Australian economist, Joseph Schumpeter pointed out how European states fed on taxes from their populations as a response to the government providing them with goods and services thus causing a creation and circulation of money which is the prerogative of the state. The state theory of money states that money is a creature of legal order. However critics pointed out that the public validity of money stems out from quantity and purchasing power and financial markets led to emergence of banking.
The Power Move
The power to create and regulate money has been privatized to commercial banks and credit institutions. Harold James described that this privatization in European states led to the formation of the independent European Central Bank whose operations supposed that money should be separated from the fiscal activities of member states. The ECB was designed by the Delors Committee a body of central bankers who thought they would insulate themselves from democratic pressures and focused on keeping inflation rates low.
The ECB, the Maastricht Treaty and single currency functioned as the framework within which cross border banking flourished and became the euro-zone offered banks access to less regulated zones. However there was a disastrous consequence that Europe wide banking produced self-sustaining and self-propelling credit booms and bubbles without and corrective mechanisms.
History Repeats Itself?
History of these trends reveals that banking and credit institutions are just intermediaries linking savers and borrowers. They are just political agendas to support the elected governments like in Britain where 97% of the country’s money is in the hands of these institutions and gives them power to decide whether people can rent or even venture into businesses.
When these sectors generate bubbles and they pop, the citizens are held hostage with these banks being bailed out at the taxpayer’s expense. Rescue patterns that have been established reflect the structural power that this sector wields over the government since monitory democracies in the parliamentary governments have been turned into slavish sub-sectors of financial markets. These were protected by independent central banks and self-regulatory bodies and when they failed the democratic principle of citizens was cast aside and electoral democracy was reduced to a servant for finance institutions that collect money from investors, insurance companies and savers the lend those funds to banks, governments and business firms for short periods. An example is in Cyprus where a collapsing system is being rescued through imposition of capital controls and robbing citizens of their savings.
The Crisis Worsens
The deepening European crisis exposes the depth of elected governments on finance capital explaining why opinion polls show that majority of citizens are appalled by these trends and no longer ‘bank on’ democracy which is now at the mercy of banks. There is however some public awareness of political dangers of simplifying complexities where individual bankers are subjected to rough treatment such as Sir Fred Goodwin and ‘good’ bankers who kept their dignity by telling the truth are granted recognition and they offer advice about what needs to happen next.
The nineteenth century representative democracy featured figures such as George Grote who championed the secret ballot reform and George Soros who wrote the book our age of monitory democracy. The German scientist Claus Offe calls the ‘freebooters’ describing citizens who are disgusted by what is going on. If justice is fairness in distribution of life chances, then present trends reek of piracy, lawlessness and criminal injustice.