Reading Chris Bowers’ recent Yorkist post, I thought it to be an excellently optimistic paper – the diagram grouping the Liberal Democrats in the Progressive Left, Anti-System group is very persuasive.

The idea of promoting a Keynesian economic philosophy is brilliant and needs to challenge the current economic orthodoxy.

The final paragraph on page 22 of The New Deal reads:

The Lib Dems need to be unashamedly Keynesian in their approach to the 2029 election. This will not be an easy task, as it means challenging the orthodoxy that has taken root in both the Treasury and the Bank of England. It will also involve strengthening provision for national well-being so it cannot be sacrificed at the altar of shareholder dividends – it will mean companies will have to fulfil certain social and environmental responsibilities before they make payouts to shareholders.

Keynes famously said “Anything we can actually do, we can afford.”

He delivered this famous line during a BBC Radio Address on April 2, 1942, which was subsequently published in The Listener and later collected in his Collected Works (Volume XXVII) under the title “How Much Does Finance Matter?”

The context behind the quote

At the time of the broadcast, Britain was deep in the Second World War, and people were beginning to look ahead to post-war reconstruction. Many were anxious about how the country could possibly fund rebuilding its cities, expanding education, and establishing what would become the welfare state, given the massive national debts piled up during the war.

Keynes used this phrase to tackle the “nightmare of finance” head-on. He argued that the true constraint on an economy isn’t an arbitrary ledger of money, but rather real, physical resources: available labor, skills, energy, and materials.

In the same address, he expanded on this idea by urging people not to think merely in terms of “pounds, shillings, and pence,” writing:

Let us not submit to the vile doctrine of the nineteenth century that every enterprise must justify itself in pounds, shillings and pence of cash income… Assuredly we can afford this and so much more. Anything we can actually do we can afford. Once done, it is there. Nothing can take it from us.

His core point was that if a nation has the physical capacity, the idle hands, and the raw materials to build houses, hospitals, or infrastructure, the monetary system can—and should—be orchestrated to mobilise those resources. The primary financial risk to manage isn’t running out of money, but rather preventing inflation by ensuring total demand doesn’t outstrip that physical capacity to supply.

Keynes also understood, what the Bank of England finally publicly acknowledged in 2014 in a paper, “Money creation in the modern economy”, that banks create new money when they make loans and the repayment of loans destroys money.

The opening synopsis of that Bank of England paper starts:

This article explains how the majority of money in the modern economy is created by commercial banks making loans. Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.

So, when developing and promoting an economic policy, let’s view the current monetary system through the eyes of Keynes if he were here today.

The government creates money when it spends, and taxation destroys it. That means that the government spends before it taxes. It does not tax and spend.

Commercial banks create money when they make loans, and money is destroyed when loans are repaid.

This is not to imply that there is a magic money tree, but when looking at the management of the economy it is all about resources and how best to use them.

Credit guidance of what banks create money should be a key policy. Currently fifty percent of the money created by banks goes into property investment, mostly second hand property, inflating existing assets rather than supporting the real productive economy.

And when looking at debt, we should look carefully at the other side of the balance sheet at who is holding the debt.

Keynes would support all of that.

* David Moon is a Liberal Democrat member from Dorchester.