post-autistic economics review
Issue no. 39, 1 October 2006
article 6



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Keynes Without Debt

Ron Morrison   (UK)


            As the power of 'free market' Capitalism – or more precisely, the power of money, takes even deeper root in our 21st century, so also does the human vice of greed undermine our societies.  Where once there were standards of behaviour and conduct whereby the democratic process would maintain some crude balance between self-interest and social responsibility, now our governments, ably abetted by a burgeoning 'middle class' seem intent upon dividing the world into 'haves' with even more and 'have-nots' with ever less.  Such injustice is the fellow traveller of discontent, generating terrorism and disruption. 


            The challenge is to humanise the present style of capitalist system.  We must recognise the social cost – not only in the obvious sense of the have-nots becoming poorer, but also the ever higher price being paid by the haves in terms of their own much vaunted lifestyles.  If the wider infrastructure of society continues to deteriorate, there will be no green and pleasant environment to enjoy.


            To this end there exists a practical and specific proposal to consider, which might be called Keynes without Debt.  It embraces the economic principles of John Maynard Keynes.  Currently unfashionable in the rarefied atmosphere of the neo-classical academicians who espouse the euphemistically styled free market, it was Keynesian principles which pulled the West out of the depression of the thirties and which helped Europe recover from the ravages of WW2.


            As war developed into peace and the targets of full employment were achieved, so also began to grow once again the power of money.  In the 1980's a new economic theory developed –  that of deregulating the money business in the expectation that the market place would produce economic equilibrium.  Much faith was invested in Adam Smith's 'invisible hand' - a much misquoted euphemism of the 'I'm alright Jack' fraternity.   Hypnotised by this delightful simplicity, and encouraged by a body of bankers and financiers who were obviously extremely influential and financially successful, the politicians of the era – principally Thatcher and Reagan – committed the West to a world run by money as the prime mover of all other policy.


            Not everyone was convinced of the long term effects of this, but the money lobby condemned spiralling taxation and the cost of government borrowing as becoming unsustainable and out of hand.  The pro Keynes lobby were unable to  marshal a counter argument - it was perfectly true that debt – both personal and National, was indeed beginning to spiral and Keynes' theories had never really got  to grips with the role of the money system in the economic drama.


            Keynes eschewed abstract mathematical theories based on apocryphal assumptions.  He produced more practical theories than any of his fellow economists and he dealt with the real world and its problems.  He firmly believed that government's job was to intervene where the free market broke down in social terms. However, he never really got down to the nitty-grittys of the money system - government remained obliged to borrow from the banking system in order to intervene effectively; and this implied increased taxation or an escalating National Debt.


            Of course Keynes' General Theory was published in 1936 when currencies were still linked to the Gold Standard - indeed  the US dollar was still linked to gold up until the early seventies.  Keynes died in 1946, long  before 100% fiat1 currencies became the norm.  At that time half the money supply in the UK was spent into existence debt free by the state and the other half was chequebook credit. It is not therefore altogether surprising that he felt constrained by traditional monetary theory and found it hard to look beyond bank borrowing to finance public expenditure. The concept of Keynes without Debt addresses our current domestic crisis of rescuing our obsolete Public Services without increasing taxation or cranking up the National Debt.


            Now, fifty yeas on, bank credit supplies virtually all our everyday means of exchange, and this brings into sharp focus the simple fact that modern money is no longer constrained by outmoded intrinsic values.  It is pure fiat and simply a glorified accounting system.  Keynes did see money in this light when he conceived his International Payments Union (Bancor).  Very briefly this was an international currency unit to be administered by the UN whereby all countries were encouraged to maintain a balance of payments and avoid excessive debt.  Countries in surplus saw their balances reduced by the application of negative interest and those in debt had to pay interest or devalue.


            Unfortunately for the developing world the Americans dominated the post war Bretton Woods Conference and were not prepared to permit the mighty dollar to play second fiddle to anyone or anything – no matter how good the logic.  Even then they knew that whoever controlled the world's currencies also controlled the political power.  However, the detail is not the point here, what is important is the principle – that money is now an accounting system which can be administered in such a manner as to optimise a declared objective.


            Modern monetary reform is about displacing the current economic paradigm of 'what can be afforded' with 'what we have the capacity to undertake'. It is a unique situation that for governments  the term 'affordability' in terms of money is a non word.  All new money emanates from government either as cash or as credit authorised under the Banking Acts. The value of the money in our pockets and bank accounts is a function of good government acting responsibly to maintain its value.  Nonetheless, the financial establishment (now over a quarter of the UK GDP)2 reckons that it knows best how much our government can afford to spend on public services and infrastructure. 


            Governments have issued debt free finance for donkeys years and spent it into circulation interest free.  It can be done again, given the political will. The evolution of credit this past fifty years has expelled this source and replaced our means of exchange with private, interest bearing debt. If government can issue Gilts and Bonds they can issue credit to finance the rebuilding of creaking national infrastructures.  When government once again shares the money supply 50/50 with the banks we can reduce the tax burden and finance needed public services.  Nowadays  Wall Street and roads in London’s City are not paved with gold but with paper and computer chips.  The money supply is all to do with business and maximising shareholder value – nothing to do with benefiting the community. It is the road out of a mixed economy into a frightening new world order where money buys power, both political and military.  We need an alternative route.  It's sign posted - Keynes Without Debt.





1. Money declared as legal tender but without intrinsic value or backed by reserves.


2. Financial Intermediaries – enterprises holding other people's money to make loans – were 27.6% of GDP in 1998.  Abstract of National Statistics.




Ron Morrison, “Keynes without Debt”,
post-autistic economics review, issue  no. 39, 1 October 2006, article 6, pp. 51-53,