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

THE ANSWER IS GOVERNMENT CREATED DEBT-FREE MONEY

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….”

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

  1. This is just rhetoric.

    Bank reserves are remunerated at the bank rate of 0.5%. Gilts have a term premium on them. There is no need to pay the term premium if we don’t want. However issuing either is still a liability of the state. That bank reserves don’t form part of the ‘national debt’ figure is just an accounting convention.

    The question however is what do all the people receiving interest and spending that in the country do for an income instead? The majority of ‘debt issue’ is there to back private pensions.

    Why does everybody forget that interest received is spent in the economy?

    Yes there is no need to issue public government bonds. But that doesn’t alter the accounting at all, and it leaves the problem of how to provide an income to pensioners.

    The rhetoric about ‘debt free money’ is not helpful to solving the actual problem – ensuring sufficient spending happens in the economy to employ everybody and making sure pensioners get an income they can live on.

    • No reason why speculators should be profiteering from the government investing in services people need when govt can do it directly. When those accounts are off shore hedge funds, and non tax paying, why should we? A National Investment Bank is a sensible proposal, and a popular one. Time to change to People Economics. Neoliberalism has had its day.

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