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The Future (and Past) of Money

Here is the abstract of the talk I gave at Bitcoin Expo2015.

Abstract
We all know what money is, don’t we? `Money is the notes and coins that governments print and mint to facilitate economic transactions`. If only it was that simple. The vast majority of money does not exist as notes and coins, but as imaginary numbers written into a bank ledger. The bank which doesn’t need to have that money – uses its government-backed right to magic the money into existence through the Fractional Reserve System.

Money is a statement of faith in the value of these instruments of exchange. Money is simply a self-referential promise to repay a debt, with money – and government-backed threats ensure repayment … with interest. However, the magic collapses if too many people default on their loans, or if too many people demand their money back, precipitating a run on the bank.

Only blind confidence (or is that ignorance?) keeps this whole anti-gravity machine from crashing to earth. The time lag between borrowing, and repayment (in full plus interest) keeps this self-referential system of fiat money afloat. But this requires the creation of new money in the interim, in order to pay the interest over and above inflation. This leads to an exponentially increasing scale of indebtedness, which must eventually lead to collapse.

The history of money is that of government interference. State inspired inflation is as old as money itself; from ancient Babylon, to 14th century China, to the ‘Great Debasement’ of Henry VIII, to the Weimar Republic, right up to present day Zimbabwe. As far back as Plato’s moneyless utopian Republic, governments have wanted non-convertible currencies to protect their economies from external forces, and prevent wealthy dissidents escaping state oppression. Since this is impossible, instead they have always sought to erode three particular properties of cash – its anonymity, fungibility, and ability to store value. By placing Radio Frequency Identity tags in bank notes this is now possible.

Concerned individuals are responding by producing their own currencies. Bitcoin and other blockchain-based currencies are leading the way. In this talk Professor Angell will give his radical ideas of what this all means for the future of money.

Row, row, row your boat

“When one rows, it is not the rowing that moves the ship; rather rowing is simply a magical ceremony by which one compels a demon to move it.” Nietzsche, F. (1996), Human, All Too Human, Cambridge University Press.

This is without doubt my favourite piece of vicious Nietzschean rhetoric. It’s guaranteed to get up the nose of every self-respecting professor of Physics. I always quote it in my lectures on Science’s First Mistake, the book I wrote with my old pal Dionysios Demetis.

I usually pull it out of my hat during the Q&A, when some pompous questioner always insists that the world is linear, objective and ‘obeys the Laws of Science’. My response is to ask if the questioner is an empiricist, namely basing his (it’s usually a he) analysis on scientific observation and measurement. When they answer in the affirmative, I ask them to show me gravity.

Invariably they drop something, to which I respond: “That’s not gravity. You’ve just dropped something. Show me the gravity that did that. Come on, you claim to be an empiricist, show me the evidence of it’s existence.” In other words show me the gravity demon!!!

I end with “Newton’s apples fall, not because of gravity, but because that’s what apples do. This gravity you talk about isn’t in the world, it’s all in your head and the way you describe things that are necessarily so.” This is the also case for every ‘force’ in Physics. Each is a demon, which can only ever appear as a proxy in the world of measurement. They are very useful demons, but they are demons none the less.

BitcoinExpo2015

I gave a talk this afternoon at BitcoinExpo2015 about my vision of the future (and past) of money. This gave me the opportunity of meeting a number of very interesting people in the Bitcoin community, and I’m looking forward to some highly informative discussions in the weeks to come.

It also gave me the chance of plugging my new book, Flight of the Golden Geese. There’s been a hold-up with the paper galley proofs, so the latest news is that the e-book will be out mid-February, but the paper copy will not appear until March at the earliest.

When I got back home I looked up the broadcast I made for Channel 4 back in 1998 on the Future of Money. I was astonished that apart from mentioning Bitcoin, everything I said back then about off-planet banking, was included in today’s presentation. I talked about sending digital money contained in a digital safe up into space. Come to think of it, `digital money in a digital safe` isn’t a bad description of crypto-currencies like Bitcoin.

The downside of watching the clip was the shock of seeing the Ian Angell of 17 years ago. I hardly recognise myself! Take a look for yourself.

France backs away from 75% tax

Despite all the ballyhoo around President Hollande’s determination to squeeze the rich with a 75% tax, he has finally admitted that it wasn’t working, and that it will be dropped for the coming year.

This news comes too late to put in our new book, Flight of the Golden Geese out in February, where we warned that the policy was economic lunacy/suicide. And so it has proved.

According to the French finance ministry, a mere €260m was earned in 2013 from the supertax, and this even dropped to €160m in 2014. Hardly surprising that France’s budget deficit soared to €84.7bn.

What these figures don’t show is that second-order tax income will also have dropped substantially because of this tax, probably by an amount even greater than the sums raised. French business has been badly hit by the consequential fallout of the policy, which impacted employment, which hit the income tax take from ordinary Frenchmen and women.

This about face is just the latest of a number of U-turns by Hollande’s government, all going to show that in today’s economic climate politicians are no longer in control of national destinies.

Private Passports

I’ve been banging on for years about the end of the nation state, and the possibility of the virtual private state, and private passports. Since first writing about it in 2000 in the New Barbarian Manifesto I’ve been pondering how it could be implemented. In parallel I’ve been championing private currency with my off-planet banking idea, now made more feasible with the rise of blockchain technology.

Pavlo Tanasyuk has introduced me to a group called BitNation, who have put the two together, and are using Bitcoin 2.0 blockchain technology to create a cryptographically secured private ledger that is a de facto virtual state. Brilliant!

Check them out at bitnation.co,with their Governance 2.0. Also see the video of Susanne Tarkowski Tempelhof being interviewed by Max Keiser on his Keiser Report on RT TV.

P.S. Don’t confuse them with the Bit Nation video games channel!!

The Moral Hazard of Osborne’s Band Aid VAT exemption.

So we learn that Band Aid has been given exemption from VAT by Chancellor George Osborne. Yet again politicians fail to recognise the moral hazard in such decisions, and instead bask in a smug false morality. Can there be a moral justification for the tax authorities arbitrarily discarding their rules, giving preferential treatment to certain high profile individuals or events, charitable or otherwise, just to court popularity or to save the government embarrassment? Meanwhile other event organisers, scrabbling to raise every meagre penny they can, find themselves taxed without redress.

This is not the first time. Michel Platini, president of UEFA said the choice of Real Madrid’s Bernabeu stadium to host the 2010 Champions League final in preference to Wembley was because the UK failed to guarantee that the players taking part would not be taxed. Suddenly an exemption was given for the 2011 Champions League final so that it would be played at Wembley. FIFA also asked for exemption for teams competing in the 2018 World Cup as a precondition of the British bid to host the competition. The London 2012 Olympics was also given an exemption, for otherwise the games would have proved an unmitigated disaster with all the star names staying away. To prevent such national humiliation, the government simply changes the rules in such ‘special cases’.

While all taxpayers are equal, some it seems are more equal than others. The HMRC persists in taxing competitors in all but politically sensitive events, hence international stars will just boycott non-premier UK events. These second division events, which rely on the odd star name to draw a crowd, will become unviable. Some players may even refuse to take part in prestige events like Wimbledon. The organisers of a Diamond League international athletics event held at Crystal Palace, London, on 13/14 August, 2010, had hoped a £166,000 fee would entice Usain Bolt, the 100 and 200 metres world record holder, to compete in a 100 metres showdown with his arch rivals Asafa Powell and Tyson Gay. Bolt was keen; he even agreed to pay the 50 per cent tax on this fee. But he refused point blank to come if he wasn’t given an exemption on his global appearance income. He did, however, compete tax free in the 2012 Olympics, and won three gold medals, lighting up the Games and drawing in taxable revenue from attendees in the process.

The sports industry in the UK could face some serious economic consequences, since if the stars stay away, then so will TV coverage and the paying crowds. The government has suddenly woken up to the threat, and fearing a disaster in the July 2013 Diamond League event that was designed to celebrate the ‘Olympic Legacy’, it offered a “one-off exemption” for Bolt and other superstars. That’s one-off until the next big event that needs the top names.

The government seems unaware of the moral hazard in giving exemptions to the stars in top events or high profile charity shindigs, while journeyman athletes attending second division events and second tier artists still have to pay through the nose.

A ‘fair’ tax system cannot allow arbitrary exemptions at the whim of mere politicians, whatever the virtues of the individual case. For where will it all end? Doling out exemptions to gain votes? And what about all the meritorious but lower profile cases. Osborne has taken the first step down a very slippery slope. He can expect to receive begging requests from every well connected charity in the coming months.

Soak the rich!

You can already hear Ed Miliband bleating “Soak the rich” as he frantically tries to hold on to the leadership of the Labour Party. Soak the rich? They’re already thoroughly drenched.

HMRC have released figures for 2013 showing that top 0.1% of income tax payers handed over 11% of the total tax take. Even more surprising, the top 0.01% paid 4.2% of that total, the same as the bottom 30%. Putting it in another way, the 3000 wealthiest individuals pay the same amount of tax as the bottom 9 million.

And this is under a Conservative government! If it gets any worse we will all be deafened by Golden Geese flapping their wings as they fly away.

Griff Rhys Jones: Golden Goose

Our book, Flight of the Golden Geese, will be out in February 2015. Its message has leaked out early. The wealthy are tired of being taxed ‘until the pips squeak’. We are warning that these geese that lay golden eggs are gathering in numbers, preparing to fly away to more welcoming tax jurisdictions. Every time a populist politician dreams up a way of robbing the rich, more of the wealthy are making plans to escape.

“You can’t make the poor richer by making the rich poorer”: a quote attributed to both Abraham Lincoln and Winston Churchill. Having money means you are able to fight back, and the simplest way is to leave, so the Treasury not only fails to gain from the new taxes, they lose the huge amounts that they would have made from taxes the leavers would have paid.

The Mansion tax, touted in the UK by both Labour and the Lib-Dems in order to win votes from the vindictive losers in society, is but the latest example.

Griff Rhys Jones, the well-known comedian, summed up his position, like so many self-made men and women. “I mustn’t equate my own personal angst about the mansion tax with a national policy angst. No way. It’s quite likely that the population is very keen on seeing rich people squeal. So I’m not going to squeal to make them feel better.”

He said he’d sell his large house in Fitzrovia, which he bought fifteen years ago as a slum, and renovated the property. If labour wins the next general election he says he will move overseas.

Sol Campbell, the former England soccer star, called the tax “a cheap and easy way to extract money from people who have done well.” He has gone so far as to put his house on the market for £25 million.

If enough of the wealthy follow suit and sell up, and significant numbers of foreigners reverse the trend of buying property (in London), then we will see a slump in house prices. A good thing for the first time buyer? Not necessarily. The high level of property prices, increases the scale of repayable debt among the population and maintains the value of the capital assets of the state, which in turn underpins the strong value of sterling. A drop in house prices leads to huge negative equity, consequent reneging on debt a la the US subprime mortgage debacle of 2008, less house building, increased unemployment, a lowering of the tax take, and entry to a vicious circle of calamity for the economy.

But what the hell. “Don’t tax you. Don’t tax me. Tax the guy behind the tree.” What do you mean the guy behind the tree has flown away?

Inheritance tax is not for party members

The Labour Party is forever banging on about the evils of tax avoidance. Sheer humbug. What have we learned today with revelations about the last will and testament of Anthony Wedgwood Benn MP, prominent socialist intellectual?

When his wife died in 2000 the great socialist transferred part ownership of his house to his four children. He also owned an ancestral home in Essex which he had been placed in a trust. Both classic tax avoidance schemes.So the nominal figure left to his children in his will was around £5 million. Without the avoidance planning it would have been much more, as would the death duties.

And why not! It’s only right that his children benefit from their parents. But why try to stop other people doing what is right for their kids?

“Don’t tax you, don’t tax me, tax the guy behind the tree.”

Inheritance tax is not for party members, but only for Tories.

The EU: investing in failure

So Brussels has demanded that ‘Britain’ pay an extra £1.7 billion towards the EU budget. By ‘Britain’ they don’t mean the British Government, but the British Taxpayer. You and me.

Why must we pay this money? To support rebates being given to France and Germany. I don’t object to the Germans getting a rebate. They have paid enough over the years. But France! Their economic failure is all down to the socialist insanity of Hollande and his crew.

Recent British economic success … yes we have been successful, which is why we must pay … is all down to our willingness to suffer the recent austerity measures. Meanwhile the wasteful government in France, spending money it doesn’t have on ideological nonsense, simply holds out its hand and slips it into British pockets. Nigel Farage will be counting his extra votes by the sackload.

The EU strategy is known as ‘Investing in Failure’. And when you invest in failure, that is exactly what you get.