre (1905-1980)

*  No formal description of EXISTENCE can be given; it is existence itself that defines it.

*  Existence precedes essence. A paperknife was created to cut paper; not so was a man created to 'be a man'. The existence of an individual itself create the meaning or purpose. This denies both nature and nurture as causitive. 

*  Great prankster. Anti-rational. Rebel. Anti-bourgeois conformism. No doubt revelled in the mystique of the intellectual.

 

Existence

(See also http://cawstein.blogspot.co.uk/2009/02/existence.html )

There seems to be something very ordinary about created matter; and something very extraordinary about creating matter out of nothing. But before we go into that, let us admit that we do not really know what we mean by 'exist' and 'existence'. Not only do we not understand 'existence' and 'non-existence'; we also find that our everyday vocabulary is inadequate to discuss the matter.

The 'man in the street', will understand well enough statements like ÒI existÓ and ÒThe unicorn does not existÓ (as it is an imaginary beast). But when we think about it, we find that we do not know anything that does not exist, except for imaginary things like the unicorn, or the centaur; or impossible thing like a square triangle. If a thing 'does not exist' we find it impossible to observe, impossible to study. All the things we know anything about belong to the category of things that do exist. Furthermore, we know nothing about how an object can move from non-existing to existing. To understand that would be to understand creation.

However, our problems go further than not understanding the physics of creation. I believe most of us don't even understand the words 'exist' and 'existence', and how to use them. Not that we often discuss existence, and when we do it seems it is only the existence or non-existence of God that is in debate. We 'lay' people do not spend time discussing the existence or otherwise of centaurs, or the dodo, or 'the integers between two and three'; or whether 'exists' is a predicate; that is all left to philosophers. On the other hand, the layman does seem to be concerned about the existence or otherwise of God. Books are written on the subject and advertisements placed at considerable expense in prominent places by concerned citizens, both for and against.

Let us take, as an example, a knot tied in a piece of string. Let us ask: does the piece of string exist?; to which we certainly answer 'yes'. Then let us ask: does the knot in the string exist? The existence of the knot is clearly of a different type. I would like to say that the knot does not itself 'exist'(as a primary substance); it presents itself to my senses as a property, or form, of the string on which it is dependent. If we were to adopt such a narrowed application of the word existence (call it 'primary existence' if you like) we would be able to say that existence entails finite mass, and extension in space and time. We would confidently say that the string exists, but the knot does not exist, for if you untie the knot there is no change in mass. 

Philosophers have discussed existence, but only add to the confusion, for there are so many different views. Our intuitive view (above) is very much the same as that of Aristotle, who came to a similar conclusion when he considered the matter of existence. He regarded 'substances' as basic. 'Substances' exist independently. Other entities such as qualities, quantities, relations, etc., all inhere in something or are said of something. They do not exist independently. Red cannot be said to exist; you can say a red rag exist, but that is because the rag exists; redness is a property of the rag. Kindness does not exist, except as a property of a person. Nor does 'three' exist; it is a concept that needs something else to embody it (three gold rings, for example). It is apparent already that the word 'exist' is inadequate to distinguish the many types of 'object', 'thing', 'concept', or 'word' we wish to talk about, and of which we wish to distinguish the many types of existence, or reality, or meaningfulness that these objects exemplify.

Objects

Rather similar to our problems with the concept of existence (and bound up with it) are problems with the concept 'object'. How shall we talk about the entities (objects, things, etc) that are not substances, and do not have primary (i.e. independent) existence? In the late nineteenth century C.S. Peirce used the term 'object' very widely; thus he said ÒBy an object, I mean anything that we can think, i.e. anything we can talk about.Ó[CS Peirce, ÒReflections on Real and Unreal ObjectsÓ, MS 966]. He thus included properties, relations, abstract concepts, numbers, universals. (He may even have included contradictions and impossible concepts, for we can talk about square circles, though we cannot perhaps think about them.) We can then subdivide Peirce Objects into special types, and see if we think it appropriate to ascribe to them existence (See Table).

 

Type of object	Included	Excluded
Peirce Objects	Anything that we can talk about; things, properties, abstractions, universals (contradictions?)	Is anything excluded? Perhaps contradictions (square triangles; integers between 2 and 3)
Aristotle Objects	Anything having properties and relations, (e.g. things, but also numbers, emotions)	Properties and relations (redness, superiority, evenness [as of the number 2])
Frege Objects	Singular nouns (A horse, a theory)	Concepts (A mammal)
Real Objects	Things located in space and time including mind, life etc	Imaginary, mythical, fictional, abstracts, numbers, ideas, etc
Material objects (existent objects)	Things possessing mass and existing in space and time (e.g. atoms, and electrons )	Life, mind
Abstract objects	Platonic forms (e.g. the idea of a table)	Real objects
Imaginary objects	Centaur, golden mountain	Material objects

 

Alexius Meinong, more or less contemporaneously with Charles Peirce, developed his own Theory of Objects (Gegenstandstheorie, 1904) and introduced two useful words. He realized that he could think about objects that did not exist – like a golden mountain or a centaur. He therefore suggested that only material objects exist (in a material and temporal sense), but that concepts, numbers, imaginary objects, etc. subsist. For his third category, of impossible concepts (such as square circles, or the integers lying between 2 and 3, etc), he coined the verb to absist).

===============================================

 

[See http://www.dooy.salford.ac.uk/existence.html; or http://en.wikipedia.org/wiki/Alexius_Meinong]

 (The string, of course, has many properties besides the knot; and it is tempting to make another point in passing. The string could be long, white, or hairy; that is to say, having properties that are visible and can therefore be checked by a second observer. But it can also be mine, valued or feared; i.e. having properties ascribed to it that are not visible and cannot be objectively checked, though their origins in my head can be repeatedly ascertained. We tend to talk of the former type of property as 'objective', and the latter type as 'subjective'.)

 

L. Cawstein
cawstein@gmail.com

Programme Notes - Mar'13

Sonata for violin and keyboard in C minor (BWV 1017) —  J. S. Bach (1685 – 1750)

i. Largo (Siciliano), ii. Allegro, iii. Adagio, iv. Allegro.

Though Bach's first professional post after his voice broke was as a violinist, he was of course supreme on the keyboard. It is not surprising therefore that his set of 6 sonatas for violin and keyboard are unlike contemporary violin sonatas (Leclair, Händel, etc.), which are characteristically solo sonatas with gamba/cello bass and the harpsichord simply elaborating the gamba line according to the 'figured' suggestions of the composer. For Bach's sonatas are true duos, between violin and the fully 'realized' harpsichord; they do not require gamba. They were probably written while Bach was employed by Prince Leopold of Anhalt-Cöthen (1717-23), who (until his marriage) kept an excellent orchestra and was himself a skilful player; the period of the unaccompanied violin and cello suites, English and French harpsichord suites, Brandenburg concertos, etc. Five of the 6 sonatas in this set follow the 'slow-fast-slow-fast' pattern of movements used here. Sonata 4 is in C minor. The first movement has the dotted 6/8 rhythm of a sicilienne. The 2 fast movements are typical, quasi-fugal, pieces where the 3 voices (2 for the harpsichord) imitate each other through a sequence of keys. But the wonderful Adagio is strikingly original. Over continuous triplet figuration in the right hand of the harpsichord (c.f. 'Jesu, joy of man's..'), the violin uncomfortably drapes a 3/4 melody (again dotted), always across the bar lines.

Sonata for violin and piano in D major (opus 12/1) — L. v. Beethoven (1770 - 1827)

i. Allegro con brio, ii. Tema con variazioni (Andante con moto), iii. Rondo (Allegro)

In 1792 the 22 year old Beethoven moved from Bonn to Vienna to take composition lessons with Haydn who, however, soon (1794) left for his second visit to England.  During those first 10 years in Vienna Beethoven additionally took violin lessons from Ignaz Schuppanzigh and composition lessons from Antonio Salieri. This sonata, the first of a set of 3, was written in 1798 and dedicated to Salieri. It therefore falls in what is known technically as Beethoven's 'early' period; classical and Mozartian. Typical 'Mozartian' features include brisk outer movements (in D in this case), the 1^st in sonata-form, the last a rondo, sandwiching a 'slow' movement in the adjacent key of A, itself an original theme and a set of 4 variations involving dividing and then sub-dividing the notes, a variation in triplets and another in the minor.

Sonata for piano and violin in C minor No. 3 (op. 45) — Edvard Grieg (1843 - 1907)

i. Allegro molto ed appassionato, ii. Allegretto espressivo alla Romanza, iii. Allegro animato.

We now move to the world of the late romantic sonata. Grieg wrote 3 sonatas for violin and piano. The 1st (1865) and 2nd (1867) come from that happy period that saw his most popular works. (In 1867 Grieg married his cousin Nina, in 1868 he wrote his piano concerto and their daughter was born, but in 1869 she died.) Our 3^rd sonata was written two decades later (1886/7) during another period of relative happiness just after the completion of Troldhaugen (his fine house near Bergen). It was premiered in Leipzig in December 1887 with Grieg at the piano and Brodsky on the violin. (Incidentally, it was then and chez Brodsky, that Grieg, Brahms and Tchaikovsky all met.) It is one of Grieg's masterpieces and may be compared with Frank's A major and Brahms' D minor sonatas, all written at much the same time. Its many fine themes, related rhythmically as well as melodically, are cleverly unpicked and repetitively explored. Sombre, heroic, vital, well integrated, varied in pace, with daring intervals, tempi, and key shifts. It is a fine work.

 

Sonata for violin and piano in B (Op. post.) —— Frederick Delius (1862 - 1934)

i. Allegro con brio, ii. Andante molto tranquillo, iii. Allegro con moto.

Frederick Delius (born Fritz, in Bradford of German parents), anglicized his name to Frederick while living in Paris at the turn of the century. Fritz was born into a musical household and as a boy acquired a competence on the violin and piano, but a fervent enjoyment of music. The  family's wool business did not appeal, and at 22 young Fritz was allowed to try his hand at growing oranges in Florida, where however he bought a piano, took lessons in composition, gave lessons in violin and piano and started composing; he even had some pieces performed and published there. Eventually his father relented and, in 1886, he began a brief 18 month period of study in the famous Leipzig Conservatoire. That was his formal musical training. Living in Paris from 1888 till 1897, and mixing with a cosmopolitan bunch of artists (including the German painter he eventually married), he composed several operas and large scale works (none of which he heard for many years). Discernable influences include Grieg and negro music. Chamber works were easier to stage; this violin-piano sonata was written 1892 and performed privately in Paris the next year. However, it was rejected by a publisher on trivial grounds and the discouraged Delius put it aside where it languished till after his death (hence post-humous). Its appeal lies largely in its youthful freshness; it works in the right hands.

(Programme notes compiled by Ian West, from numerous sources.  )

 

 

L. Cawstein
cawstein@gmail.com

Alcohol Duty and Minimum Price

Alcohol Duty and Unit Price

The plan to introduce a minimum unit price for alcohol in England seems to be faltering. And I understand that in Scotland, though the law has been passed that declares 50p to be the minimum price for a unit of alcohol, it has not yet been possible to implement it. I also understand that in Scandinavia they have opted to raise the price per unit by taxation, rather than by declaring a minimum price per unit. Let us look at both ideas.

If the law insisted that the minimum price per unit of alcohol were 45p it is assumed that the price of some cheap alcohol would have to rise. Note that a unit of alcohol is defined as 10 mL (or 8g) of pure alcohol. This is equivalent to a 25 mL measure of whisky (ABV 40%), or 250 mL of 4% beer, or 77mL of red wine (of 13% ABV). (Density of alcohol = 1.2674 mL/g, or 0.789 g/mL.)  So a litre of beer would then cost a minimum of £1.80 (in England, £2.00 in Scotland). But I have never seen beer at anything under £2.18 per litre, and never drink anything that costs less than £3 per litre.  The minimum price for a bottle of red wine would be £0.45 x 75 x 0.13 = £4.39 (for a wine of 13% ABV). While a bottle of whisky of 0.75 litres and 40% ABV would have a minimum price of £13.50. I am not a great buyer of whisky, but I believe this is close to the price I see in the supermarkets.

So the only effect of the minimum price of a unit being set at 45 pence would be that cheap red wine, which I can currently buy at £3.50 - £3.99 if I shop around, would rise to £4.39; with essentially no change in the price of beer or spirits. This innovation would affect me, and other drinkers of cheap red wine; and possibly some drinkers of very cheap larger if bought in a shop I have not yet discovered. (The effect in Scotland is considerably more marked, which may be why it is proving difficult to implement there.)  Another effect of the minimum price per unit of alcohol might be a small rise in the profits of the supermarkets.

Why have the Scandinavians opted for higher alcohol duty?  You might wonder what tax or 'duty' is levied on a unit of alcohol in England. That is not quite straightforward, for different beverages attract different rates of duty. I found the following data (Table 1) on the HMRC website for the rates of duty introduced at the March 2012 budget. Working on the understanding that 1£ per hectolitre is equivalent to 1p per litre; and that 1 litre of wine at 10% alcohol by volume (ABV) contains 100 mL of alcohol (i.e. 10  units), I calculate that the duty (in pence per unit of alcohol) varies from 9.78p  for very weak beer (strength < 2.9% ABV), to 19.51 p for normal beer (2.8% to 7.5%), to 24.39p per unit of strong beer (>7.5%ABV), to 25.33p for wine, to 26.81p per unit for spirits. Cider is still anomalous in that duty is only 10p per unit for most ciders. I expect that these difference for different beverages have origins in history; they do not make much sense. It seems to me that a small increase in alcohol duty might be just as good a way of achieving the health benefits, and at the same time increase tax revenue.

Table1 — Alcohol duty (http://www.hmrc.gov.uk/budget2012/ootlar-main.pdf)

Duty rate from 26 March 2012	Rate (£) per litre of pure alcohol (i.e. 100 units); so p/unit	Rate (£) per hectolitre of product or (p) per litre
Spirits	26.81
Spirits-based RTDs	26.81
Wine and made-wine: exceeding 22% alcohol by volume (abv)	26.81
Beer - lower strength: exceeding 1.2% - not exceeding 2.8% abv.	9.76	9.76 x strength (%) 11.7 – 27.3
Beer - General Beer Duty: Exceeding 2.8% - not exceeding 7.5% abv.	19.51	19.51 x strength (%)
Beer - High strength: Exceeding 7.5% - in addition to the General Beer Duty	24.39	(4.88+19.51) x strength (%)
Still cider and perry: exceeding 1.2% - not exceeding 7.5% abv	10.0 (if 3.768% abv)	37.68
Still cider and perry: exceeding 7.5% - less than 8.5% abv.	10.0 (if 5.655% abv)	56.55
Sparkling cider and perry: exceeding 1.2% - less than 5.5%abv.	10.0 (if 3.768% abv)	37.68
Sparkling cider and perry: exceeding 5.5%abv- less than 8.5% abv.	24.532 (if 10%) 30.66 (if 8%)	245.32
Still wine and made-wine: exceeding 5.5% - not exceeding 15% abv.	25.339 (if 10%) 19.5 (if 13%)	253.39
Wine and made-wine: exceeding 15% - not exceeding 22% abv.	22.5 (if 15%) 16.89 (if 20%)	337.82
Sparkling wine and made-wine: exceeding 5.5% - less than 8.5% abv.	24.532 (if 10%) 30.66 (if 8%)	245.32
Sparkling wine and made-wine: exceeding 8.5% - not exceeding 15% abv.	32.456 (if 10%) 25 (if 13%)	324.56

L. Cawstein
cawstein@gmail.com

"The Money Masters" & Positive Money

"Alarmist and naive, but a useful stimulus to thought"

"The Money Masters" is a 3.5 hour long documentary film made in 1996, narrated and largely written by William Still. It can be viewed online. It is alarmist and naive, but a useful stimulus to thought It exudes an aura of paranoid conspiracy theory, arguing that the money masters of the title, by the trick of 'fractional reserve banking', have won for themselves an unshakable grip on the entire power structure of the USA, from the banks and the money supply to the press; a power so great that Congress simply eats out of their hands. It is well researched and highly informative; I tend not to doubt the purely factual material it presents, but I do question the interpretation, the slant, the innuendo, the guesswork.

Major targets of the argument are: 'fractional reserve banking', our debt-based money-supply, and the business cycle (which is seen as a cynical device of the bankers to strip assets off the indebted). It is argued that the bankers' practice of lending out 10 (or 30) times as much money as is deposited with them allows them to charge interest on money that does not exist, except as debt. Their profit is seen as 10 (or 30) times as big as it should be. Admittedly, you and I could also operate this system, so interest rates should be fairly competitive. And people deposit money with banks as well as borrow from them, so it is the difference between borrowing and lending rates that provides the bank's profit. But there may be a point here to which I shall return.

The argument that Still has with a debt-based money supply is that if the banks wish to call in their debts (which they can do when these fall due for repayment) the economy finds itself in a recession simply because there is not enough cash in the system. By why would they do that if lending is where they get their profit? If they are really devious (it is argued), they might want to beggar some clients into forfeiting their collateral — so called 'predatory lending'. The 'Colonial Scrip' system of pre-revolutionary USA is held up as superior and quasi-ideal; a paper money system where 'fiat' money issued by the government can be used to pay for all goods and services in the absence of gold. A foolish government could (of course) issue too much 'Scrip', which would cause inflation, just as too little would cause deflation. Before the revolutionary war, Benjamin Franklin believed the amount of 'Colonial Scrip' was appropriate to the population. Or the needs of the population, for, as the population got wealthier, and bought carriages as well as bread, there would need to be more Scrip in circulation. William Still believes that this superior system was anathema to the Bank of England, and that the Bank had enough power in England to ban the printing of Colonial Scrip in the colonies.

However, it seems more likely it was the British merchants who did not want to be paid in a devaluing paper currency. The Currency Act of 1764 banning Scrip certainly produced tight money, economic depression, and enormous indignation; a major cause of the revolution. There seems no reason why our present government should not snap its fingers at the banking lobby and issue 'government scrip', if it wants; except that governments fear inflation. That is almost exactly the position we are in today. The Government wants banks to lend, so they give them cash; but the banks still do not lend, because we (the public) do not want to borrow. So our Government is teetering on the brink of issuing 'helicopter money' to all citizens so they can start buying things and re-launching industry. The hitch (presumably) is a doubt as to what would be purchased — our produce, or that of foreigners. There seems today to be a general consensus that the present system, whereby the money supply adjusts itself, is preferable to the Scrip system. Cash is added to the system in the weeks before Christmas and withdrawn again in February.

Alexander Hamilton (the force behind the creation of  America's first central bank of 1791, modeled on the Bank of England) is seen (by Still) as a "tool of the international bankers" (e.g. Rothschild); which seems hardly fair. I do not know why President Andrew Jackson was determined to abolish the second US central bank, perhaps because it operated an inflexible money supply, but bank-president Biddle reacted most unwisely. He seems deliberately to have induced a national depression by withdrawing money in an attempt to coerce President Jackson. The furious nation supported Jackson, and the bank was abolished. The United States had no central bank between 1836 and 1913. The present 'Fed' is a cumbersome, complex, subtle and typically American device, incorporating the sort of checks and balances (e.g. between private and state, banker and politician) seen in other US institutions. It seems to work well for the most part, and shows an ability to change in response to financial and political demands. Fed profits are paid to the Government.

Positive Money is a British pressure group that has worked very hard over the last 3 years to bring us to an understanding of how the evils of fractional-reserve banking and debt-based money supply have contributed to the financial instability of the last 5 years. Does that sound familiar? Its thrust seems like an updated British version of the same general argument as "The Money Masters". Once again I am sincerely grateful for the research, well-meaning effort, and clarity with which Positive Money has stimulated my own thinking (See Blog). Together with Richard Werner and The New Economics Foundation, Positive Money has made a submission to the Independent Commission on Banking, advocating not just a ring-fence but a complete separation into two types of bank; type [a] with full-reserve banking, no interest, but fees, and used for paying and receiving money; type [b] for receiving deposits and making loans.

Whatever the merits of the Positive Money submission, I do not see it getting anywhere as it is too radical; it will not appeal to the bankers, and the politicians will not sufficiently understand its merits. But what are its merits? At present, most of us keep only enough money in a 'current account' to defray expenses till the next income cheque. We are happy to rely on the Government guarantee that we shall not loose our money in the event of a bank crash. There seems to me no pressure to move to an [a]-type bank except to deny the bankers the privilege of using our money while it is in their hands. We enjoy 'free banking' because the banks make sufficient profit from lending out our money. By contrast, we would have to pay for the [a]-type bank. If the [b]-type bank deposits were not underwritten by the Government's £80,000 guarantee there would still be much grief in the event of bank failure, and the Government would probably have to step in after all. So no change. Banks would still lend happily against the collateral of a house, so favouring non-productive loans, as at present. So, I doubt there will be much serious discussion of the Positive Money submission.

I see one issue to be 'fractional reserve banking', and a second to be 'asymmetric risk'. The pressure on bankers to over-lend is what brought about the recent sub-prime mortgage debacle. So we must reduce the temptation to make risky loans. And increase the penalties for bad loans. There seems to me to be no reason why banks should keep the interest when they lend money they do not own. So my first simple suggestion is that the tax rate on profits from lending should be related to the capitalization of the bank. When a bank lends 10 times its capital, 90% of the interest it receives should be taxed away, leaving it only 10%. If it lends twice its capital, it retains half the profit. Simple!

It may be objected that when a bank lends out money, albeit money that it does not own, it runs the risk of not getting it back, and the interest is the compensation for that risk. That argument fails if the banks are bailed out by the state.

Banks operate to match loans to clients. If a loan defaults, the bank must certainly loose its share of the loan (10% or 50% in the above examples), but maybe should bear a stiffer penalty. The 19^th century mechanism was to let the over-extended banks fail, and then to lock up the board of directors for debt. That worked well enough to inculcate 4 generations of prudent banking and 130 years without a serious bank run; but the hardship to thousands of innocent depositors is now regarded as intolerable, and governments tend (it seems) to step in to supply the missing money. Fine, but I see no reason why the insolvent/imprudent bankers should escape, as they seem to be doing. Have any gone to prison? Has anyone drawn up a list of directors who would now be bankrupt were it not for the state's intervention? Or a balance sheet of the money that must be repaid to the public by the banking sector, bank by bank? This failure is not only unjust, the risk-asymmetry is very dangerous. Gambling for the bank is (currently) a case of "heads I win, tails you lose". An idiotic situation. The money must be recovered, however long that takes.

So my second simple suggestion is like the first: "tax or fine the banks".

L. Cawstein
cawstein@gmail.com

Centrica's Profit

"Too much mucking around will raise the spectre of ENERGY NATIONALIZATION. Or so it jolly well should."

We heard today (27^th Feb 2013) that Centrica (the giant energy company) has shown a healthy profit in preliminary results for the year 2012. Profits are up 11% on the previous year. Centrica's share price has risen over the last 12 month by a similar 11% (trading today at £3.50). So it would seem that shareholders are expecting to see a similar rise in their dividends. But should they?

Customers were asked to pay an extra 6% for their fuel in 2012 (c.f. 2011) in the face of flat or falling cost of energy feedstocks (gas, coal and oil). Admittedly, at the beginning of 2012 the management of Centrica may not have known that feedstocks would come down, for they rose the previous year. But feedstock prices did fall. So what do we do now; pay back the excess profit to the customers? Ha! Is that likely, when all those 5.2 billion shares each carry one vote, unless some wiser heads are heeded?

Part of the argument for the 6% price hike to the customer was the need to invest (in the near future). So we should see NO INCREASE in dividend (beyond 2% inflation), and all that profit kept in the company. Ha!  That also is most unlikely in the face of those 5 billion voting shares, unless wiser heads prevail.

For your benefit I have dug out the price of crude oil and natural gas over the last few years.

Table 1

All prices in US$. Germany Natural Gas Border Price (GNGBP). (http://ycharts.com/indicators/germany_natural_gas_border_price)

Oil prices quoted for Brent Crude (BC), and West Texas Intermediate (WTI)

http://oil-price.net/dashboard.php?lang=en#brent_crude_price_large

Year	GNGBP	BC	WTI
Feb 2013	410	113	93
Feb 2012	440	115	105
Feb 2011	329	110	100
Feb 2010		85	90

  

L. Cawstein
cawstein@gmail.com