Tuesday, November 05, 2013

The State as Entrepreneur - funded by its own money creation

Ruth Benerito, a New Orleans chemist has just died aged 97 and her obituary in The Times 4 Nov 2013 bears witness to Prof Mariana Mazzucato's examination of the State as Entrepreneur and Innovator (see this blog Nov 1; Aug 24; Aug 6). In contrast to MM who showes how modern technology broke through the barrier of experimentation failure through access to a generous state budget, Benerito researched established industries and developed new technology to win similar breakthroughs. She worked in the US cotton industry in the 1950's and made cotton wrinkle-free and fire-retardant  and eventually held more than 50 patents in paper, wood, detergents and ceramics. She had worked in a government laboratory and an earlier success there was how to feed wounded soldiers intravenously. 

Just as Mazzucato has found in more recent decades, Benerito said:
'The 1950's was the golden age of science when [the government] put a lot of money into science because we were competing with Sputnik, it was a good time to be in science.' 

But cuts in government spending being a major political theme today, what hope is there? However as Mazzucato has it  (p18 of her book The Entrepreneurial State):

'Spending on useless paperwork, or kickbacks, is surely not the same thing as making a healthcare system more functional and efficient, or spending on top-quality education or ground breaking research that can fuel human capital formation and future technologies. Indeed, the variables that economists have found to be important for growth - such as education and research and development - are expensive.... the more we talk down the State's role in the economy the less able we are to up its game and make it a relevant player...' 

Her insights on the role of the State as Entrepreneur and Innovator are indeed groundbreaking to modern minds. But her acceptance that this needs to be 'expensive'  is entirely conventional. The traditional way to source the supply of money needed for the costs of State Entrepreneurial activity is only made expensive through money creation via debt issued by private banks. The alternative comes from Prof Richard Werner, who whilst agreeing that raising money as debt is indeed expensive - it leads to taxes to pay the compounding interest - says:

'But you could cut all that out if your had the government creating and allocating money through fiscal spending - government spending. The government can spend money into circulation, money that it has issued.'   
See his short YouTube interview on the subject: Debt Free and Interest Free Money 

Lord Adair Turner also highlights the role of credit creation in an economy see here.
posted by Charles Bazlinton. The Free Lunch - Fairness with Freedom 


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