As part of its response to the coronavirus pandemic, the Australian government has promised, and is in the process of implementing, a complicated stimulus package that apparently totals 320 billion dollars when all is said and done.[1] A large part of this package involves a 130 billion dollar JobKeeper programme. This will be added to an enhanced NewStart programme for the unemployed (which will be renamed JobSeeker and include a fortnightly ‘coronavirus supplement’), amongst other stimuli. Together, the already unemployed, the newly unemployed, those working less, those on pensions, those receiving other benefits, sole traders, small businesses, and medium size businesses will all receive financial support over the next few months to help get them through this rough patch.

   So far so good, however … as many fiscal conservatives everywhere will be asking themselves: “but where is the money to come from?” Within the context of conventional finance, it would appear that the money will have to come from some form of borrowing, either via the commercial banks directly or via the Central or Reserve Bank through the purchase of government securities. The money spent will thus be added to the National Debt of Australia and those debts (plus associated interest) will have to be redeemed from future taxation (which will no doubt be raised to accommodate the increases) as they come due, or else they will have to be refinanced. Besides the anticipated tax burden, ballooning financial debt and the requirements of servicing it may have inflationary effects in the form of cost-push inflation.  The way in which global bond markets and credit rating agencies may react to rising National Debt to GDP ratios may also be of concern. Finally, as Tim Di Muzio has argued in a recent paper, there is the danger that what is seen as profligate government spending may only lay the groundwork for a future wave of neo-liberal austerity, the selling of public assets, and so forth.[2]

     But what if there is another way by means of which Australia could fund the stimulus package without driving up the National Debt? What if the stimulus money, something which both the economy as a whole and individual consumers desperately need, could be issued not as a debt, but as a ‘debt-free’ credit, or, in other words, as money that never need to be repaid by its recipients to the issuer, in this case, to the government viafuture taxes? This would obviously provide the benefit without imposing the disadvantages associated with increased debt.

     Some might respond that any such debt-free stimulus would be inherently inflationary and thus best avoided. But is that true? According to the Social Credit analysis of the famous British Engineer C.H. Douglas (1879-1952), it is possible to inject additional money as a ‘debt-free’ credit into consumers’ pockets without automatically engendering demand-pull inflation. Douglas’ confidence is based fundamentally on the observation that there is, on account of current financial and cost accountancy conventions, an underlying lack or deficiency of consumer buying power in the form of incomes relative to the costs and prices that are being generated by the same productive cycle. In a word, there is a gap between the flow of costs/prices and the flow of incomes which emerges from the regular operation of the economy under existing financial conventions. So long as one does not overshoot that gap in attempting to fill it with too many new ‘debt-free’ credits, and so long as the banks’ power to monetize the gap by creating new money for consumer loans is duly regulated, any such injection would not result in demand-pull inflation or ‘too much money chasing too few goods’. Furthermore, when the additional consumer income is spent on goods and services by consumers, the money will be destroyed in the repayment of producer loans to the banking system or be used to restock the working capital of recipient firms (from whose accounts it could only ever be issued alongside a new set of costs). There is no danger that it might ‘pile up’.

   There are a number of ways in which the associated accounting might be managed. One approach, in line with Douglas’ recognition of the existence of an underlying price-income gap, would be to regard the unsold or rather unsellable inventories as assets against which no consumer income has been automatically distributed. These assets could appear in a National Profit and Loss Account and against those assets additional money could be created as liabilities by the Reserve Bank. The distribution of these liabilities for the sake, for example, of financing a Coronavirus Stimulus package could then be undertaken … without incurring any additional debt to the nation. Any compensatory monies that might be left over could then be used to fund an initial National Dividend, or a direct payment to each citizen independently of employment status (kind of like a universal basic income). This would constitute a recognition that all Australians are shareholders in the national economy and are entitled, as by right, to an individual share in the collective ‘profit’ as measured in a National Profit & Loss Account (i.e., the surplus of goods and services that are being made available over and against the incomes simultaneously being distributed as wages, salaries, and business profits). As the National Profit and Loss is a dynamic thing, the costs/prices tally and the newly created money that must be made available to balance the accounts would have to be periodically updated.

     The only other precaution about funding a stimulus package in this manner would be that the capacity of the banks to create new money for consumption loans (and perhaps even for excessive production or investment purposes when things get back to ‘normal’) would have to be monitored, regulated, and probably eventually eliminated (especially if a monetary as opposed to a fiscal UBI, aka, a National Dividend, should become the new normal). This would be to ensure that the ‘debt-free’ credits do not provide an additional incentive for the banks to create what could easily become superfluous consumer debt-money against them. Any such excess of private money or debt-money once the supplementary debt-free consumer credits have been issued could contribute to demand-pull inflation, especially in a locked down Coronavirus economy which is not firing its productive capacity ‘on all cylinders’, as it were. Under this set up, one of the most important tasks of the Reserve Bank would be to ensure, through its money creation powers, that consumers are, as an aggregate, sufficiently enfranchised with real income in every economic period to clear the markets of the available flow of desired goods and services (and without, therefore, having to incur any additional debts to the banking system).

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[1] https://treasury.gov.au/sites/default/files/2020-03/Overview-Economic_Response_to_the_Coronavirus_2.pdf

[2] Cf. https://www.socred.org/s-c-action/social-credit-views/covid-19-capitalism-neoliberal-debt-the-need-for-sovereign-money