The Unitised Economy

John B. Matthews

Adapted extract from a mass of materials sent to the Institute by John Matthews, who proposes simultaneously to abolish inflation, unemployment and taxation.

The existing money-based economy is tied inextricably to inflation and unemployment. Also, money is treated as a commodity in its own right and is created by banks on demand.

However the present problems inherent in the money-based economic system can be avoided by making fundamental changes to it. The first is to stop the banks from creating money and the second is to unitise the economy. It is generally accepted that inflation in the long term is due to the flow of money in the economy exceeding the flow of output. In the unitised economy each salary and wage earner is allotted a fixed number of notional units representing the pay rate of his or her job. At the start, this number is equal to the number of pounds in the pre-tax monthly pay, which sets the initial money equivalent of the unit at one pound. Thereafter, the money pay will be determined by the money equivalent of the unit (or Unit Value), which varies linearly with the productivity of the whole economy.

The Unit Value is the ratio of total real output of the economy to the total number of units distributed throughout it. It would be calculated at regular intervals by the Bank of England, to which returns would be made by each employer of his total real output and the total number of units of his employees.

The employer then uses the current Unit Value to calculate the money pay of his employees. Thus inflation is eliminated, because the amount of money available to spend is matched by the amount of output available to buy.

The only way in which the money pay of an individual can go up is by increasing the person's allocation of units, which will decrease the overall Unit Value unless there is a corresponding increase in total output. Therefore the traditional trade union demands backed up by strikes for increased pay will be abortive. Instead of strikes, the unions will have to co-operate with employers to increase productivity.

'Unit Value would also provide the opportunity to abolish all forms of taxation'

Unit Value would also provide the opportunity to abolish all forms of taxation. This would be done by parliament allocating the necessary number of units to government, which would decrease the Unit Value, thereby diverting part of the total pay flow to meet the charges on the government currently met by taxation.

The government could also allocate units to create employment, when it needs to climb out of recession - without introducing inflation. In other words, a small reduction in the total pay received by the employed (soon returned through increased output restoring the unit value) would put the unemployed back in work, without the present traumas of tax increases and increased government spending.

A Europe-wide unitised economic system would do away with the need for the Exchange Rate Mechanism and 'would force the currency speculators to move on to more productive work'.

The Return to Sanity - or the Unitised Economic System is available from John Matthews, Bryant Books, 12 Charnwood Rise, Woodhouse Eaves, Loughborough LE12 8QT (tel 01509 890347), £7.50 inc. p&p (UK only).

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