By Ann Pettifor 20/1/14
Like many others I flinched with embarrassment when the Chancellor visited China. George Osborne sublimated his dislike of Marxist-Leninism and democratic centralism, and effectively bowed before the Communist government of China. That did not bother me as much as his portrayal of Britain as “second-rate” and so impoverished as to need to turn to Chinese investors for finance. He needed reminding: China is a country with very large numbers of poor, financially insecure people – far poorer than the people of Britain.
By luring Chinese investment into Britain the Chancellor implies that Britain “has no money” to maintain and develop its own future energy needs. We are too poor it seems, to even invest in our own housing needs.
So the Chinese government has obliged via a state-owned company, Greenland Holdings Group. A valuable site in Wandsworth was acquired for £600 million by the Chinese who plan to build hundreds of homes and some shops on the site. To top that, they plan to add a cultural touch and build a museum for the poor (sic) people of Wandsworth.
It seems too there is no money to plough into Britain’s future energy supplies. So Secretary of State for Energy, Edward Davey flogged off a nuclear power station to French and Chinese state-owned corporations – and offered British taxpayer-funded subsidies to sweeten the deal.
And now a French company which according to Greenpeace, can’t frack in their own country because the French government has stopped the French countryside being ripped up, have turned their sights on the UK countryside where “the UK government seem happy to allow the industrialisation of our green and pleasant land.”
All this because our politicians wrongly believe “there is no money” to finance society’s needs, and in particular the transformation of our economy away from fossil fuels.
As I note in a new e-book: Just Money – in a well-managed financial system, money provides the stimulus, the finance needed for innovation, for production and for job creation. In a well- managed economy, money is invested in productive, not speculative economic activity. In a stable system, economic activity (investment, employment) generates profits, wages and income that can be used for repayment of the original credit.
There are many constraints on the ‘production’ of this social construct that we call credit or money, and they include inflation on the one hand, and deflation on the other. When the private banking system is not managed, commercial bankers can create more money than can usefully be employed. This can lead to too much credit or money chasing too few goods, services or assets. Equally, as now, the private banking system can contract the amount of credit created, deflating activity and employment. But if the private banking sector is properly managed by public authorities there need never be a shortage of finance for sound productive activity.
Free market economists solemnly believe that money is “gold coin and bullion” to quote Murray N Rothbard; that credit is just a “surrogate for gold”; that bankers are mere intermediaries between savers and borrowers, and market forces alone can manage, discipline and regulate the supply and exchange of money.
Politicians like George Osborne believe – or pretend to believe – that in order to generate the finance needed for investment, Britain first has to mobilise “savings” – cut spending to release new money. Secondly, that it is not possible to raise finance except by taxation.
The creation by central bankers of trillions of dollars of ‘bailout’ finance via a process defined as ‘quantitative easing’ reminded wider society of the power central bankers have, to create credit “out of thin air”. Yet it is a power that the Bank of England, for example, has exercised since its founding in 1694.
Because our politicians have so little understanding of how the monetary system operates; because they insist on framing the public finances in terms of kitchen table economics, they pretend that we are poor; and agree to the sell-off of some of Britain’s most treasured assets and capabilities. They have done so at considerable future cost to the British people.
This wrecking of our economy, and of Britain’s future prospects will continue until we the people gain a better understanding of the monetary and financial system – and demand of our politicians that the public good that is our financial system must be used – just as our sanitation system is used – in the interests of society as a whole, not just private wealth.
You can download a PDF copy of Ann Pettifor’s new e-book, Just Money, by clicking here.