“Future students of history will be shocked and angered by the fact that in 1945 the same monetary system that had driven the world to despair and disaster [in the Great Depression], and had almost destroyed the civilisation it was supposed to stand for, was revived on a much wider scope.”
So wrote the Conservative French economist Jacques Rueff in 1964. The collapse of the old system in 1929 led to the Great Depression and the Second World War, so these are not unimportant questions.
There is also more than a whiff of 1931 about the current situation. The markets have realised that they have not, after all, recovered their confidence from the crash two years before. The banks are withdrawing money from circulation to pay for new reserve requirements. The leading economies in the world are involved in major cuts. Eight decades later, here we are again.
The real problem is not so much generating confidence in the system. It is that nobody in their right mind would have much confidence in it right now, as the great edifice totters under the weight of dollar and euro debt.
We are, in short, at a uniquely dangerous moment. And because of the interconnectedness of the system, it is in some ways far more dangerous than 1931. We have fewer human systems to fall back on to provide us with the basic requirements of life. The technocratic systems we rely on will rapidly unravel without the fuel of money.
But it is not hopeless. In the event that the system malfunctions disastrously, as well it might, we need our leaders to accept two fundamental measures.
1. If the system collapses, the central banks of the world must – by agreement that must be negotiated now – create the money they need to pay off the ruinous debt and reset the system. We need to accept, in other words, that the old system is dead rather than waiting hopelessly and disastrously for its revival. Human life, in the end, trumps the integrity of the banking system.
2. That implies the second part. Once the system is reset, then the world’s leaders must gather once more in Bretton Woods, as they did in 1945, and this time re-organise the system in such a way that people and planet and their legitimate needs come first. We need a financial system fit for purpose, as they say, and fit for the needs of a different kind of world.