WESTERN economic thought had its roots in ancient Greece. It has flourished since the 13th century, evolving into political economy during the 18th-century Enlightenment and taking on its modern form after Keynes worked out what needed to be done to end the Great Depression.

Throughout that time, economic thinking has emphasised the value of Aristotle’s concepts of household management (oikonomia), virtue, or excellence (arete), and human flourishing (eudaimonia).

Understanding the nature of wellbeing, and promoting it, has always been central to economic thinking. Economics is the analysis of the use of resources to achieve greater well-being. Wellbeing economics is nothing new. It’s a call to return to the traditional core of economic thinking.

That is why the Scottish Currency Group’s wants to establish a “wellbeing monetary economy” after independence.

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As the lifeblood of every modern economy, money has a wide range of functions. Without money, there would be no prices, no easy way of making payments and no liquid stores of value. The economy would not be able to carry out its primary function of ensuring resources will flow from the people who have acquired them to the people who value them most.

“Do no harm” should be the core guiding principle of Scotland’s wellbeing monetary economy. Losing sight of that has been the main cause of economic recessions in the last 40 years. They tend to follow periods of “debt-financed asset-price inflation”. These occur when asset prices start to increase because banks believe borrowers will be able to sell assets at a higher price in future.

However, the underlying cause of rising (monetary) value of assets is the banks’ lending. Banks’ decisions lead to a gap between monetary values and real values.

Such financial bubbles almost inevitably burst. When the bubble which expanded in the early years of this century burst in 2008, Scotland’s proud history of being a leading centre of banking effectively ended overnight.

That was very unfortunate but the harm which bankers’ folly causes the whole of society isn’t a sudden freeze on hiring graduates with dreams of avarice and financial losses for shareholders when a few badly run institutions collapse.

The crisis of 2008 was followed by a recession which lasted through to 2012 because George Osborne and David Cameron didn’t understand well enough how an economy works.

The National: David Cameron and chancellor George Osborne

That fed into the rise of populism, and Brexit, as English voters eloquently expressed their contempt for business-as-usual politics.

During the recession of 2009-12, economists were puzzled by the relatively small increase in unemployment. From experience, my younger colleagues are quick to point out that there was an increase in under-employment.

Traditionally, with an unemployment rate of 10%, for every nine people in jobs, there’s someone looking for work. For that person, unemployment is 100%.

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With under-employment, there doesn’t need to be anyone out of work. But if a quarter of the workforce is on a three-day week instead of a five-day week, there’s effectively 10% unemployment. One way of thinking about “flexible working” is that it spreads the pain of a recession, so that more people feel a little worse off.

The eminent historian of economics and finance Professor John Turner believes the 2008 crisis was so large that it will take up to 25 years for the UK to recover from it. The post-crash recession was just the start of harm which the financial crisis caused.

When banks cause a bubble, financial markets over-estimate the value of their assets. After the bubble bursts, banks need to recapitalise their businesses.

To stabilise their position, they cut back on lending.

Productive investment shudders to a halt. Innovation slows down, diminishing sharply our ability to address economic and social problems.

During the period of low investment since 2008, workers’ productivity has not increased quickly. Wages have stagnated.

An important part of economic wellbeing in the modern economy is that people have become accustomed to becoming better off over time. That has not happened recently. Especially for young people, successive governments have breached the social contract.

As so often in economics, the founding principles of a monetary wellbeing economy are to be found in Adam Smith’s penetrating analysis. He urged the patient accumulation of capital as the basis of “the wealth of nations”.

Inherently suspicious of any get-rich-quick schemes promoted by bankers, he urged careful regulation of the monetary innovation of his day – bank notes – expecting that banks’ productive lending would be based on an assessment of the character of the borrowers.

For those reasons, the Scottish Currency Group wishes to establish a Scottish Monetary Research Institute as an important step on the path to independence, providing clarity about the regulatory framework which will support Scotland’s wellbeing monetary economy.