A great way to cut out the big banks
Patrick Cannell | 09.09.2002 00:53
A discussion on a concept called "national investment" which cuts out the large multinational banking corporations when it comes to investing in projects.
THE CASE FOR NATIONAL INVESTMENT
I hope these comments will be of help to other nationalists in understanding the economic issues involved in extricating this country from the stultifying web of international finance.
Some years ago I came across an article by John Tyndall in which a theoretical means for kick-starting production was discussed. I don’t know if the idea originated with John Tyndall so I will apologize in advance for any misrepresentation. In this essay I wish to explore the idea and put forward an argument in its favour. It goes as follows, though this is not a verbatim quote.
“If a car manufacturer estimates a demand for a thousand new cars (for example) in the near future but cannot afford to make them, the government will print the value of the cars in new money, lend it to the manufacturer and the manufacturer will produce the cars. If all the cars are sold there is no need for the manufacturer to pay back the loan because he has added the value of that money to the economy so that new money must remain in circulation to enable people to afford to buy the cars.”
To give this scheme a name I will hereon refer to it as “national investment”. It will be necessary for the borrower in the above example to repay the value of any unsold cars. This is necessary to avoid inflation. If £10 million is borrowed but only £5 million worth of new cars are sold that’s an excess of £5 million which needs to be withdrawn from circulation. If it is not withdrawn it means that the money-supply has expanded by a larger factor than the total value of goods and services in the country which is inflationary.
Any money returned to the state will have to come out of profits so the borrower has an incentive not to over-borrow. The only drawback I can see is that the borrower will have an incentive to lie about sales so some close auditing will be required. Bureaucracy won’t be a problem because the cost of administering the scheme can be paid by the borrower with a single fee attached to each loan. The charging of interest on the loan will be unnecessary.
The plan looks like a good one. It has an inbuilt incentive for borrowers not to overstretch themselves and it allows the state to contribute to the wealth creation process without harming the culture of free enterprise and competition.
National Investment will help the manufacturing sector of the British economy without recourse to loans from global banks.
There should be a slight inflationary effect, at least in theory. That’s because new money is brought into circulation before the new products reach the consumer. Money is spent on production first, then there is a delay before the cars in the above example reach the showroom so the money-supply is expanding in front of growth in goods and services. To understand the problem better let’s take a closer look at inflation and monetary policy.
Monetary Policy
As a basic rule of thumb we can say that inflation is caused when the money-supply expands more quickly than the total value of commodities for sale in the marketplace. However, that’s only a rule of thumb. It is not engraved into a Mosaic tablet. The implementation of Maynard Keynes’ theories concerning monetary policy has proven in the past that, during recessions, it is in fact extremely helpful to expand the money-supply more quickly than the total value of commodities and it can be done without causing inflation.
In 1979 Britain and America began an economic experiment called “monetarism” in which the rule was to hold the money-supply steady while allowing other economic factors to adjust themselves around it. In 1982 the Federal Reserve abandoned the experiment and returned to classical Keynesianism to get America out of recession. The result was seven years of growth with low inflation for the US economy. Britain however persisted with the monetarist experiment until 1986. The result was that we suffered a much longer and deeper depression than did America.
Milton Friedman and fellow monetarist economists are now considered by most academics in the field to have been somewhat fraudulent, conveniently ignoring facts which did not fit their theory. Monetarism has been largely discredited and most economists and politicians now hold to the view that Keynes had been right all along.
From which we can conclude that the afore mentioned inflationary pressure of the national investment scheme will not necessarily lead to inflation, especially considering the depressed state of Britain’s domestic economy. Even if it did create some inflation the government or the state bank can withdraw money from circulation by the usual means.
What many people do not realise is that export sales and inward investment contribute to inflation. If the balance of payments are in the black that means the amount of money in the country is expanding in a way which is not directly related to the total value of commodities for sale within the country. That imported money causes inflation is proven. One of the reasons house prices are currently rocketing is that money from foreign property developers and money launderers is entering the domestic housing market and is helping to push prices up.
National Investment Proven To Work
All questions about whether the national investment scheme outlined above will cause inflation are academic. Why? Because it is already being done. It’s happening all around us at this moment. In today’s economic parlance it is known as “inward investment”. In exactly the same way as does national investment, inward investment expands the money-supply in front of growth in goods and services. So, for example, Nissan brings money in from abroad, invests in production and then sells the cars it has made. The only difference between John Tyndall’s proposal and what Nissan is already doing is in the source of the money. In fact, national investment will cause less inflation because the value of unsold produce is withdrawn from circulation. With inward investment it is not.
INWARD INVESTMENT: MONEY NOT PREVIOUSLY CIRCULATING IN THE UK IS INTRODUCED AND INVESTED IN PRODUCTION.
NATIONAL INVESTMENT: MONEY NOT PREVIOUSLY CIRCULATING IN THE UK IS INTRODUCED AND INVESTED IN PRODUCTION.
It makes no odds with the rate of inflation whatsoever whether that money comes from abroad or whether it is printed afresh by bankers. In effect it is the same thing!
Once that fact is realised one experiences a kind of mental liberation from the blinkered arguments of the international free traders. It is the political equivalent of enlightenment. Yes, expanding the money-supply ahead of economic growth is inflationary but it is no more inflationary than what is already happening with inward investment and the balance of payments. The importance of this argument cannot be stressed too greatly because it demolishes the logical basis of international free trade.
It proves that we do not need the investment of international finance and therefore have no need to prostitute our laws and customs to it. Neither do we need its loans. It proves that there is presently a sufficient amount of deflationary pressure in the economy to implement national investment on a large scale without causing inflation – rather than relying on imported money to expand our money-supply we can expand it ourselves by the same amount knowing it will cause no more inflation than already exists. It also proves that, even when a country is dependent on foreign investment for its growth, the terms of the investment are actually dictated by internal conditions, which means that the current subservience of politicians to the diktats of international finance is at best ignorant and at worst fraudulent.
The arguments about protectionism hurting our exports due to retaliation from other countries are superfluous. It will be necessary to reduce our exports in order to make room for national investment. If export sales remain as high as they are their inflationary pressure will be added to the inflationary pressure of our own monetary policy.
The reason inward investment and export sales are not causing inflation (except in the housing market) at the moment is because of the truly depressed state of the economy. The influx of foreign money is actually masking a protracted domestic depression that has held sway since the 1970s. That depression is evidenced in high levels of unemployment and recession in manufacturing. Once full employment is achieved and the depression is ended the inflationary consequences of national investment may be greater.
I hope these comments will be of help to other nationalists in understanding the economic issues involved in extricating this country from the stultifying web of international finance.
Some years ago I came across an article by John Tyndall in which a theoretical means for kick-starting production was discussed. I don’t know if the idea originated with John Tyndall so I will apologize in advance for any misrepresentation. In this essay I wish to explore the idea and put forward an argument in its favour. It goes as follows, though this is not a verbatim quote.
“If a car manufacturer estimates a demand for a thousand new cars (for example) in the near future but cannot afford to make them, the government will print the value of the cars in new money, lend it to the manufacturer and the manufacturer will produce the cars. If all the cars are sold there is no need for the manufacturer to pay back the loan because he has added the value of that money to the economy so that new money must remain in circulation to enable people to afford to buy the cars.”
To give this scheme a name I will hereon refer to it as “national investment”. It will be necessary for the borrower in the above example to repay the value of any unsold cars. This is necessary to avoid inflation. If £10 million is borrowed but only £5 million worth of new cars are sold that’s an excess of £5 million which needs to be withdrawn from circulation. If it is not withdrawn it means that the money-supply has expanded by a larger factor than the total value of goods and services in the country which is inflationary.
Any money returned to the state will have to come out of profits so the borrower has an incentive not to over-borrow. The only drawback I can see is that the borrower will have an incentive to lie about sales so some close auditing will be required. Bureaucracy won’t be a problem because the cost of administering the scheme can be paid by the borrower with a single fee attached to each loan. The charging of interest on the loan will be unnecessary.
The plan looks like a good one. It has an inbuilt incentive for borrowers not to overstretch themselves and it allows the state to contribute to the wealth creation process without harming the culture of free enterprise and competition.
National Investment will help the manufacturing sector of the British economy without recourse to loans from global banks.
There should be a slight inflationary effect, at least in theory. That’s because new money is brought into circulation before the new products reach the consumer. Money is spent on production first, then there is a delay before the cars in the above example reach the showroom so the money-supply is expanding in front of growth in goods and services. To understand the problem better let’s take a closer look at inflation and monetary policy.
Monetary Policy
As a basic rule of thumb we can say that inflation is caused when the money-supply expands more quickly than the total value of commodities for sale in the marketplace. However, that’s only a rule of thumb. It is not engraved into a Mosaic tablet. The implementation of Maynard Keynes’ theories concerning monetary policy has proven in the past that, during recessions, it is in fact extremely helpful to expand the money-supply more quickly than the total value of commodities and it can be done without causing inflation.
In 1979 Britain and America began an economic experiment called “monetarism” in which the rule was to hold the money-supply steady while allowing other economic factors to adjust themselves around it. In 1982 the Federal Reserve abandoned the experiment and returned to classical Keynesianism to get America out of recession. The result was seven years of growth with low inflation for the US economy. Britain however persisted with the monetarist experiment until 1986. The result was that we suffered a much longer and deeper depression than did America.
Milton Friedman and fellow monetarist economists are now considered by most academics in the field to have been somewhat fraudulent, conveniently ignoring facts which did not fit their theory. Monetarism has been largely discredited and most economists and politicians now hold to the view that Keynes had been right all along.
From which we can conclude that the afore mentioned inflationary pressure of the national investment scheme will not necessarily lead to inflation, especially considering the depressed state of Britain’s domestic economy. Even if it did create some inflation the government or the state bank can withdraw money from circulation by the usual means.
What many people do not realise is that export sales and inward investment contribute to inflation. If the balance of payments are in the black that means the amount of money in the country is expanding in a way which is not directly related to the total value of commodities for sale within the country. That imported money causes inflation is proven. One of the reasons house prices are currently rocketing is that money from foreign property developers and money launderers is entering the domestic housing market and is helping to push prices up.
National Investment Proven To Work
All questions about whether the national investment scheme outlined above will cause inflation are academic. Why? Because it is already being done. It’s happening all around us at this moment. In today’s economic parlance it is known as “inward investment”. In exactly the same way as does national investment, inward investment expands the money-supply in front of growth in goods and services. So, for example, Nissan brings money in from abroad, invests in production and then sells the cars it has made. The only difference between John Tyndall’s proposal and what Nissan is already doing is in the source of the money. In fact, national investment will cause less inflation because the value of unsold produce is withdrawn from circulation. With inward investment it is not.
INWARD INVESTMENT: MONEY NOT PREVIOUSLY CIRCULATING IN THE UK IS INTRODUCED AND INVESTED IN PRODUCTION.
NATIONAL INVESTMENT: MONEY NOT PREVIOUSLY CIRCULATING IN THE UK IS INTRODUCED AND INVESTED IN PRODUCTION.
It makes no odds with the rate of inflation whatsoever whether that money comes from abroad or whether it is printed afresh by bankers. In effect it is the same thing!
Once that fact is realised one experiences a kind of mental liberation from the blinkered arguments of the international free traders. It is the political equivalent of enlightenment. Yes, expanding the money-supply ahead of economic growth is inflationary but it is no more inflationary than what is already happening with inward investment and the balance of payments. The importance of this argument cannot be stressed too greatly because it demolishes the logical basis of international free trade.
It proves that we do not need the investment of international finance and therefore have no need to prostitute our laws and customs to it. Neither do we need its loans. It proves that there is presently a sufficient amount of deflationary pressure in the economy to implement national investment on a large scale without causing inflation – rather than relying on imported money to expand our money-supply we can expand it ourselves by the same amount knowing it will cause no more inflation than already exists. It also proves that, even when a country is dependent on foreign investment for its growth, the terms of the investment are actually dictated by internal conditions, which means that the current subservience of politicians to the diktats of international finance is at best ignorant and at worst fraudulent.
The arguments about protectionism hurting our exports due to retaliation from other countries are superfluous. It will be necessary to reduce our exports in order to make room for national investment. If export sales remain as high as they are their inflationary pressure will be added to the inflationary pressure of our own monetary policy.
The reason inward investment and export sales are not causing inflation (except in the housing market) at the moment is because of the truly depressed state of the economy. The influx of foreign money is actually masking a protracted domestic depression that has held sway since the 1970s. That depression is evidenced in high levels of unemployment and recession in manufacturing. Once full employment is achieved and the depression is ended the inflationary consequences of national investment may be greater.
Patrick Cannell
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