Scotland

I can’t say how I’d vote “if I were a Scot”. If I were a Scot, I wouldn’t be me. But I can tell you my opinion: Yes; for independence. Better still, I can address the currency question.

On the politics, George Mombiot makes the case in I’d vote yes to rid Scotland of its feudal landowners and Scots voting no to independence would be an astonishing act of self-harm. 

I regret that the SNP have muddled the currency issue. The current stance is that an independent Scotland would go on using the UK pound. I call this the ‘Turkeys don’t vote for Christmas’ problem. It afflicts the electorates of benighted euro-area members, too. If your salary is denominated in pounds (or euros) — let alone your bank account — why would you deliberately choose a lesser unit? And it’s true that the Scottish currency, like the Spanish one, would be a cheaper unit than the incumbent one. I think overcoming this challenge requires a clear articulation of vision and a forceful history lesson: weaker currencies strengthen, and strong ones weaken. But that’s another topic. 

There isn’t such a thing as sovereignty without a currency. Ask Spain. In recent decades, there has been a lot of emphasis on the notion of “independent” central banking. Don’t believe a word of it. The government is the state and the central bank is subservient to it. “Independent” central banking was a ruse to address a well-known “time inconsistency” problem of the central bank. The problem goes like this. The government wants growth and jobs. Unanticipated inflation achieves this. Ergo, the central bank finds itself under pressure to ease, to allow a bit more inflation. An ‘independent’ central bank is relieved of this pressure, so it can focus on its mandate to stabilize inflation at a low level (or, in the case of the US central bank, combine this with one eye on growth and jobs). 

When it comes to the crunch — in times of severe crisis — the state is sovereign and the central bank works for it. Any serious analysis of the role of money in the economy acknowledges this fact. (Willem Buiter’s recent piece on Friedman’s ‘helicopter drop’ is a case in point.)  

Scotland needs a currency partly because a currency gives Scotland’s economy a price, different from England’s. Yes, that means it needs a currency that floats (never mind whether it’s a ‘free float’ pace Norway or a ‘dirty float’ pace Iceland). There is an exchange rate that suits Scotland’s economy, and that will evolve along with it. And that rate isn’t England’s. Frankly I don’t think England’s exchange rate suits England. It suits the City of London. 

The main thing is that a currency and central bank gives Scotland sovereignty. You’re better off borrowing in a currency that you create. Until the ECB promised to “do anything” to save the troubled euro-area debtors, those self-same debtors were well aware of how costly it was to have borrowed in a currency over which they have no control. 

The currency is the most important price in the economy. It is the price of the economy. That’s why, after several years of hard experience, it’s the preferred path for so many countries today — not least, the UK. Knowing this, and knowing that it works perfectly well for the aforementioned Scandinavians (including Denmark and Sweden), you have to ask yourself: Am I saying Scotland is less able than these countries to run its own currency? Personally, I find that laughable. When it comes to free markets and capitalism, Scotland wrote the book.