The Triple Crisis of Western Capitalism

Democracy, Banking, and Currency

T. Lauk

• Publisher: Palgrave Macmillan
• Year: 2014
• ISBN:
  9781137432964
• Topic: Negocios y empresa
• Subtopic: Gestión de riesgos financieros

Tillmann C. Lauk discusses law-making at the European level and argues that problems with EU legislation, banking regulation and currency debasement are due to a lack of democratic control. He insists on the need for radical reform both of banking and of international money and makes an important contribution to the debate on the future of finance.

1

Democracy

1.0 The conceptual starting point

This book is about democracy. It follows that it is also about human rights, in particular the right to self-determination as developed during the Enlightenment in Europe between the 16th and 19th centuries. It is usually associated with names such as Charles Montesquieu, John Locke, Jean-Jacques Rousseau, Immanuel Kant and Alexis de Tocqueville – to name only a few.¹

Democracy and human rights are mutually dependent. If democracy is endangered then human rights become automatically endangered. The obvious examples of this are dictatorial regimes and war. But the human right of self-determination can also be infringed through excesses of financial capitalism. Prior to the outbreak of the global financial crisis (GFC) in 2008, for example, the number of people dependent on food stamps in the US was 26 million, and by 2012 the number had roughly doubled to 46 million, or 20 per cent of US households. Those people are deprived of the power to determine their economic prospects. The GFC was triggered through the reckless lending and securitization procedures of the banking sector in the US, procedures that had their foundations in laws and regulations.

In peacetime, policymaking in fact amounts to lawmaking. Whether this is social policy, criminal policy or policies relating to traffic, tax, banking or currency, each policy is based on a law. Hence, it is essential that the lawmaking process is in strict accordance with democratic principles.

The central thesis of this book is that if financial capitalism is not firmly embedded in democratic lawmaking, a very detrimental form of capitalism begins to emerge. If the lawmaking process is not democratic, then it is either anarchic, oligarchic or even totalitarian. Yet if financial capitalism is firmly embedded in democratic lawmaking it will probably be the most beneficial economic system for societies. The alternatives to capitalism are not socialism and communism, because both are evidently anti-democratic and totalitarian, relying on central planning, which is anti-democratic in that it deprives citizens of their right of economic self-determination.

Therefore, this book is in search of a democratic form of capitalism, or, properly speaking, a democratic form of free markets.

To achieve that goal the book has recourse to the political theory developed by the European Enlightenment movement throughout the 16th to the 19th centuries. That theory awarded the individual inalienable human rights. One of these is the right of self-determination.

The centrepiece of the political theory of the Enlightenment movement was the quest for legitimation of political action. What conditions must be met in order that rulership or lawmaking are legitimately measured against democratic principles? What are those principles?

Democratic theory of the Enlightenment movement puts the individual and his or her right of self-determination at the centre of its considerations. The right of individual self-determination meets its limits in the form of the right of self-determination of other individuals. Therefore rules, or laws, must be defined to make a society a smoothly working organism for the benefit of all. Democratic theory says that those rules must reflect the will of the people. According to this axiom the source of legitimation is the will of the people. Lawmaking must reflect the will of the people affected by those laws.

To achieve transformation of the political will from the individual level to the collective level, democratic theory developed the principle of representation. It holds that a group of people, today an electoral district, can elect a representative. They will represent the will of their constituency in the assembly of the other representatives – today in parliaments. It is assumed that this elected representative is in continuous dialogue with the members of their constituency in order to gather their political will, which the elected individual is assumed to represent in parliament. As an emanation of the collective right of self-determination, the right to organize the circumstances of societies may only be vested in parliament. In particular, any parliament in the world must have the right to initiate legislation. If a parliament is deprived of its privilege of legislative initiative, the will of the people cannot act. At best, it can only react. Finally, to be legitimated the composition of a parliament must be the result of free and equal (‘one man/woman, one vote’) elections.

In order to form a political will, and thus in order to determine which aspects of self-determination an individual might give up in favour of the common good, a common public arena must exist. Such an arena is an indispensable prerequisite for the formation of the political will of the people, as it is here that the pros and cons of any lawmaking initiative must be discussed. In order to function it must be equally accessible to all and must not be susceptible to being seized by a powerful minority. If it becomes captured by a minority then there is a danger that the flow of information regarding a topic in question becomes manipulated. Some information might be withheld or suppressed, some might be disproportionally overstated. Hence, it is of utmost importance that pluralism of opinion is warranted. Today this public arena is made up of various players such as television and print media. It follows directly that any undue concentration of media is a threat to democratic decision-making and pluralism.

What is of equal importance is that the representatives in parliament are independent. This means that whenever they vote on an issue, usually a law, their only guidance is the will of the people they represent, their own autonomous will, the common good and the values of a democratic constitution. At this point it becomes clear that lobbyism constitutes a threat to the democratic formation of the political will of the people. Hence, it has to be ring-fenced by strict rules of transparency.

The process of democratic formation of the political will is also seriously threatened, if not overturned, if a representative depends on campaign contributions from the industry – in particular from the financial industry, as is the case in the US. The democratic formation of the political will becomes equally sabotaged through the instrument of the party whip, which is prevalent in Europe.

However, democratic theory during the Enlightenment movement was not only concerned with the topic of legitimation. It went further. It also thought about the question as to how a democratic state should be structured so that it will enhance and nurture the involvement of the people in political decision-making processes, and how it can reliably protect the freedom of its citizens.

It came up with two principles. First, a democratic state has to be organized along the principle of separation of powers. Second, its structure has to reflect the principle of subsidiarity.

Separation of power means that the three state powers in a democracy need to be independent of each other and that they have to check on each other. The central pillar of these three powers is the legislative (parliament), that is, the representation of the people. This means that any action of the state – the executive branch (government) – is without legitimation unless the executive branch has beforehand been empowered through the passage of pertinent legislation. Once the executive branch has been thus empowered, its administrative bodies can implement the law without interference from the legislative branch. Should, however, the executive branch implement the law in an illegal fashion then citizens can invoke the third state power – the judiciary (courts) – which can then nullify those illegal acts by the executive.

With respect to the requirement that each executive act has to find its legitimation in antecedent legislation – that is, in the votes of the representatives of the people – modern Western constitutional theory developed a further principle in order to make sure that executive power will always be rooted in the will of the people. This is the principle of sufficiently specified conferral of power, which means that any conferral of power to the executive must be sufficiently specified and limited.

The importance of this principle can best be illustrated by a historical accident that happened in the 1930s in Germany: in 1933 the German parliament passed the so-called Enabling Act (‘Ermächtigungs-Gesetz’) for the Hitler government. The provisions of this law were so broadly defined that it became unforeseeable for the parliament, as well as for the citizens, as to what the executive branch was to do with such broad empowerment. However, for Hitler, it was clear: he introduced the Gestapo as a federal secret service with unlimited powers. He also introduced the ‘Gleichschaltung’ programme (forcible coordination), through which all associations of the civil society became ‘coordinated’ by force. All bodies of the civil society, such as universities, formerly independent federal states, employer associations, unions, the educational system and the media were brought under one centralized command and control structure. From a legalistic point of view Hitler acted ‘properly’; the problem lay in the fact that the parliament basically waived its right of control and oversight of the executive branch by framing the law too broadly.

As a result, some European post-dictatorial societies maintain the legal principle that any conferral of power to the executive branch must be ‘sufficiently specified and limited’ in order to be in compliance with the respective constitution. This is the rationale of the principle of conferral.

The principle of subsidiarity requires that state power be decentralized as much as possible. It is driven by the notion that direct participation in government enhances and trains the political virtues of citizens. Therefore, local affairs should be dealt with on a local level, regional affairs on a regional level, and federal affairs on the federal level. Municipal and regional bodies should be granted, as much as is possible, autonomy to deal with their affairs. Every move in the direction of centralization must be carefully considered and justified. This is because each step towards centralization reduces democratic participation. As will be shown later in this chapter, the principle of subsidiarity has been hollowed out in the EU member states, whereas in Switzerland it is firmly alive.

From all this the criteria for a democratic, in other words legitimate, lawmaking procedure can be derived.

The criteria of a democratic lawmaking process are:

1. The authority to create binding laws may only rest in a freely and equally elected parliament. The parliament must have the right to initiate legislation regarding any aspect of society.

2. Any enactment of law needs to be preceded by a pluralistic debate in a common public arena of a society. This public arena needs to be both accessible and transparent. Since politicians are key players in any public debate it is imperative that they must disclose their funding and income sources. If this is not done, citizens cannot recognize whether the expressed view is one belonging to a special interest group. Accordingly, the formation of a political opinion might be manipulated or biased. Finally, a common language is essential.²

3. Any voting decisions of the representatives in parliament must be taken autonomously and independently. Therefore, use of the party whip must be banned.

4. The lawmaking process must be embedded in a state organization that strictly adheres to the principle of separation of powers, the principle of subsidiarity and the principle of sufficiently specified conferral of power from the legislative branch towards the executive branch.

1.0.1. The structure of this book

At the end of each chapter the relevant laws are evaluated to ascertain whether they were created in accordance with the four criteria stated above. Then alternative systems are sketched out: (a) a design to democracy, and (b) a reverse engineering of the biggest flaws of the current systems. Each chapter closes with a summary.

Chapter 1 examines the process of lawmaking on the European level. Particular attention is given to the laws regulating the banking sector.

Chapter 2 describes the most important legislation that is currently influencing and regulating the global banking system. In particular, the financial and economic effects of certain laws are illustrated. This chapter also contains a brief analysis of economic theory, which heavily influenced certain laws passed by the Congress of the US at the end of the 20th century.

Chapter 3 examines the legislative process that led to the introduction of the single European currency – the euro. It also discusses the sustainability of the single currency and the global fiat money (‘paper-based’) system, in principle. Particular attention is given to the relation between a fiat money currency regime and the right of self-determination.

1.1 Lawmaking on the European level

This chapter measures the lawmaking process on the European Union (EU) level against the key principles derived from the political theory of the European Enlightenment movement, as stated in the preceding section 1.0.

As this chapter shows, none of those principles can be found in the institutional edifice of the EU. The lack of these fundamental principles on the EU level deprives any lawmaking process of its democratic legitimation and puts it in contradiction to the political theory of the Enlightenment movement.

1.2 Right to initiate legislation exclusively assigned to the executive branch – the EU Commission

Law creation on this level can be labelled as the epitome of illegitimacy. First, there exists no ‘European Parliament’ – because via a perversion of Western constitutional theory it has no right to initiate, and hence, no right to create any law. Therefore, it is deprived of the core function of a democratic parliament. Consequently, the will of the people is not in the driver’s seat for shaping their societies. The fundamental right of legislative initiative is exclusively granted to the European executive branch – the unelected EU Commission (Art. 17, No. 2 Lisbon Treaty).³ This not only constitutes a ‘democratic deficit’ – the belittling, official term used by commenting scholars – it rather introduces a totalitarian feature into the institutions of the EU. The fatal consequence is that the initiative to regulate a...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Foreword
• Acknowledgements
• Abbreviations
• 1. Democracy
• 2. Banking
• 3. Currency
• Notes
• Bibliography
• Index