So What’s Wrong with Academisation? 10 Myths and Facts to Disprove Them


What’s Wrong with Academies?

The policy of the break up of our Local Education Authorities, pitching schools against one another in an ultra-competitive environment has nothing to do with learning, nothing to do with improving standards, and everything to do with privatisation of our schools and profits for the Academy chains. The result is seriously damaging the education of young people today.

Jeremy Corbyn wants to see Academies returned to Local Education Authorities.

Instead of inter-school competition, he wants to bring all schools “back into the local authority orbit”. He has discussed “rebuilding the family of education” and said he thinks local authorities could oversee and provide supplementary support resources for schools. He also suggested local authorities should be allowed to build new schools again. . “We need to be bolder about all children having an equal chance, proud of the idea of first-rate community comprehensive education and encourage a diverse mix of pupils in all our schools”. Corbyn also wants to set up a National Education Service – which would be modelled similar to the NHS. (Schoolsweek)

LEAs or local consortia should involve professional teachers and educational professionals  as well as parents in decision making. Co-operation rather than competition between schools allows sharing resources, skills and provision of centralised services such as SEN, Education Psychology, provision for sick children and CAMHS.

Labour’s Education minister Lucy Powell has announced at Conference her plans to bring back LEAs. “Schools must work together not compete. Local authorities will be able to ensure sufficient places and fair admissions, and have the ability to intervene in any school that is failing. I want to encourage collaboration in communities of schools and for all schools to work with their local communities to drive up standards.”

Academised schools should be returned to our local community – our family of schools , as Jeremy Corbyn has referred to. The following article  by Henry Stewart has been previously published on Local Schools Network, and is available for download in Word Form here. It is the result of extensive research, and clearly exposes the claims for justification of Academisation as untruths.

Please share widely, as it is important that these myths which the government are circulating in the media are debunked, so that parents , teachers and politicians can act in counteracting these policies, and protect the education of our children.  Schools are there to provide the education all our young people need. We must ensure that is the case.

Academies: Myths & Facts – Henry Stewart, Local Schools Network 

By Henry Stewart

Myth 1: Local authorities are no good at helping schools improve. That’s why “inadequate” schools must be converted to academies.

The facts: Of the 331 primary schools that were rated “Inadequate” at their previous inspection, and did not become academies, only two remained “inadequate” by the time Ofsted called again. On average, this was less than 21 months later.

Of 59 secondary schools that were rated “Inadequate” at their previous inspection, and did not become academies, only four (7%) remained “inadequate” by the time Ofsted called again. On average, this was less than 15 months later.

There is no need for the forced academisation of the Education and Adoption Bill. Local authorities are actually remarkably successful at helping “inadequate” maintained schools to improve.

More at:

Myth 2: Sponsored academies are more likely to improve a school that is “inadequate”

This is the basis of the Education and Adoption Bill. Any school rated “inadequate” (or coasting) is to be issued immediately with an academy order. Both the governing body and the local authority will be legally bound to support the conversion.

a.  Sponsored academies are almost four times as likely to remain “inadequate” if secondary and twelve times as likely if primary. 

School Myth 2.jpeg

  • Of primary schools rated “inadequate”, just 0.6% remained “inadequate” at their next inspection (v 6.8% for sponsored academies)
  • Of secondary schools rated “inadequate”, just 7.6% remained “inadequate” at their next inspection (v 27.1% for sponsored academies)

This comparison is between sponsored academies that were “inadequate” at conversion, and have had one Ofsted inspection since, and all maintained schools.

More at:

b) For secondary sponsored academies that have had two Ofsted inspections since conversion, they are over twice as likely to stay “inadequate” and over twice as likely to become “inadequate” if they currently rated higher.      

2b Liklihood-to-remain-or-become

  • A secondary school is over twice as likely to stay “Inadequate” if it is a sponsored academy (6.8% v 17.6%)
  • If a secondary school is rated “Requires Improvement”, it is over twice as likely to become “Inadequate” if it is a Sponsored Academy (7.7% v 19.6%)
  • If a secondary school is rated “Good”, it is four times as likely to become “Inadequate” if it is a sponsored academy (4.4% v 19.6%)
  • If a secondary school is rated “Outstanding”, it is over twice as likely to become “Inadequate” if it is a sponsored academy (3.3% v 8%)

More at: (Note: primaries not included as too few have had 2 inspections)

Myth 3: Forcing “inadequate” schools to become academies is the best route to less children remaining in “inadequate” schools

In fact, due to the facts above, the reverse is true. If we apply the data on the % that remain “inadequate” we can estimate the difference between all “inadequate” schools being in the maintained sector and them all being sponsored academies:

If all “inadequate” schools were of that type, how many children would remain in “inadequate” schools at the next inspection:

Primary Secondary
Maintained schools 505 14,432
Sponsored academies 6,736 57,348
Difference 6,231 42,916

The effect of sponsored academies and the forced academisation of the Education and Adoption Bill can be estimated: 49,000 extra children will remain in “inadequate” schools.

While the number of primaries that are “inadequate” has stayed constant at 2%, the number of “inadequate” secondaries has gone from 3% to 6%, according to ofsted Data View Or as Ofsted 2014 report put it:

“Children in primary schools have a better chance than ever of attending an effective school. Eighty-two per cent of primary schools are now “good” or “outstanding”, which means that 190,000 more pupils are attending “good” or “outstanding” primary schools than last year. However, the picture is not as positive for secondary schools: only 71% are “good” or “outstanding”, a figure that is no better than last year. Some 170,000 pupils are now in “inadequate” secondary schools compared with 100,000 two years ago.” (Ofsted annual report 2014:, p8)

The difference? The vast majority of primary schools are still maintained, while the majority of secondaries are now academies.

More at:

Myth 4: Academies are responsible for 1 million more children being in “good” or “outstanding” schools

Nick Gibb: “there are 1,100 sponsored academies that started life as under-performing schools, which is a colossal achievement that has led directly to over 1 million [more] children being taught in “good” or “outstanding” schools.” (11/9/15)

The facts: There are over one million more children in schools rated “good” or “outstanding” but the majority (78%) of these are in primary schools, where there are few academies.

In total there are 69,000 pupils in sponsored academies that are rated “Good” or “Outstanding”, representing just 7% of the extra primary pupils that are in such schools. So 93%

More at:

Myth 5: Sponsored secondary academies improve their GCSE results faster than non-academies

Government ministers frequently make claims that sponsored academies increase their GCSE results at a faster rate than other schools. However the comparison is always between sponsored academies and all maintained schools. As schools increase faster when they start from a lower base, and sponsored academies generally start from a lower base, they will always increase their results faster than all other schools.

The key question is whether a specific school will improve its GCSE results faster if it is a sponsored academy or a maintained school.

To find this out, we must compare sponsored academies to similar maintained schools. The graph below groups schools by their 2011 GCSE results and then compares the change in GCSE results over the three years to 2014.

In each band (20% to 40%, 40% to 60% and over 60%), maintained schools increase their GCSE results faster – or saw them fall less – than sponsored academies.

mtyth 5Sp-academies-2011-2014.jpeg

LSN’s comparisons of 2011, 2012 and 2013 GCSE data generally showed that sponsored academies improved their results no faster than maintained schools but did not show them performing worse. This changed in 2014 with the removal of most GCSE equivalents from the results, which sponsored academies relied heavily on.

Without those equivalents, it seems that sponsored academy secondaries perform, on average, clearly worse than similar maintained schools.

More at:

Myth 6: Sponsored primary academies improve their KS2 results faster than non-academies

The same is true when the performance of sponsored primaries is compared to similar maintained schools. In this case I adopted a new approach (which I will use for secondaries this year) of grouping the schools into five equal sets, or quintiles, according to their 2012 KS2 results. (ie, each of the five sets has the same number of sponsored academies.)

In four of these quintiles the sponsored academies improved their results at a slower rate. Only in the already highest performing set did the sponsored academies perform better.

Note that the same pattern as for secondaries is clear, that the fastest improvement is in the groups of schools that previously had the lowest results. Far more of the maintained schools are in the higher sets and so, if sponsored academies are compared to all schools and not to similar schools, they will appear to improve faster.

myth 6

There have only been results for the last two years for most sponsored primary academies. The initial indication is that the smaller increase is a 1st year effect, probably due to the distraction of becoming an academy. Beyond the 1st year, the two types of schools appear to increase at similar rates.

More at:

Myth 7: Academy chains are generally high performing and a route to success

A Department for Education report published in Spring 2015 compared the value added in the largest 20 academy chains with that of 100 local authorities.

  • Of the 20 chains, only 3 had a value added that was above the national average of 1000.

  • Even the two best performing chains (ARK and Harris) were outperformed by 8 local authorities.

  • ON the combined list of 120 LAs and academy chains, there are just 3 chains in the top 50 but 15 chains in the bottom 50.

While the government, and their supporters, like to talk of “high performing chains” there are only actually two academy chains that fit that description. The vast majority are producing results that are below average, by the DfE’s own analysis.

More at:

Myth 8: Sponsored academies are particularly successful at helping disadvantaged students

The Sutton Trust report Chains Effects 2015 makes clear that there are serious problems with many of the academy chains: “far from providing a solution to disadvantage, a few chains may be exacerbating it”. – See more at:

The conclusions are stark: While there are some chains demonstrating “impressive outcomes”, “a larger group of low-performing chains are achieving results that are not improving and may be harming the prospects of their disadvantaged students”.

More at:

Myth 9: Sponsored academies lead to more pupils taking traditional subjects, like languages and humanities.

Students in sponsored academies are far less likely to achieve a history or geography GCSE. The graph below compares all sponsored academies to all maintained schools. But the same is true when comparing “underperforming” sponsored academies to similar maintained schools (both having 2012 GCSE benchmarks between 20% and 40%) or comparing those with the most disadvantaged intakes (only those with 40% or more on free school meals).

The same is true for languages. Students are less likely to take a language GCSE if they are in a sponsored academy – both overall, and when compared to similar schools.

It is not the case that students in lower achieving schools, that become academies, are being transformed by new opportunities to take core academic subjects. Students in these academies are significantly less likely to get a C or better in a language or a humanity GCSE.

More at: (analysis was in 2014 on 2013 GCSE results)

Myth 10: Independent research supports government claims for academy performance

You know that somebody is losing the argument when they fall back on the work done by Stephen Machin and colleagues at LSE. The most recent data used by Machin was for 2008, and so the analysis only reflects the performance of the early Labour academies. Machin himself has made clear that it is “hard to justify” the use of his research by the government for its very different academies. Indeed he called it a “step too far”.

In contrast independent bodies have generally disputed any claims of better academy performance:

  • The Sutton Trust (above) warned that low performing chains may be harming the performance of disadvantaged students.
  • The Conservative-chaired Education Select Committee report on Academies and Free Schools found no evidence of better academy performance. It stated “Academisation is not always successful nor is it the only proven alternative for a struggling school“ and added that “the Government should stop exaggerating the success of academies”. More at
  • NFER in 2014 concluded: “no significant improvement is seen in the rate of improvement of GCSE results for academy schools over and above the rate of improvement in all schools”.


None of the claims of government ministers for the better performance of sponsored academies stand up to scrutiny. In contrast what the data tends to reveal is that maintained schools are actually performing very well.

There is no basis or justification in the data for the forced academisation of the Education and Adoption Bill.

The key amendment is the one put by Labour at the committee reading, that only academy chains with a successful track record should be allowed to take on new “inadequate” or “coasting” schools. It should be hard to argue that struggling schools should only be taken over by those chains that are successful. But the Bill, because of the large number of schools set to be converted, means that many will be taken over by unsuccessful or overstretched chains.


Click through the links for details of the data that the analysis is based on, including where to download it.

Note 1: Local Schools Network has been publishing this analysis since January 2012. While the DfE has sometimes sought to use different interpretations, or data from different periods (often not in the public domain), it has never challenged any of the numerical analysis we have published.

Note 2: All of this data relates to sponsored academies. These were generally previously “underperforming” schools that were converted to academies with a sponsor. Converter academies are schools that were generally “Good” or “Outstanding” and chose to convert to become academies. The focus here is on sponsored academies is because that is the focus of the Education Bill. The key question addressed in this paper is whether a struggling school will improve more if it remains in the maintained sector or of it becomes an academy.

Contact Details Henry Stewart can be contacted on,or on Twitter:  @happyhenry 

References and Further Reading:

It’s time to call time on WMDs – and back Jeremy Corbyn.


So Jeremy Corbyn, leader of the Labour Party has said he would not use nuclear weapons? Phew, what a relief.

 Well that is hardly astounding News, but he is right to point it out nonetheless. It highlights the senselessness of spending resources on Weapons of Mass Destruction which can never, ever be used because it would be a suicidal act. For all those of who believe in humanity, in peace and abhor human suffering, there can be no alternative. Jeremy Corbyn was elected with a huge mandate and has opposed the replacement of Trident. Even former Tory Defence Minister Michael Portillo is opposing Trident’s replacement, claiming it is a waste of money.

I wonder, if Mr Cameron will not say he is also unwilling to use them, how can we trust such a man with the future of the human race, the continued existence of life itself? After all, this was the man who went against parliament’s decision to involve our servicemen in attacks on Syria. Please remember that David Cameron ‘was aware’ British pilots carried out Syrian air strikes despite Commons vote, and chose to disregard the democratic decision.

Why do these weapons exist at all?

Without going blindly into such a replacement wasting our precious resources on such a pointless exercise, it is time to have the debate and look at the facts. It is time to stop, think and call time on weapons of mass destruction. It’s time to educate younger generations about the facts. It’s time to face up to the reality – they offer no deterrent, they cost the earth, no one can use them; they certainly didn’t help the USA on 9/11.

Nuclear Weapons are Horrific, Pointless and Extraordinarily Costly


What else is as unimaginably horrific as nuclear war? The horrors are so awful that the human mind cannot endure to see  images or to contemplate the physical, mental and emotional pain. It is now 70 years since August 6, 1945, when the United States used a massive, atomic weapon against Hiroshima, Japan. This atomic bomb, the equivalent of 20,000 tons of TNT, flattened the city, killing tens of thousands of civilians. While Japan was still trying to comprehend this devastation three days later, the United States struck again, this time, on Nagasaki. ( 9th August 1945)

It is not good enough to turn away – the images and the facts must be faced up to. We cannot uninvent nuclear missiles, but we can discover why they should not be in existence. I am appalled that there are plans to replace Trident, a nuclear missile which must be never used. No, not my name. It must not happen.

Face up to these images, the ones they don’t want us to see: listen to the stories.

Although the names of Hiroshima and Nagasaki were incised into our memories, there were few pictures to accompany them. Even today, the image in our minds is a mixture of devastated landscapes and shattered buildings. Shocking images of the ruins, but where were the victims?

The American occupation forces imposed strict censorship on Japan, prohibiting anything “that might, directly or by inference, disturb public tranquility” and used it to prohibit all pictures of the bombed cities. The pictures remained classified ‘top secret’ for many years. Some of the images have been published later by different means, but it’s not usual to see them all together. (see more here )

All the watches found in the ground zero were stopped at 8:15 am, the time of the explosion.


Within a certain distance from the site of explosion, the heat was so intense that practically everything was vaporised. The shadows of the parapets were imprinted on the road surface of the Yorozuyo Bridge, 1/2 of a mile south-southwest of the hypocentre. Besides, in Hiroshima, all that was left of some humans, sitting on stone benches near the centre of explosion, was their outlines.

6th Aug 2

On August 6, 1945, 8.15 am, the uranium atom bomb exploded 580 metres above the city of Hiroshima with a blinding flash, creating a giant fireball and sending surface temperatures to 4,000C. Fierce heat rays and radiation burst out in every direction, unleashing a high pressure shockwave, vaporising tens of thousands of people and animals, melting buildings and streetcars, reducing a 400-year-old city to dust.
Housewives and children were incinerated instantly or paralysed in their daily routines, their internal organs boiled and their bones charred into brittle charcoal.

Beneath the center of the explosion, temperatures were hot enough to melt concrete and steel. Within seconds, 75,000 people had been killed or fatally injured with 65% of the casualties nine years of age and younger.

6th Aug 3
Radiation deaths were still occurring in large numbers in the following days. “For no apparent reason their health began to fail. They lost appetite. Their hair fell out. Bluish spots appeared on their bodies. And then bleeding began from the ears, nose and mouth”.

Doctors “gave their patients Vitamin A injections. The results were horrible. The flesh started rotting from the hole caused by the injection of the needle. And in every case the victim died”.
Hibakusha is the term widely used in Japan referring to victims of the atomic bombings of Hiroshima and Nagasaki. The Japanese word translates literally to “explosion-affected people”.

They and their children were (and still are) victims of severe discrimination due to lack of knowledge about the consequences of radiation sickness, which people believed to be hereditary or even contagious.

Many of them were fired from their jobs. Hibakusha women never got married, as many feared they would give birth to deformed children. Men suffered discrimination too. “Nobody wanted to marry someone who might die in a couple of years”.
Yamahata, the photographer of Nagasaki

On August 10, 1945, the day after the bombing of Nagasaki Yosuke Yamahata, began to photograph the devastation. The city was dead. He walked through the darkened ruins and the dead corpses for hours.

aug6 5

By late afternoon, he had taken his final photographs near a first aid station north of the city. In a single day, he had completed the only extensive photographic record of the immediate aftermath of the atomic bombing of either Hiroshima or Nagasaki.

Aug6 6jpg

“A warm wind began to blow – he wrote later – Here and there in the distance I saw many small fires, like elf-fires, smoldering. Nagasaki had been completely destroyed”

Mr. Yamahata’s photographs are the most complete record of the atomic bombing as seen in the most immediate hours after the bombing. The New York Times has called Mr. Yamahata’s photographs, “some of the most powerful images ever made”.

Mr. Yamahata became violently ill on August 6, 1965, his forty-eighth birthday and the twentieth anniversary of the bombing of Hiroshima. He was diagnosed with terminal cancer of the duodenum, probably caused by the residual effects of radiation received in Nagasaki in 1945. He died on April 18, 1966, and is buried at Tama Cemetery, Tokyo.

Everyone should see them and understand. Hiding and pretending will not do.

Atomic Bomb survivors never forget, and while they inevitably diminish in number , their resolve to fight to rid the world of nuclear missiles grows ever more determined.


We cannot help but wonder what is the point and sense in developing more and more horrible weapons, which can never, ever be used, and if they were the consequences of modern weapons would be far worse. They can never be used without a suicidal action. In modern times of suicidal terrorism, suicide itself is no deterrent, the existence of nuclear missiles is not only pointless but an incredible waste of money, resources and human effort which could be much better used elsewhere.

Colin Powell:  I became Chairman of the Joint chiefs of staff in 1989 and I had 28,000 nuclear weapons under my supervision. And every morning I looked to see where the Russian submarines were off the coast of Virginia and how far away those missions were from Washington. I kept track where the Russian missiles were in Europe and in the Soviet Union. The one thing that I convinced myself after all these years of exposure to the use of nuclear weapons is that they were useless. 


They could not be used. If you can have deterrence with an even lower number of weapons, well then why stop there, why not continue on, why not get rid of them altogether…This is the moment when we have to move forward and all of us come together to reduce the number of nuclear weapons and eliminate them from the face of the earth. “Nuclear Weapons Are Useless”   

The pointlessness of it all is clear – the danger of nuclear weapons is such that they should not even exist. That there are stockpiles of radioactive uranium and plutonium around the world is alarming – should these ever get into the hands of maniacs it would surely be an end. The expansion of nuclear power holds the same dangers,  and at a time when there are effective renewable sources for energy, why is it even being considered?

Who can we trust? Why is David Cameron in favour of supporting a replacement to Trident?  Parliament voted against British forces being used in Syria in 2013. Recently, it has transpired that David Cameron lied, and that was against Parliament’s explicit  instructions, British Forces were involved in an air campaign. David Cameron was fully aware of the action.  We must consider what are the reasons for Cameron’s support for a Trident replacement. Is it financial? Whatever is his reason, it is clearly very, very silly.

In January 2015, A Commons motion against renewal of Trident was crushed by 364 votes to 35 after Tory and Labour front benches joined forces to back the weapons of mass destruction. A number of Labour MPs abstained.
The motion was moved by the SNP, Plaid Cymru and Green MP Caroline Lucas.
Mr Blunt, the only Tory supporting the motion, said he was wearing the regimental tie of the Light Dragoons.
He told MPs that when he worked as a special adviser at the Ministry of Defence, he found it impossible to find a scenario in which Britain would decide to use nuclear weapons.

Labour MPs voting against Trident renewal were:
Diane Abbott, Ronnie Campbell, Katy Clark, Michael Connarty, Jeremy Corbyn, Ian Davidson, Paul Flynn, Roger Godsiff, Kelvin Hopkins, David Lammy, Mark Lazarowicz, John McDonnell, Grahame Morris, Fiona O’Donnell, Sandra Osborne, Dennis Skinner, Andrew Smith, Graham Stringer and Joan Walley. (From Morning Star)

The SNP’s manifesto for the 2015 General Election opposed Trident’s renewal. and their landslide on May 7th, winning all but three seats in Scotland demonstrates that there is a huge opposition to this policy.

In 2016, there is to be another vote in Parliament on the replacement of Trident. Jeremy Corbyn, and several other MPs  will oppose  Trident replacement. Even if renewal is rejected, after the Syria vote was totally disregarded, I cannot help but wonder, whether Mr Cameron is taking much notice of parliament at all. What power does he hold over the use of nuclear weapons. It is truly terrifying.


If the cost to the planet of nuclear war is obliteration, it seems trivial to even consider the economic implications.The government is in favour of replacing Trident at a cost of around £100 billion. This money would be enough to fully fund A&E services for 40 years, employ 150,000 new nurses, build 1.5 million affordable homes, build 30,000 new primary schools, or cover tuition fees for 4 million students. It is astounding, and extraordinarily costly. So much good  could come of savings from the cost of the maintenance and replacement of Trident’s replacement, and the related  nuclear energy industry. The nuclear industry is massively subsidised by the British public. Sizewell B, the UK’s most recent power station cost the taxpayer around £3.7billion just to install Decommissioning and cleaning up all of our current nuclear sites is costing more than £70 billion.

Many people are employed in the nuclear industry – there is no logic in retaining it on the grounds of employment. Diplomatic solutions to conflict need personnel equipped  with necessary skills. We should be developing education, communication and understanding, of issues of other societies, not dividing the world further. We are one people. Jobs could be provided for scientists and experts developing our green energy policy.


 People must protest against this renewal and demand an end to these weapons. Our politicians must stand alongside us. On this our opposition must oppose. Abstention will not do. There are protests (AWE) demanding disarmament all around the world including in the UK where 4 Day Fast Protest against Trident is planned  in London. (August 6th-9th).

CND have been campaigning since 1958. There is a host of information on their website.CND.jpeg

State Funding (Missing out the Middle Man) is nothing new – even Ford and Edison knew


The UK, like the US is a sovereign state. Unlike European countries using the Euro, the UK has its own currency.  This is why Jeremy Corbyn has proposed PQE ( People’s Quantitative Easing). It is issuing funds directly for the benefit of people. It is intended for specific use, which is whatever is needed to provide full employment, to eradicate poverty and ensure that the government’s responsibility is met, so that citizens have their basic needs and are not left dependent on foodbanks and homeless. It is not radical, it is not new. It just is direct funding, missing out the middleman , or the speculative banks.  Speculative Banks are erroneously named – they would be better called Opportunists, who are benefitting from a system where they milk the funds themselves. Let us just  remember that wealth is created by people, using skills and the earth’s resources.

Our task is to find a way to repay the existing National Debt and fund new public spending, without always having to borrow from the private banking system, and without raising taxes. from Prosperity from Debt Slavery


Former Economics Spokesman for the Labour Party, Bryan Gould, referred to funding the National Debt in this manner when he wrote his essay “Jobs for all the boys – and girls: The Choice for Labour” produced by his Full Employment Forum (undated, but circa 1993): “It may also be sensible – in the precise circumstances at present – to ‘monetise’ part of the debt, that is, to finance it through government-created credit, rather than through borrowing or taxation. However, shocking this may seem to monetarist opinion, it is hard to see why private sector banks should have a monopoly over credit creation, or why credit creation by the government for the purpose of investment should be inherently more objectionable than credit creation in the private sector which largely goes on consumption. He also stated, shortly before he left the Labour Party for New Zealand, in the New Statesman of 19 February 1993: “Why shouldn’t a socially aware and economically responsible government create credit where it is appropriate … in order to ensure investment is made and at the same time strike a great blow for the democratic control of the economy?”

This is an excerpt of a letter written by Thomas Edison to the NY Times in 1921. The letter is in full below. It is a bit long but bear with it – it is well worth a read.

“Thomas Edison and Henry Ford were asked about the financing of a large infrastructure project at Muscle Shoals. Edison’s answer, as it appeared in the New York Times on December 6, 1921

“….“Then you see no difference between currency and Government bonds? “Mr. Edison was asked.

“Yes, there is a difference, but it is neither the likeness nor the difference that will determine the matter; the attack will be directed against thinking of bonds and currency together and comparing them. If people ever get to thinking of bonds and bills at the same time, the game is up.

“Now, here is Ford proposing to finance Muscle Shoals by an issue of currency. Very well, let us suppose for a moment that Congress follows his proposal. Personally, I don’t think Congress has imagination enough to do it, but let us suppose that it does. The required sum is authorized –say $30,000,000. The bills are issued directly by the Government as all money ought to be. When the workmen are paid off they receive these United States bills. When the material is bought it is paid in these United States bills. Except that perhaps the bills may have the engraving of the water dam, instead of a railroad train and a ship, as some of the Federal Reserve notes have. They will be the same as any other currency put out by the Government: that is, they will be money. They will be based on the public wealth already in Muscle Shoals, and their circulation will increase that public wealth, not only the public money but the public wealth—real wealth.

“When these bills have answered the purpose of building and completing Muscle Shoals, they will be retired by the earnings of the power dam. That is, the people of the United States will have all that they put into Muscle Shoals and all that they can take out for centuries—the endless wealth-making water power of that great Tennessee River—with no tax and no increase of the national debt.”

“But suppose Congress does not see this, what then?” Mr. Edison was asked.

“Well, Congress must fall back on the old way of doing business. It must authorize an issue of bonds. That is it must go out to the money brokers and borrow enough of our own national currency to complete great national resources, and we then must pay interest to the money brokers for the use of our own money.

Old Way Adds to Public Debt.

“That is to say, under the old way any time we wish to add to the national wealth we are compelled to add to the national debt.

“Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $30,000,000 of their own money the people of the United States should be compelled to pay $66,000,000—that is what it amounts to, with interest. People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work.

That is terrible the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost on that account. Under the present system of doing business we simply add 120 to 150 per cent. to the stated cost.

“But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money brokers collect twice the amount of the bond and an additional 20 per cent., whereas the currency pays nobody but those who directly contribute to Muscle Shoals in some useful way.

“If the Government issues bonds it simply induces the money brokers to draw $30,000,000 out of the other channels of trade and turn it into Muscle Shoals:

Funding without Debt

If the Government issues currency, it provides itself with enough to increase the national wealth at Muscle Shoals without disturbing the business of the rest of the country.

And in doing this it increase its income without adding a penny to its debt.

“It is absurd to say that our country can issue $30,000,000 in bonds and not $30,000,000 in currency. Both are promises to pay: but one promise fattens the usurer, and the other helps the people.

If the currency issued by the Government were no good, then the bonds issued would be no good either. It is a terrible situation when the Government, to increase the national wealth, must go into debt and submit to ruinous interest charges at the hands of men who control the fictitious values of gold.

“Look at it another way. If the Government issues bonds, the brokers will sell them. The bonds will be negotiable: they will be considered as gilt-edged paper. Why? Because the Government is behind them, but who is behind the Government? The people. Therefore it is the people who constitute the basis of Government credit. Why then cannot the people have the benefit of their own gilt-edged credit by receiving non-interest bearing currency on the Muscle Shoals instead of the bankers receiving the benefit of the people’s credit in interest-bearing bonds?”

Says People Must Pay Anyway.

“The people must pay any way: why should they be compelled to pay twice as the bond system compels them to pay?

The people of the United States always accept their Government’s currency. If the United States Government will adopt this policy of increasing its national wealth without contributing to the interest collector—for the whole national debt is made up of the interest charges—then you will see an era of progress and prosperity in this country such as could never have come otherwise….”

The Acute Deficit Phobia – Malady Spreads



Acute Deficit Phobia: The Malady Spreads

Since the election in May 2010 that brought the Tory-led coalition to government not one major political figure in England has publicly disagreed with the austerity doctrine, that the first priority of fiscal policy must be reducing the budget deficit.  I have called this astounding cross-party degeneration into economic illiteracy the “acute deficit disorder”, a pathological fear of public expenditure exceeding public revenue, a phobia in its purest form.
There seemed no party leader or would-be leader with any immunity to this neoliberal malady until this summer.  Jeremy Corbyn asserted unambiguous opposition to the theory and practice of fiscal austerity, and by doing so emerged from the depths of the backbenches to take a commanding lead in the contest for the Leadership of the Labour Party.The sudden and unexpected emergence of Corbyn at what appears to be the choice of a large majority of Labour Party members has one overwhelming explanation — his rejection of the ideology of austerity.  It is astonishing that Corbyn may be on the brink of winning the leadership.  Even more astonishing is high-profile supporters coming forward to assure us on Corbyn’s commitment to deficit reduction,  albeit in a manner quite different from the Tories (see analytical article by Jeremy Smith).The clear purpose of these unexpected interventions is to reassure people that Jeremy Corbyn favours “sound fiscal policy” and, therefore, can be trusted to manage the country’s economy.  The fundamental problem with this attempt at reassurance is that the great burst of enthusiastic support for Corbyn results from his explicit rejection of deficit reduction as a necessary priority.   A few weeks ago in a speech on economic policy he reinforced his anti-austerity message, when he stated “austerity is a political choice not an economic necessity”.   It is such statement that bring people flocking to his rallies.In the same speech also referred specifically to the budget balance, “Labour will close the deficit through building a strong, growing economy that works for all, not by increasing poverty.”For the victims of the phobia the words convey an “austerity lite” meaning, a promise that a Labour government would take direct steps to reduce the deficit; that the time scale would be longer and the deficit reduced by a combination of tax rate increases and cuts that do not harm the poor (e.g. Trident).This “progressive prudence” position is more than mistaken. It is fundamentally wrong because it perpetuates the neoliberal myth that fiscal deficits are a bad thing, that they are an imbalance that must be corrected through policy action.  The retro-reaction, “Jeremy really is for getting the deficit down, but in progressive manner”, is totally wrong and requires going back to basics.

A fiscal deficit is not prima facie a problem.

A fiscal deficit is not an imbalance that needs eliminating (or even reducing).

A fiscal deficit is a compensating response to imbalances elsewhere in the aggregate economy.

To further dispel confusion and misrepresentation before going into the analytics, I can state the central point — the public budget need not balance in the short run, long run, or over the economic cycle.  Indeed, a government can practice “sound fiscal policy” without ever balancing the public budget and without the budget ever showing a surplus.  Yes, I am a “deficit denier”;  being one is sound economics (see the excellent “confessions of a deficit denier” by Malcolm Sawyer).

Market economies expand when total (“aggregate”) demand exceeds the aggregate production of goods and services, and contract when demand falls short of supply (leaving part of production unsold, unintended inventories).  These dynamics of the aggregate economy become clearer when we divide it into three parts, the public sector, the private sector and the export and import or trade sector.

For an economy to expand the sum of the spending across the part must exceed the sum of the “non-spending”.  The familiar terms for non-spending are 1) household and business saving (private sector), 3) taxation (public sector) and 4) imports (trade sector).

During 2000-2007 the growth of demand was sufficient to drive expansion of the UK economy at a rate between two and three percent per annum.  During these years imports exceeded exports, meaning that the trade sector made a negative contribution to expansion of the economy of about -3% of GDP annually.

Had the private sector “balanced its budget” and the public sector done the same, the economy would have contracted, not grown.  The economy expanded because both the private and public sectors had net expenditure that more than offset the negative demand generated by trade.  That is, the private sector and the public sector engaged in deficit spending during 2000-2007 (by about 1.5% of GDP each).

Then, the global financial meltdown hit.  As a result, business investment collapsed.  Net private spending went negative (household plus business saving exceeded investment).  Businesses were very much “living within their means”, and as result, the economy contracted.  It would have contracted even more had the government sector not increased its spending, which stimulated a nascent recovery in late 2009 and early 2010 (Gordon Brown’s fiscal stimulus), which George Osborne aborted with his fiscal cuts.  Attempting to “balance the budget” and “have the government live within its means” was unsound fiscal policy.

This brief excursion into the theory and practice of “sound fiscal policy” produces important lessons.  A government practices sound finance by using the public budget to compensate for expenditure shortfalls and overruns by the private and trade sectors.  If the economy is stagnant or contracting, sound policy requires that the government increase net expenditure — a larger budget deficit.

This generalization, public demand should compensate for private shortfalls, holds even if the economy is at or very close to full capacity.  Indeed, the reason that the UK economy was close to full capacity in the years just before the great financial collapse was because it had a small deficit.  The deficit was not a problem, it was the solution to insufficient private demand.

The message for the foreseeable future is clear.  Until private investment and exports are sufficient to keep the economy near full capacity, a fiscal deficit is the appropriate policy.  Following the “balance the budget/run a surplus in goods times” can mean that the good times never arrive, because demand from the private and trade sectors can be too low to take us there.

The reverse is also the case.  When private demand is robust and booming sound fiscal policy requires a surplus in public budget.  Thus, we have the “sound fiscal policy” generalization:


Policy makers should aim for a fiscal balance that compensates for the sum of net private and trade demand when the economy is at their desired level of capacity and employment.  This explanation of fiscal policy is not “Keynesian”, though Keynes would probably have agreed with it.  The more accurate way to understand the difference between neoliberal budget balancing and sound fiscal policy is an analogy with the differences between alchemy and chemistry, or astrology and astronomy.

Each of the three sectors (private, public and foreign trade) of the UK economy run deficits at some times and surpluses at others.  The conviction that the public sector should have a special status such that a deficit is a problem that needs solving is based on ideology not analysis.  It is not an ideology that a Labour Party leader should adopt in any form or variation.

It is self-defeating to pay lip service to the ideology because the Tories have convinced a large portion of the public to believe it.  This belief is a relatively recent phenomenon, dating from 2010 at the earliest.  Attempting to dispel it is more likely to bring to success than further indulging it.


Economics ‘like astrology’ – John Weeks explains the myths underpinning all modern economics

Published on Apr 7, 2014

Watch the full episode here:

John Weeks, Professor Emeritus at the School of Oriental and African Studies, talks to Going Underground host Afshin Rattansi about the myths underlying modern economic theory. In his new book, he states that it is like astrology because it’s ‘based on a concept of the world that only exists in the imagination’ — it assumes there is full employment which has no basis in reality. This means that supply and demand does not work and public sector debts are not inflationary.