Top economist Werner’s message to No. 10 Downing Street

Professor Richard Werner, Chair of International Banking at Southampton University supports the e-petition to Prime Minister Gordon Brown (to access it click here) that relies on neither taxing citizens, nor raising more government debt, to fund a new fast broadband infrastructure for the UK.

Werner says: ‘Infrastructure investments by the government, funded through money creation either by the government or the central bank, in areas that clearly enhance productivity are a good way to kick-start productive credit creation and expand the money supply in a non-inflationary way, especially at a time when it is stagnating’.

He explains: ‘The theory of productive credit creation indicates that the creation of new purchasing power ('money creation') for the purpose of implementing productive activities, i.e. investments leading to the creation of new goods, services and productivity-enhancing infrastructure etc., will be non-inflationary.

The 1970s have shown the dangers of unproductive credit creation in the form of consumptive credit creation (expanding purchasing power not linked to new investments and expansion of productive capacity, but mainly consumption).

The current financial crisis has shown once again the dangers of unproductive credit creation in the form of speculative credit creation (expanding purchasing power primarily for use in financial transactions). This can be identified by whether transactions are part of GDP or not (financial transactions are not), as expounded in the disaggregated quantity equation (Werner, New Paradigm in Macroeconomics, Palgrave Macmillan, 2005).

What is needed for sustainable and stable economic growth is to link money creation to productive activities. These can be undertaken both by the private sector and the government’.