Under-investment is a problem in both rural and urban areas. We're
always told, "There's no money" to fund vital investment, grants and
What this really means is that the government does not want to borrow
any more money from the banking system because it would have to raise
taxes in order to pay it back.
Few people seem to ask why a sovereign government has to "borrow"
money in the first place. And from where does the banking system get the
HOW GOVERNMENTS CREATE MONEY FOR NATIONAL NEEDS
the government fails to collect enough money in taxes to pay for all its
spending requirements. Therefore it has to borrow the money. The amount
required is known as the Public Sector Borrowing Requirement
The National Debt is the total still outstanding on all past
years' borrowing requirements.
The government borrows the money this way: It prints and sells "gilt
edged securities", also known as stocks, bonds and Treasury bills. These
are simply pieces of paper which promise an additional return to the
buyer, sometime in the future. The securities are auctioned several
times a year to meet the shortage of government revenue as it arises.
They are bought by individuals, insurance companies, pension funds,
trust funds, and banks. The government takes the money it has
raised by these sales, and spends it on its public projects.
When the non-banking sector (individuals, insurance, pension and
trust funds) buy government securities, then saved money is being
recycled back into the economy through government spending.
However, when banks buy government securities, then entirely
new money - which has been created out of nothing by the
banks specifically for these purchases - is spent into the economy by
These securities are becoming due, or "maturing" regularly. Servicing
these securities is known as "paying the interest on the National Debt."
The government has to find the money to repay them in full.
Of course, the government does not have the money to repay them -
that is why it had to sell securities in the first place. Therefore,
how does it repay them? Answer: It raises the money to repay the
previous securities by selling even more securities and by putting up
taxes even further!
That is to say: The government is raising money it doesn't have, by
printing bits of paper and selling them to banks, which buy them with
money they don't have either, but which they create out of nothing! The
government then expects us, through our taxes, to pay back the banks
with the real money that we've worked for!
The obvious question arises: Why doesn't the government simply just
create the money in the first place? Why does the government indebt
the population to the banking system?
Why doesn't the government - via a State institution - just print a
£1000 note, instead of a £1000 security? That way,
instead of borrowing the money from the banking system, and forcing
us to pay it back in our taxes, it could simply create the money itself,
spend it into society and not need to ask for it back.
IT'S THE PEOPLE'S MONEY
Clearly, if the government can
issue a security for any amount, then it can issue the same amount of
money directly, without recourse to any banks. Inventor Thomas
Edison put it this way: "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.
"... 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." (The New York Times, December 6, 1921. Article
titled "Ford Sees Wealth In Muscle Shoals")
THE PROSPERITY PROPOSAL
We must establish the principle
that the government can create debt-free money, without borrowing
from the banks, and without indebting the taxpayers.
A basic policy to help achieve our aims is to ensure a proportion
of the money supply is created debt-free by the government, and
spent, not lent, into the economy.
By taking the creation of, at least, some money out of the hands of
the banking system, it will go some way to establishing the
principle that It's the People's Money, not the Banker's
Some people wonder: "Surely, this will be
Inflation is caused by debts which, when
assumed by individuals, lead to depressed incomes and demands for higher
wages, and when assumed by companies, lead to price increases. Our
proposal would not result in any such inflationary tendencies.
For example, say the Public Sector Borrowing Requirement required
£10 billion to pay the Education budget. This money was previously
to be raised by borrowing even more, at interest.
This debt would have worked its way through the economy and caused
inflationary pressures -- for example, the tax increases necessary to
repay the debt would lead to demand for higher wages, which would lead
to higher prices, and so on.
This £10 billion has to be created anyway, and it is
presently done by methods proven to be inflationary.
Our method of creating this money will be no more inflationary
than the present method of funding, and indeed, it will be less
inflationary because there will be no debt and interest obligations,
working their way through the economy and causing the repayment demands
which push inflation. Debt-free money causes no inflationary push.
Inflation could result if too much debt-free money came
into society too fast, leading to everything losing its "paper" value.
However, we are presuming a monetary authority would be established
to ensure debt-free money was created in a measured manner.