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 subsidies.

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 money, anyway?

HOW GOVERNMENTS CREATE MONEY FOR NATIONAL NEEDS
Every year 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 (PSBR).

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 the government.

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 Money.

Some people wonder: "Surely, this will be inflationary?"
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.