Sunday, October 06, 2013

Decimalisation and inflation

When the pound went decimal, we exchanged a useful system for one that worked less well.

The decimalisation of British currency in the early 1970s was not in itself treasonable, but it formed part of the preparation for our joining what we now know as the EU, though then it was sold to us as simply an international trading arrangement. This latter deceit and the unauthorised constitutional change it smuggled in have been called - in my view correctly - treason by Albert Burgess and others, assuming that the people of Britain are, by ancient custom and practice, entitled to a say in how they are governed.

Reckoning in units of base 10 is convenient for scientists who need to interrelate mutiple forces and physical measurements, but in the world of everyday human interaction the old monetary units worked better.

The reason is divisibility.

The modern pound of 100 pence can be divided in 7 ways: by 2,4,5,10,20,25 and 50.

The old pound - 20 shillings of 12 pence each, making 240 pence - can be divided in 18 ways: by 2,3,4,5,6,8,10,12,15,16,20,24,30,40,48,60,80 and 120. Using halfpennies, you could also split the pound by 32, 96 and 160; and with farthings (quarter pennies, still used until 1960) you could further divide £1 by 64 and 192.
So the old way functioned 3 times better than the new one, technically speaking. In fact, because the new penny was worth 1.2 times the old one, it impacted on low-value items (sweets, for example), so for a few years (1971 - 1984) the new decimal currency included halfpennies. There was even an unrealised plan for a decimal farthing.

The reason why all this may seem trivial to you, is the deadly assassin of money and savings: inflation.

Discounting the effects of wars and poor harvests, overall prices in England were stable for centuries until the sixteenth-century enthusiasm for empire and the importation of New World gold:

But the money system stabilised again by the late 17th century. The Bank of England's website has a page that lets you calculate cumulative inflation for any period from 1750 onwards. According to them, a basket of goods and services costing £1 in 1750 would have cost (the equivalent of) £1.80 in 1900 - an average annual inflation rate of 0.3%. That period covers the tremendous increase in productivity introduced by the Industrial Revolution and further late-nineteenth-century scientific and technological developments, so inflation is not needed for business and prosperity.

An 80% increase in prices took 150 years to develop.

Yet the same database shows that a very similar increase (£1 to £1.81) occurred in the space of four years in the 20th century between 1974 and 1978. And since 1900, we have seen an overall increase of 10,408%. That's not a typing mistake: £1 in 1900 was worth the same as £104.08 in 2012.

All caused by a seemingly gentle average inflation rate of 4.2% per year. The Bank of England's "target" for annual inflation is now 2%, which means that is is now official policy for us to suffer an 80% increase in prices over 30 years instead of 150 years - in one generation, instead of five or six.

This is why the old pound will never return. Farthings and halfpennies have gone, and so have the old pennies. Now, Canada has discarded its near-worthless penny and the UK is thinking of doing the same.

By law since the 13th century, a penny (the old one) used to buy you a loaf of bread; in the Middle Ages, five or six of them would buy a day's labour from a thatcher, or a four-pound (1.8 kg) loaf. (The ancient English bread laws were abolished by EU directive this year, and last month Tesco began to take advantage of the changes in weight regulation.)

Why inflation at all? Perhaps the answer is in the Cantillon effect: "the original recipients of new money enjoy higher standards of living at the expense of later recipients."

Who is receiving these fresh supplies of money today? The banks, who borrow from the BoE at incredibly low rates, and lend to the Government and hedge fund managers at rates you will never get. And inflate the currency by introducing vast amounts of credit, rotting the value of your cash savings and boosting some prices (e.g. for houses) hopelessly beyond the reach of many people.

They were hanging and burning people - women as well as men - for debasing and forging money, as late as 1789. Now, through its privateer agents the BoE and banks, the Government is doing it, and intends to continue doing it. Nobody important will stop it, because this systematic sweeping-up of the people's wealth into a few pockets allows an elite to buy the services of former lawmakers and broadcasters - look at JP Morgan and Tony Blair (and the BBC's Stephanie Flanders).

Our system of government has been corrupted and betrayed. I have sympathy for those who protest against it; but little hope that we will get reform before disaster forces it upon us.

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A K Haart said...

Interesting post. When reading older fiction I tend to use a multiplier of 100 for mentally comparing prices.

Although there are discrepancies, it seems to work well enough and is certainly convenient, but for how long?

Of course one reason I can do this is because I'm still familiar with pounds shillings and pence. Younger people presumably don't have this advantage, but maybe they don't read older fiction anyway.

Wolfie said...

Excellent post!

Sackerson said...

Thank you, sincerely.

James Higham said...

So the old way functioned 3 times better than the new one, technically speaking.

There's a logic in there somewhere.

What's currently driving me batty is trying to convert metric to imperial and back for building. Everything's sold in metric but building is in feet and inches.